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 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check theappropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
DATAWATCH CORPORATION
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(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transactions applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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 and registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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DATAWATCH CORPORATION
234 Ballardvale Street
Wilmington, Massachusetts 01887
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
================================================================================
TO THE STOCKHOLDERS OF DATAWATCH Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
DATAWATCH Corporation, a Delaware corporation (the "Company"), will be held on
Wednesday, March 19, 1997, at 10:00 a.m., Eastern time, at the Ramada Rolling
Green, 311 Lowell Street, Andover, Massachusetts for the following purposes:
1. To elect a Board of Directors to serve for the ensuing year and until
their respective successors have been duly elected and qualified.
2. To approve the adoption of the Company's 1996 Stock Plan.
3. To approve the adoption of the Company's 1996 Non-Employee Director
Stock Option Plan, as amended.
4. To transact such other business as may properly come before the meeting
and any adjournments thereof.
Only stockholders of record at the close of business on January 24,
1997, the record date fixed by the Board of Directors, are entitled to notice of
and to vote at the meeting and any adjournment thereof.
By Order of the Board of Directors
Richard J. Testa
Secretary
Wilmington, Massachusetts
January 28, 1997
-----------------
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED STAMPED ENVELOPE BY RETURN
MAIL.
DATAWATCH CORPORATION
234 BALLARDVALE STREET
WILMINGTON, MASSACHUSETTS 01887
PROXY STATEMENT
JANUARY 28, 1997
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of DATAWATCH Corporation (the "Company")
for use at the Annual Meeting of Stockholders of the Company to be held at the
Ramada Rolling Green, 311 Lowell Street, Andover, Massachusetts on Wednesday,
March 19, 1997, at 10:00 a.m., Eastern time, and any adjournments thereof (the
"Meeting").
Only stockholders of record at the close of business on January 24,
1997 will be entitled to notice of and to vote at the Meeting. As of that date,
9,100,321 shares of Common Stock, par value $.01 per share, of the Company
("Common Stock") were outstanding and entitled to vote at the Meeting.
Stockholders are entitled to cast one vote for each share held of record at the
close of business on January 24, 1997 on each matter submitted to a vote at the
Meeting. Any stockholder may revoke a proxy at any time prior to its exercise by
filing a later-dated proxy or a written notice of revocation with the Secretary
of the Company, or by voting in person at the Meeting. If a stockholder is not
attending the Meeting, any proxy or notice should be returned in time for
receipt no later than the close of business on the day preceding the Meeting.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the Meeting is necessary
to establish a quorum for the transaction of business. Votes withheld from any
nominee, abstentions and broker non-votes are counted as present or represented
for purposes of determining the presence or absence of a quorum. A "non-vote"
occurs when a broker holding shares for a beneficial owner votes on one
proposal, but does not vote on another proposal because the broker does not have
discretionary voting power and has not received instructions from the beneficial
owner. Directors are elected by a plurality of the votes cast by stockholders
entitled to vote at the Meeting. All other matters being submitted to
stockholders require the affirmative vote of the majority of shares present in
person or represented by proxy at the Meeting. An automated system administered
by the Company's transfer agent tabulates the votes. The vote on each matter
submitted to stockholders is tabulated separately. Abstentions are included in
the number of shares present or represented and voting on each matter.
At the Meeting, proposals to elect Messrs. John A. Blaeser, Thomas R.
Foley, Bruce R. Gardner, Jerome Jacobson and David T. Riddiford as directors
will be subject to a vote of stockholders. In addition to the election of
directors, the stockholders will consider and vote upon proposals (i) to approve
the adoption of the Company's 1996 Stock Plan and (ii) to approve the adoption
of the Company's 1996 Non-Employee Director Stock Option Plan, as amended (the
"Director Plan"). Where a choice has been specified on the proxy with respect to
the foregoing matters, the shares represented by the proxy will be voted in
accordance with the specifications, and will be voted FOR the proposal if no
specification is indicated. The persons named as attorneys in the proxies are
directors and officers of the Company.
The Board of Directors of the Company knows of no other matters to be
presented at the Meeting. If any other matter should be presented at the Meeting
upon which a vote properly may be
taken, shares represented by all proxies received by the Board of Directors will
be voted with respect thereto in accordance with the judgment of the persons
named in the proxies.
An Annual Report to Stockholders, containing audited financial
statements of the Company for the fiscal year ended September 30, 1996, is being
mailed together with this proxy statement to all stockholders entitled to vote.
This proxy statement and the accompanying notice and form of proxy will be first
mailed to stockholders on or about February 3, 1997.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth as of January 24, 1997, certain
information regarding beneficial ownership of the Company's Common Stock (i) by
each person who, to the knowledge of the Company, beneficially owned more than
5% of the shares of Common Stock of the Company outstanding at such date, (ii)
by each director of the Company, (iii) the chief executive officer and each
other executive officer of the Company as of September 30, 1996 whose annual
compensation exceeded $100,000, and (iv) by all directors and officers of the
Company as a group.
Number of
Shares Percentage of
Name and Address Beneficially Shares of
of Beneficial Owner Owned Common Stock(1)
- ------------------- ------------ ---------------
Thomas R. Foley (2) 200,176 2.2%
c/o DATAWATCH Corporation
234 Ballardvale Street
Wilmington, Massachusetts 01887
Bruce R. Gardner (3) 187,603 2.1%
c/o DATAWATCH Corporation
234 Ballardvale Corporation
Wilmington, Massachusetts 01887
Marco D. Peterson (4) 96,973 1.1%
c/o DATAWATCH Corporation
234 Ballardvale Corporation
Wilmington, Massachusetts 01887
Andrew W. Mathews 84,208 *
c/o DATAWATCH Corporation
234 Ballardvale Corporation
Wilmington, Massachusetts 01887
John A. Blaeser (5) 4,740 *
c/o Concord
Communications, Inc.
33 Boston Post Road
Marlborough, Massachusetts 01752
-2-
Number of
Shares Percentage of
Name and Address Beneficially Shares of
of Beneficial Owner Owned Common Stock(1)
- ------------------- ------------ ---------------
Jerome Jacobson (6) 21,000 *
4200 Massachusetts Avenue, N.W.
Suite 114
Washington, DC 20016
David T. Riddiford (7) 2,419 *
c/o Pell Rudman & Co., Inc.
100 Federal Street
37th Floor
Boston, Massachusetts 02110
All current directors and executive 597,119 6.5%
officers as a group (7 persons)(8)
- ------------------
*Less than one percent.
(1) The number of shares of Common Stock deemed outstanding includes (i)
9,100,321 shares of Common Stock outstanding as of January 24, 1997 and
(ii) with respect to each individual, options to purchase shares of
Common Stock which may be exercised by such individuals on or before
March 25, 1997.
(2) Includes 8,125 options that may be exercised on or before March 25, 1997.
(3) Includes 7,500 options that may be exercised on or before March 25,
1997. Also includes 5,400 shares of Common Stock held by Mr. Gardner's
minor daughter, of which he may be deemed a beneficial owner.
(4) Includes 9,792 options that may be exercised on or before March 25, 1997.
(5) Includes 2,000 options that may be exercised on or before March 25,
1997. Also includes 2,727 shares of Common Stock held by EG&G Venture
Management ("EG&G Management") and 13 shares of Common Stock held by
EG&G Venture Partners ("EG&G Partners"). Mr. Blaeser is a general
partner of EG&G Management which in turn is the general partner of EG&G
Partners. Mr. Blaeser disclaims beneficial ownership of any shares in
which he has no actual pecuniary interest.
(6) Includes 3,000 options that may be exercised on or before March 25, 1997.
(7) Includes 2,000 options that may be exercised on or before March 25, 1997.
(8) Includes 32,417 options that may be exercised on or before March 25,
1997.
-3-
ELECTION OF DIRECTORS
The directors of the Company are elected annually and hold office for
the ensuing year until the next annual meeting of stockholders and until their
successors have been elected and qualified. The directors are elected by a
plurality of votes cast by stockholders. The Company's By-Laws state that the
number of directors constituting the entire Board of Directors shall be
determined by resolution of the Board of Directors. The number of directors
currently fixed by the Board of Directors is five. This number may be changed by
resolution of the Board of Directors.
No proxy may be voted for more people than the number of nominees
listed below. Shares represented by all proxies received by the Board of
Directors and not so marked as to withhold authority to vote for any individual
director (by writing that individual director's name where indicated on the
proxy) or for all directors will be voted FOR the election of all the nominees
named below (unless one or more nominees are unable or unwilling to serve). The
Board of Directors knows of no reason why any such nominee would be unable or
unwilling to serve, but if such should be the case, proxies may be voted for the
election of some other person.
Set forth below is information relating to the nominees to be elected
at the Meeting:
Thomas R. Foley, President, Chief Executive Officer and Director. Mr.
Foley, age 57, a founder and director of the Company, has been its President and
Chief Executive Officer since the Company was founded in 1985.
Bruce R. Gardner, Executive Vice President, Chief Financial Officer,
Assistant Secretary, Treasurer and Director. Mr. Gardner, age 53, a founder and
director of the Company, has been the Chief Financial Officer and Treasurer
since the Company was founded in 1985. Mr. Gardner was a Senior Vice President
until June 1993 when he became Executive Vice President. Mr. Gardner is a
director of ACT Manufacturing, Inc.
John A. Blaeser, Director. Mr. Blaeser, age 55, has been a director of
the Company since 1990. Since 1986, Mr. Blaeser has been a general partner of
EG&G Venture Management. Mr. Blaeser has also been the President of Concord
Communications, Inc., a networking software company, since January 1996.
Jerome Jacobson, Director. Mr. Jacobson, age 75, has been a director of
the Company since 1987. Mr. Jacobson is a private investor and business
consultant and serves as an advisor to several venture capital funds. Mr.
Jacobson is a director of Itel Corp. and Merrill Lynch Venture Capital, II.
David T. Riddiford, Director. Mr. Riddiford, age 61, has been a
director of the Company since 1989. Since 1987, Mr. Riddiford has been a general
partner of Pell, Rudman Venture Management, L.P., which is the general partner
of PR Venture Partners, L.P., a venture capital affiliate of Pell, Rudman & Co.,
Inc., an investment advisory firm. He has also been a general partner of Venture
Founders Capital, a venture capital partnership, since 1984. Mr. Riddiford is
also a director of Vicor Corporation.
-4-
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of the Company met four times during the fiscal
year ended September 30, 1996. The Board of Directors has a standing Audit
Committee, a standing Compensation Committee and a standing Stock Plan
Committee. The membership of the Audit Committee was most recently fixed by the
Board of Directors on January 25, 1990. The memberships of the Compensation
Committee and Stock Plan Committee were most recently fixed by the Board of
Directors on March 15, 1995. The Audit Committee, which oversees the accounting
and financial functions of the Company, including matters relating to the
appointment and activities of the Company's independent auditors, met four times
during fiscal 1996. Messrs. Jacobson and Riddiford are the members of the Audit
Committee. The Compensation Committee of the Company, which reviews and makes
recommendations concerning executive compensation, met twice during fiscal 1996.
Messrs. Blaeser and Riddiford are the members of the Compensation Committee. The
Stock Plan Committee, which administers the Company's 1987 Stock Plan, the
Company's 1996 Stock Plan and the Company's 1996 International Employee
Non-Qualified Stock Option Plan, met twice during fiscal 1996. Messrs. Blaeser
and Riddiford are the members of the Stock Plan Committee. During fiscal 1996,
no incumbent director attended fewer than 75% of the aggregate of (i) the total
number of meetings of the Board of Directors (held during the period for which
he has been a director) and (ii) the total number of meetings held by all
committees of the Board on which he served (during the period that he served).
-5-
EXECUTIVE COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended September 30, 1996, 1995 and 1994, of those persons who were
at September 30, 1996 (i) the chief executive officer and (ii) the other
executive officers of the Company whose annual compensation exceeded $100,000
(collectively, the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------- ------------
Name and Principal Fiscal Other Annual Number of All Other
Position(s) Year Salary ($) Bonus ($) Compensation Options/SARs (#) Compensation(1)($)
- ---------------------- -------- ---------- --------- ------------ ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas R. Foley 1996 198,000 17,325 - - 774
President, Chief 1995 173,249 17,325 - - 774
Executive Officer 1994 164,711 - - 48,750 774
and Director
Bruce R. Gardner 1996 158,000 13,850 - - 612
Executive Vice 1995 138,499 13,850 - - 612
President, Chief Financial 1994 131,711 - - 45,000 612
Officer, Treasurer, Assistant
Secretary and Director
Marco D. Peterson 1996 143,000 12,890 - - 833
Vice President of Marketing 1995 128,989 12,890 - - 805
and New Product Development 1994 113,928 20,000 - 58,750 743
Andrew W. Mathews 1996 132,000 11,580 - - 612
Vice President of Sales 1995 115,799 11,580 - - 612
1994 110,111 - - 52,750 612
- ------------
</TABLE>
(1) Amount represents the dollar value of group-term life insurance premiums
paid by the Company for the benefit of the Named Officer.
None of the Named Officers listed in the Summary Compensation Table
above were granted SARs or stock options to purchase shares of the Company's
Common Stock during fiscal year ended September 30, 1996.
-6-
OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table sets forth information as to the Named Officers
with respect to options to purchase the Company's Common Stock held by each
Named Officer, including (i) the number of shares of Common Stock purchased upon
exercise of options in the fiscal year ended September 30, 1996; (ii) the net
value realized upon such exercise; (iii) the number of unexercised options
outstanding as of September 30, 1996; and (iv) the value of such unexercised
options at September 30, 1996:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Value Options held at In-the-Money Options at
Shares Realized(1) September 30, 1996(#) September 30, 1996($)(2)
Acquired on ----------- --------------------- ------------------------
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ --- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas R. Foley 32,500 $ 227,500 0 16,250 $ 0 $ 119,844
Bruce R. Gardner 30,000 225,000 0 15,000 0 110,625
Marco D. Peterson 87,181 634,129 0 19,584 0 144,432
Andrew W. Mathews 35,166 246,162 0 17,584 0 129,682
</TABLE>
(1) Amounts disclosed in this column do not reflect amounts actually received
by the Named Officers but are calculated based on the difference between
the fair market value of the Company's Common Stock on the date of
exercise and the exercise price of the options. The Named Officers will
receive cash only if and when they sell the Common Stock issued upon
exercise of the options, and the amount of cash received by such
individuals is dependent on the price of the Company's Common Stock at the
time of such sale.
(2) Represents the difference between the option exercise price of
in-the-money options and the fair market value per share of Common Stock
at 1996 fiscal year-end ($8.375 per share as quoted on the Nasdaq National
Market at the close of trading on September 30, 1996) multiplied by the
number of shares underlying the in-the-money option.
EXECUTIVE AGREEMENTS
On April 11, 1996, the Board of Directors approved change in control
severance agreements (the "Executive Agreements") with each of the Named
Officers. The purpose of the Executive Agreements is to reinforce and encourage
the Named Officers to remain with the Company and to maintain objectivity and a
high level of attention to their duties without distraction from the possibility
of a change in control of the Company. The Executive Agreements are in effect
through September 30, 1997 and so long as the Named Officer continues to be
employed by the Company are automatically extended from year to year,
-7-
unless the Company or the Named Officer provides prior written notice to the
other party of its desire to terminate the agreement. Pursuant to the Executive
Agreements, the Named Officers remain as at-will employees of the Company until
such time as the Company enters into a written agreement (a "Business
Combination Agreement") with a third party concerning a possible business
combination between the Company and such third party or any affiliate of such
third party which, if effected, would result in a change of control of the
Company, as that term is defined in the Executive Agreements. In the event the
Company enters into such a Business Combination Agreement, the Named Officer
agrees not to voluntarily leave the employ of the Company and the Company agrees
it will not terminate the employment of the Named Officer other than for cause
until the earlier of (i) in the opinion of the Board of Directors of the
Company, such Business Combination Agreement has been abandoned or terminated,
(ii) the date on which such a change in control of the Company has been
effected, or (iii) 120 calendar days from the date of the execution of the
Business Combination Agreement.
The Executive Agreements provide that in the event of a change in
control of the Company each of the Named Officers is entitled to a lump sum
payment (the "Termination Payment") upon the subsequent qualifying termination
of the Named Officer's employment with the Company. With respect to Messrs.
Foley and Gardner, a qualifying termination under their Executive Agreements
includes (i) termination of their employment with the Company, for any reason
other than for cause, following a change in control of the Company, or (ii)
termination as a result of their resignation, for any or no reason, following a
change in control of the Company. With respect to Messrs. Peterson and Mathews,
a qualifying termination under their Executive Agreements includes (i)
termination of their employment with the Company, for any reason other than for
cause, following a change in control of the Company, (ii) termination as a
result of their resignation, for any or no reason, at any time after eighteen
months following a change in control of the Company, or (iii) termination as a
result of certain events identified in their Executive Agreements which
constitute constructive termination of their employment with the Company.
The Termination Payment that each Named Officer is entitled to receive
under his respective Executive Agreement is a lump sum payment equal to three
times the sum of (i) the Named Officer's annual base salary as in effect
immediately prior to his qualifying termination and (ii) the highest annual
bonus paid to the Named Officer by the Company during the five most recently
completed fiscal years of the Company ending immediately prior to his qualifying
termination; provided, however, that with respect to Messrs. Peterson and
Mathews, for each full month (up to eighteen months) after the date of the
change in control of the Company that they remain employed by the Company and
before the date of their qualifying termination, their Termination Payment will
be reduced by an amount equal to their Termination Payment divided by
thirty-six.
If any payment or benefit received or to be received by any of the
Named Officers in connection with a change in control of the Company, whether
pursuant to his Executive Agreement or otherwise (the "Total Payments"), is
determined to be an "excess parachute payment" within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended, and thus subject to a 20%
federal excise tax, the amount of such Named Officer's Termination Payment will
be reduced until the aggregate of the Total Payments is such that no part of the
Total Payments constitutes an excess parachute payment and is no longer subject
to such exercise tax.
-8-
COMPENSATION COMMITTEE AND STOCK PLAN COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report is submitted by the Compensation Committee of the Board of
Directors (the "Compensation Committee") and the Stock Plan Committee of the
Board of Directors (the "Stock Plan Committee"). The Compensation Committee
consists of Messrs. Blaeser and Riddiford, each of whom is an independent,
non-employee director of the Company, and is responsible for establishing and
administering the base salaries and cash bonuses of the Company's executive
officers. The Stock Plan Committee also consists of Messrs. Blaeser and
Riddiford and is responsible for administering and making recommendations and
awards under the Company's 1987 Stock Plan, the Company's 1996 Stock Plan and
the Company's 1996 International Employee Non-Qualified Stock Option Plan.
The Company's executive compensation policies are designed to provide
levels of cash and equity compensation that will reward and retain experienced
executives who will contribute to the achievement of the Company's performance
objectives in the competitive and rapidly changing business environment in which
the Company operates. The executive compensation program is designed to achieve
these goals through a combination of base salary, cash bonuses and long-term
incentive compensation in the form of stock options. As noted above, the cash
compensation components of the Company's executive compensation program are
determined by the Compensation Committee, while the equity compensation
component is administered by the Stock Plan Committee.
Cash Compensation. Base salary compensation levels for each of the
Company's executive officers are determined by evaluating the individual
officer's responsibilities, experience and performance, as well as generally
available information regarding salaries paid to executive officers with
comparable qualifications at companies in businesses comparable to the Company.
Cash bonuses are determined annually and are based on the Company's achievement
of targeted measures of financial performance, including revenue, profit and
cost saving goals, and, in certain cases, the achievement of non-financial
objectives in the officer's area of responsibility. In determining compensation
levels paid to its executive officers, the Compensation Committee also takes
into account certain subjective factors such as the executive's ability to
provide leadership, to develop the Company's business, to promote the Company's
image with its customers and stockholders, and to manage the Company's
continuing growth. For information regarding the Company's executive officers'
fiscal 1996 compensation, see the table captioned "Summary Compensation Table"
contained elsewhere in this proxy statement.
Equity Compensation. Long-term incentive compensation in the form of
stock option grants is designed to encourage the Company's executive officers
and other employees to remain with the Company and promote the Company's
business and to align the interests of the Company's executive officers and
other employees more closely with those of the Company's stockholders by
allowing those executives and employees to share in long-term appreciation in
the value of the Company's Common Stock. It is the Company's policy to grant
stock options to executive officers and certain employees at the time they join
the Company in an amount consistent with such executive's or employee's position
and level of seniority. In addition, the Stock Plan Committee will occasionally
make additional option grants to the Company's executive officers and employees.
When establishing stock option grant levels, the Stock Plan Committee considers
both individual and general corporate performance, recommendations of the Chief
Executive Officer, existing levels of stock ownership, previous option grants
and current option holdings, including the number of unvested options and the
then current value of such unvested options, and the current price of the
Company's Common Stock. Options are generally granted at fair market value and
become exercisable ratably over a three year period. None of the Company's
executive officers were granted stock options during fiscal 1996. For
information relating to the total options held by each of the Company's
executive officers at September 30, 1996, see the table
-9-
captioned "Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values" contained elsewhere in this proxy statement.
CEO Compensation. Compensation for the Company's President and Chief
Executive Officer, Thomas R. Foley, is determined in accordance with the
policies applicable to the other executive officers of the Company described
above. The Compensation Committee believes that Mr. Foley's annual compensation
is competitive with the compensation paid by other companies in its industry to
their chief executive officers. In addition to achievement of performance
targets in accordance with the Company's executive compensation policies, the
Compensation Committee determines the Chief Executive Officer's cash
compensation based upon the Company's overall performance, the performance of
his management team, the compensation paid at competing companies and the
Company's prospects, among other objective and subjective factors. The
Compensation Committee does not find it practicable to quantify or assign
relative weight to the factors on which the Chief Executive Officer's
compensation is based.
As a result of the Company's performance and his individual
contribution, Mr. Foley was awarded the amounts reflected in the table captioned
"Summary Compensation Table" contained elsewhere in this proxy statement in
fiscal 1996. Mr. Foley received no stock options in fiscal 1996.
Tax Considerations. Section 162(m) of the Internal Revenue Code of
1986, as amended, prevents publicly held corporations from deducting, for
federal income tax purposes, compensation paid in excess of $1 million to
certain executives, with certain exceptions. The Compensation Committee and the
Stock Plan Committee has considered these requirements and it is the present
intention of these committees that, so long as it is consistent with the
Company's overall compensation objectives, substantially all executive
compensation will be deductible for federal income tax purposes.
Respectfully submitted by the Compensation Committee and the Stock Plan
Committee.
THE COMPENSATION COMMITTEE
THE STOCK PLAN COMMITTEE
John A. Blaeser
David T. Riddiford
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has established a Compensation
Committee and a Stock Plan Committee each consisting of Messrs. Blaeser and
Riddiford. No person who served as a member of either the Compensation Committee
or the Stock Plan Committee was, during the fiscal year ended September 30,
1996, an officer or employee of the Company or any of its subsidiaries, was
formerly an officer of the Company or any of its subsidiaries, or had any
relationship requiring disclosure herein. No executive officer of the Company
served as a member of the compensation committee of another entity (or other
committee of the Board of Directors performing equivalent functions or, in the
absence of any such committee, the entire Board of Directors), one of whose
executive officers served as a member of the Compensation Committee or Stock
Plan Committee of the Company.
-10-
COMPENSATION OF DIRECTORS
During fiscal year ended September 30, 1996, directors who were
employees of the Company received no cash compensation for their services as
directors. Directors who are not employees of the Company receive $15,000 per
year for their service as a director of the Company's Board of Directors.
All directors are eligible to receive stock options under the Company's
1987 Stock Plan and the Company's 1996 Stock Plan and non-employee directors,
who may hold and beneficially own stock options granted to them, and the shares
of Common Stock issuable upon exercise of such options, individually, in their
own name, are eligible to receive stock options under the Company's Director
Plan. For further descriptions of the Company's 1996 Stock Plan and Director
Plan see "Proposal to Approve the Adoption of the 1996 Stock Plan" and "Proposal
to Approve the Adoption of the 1996 Non-Employee Director Stock Option Plan, as
amended," respectively. The complete texts of the 1996 Stock Plan and the
Director Plan are attached hereto as Appendix A and Appendix B, respectively.
During fiscal 1996, each of the Company's non-employee directors were
granted stock options. On April 11, 1996, Mr. Jacobson was granted an option to
purchase 12,000 shares of the Company's Common Stock under the Company's 1987
Stock Plan. The options granted to Mr. Jacobson vest over three years in twelve
equal quarterly installments beginning three months from the date the options
were granted. The exercise price per share of the options granted to Mr.
Jacobson was the fair market value of the Company's Common Stock on the date the
options were granted. Messrs. Riddiford and Blaeser were each automatically
granted options to purchase 12,000 shares of the Company's Common Stock pursuant
to the Company's Director Plan on August 5, 1996 and August 27, 1996,
respectively. The options granted to Messrs. Riddiford and Blaeser vest over
three years in twelve equal quarterly installments beginning three months from
the date the options were granted to them. The exercise price per share of the
options granted to Messrs. Riddiford and Blaeser was the fair market value of
the Company's Common Stock on the date the options were granted. Although Mr.
Jacobson was eligible to receive an initial automatic stock option grant
pursuant to the Company's Director Plan on June 1, 1996, because Mr. Jacobson
had recently received a stock option grant in April 1996 under the 1987 Stock
Plan, he waived his right to receive his initial automatic grant under the
Director Plan. Notwithstanding the vesting schedules for the options granted to
Messrs. Jacobson, Riddiford and Blaeser discussed above, in the event of any
change in control of the Company (as defined in Mr. Jacobson's option agreement
and in the Director Plan), or in the event such director dies or becomes
disabled while he is serving as a director of the Company, all such options that
are outstanding but unvested automatically become exercisable in full.
-11-
STOCK PERFORMANCE GRAPH
The following graph compares the yearly change in the cumulative total
stockholder return on the Company's Common Stock during the period from the
Company's initial public offering on May 28, 1992 through September 30, 1996,
with the cumulative total return on (i) an SIC Index that includes all
organizations in the Company's Standard Industrial Classification (SIC) Code
7372-Prepackaged Software (the "SIC Code Index") and (ii) the Media General
Market Weighted Nasdaq Index Return (the "Nasdaq Market Index"). The comparison
assumes that $100 was invested on May 28, 1992 in the Company's Common Stock at
the $5.00 initial public offering price and in each of the foregoing indices and
assumes reinvestment of dividends, if any.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
DATAWATCH CORPORATION, SIC CODE INDEX
AND NASDAQ MARKET INDEX (1)(2)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
5/28/92 9/30/92 9/30/93 9/30/94 9/30/95 9/30/96
------- ------- ------- ------- ------- -------
Datawatch Corporation $100.00 $70.00 $31.20 $27.60 $98.80 $167.60
SIC Code Index $100.00 $97.74 $116.45 $141.94 $225.67 $302.36
Nasdaq Market Index $100.00 $96.59 $125.62 $132.93 $161.40 $188.43
- --------------------
</TABLE>
(1) Prior to May 28, 1992, the Company's Common Stock was not publicly traded.
Comparative data is provided only for the period since that date. This
graph is not "soliciting material," is not deemed filed with the
Securities and Exchange Commission and is not to be incorporated by
reference in any filing of the Company under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended, whether
made before or after the date hereof and irrespective of any general
incorporation language in any such filing.
(2) The stock price performance shown on the graph is not necessarily
indicative of future price performance. Information used in the graph was
obtained from Media General Financial Services, Inc., Richmond, Virginia,
a source believed to be reliable, but the Company is not responsible for
any errors or omissions in such information.
-12-
PROPOSAL TO APPROVE THE ADOPTION OF THE 1996 STOCK PLAN
The Company's 1996 Stock Plan was adopted by the Board of Directors of
the Company on December 10, 1996, subject to stockholder approval. The complete
text of the 1996 Stock Plan is attached hereto as Appendix A.
The Company's 1996 Stock Plan was adopted by the Board of Directors of
the Company to replace the Company's 1987 Stock Plan which expires pursuant to
its terms on February 25, 1997. Upon adoption of the 1996 Stock Plan, the Board
of Directors terminated the effectiveness of the 1987 Stock Plan as to the grant
of any new options.
DESCRIPTION OF THE 1996 STOCK PLAN
The 1996 Stock Plan provides for the issuance of a maximum of 1,000,000
shares of Common Stock of the Company pursuant to the grant of incentive stock
options ("ISOs") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and the grant of non-qualified stock options
("NQSOs"), stock awards ("Awards") and opportunities to make direct purchases of
stock ("Purchases") to employees, consultants, directors and officers of the
Company. Currently, 255 employees (including directors who are also employees
and officers of the Company), and three non-employee directors of the Company
are eligible to participate in the 1996 Stock Plan.
The 1996 Stock Plan is administered by the Stock Plan Committee of the
Board of Directors, which currently consists of Messrs. Blaeser and Riddiford,
two outside directors of the Company. Subject to the provisions of the 1996
Stock Plan, the Stock Plan Committee has the authority to (i) determine to whom
options, Awards and Purchases shall be granted, (ii) determine the time at which
options or Awards shall be granted or Purchases made, (iii) determine the
purchase price of shares subject to each option or Purchase, (iv) determine
whether each option granted shall be an ISO or an NQSO, (v) determine when each
option shall become exercisable and the duration of the exercise period, (vi)
extend the period during which outstanding options may be exercised, (vii)
determine whether restrictions are to be imposed on shares subject to options,
Awards and Purchases, and (viii) interpret the 1996 Stock Plan and prescribe and
rescind rules and regulations relating to it.
The Stock Plan Committee determines the exercise price per share for
NQSOs, Awards and Purchases under the 1996 Stock Plan, so long as such exercise
price is no less than the minimum legal consideration required therefor under
the laws of any jurisdiction in which the Company may be organized. The exercise
price per share for each ISO granted under the 1996 Stock Plan may not be less
than the fair market value per share of Common Stock on the date of such grant.
In the case of an ISO to be granted to an employee owning stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company, the price per share for such ISO shall not be less than
one hundred ten percent (110%) of the fair market value per share of Common
Stock on the date of grant. The aggregate fair market value (determined at the
time of grant) of the shares of Common Stock subject to ISOs granted to an
employee and which first become exercisable during any calendar year cannot
exceed $100,000; any portion of an ISO grant that exceeds such $100,000 limit
will be treated for tax purposes as a NQSO. ISOs are not transferable by the
optionholder except by will or by the laws of descent and distribution. NQSOs,
Awards and Purchases are transferable to the extent determined by the Stock Plan
Committee and as set forth in the agreement relating to the grant of any such
NQSOs, Awards or Purchases. Each option expires on the date specified by the
Stock Plan Committee, but not more than (i) ten years from the date of grant in
the case of options generally and (ii) five years from the date of grant in the
case of ISOs granted to an employee owning stock possessing more than ten
percent (10%)
-13-
of the total combined voting power of all classes of stock of the Company.
Generally, no ISO may be exercised more than 90 days following termination of
employment. However, in the event that termination is due to death or
disability, the option is exercisable for a maximum of 180 days after such
termination. No options, Awards or Purchases may be granted under the 1996 Stock
Plan after December 9, 2006.
Holders of options granted under the 1996 Stock Plan are protected
against dilution in the event of a stock dividend, recapitalization, stock
split, merger or similar transaction. The Board of Directors may from time to
time adopt amendments, certain of which are subject to stockholder approval, and
may terminate the 1996 Stock Plan at any time (although such action shall not
affect options previously granted). Any shares subject to an option which for
any reason expires or terminates unexercised may again be available for future
grants of options, Awards or Purchases under the 1996 Stock Plan.
As of January 24, 1997, no options, Awards or Purchases had been
granted under the 1996 Stock Plan. The Company has not, as of the date hereof,
determined who will receive grants of options, Awards or Purchases to purchase
shares of Common Stock that will be authorized for issuance under the 1996 Stock
Plan, if the proposal is approved.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. The following general rules are applicable
under current federal income tax law to ISOs under the 1996 Stock Plan:
1. In general, no taxable income results to the optionee upon the
grant of an ISO or upon the issuance of shares to him or her upon
the exercise of the ISO, and no federal income tax deduction is
allowed to the Company upon either grant or exercise of an ISO.
2. If shares acquired upon exercise of an ISO are not disposed of
within (i) two years following the date the option was granted or
(ii) one year following the date the shares are issued to the
optionee pursuant to the ISO exercise (the "Holding Periods"),
the difference between the amount realized on any subsequent
disposition of the shares and the exercise price will generally
be treated as capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of before
the expiration of one or both of the requisite Holding Periods (a
"Disqualifying Disposition"), then in most cases the lesser of
(i) any excess of the fair market value of the shares at the time
of exercise of the ISO over the exercise price or (ii) the actual
gain on disposition will be treated as compensation to the
optionee and will be taxed as ordinary income in the year of such
disposition.
4. In any year that an optionee recognizes compensation income on a
Disqualifying Disposition of stock acquired by exercising an ISO,
the Company generally should be entitled to a corresponding
deduction for federal income tax purposes.
5. Any excess of the amount realized by the optionee as the result
of a Disqualifying Disposition over the sum of (i) the exercise
price and (ii) the amount of ordinary income recognized under the
above rules will be treated as capital gain.
6. Capital gain or loss recognized on a disposition of shares will
be long-term capital gain or loss if the optionee's holding
period for the shares exceeds one year.
-14-
7. An optionee may be entitled to exercise an ISO by delivering
shares of the Company's Common Stock to the Company in payment of
the exercise price if the optionee's ISO agreement so provides.
If an optionee exercises an ISO in such fashion, special rules
will apply.
8. In addition to the tax consequences described above, the exercise
of ISOs may result in a further "minimum tax" under the Code. The
Code provides that an "alternative minimum tax" (at a rate of 26%
or 28%) will be applied against a taxable base which is equal to
"alternative minimum taxable income," generally reduced by a
statutory exemption. In general, the amount by which the value of
the Common Stock received upon exercise of the ISO exceeds the
exercise price is included in the optionee's alternative minimum
taxable income. A taxpayer is required to pay the higher of his
or her regular tax liability or the alternative minimum tax. A
taxpayer who pays alternative minimum tax attributable to the
exercise of an ISO may be entitled to a tax credit against his or
her regular tax liability in later years.
Non-Qualified Options. The following general rules are applicable under
current federal income tax law to NQSOs under the 1996 Stock Plan:
1. The optionee generally does not recognize any taxable income upon
the grant of a NQSO, and the Company is not allowed a federal
income tax deduction by reason of such grant.
2. The optionee generally will recognize ordinary compensation
income at the time of exercise of a NQSO in an amount equal to
the excess, if any, of the fair market value of the shares on the
date of exercise over the exercise price. The Company may be
required to withhold income tax on this amount.
3. When the optionee sells the shares, he or she generally will
recognize a capital gain or loss in an amount equal to the
difference between the amount realized upon the sale of the
shares and his or her basis in the shares (generally, the
exercise price plus the amount taxed to the optionee as
compensation income). If the optionee's holding period for the
shares exceeds one year, such gain or loss will be a long-term
capital gain or loss.
4. The Company generally should be entitled to a tax deduction when
compensation income is recognized by the optionee.
5. An optionee may be entitled to exercise a NQSO by delivering
shares of the Company's Common Stock to the Company in payment of
the exercise price. If an optionee exercises a NQSO in such
fashion, special rules will apply.
Awards and Purchases. Under current federal income tax law, persons
receiving Common Stock pursuant to an Award or Purchase generally will recognize
ordinary compensation income equal to the fair market value of the shares
received, reduced by any purchase price paid. The Company should generally be
entitled to a corresponding federal income tax deduction. When such Common Stock
is sold, the seller generally will recognize capital gain or loss. Special rules
apply if the stock acquired is subject to vesting, or is subject to certain
restrictions on resale under federal securities laws applicable to directors,
officers or 10% stockholders.
The Board of Directors recommends a vote FOR the approval of the
adoption of the 1996 Stock Plan.
-15-
PROPOSAL TO APPROVE THE ADOPTION OF THE
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN, AS AMENDED
The Company's 1996 Non-Employee Director Stock Option Plan was adopted
by the Board of Directors on May 21, 1996 and then amended by the Board of
Directors on December 10, 1996 (as amended, the "Director Plan"). The complete
text of the Director Plan is attached hereto as Appendix B.
The Director Plan provides for the grant of options to purchase a
maximum of 72,000 shares of Common Stock to Non-Employee Directors (as defined
below) of the Company, but in no event may options to purchase more than an
aggregate of 24,000 shares of Common Stock be granted under the Director Plan
without the approval of the Director Plan by the stockholders of the Company no
later than June 1, 1997. Currently, three Non-Employee Directors are eligible to
participate in the Director Plan.
DESCRIPTION OF 1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN.
The Director Plan authorizes the automatic grant of stock options only
to members of the Board of Directors who are neither employees nor officers of
the Company and who may hold and beneficially own such options, and the shares
of Common Stock issuable upon exercise of such options, individually, in their
own names (individually, a "Non-Employee Director" and collectively, the
"Non-Employee Directors"). The Director Plan is administered by the Board of
Directors of the Company. The Director Plan authorizes the automatic grant,
without further action by the Board of Directors, (a) of an option to purchase
12,000 shares of Common Stock (the "Initial Grant") to each person who is a
Non-Employee Director on the later of June 1, 1996, the date such person is
first elected to the Board of Directors, or the date such person meets all of
the requirements of a Non-Employee Director (such later date to be referred to
herein as the "Initial Grant Date") and (b) of an option to purchase 4,000
shares of Common Stock to each person who is a Non-Employee Director on the date
of the Company's Annual Meeting of Stockholders in each successive year after
such person's Initial Grant Date. Options granted to Non-Employee Directors
under the Director Plan vest over three years in twelve equal quarterly
installments beginning three months from the date such options are granted.
Notwithstanding this vesting schedule, the Director Plan also provides that in
the event of any change in control of the Company (as defined in the Director
Plan) all options granted under the Director Plan that are outstanding but
unvested automatically become exercisable in full.
The exercise price per share for all options granted under the Director
Plan will be equal to the fair market value per share of the Common Stock on the
date of grant. The term of each option will be for a period of ten years from
the date of grant. Options may not be assigned or transferred except by will or
by the laws of descent and distribution and are exercisable to the extent vested
only while the optionee is serving as a director of the Company or within 90
days after the optionee ceases to serve as a director of the Company (except
that if a director dies or becomes disabled while he or she is serving as a
director of the Company, the option automatically becomes fully vested and is
exercisable until the scheduled expiration date of the option). No options may
be granted under the Director Plan after June 1, 2006.
Non-Employee Directors granted options under the Director Plan are
protected against dilution in the event of a stock dividend, recapitalization,
stock split, merger or similar transaction. The Board of Directors may from time
to time adopt amendments, certain of which are subject to stockholder approval,
and may terminate the Director Plan at any time (although such action shall not
affect options previously granted). Any shares subject to an option which for
any reason expires or terminates unexercised may again be available for future
grants under the Director Plan.
-16-
As of January 24, 1997, options to purchase 24,000 shares of Common
Stock were outstanding and 48,000 shares of Common Stock were available under
the Director Plan for additional option grants. Of the options to purchase
24,000 shares of Common Stock granted and outstanding under the Director Plan,
options to purchase 12,000 shares of Common Stock were granted to each of Mr.
Riddiford and Mr. Blaeser on August 5, 1996 and August 27, 1996, respectively.
On June 1, 1996, Mr. Jacobson waived his right to receive his Initial Grant
under the Director Plan. Based on the number of Non-Employee Directors of the
Company on the date hereof (three), the Company anticipates granting options for
the purchase of an aggregate of 12,000 additional shares of Common Stock under
the Director Plan in fiscal year 1997 to such Non-Employee Directors. Executive
officers and employees of the Company are not eligible for grants under the
Director Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax
considerations for directors receiving options under the Director Plan and
certain tax effects on the Company. However, the summary does not address every
situation that may result in taxation.
1. Options granted under the Director Plan do not qualify as "Incentive
Stock Options" under Section 422 of the Code.
2. A Non-Employee Director will not recognize any taxable income upon
the grant of an option under the Director Plan, but generally will recognize
ordinary compensation income at the time of exercise of the option in an
amount equal to the excess, if any, of the fair market value of the shares
on the date of exercise over the exercise price.
3. If a Non-Employee Director exercises an option by delivering shares
of Common Stock to the Company in payment of the exercise price, special
rules will apply.
4. When a Non-Employee Director sells the Common Stock acquired upon
exercise of an option, he or she generally will recognize a capital gain or
loss equal to the difference between the amount realized upon sale of the
stock and his or her basis in the stock (in the case of a cash exercise, the
exercise price plus the amount, if any, taxed to the director as
compensation income as a result of his or her exercise of the option). If
the Non-Employee Director's holding period for the stock exceeds one year,
the gain or loss will be long-term capital gain or loss.
5. Generally, upon any grant or exercise of any option in which a
Non-Employee Director does not recognize compensation income, no federal
income tax deduction will be allowed to the Company. When a Non-Employee
Director recognizes compensation income as a result of the exercise of an
option under the Director Plan, the Company generally will be entitled to a
corresponding deduction for federal income tax purposes.
6. Special rules apply if the Common Stock acquired through the
exercise of an option is subject to resale restrictions under federal
securities laws applicable to Non-Employee Directors.
The Board of Directors recommends a vote FOR the approval of the
adoption of the Director Plan.
-17-
SECTION 16(a) BENEFICIAL REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and persons who own more
than ten percent of a registered class of the Company's equity securities
(collectively, "Reporting Persons"), to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "Commission"). Such
Reporting Persons are required by regulations of the Commission to furnish the
Company with copies of all such filings. Based solely on its review of copies of
such filings received by it with respect to fiscal year ended September 30, 1996
and written representations from certain Reporting Persons, the Company believes
that all Reporting Persons complied with all Section 16(a) filing requirements
in the fiscal year ended September 30, 1996.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement
to be furnished to all stockholders entitled to vote at the next annual meeting
of stockholders of the Company must be received at the Company's principal
executive offices not later than October 3, 1997. In order to curtail
controversy as to the date on which a proposal was received by the Company, it
is suggested that proponents submit their proposals by Certified Mail - Return
Receipt Requested.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Company, and
in addition to soliciting stockholders by mail through its regular employees,
the Company may request banks, brokers and other custodians, nominees and
fiduciaries to solicit their customers who have stock of the Company registered
in the names of a nominee and, if so, will reimburse such banks, brokers and
other custodians, nominees and fiduciaries for their reasonable out-of-pocket
costs. Solicitation by officers and employees of the Company may also be made of
some stockholders in person or by mail, telephone or telegraph following the
original solicitation.
OTHER BUSINESS
The Board of Directors knows of no business that will be presented for
consideration at the Meeting other than those items stated above. If any other
business should come before the Meeting, votes may be cast pursuant to proxies
in respect to any such business in the best judgment of the person or persons
acting under the proxies.
-18-
APPENDIX A
DATAWATCH CORPORATION
1996 STOCK PLAN
---------------
1. PURPOSE. The purpose of the Datawatch Corporation 1996 Stock Plan
(the "Plan") is to encourage key employees of Datawatch Corporation (the
"Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall
(be administered by the Board of Directors of the Company (the
"Board") or, subject to paragraph 2(D) (relating to compliance
with Section 162(m) of the Code), by a committee appointed by
the Board (the "Committee"). Hereinafter, all references in
this Plan to the "Committee" shall mean the Board if no
Committee has been appointed. Subject to ratification of the
grant or authorization of each Stock Right by the Board (if so
required by applicable state law), and subject to the terms of
the Plan, the Committee shall have the authority to (i)
determine to whom (from among the class of employees eligible
under paragraph 3 to receive ISOs) ISOs shall be granted, and
to whom (from among the class of individuals and entities
eligible under paragraph 3 to receive Non-Qualified Options
and Awards and to make Purchases) Non-Qualified Options,
Awards and authorizations to make Purchases may be granted;
(ii) determine the time or times at which Options or Awards
shall be granted or Purchases made; (iii) determine the
purchase price of shares subject to each Option or Purchase,
which prices shall not be less than the minimum price
specified in paragraph 6; (iv) determine whether each Option
granted shall be an ISO or a Non-Qualified Option; (v)
determine (subject to paragraph 7) the time or times when each
Option shall become exercisable and the duration of the
exercise period; (vi) extend the period during which
outstanding Options may be exercised; (vii) determine whether
restrictions such as repurchase options are to be imposed on
shares subject to Options, Awards and Purchases and the nature
of such restrictions, if any, and (viii) interpret the Plan
and prescribe and rescind rules and regulations relating to
it. If the Committee determines to issue a Non-Qualified
Option, it shall take whatever actions it deems necessary,
under Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Option is not treated as an
ISO. The interpretation and construction by the Committee of
any provisions of the Plan or of
A-1
any Stock Right granted under it shall be final unless
otherwise determined by the Board. The Committee may from
time to time adopt such rules and regulations for carrying
out the Plan as it may deem advisable. No member of the Board
or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or
any Stock Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of
its members as its chairman, and shall hold meetings at such
time and places as it may determine. A majority of the
Committee shall constitute a quorum and acts of a majority of
the members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the
members of the Committee (if consistent with applicable state
law), shall be the valid acts of the Committee. From time to
time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock
Rights may be granted to members of the Board. All grants of
Stock Rights to members of the Board shall in all respects be
made in accordance with the provisions of this Plan applicable
to other eligible persons. Members of the Board who either (i)
are eligible to receive grants of Stock Rights pursuant to the
Plan or (ii) have been granted Stock Rights may vote on any
matters affecting the administration of the Plan or the grant
of any Stock Rights pursuant to the Plan, except that no such
member shall act upon the granting to himself or herself of
Stock Rights, but any such member may be counted in
determining the existence of a quorum at any meeting of the
Board during which action is taken with respect to the
granting to such member of Stock Rights.
D. PERFORMANCE-BASED COMPENSATION. The Board, in its
discretion, may take such action as may be necessary to ensure
that Stock Rights granted under the Plan qualify as "qualified
performance-based compensation" within the meaning of Section
162(m) of the Code and applicable regulations promulgated
thereunder ("Performance-Based Compensation"). Such action may
include, in the Board's discretion, some or all of the
following (i) if the Board determines that Stock Rights
granted under the Plan generally shall constitute
Performance-Based Compensation, the Plan shall be
administered, to the extent required for such Stock Rights to
constitute Performance-Based Compensation, by a Committee
consisting solely of two or more "outside directors" (as
defined in applicable regulations promulgated under Section
162(m) of the Code), (ii) if any Non-Qualified Options with an
exercise price less than the fair market value per share of
Common Stock are granted under the Plan and the Board
determines that such Options should constitute
Performance-Based Compensation, such options shall be made
exercisable only upon the attainment of a pre-established,
objective performance goal established by the Committee, and
such grant shall be submitted for, and shall be contingent
upon shareholder approval and (iii) Stock Rights granted under
the Plan may be subject to such other terms and conditions as
are necessary for compensation recognized in connection with
the exercise or disposition of such Stock Right or the
disposition of Common Stock acquired pursuant to such Stock
Right, to constitute Performance-Based Compensation.
A-2
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to employees
of the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Stock Rights.
4. STOCK. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, par value $.01 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 1,000,000, subject to adjustment as provided in paragraph 13. If any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part or shall be repurchased by the Company, the unpurchased shares of
Common Stock subject to such Option shall again be available for grants of Stock
Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 700,000 shares of Common Stock
under the Plan during any fiscal year of the Company. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part or shall be repurchased by the Company, the shares subject to such Option
shall be included in the determination of the aggregate number of shares of
Common Stock deemed to have been granted to such employee under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time on or after December 10, 1996 and prior to December 10, 2006. The
date of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND
PURCHASES. Subject to paragraph 2(D) (relating to compliance
with Section 162(m) of the Code), the exercise price per share
specified in the agreement relating to each Non-Qualified
Option granted, and the purchase price per share of stock
granted in any Award or authorized as a Purchase, under the
Plan may be less than the fair market value of the Common
Stock of the Company on the date of grant; provided that, in
no event shall such exercise price or such purchase price be
less than the minimum legal consideration required therefor
under the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
B. PRICE FOR ISOS. The exercise price per share
specified in the agreement relating to each ISO granted under
the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case
of an ISO to be granted to an employee owning stock possessing
more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related
Corporation, the price per share specified in the agreement
relating to such ISO shall not be less than one hundred ten
percent (110%) of the fair market value per share of
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Common Stock on the date of grant. For purposes of determining
stock ownership under this paragraph, the rules of Section
424(d) of the Code shall apply.
C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each
eligible employee may be granted Options treated as ISOs only
to the extent that, in the aggregate under this Plan and all
incentive stock option plans of the Company and any Related
Corporation, ISOs do not become exercisable for the first time
by such employee during any calendar year with respect to
stock having a fair market value (determined at the time the
ISOs were granted) in excess of $100,000. The Company intends
to designate any Options granted in excess of such limitation
as Non-Qualified Options, and the Company shall issue separate
certificates to the optionee with respect to Options that are
Non-Qualified Options and Options that are ISOs.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the
time an Option is granted under the Plan, the Company's Common
Stock is publicly traded, "fair market value" shall be
determined as of the date of grant or, if the prices or quotes
discussed in this sentence are unavailable for such date, the
last business day for which such prices or quotes are
available prior to the date of grant and shall mean (i) the
average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then
traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the
Nasdaq National Market, if the Common Stock is not then traded
on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by
an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq
National Market. If the Common Stock is not publicly traded at
the time an Option is granted under the Plan, "fair market
value" shall mean the fair value of the Common Stock as
determined by the Committee after taking into consideration
all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock
in private transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully
exercisable on the date of grant or shall become exercisable
thereafter in such installments as the Committee may specify.
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B. FULL VESTING OF INSTALLMENTS. Once an installment
becomes exercisable, it shall remain exercisable until
expiration or termination of the Option, unless otherwise
specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may
be exercised at any time or from time to time, in whole or in
part, for up to the total number of shares with respect to
which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have
the right to accelerate the date that any installment of any
Option becomes exercisable; provided that the Committee shall
not, without the consent of an optionee, accelerate the
permitted exercise date of any installment of any Option
granted to any employee as an ISO (and not previously
converted into a Non-Qualified Option pursuant to paragraph
16) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as
described in paragraph 6(C).
9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
as defined in paragraph 10, no further installments of his or her ISOs shall
become exercisable, and his or her ISOs shall terminate on the earlier of (a)
three months after the date of termination of his or her employment, or (b)
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 16. For purposes of this paragraph 9, employment shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute or by contract. A bona fide leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under this paragraph 9, provided that such written approval
contractually obligates the Company or any Related Corporation to continue the
employment of the optionee after the approved period of absence. ISOs granted
under the Plan shall not be affected by any change of employment within or among
the Company and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related Corporation. Nothing in the Plan shall be
deemed to give any grantee of any Stock Right the right to be retained in
employment or other service by the Company or any Related Corporation for any
period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by
the Company and all Related Corporations by reason of his or
her death, any ISO owned by such optionee may be exercised, to
the extent otherwise exercisable on the date of death, by the
estate, personal representative or beneficiary who has
acquired the ISO by will or by the laws of descent and
distribution, until the earlier of (i) the specified
expiration date of the ISO or (ii) 180 days from the date of
the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be
employed by the Company and all Related Corporations by reason
of his or her disability, such optionee shall have the right
to exercise any ISO held by him or her on the date of
termination of employment, for the number of shares for which
he or she could have exercised it on that date, until the
earlier of (i) the specified expiration date of the ISO or
(ii) 180 days from
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the date of the termination of the optionee's employment. For
the purposes of the Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section
22(e)(3) of the Code or any successor statute.
11. ASSIGNABILITY. No ISO shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee shall be exercisable only by such optionee. Stock
Rights other than ISOs shall be transferable to the extent set forth in the
agreement relating to such Stock Right.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of
Common Stock shall be subdivided or combined into a greater or
smaller number of shares or if the Company shall issue any
shares of Common Stock as a stock dividend on its outstanding
Common Stock, the number of shares of Common Stock deliverable
upon the exercise of Options shall be appropriately increased
or decreased proportionately, and appropriate adjustments
shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be
consolidated with or acquired by another entity in a merger or
other reorganization in which the holders of the outstanding
voting stock of the Company immediately preceding the
consummation of such event, shall, immediately following such
event, hold, as a group, less than a majority of the voting
securities of the surviving or successor entity, or in the
event of a sale of all or substantially all of the Company's
assets or otherwise (each, an "Acquisition"), the Committee or
the board of directors of any entity assuming the obligations
of the Company hereunder (the "Successor Board"), shall, as to
outstanding Options, either (i) make appropriate provision for
the continuation of such Options by substituting on an
equitable basis for the shares then subject to such Options
either (a) the consideration payable with respect to the
outstanding shares of Common Stock in connection with the
Acquisition, (b) shares of stock of the surviving or successor
corporation or (c) such other securities as the Successor
Board deems appropriate, the fair market value of which shall
not materially exceed the fair market value of the shares of
Common Stock subject to such Options immediately preceding the
Acquisition; or (ii)
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upon written notice to the optionees, provide that all Options
must be exercised, to the extent then exercisable or to be
exercisable as a result of the Acquisition, within a specified
number of days of the date of such notice, at the end of which
period the Options shall terminate; or (iii) terminate all
Options in exchange for a cash payment equal to the excess of
the fair market value of the shares subject to such Options
(to the extent then exercisable or to be exercisable as a
result of the Acquisition) over the exercise price thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event
of a recapitalization or reorganization of the Company (other
than a transaction described in subparagraph B above) pursuant
to which securities of the Company or of another corporation
are issued with respect to the outstanding shares of Common
Stock, an optionee upon exercising an Option shall be entitled
to receive for the purchase price paid upon such exercise the
securities he or she would have received if he or she had
exercised such Option prior to such recapitalization or
reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the
foregoing, any adjustments made pursuant to subparagraphs A, B
or C with respect to ISOs shall be made only after the
Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in
Section 424 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs
would constitute a modification of such ISOs or would cause
adverse tax consequences to the holders, it may refrain from
making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the
proposed dissolution or liquidation of the Company, each
Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such
other conditions as shall be determined by the Committee.
F. ISSUANCES OF SECURITIES. Except as expressly
provided herein, no issuance by the Company of shares of stock
of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of
shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of
the Company.
G. FRACTIONAL SHARES. No fractional shares shall be
issued under the Plan and the optionee shall receive from the
Company cash in lieu of such fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the
events described in subparagraphs A, B or C above, the class
and aggregate number of shares set forth in paragraph 4 hereof
that are subject to Stock Rights which previously have been or
subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall
determine the specific adjustments to be made under this
paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.
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14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
December 10, 1996, subject, with respect to the validation of ISOs granted under
the Plan, to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained prior to December 10, 1997, any grants of ISOs
under the Plan made prior to that date will be rescinded. The Plan shall expire
at the end of the day on December 9, 2006 (except as to Options outstanding on
that date). Subject to the provisions of paragraph 5 above, Options may be
granted under the Plan prior to the date of stockholder approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time, except
that, without the approval of the stockholders obtained within 12 months before
or after the Board adopts a resolution authorizing any of the following actions:
(a) the total number of shares that may be issued under the Plan may not be
increased (except by adjustment pursuant to paragraph 13); (b) the provisions of
paragraph 3 regarding eligibility for grants of ISOs may not be modified; (c)
the provisions of paragraph 6(B) regarding the exercise price at which shares
may be offered pursuant to ISOs may not be modified (except by adjustment
pursuant to paragraph 13); and (d) the expiration date of the Plan may not be
extended. Except as otherwise provided in this paragraph 15, in no event may
action of the Board or stockholders alter or impair the rights of a grantee,
without such grantee's consent, under any Stock Right previously granted to such
grantee.
16. MODIFICATIONS OF ISOS; CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS. Subject to paragraph 13(D), without the prior written consent of the
holder of an ISO, the Committee shall not alter the terms of such ISO (including
the means of exercising such ISO) if such alteration would constitute a
modification (within the meaning of Section 424(h)(3) of the Code). The
Committee, at the written request or with the written consent of any optionee,
may in its discretion take such actions as may be necessary to convert such
optionee's ISOs (or any installments or portions of installments thereof) that
have not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Related Corporation at the time of
such conversion. Such actions may include, but shall not be limited to,
A-8
extending the exercise period or reducing the exercise price of the appropriate
installments of such ISOs. At the time of such conversion, the Committee (with
the consent of the optionee) may impose such conditions on the exercise of the
resulting Non-Qualified Options as the Committee in its discretion may
determine, provided that such conditions shall not be inconsistent with this
Plan. Nothing in the Plan shall be deemed to give any optionee the right to have
such optionee's ISOs converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Committee takes appropriate action.
Upon the taking of such action, the Company shall issue separate certificates to
the optionee with respect to Options that are Non-Qualified Options and Options
that are ISOs.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to
an arm's-length transaction, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includible in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the transfer of a Non-Qualified
Stock Option, (iii) the grant of an Award, (iv) the making of a Purchase of
Common Stock for less than its fair market value, or (v) the vesting or
transferability of restricted stock or securities acquired by exercising an
Option, on the grantee's making satisfactory arrangement for such withholding.
Such arrangement may include payment by the grantee in cash or by check of the
amount of the withholding taxes or, at the discretion of the Committee, by the
grantee's delivery of previously held shares of Common Stock or the withholding
from the shares of Common Stock otherwise deliverable upon exercise of a Option
shares having an aggregate fair market value equal to the amount of such
withholding taxes.
20. GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
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21. GOVERNING LAW. The validity and construction of the Plan and the
instruments evidencing Stock Rights shall be governed by the laws of the State
of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
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APPENDIX B
(AS AMENDED DECEMBER 10, 1996)
DATAWATCH CORPORATION
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. This Non-Qualified Stock Option Plan, to be known as the 1996
Non-Employee Director Stock Option Plan (hereinafter, this "Plan"), is intended
to promote the interests of Datawatch Corporation (hereinafter, the "Company")
by providing an inducement to obtain and retain the services of qualified
persons who are not employees or officers of the Company to serve as members of
its Board of Directors (the "Board").
2. Available Shares. The total number of shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock") for which options may be
granted under this Plan shall not exceed 72,000 shares, subject to adjustment in
accordance with paragraph 11 of this Plan; provided, however, that
notwithstanding anything to the contrary set forth herein, options to purchase
more than an aggregate of 24,000 shares of Common Stock shall not be granted
under this Plan unless and until this Plan has been approved by a majority of
the stockholders of the Company no later than June 1, 1997. Shares subject to
this Plan are authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Company. If any options granted under this Plan
are surrendered before exercise or lapse without exercise, in whole or in part,
the shares reserved therefor shall continue to be available under this Plan.
3. Administration. This Plan shall be administered by the Board or by a
committee appointed by the Board (the "Committee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer this Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe this Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of this Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to this Plan or any option granted
under it.
4. Eligibility and Limitations. Options to purchase shares of Common Stock
may be granted under this Plan only to members of the Board who are not
employees or officers of the Company and who may hold and beneficially own such
options, and the shares of Common Stock issuable upon exercise thereof,
individually, in their own names.
5. Automatic Grant of Options. Subject to the availability of shares under
this Plan, (a) each person who is or becomes a member of the Board and who
satisfies the requirements of paragraph 4 of this Plan (a "Non-Employee
Director") shall be automatically granted on the later of (i) June 1, 1996, (ii)
the date such person is first elected to the Board or (iii) the date such person
first meets the requirements of paragraph 4 of this Plan (such later date being
referred to
B-1
herein as the "Initial Grant Date"), without further action by the Board, an
option to purchase 12,000 shares of the Common Stock, and (b) each person
receiving or eligible to receive an option pursuant to clause (a) hereof who is
a Non-Employee Director on the date of the Company's Annual Meeting of
Stockholders (the "Annual Grant Date") in each successive year after such
person's Initial Grant Date during the term of this Plan shall be automatically
granted on each such Annual Grant Date an option to purchase 4,000 shares of the
Common Stock. The number of shares covered by options granted under this
paragraph 5 shall be subject to adjustment in accordance with the provisions of
paragraph 11 of this Plan.
6. Option Price. The purchase price of the stock covered by an option
granted pursuant to this Plan shall be 100% of the fair market value of such
shares on the day the option is granted. The option price will be subject to
adjustment in accordance with the provisions of paragraph 11 of this Plan. For
purposes of this Plan, if, at the time an option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the Common
Stock on the Nasdaq National Market, if the Common Stock is not then traded on a
national securities exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the Nasdaq
National Market. However, if the Common Stock is not publicly traded at the time
an option is granted under the Plan, "fair market value" shall be deemed to be
the fair value of the Common Stock as determined by the Committee after taking
into consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. Period of Option. Unless sooner terminated in accordance with the
provisions of paragraph 9 of this Plan, an option granted hereunder shall expire
on the date which is ten (10) years after the date of grant of the option.
8. (a) Vesting of Shares and Non-Transferability of Options. Options
granted under this Plan shall not be exercisable until they become vested.
Options granted under this Plan shall vest in the optionee and thus become
exercisable, in accordance with the following schedule, provided that the
optionee has continuously served as a member of the Board through such vesting
date:
Percentage of Option
Shares for which
Option will be Exercisable Date of Vesting
- -------------------------- ---------------
0% Less than three months from the date
of grant
an additional 8.33% Three months from the date of grant
and at the end of each three month
period thereafter until three years
from the date of grant
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100% Three years from the date of grant
The number of shares as to which options may be exercised shall be
cumulative, so that once the option shall become exercisable as to any shares it
shall continue to be exercisable as to said shares, until expiration or
termination of the option as provided in this Plan. Notwithstanding the
foregoing, each option granted under this Plan that is outstanding but unvested
shall become exercisable in full 10 days prior to the date of any Change in
Control of the Company, as set forth below. For purposes of this Plan, a "Change
in Control" means the occurrence of any of the following events:
(A) The Company is merged or consolidated or reorganized into or
with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such
surviving, resulting or reorganized corporation or person immediately
after such transaction is held in the aggregate by the holders of the
then-outstanding securities entitled to vote generally in the election of
directors of the Company ("Voting Stock") immediately prior to such
transaction;
(B) The Company sells or otherwise transfers all or substantially
all of its assets to any other corporation or other legal person, and as a
result of such sale or transfer less than a majority of the combined
voting power of the then-outstanding securities of such corporation or
person immediately after such sale or transfer is held in the aggregate by
the holders of Voting Stock of the Company immediately prior to such sale
or transfer;
(C) There is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report), each as promulgated pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any "person" (as such term is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the "beneficial owner"
(as such term is used in Rule 13d-3 under the Exchange Act) of securities
representing 35% or more of the Voting Stock of the Company;
(D) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing
in response to Form 8-K or Schedule 14A (or any successor schedule, form
or report or item therein) that a change in control of the Company has
occurred; or
(E) If during any period of two consecutive years, individuals who
at the beginning of any such period constitute the Board cease for any
reason to constitute at least a majority thereof, unless the election, or
the nomination for election by the Company's stockholders, of each
director of the Company first elected during such period was approved by a
vote of at least a majority of the directors then still in office who were
directors of the Company at the beginning of any such period;
provided, however, that a "Change in Control" shall not be deemed to have
occurred for purposes of this Plan solely because (x) the Company, (y) an entity
in which the Company directly or indirectly beneficially owns 50% or more of the
voting securities, or (z) any Company-sponsored employee stock ownership plan or
any other employee benefit plan of the Company, either files
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or becomes obligated to file a report or a proxy statement under or in response
to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report) under the Exchange Act, disclosing beneficial
ownership by it of shares of Voting Stock or because the Company reports that a
change in control of the Company has occurred by reason of such beneficial
ownership.
(b) Non-transferability. Any option granted pursuant to this Plan
shall not be assignable or transferable other than by will or the laws of
descent and distribution or pursuant to a domestic relations order and shall be
exercisable during the optionee's lifetime only by him or her.
9. Termination of Option Rights.
(a) In the event an optionee ceases to be a member of the Board
for any reason other than death or permanent disability, any then unexercised
portion of options granted to such optionee shall, to the extent not then
vested, immediately terminate and become void; any portion of an option which is
then vested but has not been exercised at the time the optionee so ceases to be
a member of the Board may be exercised, to the extent it is then vested, by the
optionee within 90 days of the date the optionee ceased to be a member of the
Board; and all options shall terminate after such 90 days have expired.
(b) In the event that an optionee ceases to be a member of the
Board by reason of his or her death or permanent disability, any option granted
to such optionee shall be immediately and automatically accelerated and become
fully vested and all unexercised options shall be exercisable by the optionee
(or by the optionee's personal representative, heir or legatee, in the event of
death) until the scheduled expiration date of the option.
10. Exercise of Option. Subject to the terms and conditions of this Plan
and the option agreements, an option granted hereunder shall, to the extent then
exercisable, be exercisable in whole or in part by giving written notice to the
Company by mail or in person addressed to Datawatch Corporation, 234 Ballardvale
Street, Wilmington, Massachusetts 01887, at its principal executive offices,
stating the number of shares with respect to which the option is being
exercised, accompanied by payment in full for such shares. Payment may be (a) in
United States dollars in cash or by check, (b) in whole or in part in shares of
the Common Stock of the Company already owned by the person or persons
exercising the option or shares subject to the option being exercised (subject
to such restrictions and guidelines as the Board may adopt from time to time),
valued at fair market value determined in accordance with the provisions of
paragraph 6 or (c) consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise. There shall be no
such exercise at any one time as to fewer than one hundred (100) shares or all
of the remaining shares then purchasable by the person or persons exercising the
option, if fewer than one hundred (100) shares. The Company's transfer agent
shall, on behalf of the Company, prepare a certificate or certificates
representing such shares acquired pursuant to exercise of the option, shall
register the optionee as the owner of such shares on the books of the Company
and shall cause the fully executed certificate(s) representing such shares to be
delivered to the optionee as soon as practicable after payment of the option
price in full. The holder of an option shall not have any rights of a
stockholder with respect to the shares covered by the option, except
B-4
to the extent that one or more certificates for such shares shall be delivered
to him or her upon the due exercise of the option.
11. Adjustments Upon Changes in Capitalization and Other Events. Upon the
occurrence of any of the following events, an optionee's rights with respect to
options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(a) Stock Dividends and Stock Splits. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of
shares or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common
Stock deliverable upon the exercise of options shall be appropriately
increased or decreased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision,
combination or stock dividend.
(b) Issuances of Securities. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the
Company.
(c) Adjustments. Upon the happening of any of the foregoing
events, the class and aggregate number of shares set forth in paragraphs 2
and 5 of this Plan that are subject to options which previously have been
or subsequently may be granted under this Plan shall also be appropriately
adjusted to reflect such events. The Board shall determine the specific
adjustments to be made under this paragraph 11 and its determination shall
be conclusive.
12. Restrictions on Issuance of Shares. Notwithstanding the provisions of
paragraphs 5 and 10 of this Plan, the Company shall have no obligation to
deliver any certificate or certificates upon exercise of an option until one of
the following conditions shall be satisfied:
(i) The issuance of shares with respect to which the option has been
exercised is at the time of the issue of such shares effectively
registered under applicable Federal and state securities laws as now in
force or hereafter amended; or
(ii) Counsel for the Company shall have given an opinion that the
issuance of such shares is exempt from registration under Federal and
state securities laws as now in force or hereafter amended; and the
Company has complied with all applicable laws and regulations with respect
thereto, including without limitation all regulations required by any
stock exchange upon which the Company's outstanding Common Stock is then
listed.
13. Legend on Certificates. The certificates representing shares issued
pursuant to the exercise of an option granted hereunder shall carry such
appropriate legend, and such written instructions shall be given to the
Company's transfer agent, as may be deemed necessary or advisable by counsel to
the Company in order to comply with the requirements of the Securities Act of
1933 or any state securities laws.
B-5
14. Representation of Optionee. If requested by the Company, the optionee
shall deliver to the Company written representations and warranties upon
exercise of the option that are necessary to show compliance with Federal and
state securities laws, including representations and warranties to the effect
that a purchase of shares under the option is made for investment and not with a
view to their distribution (as that term is used in the Securities Act of 1933).
15. Option Agreement. Each option granted under the provisions of this
Plan shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with this Plan as may be determined by the officer
executing it.
16. Termination and Amendment of Plan. Options may no longer be granted
under this Plan after June 1, 2006, and this Plan shall terminate when all
options granted or to be granted hereunder are no longer outstanding. The Board
may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that the Board may not,
without approval of the stockholders, (a) increase the maximum number of shares
for which options may be granted under this Plan (except by adjustment pursuant
to Section 11), (b) materially modify the requirements as to eligibility to
participate in this Plan, (c) materially increase benefits accruing to option
holders under this Plan or (d) amend this Plan in any manner which would cause
Rule 16b-3 under the Exchange Act (or any successor or amended provision
thereof) to become inapplicable to this Plan; and provided further that the
provisions of this Plan specified in Rule 16b-3(c)(2)(ii)(A) (or any successor
or amended provision thereof) under the Exchange Act (including without
limitation, provisions as to eligibility, amount, price and timing of awards)
may not be amended more than once every six months, other than to comport with
changes in the Internal Revenue Code, the Employee Retirement Income Security
Act, or the rules thereunder. Termination or any modification or amendment of
this Plan shall not, without consent of a participant, affect his or her rights
under an option previously granted to him or her.
17. Withholding of Income Taxes. Upon the exercise of an option, the
Company, in accordance with Section 3402(a) of the Internal Revenue Code, may
require the optionee to pay withholding taxes in respect of amounts considered
to be compensation includible in the optionee's gross income.
18. Governing Law. The validity and construction of this Plan and the
instruments evidencing options shall be governed by the laws of the State of
Delaware, without giving effect to the principles of conflicts of law thereof.
B-6
DATAWATCH CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MARCH 19, 1997
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints THOMAS R. FOLEY and BRUCE R.
GARDNER, and each or both of them, proxies, with full power of
substitution to vote all shares of stock of Datawatch Corporation (the
"Company") which the undersigned is entitled to vote at the Annual
Meeting of Stockholders of the Company to be held on Wednesday, March
19, 1997, at 10:00 a.m., at the Ramada Rolling Green, 311 Lowell
Street, Andover, Massachusetts, and at any adjournments thereof, upon
matters set forth in the Notice of Annual Meeting of Stockholders and
Proxy Statement dated January 28, 1997, a copy of which has been
received by the undersigned.
-----------
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
-----------
[X]Please mark votes as in this example.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1. To elect Thomas R. Foley, Bruce R. Gardner,
John A. Blaeser, Jerome Jacobson and David T. FOR AGAINST ABSTAIN
Riddiford as Directors to serve until the next Annual 2. To approve the adoption of the
Meeting of Stockholders or until their successors Company's 1996 Stock Plan. [ ] [ ] [ ]
are duly elected and qualified.
FOR WITHHELD
[ ] [ ] 3. To approve the adoption of the
Company's 1996 Non-Employee
Director Stock Option Plan, as
amended. [ ] [ ] [ ]
</TABLE>
INSTRUCTIONS: To withhold your vote for any
individual nominee write the nominee's name on the space
provided below.
- --------------------------------------------------------
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR THE
PROPOSALS IN ITEMS 2 AND 3.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY.
MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE AT LEFT
(Please sign exactly as your name appears hereon. If
signing as attorney, executor, trustee or guardian,
please give your full title as such. If stock is held
jointly, each owner should sign. Please read reverse side
before signing.)
Signature: __________________________________ Date_____________
Signature: __________________________________ Date_____________
