<PAGE> 1
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 the appropriate box:
<TABLE>
<S> <C>
[ ] 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))
</TABLE>
DATAWATCH CORPORATION
- --------------------------------------------------------------------------------
(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 transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] 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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
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 March 16,
1998, at 10 a.m., Eastern time, at the Andover Inn, 10 Chapel Avenue, 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 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 16, 1998,
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 27, 1998
------------------------
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.
<PAGE> 3
DATAWATCH CORPORATION
234 BALLARDVALE STREET
WILMINGTON, MASSACHUSETTS 01887
PROXY STATEMENT
JANUARY 27, 1998
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
Andover Inn, 10 Chapel Avenue, Andover, Massachusetts on March 16, 1998, at
10:00 a.m., Eastern time, and any adjournments thereof (the "Meeting").
Only stockholders of record at the close of business on January 16, 1998
will be entitled to notice of and to vote at the Meeting. As of that date,
9,127,477 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 16, 1998 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 and entitled to vote on the
subject matter. 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 and, therefore, with respect to votes
on specific proposals will have the effect of negative votes. Broker "non-votes"
are not so included.
At the Meeting, a proposal to elect Messrs. Bruce R. Gardner, Jerome
Jacobson and David T. Riddiford as directors will be subject to a vote of
stockholders. Where a choice has been specified on the proxy with respect to the
foregoing matter, 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 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, 1997, 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 6, 1998.
<PAGE> 4
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth as of January 16, 1998, 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, 1997 whose annual
compensation exceeded $100,000, and (iv) by all directors and officers of the
Company as a group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE OF
NAME AND ADDRESS BENEFICIALLY SHARES OF
OF BENEFICIAL OWNER OWNED COMMON STOCK(1)
- ------------------------------------------------------------ ------------------ ---------------
<S> <C> <C>
Thomas R. Foley(2).......................................... 224,969 2.5%
c/o DATAWATCH Corporation
234 Ballardvale Street
Wilmington, Massachusetts 01887
Bruce R. Gardner(3)......................................... 205,937 2.2%
c/o DATAWATCH Corporation
234 Ballardvale Street
Wilmington, Massachusetts 01887
Marco D. Peterson(4)........................................ 93,432 1.0%
c/o DATAWATCH Corporation
234 Ballardvale Street
Wilmington, Massachusetts 01887
Andrew W. Mathews(5)........................................ 101,334 1.1%
c/o DATAWATCH Corporation
234 Ballardvale Street
Wilmington, Massachusetts 01887
Jerome Jacobson(6).......................................... 26,002 *
4200 Massachusetts Avenue, N.W.
Suite 114
Washington, District of Columbia 20016
David T. Riddiford(7)....................................... 17,421 *
c/o Pell Rudman & Co., Inc.
100 Federal Street
37th Floor
Boston, Massachusetts 02110
All directors and executive officers as a group (6 669,095 7.3%
persons)(8)...............................................
</TABLE>
- ---------------
* Less than one percent.
(1) The number of shares of Common Stock deemed outstanding includes (i)
9,127,477 shares of Common Stock outstanding as of January 16, 1998 and (ii)
with respect to each individual, options to purchase shares of Common Stock
which may be exercised by such individuals within 60 days of January 16,
1998.
(2) Includes 16,668 options that may be exercised within 60 days of January 16,
1998. Effective as of October 31, 1997, Mr. Foley terminated his employment
with the Company and resigned as a director and as President and Chief
Executive Officer of the Company. Accordingly, all of such options will
lapse on January 31, 1998 if not exercised by Mr. Foley on or before that
date.
(3) Includes 10,834 options that may be exercised within 60 days of January 16,
1998. Also includes 5,400 shares of Common Stock held by Mr. Gardner's
daughter, of which he may be deemed a beneficial owner.
(4) Includes 6,251 options that may be exercised within 60 days of January 16,
1998.
(5) Effective as of October 31, 1997, Mr. Mathews terminated his employment with
the Company and resigned as Vice President of Sales of the Company.
(6) Includes 8,002 options that may be exercised within 60 days of January 16,
1998.
(7) Includes 7,002 options that may be exercised within 60 days of January 16,
1998.
(8) Includes 48,757 options that may be exercised within 60 days of January 16,
1998.
2
<PAGE> 5
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 three. This number may be changed
by resolution of the Board of Directors.
Thomas R. Foley and John A. Blaeser, who have served as directors of the
Company since 1985 and 1990, respectively, and who would have been subject to
re-election as directors at the Meeting, resigned from the Board of Directors in
October 1997 and December 1997, respectively. The Company expresses its thanks
to Messrs. Foley and Blaeser for their service on 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:
Bruce R. Gardner, President, Chief Executive Officer and Director. Mr.
Gardner, age 54, a founder and director of the Company, has been the President
and Chief Executive Officer since November 1997. Prior to becoming President and
Chief Executive Officer, Mr. Gardner served as Chief Financial Officer and
Treasurer since the Company was founded in 1985, and was a Senior Vice President
until June 1993 when he became Executive Vice President. Mr. Gardner is a
director of ACT Manufacturing, Inc.
Jerome Jacobson, Director. Mr. Jacobson, age 76, 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 Cerplex Group and Merrill Lynch Venture Capital, II.
David T. Riddiford, Director. Mr. Riddiford, age 62, 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.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of the Company met five times during the fiscal year
ended September 30, 1997. The Board of Directors has a standing Audit Committee,
a standing Compensation Committee and a standing Stock Plan Committee. The
memberships of the Audit Committee, the Compensation Committee and the Stock
Plan Committee were most recently fixed by the Board of Directors on December
11, 1997 and Messrs. Jacobson and Riddiford are the current members of each of
these committees. From March 1995 until his resignation as a director of the
Company in December 1997, John A. Blaeser served as a member of the Compensation
Committee and the Stock Plan Committee along with Mr. Riddiford. 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 three times during fiscal 1997. The Compensation
Committee of the Company, which reviews and makes recommendations concerning
executive compensation, met once during fiscal 1997. The Stock Plan Committee,
which administers the Company's 1996 Stock Plan and the Company's 1996
International Employee Non-Qualified Stock Option Plan, met twice during fiscal
1997. During fiscal 1997, 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).
3
<PAGE> 6
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, 1997, 1996 and 1995, of those persons who were
at September 30, 1997 (i) the chief executive officer and (ii) the other
executive officers of the Company whose annual compensation exceeded $100,000
(collectively, the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
----------------------------------- -----------------
NAME AND FISCAL OTHER ANNUAL NUMBER OF ALL OTHER
PRINCIPAL POSITION(S) YEAR SALARY($) BONUS($) COMPENSATION OPTIONS/SARS(#)(2) COMPENSATION($)(3)
- --------------------------- ------ --------- -------- ------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas R. Foley(4)*........ 1997 230,662 -- -- 100,000(5) 774
President, Chief
Executive 1996 198,000 17,325 -- -- 774
Officer and Director 1995 173,249 17,325 -- -- 774
Bruce R. Gardner(6)........ 1997 183,981 -- -- 80,000 612
Executive Vice President, 1996 158,000 13,850 -- -- 612
Chief Financial Officer, 1995 138,499 13,850 -- -- 612
Treasurer, Assistant
Secretary and Director
Marco D. Peterson(7)....... 1997 166,011 -- -- 50,000 864
Vice President of 1996 143,000 12,890 -- -- 833
Marketing and New 1995 128,989 12,890 -- -- 805
Product Development
Andrew W. Mathews(8)*...... 1997 153,527 -- -- 50,000(5) 774
Vice President of Sales 1996 132,000 11,580 -- -- 612
1995 115,799 11,580 -- -- 612
</TABLE>
- ---------------
* Effective as of October 31, 1997, Messrs. Foley and Mathews were no longer
executive officers of the Company.
(1) Excludes perquisites and other personal benefits, the aggregate annual
amount of which does not exceed the lessor of $50,000 or 10% of the
annualized salary reported for the Named Officer.
(2) The Company did not grant any restricted stock awards or stock appreciation
rights or make any long-term incentive plan payouts during fiscal years
ended 1997, 1996 or 1995.
(3) Amount represents the dollar value of group-term life insurance premiums
paid by the Company for the benefit of the Named Officer.
(4) Mr. Foley served as President, Chief Executive Officer and a director of the
Company from 1985 until he resigned from those positions effective as of
October 31, 1997. See "Executive Agreements and Severance Arrangements."
(5) Of the 100,000 options granted to Mr. Foley during fiscal 1997 pursuant to
the Company's 1996 Stock Plan, 16,668 options were vested when Mr. Foley
resigned and terminated his employment with the Company effective as of
October 31, 1997 and the remaining 83,332 unvested options terminated as of
October 31, 1997. Of the 50,000 options granted to Mr. Mathews during fiscal
1997 pursuant to the Company's 1996 Stock Plan, 8,334 options were vested
when Mr. Mathews resigned and terminated his employment with the Company
effective as of October 31, 1997 and the remaining 41,666 unvested options
terminated as of October 31, 1997. All vested options held by Mr. Foley and
Mr. Mathews when they resigned on October 31, 1997 will lapse on January 31,
1998 if not exercised on or before that date.
(6) Effective as of Mr. Foley's resignation, Mr. Gardner was elected President
and Chief Executive Officer of the Company.
4
<PAGE> 7
(7) Effective as of October 31, 1997, Mr. Peterson was elected Senior Vice
President of North American Operations.
(8) Mr. Mathews served as Vice President of Sales of the Company from September
1988 until he resigned from that position effective as of October 31, 1997.
See "Executive Agreements and Severance Arrangements."
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options during the fiscal
year ended September 30, 1997 to the Named Officers who are listed in the
Summary Compensation Table above:
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(2) POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF STOCK
OPTIONS/SARS PRICE APPRECIATION
OPTIONS/ GRANTED TO EXERCISE OR FOR OPTION TERM(3)
SARS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- --------------------------- ---------- ---------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Thomas R. Foley*........... 100,000 15.03% $1.75 4/30/07 $110,057 $278,905
Bruce R. Gardner........... 80,000 12.02% $1.75 4/30/07 $ 88,045 $223,124
Marco D. Peterson.......... 50,000 7.51% $1.75 4/30/07 $ 55,028 $139,452
Andrew W. Mathews**........ 50,000 7.51% $1.75 4/30/07 $ 55,028 $139,452
</TABLE>
- ---------------
* Effective as of October 31, 1997, Mr. Foley was no longer an executive
officer of the Company. Of the 100,000 options granted to Mr. Foley in
fiscal 1997 pursuant to the Company's 1996 Stock Plan, 16,668 were vested as
of October 31, 1997 and the remaining 83,332 unvested options terminated
effective October 31, 1997.
** Effective as of October 31, 1997, Mr. Mathews was no longer an executive
officer of the Company. Of the 50,000 options granted to Mr. Mathews in
fiscal 1997 pursuant to the Company's 1996 Stock Plan, 8,334 were vested as
of October 31, 1997 and the remaining 41,666 unvested options terminated
effective October 31, 1997.
(1) No stock appreciation rights ("SARs") were granted by the Company in the
fiscal year ended September 30, 1997.
(2) Stock options were granted under the Company's 1996 Stock Plan at an
exercise price equal to the fair market value of the Company's Common Stock
on the date of grant. The options have a term of 10 years from the date of
grant and become exercisable over three years in twelve equal quarterly
installments beginning three months from the date of grant.
(3) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%) on
the Company's Common Stock over the term of the options. These numbers are
calculated based on rules promulgated by the Securities and Exchange
Commission and do not reflect the Company's estimate of future stock price
growth. Actual gains, if any, on stock option exercises and Common Stock
holdings are dependent on the timing of such exercise and the future
performance of the Company's Common Stock. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the individuals.
5
<PAGE> 8
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, 1997; (ii) the net
value realized upon such exercise; (iii) the number of unexercised options
outstanding as of September 30, 1997; and (iv) the value of such unexercised
options at September 30, 1997:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT SEPTEMBER IN-THE-MONEY OPTIONS AT
SHARES 30, 1997(#) SEPTEMBER 30, 1997($)(2)
ACQUIRED ON VALUE --------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas R. Foley.......... -- -- 24,584 91,666 26,020 51,608
Bruce R. Gardner......... -- -- 21,667 73,333 23,438 41,250
Marco D. Peterson........ -- -- 23,751 45,833 28,048 25,781
Andrew W. Mathews........ 17,584 60,995 4,167 45,833 2,346 25,804
</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 1997 fiscal
year-end ($2.3125 per share as quoted on the Nasdaq National Market at the
close of trading on September 30, 1997) multiplied by the number of shares
underlying the in-the-money option.
EXECUTIVE AGREEMENTS AND SEVERANCE 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, 1998 and so long as the Named Officer continues to be
employed by the Company are automatically extended from year to year, 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.
6
<PAGE> 9
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" (as defined
herein and in each Named Officer's Executive Agreement) 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.
Effective as of October 31, 1997, Messrs. Foley and Mathews resigned and
terminated their employment with the Company. As a result of their voluntary
resignations and because their resignations did not result in a Qualifying
Termination under their Executive Agreements, the Executive Agreements for
Messrs. Foley and Mathews automatically terminated without any obligation on the
part of the Company to make any Termination Payments to either Mr. Foley or Mr.
Mathews. The Company did, however, enter into severance arrangements (as
discussed below) with Messrs. Foley and Mathews.
In October 1997, the Board of Directors voted and agreed to pay Mr. Foley
an aggregate lump sum severance payment of $1,026,000 in connection with his
resignation as President and Chief Executive Officer of the Company effective as
of October 31, 1997. In addition, Mr. Foley executed an Agreement Not to Compete
with the Company dated October 31, 1997 pursuant to which he agreed that for a
period of eighteen (18) months commencing on October 31, 1997 he would not
engage, directly or indirectly, in any activities similar or reasonably related
to those in which he was engaged as an employee of the Company relating to data
mining, report distribution or consolidated service desk software and which
directly compete with the Company in any place where the Company or any of its
subsidiaries does or may do business.
In October 1997, the Board of Directors voted and agreed to pay Mr. Mathews
an aggregate severance payment of approximately $260,000 in connection with his
resignation as Vice President of Sales of the Company effective as of October
31, 1997. In addition, Mr. Mathews executed an Agreement Not to Compete dated
October 31, 1997 pursuant to which he agreed that for a period of eighteen (18)
months commencing on October 31, 1997 he would not engage, directly or
indirectly, in any activities similar or reasonably related to those in which he
was engaged as an employee of the Company relating to data mining, report
distribution or consolidated service desk software and which directly compete
with the Company in any place where the Company or any of its subsidiaries does
or may do business.
7
<PAGE> 10
COMPENSATION COMMITTEE AND STOCK PLAN COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is responsible for establishing and administering the Company's base
salaries and cash bonuses of the Company's executive officers. The Stock Plan
Committee of the Board of Directors (the "Stock Plan Committee") is responsible
for administering and making recommendations and awards under the Company's 1996
Stock Plan and the Company's 1996 International Employee Non-Qualified Stock
Option Plan. The Compensation Committee and the Stock Plan Committee is composed
exclusively of directors who are not also officers or employees of the Company.
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 1997 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. The number of options
granted to certain of the most highly compensated executive officers of the
Corporation in fiscal 1997 is set forth on the table captioned "Option/SAR
Grants in Last Fiscal Year" contained elsewhere in this proxy statement. For
information relating to the total options held by each of the Company's
executive officers at September 30, 1997, see the table 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 during fiscal 1997 for the Company's
President and Chief Executive Officer, Thomas R. Foley, was 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
8
<PAGE> 11
annual compensation was 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 determined 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 was based.
As a result of the Company's performance and his individual contribution,
Mr. Foley was awarded the amounts reflected in the tables captioned "Summary
Compensation Table" and "Option/SAR Grants in Last Fiscal Year" contained
elsewhere in this proxy statement, in fiscal 1997.
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
Jerome Jacobson
David T. Riddiford
9
<PAGE> 12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has established a Compensation Committee
and a Stock Plan Committee each currently consisting of Messrs. Jacobson 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,
1997, 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.
COMPENSATION OF DIRECTORS
During fiscal year ended September 30, 1997, 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
1996 Stock Plan and directors who are neither employees nor officers of the
Company and, 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 (a "Non-Employee Director"), are eligible to
receive stock options under the Company's 1996 Non-Employee Director Stock
Option Plan, as amended (the "Director Plan").
1996 Non-Employee Director Stock Option Plan
The Director Plan was adopted by the Board of Directors in May 1996,
amended by the Board of Directors in December 1996 and approved by the
stockholders of the Company in March 1997. The Director Plan provides for the
grant of options to purchase a maximum of 72,000 shares of Common Stock to Non-
Employee Directors.
The Director Plan authorizes the automatic grant of stock options only to
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.
10
<PAGE> 13
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
September 30, 1992 through September 30, 1997, 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
September 30, 1992 in the Company's Common Stock 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)
[CUMULATIVE TOTAL RETURN CHART]
<TABLE>
<CAPTION>
9/30/92 9/30/93 9/30/94 9/30/95 9/30/96 9/30/97
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Datawatch Corporation................. $100.00 $ 44.64 $ 39.29 $141.07 $239.29 $ 66.07
SIC Code Index........................ $100.00 $119.14 $145.22 $230.89 $309.35 $437.76
Nasdaq Market Index................... $100.00 $130.05 $137.62 $167.10 $195.08 $265.16
</TABLE>
- ---------------
(1) 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.
11
<PAGE> 14
SECTION 16(A) BENEFICIAL OWNERSHIP 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, 1997 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, 1997.
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 September 30, 1998. 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.
12
<PAGE> 15
DATAWATCH CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MARCH 16, 1998
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints BRUCE R. GARDNER and BETSY J.
HARTWELL, 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 Monday, March 16, 1998, at
10:00 a.m., at the Andover Inn, 10 Chapel Avenue, Andover, Massachusetts,
and at any adjournments thereof, upon matters set forth in the Notice of
Annual Meeting of Stockholders and Proxy Statement dated January 27, 1998,
a copy of which has been received by the undersigned.
___________
SEE REVERSE
SIDE
___________
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[x] Please mark votes as in this example.
1. To elect Bruce R. Gardner, Jerome Jacobson and David T.
Riddiford as Directors to serve until the next Annual
Meeting of Stockholders or until their successors
are duly elected and qualified.
FOR WITHHELD
[ ] [ ]
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.
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________
