Borland Software DEF 14A 2008
Securities and Exchange Commission
Washington, D.C. 20549
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:
Borland Software Corporation
(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):
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
WHAT: Our 2008 Annual Meeting of Stockholders
WHEN: Wednesday, May 28, 2008, at 10:00 a.m., local time
WHERE: Borland Software Corporation
The Boardroom, Suite B-121
8303 N. MoPac Expressway
Austin, Texas 78759
WHY: At this meeting, you will be asked to:
A complete list of stockholders entitled to vote at the meeting will be open for examination by our stockholders, during regular business hours, for a period of ten days prior to the meeting, at 8303 N. MoPac Expressway, Suite A-300, Austin, TX 78759. Only stockholders of record at the close of business on April 4, 2008 will receive notice of, and be eligible to vote at, the Annual Meeting or any adjournment thereof. The foregoing items of business are more fully described in the proxy statement accompanying this notice.
Your vote is important. Please read the proxy statement and the voting instructions on the enclosed proxy card. Then, whether or not you plan to attend the Annual Meeting in person, and no matter how many shares you own, please sign, date and promptly return the enclosed proxy card in the enclosed envelope, which requires no additional postage if mailed in the United States. You may also authorize the individuals named on the enclosed proxy to vote your shares by telephone or via the Internet by following the instructions on your proxy card. These telephone and Internet voting procedures are designed to authenticate your vote and to confirm that your voting instructions are followed. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the meeting, you must obtain a proxy issued in your name from that record holder.
To reduce the expense of delivering duplicate voting materials to our stockholders who may have more than one Borland stock account, we are delivering only one set of the proxy statement and the Annual Report to Stockholders for the fiscal year ended December 31, 2007 to certain stockholders who share an address, unless otherwise requested. A separate proxy card is included in the voting materials for each of these stockholders. If your shares are registered directly in your name and you share an address with another stockholder and have received only one set of voting materials, but you would prefer to receive your own copy, please contact Georgeson Inc. by telephone at 1-800-501-4524 or by mail at 199 Water Street, New York, NY 10038, or alternatively, please contact Borland Investor Relations by telephone at 408-863-2917 or by mail at 8303 N. MoPac Expressway, Suite A-300, Austin, TX 78759. If your shares were held in an account at a bank, brokerage firm, or other agent or nominee and you have received only one set of voting materials, but you would prefer to receive your own copy, please contact your bank, broker or agent.
By Order of the Board of Directors,
Gregory J. Wrenn
Senior Vice President, General Counsel and
April 17, 2008
BORLAND SOFTWARE CORPORATION
8303 N. MoPac Expressway, Suite A-300
Austin, TX 78759
FOR THE ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 28, 2008
INFORMATION CONCERNING SOLICITATION AND VOTING
The Board of Directors of Borland Software Corporation, a Delaware corporation, seeks your proxy for use in voting at our 2008 Annual Meeting of Stockholders (the Annual Meeting) or at any postponements or adjournments of the Annual Meeting. Our Annual Meeting will be held in the Boardroom, located in Suite B-121, 8303 N. MoPac Expressway, Austin, Texas 78759, on Wednesday, May 28, 2008 at 10:00 a.m., local time. We intend to begin mailing this proxy statement, the attached notice of Annual Meeting and the accompanying proxy card on or about April 21, 2008 to all record holders of our common stock, par value $0.01, entitled to vote at the Annual Meeting. Along with this proxy statement, we are also sending our Annual Report on Form 10-K to stockholders for the fiscal year ended December 31, 2007 (the Annual Report).
At the Annual Meeting, stockholders will act upon the:
(1) Approve a Proposal to Provide the Board of Directors with Discretion to Effect a Reverse Stock Split;
(2) Elect seven (7) directors for one year and until their respective successors have been elected and qualified;
(3) Ratify the selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008; and
(4) Transact any other business as may properly come before the Annual Meeting of Stockholders or any adjournments or postponements of the Annual Meeting of Stockholders.
Only holders of record of our common stock at the close of business on April 4, 2008, the record date, will receive notice of, and be entitled to vote at, our Annual Meeting. At the close of business on the record date, 72,960,607 shares of our common stock were outstanding and entitled to vote. Our common stock is our only class of outstanding voting securities.
If, on April 4, 2008, your shares were registered directly in your name with our transfer agent, Mellon Investor Services LLC, then you are a stockholder of record. As a stockholder of record, you may vote in person at the meeting or vote by proxy. Whether or not you plan to attend the meeting, we urge you to sign, date and return the enclosed proxy card to ensure your vote is counted. You may also vote by telephone, by calling the phone number on your proxy card and following the instructions, or via the Internet by accessing the web address indicated on your proxy card and following the instructions.
By casting your vote in any of the three ways listed above, you are authorizing the individuals listed on the proxy card to vote your shares in accordance with your instructions.
If, on April 4, 2008, your shares were held, not in your name, but rather in an account at a bank, brokerage firm, or other agent or nominee, then you are the beneficial owner of shares held in street name and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct your bank, broker or other agent or nominee 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 power of attorney or other proxy authority from your bank, broker or other agent or nominee, and bring it to our Annual Meeting.
A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if at least a majority of the outstanding shares are represented by stockholders present at the meeting or by proxy. On the record date, there were 72,960,607 shares outstanding and entitled to vote. Thus, at least 36,480,304 shares must be represented by stockholders present at the meeting or by proxy to have a quorum.
Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you vote in person at the meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, a majority of the votes present at the meeting may adjourn the meeting to another date.
In deciding all matters, a holder of common stock on the record date will be entitled to cast one vote for each share of common stock registered in that holders name, on each matter to be voted upon at the Annual Meeting.
Votes will be counted by the inspector of election appointed for the Annual Meeting, who will separately count For votes, Against votes, abstentions, withheld votes and broker non-votes. Votes withheld and abstentions are deemed as present at the Annual Meeting and are counted for quorum purposes.
A broker non-vote is when a broker votes in its discretion on one or more routine matters, but does not receive instructions from a beneficial owner of shares as to how to vote those shares on non-routine matters. Broker non-votes will be counted for purposes of a quorum. Brokers will not have discretion to vote on the proposal to provide the Board with the discretion to effect a reverse stock split. This means that if you hold your shares through a broker, bank or other nominee, and do not provide voting instructions by the tenth day before the Annual Meeting, the broker, bank or other nominee will have the discretion to vote your shares on the proposals for the election of directors and the ratification of auditors.
If your shares are held by your broker as your nominee (that is, in street name), you will need to obtain a proxy card from the institution that holds your shares and follow the instructions included on that form regarding how to vote your shares. If your broker does not receive instructions as to how to vote those shares on a proposal and does not have discretionary authority to vote on such proposal under the rules of the Nasdaq Stock Market, then the shares held by such owner will be deemed present at the meeting for quorum purposes but will not be deemed to have voted on such proposal; accordingly, these shares will have no effect on the outcome of any given proposal on which they are deemed not voted.
Proposal No. 1, to permit a reverse stock split, must receive a For vote by the majority of the shares of our common stock outstanding and entitled to vote. Abstentions and broker non-votes will not be voted, although they
will be counted in determining whether a quorum is present and will have the same effect as a vote against the proposal.
Proposal No. 2, the election of seven directors, requires a plurality of the votes cast to elect a director. The seven nominees receiving the most For votes (among votes properly cast in person or by proxy) will be elected. Only votes For will affect the outcome. Withheld votes or broker non-votes, will not affect the outcome of the vote on Proposal No. 2.
Proposal No. 3, the ratification of our independent registered public accounting firm, which will ratify KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2008, must receive a For vote by the majority of shares present or represented by proxy and entitled to vote. Abstentions will have the same effect as votes against the proposal. Broker non-votes will have no effect on the outcome of the vote.
We are soliciting the proxies and will bear the entire cost of this solicitation, including the preparation, assembly, printing and mailing of this proxy statement and any additional materials furnished to our stockholders. Copies of solicitation material will be furnished to banks, brokerage houses and other agents holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to these beneficial owners. In addition, if asked, we will reimburse these persons for their reasonable expenses in forwarding the solicitation material to the beneficial owners. We have requested banks, brokerage houses and other custodians, nominees and fiduciaries to forward all solicitation materials to the beneficial owners of the shares they hold of record. The original solicitation of proxies by mail may be supplemented by telephone, fax, Internet and personal solicitation by our directors, officers or other employees or contractors. Directors, officers and employees or contractors will not be paid any additional compensation for soliciting proxies. We have retained Georgeson Inc. to assist us in the solicitation of proxies for approximately $9,000 plus out of pocket expenses.
If you are a stockholder of record, you can attend the Annual Meeting and vote in person the shares you hold directly in your name on any matters properly brought before the Annual Meeting. If you choose to do that, please bring the enclosed proxy card or proof of identification. If you want to vote in person at our Annual Meeting and you hold our common stock through a bank, broker or other agent or nominee, you must obtain a power of attorney or other proxy authority from that organization and bring it to our Annual Meeting. Follow the instructions from your bank, broker or other agent or nominee included with these proxy materials, or contact your bank, broker or other agent or nominee to request a power of attorney or other proxy authority. If you vote in person at the Annual Meeting, you will revoke any prior proxy you may have submitted.
Stockholders of record who do not attend the Annual Meeting may vote by mail: Please sign, date and return the enclosed proxy card in the enclosed postage-paid return envelope. You may also vote by telephone, by calling the phone number on your proxy card and following the instructions, or via the Internet by accessing the web address indicated on your proxy card and following the instructions.
By casting your vote in any of these ways, you are authorizing the individuals listed on the proxy card to vote your shares in accordance with your instructions.
If you are a beneficial owner of shares registered in the name of your bank, broker or other agent or nominee, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from us. Simply complete and mail the proxy card to ensure that your vote is counted. If you did not receive a proxy card, please follow the instructions from your bank, broker or other agent or nominee included with these proxy materials, or contact your bank, broker or other agent or nominee to request a proxy card.
If you return a signed and dated proxy card without marking any voting selections, your shares will be voted as follows:
(1) FOR the Proposal to Provide the Board of Directors with Discretion to Effect a Reverse Stock Split;
(2) FOR the election of the seven nominees for director proposed by the Board of Directors;
(3) FOR the ratification of the selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008.
If any other matter is properly presented at the meeting, the individuals named on your proxy card will vote your shares using their best judgment.
If you receive more than one proxy card from us or your bank, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.
HAS THE BOARD OF DIRECTORS MADE A RECOMMENDATION REGARDING THE MATTERS TO BE ACTED UPON AT THE ANNUAL MEETING?
Our Board of Directors recommends that you cast your vote as follows:
(1) FOR the Proposal to Provide the Board of Directors with Discretion to Effect a Reverse Stock Split;
(2) FOR the election of the seven nominees for director proposed by the Board of Directors;
(3) FOR the ratification of the selection of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2008.
Yes. You may revoke your proxy by doing any of the following:
(1) You may send a written notice that you are revoking your proxy to our Corporate Secretary at the address indicated below prior to the Annual Meeting.
(2) You may submit another properly completed proxy card with a later date, so long as it is received prior to the Annual Meeting.
(3) You may attend the Annual Meeting and vote in person. Simply attending the meeting will not, by itself, revoke your proxy.
Any written notice of revocation, or later dated proxy, should be delivered to:
Borland Software Corporation
8303 N. MoPac Expressway, Suite A-300
Austin, TX 78759
Attention: Gregory J. Wrenn, Corporate Secretary
If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank.
Preliminary voting results will be announced at the Annual Meeting. Final voting results will be published in our quarterly report on Form 10-Q for the second quarter of 2008.
If you have any questions or need assistance in voting your shares, please contact:
199 Water Street
New York, New York 10038
Banks and Brokers Call: (212) 440-9800
All Others Call Toll Free: (800) 501-4524
PROPOSAL NO. 1
APPROVAL OF AMENDMENT TO THE COMPANYS CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT
The Board is recommending that the stockholders authorize our Board of Directors to effect a reverse stock split of our outstanding shares of Common Stock at a ratio within a range of one-for-two (1:2) to one-for-five (1:5). If this proposal is approved, the Board or a committee of outside directors expressly authorized by the Board (Committee) will have the authority to decide, within twelve (12) months from the Annual Meeting, whether to implement the reverse split and the exact amount of the split within this range, if it is to be implemented. If the Board or the Committee decides to implement the split, it will become effective upon the filing of the amendment to our certificate of incorporation with the Secretary of State of the State of Delaware (the Effective Date). If the reverse split is implemented, the number of issued and outstanding shares of Common Stock would be reduced in accordance with the exchange ratio selected by the Board or committee. The total number of authorized shares would remain unchanged at the current total of 201,000,000, consisting of 200,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. The form of amendment to our certificate of incorporation to effect the reverse split is attached as Annex A to this proxy statement.
The Boards primary objective in proposing the reverse stock split is to raise the per share trading price of our Common Stock. We believe that an increased stock price may encourage investor interest and improve the marketability of the Companys Common Stock to a broader range of investors, and thus improve liquidity. Because of the trading volatility often associated with low-priced stocks, many brokerage firms and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. It is also a factor that most brokerage houses do not permit or favor lower-priced stocks to be used as collateral for margin accounts for retail investors. The brokerage commissions on the purchase or sale of lower priced stocks may also represent a higher percentage of the price than the brokerage commission on higher priced stocks. We believe that the anticipated higher market price resulting from a reverse stock split would enable institutional investors and brokerage firms with policies and practices such as those described above to invest in the Companys Common Stock. Further, increasing the per share trading price of our Common Stock would also help ensure the price remains above the minimum one-dollar bid price required by Nasdaq Marketplace Rule 4450.
The purpose of seeking stockholder approval of a range of exchange ratios from 1:2 to 1:5, rather than a fixed exchange ratio, is to provide the Company with the flexibility to achieve the desired results of the reverse stock split based on the circumstances. If the stockholders approve this proposal, the Board or Committee would effect a reverse stock split only upon the Board or Committees determination that a reverse stock split would be in the best interests of the Company at that time. If the Board were to effect a reverse stock split, the Board would set the timing for such a split and select the specific ratio within the range of 1:2 to 1:5. No further action on the part of stockholders would be required to either implement or abandon the reverse stock split if this proposal is approved. If the stockholders approve the proposal, and the Board or Committee determines to effect the reverse stock split, we would communicate to the public, prior to the Effective Date, additional details regarding the reverse split, including the specific ratio selected by the Board or committee. If the Board or a committee of the Board does not implement the reverse stock split within twelve (12) months from the Annual Meeting, the authority granted in this proposal to implement the reverse stock split will terminate automatically. The Board reserves the right to elect not
to proceed with the reverse stock split if it determines, in its sole discretion, that it is not in the best interests of the Company at that time.
The Board believes that the reverse split will increase the nominal price level of our Common Stock. The Board cannot predict, however, the precise effect of the reverse split upon the market price for the Common Stock, and the history of similar reverse stock splits for companies in like circumstances is varied. The market price per share of Common Stock after the reverse split may not rise in proportion to the reduction in the number of shares of Common Stock outstanding resulting from the reverse split, which would reduce our market capitalization. The market price per post-reverse split share may not remain at a level higher than it was pre-reverse split and the price may also vary based on our performance and other factors.
The reverse split will affect all of our stockholders uniformly and will not affect any stockholders percentage ownership interests or proportionate voting power, except to the extent that the reverse split results in any of stockholders owning a fractional share. In lieu of issuing fractional shares, the Company may either (i) directly pay each stockholder who would otherwise have been entitled to a fraction of a share an amount in cash equal to the closing sale price of the Common Stock, as quoted on Nasdaq on the Effective Date, multiplied by the fractional share amount, or (ii) make arrangements with the Companys transfer agent or exchange agent to aggregate all fractional shares otherwise issuable in the reverse stock split and sell these whole shares as soon as possible after the Effective Date at then prevailing market prices on the open market on behalf of those holders, and then pay each such holder his, her or its pro rata potion of the sale proceeds.
The principal effects of the reverse split will be that (i) the number of shares of Common Stock issued and outstanding will be reduced from approximately 72,960,607 million shares as of April 4, 2008 to a range of 36,480,304 million to 14,592,121 million shares, depending on the exact split ratio chosen by the Board or a committee of the Board, (ii) the conversion ratio for all outstanding shares of the Preferred Stock will be adjusted such that the number of shares of Common Stock issuable upon the conversion of the Preferred Stock will be reduced to one-half to one-fifth of the number of shares of Common Stock that were issuable upon conversion of the Preferred Stock immediately before the Effective Date, (iii) all outstanding options entitling the holders thereof to purchase shares of Common Stock will enable such holders to purchase, upon exercise of their options, one-half to one-fifth of the number of shares of Common Stock which such holders would have been able to purchase upon exercise of their options or warrants immediately preceding the reverse split, at an exercise price equal to two to five times the exercise price specified before the reverse split, resulting in the same aggregate price being required to be paid upon exercise thereof immediately preceding the reverse split, (iv) the number of shares reserved for issuance pursuant to the Companys stock incentive plans and 1999 Employee Stock Purchase Plan will be reduced to one-half to one-fifth of the number of shares currently included in each such plan; and (v) the number of shares that may be issued upon the exercise of conversion rights by holders of our Convertible Senior Notes issued in February 2007 will be reduced to one-half to one-fifth of the number of shares which are currently reserved for issuance under such notes.
The reverse split will not affect the par value of the Common Stock. As a result, on the effective date of the reverse split, the stated capital on the Companys balance sheet attributable to the Common Stock will be reduced to one-half to one-fifth of its present amount, depending on the exact amount of the split, and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced. The per share net income or loss and net book value of the Common Stock will be retroactively increased for each period because there will be fewer shares of Common Stock outstanding.
The amendment to the Certificate of Incorporation will not change the terms of the Common Stock. After the reverse split, the shares of common stock will have the same voting rights and rights to dividends and distributions and will be identical in all other respects to the Common Stock now authorized. Each stockholders percentage ownership of the new Common Stock will not be altered except for the effect of eliminating fractional shares. The Common Stock issued pursuant to the reverse split will remain fully paid and non-assessable. The reverse split is not intended as, and will not have the effect of, a going private transaction covered by Rule 13e-3 under the Securities Exchange Act of 1934. Following the reverse split, the Company will continue to be subject to the periodic reporting requirements of the Securities Exchange Act of 1934.
The reverse split will not change the terms of the Preferred Stock, none of which are outstanding, except that the conversion ratio for all outstanding shares of the Preferred Stock will be adjusted upon the Effective Date, such that the number of shares of Common Stock issuable upon the conversion of the Preferred Stock will be reduced to one-half to one-fifth of the number of shares of Common Stock that were issuable upon conversion of the Preferred Stock immediately before the Effective Date.
Because we will not reduce the number of authorized shares of Common Stock, the overall effect will be an increase in authorized but unissued shares of Common Stock as a result of the reverse stock split. These shares may be issued at the Boards discretion. We have no present plans, proposals or arrangements for such authorized but unissued shares of Common Stock. Any future issuances will have the effect of diluting the percentage of stock ownership and voting rights of the holders of Common Stock.
Securities and Exchange Act Release No. 34-15230 requires disclosure and discussion of the effects of any proposal that may be used as an anti-takeover device. The primary purpose of the reverse stock split is to provide the Board with a mechanism to raise the per share trading price of our Common Stock in order to improve liquidity and to help ensure that the price remains above the minimum one-dollar bid price required by Nasdaq Marketplace Rule 4450. While it may be possible that the additional authorized and unissued shares could be used by the Board to resist a takeover action, we are not aware of any such efforts and have no present plans to use such shares for any anti-takeover proposal or mechanism. In addition, we currently have no plans or proposals to adopt other provisions or enter into other arrangements that may have anti-takeover ramifications.
The reverse stock split would result in some stockholders owning odd-lots of less than 100 shares of our Common Stock. Brokerage commissions and other costs of transactions in odd-lots are generally higher than the costs of transactions in round-lots of even multiples of 100 shares.
If the reverse split is approved by our stockholders, and the Board or Committee determines it is in the best interests of the Company to effect the split, the reverse stock split would become effective at such time as the amendment to the Companys Certificate of Incorporation, the form of which is attached as Annex A to this proxy statement, is filed with the Secretary of State of the State of Delaware. Upon the filing of the amendment, all of the Companys existing Common Stock will be converted into new Common Stock as set forth in the amendment.
As soon as practicable after the Effective Date, stockholders will be notified that the reverse split has been effected. Mellon Investor Services LLC, the Companys transfer agent, will act as exchange agent for purposes of implementing the exchange of stock certificates. Holders of pre-reverse split shares will be asked to surrender to the exchange agent certificates representing pre-reverse split shares in exchange for certificates representing post-reverse split shares in accordance with the procedures to be set forth in a letter of transmittal that will be delivered to the Companys stockholders. No new certificates will be issued to a stockholder until the stockholder has surrendered to the exchange agent his, her or its outstanding certificate(s) together with the properly completed and executed letter of transmittal. STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATES AND SHOULD NOT SUBMIT ANY CERTIFICATES UNTIL REQUESTED TO DO SO. Stockholders whose shares are held by their stockbroker do not need to submit old share certificates for exchange. These shares will automatically reflect the new quantity of shares based on the reverse split. Beginning on the Effective Date, each certificate representing pre-reverse split shares will be deemed for all corporate purposes to evidence ownership of post-reverse split shares.
We will not issue fractional certificates for post-reverse split shares in connection with the reverse split. In lieu of issuing fractional shares, the Company may either (i) directly pay each stockholder who would otherwise have been entitled to a fraction of a share an amount in cash equal to the closing sale price of the Common Stock, as quoted on Nasdaq on the Effective Date, multiplied by the fractional share amount, or (ii) make arrangements with the Companys transfer agent or exchange agent to aggregate all fractional shares otherwise issuable in the reverse stock split and sell these whole shares as soon as possible after the Effective Date at then prevailing market prices on the open market on behalf of those holders, and then pay each such holder his, her or its pro rata potion of the sale proceeds.
If the stockholders approve the reverse stock split, the Board or a committee of the Board will be authorized to proceed with the reverse split. In determining whether to proceed with the reverse split and setting the exact amount of split, if any, the Board or committee will consider the best interests of the Company, including a number of factors such as market conditions, existing and expected trading prices of the Companys Common Stock, the Nasdaq listing requirements, the Companys additional funding requirements and the amount of the Companys authorized but unissued Common Stock.
Under the Delaware General Corporation Law, stockholders will not be entitled to dissenters rights with respect to the proposed amendment to the Companys Certificate of Incorporation to effect the reverse stock split, and the Company does not intend to independently provide stockholders with any such right.
The following is a summary of certain U.S. federal income tax consequences relating to the reverse stock split based on the current provisions of the Internal Revenue Code of 1986, as amended (the Code), and other legal authorities, all of which are subject to change, possibly on a retroactive basis, and such a change could alter or modify the statements set forth below.
For purposes of this summary, a U.S. holder means a beneficial owner of Common Stock who is any of the following for U.S. federal income tax purposes: (i) a citizen or resident of the U.S., (ii) a corporation formed under the laws of the U.S., any state of the U.S., or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust that is subject to the primary supervision of a court within the U.S. which has one or more U.S. persons with authority to control all of its substantial decisions, or which has a valid election in effect to be treated as a U.S. person. A non-U.S. holder means any stockholder who is not a U.S. holder.
This summary does not represent a detailed description of the U.S. federal income tax consequences to a stockholder in light of his, her or its particular circumstances. In addition, it does not represent a description of the U.S. federal income tax consequences to a stockholder who is subject to special treatment under the U.S. federal income tax laws and does not address the tax considerations applicable to stockholders who may be subject to special tax rules, such as:
Moreover, this description does not address the U.S. federal estate and gift tax, alternative minimum tax or other tax consequences of the reverse stock split. Except where noted, this summary deals only with a stockholder who holds Common Stock as a capital asset.
If an entity classified as a partnership for U.S. federal income tax purposes holds Common Stock, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership.
Each stockholder should consult his, her or its own tax advisers concerning the particular U.S. federal tax consequences of the reverse stock split, as well as the consequences arising under the laws of any other taxing jurisdiction, including any state, local or foreign income tax consequences.
To ensure compliance with Treasury Department Circular 230, each holder of Common Stock is hereby notified that: (a) any discussion of U.S. federal tax issues in this proxy statement is not intended or written to be used, and cannot be used, by such holder for the purpose of avoiding penalties that may be imposed on such holder under the Code; (b) any such discussion has been included by the Company in furtherance of the reverse stock split on the terms described herein; and (c) each such holder should seek advice based on the holders particular circumstances from an independent tax advisor.
U.S. Holders. Generally, a reverse stock split will not result in the recognition of gain or loss by a U.S. holder for U.S. federal income tax purposes, except to the extent of cash received instead of a fractional share. The aggregate adjusted basis of the new shares of Common Stock will be the same as the aggregate adjusted basis of the Common Stock exchanged for such new shares, reduced by the amount of the adjusted basis of any Common Stock exchanged for such new shares that is allocated to the fractional share for which cash is received. The holding period of the new, post-reverse split shares of the Common Stock resulting from implementation of the reverse stock split will include a U.S. holders holding periods for the pre-reverse split shares, assuming the shares of Common Stock are held as a capital asset. A stockholder who receives cash instead of a fractional share of new Common Stock generally will recognize taxable gain or loss equal to the difference, if any, between the amount of cash received and the portion of the stockholders aggregate adjusted tax basis in the shares of old common stock allocated to the fractional share. If the shares of old Common Stock allocated to the fractional shares were held by the stockholder as capital assets, the gain or loss resulting from the payment of cash in lieu of the issuance of a fractional share will be taxed as capital gain or loss. Such capital gain or loss will be short term if the pre-reverse split shares were held for one year or less and long term if held more than one year.
Non U.S. Holders. A non-U.S. holder of our Common Stock generally will not be subject to U.S. federal income tax with respect to any gain recognized as a result of cash received instead of a fractional share in connection with the reverse stock split; provided, however, that gain will be subject to tax if (i) the gain is effectively connected with a trade or business of the non-U.S. holder in the U.S. (in which case, for a non-U.S. holder that is a foreign corporation, the branch profits tax may also apply), and, where a tax treaty applies, is attributable to a U.S. permanent establishment of the non-U.S. holder, (ii) the gain is recognized by a non-U.S. holder who is present in the United States for 183 or more days in the taxable year of the reverse stock split and certain other conditions are met, or (iii) the Company is or has been a U.S. real property holding corporation for U.S. federal income tax purposes. The Company believes it currently is not and it does not anticipate becoming, a U.S. real property holding corporation for U.S. federal income tax purposes.
Information Reporting and Backup Withholding. Payment of cash instead of fractional shares within the United States or conducted through certain U.S. related financial intermediaries is subject to both backup withholding and information reporting unless the beneficial owner certifies under penalties of perjury that it is not a U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. holder) or the stockholder otherwise establishes an exemption. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against such stockholders U.S. federal income tax liability provided the required information is furnished to the Internal Revenue Service.
The affirmative vote of the holders of a majority of the shares of the Companys Common Stock outstanding as of the record date is required to approve the amendment of the Companys Certificate of Incorporation to effect a reverse split of the Common Stock in the range of one-for-two (1:2) to one-for-five (1:5). Abstentions and broker non-votes will not be counted as having been voted on the proposal, and therefore will have the same effect as negative votes.
Recommendation of the Board
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 1
PROPOSAL NO. 2
ELECTION OF DIRECTORS
Our Board of Directors, or the Board, consists of seven directors and there are seven nominees for director at our Annual Meeting. As indicated below, each nominee will be elected for a one-year term, which will expire at the 2009 Annual Meeting of Stockholders and until their successors are duly elected and qualified or until any such directors earlier resignation or removal. Our Boards nominees are Tod Nielsen, John F. Olsen, Charles F. Kane, William K. Hooper, Bryan LeBlanc, T. Michael Nevens and Robert M. Tarkoff, all of whom are currently serving as directors. Our Nominating and Governance Committee considered the qualifications of each of the nominees for election at the Annual Meeting and unanimously recommended that each nominee be submitted for re-election to the Board.
Directors are elected by a plurality of the votes properly cast in person or by proxy. If a quorum is present and voting, the seven nominees receiving the highest number of affirmative votes will be elected. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the seven nominees named below. Abstentions and broker non-votes will have no effect on the votes. If any nominee becomes unavailable for election as a result of an unexpected occurrence, your shares will be voted for the election of a substitute nominee determined by our Board. Each person nominated for election has agreed to serve if elected. We have no reason to believe that any nominee will be unable to serve.
The name and age of each director, his position with us and the year in which such director was first elected to the Board is set forth below:
BIOGRAPHICAL INFORMATION FOR NOMINEES AND CONTINUING DIRECTORS
Mr. Nielsen has served as President, Chief Executive Officer and a director since November 2005. From June 2005 to November 2005, Mr. Nielsen served as Senior Vice President, Marketing and Global Sales Support for Oracle Corporation, an enterprise software company, where he was responsible for the marketing of the Oracle Database and Oracle Fusion Middleware product lines. From August 2001 to August 2004, Mr. Nielsen served in various positions, including Chief Marketing Officer and Executive Vice President, Engineering of BEA Systems, Inc., a provider of application infrastructure software. Mr. Nielsen joined BEA Systems after the acquisition of his private company, Crossgain Inc., where he served as its Chief Executive Officer from June 2000 to August 2001. Mr. Nielsen also spent twelve years with Microsoft Corporation, in various roles, including general manager of database and developer tools, vice president of developer tools, and at the time of his departure, vice president of Microsofts platform group. Mr. Nielsen currently serves on the board of directors of Fortify Software, Inc., a provider of software security products and Trolltech ASA, a provider of application development software. Mr. Nielsen holds a B.A. degree in business administration from Central Washington University.
Mr. Olsen has served as Chairman of the Board since August 2006 and as a director since February 2005. Since 2004, Mr. Olsen has been a private investor. From 2001 to 2004, Mr. Olsen served as President and Chief Operating Officer of Business Objects, a provider of business intelligence solutions. Prior to joining Business Objects, he was President and Chief Executive Officer of Marimba, Inc., a provider of Internet infrastructure management solutions from July 2000 to June 2001. From 1993 to 2000, Mr. Olsen served as president of the Design Realization Group of Cadence Design Systems, Inc. Before joining Cadence in 1993, Mr. Olsen held the position of partner, Strategic Services, at KPMG Peat Marwick. Mr. Olsen holds an M.S. degree in management science from the University of South Florida, and a B.S. degree in industrial engineering from Iowa State University.
Mr. Kane has served as a director since August 2007. Since November 2006, he has served as Chief Financial Officer of One Laptop per Child, a non-profit organization focused on providing children with affordable access to computers and the internet. Mr. Kane served as Chief Financial Officer of RSA Security, a provider of e-security solutions from May 2006 to October 2006, when RSA was acquired by EMC Corporation. From July 2003 to May 2006, Mr. Kane served as Senior Vice President Finance and Chief Financial Officer of Aspen Technology, Inc., a provider of supply chain management software and professional services. From May 2000 to February 2003, Mr. Kane served as Chief Operating Officer, Chief Financial Officer, President and Chief Executive Officer of Corechange, Inc., a provider of enterprise portal software acquired by Open Text Corporation. From 1995-2000, Mr. Kane served as Executive Vice President and Chief Financial Officer of Ardent Software, which was acquired by Ascential Software Corporation (formerly known as Informix Software, Inc.) in 1999. From 1989-1995, Mr. Kane served as European Controller, International Controller and Finance Director of Stratus Computer, Inc. From 1984-1989, Mr. Kane served as International Treasury Manager of Prime Computer, Inc. From 1979-1984, Mr. Kane served as Staff and Senior Accountant of Deloitte, Haskins & Sells. Mr. Kane holds an M.B.A. from Babson College and a bachelors degree from University of Notre Dame. He is a CPA and a senior lecturer of international finance at the Sloan Graduate School of Management at MIT. Mr. Kane serves on the Boards of Directors and as Chairman of the Audit Committees of Applix Software, Netezza Corporation and Progress Software.
Mr. Hooper has served as a director since May 1999. Mr. Hooper served as the President of Monterey Plaza Hotel Corporation from 1994 to 2005. Mr. Hooper was president of Woodside Hotels and Resorts Group Services Corporation from 1995 to 2004. Mr. Hooper also serves as an advisor to Acuity II Ventures, a venture capital investment fund. Mr. Hooper holds an M.B.A. from the Stanford Graduate School of Business and a bachelors degree from Dartmouth College.
Mr. LeBlanc has served as a director of Borland since June 2007. Since March 2006, he has served as the Vice President and Chief Financial Officer of WebTrends Inc., where he is responsible for all financial, accounting, IT and operational aspects of WebTrends. From April 2005 to March 2006, Mr. LeBlanc served as the Vice President of Finance, Business Transformation of Mercury Interactive Corp. and from May 2002 to April 2005, he served as the Vice President of Finance of Mercury Interactive Corp. From March 2001 to May 2002, Mr. LeBlanc served as Executive Vice President and Chief Financial Officer of inSilicon Inc. From March 2000 to March 2001, Mr. LeBlanc served as the Chief Financial Officer and Vice President of Finance of Fogdog, Inc. From November 1999 to March 2000, he served as the Director of Finance of Fogdog, Inc. From April 1997 to November 1999, Mr. LeBlanc was the Director of Corporate Finance for Documentum, Inc. From 1988 to 1997, he held various financial management and operations positions with Cadence Design Systems, Inc. Mr. LeBlanc holds an MBA from Santa Clara University and a BA from Holy Cross College.
Mr. Nevens has served as a director since February 2004. Since 2002, Mr. Nevens has been a private investor and since March 2005 has been a Senior Advisor to Permira, LLC, a private equity firm. From 1995 to 2002, Mr. Nevens
served as a director and was managing partner of the Global High Tech Practice of McKinsey & Company, a business management consulting firm. Mr. Nevens holds a B.S. in physics from the University of Notre Dame and an M.S. in industrial administration from the Krannert School of Purdue University.
Mr. Tarkoff has served as a director since January 2007. Since April, 2007, Mr. Tarkoff has served as Senior Vice President of Corporate Development for Adobe Systems, Inc. Prior to that, Mr. Tarkoff was employed by EMC Corporation, a provider of enterprise content management solutions, in different capacities. From January 2007 to April 2007, Mr. Tarkoff served as Senior Vice President, Global Alliances and Business Development for EMC. From January 2006 to January 2007, Mr. Tarkoff served as Senior Vice President and General Manager of EMC/Captiva, the input management software division of EMC. From January 2004 to January 2006, Mr. Tarkoff served as Senior Vice President of Business Development and Strategy for EMC Software Group, a software group formed through the integration of several of EMC Corporations software acquisitions. From November 2001 to December 2003, Mr. Tarkoff served as Executive Vice President and Chief Strategy Officer of Documentum, a provider of enterprise content management software. Prior to joining Documentum, from November, 1998 to November 2001, Mr. Tarkoff served in a variety of capacities with Commerce One LLC, an e-commerce solutions provider, most recently as Senior Vice President, Worldwide Business Development. Prior to joining Commerce One, Mr. Tarkoff was a lawyer at the law firm of Wilson Sonsini Goodrich & Rosati, P.C. and a financial analyst at Goldman, Sachs & Co. Mr. Tarkoff holds a B.A. degree, magna cum laude, from Amherst College and a J.D. degree, cum laude, from Harvard Law School.
It is the general policy of the Board that compensation for non-employee directors should be a mix of cash and equity-based compensation. Other than as provided below, there were no other arrangements pursuant to which any director was compensated during the year ended December 31, 2007 for service as a director. We do not provide any retirement benefits or other perquisites to our directors.
In 2007, we paid cash fees to each non-employee director for his services. Fees paid include an annual retainer of $20,000, paid in quarterly installments of $5,000. The annual retainer is prorated if a director serves for only a portion of a year. In addition, directors are paid a flat fee for attendance at each meeting of our Board and for attendance at each meeting of a Board committee on which they serve as follows:
Tod Nielsen, the sole employee director, receives no additional cash compensation for his service on our Board or any Board committee. All directors are reimbursed for their expenses in connection with their service on the Board and its committees.
Initial Grant. At the time of his or her initial election or appointment to the Board, each new non-employee Board member automatically receives an option grant for 30,000 shares of our common stock.
Annual Grant. On the first trading day in July of each year, each individual who is at that time serving as a non-employee Board member receives one or more automatic stock option grants in accordance with the following formula:
(i) each non-employee Board member on that annual grant date receives an option for 12,500 shares of our common stock, except that the chairperson of our Board receives an option grant for 17,500 shares;
(ii) each non-employee Board member who is serving as a member of any of our Board committees also receives an additional option grant for 1,000 shares of our common stock for each committee on which he or she is serving on the annual grant date; and
(iii) each non-employee Board member who is also serving as the chairperson of any Board committee at that time receives an additional option grant for 1,000 shares of our common stock for each committee on which he or she is serving as chairperson on the annual grant date.
There is no limit on the number of annual option grants any one eligible non-employee Board member may receive over his or her period of continued Board service.
Each automatic grant has an exercise price equal to the fair market value per share of our common stock on the grant date and has a maximum term of ten years, subject to early termination upon the later of: (i) twelve months after the date of the optionees cessation of Board service for any reason; or (ii) three months after the date the optionee is first free to sell shares of Company stock without contravention of applicable federal and state securities laws. Each non-employee director option is immediately exercisable for all of the shares subject to the option. However, any unvested shares purchased under such option will be subject to repurchase by us, at the lower of the exercise price paid per share or the fair market value per share, should the optionee cease Board service prior to vesting in those shares.
The shares subject to each initial and annual automatic option grant vests over a three year period as follows: one-third of those option shares vest upon the optionees completion of one year of Board service measured from the grant date of that option, and the remaining two-thirds of the option shares vest in equal monthly installments over the following two years, subject to the directors continued service on the Board. However, the vesting of the shares subject to each initial and annual option grant accelerate and become 100% vested should we experience a change in control or should the optionee die or become disabled during his or her period of Board service.
NON-EMPLOYEE DIRECTOR COMPENSATION
The following sets forth the cash and equity-based compensation for non-employee directors in 2007:
The full grant date fair values of the stock option awards granted in fiscal 2007, computed in accordance with SFAS 123R, were:
For information on the method and assumptions used to calculate the compensation costs, see Note 12 to our audited consolidated financial statements in our Annual Report.
Our Board is composed of seven directors. As required under the Nasdaq Stock Market, or Nasdaq, listing standards, a majority of the members of a listed companys board of directors must qualify as independent, as
affirmatively determined by the company. Our Board consults with our counsel to ensure that the Boards determinations are consistent with all relevant securities and other laws and regulations regarding the definition of independent, including those set forth in pertinent listing standards of the Nasdaq, as in effect from time to time.
Consistent with these considerations, after review of any relevant transactions or relationships involving any director, or any of his or her family members, our senior management, independent registered public accounting firm, or any of our significant customers, partners or vendors the Board affirmatively has determined that, other than Mr. Nielsen, who is our President and CEO, each of the members of the Board is an independent director for purposes of the Nasdaq listing standards. The Board also determined that Mark Garrett, who served as a director until August 2007, was independent during the time he served as a director. In making this determination, the Board found that none of these directors or nominees for director has a direct or indirect material or other disqualifying relationship with us, which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board holds executive sessions of its independent directors at least once per quarter.
Board and Committee Meetings and Attendance
The Board has three standing committees: an Audit Committee, a Compensation Committee, and a Nominating and Governance Committee. Each of these committees operates under a written charter adopted by the Board. Copies of these charters are available on our website at www.borland.com under the headings Company/Investor Relations/Corporate Governance. Board committee charters are also available in print to stockholders upon request, addressed to the Corporate Secretary, at 8303 N. MoPac Expressway, Suite A-300, Austin, Texas 78759.
The Board held 17 meetings during the year ended December 31, 2007. Each director attended at least 75% of the aggregate of the meetings of the Board and of the committees, on which he served, held during the period for which he was a director or committee member, respectively. The following table sets forth the standing committees of the Board, the number of meetings held by each committee in 2007 and the membership of each committee during the year ended December 31, 2007. Mr. Nielsen is omitted from the table below as he was not a member of any of the standing committees of the Board.
Our Audit Committee currently consists of Charles F. Kane (Chairman), Bryan LeBlanc, T. Michael Nevens and William K. Hooper. Mark Garrett served as the Chairman of Audit Committee during 2007 and until his resignation from the Board in August 2007, at which time Mr. Kane was appointed as his successor. The Board annually reviews the Nasdaq listing standards definition of independence for Audit Committee members and has determined that all members of our Audit Committee are independent (as independence is currently defined in Rule 4350(d)(2)(A)(i) and (ii) of the Nasdaq listing standards). Our Board has determined that Messrs. Kane and
LeBlanc are each an audit committee financial expert, as such term is defined in applicable rules and regulations based on, among other things, their respective education and professional experience. The Board also determined that Mr. Garrett was an audit committee financial expert during his tenure on our Audit Committee.
The formal report of our Audit Committee is included in this proxy statement. The Audit Committees responsibilities include, among other things:
Our Compensation Committee currently consists of T. Michael Nevens (Chairman), William K. Hooper, and John F. Olsen, each of whom is an independent director (as independence is currently defined in rule 4200(a)(15) of the Nasdaq listing standards). This proxy statement includes the report of our Compensation Committee and managements Compensation Discussion & Analysis, which focuses on executive compensation. Our Compensation Committees role includes setting and administering the policies governing the compensation of executive officers, including cash compensation and equity incentive programs, and reviewing and establishing the compensation of the Chief Executive Officer and other executive officers. Our Compensation Committees principal responsibilities, which have been authorized by the Board, are:
Our Compensation Committee does not delegate any of its responsibilities to other committees or persons, other than with respect to the delegation to a committee of corporate officers to make stock option grants, other than grants to executive officers, as noted above. Participation by executive officers in the recommendation or determination of compensation for executive officers or directors is limited to (i) the delegation of the ability to grant stock options to a committee of corporate officers, provided that such each option grants may not exceed 50,000 shares, a cumulative total of 200,000 shares for any one person in a fiscal year, or an aggregate of 400,000 shares in any fiscal quarter for all grants made by the committee of corporate officers, (ii) recommendations our Chief Executive Officer makes to our Compensation Committee regarding the compensation of executive officers other than himself and (iii) our Chief Executive Officers participation in Board determinations of non-employee directors.
Our Nominating and Governance Committee currently consists of William K. Hooper (Chairman), and Robert Tarkoff, both of whom is an independent director (as independence is currently defined in Rule 4200(a)(15) of the Nasdaq listing standards). Mark Garrett resigned from the Nominating and Governance Committee in August 2007. The purpose of the Nominating and Governance Committee is to identify, screen and recommend to the Board qualified candidates to serve as directors and to oversee corporate governance and other organizational matters. The Nominating and Governance Committees responsibilities include, among other things:
The Nominating and Governance Committee will consider director candidates recommended by stockholders. In considering candidates submitted by stockholders, the Nominating and Governance Committee will take into consideration the needs of the Board and the qualifications of the candidate. The Nominating and Governance Committee may also take into consideration the number of shares held by the recommending stockholder and the length of time that such shares have been held. To have a candidate considered by the Nominating and Governance Committee, a stockholder must submit the recommendation in writing and must include the following information:
The stockholder recommendation and information described above must be sent to the Corporate Secretary at 8303 N. MoPac Expressway, Suite A-300, Austin, TX 7879 and must be received by the Corporate Secretary not
less than 90 days or more than 120 days prior to the anniversary date of our most recent annual meeting of stockholders.
The Nominating and Governance Committee believes that the minimum qualifications for serving as a director are that a nominee demonstrate, by significant accomplishment in his or her field, an ability to make a meaningful contribution to the Boards oversight of the business and affairs of Borland and have an impeccable record and reputation for honest and ethical conduct in both his or her professional and personal activities. In addition, the Nominating and Governance Committee examines a candidates specific experiences and skills, relevant industry background and knowledge, time availability in light of other commitments, potential conflicts of interest, interpersonal skills and compatibility with the Board, and independence from management and the company. The Nominating and Governance Committee also seeks to have the Board represent a diversity of backgrounds and experience.
The Nominating and Governance Committee identifies potential nominees through independent research and through consultation with current directors and executive officers and other professional colleagues. The Nominating and Governance Committee looks for persons meeting the criteria above, and takes note of individuals who have had a change in circumstances that might make them available to serve on the Board for example, retirement as a chief executive officer or chief financial officer of a public company. The Nominating and Governance Committee also, from time to time, may engage firms that specialize in identifying director candidates. As described above, the Nominating and Governance Committee will also consider candidates recommended by stockholders.
Once a person has been identified by the Nominating and Governance Committee as a potential candidate, the committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If the Nominating and Governance Committee determines that the candidate warrants further consideration by the committee, the Chairman or another member of the committee contacts the person. Generally, if the person expresses a willingness to be considered and to serve on the Board, the Nominating and Governance Committee requests information from the candidate, reviews the persons accomplishments and qualifications, including in light of any other candidates that the committee might be considering. The Nominating and Governance Committee may also conduct one or more interviews with the candidate, either in person, telephonically or both. Nominating and Governance Committee members or members of management will also conduct a background check on a candidate and contact one or more references provided by the candidate, members of the business community or other persons that may have greater first-hand knowledge of the candidates accomplishments. The Nominating and Governance Committees evaluation process does not vary based on whether or not a candidate is recommended by a stockholder, although, as stated above, the Committee may take into consideration the number of shares held by the recommending stockholder and the length of time that such shares have been held.
The Board has established a process to receive communications from stockholders. Stockholders may contact any member (or all members) of the Board by mail. To communicate with the Board, any individual director or any group or committee of directors, correspondence should be addressed to the Board or any such individual director or group or committee of directors by either name or title. All such correspondence should be sent c/o Corporate Secretary at 8303 N. MoPac Expressway, Suite A-300, Austin, Texas 78759.
All communications received as set forth in the preceding paragraph will be opened by the office of our General Counsel for the sole purpose of determining whether the contents represent a message to our directors. Any contents that are not in the nature of advertising, promotions of a product or service, or patently offensive material will be forwarded promptly to the addressee. In the case of communications to the Board or any group or committee of directors, the General Counsels office will make sufficient copies of the contents to send to each director who is a member of the group or committee to which the envelope is addressed.
We encourage each of our directors attend our Annual Stockholder Meetings, as provided in our Corporate Governance Guidelines. William Hooper was in attendance at the 2007 Annual Stockholder Meeting.
We are committed to good corporate governance practices and as such we have adopted formal Corporate Governance Guidelines. A copy of the Corporate Governance Guidelines may be found at our website at www.borland.com by following the headings Company/Investor Relations/Corporate Governance. Below are some highlights of our corporate governance guidelines and practices:
The Board has adopted the Code of Conduct that applies to all officers, directors and employees. The Code of Conduct is available on our website at www.borland.com under the headings Company/Investor Relations/Corporate Governance. Amendments to, and waivers from, the code of conduct will be disclosed at the same website address provided above and in such filings as may be required pursuant to applicable law or listing standards.
In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee has established procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters and for the confidential, anonymous submission by our employees of concerns regarding accounting or auditing matters. We have established a confidential website and toll-free hotline for employees to report violations of our Code of Conduct or other company policies and to report any ethical concerns.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ELECTION OF THE BOARDS SEVENNOMINEES IDENTIFIED ABOVE IN PROPOSAL NO. 2
RATIFICATION OF SELECTION OF KPMG LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of our Board has selected KPMG LLP (KPMG), as our independent registered public accounting firm to audit our consolidated financial statements for the fiscal year ending December 31, 2008, and has directed that management submit the selection of KPMG as our independent registered public accounting firm for ratification by the stockholders at the Annual Meeting. PricewaterhouseCoopers LLP (PwC), or a predecessor firm, has audited our consolidated financial statements since the fiscal period ended March 31, 1987. A representative of KPMG and PwC are each expected to be present at the Annual Meeting and will be available to respond to appropriate questions from our stockholders and will be given an opportunity to make a statement if he or she desires to do so.
Stockholder ratification of the selection of KPMG, as our independent registered public accounting firm is not required by our Bylaws or otherwise. However, the Audit Committee is submitting the selection of KPMG to the stockholders for ratification as a matter of good corporate governance. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee may in its discretion direct the appointment of different independent registered public accountants at any time during the year if they determine that such a change would be in the best interests of us and our stockholders.
The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to ratify the selection of KPMG. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Abstentions and broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR RATIFICATION OF THE SELECTION OF
KPMG LLP AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
For the fiscal years ended December 31, 2007 and December 31, 2006, the total fees we incurred for services by PricewaterhouseCoopers LLP, our independent registered public accounting firm for such fiscal years were as follows:
a. Tax Compliance/Preparation Fees: $145,864 and $283,534 for 2007 and 2006, respectively, representing fees in connection with tax compliance preparation services including assistance in the preparation of our U.S. federal, state and local tax returns as well as international subsidiaries returns, tax audits and appeals, and tax services for employee benefit plans; and
b. Tax Consulting Fees: $171,548 and $139,084 for 2007 and 2006, respectively, representing fees in connection with tax consulting services including tax advice related to mergers and acquisitions, restructuring of foreign operations, global equity compensation matters and transfer pricing.
The Audit Committee determined that the rendering of non-audit services by PwC was compatible with maintaining PwCs independence.
In connection with the audit of the 2006 and 2007 financial statements, we entered into engagement agreements with PwC which set forth the terms by which PwC would perform audit services for us. The agreements provide that each party shall not demand a trial by jury in the event of any action or proceeding arising out of or relating to services under the agreement. The agreements also provide that we may not agree to assign or transfer any claim against PwC arising out the audit engagement.
On March 21, 2008, our Audit Committee dismissed PwC as our independent registered public accounting firm for Borland.
During the years ended December 31, 2006 and December 31, 2007, and through March 21, 2008, there were no disagreements with PwC on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure that, if not resolved to PwCs satisfaction, would have caused it to make reference thereto in its report on our consolidated financial statements for such years.
As previously reported in Item 9A of the Companys Form 10-K for the year ended December 31, 2005 and in the Item 4 section of Forms 10-Q for the quarters ended March 31, 2006 and June 30, 2006, management of the Company identified two material weaknesses in internal control over financial reporting, as follows:
As previously reported in the Item 4 section of the Companys Forms 10-Q for the quarters ended September 30, 2006 and March 31, 2007 and in the Item 9A section of the Companys Form 10-K for the year ended December 31, 2006, the material weakness described in (i) above was outstanding. There were no material weaknesses reported in our Forms 10-Q for the quarters ending June 30, 2007 and September 30, 2007 or our Form 10-K for the year ended December 31, 2007.
Except for the two material weaknesses discussed above, during the years ended December 31, 2006 and 2007 and through March 21, 2008, there were no other reportable events pursuant to Item 304(a)(1)(v) of Regulation S-K.
The Company has authorized PwC to respond fully to any inquiries of KPMG, as the Companys new independent registered public accounting firm, concerning the material weaknesses.
PwCs reports on our consolidated financial statements for the years ended December 31, 2007 and December 31, 2006 did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principle.
PwC furnished us a letter addressed to the Securities and Exchange Commission with respect to the statements above, which was filed as Exhibit 16.1 to our Form 8-K filed with the Securities and Exchange Commission on March 27, 2008.
On March 21, 2008, after completing a competitive bidding process, the Audit Committee determined to engage KPMG as our principal independent registered public accounting firm for the year ending December 31, 2008. During our years ended December 31, 2006 and December 31, 2007, and through March 21, 2008, neither Borland, nor anyone on its behalf, consulted with KPMG with respect to either (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements for the years ended December 31, 2007 or 2006, and no written report or oral advice was provided by KPMG to the Company that KPMG concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing, or financial reporting issue for 2007 or 2006 or (ii) any matter that was the subject of either a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.
In accordance with applicable laws and regulations, the Audit Committee reviews and pre-approves any non-audit services to be performed by our independent auditors to ensure that the work does not compromise their independence in performing their audit services. The Audit Committee generally also reviews and pre-approves all audit, audit related, tax and all other fees, as applicable. In some cases, pre-approval is provided by the full committee for up to a year, and relates to a particular category or group of services and is subject to a specific budget and SEC rules. In other cases, the chairman of the Audit Committee has the delegated authority from the committee to pre-approve additional services, and such pre-approvals are then communicated to and ratified by the full Audit Committee at its next regularly scheduled meeting.
The following is the report of the Audit Committee of the Board of Directors of Borland Software Corporation, describing the Audit Committees responsibilities and practices, specifically with respect to matters involving Borlands accounting, auditing, financial reporting and internal control functions. Among other things, the Audit Committee reviews and discusses with management and with Borlands independent registered public accounting firm the results of Borlands year-end audit, including the audit report and audited financial statements. We, the members of the Audit Committee of the Board, are presenting this report for the fiscal year ended December 31, 2007.
The Audit Committee acts pursuant to a written charter that was originally adopted by the Board in June 2000 and was most recently amended and restated in June 2003. The Nominating and Governance Committee and the Board consider membership of the Audit Committee annually. The Audit Committee reviews and assesses the adequacy of its charter annually. The Audit Committee held 10 meetings during 2007.
All members of the Audit Committee are independent directors, qualified to serve on the Audit Committee pursuant to Nasdaq listing standards. In accordance with its charter, the Audit Committee oversees accounting, financial reporting, internal control over financial reporting, financial practices and audit activities of Borland and its subsidiaries. The Audit Committee members are not professional accountants or auditors, and their functions are not intended to duplicate or to certify the activities of management or the independent registered public accounting firm. The Audit Committee provides advice, counsel and direction to management and the independent registered public accounting firm on the basis of the information it receives, discussions with management and the independent registered public accounting firm, and the experience of the Audit Committees members in business, financial and accounting matters. The Audit Committee relies, without independent verification, on the information provided by Borland and on the representations made by management that the financial statements have been prepared with integrity and objectivity, on the representations of management, and the opinion of the independent registered public accounting firm that such financial statements have been prepared in conformity with accounting principles generally accepted in the United States, or GAAP.
In connection with its review of Borlands audited financial statements for the fiscal year ended December 31, 2007, the Audit Committee reviewed and discussed the audited financial statements with management and discussed with PricewaterhouseCoopers LLP, Borlands independent registered public accounting firm for 2007, the matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU § 380). The Audit Committee received the written disclosures and the letter from PricewaterhouseCoopers LLP required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and discussed with PricewaterhouseCoopers LLP its independence from Borland. The Audit Committee has also considered whether the provision of certain permitted non-audit services by PricewaterhouseCoopers LLP is compatible with their independence.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in Borlands Annual Report on Form 10-K for its fiscal year ended December 31, 2007, for filing with the SEC.
During 2007, the Audit Committee met with management and Borlands independent registered public accountants and received the results of audit examination, evaluations of Borlands internal controls and the overall quality of Borlands financial organization and financial reporting. The Audit Committee also meets at least once each quarter with Borlands independent registered public accountants and management to review Borlands interim financial results before the publication of Borlands quarterly earnings press releases. The Audit Committee believes that a candid, substantive and focused dialogue with the independent registered public accountants is fundamental to the committees responsibilities. To support this belief, the Audit Committee meets separately with the independent registered public accountants without the members of management present on at least a quarterly basis.
The Audit Committee has established procedures for the receipt, retention and treatment of complaints received by Borland regarding accounting, internal accounting controls, or auditing matters, including the confidential, anonymous submission by Borland employees, received through established procedures, of concerns regarding questionable accounting or auditing matters. We have established a confidential website and toll-free hotline for employees to report violations of Borlands Code of Conduct or other company policies and to report any ethical concerns.
The information contained in this report shall not be deemed soliciting material or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, (the Securities Act) or the Securities Exchange Act of 1934, as amended (the Exchange Act), except to the extent that Borland specifically incorporates it by reference into such filing.
Charles Kane (Chairman)
T. Michael Nevens
William K. Hooper
Our executive officers are appointed by our Board and serve at their discretion. Set forth below is information regarding our current executive officers:
Biographical information regarding our executive officers can be found in our Annual Report on Form 10-K for the year ended December 31, 2007.
EXECUTIVE OFFICER COMPENSATION
Our Compensation Committee determines the compensation objectives, philosophy and elements of compensation for our executive officers. The Compensation Committee consults with, and reviews the analysis prepared by, our compensation consultant. The views of our senior management are also considered in this process. This Compensation Discussion and Analysis discusses and analyzes the compensation of our executive officers and the information provided in the executive compensation tables that follow.
Our Compensation Committee has implemented an executive compensation structure which we believe is relatively simple and straightforward. The basic components and goals of our executive compensation structure are as follows:
Our Compensation Committee reviews executive compensation data of our peers to help ensure that our compensation packages are competitive. We aim to compensate our executives in the range of the 50th to 75th percentile of companies in our peer group. We believe our competitive compensation packages have played an important role in our ability to retain executive officers. In 2007, there was no turnover in the named executive officer group, which was a positive change from the turnover we experienced in 2006.
In determining our executive compensation packages, our Compensation Committee also considers the challenging environment in which we operate. Our Open Application Lifecycle Management, or ALM, products and solutions are complex and the market is evolving. In addition, we have implemented aggressive cost-cutting and restructuring efforts to reach our goal of being in a position of sustained profitability. We believe it is important to both retain our executive team and keep them motivated to pursue our strategic goals.
Considering this challenging environment, and as discussed further below, our Compensation Committee did not make significant changes in the executive compensation packages in 2007 and does not anticipate making material changes in 2008.
In this Compensation Discussion & Analysis, we discuss the compensation of our named executive officers, who are the executive officers named in the Summary Compensation Table provided in this proxy statement.
While Borland was incorporated in 1983, we have refocused our business over the last two years and are still in the early stages of focusing on the Open ALM market. During 2006 and 2007 we have made several significant changes and we will continue to take steps toward evolving the company to increase our performance in the market place and achieve value for our shareholders.
In addition to the shift in our business focus, there have been other changes as well. During 2006, we hired a new Chief Financial Officer, Senior Vice President of Research & Development and a General Counsel. In January 2007, we promoted a new Senior Vice President of Worldwide Sales. During 2006 and 2007, we have implemented significant restructuring and cost cutting efforts, including the relocation of our headquarters to Austin, TX. While we have made significant progress, there are more challenges ahead. As our business and refocusing efforts stabilize, we will continue to assess our executive compensation strategy.
In this environment, we have endeavored to attract and retain top talent by providing a competitive level of base pay and to keep the team motivated to achieve both our near term strategy and to create long term shareholder value by placing a sizeable percentage of their compensation at risk if goals are not met. We also seek to align executive goals with those of shareholders by including stock options and restricted stock awards as an important element of their incentive compensation. At the same time, we do not offer perquisites or compensation that is out of line with our peer companies. This helps us to manage costs to enable us to meet our goal of sustained profitability.
Borland engaged Radford Aon consulting, Inc., or Radford, to assist our Compensation Committee in analyzing the executive compensation strategy in 2007. Our engagement with Radford also requested Radford to assist our Compensation Committee and management in reviewing our incentive plans and reviewing our non-employee director compensation packages. We instructed Radford to benchmark compensation levels for executive positions in comparable companies, review and provide information to us regarding emerging equity compensation trends and compare our equity compensation practices for non-employee directors to comparable companies.
Radford conducted a study for us that compared the compensation of our senior management to the compensation of senior management at enterprise software companies headquartered on the West Coast of the United States. Since we did not consider moving headquarters until at least a few months following our discussion with Radford and our headquarter move did not take place until October 2007, we felt this geographic focus made sense. In making compensation decisions for 2008, we have shifted the geographic focus of our peer group since our headquarters are now in Austin, Texas.
We asked Radford to prepare a competitive assessment relating to base salary, targeted total cash compensation for the year and long-term incentives. They also reviewed and analyzed the beneficial ownership levels and severance provisions of our executives in comparison to our peers.
The comparable enterprise software companies used by Radford in their analyses were divided into two groups: (i) companies with revenues between $100 million and $500 million, which were considered our current stage peers because our revenues fall in this range and (ii) companies with revenues between $700 million and $1.4 billion, which were considered our next stage peers. The companies which comprised our current stage peers were: Advent Software, Inc., Ariba, Inc., Epicor Software Corporation, FileNet Corporation, Informatica Corporation, Interwoven, Inc., Macrovision Corporation, Openwave Systems Inc., QAD Inc., Quest Software, Inc., Salesforce.com, Inc., TIBCO Software Inc. and Wind River Systems, Inc. The companies which comprised our next stage peers were: Autodesk, Inc., BEA Systems, Inc., Business Objects S.A., Citrix Systems, Inc., Cognos Incorporated, Hyperion Solutions Corporation, McAfee, Inc., Sybase, Inc. and Synopsys, Inc.
The Compensation Committee begins its analysis by reviewing comparative market data. We target base salary in the range between the 60th to 75th percentiles, total compensation in the 60th to 75th percentile and equity-based compensation at or slightly higher than the 75th percentile of our current stage peer companies. These targets reflect
our philosophy, which is focused on attracting key talent and retaining them to implement our strategic plans. Most of our executive officers were previously employed by companies in our next stage peer group or other companies with revenues higher than Borlands. These companies compensated their executives at higher levels. We feel our executive team embodies a good mix of talent and we felt it was necessary to offer our executive officers compensation packages which were in the range of what they were used to. In comparing the actual 2007 salaries of our CEO and other named executive officers, we found that the compensation elements with respect to each executive fell in the ranges of our current stage peers that we were targeting.
While comparative market data is reviewed as a starting point, the Compensation Committee does not stick to rigid formulas in determining the overall compensation packages. The Compensation Committee also considered the advice of Radford and consulted with our CEO on his views. Finally, in determining compensation packages, the Compensation Committee considered company performance, compensation history, stock options awarded in prior years and the individual performance of the executive officers.
We offer compensation packages which are reasonably higher than the average packages offered at comparable companies to enable us to be competitive in hiring and retaining executives. In 2005 and through 2006 we made significant changes to our management team. We believe we currently have the right senior management in place to be able to effectively run our business and achieve our strategic goals. We have offered competitive compensation as compared to our current stage peers to enable us to put this team in place and our compensation programs are a retention tool as well.
The Compensation Committee generally used the same material principles in determining the overall compensation packages for the named executive officers, other than the equity grants provided to Mr. Nielsen in 2005. The equity compensation terms applicable to Mr. Nielsen are described below under Elements of Compensation Equity Compensation Equity Compensation Terms for Tod Nielsen.
The main elements of our compensation packages for executives are base salary, at-risk pay-for-performance cash incentives, equity based compensation and reasonable provisions for severance benefits. We also provide executives with benefits generally available to our employees, such as healthcare and disability insurance. We chose the elements that comprise the overall compensation for the named executive officers because we believe they are important recruiting and motivational tools, as explained below. We also chose to keep the compensation elements relatively basic and straightforward so that both the executives and our shareholders may understand both their design and operation.
We aimed to provide cash compensation for our executive officers at about the 60th-75th percentile of what our current stage peers pay because we believe this level is necessary to enable us to attract and retain talented officers. Considering how relatively new our management team is and the level of talent we feel we need to lead Borland and help develop and implement key strategies, these are important factors for us.
We targeted incentive and equity compensation in the range of the 75th percentile, because we believe that while we are in a challenging time for our company, we need to provide additional short and long term incentives for our officers to lead us to achieve our goals. We believe that the best way to do this is through plans such as our Incentive Compensation Plan, which is described below, and through equity compensation, which would benefit our executives as our stock price presumably tracks our financial and strategic progress.
Our incentive compensation elements are meant to provide value to the executive after the executive has provided value to us through positive performance, both by the executive himself and through his team leadership. If performance goals are not met or if our stock price does not increase, the officer would not receive the total amount of compensation the officer otherwise could have earned.
In the event the incentive compensation elements do not result in payment or value to the executive, we generally do not believe in reacting by providing compensation by another means to make up for the incentive compensation that was not achieved. As such, we do not have any policies or agreements or policies in place which would provide for alternative compensation measures if incentive compensation programs do not pay out. Our objective is to provide incentive for strong performance and to retain the officers that are performing well. We also want to motivate a strong team effort, which was the idea behind having our executives be part of the same Incentive
Compensation Plan as the employee base. We believe that if we were to provide compensation to officers even if goals were not met, it would negate the goal of our incentive compensation programs.
To demonstrate the mix of the compensation elements we believe are the most significant, the table below shows the percentages of the annual base salary, the total potential non-equity incentive compensation (or target bonus amounts) and stock and option grants bear to each other. We focused on these elements as the main elements of compensation the executive officers could have earned in 2007. Since severance benefits would only be paid upon termination of an officer and not as compensation that would otherwise be paid during the year, we have not included severance in the table below. Additional information about severance benefits and how we view them as an element of compensation is provided in this Compensation Discussion and Analysis under the Severance Benefits and Potential Payments Upon Termination or Change in Control sections. In addition to these elements, there are other benefits our executive officers may receive (which are described below in this Compensation Discussion & Analysis and in the Summary Compensation Table) and, while we believe such other compensation is reasonable and necessary to attract and retain talent, the elements in the following table are what we focused on in determining compensation in 2007.
2007 Mix of Significant Compensation Elements
The base salaries of our executive officers are individually negotiated at the time each officer joins Borland or assumes an executive officer position. Initial base salaries and any changes to base salaries for executive officers are
determined by our Compensation Committee. We take into consideration individual performance, scope of responsibility, prior experience, breadth of knowledge and other factors specific to the individual. The weight given to each of these factors varies by individual as our Compensation Committee deems appropriate.
The base salary amounts earned by our named executive officers for services performed in 2007 are provided in the Summary Compensation Table below.
A significant element of our compensation packages for executive officers is performance based and administered through our Incentive Compensation Plan. In 2006, there was an incentive compensation plan applicable only to executive officers (the Executive ICP). Under the Executive ICP, executives were eligible to receive a bonus if revenue from sales of our ALM products and services was at least 95% of the revenue target established by the Compensation Committee. Borland vice presidents and other Borland employees (other than sales employees who participated in sales compensation plans) participated in a separate incentive compensation plan which had both company and individual targets.
For 2007, the Compensation Committee approved an Incentive Compensation Plan (2007 ICP) that combined elements of the Executive ICP and the plans other employees operated under and made the 2007 ICP applicable to the executive officers and all other Borland employees (except for employees who are part of our CodeGear division and employees under sales commission plans). The goal of having one plan is to encourage teamwork by focusing on overall company performance and the achievement of individual goals. The 2007 ICP was designed to make variable cash compensation dependent on the achievement of goals for both Borland and individuals, while providing upside in the event of overachievement.
Under the 2007 ICP, for bonuses to be paid, Borland must first meet quarterly non-GAAP operating income targets (the Targets) established by the Compensation Committee. The Targets are based on non-GAAP financial measures, which is what we use to assess our performance and for planning purposes because they exclude non-recurring or non-cash items, including restructuring and severance charges, goodwill impairment SFAS 123R expenses, amortization of purchased intangibles and acquisition related expenses. We believe that such goals provide more meaningful incentives that are within the executives sphere of control and accountability.
Meeting a Target is what funds the plan. Then, if the plan is funded by the achievement of the Targets, employees must also meet individual goals which are set by the individuals and their managers in order to receive a bonus payment. Individual goals for Mr. Nielsen are set by the Compensation Committee and Mr. Nielsen sets the individual goals for the other executive officers. Both thresholds must be met before a bonus is paid for any individual.
Individual goals for the executive officers were aligned with our Company goals. Mr. Nielsens goals were to lead Borland to achieve its Targets. The other executive officers had individual goals that were aligned with the Companys financial and strategic goals, but were focused on tasks relating to the individual executive officers role in the Company.
The Compensation Committee is responsible for reviewing our financial performance to determine if our Targets have been met. The Compensation Committee has discretion to amend the 2007 ICP at any time and this would include the discretion to fund the 2007 ICP if Borland did not reach its Targets. In addition, if individual goals are not achieved, the 2007 ICP the Compensation Committee would have the ability to allow for bonuses to be paid. However, the Compensation Committee would not exercise such discretion unless it believed there were extraordinary circumstances or other good reason to justify the exercise of such discretion.
The quarterly Targets were intended to be achievable for Borland, and were also designed to require each department to stay within their operating budget, which was meant to require a reasonable level of discipline. The 2007 Targets were difficult to achieve. They were met in the first and third quarters, but not in the second or fourth quarters. It was a challenging year while we focused on growing our ALM business while at the same time managing our cost structure. We also moved our headquarters, which involved significant transition efforts. In sum, we wanted to motivate the executive team and the employees to engage in the effort to achieve the operating targets by staying focused and actively engaging in measures to keep costs within their budgets. The goal of our operating
budget as a whole and each departments operating budget was to reduce or eliminate expenses that are not reasonably necessary for us to achieve our strategic and financial objectives.
Under the 2007 ICP, if Borland met its Targets for any quarter, before executives or other employees are entitled to payment, they must also achieve their individual goals to be paid their bonuses. Individual goals are set by the managers or the Compensation Committee and the process to determine goals includes consultation with the employee or officer. Individual goals are meant to require effort above and beyond what the persons day-to-day job would typically require. For example, many goals consist of tasks that are not necessary for the persons job but would benefit the persons department and Borland. They are generally goals the person might not otherwise accomplish without an incentive. Achievement of goals is meant to require significant, but not overwhelming, effort by the employee or officer.
The 2007 ICP was also designed to encourage over-achievement. There are quarterly over-achievement objectives based on operating income performance and for each objective we reach, employees would receive a 5% increase in the target bonus payable for the applicable quarter. Each quarter is measured independent of other quarters. Target bonuses are established as a percentage of the employees salary, which varies by the employees position and responsibilities.
During the first half of 2007, we met our Targets in the first quarter but not in the second quarter. The 2007 ICP pays out twice a year and consequently, the payout for the first half only pertained to goals for the first quarter. Since Borland did not meet Targets for the second quarter, there were no bonuses paid under the 2007 ICP. We feel that the 2007 ICP operated as we had planned in that when operating income fell short in the second quarter of 2007, it did not result in the payment of bonuses and this in turn benefited the companys financial performance for the quarter. No rewards were received when the companys performance fell short.
However, motivation was not lost for the remainder of 2007, which was a part of the design plan. Since each quarter is measured independent of other quarters, failure to reach a goal in any quarter does not preclude reaching a goal and receiving a bonus in any other quarter. Borland overachieved in relation to its Target for the third quarter and the Compensation Committee approved overachievement payment at 105% of the total amount available for payment to the participants in the 2007 ICP.
To illustrate how the 2007 ICP was designed and how it operated, the table below provides the target bonuses, the total possible bonuses (since each participant can earn more than their target based on our over-achievement of goals) and the amount actually earned in 2007 for each participant:
As illustrated above, the target bonuses for Messrs. Nielsen and Packer are 100% of their base salaries and the target bonuses for the other executives are 50%. We believe that Messrs. Nielsen and Packer, as CEO and the head of sales and services, have a greater opportunity to influence our operating results by virtue of their duties. The others on the executive team also have important roles in this process, but their ability to impact the top line of our financial
performance is one step removed. For this reason, we decided to provide them with an additional incentive through the 2007 ICP.
The exception is with respect to Mr. Prusch, who was guaranteed to receive his maximum bonus for 2007 as a special incentive to recruit him as the new Chief Financial Officer for Borland in November 2006. Mr. Prusch was a crucial hire that was essential for Borland at the time. During 2007, Mr. Prusch has made significant contributions to Borland, including the efforts he made to enable our SEC filings to be made on time and leading his team to implement important cost saving measures. Mr. Pruschs bonus will not be guaranteed under the 2008 ICP and will be subject to performance as is the case with the other officers.
Our equity compensation plans are meant to encourage employees to increase the value of our enterprise. Employees will realize value under a stock option if the price of the underlying stock increases over the term of the option. We also view our equity compensation plans as retention tools because they link compensation to stock performance over a period of time. Stock options usually vest over four years, with 25% of the shares vesting on the first anniversary of the employees hire date, or the date of grant in the case of a grant to a current employee, and the remaining 75% of the shares vesting in equal monthly increments over the following three years. Vesting is contingent upon the employees continued service to us over the term of the option.
Each option grant expires ten years from the date of grant and has an exercise price equal to or greater than 100% of fair market value of our common stock on the date of grant, as determined by the closing price on the Nasdaq Stock Market on such date. In October 2007, our Compensation Committee adopted the practice that the grant date for options to employees would be the last date of the month in which the employee was hired or in which the Compensation Committee approved the grant.
We have made equity compensation a significant element in our compensation plans for executives. We believe it will align the incentives of our executives with the interests of our stockholders. We believe that as we continue to grow and work toward improving profitability and achieving our strategic goals this will give us an advantage in attracting and retaining talent. Based on the study performed for us by Radford, we offer our named executive officers equity compensation that is equal to or slightly higher than the 75th percentile of our current stage peer companies. Equity grants made to executive officers, other than Mr. Nielsen, vest over the standard four year vesting schedule described above. In addition, the terms of stock options granted to named executive officers provide that all unvested shares automatically vest in the event of an involuntary or constructive termination of employment within the period beginning two months before and ending 12 months following the consummation of a change in control of Borland.
We granted restricted stock to Messrs. Nielsen, Prusch, Morowski and Wrenn in 2006 as an additional means to retain them, which we believe would also provide an incentive for them to lead Borland to achieve its strategic goals. Restricted stock grants to executives, other than Mr. Nielsen, vest over two years, subject to the executives continued employment, with 50% of the shares vesting on the first anniversary of the executives employment start date and the remaining shares vesting over the following year in four equal quarterly increments. If the executive is terminated without cause following a change in control of Borland, 100% of the unvested shares subject to the executives restricted stock award would automatically vest.
Equity Compensation Terms for Tod Nielsen
When we hired Mr. Nielsen in November 2005, we agreed to provide him with special equity compensation terms as an additional incentive to join Borland and lead us through this important transition period. Mr. Nielsen was granted an initial stock option award for 1,500,000 shares, which vests over the standard four year vesting schedule applicable to other employees described above and he would be entitled to the acceleration provisions applicable to the other named executive officers described above.
Mr. Nielsen was also granted 250,000 shares of restricted stock pursuant to his employment agreement. The terms of the restricted stock grant provide that the shares vest over four years from the date of grant. However, the restricted shares are subject to acceleration as follows: (i) 125,000 of the shares shall vest early upon achievement of corporate performance targets established by the Compensation Committee for the 2006 fiscal year and (ii) 125,000 of the shares shall vest early upon achievement of corporate performance targets established by the Compensation Committee for the 2007 fiscal year. The corporate performance targets established by the Compensation Committee for Mr. Nielsens restricted stock award acceleration for the 2006 fiscal year required that we recognize revenue for the year from sales of our ALM products and services in a certain amount established in advance by the Compensation Committee, and if this criterion was met, then 60% of the restricted stock applicable to 2006, or 75,000 shares, would vest early. An additional 40% of the restricted stock applicable to 2006, or 50,000 shares, would vest early based on our achieving quarterly Non-GAAP earnings per share targets as established in advance by the Compensation Committee, provided we also met the ALM revenue target. In March 2007, the Compensation Committee determined that the 2006 targets were met and Mr. Nielsen became vested early in 125,000 shares. For 2007, the Compensation Committee established in advance quarterly performance targets for Mr. Nielsen equal to the quarterly operating income targets set for the 2007 ICP. Mr. Nielsen would be entitled to accelerated vesting of all or part of the additional 125,000 shares under his restricted stock grant based on performance against the quarterly operating income targets for the 2007 fiscal year once audited results were available. In March 2008, the Compensation Committee determined the quarterly targets were met for two of the four quarters in the 2007 fiscal year, and therefore approved acceleration of only 50% of the 125,000 eligible restricted shares, a total of 62,500 shares, and denied acceleration as to the rest. The remaining restricted shares will vest over the original four-year period following the date of grant.
Employee Stock Purchase Plan
We have offered and intend to continue to offer participation in our Employee Stock Purchase Plan (the ESPP) to all executives and employees. The ESPP allows employees to buy our common stock at a discount to the market price with up to 10% of their salary (subject to certain limits), with the objective of allowing employees to profit when the value of our stock increases over time.
To be competitive in the market for talented executives, we have agreed to provide reasonable severance benefits. In determining the amounts and types of severance benefits, our Compensation Committee consulted Radford and reviewed the range of severance benefits provided by our current stage peers and next stage peers. The Compensation Committee also considered what they thought would be reasonable in light of the executives position and our performance. We generally provide our senior executive officers with severance benefits in the event of an involuntary termination of the executives employment without cause, a voluntary termination of employment as a result of construction termination or for the failure of any company or person who may acquire us to assume these obligations. Our severance benefits for the current named executive officers are described below under Potential Payments Upon Termination or Change in Control.
We have considered it appropriate in certain circumstances to provide benefits beyond the core elements of compensation for executive officers in some circumstances. We believe that reasonable perquisites should be provided as necessary to attract and retain the talent we need to enable us to achieve our strategic objectives.
In order to facilitate the relocation of our headquarters from California to Texas, we agreed to provide relocation benefits to Messrs. Nielsen and Prusch. These benefits were aimed at covering costs and providing a reasonable incentive to relocate. Details are provided in the Summary Compensation Table below.
As noted in the Summary Compensation Table below, Messrs. Nielsen and Wrenn have access to a private golf club membership paid for by Borland. However, in 2006 we began the process required to sell the membership as we do not believe this is a necessary perquisite. Borland is still on the waiting list to have the golf membership sold.
Borland has a tax-qualified 401(k) Retirement Plan (the Retirement Plan) which is available to eligible employees in the United States. The Retirement Plan is a defined contribution plan designed to accumulate retirement funds for employees, including executive officers, and to allow us to make contributions to those funds. Each participant may elect to contribute up to the statutory maximum dollar amount in the Retirement Plan, which was $15,500 for people under 50 and $20,500 for people over 50 in 2007 and will remain unchanged in 2008. We also make a matching contribution, which in 2007 was a fixed amount equal to 50% of an employees salary deferrals up to 6% of an employees compensation. Contributions made by us under the Retirement Plan are immediately vested. Employees are eligible to direct the investments of certain portions of their interest under the Retirement Plan. Employees are not able to invest in Borland stock under the Retirement Plan.
Tax and Accounting Considerations
To maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, we have not adopted a policy that all compensation must be deductible under Section 162(m). Section 162(m) of the Code disallows a tax deduction to publicly-held companies for compensation paid to certain named executive officers, to the extent that compensation exceeds $1 million per officer in any year. Compensation above $1 million may be deducted if it is performance-based compensation within the meaning of Section 162(m) of the Code.
We, the Compensation Committee of the Board of Directors of Borland Software Corporation, have reviewed and discussed the Compensation Discussion & Analysis contained in this proxy statement with management. Based on such review and discussion, we have recommended to the Board of Directors that the Compensation Discussion & Analysis be included in this proxy statement and in Borland Software Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
T. Michael Nevens (Chairman)
William K. Hooper
John F. Olsen
SUMMARY COMPENSATION TABLE
The Summary Compensation Table below shows compensation information for the fiscal years ended December 31, 2007 and December 31, 2006 for:
(i) our Chief Executive Officer,
(ii) our Chief Financial Officer, and
(iii) our three other most highly compensated executive officers serving as such on December 31, 2007.
As used in this proxy statement, the term named executive officers means all persons identified in the Summary Compensation Table.
Amounts reported under the Non-Equity Incentive Plan Compensation column below consist of bonuses earned in 2007 under our Executive ICP. The Executive ICP is described above in the Compensation Discussion & Analysis section.
A discussion of our equity compensation plans is provided in the Compensation Discussion & Analysis and Equity Compensation Plan Information sections above and details regarding particular grants made to the named executive officers are provided in the tables that follow.
2007 GRANTS OF PLAN-BASED AWARDS
Set forth in the table below is information regarding:
Information about our Executive ICP and equity compensation programs is described above under Compensation Discussion & Analysis and information about our stock incentive plans is provided above under Equity Compensation Plan Information.
The following table summarizes the number of shares acquired and the value realized upon exercise of option awards or the vesting of restricted stock awards held by each named executive officer during the year ended December 31, 2007. There were no exercises of option or stock awards by the named executive officers during 2007.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table summarizes the outstanding equity awards held by each named executive officer as of December 31, 2007.
Regardless of the manner in which a named executive officers employment terminates, he would be entitled to receive amounts earned during his term of employment, including, base salary, unused vacation pay, amounts accrued under our Retirement Plan and any vested shares of restricted stock or shares of common stock subject to options granted prior to the executives termination. The named executive officers are not otherwise entitled to any severance benefits upon a voluntary termination unless the termination was considered a constructive termination, which is discussed below, or special benefits are negotiated at the time of termination. Our Compensation Committee determines whether any severance benefits would be provided upon any voluntary termination on a case by case basis.
We have entered into employment agreements with each of our named executive officers in which we agreed to provide severance benefits in the event the named executive officer is terminated without cause or voluntarily resigns as a result of a constructive termination, as defined below (each a Qualifying Termination) or if there is a
Qualifying Termination that occurs within the period beginning 2 months before and ending 12 months following a change of control of Borland, provided in each case that the executive signs a general release in favor of Borland.
Under the employment agreements with the named executive officers, a constructive termination would occur in any of the following circumstances: (i) any significant reduction or diminution (except temporarily during any period of disability) in Executives titles or positions or any material diminution in Executives authority, duties or responsibilities with the Company which is made without the Executives consent, (ii) any material breach of the Employment Agreement by the Company, which breach, if curable, is not cured within 30 days following written notice of such breach from the Executive; or (iii) the failure to nominate the Executive to the Board at any time hereafter or the removal of Executive there from. In addition, if there was a change of control of Borland and he was not the president and chief executive officer of the successor entity, he would be deemed to have been constructively terminated.
For all named executive officers other than Mr. Nielsen, with respect to a Qualifying Termination that is not in connection with a change in control, we have agreed to provide for a severance payment equal to 50% of the executives annual base salary less applicable withholding obligations. With respect to a Qualifying Termination that occurs within the period beginning 2 months before and ending 12 months following a change in control of Borland, we would provide for a severance payment equal to 100% of the executives annual base salary less applicable withholding obligations. In connection with a Qualifying Termination either in connection with a change of control or otherwise, the executive would be entitled to continuation of health coverage by having Borland pay the executives COBRA premiums for up to 12 months. In addition, in the event of a Qualifying Termination either 2 months before or 12 months after a change of control of Borland, all unvested shares of common stock subject to stock options or restricted stock grants held by the executive would become 100% vested.
Pursuant to our employment agreement with Tod Nielsen, should Mr. Nielsen experience a Qualifying Termination, Mr. Nielsen will be entitled to a severance payment equal to 100% of his annual base salary. Should Mr. Nielsen experience a Qualifying Termination in connection with a change of control, he will be entitled to a severance payment equal to his annual salary and bonuses (in an amount no less than the average for the last two years or his Incentive Compensation Plan bonus target of 100% of his base salary, whichever is higher), payable in a lump sum. Mr. Nielsen will also be entitled to full acceleration of any unvested and outstanding option, restricted stock and any other unvested and outstanding equity award in connection with a change of control of Borland.
The table below sets forth estimates of amounts that would be paid to the named executive officers in the event of a Qualifying Termination, other than in connection with a Change of Control of the Company, assuming that the terminations were effective on December 31, 2007. The amounts below do not include amounts we would withhold pursuant to our withholding obligations. The actual amounts to be paid to any named executive officer upon termination can only be calculated as of any such termination.
The table below sets forth estimates of amounts that would be paid to the named executive officers in the event of a Qualifying Termination in connection with a Change of Control of the Company, assuming that the terminations were effective on December 31, 2007. The amounts below do not include amounts we would withhold pursuant to our withholding obligations. The actual amounts to be paid to any named executive officer upon termination can only be calculated as of any such termination.
As discussed above, during 2006, our Compensation Committee consisted of Messrs. Nevens, Hooper and Olsen. None of these members is an officer or employee of Borland, and none of our executive officers serve as a member of a Compensation Committee of any entity that has one or more executive officers serving as a member of our Compensation Committee.
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Our Code of Conduct obligates our service providers, including executive officers and directors, to discuss any actual or potential related party transactions with our General Counsel. Our General Counsel coordinates obtaining the prior consent of our Audit Committee (or other independent committee of our Board of Directors, as appropriate) for any proposed related party transaction. Any request for us to enter into a transaction with an executive officer, director, principal stockholder, or any of such persons immediate family members or affiliates in which the amount involved would exceed $120,000 must first be presented to our Audit Committee for review and approval or rejection. In approving or rejecting the proposed transaction, our Audit Committee would consider the relevant facts and circumstances available and deemed relevant, including, but not limited to, the risks, costs and
benefits to us, the terms of the transaction, the availability of other sources for comparable services or products, and, if applicable, the impact on a directors independence.
In December 2006, our Audit Committee approved entering into an Independent Contractor Agreement with DPA Associates, pursuant to which DPA Associates provided consulting services relating to our financial reporting systems and procedures. A member of Mr. Pruschs immediate family is a principal of DPA Associates. We believe that the agreement with DPA Associates is on terms no more favorable than those with unrelated parties and that Mr. Prusch has not had and will not have a direct or indirect material interest in this transaction. All services under the contract were performed and the contract has terminated.
We have entered into indemnity agreements with our executive officers and directors which provide, among other things, that we will indemnify such executive officer or director, under the circumstances and to the extent provided for therein, for expenses, damages, judgments, fines and settlements he or she may be required to pay in actions or proceedings which he or she is or may be made a party by reason of his or her position as a director, executive officer or other agent of our Board of Directors, and otherwise to the fullest extent permitted under Delaware law and our Bylaws. We also intend to execute these agreements with our future executive officers and directors.
See the section above entitled Employment, Severance and Change of Control Arrangements for a description of the terms of our 2002 Stock Incentive Plan related to a change of control.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates, as of April 4, 2008, how many shares of common stock are owned by:
This table is based upon information supplied by officers, directors and Schedules 13G filed with the SEC. The percentage of ownership has been calculated based on the number of outstanding shares of our common stock as of April 4, 2008. Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable.
The following table provides information regarding our equity compensation plans as of December 31, 2007:
The following summary of the material features of our 1998 Nonstatutory Stock Option Plan and the 2003 Supplemental Stock Option Plan do not purport to be complete and are qualified in their entirety by reference to the specific language of such plans, which may be found by referring to the exhibit list in our Annual Report on Form 10-K for the year ended December 31, 2007. In addition, any stockholder who wishes to obtain a copy of the actual plan documents may receive them upon written request to Borland Investor Relations, 8303 N. MoPac Expressway, Suite A-300, Austin, Texas 78759.
As of December 31, 2007, there were 12,058 shares subject to outstanding awards under the 1998 Nonstatutory Stock Option Plan (the 1998 Plan) and 0 (zero) shares available for future option grants out of a total of 200,000 shares of common stock reserved for issuance under the 1998 Plan. The 1998 Plan provides for the grant to employees (excluding executive officers) and consultants of nonstatutory stock options with exercise prices not less than 85% of the fair market value of our common stock on the date of the grant and a maximum term of ten years. The Board of Directors has the power under the 1998 Plan to determine who receives an option grant, and the terms
of such option, including the number of shares subject to such option, the exercise price, and the term and the vesting schedule. Options granted under the 1998 Plan generally have a term of ten years and vest over a period of four years following the date of grant. Our Board of Directors administers the plan and may delegate administration to a committee composed of members of the Board of Directors. Our Board of Directors, in its sole discretion, may provide in any option agreement that, in the event of a change in control, the exercisability and vesting of the outstanding option shall accelerate upon such circumstances and to such extent as specified in the option agreement. Any options which are neither assumed or substituted for by the acquiring entity in connection with a change in control nor exercised as of the date of the change in control will terminate and cease to be outstanding effective as of the date of the change in control. In the event of a change in control where we are the surviving or continuing corporation then the outstanding options under the 1998 Plan shall not terminate unless our Board of Directors otherwise provides in its sole discretion.
In January 2003, our Board approved the adoption of the 2003 Supplemental Stock Option Plan (the 2003 Plan). The principal purpose of the 2003 Plan was to provide for inducement grants to encourage employees to join us, including in connection with a merger or acquisition.
On November 7, 2005, our Board approved the adoption of certain amendments to the 2003 Plan. The principal purpose of the amendments was to allow for the issuance of stock options to Mr. Nielsen, Borlands newly appointed President and Chief Executive Officer, in connection with his commencement of employment with Borland. The amendments (i) increased the number of shares available for grant by 1,750,000 shares, and (ii) allowed for the issuance of restricted stock and share right awards under the 2003 Plan. On February 7, 2006, our Board approved the adoption of certain amendments to the 2003 Plan. The amendments to the 2003 Plan (i) increase the number of shares available for grant by 560,000 shares and (ii) permit the Compensation Committee of the Board to have the power to amend or modify the 2003 Plan and any awards granted thereunder. On March 14, 2006, the Compensation Committee of the Board approved an amendment to increase the number of shares available for grant under the 2003 Plan by 1,100,000 shares.
As of December 31, 2007, we had reserved 4,910,000 shares of common stock for issuance under the 2003 Plan, and there were 3,144,407 shares subject to outstanding awards under the 2003 Plan and 1,364,645 shares available for future option grants. The 2003 Plan provides for the grant to: (i) employees, who have not previously been an employee or director of the corporation; and (ii) where the stock option grant is an inducement material to that person entering into employment with the corporation. Under these requirements, persons who become employees as a result of a merger or acquisition will be eligible for the grant of stock options under the 2003 Plan. The grants consist of nonstatutory stock options with exercise prices not less than 100% of the fair market value of our common stock on the date of the grant and may have a maximum term of no more than ten years. The Compensation Committee of the Board of Directors or a majority of the independent directors on the Board of Directors has the power under the 2003 Plan to determine who receives an option grant, and the terms of such option including the number of shares subject to such option, the exercise price, the term and the vesting schedule. Options granted under the 2003 Plan generally vest over a period of four years following the date of grant and options granted under the 2003 Plan to named executive officers provide for acceleration provisions as described under Potential Payments Upon Termination or Change in Control. The plan administrator has the discretionary authority to structure one or more future option grants under the 2003 Plan so that each of those particular options will automatically accelerate in whole or in part, upon a change in control or in other circumstances.
Section 16(a) of the Securities and Exchange Act of 1934 requires our directors and executive officers and persons who own more than ten percent (10%) of our common stock to file initial reports of ownership and reports of changes in ownership of our common stock with the Securities and Exchange Commission (the SEC) and the Nasdaq Stock Market. 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 the Forms 3, 4 and 5 filed by or received from our reporting persons (or written representations received from such persons), we believe all reports required by Section 16(a) to be filed by our officers, directors and greater than ten percent (10%) beneficial owners were filed on time during the year ended December 31, 2007, other than one Form 4 filed on behalf of Robert Tarkoff, one of our directors.
In our filings with the SEC, information is sometimes incorporated by reference. This means that we are referring you to information that has previously been filed with the SEC and the information should be considered as part of the particular filing. As provided under SEC regulations, the Audit Committee Report contained in this proxy statement is specifically not incorporated by reference into any other filings with the SEC. In addition, this proxy statement includes website addresses. These website addresses are intended to provide inactive, textual references only. The information on these websites is not part of this proxy statement.
Stockholder proposals may be included in our proxy materials for an Annual Meeting so long as they are provided to us on a timely basis and satisfy the conditions set forth in Rule 14a-8 under the Securities Exchange Act of 1934 (the Exchange Act). For a stockholder proposal to be included in our proxy materials for the 2008 Annual Meeting of Stockholders, the proposal must be submitted in writing by December 22, 2008, to our Corporate Secretary at 8303 N. MoPac Expressway, Suite A-300, Austin, Texas 78759. If you wish to submit a proposal outside of the process of Rule 14a-8 under the Exchange Act, in order for such proposal to be considered timely for the purposes of Rule 14a-4(c) under the Exchange Act, the proposal must be received at the above address not later than March 9, 2009. In addition, our Bylaws require that proposals of stockholders made outside of Rule 14a-8 under the Exchange Act must be submitted, in accordance with the requirements of our Bylaws, not later than February 27, 2009 and not earlier than January 29, 2009; provided, however, that in the event that the 2008 Annual Meeting is called for a date that is not within 25 days before or after May 28, 2009, such proposal must be received not later than the close of business on the tenth day following the day on which notice of the date of the Annual Meeting was mailed or public disclosure of the date of the Annual Meeting was made, whichever first occurs. You are also advised to review our Bylaws, which contain additional requirements about advance notice of stockholder proposals and director nominations.
Our Board knows of no other matters that have been submitted for consideration at this Annual Meeting. If any other matters properly come before our stockholders at this Annual Meeting, the persons named on the enclosed proxy card intend to vote the shares they represent in accordance with their best judgment.
A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 is being mailed concurrently with this proxy statement (as part of our annual report to stockholders). A copy of our Annual Report on Form 10-K is also available without charge from our website at www.borland.com or upon written request to: Borland Investor Relations, Borland Software Corporation, 8303 N. MoPac Expressway, Suite A-300, Austin, Texas 78759.
By Order of the Board of Directors,
Gregory J. Wrenn
Senior Vice President, General Counsel and
April 17, 2008
CERTIFICATE OF AMENDMENT
RESTATED CERTIFICATE OF INCORPORATION
BORLAND SOFTWARE CORPORATION
(Pursuant to Section 242 of the Delaware General Corporation Law)
The undersigned, Tod Nielsen and Gregory J. Wrenn, hereby certify that:
FIRST: They are the President and Secretary, respectively, of Borland Software Corporation, a Delaware corporation (the Corporation), the original Certificate of Incorporation of which was filed with the Secretary of State of the State of Delaware on July 10, 1989.
SECOND: This Certificate of Amendment to the Restated Certificate of Incorporation amends Article THIRD of the Restated Certificate of Incorporation of the Corporation by deleting section (a) of Article THIRD and substituting in lieu thereof the following new section (a) of Article THIRD, to read in its entirety as:
(a) This Corporation is authorized to issue two (2) classes of stock to be designated, respectively, Preferred Stock and Common Stock. The total number of shares of all classes of stock which the Corporation shall have authority to issue is two hundred and one million (201,000,000) shares. One million (1,000,000) shares shall be Preferred Stock, with a par value of Once Cent ($0.01) per share, and two hundred million (200,000,000) shares shall be Common Stock, with a par value of One Cent ($0.01) per share.
Upon the filing and effectiveness of this amendment to the Restated Certificate of Incorporation (the Effective Time), every [two (2)] [three (3)] [four (4)] [five (5)] shares of the Corporations common stock, par value $.01 per share (the Old Common Stock), issued and outstanding immediately prior to the Effective Time will be automatically and without any action on the part of the respective holders thereof, combined and reclassified into one (1) share of the Corporations common stock, par value $.01 per share (the New Common Stock) (and such combination and conversion, the Reverse Stock Split).
Notwithstanding the immediately preceding sentence, no fractional shares of New Common Stock shall be issued to the holders of record of Old Common Stock in connection with the Reverse Stock Split and the Corporation shall not recognize on its stock record books any purported transfer of any fractional share of New Common Stock. In lieu thereof, the aggregate of all fractional shares otherwise issuable to the holders of record of Old Common Stock shall be issued to Mellon Shareholder Services, LLC, the transfer agent, as agent for the accounts of all holders of record of Old Common Stock and otherwise entitled to have a fraction of a share issued to them. The sale of all of the fractional share interests will be effected by the transfer agent as soon as practicable after the Effective Time on the basis of the prevailing market prices of the New Common Stock at the time of the sale. After such sale and upon the surrender of the stockholders stock certificates, the transfer agent will pay to such holders of record their pro rata share of the total net proceeds derived from the sale of the fractional share interests. Each stock certificate that, immediately prior to the Effective Time, represented shares of Old Common Stock shall, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent that number of whole shares of New Common Stock into which the shares of Old Common Stock represented by such certificate shall have been reclassified (as well as the right to receive cash in lieu of any fractional share interests of New Common Stock as set forth above), provided, however, that each holder of record of a certificate that represented shares of Old Common Stock shall receive, upon surrender of such certificate, a new certificate representing the number of whole shares of New Common Stock into which the shares of Old Common Stock represented by such certificate shall have been reclassified, as well as any cash in lieu of fractional share interests of New Common Stock to which such holder may be entitled as set forth above.
THIRD: This Certificate of Amendment to the Restated Certificate of Incorporation has been duly adopted by the Board of Directors and stockholders of the Corporation in accordance with Sections 242 and 228 of the General Corporation Law of the State of Delaware.
FOURTH: The effective time of this Certificate of Amendment to the Restated Certificate of Incorporation and the amendment effected hereby shall be 11:59 p.m. EDT/EST on , 20 .
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment to the Restated Certificate of Incorporation on this day of , 20 .
President and Chief Executive Officer
Gregory J. Wrenn
SVP, General Counsel and Secretary
BORLAND SOFTWARE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS SCHEDULED TO BE HELD ON MAY 28, 2008
The undersigned hereby appoints Tod Nielsen, Gregory J. Wrenn and Erik E. Prusch, and each of them, as attorneys-in-fact and proxies of the undersigned, with full power of substitution, to vote all shares of common stock of Borland Software Corporation which the undersigned would be entitled to vote at the Annual Meeting of Stockholders of Borland Software Corporation scheduled to be held on May 28, 2008, at 10:00 a.m., local time, at the headquarters of Borland Software Corporation, 8303 N. MoPac Expressway, in the Boardroom, Suite B-121, Austin, Texas 78759 and at any postponements or adjournments thereof, with all powers that the undersigned would possess if personally present, upon and in respect of the following matters and in accordance with the following instructions, with discretionary authority as to any and all other matters that may properly come before the meeting or any postponements or adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON THE REVERSE SIDE. UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTEDFOR PROPOSAL 1, FOR ALL NOMINEES LISTED IN PROPOSAL 2 AND FOR PROPOSAL 3, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
IMPORTANT TO BE SIGNED AND DATED ON REVERSE SIDE
SEE REVERSE SIDE
THERE ARE THREE WAYS TO VOTE YOUR PROXY
PLEASE DETACH PROXY CARD HERE
þ PLEASE MARK VOTES AS IN THIS EXAMPLE