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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:
[X]Preliminary Proxy Statement
[_]Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[_]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:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[_]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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[LOGO OF DOCUMENTUM]
5671 Gibraltar Drive
Pleasanton, California 94588
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 1998
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 28, 1998 at 10:00 a.m. local time at Documentum, Inc., 5671
Gibraltar Drive, Pleasanton, California 94588 for the following purpose:
1. To elect three directors to hold office until the 2001 Annual Meeting of
Stockholders.
2. To approve the Company's 1993 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 600,000 shares.
3. To approve the Company's 1995 Employee Stock Purchase Plan, as amended,
to increase the aggregate number of shares of Common Stock authorized
for issuance under such plan by 350,000 shares.
4. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the authorized number of shares
of Common Stock from 35,000,000 to 100,000,000 shares.
5. To ratify the selection of Price Waterhouse LLP as independent auditors
of the Company for its fiscal year ending December 31, 1998.
6. 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 April 2, 1998, 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 16, 1998
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.
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[LOGO OF DOCUMENTUM]
5671 GIBRALTAR DRIVE
PLEASANTON, CALIFORNIA 94588
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1998
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 May 28, 1998, 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 16, 1998, 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 April 2,
1998 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 2, 1998 the Company had outstanding and entitled to
vote [NUMBER OF SHARES] 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. Except for Proposal 4, Broker non-
votes are counted towards a quorum, but are not counted for any purpose in
determining whether a matter has been approved. With respect to Proposal 4,
abstentions and broker non-votes will have the same effect as negative votes.
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 Drive, Pleasanton, California 94588 a written notice of revocation
or a duly executed proxy
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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.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Company not later
than December 24, 1998 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.
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 seven members. There are
three directors in the class whose term of office expires in 1998. Two of the
nominees for election to this class, Messrs. O'Brien and Walecka, are
currently directors of the Company and each was previously elected by the
stockholders. Mr. Moore is currently a director of the Company and was
appointed to that position by the Board of Directors in March 1998 to fill a
vacancy created when the Board increased the authorized size of the Board to
seven members. If elected at the Annual Meeting, each of the nominees would
serve until the 2001 annual meeting and until his 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. Shares represented
by executed proxies will be voted, if authority to do so is not withheld, for
the election of the three nominees named below. In the event that any nominee
should be unavailable for election as a result of an unexpected occurrence,
such shares will be voted for the election of such substitute nominee as
management may propose. Each person nominated for election has agreed to serve
if elected, and management has no reason to believe that any nominee will be
unable to serve.
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 2001 ANNUAL
MEETING
GEOFFREY A. MOORE
Geoffrey A. Moore, age 51, has served as a director of the Company since
March 1998. Since 1992, Mr. Moore has served as the chairman, founder and a
principal of The Chasm Group, a consulting services company focusing on high
technology clients. Mr. Moore has also written several books, including
Crossing the Chasm, published in 1991, and Inside the Tornado, published in
1995. Prior to founding The Chasm Group, Mr. Moore was a principal and partner
at Regis McKenna, Inc. a marketing and communications company focused on high
technology clients. Prior to that, he held various executive sales and
marketing positions at three different software companies: Rand Information
Systems, Enhansys and Mitem. Mr. Moore is also a director of XcelleNet,
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Inc. and several privately held companies. Mr. Moore received his Ph.D. in
literature from the University of Washington and his bachelors degree in
literature from Stanford University.
COLIN J. O'BRIEN
Colin J. O'Brien, age 59, has served as a Director of the Company since
December 1995. Mr. O'Brien joined Xerox Corporation in February 1992 as a Vice
President and President of the Document Production Systems Division. He is
currently the Chief Executive Officer of Xerox's New Enterprise Board. In
1986, Mr. O'Brien formed Triax Corporation, an investment company specializing
in defense electronics companies. Prior to that time, he served as Chief
Executive of Times Fiber Communications, Inc., a manufacturer of fiber optic
and coaxial telecommunications systems, and President of General Instrument's
cable television operations. Mr. O'Brien is also a Director of Document
Sciences Corporation, a document automation company, and several privately
held companies. Mr. O'Brien received his Bachelor of Science degree in
Chemical Engineering from the University of New South Wales, Australia.
JOHN L. WALECKA
John L. Walecka, age 38, 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.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
JEFFREY A. MILLER
Jeffrey A. Miller, age 47, 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
Robert V. Adams, age 66, 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, ENCAD, Inc. and Document
Sciences Corporation. Mr. Adams received his M.B.A. from the University of
Chicago and a B.S. in Mechanical Engineering from Purdue University.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
KATHRYN C. GOULD
Kathryn C. Gould, age 48, 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
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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
Edward J. Zander, age 51, has served as a director of the Company since July
1995. Mr. Zander has been Chief Operating Officer of Sun Microsystems, Inc., a
network computing systems company ("Sun"), since January 1998. From February
1995 until January 1998, Mr. Zander was President of Sun Microsystems Computer
Company, a subsidiary of Sun. 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.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1997 the Board of Directors held
nine meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors 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 three times during such fiscal
year.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants
under the Company's stock option plans and otherwise determines compensation
levels and performs such other functions regarding compensation as the Board
may delegate. The Compensation Committee is composed of two non-employee
directors: Ms. Gould and Mr. Walecka. It met three times during such fiscal
year.
During the fiscal year ended December 31, 1997, each Board member other than
Mr. Zander attended 75% or more of the aggregate of the meetings of the Board
and of the committees on which he served, held during the period for which he
was a director or committee member, respectively.
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, there are 4,700,138 shares of the Company's
Common Stock authorized for issuance under the 1993 Plan.
At December 31, 1997, options (net of canceled or expired options) covering
an aggregate of 4,242,677 shares of the Company's Common Stock had been
granted under the 1993 Plan, and only 457,461 shares (plus any shares that
might in the future be returned to the plans as a result of cancellations or
expiration of options) remained available for future grant under the 1993
Plan. During the last fiscal year, under the 1993 Plan, the Company has
granted to all current executive officers as a group options to purchase
725,000 shares at exercise prices of $16 to $33.875 per share, to all
employees and consultants (excluding executive officers) as a group options to
purchase 155,000 shares at an exercise price of $30.313 per share.
In February, 1998, 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
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employees. The amendment increases the number of shares authorized for
issuance under the 1993 Plan from a total of 4,700,138 shares to 5,300,138
shares. 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.
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 these stock 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.
In October 1996, the Board adopted the Company's 1996 Non-Officer Equity
Incentive Plan (the "Non-Officer Plan"). The Board has authorized 1,775,000
shares for issuance under the Non-Officer Plan. At December 31, 1997, options
(net of cancelled or expired options) covering an aggregate of 894,819 shares
of the Company's Common Stock had been granted under the Non-Officer Plan, and
only 880,181 shares (plus any shares that might in the future be returned to
the plans as a result of cancellations or expiration of options) remained
available for future grant under the Non-Officer Plan. During the last fiscal
year, under the Non-Officer Plan, the Company has granted to all employees and
consultants (excluding executive officers) as a group options to purchase
813,150 shares at exercise prices of $15.44 to $39.06 per share.
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"). Incentive
stock options granted under the 1993 Plan are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (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),
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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 provides that, in the Board's discretion, directors serving on the
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). The
Company's Compensation Committee is currently composed of two "outside
directors."
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. Directors who are not salaried
employees of or consultants to the Company or to any affiliate of the Company
are not eligible to participate in the 1993 Plan. Directors who administer the
1993 Plan may not receive options under the 1993 Plan during the period of
their service as administrators or during the one-year period prior to their
service as administrators of 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 option exercise price is at least 110% of
the fair market value of the stock subject to the option on the date of grant,
and the term of the option 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.
The 1993 Plan includes a per-individual, per-calendar year limitation equal
to 1,000,000 shares of Common Stock. This limitation generally permits the
Company to continue to be able to deduct for tax purposes the compensation
attributable to the exercise of options granted under the 1993 Plan. To date,
the Company has not granted to any employee in any calendar year options 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 options again becomes available for issuance under the 1993 Plan.
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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 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, 1997, the closing price of the
Company's Common Stock as reported on the Nasdaq National Market System was
$42.125 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 option deemed to be canceled and the new option 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; or (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
in cumulative increments ("vest") as determined by the Board. Shares covered
by currently outstanding options under the 1993 Plan typically vest at the
rate of 25% on the first anniversary of the date of grant and 1/48th at the
end of each month-long period thereafter during the optionee's employment or
services 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 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 within one year of 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.
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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. 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 1993 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.
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.
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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, the maximum
number of shares which may be granted to an employee during a calendar year,
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 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 antitakeover
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.
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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 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, mid-term or short-
term depending on how long the stock was held. 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-term, mid-term or short-term depending on how long the stock was
held. 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:
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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-term, mid-term or short-term depending on how long
the stock was held. 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 tax
reporting obligation, the Company will be entitled to a business expense
deduction equal to the taxable ordinary income recognized by the recipient.
Potential Limitation on Company Deductions. Code Section 162(m) denies a
deduction to any publicly held corporation for compensation paid to certain
employees in a taxable year to the extent that compensation exceeds $1,000,000
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 the option is granted by a compensation committee comprised
solely of "outside directors" and either: (i) the option plan contains a per-
employee limitation on the number of shares for which options may be granted
during a specified period, the per-employee limitation is approved by the
stockholders, and the exercise price of the option is no less than the fair
market value of the stock on the date of grant; or (ii) the option is granted
(or exercisable) only upon the achievement (as certified in writing by the
compensation committee) of an objective performance goal established in
writing by the compensation committee while the outcome is substantially
uncertain, and the option is approved by stockholders. 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).
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PROPOSAL 3
APPROVAL OF THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
In November, 1995, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's Employee Stock Purchase Plan (the
"Purchase Plan"), which is intended to qualify under Section 423(b) of the
Code. There are 350,000 shares of the Company's Common Stock authorized for
issuance under the Purchase Plan.
In March 1998, the Board of Directors voted to amend this Purchase Plan,
subject to Stockholder approval, to increase the number of shares of Common
Stock authorized for issuance under the Purchase Plan by 350,000 shares to a
total of 700,000 shares.
Stockholders are requested in this Proposal 3 to approve the amendment to
the Purchase 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 Purchase 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.
Brokers 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 Purchase Plan are outlined below:
PURPOSE
The Purchase Plan, if adopted, will provide a means by which employees of
the Company and its affiliates could be given an opportunity to purchase stock
in the Company, to assist in retaining the services of its employees, to
secure and retain the services of new employees and to provide incentives for
such persons to exert maximum efforts for the success of the Company. Under
the Purchase Plan, the Board may provide for the grant of rights to purchase
Common Stock of the Company to eligible employees (a "Plan Offering") on a
date or dates to be selected by the Board.
ADMINISTRATION
The Purchase Plan is administered by the Board. The Board has the power to
construe and interpret the Purchase Plan and, subject to the provisions of the
Purchase Plan, to determine when and how rights to purchase Common Stock will
be granted and the provisions of each offering of such rights. The Board is
authorized to delegate administration of the Purchase Plan to a committee
composed of not less than two members of the Board. As of the date hereof, the
Board of Directors has delegated administration to the Compensation Committee
of Board of Directors.
ELIGIBILITY
Rights to purchase stock may be granted under the Purchase Plan only to
employees of the Company and its affiliates who have been employed by the
Company or its affiliates for such continuous period preceding such grant as
the Board may require (which period shall not be greater than or equal to two
years) and whose customary employment with the Company or its affiliate is at
least 20 hours per week and at least five months per calendar year, unless
otherwise determined by the Board. The Board may provide that if an employee
becomes eligible to participate in the Purchase Plan during the course of a
Plan Offering, the employee may receive rights under that Plan Offering. Such
rights shall have the same characteristics as any rights originally granted
under that Plan Offering, except that (i) the offering date shall be the date
such rights are granted, (ii) the
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purchase period for such rights shall begin on the offering date and end
coincident with the end of such Plan Offering, and (iii) the Board may provide
that if such person first becomes an eligible employee within a specified
period of time before the end of the purchase period, he or she will not
receive any right under that Plan Offering.
An eligible employee may be granted rights under the Purchase Plan only if
such rights, together with any other rights granted under all such employee
stock purchase plans of the Company or any affiliate do not permit such
employee's rights to purchase stock of the Company or any affiliate to accrue
at a rate which exceeds 10% of the earnings, up to $25,000 of fair market
value of such stock (determined at the time such rights are granted) for each
calendar year in which such rights are outstanding at any time. No rights may
be granted under the Purchase Plan to any person who, at the time of the
grant, owns stock possessing 5% or more of the total combined voting power of
the Company or any affiliate of the Company. Officers of the Company shall be
eligible to participate in Plan Offerings under the Purchase Plan, provided,
however, that the Board may exclude employees who qualify as "highly
compensated" under the Code from participating in a Plan Offering.
RIGHTS; PURCHASE PRICE
On each offering date, each eligible employee shall be granted the right to
purchase up to the number of shares of Common Stock of the Company purchasable
with a percentage designated by the Board not exceeding 10% of such employee's
earnings during the offering period. In connection with each Plan Offering,
the Board may specify a maximum number of shares which may be purchased by any
employee as well as a maximum aggregate number of shares which may be
purchased by all eligible employees. If a Plan Offering contains more than one
purchase date, the Board may specify a maximum aggregate number of shares
which may be purchased by all eligible employees on any given purchase date
under the Plan Offering. If the aggregate purchase of shares upon exercise of
rights granted under the Plan Offering would exceed any such maximum aggregate
number, the Board will make a pro rata allocation of the shares available in
as nearly a uniform manner as shall be practicable and as the Board shall deem
to be equitable.
The purchase price of stock acquired pursuant to rights granted under the
Purchase Plan will not be less than the lesser of (i) an amount equal to 85%
of the fair market value of the stock on the offering date or (ii) an amount
equal to 85% of the fair market value of the stock on the purchase date.
TRANSFERABILITY
Rights granted under the Purchase Plan are nontransferable and may be
exercised only by the person to whom such rights are granted.
EXERCISE
On each purchase date, a participant's accumulated payroll deductions
(without any increase for interest) will be applied to the purchase of whole
shares of stock of the Company, up to the maximum number of shares permitted
pursuant to the terms of the Plan Offering, at the purchase price specified in
the Plan Offering. No fractional shares will be issued upon the exercise of
rights granted under the Purchase Plan. Any accumulated payroll earnings
remaining in a participant's account after the purchase of the number of whole
shares purchasable at the purchase price specified in the Plan Offering in an
amount less than is required to purchase one whole share will be held in the
participant's account for the purchase of shares under the next Plan Offering
under the Purchase Plan, unless the participant withdraws from the next Plan
Offering or is no longer eligible to be granted rights under the Purchase
Plan, in which case such amount shall be distributed to the participant
without interest. Any accumulated payroll deductions remaining in a
participant's account after such purchase in an amount greater than that
required to purchase one share shall be distributed to the participant without
interest. Any accumulated payroll deductions remaining in a participant's
account after the purchase of shares on the final exercise date of a Plan
Offering shall be distributed to the participant after such purchase date,
without interest.
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PARTICIPATION; WITHDRAWAL; TERMINATION
An eligible employee may become a participant in a Plan Offering by
delivering a participation agreement to the Company authorizing payroll
deductions of up to the maximum percentage of such employee's earnings during
the Plan Offering as specified by the Board. Payroll deductions made for a
participant shall be credited to an account for such participant under the
Purchase Plan and deposited with the general funds of the Company. A
participant may reduce, increase or begin payroll deductions after the
beginning of any purchase period only as provided for in the Plan Offering. A
participant may make additional payments into his or her account only if
specifically provided for in the Plan Offering and only if the participant has
not had the maximum amount withheld during the Plan Offering.
A participant may terminate payroll deductions under the Purchase Plan and
withdraw from a Plan Offering at any time by delivering to the Company a
notice of withdrawal. Upon such withdrawal, the Company will distribute to
such participant all of his or her accumulated payroll deductions (reduced to
the extent such deductions have been used to acquire stock for the
participant) under the Plan Offering, without interest, and the participant's
interest in that Plan Offering will be automatically terminated. Such
withdrawal will have no effect upon such participant's eligibility to
participate in any other Plan Offerings under the Purchase Plan, but the
participant will be required to deliver a new participation agreement in order
to participate in subsequent Plan Offerings.
Rights granted under the Purchase Plan will terminate immediately upon
cessation of a participant's employment, and the Company shall distribute to
such employee all of his or her accumulated payroll deductions (reduced to the
extent such deductions have been used to acquire stock for the terminated
employee) without interest.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Purchase Plan or subject
to any rights granted under the Purchase Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, or otherwise),
the Purchase Plan and rights outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to the
Purchase Plan and the class, number of shares and price per share of stock
subject to such outstanding rights.
In the event of a dissolution or liquidation of the Company, a merger or
consolidation in which the Company is not the surviving corporation, a reverse
merger in which the Company is the surviving corporation but the shares of
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, or any other capital reorganization in which more than 50%
of the shares of the Company entitled to vote are exchanged, then under the
Purchase Plan the successor corporation may assume such outstanding rights or
substitute similar rights, such rights may continue in full force and effect
or participants' accumulated payroll deductions may be used to purchase Common
Stock immediately prior to the transaction described above and the
participant's rights under the ongoing Plan Offering terminated.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Purchase Plan without stockholder
approval or ratification at any time or from time to time.
The Board may also amend the Purchase Plan at any time or from time to time.
However, no amendment shall be effective unless approved by the stockholders
of the Company within 12 months before or after its adoption by the Board if
the amendment would: (i) increase the number of shares reserved for rights;
(ii) modify the provisions as to eligibility for participation (to the extent
such modification requires stockholder approval in order for the Purchase Plan
to satisfy the requirements of Section 423 of the Code or to comply with the
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requirements of Rule 16b-3 promulgated under the Securities Exchange Act of
1934 (the "Exchange Act"); or (iii) modify the Purchase Plan in any other way
if such modification requires stockholder approval in order for the Purchase
Plan to satisfy the requirements of Section 423(d) of the Code or to comply
with the requirements of Rule 16b-3.
FEDERAL INCOME TAX INFORMATION
Participation in the Purchase Plan is intended to qualify for the favorable
federal tax treatment accorded employee stock purchase plans under Section 423
of the Code. Under these provisions, a participant will be taxed on amounts
withheld as if actually received, but, except for this, no income will be
taxable to a participant until disposition of the shares acquired.
If the stock is disposed of more than two years after the beginning of the
offering period and more than one year after the stock is transferred to the
participant, the lesser of (i) the excess of the fair market value of the
stock at the time of such disposition over the exercise price or (ii) the
excess of the fair market value of the stock as of the beginning of the
offering period over the exercise price (determined as of the beginning of the
offering period) will be treated as ordinary income. Any further gain or any
loss will be taxed as a capital gain or loss.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition, and the Company may, in the future, be
required to withhold income taxes relating to such ordinary income from other
payments made to the participant. The balance of any gain will be treated as
capital gain. Even if the stock is later disposed of for less than its fair
market value on the exercise date, the same amount of ordinary income is
attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date.
Any capital gain or loss realized by a participant upon the disposition of
stock acquired under the Purchase Plan will be long-term, mid-term or short-
term depending on how long the stock has been held.
There are no federal income tax consequences to the Company by reason of the
grant or exercise of rights under the Purchase Plan. The Company is entitled
to a deduction for amounts taxed as ordinary income to a participant upon
disposition by a participant of stock before the expiration of the holding
periods described above (subject to the requirement of reasonableness and
perhaps, in the future, the satisfaction of a tax withholding obligation).
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PROPOSAL 4
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Amended and Restated Certificate of Incorporation
to increase the Company's authorized number of shares of Common Stock from
35,000,000 shares to 100,000,000 shares.
Although at present the Board of Directors has no plans to issue the
additional shares of Common Stock, it desires to have such shares available to
provide additional flexibility to use its capital stock for business and
financial purposes in the future. The additional shares may be used, without
further stockholder approval, for various purposes including, without
limitation, raising capital, providing equity incentives to employees,
officers, directors or consultants, possible future stock splits or stock
dividends, establishing strategic relationships with other companies and
expanding the company's business or product lines through the acquisition of
other businesses or products.
The additional Common Stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the proposed amendment and issuance of the Common Stock
would not affect the rights of the holders of currently outstanding Common
Stock of the Company, except for effects incidental to increasing the number
of shares of the Company's Common Stock outstanding, such as dilution of the
earnings per share and voting rights of current holders of Common Stock. If
the amendment is adopted, it will become effective upon filing of a
Certificate of Amendment of the Company's Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware, which is
expected to be effective as soon as practicable following the Annual Meeting.
In addition to the 15,602,604 shares of Common Stock outstanding at December
31, 1997, shares of Common Stock have been reserved and are available for
issuance as follows: (i) 2,764,361 shares upon exercise of options and rights
granted under the Company's 1993 Equity Incentive Plan, (ii) 250,000 shares
upon exercise of options granted under the Company's Non-Employee Directors'
Plan, (iii) 558,428 shares under the Company's Employee Stock Purchase Plan
and, (iv) and 1,775,000 shares under the Non-Officer Plan.
The affirmative vote of the holders of a majority of the shares of the
common stock outstanding on the record date will be required to approve this
amendment to the Company's Amended and Restated Certificate of Incorporation.
As a result, abstentions and broker non-votes will have the same effect as
negative votes.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
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PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Price Waterhouse LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Price Waterhouse
has audited the Company's financial statements since 1994. Representatives of
Price Waterhouse 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 as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Price Waterhouse
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 auditors 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.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5.
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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, 1997 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
BENEFICIAL OWNER SHARES TOTAL
---------------- -------------- ------------
<S> <C> <C>
Xerox Corporation(2)............................... 1,608,277 10.3%
P.O. Box 1600
800 Long Ridge Road
Stamford, CT 06904
Putnam Investments, Inc.(3)........................ 1,383,614 8.9%
One Post Office Square
Boston, MA 02109
Pilgrim Baxter & Associates, Ltd.(4)............... 1,245,600 8.0%
825 Duportail Road
Wayne, PA 19087
Jeffrey A. Miller (5).............................. 639,034 4.1%
c/o Documentum, Inc.
5671 Gibraltar Drive
Pleasanton, CA 94588
Robert V. Adams(6)................................. 116,253 *
Kathryn C. Gould(7)................................ 57,876 *
Geoffrey A. Moore.................................. 0 *
Colin J. O'Brien (8)............................... 1,624,944 10.4%
John L. Walecka(9)................................. 40,101 *
Edward J. Zander(10)............................... 36,667 *
Paul J. Hoffman (11)............................... 36,021 *
Robert K. Reid(12)................................. 84,920 *
Howard I. Shao(13)................................. 265,128 1.7%
Mark S. Garrett(14)................................ 20,538 *
All directors and executive officers
as a group (11 persons)(15)....................... 2,921,482 18.4%
</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. Unless otherwise indicated
in the footnotes to this table and subject to community property laws
where applicable, the Company believes that each of the stockholders
named in this table has sole voting and investment power with respect to
the shares indicated as beneficially owned. Applicable percentages are
based on 15,602,604 shares outstanding on December 31, 1997 adjusted as
required by rules promulgated by the SEC.
(2) Mr. O'Brien, a director of the Company, is a Vice President of Xerox
Corporation ("Xerox"). Mr. O'Brien disclaims beneficial ownership of such
shares held by Xerox.
(3) Based solely on formation 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.
18
<PAGE>
(4) Based solely on information obtained from a filing made on Schedule 13G
with the SEC.
(5) Includes (i) 629,734 shares held by Jeffrey Miller and Karen Miller, as
Co-trustees of the Miller Living Trust dated July 7, 1985 and (ii) 9,300
shares held by The Miller Children's Trust I. Mr. Miller disclaims
beneficial ownership of the shares held by The Miller Children's Trust I.
(6) Includes 16,667 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997.
(7) Includes 502 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 16,667 shares issuable upon the
exercise of options exercisable within 60 days of December 31, 1997.
(8) Includes 1,608,277 shares held by Xerox. See footnote (2) above. Mr.
O'Brien disclaims beneficial ownership of the shares held by Xerox. Also
includes 16,667 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997.
(9) Includes 16,667 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997.
(10) Includes 16,667 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997. Also includes 7,083 shares which are
subject to a right of repurchase in favor of the Company which expires
ratably through August 1999.
(11) Includes 35,417 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997.
(12) Includes 36,500 shares held by the Crystal Lane Limited Partnership
("Crystal Lane"). Mr. Reid is a limited partner of Crystal Lane. Mr. Reid
disclaims beneficial ownership of the shares held by Crystal Lane, except
to the extent of his ownership interest therein. Also includes 38,073
shares issuable upon the exercise of options exercisable within 60 days
of December 31, 1997, of which 12,500 are subject to vesting through June
1999.
(13) Includes 76,164 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997, of which 12,500 are subject to
vesting through June 1999.
(14) Includes 20,182 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997.
(15) Includes 253,171 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 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, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
19
<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 for 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 5,000 shares to each non-employee director of the Company, at
an exercise price per share of $24.875. The fair market value of such Common
Stock on the date of grant was $24.875 per share (based on closing sales price
reported in the Nasdaq National Market System for the date of grant). As of
December 31, 1997, no options had been exercised under the Directors' Plan.
In March 1998, the Board approved an amendment to the Directors' Plan
increasing the size of the option granted to new directors from 15,000 to
20,000 and increasing the size of the annual option grant for each director
serving a full year on the Board from 5,000 to 7,500.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Company serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee. See "Certain Transactions" for a
description of transactions between the Company and entities affiliated with
members of the Compensation Committee.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31, 1995, 1996
and 1997, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer, its other four most highly compensated executive officers
at December 31, 1997 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS
-------------------- ---------------------
NAME AND PRINCIPAL SECURITIES UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) OPTIONS# COMPENSATION(1)
------------------ ---- ---------- --------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Jeffrey A. Miller....... 1997 $250,000 $210,000 300,000 $1,252
President and Chief 1996 185,000 69,700 -- 1,600
Executive Officer 1995 175,000 85,000 100,000 600
Mark S. Garrett(2)...... 1997 $166,186 $ 90,000 150,000 $ 576
Vice President, Chief 1996 -- -- -- --
Financial Officer and
Secretary 1995 -- -- -- --
Paul J. Hoffman(3)...... 1997 $175,000 $ 188,000 30,000 1,044
Vice President, 1996 57,099 50,000 150,000 339
Worldwide Sales 1995 -- -- -- --
Robert K. Reid.......... 1997 $155,000 $ 60,000 55,000 926
Vice President, 1996 137,000 34,800 -- 812
Marketing 1995 132,000 39,000 20,000 700
Howard I. Shao.......... 1997 155,000 64,500 90,000 543
Vice President, 1996 138,000 36,800 -- 480
Engineering 1995 126,000 44,000 20,000 300
</TABLE>
- --------
(1) Consists of life insurance premiums.
(2) Mr. Garrett joined the Company in January 1997. Mr. Garrett's bonus figure
includes a $25,000 signing bonus paid upon commencement of his employment.
(3) Mr. Hoffman joined the Company in September 1996.
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, 1997, options to purchase
a total of 1,769,499 shares were outstanding under the 1993 Plan and options
to purchase 457,461 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, 1997,
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(2)
OPTIONS IN FISCAL EXERCISE EXPIRATION ----------------------------
NAME GRANTED(#) YEAR(1) PRICE DATE 5% 10%
---- ---------- ---------- -------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Miller(3).... 300,000 17.7% $32.75 10/06/07 $ 6,178,890 $ 15,658,520
Mark S. Garrett(4)...... 100,000 5.9 33.875 1/30/07 2,130,381 5,398,803
50,000 3.0 30.313 11/24/07 953,184 2,415,556
Paul J. Hoffman(5)...... 30,000 1.8 30.313 11/24/07 571,911 1,449,334
Robert K. Reid(5)....... 30,000 1.8 33.875 1/30/07 639,114 1,619,641
25,000 1.5 16.00 4/16/07 251,558 637,497
Howard I. Shao(5)....... 40,000 2.4 33.875 1/30/07 852,152 2,159,521
50,000 3.0 30.313 11/24/07 953,184 2,415,556
</TABLE>
- --------
(1) Based on an aggregate of 1,693,150 shares subject to options granted to
employees in the fiscal year ended December 31, 1997.
(2) The 5% and 10% assumed rates of appreciation are suggested by the rules of
the Securities and Exchange Commission 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.
(3) 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 shall vest on October 6,
2002 or earlier upon the Company achieving certain financial milestones.
Options covering 200,000 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.
(4) 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 75,000 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 25,000
shares shall vest on January 9, 2002 or earlier upon the Company achieving
certain financial milestones. Options covering 50,000 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.
(5) 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 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.
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 1997(#) 1997(#) 1997($) 1997($)
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE(2)
---- ----------- -------------- ------------ ------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Miller....... 100,000 $3,162,500 -- 300,000 -- $2,812,500
Mark S. Garrett......... -- -- -- 150,000 -- 1,415,600
Paul J. Hoffman......... -- -- 31,249 148,751 $ 556,623 2,469,594
Robert K. Reid.......... 35,500 869,776 30,000 55,000 1,220,629 900,625
Howard I. Shao.......... -- -- 65,400 90,000 2,700,806 920,600
</TABLE>
- --------
(1) Based on the difference between the deemed fair marke
(2) Based on the difference between the deemed fair market value on December
31, 1997 ($42.125 per share) and the exercise price.
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 Ms. Gould and Mr. Walecka. 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.
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. After reviewing the
salaries for executive officers, the Committee determined that increases
ranging from $15,000 to $20,000 per year were appropriate.
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 1997,
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, and building the Company's infrastructure to support
sales and marketing efforts, and successfully completing a follow-on public
offering. Based on the Company's performance in fiscal 1997 and the
Committee's review of the achievement of these goals, the Committee awarded
bonuses of between approximately 40% and 50% to all executive officers. A
bonus of $188,000 was paid to the Company's Vice President, Worldwide Sales
based on the achievement of certain sales goals.
- --------
(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 1933 Act or the 1934 Act whether made before or after
the date hereof and irrespective of any general incorporation language in
any such filing.
23
<PAGE>
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, giving them the right to purchase shares of
Common Stock of the Company in the future at a price equal to fair market
value at the date of grant. 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 awarded each executive officer additional
options. Mr. Hollyman received an option to purchase 100,000 shares of the
Company's Common Stock upon joining the Company in December 1997.
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. As a result of such analysis, Mr.
Miller's base salary was increased in 1997 from his 1996 base salary. In
addition, the Company achieved virtually all of its corporate objectives
during 1997, and the Committee concluded that Mr. Miller's contributions were
a significant factor in achieving these objectives. For 1997, the Committee
awarded Mr. Miller a bonus of approximately 85% 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 was granted options to
purchase 300,000 shares in 1997 as the Committee concluded that his
outstanding options, particularly his unvested options, were inadequate to
properly 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 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
24
<PAGE>
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
Kathryn C. Gould
John L. Walecka
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 December 31, 1997:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG DOCUMENTUM, INC., NASDAQ AND MSH 35
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) DOCUMENTUM NASDAQ MSH 35
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-2/6/96 $100 $100 $100
FYE 3/31/96 $146.875 $104.1563 $92.75541
FYE 6/30/96 $127.0833 $112.658 $95.25819
FYE 9/30/96 $132.2917 $116.6698 $103.3175
FYE 12/31/96 $140.625 $122.4265 $112.256
FYE 3/31/97 $77.08333 $115.8184 $103.9212
FYE 6/30/97 $103.6458 $137.0481 $124.9135
FYE 9/30/97 $138.5417 $160.2304 $152.5116
FYE 12/31/97 $175.5208 $150.2694 $131.1529
</TABLE>
(1) The material in this report 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 1934 Act, whether made
before or after the date hereof and irrespective of any general
incorporation language in any such filing.
25
<PAGE>
CERTAIN TRANSACTIONS
On April 1, 1996, the Company entered into a Services Partner Agreement with
Xerox (the "Services Partner Agreement") under which the Company granted Xerox
a worldwide, non-exclusive license to market, promote and sublicense the
Licensed Software, as that term is defined in the Services Partner Agreement,
but only in conjunction with providing value-added services. The initial term
expired on April 1, 1997 but automatically renewed for successive one year
periods unless either party notifies the other in writing at least 60 days
prior to the expiration of the then current term of its intent not to extend
the Services Partner Agreement.
In July 1995, the Company entered into an International Distributor
Agreement with Rank Xerox AB under which the Company granted Rank Xerox AB the
non-exclusive right to purchase the Company's software products at specified
discounts and distribute those products to both resellers and end users in a
specified territory, provided that Rank Xerox AB meet certain minimum sales
levels of the Company's products. The agreement was superseded by the Services
Partner Agreement.
In April 1995, the Company entered into an Agreement for the Supply of
Services with Rank Xerox Limited under which Rank Xerox Limited agreed to
provide certain services to specified customers of the Company in exchange for
a specified percentage of the maintenance fees payable to the Company by those
customers. The agreement expired October 5, 1996.
In July 1994, the Company entered into an International Distributor
Agreement with Rank Xerox AG under which the Company granted Rank Xerox AG the
non-exclusive right to purchase the Company's software products at specified
discounts and distribute those products to both resellers and end users in a
specified territory, provided that Rank Xerox AG meet certain minimum sales
levels of the Company's products. The agreement was superseded by the Services
Partner Agreement.
In December 1993, the Company entered into an International Distributor
Agreement with Xerox Canada Ltd. under which the Company granted Xerox Canada
Ltd. the non-exclusive right to purchase the Company's software products at
specified discounts and distribute those products to both resellers and end
users in a specified territory, provided that Xerox Canada Ltd. meet certain
minimum sales levels of the Company's products. The initial term of the
agreement expired on December 8, 1995. The term is automatically extended for
successive one year terms unless either party notifies the other in writing
more than 90 days prior to the end of the then current term of its intention
not to extend the agreement. The Company terminated this agreement effective
December 31, 1997.
In July 1993, the Company entered into a Value Added Reseller Agreement with
Xerox Corporation under which the Company granted Xerox a non-exclusive
license to reproduce the Licensed Software, as that term is defined in the
agreement, for the sole purpose of producing and distributing a value added
product in the limited territory set forth in the agreement. The agreement
required Xerox to pay both license fees and maintenance fees to the Company.
The agreement was superseded by the Services Partner Agreement.
Pursuant to the terms of the Company's 1993 Equity Incentive Plan (the "1993
Plan"), from September 1994 to July 1995, certain officers of the Company
exercised options under the 1993 Plan and paid the exercise price, either in
whole or in part, by issuing promissory notes to the Company. Mr. Miller
issued a promissory note in the amount of $99,463, and seven other officers
issued promissory notes in the aggregate amount of $139,478. All promissory
notes are secured by the shares of Common Stock issued upon exercise. The
promissory notes accrue interest at rates ranging from 6.76% to 7.92% per
annum and are due five years from the date of issuance. As of December 31,
1997, only three officers had outstanding balances on their notes.
26
<PAGE>
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 16, 1998
27
<PAGE>
1479-PS-98
<PAGE>
APPENDIX A
DOCUMENTUM, INC.
1993 EQUITY INCENTIVE PLAN
AS AMENDED ON
JUNE 14, 1994,
JUNE 30, 1995,
NOVEMBER 21, 1995,
MARCH 6, 1997
DECEMBER 17, 1997
1. PURPOSES.
(a) The purpose of the 1993 Equity Incentive Plan (the "Plan") is to provide
a means by which selected Employees and Directors of and Consultants to the
Company, and its Affiliates, may be given an opportunity to benefit from
increases in value of the stock of the Company through the granting of (i)
Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses,
(iv) rights to purchase restricted stock, and (v) Stock Appreciation Rights,
all as defined below. The Plan amends and restates the Documentum, Inc. 1993
Stock Option Plan (the "Prior Plan").
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company
and its Affiliates, to secure and retain the services of new Employees,
Directors and Consultants, and to provide incentives for such persons to exert
maximum efforts for the success of the Company.
(c) The Company intends that the Stock Awards issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof, or (iii) Stock
Appreciation Rights granted pursuant to Section 8 hereof. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options at
the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections
424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
(e) "COMPANY" means Documentum, Inc., a Delaware corporation.
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(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(ii) of the Plan.
(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated by the Company or any Affiliate. The Board, in its sole discretion,
may determine whether Continuous Status as an Employee, Director or Consultant
shall be considered interrupted in the case of: (i) any leave of absence
approved by the Board, including sick leave, military leave, or any other
personal leave; provided, however, that for purposes of Incentive Stock
Options and Stock Appreciation Rights appurtenant thereto, any such leave may
not exceed ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract (including certain Company policies) or
statute; or (ii) transfers between locations of the Company or between the
Company, Affiliates or its successor.
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means total and permanent disability as defined in Section
22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. Neither service as a Director
nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the common stock
of the Company determined as follows:
(i) If the common stock is listed on any established stock exchange or
traded on the Nasdaq National Market, the Fair Market Value of a share of
common stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such system or
exchange (or the exchange with the greatest volume of trading in common
stock) on the date of determination, and if the date of determination was
not a market trading day, then on the last market trading day prior to the
date of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(ii) If the common stock is quoted on the Nasdaq Stock Market (but not on
the National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market
Value of a share of common stock shall be the mean between the bid and
asked prices for the common stock on the date of determination, and if the
date of determination was not a market trading day, then on the last market
trading day prior to the date of determination, as reported in the Wall
Street Journal or such other source as the Board deems reliable;
(iii) In the absence of an established market for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "INDEPENDENT STOCK APPRECIATION RIGHT" or "INDEPENDENT RIGHT" means a
right granted under subsection 8(b)(iii) of the Plan.
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(p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a current
Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent
or subsidiary for services rendered as a Consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(u) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(w) "PLAN" means this 1993 Equity Incentive Plan.
(x) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(y) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(z) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, any right to purchase restricted stock, and any Stock
Appreciation Right.
(aa) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to
the terms and conditions of the Plan.
(bb) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted under subsection 8(b)(i) of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
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(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how Stock Awards shall 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 Stock Awards shall be granted to
each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or
expedient to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 14.
(iv) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the
Company and which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the
members of which Committee may (but need not) be, in the discretion of the
Board, Non-Employee Directors and/or Outside Directors. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration
of the Plan. Notwithstanding anything in this Section 3 to the contrary, at
any time the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act and to eligible
persons with respect to whom the Company does not wish to comply with Section
162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the number of shares of stock that may be issued pursuant to
Stock Awards under the Plan shall not exceed in the aggregate four million
seven hundred thousand one hundred thirty-eight (4,700,138) shares of the
Company's common stock. If any Stock Award shall for any reason expire or
otherwise terminate without having been exercised in full, the stock not
purchased shall again become available for issuance under the Plan.
Notwithstanding the foregoing, shares subject to Stock Appreciation Rights
exercised in accordance with Section 8 of the Plan shall not be available for
subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
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(b) No person shall be eligible for the grant of an Incentive Stock Option
if, at the time of grant, such person owns (or is deemed to own pursuant to
Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of
any of its Affiliates unless the exercise price of such Incentive Stock Option
is at least one hundred ten percent (110%) of the Fair Market Value of such
stock at the date of grant and the Incentive Stock Option is not exercisable
after the expiration of five (5) years from the date of grant.
(c) No person shall be eligible to be granted Stock Awards covering more
than one million (1,000,000) shares of the Company's Common Stock in any
calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise)
the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii)
at the discretion of the Board or the Committee, either at the time of the
grant or exercise of the Option, (A) by delivery to the Company of other
common stock of the Company, (B) according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other common stock of the Company) with the person to
whom the Option is granted or to whom the Option is transferred pursuant to
subsection 6(d), or (C) in any other form of legal consideration that may be
acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions
of the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock
Option is granted only by such person. A Nonstatutory Stock Option may be
transferable to the extent specified in the Option Agreement, in which case
the Option may be transferred upon such terms and conditions as are set forth
in the Option, as the Board of the Committee shall determine in its sole
discretion, including (without limitation) pursuant to a "domestic relations
order" within the meaning of such rules, regulations or interpretations of the
Securities and Exchange Commission as are applicable for purposes of Section
16 of the Exchange Act. Notwithstanding the foregoing, the person to whom a
Option is granted may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not,
be equal). The Option Agreement may provide that from time to time during each
of such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted
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to such period and/or any prior period as to which the Option became vested
but was not fully exercised. The Option may be subject to such other terms and
conditions on the time or times when it may be exercised (which may be based
on performance or other criteria) as the Board may deem appropriate. During
the remainder of the term of the Option (if its term extends beyond the end of
the installment periods), the option may be exercised from time to time with
respect to any shares then remaining subject to the Option. The provisions of
this subsection 6(e) are subject to any Option provisions governing the
minimum number of shares as to which an Option may be exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee, or any
person to whom an Option is transferred under subsection 6(d), as a condition
of exercising any such Option, (1) to give written assurances satisfactory to
the Company as to the Optionee's knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced in financial
and business matters, and that he or she is capable of evaluating, alone or
together with the purchaser representative, the merits and risks of exercising
the Option; and (2) to give written assurances satisfactory to the Company
stating that such person is acquiring the stock subject to the Option for such
person's own account and not with any present intention of selling or
otherwise distributing the stock. These requirements, and any assurances given
pursuant to such requirements, shall be inoperative if (3) the issuance of the
shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), or (4) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need
not be met in the circumstances under the then applicable securities laws.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option, but only within such
period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director
or Consultant (or such longer or shorter period of time specified in the
Option Agreement), or (ii) the expiration of the Option's term, and only to
the extent that the Optionee was entitled to exercise it at the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified in the
Option Agreement, the Option shall terminate, and the shares covered by such
Option shall revert to the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the
Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the
term of the Option set forth in the Option Agreement, or (ii) the tenth (10th)
day after the last date on which such exercise would result in such liability
under Section 16(b) of the Exchange Act. Finally, an Optionee's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (other than upon the Optionee's death or disability) would be
prohibited at any time solely because the issuance of shares would violate the
registration requirements under the Act, then the Option shall terminate on
the earlier of (i) the expiration of the term of the Option set forth in the
first paragraph of this subsection 6(f), or (ii) the expiration of a period of
three (3) months after the termination of the Optionee's Continuous Status as
an Employee, Director or Consultant during which the exercise of the Option
would not be in violation of such registration requirements.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status as
an Employee, Director or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option, but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period of time as
specified in the Option Agreement), or (ii) the expiration
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of the term of the Option as set forth in the Option Agreement). If, at the
date of termination, the Optionee is not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or
within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance, or by a person
designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date twelve (12) months following the date of death (or such longer or shorter
period specified in the Option Agreement) or (ii) the expiration of the term
of such Option as set forth in the Option Agreement. If, at the time of death,
the Optionee was not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available under the Plan. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject
to the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company, with
the repurchase price to be equal to the original purchase price of the stock.
(k) WITHHOLDING. To the extent provided by the terms of an Option Agreement,
the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following
means or by a combination of such means: (1) tendering a cash payment; (2)
authorizing the Company to withhold shares from the shares of the common stock
otherwise issuable to the participant as a result of the exercise of the
Option; or (3) delivering to the Company owned and unencumbered shares of the
common stock of the Company.
(l) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board
or Committee to make or not to make grants of Options hereunder, the Board or
Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced
by the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the Re-
Load Option on the date of exercise of the original Option or, in the case of
a Re-Load Option which is an Incentive Stock Option and which is granted to a
10% stockholder (as described in subsection 5(c)), shall have an exercise
price which is equal to one hundred ten percent (110%) of the Fair Market
Value of the stock subject to the Re-Load Option on the date of exercise of
the original Option and shall have a term which is no longer than five (5)
years.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory
Stock Option, as the Board or Committee may designate at the time of the grant
of the original Option, provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred
thousand dollar ($100,000) annual limitation on exercisability of Incentive
Stock Options described in subsection 12(d) of the Plan and in Section 422(d)
of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such
Re-Load Option shall be subject to the availability of sufficient shares under
subsection 4(a) and shall be subject to such other terms and conditions as the
Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of the Options.
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7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. 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 shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock purchase
agreement shall be such amount as the Board or Committee shall determine and
designate in such agreement. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be assignable by any participant under the Plan,
either voluntarily or by operation of law, except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the rights are granted only by such person. The person to whom
the Stock Award is granted may, be delivering written notice to the Company,
in a form satisfactory to the Company, designate a third party who, in the
event of the death of such person, shall thereafter be entitled to exercise
the rights held by such person under the stock bonus or restricted stock
purchase agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a stock
purchase agreement shall be paid either: (i) in cash at the time of purchase;
(ii) at the discretion of the Board or the 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 or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) 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 or the Committee.
(e) 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
reacquire 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.
8. STOCK APPRECIATION RIGHTS.
(a) The Board or Committee shall have full power and authority, exercisable
in its sole discretion, to grant Stock Appreciation Rights to Employees or
Directors of or Consultants to, the Company or its Affiliates under the Plan.
Each such right shall entitle the holder to a distribution based on the
appreciation in the Fair Market Value per share of a designated amount of
stock.
(b) Three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) TANDEM STOCK APPRECIATION RIGHTS. Tandem Rights will be granted
appurtenant to an Option and will 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 equal to
the excess of (A) the Fair Market Value (on the date of Option surrender)
of vested shares of stock purchasable under the surrendered Option over (B)
the aggregate exercise price payable for such shares.
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(ii) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will 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 will be exercised
automatically at the same time the Option is exercised for those shares.
The appreciation distribution to which the holder of such concurrent right
shall be entitled upon exercise of the underlying Option shall be in an
amount equal to the excess of (A) the aggregate Fair Market Value (at date
of exercise) of the vested shares purchased under the underlying Option
with such concurrent rights over (B) the aggregate exercise price paid for
those shares.
(iii) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights may be
granted independently of any Option and will entitle the holder upon
exercise to an appreciation distribution equal in amount to the excess of
(A) the aggregate Fair Market Value (at the date of exercise) of a number
of shares of stock equal to the number of vested share equivalents
exercised at such time (as described in subsection 7(c)(iii)(B)) over (B)
the aggregate Fair Market Value of such number of shares of stock at the
date of grant.
(c) The terms and conditions applicable to each Tandem Right, Concurrent
Right and Independent Right shall be as follows:
(i) TANDEM RIGHTS.
(A) Tandem Rights may be tied to either Incentive Stock Options or
Nonstatutory Stock Options. Each such right shall, except as
specifically set forth below, be subject to the same terms and
conditions applicable to the particular Option to which it pertains. If
Tandem Rights are granted appurtenant to an Incentive Stock Option,
they shall satisfy any applicable Treasury Regulations so as not to
disqualify such Option as an Incentive Stock Option under the Code.
(B) The appreciation distribution payable on the exercised Tandem
Right shall be in cash in an amount equal 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.
(ii) CONCURRENT RIGHTS.
(A) Concurrent Rights may be tied to any or all of the shares of
stock subject to any Incentive Stock Option or Nonstatutory Stock
Option grant made under the Plan. A Concurrent Right shall, except as
specifically set forth below, be subject to the same terms and
conditions applicable to the particular Option grant to which it
pertains.
(B) A Concurrent Right shall be automatically exercised at the same
time the underlying Option is exercised with respect to the particular
shares of stock to which the Concurrent Right pertains.
(C) The appreciation distribution payable on an exercised Concurrent
Right shall be in cash in an amount equal to such portion as shall be
determined by the Board or the Committee at the time of the grant of
the excess of (I) the aggregate Fair Market Value (on the date the
Option is exercised) 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.
(iii) INDEPENDENT RIGHTS.
(A) Independent Rights shall, except as specifically set forth below,
be subject to the same terms and conditions applicable to Nonstatutory
Stock Options as set forth in Section 6. They shall be denominated in
share equivalents.
(B) The appreciation distribution payable on the exercised
Independent Right shall be in cash in 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.
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(iv) TERMS APPLICABLE TO TANDEM RIGHTS, CONCURRENT RIGHTS AND INDEPENDENT
RIGHTS.
(A) To exercise any outstanding Tandem, Concurrent or Independent
Right, the holder must provide written notice of exercise to the
Company in compliance with the provisions of the instrument evidencing
such right.
(B) If a Tandem, Concurrent, or Independent Right is granted to an
individual who is at the time subject to Section 16(b) of the Exchange
Act (a "Section 16(b) Insider"), then the instrument of grant shall
incorporate all the terms and conditions at the time necessary to
assure that the subsequent exercise of such right shall qualify for the
safe-harbor exemption from short-swing profit liability provided by
Rule 16b-3 promulgated under the Exchange Act (or any successor rule or
regulation).
(C) Except as provided in subsection 5(d), no limitation shall exist
on the aggregate amount of cash payments the Company may make under the
Plan in connection with the exercise of Tandem, Concurrent or
Independent Rights.
9. CANCELLATION AND RE-GRANT OF OPTIONS.
(a) The Board or the Committee shall have the authority to effect, at any
time and from time to time, with the consent of the affected holders of
Options and/or Stock Appreciation Rights, (i) the repricing of any outstanding
Options and/or any Stock Appreciation Rights under the Plan and/or (ii) the
cancellation of any outstanding Options and/or any Stock Appreciation Rights
under the Plan and the grant in substitution therefor of new Options and/or
Stock Appreciation Rights under the Plan covering the same or different
numbers of shares of stock, but having an exercise price per share not less
than eighty-five percent (85%) of the Fair Market Value (one hundred percent
(100%) of the Fair Market Value in the case of an Incentive Stock Option or,
in the case of an Incentive Stock Option granted to a 10% stockholder (as
described in subsection 5(c), not less than one hundred ten percent (110%) of
the Fair Market Value) per share of stock on the new grant date.
Notwithstanding the foregoing, the Board or the Committee may grant an Option
and/or Stock Appreciation Right with an exercise price lower than that set
forth above if such Option and/or Stock Appreciation Right is granted as part
of a transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled under
this Section 9 shall continue to be counted against the maximum award of
Options and Stock Appreciation Rights permitted to be granted to a person
pursuant to subsection 5(d) of the Plan. The repricing of an Option and/or
Stock Appreciation Right under this Section 9, resulting in a reduction of the
exercise price, shall be deemed to be a cancellation of the original Option
and/or Stock Appreciation Right and the grant of a substitute Option and/or
Stock Appreciation Right; in the event of such repricing, both the original
and the substituted Options and Stock Appreciation Rights shall be counted
against the maximum awards of Options and Stock Appreciation Rights permitted
to be granted to a person pursuant to subsection 5(d) of the Plan. The
provisions of this subsection 9(b) shall be applicable only to the extent
required by Section 162(m) of the Code.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep available
at all times the number of shares of stock required to satisfy such Stock
Awards up to the number of shares of stock authorized under the Plan.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock under the Stock Awards; provided, however, that
this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock under such Stock Awards
unless and until such authority is obtained.
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11. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute
general funds of the Company.
12. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a Stock
Award may first be exercised or the time during which a Stock Award or any
part thereof will vest, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which
it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such Option
unless and until such person has satisfied all requirements for exercise of
the Option pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant,
Optionee, or other holder of Stock Awards any right to continue in the employ
of the Company or any Affiliate (or to continue acting as a Director or
Consultant) or shall affect the right of the Company or any Affiliate to
terminate the employment or relationship as a Director or Consultant of any
Employee, Director, Consultant or Optionee, with or without cause.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Stock Award, without receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation,
stock dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by
the Company), the Plan will be appropriately adjusted in the class(es) and
maximum number of shares subject to the Plan pursuant to subsection 4(a) and
the maximum number of shares subject to options and Stock Appreciation Rights
pursuant to subsection 5(d), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of shares and price per
share of stock subject to such outstanding Stock Awards. Such adjustments
shall be made by the Board or the Committee, the determination of which shall
be final, binding and conclusive. (The conversion of any convertible
securities of the Company shall not be treated as a "transaction not involving
the receipt of consideration by the Company".)
(b) In the event of: (1) a dissolution, liquidation or sale of substantially
all of the assets of the Company; (2) a merger or consolidation in which the
Company is not the surviving corporation; or (3) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then, at the sole discretion of the Board and to the extent
permitted by applicable law: (i) any surviving corporation or an Affiliate of
such surviving corporation shall assume any Stock Awards outstanding under the
Plan or shall substitute similar Stock Awards for those outstanding under the
Plan, or (ii) such Stock Awards shall continue in full force and effect. In
the event any surviving corporation and its Affiliates refuse to assume or
continue such Stock Awards, or to substitute similar Stock Awards for those
outstanding under the Plan, then, at the sole discretion of the Board, and
with respect to Stock Awards held by persons then performing services as
Employees, Directors or Consultants, the time during which such Stock Awards
may be exercised shall be accelerated and the Stock Awards terminated if not
exercised prior to such event.
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14. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders
of the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 under the
Exchange Act or any Nasdaq or securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code
and the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of any
one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be altered or impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate on March 28, 2003. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted. The
terms of the Prior Plan shall remain in effect and apply to grants made
pursuant to the terms of the Prior Plan.
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<PAGE>
APPENDIX B
DOCUMENTUM, INC.
1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Adopted on November 21, 1995
Approved by the Stockholders January 17, 1996
As Amended On
March 6, 1997
December 17, 1997
1. PURPOSE.
(a) The purpose of the Documentum, Inc. 1995 Non-Employee Directors' Stock
Option Plan (the "Plan") is to provide a means by which each director of
Documentum, Inc. (the "Company") who is not otherwise an employee of the
Company or of any Affiliate of the Company (each such person being hereafter
referred to as a "Non-Employee Director") will be given an opportunity to
purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent corporation or
subsidiary corporation of the Company as those terms are defined in Sections
424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success
of the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the Company
(the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
(b) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board, subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board.
The Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to options granted under
the Plan shall not exceed in the aggregate one hundred and fifty thousand
(250,000) shares of the Company's common stock. If any option granted under
the Plan shall for any reason expire or otherwise terminate without having
been exercised in full, the stock not purchased under such option shall again
become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
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5. NON-DISCRETIONARY GRANTS.
(a) Upon the date of the effectiveness of the Company's initial public
offering (the "Effective Date"), each person who is then a Non-Employee
Director automatically shall be granted an option to purchase fifteen thousand
(15,000) shares of common stock of the Company on the terms and conditions set
forth herein.
(b) Each person who, after the Effective Date, is elected for the first time
to be a Non-Employee Director automatically shall be granted, upon the date of
initial election to be a Non-Employee Director by the Board or shareholders of
the Company, an option to purchase fifteen thousand (15,000) shares of common
stock of the Company on the terms and conditions set forth herein.
(c) On June 30th of each year, beginning June 30, 1997, each person who is
then a Non-Employee Director and continuously has been a Non-Employee Director
for at least six (6) months automatically shall be granted an option to
purchase five thousand (5,000) shares of common stock of the Company on the
terms and conditions set forth herein.
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted and, unless
sooner terminated as set forth herein, expires on the date ten (10) years from
the date of grant (the "Expiration Date"). If the optionee's service as a Non-
Employee Director or employee of or consultant to the Company or any Affiliate
terminates for any reason or for no reason, the option shall terminate on the
earlier of the Expiration Date or the date twelve (12) months following the
date of termination of all such service; provided, however, that if such
termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or eighteen (18) months
following the date of the optionee's death. In any and all circumstances, an
option may be exercised following termination of the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate only as to that number of shares as to which it was exercisable on
the date of termination of all such service under the provisions of
subparagraph 6(e).
(b) The exercise price of each option shall be one hundred percent (100%) of
the Fair Market Value (as defined in Section 9(f) below) of the stock subject
to such option on the date such option is granted
(c) Payment of the exercise price of each option is due in full in cash upon
any exercise when the number of shares being purchased upon such exercise is
less than 1,000 shares; when the number of shares being purchased upon an
exercise is 1,000 or more shares, the optionee may elect to make payment of
the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash at the time of
exercise; or
(ii) Provided that at the time of the exercise the Company's common stock
is publicly traded and quoted regularly in the Wall Street Journal, payment
by delivery of shares of common stock of the Company already owned by the
optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims,
encumbrances or security interest, which common stock shall be valued at
its Fair Market Value on the date preceding the date of exercise; or
(iii) Payment by a combination of the methods of payment specified in
subparagraph 6(c)(i) and 6(c)(ii) above.
Notwithstanding the foregoing, this option may be exercised pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve
Board which results in the receipt of cash (or check) by the Company prior to
the issuance of shares of the Company's common stock.
(d) An option shall not be transferable except by will or by the laws of
descent and distribution, or pursuant to a qualified domestic relations order
satisfying the requirements of Rule 16b-3 under the Securities Exchange
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<PAGE>
Act of 1934 ("Rule 16b-3") and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person (or by his guardian
or legal representative) or transferee pursuant to such an order.
Notwithstanding the foregoing, the optionee may, by delivering written notice
to the Company in a form satisfactory to the Company, designate a third party
who, in the event of the death of the optionee, shall thereafter be entitled
to exercise the option.
(e) The option shall become exercisable immediately as to one-third of the
shares underlying the option and over a period of two (2) years from the date
of grant in two (2) equal annual installments commencing on the date one year
after the date of grant of the option as to the remaining two-thirds of the
shares underlying the option, provided that the optionee has, during the
entire period prior to such vesting date, continuously served as a Non-
Employee Director or employee of or consultant to the Company or any Affiliate
of the Company, whereupon such option shall become fully exercisable in
accordance with its terms with respect to that portion of the shares
represented by that installment.
(f) The Company may require any optionee, or any person to whom an option is
transferred under subparagraph 6(d), as a condition of exercising any such
option: (i) to give written assurances satisfactory to the Company as to the
optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise
distributing the stock. These requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (i) the issuance of the shares
upon the exercise of the option has been registered under a then- currently-
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), or (ii), as to any particular requirement, a
determination is made by counsel for the Company that such requirement need
not be met in the circumstances under the then- applicable securities laws.
(g) Notwithstanding anything to the contrary contained herein, an option may
not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would
be exempt from the registration requirements of the Securities Act.
(h) The Company (or a representative of the underwriters) may, in connection
with the first underwritten registration of the offering of any securities of
the Company under the Securities Act, require that any optionee not sell or
otherwise transfer or dispose of any shares of common stock or other
securities of the Company during such period (not to exceed one hundred eighty
(180) days) following the effective date of the registration statement of the
Company filed under the Securities Act as may be requested by the Company or
the representative of the underwriters.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company
to register under the Securities Act either the Plan, any option granted under
the Plan, or any stock issued or issuable pursuant to any such option. If,
after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell
stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the Plan
shall constitute general funds of the Company.
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<PAGE>
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option
unless and until such person has satisfied all requirements for exercise of
the option pursuant to its terms.
(b) Throughout the term of any option granted pursuant to the Plan, the
Company shall make available to the holder of such option, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal
years during the option term, upon request, such financial and other
information regarding the Company as comprises the annual report to the
stockholders of the Company provided for in the Bylaws of the Company and such
other information regarding the Company as the holder of such option may
reasonably request.
(c) Nothing in the Plan or in any instrument executed pursuant thereto shall
confer upon any Non-Employee Director any right to continue in the service of
the Company or any Affiliate or shall affect any right of the Company, its
Board or stockholders or any Affiliate to terminate the service of any Non-
Employee Director with or without cause.
(d) No Non-Employee Director, individually or as a member of a group, and no
beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(e) In connection with each option granted pursuant to the Plan, it shall be
a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or to evidence the removal or lapse of any
restrictions on transfer, that such Non-Employee Director make arrangements
satisfactory to the Company to insure that the amount of any federal or other
withholding tax required to be withheld with respect to such sale or transfer,
or such removal or lapse, is made available to the Company for timely payment
of such tax.
(f) As used in this Plan, "Fair Market Value" means, as of any date, the
value of the common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock exchange or a
national market system, including without limitation the Nasdaq National
Market, the Fair Market Value of a share of common stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the date of determination,
and if the date of determination was not a market trading day, then on the
last market trading day prior to the date of determination, as reported in
the Wall Street Journal or such other source as the Board deems reliable;
(ii) If the common stock is quoted on Nasdaq (but not on the National
Market thereof) or is regularly quoted by a recognized securities dealer
but selling prices are not reported, the Fair Market Value of a share of
common stock shall be the mean between the bid and asked prices for the
common stock on the date of determination, and if the date of determination
was not a market trading day, then on the last market trading day prior to
the date of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
Notwithstanding the foregoing, the Fair Market Value of the common stock for
an option granted on the Effective Date shall be the price per share at which
shares of common stock of the Company are first sold to the public in the
Company's initial public offering.
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10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any option granted under the 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 Plan and
outstanding options will be appropriately adjusted in the class(es) and
maximum number of shares subject to the Plan and the class(es) and number of
shares and price per share of stock subject to outstanding options.
(b) In the event of: (1) a dissolution, liquidation or sale of substantially
all of the assets of the Company; (2) a merger or consolidation in which the
Company is not the surviving corporation; (3) a reverse merger in which the
Company is the surviving corporation but the shares of the Company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise; or (4) any other capital reorganization (including a sale of stock
of the Company to a single purchaser or single group of affiliated purchasers)
after which less than fifty percent (50%) of the outstanding voting shares of
the new or continuing corporation are owned by stockholders of the Company
immediately before such transaction, the time during which options outstanding
under the Plan may be exercised shall be accelerated to permit the optionee to
exercise all such options in full prior to such event, and the options shall
terminate if not exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan,
provided, however, that the Board shall not amend the plan more than once
every six (6) months, with respect to the provisions of the Plan which relate
to the amount, price and timing of grants, other than to comport with changes
in the Code or applicable regulations or rulings thereunder. Except as
provided in paragraph 10 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the stockholders of the
Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares which may be issued under the Plan;
(ii) Modify the requirements as to eligibility for participation in the
Plan (to the extent such modification requires stockholder approval in
order for the Plan to comply with the requirements of Rule 16b-3); or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to comply with the requirements
of Rule 16b-3 or Section 162(m) of the Code.
(b) Rights and obligations under any option granted before any amendment of
the Plan shall not be impaired by such amendment unless (i) the Company
requests the consent of the person to whom the option was granted and (ii)
such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at any
time. No options may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective on the Effective Date (as defined in
subparagraph 5(a)), subject to the condition that the Plan be approved by the
stockholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
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DOCUMENTUM, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 1998
The undersigned hereby appoints Jeffrey A. Miller and Mark S. Garrett, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Documentum, Inc. which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of
Documentum, Inc. to be held at 5671 Gibraltar Drive, Pleasanton, California
94588 on Thursday, May 28, 1998 at 10:00 a.m., local time, and at any and all
postponements, continuations and adjournments thereof, with all powers that the
undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4 AND 5, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect three directors to hold office until the 2001 Annual
Meeting of Stockholders.
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees
below). listed below.
NOMINEES: Colin J. O'Brien, Geoffrey A. Moore and John L. Walecka.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
________________________________________________________________________________
________________________________________________________________________________
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3, 4 AND 5.
PROPOSAL 2: To approve the Company's 1993 Equity Incentive Plan, as amended,
to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 600,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued and to be signed on other side)
1.
<PAGE>
(Continued from other side)
PROPOSAL 3: To approve the Company's 1995 Employee Stock Purchase Plan, as
amended, to increase the aggregate number of shares of Common
Stock authorized for issuance under such plan by 350,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
PROPOSAL 4: To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the authorized number of
shares of Common Stock from 35,000,000 to 100,000,000 shares.
[_] FOR [_] AGAINST [_] ABSTAIN
PROPOSAL 5: To ratify selection of Price Waterhouse LLP as independent
auditors of the Company for its fiscal year ending December 31,
1998.
[_] FOR [_] AGAINST [_] ABSTAIN
DATED _________________ ________________________________________
________________________________________
SIGNATURE(S)
Please sign exactly as your name appears hereon.
If the stock is registered in the names of two or
more persons, each should sign. Executors,
administrators, trustees, guardians and attorneys-
in-fact should add their titles. If signer is a
corporation, please give full corporate name and
have a duly authorized officer sign, stating
title. If signer is a partnership, please sign in
partnership name by authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
2.
