<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[x] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
DATUM INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
DATUM INC.
[LOGO]
9975 TOLEDO
IRVINE, CALIFORNIA 92618
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 4, 1998
To the Stockholders of Datum Inc.:
Please take notice that the Annual Meeting of Stockholders of Datum Inc.
(the "Company") will be held at the Company's corporate offices located at 9975
Toledo, Irvine, California, on Thursday, June 4, 1998, at 1:30 p.m. local time,
for the following purposes:
1. To elect three directors to Class II of the Company's Board of
Directors to serve until the 2001 Annual Meeting of Stockholders;
2. To consider and vote upon a proposal to approve and adopt an
amendment to the Company's 1994 Stock Incentive Plan to increase the number of
shares issuable thereunder by 200,000 shares; and
3. To consider and vote upon a proposal to approve and adopt an
amendment to the Company's 1994 Stock Incentive Plan to increase the maximum
number of shares issuable thereunder by an amount, each year, equal to 2% of the
number of shares of Common Stock outstanding as of the Company's fiscal year
end; and
4. To transact such other business as may properly come before
the Annual Meeting or any adjournment or postponement thereof.
At the Annual Meeting, the Board of Directors intends to present Louis
B. Horwitz, Dan L. McGurk and Erik H. van der Kaay as the nominees for election
to the Board of Directors.
Only stockholders of record on the books of the Company at the close of
business on April 17, 1998 will be entitled to notice of and to vote at the
Annual Meeting or any adjournment or postponement thereof.
All stockholders are cordially invited to attend the Annual Meeting in
person. A majority of the outstanding shares must be represented at the Annual
Meeting in order to transact business. Consequently, if you are unable to attend
in person, please execute the enclosed proxy and return it in the enclosed
addressed envelope. Your promptness in returning the proxy will assist in the
expeditious and orderly processing of the proxies.
<PAGE> 3
If you return your proxy, you may nevertheless attend the Annual Meeting
and, if you wish, vote your shares in person.
By Order of the Board of Directors,
DATUM INC.
/s/ DAVID A. YOUNG
-------------------------------
David A. Young
Secretary
Irvine, California
May 1, 1998
<PAGE> 4
DATUM INC.
[LOGO]
9975 TOLEDO
IRVINE, CALIFORNIA 92618
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 4, 1998
----------
PROXY STATEMENT
----------
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of Datum
Inc. (the "Company") for use at the Company's Annual Meeting of Stockholders to
be held at the Company's executive offices located at 9975 Toledo, Irvine,
California, on Thursday, June 4, 1998 at 1:30 p.m. local time, and at any and
all adjournments or postponements thereof. All shares represented by each
properly executed, unrevoked proxy received in time for the Annual Meeting will
be voted in the manner specified therein. If the manner of voting is not
specified in an executed proxy received by the Company, the proxy will be voted
FOR the election of the nominees to the Board of Directors listed in the proxy,
FOR the proposal to approve an amendment to the Company's 1994 Stock Incentive
Plan to increase the number of shares issuable thereunder by 200,000 shares and
FOR the proposal to approve an amendment to the Company's 1994 Stock Incentive
Plan to increase the maximum number of shares issuable thereunder by an amount,
each year, equal to 2% of the number of shares of Common Stock outstanding as of
the Company's fiscal year end. Any stockholder has the power to revoke his proxy
at any time before it is voted. A proxy may be revoked by delivering a written
notice of revocation to the Secretary of the Company, by presenting at the
Annual Meeting a later-dated proxy executed by the person who executed the prior
proxy, or by attendance at the Annual Meeting and voting in person by the person
who executed the proxy.
This Proxy Statement is being mailed to the Company's stockholders on or
about May 1, 1998. The solicitation will be by mail and the cost will be borne
by the Company. Expenses will also include reimbursements paid to brokerage
firms and others for their expenses incurred in forwarding solicitation material
regarding the Annual Meeting to beneficial owners of the Company's Common Stock.
Further solicitation of proxies may be made by telephone or oral communication
with some stockholders by the Company's regular employees who will not receive
additional compensation for the solicitation.
<PAGE> 5
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of the 5,391,077 shares of the Company's Common
Stock outstanding at the close of business on April 17, 1998 will be entitled to
notice of and to vote at the Annual Meeting or any adjournment or postponement
thereof. On each matter to be considered at the Annual Meeting, stockholders
will be entitled to cast one vote for each share held of record on April 17,
1998.
An automated system administered by the Company's transfer agent will
tabulate votes cast at the Annual Meeting. A majority of the shares entitled to
vote, represented in person or by proxy, will constitute a quorum at the Annual
Meeting. Abstentions and broker non-votes are each included in the determination
of the number of shares present and voting for the purpose of determining
whether a quorum is present, and each is tabulated separately. Abstentions will
be treated as shares present and entitled to vote for purposes of any matter
requiring the affirmative vote of a majority or other proportion of the shares
present and entitled to vote. With respect to shares relating to any proxy as to
which a broker non-vote is indicated on a proposal, those shares will not be
considered present and entitled to vote with respect to any such proposal.
Abstentions or broker non-votes or other failures to vote will have no such
effect in the election of directors, who will be elected by a plurality of the
affirmative votes cast.
2
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 17, 1998, (i) by each person
(or group of affiliated persons) who is known by the Company to own beneficially
more than five percent of the Company's Common Stock, (ii) by each of the
Company's directors, including the Company's Chief Executive Officer (the "CEO")
(iii) by each of the four other most highly compensated executive officers,
other than the CEO (collectively the "Named Executive Officers"), and (iv) by
all directors and executive officers as a group. Except as indicated in the
footnotes to this table, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where applicable.
<TABLE>
<CAPTION>
PERCENT OF
OUTSTANDING SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS (1) OWNED OWNED
- -------------------- ------------- -------------
<S> <C> <C>
State of Wisconsin Investment Board 312,100(2) 5.8%
121 East Wilson Street
Madison, WI 53707
G. Tilton Gardner, Director 36,000(3) *
R. David Hoover, Director 3,500(3) *
Louis B. Horwitz, Director, 238,713(3)(5) 4.4%
Chairman of the Board(4)
Michael M. Mann, Director 55,000(3)(6) 1.0%
Dan L. McGurk, Director 36,000(3) *
Edward A. Money, Director 44,000(3) *
Erik H. van der Kaay, 30,000(8) *
Chief Executive Officer,
President and Director(7)
Heinz Badura, Vice President 23,397(3)(9) *
John (Jack) R. Rice, Vice President 20,992(3)(10) *
Raymond L. Waguespack, Vice President 14,135(3) *
David A. Young, Vice President 15,142(3)(11) *
and Chief Financial Officer
All Officers and Directors 558,547(12) 9.9%
as a Group (14 persons)
</TABLE>
- ----------
*Less than 1%
3
<PAGE> 7
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person
that are currently exercisable or exercisable within 60 days of April
17, 1998 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of
each other person. To the Company's knowledge, except as set forth in
the footnotes to this table and subject to applicable community property
laws, each person named in the table has sole voting and investment
power with respect to the shares set forth opposite such person's name.
Information with respect to beneficial ownership is based upon the
Company's stock records and data supplied to the Company by the holders.
(2) Based upon Schedule 13G filed with the Securities and Exchange
Commission on January 26, 1998.
(3) Included in the total number of shares listed are 2,500 shares for Mr.
Hoover, 65,000 shares for Mr. Horwitz, 22,000 shares for Mr. McGurk,
26,000 for Mr. Money, 22,000 shares for Mr. Mann, 10,811 shares for Mr.
Waguespack, 18,000 shares for Mr. Gardner, 20,000 shares for Mr. Rice,
12,500 shares for Mr. Young and 7,500 shares for Mr. Badura which may be
acquired within sixty days of April 17, 1998 upon exercise of
outstanding options.
(4) Mr. Horwitz resigned as Chief Executive Officer and President on April
6, 1998.
(5) Includes 5,194 shares held for the account of Mr. Horwitz in the
Company's Savings and Retirement Plan. Does not include 25,000 shares
owned by an adult child of Mr. Horwitz.
(6) Includes 33,000 shares that are subject to shared voting and investment
powers. These shares are owned by Blue Marble Development Group, Inc.
Defined Benefit Pension Plan and Trust, of which Mr. Mann and his spouse
are co-trustees.
(7) Mr. van der Kaay was elected Chief Executive Officer, President and
Director effective April 6, 1998.
(8) Represents shares of restricted Common Stock granted upon employment.
(See "Executive Compensation - Severance and Consulting Agreements")
(9) Includes 897 shares held for the account of Mr. Badura in the Company's
Savings and Retirement Plan.
(10) Includes 992 shares held for the account of Mr. Rice in the Company's
Savings and Retirement Plan.
(11) Includes 1,124 shares held for the account of Mr. Young in the Company's
Savings and Retirement Plan. Also includes 498 shares to which Mr. Young
has shared voting or investment powers.
(12) Includes 256,486 shares which may be acquired within sixty days after
April 17, 1998, upon exercise of outstanding options. Also includes
17,502 shares held for the account of officers and directors in the
Company's Savings and Retirement Plan.
4
<PAGE> 8
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a classified
Board of Directors. The Board is divided into three classes designated Class I,
Class II and Class III. The term of each director included in Class II expires
at this Annual Meeting and, consequently, the nominees listed below under the
heading "Class II" are being presented for election as directors to hold office
until the Annual Meeting of Stockholders in 2001. The term of office of each
director included in Class III will continue until the Annual Meeting of
Stockholders in 1999. The term of office of each director in Class I will
continue until the Annual Meeting of Stockholders in 2000.
Messrs. van der Kaay, Horwitz and McGurk are being presented by the
Board for election as directors to serve as members of Class II until the Annual
Meeting of Stockholders in 2001. Messrs. van der Kaay, Horwitz and McGurk are
presently serving as directors of the Company. Unless instructed to the
contrary, the shares represented by the proxies will be voted in favor of the
election of Messrs. van der Kaay, Horwitz and McGurk as directors. Although it
is anticipated that each nominee will be able to serve as a director, should any
nominee become unavailable to serve, the proxies will be voted for such other
person or persons as may be designated by the Company's Board of Directors. The
persons receiving the highest number of votes will be elected as directors.
Stockholders do not have the right to cumulate votes in the election of
directors.
Certain information as of April 17, 1998 with respect to the three
nominees for election as directors and with respect to each director whose term
of office continues is set forth below.
<TABLE>
<CAPTION>
Name of Individual Age Positions Held
- ------------------ --- --------------
<S> <C> <C>
CLASS I
R. David Hoover 52 Director
Edward A. Money 67 Director
CLASS II
Erik H. van der Kaay 57 Chief Executive Officer, President and Director
Louis B. Horwitz 70 Chairman of the Board of Directors
Dan L. McGurk 71 Director
CLASS III
G. Tilton Gardner 62 Director
Michael M. Mann 58 Director
</TABLE>
R. David Hoover has been a director of the Company since March 1995. Mr.
Hoover is currently Vice Chairman and Chief Financial Officer of Ball
Corporation. From 1993 to 1995, he was Senior Vice President and Chief Financial
Officer of Ball Corporation. From 1995 to 1998, he was Executive Vice President
and Chief Financial Officer of Ball Corporation. In 1996, Mr. Hoover was elected
a director of Ball Corporation. Mr. Hoover is currently a director of American
National Bank, a national banking association. Mr. Hoover was appointed to the
Board of Directors of the Company in connection with the Company's acquisition
of Efratom Time and Frequency Products, Inc. and Efratom Elektronik GmbH from
Efratom Holding, Inc., a wholly owned subsidiary of Ball Corporation,
5
<PAGE> 9
pursuant to the terms of the Stockholder's Agreement, dated March 1995, between
the Company and Efratom Holdings, Inc. In June, 1997, after Ball Corporation
sold all of the Datum shares it owned, Mr. Hoover was elected an independent
director of the Company.
Edward A. Money has been a director of the Company since May 1980. He
has been the President of The Edward A. Money Corporation, a company supplying
specialty automotive parts, since February 1982. He was Vice President-Finance,
Treasurer and Secretary of the Company from February 1977 to February 1982.
Erik H. van der Kaay has been a director and the President and Chief
Executive Officer of the Company since April 1998. From 1990 to March 1998, he
held various positions within Allen Telecom, a telecommunications equipment
company, most recently as Executive Vice President. Mr. Van der Kaay is
currently a director of RF Micro Devices, Inc., SSE Telecom and TranSwitch
Corporation.
Louis B. Horwitz has been a director of the Company since May 1975 and
Chairman of the Board of Directors of the Company since October 1976. He served
as President and Chief Executive Officer from October 1976 to April 1998. Prior
to joining the Company, Mr. Horwitz was an independent management consultant,
and an Executive Vice President of Xerox Data Systems, a manufacturer of
computers. Mr. Horwitz is currently a director of Newport Corporation, a
manufacturer of electro-optical components.
Dan L. McGurk has been a director of the Company since May 1977. He has
been a private investor and consultant since 1970. Mr. McGurk is Treasurer and
Chairman of the Board of Southland Title Corporation. Prior to 1970, he was
President of Xerox Data Systems, a manufacturer of computers, and from May 1976
to January 1977, he served as Associate Director of the Office of Management and
Budget, Executive Office of the President of the United States. He is currently
a director of Bowmar Instruments Corporation, a manufacturer of electrical and
electro-mechanical parts and Newport Corporation, a manufacturer of
electro-optical components.
G. Tilton Gardner has been a director of the Company since 1976. Mr.
Gardner is currently a managing director of Cruttenden Roth Incorporated, an
investment banking firm. From February 1993 to January 1998 he served as
Executive Vice President of Van Kasper and Company, an investment banking firm.
From 1965 until 1988, he was associated with Morgan, Olmstead, Kennedy & Gardner
Incorporated, an investment banking firm, serving as Chief Executive Officer and
Chairman of the Board from 1976. In 1988, that company was combined with Wedbush
Securities to form Wedbush Morgan Securities, of which Mr. Gardner served as
Executive Vice President until February 1993.
Michael M. Mann has been a director of the Company since May 1989. He
has been a director and President of the Blue Marble Development Group, Inc., an
international corporate development and consulting group, since its formation in
1988. Mr. Mann is also currently serving as Chairman of the Board of Management
Technology, Inc., a developer of management systems software and as a director
of Safeguard Health Enterprises, a corporation engaged in providing dental and
vision plans. Mr. Mann also provides consulting services to state and federal
governmental agencies and multi-national corporations and has served as a member
of the Army Science Board. From mid-1987 to 1988, Mr. Mann was a senior
consultant and director of Aerospace Industries Centre with Arthur D. Little
Inc., an international consulting firm.
6
<PAGE> 10
The Board of Directors held five meetings during the fiscal year ended
December 31, 1997, one of which was a special telephonic meeting for which no
additional compensation was received. Each director attended at least 75% of all
meetings of the Board of Directors and each committee on which that director
served. Each member of the Board of Directors received $1,000 per month during
the fiscal year ended December 31, 1997 for his services as a director. In
addition, each nonemployee member of the Board of Directors received $500 for
each meeting of the Board of Directors attended by that director and $250 for
each meeting of a committee of the Board attended by that director, other than
committee meetings held in conjunction with meetings of the Board of Directors.
In addition, under the Company's 1994 Stock Incentive Plan, each incumbent
director who is not an employee of the Company is automatically granted a
non-qualified option to purchase 2,000 shares of the Company's Common Stock on
the first business day of each calendar year. Such options (i) have an exercise
price equal to the fair market value of the Common Stock on the date of grant,
(ii) vest in full one year from the date of grant and (iii) have a ten year
term. Mr. Hoover was also granted a non-qualified stock option to purchase
10,000 shares of Common Stock upon election as an independent director in June
1997.
The Board of Directors has an Audit Committee and a Compensation
Committee. The Board of Directors does not have a standing nominating committee.
The principal duties of the Audit Committee are (i) to recommend to the
Board of Directors the selection of the Company's independent accountants, (ii)
to discuss and review with the Company's independent accountants the audit plan,
the auditors' report and management letter and the Company's accounting policies
and (iii) to review the accounting procedures and internal control procedures
recommended by the Company's independent accountants. The Audit Committee held
two meetings during the year ended December 31, 1997. The Audit Committee is
comprised of Messrs. Gardner, McGurk, Money and Mann.
The principal duties of the Compensation Committee are (i) to administer
and approve the annual compensation rates of all officers and key employees of
the Company, (ii) to administer the incentive compensation, stock award, stock
option and other compensation plans of the Company and (iii) to make
recommendations to the Board in connection with such plans. The Compensation
Committee held two meetings during the year ended December 31, 1997. The
Compensation Committee is comprised of Messrs. McGurk, Gardner and Mann. Donovan
Hicks, who resigned as a director in June 1997, and Thomas O'Rourke, whose term
as a director expired in June 1997, served on the Compensation Committee during
a portion of 1997. Mr. Mann was appointed to the Compensation Committee in June
1997.
7
<PAGE> 11
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning
compensation of the Chief Executive Officer and the Named Executive Officers for
services rendered to the Company in all capacities during the three fiscal years
ended December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-----------
ANNUAL SECURITIES
COMPENSATION UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTION(#) COMPENSATION($)(1)
- --------------------------- ---- ------- --------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Louis B. Horwitz(2) 1997 275,000 172,000 -0- 3,756
President, Chief Executive Officer 1996 247,000 203,000 40,000 4,043
and Chairman of the Board 1995 222,000 75,000 -0- 5,006
Heinz Badura(3) 1997 160,000 33,200 10,000 3,639
Vice President of Datum Inc. 1996 150,000 45,000 5,000 3,811
and President of Efratom Time 1995 90,000 50,000 15,000 2,247
and Frequency, Inc.
John (Jack) R. Rice 1997 160,000 28,500 10,000 2,923
Vice President of Datum Inc. 1996 150,000 100,000 5,000 2,792
and President of Austron, Inc. 1995 151,419 30,000 -0- 2,452
Raymond L. Waguespack 1997 125,000 48,500 6,750 4,324
Vice President of Datum Inc. 1996 117,500 31,000 -0- 2,934
and President of International 1995 113,500 -0- 3,750 2,839
Sales
David A. Young 1997 145,000 50,100 10,000 4,356
Vice President of Datum Inc. 1996 130,000 50,000 5,000 4,017
and Chief Financial Officer 1995 120,000 30,000 -0- 3,490
</TABLE>
(1) Amounts shown represent Company contributions under the Company's Savings
and Retirement Plan for the listed executives.
(2) Salary amounts for Mr. Horwitz include director's fees of $12,000, $12,000
and $12,000 for the years 1997, 1996 and 1995, respectively. Mr. Horwitz
resigned as President and Chief Executive Officer on April 6, 1998.
(3) Mr. Badura resigned effective March 26, 1998.
8
<PAGE> 12
OPTION MATTERS
Option Grants. The following table sets forth certain information
concerning grants of options to each of the Company's Named Executive Officers
during the fiscal year ended December 31, 1997. In addition, in accordance with
the rules and regulations of the Securities and Exchange Commission, the
following table sets forth the hypothetical gains or "option spreads" that would
exist for the options. Such gains are based on assumed rates of annual compound
stock appreciation of 5% and 10% from the date on which the options were granted
over the full term of the options. The rates do not represent the Company's
estimate or projection of future Common Stock prices and no assurance can be
given that the rates of annual compound stock appreciation assumed for the
purposes of the following table will be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION OPTION TERM
NAME GRANTED(#) FISCAL YEAR(1) PRICE($/SH) DATE(2) 5%($) 10%($)
- ---- -------- ------------- ---------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Louis B. Horwitz -0- -0- -0- -0- -0- -0-
Heinz Badura 10,000 5.9% 21.00 2/27/2007 132,068 334,686
John (Jack) R. Rice 10,000 5.9% 21.00 2/27/2007 132,068 334,686
Raymond L. Waguespack 6,750 4.0% 21.00 2/27/2007 89,146 225,913
David A. Young 10,000 5.9% 21.00 2/27/2007 132,068 334,686
</TABLE>
- ----------
(1) Options to purchase an aggregate of 170,750 shares of Common Stock were
granted to employees, including the Named Executive Officers during the
fiscal year ended December 31, 1997.
(2) Options granted have a term of 10 years, subject to earlier termination in
certain events related to termination of employment. Options become
exercisable in four equal annual installments beginning February 27, 1998.
9
<PAGE> 13
Option Exercises. The following table sets forth certain information
concerning the exercise of options by each of the Company's Named Executive
Officers during the fiscal year ended December 31, 1997, including the aggregate
value of gains on the date of exercise. In addition, the table includes the
number of shares covered by both exercisable and unexercisable stock options as
of December 31, 1997. Also reported are the values for "in the money" options
which represent the positive spread between the exercise prices of any such
existing stock options and the fiscal year end price of the Company's Common
Stock ($14.3125 per share).
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR-END(#) FISCAL YEAR-END($)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Louis B. Horwitz -0- -0- 48,750 36,250 422,578 184,609
Heinz Badura 7,500 95,625 1,250 21,250 -0- 33,516
John (Jack) R. Rice -0- -0- 12,500 17,500 118,438 53,438
Raymond L. Waguespack 13,688 506,403 6,000 10,812 45,609 27,320
David A. Young 5,000 199,432 8,750 16,250 75,078 38,984
</TABLE>
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has the
responsibility for administering and approving compensation programs involving
the Company's senior executives, including the Named Executive Officers.
Compensation may include a base salary, a variable incentive bonus, stock
options and/or stock grants. The Committee is composed of three independent,
nonemployee directors.
The Company's executive compensation program is based upon the following
principles:
o There must be an appropriate correlation that provides a direct
tie between each executive's compensation and long-term
stockholder value.
o Compensation in all forms must be related to both the Company's
overall results and the individual's performance in the execution
of his or her responsibilities.
o There must be a balance between cash incentive and equity
compensation.
o Compensation is designed to fall in the median to high range of
that paid to comparable executives in other similarly-sized
corporations, with particular dependence placed upon salaries
listed in the surveys annually published by the American
Electronics Association (the "Surveys"). Some, but not all, of the
companies included in the Surveys are included in the Performance
Graph on Pages 12-13 of this Proxy Statement.
o Each compensation package must be designed to attract, retain and
motivate appropriate executives.
10
<PAGE> 14
In applying the above principles to its review of an executive officer's
compensation, the Committee subjectively reviews the performance of each
executive officer but does not assign relative weights to any of the principles.
The Company has not, and does not expect to, pay any compensation for
which an expense deduction would be disallowed under Section 162(m) of the
Internal Revenue Code of 1986, as amended, relating to the limitation of the
deduction of compensation in excess of $1,000,000 to certain executive officers
of publicly held companies. Any award under the Company's 1994 Stock Incentive
Plan should be deemed performance-based compensation and, accordingly, should
not be included in the calculation of an executive officer's compensation in
determining the applicability of Section 162(m).
The process of determining executive officer compensation for 1997,
including the Chief Executive officer's compensation, was based upon the
Company's 1997 results after consideration of the factors described above, and
may be summarized as follows:
o In February 1998, the Company's Chief Executive Officer prepared a
detailed written analysis of the Company's performance for 1997
including a review of each of the operating divisions, and an
analysis of each executive officer's performance in affecting the
overall results. Consideration was given to net operating income,
economic value added, growth, and development of new products. In
addition, actual operating results, for each executive, were
compared to specific assigned objectives which had been provided
to them in written form early in 1997.
o Using this information as a basis of performance, and considering
the available comparable compensation information in the Surveys,
the Chief Executive Officer prepared recommendations for
modification to each subordinate executive officer's compensation
package.
o On March 4, 1998, the Compensation Committee met to analyze the
information prepared for its review and considered the
recommendations of the Chief Executive Officer with regard to all
executive officer salaries, except that of the Chief Executive
Officer.
o After in-depth discussion and consideration of the information,
the Committee examined three aspects of each executive officer's
compensation:
- Base pay and modification, if any.
- Incentive consideration, if any.
- Stock options and stock awards, if any.
o After review of the available data and comparable incentive
packages, the Compensation Committee awarded salary increases to
each of the Company's officers, a bonus for 1997 based upon
individual performance to each of the officers, and additional
stock options to each of the officers, consistent with the
Company's desire to provide a balance of current income and
long-term performance-based incentive.
11
<PAGE> 15
o The Committee then considered these matters for the Chief
Executive Officer (in his absence) and after discussion and
consideration of the Company's performance, awarded an increase in
salary, a bonus and a stock option.
o The Committee then discussed the requirement to again establish
clear and defined objectives for 1998 for each of the Company's
officers. The Chairman indicated that these objectives would be
submitted in written form for review by the Compensation
Committee.
In addition, the Committee held several telephonic meetings for the
purpose of establishing a comprehensive compensation package for the Company's
new President and Chief Executive Officer who ultimately joined the Company on
April 6, 1998.
The members of the Compensation Committee believe the Company's
compensation programs are consistent with the Company goals and have been
applied in a fair and even-handed manner in the best interests of the Company
and its stockholders.
Members of the Compensation Committee:
Dan L. McGurk, Chairman
G. Tilton Gardner
Michael M. Mann
PERFORMANCE GRAPH
This graph compares the Company's cumulative total return to
stockholders during the past five years with that of the NASDAQ Market Index and
the S&P Communications Equipment Index published by Media General Financial
Services, Inc. (a list of the companies comprising the S&P Communications
Equipment Index will be sent to any shareholder upon request).
12
<PAGE> 16
COMPARE 5 YEAR CUMULATIVE TOTAL, RETURN AMONG
DATUM INC., NASDAQ MARKET INDEX AND S&P GROUP INDEX
[Graph]
<TABLE>
<CAPTION>
COMPANY 1992 1993 1994 1995 1996 1997
- ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
DATUM INC 100 132.00 328.00 328.00 540.00 458.00
INDUSTRY INDEX 100 96.20 109.74 164.24 192.36 250.62
BROAD MARKET 100 119.95 125.94 163.35 202.99 248.30
</TABLE>
Assumes $100 invested on January 1, 1993 and assumes dividends
reinvested.
SEVERANCE AND CONSULTING AGREEMENTS
Effective as of March 7, 1986, the Company entered into an executive
agreement with Louis B. Horwitz (the "Executive Agreement"). The Executive
Agreement provides for the payment of benefits in the event that Mr. Horwitz's
employment is terminated within three years subsequent to a "change in control"
of the Company (as defined in the Executive Agreement) under certain
circumstances. A "change in control" includes the ownership by any person of 30%
or more of the combined voting power of the Company's outstanding securities and
certain changes in the composition of the Company's Board of Directors. The
benefits payable under the Executive Agreement are (i) an amount equal to three
times the average of the aggregate annual compensation paid by the Company to
Mr. Horwitz during the five calendar years preceding the change in control of
the Company, (ii) the right for a period of three months following the
employment termination to exercise all unexercised stock options, whether or not
they have vested, and (iii) the automatic vesting of all restricted stock
awarded to Mr. Horwitz. The foregoing benefits are to be reduced to the extent
necessary so that no portion thereof shall be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended. The benefits
are payable on the date of termination of Mr. Horwitz's employment. Under the
Executive Agreement, if such termination had occurred at the end of the fiscal
year ended December 31, 1997, Mr. Horwitz would have received $1,042,000.
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<PAGE> 17
On October 9, 1992, the Company entered into a consulting agreement with
Mr. Horwitz (the "Consulting Agreement"). The Consulting Agreement provides for
consulting services to be provided commencing on the retirement of Mr. Horwitz
as an officer and employee of the Company and continues for twelve months
thereafter and may be renewed at the Company's option for successive additional
twelve month periods or any portion thereof. The Company anticipates that the
initial term of the Consulting Agreement will commence in 1998. In the event of
a "change of control" of the Company (as defined in the Executive Agreement)
while the Consulting Agreement is in force, the term will be extended for a
period of ten years from commencement. Under the Consulting Agreement, Mr.
Horwitz is to provide such advice and consultation as the Company requests,
including with respect to strategic planning, management, financial analysis,
product planning and other corporate matters. As compensation, Mr. Horwitz will
be paid $8,333.33 per day, plus travel expenses, and will be guaranteed a
minimum of twelve days of service per year. In the event of death or disability
prior to the end of the term of the Consulting Agreement, or any renewal term,
and prior to a change of control of the Company, Mr. Horwitz, or his estate,
shall be entitled to an amount equal to the fee for twelve days of consulting.
In the event of death or disability after a change of control which results in
an extension of the term, Mr. Horwitz, or his estate, will be entitled to the
minimum annual payments for the balance of the term. The Consulting Agreement
provides that it will be binding on successors on the Company's business.
In connection with the appointment of Erik H. Van der Kaay as President
and Chief Executive Officer of the Company, the Company entered into an
employment agreement (the "Employment Agreement") with Mr. Van der Kaay
effective April 6, 1998. The Employment Agreement provides that Mr. Van der Kaay
will serve as President and Chief Executive Officer and, so long as he is
employed under the Employment Agreement, the Company will nominate and recommend
his election as a member of the Board of Directors. The Employment Agreement
provides for an annual base salary of $325,000, which shall be reviewed annually
by the Compensation Committee. Mr. Van der Kaay is also entitled to participate
in other management incentive compensation plans and will be entitled to a
minimum bonus payment of $100,000 for the year ending December 31, 1998. In
connection with his employment, Mr. Van der Kaay was granted options to purchase
120,000 shares of Common Stock under the Company's 1994 Stock Incentive Plan.
The options have an exercise price of $13.75, the fair market value on April 6,
1998, and vest in four equal annual installments. In addition, Mr. Van der Kaay
was granted 30,000 shares of Common Stock under the 1994 Stock Incentive Plan
which are subject to forfeiture in the event his employment with the Company is
terminated. Such shares will vest, and become non-forfeitable, over seven years,
with vesting accelerated upon certain events. In the event Mr. Van der Kaay is
terminated by the Company without cause within the first twelve months, he is
entitled to severance pay equal to his then current monthly salary times the
number of months from the date of termination to the end of twenty-four months
following April 6, 1998. In the event such termination is twelve or more months
following April 6, 1998, the severance amount equals his monthly salary times
twelve.
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<PAGE> 18
PROPOSAL 2
AMENDMENT TO THE 1994 STOCK INCENTIVE PLAN TO
INCREASE THE TOTAL NUMBER OF SHARES ISSUABLE THEREUNDER
Subject to approval by the Company's stockholders, the Board of
Directors has amended the 1994 Stock Incentive Plan to increase the number of
shares of Common Stock issuable thereunder by 200,000 shares of Common Stock,
bringing the total number of shares of Common Stock subject to the 1994 Stock
Incentive Plan to 1,050,000 as of the date of the Annual Meeting, subject to the
annual share increases thereafter as provided in the 1994 Stock Incentive Plan,
as amended by Proposal 3 if such proposal is approved. All employees of the
Company are currently eligible to participate in the 1994 Stock Incentive Plan.
The additional shares available for issuance under the 1994 Stock Incentive Plan
will give the Company increased flexibility in its continued use of equity
incentives to attract, retain and motivate its officers, directors and key
employees.
The essential features of the 1994 Stock Incentive Plan are summarized
below. The summary does not purport to be a complete description of the 1994
Stock Incentive Plan. The Company's stockholders may obtain a copy of the 1994
Stock Incentive Plan upon written request to the Secretary of the Company.
GENERAL NATURE AND PURPOSES
The 1994 Stock Incentive Plan provides for the grant of options or
restricted shares of the Company's Common Stock. Such grant may be made by the
Company to its officers, directors and employees, and also to consultants,
business associates and others with important business relationships with the
Company. The number of shares available under the 1994 Stock Incentive Plan for
issuance was initially 250,000 and is increased on the last day of each calendar
year by 50,000 shares. In addition, on March 16, 1995 and again on June 5, 1997,
the Company's stockholders approved additional increases of 200,000 shares. As a
result, as of the date of the Annual Meeting there will be 850,000 shares
authorized for issuance under the 1994 Stock Incentive Plan. No individual in
any calendar year may presently receive options or restricted shares
representing, in the aggregate, more than 150,000 shares. As of April 17, 1998,
an aggregate of 826,550 shares of Common Stock were issued or committed for
issuance upon exercise of granted options under the 1994 Stock Incentive Plan,
leaving 23,450 remaining available for grant. In addition, options for an
additional 140,487 shares of Common Stock remain outstanding under the Company's
1984 Stock Option Plan, which has terminated.
The purposes of the 1994 Stock Incentive Plan are to ensure the
retention of the services of existing executive personnel, key employees and
nonemployee directors of the Company or its affiliates, to attract and retain
competent new executive personnel and key employees, to provide incentive to all
such personnel, employees and nonemployee directors to devote their utmost
effort and skill to the advancement and betterment of the Company by permitting
them to participate in the ownership of the Company and thereby in the success
and increased value of the Company and to allow consultants, business associates
and others with important business relationships with the Company the
opportunity to participate in the ownership of the Company and thereby have an
interest in the success and increased value of the Company. As of the record
date for the Annual Meeting, 13 executive officers and directors and
approximately 573 employees were eligible to participate.
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<PAGE> 19
As discussed in more detail below, in general, the granting of future
stock options or rights to purchase shares under the 1994 Stock Incentive Plan
are not determinable at this time. However, the 1994 Stock Incentive Plan does
provide that nonemployee directors shall be granted, on the first day of each
calendar year commencing in 1995, options to purchase 2,000 shares of Common
Stock. Therefore, Messrs. McGurk, Gardner, Mann and Money received on January 1
of 1995, 1996, 1997 and 1998, options to purchase 2,000 shares of Common Stock.
Mr. Hoover received options to purchase 2,000 shares of Common Stock on January
1, 1998. As of the record date for the Annual Meeting, options to purchase or
grants of restricted stock in an aggregate amount of 811,800 shares (net of
cancelled options) have been granted under the 1994 Plan to the following
persons or groups: (i) Louis B. Horwitz, 50,000 shares; (ii) Heinz Badura,
30,000 shares; (iii) John (Jack) R. Rice, 35,000 shares; (iv) Raymond L.
Waguespack, 15,500 shares; (v) David A. Young, 35,000 shares; and (vi) all
current executive officers as a group, 375,500 shares, all current directors who
are not executive officers, 44,000 shares, and all employees, including all
current officers who are not executive officers, as a group, 392,300 shares.
The 1994 Stock Incentive Plan is not subject to any of the provisions of
ERISA and is not a qualified deferred compensation plan under Section 401(a) of
the Code.
ADMINISTRATION
The 1994 Stock Incentive Plan may be administered by the Board of
Directors or by a Committee, at least two persons of which shall be directors of
the Company who shall be appointed by, and serve at the pleasure of, the Board
of Directors.
Subject to the limitations on eligibility discussed below and the
specific provisions of the 1994 Stock Incentive Plan, the Board of Directors or
the Committee, as the case may be (hereinafter the administering body is
referred to as the "Administrator"), has the full and final authority to
determine the persons to whom, and the time or times at which, incentive options
or nonqualified options shall be granted and restricted shares issued, the
number of shares to be represented by each incentive option or nonqualified
option and the number of restricted shares and the consideration to be received
by the Company upon the exercise or issuance and other terms and conditions
thereof. Determinations of the Administrator as to all matters of interpretation
of the 1994 Stock Incentive Plan are final and binding upon all participants and
prospective participants of the 1994 Stock Incentive Plan.
AMENDMENT AND TERMINATION OF THE 1994 STOCK INCENTIVE PLAN
The Board of Directors may from time to time alter, amend, suspend or
terminate the 1994 Stock Incentive Plan in such respects as the Board of
Directors may deem advisable; provided, however, that no such alteration,
amendment, suspension or termination shall be made that would substantially
affect or impair the rights of any person under any incentive option,
nonqualified option or restricted share theretofore granted to such person
without his or her consent.
Unless previously terminated by the Board of Directors, the 1994 Stock
Incentive Plan will terminate on March 10, 2004.
16
<PAGE> 20
ELIGIBILITY
Incentive Options. Officers and other key employees of the Company
(including directors if they also are employees of the Company), as may be
determined by the Administrator, who qualify for incentive stock options under
the applicable provisions of the Code, will be eligible for selection to receive
incentive options under the 1994 Stock Incentive Plan.
Nonqualified Options or Restricted Shares. Officers and other key
employees of the Company, any member of the Board of Directors, whether or not
he or she is employed by the Company, or consultants, business associates or
others with important business relationships with the Company will be eligible
to receive nonqualified options or restricted shares.
TERMS AND CONDITIONS OF OPTIONS AND RESTRICTED SHARES
Exercise and Purchase Price. The exercise price of the shares of Common
Stock covered by each nonqualified option granted and the purchase price of
restricted shares under the 1994 Stock Incentive Plan shall be determined by the
Administrator; provided, that the exercise price of the shares of Common Stock
covered by each incentive option granted under the 1994 Stock Incentive Plan
shall not be less than the fair market value of such shares on the date on which
the incentive option is granted; and provided further, that the exercise price
with respect to incentive options shall not be less than 110% of the fair market
value if the person to whom shares are granted owns 10% or more of the
outstanding stock of the Company.
Payment. Payment for shares upon exercise of an option or upon issuance
of restricted shares must be made in full at the time of exercise, or issuance
with respect to restricted shares. The consideration payable upon exercise of an
option shall, at the discretion of the Administrator, be paid: (i) in United
States dollars payable in cash, check, or bank draft; (ii) subject to any legal
restrictions on the acquisition or purchase of its shares by the Company, by the
delivery of shares of Common Stock which shall be deemed to have a value to the
Company equal to the aggregate fair market value of such shares determined at
the date of such exercise; (iii) by the issuance of a promissory note in a form
acceptable to the Administrator; (iv) by cancellation of indebtedness of the
Company to the optionee; (v) by waiver of compensation due or accrued to the
optionee for services rendered; (vi) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD Dealer") whereby the optionee irrevocably elects to exercise
his option and to sell a portion of the shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such shares to forward the exercise price directly to the Company; (vii)
provided that a public market for the Company's stock exists, through a "margin"
commitment from the optionee and a NASD Dealer whereby the optionee irrevocably
elects to exercise his option and to pledge the shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such shares to forward the exercise price directly to the
Company; or (viii) by any combination of the foregoing methods of payment or any
other consideration or method of payment as shall be permitted by applicable
corporate law, all as the Administrator shall in its discretion determine. The
consideration payable upon purchase of restricted shares shall, at the
discretion of the Administrator, be paid by any of the methods set forth in
clauses (i), (iii), (iv) or (v) above or any
17
<PAGE> 21
combination of such methods of payment or any other consideration or method of
payment as shall be permitted by applicable corporate law.
Term of Options. The term of each option granted under the 1994 Stock
Incentive Plan is determined by the Administrator at the time the option is
granted; provided, however, that no option granted under the 1994 Stock
Incentive Plan may have a term in excess of ten years; and provided further,
that incentive options shall expire within a period of not more than five years
if granted to a person who is the beneficial owner of 10% or more of the
outstanding stock of the Company.
Termination of Employment. In the event that an optionee who is an
employee of the Company shall cease to be employed by the Company for any
reason, including, without limitation, as a result of his or her death or
disability, (i) all incentive and nonqualified options granted to any such
optionee pursuant to the 1994 Stock Incentive Plan which are not exercisable at
the date of such cessation shall terminate immediately and become void and of no
effect, (ii) all incentive options granted to any such optionee pursuant to the
1994 Stock Incentive Plan which are exercisable at the date of such cessation
may be exercised at any time within such period to be determined by the
Administrator at the time of grant (which in the case of death or a disability
may be a different period), but in any event no later than the date of
expiration of the incentive option period, and if not so exercised within such
time shall become void and of no effect at the end of such time; provided,
however, that if any such incentive option is in fact exercised at any time
after three (3) months following the date of such cessation (or one year in the
case of death or disability), such option shall be a nonqualified option and not
an incentive option and (iii) all nonqualified options granted to any such
optionee pursuant to the 1994 Stock Incentive Plan which are exercisable at the
date of such cessation may be exercised at any time within such period to be
determined by the Administrator at the time of grant, but in any event no later
than the date of expiration of the nonqualified option period, and if not so
exercised within such time shall become void and of no effect at the end of such
time.
Limitation on Incentive Options. To the extent the aggregate fair market
value of the shares of Common Stock with respect to which incentive stock
options are exercisable for the first time by the optionee during any calendar
year exceeds $100,000, such stock options representing such excess shall be
nonqualified stock options.
AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS
In addition, under the 1994 Stock Incentive Plan, each director of the
Company who is not an employee of the Company (a "non-employee director") is
automatically granted nonqualified options to purchase 2,000 shares of Common
Stock on the first business day of each calendar year, commencing in 1995. The
options granted to non-employee directors (i) have an exercise price equal to
the fair market value of the Common Stock on the date the options are granted;
(ii) have a term of ten (10) years; (iii) vest in full one year from the date of
grant; and (iv) otherwise be subject to the terms and provisions of the 1994
Stock Incentive Plan. Notwithstanding any other term or provision contained in
the 1994 Stock Incentive Plan, neither the Board of Directors nor the Committee
may amend the amount, price or timing of the options granted under this
provision more frequently than every six (6) months, except to comport with
changes in the Code or ERISA, or the rules thereunder, or Rule 16b-3 promulgated
under the Securities Exchange Act.
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<PAGE> 22
ADJUSTMENTS UPON CHANGES OF CAPITALIZATION AND REORGANIZATIONS
In the event that the outstanding shares of Common Stock are increased
or decreased or changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of merger, consolidation or
reorganization in which the Company is the surviving corporation, or of a
recapitalization, stock split, combination of shares, reclassification,
reincorporation, stock dividend (in excess of 2%) or other change in the
corporate structure of the Company while the 1994 Stock Incentive Plan is in
effect, appropriate adjustments shall be made by the Board of Directors to the
aggregate number and kind of shares subject to the 1994 Stock Incentive Plan,
and the number and kind of shares and the price per share subject to outstanding
incentive options, nonqualified options and restricted shares in order to
preserve, but not to increase, the benefits to persons then holding incentive
options, nonqualified options or restricted shares.
In the event that the Company at any time proposes to sell substantially
all of its assets, merge into, consolidate with or to enter into any other
reorganization in which the Company is not the surviving corporation, or if the
Company is the surviving corporation and the ownership of the outstanding
capital stock of the Company following the transaction changes by 50% or more as
a result of such transaction, the 1994 Stock Incentive Plan and all unexercised
incentive options or nonqualified options granted thereunder and all offers to
purchase restricted shares shall terminate, unless provision is made in writing
in connection with such transaction for (i) the continuance of the 1994 Stock
Incentive Plan and for the assumption of incentive options and nonqualified
options theretofore granted, and all outstanding offers to purchase restricted
shares, or the substitution for such incentive options, nonqualified options and
offers to purchase restricted shares of new options covering, and new offers to
purchase, shares of a successor corporation, with appropriate adjustments as to
number and kind of shares and prices, in which event the 1994 Stock Incentive
Plan and the incentive options, nonqualified options and offers to purchase
restricted shares theretofore granted or the new incentive options, nonqualified
options and new offers to purchase restricted shares substituted therefor, shall
continue in the manner and under the terms so provided or (ii) the substitution
for the 1994 Stock Incentive Plan and all outstanding incentive options and
nonqualified options of a program or plan to provide rights to the holders of
such options to receive on exercise of such rights, the type and amount of
consideration they would have received had they exercised all options prior to
such transaction and less the aggregate exercise price of such options (which
rights shall vest and be generally subject to the terms of such options in the
case of unvested options). If such provision is not made in such transaction,
then the Administrator shall cause written notice of the proposed transaction to
be given to the persons holding incentive options, nonqualified options or
rights of purchase not less than thirty (30) days prior to the anticipated
effective date of the proposed transaction, and all incentive options,
nonqualified options and rights of purchase shall be accelerated and, concurrent
with the effective date of the proposed transaction, such persons shall have the
right to exercise incentive options, nonqualified options and accept rights of
purchase with respect to any or all shares then subject thereto. The
Administrator shall have the right, with respect to any specific incentive
option, nonqualified option or rights of purchase granted under the 1994 Stock
Incentive Plan, to provide that all incentive options, nonqualified options, or
rights of purchase shall be accelerated in any event upon the effective date of
the proposed transaction.
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<PAGE> 23
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax consequences of
participation in the 1994 Stock Incentive Plan.
INCENTIVE OPTIONS.
No taxable income will be recognized by an optionee under the 1994 Stock
Incentive Plan upon either the grant or the exercise of an incentive option.
Instead, a taxable event will occur upon the sale or other disposition of the
shares acquired upon exercise of an incentive option, and the tax treatment of
the gain or loss realized will depend upon how long the shares were held before
their sale or disposition. As is discussed below, the exercise of an incentive
option and the subsequent disposition of the shares acquired also may result in
items of "tax preference" for purposes of the "alternative minimum tax."
If a sale or other disposition of the shares received upon the exercise
of an incentive option occurs more than (i) one year after the date of exercise
of the option and (ii) two years after the date of grant of the option, the
holder will recognize long-term capital gain or loss at such time equal to the
full amount of the difference between the proceeds realized and the exercise
price paid. However, a sale, exchange, gift or certain other transfers of legal
title of such stock before the expiration of either the one-year or two-year
period described above will constitute a "disqualifying disposition" and be
treated as a nonqualified option.
Section 55 of the Code imposes an "alternative minimum tax" on an
individual's income to the extent the amount of the alternative minimum tax
exceeds the individual's regular tax for the year. For purposes of computing the
alternative minimum tax, the excess of the fair market value (on the date of
exercise) of the shares received upon the exercise of an incentive option over
the exercise price paid is included in alternative minimum taxable income in the
year the option is exercised. If the shares are sold in the same year that the
option is exercised, the regular tax treatment and the alternative tax treatment
will be the same. If the shares are sold during a year subsequent to that in
which the option was exercised, the basis of the stock acquired will equal its
fair market value on the date of exercise for purposes of computing alternative
minimum taxable income in the year of sale. For example, assume that an
individual pays an exercise price of $10 to purchase stock having a fair market
value of $15 on the date of exercise. The amount included in alternative minimum
taxable income is $5, and the stock has a basis of $10 for regular tax purposes
and $15 for alternative minimum tax purposes. If the individual sells the stock
in a subsequent year for $20, the gain recognized is $10 for regular tax
purposes and $5 for alternative minimum tax purposes.
NONQUALIFIED OPTIONS.
No taxable income is recognized by an optionee upon the grant of a
nonqualified option. Upon exercise, however, the optionee will recognize
ordinary income in the amount by which the fair market value of the shares
purchased exceeds, on the date of exercise, the exercise price paid for such
shares. The income recognized by the optionee will be subject to income tax
withholding by the Company out of the optionee's current compensation. If such
compensation is insufficient to pay the taxes due, the optionee will be required
to make a direct payment to the Company for the balance of the tax withholding
obligation. The Company will be entitled to a tax deduction equal to the amount
of ordinary income recognized by the optionee, provided certain reporting
requirements are satisfied.
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<PAGE> 24
If the exercise price of a nonqualified option is paid by the optionee
in cash, the tax basis of the shares acquired will be equal to the cash paid
plus the amount of income recognized by the optionee as a result of such
exercise. If the exercise price is paid by delivering shares of Common Stock of
the Company already owned by the optionee or by a combination of cash and
already-owned shares, there will be no current taxable gain or loss recognized
by the optionee on the already-owned shares exchanged (however, the optionee
will nevertheless recognize ordinary income to the extent that the fair market
value of the shares purchased on the date of exercise exceeds the price paid, as
described above). The new shares received by the optionee equal in number to the
old shares exchanged will have the same tax basis and holding period as the
optionee's basis and holding period in the old shares. The balance of the shares
received will have a tax basis equal to any cash paid by the optionee plus the
amount of income recognized by the optionee as a result of such exercise, and
will have a holding period commencing with the date of exercise.
Upon the sale or disposition of shares acquired pursuant to the exercise
of a nonqualified option, the difference between the proceeds realized and the
optionee's basis in the shares will be a capital gain or loss and will qualify
for long-term capital gain or loss treatment if the shares have been held for
more than the applicable statutory holding period.
RESTRICTED STOCK.
The receipt of restricted stock will not result in a taxable event to
the Participant until the expiration of any repurchase rights retained by the
Company with respect to such stock, unless the participant makes an election
under Section 83(b) of the Code to be taxed as of the date of purchase. If no
repurchase rights are retained, or if a Section 83(b) election is made, the
participant will recognize ordinary income in an amount equal to the excess of
the fair market value of such shares on the date of purchase over the purchase
price paid for such shares. Even if the purchase price and the fair market value
of the shares are the same (in which case there would be no ordinary income), a
Section 83(b) election must be made to avoid deferral of the date ordinary
income is recognized. The election must be filed with the Internal Revenue
Service not later than thirty (30) days after the date of transfer.
If no Section 83(b) election is made or if no repurchase rights are
retained, a taxable event will occur on each date the participant's ownership
rights vest (e.g., when the Company's repurchase rights expire) as to the number
of shares that vest on that date, and the holding period for long-term capital
gain purposes will not commence until the date the shares vest. The participant
will recognize ordinary income on each date shares vest in an amount equal to
the excess of the fair market value of such shares on that date over the amount
paid for such shares.
VOTE REQUIRED; BOARD OF DIRECTORS' RECOMMENDATION
Approval of the proposed amendment to the 1994 Stock Incentive Plan to
increase the total number of shares issuable thereunder will require the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock present or represented and voting at the Annual Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE PROPOSAL TO AMEND THE 1994 STOCK INCENTIVE PLAN TO
INCREASE THE TOTAL NUMBER OF SHARES ISSUABLE THEREUNDER
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<PAGE> 25
PROPOSAL 3
AMENDMENT TO THE 1994 STOCK INCENTIVE PLAN TO
PROVIDE FOR AN AUTOMATIC ANNUAL INCREASE IN THE TOTAL NUMBER OF SHARES
ISSUABLE THEREUNDER BY AN AMOUNT EQUAL TO TWO PERCENT OF THE
OUTSTANDING SHARES OF THE COMPANY
Subject to approval by the Company's stockholders, the Board of
Directors has amended the 1994 Stock Incentive Plan to increase the maximum
number of shares of Common Stock issuable thereunder by an amount, each year,
equal to 2% of the number of shares of Common Stock outstanding as of the
Company's fiscal year end. If Proposal 2 herein is approved, the total number of
shares of Common Stock subject to the 1994 Stock Incentive Plan will be
1,050,000 as of the date of the Annual Meeting. The 1994 Stock Incentive Plan
currently provides for automatic annual share increases of 50,000 shares at the
Company's fiscal year end. If this Proposal 3 is approved, the annual increases
will become 2% of the outstanding shares of the Company at its fiscal year end.
All employees of the Company are currently eligible to participate in the 1994
Stock Incentive Plan.
Upon approval of the proposed amendment, as of the end of each
successive fiscal year until termination of the 1994 Stock Incentive Plan, the
number of shares available thereunder will increase by an amount equal to 2% of
the total shares of Common Stock of the Company outstanding as of each such
date. For purposes of illustration only, if the number of shares outstanding as
of the end of the Company's fiscal year ending December 31, 1998 is 6,000,000,
then the number of shares available for purposes of the 1994 Stock Incentive
Plan will be increased as of December 31, 1998 by an additional 120,000 (2% of
6,000,000), and so forth as of the end of each fiscal year until the 1994 Stock
Incentive Plan is terminated. The proposed amendment further provides that,
notwithstanding the provision for annual increases in the number of shares
available under the 1994 Stock Incentive Plan, the maximum number of shares
which may be issued pursuant to incentive stock options granted thereunder may
not exceed 1,800,000. No change is made to the existing provision of the 1994
Stock Incentive Plan that shares relating to any award which expires or lapses
without being exercised, and shares of restricted stock which are forfeited to
or repurchased by the Company, will again be available for use thereunder.
The purpose of the proposed amendment is to alleviate the administrative
costs of periodically seeking stockholder approval of incremental increases to
the maximum number of shares available for awards, while maintaining
comparable-to-stockholder-approved increments in the form of an annual
percentage of the outstanding shares of Common Stock.
The essential features of the 1994 Stock Incentive Plan are summarized
under Proposal 2 herein. The summary does not purport to be a complete
description of the 1994 Stock Incentive Plan. The Company's stockholders may
obtain a copy of the 1994 Stock Incentive Plan upon written request to the
Secretary of the Company.
VOTE REQUIRED; BOARD OF DIRECTORS' RECOMMENDATION
Approval of the proposed amendment to the 1994 Stock Incentive Plan to
provide for an automatic annual percentage increase in the total number of
shares issuable thereunder will require the affirmative vote of the holders of a
majority of the shares of the Company's Common Stock present or represented and
voting at the Annual Meeting.
22
<PAGE> 26
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THE PROPOSAL TO AMEND THE 1994 STOCK INCENTIVE PLAN TO
PROVIDE FOR AN AUTOMATIC ANNUAL PERCENTAGE INCREASE IN THE TOTAL NUMBER OF
SHARES ISSUABLE THEREUNDER.
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
To the Company's knowledge, based solely on review of copies of reports
furnished to the Company and written representations that no other reports were
required, during the fiscal year ended December 31, 1997, all Section 16(a)
filing requirements applicable to its officers, directors and greater than
ten-percent beneficial owners were satisfied.
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The firm of Price Waterhouse LLP, the Company's independent accountants
for the fiscal year ended December 31, 1997, was selected by the Board of
Directors, upon recommendation of the Audit Committee of the Board of Directors,
to act in the same capacity for the fiscal year ending December 31, 1998.
Representatives of Price Waterhouse LLP are expected to be present at
the Annual Meeting and they will be given an opportunity to make a statement if
they so desire and respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
All proposals of stockholders intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be directed to the attention of the
Secretary of the Company, at the address of the Company set forth on the first
page of this Proxy Statement before January 1, 1999, if they are to be
considered for possible inclusion in the Proxy Statement and form of proxy used
in connection with the meeting.
ANNUAL REPORT
The Company's Annual Report to Stockholders containing audited balance
sheets as of the years ended December 31, 1997, 1996, and 1995 and audited
statements of operations and changes of cash flows for the three years ended
December 31, 1997, accompanies this Proxy Statement. The Annual Report is not to
be regarded as proxy soliciting material or as a communication by means of which
any solicitation is to be made.
23
<PAGE> 27
OTHER MATTERS
At the time of the preparation of this Proxy Statement, the Board of
Directors knows of no other matter which will be acted upon at the Annual
Meeting. If any other matters are properly presented properly for action at the
Annual Meeting or at any adjournment or postponement thereof, the persons named
in the enclosed form of proxy will have discretion to vote on such matters in
accordance with their best judgment.
By Order of the Board of Directors,
DATUM INC.
/s/ DAVID A. YOUNG
-------------------------------
David A. Young
Secretary
Irvine, California
May 1, 1998
COPIES OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 WILL BE PROVIDED TO
STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO THE SECRETARY, DATUM INC.,
9975 TOLEDO WAY, IRVINE, CALIFORNIA 92618.
24
<PAGE> 28
[FRONT OF PROXY CARD]
PROXY
Datum Inc.
[LOGO]
9975 Toledo Way
Irvine, California 92618
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Erik H. van der Kaay and David A. Young
as Proxies, each with the power to appoint his substitute, and hereby authorizes
each of them to represent and to vote, as designated on the reverse side, all
the shares of Common Stock of Datum Inc. held of record by the undersigned on
April 17, 1998, at the Annual Meeting of Stockholders to be held on June 4, 1998
and at any adjournment or postponement thereof.
<PAGE> 29
[BACK OF PROXY CARD]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR THE (1) ELECTION OF ALL NOMINEES LISTED BELOW, (2) FOR THE PROPOSAL TO
APPROVE THE AMENDMENT TO THE 1994 STOCK INCENTIVE PLAN TO INCREASE THE TOTAL
NUMBER OF SHARES ISSUABLE THEREUNDER, AND (3) FOR THE PROPOSAL TO APPROVE THE
AMENDMENT TO THE 1994 STOCK INCENTIVE PLAN TO PROVIDE FOR AN AUTOMATIC ANNUAL
PERCENTAGE INCREASE IN THE TOTAL NUMBER OF SHARES ISSUABLE THEREUNDER.
<TABLE>
- ------------------------------------
COMMON STOCK
- --------------------------------------------------------------------------------------------------------------
(1) Election of Directors to Class II: Erik H. van der Kaay, Louis B. Horwitz and Dan L. McGurk
<S> <C> <C>
FOR ALL
nominees listed WITHHOLD AUTHORITY INSTRUCTION: To withhold authority to vote for an
(except as indicated to to vote individual nominee, write that nominee's name in the
the contrary hereon) for all nominees listed space provided below:
[ ] [ ]
- --------------------------------------------------------------------------------------------------------------
(2) Approval of the Amendment to the 1994 Stock Incentive Plan to increase the total number of shares issuable
thereunder:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- --------------------------------------------------------------------------------------------------------------
(3) Approval of the Amendment to the 1994 Stock Incentive Plan to provide
for an automatic annual percentage increase in the total number of
shares issuable thereunder:
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
- --------------------------------------------------------------------------------------------------------------
(4) In their discretion, the Proxies are authorized to vote upon such other business as may properly come before
the meeting or any adjournment or postponement thereof.
</TABLE>
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. IF YOUR ADDRESS IS INCORRECTLY SHOWN, PLEASE PRINT CHANGES.
Please date this Proxy and sign it exactly as your name or names appear below.
When shares are held by joint tenants, both should sign. When signing as an
attorney, executor, administrator, trustee or guardian, please give full title
as such. If shares are held by a corporation, please sign in full corporate name
by the President or other authorized director. If shares are held by a
partnership, please sign in partnership name by an authorized person.
All other proxies heretofore given by the undersigned to vote shares of stock of
Datum Inc., which the undersigned would be entitled to vote if personally
present at the Annual Meeting or any adjournment or postponement thereof, are
hereby expressly revoked.
Dated:_________________________ 1998
Signature
Signature if held jointly
