[GRAPHIC OMITTED]
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NOTICE OF 1999 ANNUAL MEETING
AND
PROXY STATEMENT
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MEGADATA CORPORATION
<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant
[ ] Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to SS240.14a-11(c) or SS240.14a-12
MEGADATA CORPORATION
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
MEGADATA CORPORATION
-----------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed: April 29, 1999
<PAGE>
MEGADATA CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 26, 1999
The Annual Meeting of the shareholders of Megadata Corporation (the
"Company") will be held at the LaGuardia Marriott Hotel, in East
Elmhurst, New York, on Wednesday, May 26, 1999, at 11:00 A.M., for the
following purposes:
1. To elect directors for the ensuing year; and
2. To consider and vote on a proposal to approve the Company's 1999
Stock Incentive Plan; and
3. To consider and vote on a proposal to amend the Company's
Certificate of Incorporation to increase the total number of shares
of common stock, $0.01 par value, which the Company has authority to
issue from 5,000,000 to 10,000,000; and
4. To ratify the appointment of Ernst & Young, LLP as the independent
public accountants of the Company for the fiscal year ended October
31, 1999; and
5. To consider and vote on an amendment to the Company's Certificate of
Incorporation that would establish restrictions on transfers of the
Company's common stock in order to protect the availability of a
substantial portion of the Company's net operating loss
carryforwards under the "ownership change" rules set forth in
Section 382 of the Internal Revenue Code of 1986, as amended; and
6. To transact such business as may properly come before the meeting or
any adjournment or adjournments thereof.
Only shareholders of record at the close of business on April 30, 1999
will be entitled to vote at the Annual Meeting. A list of shareholders
eligible to vote at the Annual Meeting will be available for inspection
at the Annual Meeting and during business hours from May 3, 1999 to the
date of the Annual Meeting at the Company's headquarters in
Connecticut.
Whether you expect to attend the Annual Meeting or not, your proxy vote
is important. To assure your representation at the meeting, please sign
and date the enclosed proxy card and return it promptly in the enclosed
envelope, which requires no additional postage if mailed in the United
States or Canada.
By Order of the Board of Directors
John R. Keller
Executive Vice President and Secretary
66 Field Point Road
Greenwich, CT 06830
May __, 1999
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE COMPLETED
AND RETURNED PROMPTLY
<PAGE>
MEGADATA CORPORATION
PROXY STATEMENT
May __, 1999
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Megadata
Corporation ("Megadata" or the "Company") for use at the Annual Meeting
of its shareholders to be held at the LaGuardia Marriott Hotel, 105-05
Ditmars Blvd., East Elmhurst, New York, on Wednesday, May 26, 1999, at
11:00 A.M.
Shares cannot be voted at the Annual Meeting unless the owner
thereof is present in person or by proxy. All properly executed and
unrevoked proxies in the accompanying form that are received in time
for the Annual Meeting will be voted at the Annual Meeting or any
adjournment thereof in accordance with any specification thereon, or if
no specification is made, will be voted "FOR" the election of the named
director nominees and approval of the other proposals set forth in the
Notice of Annual Meeting of Shareholders of the Company. The Board of
Directors of the Company knows of no other matters which may be brought
before the Annual Meeting. However, if any other matters are properly
presented for action, it is the intention of the named proxies to vote
on them according to their best judgment. Any person giving a proxy may
revoke it by written notice to the Company at any time prior to the
exercise of the proxy. In addition, although mere attendance at the
Annual Meeting will not revoke the proxy, a person present at the
Annual Meeting may withdraw his or her proxy and vote in person. Rights
of appraisal or similar rights of dissenters are not available to
shareholders of the Company with respect to any matter to be acted upon
at the Annual Meeting.
The Annual Report on Form 10-K of the Company (which does not
form a part of these proxy solicitation materials), as filed with the
Securities and Exchange Commission and including the financial
statements of the Company, is enclosed herewith.
The mailing address of the principal executive office of the
Company is 66 Field Point Road, Greenwich, Connecticut, 06830. This
Proxy Statement and the accompanying form of proxy are expected to be
mailed to the shareholders of the Company on or about May ___, 1999.
VOTING SECURITIES
The Company's only class of voting securities outstanding, is
its Common Stock, par value $0.01 per share (the "Common Stock"). On
April 30, 1999, there were 2,511,600 shares of Common Stock
outstanding. At the Annual Meeting, each shareholder of record at the
close of business on April 30, 1999 will be entitled to one vote for
each share of Common Stock owned on that date as to each matter
presented at the Annual Meeting.
ELECTION OF DIRECTORS
Unless otherwise directed, the persons named in the
accompanying form of proxy intend to vote at the Annual Meeting "FOR"
the election of the nominees named below as directors of the Company to
serve until the next Annual Meeting and until their successors are duly
elected and qualified. THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE ELECTION OF SUCH NOMINEES.
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If any nominee is unable to stand for election when the
election takes place, the shares represented by valid proxies will be
voted in favor of the remaining nominees and for such person, if any,
as shall be designated by the present Board of Directors to replace
such nominee. The Board of Directors does not presently anticipate that
any nominee will be unable to stand for election.
INFORMATION CONCERNING DIRECTORS AND NOMINEES
The following information with respect to the principal
occupation or employment, other affiliations and business experience of
each nominee during the last five years has been furnished to the
Company by such nominee. Except as indicated, each of the nominees has
had the same principal occupation for the last five years. All of the
nominees are currently directors of the Company.
G.S. Beckwith Gilbert, age 57, was elected Chairman of the
Board in 1997 and was elected to the additional posts of President and
Chief Executive Officer in October of 1998. Mr. Gilbert has been a
director of the Company since 1997. In addition, Mr. Gilbert is
President and Chief Executive Officer of Field Point Capital Management
Company, a merchant banking firm, since 1988. He is a partner of Wolsey
& Co., a merchant banking firm. Mr. Gilbert is also a Director and
Chairman of the Executive Committee of DIANON Systems, Inc., as well as
a Director of Davidson Hubeny Brands and Kionix, Inc.
Richard R. Schilling, Jr., age 73, is a member of the law firm
of Burns, Kennedy, Schilling & O'Shea, New York, New York . Mr.
Schilling has been a director of the Company since 1974.
Yitzhak N. Bachana, age 66, was President and Chief Executive
Officer of the Company from 1980 to October 2, 1998. Mr. Bachana has
been a director of the Company since 1976. Mr. Bachana is the
President, Chief Executive Officer and majority shareholder of Data
Probe, Inc., a New York based computer service bureau. Mr. Bachana is
also President and a Director of Datatab, Inc., a market research
company since 1983. Data Probe, Inc. and Datatab, Inc. are
publicly-held corporations. Pursuant to an agreement between Data
Probe, Inc. and the Company, dated May 7, 1976, the President of Data
Probe, Inc. is to be nominated as a management nominee for Director.
Bruce N. Whitman, age 65, has been Executive Vice President
and a Director of FlightSafety International, an aviation and marine
training company since 1962. He is also a Director of FlightSafety
Boeing Training International, L.L.C., Petroleum Helicopters, Inc.,
and Aviall, Inc. Mr. Whitman has been a director of the Company since
1997.
Paul L. Graziani, age 41, is the President and Chief Executive
Officer of Analytical Graphics, Inc., a leading producer of commercial
analysis software for the space industry. Mr. Graziani has been a
director of the Company since 1997.
John R. Keller, age 59, has been with the Company since its
inception in 1967 and currently serves as Executive Vice President,
Secretary, and Treasurer of the Company. Mr. Keller has been a director
of the Company since 1997.
COMMITTEES OF THE BOARD
The Company's board of Directors presently has standing Audit,
Compensation, and Executive Committees, the current membership and
principal responsibilities of which are described below. The Board of
Directors does not have a Nominating Committee.
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AUDIT COMMITTEE
Members: Mr. Graziani, Mr. Schilling, Mr. Whitman.
The Audit Committee's functions include reviewing with the
independent public accountants the plan for and results of their audit,
the adequacy of the Company's systems of internal accounting controls
and any material breakdown in such controls. In addition, the Audit
Committee reviews the independence of the independent public
accountants and their fees for services rendered to the Company.
COMPENSATION COMMITTEE
Members: Mr. Graziani, Mr. Schilling, Mr. Whitman.
The Compensation Committee's functions include setting
compensation of the directors and the executive officers. In addition,
the Compensation Committee has the authority to grant certain awards
under the Stock Incentive Plans in effect for the Company.
EXECUTIVE COMMITTEE
Members: Mr. Gilbert, Mr. Graziani, Mr. Keller, Mr. Whitman.
The Executive Committee was established in October 1998. The
Executive Committee's primary function is to assist management in
formulating the Company's strategy and such other corporate governance
functions as may be required and such other duties as may be designated
by the Board of Directors.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During the 1998 fiscal year the Board of Directors held 4
regular meetings and special meetings. The Audit, Compensation, and
Executive Committees did not meet separately from the Board during
Fiscal 1998. During the 1998 fiscal year each Director attended all the
regular and special meetings of the Board, except Mr. Graziani, who
attended 2 meetings in person and one by telephone.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are currently
paid $1,000 for each meeting of the Board of Directors attended in
person or by phone. Directors are also reimbursed for expenses to
attend meetings of the Board and its committees. Mr. Gilbert (effective
October 3, 1998) and Mr. Keller, who are employees of the Company,
receive no additional compensation for their services as Directors of
the Company. If the 1999 Stock Incentive Plan is approved by the
Company's shareholders, Directors who are not employees of the Company
will receive options to purchase 15,000 shares of common stock which
will vest over a three year period beginning on July 1, 2000. If the
1999 Stock Incentive Plan is approved, directors will be paid $500 for
each Board or Committee meeting attended.
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VOTING FOR DIRECTORS
Abstentions are included in the determination of the existence
of a quorum. Directors are elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and
entitled to vote on the election of Directors. An automated system
administered by the Company's transfer agent tabulates the votes.
Abstentions are not counted for purposes of election of directors.
EXECUTIVE OFFICERS
For information with respect to Mr. Gilbert and Mr. Keller,
who are also Directors, see "Election of Directors - Information
Concerning Directors and Nominees."
Dr. James A. Cole, age 58, is a Senior Vice President and the
Director of Research and Development of the Company since 1974. Dr.
Cole earned a Ph.D. in physics from Johns Hopkins University in 1966.
James T. Barry, age 37, has been a Vice President since 1998.
He is also a Vice President of Field Point Capital Management Company.
From 1989 to 1998, he was with DIANON Systems, Inc., most recently as
Vice President of Marketing.
Herbert E. Shaver, age 44, has been a consultant serving as
Controller of the Company since 1993 and an employee since September
1998. From 1973 until 1998, Mr. Shaver was a Vice President and
Controller of Datatab, Inc. He has been a Director of Datatab, Inc.
since 1985, and from 1983 until 1998, was the Controller of Data Probe,
Inc.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the
following named executive officers: the person who served as Chief
Executive Officer ("CEO") during 1998, and the two executive officers
other than the CEO serving at October 31, 1998 whose total salary
exceeded $100,000. The Company did not award or pay out any long term
compensation during 1996, 1997, or 1998.
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<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
OTHER ALL
NAME AND PRINCIPAL ANNUAL OTHER
POSITION YEAR(*) SALARY BONUS COMPENSATION COMPENSATION
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
G.S Beckwith Gilbert - President 1998 $ - - - $ 12,173 (1)
Yitzhak N. Bachana (7) 1998 $ 189,038 (2) - - $ 66,231 (3)
1997 100,000 (4) - - $ 26,923 (5)
1996 11,538 (6) - - -
John R. Keller - Executive Vice Pres. 1998 $ 119,423 - - -
1997 90,000 - - -
1996 93,462 - - -
Dr. James Cole - Sr. Vice Pres. - R&D 1998 $ 120,000 - - -
1997 96,346 - - -
1996 93,462 - - -
<FN>
(1) Represents earned but unpaid salary through October 31, 1998. Mr.
Gilbert became the Company's President and Chief Executive Officer
in October 1998.
(2) Includes repayment of all earned and previously accrued salary
through date of his resignation on October 2, 1998.
(3) Includes earned but unpaid salary as well as a severance
settlement through October 2, 1998.
(4) Does not include earned but unpaid salary of $ 84,615 as of
October 31, 1997.
(5) Represents partial repayment of earned and previously accrued
salary, the balance of which was paid in 1998 (see Footnote 2
above).
(6) Does not include earned but unpaid salary of $111,538 as of
October 31, 1996.
(7) Mr. Bachana resigned as President on October 2, 1998.
(*) Information is provided for the Company's fiscal year which ends
on October 31.
</FN>
</TABLE>
STOCK OPTION GRANTS
The following table shows, as to the named executive officers
of the Company, information about option grants in fiscal year 1998.
The Company, in fiscal year 1998, did not grant any Stock Appreciation
Rights to officers.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Alternative
Annual Rates of Stock to (f) and (g):
Price Appreciation Grant Date
Individual Grants for Option Term Value
- - ------------------------------------------------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying option/SARs
Options/ Granted to Exercise or Grant Date
SAR's Employees Base Price Expiration Present
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($) Value $ (1)
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Yitzhak N. Bachana 20,000 33% $0.38 29-Jan-03 $2,000 $4,600 $6,000
Dr. James A. Cole 20,000 33% $0.38 29-Jan-08 $4,800 $12,200 $7,000
John R. Keller 20,000 33% $0.38 29-Jan-08 $4,800 $12,200 $7,000
- - ------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) The fair value for these options was estimated at the date
of grant, using a Black Scholes option pricing model with the following
weighted average assumptions: risk-free interest rate of 5.0%, no
dividend yields on the Common Stock, volatility factors of the expected
market price of the Company's Common Stock of .029 and the weighted
average expected life of the options of approximately 8 years.
(2) The options granted Mr. Bachana in 1998 expired with his
resignation on October 2, 1998.
</FN>
</TABLE>
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table shows the aggregate option exercises in
the last fiscal year and fiscal year-end option values for the named
executive officers.
<TABLE>
<CAPTION>
Value
Realized
(Market Value of Unexercised
Price at Number of Securities In-The-Money Options at FY-
Exercise Underlying Unexercised End 1998 (based on FY-End Price
Sharesless Options at FY-end 1998 of $0.375/share ($) (1)
Acquired on Exercise
Name Exercise (#) Price)($) Exercisable Unexercisable Exercisable Unexercisable
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dr. James A. Cole -- -- 25,000 -- $ -- --
John R. Keller -- -- 27,500 -- $ -- --
- - ------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Computed based upon difference between aggregate fair market value
and aggregate exercise price.
</FN>
</TABLE>
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors of
Megadata Corporation (the "Committee") sets forth its report on
executive compensation below. The Committee report documents the
components of the Company's executive compensation programs and
describes the basis on which fiscal 1998 compensation determinations
were made by the Committee with respect to the executive officers of
the Company, including the executive officers that are named in the
compensation tables below.
COMPENSATION PROGRAM COMPONENTS
The Committee is responsible for setting and monitoring the
effectiveness of the compensation provided to the Company's executive
officers. In its decision-making, the Committee is guided by a
compensation philosophy designed to reward employees for the
achievement of business goals and the maximization of shareholder
returns. Specific levels of pay and incentive opportunity are
determined by the competitive market for executive talent, and, where
appropriate, the need to invest in the future growth of the business.
The compensation program, which provides incentives for executive
officers to achieve the short-term and long-term goals of the Company,
comprises two components: base salary and stock option awards.
BASE SALARY - Base pay levels are largely determined through
comparisons with companies of similar size. Actual salaries are based
on individual performance contributions within a tiered salary range
for each position that is established through job evaluation and
competitive comparisons.
STOCK OPTION PROGRAM - the Committee strongly believes that by
providing executives an opportunity to own shares of the Company stock,
the best interests of shareholders and executives will be closely
aligned. Therefore, all executives are eligible to receive stock
options from time to time giving them the right to purchase shares of
Common Stock of the Company at a specific price in the future. The
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number of stock options granted to executive officers is determined at
the discretion of the Committee based on the accomplishments of such
executives, their length of service with the Company, the number of
prior awards received by such officer, the relative value as well as
the exercise price of such awards, and the competitive practices. No
options can be currently issued since the 1988 Stock Option Plan
expired in April 1998. A new plan must be approved by the shareholders
in order to make this important form of compensation available to key
managers.
DISCUSSION OF 1999 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
Mr. Bachana, President and CEO of the Company until October 2,
1998, received a salary at an annual rate of $140,000. No review of Mr.
Bachana's performance or compensation was conducted by the Compensation
Committee in 1998. However, the Board of Directors, at its meeting of
January 28, 1998, did restore a salary reduction of $40,000 taken by
Mr. Bachana in 1994. Mr. Gilbert, elected President and CEO on October
2, 1998, currently receives a salary at an annual rate of $140,000.
Since Mr. Gilbert has only held this position since the resignation of
Mr. Bachana on October 2, 1998, the Committee has deferred evaluation
of his performance for a future period.
This report has been provided by the Compensation Committee of
the Board of Directors:
Mr. Graziani 0
Mr. Schilling 0
Mr. Whitman 0
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are not officers or
employees of the Company and receive no compensation other than in
their capacity as Directors. They have no other relationship with the
Company other than as directors and shareholders.
EMPLOYMENT AND SEVERANCE AGREEMENTS
All of the officers of the Company are employed on an at-will
basis.
A severance agreement was entered into between the Company and
Mr. Bachana on October 2, 1998 and has been filed with the Securities
and Exchange Commission separately under a current report on Form 8-K.
That Agreement provides the following remuneration to Mr.
Bachana (i) severance in the amount of $50,000 with payments ending in
March 1999, (ii) the surrender of a Company owned automobile to Mr.
Bachana at its fair market value established at the termination date,
(iii) the payment by the Company by March 31, 1999 of any accrued but
unpaid salary owed to Mr. Bachana through his termination date of
October 2, 1998. On March 31, 1999, the Company fulfilled its payment
obligations under the terms of the severance agreement.
In addition, Mr. Bachana will make himself available for
consulting services to the Company as requested through March 1999. Mr.
Bachana remains a Director and a Shareholder of the Company.
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PERFORMANCE GRAPH
The following graph compares the percentage changes in the
Company's cumulative total stockholder return on the Company's Common
Stock for the five year period ended October 31, 1998, with the
cumulative total return on the NASDAQ index and a peer group index for
the same period. In accordance with the rules of the Securities and
Exchange Commission, the returns are indexed to a value of $100 at
November 30, 1993 and assume that all dividends were reinvested.
CUMULATIVE TOTAL RETURN OF MEGADATA CORPORATION,
PEER GROUP AND NASDAQ MARKET INDEX
DOLLARS
- - -------------------------------------------------------------------------------
DATE MEGADATA PEER GROUP INDEX NASDAQ MARKET INDEX
- - -------------------------------------------------------------------------------
11/30/93 $100.00 $100.00 $100.00
01/31/94 $116.67 $100.21 $106.11
04/30/94 $116.67 $100.11 $97.28
07/31/94 $166.67 $98.39 $95.73
10/31/94 $400.00 $97.11 $103.06
01/31/95 $466.67 $89.40 $100.11
04/30/95 $283.33 $102.51 $111.88
07/31/95 $266.67 $114.98 $132.72
10/31/95 $266.67 $124.30 $137.34
01/31/96 $200.00 $144.10 $140.48
04/30/96 $66.67 $181.07 $157.81
07/31/96 $400.00 $168.45 $143.24
10/31/96 $800.00 $161.05 $161.92
01/31/97 $466.67 $183.79 $182.91
04/30/97 $600.00 $169.74 $167.12
07/31/97 $333.33 $216.11 $211.27
10/31/97 $533.33 $195.84 $211.24
01/31/98 $400.00 $174.78 $214.66
04/30/98 $666.67 $196.70 $247.67
07/31/98 $666.67 $141.95 $248.20
10/31/98 $400.00 $131.19 $234.81
Information is presented on a quarterly basis, beginning with
November 30, 1993, and assumes $100 was invested on November 30, 1993,
and reinvestment of dividends, if any.
The peer group of Megadata Corporation consists of the
following corporations: Stanford Communications (STII), Rockwell
International Corporation (ROK), and BF Goodrich Company (GR). Peer
group companies were selected without respect to size when compared to
the Company (they are all significantly larger than the Company), but
because the peer group company's product lines include products or
services that are similar to the products or services offered by the
Company.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 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 Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of Common
Stock and other equities of the Company. Officers, directors and
greater than ten percent shareholders are required to furnish the
Company with copies of all Sections 16(a) forms they file.
To the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company and representations
that no other reports were required during the fiscal year ended
October 31, 1998, all Section 16(a) reporting requirements applicable
to its officers, directors and greater than ten percent beneficial
shareholders were complied with.
OWNERSHIP OF VOTING STOCK BY MANAGEMENT
The following table sets forth the number of the shares of
the Company's common stock, $0.01 par value, beneficially owned by
all of the directors and executive officers of the Company and by
the directors and officers of the Company as a group as of April
30, 1999. Unless otherwise indicated below, each person indicated
in the table has sole voting and investment power with respect to
all shares included therein.
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (6) CLASS (1)
- - --------------------------------------------------------------------------------
<S> <C> <C>
G.S. Beckwith Gilbert 846,000 (2) 32.99
Yitzhak N. Bachana 10,000 (3) .39
John R. Keller 124,500 (4) 4.85
Richard R. Schilling,, Jr 3,000 0.11
James A. Cole 44,000 (5) 1.71
Bruce N. Whitman 93,000 3.62
Paul L. Graziani 7,000 0.27
Officers and Directors
as a Group (7 persons) 1,127,500 43.97
- - --------------------------------------------------------------------------------
<FN>
(1) For the purposes of this table, "percent of class" held by
each person has been calculated based on a total class equal to the sum
of (i) 2,511,600 shares of common stock issued and outstanding on April
30, 1999 plus (ii) for such person the number of shares of common stock
subject to stock options or warrants presently exercisable, or
exercisable within 60 days after April 30, 1999, held by that person.
(2) Mr. Gilbert has shared voting and investment power with
respect to 70,000 shares included in the table above.
- 12 -
<PAGE>
(3) Mr. Bachana is President, Chairman of the Board, and
majority shareholder of Data Probe, Inc. which owns 579,400 common
shares of the Company which are excluded from the foregoing table. See
"Ownership of Voting Stock by Certain Beneficial Owners".
(4) Includes Mr. Keller's options to purchase an aggregate of
27,500 shares, all of which options are immediately exercisable.
(5) Includes Dr. Cole's options to purchase an aggregate of
25,000 shares, all of which options are immediately exercisable.
(6) Does not include stock option amounts granted under the
proposed 1999 Stock Incentive Plan Proposal which is subject to
shareholder approval at the Annual Meeting.
</FN>
</TABLE>
OWNERSHIP OF VOTING STOCK BY CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the
only persons who, to the best knowledge of the Company as derived from
such persons filings with the Securities and Exchange Commission,
beneficially owned more than 5% of the common stock of the Company as
of April 30, 1999. Unless otherwise indicated below, each person
included in the table has sole voting and investment power with respect
to all shares included therein.
<TABLE>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER OF OWNERSHIP CLASS (1)
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common G.S. Beckwith Gilbert 846,000 (2) 32.99
Stock 66 Field Point Road
Greenwich, CT 06830
Common Data Probe, Inc. 579,400 (3) 22.59
Stock 49 East 21 Street
New York, NY 10010
- - -----------------------------------------------------------------------------------------
<FN>
(1) For the purposes of this table, "Percent of Class" held by each
person has been calculated based on a total class equal to the sum
of (i) 2,511,600 shares of common stock issued and outstanding on
April 30, 1999 plus (ii) for such person the number of shares of
common stock subject to stock options or warrants presently
exercisable, or exercisable within 60 days after April 30, 1999,
held by that person.
(2) Mr. Gilbert has shared voting and investment power with respect to
70,000 shares included in the table above.
(3) Yitzhak N. Bachana, a Director of the Company, owns 57.22% of the
outstanding shares of Data Probe, Inc. and by virtue thereof may
be deemed to be the beneficial owner of more than 5% of the
Company's outstanding shares. This amount does not include 10,000
shares personally held by Mr. Bachana.
(4) On April 28, 1999, Data Probe, Inc. agreed to sell 100,000
shares of Megadata Corporation Common Stock at $0.75 per share for
a total price of $75,000 to a group including Directors, Officers,
and Megadata Corporation. The transaction is expected to close in
early May 1999.
</FN>
</TABLE>
13
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period between September 18, 1996 and June 6, 1997 the
Company signed agreements with a private investor (the "Investor") that
provided for three loans of $100,000 each, of which $200,000 was
received in 1996 and $100,000 was received in 1997. The three notes
bore interest at a rate of 9% per annum, and were payable by July 30,
1997. In addition, as part of the above financings, stock warrants were
awarded for the purchase of up to 1,400,000 common shares at prices
between $0.71 and $1.25 per share. The warrants for 200,000 of such
shares (at $0.75 per share) would only be exercisable after the
purchase by the Investor of the first 700,000 shares. The warrant for
an additional 500,000 of such shares (at $1.25 per share) becomes
exercisable from November 1, 2000 through October 31, 2001, assuming
the prior exercise of the 200,000 share warrant.
On June 6, 1997, the Investor and his affiliate purchased
700,000 shares for $0.71 per share, for a total of $500,000 ($400,000
in cash and $100,000 by cancellation of the first $100,000 note).
On October 31, 1997, the Investor and two other directors
purchased 200,000 shares for $150,000. The purchase of these shares
made effective the stock purchase warrant, that gives the Investor and
his affiliates the right to purchase 500,000 shares at $1.25 per share.
This warrant expires October 31, 2001, and is exercisable during the
year preceding expiration.
On July 30, 1997, the remaining notes totaling $200,000 were
amended and restated by a new note bearing interest at 9% per annum,
with quarterly payments of $25,000 plus accrued interest due on the
last business day of each calendar quarter, commencing December 31,
1997, with any remaining balance being due July 30, 1999. The note is
secured by the Company's assets excluding its building.
During 1997, the Investor was elected a director of the
Company and Chairman of the Board. On October 2, 1998, the Investor was
named to the additional post of President and Chief Executive Officer.
During the first quarter of fiscal 1999, the Investor made
additional loans to the Company aggregating $400,000 The loans are
evidenced by promissory notes issued by the Company which are payable
quarterly, maturing at various dates from March 31, 2000 through
December 31, 2000. The Investor advanced the Company $425,000
subsequent to January 31, 1999. As of April 30, 1999, after making the
required principal payments on December 31, 1998, and March 31, 1999,
together aggregating $75,000, the total notes payable due to the
Investor is $950,000.
During the quarter ended January 31, 1999, the Company
reimbursed Field Point Capital Management Company ("FPCM"), an entity
controlled by the Investor, for sales and marketing services rendered
by an employee of FPCM approximating $27,000.
The Company is also leasing space from FPCM. During the first
quarter of fiscal 1999, the rent to be paid by the Company to FPCM
aggregated $3,000. Effective February 1, 1999, the Company will pay
FPCM rent of $2,000 per month on a month to month basis.
On April 28, 1999, Data Probe, Inc. agreed to sell 100,000
shares of Megadata Corporation Common Stock at $0.75 per share for a
total price of $75,000 to a group including Directors, Officers, and
Megadata Corporation. The transaction is expected to close in early May
1999.
14
<PAGE>
RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS APPOINTMENT
For the Fiscal year ended 1997, and for at least the five
years prior, Ghassemi, Phoel & Company had been the independent public
auditors of the Company's accounts. Along with the changes of the
Company's management on October 2, 1998, the Board of Directors voted
to engage Ernst & Young, LLP to audit the Company's accounts.
Ernst & Young, LLP has been the independent public
auditors of the Company's accounts since 1998. Such firm has no
financial interest, either direct or indirect, in the Company.
Selection of Ernst & Young, LLP as the auditors for the fiscal year
ending October 31, 1999 was made by the Board of Directors, subject to
shareholder ratification. A representative of Ernst & Young, LLP is
expected to attend the annual meeting and have an opportunity to make a
statement and/or respond to appropriate questions from shareholders.
The Company's Board of Directors recommends that
shareholders vote "FOR" ratification of Ernst & Young, LLP as the
Company's independent public accountants for 1999. Approval of the
ratification of the independent public accountants' appointment
requires the affirmative vote of a majority of the votes cast at the
meeting. Abstentions will have no effect on the vote.
1999 STOCK INCENTIVE PLAN PROPOSAL
The Company's 1998 Stock Option Plan expired in April 1998. On
March 23, 1999, the Board of Directors adopted, subject to stockholder
approval, the 1999 Stock Incentive Plan (the "Plan"). The Plan, a copy
of which is attached as Exhibit A, will authorize the Company to grant
to its employees, outside (non-employee) directors and consultants
stock options, stock appreciation rights, restricted stock, deferred
stock and bonus stock for up to 250,000 shares of the Company's Common
Stock , of which 175,000 shares will be available for awards for
employees and 75,000 shares will be available for awards to outside
directors and consultants.
The purposes of the Plan are (i) to enable the Company and its
related companies to attract, retain and reward employees and
strengthen the existing mutuality of interest between such employees
and the Company's stockholders by offering such employees an equity
interest in the company; (ii) to enable the Company to pay all or part
of the compensation of its outside directors in shares of the Company's
Common Stock and options to purchase the Company's Common Stock,
thereby increasing such director's proprietary interest in the Company;
and (iii) to enable the Company to pay part of the compensation of its
consultants in shares of the Company's Common Stock and options to
purchase the Company's Common Stock, thereby increasing such
consultant's proprietary interest in the Company. The Plan is intended
to comply with the requirements of Section 162(m) of the Internal
Revenue Code of 1986 as amended (the "Code").
DESCRIPTION OF THE PLAN
The Plan will be administered by the Board of Directors or such
committee of Directors as the Board shall designate. The Board of
Directors or such committee will determine whether and to what extent
awards will be granted under the Plan.
15
<PAGE>
Employees, including officers, are eligible to participate in
the Plan on the terms and conditions of the Plan. Outside directors and
consultants may also participate in the Plan, but outside directors are
eligible to receive only non-qualified stock options, limited stock
appreciation rights and stock grants as provided in the Plan, and
consultants are eligible to receive only non-qualified stock options
and stock grants as provided in the Plan.
Awards granted by the Compensation Committee after approval by
the Board of Directors may include: (i) options to purchase shares of
Common Stock in the form of incentive stock options within the meaning
of Section 422 of the Code or any successor provision thereto ("ISO's")
or non-qualified stock options ("NQSO's"); (ii) stock appreciation
rights ("SAR's"); (iii) restricted stock; (iv) deferred stock; (v)
bonus stock; (vi) loans; and/or (vii) tax offset payments.
No employee will be granted awards under the Plan with respect
to more than 100,000 shares of common stock in any fiscal year
Under the Plan, each outside director will automatically be
granted the following:
(i) On the date of adoption of the Plan by the stockholders
(if a current director) or on the date elected by the board of (if not
a current director), options to acquire 15,000 shares unless a lesser
amount is approved by the Board for outside directors who are not
currently on the Board. The current directors options will be priced at
$0.15, the price on March 24, 1999; and
(ii) A limited stock appreciation right ("LSAR") in tandem
with each stock option granted, which may be exercised only within the
60-day period following a change in control (as defined in the Plan) of
the Company. Upon exercising an LSAR, the holder will receive an amount
equal to the excess of the change of control price (as defined in the
Plan) over the exercise price of the option.
The exercise price per share of an outside director's option
will be the closing sales price of the common stock on the date the
option is granted. Each director's option will have a term of 10 years
from the date of grant, and will vest with respect to 33-1/3% of the
shares subject to such option on the first, second, and third
anniversaries of the date of grant , provided the optionee is a
director of the Company on each such vesting date.
The option price per share of options granted to employees and
consultants under the Plan will be determined by the Board of Directors
after recommendation by the Compensation Committee. However, the per
share option price of an ISO will not be less than 100% of the fair
market value of a share of the Company's Common Stock at the time the
ISO is granted. In addition, no ISO will be exercisable more than ten
years after the date of grant.
In the event of an employee's termination of employment with
the Company, any outstanding options will be exercisable to the extent
determined by the Board of Directors as recommended by the Compensation
Committee.
If an outside director ceases to be a director for any reason,
the director's options may be exercised for three years following
termination of service but only to the extent such options were vested
on the date of termination of service.
Stock options or stock grants may be awarded to Consultants on
such terms and conditions as the Board of Directors may determine.
16
<PAGE>
The Board of Directors may award Bonus Stock to eligible
employees upon the attainment of specified performance objectives. The
Board of Directors as recommended by the Compensation Committee may
also provide that the Company make a loan to an employee or provide for
a Tax Offset Payment with respect to the exercise of any stock option
award under the Plan.
In the event of a Change of Control of the Company (as defined
in the Plan) and unless otherwise determined by the Board of Directors,
(i) all outstanding ISO's and NQSO's and all outstanding SAR's awarded
under the Plan will become fully exercisable and vested; (ii) the
restrictions and deferral limitations applicable to any outstanding
restricted stock and deferred stock awards under the Plan shall lapse
and such shares and awards shall be deemed fully vested; and (iii) to
the extent the cash payment of any award is based on the fair market
value of Common Stock, such fair market value will be the highest price
per share paid in any market transaction or the price paid or offered
in the transaction related to the change in control at any time during
the 90-day period ending with the Change of Control. All outside
directors' options outstanding at the time of a change in control will
become immediately vested and exercisable for three years after the
director's termination of service.
The Board may discontinue the Plan at any time and may amend
it from time to time. No amendment or discontinuation of the Plan shall
adversely affect any award previously granted without the award
holder's written consent. Amendments made be made to the Plan without
stockholder approval except as may be required under the Securities
Exchange Act of 1934, as amended, the Internal Revenue Code of 1986, as
amended, or other regulatory requirements. Unless earlier terminated,
the Plan will expire ten years from March 23, 2009.
The following table sets forth the number of stock options and
the value thereof that will be granted under Section 6 of the Plan to
the persons specified if the Plan is approved by the Company's
stockholders.
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION OPTIONS GRANTED DOLLAR VALUE
----------------- --------------- ------------
<S> <C> <C>
Yitzhak N. Bachana, Director 15,000 $ 2,250.00
Paul L. Graziani, Director 15,000 $ 2,250.00
Richard Schilling, Director 15,000 $ 2,250.00
Bruce N. Whitman, Director 15,000 $ 2,250.00
John R. Keller, Executive Vice President 12,500 $ 1,875.00
James A. Cole, Sr. Vice President 15,000 $ 2,250.00
James T. Barry, Vice President 40,000 $ 6,000.00
Herbert E. Shaver, Controller 15,000 $ 2,250.00
All Non-Employee Directors as a group 60,000 $ 9,000.00
All Executive Officers as a group 82,500 $ 12,375.00
All Employees (other than executive officers) -- $ --
- - -------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Certain United States Federal Income Tax Consequences
The following discussion applies primarily to participating
employees that are citizens or resident aliens (as defined in the Code)
of the United States whose tax home or abode (as defined in the Code)
is in the United States. The discussion is based on the Code and
applicable regulations thereunder in effect on the date hereof. Any
subsequent changes in the Code or such regulations may affect the
accuracy of this discussion. In addition, this discussion does not
consider any state, local or foreign tax consequences or any
circumstances that are unique to a particular Plan participant that may
affect the accuracy or applicability of this discussion.
18
<PAGE>
ISO's
(a) Neither the grant nor the exercise of an ISO will result
in taxable income to the employee or an income tax deduction to the
Company. The amount by which the fair market value of the shares issued
upon exercise exceeds the option price will constitute an item of
adjustment that must be taken into account in determining the
employee's alternative minimum tax.
(b) If the employee holds shares acquired by him or her upon
the exercise of an ISO until the later of two years from the date of
grant of the option and one year from such exercise and has been an
employee of the Company at all times from the date of grant of the ISO
to the day three months before such exercise (or twelve months in the
case of termination of employment due to disability), then any gain
realized by the employee on a later sale or exchange of such shares
will be a capital gain and any loss sustained will be a capital loss.
The Company will not be entitled to a tax deduction with respect to any
such sale or exchange of ISO shares.
(c) If the employee disposes of any shares acquired upon the
exercise of an ISO during the two-year period from the date of grant of
the option or the one-year period beginning on the day after such
exercise (i.e., a "disqualifying disposition"), the employee will
generally be obligated to report as ordinary income, for the year in
which the disposition occurred, the amount by which the fair market
value of such shares on the date of exercise of the option (or, as
noted in clause (d) below, in the case of certain sales or exchanges of
such shares for less than such fair market value, the amount realized
upon such sale or exchange) exceeds the option price, and the Company
will be entitled to an income tax deduction equal to the amount of such
ordinary income reported by the employee on his or her federal income
tax return.
(d) If an ISO holder who has acquired stock upon the exercise
of an ISO makes a disqualifying disposition of any such stock, and the
disposition is a sale or exchange with respect to which a loss (if
sustained) would be recognized by the ISO holder, then the amount
includable in the ISO holder's gross income, and the amount deductible
by the Company, will not exceed the excess (if any) of the amount
realized on the sale or exchange over the tax basis of the stock.
NQSO's
In the case of an NQSO, the grant of the option will not
result in taxable income to the option holder or an income tax
deduction to the Company. The NQSO holder generally recognizes ordinary
income at the time the NQSO is exercised in the amount by which the
fair market value of the shares acquired exceeds the option price. The
Company is generally entitled to a corresponding ordinary income tax
deduction, at that time, equal to the amount of such ordinary income.
SAR's
The granting of SAR's will not result in taxable income to
participating employees or an income tax deduction to the Company. The
exercise of a SAR for cash is immediately taxable to the grantee and
deductible by the Company. The exercise of a SAR for shares of Common
Stock is generally taxable and deductible in the same manner as the
exercise of a NQSO.
19
<PAGE>
Restricted Stock
An employee generally will not recognize any taxable income
upon the award of any restricted stock which is not vested. Dividends
paid with respect to restricted stock prior to the vesting of such
stock will be taxable as compensation income to the employee.
Generally, an employee will recognize ordinary income upon the vesting
of restricted stock in an amount equal to the fair market value of the
shares of Common Stock on the date they become vested. However,
pursuant to Section 83(b) of the Code, an employee may elect to
recognize compensation income upon the award of restricted stock based
on the fair market value of the shares of the Common Stock subject to
such award on the award date. If an employee makes such an election,
dividends paid with respect to such restricted stock will not be
treated as compensation, but rather as dividend income, and the
employee will not recognize additional income when the restricted
shares vest.
The Company will be entitled to an income tax deduction equal
to the amount of ordinary income included by the employee on his or her
federal income tax return for the year when the restricted stock vests
(or year in which an applicable Code Section 83(b) election is made).
The Company will also be entitled to a compensation deduction for the
dividends that are paid on restricted stock that has not yet vested (as
described in the immediately preceding paragraph) when such dividends
are reported by the employee on his or her federal income tax return.
Limitations on Company Deductions; Parachute Payments
Under Section 162(m) of the Code, certain compensation
payments in excess of $1 million are subject to a limitation on
deductibility by the Company. This limitation on deductibility applies
with respect to that portion of a compensation payment for a taxable
year in excess of $1 million to either the chief executive officer of
the Company or any one of the other four highest paid executive
officers who are employed by the Company on the last day of the taxable
year. However, certain "performance-based compensation" the material
terms of which are disclosed to and approved by stockholders is not
subject to this limitation on deductibility. The Company has structured
the stock option and SAR portions of the Plan with the intention that
compensation resulting therefrom would be such performance-based
compensation and would be deductible. To qualify, the Company is
seeking stockholder approval of the Plan. It is not intended that
compensation resulting from restricted stock awarded, or bonuses
payable in stock under the Plan, will be performance-based compensation
within the meaning of Section 162(m) of the Code.
Under certain circumstances, accelerated vesting or exercise
of options or SAR's, or the accelerated lapse of restrictions on
restricted stock, in connection with a "change in control" of the
Company might be deemed an "excess parachute payment" for purposes of
the golden parachute tax provisions of Section 280G of the Code. If
Section 280G applies, the optionee or grantee may be subject to an
excise tax equal to 20% of the amount of the excess parachute payment
and the Company may be denied a tax deduction.
Approval of the 1999 Stock Incentive Plan requires the
affirmative vote of a majority of the votes cast at the meeting. The
Company's Board of Directors recommends that shareholders vote "FOR"
approval of the 1999 Stock Incentive Plan.
20
<PAGE>
INCREASE OF AUTHORIZED SHARES PROPOSAL
The Company's Certificate of Incorporation currently
authorizes the issuance of 5,000,000 shares of Common Stock. As of
April 30, 1999, the Company had issued and outstanding 2,511,600 shares
of Common Stock and 552,500 shares of Common Stock were reserved for
issuance pursuant to outstanding options and warrants. The Company's
Board of Directors has proposed the approval and adoption of an
amendment to the Company's Certificate of Incorporation to increase the
total number of shares of Common Stock which the Company has the
authority to issue from 5,000,000 shares of Common Stock to 10,000,000
shares of Common Stock (the "Increased Shares Amendment"). The form of
amendment approved by the Board and to be considered at the annual
meeting is attached as Exhibit B to this Proxy Statement.
If the Increased Shares Amendment is approved by the Company's
stockholders, the increased number of authorized shares of common stock
will be available for such purposes and consideration as the Board may
approve without further stockholder approval, except such approval as
is required by law or the regulations of any securities exchange on
which the Company's shares may trade. Such purposes may include
additional public or private issuances of Common Stock or other
securities convertible into Common Stock in connection with financing
transactions, acquisitions and other corporate transactions as well as
stock dividends, warrants, stock option plans and other stock-based
incentive compensation programs (including the Incentive Equity Plan).
The availability of additional shares of Common Stock for issuance,
without the delay and expense of obtaining stockholder approval, will
afford the Company greater flexibility in acting upon opportunities and
transactions, if any, which may arise in the future. The Company has no
immediate plans, arrangements, commitments or understandings with
respect to the issuance of any of the additional shares of Common Stock
which would be authorized by the Increased Shares Amendment.
Stockholders do not have preemptive rights with respect to the
Common Stock. The issuance of Common Stock, or securities convertible
into common stock, on other than a pro rata basis would result in the
dilution of a present stockholder's interest in the Company.
The Company's Board of Directors has not proposed the
Increased Shares Amendment with the intention of using the additional
shares for anti-takeover purposes, although the additional shares could
be used to make it more difficult or to discourage an attempt to
acquire control of the Company.
The affirmative vote of a majority of all outstanding shares
of Common Stock voting at the annual meeting is required for the
adoption of the proposed amendment.
The Company's Board of Directors recommends that shareholders
vote "FOR" approval of the Amendment to the Company's Certificate of
Incorporation to increase the authorized number of shares of Common
Stock of the Company.
21
<PAGE>
TRANSFER RESTRICTION PROPOSAL
SUMMARY
The Board of Directors believes that the best
interests of the Company and its stockholders will be served by
adopting provisions in its Certificate of Incorporation that are
designed to restrict, until November 30, 2000, direct and indirect
transfers of Common Stock that could result in the imposition of
limitations on the use by the Company, for federal income tax purposes,
of net operating loss carryforwards ("NOLs") and other tax attributes
that are and will be available to the Company. Therefore, the Board of
Directors has unanimously approved and is recommending that the
shareholders approve and adopt an amendment to the Company's
Certificate of Incorporation in the form attached as Exhibit B to this
Proxy Statement (the "Transfer Restriction Amendment"). All the
Directors have indicated they will vote their shares in favor of this
Amendment. SHAREHOLDERS ARE ENCOURAGED TO CAREFULLY READ EXHIBIT B
WHICH SETS FORTH THE TRANSFER RESTRICTIONS.
The purpose of the Transfer Restriction Amendment is to
help ensure the continued availability of the Company's NOLs by seeking
to prevent an "Ownership Change", as defined under current Treasury
Department income tax regulations. In the event of an "Ownership
Change", the Company's ability to use its NOLs as offsets against its
future taxable income would be severely limited. Under current federal
and state laws and regulations, the Company is able to realize tax
deductions in an amount of up to 100% of the taxable income which it
offsets with NOLs. As of October 31, 1998, the Company had estimated
NOLs of $5.3 million for federal income tax purposes.
THE COMPANY'S NOLS AND SECTION 382
As of October 31, 1998, the Company had available NOLs of
$5.3 million to offset taxable income recognized by the Company in
periods after November 1, 1998. For federal income tax purposes, these
NOLs will expire in material amounts beginning in 2005. NOLs benefit
the Company by offsetting taxable income dollar-for-dollar by the
amount of the NOLs, thereby eliminating the federal corporate tax on
such income. The maximum federal corporate tax rate is currently 35%.
The benefit of a company's NOLs can be reduced or
eliminated under Section 382 of the Code. Section 382 limits the use of
losses and other tax benefits by a company that has undergone an
"ownership change," as defined in Section 382 (an "Ownership Change").
Generally, an Ownership Change occurs if one or more shareholders, each
of whom owns 5% or more in value of a company's capital stock, increase
their aggregate percentage ownership by more than 50 percentage points
over the lowest percentage of stock owned by such shareholders over the
preceding three-year period. For this purpose, all holders who each own
less than 5% of a company's capital stock are generally treated
together as one or more 5 percent shareholders. In addition, certain
constructive ownership rules, which generally attribute ownership of
stock to the ultimate beneficial owner thereof without regard to
ownership by nominees, trusts, corporations, partnerships or other
entities, or to related individuals, are applied in determining the
level of stock ownership of a particular shareholder. Special rules,
described below, can result in the treatment of options (including
warrants) as exercised if such treatment would result in an Ownership
Change. All percentage determinations are based on the fair market
value of a company's capital stock, including any preferred stock that
is voting or convertible or otherwise participates in corporate growth.
22
<PAGE>
Transactions in the public markets among shareholders
owning less than 5% of the equity securities are not included in the
calculation, but acquisitions by a shareholder causing that person to
become a 5% or more shareholder are treated as a 5 percentage point
change in ownership, regardless of the size of the purchase that caused
the threshold to be exceeded. For example, if a single shareholder
owning 10% of the equity securities of the Company acquired an
additional 50% of the equity securities in a three-year period, an
Ownership Change would occur. Similarly, if ten persons, none of whom
owned 5% or more of the equity securities at the beginning of the
period, each became an owner of at least 5% of the Company's equity
securities within the three-year period, an Ownership Change would have
occurred.
If an Ownership Change of the Company were to occur, the
amount of taxable income in any year (or portion of a year) subsequent
to the Ownership Change that could be offset by NOLs or other
carryovers existing (or "built-in") prior to such Ownership Change
could not exceed the product obtained by multiplying (i) the aggregate
value of the Company's stock immediately prior to the ownership change
with certain adjustments by (ii) the federal long-term tax exempt rate
(4.78% for April 1999). The Company would incur corporate income tax on
any taxable income during a given year in excess of such limitation.
Because the value of the Company's stock, as well as the federal
long-term tax-exempt rate, fluctuate, it is impossible to state exactly
the annual limitation upon the amount of taxable income of the Company
that could be offset by such NOLs or other items if an Ownership Change
were to occur on or subsequent to the Closing Date. However, at current
values and rates, an Ownership Change would result in the Company's
having available approximately $56,000 of NOLs for each year of the
NOLs' remaining life. As the Company's NOLs begin to expire in material
amounts in seven years, an Ownership Change at the current value of the
Company's stock would mean that the Company would lose the availability
of a very substantial portion of its existing NOLs. If an Ownership
Change were to occur based on current values and rates, a maximum of
$560,000 in NOLs would be available to the Company over a twenty-year
period, as opposed to the current $5.3 million. The effect of such an
Ownership Change would be to significantly defer the utilization of the
NOLs, cause a substantial portion of the NOLs to expire prior to their
use, accelerate the payment of federal income tax, and reduce
stockholders' equity.
DESCRIPTION OF THE TRANSFER RESTRICTION
THE FOLLOWING IS A BRIEF SUMMARY OF THE PROPOSED TRANSFER
RESTRICTIONS. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE PROPOSED TRANSFER RESTRICTIONS. ALL SHAREHOLDERS
ARE URGED TO READ THE TRANSFER RESTRICTIONS SET FORTH IN THE
ACCOMPANYING EXHIBIT B IN THEIR ENTIRETY.
Pursuant to the Transfer Restriction Amendment, a
provision (the "Prohibited Transfer Provision") will be added to the
Company's Certificate of Incorporation to protect against certain
transfers of equity securities which could cause an Ownership Change
prior to November 30, 2000. The Prohibited Transfer Provision would
apply to all classes of the Company's stock, except stock of the
Company specifically exempted. See "Prohibited Transfer Provision -
Exceptions to Prohibited Transfer Provision".
23
<PAGE>
PROHIBITED TRANSFER PROVISION
The Prohibited Transfer Provision contained in Article
Eighth of the Company's Certificate of Incorporation applies to
transfers of the Common Stock and any other instrument that would be
treated as "stock" (collectively, "382 Stock") prior to the expiration
date of the NOLs. Under the Prohibited Transfer Provision, if a
shareholder transfers or agrees to transfer 382 Stock, the transfer
will be prohibited and void to the extent that (i) such transfer would
cause the transferee to hold a "Prohibited Ownership Percentage" (as
defined in the Certificate of Incorporation) (ii) such transfer would
result in the tranferee's ownership increasing if the transferee has
held a Prohibited Ownership Percentage within the three prior years or
(iii) such transferee's ownership percentage already exceeds the
Prohibited Ownership Percentage under applicable federal income tax
rules.
A "Prohibited Ownership Percentage" is defined under the
Prohibited Transfer Provision by reference to complex federal tax laws
and regulations, but generally means the direct and indirect ownership
of 4.5% or more (based on value) of 382 Stock or any other percentage
that would cause a transferee to be considered to own 5 percent or more
of the Company's 382 Stock (such shareholder, a 5-Percent Shareholder)
under applicable federal income tax rules. This transfer restriction is
intended to prevent any person or group of persons from becoming a
"5-Percent Shareholder" of the Company and to prevent an increase in
the percentage of ownership of any existing person or group of persons
that constitutes a 5-Percent Shareholder. The Prohibited Transfer
Provision does not prevent the transfer of 382 Stock between persons
who do not hold a Prohibited Ownership Percent and contains certain
exceptions. The use of a 4.5% limitation rather that a 5% limitation is
intended to provide a margin of safety for market value fluctuations in
avoiding an Ownership Change. All certificates representing 382 Stock
that is subject to the restrictions of the Prohibited Transfer
Provision will bear a conspicuous legend reflecting such restrictions.
The acquisition of 382 Stock from an individual or entity
that is a 5-percent Shareholder would be deemed to result in the
identification of a separate, segregated "Public Group" which is a new
5-Percent Shareholder. Consequently, the Prohibited Transfer Provision
will prohibit certain transfers of equity interests by, and other
actions involving, persons having a Prohibited Ownership Percentage,
unless the transfer or other action is approved by the Company's Board
of Directors in advance or permitted by a Company Board resolution.
Transfers covered by the Prohibited Transfer Provision
include sales to persons whose resulting percentage ownership of shares
would exceed the thresholds discussed above, or to persons whose
ownership of shares would, by attribution, cause another person to
exceed such thresholds, as well as sales by persons who exceeded such
thresholds prior to the effectiveness of the restrictions. Numerous
rules of attribution, aggregation and calculation prescribed under the
Code (and related regulations) will be applied in determining whether
the 4.5 % threshold has been met and whether a group of less than 5%
shareholders will be treated as a "public group" that is a 5-Percent
Shareholder under Section 382. As a result of these attribution rules,
the transfer restrictions could result in prohibiting ownership of the
Company's stock as a result of a change in the relationship between two
or more persons or entities, or a transfer of an interest other than
the Company's stock, such as an interest in an entity that, directly or
indirectly, owns the Company's stock. The transfer restrictions may
also apply to proscribe the creation or transfer of certain "options"
in respect of the Company's stock generally to the extent that the
exercise of the option would result in a proscribed level of ownership.
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The transfer restrictions provide that the Company's
transfer agent shall not record any transfer of the Company's stock
purportedly transferred in excess of the threshold established in the
restrictions. The transfer agent also has the right, prior to and as a
condition to registering any transfers of the Company's stock on the
Company's stock transfer records, to request an affidavit from the
purported transferee regarding such transferee's actual and
constructive ownership of the Company's stock, and if the transfer
agent does not receive such affidavit or the affidavit evidences that
the transfer would violate the transfer restrictions, the transfer
agent is required to notify the Company and not to enter the transfer
in the Company's stock transfer records. These provisions may result in
the delay or refusal of certain requested transfers of the Company's
stock.
Although the Prohibited Transfer Provision is intended to
prevent transfers which would cause an Ownership Change, the Company
may not be able to prevent every transaction that would cause an
Ownership Change.
EXCEPTIONS TO THE PROHIBITED TRANSFER PROVISION. The
Prohibited Transfer Provision does not apply to any transfer that has
been approved in advance by the Company's Board of Directors, which is
made in compliance with certain exceptions set forth in the Prohibited
Transfer Provision or exceptions established from time to time by
resolutions of the Company's Board of Directors. The Board may permit
an otherwise prohibited transfer if it reasonably and in good faith
determines that a waiver would be in the best interests of the Company.
TREATMENT OF PROHIBITED TRANSFERS. In addition to avoiding
prohibited transfers, the Prohibited Transfer Provision provides a
method of nullifying the effect of certain prohibited transfers after
the transfers have purportedly occurred. If such a purported transfer
is made in violation of the Prohibited Transfer Provision, the
transferee (the "Purported Transferee") will not be recognized as the
owner of the 382 Stock, including for purposes of voting and receiving
dividends or other distributions in respect of such 382 Stock. If the
Company's Board of Directors determines that such a purported transfer
has violated the Prohibited Transfer Provision, the Company shall
require the purported transferee to surrender the relevant 382 Stock
and any dividends he or she has received on them to an agent designated
by the Board (the "Agent"). The Agent will sell the 382 Stock in an
arm's length transaction (on NASDAQ, if possible). If the Purported
Transferee has resold the 382 Stock before receiving the Company's
demand to surrender such 382 Stock, the Purported Transferee generally
will be required to transfer to the Agent the proceeds of the sale and
any distributions he or she has received on the 382 Stock. The net
proceeds of the sale, after deduction of all costs incurred by the
Company and the Agent, will be distributed first to the violating
shareholder in an amount equal to the lesser of such proceeds or the
cost incurred by the shareholder to acquire the 382 Stock, and the
balance of the proceeds, if any, will be distributed to charities
designated by the Company.
The Board may generally act as it deems advisable to
prevent or to refuse to give effect to transfers in violation of the
Prohibited Transfer Provision. For example, the Board may refuse to
recognize a transfer on the books of the Company or the Company may
institute proceedings to enjoin a transfer. In addition, if any person
knowingly violates the Prohibited Transfer Provision, then the Company
may collect from that person and all other persons controlling,
controlled by or under common control with such person the amount
necessary to put the Company in the same financial position as it would
have been in had such violation not occurred.
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ENFORCEABILITY OF THE PROHIBITED TRANSFER PROVISION
Pursuant to New York State law, a restraint on alienation
of corporate stock is generally enforceable so long as it effectuates a
lawful purpose, is reasonable and is in accordance with public policy.
The Company believes the Prohibited Transfer Provision is enforceable
and is in the best interests of the Company and its shareholders. The
Company will act vigorously to enforce the Prohibited Transfer
Provision against all current and future holders of the Company's stock
regardless of how they vote on the Prohibited Transfer Provision.
However, provisions similar to the Prohibited Transfer Provision have
not been tested in New York courts. Therefore, no assurance can be
given that the Prohibited Transfer Provision will be enforceable
against the Company's shareholders.
ANTI-TAKEOVER EFFECT
Because some corporate takeovers occur through the
purchase, in the public market or otherwise, by a potential acquirer of
sufficient stock to give it control of a company, any provision that
restricts the transferability of shares can have the effect of
preventing such a takeover. Prior to its expiration on November 30,
2000, the Prohibited Transfer Provision therefore may be deemed to have
an "anti-takeover" effect because it will restrict the ability of a
person, entity or group from accumulating 4.5% or more of the stock of
the Company in the aggregate and the ability of persons, entities or
groups now owning 4.5% or more of the stock of the Company from
acquiring additional securities. The Prohibited Transfer Provision
would discourage or prohibit accumulations of substantial blocks of
shares for which shareholders might receive a premium above market
value.
The indirect "anti-takeover" effect of the Prohibited
Transfer Provision is not the purpose of the Prohibited Transfer
Provision. The Board of Directors considers the Prohibited Transfer
Provision to be reasonable and in the best interests of the Company and
its shareholders because the Prohibited Transfer Provision reduces the
risk that the Company will be unable to utilize its available NOLs. In
the opinion of the Board of Directors, the fundamental importance to
the Company's shareholders of maintaining the availability of the NOLs
to the Company is a more significant consideration than the indirect
"anti-takeover" effect the Prohibited Transfer Provision may have.
POSSIBLE EFFECT ON LIQUIDITY OF STOCK
The Prohibited Transfer Provision will restrict a
shareholder's ability to acquire, directly or indirectly, additional
stock of the Company in excess of the specified limitations.
Furthermore, a shareholder's ability to dispose of his stock of the
Company may be restricted as a result of the Prohibited Transfer
Provision, and a shareholder's ownership of stock of the Company may
become subject to the Prohibited Transfer Provision as a result of
actions taken by persons related to that shareholder.
The affirmative vote of a majority of all outstanding
shares of Common Stock entitled to vote at the annual meeting is
required for the adoption of the proposed amendment.
The Company's Board of Directors recommends that
shareholders vote "FOR" approval of the Amendment to the Company's
Certificate of Incorporation to incorporate the Prohibited Transfer
Provision.
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SHAREHOLDER PROPOSALS
The eligibility of shareholders to submit proposals, the
proper subjects of shareholder proposals and other governing
shareholder proposals are regulated by the rules (the "Shareholder
Proposal Rules") adopted under Section 14 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Shareholder proposals
submitted pursuant to Rule 14a-8 under the Exchange Act for inclusion
in the Company's proxy materials for the 2000 Annual Meeting of
Shareholders must be received by the Company at its principal executive
office, 66 Field Point Road, Greenwich, CT 06830, no later than Friday,
January 7, 2000.
In addition, in accordance with recent amendments to the
Shareholder Proposal Rules, written notice of the shareholder proposals
to be submitted outside of Rule 14a-8 described above for consideration
at the 2000 Annual Meeting of Shareholders but not to be included in
the Company's proxy materials must be received by the Company, at the
address set forth in the preceding paragraph, on or before Friday,
March 17, 2000, in order to be considered timely for purposes of the
Shareholder Proposal Rules. The persons designated as proxies by the
Company in connection with 2000 Annual Meeting of Shareholders will
have discretionary voting authority with respect to any shareholder
proposal of which the Company did not receive timely notice.
COST OF SOLICITATION
The cost of soliciting proxies will be borne by the
Company. The Company will also reimburse brokerage firms and other
custodians, nominees and fiduciaries, if any, for reasonable
out-of-pocket expenses incurred by them in connection with forwarding
solicitation materials to beneficial owners of Common Stock held of
record by such persons. Solicitation by the Company will be primarily
by mail.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
A copy of the Company's Form 10-K for the fiscal year
ended October 31, 1998, including all statements and schedules (but
without exhibits), as filed with the Securities and Exchange
Commission, is included herewith.
The information under the headings "Compensation Committee
Report", Compensations Program Components", "Discussion of 1998
Compensation for the Chief Executive Officer" and "Performance Graph"
above shall not be deemed to be "soliciting material" or to be "filed"
with the Securities and Exchange Commission or subject to Regulation
14A or 14C, other than as provided in Item 402 of Regulation S-K, or to
the liabilities of Section 18 of the Securities Exchange Act of 1934,
as amended, and , unless specific references is made therein to such
headings, shall not be incorporated by reference into any filing under
the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended.
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EXHIBIT A
MEGADATA CORPORATION
1999 STOCK INCENTIVE PLAN
SECTION 1. PURPOSES
The purposes of the Megadata Corporation 1999 Stock Incentive
Plan (the "Plan") are (i) to enable Megadata Corporation (the
"Company") and its Related Companies (as defined below) to attract,
retain, and reward employees and strengthen the existing mutuality of
interests between such employees and the Company's stockholders by
offering such employees an equity interest in the Company, and (ii) to
enable the Company to pay part of the compensation of its Outside
Directors (as defined in Section 5.2) in shares of the Company's common
stock and options to purchase the Company's common stock, thereby
increasing such director's proprietary interests in the Company, and
(iii) to enable the Company to pay all or part of the compensation of
its Consultants (as defined in Section 5.2) in shares of the Company's
common stock and options to purchase the Company's common stock,
thereby increasing such Consultants proprietary interests in the
Company. For purposes of the Plan, a "Related Company" means any
corporation, partnership, joint venture or other entity in which the
Company owns, directly or indirectly, at least a 20% beneficial
ownership interest.
SECTION 2. TYPES OF AWARDS
2.1 Awards to employees under the plan may be in the form of (i) Stock
Options; (ii) Stock Appreciation Rights; (iii) Restricted Stock; (iv)
Deferred Stock; (v) Bonus Stock: (vi) Loans; and/or (vii) Tax Offset
Payments. Outside Directors may receive only Stock Options and Limited
Stock Appreciation Rights as provided in Section 15; Consultants may
receive only Stock Options and Consultants' Stock Grants as provided in
Section 15.6.
2.2 An eligible employee, Outside Director or Consultant may be granted
one or more types of awards, which may be independent or granted in
tandem. If two awards are granted in tandem, the employee, Outside
Director or Consultant may exercise (or otherwise receive the benefit
of) one award only to the extent he or she relinquishes the tandem
award.
SECTION 3. ADMINISTRATION
3.1 The Plan shall be administered by the Company's Board of Directors
(the "Board") or such committee of Directors as the Board shall
designate (the "Committee"), which shall consist of not less than three
Directors each of whom is (a) a disinterested person, as such term is
defined in Rule 16b-3 under the Securities Exchange Act of 1934 or any
successor rule, and (b) an outside director satisfying the requirements
of Section 162(m) of the Internal Revenue Code of 1986, as amended, or
any successor thereto (the "Code"). The members of the Committee shall
serve at the pleasure of the Board.
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3.2 The Committee shall have the following authority with respect to
awards under the Plan other than awards to Outside Directors: to
recommend awards to eligible employees and Consultants under the Plan;
to adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall deem advisable; to interpret
the terms and provisions of the Plan and awards granted under the Plan;
and to otherwise supervise the administration of the Plan. In
particular, and without limiting its authority and powers, except with
respect to awards to Outside Directors, the Committee shall have the
authority:
(a) to recommend whether and to what extent any award or
combination of awards will be granted hereunder, including whether any
awards will be granted in tandem with each other;
(b) to recommend the employees and Consultants to whom awards
will be granted;
(c) to recommend the number of shares of the common stock of
the Company (the "Stock") to be covered by each award granted hereunder
subject to the limitations contained herein;
(d) to recommend the terms and conditions of any award granted
hereunder, including, but not limited to, any vesting or other
restrictions based solely on such performance objectives (the
"Performance Objectives");
(e) to recommend the treatment of awards upon an employee's
(or Consultant's) retirement, disability, death, termination for cause
or other termination of employment;
(f) to recommend pursuant to a formula or otherwise the fair
market value of the Stock on a given date; provided, however, that if
the Committee fails to recommend or the Board of Directors fails to
make a determination, fair market value of the Stock on a given date
shall be the closing sale price on a given date, or if no such sale of
Stock occurs on such date, the weighted average of the closing sale
price on the nearest trading dates before and after such date;
(g) to recommend that awards equal to the amount of any
dividends declared with respect to the number of shares covered by an
award (i) will be paid to the grantee currently or (ii) will be
deferred and deemed to be reinvested or (iii) will otherwise be
credited to the grantee, or that the grantee has no rights with respect
to such dividends;
(h) to recommend whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an award
will be deferred either automatically or at the election of a grantee,
including providing for and determining the amount (if any) of deemed
earnings on any deferred amount during any deferral period;
(i) to recommend that the shares of Stock received as a result
of an award shall be subject to a right of first refusal, pursuant to
which the grantee shall be required to offer to the Company any shares
that the grantee wishes to sell, subject to such terms and conditions
as the Committee may specify;
(j) to recommend amendment of the terms of any award,
prospectively or retroactively; provided, however, that no amendment
shall impair the rights of the award holder without his or her written
consent; and;
(k) to recommend substitute new Stock Options for previously
granted Stock Options, or for options granted under other plans or
agreements, in each case including previously granted options having
higher option prices.
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All awards and the other matters identified above will require
the approval of the Company's Board of Directors, and the Board of
Directors shall have the authority to take any of the actions
identified above regardless of whether such action is recommended by
the Committee. The Board may delegate to the Committee any of the
powers of the Board specified herein.
Each option or Stock or other award granted under this Plan
shall be evidenced by an Option Agreement or Award Agreement between
the Company and the grantee of the award.
3.3 The Board shall have the right to designate awards as "Performance
Awards." Awards so designated shall be granted and administered in a
manner designed to preserve the deductibility of the compensation
resulting from such awards in accordance with Section 162(m) of the
Code. The grant or vesting of a Performance Award shall be subject to
the achievement of Performance Objectives established by the Board
based on one or more of the following criteria, in each case applied to
the Company on a consolidated basis and/or to a business unit, and
which the Board may use as an absolute measure, as a measure of
improvement relative to prior performance, or as a measure of
comparable performance relative to a peer group of companies; sales,
operating profits, operating profits before interest expense and taxes,
net earnings, earnings per share, return on equity, return on assets,
return on invested capital, total shareholder return, cash flow, debt
to equity ratio, market share, stock price, economic value added, and
market value added.
The Performance Objectives for a particular Performance Award
relative to a particular fiscal year shall be established by the Board
in writing no later than 90 days after the beginning of such year. The
Board's determination as to the achievement of Performance Objectives
relating to a Performance Objective shall be made in writing. The Board
shall have discretion to modify the Performance Objective or vesting
conditions of a Performance Award only to the extent that the exercise
of such discretion would not cause the Performance Award to fail to
qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code.
3.4 With respect to awards to Outside Directors, the Board shall have
the authority to interpret the Plan; to adopt, amend, and rescind
administrative regulations to further the purposes of the Plan; and to
take any other action necessary to the proper operation of the Plan.
However, the Board shall have no discretion to vary the amount or terms
of awards as set forth in Section 15, except as provided in Section
4.4.
3.5 All determinations made by the Board pursuant to the provisions of
the Plan shall be final and binding on all persons, including the
Company and Plan participants.
3.6 The Board may from time to time delegate to one or more officers of
the Company any or all of its authorities granted hereunder except with
respect to awards granted to persons subject to Section 16 of the
Securities and Exchange Act of 1934 or Performance Awards. The Board
shall specify the maximum number of shares that the officer or officers
to whom such authority is delegated may award.
SECTION 4. STOCK SUBJECT TO PLAN
4.1 The total number of shares with respect to which awards may be
issued under the Plan shall be 250,000 shares of the Company's common
stock, of which 175,000 shares shall be used for awards for employees
and 75,000 shares shall be used for awards to Outside Directors and
Consultants ( all subject to adjustments as provided below). Such
shares may consist of authorized but unissued shares or treasury
shares. The exercise of a Stock Appreciation Right for cash or the
payment of any other award in cash shall not count against this share
limit.
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4.2 To the extent a Stock Option terminates without having been
exercised, or an award terminates without the award holder having
received payment of the award, or shares awarded are forfeited, the
shares subject to such award shall again be available for distribution
in connection with future awards under the Plan. Shares of Stock equal
in number to the shares surrendered in payment of the option price, and
shares of Stock which are withheld in order to satisfy federal, state
or local tax liability, shall not count against the above limit, and
shall again be available for grants under the Plan.
4.3 No employee shall be granted Stock Options, Stock Appreciation
Rights, Restricted Stock, Deferred Stock, and/or Bonus Stock, or any
combination of the foregoing with respect to more than 100,000 shares
of Stock under the Plan in any fiscal year (subject to adjustment as
provided in Section 4.4). No employee shall be granted a Tax Offset
Payment in any fiscal year with respect to more than the number of
shares of Stock covered by awards granted to such employee in such
fiscal year.
4.4 In the event of any merger, reorganization, consolidation, sale of
substantially all assets, recapitalization, stock dividend, stock
split, spin-off, split-up, split-off, distribution of assets or other
change in corporate structure affecting the Stock, a substitution or
adjustment, as may be determined to be appropriate by the Board in its
sole discretion, shall be made in the aggregate number of shares
reserved for issuance under the Plan, the number of shares as to which
awards may be granted to any individual in any calendar year, the
number of shares subject to outstanding awards and the amounts to be
paid by award holders or the Company, as the case may be, with respect
to outstanding awards; provided, however, that no such adjustment shall
increase the aggregate value of any outstanding award. In the event of
a change described in this Section 4.4 occurs, the Board shall make the
appropriate adjustment in the awards previously granted and to be
granted to Outside Directors under the Plan; provided that no such
adjustment shall increase the aggregate value of any outstanding award.
SECTION 5. ELIGIBILITY
5.1 Employees of the Company or a Related Company, including employees
who are officers and/or directors of the Company, are eligible to be
granted awards under the Plan, other than under Section 15. Except as
provided in Section 5.2, persons who are not employees are not eligible
to be granted awards under the Plan. The participants under the Plan
shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible.
5.2 Awards under Section 15 of the Plan shall be made solely to Outside
Directors and Consultants. "Outside Director" shall mean any director
of the Company other than one who is an employee of the Company or a
Related Company. "Consultant" shall mean a person (other than an
Outside Director) who provides services to the Company or a Related
Company in a capacity other than that of an employee.
SECTION 6. STOCK OPTIONS
6.1 The Stock Options awarded to employees under the Plan may be of two
types: (i) Incentive Stock Options within the meaning of Section 422 of
the Code or any successor provision thereto; and (ii) Non-Qualified
Stock Options. To the extent that any Stock Option does not qualify as
an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.
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6.2 Subject to the following provisions, Stock Options awarded to
employees under the Plan shall be in such form and shall have such
terms and conditions as the Board may determine:
(a) OPTION PRICE. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Board, and
may not be less than the fair market value of the Stock on the date of
the award of the Stock Option.
(b) OPTION TERM. The term of each Stock Option shall be fixed
by the Board. However, unless determined to the contrary, the term of
the stock option shall be ten years from the date of grant, subject to
earlier termination in the event of termination of service.
(c) EXERCISABILITY. Stock Options shall be exercisable at such
time or times and subject to such terms as shall be determined by the
Board. The Board may waive such exercise provisions or accelerate the
exercisability of the Stock Option at any time in whole or in part.
However, unless determined to the contrary, all options shall vest
33-1/3% on each of the first, second, and third anniversary of the
grant provided however, that no option shall vest in whole or in part
prior to November 30, 2000. Any option granted prior to November 30,
1999, shall have its first anniversary date on November 30, 2000, with
subsequent anniversaries on each November 30th of the following years.
(d) METHOD OF EXERCISE. Stock Options may be exercised in
whole or in part at any time during the option period by giving written
notice of exercise to the Company specifying the number of shares to be
purchased, accompanied by payment of the purchase price. Payment of the
purchase price shall be made in such manner and on such terms as the
Board may provide in the award, which may include cash (including cash
equivalents), delivery of shares of Stock already owned by the optionee
or subject to awards hereunder, "cashless exercise", any other manner
permitted by law determined by the Board, or any combination of the
foregoing. If the Board determines that a Stock Option may be exercised
using shares of Restricted Stock, then unless the Board provides
otherwise, a number of the shares received upon such exercise equal to
the number of shares of restricted Stock so used shall be restricted in
accordance with the original terms of the Restricted Stock award.
(e) NO STOCKHOLDER RIGHTS. An optionee shall have neither
rights to dividends nor other rights of a stockholder with respect to
shares subject to a Stock Option until the optionee has given written
notice of exercise and has paid for such shares.
(f) NON-TRANSFERABILITY. Unless otherwise provided by the
Board, (i) Stock Options shall not be transferable by the optionee
other than by will or by the laws of descent and distribution, and (ii)
during the optionee's lifetime, all Stock Options shall be exercisable
only by the optionee or by his or her guardian or legal representative.
(g) TERMINATION OF EMPLOYMENT. Following the termination of an
optionee's employment with the Company or a Related Company, the Stock
Option shall be exercisable to the extent determined by the Board and
the Board may provide that upon termination of employment all options
and awards are forfeited and are no longer exercisable. The Board may
provide different post-termination exercise provisions with respect to
termination of employment for different reasons. The Board may provide
that, notwithstanding the option term fixed pursuant to Section 6.2(b),
a Stock Option which is outstanding on the date of an optionee's death
shall remain outstanding for an additional period after the date of
such death.
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6.3 Notwithstanding the provisions of Section 6.2, no Incentive Stock
Otpion shall (i) have an option price which is less than 100% of the
fair market value of the Stock on the date of the award of the
Incentive Stock Option, (ii) be exercisable more than ten years after
the date such Incentive Stock Option is awarded, or (iii) be awarded
more than ten years after the effective date of the Plan specified in
Section 19. No Incentive Stock Option granted to an employee who owns
more than 10% of the total combined voting power of all classes of
stock of the Company or any of its parent or subsidiary corporations,
as defined in Section 424 of the Code, shall (a) have an option price
which is less than 110% of the fair market value of the Stock on the
date of award of the Incentive Stock Option or (b) be exercisable more
than five years after the date such Incentive Stock Option is awarded.
SECTION 7. STOCK APPRECIATION RIGHTS
7.1 A Stock Appreciation Right awarded to an employee shall entitle the
holder thereof to receive payment of an amount, in cash, shares of
Stock or a combination thereof, as determined by the Board, equal in
value to the excess of the fair market value of the number of shares of
Stock as to which the award is granted on the date of exercise over an
amount specified by the Board. Any such award shall be in such form and
shall have such terms and conditions as the Board may determine. The
grant shall specify the number of shares of Stock as to which the Stock
Appreciation Right is granted.
7.2 The Board may provide that a Stock Appreciation Right awarded to an
employee may be exercised only within the 60-day period following
occurrence of a Change of Control (as defined in Section 17.2)(such
Stock Appreciation Right being referred to herein as a Limited Stock
Appreciation Right). The Board may also provide that in the event of a
Change of Control the amount to be paid upon an employee's exercise of
a Stock Appreciation Right shall be based on the Change of Control
Price (as defined in Section 17.3)
SECTION 8. RESTRICTED STOCK
Subject to the following provisions, all awards of Restricted Stock to
employees shall be in such form and shall have such terms and
conditions as the Board may determine:
(a) The Restricted Stock award shall specify the number of
shares of Restricted Stock to be awarded, the price, if any, to be paid
by the recipient of the Restricted Stock and the date or dates on
which, or the conditions upon the satisfaction of which, the Restricted
Stock will vest. The grant and/or the vesting of Restricted Stock may
be conditioned upon the completion of a specified period of service
with the Company or a Related Company, upon the attainment of specified
Performance Objectives or upon such other criteria as the Board may
determine.
(b) Stock certificates representing the Restricted Stock
awarded to an employee shall be registered in the employee's name, but
the Board may direct that such certificates be held by the Board on
behalf of the employee. Except as may be permitted by the Board, no
share of Restricted Stock may be sold, transferred, assigned, pledged
or otherwise encumbered by the employee until such share has vested in
accordance with the terms of the Restricted Stock award. At the time
Restricted Stock vests, a certificate for such vested shares shall be
delivered to the employee (or his or her designated beneficiary in the
event of death), free of all restrictions.
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(c) The Board may provide that the employee shall have the
right to vote or receive dividends on Restricted Stock. Unless the
Board provides otherwise, Stock received as a dividend on, or in
connection with a stock split of, Restricted Stock shall be subject to
the same restrictions as the Restricted Stock.
(d) Except as may be provided by the Board, in the event of an
employee's termination of employment before all of his or her
Restricted Stock has vested, or in the event any conditions to the
vesting of Restricted Stock have not been satisfied prior to any
deadline for the satisfaction of such conditions set forth in the
award, the shares of Restricted Stock which have not vested shall be
forfeited, and the Board may provide that (i) any purchase price paid
by the employee shall be returned to the employee or (ii) a cash
payment equal to the Restricted Stock's fair market value on the date
of forfeiture, if lower, shall be paid to the employee.
(e) The Board may waive, in whole or in part, any or all of
the conditions to receipt of, or restrictions with respect to, any or
all of the employee's Restricted Stock, other than Performance Awards
whose vesting was made subject to satisfaction of one or more
Performance Objectives (except that the Board may waive conditions or
restrictions with respect to Performance Awards if such waiver would
not cause the Performance Award to fail to qualify as
"performance-based compensation" within the meaning of Section 162(m)
of the Code).
SECTION 9. DEFERRED STOCK AWARDS
Subject to the following provisions, all awards of Deferred
Stock to employees shall be in such form and shall have such terms and
conditions as the Board may determine:
(a) The Deferred Stock award shall specify the number of
shares of Deferred Stock to be awarded to any employee and the duration
of the period (the "Deferral Period") during which, and the conditions
under which, receipt of the Stock will be deferred. The Board may
condition the grant or vesting of Deferred Stock, or receipt of Stock
or cash at the end of the Deferral Period, upon the attainment of
specified Performance Objectives or such other criteria as the
Committee may determine.
(b) Except as may be provided by the Board, Deferred Stock
awards may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Deferral Period.
(c) At the expiration of the Deferral Period, the employee (or
his or her designated beneficiary in the event of death) shall receive
(i) certificates for the number of shares of Stock equal to the number
of shares covered by the Deferred Stock award, (ii) cash equal to the
fair market value of such Stock, or (iii) a combination of shares and
cash, as the Committee may determine.
(d) In the event of an employee's termination of employment
before the Deferred Stock has vested, his or her Deferred Stock award
shall be forfeited.
(e) The Board may waive, in whole or in part, any or all of
the conditions to receipt of, or restrictions with respect to, Stock or
cash under a Deferred Stock award, other than with respect to
Performance Awards (except that the Board may waive conditions or
restrictions with respect to Performance Awards if such waiver would
not cause the Performance Award to fail to qualify as
"performance-based compensation" within the meaning of Section 162(m)
of the Code).
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SECTION 10. BONUS STOCK
The Committee may award Bonus Stock to an eligible employee
subject to such terms and conditions as the Committee shall determine,
provided no person who is the beneficial owner of 5% or more of the
outstanding shares of the Company shall be entitled to receive such an
award. The grant of Bonus Stock may be conditioned upon the attainment
of specified Performance Objectives or upon such other criteria as the
Committee may determine. The Board may waive such conditions in whole
or in part other than with respect to Performance Awards (except that
the Board may waive conditions or restrictions with respect to
Performance Awards if such waiver would not cause the Performance Award
to fail to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code). The Board shall also have the
right to eliminate or reduce the amount of Bonus Stock otherwise
payable under an award. Unless otherwise specified by the Board, no
money shall be paid by the recipient for Bonus Stock. Alternatively,
the Board may offer eligible employees the opportunity to purchase
Bonus Stock at a discount from its fair market value. The Bonus Stock
award shall be satisfied by the delivery of the designated number of
shares of Stock which are not subject to restriction.
SECTION 11. LOANS
The Board may provide (except with respect to a person who is
the beneficial owner of 5% or more of the outstanding shares of the
Company) that the Company shall make, or arrange for, a loan or loans
to an employee with respect to the exercise of any Stock Option award
under the Plan, with respect to the payment of the purchase price, if
any, of any Restricted Stock awarded hereunder or with respect to any
taxes arising from an award hereunder: provided, however, that the
Company shall not loan to an employee more than the sum of (i) the
excess of the purchase or exercise price of an award over the par value
of any shares of Stock awarded plus (ii) the amount of any taxes
arising from such award. The Board shall have full authority to decide
whether a loan will be made hereunder and to determine the amount, term
and provisions of any such loan, including the interest rate to be
charged, whether the loan will be with or without recourse against the
borrower, any security for the loan, the terms on which the loan is to
be repaid and the conditions, if any, under which the loan may be
forgiven.
SECTION 12. TAX OFFSET PAYMENTS
The Board may provide for a Tax Offset Payment by the Company
to an employee (except with respect to a person who is the beneficial
owner of 5% or more of the outstanding shares of the Company) with
respect to one or more awards granted under the Plan. The Tax Offset
Payment shall be in an amount specified by the Board, which shall not
exceed the amount necessary to pay the federal, state, local and other
taxes payable with respect to the applicable award and the receipt of
the Tax Offset Payment, assuming that the employee is taxed at the
maximum tax rate applicable to such income. The Tax Offset Payment
shall be paid solely in cash.
SECTION 13. ELECTION TO DEFER AWARDS
The Board may permit an employee to elect to defer receipt of
an award for a specified period or until a specified event, upon such
terms as are determined by the Board.
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SECTION 14. TAX WITHHOLDING
14.1 Each employee shall, no later than the date as of which the value
of an award first becomes includible in such person's gross income for
tax purposes, pay to the Company, or make arrangements satisfactory to
the Board regarding payment of any federal, state, local or other taxes
of any kind required by law to be withheld with respect to the award.
The obligations of the Company under the Plan shall be conditional on
such payment or arrangements, and the Company (and, where applicable,
any Related Company), shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise
due to the employee.
14.2 To the extent permitted by the Board, and subject to such terms
and conditions as the Board may provide, an employee may elect to have
the withholding tax obligations, or any additional tax obligation with
respect to any awards hereunder, satisfied by (i) having the Company
withhold shares of Stock otherwise deliverable to such person with
respect to the award or (ii) delivering to the Company shares of
unrestricted Stock. Alternatively, the Board may require that a portion
of the shares of Stock otherwise deliverable be applied to satisfy the
withholding tax obligations with respect to the award.
SECTION 15. STOCK OPTIONS, LIMITED STOCK APPRECIATION RIGHTS AND
STOCK GRANTS FOR OUTSIDE DIRECTORS AND CONSULTANTS
15.1 (a) INITIAL GRANT. Each person who is an Outside Director on the
date of adoption of the Plan by the Stockholders shall be granted
automatically (without action of the Board) on such date a Stock Option
to purchase 15,000 shares. Each person who becomes an Outside Director
after such date shall be granted, on the first trading day coincident
with or immediately following the effective date of his or her election
as an Outside Director, a Stock Option to purchase 15,000 shares, or
such lesser amount as is approved by the Board of Directors.
(b) For purposes of this Section 15.1, the term trading day
shall mean a day on which the Stock is traded on a national securities
exchange, on the NASDAQ National Market, or in the over-the-counter
market.
15.2 Stock Options granted under this Section 15 shall be Non-Qualified
Stock Options, and shall have the following terms and conditions:
(a) OPTION PRICE. The option price per share of Stock
purchasable under the Stock Option shall be equal to the closing sales
price of the Stock on the date the Stock Option is granted.
(b) TERM OF OPTION. The term of the Stock Option shall be ten
years from the date of grant, subject to earlier termination in the
event of termination of service, as set forth in paragraphs (e) and (f)
below.
(c) EXERCISABILITY. Subject to paragraphs (e) and (f) below,
each Stock Option granted to an Outside Director currently serving
shall vest with respect to 33-1/3% of the underlying shares on November
30, 2000, and an additional 33-1/3% on November 30, 2001, and the
balance on November 30, 2002, provided that the optionee is a director
of the Company on each such date. The minimum number of shares with
respect to which a Stock Option may be exercised is the lesser of 100
shares or the number of shares then subject to the Stock Option.
Options granted subsequently shall vest 33-1/3% on each of the first,
second, and third anniversaries of the date of grant, but in no event
prior to November 30, 2000. Any option granted prior to November 30,
1999, shall have its first anniversary date on November 30, 2000, with
subsequent anniversaries on each November 30th of the following years.
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(d) METHOD OF EXERCISE. The Stock Options may be exercised in
whole or in part at any time during the option period by giving written
notice of exercise to the Company specifying the number of shares to be
purchased, accompanied by payment of the purchase price. Payment of the
purchase price shall be made in cash (including cash equivalents) or by
delivery of shares of Stock already owned by the optionee for at least
six months, or by any combination or the foregoing. Shares delivered
upon payment of the exercise price shall be valued at the average of
the high and low sales price of the Stock on the date of exercise (or,
if the Stock is not traded on such date, at the weighted average of the
high and low prices on the nearest trading dates before and after such
date).
(e) TERMINATION OF SERVICE OF DIRECTORS. If an Outside
Director's status as a director is terminated for any reason, such
director's Stock Options may be exercised for three years following
such termination of service (but not beyond the Option term), but only
to the extent such Options were vested on the date of termination of
service.
(f) CHANGE OF CONTROL. Notwithstanding any other provision of
the Plan, upon the occurrence of a Change of Control (as defined in
Section 17.2), all Outside Directors' Stock Options outstanding at the
time of such Change of Control shall become immediately vested and
exercisable for three years after the director's termination service
(but not beyond the option term).
(g) NON-TRANSFERABILITY. Outside Directors' Stock Options
shall not be transferable by the optionee other than by laws of descent
and distribution. During an optionee's lifetime, all Outside Directors'
Stock Options shall be exercisable only by the optionee or by his or
her guardian or legal representative.
(h) SHAREHOLDER RIGHTS. The holder of an Outside Directors'
Stock Option shall, as such, have none of the rights of a shareholder.
15.3 LIMITED STOCK APPRECIATION RIGHTS IN TANDEM WITH OPTIONS. Each
Stock Option granted to an Outside Director under this Section 15 shall
be granted in tandem with a Limited Stock Appreciation Right which may
be exercised only within the 60-day period following a Change of
Control (as defined in Section 17.2). Upon exercise of the Limited
Stock Appreciation Right, the holder shall receive, for each share with
respect to which the Limited Stock Appreciation Right is exercised, an
amount equal in value to the excess of the Change of Control Price (as
defined in Section 17.3) over the exercise price of the related Stock
Option. The Limited Stock Appreciation Right shall be payable solely in
cash, and shall be within 30 days of the exercise of the Limited Stock
Appreciation Right.
15.4 Notwithstanding the foregoing, if on any date on which awards are
to be granted under this Section 15 the remaining shares available for
issuance to Outside Directors and consultants are insufficient to
enable each Outside Director to receive the Stock Option and/or
Quarterly Stock Grant to which he or she is entitled, then: (a) no
award shall be made on such date to any Consultant; and (b) each
Outside Director who is entitled to be granted an award pursuant to
this Section 15 on such date shall be granted a Stock Option to
purchase and/or a Quarterly Stock Grant with respect to, his or her pro
rata portion of such remaining shares.
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15.5 From time to time the Board, at its sole discretion, may elect to
award to Consultants of the Company, Stock Options to purchase shares
of the Company's Stock. In addition, the Board, at its sole discretion,
may award shares of Stock to such Consultants. These awards may be
granted whenever the Board determines that issuing such options or
shares will be in the best interests of the Company, or as a direct
payment to be made the Consultant in lieu of a cash payment for
services to be rendered to the Company. Such Awards granted to
Consultants under this section will be considered non repetitive, "one
time" awards, and will carry with them such terms, conditions, and
restrictions as the Board shall prescribe, provided however, that Stock
options granted to Consultants shall also be subject to Section 15.2
(as applicable).
SECTION 16 AMENDMENTS AND TERMINATION
The Board may discontinue the Plan at any time and may amend
it from time to time. No amendment or discontinuation of the Plan shall
adversely affect any award previously granted without the award
holder's written consent. The provisions of Section 15 shall not be
amended more than once every six months, other than to conform with the
Internal Revenue Code, the Employee Retirement Income Security Act, or
the rules thereunder. Amendments may be made without stockholder
approval except as required to satisfy Rule 16b-3 under the Securities
Exchange Act of 1934 (or any successor rule), Sections 162(m) or 422 of
the Code, or other regulatory requirements.
SECTION 17. CHANGE OF CONTROL
17.1 In the event of a Change of Control, unless otherwise determined
by the Board at the time of grant or by amendment (with the holder's
consent) of such grant:
(a) all outstanding Stock Options and all outstanding Stock
Appreciation Rights (including Limited Stock Appreciation Rights)
awarded under the Plan shall become fully exercisable and vested;
(b) the restrictions and deferral limitations applicable to
any outstanding Restricted Stock and Deferred Stock awards under the
Plan shall lapse and such shares and awards shall be deemed fully
vested; and
(c) to the extent the cash payment of any award is based on
the fair market value of Stock, such fair market value shall be the
Change of Control Price.
17.2 A "Change of Control" shall be deemed to occur subsequent to
the date of the Plan on:
(a) the date that any person or group deemed a person under
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934
(other than the Company and its subsidiaries as determined immediately
prior to that date) has become the beneficial owner, directly or
indirectly (with beneficial ownership determined as provided in Rule
13d-3, or any successor rule, under the Securities Exchange Act of
1934) of securities of the Company representing 25% or more of the
total combined voting power of all classes of stock of the Company
having the right under ordinary circumstances to vote at an election of
the Board, unless such person has acquired 80% or more of such
securities directly from the Company;
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(b) the date on which one-third or more of the members of the
Board shall consist or persons other than Current Directors (for these
purposes, a "Current Director" shall mean a member of the Board on the
effective date of the Plan, as well as any member of the Board whose
nomination or election has been approved by a majority of the Current
Directors then on the Board);
(c) consummation of a merger or consolidation of the Company
with another corporation where the Company is not the surviving entity
and where (i) the stockholders of the Company, immediately prior to the
merger or consolidation, would not beneficially own, immediately after
the merger or consolidation, shares entitling such stockholders to 50%
or more of all votes (without consideration of the rights of any class
of stock to elect directors by a separate class vote) to which all
stockholders of the corporation issuing cash or securities in the
merger or consolidation would be entitled in the election of directors,
or (ii) where the members of the Board, immediately prior to the merger
or consolidation, would not, immediately after the merger or
consolidation constitute a majority of the Board of Directors of the
corporation issuing cash or securities in the merger; or
(d) consummation of an agreement providing for the sale or
disposition of all or substantially all of the assets of the Company.
17.3 "Change of Control Price" means the highest price per share paid
in any transaction reported in the NASDAQ National Market or on any
national securities exchange where the Stock is traded, or paid or
offered in any transaction related to a Change of Control at any time
during the 90-day period ending with the Change of Control.
Notwithstanding the foregoing sentence, in the case of Stock
Appreciation Rights granted in tandem with Incentive Stock Options, the
Change of Control Price shall be the highest price paid on the date on
which the Stock Appreciation Right is exercised.
SECTION 18. GENERAL PROVISIONS
18.1 Each award under the Plan shall be subject to the requirement
that, if at any time the Board shall determine that (i) the listing,
registration or qualification of the Stock subject or related thereto
upon any securities exchange or under any state or federal law, or (ii)
the consent or approval of any government regulatory body or (iii) an
agreement by the recipient of an award with respect to the disposition
of Stock is necessary or desirable (in connection with any requirement
or interpretation of any federal or state securities law, rule or
regulation) as a condition of, or in connection with, the granting of
such award or the issuance, purchase or delivery of Stock thereunder,
such award shall not be granted or exercised, in whole or in part,
unless such listing, registration, qualification, consent, approval or
agreement shall have been effected or obtained free of any conditions
not acceptable to the Board.
18.2 Nothing set forth in this Plan shall prevent the Board from
adopting other or additional compensation arrangements. Neither the
adoption of the Plan nor any award hereunder shall confer upon any
employee, Outside Director or Consultant any right to continued service
in any capacity.
18.3 Determinations by the Board under the Plan relating to the form,
amount, and terms and conditions of awards need not be uniform, and may
be made selectively among persons who receive or are eligible to
receive awards under the Plan, whether or not such persons are
similarly situated.
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18.4 No member of the Board or the Committee, nor any officer or
employee of the Company acting on behalf of the Board or the Committee,
shall be personally liable for any action, determination or
interpretation taken or made with respect to the Plan, and all members
of the Board or the Committee and all officers or employees of the
Company acting on their behalf shall, to the extent permitted by law,
be fully indemnified and protected by the Company in respect of any
such action, determination or interpretation.
18.5 This Plan shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 19. EFFECTIVE DATE OF PLAN
The provisions of the Plan with respect to Outside
Directors were adopted and shall be effective on March 23, 1999, and
the provisions of the Plan with respect to employees were adopted and
shall be effective on March 23, 1999, and the provisions of the Plan
with respect to Consultants were adopted and shall be effective on
March 23, 1999, in each case subject to the approval by the Company's
stockholders at the 1999 Annual Meeting of Stockholders.
SECTION 20. DURATION
The Plan shall terminate on the earliest to occur of: (i)
the adoption of a resolution of the Company's Board of Directors
terminating the Plan; (ii) the date all shares of Common Stock subject
to the Plan are purchased according to the Plan's provisions; or (iii)
ten years from the effective date of the Plan.
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EXHIBIT B
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
MEGADATA CORPORATION
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned, President and Secretary of MEGADATA
CORPORATION, a corporation organized and existing under the Business
Corporation Law of the State of New York (the "Corporation"), hereby certify
that
FIRST. The name of the Corporation is MEGADATA CORPORATION, and the name
under which the Corporation was originally incorporated is BELLOK DEVICES
INC.
SECOND. The Certificate of Incorporation of the Corporation was filed by the
Department of State of the State of New York on January 3, 1967 and
amendments to the Certificate of Incorporation were subsequently duly filed
and recorded.
THIRD. To increase the total number of shares which the Corporation is
authorized to issue, ARTICLE FOURTH, which provides the Corporation with the
authority to issue five million (5,000,000) common shares, having a par
value of $0.01 per share, is amended to read in full as follows: "The
aggregate number of shares which the Corporation shall have authority to
issue is ten million (10,000,000) common shares, having a par value of $0.01
per share."
FOURTH. An ARTICLE EIGHTH is added to the Certificate of Incorporation to
read in full as follows:
EIGHTH:
I. CERTAIN RESTRICTIONS ON THE TRANSFER OF STOCK. In order to
preserve the Tax Benefits (as such term is hereinafter defined), the
restrictions set forth below shall apply for the period beginning on the
ARTICLE EIGHTH Effective Date (as such term is hereinafter defined) and
ending on the Expiration Date (as such term is hereinafter defined), unless
the Board of Directors shall fix an earlier or later date in accordance with
Section VI of this ARTICLE EIGHTH:
A. DEFINITIONS.
(1) ARTICLE EIGHTH EFFECTIVE DATE. __________ __, 1999, which date is the
date of the filing of this Amendment to the Corporation's Certificate of
Incorporation with the Department of State of the State of New York.
(2) CONTROL. The possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person (as such term
is hereinafter defined), whether through the ownership of voting securities,
by contract, or otherwise. Such definition shall also apply to the terms
"controlling," "controlled by" and "under common control with."
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(3) EXPIRATION DATE. November 30, 2000.
(4) INTERNAL REVENUE CODE. The Internal Revenue Code of 1986, as amended.
Any reference to a particular Section or provision of the Internal Revenue
Code shall be deemed to also refer to any successor Section or provision
having similar effect.
(5) OWNERSHIP CHANGE. An "ownership change" with respect to the Company, as
that term is used in Section 382(g) of the Internal Revenue Code and
Treasury Regulations Section 1.382-2T(a)(1).
(6) OTHER PERMITTED HOLDERS. Any Person which has a Prohibited Ownership
Percentage permitted under this Section I, whether pursuant to a consent of
the Board of Directors or otherwise.
(7) PERSON. Any individual, corporation, estate, trust, association,
company, partnership, joint venture, or similar organization, or any other
entity described in Treasury Regulations Section 1.382-3(a)(l)(i).
(8) PROHIBITED OWNERSHIP PERCENTAGE. Any ownership in the Company that would
cause a Person or Public Group (as such term is hereinafter defined) to be a
"5-percent shareholder" of the Company within the meaning of Treasury
Regulations Section 1.382-2T(g)(l)(i) or (ii). For this purpose, whether a
Person or Public Group would be a "5-percent shareholder" shall be
determined (u) by substituting "4.5 percent" for "5 percent" each place it
appears in such provisions, (v) without giving effect to the following
provisions: Treasury Regulations Sections 1.382-2T(g)(2), 1.382-2T(g)(3),
1.382-2T(h)(2)(iii) and 1.382-2T(h)(6)(iii), (w) by treating every Person or
Public Group which owns Stock, whether directly or by attribution, as
directly owning such Stock notwithstanding any further attribution of such
Stock to other Persons and notwithstanding Treasury Regulations Section
1.382-2T(h)(2)(i)(A), (x) by substituting the term "Person" in place of
"individual" in Treasury Regulations Section 1.382-2T (g)(1)(i), (y) by
taking into account ownership of Stock at any time during the "testing
period' as defined in Treasury Regulations Section 1.382-2T(d)(1), and (z)
by treating each day during the testing period as if it were a "testing
date" as defined in Treasury Regulations Section 1.382-2(a)(4). In addition,
for the purpose of determining whether any Person or Public Group has a
Prohibited Ownership Percentage as of any date, the definition of Stock set
forth in Subparagraph A(10) of this Section I shall be applied in lieu of
the definition in Treasury Regulations Section 1.382-2T(f)(18), except that
any option shall be treated as Stock only to the extent that treating it as
Stock would cause an increase in ownership of such Person and such option
would be deemed exercised pursuant to Treasury Regulations in effect from
time to time (disregarding whether treating such option as exercised would
cause an ownership change).
(9) PUBLIC GROUP. A "public group" with respect to the Company, as that term
is used in Treasury Regulations Section 1.382-2T(f)(13), excluding any
"direct public group" with respect to the Company, as that term is used in
Treasury Regulations Section 1.382-2T(j)(2)(ii).
(10) STOCK. All classes of stock of the Company, all options to acquire
stock of the Company and all other interests that would be treated as stock
in the Company pursuant to Treasury Regulations Section
1.382-2T(f)(18)(iii), other than (x) stock described in Section 1504(a)(4)
of the Internal Revenue Code and (y) stock that would be described in such
Section 1504(a)(4) but is not so described solely because it is entitled to
vote as a result of dividend averages. As used in this ARTICLE EIGHTH, the
term "option" shall have the meaning set forth in Treasury Regulations
Section 1.382-2T(h)(4).
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(11) TAX BENEFITS. The net operating loss carryovers and capital loss
carryovers to which the Company is entitled under the Internal Revenue Code,
free of restrictions under Section 382 of the Internal Revenue Code.
(12) TESTING DATE ACTION. Any Transfer or acquisition of Stock or any other
action (including the acquisition or issuance of an option to Transfer or
acquire Stock), if the effect of such Transfer, acquisition or other action
would be to cause a "testing date" with respect to the Company within the
meaning of Treasury Regulations Section 1.382-2(a)(4), determined by
treating every Person and Public Group which has a Prohibited Ownership
Percentage as a 5-percent shareholder as used in such Section.
(13) TRANSFER. Any means of conveyance of legal or beneficial ownership of
Stock, whether such ownership is direct or indirect, voluntary or
involuntary, including, without limitation, an indirect transfer of
ownership through the transfer of any ownership interest of any entity that
owns Stock.
(14) TRANSFEREE UNDERTAKING. A duly executed written undertaking for the
benefit of the Company by any transferee pursuant to which the transferee
agrees that (i) it will not take any of the following actions without the
prior consent of the Board of Directors: (x) acquire any additional Stock,
(y) Transfer any Stock in violation of Paragraph B of this Section I, or (z)
take or cause to be taken any Testing Date Action, (ii) upon request by the
Company, it will furnish or cause to be furnished to the Company all
certificates representing Stock held of record or beneficially, directly or
indirectly, by it or by any Person, controlling, controlled by or under
common control with it for the purpose of placing a legend on such
certificates to reflect the undertakings described in clause (i) above,
(iii) it acknowledges that "stop transfer" orders may be entered with the
transfer agent (or agents) and the registrar (or registrars) of Stock
against the transfer of Stock subject to the undertakings described in
clause (i) above except in compliance with the requirements of such
undertakings, and (iv) it will agree to such other actions and remedies as
the Company may reasonably request in order to preserve the Tax Benefits.
(15) TREASURY REGULATIONS. The regulations promulgated by the Secretary of
the Treasury under the Internal Revenue Code. Any reference to a particular
Treasury Regulation or Section or provision thereof shall be deemed to also
refer to any successor Regulation or Section or provision having similar
effect.
B. TRANSFER RESTRICTIONS.
The following Transfers and actions shall be prohibited, unless (i) the
Board of Directors has consented to such transfer and (ii) the transferee
has entered into a Transferee Undertaking:
(1) GENERAL. No Person shall Transfer any Stock to any other Person to the
extent that such Transfer, if effected, (i) would cause the transferee or
any Person or Public Group to have a Prohibited Ownership Percentage, or
(ii) would increase the ownership percentage of any transferee or any Person
or Public Group having a Prohibited Ownership Percentage within the
three-year period ending on and including the date of such Transfer.
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(2) ADDITIONAL RESTRICTIONS ON TRANSFERS INVOLVING OTHER PERMITTED HOLDERS.
In addition to the restrictions under Subparagraph B(1) above, (i) no Other
Permitted Holder shall Transfer any Stock, and no other Person shall
Transfer any Stock to an Other Permitted Holder, if, in either case, such
Transfer would constitute a Testing Date Action, and (ii) no Other Permitted
Holder shall take any other action that would constitute a Testing Date
Action.
(3) ADDITIONAL RESTRICTIONS UNDER TRANSFEREE UNDERTAKINGS. In addition to
the restrictions under Subparagraph B(l) above, (i) no Person who has
delivered a Transferee Undertaking shall Transfer any Stock, and no Person
shall Transfer any Stock to any Person who has delivered a Transferee
Undertaking, if, in either case, such Transfer would result in a violation
of such Transferee Undertaking, and (ii) no Person who has delivered a
Transferee Undertaking shall take or cause to be taken any other action that
would constitute a Testing Date Action.
C. PERMITTED TRANSFERS. Unless otherwise restricted under Paragraph B of
Section I or under a Transferee Undertaking or other agreement, Transfers of
Stock may be made without the consent of the Board of Directors.
D. WAIVERS. Notwithstanding anything herein to the contrary, the Board of
Directors may waive any of the restrictions contained in Paragraph B of this
Section I of this ARTICLE EIGHTH: (1) in the event of a tender or exchange
offer within the meaning of the Securities Exchange Act of 1934, as amended,
to acquire Stock constituting more than fifty percent in value of the
outstanding Common Stock of the Company, so long as such waiver shall apply
to all Transfers pursuant to such tender or exchange offer; (2) in
connection with any Transfers of Stock in connection with underwritten
offerings of such Stock; (3) in connection with any investment in or
acquisition of a business or any business combination involving the Company
or any subsidiary of the Company; and (4) in any other instance in which the
Board of Directors reasonably and in good faith determines that a waiver
would be in the best interests of the Company.
II. ATTEMPTED TRANSFER IN VIOLATION OF TRANSFER RESTRICTIONS.
Unless the consent or waiver of the Board of Directors is obtained and
except as provided in Paragraph C of Section II below, any attempted
Transfer of shares of Stock of the Company in excess of the shares that
could be Transferred to the transferee without restriction under Paragraph B
of Section I above shall not be effective to transfer ownership of such
excess shares (the "Prohibited Shares") to the purported acquiror thereof
(the "Purported Acquiror"), and the Purported Acquiror shall not be entitled
to any rights as a shareholder of the Company with respect to the Prohibited
Shares, including, without limitation, the right to vote or to receive
dividends with respect thereto. Nothing contained in this ARTICLE EIGHTH
shall preclude the settlement of any transaction involving Stock entered
into through the facilities of any national securities exchange. The
application of the provisions and remedies described in the first sentence
of this Section II and in Paragraphs A, B and C of this Section II this
shall be deemed not to so preclude any such settlement. Paragraphs A, B and
C below shall apply only in the case of violations of the restrictions
contained in Subparagraph B(l) of Section I above.
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A. TRANSFER OF CERTIFICATES; SALE OF STOCK. Upon demand by the Company, the
Purported Acquiror shall transfer any certificate or other evidence of
purported ownership of the Prohibited Shares within the Purported Acquiror's
possession or control, together with any dividends or other distributions
paid by the Company with respect to the Prohibited Shares that were received
by the Purported Acquiror (the "Prohibited Distributions"), to an agent to
be designated by the Company (the "Agent"). If the Purported Acquiror has
sold the Prohibited Shares to an unrelated party in an arm's-length
transaction after purportedly acquiring them, the Purported Acquiror shall
be deemed to have sold the Prohibited Shares for the Agent, and in lieu of
transferring the Prohibited Shares and Prohibited Distributions to the Agent
shall transfer to the Agent the Prohibited Distributions and the proceeds of
such sale (the "Resale Proceeds") except to the extent that the Agent grants
written permission to the Purported Acquiror to retain a portion of the
Resale Proceeds not exceeding the amount that would have been payable by the
Agent to the Purported Acquiror pursuant to Paragraph B of this Section II
if the Prohibited Shares had been sold by the Agent rather than by the
Purported Acquiror. Any purported Transfer of the Prohibited Shares by the
Purported Acquiror, other than a transfer described in one of the two
preceding sentences (unless such transfer itself violates the provisions of
this ARTICLE EIGHTH), shall not be effective to transfer any ownership of
the Prohibited Shares.
B. ALLOCATION AND DISTRIBUTION OF PROCEEDS. The Agent shall sell to a Person
whose ownership of such shares would not exceed the Prohibited Owner
Percentage in an arm's-length transaction any Prohibited Shares transferred
to the Agent by the Purported Acquiror, and the proceeds of such sale (the
"Sales Proceeds"), or the Resale Proceeds, if applicable, shall be allocated
to the Purported Acquiror up to the following amount: (1) where applicable,
the purported purchase price paid or value of consideration surrendered by
the Purported Acquiror for the Prohibited Shares and (2) where the purported
Transfer of the Prohibited Shares to the Purported Acquiror was by gift,
inheritance, or any similar purported transfer, the fair market value of the
Prohibited Shares at the time of such purported Transfer. Any Resale
Proceeds or Sales Proceeds in excess of the amount allocable to the
Purported Acquiror pursuant to the preceding sentence, together with any
Prohibited Distributions (such excess amount and Prohibited Distributions
are collectively the "Subject Amounts"), shall be transferred to an entity
designated by the Company that is described in Section 501(c)(3) of the
Internal Revenue Code (the "Designated Charity"). In no event shall any such
Prohibited Shares or Subject Amounts inure to the benefit of the Company or
the Agent, but such Subject Amounts may be used to cover expenses incurred
by the Agent in performing its duties.
C. LIMITATION ON ENFORCEABILITY. Notwithstanding anything herein to the
contrary, with respect to any Transfer of Stock which would cause a Person
or Public Group (the "Prohibited Party") to violate a restriction provided
for in Subparagraph B(l) of Section I above only on account of the
attribution to the Prohibited Party of the ownership of Stock by a Person or
Public Group which is not controlling, controlled by or under common control
with the Prohibited Party, which ownership is nevertheless attributed to the
Prohibited Party, Subparagraph B(l) of Section I above shall not apply in a
manner that would invalidate such Transfer. In such case, the Prohibited
Party and any Persons controlling, controlled by or under common control
with the Prohibited Party (collectively the "Prohibited Party Group") shall
automatically be deemed to have disposed of, and shall be required to
dispose of, sufficient shares of Stock (which shares shall consist only of
shares held legally or beneficially, whether directly or indirectly, by any
member of the Prohibited Party Group, but not shares held through another
Person, other than shares held through a Person acting as agent or fiduciary
for any member of the Prohibited Party Group, and which shares shall be
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disposed of in the inverse order in which they were acquired by members of
the Prohibited Party Group) to cause the Prohibited Party, following such
disposition, not to be in violation of Subparagraph B(1) of Section I above,
provided that in the event no member of the Prohibited Party Group (i) is an
Other Permitted Holder and (ii) had any actual knowledge that such Transfer
was prohibited under Subparagraph 8(1) of Section I above, such disposition
shall only be effected to the extent necessary in order to prevent an
Ownership Change. Such disposition shall be deemed to occur simultaneously
with the Transfer giving rise to the application of this provision, and such
number of shares which are deemed to be disposed of shall be considered
Prohibited Shares and shall be disposed of through the Agent as provided in
Paragraph B of this Section II, except that the maximum amount payable to
the Prohibited Party in connection with such sale shall be the fair market
value of the Prohibited Shares at the time of the Prohibited Transfer.
D. OTHER REMEDIES. In the event that the Board of Directors determines that
a Person proposes to take any action in violation of Paragraph B of Section
I above, or in the event that the Board of Directors determines after the
fact that an action has been taken in violation of Paragraph B of Section I,
the Board of Directors, subject to the second and third sentences of the
introductory paragraph of this Section II, may take such action as it deems
advisable to prevent or to refuse to give effect to any Transfer or other
action which would result, or has resulted, in such violation, including,
but not limited to, refusing to give effect to such Transfer or other action
on the books of the Company or instituting proceedings to enjoin such
Transfer or other action. If any Person shall knowingly violate Paragraph B
of Section I, then that Person and all other Persons controlling, controlled
by or under common control with such Person shall be jointly and severally
liable for, and shall pay to the Company, such amount as will, after taking
account of all taxes imposed with respect to the receipt or accrual of such
amount and all costs incurred by the Company as a result of such loss, put
the Company in the same financial position as it would have been in had such
violation not occurred.
III.PROMPT ENFORCEMENT AGAINST PURPORTED ACQUIROR. Within 30
business days of learning of a purported Transfer of Prohibited Shares to a
Purported Acquiror or a Transfer of Stock to a Prohibited Party, the Company
through its Secretary shall demand that the Purported Acquiror or Prohibited
Party surrender to the Agent the certificates representing the Prohibited
Shares, or any Resale Proceeds, and any Prohibited Distributions, and if
such surrender is not made by the Purported Acquiror or Prohibited Party
within 30 business days from the date of such demand, the Company shall
institute legal proceedings to compel such surrender provided, however, that
nothing in this Section III shall preclude the Company in its discretion
from immediately bringing legal proceedings without a prior demand, and also
provided that failure of the Company to act within the time periods set out
in this Section III shall not constitute a waiver of any right of the
Company to compel any transfer required by Section II above. Upon a
determination by the Board of Directors that there has been or is threatened
a purported Transfer of Prohibited Shares to a Purported Acquiror or a
Transfer of Stock to a Prohibited Party or any other violation of Paragraph
B of Section I above, the Board of Directors may authorize such additional
action as it deems advisable to give effect to the provisions of this
ARTICLE EIGHTH, including, without limitation, refusing to give effect on
the books of the Company to any such purported Transfer or instituting
proceedings to enjoin any such purported Transfer.
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<PAGE>
IV. OBLIGATION TO PROVIDE INFORMATION. The Company may require as
a condition to the registration of the Transfer of any Stock that the
proposed transferee furnish to the Company all information reasonably
requested by the Company with respect to all the direct or indirect
ownership of Stock by the proposed transferee and by Persons controlling,
controlled by or under common control with the proposed transferee.
V. LEGENDS. All certificates evidencing Stock that is subject to
the restrictions on transfer set forth in this ARTICLE EIGHTH shall bear a
conspicuous legend referencing such restrictions.
VI. FURTHER ACTIONS. Subject to the second and third sentences of
the introductory paragraph of Section II, nothing contained in this ARTICLE
EIGHTH shall limit the authority of the Board of Directors to take such
other action to the extent permitted by law as it deems necessary or
advisable to protect the Company and the interests of the holders of its
securities in preserving the Tax Benefits. Without limiting the generality
of the foregoing, in the event of a change in law (including applicable
regulations) making one or more of the following actions necessary, in the
case of actions described in clauses (B), (C) and (D) below, or desirable,
in the case of actions described in clause (A) below, the Board of Directors
may (A) accelerate the Expiration Date, (B) extend the Expiration Date, (C)
conform any terms or numbers set forth in the transfer restrictions in
Section I above to make such terms consistent with the Internal Revenue Code
and the Treasury Regulations following any changes therein to the extent
necessary to preserve the Tax Benefits, or (D) conform the definitions of
any terms set forth in this ARTICLE EIGHTH to the definitions in effect
following such change in law; provided that the Board of Directors shall
determine in writing that such acceleration, extension, change or
modification is reasonably necessary to preserve the Tax Benefits or that
the continuation of these restrictions is no longer reasonably necessary for
the preservation of the Tax Benefits, which determination shall be based
upon an opinion of legal counsel to the Company and which determination
shall be filed with the Secretary of the Company and mailed by the Secretary
to all stockholders of the Company within ten days after the date of any
such determination.
VII. SEVERABILITY. If any provision of this ARTICLE EIGHTH or the
application of any such provision to any Person or under any circumstance
shall be held invalid, illegal, or unenforceable in any respect by a court
of competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision of this ARTICLE EIGHTH.
FIFTH. The aforesaid amendments were duly authorized by vote of the Board of
Directors, followed by vote of the holders of a majority of all outstanding
shares entitled to vote thereon at a meeting of shareholders, in accordance
with the provisions of Section 803(a) of the Business Corporation Law.
IN WITNESS WHEREOF, the undersigned have made and signed
this Certificate of Amendment of the Certificate of Incorporation on
_______________, 19__ and affirm that the statements made herein are true
under penalties of perjury.
MEGADATA CORPORATION
By: ________________________________
G.S. Beckwith Gilbert
President
[Corporate Seal]
Attest:
By:________________________________
John R. Keller
Secretary
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PROXY
MEGADATA CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF MEGADATA CORPORATION
The undersigned stockholder hereby appoints G.S. Beckwith
Gilbert and John R. Keller or either of them, each with power of substitution,
as proxy or proxies for the undersigned, to attend the Annual Meeting of the
Stockholders of Megadata Corporation (the "Company"), to be held at 11:00 a.m.,
local time, on Wednesday, May 26, 1999, at The LaGuardia Marriott Hotel, 105-05
Ditmars Blvd, East Elmhurst, NY, or at any adjournment or adjournments thereof,
and to vote all shares of common stock of the Company owned of record by the
undersigned at the close of business on April 30, 1999, hereby revoking any
proxy or proxies heretofore given and ratifying and confirming all that said
proxies may do or cause to be done by virtue hereof, for the purposes more fully
described in the accompanying Proxy Statement, and in their discretion, on other
matters which properly come before the meeting:
(1) ELECTION OF DIRECTORS
FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary) nominees listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
G.S. Beckwith Gilbert
Richard R. Schilling, Jr.
Yitzhak N. Bachana
Bruce N. Whitman
Paul L. Graziani
John R. Keller
(2) ADOPTION OF THE COMPANY'S 1999 STOCK INCENTIVE PLAN
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) AMENDMENT TO THE MEGADATA CORPORATION'S CERTIFICATE OF INCORPORATION TO
INCREASE THE TOTAL NUMBER OF SHARES OF COMMON STOCK, $0.01 PAR VALUE,
WHICH THE COMPANY HAS AUTHORITY TO ISSUE FROM 5,000,000 to 10,000,000
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(Continued and to be Signed and Dated on the Reverse Side)
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(4) TO RATIFY THE APPOINTMENT OF ERNST & YOUNG, LLP AS
INDEPENDENT AUDITORS
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(5) AMENDMENT TO THE MEGADATA CORPORATION'S CERTIFICATE OF INCORPORATION TO
ESTABLISH RESTRICTIONS ON TRANSFERS OF THE COMPANY'S COMMON STOCK IN
ORDER TO PROTECT THE AVAILABILITY OF A SUBSTANTIAL PORTION OF THE
COMPANY'S NET OPERATING LOSS CARRYFORWARDS.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(6) IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON OTHER
MATTERS WHICH PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR
ADJOURNMENTS THEREOF.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
UNLESS OTHERWISE INDICATED ABOVE OR UNLESS THIS PROXY IS
REVOKED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
FOR THE NOMINEES, FOR THE APPOINTMENT OF INDEPENDENT
AUDITORS, FOR THE COMPANY'S 1999 STOCK INCENTIVE PLAN, AND
FOR THE AMENDMENTS TO THE CERTIFICATE OF INCORPORATION.
Date: _____________________________________________________
X _________________________________________________________
X _________________________________________________________
(IMPORTANT: Please sign exactly as your name or names appear on the label
affixed hereto, and when signing as an attorney, executor, administrator,
trustee or guardian, give your full title as such. If the signatory is a
corporation, sign the full corporate name by duly authorized officer, or if
a partnership, sign in partnership name by authorized person.)
50
