SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
|X| Filed by the Registrant
|_| Filed by a Party other than the Registrant
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Documentum, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
|X| 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.
6. Amount Previously Paid:
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7. Form, Schedule or Registration Statement No.:
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9. Date Filed:
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<PAGE>
[DOCUMENTUM, INC. LOGO]
5671 Gibraltar Drive
Pleasanton, California 94588
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1999
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 27, 1999 at 10:00 a.m. local time at the Saratoga Center, 5934
Gibraltar Drive, Suite 102, Pleasanton, California 94588 for the following
purpose:
1. To elect two directors to hold office until the 2002 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 500,000 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 200,000 shares.
4. To ratify the selection of PricewaterhouseCoopers as independent auditors
of the Company for its fiscal year ending December 31, 1999.
5. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 31, 1999,
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 23, 1999
All Stockholders are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please complete, date, sign and
return the enclosed proxy as promptly as possible in order to ensure your
representation at the meeting. A return envelope (which is postage prepaid if
mailed in the United States) is enclosed for that purpose. Even if you have
given your proxy, you may still vote in person if you attend the meeting. Please
note, however, that if your shares are held of record by a broker, bank or other
nominee and you wish to vote at the meeting, you must obtain from the record
holder a proxy issued in your name.
<PAGE>
[DOCUMENTUM, INC. LOGO]
5671 Gibraltar Drive
Pleasanton, California 94588
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
May 27, 1999
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 27, 1999, 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 the Saratoga Center, 5934 Gibraltar Drive, Suite
102, Pleasanton, California 94588. The Company intends to mail this proxy
statement and accompanying proxy card on or about April 23, 1999, 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
or, at the Company's request, Corporate Investor Communications, Inc. ("CIC").
No additional compensation will be paid to directors, officers or other regular
employees for such services, but CIC will be paid its customary fee, estimated
to be about $6,500, if it renders solicitation services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on March
31, 1999 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on March 31, 1999 the Company had outstanding and entitled to
vote 16,890,182 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principle executive office, 5671
Gibraltar Drive, Pleasanton, California 94588, a written notice of revocation or
a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
<PAGE>
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is December 21, 1999. 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.
2.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation and Bylaws
provide that the Board of Directors shall be divided into three classes, each
class consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. Vacancies on the Board may
be filled only by persons elected by a majority of the remaining directors. A
director elected by the Board to fill a vacancy (including a vacancy created by
an increase in the Board of Directors) shall serve for the remainder of the full
term of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of seven members. There are
two directors in the class whose term of office expires in 1999. Each of the
nominees for election to this class, Messrs. Miller and Adams, are currently
directors of the Company and each was previously elected by the stockholders. If
elected at the Annual Meeting, each of the nominees would serve until the 2002
annual meeting and until his successor is elected and has qualified, or until
such director's earlier death, resignation or removal.
Colin J. O'Brien, who resigned as director of the Company effective as of
March 24, 1999, was a director in the class whose term of office expires in
2001. In March 1999, the Board of Directors appointed Gary M. Banks as a
director to fill the vacancy created when Mr. O'Brien resigned.
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 2002 ANNUAL MEETING
Jeffrey A. Miller
Jeffrey A. Miller, age 48, 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 67, 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 Peerless
Systems Corporation. Mr. Adams received his M.B.A. from the University of
Chicago and a B.S. in Mechanical Engineering from Purdue University.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
Kathryn C. Gould
3.
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Kathryn C. Gould, age 49, has served as a director of the Company since
October 1993. Ms. Gould has been a Managing Director of Foundation Capital
Management Co., L.L.C., the general partner of Foundation Capital, L.P., a
venture capital partnership, since December 1995. Ms. Gould has been a partner
of MPAE V Management Company, L.P., the general partner of Merrill, Pickard,
Anderson & Eyre V, L.P., a venture capital partnership, since 1989. She is also
a director of several privately held companies. Ms. Gould received her M.B.A.
from the University of Chicago and her B.S. in Physics from the University of
Toronto.
Edward J. Zander
Edward J. Zander, age 52, 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.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING
Geoffrey A. Moore
Geoffrey A. Moore, age 52, 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. He is also a Venture Partner with Mohr Davidow Ventures, a
California-based venture capital firm. Mr. Moore has also written several books,
including Crossing the Chasm, published in 1991, Inside the Tornado, published
in 1995 and The Gorilla Game, published in 1998. 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, 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.
Gary M. Banks
Gary M. Banks, age 48, has served as a director of the Company since March
1999. Since July 1998, Mr. Banks has served as vice president and chief
information officer for Xerox Corporation, a manufacturing company. From June
1992 to July 1998, Mr. Banks served as Director MIS for the agricultural
division of Monsanto Inc., a life sciences company ("Monsanto"). Before joining
Monsanto, he spent 15 years with Bristol-Myers Squibb Company, a pharmaceutical
company, as Director MIS. Mr. Banks received his bachelor's degree in
mathematics from Tulane University, his master's degree in mathematics from the
University of Pennsylvania and his master's degree in operations research from
the Columbia University School of Engineering.
John L. Walecka
John L. Walecka, age 39, 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.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1998 the Board of Directors held
seven 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
4.
<PAGE>
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 six
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 two times during such fiscal year.
During the fiscal year ended December 31, 1998, all directors except
Kathryn C. Gould, Colin J. O'Brien and John L. Walecka attended at least 75% of
the aggregate of the meetings of the Board and of the committees on which they
served, held during the period for which they were a director or committee
member, respectively.
5.
<PAGE>
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 5,300,138 shares of the Company's
Common Stock authorized for issuance under the 1993 Plan.
At December 31, 1998, options (net of canceled or expired options) covering
an aggregate of 4,206,275 shares of the Company's Common Stock had been granted
under the 1993 Plan, and only 1,093,863 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 775,000 shares at an exercise
price of $24.625 per share, to all employees and consultants (excluding
executive officers) as a group options to purchase 274,465 shares at an exercise
price of $24.625.
In February, 1999, the Board approved an amendment to the 1993 Plan,
subject to stockholder approval, to enhance the flexibility of the Board and the
Compensation Committee in granting stock options to the Company's employees. The
amendment increases the number of shares authorized for issuance under the 1993
Plan from a total of 5,300,138 shares to 5,800,138 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. 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 2,375,000
shares for issuance under the Non-Officer Plan. At December 31, 1998, options
(net of cancelled or expired options) covering an aggregate of 2,103,451 shares
of the Company's Common Stock had been granted under the Non-Officer Plan, and
only 271,549 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 (i) to all employees and
consultants (excluding executive officers) as a group options to purchase
3,117,958 shares at exercise prices of $24.00 to $59.625 per share and (ii) to
Thomas Heydler, who at the time was not an executive officer, options to
purchase 120,000 shares at exercise prices of $24.625 to $45.813 per share.
On July 16, 1998, the Company acquired Relevance Technologies, Inc.
("Relevance"). In connection with the acquisition of Relevance, the Company
assumed each outstanding Relevance option in accordance with the terms of such
option. At December 31, 1998, options (net of cancelled or expired options)
covering an aggregate of 50,131 shares of the Company's Common Stock are
outstanding pursuant to the assumption of the Relevance options.
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.
6.
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PURPOSE
The 1993 Plan was adopted to provide a means by which selected directors
and employees of and consultants to the Company and its affiliates could be
given an opportunity to purchase stock in the Company, to assist in retaining
the services of employees holding key positions, to secure and retain the
services of persons capable of filling such positions and to provide incentives
for such persons to exert maximum efforts for the success of the Company.
ADMINISTRATION
The 1993 Plan is administered by the Board of Directors of the Company. The
Board has the power to construe and interpret the 1993 Plan and, subject to the
provisions of the 1993 Plan, to determine the persons to whom and the dates on
which Stock Awards will be granted; whether a Stock Award will be an incentive
stock option, a nonstatutory stock option, a stock bonus, a right to purchase
restricted stock, a stock appreciation right or a combination of the foregoing;
the provisions of each Stock Award granted (which need not be identical),
including the time or times when a person shall be permitted to receive stock
pursuant to a Stock Award; whether a person shall be permitted to receive stock
upon exercise of an independent stock appreciation right; and the number of
shares with respect to which a Stock Award shall be granted to each such person.
The Board of Directors is authorized to delegate administration of the 1993 Plan
to a committee composed of not fewer than two members of the Board. The Board
has delegated administration of the 1993 Plan to the Compensation Committee of
the Board. As used herein with respect to the 1993 Plan, the "Board" refers to
the Compensation Committee as well as to the Board of Directors itself.
The regulations under Section 162(m) require that the directors who serve
as members of the Compensation Committee must be "outside directors." The 1993
Plan 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. Stock Awards other than incentive stock options and such stock
appreciation rights under the 1993 Plan may be granted to employees, directors
and consultants. 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.
7.
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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, 1998, the closing price of the Company's
Common Stock as reported on the Nasdaq National Market System was $53.4375 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's continuous service to the Company
and its affiliates terminate 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 generally 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.
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:
8.
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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.
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),
9.
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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.
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
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sale. The optionee's additional gain, or any loss, upon the disqualifying
disposition will be a capital gain or loss, which will be long-term or
short-term depending on 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 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:
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 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
11.
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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 1995 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. As a
result of an amendment, there are 700,000 shares of the Company's Common Stock
authorized for issuance under the Purchase Plan.
In February 1999, 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 200,000 shares to a
total of 900,000 shares.
During the last fiscal year, shares of Common Stock were purchased in the
amounts and at the weighted average prices per share under the Purchase Plan as
follows: Howard I. Shao 250 shares ($29.96), Mark S. Garrett 250 shares
($29.96), all current executive officers as a group 816 shares ($29.96), and all
employees (excluding executive officers) as a group 42,303 shares ($29.96).
As of December 31, 1998, purchase rights (net of canceled or expired
purchase rights) covering an aggregate of 184,691 shares of the Company's Common
Stock had been granted under the Purchase Plan. Only 515,309 shares of Common
Stock (plus any shares that might in the future be returned to the Purchase Plan
as a result of cancellations or expiration of purchase rights) remained
available for future grant under the Purchase Plan.
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 amendment 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 was adopted to 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 27 months) 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
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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 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.
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,
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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 requirements of Rule 16b-3 promulgated under 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.
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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 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
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers as the Company's
independent auditors for the fiscal year ending December 31, 1999 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting.
PricewaterhouseCoopers has audited the Company's financial statements since
1994. Representatives of PricewaterhouseCoopers 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 PricewaterhouseCoopers as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of
PricewaterhouseCoopers 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 PricewaterhouseCoopers. Abstentions will
be counted toward the tabulation of votes cast on proposals presented to the
stockholders and will have the same effect as negative votes. Broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
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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, 1998 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.
Beneficial Ownership(1)
Percent of
Beneficial Owner Number of Shares Total
- --------------------------------------------- ---------------- ----------
Colin J. O'Brien (2)......................... 1,629,111 9.8%
c/o Documentum, Inc.
5671 Gibraltar Drive
Pleasanton, CA 94588
Xerox Corporation (3)........................ 1,608,277 9.6%
P.O. Box 1600
800 Long Ridge Road
Stamford, CT 06904
Pilgrim Baxter & Associates, Ltd. (4) ....... 1,398,100 8.4%
825 Duportail Road
Wayne, PA 19087
The TCW Group, Inc. (5)...................... 1,028,682 6.2%
865 South Figueroa Street
Los Angeles, CA 90017
Warburg Pincus Asset Management, Inc. (6).... 969,586 5.8%
460 Lexington Avenue
New York, NY 10017
Seneca Funds (7)............................. 844,640 5.1%
909 Montgomery Street
San Francisco, CA 94133
Jeffrey A. Miller (8)........................ 682,451 4.1%
c/o Documentum, Inc.
5671 Gibraltar Drive
Pleasanton, CA 94588
Howard I. Shao (9)........................... 190,371 1.1%
Robert V. Adams (10)......................... 91,753 *
Kathryn C. Gould (11)........................ 62,043 *
Mark S. Garrett (12)......................... 61,543 *
Thomas Heydler (13).......................... 54,674 *
Edward J. Zander (14)........................ 30,834 *
Burnes S. Hollyman (15)...................... 29,166 *
John L. Walecka (16)......................... 17,101 *
Geoffrey A. Moore (17)....................... 6,667 *
All directors and executive officers
as a group (13 persons) (18)................. 2,979,557 17.3%
- ----------
* 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
16,707,386 shares outstanding on December 31, 1998 adjusted as required by
rules promulgated by the SEC.
18.
<PAGE>
(2) Prior to March 24, 1999, the date of Mr. O'Brien's resignation from the
Board, includes 1,608,277 shares held by Xerox. See footnote (3) below.
Also includes 20,834 shares issuable upon the exercise of options
exercisable within 60 days of December 31, 1998.
(3) Mr. O'Brien, a former director of the Company, is a Vice President of Xerox
Corporation ("Xerox"). Mr. O'Brien disclaims beneficial ownership of such
shares held by Xerox.
(4) Based solely on information obtained from a filing made on Schedule 13G
with the SEC.
(5) Based solely on information obtained from a filing made on Schedule 13G
with the SEC.
(6) Based solely on information obtained from a filing made on Schedule 13G
with the SEC.
(7) Based solely on information obtained from a filing made on Schedule 13G
with the SEC.
(8) Includes (i) 559,484 shares held by Jeffrey Miller and Karen Miller, as
Co-trustees of the Miller Living Trust dated July 7, 1985; (ii) 6,300
shares held by The Miller Children's Trust I and (iii) 116,667 shares
issuable upon the exercise of options exercisable within 60 days of
December 31, 1998. Mr. Miller disclaims beneficial ownership of the shares
held by The Miller Children's Trust I.
(9) Includes (i) 10,600 shares held by Mr. Shao's children; and (ii) 81,857
shares issuable upon the exercise of options exercisable within 60 days of
December 31, 1998.
(10) Includes 4,167 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1998.
(11) Includes 502 shares held by S Merrill and T Meyer and P Jackson TR MPA and
Eyre Moneypurchase Pension Plan Trust UA 11-10-91 FBO Kathryn Gould. Also
includes 20,834 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1998.
(12) Includes 60,937 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1998.
(13) Includes 54,674 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1998.
(14) Includes (i) 3,750 shares held by The Edward and Mona Zander Living Trust
U/A 4/19/93 and (ii) 20,834 shares issuable upon the exercise of options
exercisable within 60 days of December 31, 1998. Also includes 2,083 shares
which are subject to a right of repurchase in favor of the Company which
expires ratably through August 1999.
(15) Includes 29,166 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1998.
(16) Includes (i) 12,934 shares held by The Walecka Family Trust and (ii) 4,167
shares issuable upon the exercise of options exercisable within 60 days of
December 31, 1998.
(17) Includes 6,667 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1998.
(18) Includes 517,469 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1998.
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, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with, except that Mr.
Shao and Mr. Heydler each failed to timely file a report of ownership. These
omissions were corrected by filing a Form 5.
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 7,500 shares to each non-employee director of the Company,
except for Mr. Moore, at an exercise price per share of $48.00. The fair market
value of such Common Stock on the date of grant was $48.00 per share (based on
closing sales price reported in the Nasdaq National Market System for the date
of grant). With respect to Mr. Moore, the Company granted an option covering
20,000 shares to him at an exercise price of $46.625. The fair market value of
such Common Stock on the date of grant was $46.625 (based on closing sales price
reported in the Nasdaq National Market System for the date of grant). As of
December 31, 1998, 33,334 options had been exercised under the Directors' Plan.
In March 1998, the Board approved an amendment to the Directors' Plan
increasing the size of the option granted to new directors from 15,000 to 20,000
and increasing the size of the annual option grant for each director serving a
full year on the Board from 5,000 to 7,500.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Company serves as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee. See "Certain Transactions" for a
description of transactions between the Company and entities affiliated with
members of the Compensation Committee.
20.
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31, 1996,
1997 and 1998, compensation awarded or paid to, or earned by, the Company's
Chief Executive Officer, its other four most highly compensated executive
officers at December 31, 1998 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
Long-Term
Compensation
------------------
Awards
Annual Compensation ------------------
Name and Principal --------------------------------------- Securities All Other
Position Year Salary($) Bonus($) (1) Underlying Options Compensation (2)
- ------------------ ---- --------- ------------ ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Jeffrey A. Miller 1998 $275,000 $121,251(3) 300,000(4) $ --
President and Chief 1997 250,000 210,000 300,000 1,252
Executive Officer 1996 185,000 69,700 -- 1,600
Mark S. Garrett (5) 1998 195,000 78,151(3) 150,000(4) --
Vice President, Chief 1997 166,186 90,000(6) 150,000 576
Financial Officer and
Secretary
Thomas Heydler 1998 214,959 183,254 145,000(4) 423,838(7)
Vice President, 1997 218,800 38,246 70,000 6,119(8)
Marketing and Industries 1996 140,789 36,056 45,000 9,665(8)
Burnes S. Hollyman (9) 1998 275,000 77,105(3) 100,000(4) 63,559(10)
Vice President, 1997 22,916 50,000 100,000 4,167(11)
Worldwide Consulting
Services
Howard I. Shao 1998 200,000 55,751(3) 90,000(4) --
Vice President, 1997 155,000 64,500 90,000 543
Engineering 1996 138,000 36,800 -- 480
</TABLE>
(1) 1998 bonuses to be paid in fiscal year 1999.
(2) Includes life insurance premiums in 1996 and 1997.
(3) Includes payments of $7,651 made under the Company's Quota Club.
(4) Consists of repriced stock options.
(5) Mr. Garrett joined the Company in January 1997.
(6) Includes a $25,000 signing bonus paid upon commencement of his employment.
(7) Includes a relocation payment of $40,185, a loan amount of $340,000, a car
allowance of $11,000, a housing allowance of $21,230 and a cost of living
allowance of $11,000.
(8) Consists of a car allowance.
(9) Mr. Hollyman joined the Company in December 1997.
(10) Includes a relocation payment of $13,559 and a cost of living allowance of
$50,000.
(11) Consists of a cost of living adjustment.
21.
<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, 1998, options to purchase a
total of 1,550,931 shares were outstanding under the 1993 Plan and options to
purchase 1,093,863 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, 1998,
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
Number of Options Potential Realizable Value
Securities Granted to at Assumed Annual Rates of
Underlying Employees Stock Price Appreciation
Options in for Option Term(3)
Granted Fiscal Exercise Expiration
Name (#)(1) Year(2) Price Date 5% 10%
- ----------------------- ------------- ------------ ----------- ------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Miller(4) 300,000 6.9% $24.625 10/06/07 $4,068,342 $10,018,198
Mark S. Garrett(5) 150,000 3.5 24.625 1/30/07- 1,921,710 4,681,219
11/24/07
Thomas Heydler(6) 145,000 4.5 24.625 4/18/06- 3,367,412 8,384,368
3/05/08
Burnes S. Hollyman(6) 100,000 2.3 24.625 12/01/07 1,384,806 3,424,863
Howard I. Shao(6) 90,000 2 24.625 1/30/07- 1,183,042 2,896,712
11/24/07
</TABLE>
(1) Consists of repriced stock options.
(2) Based on an aggregate of 4,329,476 shares subject to options granted to
employees in the fiscal year ended December 31, 1998.
(3) 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.
(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 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.
(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 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.
(6) 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.
22.
<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 Unexercised
Shares Unexercised Unexercised In-the-Money In-the-Money
Acquired Options at Options at Options at Options at
on December 31, December 31, December 31, December 31,
Exercise Value 1998 (#) 1998 (#) 1998($) 1998($)
Name (#) Realized ($) Exercisable Unexercisable Exercisable(3) Unexercisable(3)
- --------------------- -------- -------------- ------------ ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Miller 0 $ 0 108,333 191,667 $3,121,345 $5,522,405
Mark S. Garrett 0 0 55,729 94,271 1,605,691 2,716,184
Howard I. Shao(1) 20,000 1,067,518 78,107 57,293 3,320,506 1,650,755
Thomas Heydler(2) 4,500 132,413 49,533 108,967 1,553,466 3,224,252
Burnes S. Hollyman 0 0 25,000 75,000 720,313 2,160,938
</TABLE>
(1) Based on the difference between the deemed fair market value on the date of
exercise and the exercise price.
(2) Based on the difference between the sale price on the date of exercise and
the exercise price.
(3) Based on the difference between the deemed fair market value on December
31, 1998 ($53.4375 per share) and the exercise price.
23.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
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 within the competitive industry average.
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 middle of the range established by comparable smaller
companies in the enterprise software industry. After reviewing the salaries for
executive officers, the Committee determined that an average increase of $22,000
per year was appropriate.
- ---------
(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.
24.
<PAGE>
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
1998, 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. Based on the Company's performance in fiscal 1998 and the
Committee's review of the achievement of these goals, the Committee awarded
bonuses of between approximately 20% and 50% of base pay to all executive
officers.
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 key 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
middle of the range for comparable software companies, the Company has used
stock options as a key 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. The Committee did
not award options to the executive officers, except for those options granted as
a result of option repricing. In granting new options or in repricing existing
options, the Committee considered prior option grants and the need to retain and
motivate executive officers (see the "Report on Option Repricing" included on
page 29).
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 1998 from his 1997 base salary. In addition, the
Company achieved virtually all of its corporate objectives during 1998, and the
Committee concluded that Mr. Miller's contributions were a significant factor in
achieving these objectives. For 1998, the Committee awarded Mr. Miller a bonus
of approximately 41% 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 1998 as a
result of the option repricing described on page 29. 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 middle of
the range.
25.
<PAGE>
Conclusion
The Committee believes that the compensation of executives by the Company
is appropriate and competitive with the compensation programs provided by other
leading software companies with which the Company competes for executives and
employees. The Committee believes its compensation strategy, principles and
practices result in a compensation program tied to stockholder returns and
linked to the achievement of annual and longer-term financial and operational
results of the Company. The Committee remains committed to this philosophy of
pay for performance, recognizing that the competitive market for talented
executives and the volatility of the Company's business may result in highly
variable compensation.
COMPENSATION COMMITTEE
Kathryn C. Gould
John L. Walecka
26.
<PAGE>
BOARD REPORT ON OPTION REPRICING
In October 1998, the Board determined that certain stock options issued to
employees and officers had an exercise price higher than the market value of the
Company's Common Stock. In light of the Board's conclusions that such options
were not providing the desired result of retaining and motivating employees, the
Board gave each optionee the right to cancel certain outstanding stock options
and receive new options with an exercise price of $24.625 per share (the fair
market value as of the date of grant).
27.
<PAGE>
OPTION REPRICING INFORMATION
The following table shows certain information concerning the repricing of
options received by the Named Executive Officers during the last ten years.
TEN YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
Length of
Number of Market Original
Securities Price of Exercise Option
Underlying Stock at Price at Term
Options Time of Time of Remaining
Repriced Repricing Repricing New at Date of
or Or or Exercise Repricing
Amended Amendment Amendment Price or
Name Date (#) ($) ($) ($) Amendment
- ---- ---- --- --- --- --- ---------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Miller 10/09/98 200,000 $24.625 $32.75 $24.625 9 years
10/09/98 100,000 $24.625 $32.75 $24.625 9 years
Mark S. Garrett 10/09/98 1,552 $24.625 $30.313 $24.625 9 years
10/09/98 48,448 $24.625 $30.313 $24.625 9 years
10/09/98 25,000 $24.625 $33.875 $24.625 8.25 years
10/09/98 10,419 $24.625 $33.875 $24.625 8.25 years
10/09/98 64,581 $24.625 $33.875 $24.625 8.25 years
Thomas Heydler 10/09/98 14,754 $24.625 $36.75 $24.625 7.5 years
10/09/98 10,246 $24.625 $36.75 $24.625 7.5 years
10/09/98 20,000 $24.625 $33.875 $24.625 8.25 years
10/09/98 45,929 $24.625 $30.313 $24.625 9 years
10/09/98 4,071 $24.625 $30.313 $24.625 9 years
10/09/98 50,000 $24.625 $45.813 $24.625 9.5 years
Burnes S. Hollyman 10/09/98 12,800 $24.625 $31.25 $24.625 9 years
10/09/98 87,200 $24.625 $31.25 $24.625 9 years
Howard I. Shao 10/09/98 31,198 $24.625 $33.875 $24.625 8.25 years
10/09/98 8,802 $24.625 $33.875 $24.625 8.25 years
10/09/98 47,632 $24.625 $30.313 $24.625 9 years
10/09/98 2,368 $24.625 $30.313 $24.625 9 years
</TABLE>
28.
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows the total stockholder return of an investment of
$100 in cash on February 6, 1996 (the date of the Company's initial public
offering of Common Stock) for (i) the Company's Common Stock, (ii) the Nasdaq
Stock Market Index and (iii) the Morgan Stanley High Technology 35 Index ("MSH
35"). All values assume reinvestment of the full amount of all dividends and are
calculated as of December 31, 1998:
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Comparison of Total Cumulative Return on Investment(1)
<TABLE>
<CAPTION>
------------------------------------------------------------------------
2/6/96 3/31/96 6/30/96 9/30/96 12/31/96 3/31/97 6/30/97
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DCTM 100 146.875 127.0833 132.2917 140.625 77.08333 103.6458
NASDAQ 100 104.1563 112.658 116.6698 122.4265 115.8184 137.0481
MSH 35 100 92.75541 95.25819 103.3175 112.256 103.9212 124.9135
<CAPTION>
-------------------------------------------------------------
9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DCTM 138.5417 175.5208 225.52 200 165.1 222.65
NASDAQ 160.2304 150.2694 175.49 180.28 162.85 211.31
MSH 35 152.5116 131.1529 158.98 174.6 168.15 256.27
</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.
29.
<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 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 May 1998, Thomas Heydler, who serves as Vice President of Marketing and
Industries of the Company, issued a promissory note to the Company in the amount
of $340,000 in connection with obtaining a loan from the Company for the purpose
of paying a down payment on a home. The promissory note accrues interest of
6.25% per annum. As of December 31, 1998, the entire principle and interest
thereon was outstanding under the note.
In January 1998, Robert Reid, who previously served as Vice President of
Development and Strategies of the Company, issued a promissory note to the
Company in the amount of $150,000. The promissory note accrues interest at 6%
per annum. As of December 31, 1998, the balance on the note has been repaid in
full.
30.
<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 23, 1999
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended December 31, 1998 is available
without charge upon written request to: Corporate Secretary, Documentum, Inc.,
5671 Gibraltar Drive, Pleasanton, California 94588.
31.
<PAGE>
DOCUMENTUM, INC.
5671 Gibraltar Drive
Pleasanton, California 94588
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1999
The undersigned hereby appoints Jeffrey A. Miller and Mark S. Garrett, or either
of them, as proxies, with full power of substitution, to vote all shares of
Common Stock of Documentum, Inc. (the "Company") which the undersigned is
entitled to vote at the Annual Meeting of Stockholders to be held at the
Saratoga Center, 5934 Gibraltar Drive, Pleasanton, California 94588 on Thursday,
May 27, 1999 at 10:00 a.m., local time, and at any adjournment thereof, for the
following purposes set forth on the reverse side.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, 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.
1. To elect two directors to hold office until the 2002 Annual Meeting of
Stockholders.
Nominees: Jeffrey A. Miller and Robert V. Adams
FOR WITHHELD
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For all nominees except as noted above
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3 AND 4.
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 500,000 shares.
FOR AGAINST ABSTAIN
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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 200,000 shares.
FOR AGAINST ABSTAIN
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<PAGE>
4. To ratify the selection of PricewaterhouseCoopers as independent auditors
of the Company for its fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
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Signature: Date:
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<PAGE>
DOCUMENTUM, INC.
1993 EQUITY INCENTIVE PLAN
AS AMENDED ON
JUNE 14, 1994,
JUNE 30, 1995,
NOVEMBER 21, 1995,
MARCH 6, 1997
DECEMBER 17, 1997
MAY 28, 1998
MAY __, 1999
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.
<PAGE>
(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.
(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
<PAGE>
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.
(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.
<PAGE>
(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).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) 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
<PAGE>
Right; and the number of shares with respect to which Stock Awards shall be
granted to each such person.
(2) 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.
(3) To amend the Plan or a Stock Award as provided in Section 14.
(4) 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 five million eight
hundred thousand one hundred thirty-eight (5,800,138) 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.
<PAGE>
(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.
(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
<PAGE>
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 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 (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.
<PAGE>
(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 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
<PAGE>
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
<PAGE>
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.
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
<PAGE>
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.
(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
<PAGE>
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.
(iv) Terms Applicable to Tandem Rights, Concurrent Rights and
<PAGE>
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.
<PAGE>
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.
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
<PAGE>
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.
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
<PAGE>
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.
<PAGE>
DOCUMENTUM, INC.
EMPLOYEE STOCK PURCHASE PLAN
Adopted November 21, 1995
Approved by the Stockholders January 17, 1996
As Amended January 31, 1996
As Amended May 28, 1998
As Amended and Approved by the Stockholders May __, 1999
1. Purpose.
(a) The purpose of the Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of Documentum, Inc., a Delaware corporation
(the "Company"), and its Affiliates, as defined in subparagraph 1(b), which are
designated as provided in subparagraph 2(b), may 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
(the "Code").
(c) The Company, by means of the Plan, seeks to retain 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.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. Administration.
(a) The Plan shall be administered by the Board of Directors (the "Board")
of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the Company
shall be granted and the provisions of each offering of such rights (which
need not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights 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, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully
effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) 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 its Affiliates and to carry out the intent that the Plan be
treated as an "employee stock purchase plan" within the meaning of Section
423 of the Code.
(c) 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.
<PAGE>
3. Shares Subject to the Plan.
(a) Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights granted under
the Plan shall not exceed in the aggregate nine hundred thousand (900,000)
shares of the Company's common stock (the "Common Stock"). If any right granted
under the Plan shall for any reason terminate without having been exercised, the
Common Stock not purchased under such right 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. Grant of Rights; Offering.
The Board or the Committee may from time to time grant or provide for the
grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate, which shall comply with the requirements of Section 423(b)(5) of
the Code that all employees granted rights to purchase stock under the Plan
shall have the same rights and privileges. The terms and conditions of an
Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 5 through 8, inclusive.
5. Eligibility.
(a) Rights may be granted only to employees of the Company or, as the Board
or the Committee may designate as provided in subparagraph 2(b), to employees of
any Affiliate of the Company. Except as provided in subparagraph 5(b), an
employee of the Company or any Affiliate shall not be eligible to be granted
rights under the Plan, unless, on the Offering Date, such employee has been in
the employ of the Company or any Affiliate for such continuous period preceding
such grant as the Board or the Committee may require, but in no event shall the
required period of continuous employment be greater than two (2) years. In
addition, unless otherwise determined by the Board or the Committee and set
forth in the terms of the applicable Offering, no employee of the Company or any
Affiliate shall be eligible to be granted rights under the Plan, unless, on the
Offering Date, such employee's customary employment with the Company or such
Affiliate is for at least twenty (20) hours per week and at least five (5)
months per calendar year.
(b) The Board or the Committee may provide that, each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the
exercise price of such right;
(ii) the period of the Offering with respect to such right shall begin
on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person first
becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if such
rights, together with any other rights granted under "employee stock purchase
plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such employee's rights to purchase stock of the Company
or any Affiliate to accrue at a rate which exceeds twenty-five thousand dollars
2
<PAGE>
($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.
(e) Officers of the Company and any designated Affiliate shall be eligible
to participate in Offerings under the Plan, provided, however, that the Board
may provide in an Offering that certain employees who are highly compensated
employees within the meaning of Section 423(b)(4)(D) of the Code shall not be
eligible to participate.
6. Rights; Purchase Price.
(a) On each Offering Date, each eligible employee, pursuant to an Offering
made under the Plan, 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 or the Committee not exceeding ten percent (10%) of such employee's
Earnings (as defined in subparagraph 7(a)) during the period which begins on the
Offering Date (or such later date as the Board or the Committee determines for a
particular Offering) and ends on the date stated in the Offering, which date
shall be no later than the end of the Offering. The Board or the Committee shall
establish one or more dates during an Offering (the "Purchase Date(s)") on which
rights granted under the Plan shall be exercised and purchases of Common Stock
carried out in accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or the
Committee may specify a maximum number of shares that may be purchased by any
employee as well as a maximum aggregate number of shares that may be purchased
by all eligible employees pursuant to such Offering. In addition, in connection
with each Offering that contains more than one Purchase Date, the Board or the
Committee may specify a maximum aggregate number of shares which may be
purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
7. Participation; Withdrawal; Termination.
(a) An eligible employee may become a participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering. "Earnings" is defined as an employee's regular salary or wages
(including amounts thereof elected to be deferred by the employee, that would
otherwise have been paid, under any arrangement established by the Company that
is intended to comply with Section 125, Section 401(k), Section 402(h) or
Section 403(b) of the Code or that provides non-qualified deferred
compensation), which shall include overtime pay and commissions, but shall
exclude bonuses, incentive pay, profit sharing, other remuneration paid directly
to the employee, the cost of employee benefits paid for by the Company or an
Affiliate, education or tuition reimbursements, imputed income arising under any
group insurance or benefit program, traveling expenses, business and moving
expense reimbursements, income received in connection with stock options,
contributions made by the Company or an Affiliate under any employee benefit
plan, and similar items of compensation, as determined by the Board or the
Committee. The payroll deductions made for each participant shall be credited to
an account for such participant under the Plan and shall be deposited with the
general funds of the Company. A participant may reduce (including to zero) or
increase such payroll deductions, and an eligible employee may begin such
payroll deductions, after the beginning of any Offering only as provided for in
the Offering. A participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the participant
has not had the maximum amount withheld during the Offering.
(b) At any time during an Offering, a participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides. Such
withdrawal may be elected at any time prior to the end of the Offering except as
provided by the Board or the Committee in the Offering. Upon such withdrawal
from the Offering by a participant, the Company shall distribute to such
participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in subsequent Offerings under the Plan.
3
<PAGE>
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating employee's employment with the
Company and any designated Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), under the Offering, without
interest.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 14 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such rights
are granted.
8. Exercise.
(a) On each Purchase Date specified therefor in the relevant Offering, each
participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (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 and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase whole shares of stock on the
final Purchase Date of an Offering shall be distributed in full to the
participant after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent unless
the shares to be issued upon such exercise under the Plan (including rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is
in material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. Covenants of the Company.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign or
other 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 rights granted under the Plan. 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 rights unless and until
such authority is obtained.
10. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to rights granted under the Plan
shall constitute general funds of the Company.
11. Rights as a Stockholder.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.
12. Adjustments upon Changes in Stock.
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(a) If any change is made in the stock subject to the Plan, or subject to
any rights 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 other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights 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 rights. 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 or liquidation 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
in which more than fifty percent (50%) of the shares of the Company entitled to
vote are exchanged, then, as determined by the Board in its sole discretion (i)
any surviving corporation may assume outstanding rights or substitute similar
rights for those under the Plan, (ii) such rights may continue in full force and
effect, or (iii) participants' accumulated payroll deductions may be used to
purchase Common Stock immediately prior to the transaction described above and
the participants' rights under the ongoing Offering terminated.
13. Amendment of the Plan.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 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 reserved for rights under the Plan;
(ii) Modify the provisions as to eligibility for participation in the
Plan (to the extent such modification requires stockholder approval in order for
the Plan to obtain employee stock purchase plan treatment under Section 423 of
the Code or to comply with the requirements of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3")); or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to employee stock purchase plans
and/or to bring the Plan and/or rights granted under it into compliance
therewith.
(b) Rights and obligations under any rights granted before amendment of the
Plan shall not be impaired by any amendment of the Plan, except with the consent
of the person to whom such rights were granted, or except as necessary to comply
with any laws or governmental regulations, or except as necessary to ensure that
the Plan and/or rights granted under the Plan comply with the requirements of
Section 423 of the Code.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of an
Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its sole discretion, may deliver such shares
and/or cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. Termination or Suspension of the Plan.
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(a) The Board in its discretion, may suspend or terminate the Plan at any
time. No rights may be granted under the Plan while the Plan is suspended or
after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under the Plan comply with the requirements of Section 423
of the Code.
16. Effective Date of Plan.
The Plan shall become effective on the day immediately prior to the
effectiveness of the Company's initial public offering of shares of common stock
(the "Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan has been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board or the Committee, which date may be prior to the Effective Date.
