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 transactions applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions 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>
DATAWATCH CORPORATION
900 CHELMSFORD STREET
TOWER 3, 5TH FLOOR
LOWELL, MASSACHUSETTS 01851
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 28, 2000, at 10:00 a.m., Eastern time, at Cross Point Towers, Nashua Room,
900 Chelmsford Street, Tower 3, 1st Floor, Lowell, Massachusetts, for the
following purposes:
1. To elect a Board of Directors to serve for the ensuing year and
until their respective successors have been duly elected and
qualified.
2. To approve an increase in the number of shares of Common Stock,
$.01 par value, available for issuance under the Datawatch 1996
Stock Plan (the "1996 Stock Plan") from 1,000,000 to 1,250,000
shares.
3. 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 February 23,
2000, 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
Lowell, Massachusetts
March 3, 2000
-----------------
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>
DATAWATCH CORPORATION
900 CHELMSFORD STREET
TOWER 3, 5TH FLOOR
LOWELL, MASSACHUSETTS 01851
PROXY STATEMENT
March 3, 2000
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 Cross
Point Towers, Nashua Room, 900 Chelmsford Street, Tower 3, 1st Floor, Lowell,
Massachusetts, on March 28, 2000, at 10:00 a.m., Eastern time, and any
adjournments thereof (the "Meeting").
Only stockholders of record at the close of business on February 23,
2000 will be entitled to notice of and to vote at the Meeting. As of that date,
9,263,522 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 February 23, 2000 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. In addition to the election of directors, the
stockholders will consider and vote upon a proposal to amend the Company's 1996
Stock Plan to increase the authorized number of shares of Common Stock
authorized for issuance thereunder. Where a choice has been specified on the
proxy with respect to the foregoing proposals, the shares represented by the
proxy will be voted in accordance with the specifications, and will be voted FOR
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, 1999, 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 March 3, 2000.
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth as of February 23, 2000, 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 6; 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>
Bruce R. Gardner (2) 349,293 3.72%
c/o Datawatch Corporation
900 Chelmsford Street
Tower 3, 5th Floor
Lowell, Massachusetts 01851
Robert W. Hagger (3) 49,750 *
c/o Datawatch Corporation
900 Chelmsford Street
Tower 3, 5th Floor
Lowell, Massachusetts 01851
Marco D. Peterson (4) 190,733 2.04%
c/o Datawatch Corporation
900 Chelmsford Street
Tower 3, 5th Floor
Lowell, Massachusetts 01851
John E. Loring (5) 27,839 *
c/o Datawatch Corporation
900 Chelmsford Street
Tower 3, 5th Floor
Lowell, Massachusetts 01851
Betsy J. Hartwell (6) 29,085 *
c/o Datawatch Corporation
900 Chelmsford Street
Tower 3, 5th Floor
Lowell, Massachusetts 01851
Scott Crenshaw 5,001 *
483 Beacon Street, Apt. 71
Boston, Massachusetts 02115
Jerome Jacobson (7) 50,754 *
4200 Massachusetts Avenue, N.W.
Suite 114
Washington, District of Columbia 20016
</TABLE>
-2-
<PAGE>
<TABLE><CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS BENEFICIALLY SHARES OF
OF BENEFICIAL OWNER OWNED COMMON STOCK(1)
- ------------------- ---------------- ---------------
<S> <C> <C>
Don M. Lyle (8) 13,082 *
c/o Datawatch Corporation
900 Chelmsford Street
Tower 3, 5th Floor
Lowell, Massachusetts 01851
Terry W. Potter (9) 13,082 *
c/o Datawatch Corporation
900 Chelmsford Street
Tower 3, 5th Floor
Lowell, Massachusetts 01851
David T. Riddiford (10) 43,173 *
c/o Pell Rudman & Co., Inc.
100 Federal Street
37th Floor
Boston, Massachusetts 02110
All current directors and executive 766,791 7.95%
officers as a group (9 persons)(11)
</TABLE>
- ------------------
*Less than one percent.
(1) The number of shares of Common Stock deemed outstanding includes (i)
9,263,522 shares of Common Stock outstanding as of February 23, 2000 and
(ii) with respect to each individual, an aggregate of 382,736 options to
purchase shares of Common Stock which may be exercised by such
individuals within 60 days of February 23, 2000.
(2) Includes 129,590 options that may be exercised within 60 days of
February 23, 2000.
(3) Includes 49,750 options that may be exercised within 60 days of
February 23, 2000.
(4) Includes 73,968 options that may be exercised within 60 days of
February 23, 2000.
(5) Includes 15,339 options that may be exercised within 60 days of
February 23, 2000.
(6) Includes 22,417 options that may be exercised within 60 days of
February 23, 2000.
(7) Includes 32,754 options that may be exercised within 60 days of
February 23, 2000.
(8) Includes 13,082 options that may be exercised within 60 days of
February 23, 2000.
(9) Includes 13,082 options that may be exercised within 60 days of
February 23, 2000.
(10) Includes 32,754 options that may be exercised within 60 days of
February 23, 2000.
(11) Includes 382,736 options that may be exercised within 60 days of
February 23, 2000.
-3-
<PAGE>
DIRECTORS
PROPOSAL I
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, Lyle, Potter and Riddiford were elected as directors
at the Company's Annual Meeting of Stockholders held on March 23, 1999.
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 directors:
Bruce R. Gardner, PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr.
Gardner, age 56, 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 78, has been a director of
the Company since 1987. Mr. Jacobson is a private investor and business
consultant and serves as a strategic advisor to several firms. Mr. Jacobson is a
director of Merrill Lynch Venture Capital, II.
Don M. Lyle, DIRECTOR. Mr. Lyle, age 60, 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 52, 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 64, has been a
director of the Company since 1989. Since 1987, Mr. Riddiford has been a general
partner of Pell, Rudman Venture Management, L.P., which is the general partner
of PR Venture Partners, L.P., a venture capital affiliate of Pell, Rudman & Co.,
Inc., an investment advisory firm. He has also been a general partner of Venture
Founders Capital, a venture capital partnership, since 1984. Mr. Riddiford is
also a director of Vicor Corporation.
-4-
<PAGE>
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of the Company met ten times during the fiscal
year ended September 30, 1999. The Board of Directors has a standing Audit
Committee and a standing Compensation and Stock Committee. On July 29, 1998, the
Company's Compensation and Stock 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 1999. 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 1999. During fiscal 1999, no incumbent director
attended fewer than 75% of the aggregate of (i) the total number of meetings of
the Board of Directors and (ii) the total number of meetings held by all
committees of the Board on which he served.
-5-
<PAGE>
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, 1999, 1998 and 1997 to (i) the
Company's Chief Executive Officer and (ii) each of the four most highly
compensated executive officers of the Company, other than the Chief Executive
Officer, who were serving as such at September 30, 1999 and whose annual
compensation exceeded $100,000 and (iii) one individual for whom disclosure
would have been provided but for the fact that he was not serving as an
executive officer at September 30, 1999 (collectively, the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE><CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- ------------------
FISCAL OTHER ANNUAL NUMBER OF ALL OTHER
NAME AND PRINCIPAL POSITIONS(S) YEAR SALARY($) BONUS($)(1) COMPENSATION(2) OPTIONS/SARS(#)(3) COMPENSATION($)(4)
- ------------------------------- ---- --------- ----------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Bruce R. Gardner (5) 1999 243,000 -- -- 50,000 774
President, Chief Executive 1998 195,226 100,000 -- 50,000 612
Officer and Director 1997 183,981 -- -- 80,000 612
Robert W. Hagger (6) 1999 187,146 -- 28,544 (7) 30,000 --
Senior Vice President of 1998 190,659 -- 35,399 (8) 30,000 --
International Operations 1997 -- -- -- -- --
Marco D. Peterson 1999 174,000 20,000 -- 25,000 864
Senior Vice President of North 1998 176,006 20,000 -- 25,000 864
American Operations 1997 166,011 -- -- 50,000 864
John E. Loring (9) 1999 107,911 -- -- 12,000 495
Vice President of Information 1998 104,035 10,000 -- 10,000 498
Technology 1997 -- -- -- -- --
Betsy J. Hartwell (10) 1999 103,991 -- -- 12,000 545
Vice President Finance, 1998 85,675 25,000 -- 15,000 526
Chief Financial Officer, 1997 -- -- -- -- --
Treasurer and Assistant
Secretary
Scott Crenshaw (11) 1999 113,750 -- -- -- 378
Vice President of Product 1998 101,150 45,000 -- 15,000 378
Development 1997 -- -- -- -- --
</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, 1999, 1998 or 1997.
(4) Amount represents the dollar value of group-term life insurance premiums
and excess 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. 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 fiscal years 1999 and 1998
-6-
<PAGE>
and his compensation for fiscal year 1997 is not included in this Summary
Compensation Table. Mr. Hagger's annual compensation for fiscal years
1999 and 1998 were paid by the Company in British Pounds and for purposes
of this Summary Compensation Table have been converted to U.S. Dollars
using an average monthly exchange rate of 1.62736 $/(pound) for the
period from October 1, 1998 through the Company's fiscal year end on
September 30, 1999 and 1.6579 $/(pound) for the period from October 1,
1997 through the Company's fiscal year end on September 30, 1998.
(7) Amount includes $19,528 of payments made by the Company in fiscal 1999
for the rental of Mr. Hagger's temporary residence in the United Kingdom.
(8) Amount includes $21,884 of payments made by the Company in fiscal 1998
for the rental of Mr. Hagger's temporary residence in the United Kingdom.
(9) Mr. Loring became an executive officer when he was elected Vice President
of Information Technology effective as of November 1, 1997. Accordingly,
the compensation reported covers his compensation for the full fiscal
years 1999 and 1998 and his compensation for fiscal year 1997 is not
included in this Summary Compensation Table.
(10) Ms. Hartwell became an executive officer when she was elected Vice
President of Finance, Chief Financial Officer, Treasurer and Assistant
Secretary effective as of November 1, 1997. Accordingly, the compensation
reported covers her compensation for the full fiscal years 1999 and 1998
and her compensation for fiscal year 1997 is not included in this Summary
Compensation Table.
(11) Mr. Crenshaw became an executive officer when he was elected Vice
President of Product Development effective as of November 1, 1997.
Accordingly, the compensation reported covers his compensation for the
full fiscal years 1999 and 1998 and his compensation for fiscal year 1997
is not included in this Summary Compensation Table. Effective as of
August 13, 1999, Mr. Crenshaw resigned from the position of Vice
President of Product Development and terminated his employment with the
Company.
-7-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options during the
fiscal year ended September 30, 1999 to the Named Officers who are listed in the
Summary Compensation Table above:
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
<TABLE><CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS (2) OPTION TERM(3)
----------------------------------------------------------- -----------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL EXERCISE
UNDERLYING OPTIONS/SARS OR
OPTIONS/SARS GRANTED TO BASE
GRANTED EMPLOYEES IN PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------ ----------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Bruce R. Gardner 50,000 11.30% $1.1562 7/15/09 36,356 92,134
Robert Hagger 30,000 6.78% $1.1562 7/15/09 21,814 55,281
Marco D. Peterson 25,000 5.65% $1.1562 7/15/09 18,178 46,067
John E. Loring 12,000 2.71% $1.1562 7/15/09 8,726 22,122
Betsy J. Hartwell 12,000 2.71% $1.1562 7/15/09 8,726 22,122
Scott Crenshaw* -- -- -- -- -- --
</TABLE>
- ------------------
* Effective as of August 13, 1999, Mr. Crenshaw resigned and terminated his
employment with the Company and, therefore, is no longer an executive
officer of the Company. As reflected in the Summary Compensation Table on
page 6, Mr. Crenshaw was not granted options during the fiscal year ended
September 30, 1999.
(1) No stock appreciation rights ("SARs") were granted by the Company in the
fiscal year ended September 30, 1999.
(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.
-8-
<PAGE>
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, 1999; (ii) the net
value realized upon such exercise; (iii) the number of unexercised options
outstanding as of September 30, 1999; and (iv) the value of such unexercised
options at September 30, 1999:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE><CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES HELD AT SEPTEMBER 30, 1999(#) SEPTEMBER 30, 1999($)(2)
ACQUIRED ON VALUE ----------------------------- ----------------------------
NAME EXERCISE (#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce R. Gardner -- -- 89,172 90,828 (90,506) (55,304)
Robert Hagger -- -- 33,500 66,500 (38,340) (40,746)
Marco D. Peterson 19,584 11,016 52,091 47,909 (50,884) (20,148)
John E. Loring 12,500 7,031 9,171 17,829 (11,407) (9,517)
Betsy J. Hartwell -- -- 15,417 19,917 (18,250) (12,774)
Scott Crenshaw(3) 3,334 1,875 26,250 -- (23,550) --
- ------------------
</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 1999 fiscal year-end ($1.00 per share as quoted on the Nasdaq National
Market at the close of trading on September 30, 1999) multiplied by the
number of shares underlying the in-the-money option.
(3) Mr. Crenshaw resigned and terminated his employment with the Company
effective as of August 13, 1999. Any unvested options held by Mr. Crenshaw
terminated when he resigned as of August 13, 1999, and all vested options
(other than 3,334 vested options which were exercised prior to November
13, 1999) held by Mr. Crenshaw terminated as of November 13, 1999.
-9-
<PAGE>
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
and Marco D. Peterson. Mr. Peterson's Executive Agreement was amended on July
15, 1999, as described below. 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, as amended, 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 twelve months following a change in control of the
Company, or (iii) termination as a result of certain events identified in his
Executive Agreement, as amended, 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 twelve
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. The July 15, 1999 amendment to Mr. Peterson's
Executive Agreement reduced the number of months used to calculate the reduction
in his termination payment from eighteen months to twelve months, as set forth
in the preceding sentence.
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"), would constitute an "excess parachute payment"
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), and thus subject to a 20% federal excise tax, then 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
excise tax.
The Company's subsidiary Datawatch International Limited (formerly
Workgroup Systems Limited) entered into a Contract of Employment with Robert
Hagger dated February 24, 1997, as amended on July 15, 1999 (the "Employment
Agreement"). The Employment Agreement provides that Mr. Hagger's employment may
be terminated with cause immediately upon notice to Mr. Hagger or terminated
without cause provided he is given at least 12 months notice.
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<PAGE>
COMPENSATION AND STOCK COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Stock Committee is 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 1999, the Compensation and Stock Committee
approved a cash bonus of $20,000 for Marco Peterson. For information regarding
the Company's executive officers' fiscal 1999 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 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 1999 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, 1999, 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 1999 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 1999
increased by $50,000 from his salary that was in effect at the end of fiscal
1998. The Compensation and Stock Committee believes that Mr. Gardner's annual
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<PAGE>
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 (for the fiscal year
ended September 30, 1999, is reflected in the table captioned "Summary
Compensation Table" contained elsewhere in this proxy statement.
TAX CONSIDERATIONS. In general, Section 162(m) of the Code, prevents
publicly held corporations from deducting, for federal income tax purposes,
compensation paid in excess of $1 million to certain executives. 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 tax deductions
attributable to executive compensation will not be subject to the deduction
limitations of 162(m) of the Code.
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>
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, 1999, 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 the fiscal year ended September 30, 1999, 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 receive stock options pursuant to the Non-Employee Director
Stock Option Policy (the "Director Option Policy") described below. During the
fiscal year ended September 30, 1999, directors who were neither employees nor
officers of the Company and who could 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"), were
eligible to receive stock options under the Company's 1996 Non-Employee Director
Stock Option Plan, as amended (the "Director Plan"). Effective as of February
16, 2000, the Director Plan was terminated, and all options available for grant
cancelled, and Non-Employee Directors may no longer receive stock options under
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 was terminated by
the Board of Directors effective as of February 16, 2000 and all options
available for grant were cancelled effective upon the termination of the
Director Plan. The Director Plan was administered by the Board of Directors of
the Company and provided for the grant of options to purchase a maximum of
72,000 shares of Common Stock to Non-Employee Directors.
Prior to its termination, the Director Plan authorized the automatic
grant, without further action by the Board of Directors, (a) of an option to
purchase 12,000 shares of Common Stock to each person who was a Non-Employee
Director on the later of June 1, 1996, the date such person was first elected to
the Board of Directors, or the date such person met 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 was 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 were granted. Notwithstanding this vesting
schedule and the termination of the Director Plan, the provisions of the
Director Plan, which, among other things, provide 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, will still apply to any outstanding options that
were granted under the Director Plan.
The exercise price per share for all options that were granted under
the Director Plan is equal to the fair market value per share of the Common
Stock on the date of grant. The term of each option is 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
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<PAGE>
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).
NON-EMPLOYEE DIRECTOR STOCK OPTION POLICY
In February 2000 the Board of Directors adopted the Director Option
Policy to replace the Director Plan. The Director Option Policy is administered
by the Board of Directors and provides for the grant of options to purchase
Common Stock to Non-Employee Directors. The Director Option Policy authorizes
the automatic grant, without further action by the Board of Directors, (a) of an
option to purchase 12,000 shares of Common Stock under the Company's 1996 Stock
Plan to each person who becomes a Non-Employee Director after February 16, 2000
on the date such person is first elected to the Board of Directors (the "First
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. Options granted to Non-Employee
Directors under the Director Option Policy 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 Option Policy also
provides that in the event of any change in control of the Company (as defined
in the Director Option Policy) all options granted under the Director Option
Policy that are outstanding but unvested automatically become exercisable in
full.
The exercise price per share for all options that are granted under the
Director Option Policy 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).
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<PAGE>
PROPOSAL II
PROPOSAL TO AMEND THE 1996 STOCK PLAN
The 1996 Stock Plan was adopted by the Company's Board of Directors in
December 1996 and was approved by the Company's stockholders in March 1997. A
maximum of 1,000,000 shares of Common Stock were originally reserved for
issuance under the 1996 Stock Plan upon the exercise of options or in connection
with awards of stock of the Company or the opportunity to make direct stock
purchases of shares of the Company. The Board of Directors has approved and
recommended to the stockholders that they approve an increase in the number of
shares authorized for issuance pursuant to the 1996 Stock Plan by 250,000 shares
to 1,250,000 shares.
The Company's management relies on stock options as essential parts of
the compensation packages necessary for the Company to attract and retain
experienced officers and employees. The Board of Directors believes that the
proposed increase in the number of shares available under the 1996 Stock Plan is
essential to permit the Company's management to continue to provide long-term,
equity-based incentives to present and future key employees. As of February 23,
2000, only 110,448 shares remained authorized for issuance under the 1996 Plan.
If the increase in the number of shares authorized for issuance under the 1996
Plan is not approved, the Company may become unable to provide suitable
long-term equity based incentives to present and future employees. The Company
has not yet determined who will receive the shares of Common Stock that will be
authorized for issuance under the 1996 Plan if the proposed amendment is
approved.
The Board of Directors unanimously recommends a vote FOR the proposal
to approve the amendment to the Company's 1996 Stock Plan.
DESCRIPTION OF THE 1996 STOCK PLAN
The purpose of the 1996 Stock Plan is to provide incentives to
directors, officers and other employees of the Company by providing them with
opportunities to purchase stock of the Company and participate in the ownership
of the Company.
Under the 1996 Stock Plan, employees and officers of the Company may be
awarded incentive stock options ("ISO" or "ISOs"), as defined in Section 422(b)
of the Code, and directors, officers, employees and consultants of the Company
may be granted (i) options which do not qualify as ISOs (a "Non-Qualified
Option" or "Non-Qualified Options"), (ii) awards of stock in the Company
("Awards"), and (iii) opportunities to make direct purchases of stock in the
Company ("Purchases"). ISOs, Non-Qualified Options, Awards and Purchases are
sometimes collectively referred to as "Stock Rights" and ISOs and Non-Qualified
Options are sometimes collectively referred to as "Options." The 1996 Stock Plan
provides for the issuance of a maximum of 1,000,000 shares of Common Stock of
the Company pursuant to the grant of Stock Rights. Currently, 165 employees
(including one director who is also an employee and officer of the Company) and
all directors of the Company are eligible to participate in the 1996 Stock Plan.
The 1996 Stock Plan is administered by the Compensation and Stock
Committee. Subject to the terms of the 1996 Stock Plan, the Compensation and
Stock Committee has the authority to determine the persons to whom Stock Rights
are granted, the exercise price per share and other terms and provisions
governing the Stock Rights, including restrictions, if any, applicable to the
shares of Common Stock issuable upon exercise of Stock Rights.
Stock Rights may be granted under the 1996 Stock Plan at any time prior
to December 10, 2006. The exercise price per share of Non-Qualified Options
granted, and the purchase price per share of stock granted in any Award or
authorized as a Purchase, under the 1996 Stock Plan cannot be less than the
minimum legal consideration required therefore under the laws of any
jurisdiction in which the Company may be organized. The exercise price per share
of each ISO cannot be less than the fair market value of the Common Stock on the
date of grant (or, in the case of an ISO granted to an employee holding more
than ten percent of the voting stock of the Company, 110% of the fair market
value of the Common Stock on the date of grant). As of the close of business on
February 23, 2000, the fair market value of a share of the Company's Common
Stock as reported on Nasdaq was $4.625 per share. The 1996 Stock Plan provides
that
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<PAGE>
each Option shall expire on the date specified by the Compensation and Stock
Committee, but not more than ten years from the date of grant in the case of
Options generally, and five years from the date of grant in the case of an ISO
granted to an employee holding more than ten percent of the voting stock of the
Company.
Each Option granted under the 1996 Stock Plan may either be fully
exercisable at the time of grant or may become exercisable in such installments
as the Compensation and Stock Committee may specify. Each Option may be
exercised from time to time, in whole or in part, up to the total number of
shares with respect to which it is then exercisable. Subject to certain
restrictions, the Compensation and Stock Committee has the right to accelerate
the date that any installment of any Option becomes exercisable.
Payment of the exercise price of an Option granted under the 1996 Stock
Plan may be made in cash or by check or, if authorized by the Compensation and
Stock Committee (i) by tendering shares of Common Stock of the Company having a
fair market value equal as of the date of the exercise to the cash exercise
price of the Option, (ii) by delivery of a personal recourse, interest bearing
note, (iii) through the delivery of an assignment to the Company of a sufficient
amount of the proceeds from the sale of the Common Stock acquired upon exercise
of the Option and an authorization to the broker or selling agent to pay that
amount to the Company or (iv) by any combination of the above.
Pursuant to the 1996 Plan, no employee may be granted Options to
acquire, in the aggregate, more than 700,000 shares of Common Stock in any one
calendar year.
If an ISO optionee ceases to be employed by the Company other than by
reason of death or disability, no further installments of his or her ISOs will
become exercisable, and vested ISOs shall terminate after the passage of three
months from the date of termination of employment (but no later than their
specified expiration dates), except to the extent that such ISOs shall have been
converted into Non-Qualified Options. If an optionee ceases to be employed by
the Company by reason of disability, or if an optionee dies, any ISO held by the
optionee may be exercised, to the extent exercisable on the date of disability
or death, by the optionee or the optionee's estate, personal representative or
beneficiary, at any time within 180 days from the date of the optionee's
disability or death (but not later than the specified expiration date of the
ISO).
Option holders are protected against dilution in the event of a stock
dividend, stock split, consolidation, merger, recapitalization, reorganization
or similar transaction. The Board of Directors may from time to time adopt
amendments to the 1996 Stock Plan, certain of which are subject to stockholder
approval, and may terminate the 1996 Stock Plan, at any time. Any shares subject
to an Option granted under the 1996 Stock Plan which for any reason expires or
terminates unexercised, may again be available for future Option grants. Unless
terminated sooner, the 1996 Stock Plan will terminate on December 9, 2006
(except as to Options outstanding on that date).
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<PAGE>
STOCK OPTIONS GRANTED UNDER THE 1996 PLAN SINCE ITS INCEPTION
The following table sets forth as of February 23, 2000 all Options
granted under the 1996 Stock Plan since its inception to (i) each of the Named
Officers, (ii) each person who has received five percent or more of the Options
granted under the 1996 Stock Plan, (iii) all current executive officers of the
Company, as a group, (iv) all current directors who are not executive officers,
as a group and (v) all employees who are not executive officers or directors of
the Company, as a group. Non-employee directors of the Company are eligible to
receive Options under the 1996 Stock Plan pursuant to the Director Option
Policy. Future awards are in the discretion of the Board of Directors and cannot
be determined at this time.
<TABLE><CAPTION>
Number of Shares
Name and Principal Position Represented by Options
--------------------------- ----------------------
<S> <C>
Bruce R. Gardner* 180,000
President, Chief Executive Officer and Director
Robert Hagger* 60,000
Senior Vice President of International Operations
Marco D. Peterson* 100,000
Senior Vice President of North American Operations
John E. Loring 27,000
Vice President of Information Technology
Betsy J. Hartwell 32,000
Vice President Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
Scott Crenshaw(1) 15,000
Vice President of Product Development
All Current Executive Officers 399,000
All Current Directors who are not Executive Officers 84,000
All Employees who are not Executive Officers or Directors 372,800
</TABLE>
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* Persons who have received five percent or more of the stock options granted
under the 1996 Stock Plan.
(1) Mr. Crenshaw resigned and terminated his employment with the Company
effective as of August 13, 1999, and all vested options (other than 3,334
vested options which were exercised prior to November 13, 1999) held by Mr.
Crenshaw terminated as of November 13, 1999.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of United States federal income tax
consequences of the issuance and exercise of Stock Rights granted under the 1996
Stock Plan is based upon the provisions of the Code as in effect on the date of
this Proxy Statement, current regulations, and existing administrative rulings
of the Internal Revenue Service. It is not intended to be a complete discussion
of all of the United States federal income tax consequences of the issuance and
exercise of Stock Rights granted under the 1996 Stock Plan or of the
requirements that must be met in order to qualify for the described tax
treatment. In addition, there may be foreign, state or local tax consequences
that are not discussed herein.
INCENTIVE STOCK OPTIONS. The following general rules are applicable
under current United States federal income tax law to ISOs granted under the
1996 Stock Plan:
1. In general, an optionee will not recognize any income upon the grant
of an ISO or upon the issuance of shares to him or her upon the exercise of an
ISO, and the Company will not be entitled to a federal income tax deduction upon
either the grant or the exercise of an ISO.
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<PAGE>
2. If shares acquired upon exercise of an ISO are not disposed of
within (i) two years from the date the option was granted or (ii) one year after
the date the shares are issued to the optionee pursuant to the ISO exercise (the
"Holding Periods"), the difference between the amount realized on any subsequent
disposition of the shares and the exercise price will generally be treated as
capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of and the
optionee does not satisfy the requisite Holding Periods (a "Disqualifying
Disposition"), then in most cases the lesser of (i) any excess of the fair
market value of the shares at the time of exercise of the ISO over the exercise
price or (ii) the actual gain on disposition will be taxed to the optionee as
ordinary income in the year of such disposition.
4. The difference between the amount realized by an optionee as the
result of a Disqualifying Disposition and the sum of (i) the exercise price and
(ii) the amount of ordinary income recognized under the above rules generally
will be treated as capital gain or loss.
5. In any year that an optionee recognizes ordinary income on a
Disqualifying Disposition of shares acquired upon exercising an ISO, the Company
generally will be entitled to a corresponding federal income tax deduction.
6. Capital gain or loss recognized by an optionee on a disposition of
shares will be long-term capital gain or loss if the optionee's holding period
for the shares exceeds one year.
7. An optionee may be entitled to exercise an ISO by delivering shares
of the Company's Common Stock to the Company in payment of the exercise price,
if the optionee's ISO agreement so provides. If an optionee exercises an ISO in
such fashion, special rules will apply.
8. In addition to the tax consequences described above, the exercise of
an ISO may result in an "alternative minimum tax." The "alternative minimum tax"
will be applied against a taxable base which is equal to "alternative minimum
taxable income," reduced by a statutory exemption. In general, the amount by
which the fair market value of the shares received upon exercise of the ISO
exceeds the exercise price is included in the optionee's alternative minimum
taxable income. A taxpayer is required to pay the greater of his or her regular
tax liability or the alternative minimum tax. A taxpayer who pays alternative
minimum tax attributable to the exercise of an ISO may be entitled to a tax
credit against his or her regular tax liability in later years.
9. Special rules apply if the shares acquired upon the exercise of an
ISO are subject to vesting, or are subject to certain restrictions on resale
under federal securities laws applicable to directors, officers or 10%
stockholders.
NON-QUALIFIED OPTIONS. The following general rules are applicable under
current United States federal income tax law to Non-Qualified Options granted
under the 1996 Stock Plan:
1. In general, the optionee will not recognize any income upon the
grant of a Non-Qualified Option, and the Company will not be allowed a federal
income tax deduction upon such grant.
2. The optionee generally will recognize ordinary income at the time of
exercise of the Non-Qualified Option in an amount equal to the excess, if any,
of the fair market value of the shares on the date of exercise over the exercise
price. The Company may be required to withhold income tax on this amount.
3. When the optionee sells the shares acquired through the exercise of
a Non-Qualified Option, he or she generally will recognize capital gain or loss
in an amount equal to the difference between the amount realized upon the sale
of the shares and his or her basis in the shares (generally, the exercise price
plus the amount taxed to the optionee as ordinary income). If the optionee's
holding period for the shares exceeds one year, such gain or loss will be a
long-term capital gain or loss.
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4. When the optionee recognizes ordinary income attributable to a
Non-Qualified Option, the Company generally should be entitled to a
corresponding federal income tax deduction.
5. An optionee may be entitled to exercise a Non-Qualified Option by
delivering shares of the Company's Common Stock to the Company in payment of the
exercise price. If an optionee exercises a Non-Qualified Option in such fashion,
special rules apply.
6. Special rules apply if the shares acquired upon the exercise of a
Non-Qualified Option are subject to vesting, or are subject to certain
restrictions on resale under federal securities laws applicable to directors,
officers or 10% stockholders.
AWARDS AND PURCHASES. The following general rules are applicable under
current United States federal income tax law to Awards and Purchases under the
1996 Stock Plan:
Persons receiving shares pursuant to an Award or Purchase under the
1996 Stock Plan will generally recognize ordinary income equal to the fair
market value of the shares received in the case of an Award, or the excess of
the fair market value of the shares (determined on the date of purchase) over
the purchase price in the case of a purchase. The Company generally should be
entitled to a corresponding federal income tax deduction. When such shares are
sold, the seller generally will recognize capital gain or loss equal to the
difference between the amount realized upon the sale of shares and his or her
tax basis in the shares (generally, the fair market value of the shares when
acquired). Special rules apply if the shares acquired are subject to vesting, or
are subject to certain restrictions on resale under federal securities laws
applicable to directors, officers or 10% stockholders.
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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, 1994 through September 30, 1999, 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, 1994 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>
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98 9/30/99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Datawatch Corporation $100.00 $359.09 $609.09 $168.18 $100.00 $ 72.73
SIC Code Index $100.00 $158.99 $213.02 $301.44 $377.40 $577.03
Nasdaq Market Index $100.00 $121.41 $141.75 $192.67 $200.23 $323.92
- --------------------
</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.
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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, 1999
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, 1999.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended for inclusion in the proxy statement
to be furnished to all stockholders entitled to vote at the next annual meeting
of stockholders of the Company must be received at the Company's principal
executive offices not later than October 31, 2000. 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 January
18, 2001. 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 January 18, 2001. 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 2000 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.
-21-
<PAGE>
DATAWATCH CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MARCH 28, 2000
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 28, 2000, at 10:00 a.m. Eastern time, at Cross Point
Towers, Nashua Room, 900 Chelmsford Street, Tower 3, 1st Floor, Lowell,
Massachusetts, and at any adjournments thereof, upon matters set forth in the
Notice of Annual Meeting of Stockholders and Proxy Statement dated March 3,
2000, 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, 2. To approve an increase in the
Jerome Jacobson, Don M. Lyle, number of shares available for
Terry W. Potter and David T. issuance under the Datawatch
Riddiford as Directors to 1996 Stock Plan from 1,000,000
serve until the next Annual to 1,250,000.
Meeting of Stockholders or
until their successors are
duly elected and qualified.
FOR WITHHELD FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ]
INSTRUCTIONS: To withhold your vote for any individual
nominee write the nominee's name on the space provided below.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSAL 2.
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 __________
EXHIBIT 99.1
------------
DATAWATCH CORPORATION
1996 STOCK PLAN
---------------
1. PURPOSE. The purpose of the Datawatch Corporation 1996 Stock Plan
(the "Plan") is to encourage key employees of Datawatch Corporation (the
"Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.
2. ADMINISTRATION OF THE PLAN.
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall
(be administered by the Board of Directors of the Company (the
"Board") or, subject to paragraph 2(D) (relating to compliance
with Section 162(m) of the Code), by a committee appointed by
the Board (the "Committee"). Hereinafter, all references in
this Plan to the "Committee" shall mean the Board if no
Committee has been appointed. Subject to ratification of the
grant or authorization of each Stock Right by the Board (if so
required by applicable state law), and subject to the terms of
the Plan, the Committee shall have the authority to (i)
determine to whom (from among the class of employees eligible
under paragraph 3 to receive ISOs) ISOs shall be granted, and
to whom (from among the class of individuals and entities
eligible under paragraph 3 to receive Non-Qualified Options
and Awards and to make Purchases) Non-Qualified Options,
Awards and authorizations to make Purchases may be granted;
(ii) determine the time or times at which Options or Awards
shall be granted or Purchases made; (iii) determine the
purchase price of shares subject to each Option or Purchase,
which prices shall not be less than the minimum price
specified in paragraph 6; (iv) determine whether each Option
granted shall be an ISO or a Non-Qualified Option; (v)
determine (subject to paragraph 7) the time or times when each
Option shall become exercisable and the duration of the
exercise period; (vi) extend the period during which
outstanding Options may be exercised; (vii) determine whether
restrictions such as repurchase options are to be imposed on
shares subject to Options, Awards and Purchases and the nature
of such restrictions, if any, and (viii) interpret the Plan
<PAGE>
-2-
and prescribe and rescind rules and regulations relating to
it. If the Committee determines to issue a Non-Qualified
Option, it shall take whatever actions it deems necessary,
under Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Option is not treated as an
ISO. The interpretation and construction by the Committee of
any provisions of the Plan or of any Stock Right granted under
it shall be final unless otherwise determined by the Board.
The Committee may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem
advisable. No member of the Board or the Committee shall be
liable for any action or determination made in good faith with
respect to the Plan or any Stock Right granted under it.
B. COMMITTEE ACTIONS. The Committee may select one of
its members as its chairman, and shall hold meetings at such
time and places as it may determine. A majority of the
Committee shall constitute a quorum and acts of a majority of
the members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the
members of the Committee (if consistent with applicable state
law), shall be the valid acts of the Committee. From time to
time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock
Rights may be granted to members of the Board. All grants of
Stock Rights to members of the Board shall in all respects be
made in accordance with the provisions of this Plan applicable
to other eligible persons. Members of the Board who either (i)
are eligible to receive grants of Stock Rights pursuant to the
Plan or (ii) have been granted Stock Rights may vote on any
matters affecting the administration of the Plan or the grant
of any Stock Rights pursuant to the Plan, except that no such
member shall act upon the granting to himself or herself of
Stock Rights, but any such member may be counted in
determining the existence of a quorum at any meeting of the
Board during which action is taken with respect to the
granting to such member of Stock Rights.
D. PERFORMANCE-BASED COMPENSATION. The Board, in its
discretion, may take such action as may be necessary to ensure
that Stock Rights granted under the Plan qualify as "qualified
performance-based compensation" within the meaning of Section
162(m) of the Code and applicable regulations promulgated
thereunder ("Performance-Based Compensation"). Such action may
include, in the Board's discretion, some or all of the
following (i) if the Board determines that Stock Rights
granted under the Plan generally shall constitute
Performance-Based Compensation, the Plan shall be
administered, to the extent required for such Stock Rights to
constitute Performance-Based Compensation, by a Committee
consisting solely of two or more "outside directors" (as
defined in
<PAGE>
-3-
applicable regulations promulgated under Section 162(m) of the
Code), (ii) if any Non-Qualified Options with an exercise
price less than the fair market value per share of Common
Stock are granted under the Plan and the Board determines that
such Options should constitute Performance-Based Compensation,
such options shall be made exercisable only upon the
attainment of a pre-established, objective performance goal
established by the Committee, and such grant shall be
submitted for, and shall be contingent upon shareholder
approval and (iii) Stock Rights granted under the Plan may be
subject to such other terms and conditions as are necessary
for compensation recognized in connection with the exercise or
disposition of such Stock Right or the disposition of Common
Stock acquired pursuant to such Stock Right, to constitute
Performance-Based Compensation.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted only to employees
of the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Stock Rights.
4. STOCK. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, par value $.01 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 1,250,000[1], subject to adjustment as provided in paragraph 13. If any
Option granted under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be exercisable in
whole or in part or shall be repurchased by the Company, the unpurchased shares
of Common Stock subject to such Option shall again be available for grants of
Stock Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 700,000 shares of Common Stock
under the Plan during any fiscal year of the Company. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part or shall be repurchased by the Company, the shares subject to such Option
shall be included in the determination of the aggregate number of shares of
Common Stock deemed to have been granted to such employee under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan
at any time on or after December 10, 1996 and prior to December 10, 2006. The
date of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant.
- -----------
[1] Increase from 1,000,000 to 1,250,000 is subject to stockholder approval at
the Annual Meeting of Stockholders currently scheduled to be held on March 28,
2000.
<PAGE>
-4-
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND
PURCHASES. Subject to paragraph 2(D) (relating to compliance
with Section 162(m) of the Code), the exercise price per share
specified in the agreement relating to each Non-Qualified
Option granted, and the purchase price per share of stock
granted in any Award or authorized as a Purchase, under the
Plan may be less than the fair market value of the Common
Stock of the Company on the date of grant; provided that, in
no event shall such exercise price or such purchase price be
less than the minimum legal consideration required therefor
under the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
B. PRICE FOR ISOs. The exercise price per share
specified in the agreement relating to each ISO granted under
the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case
of an ISO to be granted to an employee owning stock possessing
more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related
Corporation, the price per share specified in the agreement
relating to such ISO shall not be less than one hundred ten
percent (110%) of the fair market value per share of Common
Stock on the date of grant. For purposes of determining stock
ownership under this paragraph, the rules of Section 424(d) of
the Code shall apply.
C. $100,000 ANNUAL LIMITATION ON ISO VESTING. Each
eligible employee may be granted Options treated as ISOs only
to the extent that, in the aggregate under this Plan and all
incentive stock option plans of the Company and any Related
Corporation, ISOs do not become exercisable for the first time
by such employee during any calendar year with respect to
stock having a fair market value (determined at the time the
ISOs were granted) in excess of $100,000. The Company intends
to designate any Options granted in excess of such limitation
as Non-Qualified Options, and the Company shall issue separate
certificates to the optionee with respect to Options that are
Non-Qualified Options and Options that are ISOs.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the
time an Option is granted under the Plan, the Company's Common
Stock is publicly traded, "fair market value" shall be
determined as of the date of grant or, if the prices or quotes
discussed in this sentence are unavailable for such date, the
last business day for which such prices or quotes are
available prior to the date of grant and shall mean (i) the
average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then
traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Stock on the
Nasdaq National Market, if the Common Stock is not then traded
on a national securities
<PAGE>
-5-
exchange; or (iii) the closing bid price (or average of bid
prices) last quoted (on that date) by an established quotation
service for over-the-counter securities, if the Common Stock
is not reported on the Nasdaq National Market. If the Common
Stock is not publicly traded at the time an Option is granted
under the Plan, "fair market value" shall mean the fair value
of the Common Stock as determined by the Committee after
taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and
offer prices of the Common Stock in private transactions
negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully
exercisable on the date of grant or shall become exercisable
thereafter in such installments as the Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment
becomes exercisable, it shall remain exercisable until
expiration or termination of the Option, unless otherwise
specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may
be exercised at any time or from time to time, in whole or in
part, for up to the total number of shares with respect to
which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have
the right to accelerate the date that any installment of any
Option becomes exercisable; provided that the Committee shall
not, without the consent of an optionee, accelerate the
permitted exercise date of any installment of any Option
granted to any employee as an ISO (and not previously
converted into a Non-Qualified Option pursuant to paragraph
16) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as
described in paragraph 6(C).
<PAGE>
-6-
9. TERMINATION OF EMPLOYMENT. Unless otherwise specified in the
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
as defined in paragraph 10, no further installments of his or her ISOs shall
become exercisable, and his or her ISOs shall terminate on the earlier of (a)
three months after the date of termination of his or her employment, or (b)
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 16. For purposes of this paragraph 9, employment shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute or by contract. A bona fide leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under this paragraph 9, provided that such written approval
contractually obligates the Company or any Related Corporation to continue the
employment of the optionee after the approved period of absence. ISOs granted
under the Plan shall not be affected by any change of employment within or among
the Company and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related Corporation. Nothing in the Plan shall be
deemed to give any grantee of any Stock Right the right to be retained in
employment or other service by the Company or any Related Corporation for any
period of time.
10. DEATH; DISABILITY.
A. DEATH. If an ISO optionee ceases to be employed by
the Company and all Related Corporations by reason of his or
her death, any ISO owned by such optionee may be exercised, to
the extent otherwise exercisable on the date of death, by the
estate, personal representative or beneficiary who has
acquired the ISO by will or by the laws of descent and
distribution, until the earlier of (i) the specified
expiration date of the ISO or (ii) 180 days from the date of
the optionee's death.
B. DISABILITY. If an ISO optionee ceases to be
employed by the Company and all Related Corporations by reason
of his or her disability, such optionee shall have the right
to exercise any ISO held by him or her on the date of
termination of employment, for the number of shares for which
he or she could have exercised it on that date, until the
earlier of (i) the specified expiration date of the ISO or
(ii) 180 days from the date of the termination of the
optionee's employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code or any successor
statute.
11. ASSIGNABILITY. No ISO shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee shall be exercisable only by such optionee. Stock
Rights other than ISOs shall be transferable to the extent set forth in the
agreement relating to such Stock Right.
<PAGE>
-7-
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of
Common Stock shall be subdivided or combined into a greater or
smaller number of shares or if the Company shall issue any
shares of Common Stock as a stock dividend on its outstanding
Common Stock, the number of shares of Common Stock deliverable
upon the exercise of Options shall be appropriately increased
or decreased proportionately, and appropriate adjustments
shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be
consolidated with or acquired by another entity in a merger or
other reorganization in which the holders of the outstanding
voting stock of the Company immediately preceding the
consummation of such event, shall, immediately following such
event, hold, as a group, less than a majority of the voting
securities of the surviving or successor entity, or in the
event of a sale of all or substantially all of the Company's
assets or otherwise (each, an "Acquisition"), the Committee or
the board of directors of any entity assuming the obligations
of the Company hereunder (the "Successor Board"), shall, as to
outstanding Options, either (i) make appropriate provision for
the continuation of such Options by substituting on an
equitable basis for the shares then subject to such Options
either (a) the consideration payable with respect to the
outstanding shares of Common Stock in connection with the
Acquisition, (b) shares of stock of the surviving or successor
corporation or (c) such other securities as the Successor
Board deems appropriate, the fair market value of which shall
not materially exceed the fair market value of the shares of
Common Stock subject to such Options immediately preceding the
Acquisition; or (ii) upon written notice to the optionees,
provide
<PAGE>
-8-
that all Options must be exercised, to the extent then
exercisable or to be exercisable as a result of the
Acquisition, within a specified number of days of the date of
such notice, at the end of which period the Options shall
terminate; or (iii) terminate all Options in exchange for a
cash payment equal to the excess of the fair market value of
the shares subject to such Options (to the extent then
exercisable or to be exercisable as a result of the
Acquisition) over the exercise price thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event
of a recapitalization or reorganization of the Company (other
than a transaction described in subparagraph B above) pursuant
to which securities of the Company or of another corporation
are issued with respect to the outstanding shares of Common
Stock, an optionee upon exercising an Option shall be entitled
to receive for the purchase price paid upon such exercise the
securities he or she would have received if he or she had
exercised such Option prior to such recapitalization or
reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the
foregoing, any adjustments made pursuant to subparagraphs A, B
or C with respect to ISOs shall be made only after the
Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in
Section 424 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs
would constitute a modification of such ISOs or would cause
adverse tax consequences to the holders, it may refrain from
making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the
proposed dissolution or liquidation of the Company, each
Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such
other conditions as shall be determined by the Committee.
F. ISSUANCES OF SECURITIES. Except as expressly
provided herein, no issuance by the Company of shares of stock
of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of
shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of
the Company.
G. FRACTIONAL SHARES. No fractional shares shall be
issued under the Plan and the optionee shall receive from the
Company cash in lieu of such fractional shares.
<PAGE>
-9-
H. ADJUSTMENTS. Upon the happening of any of the
events described in subparagraphs A, B or C above, the class
and aggregate number of shares set forth in paragraph 4 hereof
that are subject to Stock Rights which previously have been or
subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall
determine the specific adjustments to be made under this
paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.
14. MEANS OF EXERCISING OPTIONS. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board on
December 10, 1996, subject, with respect to the validation of ISOs granted under
the Plan, to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained prior to December 10, 1997, any grants of ISOs
under the Plan made prior to that date will be rescinded. The Plan shall expire
at the end of the day on December 9, 2006 (except as to Options outstanding on
that date). Subject to the provisions of paragraph 5 above, Options may be
granted under the Plan prior to the date of stockholder approval of the Plan.
The Board may terminate or amend the Plan in any respect at any time, except
that, without the approval of the stockholders obtained within 12 months before
or after the Board adopts a resolution authorizing any of the following actions:
(a) the total number of shares that may be issued under the Plan may not be
increased (except by adjustment pursuant to paragraph 13); (b) the provisions of
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paragraph 3 regarding eligibility for grants of ISOs may not be modified; (c)
the provisions of paragraph 6(B) regarding the exercise price at which shares
may be offered pursuant to ISOs may not be modified (except by adjustment
pursuant to paragraph 13); and (d) the expiration date of the Plan may not be
extended. Except as otherwise provided in this paragraph 15, in no event may
action of the Board or stockholders alter or impair the rights of a grantee,
without such grantee's consent, under any Stock Right previously granted to such
grantee.
16. MODIFICATIONS OF ISOS; CONVERSION OF ISOS INTO NON-QUALIFIED
OPTIONS. Subject to paragraph 13(D), without the prior written consent of the
holder of an ISO, the Committee shall not alter the terms of such ISO (including
the means of exercising such ISO) if such alteration would constitute a
modification (within the meaning of Section 424(h)(3) of the Code). The
Committee, at the written request or with the written consent of any optionee,
may in its discretion take such actions as may be necessary to convert such
optionee's ISOs (or any installments or portions of installments thereof) that
have not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Related Corporation at the time of
such conversion. Such actions may include, but shall not be limited to,
extending the exercise period or reducing the exercise price of the appropriate
installments of such ISOs. At the time of such conversion, the Committee (with
the consent of the optionee) may impose such conditions on the exercise of the
resulting Non-Qualified Options as the Committee in its discretion may
determine, provided that such conditions shall not be inconsistent with this
Plan. Nothing in the Plan shall be deemed to give any optionee the right to have
such optionee's ISOs converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Committee takes appropriate action.
Upon the taking of such action, the Company shall issue separate certificates to
the optionee with respect to Options that are Non-Qualified Options and Options
that are ISOs.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. By accepting an ISO
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to
an arm's-length transaction, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
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securities, the Company may withhold taxes in respect of amounts that constitute
compensation includible in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the transfer of a Non-Qualified
Stock Option, (iii) the grant of an Award, (iv) the making of a Purchase of
Common Stock for less than its fair market value, or (v) the vesting or
transferability of restricted stock or securities acquired by exercising an
Option, on the grantee's making satisfactory arrangement for such withholding.
Such arrangement may include payment by the grantee in cash or by check of the
amount of the withholding taxes or, at the discretion of the Committee, by the
grantee's delivery of previously held shares of Common Stock or the withholding
from the shares of Common Stock otherwise deliverable upon exercise of a Option
shares having an aggregate fair market value equal to the amount of such
withholding taxes.
20. GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
21. GOVERNING LAW. The validity and construction of the Plan and the
instruments evidencing Stock Rights shall be governed by the laws of the State
of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
