SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 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
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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(set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Page 1 of 37
<PAGE>
MEGADATA CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 11, 2000
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 April 11, 2000, at 11:00 A.M., for the following purposes:
1. To elect directors for the next year; and
2. To consider and vote on a proposal to amend the Company's 1999 Stock
Incentive Plan; and
3. To ratify the appointment of Ernst & Young, LLP as the independent
public accountants of the Company for the fiscal year ended October 31,
2000; and
4. 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 February 25, 2000
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 March 6, 2000 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
47 Arch Street
Greenwich, CT 06830
February 28, 2000
Page 2 of 37
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE COMPLETED
AND RETURNED PROMPTLY
<PAGE>
MEGADATA CORPORATION
PROXY STATEMENT
February 28, 2000
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
April 11, 2000, 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, 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 47 Arch Street, 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 March 6, 2000.
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 February 25,
2000, there were 2,511,600 shares of Common Stock outstanding. At the Annual
Meeting, each shareholder of record at the close of business on February 25,
2000 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.
Page 3 of 37
<PAGE>
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.
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 58, was elected Chairman of the Board in 1997
and elected to the additional post of Chief Executive Officer in October of
1998. Mr. Gilbert also served as President of the Company from October 1998 to
January 2000. Mr. Gilbert has been a director of the Company since 1997. In
addition, Mr. Gilbert has been President and Chief Executive Officer of Field
Point Capital Management Company, a merchant banking firm, since 1988. He is
also a partner of Wolsey & Co., a merchant banking firm. Mr. Gilbert is a
Director and Chairman of the Executive Committee of DIANON Systems, Inc., as
well as a Director of Davidson Hubeny Brands.
Richard R. Schilling, Jr., age 74, 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.
Bruce N. Whitman, age 66, 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 LLC,
Petroleum Helicopters, Inc., and Aviall, Inc. Mr. Whitman has been a director of
the Company since 1997.
Page 4 of 37
<PAGE>
Paul L. Graziani, age 42, 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.
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. All of the Audit Committee members are
non-employee directors of 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 1999 fiscal year the Board of Directors held three regular
meetings. No special meetings were held during fiscal 1999. The Audit,
Compensation, and Executive Committees did not meet separately from the Board
during Fiscal 1999. During the 1999 fiscal year each director attended all the
regular and special meetings of the Board, except Mr. Graziani who attended one
of the regular meetings.
Page 5 of 37
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are currently paid
$500 for each meeting of the Board of Directors attended in person or by phone.
Each director who is not an employee of the Company received options to purchase
15,000 shares of common stock which will vest over a three year period beginning
on November 30, 2000. 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.
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."
Kenneth J. McNamara, age 53, joined Megadata as President and Chief
Operating Officer on January 3, 2000. From 1994 to 1999 he was employed with
Rockwell Collins Passenger Systems (formerly Hughes Avicom International, which
was acquired by Rockwell in December 1997). He served as the Vice President and
General Manager at Rockwell and as the President and CEO at Hughes before the
sale to Rockwell. Mr. McNamara is also a Senior Vice President of Field Point
Capital Management Company.
Dr. James A. Cole, age 59, 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 45, has been a consultant to the Company serving as
Controller from September 1993 until September 1998 at which time he became an
employee. Mr. Shaver is currently serving as Assistant Secretary, Chief
Financial Officer, and Controller of the Company. 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.
Page 6 of 37
<PAGE>
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 1999, and the three executive officers other than the CEO
serving at October 31, 1999 whose total salary exceeded $100,000. The Company
did not award or pay out any long term compensation during 1997, 1998, or 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(*) SALARY BONUS COMPENSATION COMPENSATION
<S> <C> <C> <C> <C> <C>
G.S. Beckwith Gilbert -
Chairman and CEO 1999 $ 140,476 -- -- --
1998 $ -- -- -- $ 12,173(1)
John R. Keller -
Executive Vice Pres. 1999 $ 120,000 -- -- --
1998 $ 119,423 -- -- --
1997 90,000 -- -- --
Dr. James Cole -
Sr. Vice Pres. - Research 1999 $120,000 -- -- --
and Development 1998 $ 120,000 -- -- --
1997 96,346 -- -- --
James T. Barry - 1999 $ 92,923 -- -- $ 20,133 (2)
Vice President 1998 -- -- -- $ 27,722 (2)
1997 -- -- -- --
<FN>
(1) Represents earned but unpaid salary through October 31, 1998 and was paid
during 1999. Mr. Gilbert became the Company's President and Chief Executive
Officer in October 1998.
(2) Represents an amount paid by the Company to Field Point Capital Management,
a company 100% owned by the Company's Chairman, for services rendered by
Mr. Barry to the Company prior to his employment with the Company.
(*) Information is provided for the Company's fiscal year, which ends on
October 31.
</FN>
</TABLE>
Page 7 of 37
<PAGE>
STOCK OPTION GRANTS
The following table shows, as to the named executive officers of the
Company, information about option grants in fiscal year 1999. The Company, in
fiscal year 1999, did not grant any Stock Appreciation Rights to officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION GRANT DATE
INDIVIDUAL GRANTS FOR OPTION TERM VALUE
- --------------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTION/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($) VALUE $ (1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
James T. Barry 40,000 37% $0.15 23-Mar-09 $3,600 $9,600 $5,600
Dr. James A. Cole 15,000 14% $0.15 23-Mar-09 $1,350 $3,600 $2,100
John R. Keller 12,500 12% $0.15 23-Mar-09 $1,125 $3,000 $1,750
Herbert E. Shaver 15,000 14% $0.15 23-Mar-09 $1,350 $3,600 $2,100
James T. Barry 25,000 23% $0.15 14-Jul-09 $2,250 $6,000 $3,500
<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 1.217 and the weighted average expected life of
the options of approximately 9 years.
</FN>
</TABLE>
There were no option exercises during fiscal year 1999.
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 1999 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 above.
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.
Page 8 of 37
<PAGE>
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 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 competitive practices.
DISCUSSION OF 2000 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The Committee meets with the CEO to evaluate his performance. For
fiscal 1999, Mr. Gilbert's incentive compensation was based on the Committee's
evaluation regarding his overall performance based on both quantitative and
qualitative objectives, as set by the Board at the start of the fiscal year.
Although many of the objectives were achieved, no incentive compensation was
awarded Mr. Gilbert in fiscal 1999 because the Company did not earn a profit.
This report has been provided by the Compensation Committee of the
Board of Directors:
Paul L. Graziani
Richard R. Schilling
Bruce N. Whitman
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,
except for Mr. McNamara. His employment agreement is described below.
An employment agreement, dated as of December 28, 1999, was entered
into between Kenneth J. McNamara and Megadata. The following is a brief summary
of the major provisions of the employment agreement.
Pursuant to the agreement, Mr. McNamara assumed the positions of
President and Chief Operating Officer effective January 3, 2000 at an annual
salary of $140,000, subject to increase to $200,000 per annum on November 1,
2000, assuming satisfactory performance. Pursuant to his employment agreement,
Mr. McNamara will be appointed to the Board of Directors in July 2000. It is
expected that Mr. McNamara will be designated Chief Executive Officer of
Page 9 of 37
<PAGE>
Megadata as soon as the Board of Directors deems appropriate, at which time, Mr.
McNamara will receive a compensation package appropriate for the position. Mr.
McNamara was also granted options on Megadata common stock as follows:
a) Qualified incentive stock options pursuant to the 1999 Stock
Incentive Plan ("Plan"): 75,000 shares with a three year vesting of 25,000
shares each year. The first 25,000 shares would vest on November 30, 2000.
b) Nonqualified: 225,000 shares with a two year vesting of 112,500
shares each year. The first 112,500 shares would vest on November 30, 2000. The
second 112,500 shares would vest on November 30, 2001.
c) The exercise price of the options is $0.63 per share, the closing
price on January 3, 2000, the day of grant.
Page 10 of 37
<PAGE>
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total
stockholder return for the five year period ended October 31, 1999, with the
cumulative total return on the NASDAQ index and a peer group index for the same
period. The returns are indexed to a value of an investment of $100 at October
31, 1994 in each of the categories and assumes that all dividends were
reinvested.
[Graph Omitted)
Cumulative Total Return Of Megadata Corporation, Nasdaq Market Index And
Peer Group (presented on a quarterly basis)
DATE MEGADATA NASDAQ PEER GROUP
---- -------- ------ ----------
10/31/94 $ 100.00 $ 100.00 $ 100.00
01/31/95 $ 116.67 $ 97.13 $ 88.35
04/03/95 $ 70.83 $ 108.55 $ 108.01
07/31/95 $ 66.67 $ 128.77 $ 112.97
10/31/95 $ 66.67 $ 133.26 $ 115.44
01/31/96 $ 50.00 $ 136.31 $ 119.78
04/30/96 $ 16.67 $ 153.12 $ 165.80
07/31/96 $ 100.00 $ 138.98 $ 154.81
10/31/96 $ 200.00 $ 157.11 $ 135.67
01/31/97 $ 116.67 $ 177.47 $ 140.28
04/30/97 $ 150.00 $ 162.16 $ 117.03
07/31/97 $ 83.33 $ 204.99 $ 160.99
10/31/97 $ 133.33 $ 204.97 $ 164.87
01/31/98 $ 100.00 $ 208.28 $ 135.51
04/30/98 $ 166.67 $ 240.31 $ 152.13
07/31/98 $ 166.67 $ 240.82 $ 119.60
10/31/98 $ 100.00 $ 227.83 $ 127.85
01/31/99 $ 91.67 $ 322.37 $ 156.21
04/30/99 $ 41.67 $ 327.06 $ 147.21
07/31/99 $ 41.67 $ 339.36 $ 182.41
10/31/99 $ 66.67 $ 381.54 $ 190.65
The peer group of Megadata Corporation consists of the following
corporations: Stanford Communications (STII), Navtech Inc. (NAVH), and Marconi,
PLC (U.MNI). 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.
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 person's 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, 1999, 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 DIRECTORS AND EXECUTIVE OFFICERS 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
January 20, 2000. 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>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS (1)
- ------------------------ -------------------- ---------
<S> <C> <C>
G.S. Beckwith Gilbert 846,000 (2) 33.68
Yitzhak N. Bachana 10,000 (3) .40
John R. Keller 124,500 (4) 4.90
Richard R. Schilling, Jr. 3,000 (5) 0.12
James A. Cole 44,400 (6) 1.75
Bruce N. Whitman 113,000 (7) 4.50
Paul L. Graziani 7,000 (8) 0.28
Officers and Directors as a
Group (7 persons) 1,147,900 44.77
<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 January 20, 2000 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 January 20, 2000, 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) Mr. Bachana is President, Chairman of the Board, and majority shareholder
of Data Probe, Inc. which owns 479,400 common shares of the Company which
are excluded from the foregoing table. Does not include 15,000 options
granted Mr. Bachana which are not immediately exercisable. See "Ownership
of Voting Stock by Certain Beneficial Owners" for more detailed information
about Data Probe Inc.'s security ownership.
(4) Includes Mr. Keller's options to purchase an aggregate of 40,000 shares, of
which 27,500 are immediately exercisable.
(5) Does not include 15,000 options granted Mr. Schilling which are not
immediately exercisable.
(6) Includes Dr. Cole's options to purchase an aggregate of 40,000 shares, of
which 25,000 are immediately exercisable.
(6) Does not include 15,000 options granted Mr. Whitman which are not
immediately exercisable.
(7) Does not include 15,000 options granted Mr. Graziani which are not
immediately exercisable.
</FN>
</TABLE>
Page 12 or 37
<PAGE>
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 person's
filings with the Securities and Exchange Commission, beneficially owned more
than 5% of the common stock of the Company as of January 20, 2000. Unless
otherwise indicated below, each person included in the table has sole voting and
investment power with respect to all shares included therein.
<TABLE>
<CAPTION>
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) 33.68
Stock 47 Arch Street
Greenwich, CT 06830
Common Data Probe, Inc. 479,400 (3) 19.09
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 January 20, 2000 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 January 20, 2000, 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.
</FN>
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period between September 18, 1996 and June 6, 1997 the
Company signed agreements with G.S. Beckwith Gilbert (the "Investor"), who has
since been named Chairman and Chief Executive Officer of the Company (the
"Agreements") that provided for three loans of $100,000 each, of which $200,000
was received by the Company in 1996 and $100,000 was received by the Company 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 financing, 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 the 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.
Page 13 of 37
<PAGE>
On June 6, 1997, the Investor and his affiliates purchased 700,000
shares for $0.71 per share, for a total investment 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, Mr.
Whitman and Mr. Graziani, 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 was secured by the Company's assets, excluding its
building, and was paid when due.
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. In January 2000,
Kenneth J. McNamara was elected President of the Company. The Investor remains
Chairman and CEO.
In fiscal 1999, the Investor loaned the Company an additional
$1,125,000 in the aggregate under promissory notes bearing interest at 9% annum
and maturing at various dates from June 30, 2000 to June 30, 2001. The Company
made payments of principal during the fiscal year totaling $175,000 due to the
Investor. As of January 20, 2000, the notes due to the Investor totaled
$1,150,000 and are secured by the Company's assets.
In fiscal 1996, the Company contracted with Data Probe, Inc., which
is majority owned by the Company's former president, to provide certain research
and development and sales support services through July, 1996. The Company
incurred expenses of approximately $60,442 for the year ended October 31, 1996
in consideration for the aforementioned services.
For the years ended October 31, 1998 and 1997, the Company reimbursed
Datatab, Inc., a subsidiary of Data Probe, Inc., $47,683 and $65,763,
respectively, for services rendered to the Company by an employee of Datatab,
Inc.
On January 16, 1996, the Company signed a promissory note to John R.
Keller, a Vice President of the Company, for a $30,000 loan, which was secured
by certain test equipment. The note bore interest at 10% per annum, and was paid
in full on July 16, 1997. Total interest payments for the year ended October 31,
1996 were $2,265. In addition, net loans of $6,883 were made by Yitzhak N.
Bachana, then President, which had no provision for interest and were paid on
demand.
For the year ended October 31, 1999, the Company reimbursed Field
Point Capital Management Company, a company 100% owned by the Company's
Chairman, for services rendered in the amount of $54,000.
Page 14 of 37
<PAGE>
Effective October 1998, the Company began leasing space from Field
Point Capital Management Company, a company 100% owned by the Company's
Chairman, at $1,000 per month rent.
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 financial statements. Along with the changes in the Company's
management on October 2, 1998, the Board of Directors voted to engage Ernst &
Young, LLP to audit the Company's financial statements.
Ernst & Young, LLP has been the independent public auditors of the
Company's financial statements 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, 2000 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.
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. THE BOARD OF DIRECTORS RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF ERNST & YOUNG AS INDEPENDENT
PUBLIC ACCOUNTANTS.
1999 STOCK INCENTIVE PLAN AMENDMENT PROPOSAL
The 1999 Stock Incentive Plan (the "Plan") was adopted by the Board
of Directors on March 23, 1999, and approved by the shareholders on July 14,
1999. The Plan authorized 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. As of February 25, 2000, all of the shares of
Common Stock authorized last year for distribution under the Plan had been
awarded under the Plan.
The Company is therefore asking you to approve an increase in the
number of shares available under the Plan from 250,000 shares, as presently
constituted, to 750,000 shares, as proposed, an increase of 500,000 shares. The
Company is also asking you to approve a new allocation of the shares to be
distributed under the Plan. The Company believes that the shares to be issued
under the Plan should be allocated so that 600,000 shares will be available for
awards to employees and 150,000 shares will be available for awards to outside
directors and consultants as well as employees.
The Company's Compensation Committee has requested that a new amended
1999 Stock Incentive Plan, which incorporates the increase in shares available
for issuance under the Plan (the "Amended Plan"), be proposed for approval by
the Megadata shareholders. A copy of the Amended Plan is attached as Exhibit A
Page 15 of 37
<PAGE>
to this Proxy Statement. The Company's Compensation Committee has advised the
Board that it believes that the proposed amended 1999 Stock Incentive Plan is
necessary if Megadata is to attract and retain highly competent individuals upon
whose judgment, initiative and leadership the success of Megadata will in a
large measure depend. This proposed amendment to the Plan reflects the Company's
view that in today's employment environment it is critical, especially in light
of the attractiveness of employment with high technology and Internet companies,
to have the flexibility to offer attractive, equity-based compensation packages
in order to recruit and retain qualified employees. 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 AMENDED 1999 STOCK INCENTIVE PLAN
The Amended 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.
Employees, including officers, are eligible to participate in the
Amended Plan on the terms and conditions of the Amended Plan. Outside directors
and consultants may also participate in the Amended Plan, but outside directors
are eligible to receive only non-qualified stock options, limited stock
appreciation rights and stock grants as provided in the Amended Plan, and
consultants are eligible to receive only non-qualified stock options and stock
grants as provided in the Amended 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 Amended Plan with
respect to more than 100,000 shares of common stock in any fiscal year.
Under the Plan, each outside director automatically was 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 were approved by the Board for outside directors who
are not currently on the Board. The current directors' options were
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
Amended 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 Amended Plan) over the exercise price of the
option.
Page 16 of 37
<PAGE>
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 Amended Plan will be determined by the Board of Directors
as recommended 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.
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
Amended 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 Amended Plan at any time and may amend
it from time to time. No amendment or discontinuation of the Amended Plan shall
adversely affect any award previously granted without the award holder's written
consent. Amendments may be made to the Amended 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 Amended Plan will expire on March 23,
2009.The following table sets forth the number of stock options and the value
thereof that were granted under Section 6 of the Original Plan to the persons
specified under the existing 1999 Stock Option Plan. No options have been
approved thus far under the amended plan.
Page 17 of 37
<PAGE>
<TABLE>
<CAPTION>
NAME AND POSITION NUMBER OF STOCK DOLLAR VALUE
OPTIONS GRANTED
- --------------------------------------------------------------------------------
<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
Kenneth J. McNamara, President 75,000 $47,250.00
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 72,500 $19,125.00
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 190,000(1) $72,750.00
All Employees (other than executive officers) -- $ --
<FN>
(1) 15,000 OF SUCH OPTIONS WERE REALLOCATED FOR ISSUANCE TO EMPLOYEES BY THE
BOARD OF DIRECTORS FROM THE NUMBER OF SHARES RESERVED FOR ISSUANCE TO
OUTSIDE DIRECTORS AND CONSULTANTS.
</FN>
</TABLE>
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.
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
Page 18 of 37
<PAGE>
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.
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.
Page 19 of 37
<PAGE>
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.
Amendment 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 AMENDMENT TO
THE 1999 STOCK INCENTIVE PLAN.
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 2001 Annual Meeting of
Shareholders must be received by the Company at its principal executive office,
47 Arch Street, Greenwich, CT 06830, no later than November 6, 2001.
Page 20 of 37
<PAGE>
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 2001 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 January 25, 2001, in order to be considered timely for
purposes of the Shareholder Proposal Rules. The persons designated as proxies by
the Company in connection with 2001 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, 1999, 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 2000 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.
Page 21 of 37
EXHIBIT A
MEGADATA CORPORATION
AMENDED 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.
Page 22 of 37
<PAGE>
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;
Page 23 of 37
<PAGE>
(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.
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.
Page 24 of 37
<PAGE>
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 750,000 shares of the Company's common stock, of which
600,000 shares shall be used for awards for employees and 150,000 shares shall
be used for awards to Outside Directors, Consultants, as well as employees of
the Company (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.
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.
Page 25 of 37
<PAGE>
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.
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
Page 26 of 37
<PAGE>
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.
6.3 Notwithstanding the provisions of Section 6.2, no Incentive Stock
Option 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.
Page 27 of 37
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.
(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).
Page 28 of 37
<PAGE>
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).
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.
Page 29 of 37
<PAGE>
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.
Section 14. TAX WITHHOLDING
---------------
14.1 Each employee shall, no later than the date as of which the value of
an award first becomes includable 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
Page 30 of 37
<PAGE>
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 was an Outside Director on the date
of adoption of the Original Plan by the Stockholders was 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.
(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).
Page 31 of 37
<PAGE>
(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.
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
Page 32 of 37
<PAGE>
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;
Page 33 of 37
<PAGE>
(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.
Page 34 of 37
<PAGE>
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.
Page 35 of 37
<PAGE>
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
April 11, 2000, 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 February 25, 2000, 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) AMENDMENT OF THE COMPANY'S 1999 STOCK INCENTIVE PLAN TO INCREASE THE AMOUNT
OF SHARES AUTHORIZED FOR ISSUANCE UNDER THE PLAN BY 500,000 SHARES, TO A TOTAL
OF 750,000 SHARES, OF WHICH 600,000 SHARES WILL BE RESERVED FOR ISSUANCE TO
EMPLOYEES OF THE COMPANY AND 150,000 SHARES WILL BE RESERVED FOR ISSUANCE TO
OUTSIDE DIRECTORS AND CONSULTANTS, AS WELL AS EMPLOYEES OF THE COMPANY.
FOR AGAINST ABSTAIN
(Continued and to be Signed and Dated on the Reverse Side)
Page 36 of 37
<PAGE>
(3) TO RATIFY THE APPOINTMENT OF ERNST & YOUNG, LLP AS INDEPENDENT AUDITORS
FOR AGAINST ABSTAIN
(4) IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON OTHER MATTERS
WHICH PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR ADJOURNMENTS
THEREOF.
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 2000 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.)
Page 37 of 37
