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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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]
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[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
DATAWATCH CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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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
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DATAWATCH CORPORATION
175 Cabot Street
Suite 503
Lowell, Massachusetts 01854
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On March 5, 2004
-----------
The Annual Meeting of Stockholders of Datawatch Corporation will be
held at the offices of Testa, Hurwitz & Thibeault at 125 High Street, Boston, MA
02110, High Street Tower, on Friday, March 5, 2004 at 11:00 a.m., local time, to
consider and act upon the following matters:
1. To elect six members of the Board of Directors to serve until the next
annual meeting and until their successors have been elected and
qualified; and
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only stockholders of record at the close of business on January 22,
2004, 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
JOHN H. KITCHEN, III,
Secretary
Lowell, Massachusetts
January 28, 2004
THE BOARD OF DIRECTORS WELCOMES STOCKHOLDERS WHO WISH TO ATTEND THE
MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. A PROMPT
RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR
COOPERATION WILL BE APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE
THEIR STOCK PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
DATAWATCH CORPORATION
175 Cabot Street
Suite 503
Lowell, Massachusetts, 01854
PROXY STATEMENT
January 28, 2004
This proxy statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Datawatch Corporation (the "Company") for use at
the Annual Meeting of Stockholders of the Company to be held at the offices of
Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston, MA
02110, on March 5, 2004, at 11:00 a.m., Eastern time, and any adjournments
thereof (the "Meeting").
Only stockholders of record at the close of business on January 22,
2004 will be entitled to notice of and to vote at the Meeting. As of that date,
2,622,834 shares of Common Stock, par value $.01 per share, of the Company
("Common Stock") were outstanding and entitled to vote at the Meeting.
Stockholders are entitled to cast one vote for each share held of record at the
close of business on January 22, 2004 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 Robert W. Hagger, Kevin R.
Morano, Richard de J. Osborne, Terry W. Potter, David T. Riddiford and James
Wood as directors will be subject to a vote of stockholders. Where a choice has
been specified on the proxy with respect to the foregoing proposal, the shares
represented by the proxy will be voted in accordance with the specifications,
and will be voted FOR 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 Robert W. Hagger and Alan R. MacDougall, each of
whom is named as attorney-in-fact in the proxies.
An Annual Report to Stockholders, containing audited financial
statements of the Company for the fiscal year ended September 30, 2003, is being
mailed together with this proxy statement to all stockholders entitled to vote.
This proxy statement and the accompanying notice and form of proxy will be first
mailed to stockholders on or about February 5, 2004.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth as of January 22, 2004, 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 8; and (iv) by all current directors and
executive officers of the Company as a group.
Number of Shares Percentage of
Name and Address Beneficially Shares of
of Beneficial Owner (1) Owned Common Stock(2)
----------------------- --------------- ---------------
Robert W. Hagger (3) 98,842 3.65%
John Kitchen (4) 56,747 2.13%
H. Calvin G. Mackay (5) 30,105 1.14%
Alan R. MacDougall (6) 21,825 *
Kevin R. Morano (7) 3,942 *
Richard de J. Osborne (8) 141,247 5.38%
Terry W. Potter (9) 12,164 *
David T. Riddiford (10) 18,924 *
James Wood (11) 455,361 17.32%
116 East Saddle River Road
Saddle River, New Jersey 07458
Christopher Cox (12) 344,983 13.16%
c/o WC Capital, LLC
116 East Saddle River Road
Saddle River, New Jersey 07458
WC Capital, LLC (13) 344,983 13.16%
c/o James Wood
116 East Saddle River Road
Saddle River, New Jersey 07458
Daniel Zeff 160,479 6.14%
c/o Zeff Holding Company, LLC
50 California Street, Suite 1500
San Francisco, CA 94111
2
Number of Shares Percentage of
Name and Address Beneficially Shares of
of Beneficial Owner (1) Owned Common Stock(2)
----------------------- --------------- ---------------
All current directors and executive 839,157 31.99%
officers as a group (9 persons)(14)
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*Less than one percent.
(1) Unless otherwise indicated, each stockholder referred to above has sole
voting and investment power with respect to the shares listed and the
address of each stockholder is: c/o Datawatch Corporation, 175 Cabot
Street, Suite 503, Lowell, MA 01854.
(2) The number of shares of Common Stock deemed outstanding includes (i)
2,622,834 shares of Common Stock outstanding as of January 22, 2004 and
(ii) with respect to each individual, an aggregate of 218,559 options
to purchase shares of Common Stock which may be exercised by such
individuals within 60 days of January 22, 2004.
(3) Includes 78,842 options that may be exercised within 60 days of January
22, 2004.
(4) Includes 46,858 options that may be exercised within 60 days of January
22, 2004.
(5) Includes 30,105 options that may be exercised within 60 days of January
22, 2004.
(6) Includes 21,491 options that may be exercised within 60 days of January
22, 2004.
(7) Includes 1,942 options that may be exercised within 60 days of January
22, 2004.
(8) Includes 71,685 shares held by Carnegie Hill Associates, LLC. Mr.
Osborne is the Managing Principal of Carnegie Hill Associates, LLC and
may be deemed a beneficial owner of the shares held by Carnegie Hill
Associates, LLC. Mr. Osborne disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest therein. Includes
21,954 shares owned jointly with Mr. Osborne's spouse. Includes 3,496
options that may be exercised with 60 days of January 22, 2004.
(9) Includes 12,164 options that may be exercised within 60 days of January
22, 2004.
(10) Includes 16,609 options that may be exercised within 60 days of January
22, 2004.
(11) Includes 7,052 options that may be exercised within 60 days of January
22, 2004. Also includes 344,983 shares held by WC Capital, LLC. Mr.
Wood, as a Managing Principal of WC Capital, LLC, shares the power to
vote and dispose of all 344,983 shares of the Common Stock of the
Company held by WC Capital, LLC.
(12) As a Managing Principal of WC Capital, LLC, Mr. Cox shares the power to
vote and dispose of all 344,983 shares of the Common Stock of the
Company held by WC Capital, LLC.
(13) WC Capital, LLC shares the power to vote and dispose of all 344,983
shares of the Common Stock of the Company that it holds.
(14) Includes 218,559 options that may be exercised within 60 days of
January 22, 2004.
3
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 six (6). This number may be changed
by resolution of the Board of Directors.
Prior to the Meeting, Robert W. Hagger, Kevin R. Morano, Richard de
J. Osborne, Terry W. Potter, David T. Riddiford and James Wood were the
directors of the Company. Messrs. Hagger, Morano, Osborne, Potter, Riddiford and
Wood were elected as directors at the Company's Annual Meeting of Stockholders
held on March 7, 2003. These six (6) existing directors are being nominated for
re-election at the March 5, 2004 meeting.
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 director nominees:
Robert W. Hagger, President, Chief Executive Officer and Director.
Mr. Hagger, age 55, has been the President, Chief Executive Officer and a
director of the Company since July 2001. Prior to becoming President and Chief
Executive Officer, Mr. Hagger was the Company's Senior Vice President of
International Operations from November 1997 through July 2001. From March 1997
to November 1997, Mr. Hagger was Managing Director of the Company's wholly-owned
subsidiary, Datawatch International Limited. From 1993 through November 1997,
Mr. Hagger was founder and Managing Director of Insight Strategy Management,
Ltd.
Kevin R. Morano, Director. Mr. Morano, age 50, has been a director
of the Company since October 2002. Since March 2002, Mr. Morano has been Senior
Vice President and Chief Financial Officer of Lumenis Ltd. From May 2000 to
October 2001, Mr. Morano was Executive Vice President and Chief Financial
Officer of Exide Technologies, which filed for reorganization under Chapter 11
in April 2002. From May 1999 to November 1999, Mr. Morano was President and
Chief Operating Officer of ASARCO Incorporated and from April 1993 to May 1999,
he was Chief Financial Officer of ASARCO Incorporated. Mr. Morano is a director
of APEX Silver Mines Ltd. and Bear Creek Mining Corporation.
Richard de J. Osborne, Chairman of the Board. Mr. Osborne, age 69,
has been Chairman of the Board of Directors of the Company since January 2001.
From 1985 to 1999, Mr. Osborne was Chairman of the Board and Chief Executive
Officer of ASARCO Incorporated, which is an integrated producer of copper and
other metals. Mr. Osborne is a director of Schering-Plough Corporation, The
Goodrich Corporation and NACCO Industries, Inc.
Terry W. Potter, Director. Dr. Potter, age 56, 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. Prior to 1992, Dr. Potter was worldwide director of New Ventures for
Digital Equipment Corporation. From 1992 to 1997 he was the President of Modular
Group, the parent company of Advanced Modular Solutions, and from 1994 to 1997
4
he was the President of Advanced Modular Solutions, a wholly-owned subsidiary of
Modular Group which develops client-server computers and solutions. Dr. Potter
is the co-founder of Discover Why, Inc., which was founded in 1997.
David T. Riddiford, Director. Mr. Riddiford, age 68, 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. Mr. Riddiford is also a director of Vicor
Corporation.
James Wood, Director. Mr. Wood, age 73, has been a director of the
Company since January 2001. From 1980 to 1997, Mr. Wood was Chairman of the
Board and Chief Executive Officer of The Great Atlantic & Pacific Tea Company,
Inc. and its Co-Chief Executive Officer from 1997 to 1998 and continued as
non-executive Chairman from 1998 to 2001.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE NOMINEES LISTED ABOVE
The Board of Directors and its Committees
The Board of Directors met eight times during the fiscal year ended
September 30, 2003. Each director attended at least 75% of the meetings of the
Board and of the committees of the Board on which he served. Other than Mr.
Hagger, each director is "independent" as defined in the listing standards of
The NASDAQ Stock Market. In addition, no director, except for Mr. Hagger, (i) is
a former executive of the Company or any of its affiliates; (ii) is a relative
of a current employee of the Company or any of its affiliates; (iii) is a
relative of a former executive of the Company or any of its affiliates; (iv) has
provided professional services to the Company or any of its affiliates or to its
officers, either currently or within the past year; (v) has any transactional
relationship with the Company or any of its affiliates (other than solely in his
capacity as a director, including stock option compensation); (vi) has an
"interlocking relationship," as defined by the Securities and Exchange
Commission, with any members of the Board of Directors of the Company; (vii) is
a founder of the Company but not currently an employee; (viii) is employed by a
significant customer or supplier; (ix) is a trustee, director or employee of a
charitable or non-profit organization that received grants or endowments from
the Company or any of its affiliates or (x) has been the subject of an
attestation by the Board of Directors that he is not independent.
Under our by-laws, the Board of Directors may designate committees
composed of members of the Board to exercise the power and authority of the
Board in the management of the business and affairs of the Company, subject to
limitations imposed by law. The Board of Directors has a standing Audit
Committee, as that term is defined in Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, composed of Kevin R. Morano, Terry W. Potter, David T.
Riddiford and, until January 2004, James Wood, with Mr. Riddiford serving as
Chairman, each of whom is "independent" as defined in the listing standards of
The NASDAQ Stock Market and the rules of the Securities and Exchange Commission.
The Board of Directors has determined that Mr. Morano qualifies as an audit
committee "financial expert" as defined by the Securities and Exchange
Commission. The Audit Committee evaluates and selects our independent auditors,
reviews the audited financial statements and discusses the adequacy of our
internal controls and procedures with management and the auditors. The Audit
Committee also supervises the relationship between the Company and its outside
auditors, reviews the scope of both audit and non-audit services and related
fees, and determines the independence of the outside auditors. The Audit
Committee conducted six formal meetings during the fiscal year ended September
30, 2003 and took action by written consent one time. In accordance with the
rules and regulations of the Securities and Exchange Commission and The NASDAQ
Stock Market, the Audit Committee Report can be found on page 7. Because Mr.
Wood may be considered an affiliate of the Company, and affiliates may no longer
be members of the Audit Committtee under NASDAQ rules, Mr. Wood resigned from
the Audit Committee in January 2004. The Board of Directors has a standing
Compensation and Stock Committee, composed of Kevin R. Morano, Terry W. Potter,
David T. Riddiford
5
and James Wood, with Mr. Wood serving as Chairman, each of whom is "independent"
as defined in the listing standards of The NASDAQ Stock Market and the rules of
the Securities and Exchange Commission. The Compensation and Stock Committee,
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 conducted five formal meetings during
the fiscal year ended September 30, 2003.
In January 2004, the Board of Directors established a Nominating
Committee for purposes of nominating directors and for all other purposes to be
outlined in a Nominating Committee Charter. The Board is currently drafting a
Nominating Committee Charter. The Nominating Committee will establish policies
concerning the identification of candidates, including candidates recommended by
stockholders; the evaluation of candidates; the recommendation to the Board of
candidates for the Board's selection as director nominees; and the
recommendation of candidates for the Board's selection as nominees for
appointment to the committees of the Board. The Nominating Committee is composed
of Kevin R. Morano, Terry W. Potter, David T. Riddiford and James Wood, with Mr.
Wood serving as Chairman, each of whom is "independent" as defined in the
listing standards of The NASDAQ Stock Market and the rules of the Securities and
Exchange Commission. Additionally, WC Capital, LLC is entitled to nominate two
directors to the Board pursuant to the previously filed Investment Agreement,
dated January 12, 2001, among WC Capital, LLC, Carnegie Hill Associates, LLC and
the Company. WC Capital, LLC has nominated James Wood and Richard de J. Osborne
to serve as directors, and the Nominating Committee has nominated the remaining
four director nominees.
Stockholder-Board Communications
For stockholder communications directed to the Board of Directors,
stockholders may send such communication to the attention of the Chairman of the
Board at Datawatch Corporation, 175 Cabot Street, Suite 503, Lowell, MA 01854.
6
AUDIT COMMITTEE REPORT
The Audit Committee is composed of Messrs. Morano, Potter and
Riddiford, with Mr. Riddiford serving as Chairman. None of the members are
officers or employees of the Company, and each is otherwise independent of the
Company (as independence is defined in the National Association of Securities
Dealers' listing standards). In addition, the Audit Committee has at least one
financial expert serving on the Audit Committee. Mr. Morano is a financial
expert as defined by the Securities and Exchange Commission. The Audit Committee
operates under a written charter adopted by the Board of Directors. This Charter
has been revised to comply with the new rules promulgated under the
Sarbanes-Oxley Act, and is attached to this Proxy as Appendix A.
The Audit Committee has reviewed the audited financial statements of
the Company at September 30, 2002 and September 30, 2003, and for each of the
three years ended September 30, 2003, and has discussed them with both
management and Deloitte & Touche LLP, the Company's independent accountants. The
Audit Committee has reviewed with the independent accountants, who are
responsible for expressing an opinion on the conformity of the Company's audited
financial statements with generally accepted accounting principles, the
accountants' judgments as to matters related to the conduct of the audit for the
Company's financial statements and such other matters required to be discussed
by Statement on Auditing Standards No. 61 (Communications with Audit
Committees), as currently in effect. The Audit Committee has met with the
independent accountants, with and without management present, to discuss the
results of the accountants' examinations, evaluations of the Company's internal
controls, and the overall quality of the Company's financial reporting. The
Audit Committee has received the written disclosures and the letter from the
independent accountants required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), as currently in effect, and
has discussed with Deloitte & Touche LLP that firm's independence. Based on its
review of the financial statements and these discussions, the Audit Committee
concluded that it would be reasonable to recommend, and on that basis did
recommend, to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2003 for filing with the Securities and Exchange Commission.
Respectfully submitted by the Audit Committee.
THE AUDIT COMMITTEE
David T. Riddiford, Chairman
Kevin R. Morano
Terry W. Potter
7
EXECUTIVE COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS
Summary Compensation Table
The following table sets forth summary information concerning the
annual and long-term compensation for services rendered in all capacities to the
Company for the fiscal years ended September 30, 2003, 2002 and 2001 to (i) the
Company's current Chief Executive Officer and (ii) each executive officer of the
Company, other than the Chief Executive Officer, who was serving as such at
September 30, 2003 and whose annual compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long-Term
-------------------------------------------- Compensation
Annual Compensation Awards (3)
-------------------------------------------- ------
Number of All Other
Fiscal --------- ----------- Other Annual Options/SARs Compensation
Name and Principal Positions(s) Year Salary($) Bonus($)(1) Compensation(2) (#)(3) ($)(4)
------------------------------- ---- --------- ----------- --------------- ------ ------
Robert W. Hagger (5) 2003 236,248 -- 15,000(6) 30,000 988
President, Chief Executive Officer 2002 225,000 62,000 56,152(7) 40,000 838
and Director 2001 198,777 -- -- 22,223 --
John Kitchen (8) 2003 168,000 -- -- 10,000 653
Senior Vice President of Desktop & Server 2002 160,000 50,000 -- 20,000 709
Solutions and Secretary 2001 148,416 -- -- 16,667 354
Alan R. MacDougall (9) 2003 132,000 -- -- 15,000 564
Senior Vice President of Finance, Chief 2002 115,540 33,000 -- 15,000 695
Financial Officer, Treasurer and 2001 111,524 -- -- 5,556 402
Assistant Secretary
H. Calvin G. Mackay (10) 2003 168,000 -- -- 5,000 741
Senior Vice President for 2002 133,333 33,000 32,363(11) 36,667 558
Enterprise Software 2001 -- -- -- -- --
------------
(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, 2003, 2002 or 2001.
(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. Hagger served as Senior Vice President of International Operations
until July 9, 2001 when he assumed the position of President, Chief
Executive Officer and director. Mr. Hagger's annual compensation for
the first ten months of 2001 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 1.41635
$/(pound) for the period from October 1, 2000 through the Company's
fiscal year end in September 30, 2001.
(6) Amount for fiscal year 2003 includes $15,000 in car allowances.
8
(7) Amount for fiscal year 2002 includes $36,135 in relocation expenses,
$14,517 in car allowances and $5,500 for tax preparation services.
(8) Mr. Kitchen became an executive officer when he was elected Vice
President of Marketing effective as of July 1, 2000. Effective as of
July 9, 2001, Mr. Kitchen became Senior Vice President for Desktop &
Server Solutions and Secretary of the Company. Accordingly, the
compensation reported covers his compensation for the full fiscal years
2003, 2002 and 2001.
(9) Mr. MacDougall became an executive officer when he was elected Vice
President of Finance, Chief Financial Officer and Treasurer on December
16, 2000. Accordingly, the compensation reported covers his
compensation for the full fiscal years 2003, 2002 and 2001.
(10) Mr. Mackay became an executive officer when he was elected Senior Vice
President for Enterprise Software in December 2001. Accordingly, the
compensation reported covers his compensation for the full fiscal years
2003 and 2002 and his compensation for fiscal year 2001 is not included
in this Summary Compensation Table.
(11) Amount for fiscal year 2002 includes $22,596 in relocation expenses,
$8,967 in car allowances and $800 for tax preparation services.
9
Options Grants In The Last Fiscal Year
The following table sets forth grants of stock options during the
fiscal year ended September 30, 2003 to the Named Officers who are listed in the
Summary Capitalization Table above:
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants(2) Option Term(3)
----------------------------------------------------------------------- -----------------------
Number of Percent of Total
Securities Options/SARs Exercise or
Underlying Granted to Base
Options/SARs Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5%($) 10%($)
---- ----------- ------------------ -------------- ------------ --------- ---------
Robert Hagger 15,000 11.86% $3.60 11/19/12 33,960 86,062
15,000 11.86% $3.39 7/22/13 31,979 81,042
John Kitchen 10,000 7.91% $3.39 7/22/13 21,320 54,028
Alan R. MacDougall 15,000 11.86% $3.39 7/22/13 31,979 81,042
H. Calvin G. Mackay 5,000 3.95% $3.39 7/22/13 10,660 27,014
------------------
(1) No stock appreciation rights ("SARs") were granted by the Company in
the fiscal year ended September 30, 2003.
(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.
10
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to options
to purchase our common stock held by each Named Officer, including (i) the
number of shares of common stock purchased upon exercise of such options in
fiscal year 2003, (ii) the net value realized upon such exercise, (iii) the
number of unexercised options outstanding at September 30, 2003 and (iv) the
value of such unexercised options at September 30, 2003:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
SEPTEMBER 30, 2003 OPTION/SAR VALUES
Number of Value of Unexercised
Unexercised Options held at In-the-Money Options at
Shares September 30, 2003(#) September 30, 2003($)(2)
Acquired on Value ----------------------------------- ---------------------------------
Name Exercise (#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ -------------- ----------- ------------- ----------- -------------
Robert Hagger -- -- 62,639 51,807 209,367 258,568
John Kitchen -- -- 38,499 24,170 115,205 124,034
Alan R. MacDougall -- -- 15,474 22,545 71,977 107,876
H. Calvin G. Mackay -- -- 22,497 19,170 129,631 105,321
------------------
(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 2003 fiscal year-end ($7.62 per share as quoted on the Nasdaq
National Market at the close of trading on September 30, 2003)
multiplied by the number of shares underlying the option.
EQUITY COMPENSATION PLAN INFORMATION
------------------------------------
The following table provides information about the common stock that
may be issued upon the exercise of options, warrants and rights under all of the
Company's existing equity compensation plans as of September 30, 2003, including
the 1996 Stock Plan, the 1996 Non-Employee Director Stock Option Plan (the
"Non-Employee Director Plan"), the 1987 Stock Plan (the "1987 Stock Plan"), and
the 1996 International Employee Non-Qualified Stock Option Plan (the
"International Plan"). The 1996 Stock Plan has previously been approved by the
Company's stockholders. The Non-Employee Director Plan was approved by the
Company's stockholders and provided for the grant of nonqualified options to
non-employee directors. The Non-Employee Director Plan was replaced by the
Company's Non-Employee Director Stock Option Policy under the 1996 Stock Plan in
February 2000 and no further grants may be made under the Non-Employee Director
Plan. The 1987 Stock Plan, which was approved by the Company's stockholders,
provided for grants of options and other stock rights to employees, directors
and consultants. The 1987 Stock Plan was terminated in December 1996 and no
further grants may be made under it. The International Plan, which has not been
approved by the Company's stockholders, provides for the grant of non-qualified
stock options to employees or consultants of any of the Company's foreign
subsidiaries and is described in further detail under the table below.
11
Number of Securities to be
issued upon exercise of Weighted average exercise
outstanding options, warrants price of outstanding options, Number of securities remaining
Plan Category and rights warrants and rights available for future issuance
---------------------------------- ------------------------------- ------------------------------ --------------------------------
Equity compensation plans
approved by security holders 435,708(1) $4.22 97,338
Equity compensation plans not
approved by security holders 38,023(2) $3.96 2,265
Total 473,731 $4.21 99,603
(1) Of these shares, 426,818 were granted under the 1996 Stock Plan and 8,890
under the Non-Employee Director Plan. 97,338 shares remain available for grant
under the 1996 Stock Plan.
(2) Of these shares, all 38,023 shares were granted under the International
Plan.
DESCRIPTION OF THE COMPANY'S INTERNATIONAL PLAN
The Company's International Plan was adopted by the Board of
Directors of the Company in October 1996 but has not been approved by the
Company's stockholders. The International Plan is intended to provide incentives
in the form of non-qualified stock options ("NQSOs") to employees and
consultants of subsidiaries of the Company incorporated outside of the United
States, who are not officers or directors of the Company. A maximum of 44,444
shares of Common Stock are reserved for issuance under the International Plan
upon the exercise of NQSOs. As of September 30, 2003, 2,265 shares of Common
Stock remained available for issuance under the International Plan. Currently 36
employees and consultants are eligible to participate in the International Plan.
The International Plan is administered by the Compensation and Stock Committee,
which, subject to the terms of the International Plan, has the authority to
determine the persons to whom NQSOs are granted, the exercise price per share
and other terms, provisions and restrictions governing such NQSOs. NQSOs may be
granted under the International Plan at any time prior to October 4, 2006. The
exercise price per share of NQSOs granted cannot be less than the minimum legal
consideration required under the laws of the State of Delaware or the laws of
any jurisdiction in which the Company may be organized. Each NQSO shall expire
as of the date specified by the Compensation and Stock Committee, but not more
than ten years from the date of grant.
Each NQSO granted under the International 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 NQSO 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 NQSO becomes exercisable. Payment of the exercise price of an
NQSO granted under the International 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 NQSO, (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 NQSO and an authorization to
the broker or selling agent to pay that amount to the Company or (iv) by any
combination of the above.
If a NQSO optionee under the International Plan ceases to be
employed by the Company other than by reason of death or disability, no further
installments of his or her NQSOs will become exercisable, and vested NQSOs shall
generally terminate after the passage of three months from the date of
termination of employment (but no later than their specified expiration dates).
If an optionee ceases to be employed by the Company by reason of disability, or
if an optionee dies, any NQSO 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 NQSO). NQSO holders under the International
Plan are protected against dilution in the event of a stock dividend, stock
split, consolidation, merger, recapitalization, reorganization or similar
transaction.
12
The Board of Directors may from time to time adopt amendments to the
International Plan and may terminate the International Plan, at any time. Any
shares subject to a NQSO granted under the International Plan which for any
reason expires or terminates unexercised, may again be available for future NQSO
grants. Unless terminated sooner, the International Plan will terminate on
October 4, 2006 (except as to NQSOs outstanding on that date).
EXECUTIVE AGREEMENTS AND SEVERANCE ARRANGEMENTS
The Company's subsidiary Datawatch International Limited (formerly
Workgroup Systems Limited) entered into a Contract of Employment with Robert W.
Hagger dated February 24, 1997, as amended on July 15, 1999 (the "Original
Hagger Employment Agreement"), which provided 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. On July 9, 2001,
in connection with Mr. Hagger's promotion to Chief Executive Officer and
President of the Company, the Board of Directors approved an Employment
Agreement (the "Hagger Employment Agreement") with Mr. Hagger, which agreement
supercedes and terminates in its entirety the Original Hagger Employment
Agreement.
The Hagger Employment Agreement, which was for an initial two-year
term and expiring on July 9, 2003, has been automatically extended for one year,
and sets forth Mr. Hagger's responsibilities, compensation and benefits. In
addition, the Hagger Employment Agreement provides that in the event the Company
terminates Mr. Hagger's employment for reasons other than for "Cause" or Mr.
Hagger elects to terminate his employment with the Company for "Good Reason",
Mr. Hagger is entitled to severance payments equal to his then current monthly
base salary, payable on a monthly basis for the greater of (i) the number of
months remaining under the term of the Hagger Employment Agreement or (ii) 12
months. The Hagger Employment Agreement also provides that if upon or after the
expiration of the Hagger Employment Agreement Mr. Hagger is an at-will employee
of the Company and the Company terminates Mr. Hagger's employment without
"Cause", then Mr. Hagger is entitled to severance payments equal to his then
current monthly base salary, payable on a monthly basis for 12 months. "Cause"
is defined in the Hagger Employment Agreement as (i) the failure to render
services to the Company in accordance with the Hagger Employment Agreement, (ii)
gross negligence, dishonesty, or breach of fiduciary duty, (iii) fraud,
embezzlement or substantial disregard of the rules or policies of the Company,
(iv) acts which would tend to generate significant adverse publicity toward the
Company, (v) the commission of a felony, or (vi) breach of the terms of the
Proprietary Information and Inventions Agreement between the Company and Mr.
Hagger. "Good Reason" is defined in the Hagger Employment Agreement as (i) a
material diminution in the nature or scope of Mr. Hagger's responsibilities,
duties or authority or (ii) a relocation of Mr. Hagger to a location, other than
a relocation to England, that is greater than fifty (50) miles from Lowell,
Massachusetts.
The Board of Directors approved change of control severance
agreements by the Company (each, an "Executive Agreement") with each of H.
Calvin G. Mackay, John Kitchen and Alan R. MacDougall. In each case, the
Executive Agreement provides that in the event the Company terminates the
officer's employment for reasons other than for "Cause" or the officer elects to
terminate his employment with the Company for "Good Reason", such officer is
entitled to severance payments equal to his then current monthly base salary,
payable on a monthly basis for six months following his termination date.
"Cause" is defined in the Executive Agreements as (i) the willful and continuing
failure or refusal to render services in accordance with his obligations, (ii)
gross negligence, dishonesty, or breach of fiduciary duty, (iii) fraud,
embezzlement or substantial disregard of the rules or policies of the Company,
(iv) acts which would tend to generate significant adverse publicity toward the
Company, (v) the commission of a felony, or (vi) breach of the terms of the
Proprietary Information and Inventions Agreement between the Company and the
officer. "Good Reason" is defined in the Executive Agreement as including a
material diminution in the nature or scope of such officer's responsibilities,
duties or authority. The Executive Agreement for Mr. Mackay was executed by the
Company and Mr. Mackay on December 1, 2001. The Executive Agreements for Mr.
Kitchen and Mr.MacDougall, respectively, were executed on April 25, 2002.
13
NON-EMPLOYEE DIRECTOR INDEMNIFICATION ARRANGEMENTS
In addition to the protections afforded the directors of the Company
with respect to indemnification under the Company's By-Laws, the Company has
entered into indemnification agreements with each of its non-employee directors.
These agreements require the Company to, among other things, indemnify each of
its non-employee directors for any and all expenses (including attorney fees),
judgments, penalties, fines and amounts paid in settlement which are actually
and reasonably incurred by such individual, in connection with any threatened,
pending or completed proceeding arising out of the individual's status as a
director of the Company. In addition, the agreements require the Company to
advance expenses incurred by the individual in connection with any proceeding
against the individual with respect to which he or she may be entitled to
indemnification by the Company.
14
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. For fiscal year 2003, the Compensation and
Stock Committee determined that based on the Company's performance, no cash
bonuses would be paid to the Company's executive officers. For information
regarding the Company's executive officers' fiscal 2003 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 2003 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, 2003, 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.
15
CEO COMPENSATION. Compensation during fiscal 2003 for the Company's
President and Chief Executive Officer, Robert W. Hagger, was determined in
accordance with the policies applicable to the other executive officers of the
Company described above. In addition to his base salary for fiscal 2003, the
Compensation and Stock Committee, in July 2003, granted Mr. Hagger stock options
to purchase an aggregate of 15,000 shares of Common Stock at an exercise price
of $3.39 per share and 15,000 shares of Common Stock at an exercise price of
$3.60 per share pursuant to the Company's 1996 Stock Plan. The Compensation and
Stock Committee believes that Mr. Hagger's annual compensation was competitive
with the compensation paid by other companies in its industry to their chief
executive officers. In addition to achievement of performance targets in
accordance with the Company's executive compensation policies, the Compensation
and Stock Committee determined the Chief Executive Officer's cash compensation
based upon the Company's overall performance, the performance of his management
team, the compensation paid at competing companies and the Company's prospects,
among other objective and subjective factors. The Compensation and Stock
Committee does not find it practicable to quantify or assign relative weight to
the factors on which the Chief Executive Officer's compensation was based. Mr.
Hagger's annual compensation for the fiscal year ended September 30, 2003, is
reflected in the table captioned "Summary Compensation Table" contained
elsewhere in this proxy statement.
TAX CONSIDERATIONS. In general, Section 162(m) of the Internal
Revenue Code of 1986, as amended, (the "Code"), prevents publicly held
corporations from deducting, for federal income tax purposes, compensation paid
in excess of $1 million to certain executives. This deduction limitation does
not apply, however, to compensation that constitutes "qualified
performance-based compensation" within the meaning of Section 162(m) of the Code
and the regulations promulgated thereunder. 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
Section 162(m) of the Code.
Respectfully submitted by the Compensation and Stock Committee.
THE COMPENSATION AND STOCK COMMITTEE
James Wood, Chairman
Kevin R. Morano
Terry W. Potter
David T. Riddiford
16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors has established a Compensation and
Stock Committee currently consisting of Messrs. Morano, Potter, Riddiford and
Wood, with Mr. Wood serving as Chairman. No person who served as a member of the
Compensation and Stock Committee was, during the fiscal year ended September 30,
2003, 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, 2003, directors who were
employees of the Company received no cash compensation for their services as
directors. Directors who are not employees of the Company (the "Non-Employee
Directors") receive $15,000 per year for their service as a member of the
Company's Board of Directors.
All directors are eligible to receive stock options under the
Company's 1996 Stock Plan. In addition, all Non-Employee Directors are eligible
to receive stock options pursuant to the Non-Employee Director Stock Option
Policy (the "Director Option Policy") described below.
NON-EMPLOYEE DIRECTOR STOCK OPTION POLICY
In February 2000 the Board of Directors adopted the Director Option
Policy. 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 2,667
shares of Common Stock under the Company's 1996 Stock Plan to each person who
becomes a Non-Employee Director on the date such person is first elected to the
Board of Directors (the "First Grant Date") and (b) of an option to purchase
2,500 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
(the "Annual Grant"). 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 (i) if the optionee has served as a director of the
Company for less than five years, within twelve months after the optionee ceases
to serve as a director of the Company or (ii) if the optionee has served as a
director of the Company for five years or more, within twenty-four months 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.
17
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, 1998 through September 30, 2003, 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, 1998 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)
[GRAPH APPEARS HERE]
ASSUMES $100 INVESTED ON OCT. 01, 1998
ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING SEPT. 30, 2003
9/30/98 9/30/99 9/30/00 9/29/01 9/28/02 9/30/03
------- ------- ------- ------- ------- -------
Datawatch Corporation 100.00 72.73 86.40 18.08 63.84 123.15
SIC Code Index 100.00 152.90 190.00 83.03 63.25 91.71
Nasdaq Market Index 100.00 161.77 221.30 90.67 72.95 111.80
--------------------
(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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and holders of more than 10% of our common stock,
referred to herein as Reporting Persons, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of our common stock. Such persons are required by regulations of the
Securities and Exchange Commission to furnish us with copies of all such
filings. Based on our review of the copies of such filings received by us with
respect to the fiscal year ended September 30, 2003, and written representations
from certain of our directors and executive officers, we believe that all
Reporting Persons complied with all Section 16(a) filing requirements for the
fiscal year ended September 30, 2003, with the following exception: John
Kitchen, Senior Vice President of Desktop & Server Solutions and Secretary of
the Company, failed to timely file a report relating to the purchase of 1,000
shares of the Company's Common Stock in January, 2003. Mr. Kitchen has since
filed a report reflecting such purchase.
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 close of business on September 29,
2004. The deadline for providing timely notice to the Company of matters that
stockholders otherwise desire to introduce at the next annual meeting
18
of stockholders of the Company is December 13, 2004. For any proposal that is
not submitted for inclusion in the proxy statement for the fiscal year to end
September 30, 2004 but is instead sought to be presented directly at the next
annual meeting, SEC rules permit management to vote proxies in its discretion if
the Company: (1) receives notice of the proposal before the close of business on
December 13, 2004, and advises stockholders in the next proxy statement about
the nature of the matter and how management intends to vote on such matter; or
(2) does not receive notice of the proposal prior to the close of business on
December 13, 2004. Notices of intention to present proposals at the next annual
meeting should be addressed to Robert W. Hagger, Chief Executive Officer,
Datawatch Corporation, 175 Cabot Street, Suite 503, Lowell, MA 01854. 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 Audit Committee of the Board of Directors has selected the firm
of Deloitte & Touche LLP as our independent auditors for the 2004 fiscal year.
Deloitte & Touche LLP has served as our independent auditors since the Company's
inception. Representatives of Deloitte & Touche LLP are expected to be present
at the Annual 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.
The fees billed during the 2002 and 2003 fiscal years by Deloitte &
Touche LLP for services provided to us were as set forth below. The fees billed
during fiscal 2003 included fees for some services provided for fiscal 2002.
2002 2003
---- ----
Audit Fees(1): $188,371.44 $240,664.06
Audit-Related Fees(2): $0 $0
Tax Fees (3): $65,341.12 $80,137.55
All Other Fees(4): $5,500.00 $0
----------- -----------
Total $259,212.56 $320,801.61
(1) Audit Fees consisted of audit work performed in the preparation of financial
statements, as well as work generally only the independent auditor can
reasonably be expected to provide, such as statutory audits, comfort letters,
consents and assistance with and review of documents filed with the Securities
and Exchange Commission.
(2) Audit-Related Fees consist of fees related to assurance and related services
that are reasonably related to the performance of the audit and review of the
Company's financial statements.
(3) Tax Fees consisted of fees related to tax compliance, tax planning and tax
advice. This includes preparation of tax returns for the Company, refund claims,
payment planning, taxpayer registration and tax audit assistance.
(4) All Other Fees consists of all other products and services provided by the
principal accountant that are not reflected in any of the previous three
categories. Fees primarily consist of tax compliance consultation for executives
that may have tax liability in different countries.
All services rendered by Deloitte & Touche LLP in fiscal year 2003
were permissible under applicable laws and regulations, and were pre-approved by
the Audit Committee.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITOR
Consistent with the requirements of the Securities and Exchange
Commission regarding auditor independence, the Audit Committee has
responsibility for appointing, setting compensation and overseeing the work of
the independent auditor. The Audit Committee has approved the engagement of
Deloitte & Touche LLP
19
on the specific terms set forth in an engagement letter and has approved the
provision of certain other specific services. During the year, circumstances may
arise when it may become necessary to engage the independent auditor for
additional services not contemplated in the original pre-approval. In those
instances, the Audit Committee requires specific pre-approval by the Audit
Committee or by one or more of its members before engaging the independent
auditor.
CODE OF ETHICS
The Board of Directors adopted a Code of Ethics on January 23, 2004
applicable to all employees and directors of the Company. The Code of Ethics is
posted on the Investors page of our website at www.datawatch.com. Any amendments
to or waivers of the Code of Ethics that apply to the Company's principal
executive officer, principal financial officer or principal accounting officer
and that relates to any element of the definition of the term "code of ethics,"
as that term is defined by the Securities and Exchange Commission, will be
posted on our website at the address above.
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 or by
certain outside proxy solicitation services may also be made of some
stockholders in person or by mail, telephone or telegraph following the original
solicitation.
DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING AN ADDRESS
In some cases, only one copy of the proxy statement and the annual
report is being delivered to multiple stockholders sharing an address. However,
this delivery method, called "householding," is not being used if the Company
has received contrary instructions from one or more of the stockholders. The
Company will deliver promptly, upon written or oral request, a separate copy of
this proxy statement and the annual report to a stockholder at a shared address
to which a single copy of the documents were delivered. To request a separate
delivery of these materials now or in the future, a stockholder may submit a
written request to Investor Relations, Datawatch Corporation, 175 Cabot Street,
Suite 503, Lowell, MA 01854 or an oral request by calling the Company's Investor
Relations group at (978) 441-2200, ext. 8323. Additionally, any stockholders who
are presently sharing an address and receiving multiple copies of the proxy
statement and annual report and who would prefer to receive a single copy of
such materials may instruct the Company accordingly by directing that request to
the Company in the manner provided above.
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.
20
APPENDIX A
DATAWATCH CORPORATION
---------------------
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
I. AUDIT COMMITTEE PURPOSE
The Audit Committee is appointed by the Board of Directors to assist the Board
in fulfilling its oversight responsibilities. The Audit Committee's primary
duties and responsibilities are to:
o Appoint, compensate and retain the Company's independent public auditors,
and oversee the work performed by the independent public auditors.
o Assist the Board of Directors in fulfilling its responsibilities by
reviewing the financial reports provided by the Company to the Securities
and Exchange Commission ("SEC") and the Company's stockholders.
o Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
o Recommend, establish and monitor procedures designed to improve the
quality and reliability of the disclosure of the Company's financial
condition and results of operations.
o Provide an avenue of communication among the independent auditors,
management, and the Board of Directors.
The Audit Committee has the authority to conduct any investigation appropriate
to fulfilling its responsibilities and it has direct access to the independent
auditors as well as anyone in the organization. The Audit Committee has the
ability to retain, at the Company's expense, special legal, accounting, or other
consultants or experts it deems necessary in the performance of its duties.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
Audit Committee members shall meet the requirements of the rules promulgated by
the National Association of Securities Dealers exchange ("NASD"). The Audit
Committee shall be comprised of at least three directors as appointed by the
Board, who shall meet the independence and audit committee composition
requirements promulgated by the SEC, NASD, any exchange upon which securities of
the Company are traded, or any governmental or regulatory body exercising
authority over the Company (each a "Regulatory Body" and collectively the
"Regulatory Bodies"), and any other requirements as determined by the Board, as
in effect from time to time, who shall not have participated in the preparation
of the financial statements of the Company at any time during the past three
years, and each of whom shall be free from any relationship that would interfere
with the exercise of his or her independent judgment. Notwithstanding the
foregoing, members of the Audit Committee are barred from accepting any
consulting, advisory or other compensatory fee from the Corporation, other than
in that member's capacity as a member of the Board and any Board committee.
All members of the Committee shall have a basic understanding of finance and
accounting and be able to read and understand fundamental financial statements,
including a balance sheet, cash flow statement and income statement, and at
least one member of the Committee shall have accounting or related financial
management expertise which results in the members' financial sophistication,
including having been a chief executive officer, chief financial officer or
other senior officer with financial oversight responsibilities of a comparable
entity. The Committee shall
A-1
ensure that all necessary and proper disclosures shall be made in all applicable
filings with the SEC as to the composition of the Committee.
Audit Committee members shall be appointed by the Board and, if desired, may be
appointed on recommendation of a Nominating Committee. The Audit Committee may
have a Chairman, appointed by the Board. If an audit committee Chairman is not
designated or present, the members of the Committee may designate a Chairman by
majority vote of the Committee membership.
The Committee shall meet at least four times annually, or more frequently as
circumstances dictate. A record of the Committee's proceedings will be kept. The
Committee should meet privately in executive session at least annually with
management and the independent auditors and as a committee to discuss any
matters that the Committee or each of these groups believe should be discussed.
III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
A. General
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The primary responsibilities of the Audit Committee are to:
1. Oversee the financial reporting process and internal control
systems.
2. Oversee the independent audit function.
3. Oversee that the annual consolidated financial statements and
quarterly financial statements are prepared in accordance with
GAAP.
4. Oversee and supervise special investigations.
5. Appoint, retain, compensate and oversee the independent auditors
and annually evaluate their independence.
B. Review Procedures
-----------------
1. Review and reassess the adequacy of this Charter at least
annually, and update this Charter if and when appropriate. Submit
the charter to the Board of Directors for approval and have the
document published at least every three years in accordance with
SEC regulations.
2. Review the Company's annual audited financial statements prior to
filing as part of the Annual Report on Form 10-K or other public
distribution. Review should include discussion with management
and independent auditors of significant issues regarding
accounting principles, practices and judgments. After such review
and discussion, the Committee shall recommend to the Board
whether such audited financial statements should be published in
the Company's 10-K.
3. In consultation with the management and the independent auditors
consider the integrity of the Company's internal control over
financial reporting. Discuss significant financial risk exposures
and the steps management has taken to monitor, control and report
such exposures. Review significant findings prepared by the
independent auditors along with management's responses to such
findings.
4. Review with financial management and the independent auditors the
Company's quarterly financial statements to be included in the
Company's 10-Q filings. Discuss any significant changes to the
Company's accounting principles and any items required to be
communicated by the independent auditors in accordance with SAS
61 (see item 9). The Chair of the Committee may represent the
entire Audit Committee for purposes of this review.
A-2
C. Independent Auditors
--------------------
1. The Committee shall have the sole authority and be directly
responsible for the appointment, compensation, retention
(including the authority to retain or terminate) and oversight of
any independent audit firms engaged by the Company for the
purpose of preparing or issuing an audit report or related work.
The Committee shall have the ultimate authority to approve all
audit engagement fees and terms. The Committee shall be directly
responsible for the resolution of any disagreements between
management and the independent auditors regarding financial
reporting matters.
2. Obligate the Company to pay for compensation of any independent
audit firm and notify the Company of anticipated funding needs of
the Committee.
3. Approve in advance any and all audit and non-audit services to be
performed by the independent audit firm and adopt and implement
policies for such pre-approval.
4. On an annual basis, the Committee should review and discuss with
the independent auditors all significant relationships they have
with the Company that could impair the auditors' independence.
The Committee shall actively engaged in a dialogue with the
independent audit firm as to any disclosed relationships or
services that may impact its independence. The Committee shall
take appropriate action to oversee the independence of the
independent audit firm.
5. Evaluate the performance of the independent audit firm and
consider the discharge of the independent audit firm as
circumstances warrant.
6. Review the independent auditors audit plan - discuss scope,
staffing, locations, reliance upon management and general audit
approach.
7. Discuss the results of the audit with the independent auditors.
Discuss certain matters required to be communicated to audit
committees in accordance with AICPA SAS 61.
8. Review the Company's critical accounting policies and accounting
estimates resulting from the application of these policies and
inquire at least annually of the Company's independent audit firm
as to whether either has any concerns relative to the quality of
management's accounting policies.
D. Ethics Violation Reporting and Legal Compliance
-----------------------------------------------
1. Establish procedures for the (a) receipt, retention, and
treatment of complaints regarding accounting, internal accounting
controls, or auditing matters; and (b) the confidential,
anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.
2. When and where appropriate, the Company's outside counsel will be
asked to meet with the Audit Committee. Matters that may have a
significant impact on the financial statements will be reviewed.
3. Assure, when required by law for the first fiscal year ending
after June 15, 2005, that the Company's chief executive officer
and chief financial officer submit to the Committee prior to the
filing of the Form 10-K or a Form 10-Q, a report (dated no
earlier than 10 days prior to the date of filing of the Form 10-K
or Form 10-Q) evaluating the design and operation of Company's
internal control over financial reporting and disclosing (a) any
significant deficiencies discovered in the design and operation
of the internal controls over financial reporting which could
adversely affect the Company's ability to record, process,
summarize, and report financial data; and (b) any fraud, whether
or not material, that involves management or other employees who
have a significant role in the Company's internal controls over
financial reporting. The Committee shall direct the actions to be
taken and/or make recommendations to the Board of Directors of
actions to be taken to the extent such report indicates the
finding of any significant deficiencies in internal controls over
financial reporting or fraud.
A-3
4. Investigate any allegations that any officer or director of the
Company, or any other person acting under the direction of such
person, took any action to fraudulently influence, coerce,
manipulate or mislead any independent public or certified auditor
engaged in the performance of an audit of the financial
statements of the Company for the purpose of rendering such
financial statements materially misleading and, if such
allegations prove to be correct, take or recommend to the Board
appropriate disciplinary action.
5. Engage outside advisors, including but not limited to counsel,
independent audit consultants and/or other experts, as needed, to
review any matter under its responsibility.
6. Direct the Company to pay for ordinary administrative expenses of
the Committee and for compensation of any outside advisors to be
engaged by the Committee and notify the Company of anticipated
funding needs of the Committee.
E. Other Audit Committee Responsibilities
--------------------------------------
1. The Audit Committee will comply with all regulations of the
Securities and Exchange Commission and The NASDAQ SmallCap Market
as they relate to disclosures and corporate governance.
2. Prepare, in accordance with the rules of the SEC as modified or
supplemented from time to time, a written report of the audit
committee to be included in the Company's annual proxy statement
for each annual meeting of stockholders.
3. Instruct the Company's management to disclose in its Form 10-K
and Proxy Statement the approval of the Committee of any
non-audit services performed by the independent audit firm, and
review the substance of such disclosure.
4. Review all related party transactions for potential conflict of
interest situations on an ongoing basis and approve all such
transactions, as appropriate.
5. Perform any other activities consistent with this Charter, the
Company's By-laws and governing law, as the Committee or the
Board deems necessary or appropriate.
6. Maintain minutes of meetings and periodically report to the Board
of Directors on significant results of the foregoing activities.
A-4
DATAWATCH CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MARCH 5, 2004
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints ROBERT W. HAGGER and ALAN R.
MACDOUGALL, 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 Friday, March 5, 2004, at 11:00 a.m. Eastern time, at the
offices of Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, MA 02110,
and at any adjournments thereof, upon matters set forth in the Notice of Annual
Meeting of Stockholders and Proxy Statement dated January 28, 2004, 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.
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1. To elect Robert W. Hagger, Kevin R. Morano, Richard de J.
Osborne, Terry W. Potter, David T. Riddiford and James Wood as
Directors to serve until the next Annual Meeting of Stockholders
or until their successors are duly elected and qualified.
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FOR WITHHELD
[ ] [ ]
INSTRUCTIONS: To withhold your vote for any
individual nominee write the nominee's name on the space
provided below.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF DIRECTORS.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY.
MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE AT LEFT
(Please sign exactly as your name appears hereon.
If signing as attorney, executor, trustee or
guardian, please give your full title as such. If
stock is held jointly, each owner should sign.
Please read reverse side before signing.)
Signature: _____________________ Date_____________
Signature: _____________________ Date_____________