<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:
[ ] 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
- --------------------------------------------------------------------------------
(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 23,
1999, 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 25, 1999,
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, 1999
------------------------
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 28, 1999
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 23, 1999, at 10
a.m., Eastern time, and any adjournments thereof (the "Meeting").
Only stockholders of record at the close of business on January 25, 1999
will be entitled to notice of and to vote at the Meeting. As of that date,
9,148,312 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 25, 1999 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 Bruce R. Gardner, Jerome Jacobson, Don
M. Lyle, Terry W. Potter 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 proposal, 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, 1998, 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 5, 1999.
<PAGE> 4
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth as of January 25, 1999, 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) by each executive officer identified in the
Summary Compensation Table on page 5; and (iv) by all current directors and
executive 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> <C>
Bruce R. Gardner(2)
c/o DATAWATCH Corporation
234 Ballardvale Street
Wilmington, Massachusetts 01887.................... 262,607 2.80%
Thomas R. Foley
10 Bayview Avenue
Beverly, Massachusetts 01915....................... 224,969 2.40%
Robert Hagger(3)
c/o DATAWATCH Corporation
234 Ballardvale Street
Wilmington, Massachusetts 01887.................... 20,500 *
Marco D. Peterson(4)
c/o DATAWATCH Corporation
234 Ballardvale Street
Wilmington, Massachusetts 01887.................... 146,354 1.56%
Scott Crenshaw(5)
c/o DATAWATCH Corporation
234 Ballardvale Street
Wilmington, Massachusetts 01887.................... 31,251 *
Harold R. Spurney(6)
c/o DATAWATCH Corporation
234 Ballardvale Street
Wilmington, Massachusetts 01887.................... 7,703 *
Jerome Jacobson(7)
4200 Massachusetts Avenue, N.W
Suite 114
Washington, District of Columbia 20016............. 38,008 *
Don M. Lyle(8)
c/o DATAWATCH Corporation
234 Ballardvale Street
Wilmington, Massachusetts 01887.................... 3,000 *
Terry W. Potter(9)
c/o DATAWATCH Corporation
234 Ballardvale Street
Wilmington, Massachusetts 01887.................... 3,000 *
David T. Riddiford(10)
c/o Pell Rudman & Co., Inc.
100 Federal Street
37th Floor
Boston, Massachusetts 02110........................ 29,427 *
Kennedy Capital Management, Inc.(11)
10829 Olive Blvd
St. Louis, MO 63141................................ 504,500 5.52%
All current directors and executive officers as a
group (11 persons)(12)............................. 576,437 6.13%
</TABLE>
2
<PAGE> 5
- ---------------
* Less than one percent.
(1) The number of shares of Common Stock deemed outstanding includes (i)
9,148,312 shares of Common Stock outstanding as of January 25, 1999 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
25, 1999.
(2) Includes 67,504 options that may be exercised within 60 days of January 25,
1999. Also includes 5,400 shares of Common Stock held by Mr. Gardner's
daughter, of which he may be deemed a beneficial owner.
(3) Includes 20,500 options that may be exercised within 60 days of January 25,
1999.
(4) Includes 59,173 options that may be exercised within 60 days of January 25,
1999.
(5) Includes 29,584 options that may be exercised within 60 days of January 25,
1999.
(6) Includes 7,503 options that may be exercised within 60 days of January 25,
1999.
(7) Includes 20,008 options that may be exercised within 60 days of January 25,
1999.
(8) Includes 3,000 options that may be exercised within 60 days of January 25,
1999.
(9) Includes 3,000 options that may be exercised within 60 days of January 25,
1999.
(10) Includes 19,008 options that may be exercised within 60 days of January 25,
1999.
(11) As reported on a Schedule 13G filed with the Securities and Exchange
Commission on February 10, 1998 reflecting beneficial ownership of the
Company's Common Stock as of December 31, 1997. According to the Schedule
13G, Kennedy Capital Management, Inc. has sole voting power with respect to
494,000 shares of Common Stock of the Company and sole dispositive power
with respect to 504,500 shares of Common Stock of the Company.
(12) Includes 258,866 options that may be exercised within 60 days of January
25, 1999.
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.
Prior to the Meeting, Bruce R. Gardner, Jerome Jacobson, Don M. Lyle, Terry
W. Potter and David T. Riddiford were the directors of the Company. Messrs.
Gardner, Jacobson and Riddiford were elected as directors at the Company's
Annual Meeting of Stockholders held on March 16, 1998. Messrs. Lyle and Potter
were elected as directors by the Board of Directors by unanimous written
consents in lieu of meetings of the Board of Directors on April 7, 1998 and
April 20, 1998, respectively. In connection with Dr. Potter's election on April
20, 1998, the number of directors constituting the entire Board of Directors was
increased from four to five.
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.
3
<PAGE> 6
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 55, 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 77, 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 Merrill Lynch Venture Capital, II.
Don M. Lyle, Director. Mr. Lyle, age 59, has been a director of the
Company since April 1998. Since October 1983, Mr. Lyle has been a Principal of
Technology Management Company, a management consulting firm. He is also a
director of Axiohm Transactions Systems and Emulex Network Systems.
Terry W. Potter, Director. Dr. Potter, age 51, has been a director of the
Company since April 1998. Since January 1998, Dr. Potter has been the President
of Venture Solutions and Development, Inc., which provides consulting services
to high technology start-up companies, spin-outs, and Fortune 100 companies.
From 1992 to 1997 he was the President of Modular Group, the parent company of
Advanced Modular Solutions, and from 1994 to 1997 he was the President of
Advanced Modular Solutions, a wholly-owned subsidiary of Modular Group which
develops client-server computers and solutions.
David T. Riddiford, Director. Mr. Riddiford, age 63, 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 seven times during the fiscal
year ended September 30, 1998. The Board of Directors has a standing Audit
Committee and a standing Compensation and Stock Committee. On July 29, 1998, the
Company's Compensation Committee and Stock Plan Committee were consolidated to
form the Compensation and Stock Committee. The members of the Audit Committee
and the Compensation and Stock Committee were most recently appointed by the
Board of Directors on July 29, 1998. The current members of the Audit Committee
are Messrs. Jacobson, Potter and Riddiford. The current members of the
Compensation and Stock Committee are Messrs. Riddiford, Lyle and Potter. 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 once during fiscal 1998. The Compensation
and Stock Committee of the Company, which reviews and makes recommendations
concerning executive compensation and administers the Company's 1996 Stock Plan
and the Company's 1996 International Employee Non-Qualified Stock Option Plan
met four times during fiscal 1998. During fiscal 1998, 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).
4
<PAGE> 7
EXECUTIVE COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth summary information concerning the annual
and long-term compensation for services rendered in all capacities to the
Company for the fiscal years ended September 30, 1998, 1997 and 1996 to (i) the
Company's current and former Chief Executive Officer and (ii) each of the four
most highly compensated executive officers of the Company who were serving as
such at September 30, 1998 and 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($)(1) COMPENSATION(2) OPTIONS/SARS(#)(3) COMPENSATION($)(4)
- ------------------ ------ --------- ----------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Bruce R. Gardner(5).... 1998 195,226 100,000 -- 50,000 612
President, Chief 1997 183,981 -- -- 80,000 612
Executive Officer 1996 158,000 13,850 -- -- 612
and Director
Thomas R. Foley(6)..... 1998 23,269 -- -- -- 699
Former President, Chief 1997 230,662 -- -- 100,000(7) 774
Executive Officer and 1996 198,000 17,325 -- -- 774
Director
Robert Hagger(8)....... 1998 190,659 -- 35,399(9) 30,000 --
Senior Vice President 1997 -- -- -- -- --
of International 1996 -- -- -- -- --
Operations
Marco D. Peterson...... 1998 176,006 20,000 -- 25,000 864
Senior Vice President 1997 166,011 -- -- 50,000 864
of North American 1996 143,000 12,890 -- -- 833
Operations
Scott Crenshaw(10)..... 1998 101,150 45,000 -- 15,000 378
Vice President of 1997 -- -- -- -- --
Product Development 1996 -- -- -- -- --
Harold R. Spurney(11).. 1998 160,316(12) -- -- 10,000 426
Vice President of North 1997 -- -- -- -- --
American Sales 1996 -- -- -- -- --
</TABLE>
- ---------------
(1) Bonuses are reported in the year earned, even if actually paid in a
subsequent year.
(2) 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.
(3) 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 September 30, 1998, 1997 or 1996.
(4) Amount represents the dollar value of group-term life insurance premiums
paid by the Company for the benefit of the Named Officer.
(5) Mr. Gardner served as Executive Vice President and Chief Financial Officer
until November 1, 1997 when he assumed the position of President and Chief
Executive Officer.
(6) 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. In connection with his resignation as President and
Chief Executive Officer of the Company, the Board of Directors voted and
agreed to pay Mr. Foley an aggregate lump sum severance payment of
$1,026,000. See "Executive Agreements and Severance Arrangements."
5
<PAGE> 8
(7) 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.
(8) Mr. Hagger became an executive officer when he was elected Senior Vice
President of International Operations effective as of November 1, 1997.
Accordingly, the compensation reported covers his compensation for the full
1998 fiscal year and his compensation for fiscal years 1997 and 1996 is not
included in this Summary Compensation Table. Mr. Hagger's annual
compensation for fiscal 1998 was paid by the Company in British Pounds and
for purposes of this Summary Compensation Table has been converted to U.S.
Dollars using an average monthly exchange rate of 1.6579 $/L for the period
from October 1, 1997 through the Company's fiscal year end on September 30,
1998.
(9) Amount includes $21,884 of payments made by the Company in fiscal 1998 for
the rental of Mr. Hagger's temporary residence in the United Kingdom.
(10) Mr. Crenshaw became an executive officer when he was elected Vice President
of Product Development effective as of November 1, 1997. Accordingly, the
compensation reported covers his compensation for the full 1998 fiscal year
and his compensation for fiscal years 1997 and 1996 is not included in this
Summary Compensation Table.
(11) Mr. Spurney became an executive officer when he was elected Vice President
of North American Sales effective as of November 1, 1997. Accordingly, the
compensation reported covers his compensation for the full 1998 fiscal year
and his compensation for fiscal years 1997 and 1996 is not included in this
Summary Compensation Table.
(12) Amount includes $36,184 of sales commissions earned by Mr. Spurney during
the fiscal year ended September 30, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options during the fiscal
year ended September 30, 1998 to the Named Officers who are listed in the
Summary Compensation Table above:
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS(2) OPTION TERM(3)
----------------------------------------------------- -----------------------------
NUMBER OF PERCENT
SECURITIES OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/ GRANTED TO EXERCISE OR
SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ------------ ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce R. Gardner.................. 50,000 15.05% $2.56 12/11/07 $80,499 $203,999
Thomas R. Foley*.................. -- -- -- -- -- --
Robert Hagger..................... 30,000 9.03% $2.56 12/11/07 $48,299 $122,399
Marco D. Peterson................. 25,000 7.53% $2.56 12/11/07 $40,249 $102,000
Scott Crenshaw.................... 15,000 4.52% $2.56 12/11/07 $24,150 $ 61,200
Harold R. Spurney................. 10,000 3.01% $2.56 12/11/07 $16,100 $ 40,800
</TABLE>
- ---------------
* Effective as of October 31, 1997, Mr. Foley resigned and terminated his
employment with the Company and, therefore, is no longer an executive
officer of the Company.
(1) No stock appreciation rights ("SARs") were granted by the Company in the
fiscal year ended September 30, 1998.
6
<PAGE> 9
(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.
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, 1998; (ii) the net
value realized upon such exercise; (iii) the number of unexercised options
outstanding as of September 30, 1998; and (iv) the value of such unexercised
options at September 30, 1998:
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 IN-THE-MONEY OPTIONS AT
SHARES AT SEPTEMBER 30, 1998(#) SEPTEMBER 30, 1998($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce R. Gardner.......... 15,000 28,125 45,836 84,164 (27,315) (61,935)
Thomas R. Foley(3)........ 32,918 30,817 -- -- -- --
Robert Hagger............. -- -- 15,500 54,500 (11,408) (36,743)
Marco D. Peterson......... -- -- 46,671 47,913 (7,878) (33,153)
Scott Crenshaw............ -- -- 20,416 17,918 (7,394) (15,431)
Harold R. Spurney......... -- -- 5,835 14,165 (4,015) (10,985)
</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 1998 fiscal
year-end ($1.375 per share as quoted on the Nasdaq National Market at the
close of trading on September 30, 1998) multiplied by the number of shares
underlying the in-the-money option.
(3) Mr. Foley resigned and terminated his employment with the Company effective
as of October 31, 1997. Any unvested options held by Mr. Foley when he
resigned as of October 31, 1997 terminated, and any vested options held by
Mr. Foley as of such date, if not exercised on or before January 31, 1998,
terminated. Accordingly, Mr. Foley did not hold any options at September 30,
1998.
7
<PAGE> 10
EXECUTIVE AGREEMENTS AND SEVERANCE ARRANGEMENTS
On April 11, 1996, the Board of Directors approved change in control
severance agreements (the "Executive Agreements") with each of Bruce R. Gardner,
Marco D. Peterson and Thomas R. Foley. As discussed below, the Executive
Agreement between the Company and Mr. Foley automatically terminated when he
resigned and terminated his employment with the Company on October 31, 1998. The
purpose of the Executive Agreements is to reinforce and encourage the executive
to remain with the Company and to maintain objectivity and a high level of
attention to his duties without distraction from the possibility of a change in
control of the Company. The initial term of the Executive Agreements was until
September 30, 1998 and so long as the executive continues to be employed by the
Company are automatically extended from year to year, unless the Company or the
executive provides prior written notice to the other party of its desire to
terminate the agreement. Pursuant to the Executive Agreements, the executive
remains as an at-will employee 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 executive agrees not to voluntarily leave the employ
of the Company and the Company agrees it will not terminate the employment of
the executive 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 the executive is entitled to a lump sum payment (the "Termination
Payment") upon the subsequent "Qualifying Termination" (as defined herein and in
such executive's Executive Agreement) of the executive's employment with the
Company. With respect to Mr. Gardner, a Qualifying Termination under his
Executive Agreement includes (i) termination of his 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 his resignation, for any or no
reason, following a change in control of the Company. With respect to Mr.
Peterson, a Qualifying Termination under his Executive Agreement includes (i)
termination of his 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 his 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 his Executive Agreement which constitute
constructive termination of his employment with the Company.
The Termination Payment that the executive is entitled to receive under his
respective Executive Agreement is a lump sum payment equal to three times the
sum of (i) the executive's annual base salary as in effect immediately prior to
his qualifying termination and (ii) the highest annual bonus paid to the
executive 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 Mr. Peterson, for each full month (up to eighteen
months) after the date of the change in control of the Company that he remains
employed by the Company and before the date of his qualifying termination, his
Termination Payment will be reduced by an amount equal to his Termination
Payment divided by thirty-six.
Pursuant to the terms of the Executive Agreements, if any payment or
benefit received or to be received by the executive 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 executive'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, Mr. Foley resigned and terminated his
employment with the Company. As a result of his voluntary resignation and
because his resignation did not result in a Qualifying Termination
8
<PAGE> 11
under his Executive Agreement, the Executive Agreement for Mr. Foley
automatically terminated without any obligation on the part of the Company to
make any Termination Payments to Mr. Foley. The Company did, however, enter into
a severance arrangement (as discussed below) with Mr. Foley.
On October 27, 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.
COMPENSATION AND STOCK COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee and the Stock Plan Committee of the Board of
Directors were consolidated in July 1998 to form the Compensation and Stock
Committee of the Board of Directors (referred to herein, together with its
predecessor committees, as the "Compensation and Stock Committee").
Consequently, the Compensation and Stock Committee is now the sole committee
responsible for (i) establishing and administering the base salaries and cash
bonuses of the Company's executive officers and (ii) 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
and Stock 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, both the
cash compensation and equity compensation components of the Company's executive
compensation program are determined by the Compensation and Stock 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, if any, 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 and Stock
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. In December 1997, the Compensation and Stock
Committee approved cash bonuses for certain executive officers in connection
with the sale of the Company's Virex and netOctopus product lines to Dr
Solomon's Software, which was consummated in October 1997. The cash bonuses
approved were as follows: $100,000 to Bruce R. Gardner, $20,000 to Marco D.
Peterson, and $45,000 to Scott Crenshaw. For information regarding the Company's
executive officers' fiscal 1998 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
9
<PAGE> 12
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 Compensation and Stock Committee will
occasionally make additional option grants to the Company's executive officers
and employees. When establishing stock option grant levels, the Compensation and
Stock 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 1998 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, 1998, 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 1998 for the Company's
President and Chief Executive Officer, Bruce R. Gardner, was determined in
accordance with the policies applicable to the other executive officers of the
Company described above. Mr. Gardner's base salary level for fiscal 1998
remained at the same level that was in effect at the end of fiscal 1997. In
addition to his base salary for fiscal 1998, the Compensation and Stock
Committee, in December 1997, granted Mr. Gardner stock options to purchase an
aggregate of 50,000 shares of Common Stock at an exercise price of $2.56 per
share pursuant to the Company's 1996 Stock Plan. The Compensation and Stock
Committee believes that Mr. Gardner's 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
and Stock 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 and Stock
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. Mr.
Gardner's annual compensation (including his stock option awards) for the fiscal
year ended September 30, 1998, is reflected in the tables captioned "Summary
Compensation Table" and "Option/SAR Grants In Last Fiscal Year" contained
elsewhere in this proxy statement.
As discussed above, Mr. Gardner also received a cash bonus of $100,000 in
connection with the sale of the Company's Virex and netOctopus product line to
Dr Solomon's Software which was consummated in October 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 and Stock Committee has
considered these requirements and it is the present intention of the committee
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 and Stock Committee.
THE COMPENSATION AND STOCK COMMITTEE
Don M. Lyle
Terry W. Potter
David T. Riddiford
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<PAGE> 13
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has established a Compensation and Stock
Committee currently consisting of Messrs. Riddiford, Lyle and Potter. No person
who served as a member of the Compensation and Stock Committee was, during the
fiscal year ended September 30, 1998, 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 and Stock Committee of the Company.
COMPENSATION OF DIRECTORS
During fiscal year ended September 30, 1998, 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.
11
<PAGE> 14
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, 1993 through September 30, 1998, 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, 1993 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)
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
DATAWATCH NASDAQ MARKET
CORPORATION SIC CODE INDEX INDEX
<S> <C> <C> <C>
9/30/93 100.00 100.00 100.00
9/30/94 88.00 121.89 105.82
9/30/95 316.00 193.79 128.48
9/30/96 536.00 259.65 150.00
9/30/97 148.00 367.43 203.88
9/30/98 88.00 460.01 211.88
</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.
12
<PAGE> 15
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, 1998 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, 1998.
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, 1999. The deadline for providing
timely notice to the Company of matters that stockholders otherwise desire to
introduce at the next annual meeting of stockholders of the Company is December
27, 1999. The Company may exercise its discretionary voting authority to direct
the voting of proxies on any matter submitted for a vote at the annual meeting
of stockholders if notice concerning proposal of such matter was not received
prior to December 27, 1999. 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.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of Deloitte & Touche LLP as
the Company's independent accountants for the 1999 fiscal year. Deloitte &
Touche LLP has served as the Company's independent accountants since the
Company's inception. Representatives of Deloitte & Touche LLP are expected to be
present at the Meeting. They will have the opportunity to make a statement if
they desire to do so and will also be available to respond to appropriate
questions from stockholders.
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.
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<PAGE> 16
DATAWATCH CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MARCH 23, 1999
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 Tuesday, March 23, 1999, 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 28, 1999, 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, Don M. Lyle, Terry W. Potter
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_____________
