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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_]CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Documentum, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[LOGO OF DOCUMENTUM(TM)]
5671 GIBRALTAR DRIVE
PLEASANTON, CALIFORNIA 94588
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 8, 1997
TO THE STOCKHOLDERS OF DOCUMENTUM, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Documentum, Inc., a Delaware corporation (the "Company"), will be held on
Thursday, May 8, 1997 at 10:00 a.m. local time at Documentum, Inc., 5671
Gibraltar Drive, Pleasanton, California 94588 for the following purpose:
1. To elect two directors to hold office until the 2000 Annual Meeting of
Stockholders.
2. To approve the Company's 1993 Equity Incentive Plan, as amended,
including amendments to (i) increase the number of shares of Common
Stock authorized for issuance under such plan by 900,000 shares, and
(ii) add provisions with respect to Section 162(m) of the Internal
Revenue Code of 1986, as amended.
3. To approve the Company's 1995 Non-Employee Directors' Stock Option Plan,
as amended, including an amendment to increase the number of shares of
Common Stock authorized for issuance under such plan by 100,000 shares.
4. To ratify the selection of Price Waterhouse LLP as independent
accountants of the Company for its fiscal year ending December 31, 1997.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 19, 1997 as
the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
/S/ MARK S. GARRETT
Mark S. Garrett
Secretary
Pleasanton, California
April 7, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.
PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK
OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE
RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
[LOGO OF DOCUMENTUM(TM)]
5671 GIBRALTAR DRIVE
PLEASANTON, CALIFORNIA 94588
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 8, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Documentum, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on Thursday, May 8, 1997, at 10:00
a.m. local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at Documentum, Inc., 5671
Gibraltar Drive, Pleasanton, California 94588. The Company intends to mail
this proxy statement and accompanying proxy card on or about April 7, 1997 to
all stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Common Stock
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners of Common Stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or
other regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on March 19,
1997 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on March 19, 1997 the Company had outstanding and entitled
to vote 14,172,690 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual
Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter
has been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 5671
Gibraltar Avenue, Pleasanton, California 94588, a written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked by
attending the meeting and voting in person. Attendance at the meeting will
not, by itself, revoke a proxy.
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STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Company not later
than December 8, 1997 in order to be included in the proxy statement and proxy
relating to that Annual Meeting. Stockholders are also advised to review the
Company's Bylaws, which contain additional requirements with respect to
advance notice of stockholder proposals and director nominations.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation and Bylaws
provide that the Board of Directors shall be divided into three classes, each
class consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. Vacancies on the Board
may be filled only by persons elected by a majority of the remaining
directors. A director elected by the Board to fill a vacancy (including a
vacancy created by an increase in the Board of Directors) shall serve for the
remainder of the full term of the class of directors in which the vacancy
occurred and until such director's successor is elected and qualified.
The Board of Directors is presently composed of six members. There are two
directors in the class whose term of office expires in 1997. Each of the
nominees for election to this class is currently a director of the Company who
was previously elected by the stockholders. If elected at the Annual Meeting,
each of the nominees would serve until the 2000 annual meeting and until his
or her successor is elected and has qualified, or until such director's
earlier death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting.
Set forth below is biographical information for each person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM
EXPIRING AT THE 2000 ANNUAL MEETING
Kathryn C. Gould, age 47, 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.
Edward J. Zander, age 50, 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.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING
Colin J. O'Brien, age 58, 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 is also
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a director of Document Sciences Inc., a document automation company. Mr.
O'Brien received his B.S. in Chemical Engineering from the University of New
South Wales, Australia.
John L. Walecka, age 37, 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 Xylan Corporation, a networking
company and several privately held companies. Mr. Walecka received his M.B.A.
and his M.S. and B.S. in Engineering from Stanford University.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
Jeffrey A. Miller, age 46, 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.
Robert V. Adams, age 65, 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.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1996, the Board of Directors held
9 meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent accountants at
least annually to review the results of the annual audit and discuss the
financial statements; recommends to the Board the independent accountants to
be retained; and receives and considers the accountants' comments as to
controls, adequacy of staff and management performance and procedures in
connection with audit and financial controls. The Audit Committee is composed
of two non-employee directors: Mr. Adams and Mr. Walecka. It met once during
the 1996 fiscal year.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants
under the Company's equity incentive plans and otherwise determines
compensation levels and performs such other functions regarding compensation
as the Board may delegate. The Compensation Committee consists of three
members: Mr. Miller, Ms. Gould and Mr. Walecka. It met once during the 1996
fiscal year. If the stockholders approve the amendments to the Company's 1993
Equity Incentive Plan described in Proposal 2, Mr. Miller will resign from the
Compensation Committee so that the Compensation Committee will consist solely
of "outside directors" as defined in Section 162(m) of the Internal Revenue
Code of 1986, as amended.
During the fiscal year ended December 31, 1996, each Board member attended
75% or more of the aggregate of the meetings of the Board and of the
committees on which he or she served, held during the period for which he or
she was a director or committee member, respectively.
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PROPOSAL 2
APPROVAL OF THE 1993 EQUITY INCENTIVE PLAN, AS AMENDED
In 1993, the Board of Directors adopted, and the stockholders subsequently
approved, the Company's 1993 Equity Incentive Plan (the "1993 Plan"). As a
result of a series of amendments, at December 31, 1996, there were 3,800,138
shares of the Company's Common Stock authorized for issuance under the 1993
Plan.
At December 31, 1996, options (net of canceled or expired options) covering
an aggregate of 3,492,273 shares of the Company's Common Stock had been
granted under the 1993 Plan, and only 307,865 shares (plus any shares that
might in the future be returned to the plans as a result of cancellation or
expiration of options) remained available for future grant under the 1993
Plan. During the last fiscal year, under the 1993 Plan, the Company granted
options to purchase 150,000 shares of Common Stock to current executive
officers at an exercise price of $24.3125 per share and granted to all
employees and consultants (excluding executive officers) as a group options to
purchase 421,900 shares at exercise prices of $9.00 to $46.00 per share.
In March 1997, the Board approved an amendment to the 1993 Plan, subject to
stockholder approval, to enhance the flexibility of the Board and the
Compensation Committee in granting stock options to the Company's employees.
The amendment increases the number of shares authorized for issuance under the
1993 Plan by 900,000, from a total of 3,800,138 to a total of 4,700,138. The
Board adopted this amendment to ensure that the Company can continue to grant
stock options to employees at levels determined appropriate by the Board and
the Compensation Committee.
Also in March 1997, the Board amended the 1993 Plan, subject to stockholder
approval, generally to permit the Company, under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), to continue to be able
to deduct as a business expense certain compensation attributable to the
exercise of stock options and stock appreciation rights granted under the 1993
Plan. Section 162(m) denies a deduction to any publicly held corporation for
certain compensation paid to specified employees in a taxable year to the
extent that the compensation exceeds $1,000,000 for any covered employee. See
"Federal Income Tax Information" below for a discussion of the application of
Section 162(m). In light of the Section 162(m) requirements, the Board has
amended the 1993 Plan, subject to stockholder approval, to include a
limitation providing that no employee may be granted options and stock
appreciation rights under the 1993 Plan during a calendar-year to purchase in
excess of 1,000,000 shares of Common Stock. Previously, no such formal
limitation was placed on the number of shares available for option grants and
stock appreciation rights to any individual.
Stockholders are requested in this Proposal 2 to approve the 1993 Plan, as
amended. If the stockholders fail to approve this Proposal 2, options granted
under the 1993 Plan after the Annual Meeting will not qualify as performance-
based compensation and, in some circumstances, the Company may be denied a
business expense deduction for compensation recognized in connection with the
exercise of such options. The affirmative vote of the holders of a majority of
the shares present in person or represented by proxy and entitled to vote at
the meeting will be required to approve the 1993 Plan, as amended. Abstentions
will be counted toward the tabulation of votes cast on proposals presented to
the stockholders and will have the same effect as negative votes. Broker non-
votes are counted towards a quorum, but are not counted for any purpose in
determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
The essential features of the 1993 Plan are outlined below:
GENERAL
The 1993 Plan provides for the grant of (i) both incentive and nonstatutory
stock options, (ii) stock bonuses, (iii) rights to purchase restricted stock
and (iv) stock appreciation rights (collectively, "Stock Awards").
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Incentive stock options granted under the 1993 Plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Code.
Nonstatutory stock options granted under the 1993 Plan are intended not to
qualify as incentive stock options under the Code. See "Federal Income Tax
Information" for a discussion of the tax treatment of Stock Awards.
PURPOSE
The 1993 Plan was adopted to provide a means by which selected officers and
employees of and consultants to the Company and its affiliates could be given
an opportunity to purchase stock in the Company, to assist in retaining the
services of employees holding key positions, to secure and retain the services
of persons capable of filling such positions and to provide incentives for
such persons to exert maximum efforts for the success of the Company.
ADMINISTRATION
The 1993 Plan is administered by the Board of Directors of the Company. The
Board has the power to construe and interpret the 1993 Plan and, subject to
the provisions of the 1993 Plan, to determine the persons to whom and the
dates on which Stock Awards will be granted; whether a Stock Award will be an
incentive stock option, a nonstatutory stock option, a stock bonus, a right to
purchase restricted stock, a stock appreciation right or a combination of the
foregoing; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; whether a person shall be permitted
to receive stock upon exercise of an independent stock appreciation right; and
the number of shares with respect to which a Stock Award shall be granted to
each such person. The Board of Directors is authorized to delegate
administration of the 1993 Plan to a committee composed of not fewer than two
members of the Board. The Board has delegated administration of the 1993 Plan
to the Compensation Committee of the Board. As used herein with respect to the
1993 Plan, the "Board" refers to the Compensation Committee as well as to the
Board of Directors itself.
The regulations under Section 162(m) require that the directors who serve as
members of the Compensation Committee must be "outside directors." The 1993
Plan has been amended, subject to stockholder approval, to provide that, in
the Board's discretion, directors serving on the Compensation Committee will
also be "outside directors" within the meaning of Section 162(m). This
limitation would exclude from the Compensation Committee (i) current employees
of the Company, (ii) former employees of the Company receiving compensation
for past services (other than benefits under a tax-qualified pension plan),
(iii) current and former officers of the Company, (iv) directors currently
receiving direct or indirect remuneration from the Company in any capacity
(other than as a director), unless any such person is otherwise considered an
"outside director" for purposes of Section 162(m). If the stockholders approve
the amendments to the Plan described in this Proposal 2, Mr. Miller will
resign from the Compensation Committee so that the Compensation Committee will
consist solely of "outside directors" as defined in Section 162(m).
ELIGIBILITY
Incentive stock options and stock appreciation rights related to incentive
stock options may be granted under the 1993 Plan only to selected employees
(including officers and directors who are employees) of the Company and its
affiliates. Selected employees, non-employee directors and consultants are
eligible to receive Stock Awards other than incentive stock options and such
stock appreciation rights under the 1993 Plan.
No incentive stock option may be granted under the 1993 Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing
more than 10% of the total combined voting power of the Company or any
affiliate of the Company, unless the incentive stock option exercise price is
at least 110% of the fair market value of the stock subject to the incentive
stock option on the date of grant, and the term of the option
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does not exceed five years from the date of grant. For incentive stock options
granted under the 1993 Plan, the aggregate fair market value, determined at
the time of grant, of the shares of Common Stock with respect to which such
options are exercisable for the first time by an optionee during any calendar
year (under all such plans of the Company and its affiliates) may not exceed
$100,000.
Subject to stockholder approval of this Proposal 2, the Company has added to
the 1993 Plan a per-individual, per-calendar year period limitation equal to
1,000,000 shares of Common Stock. The purpose of adding this limitation is
generally to permit the Company to continue to be able to deduct for tax
purposes the compensation attributable to the exercise of options and stock
appreciation rights granted under the 1993 Plan. Previously, the Board or the
Compensation Committee determined in its discretion the number of shares
subject to an option and stock appreciation rights for any individual and no
such formal limitation was placed on the number of shares available for grant
to any individual. To date, the Company has not granted to any individual in
any calendar year options and stock appreciation rights to purchase a number
of shares equal to or in excess of the limitation.
STOCK SUBJECT TO THE 1993 PLAN
If any Stock Award granted under the 1993 Plan expires or otherwise
terminates without being exercised, the Common Stock not purchased pursuant to
such Stock Awards again becomes available for issuance under the 1993 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under the
1993 Plan. Individual option grants may be more restrictive as to any or all
of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options under
the 1993 Plan may not be less than the fair market value of the Common Stock
subject to the option on the date of the option grant, and in some cases (see
"Eligibility" above), may not be less than 110% of such fair market value. The
exercise price of nonstatutory options under the 1993 Plan may not be less
than 85% of the fair market value of the Common Stock subject to the option on
the date of the option grant. However, if options were granted with exercise
prices below fair market value, deductions for compensation attributable to
the exercise of such options could be limited by Section 162(m). See "Federal
Income Tax Information." At December 31, 1996, the closing price of the
Company's Common Stock as reported on the Nasdaq National Market was $33.75
per share.
In the event of a decline in the value of the Company's Common Stock, the
Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options. To the extent required by Section 162(m), an option
repriced under the 1993 Plan is deemed to be canceled and a new option
granted. Both the options deemed to be canceled and the new options deemed to
be granted will be counted against the 1,000,000 share limitation.
The exercise price of options granted under the 1993 Plan must be paid
either: (a) in cash at the time the option is exercised; (b) at the discretion
of the Board, (i) by delivery of other Common Stock of the Company, or (ii)
pursuant to a deferred payment arrangement; or (c) in any other form of legal
consideration acceptable to the Board.
Option Exercise. Options granted under the 1993 Plan may become exercisable
("vest") in cumulative increments as determined by the Board. Shares covered
by currently outstanding options under the 1993 Plan typically vest at the
rate of 25% of the shares subject to the option on the first anniversary of
the date of grant and 1/48th of such shares at the end of each month
thereafter during the optionee's employment or relationship as a consultant or
director. Shares covered by options granted in the future under the 1993 Plan
may be subject to different vesting terms. The Board has the power to
accelerate the time during which an option may be exercised. In addition,
options granted under the 1993 Plan may permit exercise prior to vesting, but
in such event the optionee may be required to enter into an early exercise
stock purchase agreement that allows the
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Company to repurchase shares not yet vested at their exercise price should the
optionee leave the employ of the Company before vesting. To the extent
provided by the terms of an option, an optionee may satisfy any federal, state
or local tax withholding obligation relating to the exercise of such option by
a cash payment upon exercise, by authorizing the Company to withhold a portion
of the stock otherwise issuable to the optionee, by delivering already-owned
stock of the Company or by a combination of these means.
Term. The maximum term of options under the 1993 Plan is 10 years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1993 Plan terminate three months after termination of the
optionee's employment or relationship as a consultant or director of the
Company or any affiliate of the Company, unless: (a) such termination is due
to such person's permanent and total disability (as defined in the Code), in
which case the option may, but need not, provide that it may be exercised at
any time not exceeding twelve months following such termination; (b) the
optionee dies while employed by or serving as a consultant or director of the
Company or any affiliate of the Company, or within three months after
termination of such relationship, in which case the option may, but need not,
provide that it may be exercised (to the extent the option was exercisable at
the time of the optionee's death) within twelve months of the optionee's death
by the person or persons to whom the rights to such option pass by will or by
the laws of descent and distribution; or (c) the option by its terms
specifically provides otherwise. Individual options by their terms may provide
for exercise within a longer period of time following termination of
employment or the consulting relationship. The option term may also be
extended in the event that exercise of the option within these periods is
prohibited for specified reasons.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
The following is a description of the permissible terms of stock bonuses and
restricted stock purchase agreements under the 1993 Plan. The terms and
conditions of stock bonus or restricted stock purchase agreements may change
from time to time, and the terms and conditions of separate agreements need
not be identical, but each stock bonus or restricted stock purchase agreement
includes the substance of each of the following provisions as appropriate:
Purchase Price. The purchase price under each restricted stock purchase
agreement is such amount as the Board may determine and designate in such
agreement, but in no event may the purchase price be less than eighty-five
percent (85%) of the stock's fair market value on the date such award is made.
Notwithstanding the foregoing, the Board may determine that eligible
participants in the 1993 Plan may be awarded stock pursuant to a stock bonus
agreement in consideration for past services actually rendered to the Company
for its benefit.
Consideration. The purchase price of stock acquired pursuant to a stock
purchase agreement must be paid either: (i) in cash at the time of purchase;
(ii) at the discretion of the Board or the Compensation Committee, according
to a deferred payment or other arrangement with the person to whom the stock
is sold; or (iii) in any other form of legal consideration that may be
acceptable to the Board in its discretion. Notwithstanding the foregoing, the
Board may award stock pursuant to a stock bonus agreement in consideration for
past services actually rendered to the Company or for its benefit.
Vesting. Shares of stock sold or awarded under the Plan may, but need not,
be subject to a repurchase option in favor of the Company in accordance with a
vesting schedule to be determined by the Board.
Termination of Employment or Relationship as a Director or Consultant. In
the event a participant's continuous status as an employee, director or
consultant terminates, the Company may repurchase or otherwise re-acquire any
or all of the shares of stock held by that person which have not vested as of
the date of termination under the terms of the stock bonus or restricted stock
purchase agreement between the Company and such person.
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STOCK APPRECIATION RIGHTS
The three types of Stock Appreciation Rights that are authorized for
issuance under the 1993 Plan are as follows:
Tandem Stock Appreciation Rights. Tandem stock appreciation rights may be
granted appurtenant to an option, and are generally subject to the same terms
and conditions applicable to the particular option grant to which they
pertain. Tandem stock appreciation rights require the holder to elect between
the exercise of the underlying option for shares of stock and the surrender,
in whole or in part, of such option for an appreciation distribution. The
appreciation distribution payable on the exercised tandem right is in cash
(or, if so provided, in an equivalent number of shares of stock based on fair
market value on the date of the option surrender) in an amount up to the
excess of (i) the fair market value (on the date of the option surrender) of
the number of shares of stock covered by that portion of the surrendered
option in which the optionee is vested over (ii) the aggregate exercise price
payable for such vested shares.
Concurrent Stock Appreciation Rights. Concurrent stock appreciation rights
may be granted appurtenant to an option and may apply to all or any portion of
the shares of stock subject to the underlying option and are generally subject
to the same terms and conditions applicable to the particular option grant to
which they pertain. A concurrent right is exercised automatically at the same
time the underlying option is exercised with respect to the particular shares
of stock to which the concurrent right pertains. The appreciation distribution
payable on an exercised concurrent right is in cash (or, if so provided, in an
equivalent number of shares of stock based on fair market value on the date of
the exercise of the concurrent right) in an amount equal to such portion as
shall be determined by the Board at the time of the grant of the excess of (i)
the aggregate fair market value (on the date of the exercise of the concurrent
right) of the vested shares of stock purchased under the underlying option
which have concurrent rights appurtenant to them over (ii) the aggregate
exercise price paid for such shares.
Independent Stock Appreciation Rights. Independent stock appreciation rights
may be granted independently of any option and are generally subject to the
same terms and conditions applicable to nonstatutory stock options. The
appreciation distribution payable on an exercised independent right may not be
greater than an amount equal to the excess of (i) the aggregate fair market
value (on the date of the exercise of the independent right) of a number of
shares of Company stock equal to the number of share equivalents in which the
holder is vested under such independent right, and with respect to which the
holder is exercising the independent right on such date, over (ii) the
aggregate fair market value (on the date of the grant of the independent
right) of such number of shares of Company stock. The appreciation
distribution payable on the exercised independent right is in cash or, if so
provided, in an equivalent number of shares of stock based on fair market
value on the date of the exercise of the independent right.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1993 Plan or subject to
any Stock Award granted under the 1993 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or otherwise), the 1993 Plan and
Stock Awards outstanding thereunder will be appropriately adjusted as to the
class and the maximum number of shares subject to such plan, and the class,
number of shares and price per share of stock subject to such outstanding
options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1993 Plan provides that, in the event of a dissolution or liquidation of
the Company, specified type of merger or other corporate reorganization, to
the extent permitted by law, any surviving corporation will be required to
either assume Stock Awards outstanding under the 1993 Plan or substitute
similar options for those outstanding under such plan, or such outstanding
options will continue in full force and effect. In the event that any
surviving corporation declines to assume or continue Stock Awards outstanding
under the 1993 Plan, or to
9
<PAGE>
substitute similar Stock Awards, then the time during which such Stock Awards
may be exercised may, at the discretion of the Board of Directors, be
accelerated and the Stock Awards terminated if not exercised during such time.
The acceleration of a Stock Award in the event of an acquisition or similar
corporate event may be viewed as an anti-takeover provision, which may have
the effect of discouraging a proposal to acquire or otherwise obtain control
of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1993 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1993 Plan will terminate on March 28, 2003.
The Board may also amend the 1993 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve months before or after its adoption by the Board if
the amendment would: (a) modify the requirements as to eligibility for
participation (to the extent such modification requires stockholder approval
in order for the Plan to satisfy Section 422 of the Code, if applicable, or
Rule 16b-3 ("Rule 16b-3") of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")); (b) increase the number of shares reserved for issuance
upon exercise of options; or (c) change any other provision of the 1993 Plan
in any other way if such modification requires stockholder approval in order
to comply with Rule 16b-3 or satisfy the requirements of Section 422 of the
Code. The Board may submit any other amendment to the 1993 Plan for
stockholder approval, including, but not limited to, amendments intended to
satisfy the requirements of Section 162(m) of the Code regarding the exclusion
of performance-based compensation from the limitation on the deductibility of
compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Under the 1993 Plan, an incentive stock option may not be transferred by the
optionee otherwise than by will or by the laws of descent and distribution and
during the lifetime of the optionee, may be exercised only by the optionee. A
nonstatutory stock option may not be transferred except by will or by the laws
of descent and distribution unless otherwise specified in the option
agreement, in which case the nonstatutory stock option may be transferred upon
such terms and conditions as set forth in the option, including pursuant to a
domestic relations order. In any case, the optionee may designate in writing a
third party who may exercise the option in the event of the optionee's death.
In addition, shares subject to repurchase by the Company under an early
exercise stock purchase agreement may be subject to restrictions on transfer
which the Board deems appropriate.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1993 Plan are
intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of
such stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain, or any loss, upon the disqualifying disposition
will be a capital gain or loss, which will be long-term or short-term
depending on whether the stock was held for more than one year. Long-term
capital gains currently are generally subject to lower tax rates than ordinary
income. The maximum capital gains rate for federal income tax purposes
10
<PAGE>
is currently 28% while the maximum ordinary income rate is effectively 39.6%
at the present time. Slightly different rules may apply to optionees who
acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the
Code and the satisfaction of a tax reporting obligation) to a corresponding
business expense deduction in the tax year in which the disqualifying
disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
1993 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionee normally will recognize taxable ordinary income
equal to the excess of the stock's fair market value on the date of exercise
over the option exercise price. Generally, with respect to employees, the
Company is required to withhold from regular wages or supplemental wage
payments an amount based on the ordinary income recognized. Subject to the
requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation, the Company will generally
be entitled to a business expense deduction equal to the taxable ordinary
income realized by the optionee. Upon disposition of the stock, the optionee
will recognize a capital gain or loss equal to the difference between the
selling price and the sum of the amount paid for such stock plus any amount
recognized as ordinary income upon exercise of the option. Such gain or loss
will be long or short-term depending on whether the stock was held for more
than one year. Slightly different rules may apply to optionees who acquire
stock subject to certain repurchase options or who are subject to Section
16(b) of the Exchange Act.
Restricted Stock and Stock Bonuses. Restricted stock and stock bonuses
granted under the 1993 Plan generally have the following federal income tax
consequences:
Upon acquisition of stock under a restricted stock or stock bonus award, the
recipient normally will recognize taxable ordinary income equal to the excess
of the stock's fair market value over the purchase price, if any. However, to
the extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
recipient elects to be taxed on receipt of the stock. Generally, with respect
to employees, the Company is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to the requirement of reasonableness, Section 162(m) of the Code and
the satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the recipient. Upon disposition of the stock, the recipient will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock, if any, plus any amount
recognized as ordinary income upon acquisition (or vesting) of the stock. Such
gain or loss will be long or short-term depending on whether the stock was
held for more than one year from the date ordinary income is measured.
Slightly different rules may apply to persons who acquire stock subject to
forfeiture.
Stock Appreciation Rights. No taxable income is realized upon the receipt of
a stock appreciation right, but upon exercise of the stock appreciation right,
the fair market value of the shares (or cash in lieu of shares) received must
be treated as compensation taxable as ordinary income to the recipient in the
year of such exercise. Generally, with respect to employees, the Company is
required to withhold from the payment made on exercise of the stock
appreciation right or from regular wages or supplemental wage payments an
amount based on the ordinary income recognized. Subject to the requirement of
reasonableness, Section 162(m) of the Code and the satisfaction of a reporting
obligation, the Company will be entitled to a business expense deduction equal
to the taxable ordinary income recognized by the recipient.
11
<PAGE>
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to awards under the 1993 Plan, when combined with
all other types of compensation received by a covered employee from the
Company, may cause this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that: (i) the stock award plan contains a per-employee limitation on
the number of shares for which stock options and stock appreciation rights may
be granted during a specified period; (ii) the per-employee limitation is
approved by the stockholders; (iii) the award is granted by a compensation
committee comprised solely of "outside directors;" and (iv) the exercise price
of the award is no less than the fair market value of the stock on the date of
grant. Compensation attributable to restricted stock will qualify as
performance-based compensation, provided that: (i) the award is granted by a
compensation committee comprised solely of "outside directors"; and (ii) the
purchase price of the award is no less than the fair market value of the stock
on the date of grant. Stock bonuses qualify as performance-based compensation
under the Treasury regulations only if: (i) the award is granted by a
compensation committee comprised solely of "outside directors;" (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while
the outcome is substantially uncertain; (iii) the compensation committee
certifies in writing prior to the granting (or exercisability) of the award
that the performance goal has been satisfied; and (iv) prior to the granting
(or exercisability) of the award, stockholders have approved the material
terms of the award (including the class of employees eligible for such award,
the business criteria on which the performance goal is based, and the maximum
amount (or formula used to calculate the amount) payable upon attainment of
the performance goal).
12
<PAGE>
PROPOSAL 3
APPROVAL OF THE 1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN,
AS AMENDED
In November 1995, the Company adopted the Company's 1995 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). The Directors' Plan
provides for non-discretionary grants of options which are not intended to
qualify as incentive stock options, as defined under Section 422 of the Code.
In March 1997, the Board of Directors voted to amend the Directors' Plan,
subject to stockholder approval, to increase the number of shares of Common
Stock authorized for issuance under the Directors' Plan by 100,000 shares to a
total of 250,000 shares.
Stockholders are requested in this Proposal 3 to approve the amendment to
the Director's Plan. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the amendments to the Directors' Plan.
Abstentions will be counted toward the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3
The essential features of the Directors' Plan, as amended, are outlined
below:
PURPOSE
The purpose of the Directors' Plan is to retain the services of persons now
serving as Non-Employee Directors of the Company (as defined below), to
attract and retain the services of persons capable of serving on the Board of
Directors of the Company and to provide incentives for such persons to exert
maximum efforts to promote the success of the Company.
ADMINISTRATION
The Directors' Plan is administered by the Board of Directors of the
Company. The Board of Directors has the final power to construe and interpret
the Directors' Plan and options granted under it, and to establish, amend and
revoke rules and regulations for its administration.
The Board of Directors is authorized to delegate administration of the
Directors' Plan to a committee of not less than two members of the Board. The
Board of Directors does not presently contemplate delegating administration of
the Directors' Plan to any committee of the Board of Directors.
ELIGIBILITY
The Directors' Plan provides that options may be granted only to Non-
Employee Directors of the Company. A "Non-Employee Director" is defined in the
Directors' Plan as a director of the Company and its affiliates who is not
otherwise an employee of the Company or any affiliate. Five of the Company's
six current directors are eligible to participate in the Directors' Plan.
TERMS OF OPTIONS
Each option under the Directors' Plan is subject to the following terms and
conditions:
Non-Discretionary Grants. Option grants under the Directors' Plan are non-
discretionary. Each Non-Employee Director will be automatically granted an
option to purchase 15,000 shares of Common Stock upon
13
<PAGE>
becoming a member of the Board of Directors. Each Non-Employee Director will
be automatically granted an option to purchase 5,000 shares of Common Stock
(subject to adjustment as provided in the Directors' Plan) on June 30 of each
year (beginning June 30, 1997) provided such person has continuously served as
a Non-Employee Director for at least six months prior to such date.
Option Exercise. An option granted under the Directors' Plan will vest
immediately upon grant as to one-third of the shares underlying the option;
the remaining shares will vest in two equal annual installments on the
anniversary of the date of grant, provided that the optionee has continuously
served until such vesting date as a Non-Employee Director or employee of or a
consultant to the Company.
Exercise Price; Payment. The exercise price of options granted under the
Directors' Plan shall be equal to 100% of the fair market value of the Common
Stock subject to such options on the date such option is granted. The exercise
price of options granted under the Directors' Plan must be paid with cash at
the time the option is exercised.
Transferability; Term. Under the Directors' Plan, an option may not be
transferred by the optionee, except by will or the laws of descent and
distribution (unless otherwise specified in the option, in which case the
option may be transferred upon such terms and conditions as set forth in the
option, including pursuant to a domestic relations order). In any case, a Non-
Employee Director may designate in writing a third party who may exercise the
option in the event of his or her death. During the lifetime of an optionee,
an option may be exercised only by the optionee or his or her guardian or
legal representative.
No option granted under the Directors' Plan is exercisable by any person
after the expiration of 10 years from the date the option is granted.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as may be
determined by the Board of Directors.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Directors' Plan or
subject to any option granted under the Directors' Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Directors' Plan and options outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to the plan
and the class, number of shares and price per share of stock subject to
outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a specified type of merger or other corporate
reorganization, to the extent permitted by law, the time during which
outstanding options may be exercised shall be accelerated and the options
terminated if not exercised prior to such event. The acceleration of an option
in the event of an acquisition or similar corporate event may be viewed as an
anti-takeover provision, which may have the effect of discouraging a proposal
to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board of Directors may amend, suspend or terminate the Directors' Plan
at any time or from time to time. No amendment will be effective unless
approved by the stockholders of the Company within twelve months before or
after its adoption by the Board if the amendment would modify the plan in any
other way if such modification requires stockholder approval in order for the
plan to meet the requirements of Rule 16b-3 or a Nasdaq Stock Market or
securities exchange listing requirement. Unless sooner terminated, the
Directors' Plan shall terminate in November 2005.
14
<PAGE>
CERTAIN FEDERAL INCOME TAX INFORMATION
Stock options granted under the Directors' Plan are subject to federal
income tax treatment pursuant to rules governing options that are not
incentive stock options.
The following is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors' Plan, does not purport to be complete and does
not discuss the income tax laws of any state or foreign country in which an
optionee may reside.
Options granted under the Directors' Plan are nonstatutory options. There
are no tax consequences to the optionee or the Company by reason of the grant
of a nonstatutory stock option. Upon exercise of a nonstatutory stock option,
the optionee normally will recognize taxable ordinary income equal to the
excess of the stock's fair market value on the date of exercise over the
option exercise price. Because the optionee is a director of the Company,
under existing laws, the date of taxation (and the date of measurement of
taxable ordinary income) may in some instances be deferred unless the optionee
files an election under Section 83(b) of the Code. The filing of a Section
83(b) election with respect to the exercise of an option may affect the time
of taxation and the amount of income recognized at each such time. Upon
disposition of the stock, the optionee will recognize a capital gain or loss
equal to the difference between the selling price and the sum of the amount
paid for such stock plus any amount recognized as ordinary income upon
exercise of such option. Such gain or loss will be long or short-term
depending on whether the stock was held for more than one year.
NEW PLAN BENEFITS
The following table presents certain information with respect to options
granted under the Directors' Plan to each Non-Employee Director and to all
Non-Employee Directors as a group as of December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT
NAME DOLLAR VALUE(1) TO OPTIONS GRANTED
---- --------------- ------------------------
<S> <C> <C>
Robert V. Adams $360,000 15,000
Kathryn C. Gould $360,000 15,000
Colin J. O'Brien $360,000 15,000
John L. Walecka $360,000 15,000
Edward J. Zander $360,000 15,000
All Non-Employee Directors as a group
(5 persons) $1,800,000 75,000
</TABLE>
- --------
(1) Aggregate exercise price of options.
15
<PAGE>
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending December 31, 1997 and has
further directed that management submit the selection of independent
accountants for ratification by the stockholders at the Annual Meeting. Price
Waterhouse LLP has audited the Company's financial statements since 1994.
Representatives of Price Waterhouse LLP are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Price Waterhouse LLP as the
Company's independent accountants is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Price Waterhouse
LLP to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the Audit
Committee and the Board will reconsider whether or not to retain that firm.
Even if the selection is ratified, the Audit Committee and the Board in their
discretion may direct the appointment of different independent accountants at
any time during the year if they determine that such a change would be in the
best interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Price Waterhouse LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4
16
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of December 31, 1996 by: (i) each director
and nominee for director; (ii) each of the executive officers named in the
Summary Compensation Table; (iii) all executive officers and directors of the
Company as a group; and (iv) all those known by the Company to be beneficial
owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
---------------------------
NUMBER OF PERCENT OF
5% STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS SHARES TOTAL
------------------------------------------------- -------------- ------------
<S> <C> <C>
Xerox Corporation(2).............................. 3,619,863 25.5%
P.O. Box 1600
800 Long Ridge Road
Stamford, CT 06904
Putnam Investments, Inc. (3)...................... 1,210,218 8.5%
One Post Office Square
Boston, MA 02109
Pilgrim Baxter & Associates, Ltd.(4).............. 935,700 6.6%
11255 Drummers Lane, Suite 300
Wayne, PA 19087
Jeffrey A. Miller(5).............................. 717,034 5.0%
c/o Documentum, Inc.
5671 Gibralter Drive
Pleasanton, CA 94588
Robert V. Adams(6)................................ 3,629,863 25.6%
Kathryn C. Gould(7)............................... 258,242 1.8%
Colin J. O'Brien(8)............................... 10,000 *
John L. Walecka(9)................................ 588,420 4.1%
Edward J. Zander(10).............................. 30,000 *
Alan S. Henricks(11).............................. 125,371 *
Paul J. Hoffman(12)............................... 151,000 1.1%
Robert K. Reid(13)................................ 107,615 *
Howard I. Shao(14)................................ 324,630 2.3%
Marcie L. Stewart(15)............................. 100,465 *
All directors and executive officers as a group (9
persons)(16)..................................... 5,816,804 39.8%
</TABLE>
- --------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13G filed with the Securities and
Exchange Commission (the "SEC"). Beneficial ownership is determined in
accordance with the rules of the SEC 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 14,187,309 shares of
Common Stock outstanding as of December 31, 1996.
(2) Mr. Adams, a director of the Company, is a principal of Xerox Technology
Ventures, a unit of Xerox Corporation ("Xerox"). Mr. Adams disclaims
beneficial ownership of such shares held by Xerox, except to the extent of
his profit-sharing interest therein.
(3) Based solely on information obtained from a filing made on Schedule 13G
with the SEC. Putnam Investments, Inc. ("PI") is a wholly owned subsidiary
of Marsh & McLennan Companies, Inc. PI wholly owns two registered
investment advisers: Putnam Investment Management, Inc. ("PIM") and The
Putnam Advisory Company, Inc. ("PAC"). Both PIM and PAC have dispository
power over the shares as investment managers of the PI family of mutual
funds.
(4) Based solely on information obtained from a filing made on Schedule 13G
with the SEC.
17
<PAGE>
(5) Includes 133,028 shares which are subject to a right of repurchase in
favor of the Company which expires ratably through October 1997. Also
includes (i) 604,734 shares held by Jeffrey Miller and Karen Miller, as
Co-trustees of the Miller Living Trust dated July 7, 1985 and (ii) 12,300
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.
Also includes 100,000 shares issuable upon the exercise of options subject
to vesting through May 1999.
(6) Includes 3,619,863 shares held by Xerox. See footnote (2) above. Also
includes 10,000 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1996.
(7) Includes 207,898 shares held by Merrill, Pickard, Anderson & Eyre V, L.P.
("MPAE V"). Ms. Gould is a limited partner of MPAE V Management Co., L.P.,
the general partner of MPAE V. Ms. Gould disclaims beneficial ownership of
the shares held by MPAE V, except to the extent of her pecuniary interest
therein. Also includes 10,000 shares issuable upon the exercise of options
exercisable within 60 days of December 31, 1996.
(8) Mr. O'Brien is a Vice President of Xerox. Mr. O'Brien has no beneficial
ownership of the shares held by Xerox. Represents 10,000 shares issuable
upon the exercise of options exercisable within 60 days of December 31,
1996.
(9) Includes 578,420 shares held by Brentwood Associates VI, L.P. ("BA VI").
Mr. Walecka is a general partner of Brentwood VI Ventures, L.P., the
general partner of BA VI. Mr. Walecka disclaims beneficial ownership of
the shares held by BA VI, except to the extent of his partnership interest
therein. Also includes 10,000 shares issuable upon the exercise of options
exercisable within 60 days of December 31, 1996.
(10) Includes 10,000 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1996. Also includes 12,917 shares which
are subject to a right of repurchase in favor of the Company which
expires ratably through August 1999.
(11) Includes 42,188 shares which were repurchased by the Company in February
1997. Also includes 10,000 shares issuable upon the exercise of options,
2,708 of which are vested and 7,292 of which were canceled in February
1997.
(12) Includes 150,000 shares issuable upon the exercise of options subject to
vesting through September 2001.
(13) Includes 41,500 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. The shares held by
Crystal Lane are subject to a right of repurchase in favor of the Company
which expires ratably through August 1997. Also includes 65,500 shares
issuable upon the exercise of options subject to vesting through May
1999.
(14) Includes 65,400 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.
(15) Includes 4,763 shares which were repurchased by the Company in January
1997. Also includes 14,500 shares issuable upon the exercise of options,
4,916 of which are vested and were exercised and 9,583 of which were
canceled in January 1997.
(16) Includes 430,900 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1996 held by all executive officers and
directors, which are subject to vesting through January 2002.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except that one
report, covering one transaction, was filed late by Mr. Miller due to a
clerical oversight and that one report covering one transaction, was amended
by Ms. Gould due to a mathematical error.
18
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The Company's directors do not currently receive any cash compensation for
service on the Board or any committee thereof. The members of the Board of
Directors are eligible for reimbursement of their expenses incurred in
connection with attendance at Board and committee meetings in accordance with
Company policy.
Each Non-Employee Director of the Company also receives stock option grants
under the Directors' Plan. During the last fiscal year, the Company granted
options covering 15,000 shares to each Non-Employee Director of the Company,
at an exercise price per share of $24.00. The fair market value of such Common
Stock on the date of grant was $24.00 per share (based on the Company's
initial public offering price). As of December 31, 1996, no options had been
exercised under the Directors' Plan. The terms of the Directors' Plan are
described in Proposal 3.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Company serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee. See "Certain Transactions" for a
description of transactions between the Company and entities affiliated with
members of the Compensation Committee.
19
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31, 1994, 1995
and 1996, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer, its other three most highly compensated executive officers
at December 31, 1996 and two former executive officers who ceased serving as
executive officers during fiscal year 1996 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS
--------------------- ---------------------
NAME AND PRINCIPAL SECURITIES UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) OPTIONS COMPENSATION(1)
------------------ ---- ---------- --------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Jeffrey A. Miller....... 1996 $185,000 $69,700 -- $1,160
President and Chief 1995 175,000 85,000 100,000 600
Executive Officer 1994 163,500 70,000 -- 200
Robert K. Reid.......... 1996 137,000 34,800 -- 812
Vice President, 1995 132,000 39,000 20,000 700
Marketing 1994 123,500 30,000 200
Howard I. Shao.......... 1996 138,000 36,800 -- 480
Vice President, 1995 126,000 44,000 20,000 300
Engineering 1994 124,025 20,000 -- 100
Paul J. Hoffman(2)...... 1996 57,099 50,000 150,000 339
Vice President,
Worldwide Sales
Alan S. Henricks(3)..... 1996 140,000 -- -- 834
Former Vice President, 1995 140,000 30,000 10,000 800
Finance and Operations, 1994 91,179 7,000 135,000 200
Chief Financial Officer
and Secretary
Marcie L. Stewart(4).... 1996 103,751 41,100 -- 322
Former Vice President, 1995 120,000 81,000 20,000 300
Worldwide Sales 1994 113,589 84,000 -- 100
</TABLE>
- --------
(1) Consists of life insurance premiums.
(2) Mr. Hoffman jointed the Company in September 1996.
(3) Mr. Henricks served the Company from May 1994 until February 1997.
(4) Ms. Stewart served the Company from October 1992 until January 1997.
20
<PAGE>
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its 1993 Equity
Incentive Plan (the "1993 Plan"). As of December 31, 1996, options to purchase
a total of 1,288,226 shares were outstanding under the 1993 Plan and options to
purchase 307,865 shares remained available for grant thereunder. The terms of
the 1993 Plan are described in Proposal 2.
The following tables show for the fiscal year ended December 31, 1996,
certain information regarding options granted to, exercised by, and held at
year end by, the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
PERCENTAGE
OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM(3)
OPTIONS IN FISCAL EXERCISE EXPIRATION ----------------------------
NAME GRANTED(#)(1) YEAR(2) PRICE DATE 5% 10%
---- ------------- ---------- -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Paul J. Hoffman......... 150,000 21.0% $24.3125 09/02/06 $2,293,500 $5,812,180
</TABLE>
- --------
(1) Options have a maximum term of 10 years measured from the grant date,
subject to earlier termination upon the optionee's cessation of service
with the Company. Options covering 100,000 shares vest at the rate of 25%
on the first anniversary of the date of grant and 1/48th at the end of each
calendar month thereafter for 36 months. Options covering 50,000 shares
shall vest on September 3, 2001 or earlier upon the Company achieving
certain financial milestones. Options may be exercised prior to vesting,
subject to the Company's right to repurchase at cost in the event service
is terminated.
(2) Based on an aggregate of 714,200 shares subject to options granted to
employees in the fiscal year ended December 31, 1996.
(3) The 5% and 10% assumed rates of appreciation are suggested by the rules of
the SEC and do not represent the Company's estimate or projection of the
future Common Stock price. There can be no assurance that any of the values
reflected in the table will be achieved. Actual gains, if any, on stock
option exercises and Common Stock holdings are dependent upon a number of
factors, including the future performance of the Common Stock, overall
market conditions and the timing of option exercises, if any.
21
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR,
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SECURITIES SECURITIES VALUE OF VALUE OF
UNDERLYING UNDERLYING UNEXERCISED IN- UNEXERCISED IN-
UNEXERCISED UNEXERCISED THE-MONEY THE-MONEY
OPTIONS AT OPTIONS AT OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
ACQUIRED ON VALUE 1996(#) 1996(#) 1996($) 1996($)
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE(2) UNEXERCISABLE(2) EXERCISABLE(3) UNEXERCISABLE(3)
---- ----------- -------------- -------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Miller -- -- 100,000 -- $3,175,000 --
Alan S. Henricks -- -- 10,000 -- 247,500 --
Paul J. Hoffman -- -- 150,000 -- 1,415,625 --
Robert K. Reid 7,000 $204,565 65,500 -- 2,156,424 --
Howard I. Shao 25,000 760,948 65,400 -- 2,153,081 --
Marcie L. Stewart 3,500 29,750 14,500 -- 482,125 --
</TABLE>
- --------
(1)Based on the difference between the deemed fair market value on the date of
exercise and the exercise price.
(2) Options are immediately exercisable; however, the shares purchasable under
such options are subject to repurchase by the Company at the original
exercise price paid per share upon the optionees' cessation of service
prior to the vesting of such shares.
(3) Based on the difference between the deemed fair market value on December
31, 1996 ($33.75 per share) and the exercise price.
EMPLOYMENT AGREEMENTS
Pursuant to an offer letter of employment, dated July 27, 1993, from the
Company to Jeffrey A. Miller, the President and Chief Executive Officer of the
Company, Mr. Miller was granted an option to purchase 340,000 shares of the
Company's Common Stock at a per share exercise price equal to the fair market
value of the Company's Common Stock on the date of grant. The option is
subject to vesting over four years from the start of Mr. Miller's employment
with the Company. The letter provides that the option be assumed by the
acquirer of the Company in the event of a merger or acquisition or, in the
alternative, that vesting be accelerated. Vesting will also be accelerated in
the event of a liquidation of the Company.
Pursuant to an offer letter of employment, dated December 9, 1996, from the
Company to Mark S. Garrett, the Chief Financial Officer of the Company, Mr.
Garrett was granted an option to purchase 100,000 shares of the Company's
Common Stock at a per share exercise price equal to the fair market value of
the Company's Common Stock on the date of grant (January 30, 1997). The option
is subject to vesting over five years from the start of Mr. Garrett's
employment with the Company. The letter provides that, in the event Mr.
Garrett's position is eliminated within twelve months of the commencement of
his employment due to an acquisition by or merger with another company, 18,750
of such option shares shall become immediately and fully vested.
22
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION(1)
The Board of Directors of the Company (the "Board") has delegated to the
Compensation Committee of the Board (the "Committee") the authority to
establish and administer the Company's compensation programs. The Compensation
Committee is composed of Mr. Miller, Ms. Gould and Mr. Walecka. Mr. Miller is
the Chief Executive Officer of the Company. If the stockholders approve the
amendments to the Company's 1993 Equity Incentive Plan described in Proposal
2, Mr. Miller will resign from the Committee so that it will consist solely of
"outside directors" as defined in Section 162(m) of the Code. The Committee is
responsible for: (i) determining the most effective total executive
compensation, based upon the business needs of the Company and consistent with
stockholders' interests; (ii) administering the Company's executive
compensation plans, programs and policies; (iii) monitoring corporate
performance and its relationship to compensation of executive officers; and
(iv) making appropriate recommendations concerning matters of executive
compensation. Mr. Miller is not present during the Committee's discussions of
his compensation.
COMPENSATION PHILOSOPHY
The goals of the Committee with respect to executive compensation are to
align compensation with business objectives and performance and to enable the
Company to attract, retain and reward executive officers and other key
employees who contribute to the long-term success of the Company, and to
establish an appropriate relationship between executive compensation and the
creation of long-term stockholder value. To meet these goals, the Committee
has adopted a mix among the compensation elements of salary, bonus and stock
options, with a bias toward stock options to emphasize the link between
executive incentives and the creation of stockholder value as measured by the
equity markets.
BASE SALARY. The Committee recognizes the importance of maintaining
compensation practices and levels of compensation competitive with other
enterprise software companies. Base salary represents the fixed component of
the executive compensation program. The Company's philosophy regarding base
salaries is conservative, maintaining salaries below the competitive industry
median. The Committee annually reviews each executive officer's base salary.
When reviewing base salaries, the Committee considers individual and corporate
performance, levels of responsibility, prior experience, breadth of knowledge
and competitive pay practices. In general, the salaries of executive officers
are not determined by the Company's achievement of specific corporate
performance criteria. Instead the Committee determines the salaries for
executive officers based upon a review of salary surveys of other publicly
traded enterprise software companies with capitalizations similar to that of
the Company. Based upon such surveys, the Committee has set executive
officers' salaries generally in the lower half of the range established by
comparable companies in the enterprise software industry.
BONUS. The Company has adopted a formal bonus program. Cash bonus awards are
designed to award executives for exemplary individual performance in assisting
the Company achieve its annual and long-term goals. It is the Committee's
philosophy that bonuses when combined with salaries create total compensation
which is competitive with other similar enterprise software companies. Bonus
awards depend on the extent to which Company and individual performance
objectives are achieved. The Company's performance objectives include
operating, strategic and financial goals considered critical to the Company's
fundamental long-term goal of building stockholder value. For fiscal 1996,
these goals included certain quarterly and annual financial performance goals,
improving market leadership position in the U.S. and internationally,
expanding strategic vertical markets, sustaining and improving customer
satisfaction levels, developing additional products and differentiating the
Company's technology, building the Company's infrastructure to support sales
and marketing efforts, and successfully completing an initial public offering.
Based on the Company's performance in fiscal
- --------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the
Company under the Securities Act of 1933, as amended (the "1933 Act") or
the Exchange Act, whether made before or after the date hereof and
irrespective of any general incorporation language in any such filing.
23
<PAGE>
1996 and the Committee's review of the achievement of these goals, the
Committee awarded bonuses of between approximately 25% and 40% to all
executive officers. Commissions totaling approximately 88% of base
compensation were paid to the Company's Vice President, Worldwide Sales based
on the achievement of certain sales goals.
EQUITY COMPENSATION. The 1993 Equity Incentive Plan and Employee Stock
Purchase Plan offered by the Company have been established to provide all
employees of the Company, including executive officers, with an opportunity to
share, along with stockholders of the Company, in the long-term performance of
the Company. The Committee strongly believes that a primary goal of the
compensation program should be to provide key employees who have significant
responsibility for the management, growth and future success of the Company
with an opportunity to participate in the financial gain from Company stock
price increases, thereby aligning the interests of stockholders, executives
and employees. Executives are eligible to receive stock options generally not
more often than once a year. All grants must be exercised according to the
provisions of the Company's 1993 Equity Incentive Plan. Options granted to
executive officers and employees generally have exercise prices equal to the
fair market value of the Company's Common Stock on the date of grant, vest
over four years and expire ten years from the date of grant.
As the base salaries for executive officers of the Company are in the lower
half of the range for comparable software companies, the Company has used
stock options as the primary incentive to attract and motivate its executive
officers. Guidelines for the number of stock options for each participant in
the periodic grant program generally are determined by the Committee whereby
several factors are applied to the salary and performance level of each
participant and then related to the approximate market price of the stock at
the time of grant. In awarding stock options, the Committee considers
individual performance, overall contribution to the Company, officer
retention, the number of unvested stock options and the total number of stock
options to be awarded. After considering the criteria relating to awarding
stock options, the Committee did not award stock options to any of the Named
Executive Officers (other than Mr. Hoffman) in 1996 as the Committee believed
such executive officers currently held adequate numbers of outstanding vested
and unvested options. Mr. Hoffman did receive an option to purchase 150,000
shares of the Company's Common Stock upon his joining the Company in September
1996.
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may
be deducted if it is "performance-based compensation" within the meaning of
the Code. The Committee has determined that stock options granted under the
Company's 1993 Equity Incentive Plan with an exercise price at least equal to
the fair market value of the Company's Common Stock on the date of grant shall
be treated as "performance-based compensation" and thus deductible by the
Company.
CEO COMPENSATION
The Committee uses the same procedures described above for the other
executive officers in setting the annual salary, bonus and stock option awards
for Jeffrey Miller, the Company's President and Chief Executive Officer. Mr.
Miller's base salary is determined based on comparisons with other public
enterprise software companies as described above and is set in the middle of
the range established by those companies. Mr. Miller's base salary was
increased slightly in 1996 from his 1995 base salary. During 1996, the Company
achieved virtually all of its corporate objectives, and the Committee
concluded that Mr. Miller's contributions were a significant factor in
achieving these objectives. For 1996, the Committee awarded Mr. Miller a bonus
of approximately 38% of his base salary. In deciding whether to award
additional stock options, the Committee considers the other components of Mr.
Miller's compensation package and the number of outstanding unvested options
currently held. Mr. Miller did not receive an option grant in 1996 as the
Committee concluded that his outstanding options were adequate to align Mr.
Miller's interests with those of the stockholders. As described above, in
determining where Mr. Miller's total compensation is set within the ranges and
in light of the considerations described above, the Committee by necessity
makes certain subjective evaluations. Compared to
24
<PAGE>
other software companies surveyed by the Company, Mr. Miller's salary, bonus
and stock options are in the lower half of the range.
CONCLUSION
The Committee believes that the compensation of executives by the Company is
appropriate and competitive with the compensation programs provided by other
leading software companies with which the Company competes for executives and
employees. The Committee believes its compensation strategy, principles and
practices result in a compensation program tied to stockholder returns and
linked to the achievement of annual and longer-term financial and operational
results of the Company. The Committee remains committed to this philosophy of
pay for performance, recognizing that the competitive market for talented
executives and the volatility of the Company's business may result in highly
variable compensation.
COMPENSATION COMMITTEE
Jeffrey A. Miller
Kathryn C. Gould
John L. Walecka
25
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows the total stockholder return of an investment of
$100 in cash on February 6, 1996 (the date of the Company's initial public
offering of Common Stock) for (i) the Company's Common Stock, (ii) the Nasdaq
Stock Market Index and (iii) the Morgan Stanley High Technology 35 Index ("MSH
35"). All values assume reinvestment of the full amount of all dividends and
are calculated as of the last day of each quarter:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG DOCUMENTUM, INC., NASDAQ AND MSH 35
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Measurement Period DOCUMENTUM
(Fiscal Year Covered) INC. NASDAQ MSH 35
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-02/06/96 $100 $100 $100
FYE 03/31/96 $146.875 $104.1563 $92.75541
FYE 06/30/96 $127.0833 $112.658 $95.25819
FYE 09/30/96 $132.2917 $116.6698 $103.3175
FYE 12/31/96 $140.625 $122.4265 $112.256
</TABLE>
- --------
(1) The material in this chart is not "soliciting material," is not deemed
"filed" with the SEC and is not to be incorporated by reference into any
filing of the Company under the 1933 Act or the Exchange Act, whether made
before or after the date hereof and irrespective of any general
incorporation language in any such filing.
26
<PAGE>
CERTAIN TRANSACTIONS
Pursuant to the terms of the 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 $99,643, 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.
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 Xerox Canada Ltd. meets 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.
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 initial term of the agreement expired October 5, 1996. The term
of the agreement is automatically extended for successive one year terms
unless either party notifies the other in writing more than six months prior
to the end of the current term of its intention not to extend the agreement.
In April 1996, the Company entered into a Services Partner Agreement with
the Xerox Professional Document Services division of Xerox Corporation
("XPDS"), under which the Company granted XPDS the worldwide, non-exclusive
right to market, promote and sublicense the Company's software products at
specified discounts combined with specified services provided by XPDS to end-
users. The initial term of the agreement expired on April 1, 1997. The term of
the agreement is automatically extended for successive one year terms unless
either party notifies the other in writing more than 60 days prior to the end
of the current term of its intention not to extend the agreement.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ Mark S. Garrett
Mark S. Garrett
Secretary
April 7, 1997
27
<PAGE>
1479-PS-97
<PAGE>
DETACH HERE
DOCUMENTUM, INC.
5671 GIBRALTAR DRIVE
PLEASANTON, CALIFORNIA 94588
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 8, 1997
PROXY
The undersigned hereby appoints Jeffrey A. Miller and Mark S. Garrett,
and either of them, proxies, with full power of substitution, to vote all of the
shares of Common Stock of Documentum, Inc. (the "Company") which the undersigned
is entitled to vote at the Annual Meeting of Stockholders to be held at the
principal executive offices of the Company, 5671 Gibraltar Drive, Pleasanton,
California 94588, on Thursday, May 8, 1997 at 10:00 a.m., local time, and at any
adjournment thereof, for the following purposes set forth on the reverse side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
------------------
|SEE REVERSE SIDE|
------------------
<PAGE>
DETACH HERE
[X] Please mark votes as in this example.
1. To elect two directors to hold office until the 2000 Annual Meeting of
Stockholders.
NOMINEES: Kathryn C. Gould and Edward J. Zander
FOR WITHHELD
[_] [_]
[_] FOR all nominees except as noted above.
--------------------------------------------
MARK HERE
FOR ADDRESS [_]
CHANGE AND
NOTE BELOW
2. To approve the Company's 1993 Equity Incentive Plan as amended,
including amendments to (i) increase the number of shares of Common
Stock authorized for issuance under such plan by 900,000 shares, and
(ii) to add provisions with respect to Section 162(m) of the Internal
Revenue Code of 1986, as amended.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. To approve the Company's 1995 Non-Employee Directors' Stock Option
Plan, as amended, including an amendment to increase the number of
shares of Common Stock authorized for issuance under such plan by
100,000 shares.
FOR AGAINST ABSTAIN
[_] [_] [_]
4. To ratify the selection of Price Waterhouse LLP as independent
accountants of the Company for its fiscal year ending December 31,
1997.
FOR AGAINST ABSTAIN
[_] [_] [_]
5. To transact such other business as may properly come before the
meeting or any adjournment.
Signature: Date: Signature: Date:
-------------- --------- ----------- ----------
