SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
DOCUMENTUM INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
6. Amount Previously Paid:
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7. Form, Schedule or Registration Statement No.:
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8. Filing Party:
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9. Date Filed:
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[LOGO]
6801 Koll Center Parkway
Pleasanton, CA 94566
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 25, 2000
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 25, 2000 at 10:00 a.m. local time at the Company's corporate
headquarters, 6801 Koll Center Parkway, Pleasanton, California 94566 for the
following purposes:
1. To elect two directors to hold office until the 2003 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 Employee Stock Purchase Plan, as amended, to
increase the aggregate number of shares of common stock authorized for
issuance under such plan by 250,000 shares and to add provisions to
automatically increase the number of shares reserved under such plan on an
annual basis.
4. To approve the Company's 1995 Non-Employee Directors' Stock Option Plan,
as amended, to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 100,000 shares.
5. To ratify the selection of Arthur Andersen, LLP as independent public
accountants of the Company for its fiscal year ending December 31, 2000.
6. To transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 31, 2000,
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
[FACSIMILE SIGNATURE]
/s/ Mark Tanoury
Mark Tanoury
Secretary
Pleasanton, California
APRIL 20, 2000
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ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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[LOGO]
6801 Koll Center Parkway
Pleasanton, CA 94566
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
May 25, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Documentum, Inc., a Delaware corporation ("Documentum" or the "Company"), for
use at the Annual Meeting of Stockholders to be held on May 25, 2000, 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 6801 Koll Center Parkway,
Pleasanton, California 94566. The Company intends to mail this proxy statement
and accompanying proxy card on or about April 20, 2000, 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 card 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. CIC will be paid its customary fee,
estimated to be about $7,000, 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, 2000 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on March 31, 2000 the Company had outstanding and entitled to
vote 17,542,340 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 6801 Koll
Center Parkway, Pleasanton, California 94566, a written notice of revocation or
a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
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STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2001 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is December 21, 2000. Stockholders are also advised to review the
Company's Bylaws, which contain additional requirements with respect to advance
notice of stockholder proposals and director nominations.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's 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 number of directors) shall serve for the remainder of the
full term of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of six members. There are two
directors in the class whose term of office expires in 2000. One of the nominees
for election to this class is currently a director of the Company who was
previously elected by the stockholders. The other nominee for election is
currently a director of the Company who was not previously elected by the
stockholders. If elected at the Annual Meeting, each of the nominees would serve
until the 2003 annual meeting and until his or her successor is elected and has
qualified, or until such director's earlier death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the two 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 2003 ANNUAL MEETING
Michael Pehl
Michael Pehl, age 39, has served as a director of the Company since
January 2000. Mr. Pehl has been chief operating officer and a director of
Razorfish, a company that provides strategic, creative and technology solutions
to digital businesses, since November 1999. From July 1996 through October 1999,
Mr. Pehl was chairman and CEO of iCube, which was acquired by Razorfish. Prior
to iCube, Mr. Pehl was a founder of International Consulting Solutions, a SAP
implementation and business process consultancy.
Edward J. Zander
Edward J. Zander, age 53, has served as a director of the Company since
July 1995. Mr. Zander has been President and 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.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE
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DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING
Geoffrey A. Moore
Geoffrey A. Moore, age 53, 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 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 several privately held companies. Mr. Moore received his Ph.D. in
literature from the University of Washington and his bachelor's degree in
literature from Stanford University.
Gary M. Banks
Gary M. Banks, age 49, has served as a director of the Company since March
1999. Since October 1999, Mr. Banks has been vice president and chief
information officer of Sithe Energies, an electricity generation and trading
company in New York. From July 1998 to July 1999, he was 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.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING
Jeffrey A. Miller
Jeffrey A. Miller, age 49, 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. 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. Prior to that, 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
Santa Clara University.
Robert V. Adams
Robert V. Adams, age 68, has served as Chairman of the Board of the
Company since its inception in January 1990. Since September 1999, he has served
as the President of Adams Capital Management, a private investment and venture
capital organization. From March 1989 to September 1999, Mr. Adams 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.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1999, 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 public
accountants at least annually to review the results of the annual audit and
discuss the financial statements; recommends to the Board the independent public
accountants to be retained; and receives and considers the accountants' comments
as to controls, adequacy of staff and management performance and procedures in
connection with audit and financial controls. The Audit Committee is currently
composed of two non-employee directors: Mr. Adams and Mr. Banks. It met six
times during such fiscal year.
4
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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 currently composed of two non-employee
directors: Mr. Pehl and Mr. Zander. It met one time during such fiscal year.
During the fiscal year ended December 31, 1999, all directors except
Geoffrey A. Moore and Edward J. Zander 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
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PROPOSAL 2
APPROVAL OF THE 1993 EQUITY INCENTIVE PLAN, AS AMENDED
In 1993, the Board of Directors adopted, and the stockholders subsequently
approved, the Company's 1993 Equity Incentive Plan (the "1993 Plan"). As a
result of a series of amendments, there are 5,800,138 shares of the Company's
Common Stock authorized for issuance under the 1993 Plan.
At December 31, 1999, options (net of canceled or expired options)
covering an aggregate of 4,243,430 shares of the Company's Common Stock had been
granted under the 1993 Plan, and only 1,556,708 shares (plus any shares that
might in the future be returned to the plan 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
executive officers as a group options to purchase 450,943 shares at exercise
prices of $12.563 to $16.00 per share, and no grants to any other employees or
consultants.
In February 2000, the Board approved an amendment to the 1993 Plan,
subject to stockholder approval, increasing the number of shares authorized for
issuance under the 1993 Plan from a total of 5,800,138 shares to 6,300,138
shares. The Board adopted this amendment to ensure that the Company can continue
to grant stock options to employees at levels determined appropriate by the
Board and the Compensation Committee.
In October 1996, the Board adopted the Company's 1996 Non-Officer Equity
Incentive Plan (the "Non-Officer Plan"). As a result of a series of amendments,
there are currently 4,335,000 shares authorized for issuance under the
Non-Officer Plan. At December 31, 1999, options (net of cancelled or expired
options) covering an aggregate of 3,822,620 shares of the Company's Common Stock
had been granted under the Non-Officer Plan, and only 512,380 shares (plus any
shares that might in the future be returned to the plan 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 2,401,570 shares at exercise
prices of between $9.50 and $49.75 per share and (ii) to David DeWalt, who at
the time of his grant was not an executive officer, options to purchase 125,000
shares at an exercise price of $14.625 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, 1999, options (net of exercised, cancelled or expired
options) covering an aggregate of 31,428 shares of the Company's Common Stock
are outstanding pursuant to the assumption of the Relevance options.
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.
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.
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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) of the Code 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) of the Code. 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) of the
Code. 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.
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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) of the Code. See
"Federal Income Tax Information." At December 31, 1999, the closing price of the
Company's Common Stock as reported on the Nasdaq National Market System was
$59.875 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) of the Code, 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:
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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), the 1993 Plan and Stock
Awards outstanding thereunder will be appropriately adjusted as to the class and
the maximum
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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 Section 422 of the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (b) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain,
or any loss, upon the disqualifying disposition will be a capital gain or loss,
which
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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) of the
Code 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) of the Code,
compensation attributable to stock options will qualify as performance-based
compensation, provided that the option is granted by a compensation committee
comprised solely of "outside directors" and either: (i) the option plan contains
a per-employee limitation on the number of shares for which options may be
granted during a specified period, the per-employee limitation is approved by
the stockholders, and the exercise price of the option is no less than the fair
market value of the stock on the date of grant; or (ii) the option is granted
(or exercisable) only upon the achievement (as certified in writing by the
compensation committee) of an objective performance goal established in writing
by the compensation committee while the outcome is substantially uncertain, and
the option is approved by stockholders. Compensation
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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 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
In November 1995, the Board of Directors (the "Board") 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
Internal Revenue Code of 1996, as amended (the "Code"). As a result of a series
of amendments adopted by the Board and approved by the Stockholders, there are
900,000 shares of the Company's Common Stock authorized for issuance under the
Purchase Plan.
In February 2000, the Board voted to amend this Purchase Plan, subject to
stockholder approval, to increase the number of shares reserved for issuance
under the Purchase Plan by 250,000 from 900,000 to 1,150,000 shares and to add
an evergreen provision to allow for the automatic increase in the number of
shares of Common Stock authorized for issuance under the Purchase Plan by the
least of 2% of the outstanding shares of common stock (on a fully diluted basis)
on each January 1, 500,000 shares of common stock, or an amount determined by
the Board. This automatic increase will be in effect for ten (10) years,
commencing on January 1, 2001 and ending on (and including) January 1, 2010.
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: Mark S. Garrett 885 shares at $15.60 per share, Howard I. Shao 885
shares at $15.60 per share, all executive officers as a group (including Garrett
and Shao), 2,124 shares at $16.31 per share, and all employees (excluding
executive officers) as a group 173,664 shares at $15.82 per share.
As of December 31, 1999, purchase rights (net of canceled or expired
purchase rights) covering an aggregate of 360,479 shares of the Company's Common
Stock had been granted under the Purchase Plan. Only 539,521 shares of Common
Stock remained available for future grant under the Purchase Plan.
Stockholders are requested in this Proposal 3 to approve the Purchase 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 Purchase 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. 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.
Offerings
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. The length of an offering is
determined by the Board prior to the commencement of the offering, but under the
terms of the Purchase Plan the length of an offering may not exceed 27 months
from the first day of the offering. An offering may be broken up into shorter
purchase periods or may consist of a single purchase period. The current
offering began on August 2, 1999 and is scheduled to end on July 31, 2001. The
current offering is scheduled to consist of four
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purchase periods of approximately six months each with purchase dates for stock
subject to rights granted under the offering scheduled to occur on the last day
of each January and July. However, the current offering also provides that if on
any purchase date the fair market value of the Common Stock is less than it was
on the beginning of such offering, the day after such purchase date will become
the new offering date for that offering and the offering that would have
continued in effect shall terminate.
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 2 years) and whose
customary employment with the Company or its affiliate is at least 20 hours per
week and at least five months per calendar year, unless otherwise determined by
the Board. The Board may provide that if an employee becomes eligible to
participate in the Purchase Plan during the course of an offering, the employee
may receive rights under that offering. Such rights shall have the same
characteristics as any rights originally granted under that 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 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 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 offerings under the Purchase Plan, provided, however, that the
Board may exclude employees who qualify as "highly compensated" under the Code
from participating in offerings.
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
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 an 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 offering. If the aggregate purchase of shares upon exercise of rights
granted under the 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 offering, at the purchase price specified in the
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 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 offering under the Purchase
Plan, unless the participant withdraws from the next 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
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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
an offering shall be distributed to the participant after such purchase date,
without interest.
Participation; Withdrawal; Termination
An eligible employee may become a participant in an 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 offering as
specified by the Board. Payroll deductions made for a participant shall be
credited to an account for such participant under the Purchase Plan and
deposited with the general funds of the Company. A participant may reduce,
increase or begin payroll deductions after the beginning of any purchase period
only as provided for in the 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.
A participant may terminate payroll deductions under the Purchase Plan and
withdraw from an 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 offering, without interest, and the participant's interest in that
offering will be automatically terminated. Such withdrawal will have no effect
upon such participant's eligibility to participate in any other offerings under
the Purchase Plan, but the participant will be required to deliver a new
participation agreement in order to participate in subsequent 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 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 Securities and Exchange Act
of 1934, as amended (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 of the Exchange Act.
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Federal Income Tax Information
Participation in the Purchase Plan is intended to qualify for the
favorable federal tax treatment accorded employee stock purchase plans under
Section 423 of the Code. Under these provisions, a participant will be taxed on
amounts withheld as if actually received, but, except for this, no income will
be taxable to a participant until disposition of the shares acquired.
If the stock is disposed of more than two years after the beginning of the
offering period and more than one year after the stock is transferred to the
participant, the lesser of (i) the excess of the fair market value of the stock
at the time of such disposition over the exercise price or (ii) the excess of
the fair market value of the stock as of the beginning of the offering period
over the exercise price (determined as of the beginning of the offering period)
will be treated as ordinary income. Any further gain or any loss will be taxed
as a capital gain or loss.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition, and the Company may, in the future, be
required to withhold income taxes relating to such ordinary income from other
payments made to the participant. The balance of any gain will be treated as
capital gain. Even if the stock is later disposed of for less than its fair
market value on the exercise date, the same amount of ordinary income is
attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date.
Any capital gain or loss realized by a participant upon the disposition of
stock acquired under the Purchase Plan will be long-term or short-term depending
on how long the stock has been held.
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the Purchase Plan. The Company is entitled
to a deduction for amounts taxed as ordinary income to a participant upon
disposition by a participant of stock before the expiration of the holding
periods described above (subject to the requirement of reasonableness and
perhaps, in the future, the satisfaction of a tax withholding obligation).
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PROPOSAL 4
APPROVAL OF 1995 NON-EMPLOYEE
DIRECTORS' STOCK OPTION PLAN, AS AMENDED
In November 1995, the Company adopted the Company's 1995 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). The Directors' Plan
provides for non-discretionary grants of options which are not intended to
qualify as incentive stock options, as defined under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). In 1997, the Board of Directors
adopted, and the stockholders subsequently approved, the increase in the number
of shares of Common Stock authorized for issuance under the Directors' Plan by
100,000 shares to a total of 250,000 shares.
In February 2000, the Board of Directors voted to amend the Directors'
Plan, subject to stockholder approval, to increase the number of shares of
Common Stock authorized for issuance under the Directors' Plan by 100,000 to
350,000 shares.
Stockholders are requested in this Proposal 4 to approve the amendment to
the Director's Plan. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the amendments to the Directors' Plan.
Abstentions will be counted toward the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4
The essential features of the Directors' Plan, as amended, are outlined below:
Purpose
The purpose of the Directors' Plan is to retain the services of persons
now serving as Non-Employee Directors of the Company (as defined below), to
attract and retain the services of persons capable of serving on the Board of
Directors of the Company and to provide incentives for such persons to exert
maximum efforts to promote the success of the Company.
Administration
The Directors' Plan is administered by the Board of Directors of the
Company. The Board of Directors has the final power to construe and interpret
the Directors' Plan and options granted under it, and to establish, amend and
revoke rules and regulations for its administration.
The Board of Directors is authorized to delegate administration of the
Directors' Plan to a committee of not less than two members of the Board. The
Board of Directors does not presently contemplate delegating administration of
the Directors' Plan to any committee of the Board of Directors.
Eligibility
The Directors' Plan provides that options may be granted only to Non-
Employee Directors of the Company. A "Non-Employee Director" is defined in the
Directors' Plan as a director of the Company and its affiliates who is not
otherwise an employee of the Company or any affiliate. Five of the Company's six
current directors are eligible to participate in the Directors' Plan.
Terms Of Options
Each option under the Directors' Plan is subject to the following terms and
conditions:
Non-Discretionary Grants. Option grants under the Directors' Plan are
non-discretionary. Each Non-Employee Director is automatically granted an option
to purchase 20,000 shares of Common Stock upon becoming a member of the Board of
Directors. Each Non-Employee Director is automatically granted an option to
purchase 7,500 shares of Common Stock (subject to adjustment as provided in the
Directors' Plan) on June 30 of each year, provided such person has continuously
served as a Non-Employee Director for at least six months prior to such date.
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Option Exercise. An option granted under the Directors' Plan will vest
immediately upon grant as to one-third of the shares underlying the option; the
remaining shares will vest in two equal annual installments on the anniversary
of the date of grant, provided that the optionee has continuously served until
such vesting date as a Non-Employee Director or employee of or a consultant to
the Company.
Exercise Price; Payment. The exercise price of options granted under the
Directors' Plan shall be equal to 100% of the fair market value of the Common
Stock subject to such options on the date such option is granted. The exercise
price of options granted under the Directors' Plan must be paid with cash at the
time the option is exercised.
Transferability; Term. Under the Directors' Plan, an option may not be
transferred by the optionee, except by will or the laws of descent and
distribution (unless otherwise specified in the option, in which case the option
may be transferred upon such terms and conditions as set forth in the option,
including pursuant to a domestic relations order). In any case, a Non- Employee
Director may designate in writing a third party who may exercise the option in
the event of his or her death. During the lifetime of an optionee, an option may
be exercised only by the optionee or his or her guardian or legal
representative.
No option granted under the Directors' Plan is exercisable by any person
after the expiration of 10 years from the date the option is granted.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as may be
determined by the Board of Directors.
Adjustment Provision
If there is any change in the stock subject to the Directors' Plan or
subject to any option granted under the Directors' Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Directors' Plan and options outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to the plan
and the class, number of shares and price per share of stock subject to
outstanding options.
Effect Of Certain Corporate Events
In the event of a specified type of merger or other corporate
reorganization, to the extent permitted by law, the time during which
outstanding options may be exercised shall be accelerated and the options
terminated if not exercised prior to such event. The acceleration of an option
in the event of an acquisition or similar corporate event may be viewed as an
anti-takeover provision, which may have the effect of discouraging a proposal to
acquire or otherwise obtain control of the Company.
Duration, Amendment And Termination
The Board of Directors may amend, suspend or terminate the Directors' Plan
at any time or from time to time. No amendment will be effective unless approved
by the stockholders of the Company within twelve months before or after its
adoption by the Board if the amendment would modify the plan in any other way if
such modification requires stockholder approval in order for the plan to meet
the requirements of Rule 16b-3 of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), or a Nasdaq Stock Market or securities exchange
listing requirement. Unless sooner terminated, the Directors' Plan shall
terminate in November 2005.
Certain Federal Income Tax Information
Stock options granted under the Directors' Plan are subject to federal
income tax treatment pursuant to rules governing options that are not incentive
stock options.
The following is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors' Plan, does not purport to be complete and does not
discuss the income tax laws of any state or foreign country in which an optionee
may reside.
Options granted under the Directors' Plan are nonstatutory options. There
are no tax consequences to the optionee or the Company by reason of the grant of
a nonstatutory stock option. Upon exercise of a nonstatutory stock option, the
optionee normally will recognize taxable ordinary income equal to the excess of
the stock's fair market value on the date of exercise over the option exercise
price. Because the optionee is a director of the Company, under existing
18
<PAGE>
laws, the date of taxation (and the date of measurement of taxable ordinary
income) may in some instances be deferred unless the optionee files an election
under Section 83(b) of the Code. The filing of a Section 83(b) election with
respect to the exercise of an option may affect the time of taxation and the
amount of income recognized at each such time. Upon disposition of the stock,
the optionee will recognize a capital gain or loss equal to the difference
between the selling price and the sum of the amount paid for such stock plus any
amount recognized as ordinary income upon exercise of such option. Such gain or
loss will be long or short-term depending on whether the stock was held for more
than one year.
19
<PAGE>
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP ("Arthur
Andersen") as the Company's independent auditors for the fiscal year ending
December 31, 2000 and has further directed that management submit the selection
of independent public accountants for ratification by the stockholders at the
Annual Meeting. Arthur Andersen has audited the Company's financial statements
since October 22, 1999. Prior to that time, PricewaterhouseCoopers LLP audited
the Company's financial statements, but they resigned pursuant to a Form 8-K
filed with the SEC on October 1, 1999 due to a possible conflict of interest
created when the Company announced a strategic alliance with
PricewaterhouseCoopers LLP on September 29, 1999. Representatives of Arthur
Anderson 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 Arthur Andersen as the
Company's independent public accountants is not required by the Company's Bylaws
or otherwise. However, the Board is submitting the selection of Arthur Andersen
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 Arthur Andersen. 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 5.
20
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of
the Company's Common Stock as of December 31, 1999 by: (i) each director and
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table and serving as an executive officer of the Company as of
December 31, 1999; (iii) all executive officers and directors of the Company as
a group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
<TABLE>
<CAPTION>
Beneficial Ownership(1)
--------------------------
Percent of
Beneficial Owner Number of Share Total
- ------------------------------------------------------------------------------------ ----------
<S> <C> <C>
Capital Research & Management Co.(2) ............................. 1,075,000 6.38%
333 So. Hope St ...............................................
Los Angeles, CA 90071
Jeffrey A. Miller(3) ............................................. 832,451 4.94%
c/o Documentum, Inc. ..........................................
6801 Koll Center Parkway
Pleasanton, CA 94566
Howard I. Shao(4) ................................................ 218,756 1.30%
Thomas Heydler(5) ................................................ 152,903 *
Robert V. Adams(6) ............................................... 108,419 *
Burnes S. Hollyman(7) ............................................ 89,166 *
Edward J. Zander(8) .............................................. 47,500 *
Geoffrey A. Moore(9) ............................................. 25,834 *
Gary Banks(10) ................................................... 16,667 *
Michael Pehl(11) ................................................. 10,000 *
Russell Harris ................................................... 0 *
All directors and executive officers ..as a group (10 persons)(12) 1,501,696 8.92%
</TABLE>
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13G filed with the Securities and
Exchange Commission (the "SEC"). Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or
investment power with respect to securities. Unless otherwise indicated in
the footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
16,839,773 shares outstanding on December 31, 1999 adjusted as required by
rules promulgated by the SEC.
(2) Based solely on information obtained from a filing made on Schedule 13G
with the SEC.
(3) 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) 266,667 shares
issuable upon the exercise of options exercisable within 60 days of
December 31, 1999. Mr. Miller disclaims beneficial ownership of the shares
held by the Miller Children's Trust I.
(4) Includes (i) 10,600 shares held by Mr. Shao's children, and (ii) 98,957
shares issuable upon the exercise of options exercisable within 60 days of
December 31, 1999.
(5) Includes 152,903 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1999.
(6) Includes 20,833 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1999.
(7) Includes 89,166 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1999.
(8) Includes (i) 10,000 shares held by the Edward and Mona Zander Living Trust
U/A 4/19/93 and (ii) 37,500 shares issuable upon the exercise of options
exercisable within 60 days of December 31, 1999.
(9) Includes 25,834 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1999.
(10) Includes 16,667 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1999.
21
<PAGE>
(11) Includes 10,000 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1999.
(12) Includes 718,527 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1999.
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, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
22
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Commencing October 1, 1999, Board members will receive $15,000 per year
plus an additional $1,200 per Board meeting, to be paid quarterly. Such payments
will be pro-rated based on the number of months of service of each Board member.
Compensation Committee and Audit Committee members will receive $4,000 per year
to be paid quarterly. 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 continuing Non-Employee Director
of the Company, at an exercise price per share of $13.06, and options to
purchase 20,000 shares were granted at an exercise price of $15.75 per share to
Gary Banks when he became a director of the corporation. The fair market value
of such Common Stock on the date of grant was $13.06 per share and $15.75 per
share (based on closing sales prices reported in the Nasdaq National Market
System for the dates of grant). As of December 31, 1999, 53,335 options had been
exercised under the Directors' Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Company serves as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee. See "Certain Transactions" for a
description of transactions between the Company and entities affiliated with
members of the Compensation Committee.
23
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ended December 31,
1997, 1998 and 1999, compensation awarded or paid to, or earned by, the
Company's Chief Executive Officer, its other four most highly compensated
executive officers at December 31, 1999 and one former executive officer who
departed from the Company during Fiscal Year 1999 (the "Named Executive
Officers"):
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Awards
--------------------------------------- ------------------ ---------------
Name and Principal Securities All Other
Position Year Salary($) Bonus($) Underlying Options Compensation($)
- ---------------------------- ---- -------- -------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Jeffrey A. Miller 1999 $300,000 $460,100 100,000 $ --
President and Chief 1998 275,000 121,251 300,000( 1) --
Executive Officer 1997 250,000 210,000 300,000 1,252
Mark S. Garrett (2) 1999 219,295 64,100 50,000 --
Vice President, Chief 1998 195,000 78,151 150,000(1) --
Financial Officer and 1997 166,186 90,000 150,000 576
Secretary
Russell A. Harris (3) 1999 92,350 145,900 170,000 --
Executive Vice President, 1998 -- -- -- --
Worldwide Field 1997 -- -- -- --
Operations
Thomas Heydler 1999 250,000 167,800 50,943 94,320(4)
Vice President and 1998 214,959 183,254 195,000(1) 423,415(5)
General Manager, 1997 218,800 38,246 70,000 6,119
eBusiness Applications
Burnes S. Hollyman 1999 275,000 87,600 40,000 45,834(6)
Vice President, 1998 275,000 77,105 100,000(1) 63,559(7)
Worldwide Consulting 1997 22,916 50,000 100,000 4,167
Services
Howard I. Shao 1999 235,000 154,450 40,000 --
Executive Vice President 1998 200,000 55,751 90,000(1) --
and Chief Technology Officer 1997 155,000 64,500 90,000 543
</TABLE>
(1) Consists of repriced stock options.
(2) Mr. Garrett resigned from the Company in November 1999.
(3) Mr. Harris joined the company in July 1999.
(4) Includes a car allowance of $24,000, a housing allowance of $46,320 and a
cost of living allowance of $24,000.
(5) 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.
(6) Consists of a cost of living adjustment.
(7) Includes a relocation payment of $13,559 and a cost of living allowance of
$50,000.
24
<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, 1999, options to purchase a
total of 1,209,551shares were outstanding under the 1993 Plan and options to
purchase 1,556,708 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, 1999,
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
------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation For Option
Term(2)
-----------------------------
Number of Percentage of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted(#) Fiscal Year(1) Price Date 5% 10%
- ------------------ ----------- -------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Miller 100,000(3) 3.36% $12.563 04/14/09 $790,080 $2,002,219
Mark S. Garrett 50,000(3) 1.68 12.563 04/14/09 395,040 1,001,109
Russell A. Harris 170,000(4) 5.71 16.000 07/26/09 1,710,593 4,334,980
Thomas Heydler 50,9439(3) 1.71 12.563 04/14/09 402,491 1,019,990
Burnes S. Hollyman 40,000(3) 1.34 12.563 04/14/09 316,032 800,887
Howard I. Shao 40,000(3) 1.34 12.563 04/04/09 316,032 800,887
</TABLE>
(1) Based on an aggregate of 2,977,513 shares subject to options granted to
employees in the fiscal year ended December 31, 1999.
(2) The 5% and 10% assumed rates of appreciation are suggested by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. There can be no
assurance that any of the values reflected in the table will be achieved.
Actual gains, if any, on stock option exercises and Common Stock holdings
are dependent upon a number of factors, including the future performance
of the Common Stock, overall market conditions and the timing of option
exercises, if any.
(3) Options have a maximum term of 10 years measured from the grant date,
subject to earlier termination upon the optionee's cessation of service
with the Company. Options will vest at the rate of 100% on the second
anniversary of the date of grant or earlier upon the Company achieving
certain financial milestones.
(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 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.
25
<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
Unexercised Unexercised In-the-Money In-the-Money
Options at Options at Options at Options at
December 31, December 31, December 31, December 31,
Shares Acquired Value Realized 1999 (#) 1999 (#) 1999($) 1999($)
Name on Exercise (#) ($) Exercisable Unexercisable Exercisable(3) Unexercisable(3)
- ------------------ --------------- -------------- ------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey A. Miller 0 $0 258,333 141,667 $10,312,438 $4,993,762
Mark S. Garrett 106,771 1,519,169(2) 1,041 0 36,695 0
Russell A. Harris 0 0 0 170,000 0 7,458,750
Thomas Heydler 3,000 93,188(2) 146,443 60,000 5,934,137 2,121,516
Burnes S. Hollyman 5,000 47,813(2) 85,000 50,000 3,478,730 1,762,500
Howard I. Shao 45,400 601,753(1) 95,207 34,793 3,838,527 1,226,442
</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, 1999 ($59.875 per share) and the exercise price.
26
<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 Mr. Pehl and Mr. Zander. 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.
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.
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 $37,000
per year was appropriate.
Bonus. The Company has adopted a formal bonus program. Cash bonus awards
are designed to award executives for exemplary individual performance in
assisting the Company to 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
1999, 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 1999 and the
Committee's review of the achievement of these goals, the Committee awarded
bonuses of between approximately 25% and 65% of base pay to all executive
officers.
Equity Compensation. The 1993 Equity Incentive Plan and the 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
27
<PAGE>
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
granted a total of 350,943 shares to 4 executive officers in 1999. In granting
new options, the Committee considered prior option grants and the need to retain
and motivate executive officers.
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 1999 from his 1998 base salary. In addition, the
Company achieved virtually all of its corporate objectives during 1999, and the
Committee concluded that Mr. Miller's contributions were a significant factor in
achieving these objectives. For 1999, the Committee awarded Mr. Miller a bonus
of approximately 150% 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 100,000 shares in
1999 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.
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
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, 1999:
Comparison of Total Cumulative Return on Investment(1)
/s/ [ILLEGIBLE]
(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 May 1998, Thomas Heydler, who serves as Vice President and General
Manager, eBusiness Applications 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, 1999, the entire
principle and interest thereon was outstanding under the note.
30
<PAGE>
Performance Graph
[The following table was depicted as a line graph in the printed material.]
<TABLE>
<CAPTION>
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2/6/96 3/31/96 6/30/96 9/30/96 12/31/96 3/31/97 6/30/97 9/30/97
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
DCTM 24 35.25 30.5 31.75 33.75 18.5 24.875 33.25
NASDAQ 347.303 361.754 391.22 405.21 425.193 402.132 475.81 556.292
MSH 35 341.22 316.5 325.04 352.54 383.04 354.6 426.23 520.4
DCTM 100 146.875 127.0833 132.2917 140.625 77.08333 103.6458 138.5417
NASDAQ 100 104.1609 112.6452 116.6733 122.4271 115.7871 137.0014 160.1748
MSH 35 100 92.75541 95.25819 103.3175 112.256 103.9212 124.9135 152.5116
<CAPTION>
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12/31/97 3/31/98 6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DCTM 42.125 54.125 48 39.625 53.4375 17.313 13.063 21.625 59.875
NASDAQ 520.964 609.718 626.443 565.288 734.576 823.307 900.872 922.711 1359.43
MSH 35 447.52 542.48 595.8 573.78 874.47 1020.45 1159.24 1231.66 1841.55
DCTM 175.5208 225.521 200 165.1042 222.6563 72.1375 54.42917 90.10417 249.4792
NASDAQ 150.0027 175.558 180.374 162.7651 211.5087 237.0573 259.3908 265.679 391.4248
MSH 35 131.1529 158.982 174.609 168.1554 256.2775 299.0593 339.7339 360.9577 539.6958
</TABLE>
<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
[FACSIMILE SIGNATURE]
/s/ Mark Tanoury
Mark Tanoury
Secretary
April 20, 2000
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, 1999 is available without
charge upon written request to: Corporate Secretary, Documentum, Inc., 6801 Koll
Center Parkway, Pleasanton, California 94566.
31
