<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
DOCUMENTUM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 95-4261421
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
----------------
5671 GIBRALTAR DRIVE
PLEASANTON, CALIFORNIA 94588-8547
(510) 463-6800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
JEFFREY A. MILLER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DOCUMENTUM, INC.
5671 GIBRALTAR DRIVE
PLEASANTON, CALIFORNIA 94588-8547
(510) 463-6800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
COPIES TO:
MARK P. TANOURY, ESQ. MARK A. BERTELSEN, ESQ.
VINCENT P. PANGRAZIO, ESQ. JOSE F. MACIAS, ESQ.
JAMES F. FULTON, JR., ESQ. S. DAWN SMITH, ESQ.
COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI
3000 SAND HILL ROAD PROFESSIONAL CORPORATION
BUILDING 3, SUITE 230 650 PAGE MILL ROAD
MENLO PARK, CALIFORNIA 94025-7116 PALO ALTO, CALIFORNIA 94303-1050
(650) 843-5000 (650) 493-9300
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
----------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1) FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value.................. 2,415,000 $30.94 $74,720,100 $22,643
===============================================================================
</TABLE>
(1) Includes 315,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee under Rule 457(c) of the Securities Act of 1933 based on
the average of the high and low sales prices of the Common Stock on the
Nasdaq National Market on October 14, 1997.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued October 15, 1997
2,100,000 Shares
[LOGO OF DOCUMENTUM]
COMMON STOCK
-----------
OF THE 2,100,000 SHARES OF COMMON STOCK OFFERED HEREBY, 800,700 SHARES ARE
BEING SOLD BY THE COMPANY AND 1,299,300 SHARES ARE BEING SOLD BY THE
SELLING STOCKHOLDERS. SEE "SELLING STOCKHOLDERS." THE COMPANY WILL
NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE
SELLING STOCKHOLDERS. THE COMPANY'S COMMON STOCK IS LISTED ON
THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "DCTM." ON
OCTOBER 14, 1997, THE LAST SALE PRICE OF THE COMMON
STOCK AS REPORTED ON THE NASDAQ NATIONAL MARKET
WAS $30 9/16 PER SHARE. SEE "PRICE
RANGE OF COMMON STOCK."
-----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5 HEREOF.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
-------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share.............................. $ $ $ $
Total(3)............................... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $350,000.
(3) The Company has granted the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of 315,000
additional Shares at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters. It is
expected that delivery of the Shares will be made on or about , 1997, at
the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against
payment therefor in immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN
DEUTSCHE MORGAN GRENFELL
, 1997
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, BY THE SELLING STOCKHOLDERS OR BY ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
---- ----
<S> <C> <C> <C>
Incorporation of Certain Documents by Management's Discussion and Analysis of
Reference............................. 2 Financial Condition and Results of Operations...... 15
Prospectus Summary..................... 3 Business............................................ 24
The Company............................ 4 Management.......................................... 34
Risk Factors........................... 5 Selling Stockholders................................ 36
Use of Proceeds........................ 12 Underwriters........................................ 38
Dividend Policy........................ 12 Legal Matters....................................... 39
Price Range of Common Stock............ 12 Experts............................................. 39
Capitalization......................... 13 Additional Information.............................. 40
Selected Consolidated Financial Data... 14
</TABLE>
--------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), are incorporated in this Prospectus
by reference: (i) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996; (ii) the Company's Quarterly Reports on Form 10-Q for
the quarters ended September 30, 1997, June 30, 1997 and March 31, 1997; and
(iii) the description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A filed under Section 12 of the Exchange Act,
including any amendment or report updating such description.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such document (all such documents, and the documents enumerated above,
being hereinafter referred to as "Incorporated Documents").
Any statement contained in an Incorporated Document shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed Incorporated
Document modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, including any beneficial owner, upon the written
or oral request of such person, a copy of any or all of the Incorporated
Documents, other than exhibits to such documents unless such exhibits are
specifically incorporated by reference therein. Requests for such copies
should be directed to Documentum, Inc. 5671 Gibraltar Drive, Pleasanton,
California 94588-8547, Attention: Investor Relations (telephone: (510) 463-
6800 or by electronic mail at [email protected]). The information
relating to the Company contained in this Prospectus does not purport to be
comprehensive and should be read together with the information contained in
the Incorporated Document.
--------------
Documentum(R), Documentum Workspace(R), DocPage Server, Documentum
RightSite, Documentum SiteSpace, Documentum SmartSpace, Documentum ViewSpace
and DocSolutions are trademarks of Documentum, Inc. All other trademarks or
service marks appearing in this Prospectus are the property of their
respective holders.
--------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
--------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITERS."
2
<PAGE>
PROSPECTUS SUMMARY
This following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus or
incorporated herein by reference. Except as otherwise indicated, all
information in this Prospectus assumes that the Underwriters' over-allotment
option is not exercised. See "Underwriters."
THE COMPANY
Documentum, Inc. ("Documentum" or the "Company") develops, markets, delivers
and supports object-oriented client/server and intranet software solutions that
address the challenges of managing business-critical documents effectively
across large enterprises. The Documentum Enterprise Document Management System
("EDMS") automates and accelerates the creation, modification, sharing, reuse,
access and delivery of business-critical documents, Web pages and other
information. Documentum solutions deliver several key business advantages,
including heterogeneous information access, support of multiple formats,
workflow/process automation, reusability/integrity of data, application
integration and customization, and scalability for the entire enterprise--from
hundreds to thousands of users.
The Company has historically sold through its own direct sales force and,
more recently, has added complementary indirect channels primarily consisting
of systems integrators and distributors. The Company has 14 sales offices in
the United States and three in Europe, six distributors in Europe, Asia-Pacific
and Canada as well as strategic relationships with more than 30 systems
integrators worldwide. The Company's customers represent a wide range of
industries including pharmaceutical, chemical, manufacturing and engineering
firms, including Compaq, Dow Corning Corporation, Ford Motor Company, General
Motors, Glaxo-Wellcome, Halliburton, Hewlett-Packard, Kvaerner John Brown
Systems Limited, The Monsanto Company and Pharmacia & Upjohn Inc.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered........... 2,100,000 shares, including
800,700 shares by the Company and
1,299,300 shares by the Selling Stockholders
Common Stock to be outstanding 15,206,565 shares(1)
after the offering............
Use of proceeds................ For working capital and other general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol.. DCTM
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -----------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues............................ $10,373 $25,456 $45,302 $ 30,925 $ 52,016
Income (loss) from operations....... (1,964) 1,489 4,631 2,656 5,496
Net income (loss)................... (1,889) 1,260 4,484 2,751 4,591
Net income per share (2)............ $ .10 $ .30 $ .19 $ .31
Shares used to compute net income
per share (2)...................... 12,934 14,747 14,664 14,893
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........ $57,141 $ 79,978
Working capital.......................................... 55,074 77,911
Total assets............................................. 87,188 110,025
Stockholders' equity..................................... 65,403 88,240
</TABLE>
- ------
(1) Based on shares outstanding as of September 30, 1997. Excludes 3,768,177
shares of Common Stock reserved for issuance pursuant to the Company's
employee benefit plans, under which options to purchase 1,853,536 shares of
Common Stock were outstanding as of September 30, 1997.
(2) See Note 2 of Notes to Consolidated Financial Statements incorporated
herein by reference for an explanation of the determination of the number
of shares used to compute net income per share, and see also "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Recent Accounting Pronouncements."
(3) As adjusted to reflect the sale of 800,700 shares of Common Stock offered
by the Company hereby (at an assumed public offering price of $30 9/16 per
share and after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by the Company) and the application
of the net proceeds therefrom. See "Use of Proceeds" and "Capitalization."
3
<PAGE>
THE COMPANY
Documentum, Inc. ("Documentum" or the "Company") develops, markets, delivers
and supports object-oriented client/server and intranet software solutions
that address the challenges of managing business-critical documents
effectively across large enterprises. The Documentum Enterprise Document
Management System ("EDMS") automates and accelerates the creation,
modification, sharing, reuse, access and delivery of business-critical
documents, Web pages and other information. Documentum solutions deliver
several key business advantages, including heterogeneous information access,
support of multiple formats, workflow/process automation,
reusability/integrity of data, application integration and customization, and
scalability for the entire enterprise--from hundreds to thousands of users.
In today's highly competitive marketplace, a key component of corporate
success is the ability to leverage business-critical information to help
shorten time to market, improve quality and enhance overall organizational
effectiveness. During the 1980s and early 1990s, the proliferation of
relational database management systems ("RDBMS"s), the growth of client/server
computing and the rapid deployment of powerful PCs and workstations
enterprise-wide, enabled the effective management of much of the structured
business-critical data within large organizations. However, RDBMSs were not
designed to manage the complexity and variety of unstructured data, a crucial
element of intellectual capital. According to some industry reports, up to 80
percent of corporate data is unstructured. This data exists in hard copy as
well as in a multitude of electronic data types. These data types exist in
numerous formats on multiple software systems, running on a variety of
geographically dispersed computing platforms, with little compatibility or
data sharing capability between systems. As a result, large organizations need
enterprise-wide solutions to enable them to effectively leverage the life
cycle of the intellectual capital embodied in their business-critical
documents.
The Documentum EDMS family of object-oriented client/server and intranet
software is designed to address the unstructured business-critical data
management requirements of a business enterprise. Documentum's EDMS has three
major product components: the DocPage Server (including RightSite), Documentum
end-user products (WorkSpace, SmartSpace and ViewSpace), and Documentum
integration tools for other enterprise applications and platforms, such as
DocPage Builder. The DocPage Server provides a rich set of document management
services and is the technology behind the Docbase, a unique document
repository for managing business documents and their associated processes.
Documentum's WorkSpace, SmartSpace and ViewSpace clients are graphical, drag-
and-drop user environments that provide the appropriate DocPage Server and
RightSite functionality to different classes of users. The DocPage Builder is
an application development environment that enables users to customize screens
and dialogues.
The Company's objective is to be the leading worldwide supplier of
enterprise document management software solutions. To achieve this objective,
the Company's strategy includes extending its technology leadership,
penetrating global industries vertically, delivering comprehensive solutions,
leveraging its technology partnerships, focusing on enterprise deployments and
utilizing multiple distribution channels. In particular, Documentum has
identified strategic vertical markets with compelling business-critical needs
for the Company's EDMS, namely, industries where more efficient management of
unstructured business-critical information results in an immediate and
substantial payback.
The Company has historically sold through its own direct sales force and,
more recently, has added complementary indirect channels primarily consisting
of systems integrators and distributors. The Company has 14 sales offices in
the United States and three in Europe, six distributors in Europe, Asia-
Pacific and Canada as well as strategic relationships with more than 30
systems integrators worldwide. The Company's customers represent a wide range
of industries including pharmaceutical, chemical, manufacturing and
engineering firms, including Compaq, Dow Corning Corporation, Ford Motor
Company, General Motors, Glaxo-Wellcome, Halliburton, Hewlett-Packard,
Kvaerner John Brown Systems Limited, The Monsanto Company and Pharmacia &
Upjohn Inc.
The Company was incorporated in Delaware in January 1990. The Company's
principal executive offices are located at 5671 Gibraltar Drive, Pleasanton,
California 94588. Its telephone number is (510) 463-6800. The Company's home
page can be located on the World Wide Web at http://www.documentum.com. As
used in this Prospectus, the "Company" and "Documentum" refer to Documentum,
Inc. and its subsidiaries.
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus and in the documents
incorporated by reference herein, the following Risk Factors should be
carefully considered in evaluating the Company and its business before
purchasing the Common Stock offered by this Prospectus. The sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" in this Prospectus contain forward-looking
statements within meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Exchange Act. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the Risk Factors set forth below and elsewhere in
this Prospectus.
Uncertainty of Future Operating Results; Fluctuations in Quarterly Operating
Results. Prior growth rates in the Company's revenue and operating results
should not be considered indicative of future growth, if any, or of future
operating results. Future operating results will depend upon many factors,
including the demand for the Company's products, the level of product and
price competition, the length of the Company's sales cycle, the size and
timing of individual license transactions, the delay or deferral of customer
implementations, the budget cycles of the Company's customers, the Company's
success in expanding its direct sales force and indirect distribution
channels, the timing of new product introductions and product enhancements by
the Company and its competitors, the mix of products and services sold, levels
of international sales, activities of and acquisitions by competitors, the
timing of new hires, changes in foreign currency exchange rates, the ability
of the Company to develop and market new products and control costs and
general domestic and international economic and political conditions. The
Company believes that fourth quarter revenues and earnings have historically
been positively impacted by year-end customer buying patterns. This
seasonality, which the Company believes is common in the software industry,
typically results in first quarter revenues and earnings in any year being
flat or lower than revenues in the immediately preceding fourth quarter.
Moreover, the Company typically recognizes a substantial amount of its revenue
in the last month, weeks or even days of each quarter. The Company's license
sales generally reflect a relatively high amount of revenues per order and the
number of large individual license sales has continued to increase. The loss
or delay of individual orders, therefore, could have a significant impact on
the revenues and quarterly results of the Company. In addition, the timing of
license revenue is difficult to predict because of the length of the Company's
sales cycle, which is typically six to twelve months from the initial contact.
Because the Company's operating expenses are based on anticipated revenue
trends and because a high percentage of the Company's expenses are relatively
fixed, any shortfall from anticipated revenue or a delay in the recognition of
revenue from a limited number of license transactions could cause significant
variations in operating results from quarter to quarter and could result in
losses. As a result of these factors, operating results for any quarter are
subject to significant variation, and the Company believes that period-to-
period comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance.
Furthermore, due to all of the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations
of public market analysts or investors. In such event, the market price of the
Company's common stock would likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Lengthy Sales and Implementation Cycles. The license of the Company's
software products is often an enterprise-wide decision by prospective
customers and generally requires the Company to engage in a lengthy sales
cycle (typically between six and twelve months) to provide a significant level
of education to prospective customers regarding the use and benefits of the
Company's products. Additionally, the size of the transaction and the
complexity of the arrangement can also cause delays in the sales cycle. The
implementation by customers of the Company's products involves a significant
commitment of resources by such customers over an extended period of time and
is commonly associated with substantial business reengineering efforts. For
these and other reasons, the sales and customer implementation cycles are
subject to a number of significant delays over which the Company has little or
no control. Delay in the sale or customer implementation of a limited number
of license
5
<PAGE>
transactions could have a material adverse effect on the Company's business,
financial condition and results of operations and cause the Company's
operating results to vary significantly from quarter to quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Product Concentration. To date, substantially all of the Company's revenues
have been attributable to sales of licenses of the Documentum EDMS family of
products and related services. The Company currently expects the Documentum
EDMS family of products, and related services, to account for substantially
all of its future revenues. As a result, factors adversely affecting the
pricing of or demand for the Documentum EDMS products such as competition or
technological change could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's future
financial performance will depend, in significant part, on the successful
development, introduction and customer acceptance of new and enhanced versions
of the Documentum EDMS family of products. There can be no assurance that the
Company will continue to be successful in developing and marketing the
Documentum EDMS products. See "Business--Product Development."
New Products and Rapid Technological Change. The document management
software and services market is characterized by rapid technological change,
changes in customer requirements, frequent new product introductions and
enhancements and emerging industry standards. The introduction of products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete and unmarketable. Accordingly, the life
cycles of the Company's products are difficult to estimate. The Company's
future success will depend in part upon its ability to enhance current
products and to continue to develop and introduce new products that respond to
evolving customer requirements and keep pace with technological developments
and emerging industry standards, such as new operating systems, hardware
platforms, user interfaces, the Internet, corporate intranets and relational
database management system ("RDBMS") software. The Company's future success
will also depend in part on its ability to execute on its strategy to develop
whole-product solutions in certain target vertical industries. In addition,
the Company's future success will depend in part upon its ability to maintain
and enhance relationships with its technology partners, such as RDBMS vendors,
in order to provide its customers with integrated product solutions. There can
be no assurance that the Company will be successful in maintaining these
relationships or in developing and marketing product enhancements or new
products that respond to technological change, updates and enhancements to
third party products used in conjunction with the Company's products, changes
in customer requirements or emerging industry standards; that the Company will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products and enhancements; or
that any new products or enhancements that the Company may introduce will
adequately meet the requirements of the marketplace and achieve market
acceptance. Moreover, the Company has in the past experienced delays in the
release dates of enhancements to its EDMS products. If release dates of any
future EDMS enhancements are delayed or, if when released, fail to achieve
market acceptance, the Company's business, financial condition and results of
operations could be materially adversely affected. To date, the delays the
Company has experienced have been minor in nature and are often the result of
adding enhancements or functionality based upon customer feedback during beta
product versions. These delays have generally not exceeded six months in
duration from the Company's scheduled internal release dates; however, there
can be no assurance that the Company may not experience future delays in
product introduction. The inability of the Company, for technological or other
reasons, to develop and introduce new products or enhancements in a timely
manner in response to changing customer requirements, technological change or
emerging industry standards, would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Products" and "--Product Development."
Dependence on Emerging Markets. The market for document management software
and services is intensely competitive, highly fragmented and subject to rapid
change. The Company's future financial performance will depend primarily on
growth in the number of document management applications developed for use in
client/server environments. There can be no assurance that the market for
document management software and services will continue to grow or that, if it
does grow, organizations will adopt the Company's products. The Company has
spent, and intends to continue to spend, significant resources educating
potential customers about the benefits of its products. However, there can be
no assurance that such expenditures will
6
<PAGE>
enable the Company's products to achieve any additional degree of market
acceptance, and if the document management software and services market fails
to grow or grows more slowly than the Company currently anticipates, the
Company's business, financial condition and results of operations would be
materially adversely affected.
Intense Competition. The market for the Company's products is intensely
competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. The
Company's products are targeted at the emerging market for open, client/server
software solutions, and the Company's competitors offer a variety of products
and services to address this market. The Company currently encounters direct
competition from a number of public and private companies such as OpenText, PC
DOCS, FileNet and Novasoft. Several competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base
of customers than the Company.
In addition, other enterprise software vendors, such as Microsoft, Oracle
and Lotus (a division of IBM), may compete with the Company in the future.
Like the Company's current competitors, many of these companies have longer
operating histories, significantly greater resources and name recognition and
a larger installed base of customers than the Company. Microsoft, Oracle,
Lotus and other potential competitors have well-established relationships with
current and potential customers and strategic partners of the Company, have
extensive knowledge of the enterprise software industry and have the resources
to enable them to more easily offer a single vendor solution. As a result,
these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products, than can
the Company.
The Company also faces indirect competition from systems integrators. The
Company relies on a number of systems consulting and systems integration firms
for implementation and other customer support services, as well as
recommendations of its products during the evaluation stage of the purchase
process. Although the Company seeks to maintain close relationships with these
service providers, many of these third parties have similar, and often more
established, relationships with the Company's principal competitors. If the
Company is unable to develop and maintain effective, long-term relationships
with these third parties, the Company's competitive position would be
materially adversely affected. Further, there can be no assurance that these
third parties, many of which have significantly greater resources than the
Company, will not market software products in competition with the Company in
the future or will not otherwise reduce or discontinue their relationships
with or support of the Company and its products.
The Company also expects that competition will increase as a result of
software industry consolidations. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Increased competition may result in
price reductions, reduced gross margins and loss of market share, any of which
could have a material adverse effect on the Company's business, operating
results and financial condition. There can be no assurance that the Company
will be able to compete successfully against current and future competitors or
that competitive pressures faced by the Company will not materially and
adversely affect its business, financial condition and results of operations.
See "Business--Competition."
End User Customer and Industry Concentration. A relatively small number of
end user customers account for a significant percentage of the Company's
revenues. For the nine months ended September 30, 1997 and the years ended
December 31, 1996, 1995 and 1994, the top five customers accounted for 34%,
20%, 37% and 60%, of license revenues, respectively. In addition, the
Company's customers are somewhat concentrated in the process and discrete
manufacturing, pharmaceutical and architectural engineering and construction
industries. The Company expects that sales of its products to a limited number
of customers and industry segments will
7
<PAGE>
continue to account for a high percentage of revenue for the foreseeable
future. In addition, the future success of the Company will depend in part on
its ability to obtain orders from new customers and its ability to
successfully market its products to customers in new industry segments. The
loss of a major customer or any reduction or delay in orders by such
customers, or the failure of the Company to successfully market its products
outside existing targeted industry segments, would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Reliance on Certain Relationships. The Company has established strategic
relationships with a number of organizations that it believes are important to
its worldwide sales, marketing and support activities. The Company's
relationships with indirect channel partners and other consultants provide
marketing and sales opportunities for the Company's direct sales force, expand
the distribution of its products and broaden its product offerings through
product bundling. These relationships also assist the Company in keeping pace
with the technological and marketing developments of major vendors, and in
certain instances, provide the Company with technical assistance for the
Company's product development efforts. There can be no assurance that any
customer, systems integrator or distributor will continue to market or to
purchase the Company's products. The failure by the Company to maintain these
relationships, or to establish new relationships in the future, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Sales and Marketing."
Management of Growth; Dependence Upon Key Personnel. The Company's ability
to compete effectively and to manage future anticipated growth will require
the Company to expand, train and manage its employee work force. The Company's
plans include hiring a significant number of highly-qualified technical, sales
and managerial personnel. In particular, as part of the Company's strategy of
delivering comprehensive solutions, the Company expects to hire additional
professional service personnel in addition to the employees expected to join
the Company in connection with the Company's pending acquisition of Workgroup
Management, Inc. ("WMI"). Competition for such personnel is intense, and there
can be no assurance that the Company will be able to attract, assimilate or
retain such key employees. See "Risks Associated with Acquisitions,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments," "Business--Sales and Marketing" and
"Management."
International Operations. The Company's sales are primarily to large
multinational companies. To service the needs of such companies, both
domestically and internationally, the Company and its support partners must
provide worldwide product support services. As a result, the Company intends
to continue expanding its existing international operations and enter
additional international markets, which will require significant management
attention and financial resources and could adversely affect the Company's
operating margins and earnings, if any. The Company has offices in London and
Paris and opened an office in Munich in October 1996. The Company operates its
own European technical support operation, located in the London office, and
recently expanded this operation into Munich. For the nine months ended
September 30, 1997 and the years ended December 31, 1996, 1995 and 1994,
international license revenues represented 28%, 29%, 26% and 8% of the
Company's total license revenues, respectively. In order to successfully
expand international sales, the Company must establish additional foreign
operations, hire additional personnel and develop relationships with
additional international vendors. To the extent that the Company is unable to
do so in a timely manner, the Company's growth, if any, in international sales
will be limited, and the Company's business, financial condition and results
of operations could be materially adversely affected. In addition, there can
be no assurance that the Company will be able to maintain or increase
international market demand for its products.
Additional risks inherent in the Company's international business activities
generally include currency fluctuations, unexpected changes in regulatory
requirements, tariffs and other trade barriers, costs of and the Company's
limited experience in localizing products for foreign countries, lack of
acceptance of localized products in foreign countries, longer accounts
receivable payment cycles, difficulties in managing international operations,
potentially adverse tax consequences, including restrictions on the
repatriation of earnings, and the
8
<PAGE>
burdens of complying with a wide variety of foreign laws. To date, a
significant portion of the Company's international revenues has been
denominated in U.S. dollars. Although exposure to currency fluctuations to
date has been insignificant, there can be no assurance that fluctuations in
the currency exchange rates in the future will not have a material adverse
impact on revenues from international sales and thus the Company's business,
financial condition and results of operations. There can be no assurance that
such factors will not have a material adverse effect on the Company's future
international operations and, consequently, the Company's results of
operations.
Dependence on Proprietary Technology; Risks of Infringement. The Company's
success is heavily dependent upon proprietary technology. The Company relies
primarily on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company seeks to protect its software, documentation
and other written materials under trade secret and copyright laws, which
afford only limited protection. The Company presently has no patents or patent
applications pending. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to as great an extent as do the laws of the
United States. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology. The Company is
not aware that any of its products infringe the proprietary rights of third
parties. There can be no assurance, however, that third parties will not claim
infringement by the Company with respect to current or future products. The
Company expects that software product developers will increasingly be subject
to infringement claims as the number of products and competitors in the
Company's industry segment grows and the functionality of products in
different industry segments overlaps. Any such claims, with or without merit,
could be time-consuming, result in costly litigation, cause product shipment
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on
terms acceptable to the Company or at all, which could have a material adverse
effect upon the Company's business, operating results and financial condition.
In addition, the Company also relies on certain software that it licenses from
third parties, including software that is integrated with internally developed
software and used in the Company's products to perform key functions. There
can be no assurances that such firms will remain in business, that they will
continue to support their products or that their products will otherwise
continue to be available to the Company on commercially reasonable terms. The
loss or inability to maintain any of these software licenses could result in
delays or reductions in product shipments until equivalent software can be
developed, identified, licensed and integrated, which would adversely affect
the Company's business, financial condition and results of operations. See
"Business--Intellectual Property and Other Proprietary Rights."
Product Liability. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. However, it is possible that the
limitation of liability provisions contained in the Company's license
agreements may not be effective under the laws of certain jurisdictions.
Although the Company has not experienced any product liability claims to date,
the sale and support of products by the Company may entail the risk of such
claims, and there can be no assurance that the Company will not be subject to
such claims in the future. A successful product liability claim brought
against the Company could have a material adverse effect upon the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Risk of Product Defects. Software products as complex as those offered by
the Company frequently contain errors or failures, especially when first
introduced or when new versions are released. Although the Company conducts
extensive product testing, the Company has in the past released products that
contain defects, and has discovered software errors in certain of its new
products and enhancements after their introduction. For example, the Company
experienced certain technical problems in the December 1994 release of its
product that
9
<PAGE>
were corrected in its June 1995 release. The Company could in the future lose
or delay recognition of revenues as a result of software errors or defects.
The Company's products are typically intended for use in applications that may
be critical to a customer's business. As a result, the Company expects that
its customers and potential customers have a greater sensitivity to product
defects than the market for software products generally. Although the
Company's business has not been adversely affected by any such errors to date,
there can be no assurance that, despite testing by the Company and by current
and potential customers, errors will not be found in new products or releases
after commencement of commercial shipments, resulting in loss of revenue or
delay in market acceptance, diversion of development resources, damage to the
Company's reputation, or increased service and warranty costs, any of which
could have a material adverse effect upon the Company's business, financial
condition and results of operations. See "Business--Product Development."
Risks Associated with Acquisitions. As part of its business strategy, the
Company expects to make acquisitions of, or significant investments in,
businesses that offer complementary products and technologies. For example,
the Company has entered into an agreement to acquire WMI. Such acquisition
will, and any future acquisitions or investments would, expose the Company to
the risks commonly encountered in acquisitions of businesses. Such risks
include, among others, difficulty of assimilating the operations; information
systems and personnel of the acquired businesses; the potential disruption of
the Company's ongoing business; the inability of management to maximize the
financial and strategic position of the Company through the successful
incorporation of acquired employees and customers; the maintenance of uniform
standards, controls, procedures and policies; and the impairment of
relationships with employees and customers as a result of any integration of
new management personnel. There can be no assurance that any potential
acquisition will be consummated or, if consummated, that it will not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Recent Developments."
Control By Existing Stockholders. Upon completion of this offering, the
Company's executive officers, directors and affiliated entities together will
beneficially own approximately 21% of the outstanding shares of Common Stock
(20% if the Underwriters' over-allotment option is exercised in full). In
particular, upon completion of this offering, Xerox will own approximately 12
% of the outstanding shares of Common Stock (11% if the Underwriters' over-
allotment option is exercised in full). As a result, these stockholders,
acting together, may be able to exercise some control over matters requiring
stockholder approval, including the election of directors, and mergers,
consolidations and sales of all or substantially all of the assets of the
Company. This may prevent or discourage tender offers for the Company's Common
Stock or changes in the control of the Company unless the terms are approved
by such stockholders.
Possible Volatility of Stock Price. The trading price of the Company's
Common Stock is subject to significant fluctuations in response to variations
in quarterly operating results, the gain or loss of significant orders,
changes in earning estimates by analysts, announcements of technological
innovations or new products by the Company or its competitors, general
conditions in the software and computer industries and other events or
factors. In addition, the stock market in general has experienced extreme
price and volume fluctuations which have affected the market price for many
companies in industries similar or related to that of the Company and which
have been unrelated to the operating performance of these companies. These
market fluctuations may adversely affect the market price of the Company's
Common Stock. See "Price Range of Common Stock."
Effect of Certain Charter Provisions: Antitakeover Effects of Certificate of
Incorporation, Bylaws and Delaware Law. The Company's Board of Directors has
the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The Preferred Stock could be issued with voting,
liquidation, dividend and other rights superior to those of the Common Stock.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more
10
<PAGE>
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. The Company has no current plans to issue any shares of
Preferred Stock. Further, certain provisions of the Company's Amended and
Restated Certificate of Incorporation, including provisions that create a
classified board of directors, and certain provisions of the Company's Amended
and Restated Bylaws and of Delaware law could delay or make more difficult a
merger, tender offer or proxy contest involving the Company.
Discretion as to Use of Proceeds. The primary purposes of this offering are
to increase the Company's equity capital and to provide liquidity for certain
of the Company's existing stockholders. As of the date of this Prospectus, the
Company has no specific plans to use the net proceeds from this offering other
than for working capital and other general corporate purposes. Accordingly,
the Company's management will retain broad discretion as to the allocation of
the net proceeds from this offering. See "Use of Proceeds."
Absence of Dividends. The Company has never declared or paid any cash
dividends on its capital stock and does not anticipate paying any cash
dividends in the foreseeable future. Under the terms of the Company's bank
line of credit, the Company may not pay any dividends on its capital stock
without the bank's prior written consent.
Shares Eligible for Future Sale; Registration Rights. Sales of a substantial
number of shares of Common Stock in the public market following this offering
could adversely affect the market price of the Common Stock. Upon completion
of this offering, the Company will have 15,206,565 shares of Common Stock
outstanding, all of which will be freely tradeable in the public market,
subject to limitations on sales of shares held by "affiliates" of the Company
as defined in Rule 144 promulgated under the Securities Act. However, the
officers, directors and certain other stockholders of the Company, who
together will hold 2,889,484 of the outstanding shares upon completion of this
offering, have agreed not to sell their shares without the consent of Morgan
Stanley & Co. Incorporated for a period of 90 days from the date of this
Prospectus. In addition, Xerox is entitled to certain rights with respect to
the registration for offer or sale to the public of the 1,769,863 shares to be
held by Xerox or its affiliates following the completion of this offering. In
addition, the Company has registered or will register an additional 3,768,177
shares of Common Stock reserved for issuance under its employee benefit plans.
See "Selling Stockholders."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 800,700 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$22.8 million ($32.0 million if the Underwriters' over-allotment option is
exercised in full) at an assumed public offering price of $30 9/16 per share
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company. The Company will not
receive any proceeds from the sale of shares of Common Stock by the Selling
Stockholders. See "Selling Stockholders."
The principal purposes of this offering are to increase the Company's equity
capital and to provide liquidity for certain of the Company's existing
stockholders. The Company intends to use the net proceeds of this offering
primarily for working capital and other general corporate purposes. In
addition, the Company may make one or more acquisitions of complementary
technologies, products or businesses that broaden or enhance the Company's
current product offerings. However, except for the proposed acquisition of
WMI, the Company has no specific agreements or commitments, and is not
currently engaged in any negotiations for any such acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments." Pending the uses described above, the net
proceeds will be invested in short-term, interest-bearing, investment-grade
securities. See "Risk Factors--Discretion as to Use of Proceeds."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends in the foreseeable
future. Under the terms of the Company's bank line of credit, the Company may
not pay any dividends on its capital stock without the bank's prior written
consent.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "DCTM." The Company completed the initial public offering of its Common
Stock on February 5, 1996, at a price to public of $24 per share. The
following table sets forth, for the periods indicated, the high and low sale
prices for the Common Stock as reported by the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
------- ---------
<S> <C> <C>
Fiscal 1996:
First Quarter (from February 5, 1996).................. $40 $28
Second Quarter......................................... 46 1/2 29 7/8
Third Quarter.......................................... 33 22 1/4
Fourth Quarter......................................... 41 1/2 30 1/2
Fiscal 1997:
First Quarter.......................................... $38 $13 13/16
Second Quarter......................................... 26 13 3/4
Third Quarter.......................................... 39 24 3/8
Fourth Quarter (through October 14, 1997).............. 33 3/4 30 1/4
</TABLE>
On October 14, 1997, the last reported sale price for the Company's Common
Stock on the Nasdaq National Market was $30 9/16 per share. At September 30,
1997, the Company had approximately 335 holders of record of the Common Stock.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, and as adjusted to give effect to the sale of the 800,700
shares of Common Stock offered by the Company hereby (at an assumed public
offering price of $30 9/16 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company) and the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $.001 par value; 5,000,000 shares au-
thorized, no shares issued and outstanding, actual and
as adjusted............................................ $ -- $ --
Common Stock, $.001 par value; 35,000,000 shares autho-
rized, 14,405,865 shares issued and outstanding actual
and 15,206,565 shares issued and outstanding as adjust-
ed(1).................................................. 14 15
Additional paid-in capital.............................. 62,995 85,831
Cumulative translation adjustment....................... (22) (22)
Retained earnings....................................... 2,416 2,416
------- -------
Total stockholders' equity............................ 65,403 88,240
------- -------
Total capitalization................................ $65,403 $88,240
======= =======
</TABLE>
- --------
(1) Excludes 3,768,177 shares of Common Stock reserved for issuance pursuant
to the Company's employee benefit plans, under which options to purchase
1,853,536 shares of Common Stock were outstanding as of September 30,
1997.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus and the
consolidated financial statements of the Company incorporated herein by
reference. The selected consolidated financial data as of December 31, 1995
and 1996 and for the three years ended December 31, 1996 have been derived
from the Company's consolidated financial statements included in the Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, incorporated
herein by reference, which have been audited by Price Waterhouse LLP,
independent accountants. The selected consolidated financial data as of
December 31, 1992, 1993 and 1994 and for the two years ended December 31, 1993
have been derived from the Company's consolidated financial statements, which
have been audited by Price Waterhouse LLP, independent accountants. The
selected consolidated statement of operations data shown below for the nine
months ended September 30, 1996 and 1997 and the selected consolidated balance
sheet data as of September 30, 1997 have been derived from the Company's
unaudited consolidated financial statements included in the Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997, incorporated herein by
reference which, in the opinion of management, include all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of such interim periods. The results for the nine months ended September 30,
1997 are not necessarily indicative of results that may be expected for the
full fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
Licenses............... $ 364 $ 1,557 $ 8,919 $20,377 $34,630 $23,768 $37,284
Services............... 142 507 1,454 5,079 10,672 7,157 14,732
------- ------- ------- ------- ------- ------- -------
Total revenues......... 506 2,064 10,373 25,456 45,302 30,925 52,016
------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Licenses............... 3 134 518 1,188 1,923 1,397 1,475
Services............... 67 283 1,304 3,324 6,845 4,652 8,567
------- ------- ------- ------- ------- ------- -------
Total cost of revenues. 70 417 1,822 4,512 8,768 6,049 10,042
------- ------- ------- ------- ------- ------- -------
Gross profit............ 436 1,647 8,551 20,944 36,534 24,876 41,974
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 179 1,595 6,254 12,513 19,909 13,765 24,824
Research and
development........... 1,661 1,750 2,523 4,512 7,880 5,504 7,746
General and
administrative........ 226 1,134 1,738 2,430 4,114 2,951 3,908
------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 2,066 4,479 10,515 19,455 31,903 22,220 36,478
------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (1,630) (2,832) (1,964) 1,489 4,631 2,656 5,496
Interest and other
income (expenses), net. (31) 9 75 239 2,268 1,577 1,461
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income tax provision... (1,661) (2,823) (1,889) 1,728 6,899 4,233 6,957
Provision for income
taxes.................. -- -- -- (468) (2,415) (1,482) (2,366)
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(1,661) $(2,823) $(1,889) $ 1,260 $ 4,484 $ 2,751 $ 4,591
======= ======= ======= ======= ======= ======= =======
Net income per share
(1).................... $ .10 $ .30 $ .19 $ .31
======= ======= ======= =======
Shares used to compute
net income per share
(1).................... 12,934 14,747 14,664 14,893
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
----- ------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents
and short-term
investments............ $ -- $ 3,658 $ 6,289 $ 5,978 $52,172 $57,141
Working capital
(deficit).............. (141) 3,630 5,256 4,624 51,821 55,074
Total assets............ 182 5,368 10,916 16,501 74,944 87,188
Long-term obligations... 911 542 544 691 211 --
Mandatorily redeemable
convertible preferred
stock.................. -- 8,940 13,391 13,391 -- --
Stockholders' equity
(deficit).............. (948) (5,479) (7,286) (5,746) 59,332 65,403
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements incorporated
herein by reference for an explanation of shares used in computing net
income per share, and see also "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Accounting
Pronouncements."
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that involve risks and
uncertainties The statements contained in this Prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act, including without
limitation statements regarding the Company's expectations, beliefs,
intentions or strategies regarding the future. All forward-looking statements
included or incorporated by reference in this document are based on
information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward-looking statements. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth below, under "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
Documentum was formed in 1990 to provide object-oriented client/server
software solutions that enable large organizations to effectively manage and
optimize the use of their unstructured business-critical information. From its
inception through December 1992, the Company's activities consisted primarily
of developing its products, establishing its infrastructure and conducting
market research. The Company shipped the first commercial version of its
Documentum Server product in late 1992, and since then substantially all of
the Company's revenues have been from licenses of its family of enterprise
document management system ("EDMS") products and related services, which
include maintenance and support, training and consulting services. The Company
continues to invest in research and development in order to update its family
of products. In the first half of 1997, the Company introduced its first
"DocSolution," the DocSolution for standard operating procedures ("SOPs").
Also, during the first nine months of 1997, the Company introduced and shipped
Documentum's DocLink for SAP's R/3, introduced and shipped Documentum's
DocPage Server and WorkSpace products in a localized Kanji version and
expanded its sales efforts in the Asia-Pacific region. The Company expects
that EDMS-related license and service revenues will continue to account for
substantially all of the Company's revenues for the foreseeable future. As a
result, the Company's future operating results are dependent upon continued
market acceptance of EDMS and enhancements thereto.
Since inception, the Company has invested significant resources in
developing its EDMS software and related solutions, as well as building its
sales, marketing and general and administrative organizations. As a result,
since inception the Company's operating expenses have increased in dollar
amounts and are expected to continue to increase.
Although the Company has experienced significant revenue growth in recent
years, the Company does not believe that such growth rates are sustainable.
Accordingly, the rate at which the Company has grown in the past should not be
considered to be indicative of future revenue growth, if any, or future
operating results. There can be no assurance that the Company will remain
profitable on a quarterly basis. See "Risk Factors--Uncertainty of Future
Operating Results; Fluctuations in Quarterly Operating Results."
RECENT DEVELOPMENTS
On October 13, 1997 the Company entered into a definitive agreement to
acquire all the outstanding shares of Workgroup Management, Inc. ("WMI"), a
privately-held company, in exchange for approximately $6.7 million of the
Company's Common Stock. The number of shares to be issued will be determined
using the market value of the Company's Common Stock at the closing of the
acquisition. WMI is a professional services firm with 30 employees located in
Oakland, California specializing in the design, development and implementation
of document management systems. The acquisition of WMI is part of the
Company's strategic plan to add specific domain expertise in targeted vertical
industries. The transaction, which is subject to the satisfaction of certain
closing conditions, is expected to be consummated in either the fourth quarter
of 1997 or early in the first quarter of 1998 and will be immaterial to the
Company's historical operations, financial position and net worth. The Company
anticipates merger expenses to be recorded in connection with the acquisition
in the period in which the transaction is consummated.
15
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's consolidated
statement of operations as a percentage of total revenues for the periods
indicated, except as indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------
1994 1995 1996 1996 1997
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Licenses......................... 86.0% 80.0% 76.4% 76.9% 71.7%
Services......................... 14.0 20.0 23.6 23.1 28.3
------- ------- ------- ------ ------
Total revenues................. 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------ ------
Cost of revenues................... 17.6 17.7 19.4 19.6 19.3
------- ------- ------- ------ ------
Gross profit....................... 82.4 82.3 80.6 80.4 80.7
------- ------- ------- ------ ------
Operating expenses:
Sales and marketing.............. 60.3 49.2 43.9 44.5 47.7
Research and development......... 24.2 17.7 17.4 17.8 14.9
General and administrative....... 16.8 9.6 9.1 9.5 7.5
------- ------- ------- ------ ------
Total operating expenses....... 101.3 76.5 70.4 71.8 70.1
------- ------- ------- ------ ------
Income (loss) from operations...... (18.9) 5.8 10.2 8.6 10.6
Interest and other income, net..... .7 1.0 5.0 5.1 2.8
------- ------- ------- ------ ------
Income (loss) before income tax
provision......................... (18.2) 6.8 15.2 13.7 13.4
Provision for income taxes......... .0 (1.8) (5.3) (4.8) (4.6)
------- ------- ------- ------ ------
Net income (loss).................. (18.2)% 5.0% 9.9% 8.9% 8.8%
======= ======= ======= ====== ======
AS A PERCENTAGE OF RELATED REVENUES:
Cost of licenses revenues.......... 5.8% 5.8% 5.6% 5.9% 4.0%
Cost of services revenues.......... 89.7% 65.4% 64.1% 65.0% 58.2%
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES
The Company's revenues are derived from the sale of perpetual licenses for
its document management software and related services, which include
maintenance and support, training and consulting services. License revenues
are recognized upon shipment of the product if no significant vendor
obligations remain and collection of the resulting receivable is probable. In
instances where a significant vendor obligation exists, revenue recognition is
deferred until the obligation has been satisfied. Allowances for estimated
future returns are provided upon shipment. Annual maintenance and support
revenues for providing ongoing support and product updates are recognized
ratably over the term of the contract. Renewals of maintenance contracts are
recorded when collectibility is deemed probable. Revenues from training and
consulting are recognized when the services are performed and collectibility
is deemed probable.
License revenues increased by 57% to $37.3 million for the nine months ended
September 30, 1997 from $23.8 million for the nine months ended September 30,
1996. The growth in license revenues was due to an
16
<PAGE>
increase in the number of initial licenses sold, reflecting increased
acceptance of the Company's EDMS family of products, as well as an increase in
the number of customers who purchased additional product licenses, and the
expansion of the Company's sales organization. During the nine months ended
September 30, 1997, a sale of $5.0 million to a single customer accounted for
13.4% of total license revenues. For the nine months ended September 30, 1997
and 1996, license revenues from Xerox and certain Xerox affiliates ("Xerox"),
acting as systems integrators, a VAR and a distributor for the Company's
products, accounted for 5.3% and 16.9% of total license revenues,
respectively. Although the Company's customer base has grown as revenues have
increased, a relatively small number of end user customers have historically
accounted for a significant percentage of the Company's revenues, particularly
on a quarterly basis. The loss of a major customer or any reduction or delay
in orders by such customers would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--End User Customer and Industry Concentration."
Service revenues increased 106% to $14.7 million for the nine months ended
September 30, 1997 from $7.2 million for the nine months ended September 30,
1996. The growth in service revenues in dollar amount and as a percent of
total revenues was attributable to a larger installed base of customers
receiving ongoing maintenance, delayed maintenance contract renewals,
increased demand for training and support services, and increases in the
Company's professional services consulting staff.
The Company markets its products through its direct sales force and its
indirect channel partners. Historically, the Company has generated the
majority of its revenues from its direct sales force. However, the Company has
also focused on complementing its direct sales channel with indirect channels,
consisting of system integrators and distributors. Revenues from all indirect
channel partners comprised 20.8% and 32.0% of license revenues for the nine
months ended September 30, 1997 and 1996, respectively. The decrease in
indirect channel revenues as a percentage of license revenues was due to an
increase in direct sales driven by the expansion of the Company's direct sales
force during the nine months ended September 30, 1997. Revenues from indirect
partners for any period are subject to significant variations. As a result,
the Company believes that period to period comparisons of indirect revenues
are not necessarily meaningful and should not be relied upon as indications of
future performance. There can be no assurance that the Company's indirect
channel partners will elect or be able to continue to market or support EDMS
effectively, or that economic conditions or industry demand will not adversely
affect these partners. See "Risk Factors--Reliance on Certain Relationships."
International revenues represented 28.0% and 27.2% of license revenues for
the nine months ended September 30, 1997 and 1996, respectively. A significant
portion of the international revenues are derived from the Company's indirect
channel partners and are subject to significant variations. The Company
classifies license revenues as domestic or international based upon the
billing location of the customer. In many instances, especially with large
purchases from multinational companies, the customer has the right to deploy
the licenses anywhere in the world. Thus the percentages discussed herein
represent where licenses were sold, and may or may not represent where they
are used. As a result, the Company believes that period to period comparisons
of international revenues are not necessarily meaningful and should not be
relied upon as indications of future performance.
While the Company believes that large multinational organizations represent
a significant opportunity for revenue growth and the Company intends to
continue expansion of its international sales operations, there can be no
assurance that the Company will be successful in meeting the requirements of
these large organizations or that the Company will be able to effectively
support this international expansion. The Company's international sales are
primarily denominated in U.S. dollars and the Company does not currently
engage in hedging activities. Although exposure to currency fluctuations to
date has been insignificant, there can be no assurance that fluctuations in
the currency exchange rates in the future will not have a material adverse
impact on international sales and thus the Company's business, financial
condition and results of operations. See "Risk Factors--International
Operations."
17
<PAGE>
COST OF REVENUES
Cost of license revenues consists primarily of the royalties paid to third-
party vendors and product costs such as packaging, documentation, production
and freight. Royalties, which are paid to third-parties for selected products,
include both fixed fees and variable fees. Cost of license revenues increased
by 6% to $1.5 million for the nine months ended September 30, 1997 from $1.4
million for the nine months ended September 30, 1996, representing 4.0% and
5.9% of license revenue, respectively. The decrease in cost of license
revenues as a percentage of license revenues was principally related to the
increase in license revenue.
Cost of service revenues consists primarily of personnel-related costs
incurred in providing consulting services, training to customers and telephone
support. Cost of service revenues increased by 84% to $8.6 million for the
nine months ended September 30, 1997 from $4.7 million for the nine months
ended September 30, 1996, representing 58.2% and 65.0% of related service
revenues, respectively. The increase in cost of service revenues in dollar
amount was a result of increased personnel-related costs as the Company
expanded its customer support and training operations to support its increased
installed customer base in both the United States and Europe, as well as
payments to third parties for providing consulting services. The decrease in
cost of service revenues as a percentage of service revenues was primarily due
to economies of scale realized as certain expenses such as technical support
grew proportionately less than maintenance revenues. The Company expects that
the cost of service revenues will increase in dollar amount for the remainder
of the year in order to support and service the growing installed base of
customers.
OPERATING EXPENSES
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, benefits, sales commissions and other expenses related to the direct
sales force, various marketing expenses and costs of other market development
programs. Sales and marketing expenses increased by 80% to $24.8 million for
the nine months ended September 30, 1997 from $13.8 million for the nine
months ended September 30, 1996, representing 47.7% and 44.5% of total
revenues, respectively. The increase in dollar amount and the increase as a
percentage of revenues was the result of the Company's strategy to continue to
invest in its sales and marketing infrastructure, including increasing the
number of sales teams and increasing the number of marketing programs. The
Company expects that sales and marketing expenses will increase in dollar
amount for the remainder of the year as the Company continues to increase its
sales force.
Research and development. Research and development expenses consist
primarily of salaries and benefits for software developers, contracted
development efforts and related facilities costs. Research and development
expenses increased by 41% to $7.7 million for the nine months ended September
30, 1997 from $5.5 million for the nine months ended September 30, 1996,
representing 14.9% and 17.8% of total revenues, respectively. The increase in
dollar amount reflects the expansion of the Company's engineering staff and
related costs required to support the development of new products and
enhancement of existing products. Based on the Company's research and
development process, costs incurred between the establishment of technological
feasibility and general release have not been material and therefore have not
been capitalized in accordance with Financial Accounting Standards No. 86. The
Company expects research and development expenses will increase in dollar
amount for the remainder of the year in order to support increased development
efforts to both existing products and new products.
General and administrative. General and administrative expenses consist
primarily of personnel costs for finance, management information systems,
human resources and general management as well as outside professional
services. General and administrative expenses increased by 32% to $3.9 million
for the nine months ended September 30, 1997 from $3.0 million for the nine
months ended September 30, 1996, representing 7.5% and 9.5% of total revenues,
respectively. The increase in dollar amount was primarily due to increased
staffing and professional fees necessary to manage and support the Company's
growth. The decrease in general and administrative expenses as a percentage of
revenues was primarily due to economies of scale realized as certain expenses
such as management compensation grew proportionately less than revenues. The
Company expects
18
<PAGE>
general and administrative expenses to increase in dollar amount for the
remainder of the year in order to support the growing needs of the Company.
INTEREST AND OTHER INCOME, NET
Interest and other income, net consists primarily of interest income earned
on the Company's cash and cash equivalents and short term investments, and
other items including foreign exchange gains and losses and interest expense.
Interest and other income, net decreased 7% to $1.5 million for the nine
months ended September 30, 1997 from $1.6 million for the nine months ended
September 30, 1996. The decrease is due to lower returns driven by the
Company's purchase of tax-free investments during the period. To date, the
Company's international sales have been generally denominated in U.S. dollars
and the Company has not engaged in hedging activities as the exposure to
currency fluctuations has been insignificant. In the future, as the Company
expands its international operations, the Company expects to have an increased
amount of non-U.S. dollar denominated contracts. Unexpected changes in the
exchange rates for these foreign currencies could result in significant
fluctuation in the foreign currency transaction gains and losses in future
periods.
PROVISION FOR INCOME TAXES
The provision for income taxes reflects the estimated annualized effective
tax rate of 34% applied to earnings for the nine months ended September 30,
1997 and 35% to earnings for the nine months ended September 30, 1996. The
Company reduced its estimated annualized effective tax rate from 35% to 34%
due to the establishment of a foreign sales corporation and a shift to tax-
free investments.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
REVENUES
License revenues increased by 70% to $34.6 million in 1996, by 128% to $20.4
million in 1995 and by 473% to $8.9 million in 1994, representing 76.4%, 80.0%
and 86.0% of total revenues in the respective periods. The growth in license
revenues was due primarily to an increase in the number of licenses sold,
reflecting increased acceptance of the Company's EDMS family of products, new
products released during the year and the expansion of the Company's sales
organization. Although the Company's customer base has grown as revenues have
increased, a relatively small number of end user customers have historically
accounted for a significant percentage of the Company's revenues. In 1996,
1995 and 1994 license revenues from Xerox and certain Xerox affiliates, as
systems integrators, a VAR and a distributor for the Company's products,
accounted for 14.0%, 30.0% and 7.8% of total license revenues, respectively.
In 1994, license revenues from Glaxo-Wellcome accounted for 33.6% of total
license revenues.
Service revenues increased by 110% to $10.7 million in 1996, by 249% to $5.1
million in 1995, and by 187% to $1.5 million in 1994, representing 23.6%,
20.0% and 14.0% of total revenues in the respective periods. The increase in
service revenues in dollars and as a percent of total revenues was
attributable to an increased demand for services as well as a larger installed
base of customers receiving ongoing maintenance, training and support services
and increases in the Company's professional services consulting staff.
Revenues from all indirect channel partners comprised 32.4%, 35.5% and 18.3%
of license revenues in 1996, 1995 and 1994, respectively. The increase in
indirect channel revenues as a percent of total license revenues in 1995 was
due to two large transactions from Xerox which each exceeded 10% of total
Company license revenues for the year. License revenues from indirect channels
include revenues from Xerox, which have acted as systems integrators, a VAR
and a distributor for the Company's products. In 1996, 1995 and 1994, revenues
from Xerox accounted for 43.2%, 84.4% and 42.7% of the indirect channel
partner revenues, respectively.
International revenues represented 28.9%, 25.6% and 7.6% of license revenues
in 1996, 1995 and 1994, respectively. The increase in international revenues
as a percent of license revenues for the year ended December 31, 1996 was due
to the expansion of the Company's sales force in Europe. A significant portion
of the international revenues was derived from the Company's indirect channel
partners, which include Xerox.
19
<PAGE>
COST OF REVENUES
Cost of license revenues increased by 62% to $1.9 million in 1996, by 129%
to $1.2 million in 1995 and by 287% to $518,000 in 1994, representing
approximately 5.6%, 5.8% and 5.8% of the related license revenues in 1996,
1995 and 1994, respectively. The increase in cost of license revenues was
principally related to the increase in the number of software licenses sold.
Cost of service revenues increased by 106% to $6.8 million in 1996, by 155%
to $3.3 million in 1995 and by 361% to $1.3 million in 1994, representing
64.1%, 65.4% and 89.7% of the related service revenues in 1996, 1995 and 1994,
respectively. The increase in cost of service revenues was a result of
increased personnel-related costs as the Company expanded its customer support
and training operations to support its increased installed customer base in
both the United States and Europe, as well as payments to third parties for
support.
OPERATING EXPENSES
Sales and marketing. Sales and marketing expenses increased by 59% to $19.9
million in 1996, by 100% to $12.5 million in 1995 and by 292% to $6.3 million
in 1994, representing 43.9%, 49.2% and 60.3% of total revenues for 1996, 1995
and 1994, respectively. The increase in dollar amount was primarily due to the
expansion of the Company's sales force, related equipment and facility
expenditures, investment in building a European direct sales force and
increased marketing activities including public relations and promotional
expenses. The decrease as a percentage of revenues is primarily due to
economies of scale realized as certain expenses, such as management
compensation and facilities, grew proportionately less than revenues.
Research and development. Research and development expenses increased by 75%
to $7.9 million in 1996, by 79% to $4.5 million in 1995 and by 44% to $2.5
million in 1994, representing 17.4%, 17.7% and 24.2% of total revenues in
1996, 1995 and 1994, respectively. The increase in dollar amount reflects the
expansion of the Company's engineering staff and related costs required to
support the development of new products and the enhancement of existing
products. Based on the Company's research and development process, costs
incurred between the establishment of technological feasibility and general
release have not been material and therefore have not been capitalized in
accordance with Financial Accounting Standards No. 86.
General and administrative. General and administrative expenses increased by
69% to $4.1 million in 1996, by 40% to $2.4 million in 1995 and by 53% to $1.7
million in 1994, representing 9.1%, 9.6% and 16.8% of total revenues in 1996,
1995 and 1994, respectively. The increase in dollar amount is primarily due to
increased staffing and professional fees necessary to manage and support the
Company's growth.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net increased by 849% to $2.3 million
in 1996, by 219% to $239,000 in 1995 and by 733% to $75,000 in 1994. The
increase in dollar amount is primarily due to higher cash balances resulting
from the completion of the Company's initial public offering of common stock
completed in February 1996.
PROVISION FOR INCOME TAXES
The Company's effective tax rates for 1996 and 1995 were 35% and 27%,
respectively. The Company incurred a loss in 1994 and consequently recorded no
provision for income taxes. These rates differ from the statutory rate
primarily due to state and foreign taxes, as well as the utilization of tax
loss and credit carryforwards and the impact of releasing the previously
established valuation allowance. In accordance with Financial Accounting
Standards No. 109, "Accounting for Income Taxes," the Company provides a
valuation allowance for deferred tax assets when it is more likely than not,
based on available evidence, that some portion or all of the deferred assets
will not be realized. Based on a revaluation of the realizability of future
tax benefits based on income earned in 1996, creating available tax
carrybacks, the Company released the previously established valuation
allowance during 1996. Accordingly, the Company valued its deferred tax asset
at $1.3 million at December 31, 1996.
20
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth certain unaudited quarterly consolidated
statement of income data, both in dollar amount and as a percentage of total
revenues, except as indicated, for each of the seven quarters in the period
ended September 30, 1997. The information for each of these quarters has been
derived from unaudited consolidated financial statements that have been
prepared on the same basis as the audited consolidated financial statements
incorporated by reference herein. In the opinion of the Company, all necessary
adjustments (consisting of normal recurring adjustments) have been included to
present fairly the unaudited consolidated quarterly results when read in
conjunction with the audited consolidated financial statements of the Company
and the notes thereto incorporated by reference herein. These operating
results are not necessarily indicative of the results of any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
-------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Licenses............... $6,988 $7,653 $9,127 $10,862 $11,062 $12,007 $14,215
Services............... 1,694 2,554 2,909 3,515 3,975 5,303 5,454
------ ------ ------ ------- ------- ------- -------
Total revenues......... 8,682 10,207 12,036 14,377 15,037 17,310 19,669
------ ------ ------ ------- ------- ------- -------
Cost of revenues:
Licenses............... 503 418 476 526 386 411 678
Services............... 1,176 1,744 1,732 2,193 2,490 2,911 3,166
------ ------ ------ ------- ------- ------- -------
Total cost of revenues. 1,679 2,162 2,208 2,719 2,876 3,322 3,844
------ ------ ------ ------- ------- ------- -------
Gross Profit............ 7,003 8,045 9,828 11,658 12,161 13,988 15,825
------ ------ ------ ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 4,022 4,584 5,159 6,144 7,285 8,613 8,926
Research and
development........... 1,541 1,788 2,175 2,376 2,298 2,563 2,885
General and
administrative........ 959 918 1,074 1,163 1,304 1,197 1,407
------ ------ ------ ------- ------- ------- -------
Total operating
expenses.............. 6,522 7,290 8,408 9,683 10,887 12,373 13,218
------ ------ ------ ------- ------- ------- -------
Income from operations.. 481 755 1,420 1,975 1,274 1,615 2,607
Interest and other
income, net............ 338 579 660 691 445 552 464
------ ------ ------ ------- ------- ------- -------
Income before income tax
provision.............. 819 1,334 2,080 2,666 1,719 2,167 3,071
Provision for income
taxes.................. (287) (467) (728) (933) (602) (720) (1,044)
------ ------ ------ ------- ------- ------- -------
Net income.............. $ 532 $ 867 $1,352 $ 1,733 $ 1,117 $ 1,447 $ 2,027
====== ====== ====== ======= ======= ======= =======
Net income per share
(1).................... $ .04 $ .06 $ .09 $ .12 $ .08 $ .10 $ .14
====== ====== ====== ======= ======= ======= =======
Shares used to compute
net income per share
(1).................... 14,132 14,938 14,923 14,994 14,880 14,805 14,994
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues:
Licenses............... 80.5% 75.0% 75.8% 75.6% 73.6% 69.4% 72.3%
Services............... 19.5 25.0 24.2 24.4 26.4 30.6 27.7
------ ------ ------ ------- ------- ------- -------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues........ 19.3 21.2 18.4 19.0 19.2 19.2 19.5
------ ------ ------ ------- ------- ------- -------
Gross margin............ 80.7 78.8 81.6 81.0 80.8 80.8 80.5
------ ------ ------ ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 46.4 44.9 42.9 42.7 48.4 49.8 45.4
Research and
development........... 17.8 17.5 18.1 16.5 15.3 14.8 14.7
General and
administrative........ 11.0 9.0 8.9 8.1 8.7 6.9 7.2
------ ------ ------ ------- ------- ------- -------
Total operating
expenses.............. 75.2 71.4 69.9 67.3 72.4 71.5 67.3
------ ------ ------ ------- ------- ------- -------
Income from operations.. 5.5 7.4 11.7 13.7 8.4 9.3 13.2
Interest and other
income, net............ 3.9 5.7 5.5 4.8 3.0 3.2 2.4
------ ------ ------ ------- ------- ------- -------
Income before income tax
provision.............. 9.4 13.1 17.2 18.5 11.4 12.5 15.6
Provision for income
taxes.................. (3.3) (4.6) (6.0) (6.5) (4.0) (4.2) (5.3)
------ ------ ------ ------- ------- ------- -------
Net income.............. 6.1% 8.5% 11.2% 12.0% 7.4% 8.3% 10.3%
====== ====== ====== ======= ======= ======= =======
AS A PERCENTAGE OF
RELATED REVENUES:
Cost of licenses
revenue................ 7.2% 5.5% 5.2% 4.8% 3.5% 3.4% 4.8%
Cost of services
revenue................ 69.4% 68.3% 59.5% 62.4% 62.6% 54.9% 58.0%
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements incorporated
herein by reference for an explanation of the determination of the number
of shares used to compute net income per share, and see also "Management's
Discussion and Analysis of Financial Condition and Result of Operations--
Recent Accounting Pronouncements."
21
<PAGE>
The Company's quarterly operating results have in the past and may in the
future vary significantly depending on factors such as demand for the
Company's products, the level of product and price competition, the length of
the Company's sales cycle, the size and timing of individual license
transactions, the delay or deferral of customer implementations, the budget
cycles of the Company's customers, the Company's success in expanding its
direct sales force and indirect distribution channels, the timing of new
product introductions and product enhancements, the mix of products and
services sold, levels of international sales, activities of and acquisitions
by competitors, the timing of new hires, changes in foreign currency exchange
rates and the ability of the Company to develop and market net products and
control costs. Additionally, the Company believes its quarterly results may
have been, and could continue to be, impacted by factors such as the possible
development of a commercial market for the Web, possible increased competition
from companies such as Oracle or Microsoft and ongoing competition for
qualified sales and technical personnel. In addition, the operating results
and financial condition may be affected by such trends in the future. The
Company's sales generally reflect a relatively high amount of revenues per
order and the number of large individual license sales has continued to
increase. For example, in the first quarter of 1997 the Company recognized
approximately $5.0 million in license revenue from a single customer. The
Company believes that fourth quarter revenues and earnings have historically
been positively impacted by year-end customer buying patterns. This
seasonality, which the Company believes is common in the software industry,
typically results in first quarter revenues and earnings in any year being
flat or lower than revenues in the immediately preceding fourth quarter.
Moreover, the Company typically recognizes a substantial amount of its revenue
in the last month, weeks or even days of each quarter. The loss or delay of
individual orders, therefore, could have a significant impact on the revenues
and quarterly results of the Company. The timing of license revenue is
difficult to predict because of the length of the Company's sales cycle, which
is typically six to twelve months from the initial contact. Moreover, the
Company typically recognizes a substantial amount of its revenue in the last
month, weeks or even days of the quarter. Because the Company's operating
expenses are based on anticipated revenue trends and because a high percentage
of the Company's expenses are relatively fixed, any shortfall from anticipated
revenue or a delay in the recognition of revenue from a limited number of
license transactions could cause significant variations in operating results
from quarter to quarter and could result in losses. To the extent such
expenses precede increased revenues, the Company's operating results would be
materially adversely affected. As a result of these factors, revenues for any
quarter are subject to significant variation, and the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since 1993, the Company has financed its operations primarily through the
sale of stock and through cash generated from operations. In February 1996,
the Company completed its initial public offering, whereby it sold 2,058,000
shares of its common stock and received net proceeds of approximately $45
million.
The Company's cash and investments totaled $57.1 million at September 30,
1997, representing 65.5% of total assets. Net cash provided by operating
activities was $10.4 million and $7.0 million for the nine months ended
September 30, 1997 and 1996, respectively. For the nine months ended September
30, 1997, cash generated by operations was primarily attributable to net
income of $4.6 million, an increase in accrued liabilities of $4.3 million, an
increase in deferred revenue of $1.9 million and an increase in accounts
payable of $900,000, which was offset by an increase in accounts receivable of
$2.5 million. For the nine months ended September 30, 1997, capital
expenditures of $5.9 million were primarily for computer equipment and
software, fixed assets and leasehold improvements acquired in conjunction with
the Company's expansion.
The Company currently has a line of credit facility which allows for
borrowings of up to $5.0 million at the bank's prime rate. This facility
expires in November 1997, and the Company presently anticipates that it will
be able to renew the line of credit. At September 30, 1997, the Company had no
outstanding borrowings under its line of credit. During the nine months ended
September 30, 1997, the Company paid $600,000 to eliminate the two existing
term notes relating to equipment financing. In addition, the Company may
borrow up to an
22
<PAGE>
additional $1.5 million through November 1997. Interest only is payable on
such additional borrowings at the Bank's prime rate plus 0.25% through
November 1997 after which any outstanding balance is due in 24 equal
installments. All obligations shall bear interest, from and after the
occurrence of an event of default, at a rate equal to 5% points above the
interest rate applicable immediately prior to the occurrence of the event of
default. Borrowings under the loan agreement are secured by substantially all
of the assets of the Company.
The Company currently has no significant capital spending or purchase
commitments other than normal purchase commitments and commitments under
facilities and capital leases.
The Company believes that the net proceeds from this offering, together with
its existing cash balances, its available bank financing and the cash flows
generated from operations, if any, will be sufficient to meet its anticipated
cash needs for working capital and capital expenditures for at least the next
12 months. A portion of the Company's cash could be used to acquire or invest
in complementary technologies, products or businesses that broaden or enhance
the Company's current product offerings. See "Risk Factors--Risks Associated
with Acquisitions."
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 is effective for the Company's fiscal year ending December 31, 1997.
Under SFAS 128, primary earnings per share is replaced by basic earnings per
share and fully diluted earnings per share is replaced by diluted earnings per
share. If the Company had adopted SFAS 128 for the year ended December 31,
1996 and for the nine month period ended September 30, 1997 the earnings per
share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Basic earnings per share.............. $.32 $.32
Diluted earnings per share............ $.30 $.31
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for the reporting of
comprehensive income and its components in a full set of general-purpose
financial statements for periods ending after December 15, 1997.
Reclassification of financial statements for earlier periods for comparative
purposes is required. The Company will adopt SFAS 130 in 1997 and does not
expect such adoption to have a material effect on the consolidated financial
statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments Of An
Enterprise and Related Information" ("SFAS 131"). SFAS 131 revises information
regarding the reporting of operating segments. It also establishes standards
for related disclosures about products and services, geographic areas and
major customers. The Company will adopt SFAS 131 beginning in 1998 and has not
evaluated the impact of such adoption on the notes to its consolidated
financial statements.
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BUSINESS
OVERVIEW
Documentum, Inc. ("Documentum" or the "Company") develops, markets, delivers
and supports object-oriented client/server and intranet software solutions
that address the challenges of managing business-critical documents
effectively across large enterprises. The Company's Enterprise Document
Management System ("EDMS") automates and accelerates the creation,
modification, reuse, access, sharing and delivery of business-critical
documents, Web pages and other information. Additionally, EDMS facilitates the
business processes involved with generating, maintaining and managing such
information and dynamically links documents to changing business activities.
Documentum provides a family of end user products and tools that deliver the
appropriate level of functionality to different classes of information users.
The Company focuses on large enterprises within selected vertical markets,
including: process manufacturing, discrete manufacturing, financial services
and certain other industries, including telecommunication equipment providers,
government and consulting and computer services. Documentum is increasingly
focused on providing comprehensive solutions for specific business processes
to deliver increased value to customers and expand the market for document
management solutions. Documentum products are designed for enterprise-wide
deployments and provide solutions that can scale to thousands of users across
an enterprise on industry standard clients, servers, databases and intranets.
INDUSTRY BACKGROUND
In today's highly competitive marketplace, a key component of corporate
success is the ability to leverage business-critical information to help
shorten time to market, improve quality and enhance overall organizational
effectiveness. Business-critical knowledge, including corporate information,
employee knowledge and business processes, is often encapsulated in documents
and in processes related to such documents. Organizations require solutions to
address the specific challenges of managing data stored as business-critical
documents and are seeking innovative solutions to extend and embed knowledge.
During the 1980s and early 1990s, the proliferation of relational database
management systems ("RDBMSs") enabled the effective management of much of the
structured data within large organizations--existing in the form of documents
such as sales records or financial or inventory data. The widespread use of
RDBMSs has allowed organizations to process large numbers of transactions, and
to make important business decisions based upon the compilation and analysis
of this structured data. However, RDBMSs were not designed to manage the
complexity and variety of unstructured data, a crucial element of intellectual
capital. According to some industry reports, up to 80 percent of corporate
data is unstructured--existing in the form of business-critical documents
ranging from text files, word processing documents and spreadsheets to CAD
drawings, graphics and images, Web pages, and even video or audio clips. In a
typical corporate environment, documents are created, modified, distributed
and stored using multiple software systems. These software applications run on
a variety of computing platforms that may be geographically dispersed, with
little compatibility or data sharing capability between systems. In
particular, the Internet and corporate intranets have increasingly become a
standard platform for information distribution and access across an
enterprise, increasing the need for coordinated access to business-critical
knowledge across a broader base of users.
Whatever their format and wherever their location, business-critical
documents such as product specifications, standard operating procedures,
technical manuals, regulatory submissions, project proposals, records,
transaction approvals and notifications represent the physical output of
professionals and are essential to business operations. However, the
complexity of information technology ("IT") systems designed for structured
data creates inefficiencies in document-related processes that hamper the
productivity of professionals both at the individual and team levels. Dynamic
business activities combined with overwhelming amounts of information increase
the risk that information is out of date, inaccessible and out of sync with
business processes. Without an effective means of searching for and reusing
enterprise information, workers are often forced to re-create documents from
scratch, duplicating effort and increasing the margin for error. As a result,
professionals are spending a disproportionate amount of their time locating,
processing, sharing and assembling documents rather than engaging in higher-
value activities. Additional complexity is added by documentation procedures,
which often require group collaboration by teams of workers who are
geographically dispersed and use different client platforms.
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Historically, companies have tried to address these document management
challenges either with costly and labor-intensive manual processes, or with
internally-developed systems based on proprietary technologies that are
difficult to implement, manage and maintain. The proliferation of productivity
tools such as word processors and spreadsheets has streamlined individual
document creation. However, these tools do not address productivity in
processes that require a number of individuals to collaborate and contribute
information across organizational and geographic barriers. A number of "point"
solutions have emerged that address certain aspects of document management,
such as imaging or text retrieval, but they do not provide a comprehensive
solution for the document management needs of the enterprise. Similarly, LAN-
based products that deliver simple library services are not engineered to
scale to the enterprise, and do not address the needs of business processes
because they overlook the issues of workflow and complex documents. Groupware
products enhance group productivity through ad hoc communications and project
discussions, but are not optimized to support collaboration on documents that
require formal version control and more robust enterprise security
capabilities. Information delivery vehicles such as Web browsers increase the
availability of documents but compound the complexity of other requirements
such as collaboration on document creation and the ability to control access
to and ensure integrity and versioning of business-critical documents.
Large organizations need enterprise-wide solutions to optimize the value of
their business-critical documents by automating the associated procedures that
take place between a document's creation and its use or reuse. These
procedures range over the document's entire life cycle--from information
capture to managing and controlling updates to the document, automating its
approval process and release, assembling document components, delivering the
appropriate document to the relevant user on a timely basis, and making the
document easy for users to find and access. Business-critical documents must
easily integrate with the organization's existing business processes and
procedures, and the solution must scale effectively in a heterogeneous
computing environment. In addition, as companies increasingly use the Web and
corporate intranets, they are demanding technologies that improve the quality
and usability of Web content while at the same time reducing the costs of
controlling and maintaining the information.
THE DOCUMENTUM SOLUTION
Documentum delivers enterprise solutions for managing business-critical
information across the enterprise through its EDMS cross-platform enterprise
application and business process frameworks. The Documentum EDMS family of
object-oriented client/server and intranet software is based on the idea that
corporate customers need to manage massive amounts of information undergoing
constant change in distributed and heterogeneous computing environments. As a
result, the Documentum EDMS provides an enterprise-scalable architecture that
supports multiple networking configurations and user environments. With EDMS,
companies can securely manage changes to documents and document components at
the object level, and they can dynamically assemble documents based on their
business procedures. In addition, Documentum's family of client products
enables all individuals in the enterprise to access the documents they need,
whether they are using Web browsers, custom clients, or their own desktop
applications. Documentum combines its enterprise application with a solutions
focus through system integrators, consultants and Documentum's professional
services to provide business process frameworks, called DocSolutions, to
accelerate customer solutions tailored to specific business challenges.
The Documentum solutions deliver the following key business advantages:
Heterogeneous Information Access. Users can access all the information
they need using their existing platforms, applications, and Web browsers,
without having to know where the information exists in the enterprise, how
and when it was created, or the information's type and format.
Support of Multiple Formats. Documentum enables users to work with
multiple formats or information types from text and data to complex formats
such as multi-file CAD drawings, multi-page fax images, standard operating
procedures or data sheets.
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<PAGE>
Workflow/Process Automation. Documentum's workflow effectively links
business-critical information with the processes involved in its capture,
creation and reuse to deliver the appropriate information to the relevant
user on a timely basis. This enables companies to manage their information
in the context of best business practices, accelerating time to market and
improving professional productivity.
Reusability/Integrity. With Documentum, companies can reuse documents and
components of documents, eliminating duplication of effort and reinforcing
the accuracy and integrity of information. For example, when a business
rule triggers a change in a component to reflect a new stage in a business
process, the change can instantly apply to all documents which utilize that
component. Users can then reuse that component and be assured that it
contains the correct information. Alternatively, a change in data that
appears in multiple documents can be replicated automatically across the
enterprise.
Application Integration and Customization. The Documentum EDMS is
designed to be easily tailored by users, systems integrators, consultants
and application developers, enabling customers to effectively develop and
deploy document management solutions based on their unique business
processes and IT infrastructure. Developers can combine Documentum's
embedded application programming interfaces ("APIs") with a choice of
languages to customize applications and integrate them with the existing
information infrastructure.
Enterprise Scalability. Companies can deploy solutions that not only meet
the needs of individual departments, but can scale across the entire
enterprise--from hundreds to thousands of users. Through Documentum's
client products, the proper level of access and functionality is delivered
to different classes of users.
STRATEGY
The Company's objective is to be the leading worldwide supplier of
enterprise document management software solutions. To achieve this objective,
the Company's strategy includes extending its technology leadership,
penetrating global industries vertically, delivering comprehensive solutions,
leveraging its technology partnerships, focusing on enterprise deployments and
utilizing multiple distribution channels.
Extend Technology Leadership. The Company's strategy is to continue to
enhance its existing server and client technologies, to add functionality to
its EDMS solutions and to provide greater flexibility in terms of information
delivery, document repositories, and the number and variety of supported
client, server and RDBMS platforms. Documentum expects to enhance the features
of its products by making them compatible with new technologies as well as
existing applications and by responding to the unique needs of large
organizations. The Company has enhanced the architecture of its open,
extensible server to support distributed, heterogeneous document repositories
across the enterprise. For example, the Company has achieved logo
certification for Microsoft BackOffice, Windows NT and Windows 95. Besides
expanding the functionality of its own easy-to-use WorkSpace client
environment for document coordinators, Documentum has delivered new client
products for document contributors, coordinators and consumers working in both
Web and client/server environments. Documentum has also provided support for
other information delivery vehicles such as SAP, Lotus Notes and the Interleaf
publishing product.
Penetrate Global Industries Vertically. A key component of Documentum's
strategy is to identify strategic vertical markets with compelling business-
critical needs for the Company's EDMS, namely, industries where more efficient
management of unstructured information and intellectual capital results in an
immediate and substantial payback. The Company has extended its initial focus
from the pharmaceutical industry to leverage this leadership across process
manufacturing companies, such as chemicals, petrochemicals, consumer products
and construction engineering. The Company has since replicated its vertical
market strategy to address key segments in discrete manufacturing, obtaining
major customers in the electronics, computer, automotive and aerospace
industries. The Company intends to expand its customer base in additional
markets, such as government, telecommunications equipment providers, financial
services and consulting and computer services.
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The Company has formed an internal Industry Solutions organization to focus
the Company's efforts on developing complete, whole-product solutions for
these targeted industries to further penetrate customers existing vertical
markets as well as promote document management systems in its new vertical
markets.
Deliver Comprehensive Solutions. The Company's goal is to deliver increased
value to its customers by providing a solutions framework combined with the
EDMS enterprise application to achieve an identifiable business objective. For
a particular business process, the Company provides a DocSolution which
consists of predefined document types, workflows, business rules and
implementation services. Implementation services are tailored to a customer's
specific business processes and IT systems by the customer, Documentum and
third parties. By configuring the best practices framework and by adding
partner technologies and consulting services, Documentum, or its partners,
provide a one-stop approach to deliver document management solutions for
business-critical processes.
Leverage Technology Partnerships. The Company has accelerated the
development, introduction and acceptance of its EDMS solutions through
selected strategic technology partnerships. For example, the Company has
embedded in its software certain industry-standard features and functionality
licensed from Adobe, Microsoft and Verity. In addition, the Company integrates
its EDMS solutions with other business-critical applications from vendors
including SAP, PeopleSoft, Lotus and Interleaf. Finally, the Company conducts
joint marketing and sales activities with complementary strategic hardware and
software vendors, including Hewlett-Packard, IBM, Sun Microsystems, Informix,
Lotus, Microsoft, Netscape, Oracle and Sybase.
Focus on Enterprise Deployments. The Company has designed its products to
scale from focused business-critical applications consisting of hundreds of
user seats to enterprise-wide use consisting of multiple applications for
thousands of user seats at multiple sites. The Company believes that initial
customer success in capturing business-critical information by utilizing the
Company's EDMS family of products is an essential factor in the customer's
decision to deploy the Company's products throughout the enterprise. The
Company has a two-pronged strategy to drive customers towards enterprise-wide
deployment. First, the Company provides targeted consulting and training
services to its customers and systems integrators. Second, the Company has
established strategic partnerships with major, or vertically focused, systems
integrators, including, among others, Cap Gemini, Computer Sciences
Corporation, IBM/ISSC, EDS, Deloitte & Touche, Ernst & Young and Xerox. These
partners provide customization of the Company's EDMS products for individual
customer needs and integration with third-party applications.
Utilize Multiple Distribution Channels. The Company's strategy is to expand
its multiple distribution channels to reach the broadest customer base in its
targeted industries. The Company sells through its direct sales force as well
as through indirect channels, primarily consisting of systems integrators and
distributors. Documentum intends to continue to focus on growing its indirect
sales channels to include value-added resellers, and to expand both direct and
indirect distribution channels on a worldwide basis by hiring additional sales
persons and recruiting additional integrators, particularly in vertical
industries.
27
<PAGE>
CUSTOMERS
The Company has directly or indirectly licensed its products to more than
300 end user customers in a broad range of industries worldwide. The following
is a representative list of the Company's end user customers.
<TABLE>
<CAPTION>
<S> <C> <C>
AEROSPACE/AIRLINES/AUTOMOTIVE FINANCIAL SERVICES PUBLISHING
Aeroquip Corporation Kleinwort Benson Ltd. CTB/McGraw-Hill
AlliedSignal Inc. Marsh & McLennan Incorporated RR Donnelley & Sons
The Boeing Company Pictet & Cie Society of Automotive Engineers
Delta Air Lines, Inc. The Times Mirror Company
Ford Motor Company GOVERNMENT West Publishing Corporation
General Motors
Space Systems/Loral Canada Department of National Defense UTILITIES
USAir, Inc. FMV-Defense Material Administration
Los Angeles Unified School District Consumers Gas
CHEMICAL/PETROCHEMICAL State of Wisconsin Electric Power Research Institute, Inc.
U.S. Department of Energy OKG Aktiebolag GE Nuclear Energy
Aramco Service Co. U.S. Food and Drug Administration IES Utilities
ARCO Chemical Co. Ontario Hydro
Bayer AG PHARMACEUTICAL/MEDICAL Vattenfall Data AB
British Nuclear Fuel plc VIAG INTERKOM GmbH & Co.
Ciba Specialty Chemicals Inc. Abbott Laboratories Westinghouse Savannah River Company
The Dow Chemical Company AKZO Nobel Pharma BV
Dow Corning Corporation Allergan, Inc. OTHER
Lonza, Inc. Boehringer Ingelheim Pharmaceuticals, Inc.
The Monsanto Company Boehringer Mannheim Corporation The Procter & Gamble Company
Novartis The Boots Company plc Westinghouse Electric Corporation
Saga Petroleum Bristol-Myers Squibb Company Whirlpool
Texaco Group, Inc. COBE Cardiovascular Inc.
Union Carbide Corporation Eli Lilly & Company
Glaxo-Wellcome
COMPUTERS/ELECTRONICS Guidant Corporation
Knoll Pharmaceutical Company
Compaq Computer Corporation Merck & Co., Inc.
Cypress Semiconductor Parke & Davis Co., Ltd.
Ericsson Telecom AB Pharmacia & Upjohn Inc.
Fujitsu America, Inc. Pfizer, Inc.
Hewlett-Packard Co. Rhone-Poulenc Rorer, Inc.
Hitachi America, Ltd. Sandoz Pharmaceuticals
Hyundai Semiconductor America Schering AG
IBM Schering-Plough Research Institute
Platinum Technology, Inc. SmithKline Beecham Corporation
Xerox Corporation Solvay Pharmaceuticals
W.L. Gore & Associates, Inc.
Warner-Lambert Laboratories
CONSTRUCTION/ENGINEERING Wythe-Ayerst Research
Black & Veatch ZENECA, Inc.
Halliburton
Kvaerner John Brown Systems Limited
LG Engineering
Promon Engenharia Ltd.
</TABLE>
PRODUCTS
CORE FUNCTIONALITY
Central to the Documentum EDMS is the DocPage Server which provides a rich
set of document and Web content management services for controlling and
managing business-critical information and processes throughout the
enterprise. The DocPage Server supports capture, updating, distribution,
assembly, and access for all document types ranging from traditional rich text
and images to HTML, SGML, and multimedia objects. The DocPage Server creates a
dynamic document and Web page repository called a Docbase. Driven by business
28
<PAGE>
rules, the Docbase stores a document or Web page as a Docobject that
encapsulates the document's content together with its attributes, including
information about the document's relationships, associated versions,
renditions, formats, workflow and security. Docobjects can be combined and re-
combined on demand to form Virtual Documents--dynamic configurations of
Docobjects that can come from any source in the enterprise.
An extension of the DocPage Server, called Documentum RightSite, delivers
powerful Web content management services for delivering high-quality,
business-critical information on an intranet. RightSite solves the complex
challenges of capturing, managing, and assembling frequently changing
information on corporate Web sites. RightSite makes Web applications cost-
effective by eliminating the laborious, manual tasks involved in tailoring
information and keeping it current. Furthermore, with RightSite companies can
ensure that only the information relevant to a user's job function is
delivered to the desktop. Unlike first-generation, static Web solutions,
RightSite dynamically assembles Web pages "on the fly" according to business
processes, enabling companies to tailor Web content to users' unique needs.
USER FUNCTIONALITY
Within the enterprise, Documentum has identified three classes of document
management users: document coordinators, document contributors, and
information consumers. The Documentum EDMS is delivered via a range of client
products, each designed to deliver the appropriate DocPage Server and
RightSite functionality to different classes of users on client platforms
including Web browsers, Windows (3.1, 95 and NT), Macintosh, Solaris, HP-UX
and IBM AIX. Customers purchase different combinations of products depending
on the level of functionality they choose to deliver to each user.
Documentum products include:
Documentum WorkSpace. Through its own robust client environment or
integration with familiar desktop applications, WorkSpace gives document
coordinators access to the full power and features of the DocPage Server.
Documentum SmartSpace. SmartSpace provides an easy-to-use client
environment for document contributors to perform basic document management
tasks. SmartSpace also supports integration with familiar desktop
applications. The Company also offers SmartSpace Intranet, an extension of
the SmartSpace product to the Web platform which enables users to
contribute content and perform a range of document management tasks over
the Web.
Documentum ViewSpace. Designed for information consumers, ViewSpace
extends the services of the Documentum EDMS to the Web. ViewSpace enables
Web browser users to access and view documents in a Docbase with pre-
formatted and customizable HTML pages. Documentum SiteSpace is an
anonymous, unnamed user license of ViewSpace which enables companies to
deliver public content to any user without requiring a login or password
with all the control and management performed by the DocPage Server.
INTEGRATION FUNCTIONALITY
Documentum DocLink for SAP. DocLink for SAP is an interface that provides
seamless integration between the Documentum EDMS and SAP's R/3 product.
DocLink for SAP enables corporations to use intranet and client/server
technology to link their knowledge chain with the SAP supply chain in a
paperless, electronic environment. DocLink for SAP has been SAP certified.
Documentum UnaLink. UnaLink integrates the Documentum EDMS with the
groupware capabilities of Lotus Notes, enabling Notes users to participate
in the full document lifecycle.
Documentum DocPage Builder. The DocPage Builder is a set of tools for
integrating desktop systems and building tailored document management
applications.
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Documentum LeafConnect. LeafConnect enables users of the Interleaf
publishing system to take full advantage of the flexibility and power of
the Documentum EDMS from within the familiar Interleaf environment.
INDUSTRY SOLUTIONS
Documentum delivers solutions for the information management challenges of
its targeted vertical markets through its Industry Solutions Group. This Group
develops "DocSolutions" by combining the Documentum EDMS enterprise
application with industry and process expertise. The Industry Solutions Group
consists of industry specialists, marketing managers and development engineers
that team with Documentum's consultants and partners to develop best practices
solutions that are rapidly deployed for a high return on investment for its
customers. The Industry Solutions Group's objective is to reduce customers'
product development time and increase operational efficiency by designing
DocSolutions for particular business processes. The Industry Solutions Group's
first DocSolution is for standard operating procedures ("SOPs"), and the
Company intends to deliver additional DocSolutions to speed deployments,
reduce sales cycles, increase customer penetration and expand the addressable
market for Documentum's EDMS.
PROFESSIONAL SERVICES
In addition to Documentum's EDMS product family, the Company offers a range
of technical support, training, and consulting services through its
Professional Services organization. As of September 30, 1997, the Company's
training and consulting organization consisted of 45 employees. The Company
currently operates three Technical Support Centers, one at its worldwide
headquarters in Pleasanton, one in the United Kingdom and one in Munich,
Germany. Each center offers hotline technical support, remote dial-in services
for problem identification and access to maintenance and patch releases for
supported and purchased products. The Documentum Education Center offers a
curriculum of training courses on the Documentum EDMS for end users,
developers and system administrators. Training is available at the Company's
training centers in Pleasanton, Chicago, Philadelphia and London, and can also
be delivered at the customer's site. Finally, Documentum's consulting group
offers a range of services designed to accelerate deployment and user
acceptance of Documentum applications across the enterprise, and to reduce the
time and cost of deploying applications. Documentum consultants are an
integral part of a customer's implementation team, assisting with design,
implementation and deployment of the application.
TECHNOLOGY PARTNERSHIPS
Through its technology partners, Documentum is offering comprehensive
document management solutions that integrate with industry-standard hardware
platforms, RDBMSs and enterprise applications--particularly those targeted to
key vertical markets such as process manufacturing. These partnerships ensure
that customers will have a document management solution that supports their
existing IT infrastructure and that is tailored to the specific requirements
of their industry. The following is a representative list of its technology
and marketing partners:
APPLICATIONS AUTHORING IMAGING/VIEWERS/FORMS PLATFORMS/ENVIRONMENTS
ConsenSys Adobe Cimmetrey Systems Hewlett-Packard
Consilium ESPS Cornerstone IBM
DataCAD Frame Delrina Sun Microsystems
Foxboro Framework Technologies Informix
Incode Jetform Lotus
Infinity Financial Kofax Microsoft
PeopleSoft Spicer Netscape
SAP Oracle
Xerox Sybase
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SALES AND MARKETING
The Company sells its products through its own direct sales force as well as
complementary indirect channels primarily consisting of systems integrators
and distributors. The Company has 14 sales offices in the United States and
three in Europe, six distributors in Europe, Asia-Pacific and Canada and
strategic relationships with more than 30 systems integrators worldwide.
The Company targets global customers in key vertical markets. The Company's
field sales force conducts multiple presentations and demonstrations of the
Documentum EDMS solution to management and users at the customer site as part
of the direct sales effort. Sales cycles generally last from six to twelve
months. The direct sales force is responsible for local partner support, joint
sales efforts and management of multiple channels. See "Risk Factors --
Lengthy Sales and Implementation Cycles."
The Company's sales and marketing organization consisted of 152 employees as
of September 30, 1997. The sales staff is based at the Company's corporate
headquarters in Pleasanton, California and at field sales offices in the U.S.
metropolitan areas of Atlanta, Boston, Chicago, Cleveland, Dallas, Denver,
Detroit, Houston, Los Angeles, Minneapolis, New York, Philadelphia, San
Francisco, and Seattle and abroad in London, Munich and Paris. To support its
sales force, the Company conducts comprehensive marketing programs, which
include public relations, telemarketing, seminars, trade shows, education and
user group conferences.
PRODUCT DEVELOPMENT
The Company has committed, and expects to continue to commit, substantial
resources to product development. The Company's existing products were
designed after extensive work with potential customers to assess their needs.
The Company supplements its product development efforts by reviewing customer
feedback on existing products and working with customers and potential
customers to anticipate future functionality requirements.
The Company expects to continue to enhance its existing products, develop
new products and augment its product base through acquisitions. As of
September 30, 1997, the Company's research and development organization
consisted of 86 full-time employees. For the nine months ended September 30,
1997 and the years ended December 31, 1996, 1995 and 1994, research and
development expenses were $7.7 million, $7.9 million, $4.5 million and $2.5
million, respectively. Historically, the Company has expensed its software
development costs as incurred. The Company anticipates that it will continue
to commit substantial resources to research and development in the future.
The Company's future success will depend in part on its ability to continue
to enhance its current product line and to continue to develop and introduce
new products that respond to evolving customer requirements and keep pace with
competitive product introductions and technological developments, satisfy
diverse and evolving customer requirements and otherwise achieve market
acceptance. There can be no assurance that the Company will be successful in
continuing to develop and market on a timely and cost-effective basis fully
functional product enhancements or new products that respond to technological
advances by others, or that its enhanced and new products will achieve market
acceptance. In addition, the Company has in the past experienced delays in the
development, introduction and marketing of new or enhanced products, and there
can be no assurance that the Company will not experience similar delays in the
future. Any failure by the Company to anticipate or respond adequately to
changes in technology and customer preferences, or any significant delays in
product development or introduction, would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Risk Factors -- New Products and Rapid Technological Change."
INDUSTRY STANDARDS
Documentum is committed to providing comprehensive, open document management
solutions targeted to customers' unique business requirements. Documentum
participates actively in the two leading organizations which have taken the
initiative to define standards specifically for the document management arena.
These include the Open Document Management API ("ODMA") and the Document
Management Alliance
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<PAGE>
("DMA"). ODMA is developing an API which will enable document management
capabilities to be integrated into a wide range of desktop applications. DMA
is proposing a specification for broader interoperability and connectivity
between heterogeneous document management services, repositories and
applications. In 1996, ODMA formally accepted Documentum's query extension
enabling desktop application users to simultaneously search document
repositories from different vendors.
COMPETITION
The market for the Company's products is intensely competitive, subject to
rapid change and significantly affected by new product introductions and other
market activities of industry participants. The Company's products are
targeted at the emerging market for open, client/server software solutions,
and the Company's competitors offer a variety of products and services to
address this market. The Company currently encounters direct competition from
a number of public and private companies such as OpenText, PC DOCS, FileNet
and Novasoft. Several competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
significantly greater name recognition and a larger installed base of
customers than the Company.
In addition, other enterprise software vendors, such as Microsoft, Oracle or
Lotus may compete with the Company in the future. Like the Company's current
competitors, many of these companies have longer operating histories,
significantly greater resources and name recognition and a larger installed
base of customers than the Company. Microsoft, Oracle, Lotus and other
potential competitors have well-established relationships with current and
potential customers and strategic partners of the Company, have extensive
knowledge of the enterprise software industry and have the resources to enable
them to more easily offer a single vendor solution. As a result, these
competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products, than can
the Company.
The Company also faces indirect competition from systems integrators. The
Company relies on a number of systems consulting and systems integration firms
for implementation and other customer support services, as well as
recommendations of its products during the evaluation stage of the purchase
process. Although the Company seeks to maintain close relationships with these
service providers, many of these third parties have similar, and often more
established, relationships with the Company's principal competitors. If the
Company is unable to develop and maintain effective, long-term relationships
with these third parties, the Company's competitive position would be
materially adversely affected. Further, there can be no assurance that these
third parties, many of which have significantly greater resources than the
Company, will not market software products in competition with the Company in
the future or will not otherwise reduce or discontinue their relationships
with or support of the Company and its products.
The Company also expects that competition will increase as a result of
software industry consolidations. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Increased competition may result in
price reductions, reduced gross margins and loss of market share, any of which
could have a material adverse effect on the Company's business, operating
results and financial condition. There can be no assurance that the Company
will be able to compete successfully against current and future competitors or
that competitive pressures faced by the Company will not materially and
adversely affect its business, financial condition and results of operations.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company's success is heavily dependent upon proprietary technology. The
Company relies primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual
32
<PAGE>
provisions to protect its proprietary rights. The Company seeks to protect its
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. The Company presently
has no patents or patent applications pending. Despite the Company's efforts
to protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary.
Policing unauthorized use of the Company's products is difficult, and while
the Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem.
In addition, the laws of some foreign countries do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar technology. The Company is not aware that any of
its products infringes the proprietary rights of third parties. There can be
no assurance, however, that third parties will not claim infringement by the
Company with respect to current or future products. The Company expects that
software product developers will increasingly be subject to infringement
claims as the number of products and competitors in the Company's industry
segment grows and the functionality of products in different industry segments
overlaps. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company or at all, which could have a material adverse effect upon the
Company's business, financial condition and results of operations.
In addition, the Company also relies on certain software that it licenses
from third parties, including software that is integrated with internally
developed software and used in the Company's products to perform key
functions. There can be no assurances that such firms will remain in business,
that they will continue to support their products or that their products will
otherwise continue to be available to the Company on commercially reasonable
terms. The loss or inability to maintain any of these software licenses could
result in delays or reductions in product shipments until equivalent software
can be developed, identified, licensed and integrated, which would adversely
affect the Company's business, financial condition and results of operations.
EMPLOYEES
As of September 30, 1997, the Company employed 357 persons, including 152 in
sales and marketing, 45 in its consulting and training services organization,
30 in customer support, 86 in research and development and 44 in finance and
administration. Of these, 71 are located in Europe and the remainder are
located in North America. None of the Company's employees is represented by a
labor union. The Company has experienced no work stoppages and believes its
relationship with its employees is good. Competition for qualified personnel
in the Company's industry is intense. The Company believes that its future
success will depend in part on its continued ability to attract, hire and
retain qualified personnel.
FACILITIES
The Company's principal administrative, engineering, manufacturing,
marketing and sales facilities total approximately 91,000 square feet and are
located in three buildings in Pleasanton, California. In addition, the Company
leases offices for sales, marketing and customer service activities in or near
Atlanta, Georgia; Burlington, Massachusetts; Southfield, Michigan;
Saddlebrook, New Jersey; Chicago, Illinois; Willow Grove, Pennsylvania;
Irvine, California; Denver, Colorado; Dallas, Texas; Houston, Texas; Bellevue,
Washington; Hudson, Ohio; Minneapolis, Minnesota and outside of the United
States in Stockley Park, England; Paris, France and Munich, Germany.
The Company anticipates expanding existing facilities depending upon the
availability of suitable additional space. Recently, commercial building
vacancy rates have significantly dropped in many of the markets where the
Company has significant operations. As a result, the Company could experience
difficulty in obtaining additional space for expansion. Failure to obtain
space or to obtain it on reasonably attractive commercial terms may inhibit
the Company's ability to grow, or otherwise adversely effect the Company's
operations and financial results.
33
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Jeffrey A. Miller 46 President, Chief Executive Officer and
Director
Mark S. Garrett 39 Vice President, Chief Financial Officer and
Secretary
Paul J. Hoffman 47 Vice President, Worldwide Sales
Robert K. Reid 47 Vice President, Industry Solutions
Howard I. Shao 41 Vice President, Product Development
Robert V. Adams (1) 65 Chairman of the Board
Kathryn C. Gould (2) 47 Director
Colin J. O'Brien 58 Director
John L. Walecka (1)(2) 37 Director
Edward J. Zander 50 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Jeffrey A. Miller has served as the Company's President, Chief Executive
Officer and member of the Board of Directors since July 1993. From April 1991
to March 1993, Mr. Miller was a division president at Cadence Design Systems,
Inc., a supplier of electronic design automation software ("Cadence"). From
February 1983 to April 1991, Mr. Miller was Vice President and General Manager
and Vice President of Marketing of Adaptec, Inc., a supplier of computer
input/output controllers. From 1976 to 1983, Mr. Miller held various positions
at Intel Corporation, a manufacturer of semiconductor components. Mr. Miller
received his M.B.A. and B.S. in Electrical Engineering and Computer Science
from the University of Santa Clara.
Mark S. Garrett has served the Company's Vice President, Chief Financial
Officer and Secretary since January 1997. From February 1995 through December
1996, Mr. Garrett was Vice President of Worldwide Corporate Financial Planning
and Analysis at Cadence. From August 1994 to February 1995, Mr. Garrett served
as Finance Group Director for the Spectrum Services division at Cadence. From
January 1993 to July 1994, Mr. Garrett was Finance Group Director for
Technology Development at Cadence. From June 1991 to December 1992, Mr.
Garrett was Division Controller and Finance Director for the Systems and CAE
Divisions of Cadence. From June 1979 to May 1991, Mr. Garrett held various
financial positions at IBM Corporation. Mr. Garrett received his M.B.A. from
Marist College and his B.S.B.A. from Boston University.
Paul J. Hoffman has served as the Company's Vice President, Worldwide Sales
since September 1996. From September 1994 to September 1996, Mr. Hoffman was
Vice President, Worldwide Operations for Oracle, a relational database
software company. From June 1992 until September 1994 he served as Vice
President, Direct Marketing Division, USA for Oracle and from June 1990 until
June 1992 he served as Area Vice President, West for Oracle. Mr. Hoffman
received his B.S. in Finance from Fairfield University.
Robert K. Reid has served the Company as Vice President, Industry Solutions
since January 1997. Prior to that, Mr. Reid was the Company's Vice President
of Marketing since August 1993. From 1988 to August 1993, Mr. Reid was Vice
President of Marketing for Octel Communications Corp., a voicemail company.
From 1983 to 1988, Mr. Reid was Vice President of Marketing for NBI, Inc., an
office systems company. From 1980 to 1983, Mr. Reid was Vice President of
Marketing for Zenith Data Systems Corp., a personal computer company. Mr. Reid
received his B.S. in Communications from the University of Tennessee.
Howard I. Shao, a founder of the Company, has served as Vice President,
Product Development since January 1997. Prior to that, Mr. Shao was the
Company's Vice President, Research and Development since June 1990. From 1984
to June 1990, Mr. Shao held a variety of management positions at Ingres
Corporation, a
34
<PAGE>
relational database company, including Director Product Development. From 1981
to 1984, Mr. Shao was the Manager of Department Database Processor at
TTI/Citicorp, a software division of Citicorp. Mr. Shao was a co-founder of
Transtech International, a software company. Mr. Shao received his M.B.A. from
Pepperdine University and a B.S. in Computer Science from the Massachusetts
Institute of Technology.
Robert V. Adams has served as Chairman of the Board of the Company since its
inception in January 1990. Since February 1989, Mr. Adams has served as the
President of Xerox Technology Ventures, a venture capital unit of Xerox
Corporation. Mr. Adams is also a director of Tekelec and ENCAD, Inc. Mr. Adams
received his M.B.A. from the University of Chicago and a B.S. in Mechanical
Engineering from Purdue University.
Kathryn C. Gould has served as a director of the Company since October 1993.
Ms. Gould has been a Managing Director of Foundation Capital management Co.,
L.L.C., the general partner of Foundation Capital, L.P., a venture capital
partnership, since December 1995. Ms. Gould has been a partner of MPAE V
Management Company, L.P., the general partner of Merrill, Pickard, Anderson &
Eyre V, L.P., a venture capital partnership, since 1989. She is also a
director of several privately held companies. Ms. Gould received her M.B.A.
from the University of Chicago and her B.S. in Physics from the University of
Toronto.
Colin J. O'Brien has served as a director of the Company since December
1995. Since February 1992, Mr. O'Brien has been employed in various positions
at Xerox Corporation and currently serves as a vice President and the Chief
Executive Officer of the New Enterprise Board within Xerox. Prior to February
1992, Mr. O'Brien was the founder and Chief Executive Officer of Triax
Corporation, an investment company specializing in defense electronics
companies. Prior to that, he was the Chief Executive Officer of Times Fiber
Communications Inc., a manufacturer of fiber optic and coaxial
telecommunications systems. Mr. O'Brien received his B.S. in Chemical
Engineering from the University of New South Wales, Australia.
John L. Walecka has served as a director of the Company since October 1993.
He has been a general partner of certain venture capital funds associated with
Brentwood Associates, a venture capital Company, since January 1990. From May
1984 to January 1990, Mr. Walecka was an associate with Brentwood Associates.
He is also a director of several privately held companies. Mr. Walecka
received his M.B.A. and his M.S. in Engineering from Stanford University.
Edward J. Zander has served as a director of the Company since July 1995.
Mr. Zander has been President of Sun Microsystems Computer Company, a
subsidiary of Sun Microsystems, Inc., a network computing systems company
("Sun"), since February 1995. From January 1991 to February 1995, Mr. Zander
was President of SunSoft, Inc., the software subsidiary of Sun. From October
1987 to January 1991, Mr. Zander was Vice President of Marketing of Sun. Mr.
Zander received his M.B.A. from Boston University and his B.S. in Electrical
Engineering from the Rensselaer Polytechnic Institute.
35
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's outstanding Common Stock as of September
30, 1997, and as adjusted to reflect the sale of the Common Stock being
offered hereby by each of the Selling Stockholders and all executive officers
and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED
OFFERING(1) NUMBER OF AFTER OFFERING(1)
----------------------- SHARES BEING -----------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
SELLING STOCKHOLDERS
Xerox Corporation(2).. 2,969,863 20.6% 1,200,000 1,769,863 11.6%
Robert V. Adams(2)(3). 2,981,530 20.7 1,200,000 1,781,530 11.7
Jeffrey A. Miller(4).. 689,034 4.8 50,000 639,034 4.2
Howard I. Shao(5)..... 314,997 2.2 20,000 294,997 1.9
Robert K. Reid(6)..... 141,771 * 10,000 131,771 *
Kathryn C. Gould(7)... 57,176 * 4,300 52,876 *
Paul J. Hoffman(8).... 151,354 1.0 1,000 150,354 *
Dave Fullerton(9)..... 48,333 * 2,000 46,333 *
John Newton(10)....... 153,332 1.1 12,000 141,332 *
ALL EXECUTIVE OFFICERS
AND DIRECTORS AS A
GROUP (10 PERSONS)(11). 4,514,297 30.3 1,285,300 3,228,997 20.5%
</TABLE>
- --------
* Represents beneficial ownership of less than 1%.
(1) Assumes no exercise of the Underwriters' over-allotment option.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by
them. Percentage of beneficial ownership is based on 14,405,865 shares of
Common Stock outstanding as of September 30, 1997 and 15,206,565 shares
of Common Stock outstanding after completion of this offering.
(2) It is anticipated that prior to the completion of the offering, Xerox
Corporation ("Xerox") will transfer an aggregate of 311,586 shares (the
"Transfer") to the following individuals (the "Transferees"): 185,382
shares to Robert V. Adams, 53,634 shares to Robert Curtain, 42,068 shares
to Jeffrey Tung and 30,502 shares to Natalie R. Curtain. Of the 1,200,000
shares shown as being offered by Xerox, an aggregate of 150,000 shares is
expected to be offered by the Transferees as follows: 85,796 shares by
Mr. Adams, 23,634 shares by Mr. Curtain, 10,068 shares by Mr. Tung and
30,502 shares by Ms. Curtain. Assuming the occurrence of the Transfer,
upon completion of the offering, Xerox will beneficially own 1,608,277
shares (10.6% of the outstanding shares), Mr. Adams will beneficially own
1,719,944 shares (11.3% of the outstanding shares) and each of the other
Transferees will own less than one percent of the outstanding shares.
(3) Includes 2,969,863 shares held by Xerox and 11,667 shares issuable upon
the exercise of options exercisable within 60 days of September 30, 1997.
Mr. Adams, a director of the Company, is a principal of XTV, a unit of
Xerox. Mr. Adams disclaims beneficial ownership of such shares held by
Xerox, except to the extent of his profit-sharing interest therein.
(4) Includes 13,303 shares which are subject to a right of repurchase in
favor of the Company which expires ratably through October 1997 and
79,167 shares which will vest ratably through June 1999. Also includes
(i) 579,734 shares held by Jeffrey Miller and Karen Miller, as Co-
trustees of the Miller Living Trust dated July 7, 1985 and (ii) 9,300
shares held by The Miller Children's Trust I. Mr. Miller disclaims
beneficial ownership of the shares held by The Miller Children's Trust I.
(5) Includes 105,400 shares issuable upon the exercise of options subject to
vesting through June 1999. Also includes 10,600 shares held by Mr. Shao's
minor children.
(6) Includes 36,500 shares held by the Crystal Lane Limited Partnership
("Crystal Lane"). Mr. Reid is a limited partner of Crystal Lane. Mr. Reid
disclaims beneficial ownership of the shares held by Crystal Lane, except
to the extent of his ownership interest therein. Also includes 95,000
shares issuable upon the exercise of options subject to vesting through
May 1999.
(7) Includes 502 shares held by S. Merrill, T. Meyer & P. Jackson Trust NDA &
Eyre Money Purchase Pension Plan Trust UA 11/10/91 FBO KATHRYN GOULD.
Also includes 11,667 shares issuable upon the exercise of options
exercisable within 60 days of September 30, 1997.
(8) Includes 150,000 shares issuable upon the exercise of options subject to
vesting through September 2001.
(9) Includes 17,700 shares which are subject to a right of repurchase in
favor of the Company which expires ratably through October 1997 and
10,000 shares which will vest ratably through June 1999.
(10) Includes 21,309 shares issuable upon the exercise of options exercisable
within 60 days of September 30, 1997.
(11) Includes 508,735 shares issuable upon the exercise of options exercisable
within 60 days of September 30, 1997.
36
<PAGE>
CERTAIN TRANSACTIONS WITH SELLING STOCKHOLDERS
On April 1, 1996, the Company entered into a Services Partner Agreement with
Xerox (the "Services Partner Agreement") under which the Company granted Xerox
a worldwide, non-exclusive license to market, promote and sublicense the
Licensed Software, as that term is defined in the Services Partner Agreement,
but only in conjunction with providing value-added services. The initial term
expired on April 1, 1997 but automatically renewed for successive one year
periods unless either party notifies the other in writing at least 60 days
prior to the expiration of the then current term of their intent not to extend
the Services Partner Agreement.
In July 1995, the Company entered into an International Distributor
Agreement with Rank Xerox AB under which the Company granted Rank Xerox AB the
non-exclusive right to purchase the Company's software products at specified
discounts and distribute those products to both resellers and end users in a
specified territory, provided that Rank Xerox AB meet certain minimum sales
levels of the Company's products. The agreement was superseded by the Services
Partner Agreement.
In April 1995, the Company entered into an Agreement for the Supply of
Services with Rank Xerox Limited under which Rank Xerox Limited agreed to
provide certain services to specified customers of the Company in exchange for
a specified percentage of the maintenance fees payable to the Company by those
customers. The agreement expired October 5, 1996.
In July 1994, the Company entered into an International Distributor
Agreement with Rank Xerox AG under which the Company granted Rank Xerox AG the
non-exclusive right to purchase the Company's software products at specified
discounts and distribute those products to both resellers and end users in a
specified territory, provided that Rank Xerox AG meet certain minimum sales
levels of the Company's products. The agreement was superseded by the Services
Partner Agreement.
In December 1993, the Company entered into an International Distributor
Agreement with Xerox Canada Ltd. under which the Company granted Xerox Canada
Ltd. the non-exclusive right to purchase the Company's software products at
specified discounts and distribute those products to both resellers and end
users in a specified territory, provided that Xerox Canada Ltd. meet certain
minimum sales levels of the Company's products. The initial term of the
agreement expired on December 8, 1995. The term is automatically extended for
successive one year terms unless either party notifies the other in writing
more than 90 days prior to the end of the then current term of its intention
not to extend the agreement. The Company has notified Xerox Canada Ltd. of its
intent to terminate this agreement effective December 9, 1997.
In July 1993, the Company entered into a Value Added Reseller Agreement with
Xerox Corporation under which the Company granted Xerox a non-exclusive
license to reproduce the Licensed Software, as that term is defined in the
agreement, for the sole purpose of producing and distributing a value added
product in the limited territory set forth in the agreement. The agreement
required Xerox to pay both license fees and maintenance fees to the Company.
The agreement was superseded by the Services Partner Agreement.
Pursuant to the terms of the Company's 1993 Equity Incentive Plan (the "1993
Plan"), from September 1994 to July 1995, certain officers of the Company
exercised options under the 1993 Plan and paid the exercise price, either in
whole or in part, by issuing promissory notes to the Company. Mr. Miller
issued a promissory note in the amount of $99,463, and seven other officers
issued promissory notes in the aggregate amount of $139,478. All promissory
notes are secured by the shares of Common Stock issued upon exercise. The
promissory notes accrue interest at rates ranging from 6.76% to 7.92% per
annum and are due five years from the date of issuance. As of September 30,
1997, only three officers, including Mr. Fullerton and Mr. Newton had
outstanding balances on their notes.
37
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), for whom Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated and Deutsche Morgan Grenfell Inc.
are acting as Representatives (the "Representatives"), have severally agreed
to purchase, and the Company and Selling Stockholders have agreed to sell to
them, severally, the respective number of shares of Common Stock set forth
opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated.....................................
BT Alex. Brown Incorporated...........................................
Deutsche Morgan Grenfell Inc..........................................
---------
Total............................................................... 2,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take any pay for all of the shares of Common Stock offered hereby (other than
those covered by the Underwriters' over-allotment option described below) if
any such shares are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price.
Any Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or to certain dealers. After
the initial offering of the shares of Common Stock, the offering price and
other selling terms may from time to time be varied by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
315,000 additional shares of Common Stock at the public offering price set
forth on the cover page hereof, less underwriting discounts and commissions.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
Common Stock offered hereby. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to the
total number of shares of Common Stock set forth next to the names of all
Underwriters in the preceding table.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
Each of the Company and the directors, executive officers and certain other
stockholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will
not, during the period ending 90 days after the date of this Prospectus, (i)
offer, pledge, sell,
38
<PAGE>
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer, lend or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise, except under certain limited
circumstances.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, the Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive
market maker generally may not exceed 30% of its average daily trading volume
in the Common Stock during a specified two month prior period, or 200 shares,
whichever is greater. A passive market maker must identify passive market
making bids as such on the Nasdaq electronic inter-dealer reporting system.
Passive market making may stabilize or maintain the market price of the Common
Stock above independent market levels. Underwriters and dealers are not
required to engage in passive market and may end passive market making
activities at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Cooley Godward LLP, Menlo
Park, California. One partner of Cooley Godward LLP owns 1,900 shares of the
Company's Common Stock. Certain legal matters in connection with this offering
will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K for the year ended December 31,
1996 have been so incorporated in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
39
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the Rules and Regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made
to the Registration Statement and to the exhibits and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Company is also subject to the information
requirements of the Exchange Act, and in accordance therewith files reports,
proxy statements and other information with the Commission. Copies of the
Registration Statement and the exhibits and schedules thereto, reports, proxy
statements and other information filed by the Company may be inspected or
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and at Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants, such as the Company, that file electronically with the
Commission. The address of the site is http://www.sec.gov. In addition, the
Common Stock of the Company is quoted on the Nasdaq National Market. Reports
and other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc. 1735 K Street, Washington, D.C.
40
<PAGE>
[LOGO OF DOCUMENTUM]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the
sale of the Common Stock being registered. All of the amounts shown are
estimates.
<TABLE>
<S> <C>
Registration fee................................................. $ 23,000
NASD filing fee.................................................. 8,000
Nasdaq listing fee............................................... 17,500
Blue sky qualification fees and expenses......................... 5,000
Printing and engraving expenses.................................. 100,000
Legal fees and expenses.......................................... 75,000
Accounting fees and expenses..................................... 75,000
Transfer agent and registrar fees................................ 5,000
Miscellaneous.................................................... 41,500
--------
Total.......................................................... $350,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Registrant's Restated Certificate of Incorporation and Restated Bylaws
include provisions to (i) eliminate the personal liability of its directors
for monetary damages resulting from breaches of their fiduciary duty to the
extent permitted by Section 102(b)(7) of the General Corporation Law of
Delaware (the "Delaware Law") and (ii) authorize the Registrant to indemnify
its directors and officers to the fullest extent permitted by Section 145 of
the Delaware Law, including circumstances in which indemnification is
otherwise discretionary. Pursuant to Section 145 of the Delaware Law, a
corporation generally has the power to indemnify its present and former
directors, officers, employees and agents against expenses incurred by them in
connection with any suit to which they are, or are threatened to be made, a
party by reason of their serving in such positions so long as they acted in
good faith and in a manner they reasonably believed to be in, or not opposed
to, the best interests of a corporation, and with respect to any criminal
action, they had no reasonable cause to believe their conduct was unlawful.
The Registrant believes that these provisions do not eliminate liability for
breach of the director's duty of loyalty to the Registrant or its
stockholders, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for any transaction from which the
director derived an improper personal benefit or for any willful or negligent
payment of any unlawful dividend or any unlawful stock purchase agreement or
redemption.
The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person
may be made a party by reason of the fact that such person is or was a
director or officer of the Registrant or any of its listed enterprises,
provided such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.
The Registrant has purchased an insurance policy covering the officers and
directors of the Registrant with respect to certain liabilities arising under
the Securities Act or otherwise.
II-1
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement (draft dated September 22, 1997)
3.1(1) Registrant's Amended and Restated Certificate of Incorporation
3.2(2) Registrant's Amended and Restated Bylaws
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2(2) Specimen stock certificate
4.3(2) Amended and Restated Investor Rights Agreement, dated September
20, 1994, between the Registrant and certain investors
5.1 Opinion of Cooley Godward LLP
23.1 Consent of Price Waterhouse LLP, Independent Accountants
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to the signature page.
</TABLE>
- --------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-01832) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-
1, as amended (No. 33-80047) and incorporated herein by reference.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the provisions described in Item 14 or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act of 1933, the information omitted from
the form of prospectus as filed as part of the Registration Statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of the Registration Statement as of the time it
was declared effective, and (2) for the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be in the initial bona fide
offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IS HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF PLEASANTON, COUNTY OF ALAMEDA, STATE OF CALIFORNIA
ON THIS 15TH DAY OF OCTOBER, 1997.
Documentum, Inc.
/s/ Mark S. Garrett
By: _________________________________
MARK S. GARRETT
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints jointly and severally, Jeffrey A. Miller
and Mark S. Garrett, and each one of them, his or her attorneys-in-fact, each
with the power of substitution, for him or her in any way and all capacities,
to sign any and all amendments (including post-effective amendments and
registration statements filed pursuant to Rule 462) to this Registration
Statement and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on the 15th day of
October, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jeffrey A. Miller President, Chief Executive October 15, 1997
____________________________________ Officer and Director
JEFFREY A. MILLER (Principal Executive
Officer)
/s/ Mark S. Garrett Vice President and Chief October 15, 1997
____________________________________ Financial Officer (Principal
MARK S. GARRETT Financial and Accounting
Officer)
/s/ Robert V. Adams Chairman October 15, 1997
____________________________________
ROBERT V. ADAMS
/s/ Kathryn C. Gould Director October 15, 1997
____________________________________
KATHRYN C. GOULD
/s/ Colin J. O'Brien Director October 15, 1997
____________________________________
COLIN J. O'BRIEN
/s/ John L. Walecka Director October 15, 1997
____________________________________
JOHN L. WALECKA
/s/ Edward J. Zander Director October 15, 1997
____________________________________
EDWARD J. ZANDER
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE
----------- ------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement (draft dated
September 22, 1997)
3.1(1) Registrant's Amended and Restated Certificate of
Incorporation
3.2(2) Registrant's Amended and Restated Bylaws
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2(2) Specimen stock certificate
4.3(2) Amended and Restated Investor Rights Agreement,
dated September 20, 1994, between the Registrant
and certain investors
5.1 Opinion of Cooley Godward LLP
23.1 Consent of Price Waterhouse LLP, Independent
Accountants
23.2 Consent of Cooley Godward LLP. Reference is made
to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to the
signature page.
</TABLE>
- --------
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-8
(No. 333-01832) and incorporated herein by reference.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-
1, as amended (No. 33-80047) and incorporated herein by reference.
<PAGE>
EXHIBIT 1.1
_______________ Shares
DOCUMENTUM, INC.
Common Stock, $.001 par value
UNDERWRITING AGREEMENT
, 1997
------
<PAGE>
____________, 1997
Morgan Stanley & Co. Incorporated
Alex. Brown & Sons Incorporated
Deutsche Morgan Grenfell Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Documentum, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the several Underwriters named in Schedule II hereto (the
"Underwriters"), and certain stockholders of the Company (the "Selling
Stockholders") named in Schedule I hereto severally propose to sell to the
several Underwriters, an aggregate of _______________ shares of the common
stock, $.001 par value, of the Company (the "Firm Shares"), of which
_____________ shares are to be issued and sold by the Company and _____________
shares are to be sold by the Selling Stockholders, each Selling Stockholder
selling the amount set forth opposite such Selling Stockholder's name in
Schedule I hereto.
The Company also proposes to issue and sell to the several
Underwriters not more than an additional ______________ shares of its common
stock, $.001 par value, (the "Additional Shares") if and to the extent that you,
as Managers of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The shares of common
stock, $.001 par value, of the Company to be outstanding after giving effect to
the sales contemplated hereby are hereinafter referred to as the "Common Stock."
The Company and the Selling Stockholders are hereinafter sometimes collectively
referred to as the "Sellers."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement;" the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
As used herein, the terms "Registration Statement," "Prospectus" and
"preliminary prospectus" shall include in each case the documents, if any,
incorporated by reference therein. The terms "supplement," "amendment" and
"amend" as used herein shall include all documents deemed to be incorporated by
reference in the Prospectus that are filed subsequent to the date of the
Prospectus by the Company with the Commission pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). If the Company has filed
an abbreviated registration statement to register additional shares of Common
Stock pursuant to Rule 462(b) under the Securities Act (the "Rule 462
Registration Statement"), then any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462 Registration Statement.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with each of the Underwriters that:
<PAGE>
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) Each document filed or to be filed pursuant to the Exchange
Act and incorporated by reference in the Prospectus complied or will comply
when so filed in all material respects with the Exchange Act and the
applicable rules and regulations of the Commission thereunder; (ii) the
Registration Statement, when it became effective, did not contain and, as
amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading, (iii) the Registration Statement and the Prospectus comply and,
as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder and (iv) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; all of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and are owned directly by the Company, free and clear of
all liens, encumbrances, equities or claims.
(e) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries, in each
case except as described in or contemplated by the Prospectus.
(f) This Agreement has been duly authorized, executed and delivered by
the Company.
(g) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(h) The shares of Common Stock (including the Shares to be sold by the
Selling Stockholders) outstanding prior to the issuance of the Shares to be
sold by the Company have been duly authorized and are
<PAGE>
validly issued, fully paid and non-assessable. Except as set forth in the
Prospectus, neither the Company nor any subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe
for or to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. All
outstanding shares of capital stock and options and other rights to acquire
capital stock have been issued in compliance with the registration and
qualification provisions of all applicable securities laws and were not
issued in violation of any preemptive rights, rights of first refusal or
other similar rights.
(i) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive, rights of
first refusal or similar rights.
(j) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or by-
laws of the Company or any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
any subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(l) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company and
its subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (iii) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company and its consolidated subsidiaries, except in each case as described
in or contemplated by the Prospectus.
(m) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is
subject that are required to be described in the Registration Statement or
the Prospectus and are not so described or any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(n) Each of the Company and its subsidiaries has all necessary
consents, authorizations, approvals, orders, certificates and permits of
and from, and has made all declarations and filings with, all federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, to own, lease, license
and use its properties and assets and to conduct its business in the manner
described in the Prospectus, except to the extent that the failure to
obtain or file would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(o) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed
-3-
<PAGE>
in all material respects with the Securities Act and the applicable rules
and regulations of the Commission thereunder.
(p) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(q) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any such subsidiary has been refused
any insurance coverage sought or applied for; and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus.
(r) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(s) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(t) The Company and each of its subsidiaries owns or possesses
adequate licenses or other rights to use all patents, copyrights,
trademarks, service marks, trade names, technology and know-how necessary
(in any material respect) to conduct its business in the manner described
in the Prospectus and, except as disclosed in the Prospectus, neither the
Company nor any of its subsidiaries has received any notice of infringement
or conflict with (and neither the Company nor any of its subsidiaries knows
of any infringement or conflict with) asserted rights of others with
respect to any patents, copyrights, trademarks, service marks, trade names,
technology or know-how which could result in any material adverse effect
upon the Company and its subsidiaries, taken as a whole; and, except as
disclosed in the Prospectus, the discoveries, inventions, products or
processes of the Company and its subsidiaries referred to in the Prospectus
do not, to the best knowledge of the Company or any of its subsidiaries,
infringe or conflict with any right or patent of any third party, or any
discovery, invention, product or process which is the subject of a patent
application filed by any third party, known to the Company or any of its
subsidiaries which could have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(u) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received
any notice of proceedings related to the revocation or modification of any
such certificate, authorization or permit which, singly or in the
aggregate, if the subject of any unfavorable decision, ruling or finding,
would result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, except as described in or contemplated
by the Prospectus.
-4-
<PAGE>
(v) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(w) No material labor dispute with the employees of the Company or any
of its subsidiaries exists, except as described in or contemplated by the
Prospectus, or, to the best knowledge of the Company, is imminent; and the
Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could result in any material adverse
change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.
(x) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement.
(y) As of the date the Registration Statement becomes effective, the
Shares will be approved for listing on the Nasdaq National Market upon
official notice of issuance.
(z) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
(aa) [Lock-Up representation].
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
of the Selling Stockholders represents and warrants to and agrees with each of
the Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered by
or on behalf of such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement signed by such Selling Stockholder and The
First National Bank of Boston, as Custodian, relating to the deposit of the
Shares to be sold by such Selling Stockholder (the "Custody Agreement") and
the Power of Attorney appointing certain individuals as such Selling
Stockholder's attorneys-in-fact to the extent set forth therein, relating
to the transactions contemplated hereby and by the Registration Statement
(the "Power of Attorney") will not contravene any provision of applicable
law, or the certificate of incorporation or by-laws of such Selling
Stockholder (if such Selling Stockholder is a corporation), or any
agreement or other instrument binding upon such Selling Stockholder or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over such Selling Stockholder, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by such Selling Stockholder of its
obligations under this Agreement or the Custody Agreement or Power of
Attorney of such Selling Stockholder, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the
offer and sale of the Shares.
(c) Such Selling Stockholder has, and on the Closing Date will have,
valid title to the Shares to be sold by such Selling Stockholder and the
legal right and power, and all authorization and approval required
-5-
<PAGE>
by law, to enter into this Agreement, the Custody Agreement and the Power
of Attorney and to sell, transfer and deliver the Shares to be sold by such
Selling Stockholder.
(d) The Shares to be sold by such Selling Stockholder pursuant to this
Agreement have been duly authorized and are validly issued, fully paid and
non-assessable.
(e) The Custody Agreement and the Power of Attorney have been duly
authorized, executed and delivered by such Selling Stockholder and are
valid and binding agreements of such Selling Stockholder.
(f) Delivery of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and clear of
any security interests, claims, liens, equities and other encumbrances.
(g) All information furnished by or on behalf of such Selling
Stockholder for use in the Registration Statement is, and on the Closing
Date will be, true, correct, and complete, and does not, and on the Closing
Date will not, contain any untrue statement of a material fact or omit to
state any material fact necessary to make such information not misleading,
and all information furnished in writing by or on behalf of such Selling
Stockholder for use in the Prospectus is, and on the Closing Date will be,
true, correct, and complete, and does not, and on the Closing Date will
not, contain any untrue statement of a material fact or omit to state any
material fact necessary to make such information not misleading in the
light of the circumstances under which they were made.
3. AGREEMENTS TO SELL AND PURCHASE. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at $______ a share (the "Purchase
Price") the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
number of Firm Shares to be sold by such Seller as the number of Firm Shares set
forth in Schedule II hereto opposite the name of such Underwriter bears to the
total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the [Company agrees to] sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to _______________
Additional Shares at the Purchase Price. If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the Underwriters and the date
on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 5 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule II hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
Each Seller hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 90 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder, (B) the issuance by the Company of
shares of Common Stock upon the exercise of an
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option or warrant or the conversion of a security outstanding on the date hereof
of which the Underwriters have been advised in writing or (C) transactions by
any person other than the Company relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
offering of the Shares. In addition, each Selling Stockholder, agrees that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not, during the period ending 90 days after the
date of the Prospectus, make any demand for, or exercise any right with respect
to, the registration of any shares of Common Stock or any security convertible
into or exercisable or exchangeable for Common Stock.
4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
$_____________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of $______
a share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares to be sold by
each Seller shall be made to such Seller in Federal or other funds immediately
available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00 a.m., New York City
time, on ____________, 1997, or at such other time on the same or such other
date, not later than _________,1997, as shall be designated in writing by you.
The time and date of such payment are hereinafter referred to as the "Closing
Date."
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 3 or at such other time on the same or on such other
date, in any event not later than _______,1997, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to
as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of
the Sellers to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than [__________] (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations
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of the Company and its subsidiaries, taken as a whole, from that set
forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 6(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by the Selling Stockholders
(or by their attorney-in-fact on their behalf), to the effect that the
representations and warranties of the Selling Stockholders contained in
this Agreement are true and correct as of the Closing Date and that each
Selling Stockholder has complied with all of the agreements and satisfied
all of the conditions on its part to be performed or satisfied hereunder on
or before the Closing Date.
(d) The Underwriters shall have received on the Closing Date an
opinion of Cooley Godward LLP, outside counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of
Delaware, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole;
(ii) each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock (including the Shares to be sold
by the Selling Stockholders) outstanding prior to the issuance of the
Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable;
(v) all of the issued shares of capital stock of each subsidiary
of the Company have been duly and validly authorized and issued, are
fully paid and non-assessable and are owned directly by the Company,
free and clear of all liens, encumbrances, equities or claims;
(vi) the Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and
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<PAGE>
non-assessable, and the issuance of such Shares will not be subject
to any preemptive, rights of first refusal or similar rights;
(vii) the Company has corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by the Company; this Agreement has been
duly authorized, executed and delivered by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon
the Company or any of its subsidiaries that is material to the Company
and its subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under this
Agreement, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale
of the Shares;
(ix) the statements (A) in the Prospectus under the captions
"________," "_______," "Description of Capital Stock" and
"Underwriters" and (B) in the Registration Statement in Items 14 and
15, in each case insofar as such statements constitute summaries of
the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters
referred to therein;
(x) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or
any of its subsidiaries is a party or to which any of the properties
of the Company or any of its subsidiaries is subject that are required
to be described in the Registration Statement or the Prospectus and
are not so described or of any statutes, regulations, contracts or
other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(xi) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as
such term is defined in the Investment Company Act of 1940, as
amended;
(xii) to the best knowledge of such counsel, there is no legal or
beneficial owner of any securities of the Company who has any rights,
not effectively satisfied or waived, to require registration of any
shares of capital stock of the Company in connection with the filing
of the Registration Statement;
(xiii) the Company and its subsidiaries (A) are in compliance
with any and all applicable Environmental Laws, (B) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (C) are
in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or
other approvals or failure to comply with the terms and conditions of
such permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole; and
(xiv) to the best of such counsel's knowledge: (i) the
Registration Statement has become effective under the Securities Act,
no stop order proceedings with respect thereto have been instituted or
are pending or threatened under the Securities Act and nothing has
come to such counsel's attention
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<PAGE>
to lead it to believe that such proceedings are contemplated; and (ii)
any required filing of the Prospectus and any supplement thereto
pursuant to Rule 424(b) under the Securities Act has been made in the
manner and within the time period required by such Rule 424(b);
(xv) the Shares have been approved for listing on the Nasdaq
National Market;
(xvi) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein as
to which such counsel need not express any opinion) comply as to form
in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder, (B) has no reason
to believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need not
express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no reason to
believe that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not
express any belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(e) The Underwriters shall have received on the Closing Date an
opinion of _________________, counsel for the Selling Stockholders, dated
the Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Selling Stockholders;
(ii) the execution and delivery by each Selling Stockholder of,
and the performance by such Selling Stockholder of its obligations
under, this Agreement and the Custody Agreement and Powers of Attorney
of such Selling Stockholder will not contravene any provision of
applicable law, or the certificate of incorporation or by-laws of such
Selling Stockholder (if such Selling Stockholder is a corporation),
or, to the best of such counsel's knowledge, any agreement or other
instrument binding upon such Selling Stockholder or, to the best of
such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over such
Selling Stockholder, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required
for the performance by such Selling Stockholder of its obligations
under this Agreement or the Custody Agreement or Power of Attorney of
such Selling Stockholder, except such as may be required by the
securities or Blue Sky laws of the various states in connection with
offer and sale of the Shares;
(iii) each of the Selling Stockholders has valid title to the
Shares to be sold by such Selling Stockholder and the legal right and
power, and all authorization and approval required by law, to enter
into this Agreement and the Custody Agreement and Power of Attorney of
such Selling Stockholder and to sell, transfer and deliver the Shares
to be sold by such Selling Stockholder, and such sale, transfer and
delivery is not subject to any right of first refusal or other
contractual restriction;
(iv) the Custody Agreement and the Power of Attorney of each
Selling Stockholder have been duly authorized, executed and delivered
by such Selling Stockholder and are valid and binding agreements of
such Selling Stockholder;
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<PAGE>
(v) delivery of the Shares to be sold by each Selling
Stockholder pursuant to this Agreement will pass title to such Shares
free and clear of any security interests, claims, liens, equities and
other encumbrances; and
(vi) such counsel (A) has no reason to believe that the
information furnished by or on behalf of such Selling Stockholder for
use in the Registration Statement and the prospectus included therein
at the time the Registration Statement became effective contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make such
information not misleading and (B) has no reason to believe that the
information furnished by or on behalf of such Selling Stockholder for
use in the Prospectus contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make such
information, in the light of the circumstances under which they were
made, not misleading.
(f) The Underwriters shall have received on the Closing Date an
opinion of Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters,
dated the Closing Date, covering the matters referred to in Sections
6(d)(vi), 6(d)(vii), 6(d)(ix) (but only as to the statements in the
Prospectus under "Description of Capital Stock" and "Underwriters") and
6(d)(xvi) above.
With respect to Section 6(d)(xvi) above, Cooley Godward LLP and
Wilson Sonsini Goodrich & Rosati and with respect to Section 6(e)(vi)
above, ____________, may state that their opinion and belief are based upon
their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification, except as specified. With respect to Section 6(e) above,
_________ may rely upon an opinion or opinions of counsel for any Selling
Stockholders and, with respect to factual matters and to the extent such
counsel deems appropriate, upon the representations of each Selling
Stockholder contained herein and in the Custody Agreement and Power of
Attorney of such Selling Stockholder and in other documents and
instruments; provided that (A) each such counsel for the Selling
Stockholders is satisfactory to your counsel, (B) a copy of each opinion so
relied upon is delivered to you and is in form and substance satisfactory
to your counsel, (C) copies of such Custody Agreements and Powers of
Attorney and of any such other documents and instruments shall be delivered
to you and shall be in form and substance satisfactory to your counsel and
(D) _________ shall state in their opinion that they are justified in
relying on each such other opinion.
The opinions of Cooley Godward LLP and _____________ described in
Sections 6(d) and 6(e) above (and any opinions of counsel for any Selling
Stockholder referred to in the immediately preceding paragraph) shall be
rendered to the Underwriters at the request of the Company or one or more
of the Selling Stockholders, as the case may be, and shall so state
therein.
(g) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from Price Waterhouse LLP, independent public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus; provided that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(h) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain stockholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the Closing
Date.
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<PAGE>
All the agreements, opinions, certificates and letters mentioned
above or elsewhere in this Agreement shall be deemed in compliance with the
provisions hereof only if Wilson Sonsini Goodrich & Rosati, counsel for the
Underwriters, shall be reasonably satisfied that they comply in form and
scope.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the delivery to you on the
Option Closing Date of such documents as you may reasonably request with
respect to the good standing of the Company, the due authorization and
issuance of the Additional Shares and other matters related to the issuance
of the Additional Shares.
7. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 7(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public offering
of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales by
an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending ________, 1998 that satisfies the provisions of Section
11(a) of the Securities Act and the rules and regulations of the Commission
thereunder.
8. EXPENSES. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Sellers agree to
pay or cause to be paid all expenses incident to the performance of their
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel, the Company's accountants and counsel for the
Selling Stockholders in connection with the registration and delivery of the
Shares under the Securities Act and all other fees or expenses in connection
with the preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and
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delivery of the Shares to the Underwriters, including any transfer or other
taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or
Legal Investment memorandum in connection with the offer and sale of the Shares
under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 7(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all costs and expenses incident to listing the
Shares on the Nasdaq National Market, (vi) the cost of printing certificates
representing the Shares, (vii) the costs and charges of any transfer agent,
registrar or depositary, (viii) the costs and expenses of the Company relating
to investor presentations on any "road show" undertaken in connection with the
marketing of the offering of the Shares, including, without limitation, expenses
associated with the production of road show slides and graphics, fees and
expenses of any consultants engaged in connection with the road show
presentations with the prior approval of the Company, travel and lodging
expenses of the representatives and officers of the Company and any such
consultants, and the cost of any aircraft chartered in connection with the road
show, and (ix) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as provided in this
Section, Section 9 entitled "Indemnity and Contribution", and the last paragraph
of Section 11 below, the Underwriters will pay all of their costs and expenses,
including fees and disbursements of their counsel, stock transfer taxes payable
on resale of any of the Shares by them and any advertising expenses connected
with any offers they may make.
The provisions of this Section shall not supersede or otherwise affect
any agreement that the Sellers may otherwise have for the allocation of such
expenses among themselves.
9. Indemnity and Contribution. (a) The Sellers, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(b) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only with reference to information relating to such Selling Stockholder
furnished in writing by or on behalf of such Selling Stockholder expressly for
use in the Registration Statement, any preliminary prospectus, the Prospectus or
any amendments or supplements thereto.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Selling Stockholders, the directors of the
Company, the officers of the Company who sign the
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Registration Statement and each person, if any, who controls the Company or any
Selling Stockholder within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 9(a), 9(b) or 9(c), such person (the "indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and each person,
if any, who controls the Company within the meaning of either such Section and
(iii) the fees and expenses of more than one separate firm (in addition to any
local counsel) for all Selling Stockholders and all persons, if any, who control
any Selling Stockholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Underwriters and such control persons of any
Underwriters, such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated. In the case of any such separate firm for the Company, and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. In the case of any such separate firm for
the Selling Stockholders and such control persons of any Selling Stockholders,
such firm shall be designated in writing by the persons named as attorneys-in-
fact for the Selling Stockholders under the Powers of Attorney. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(e) To the extent the indemnification provided for in Section 9(a),
9(b) or 9(c) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then each
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<PAGE>
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause 9(e)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 9(e)(i) above but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Sellers on the one hand and the Underwriters on the other hand
in connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by each Seller and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Sellers on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Sellers or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 9 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(f) The Sellers and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 9(e). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 9 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in this
Section 9 and the representations, warranties and other statements of the
Company and the Selling Stockholders contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter, any Selling Stockholder or any person
controlling any Selling Stockholder, or the Company, its officers or directors
or any person controlling the Company and (iii) acceptance of and payment for
any of the Shares.
10. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 10(a)(i) through 10(a)(iv), such event, singly
or together with any other such event, makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
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<PAGE>
11. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule II bears to
the aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 11 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares to be purchased, and arrangements satisfactory
to you, the Company and the Selling Stockholders for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Stockholders. In any such case either you or the
relevant Sellers shall have the right to postpone the Closing Date, but in no
event for longer than seven days, in order that the required changes, if any, in
the Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter
or Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
12. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
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<PAGE>
14. HEADINGS. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
Documentum, Inc.
By:
-----------------------
Name:
Title:
The Selling Stockholders
named in Schedule I hereto,
acting severally
By:
------------------------
Attorney-in-Fact
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Alex. Brown & Sons Incorporated
Deutsche Morgan Grenfell Inc.
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By:
------------------------
Name:
Title:
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<PAGE>
SCHEDULE I
SELLING STOCKHOLDER NUMBER OF
FIRM SHARES
TO BE SOLD
---------
Total.......
=========
<PAGE>
SCHEDULE II
UNDERWRITER NUMBER OF
FIRM SHARES
TO BE PURCHASED
Morgan Stanley & Co. Incorporated
Alex. Brown & Sons Incorporated
Deutsche Morgan Grenfell Inc.
[NAMES OF OTHER UNDERWRITERS]
-----------
Total............
===========
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER]
____________, 199_
Morgan Stanley & Co. Incorporated
Alex. Brown & Sons Incorporated
Deutsche Morgan Grenfell Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") proposes to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Documentum, Inc., a Delaware corporation (the
"Company"), providing for the public offering (the "Public Offering") by the
several Underwriters, including Morgan Stanley (the "Underwriters"), of ___
shares (the "Shares") of the common stock, $.001 par value, of the Company (the
"Common Stock").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending [180] days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, or (2) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (a) the sale of
any Shares to the Underwriters pursuant to the Underwriting Agreement or (b)
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Public Offering. In
addition, the undersigned agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending [180] days after the date of the
Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
-------------------------
(Name)
-------------------------
(Address)
<PAGE>
EXHIBIT 5.1
[Letterhead of Cooley Godward LLP]
October 15, 1997
Documentum, Inc.
5671 Gibraltar Drive
Pleasanton, CA 94588-8547
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing on October 15, 1997 by Documentum, Inc. (the "Company") of a
Registration Statement on Form S-3 (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission"), including a prospectus
to be filed with the Commission pursuant to Rule 424(b) of Regulation C
promulgated under the Securities Act of 1933, as amended (the "Prospectus"),
and the underwritten public offering of up to 2,415,000 (including 315,000
shares of Common Stock for which the underwriters have been granted an over-
allotment option) shares of the Company's common stock (the "Common Stock").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Certificate of
Incorporation and Bylaws, as amended, and the originals or copies certified to
our satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable to
render the opinion expressed below and (ii) assumed that the shares of the
Common Stock will be sold by the underwriters at a price established by the
Pricing Committee of the Board of Directors of the Company.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that the Common Stock, when sold and issued in accordance with the
Registration Statement and related Prospectus, will be validly issued, fully
paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
the Prospectus included in the Registration Statement and to the filing of
this opinion as an exhibit to the Registration Statement.
Yours very truly,
Cooley Godward LLP
/s/ Mark P. Tanoury
_____________________________________
Mark P. Tanoury
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated January 24, 1997 appearing on page F-1 of Documentum, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1996. We also consent to
the references to us under the headings "Experts" and "Selected Financial
Data" in such Prospectus. However, it should be noted that Price Waterhouse
LLP has not prepared or certified such "Selected Financial Data."
/s/ Price Waterhouse llp
Price Waterhouse llp
San Jose, California
October 14, 1997
