As filed with the Securities and Exchange
Commission on December 8, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DSET CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
1160 US Highway 22 East
New Jersey Bridgewater, New Jersey 08807 22-3000022
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(State or Other Jurisdiction (Address of Principal (I.R.S. Employer
of Incorporation or Executive Offices) Identification No.)
Organization) (Zip Code)
1993 Stock Option Plan
1998 Stock Plan
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(Full Title of the Plans)
William P. McHale, Jr.
Chief Executive Officer
DSET Corporation
1160 US Highway 22 East
Bridgewater, New Jersey 08807
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(Name and Address of
Agent for Service)
(908) 526-7500
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(Telephone Number, Including Area Code,
of Agent for Service)
Copy To:
Tod K. Reichert, Esq.
Buchanan Ingersoll Professional Corporation
650 College Road East
Princeton, NJ 08540
(609) 987-6800
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
===================================================================================================
<CAPTION>
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Securities to be Offering Price Aggregate Registration
to be Registered Registered (1) Per Share Offering Price Fee
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<S> <C> <C> <C> <C>
Common Stock, no par value
per share:
Shares issued or to be issued
pursuant to prior option
grants under the 1993
Stock Option Plan 2,887,689 $3.21(2) $9,269,482(2) $2,448
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Shares to be issued pursuant
to prior option grants
under the 1998 Stock Plan 1,238,371 $12.64(3) $15,653,010(3) $4,133
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Shares to be issued pursuant
to future option grants
under the 1998 Stock Plan 561,629 $22.40(4) $12,580,490(4) $3,322
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Total: 4,687,689 $37,502,982 $9,903
===================================================================================================
</TABLE>
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(1) For the sole purpose of calculating the registration fee, the number of
shares under this Registration Statement has been divided among three
subtotals.
(2) Pursuant to Rule 457(h), these prices are calculated based on the weighted
average exercise price of $3.21 per share covering 2,887,689 shares subject
to stock options granted under the 1993 Stock Option Plan.
(3) Pursuant to Rule 457(h), these prices are calculated based on the weighted
average exercise price of $12.64 per share covering 1,238,371 shares
subject to stock options granted under the 1998 Stock Plan.
(4) Pursuant to Rule 457(h) and 457(c), these prices are estimated solely for
the purpose of calculating the registration fee and are based upon the
average of the bid and asked prices of DSET's Common Stock on the Nasdaq
National Market on December 6, 1999.
Pursuant to Rule 416 under the Securities Act of 1933, as amended, this
Registration Statement also covers an indeterminate number of shares as may be
issued as a result of the anti-dilution provisions of the Plans.
ii
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two parts:
The first part contains a Reoffer Prospectus (the "Prospectus") prepared in
accordance with the requirements of Part I of Form S-3. The Prospectus covers
reoffers and resales of shares of common stock, no par value (the "Common
Stock"), of DSET Corporation ("DSET") by: (i) all affiliates (as such term is
defined under Rule 405 of the Securities Act of 1933, as amended) of DSET with
respect to options granted prior to the date hereof pursuant to DSET's 1993
Stock Option Plan and DSET's 1998 Stock Plan (collectively, the "Plans"); (ii)
all non-affiliates who hold less than 1,000 shares pursuant to option exercises
under the Plans prior to the date hereof; and (iii) certain other non-affiliates
listed on the Selling Shareholder table herein.
The second part contains "Information Required in the Registration
Statement" pursuant to Part II of Form S-8 with respect to option exercises by
non-affiliates pursuant to the Plans subsequent to the date hereof.
iii
<PAGE>
PROSPECTUS
S-3 Reoffer Prospectus dated December 8, 1999
DSET CORPORATION
2,887,689 Shares of Common Stock
Issued or Issuable under the 1993 Stock Option Plan
1,800,000 Shares of Common Stock
Issuable under the 1998 Stock Plan
This Prospectus relates to the public resale, from time to time, of
4,687,689 shares of our Common Stock (the "Shares") by certain shareholders
identified below in the section entitled "The Selling Shareholders." These
Shares have been or may be acquired upon the exercise of stock options granted
pursuant to our 1993 Stock Option Plan or 1998 Stock Plan (collectively, the
"Plans"). Options or shares of Common Stock also may be issued under the 1998
Stock Plan in amounts and to persons not presently known by us. Such
information, when known, may be included in an amendment to this Prospectus.
We will not receive any of the proceeds from the sale by the Selling
Shareholders of the Shares covered by this Prospectus.
We have not entered into any underwriting arrangements in connection with
the sale of Shares. The Shares may be sold from time to time by the Selling
Shareholders or by permitted pledgees, donees, transferees or other permitted
successors in interest and may be made on the Nasdaq National Market at prices
and at terms then prevailing or at prices related to the then current market
price, or in negotiated transactions.
Our Common Stock is traded on the Nasdaq National Market under the symbol
"DSET." On December 6, 1999, the closing sale price of our Common Stock on the
Nasdaq National Market was $22.3125 per share.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is December 8, 1999.
<PAGE>
PROSPECTUS TABLE OF CONTENTS
Page
----
Special Note Regarding Forward-Looking Information.......................... 3
DSET Corporation............................................................ 3
Risk Factors................................................................ 5
Substantial Variability of Quarterly Operating Results................ 5
Dependence on Rapidly Evolving Telecommunications Industry............ 6
Dependence on the TMN Industry Standard............................... 6
Rapid Technological Change............................................ 7
Management of Growth.................................................. 7
Risks Associated with International Operations........................ 7
Possibility of Over-runs on Fixed-Price Contracts and Other
Project Risks..................................................... 8
Limited Protection of Proprietary Rights and Enforcement of
Licensing Rights.................................................. 8
Competitive Market for Technical Personnel............................ 9
Risks Associated with New Application Development Tools and
Carrier-to-Carrier Applications................................... 10
Risks of Product Defects.............................................. 10
Dependence on Key Personnel........................................... 10
Length of Sales Cycle................................................. 11
Intense Competition................................................... 11
Customer Concentration................................................ 12
Risks Associated with Indirect Sales Channels......................... 13
Risks Associated with Year 2000 Problem............................... 13
Government Regulations and Legal Uncertainties........................ 15
Risks Relating to Potential Acquisitions.............................. 16
Possibility of Volatility of Stock Prices............................. 16
Anti-Takeover Effect of Certain Charter and By-Law and Other
Provisions........................................................ 16
Use of Proceeds............................................................. 17
The Selling Shareholders.................................................... 17
Plan of Distribution........................................................ 21
Legal Matters............................................................... 22
Experts..................................................................... 22
Information Incorporated by Reference....................................... 22
Where You Can Find More Information......................................... 23
Indemnification of Directors and Officers................................... 23
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<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This Prospectus and the documents incorporated herein contain
forward-looking statements. For this purpose, any statements contained herein or
incorporated herein that are not statements of historical fact may be
forward-looking statements. For example, the words "may," "will," "continue,"
"believes," "expects," "anticipates," "intends," "estimates," "should" and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause DSET's results to differ
materially from those indicated by such forward-looking statements. These
factors include those set forth below in the section entitled "Risk Factors." In
particular, DSET's statements relating to the Year 2000 compliance of its
products and internal systems are forward-looking statements. Such
forward-looking statements also involve risks and uncertainties, including, but
not limited to: (i) DSET's dependence on the rapidly evolving telecommunications
industry in general, and the local exchange carrier market in particular; (ii)
DSET's dependence on the Telecommunications Management Network ("TMN") industry
standard; (iii) rapid technological change in DSET's industry; (iv) risks
associated with the development and marketing of new products, including
carrier-to-carrier applications, such as Local Number Portability Solutions
("LNP") or operational support systems ("OSS") gateways; (v) risks associated
with acquisitions of businesses by DSET, including risks relating to
unanticipated liabilities or expenses or lower than expected revenues of such
acquired businesses; and (vi) risks and variables, including engineering costs,
associated with the remediation of certain of DSET's products which are not Year
2000 compliant. The success of DSET depends to a large degree upon increased
utilization of its carrier-to-carrier applications, such as LNP or OSS
interconnection gateways, by telecommunications carriers and network equipment
vendors, the buying patterns of competitive local exchange carriers ("CLECs")
and the continued demand for application development tools and custom
application development services. As a result of such risks and others expressed
from time to time in DSET's filings with the Securities and Exchange Commission
(the "SEC"), DSET's actual results may differ materially from the results
discussed in or implied by the forward-looking statements contained herein.
DSET CORPORATION
We design, develop, market and support software solutions for the global
telecommunications marketplace. Our suite of electronic bonding gateways
interconnects the OSSs of competing telecommunications providers that must trade
information and share network capabilities to serve customers. In addition, our
LNP solutions also play a key role in enabling customers to change
telecommunications service providers without changing their local phone numbers.
The Telecommunications Act of 1996 encourages competition among providers of
local phone services by requiring the incumbent regional Bell operating
companies to allow CLECs to lease portions of the incumbents' networks and
access their OSSs. As a result, hundreds of CLECs are vying to win customers
from the incumbents by offering better pricing and service. With our solutions,
CLECs can complete key tasks that assist "provisioning" or "service fulfillment"
of phone service for new customers in days rather than weeks. In addition, our
solutions help CLECs maintain a higher level of quality of service for their
customers.
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<PAGE>
The majority of our revenues are now generated from two sources: license
and service revenues from CLECs and license and service revenues from network
equipment vendors. Until 1999, substantially all of our revenues had been
derived from applications and suites of tools that could be distributed among
many processors in order to solve highly complex problems in the network
management area which we generally sold to network equipment vendors.
Our success will depend on continued growth in the market for advanced
telecommunications products and services such as LNP solutions and OSS
interconnect products.
We are a New Jersey corporation. Our principal executive offices are
located at 1160 US Highway 22 East, Bridgewater, New Jersey 08807, and our
telephone number is (908) 526-7500. In this Prospectus, the terms "DSET," "the
Company," "we," "us" and "our" includes DSET Corporation and its subsidiaries.
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<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, you should
carefully consider the following factors in evaluating whether to invest in the
Shares. The risks and uncertainties described below are not the only ones facing
our Company. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business operations and
financial results.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our Common Stock could decline and you may lose
all or part of your investment.
This Prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors,
including the risks described below and elsewhere in this Prospectus.
SUBSTANTIAL VARIABILITY OF QUARTERLY OPERATING RESULTS
Our revenue, gross profit, operating income and net income may vary
substantially from quarter to quarter due to a number of factors. Many factors,
some of which are not within our control, may contribute to fluctuations in
operating results. These factors include the following:
o Timing and levels of hardware and software purchases by customers;
o Timing, size and stage of application development projects;
o New product and service introductions by us or our competitors;
o Seasonal impact on projects for customers;
o Our hiring patterns;
o Costs associated with fixed-price contracts;
o Market factors affecting the availability or costs of qualified
technical personnel;
o Timing and customer acceptance of our new product and service offerings;
o Length of sales cycle;
o Variations in run-time royalty fees due to the size and timing of
network device deployments by equipment vendors to telecommunications
carriers;
o Mix of domestic and international sales;
o Costs related to acquisitions of technology or businesses; and
o Industry and general economic conditions.
Historically, our revenue growth generally has been higher in the fourth
quarter due to capital budgeting and spending patterns by our customers. We
anticipate that our business will continue to be subject to such seasonal
variations. In addition, a significant portion of our
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<PAGE>
quarterly revenue is recognized in the last month of each quarter. As a result,
we may not recognize any negative fluctuations in revenue until late in a
particular quarter.
Many of our costs, such as personnel and facilities costs, are relatively
fixed in nature. Our expense levels are based in part on expectations of future
revenue. As a result, our operating results have been and in the future will
continue to be impacted by changes in technical personnel billing and
utilization rates. Technical personnel utilization rates have been and are
expected to continue to be adversely affected during periods of rapid and
concentrated hiring. In addition, during such periods, we are likely to incur
greater technical training costs. Due to these and other factors, if we are
successful in expanding our service offerings and revenue, periods of
variability in utilization are likely to occur. In addition, our revenues in any
given period are likely to come from a limited number of customer engagements.
Any delay in the closing of, or the loss of any number of, such engagements
would adversely affect our results of operations. We believe, therefore, that
past operating results and period-to-period comparisons should not be relied
upon as an indication of future operating performance.
DEPENDENCE ON RAPIDLY EVOLVING TELECOMMUNICATIONS INDUSTRY
Our success depends on the continued growth of the market for advanced
telecommunications products and services. The global telecommunications market
is evolving rapidly and it is difficult to predict its potential size or future
growth rate. We cannot assure you that the global deregulation and privatization
of the worldwide telecommunication market that has resulted in increased
competition and escalating demand for new technologies and services will
continue in a manner favorable to us or our business strategies.
Since our customers are concentrated in the telecommunications industry,
our future success is dependent upon increased utilization of our
carrier-to-carrier applications, such as local number portability ("LNP") or
operational support systems ("OSS") interconnection gateways, by
telecommunications carriers and network equipment vendors, the buying patterns
of competitive local exchange carriers ("CLECs") and the continued demand for
application development tools and custom application services. We cannot
guarantee that our current or future products or services will achieve
acceptance among telecommunications carriers, network equipment vendors and
other potential customers or that these customers will not adopt alternative
architectures or technologies that are incompatible with our technologies.
In addition, we cannot assure you that telecommunications carriers will
upgrade the infrastructure of their networks necessitating the use of new
network devices which require applications developed with our products or
services. Industry-wide network improvements driving the demand for our products
or services may be delayed or prevented by a variety of factors, including cost,
regulatory obstacles, the lack or reduction of consumer demand for advanced
telecommunications services and alternative approaches to service delivery.
DEPENDENCE ON THE TMN INDUSTRY STANDARD
Until 1999, substantially all of our revenue had come from application
development tools and application development services based on the
Telecommunications Management Network
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<PAGE>
("TMN") standard. A substantial portion of our ongoing revenue will still come
from these applications. We depend upon the broad and continued adoption and
deployment of TMN as the industry standard architecture for managing complex
telecommunications networks. Telecommunications carriers have only recently
widely embraced TMN solutions as an industry standard. In order to remain an
industry standard, TMN must continue to be adapted to accommodate emerging
technologies, such as CORBA and Java. We believe that the continued use of TMN
solutions will also depend, in part, upon the continued demand from
telecommunications carriers and equipment vendors to quickly and
cost-effectively implement TMN solutions. It is uncertain whether TMN will
remain a standard for the management of complex telecommunications networks. The
introduction of new or more favorable industry standards, or our inability to
recognize and quickly adapt to new standards, would materially and adversely
affect our business, financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE
The market for telecommunications devices, network-based applications and
related services is subject to rapid technological change. Evolving industry
standards, changes in end-user requirements and frequent new product and service
introductions and upgrades may render our existing offerings obsolete. As a
result, our position in this market could be negatively impacted due to
unforeseen changes in product features and functions of competing products. Our
growth and future results of operations will depend in part on our ability to
respond to these changes by enhancing our existing products and services and by
developing and introducing, on a timely and cost-effective basis, new products,
features and related services to meet or exceed technological advances by our
competitors. We cannot guarantee that we will be successful in identifying,
developing and marketing new products, product enhancements and related services
necessary to keep pace with technological change.
MANAGEMENT OF GROWTH
Recent growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and technical resources. Our
ability to manage growth effectively will require us to continue developing and
improving our operational, financial and other internal systems, as well as our
business development capabilities, and to attract, hire, train, retain, motivate
and manage our employees. We must be able to allocate sufficient engineering
resources to develop new products as well as maintain and improve the quality of
our current offerings. In addition, our future success in the application
development services component of our business will depend in large part on our
ability to continue to maintain high rates of employee utilization at profitable
billing rates and to maintain project quality, particularly if the size and
scope of our development projects increase. The failure to manage our growing
employee base, improve our operating systems or add resources on a cost
effective basis could have a material adverse effect on our business.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
We rely on a number of third party distributors and agents to market and
sell our products and services outside of North America. We cannot assure you
that our distributors or agents will
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<PAGE>
provide the effort and support necessary to service international markets
effectively. We intend to expand our existing international operations and enter
new international markets, which will demand significant management attention
and financial commitment. Our management has limited experience in international
operations, and we cannot guarantee that we will successfully expand our
international operations, which could have a material adverse effect on our
business, financial condition and results of operations.
Our international sales currently are United States dollar-denominated. As
a result, an increase in the value of the United States dollar relative to
foreign currencies could make our products and services less competitive in
international markets. Furthermore, operating in international markets subjects
us to additional risks, including unexpected changes in regulatory requirements,
political and economic conditions, taxes, tariffs or other barriers,
difficulties in staffing and managing international operations, potential
exchange and repatriation controls on foreign earnings, longer sales and payment
cycles and difficulty in accounts receivable collection. Volatility and
devaluation trends in certain Asian markets, particularly South Korea, have
resulted in delays, cancellations and increased pricing pressures on our product
sales and application development activities in such markets. Such risks may
adversely affect our business, financial condition and results of operations.
POSSIBILITY OF OVER-RUNS ON FIXED-PRICE CONTRACTS AND OTHER PROJECT RISKS
An increasing portion of our total revenue is generated from application
development projects, system installations and service contracts provided on a
fixed-price basis with performance and payment milestones rather than contracts
billed on a time-and-materials basis. We bear the risk of cost over-runs and
inflation in connection with fixed-price projects. If we fail to: (i) estimate
accurately the resources and time required for a fixed-price project, or (ii)
complete the services within the time frame committed, our business and results
of operations could suffer.
LIMITED PROTECTION OF PROPRIETARY RIGHTS AND ENFORCEMENT OF LICENSING RIGHTS
Our success and ability to compete effectively is dependent, in part, upon
our proprietary rights. We rely primarily on a combination of copyright,
trademark, patent and trade secret laws, as well as confidentiality procedures
and contractual restrictions, to establish and protect our proprietary rights.
Furthermore, we generally enter into non-competition, non-disclosure and
invention assignment agreements with our employees and consultants, and into
non-disclosure agreements with our customers and distributors. We cannot assure
you that these measures will be adequate to protect our proprietary rights.
We may also be subject to further risks as we enter into transactions in
countries where intellectual property laws are not well developed or are
difficult to enforce. Legal protections of our proprietary rights may be
ineffective in other countries. Litigation may be necessary to defend and
enforce our proprietary rights, which could result in substantial costs and
diversion of management resources and could have a material adverse effect on
our business, financial condition and results of operations, regardless of the
final outcome of such litigation. Despite our efforts to safeguard and maintain
our proprietary rights both in the United States and abroad,
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there is no guarantee that we will be successful in doing so. Furthermore, we
cannot assure you that the steps taken by us will be adequate to deter
misappropriation or independent third-party development of our technology or to
prevent an unauthorized third party from copying or otherwise obtaining and
using our products or technology. Any of these events could have a material
adverse effect on our business, financial condition and results of operations.
We, or our employees, may become subject to claims of infringement or
misappropriation of the intellectual property rights of others. In addition, in
our licenses and software development and distribution agreements, we agree to
indemnify our customers and distributors for any expenses and liabilities
resulting from claimed infringements of patents, trademarks, copyrights or other
proprietary rights of third parties. The amount of our indemnity obligations may
be greater than the revenue we may have received under these development and
distribution agreements. We cannot assure you that third parties will not assert
infringement or misappropriation claims against us, our customers or
distributors in the future with respect to our employees or current or future
products or services. Any claims or litigation, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require us to enter into royalty or licensing arrangements. Royalty or licensing
arrangements, if necessary, may not be available on terms acceptable to us, if
at all, which could have a material adverse effect on our business, financial
condition and results of operations.
A portion of our revenues are generated from run-time royalty fees which
generally become due upon the deployment by equipment vendors to
telecommunications carriers of network devices which have embedded applications
built with our software. Many of our customers are contractually required to
periodically report the sales of these network devices to us. Although we
generally have the right to periodic audits in our contracts which provide for
run-time royalties, we cannot assure you that our customers will accurately
report their sales or that we will be able to effectively monitor and enforce
our contractual rights with respect to run-time royalty fees.
COMPETITIVE MARKET FOR TECHNICAL PERSONNEL
Our future success depends to a significant extent on our ability to
attract, hire, train, retain and motivate qualified technical and sales
personnel, with appropriate levels of managerial and technical capabilities. Our
complex technology generally requires a significant level of expertise to
effectively develop and market our products and services and to perform our
custom application development services. We believe that there is a worldwide
shortage of, and significant competition for, professionals with the advanced
skills we require. We have at times experienced, and continue to experience,
difficulty in recruiting qualified personnel. Recruiting qualified personnel is
an intensely competitive and time-consuming process. We compete for personnel
with software companies and telecommunications companies, many of which have
greater resources. This makes it difficult for us to hire the quality and number
of technical and sales personnel we require. In addition, it makes it more
expensive to hire those personnel we can attract. Due to this competition, we
have experienced, and expect to continue to experience, turnover in technical
and sales personnel. There is no guarantee that we will be successful in
attracting and retaining the technical or sales personnel required to conduct
and successfully expand our operations. Our business, financial condition and
results of operations could be
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materially adversely affected if we are unable to attract, hire, train, retain
and motivate qualified technical and sales personnel.
RISKS ASSOCIATED WITH NEW CARRIER-TO-CARRIER APPLICATIONS
As part of our strategy, we expect to continue developing and offering new
carrier-to-carrier applications, such as LNP Solutions and OSS interconnection
gateway products. We cannot assure you that our new carrier-to-carrier
applications will adequately meet evolving technological or customer
requirements and emerging industry standards. Our new carrier-to-carrier
applications are in the early stages of development, marketing and customer
acceptance, and we have limited experience in developing, marketing or providing
new applications. Accordingly, we cannot guarantee that the market for new
carrier-to-carrier applications will develop. Furthermore, we cannot assure you
that we will successfully market our new carrier-to-carrier applications to new
and existing customers, or meet customer expectations.
We have, from time to time, experienced delays in the development of new
products and the enhancement of existing products, and we may in the future
experience delays in the development of new carrier-to-carrier applications, due
to resource constraints or technological or other reasons. Our inability to
develop and introduce new applications in a timely manner could have a material
adverse effect on our business, financial condition and results of operations.
RISKS OF PRODUCT DEFECTS
Application development tools and applications developed, licensed and sold
by us may contain errors or failures. We cannot guarantee that errors or
failures will not be found in our products or applications or, if discovered,
that we will be able to successfully correct any errors or failures in a timely
manner or at all. The occurrence of errors or failures in our products and
applications could result in loss of or delay in market acceptance, increased
service and warranty costs or payment of compensatory or other damages. In
addition, errors or failures may result in delays in our recognition of revenue
and diversion of our engineering resources during the period in which we are
required to correct any defects. We do not maintain errors and omissions
insurance to cover liability associated with our software development and
license agreements. Although our agreements with our customers typically contain
provisions intended to limit our exposure to potential claims as well as any
liabilities arising from such claims, our contracts with our customers may not
effectively protect us against the liabilities and expenses associated with
software errors or failures. Accordingly, errors or failures in our products or
applications could have a material adverse effect upon our business, financial
condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
Our success to date, and our future success depends largely on the
continued service of our management, key product and application engineers, and
sales and technical sales support personnel as well as our ability to identify,
hire and retain additional senior personnel. We face intense competition for
qualified personnel, and we cannot be certain that we will successfully attract
and retain additional qualified personnel in the future. The loss of the
services of one or
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more of our key individuals or the failure to attract and retain additional
qualified personnel could substantially damage our business. In addition, if we
were to lose any key personnel, we cannot assure you that we would be able to
prevent the unauthorized disclosure or use of our technical knowledge, practices
or procedures.
LENGTH OF SALES CYCLE
We believe that the period of time between initial customer contact and
execution of a license agreement or application development services contract
typically ranges from four to nine months. Telecommunications carriers and
network equipment vendors typically conduct extensive and lengthy product
evaluations before purchasing software or application development services. The
sales cycle for CLECs is approximately three to four months. We do not typically
receive advance notice of changes in the budgets and purchasing priorities of
telecommunications equipment vendors and their carrier customers. Curtailment or
termination of custom application development projects, decreases in customer
budgets or reduction in the purchasing priority assigned to application
development, particularly if significant and unanticipated by us, could have a
material adverse effect on our business, financial condition and results of
operations. Our customers may also encounter delays in the sales cycles of their
products and services which depend on the implementation of applications built
using our software, which may indirectly and adversely impact our business,
financial condition and results of operations.
INTENSE COMPETITION
We compete in rapidly changing markets that are intensely competitive and
involve changing technologies, evolving industry standards, frequent new product
introductions and rapid changes in customer requirements. We compete in the
application development tools market with other software tool providers. Our
competitors in the markets for application development services and electronic
bonding gateways include the in-house development staffs of telecommunications
carriers, network equipment vendors and systems integrators. In addition, there
are new companies building electronic bonding gateways which include other
software vendors and companies providing order management systems. Many of our
current and potential competitors have longer operating histories, greater name
recognition, larger or captive customer bases and significantly greater
financial, technical, sales, customer support, marketing and other resources.
Furthermore, TMN, as an open systems architecture, can lead to increased
competition as third parties develop competitive products and services.
We believe the principal competitive factors affecting the market for
application development tools are:
o Product reputation;
o Quality;
o Performance;
o Price;
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<PAGE>
o Customer support; and
o Product features such as adaptability, scalability, ability to
integrate with other products, functionality and ease of use.
We believe the principal competitive factors in the market for application
development services include:
o Compliance with industry standards;
o Quality of service and deliverables;
o Speed of development and implementation;
o Price;
o Project management capability; and
o Technical and business expertise.
We believe the principal competitive factors in the market for electronic
bonding gateways include many of the same factors as the market for application
development services as well as the ability of such applications to facilitate
the flow-through of information between carriers' networks and systems. We
cannot guarantee that we will be able to compete effectively based on these
competitive factors. To remain competitive, we must respond promptly and
effectively to the challenges of technological change, evolving standards and
our competitors' innovations by continuing to enhance our offerings and expand
our sales channels.
CUSTOMER CONCENTRATION
We anticipate that our results of operations in any given period will
continue to depend to a significant extent upon sales to a small number of
customers. As a result of this customer concentration, our revenue from quarter
to quarter and business, financial condition and results of operations may be
subject to substantial period-to-period fluctuations. In addition, our business,
financial condition and results of operations could be materially adversely
affected by the failure of customer orders to materialize as and when
anticipated, or by deferrals or cancellations of existing application
development projects. Other than certain agreements which provide for on-going
maintenance revenues or minimum royalties for run-time licenses, none of our
customers have entered into an agreement requiring on-going minimum purchases
from us. Our application development services agreements generally can be
terminated by our customers with limited advance notice and without significant
penalty. Many of our principal customers may also be competitors. We cannot
assure you that our principal customers will continue to purchase products or
services from us at current levels, if at all. The loss of one or more major
customers could have a material adverse effect on our business, financial
condition and results of operations.
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<PAGE>
RISKS ASSOCIATED WITH INDIRECT SALES CHANNELS
In order to expand our international sales efforts, we have utilized, and
expect to continue to utilize, third-party distributors and agents. We cannot
guarantee that any existing or future distributors will not become competitors.
Furthermore, selling through indirect channels may limit our information
concerning the volume of products sold by our customers to end-users and impede
our contact with end-users. As a result, our ability to forecast revenues
accurately, evaluate end-user satisfaction and recognize emerging end-user
requirements may be hindered. Moreover, we have limited experience in
establishing and maintaining indirect distribution channels and we cannot assure
you that we will do so successfully. Additionally, any failure by our existing
and future distributors to generate significant revenues could have a material
adverse effect on our business, financial condition and results of operations.
RISKS ASSOCIATED WITH YEAR 2000 PROBLEM
Assessment. We believe our exposure to Year 2000 problems lies primarily in
the following areas: (i) our own internal operating systems; (ii) our tool
suites, custom applications and pre-built electronic bonding gateways and
network management applications; and (iii) systems of third parties with whom we
have material relationships. We have completed our assessment with respect to
our internal operating systems and tool suites. We continue to evaluate our
exposure with respect to certain custom applications and our relationships with
third parties. While the costs of these assessment efforts are not expected to
be material to our financial condition or any year's results of operations, we
cannot assure you that this will be the case.
Internal Operating Systems. We believe our internal operating computer
systems and management information system are currently Year 2000 compliant, and
we do not believe that there will be future significant costs related to future
maintenance of such compliance.
Tool Suites and Pre-Built Applications. We have conducted an internal
review and believe that our tool suites (and applicable updates) developed after
May 27, 1997 have been tested and are Year 2000 compliant. These products
include:
PRODUCT NAME VERSION
------------ -------
ASN.C/C++ 3.5.3 and later
Agent Tester 2.0.1 and later
CMIP Translator 1.0.1 and later
Distributed Systems Generator 4.2.0 and later
GDMO Agent Emulator 2.0.0 and later
GDMO Agent Toolkit 2.0.0 and later
GDMO Compiler 3.0.0 and later
LNP Test Extensions 2.0.0 and later
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<PAGE>
PRODUCT NAME VERSION
------------ -------
Manager Code Generator 1.0.4 and later
Manager Toolkit 1.0.0 and later
Marben OSIAM Stack 2.6f/2.6g and later
Visual Agent Builder 1.0.0 and later
LSMS 2.0.1 and later
Our pre-built electronic bonding gateways and network management
applications have been tested for Year 2000 compliance. All modifications to
these applications are analyzed for Year 2000 compliance prior to their release.
Custom Applications. In November 1998, we determined that certain custom
applications developed and delivered to approximately ten customers were not
Year 2000 compliant. All of these customers were notified of such Year 2000
compliance status in November 1998. We have also analyzed the extent to which
any of the affected custom applications were integrated by customers into other
products which may expose us to claims from our customers. We have agreed to
assist each of these customers with any and all remediation solutions required
to achieve Year 2000 compliance with our products. To date, our remediation has
not significantly or materially adversely affected our financial condition and
results of operations. We have incurred certain remediation expenses related to
such compliance, pursuant to the warranty provisions of the applicable
agreements. A failure to properly implement any correction, or problems with any
correction, could cause errors in customers' products which may materially
impact the functionality of those products.
Third Party Relationships. We are dependent on various third party software
and hardware vendors and suppliers. We are also dependent on third party service
providers and partners such as telephone companies, banks, insurance carriers,
auditors and marketing partners. The failure of such third parties to deliver
Year 2000 compliant products or to remediate their internal systems could
jeopardize our ability to meet our obligations to our customers. As a result, we
are presently conducting inquiries of our outside vendors, suppliers, service
providers and marketing partners to identify and resolve Year 2000 exposure from
third parties. To date, we have identified one company whose product is not Year
2000 certified. Tests are planned to verify Year 2000 compliance for this
product. Upon completion of the testing, we will be able to assess such exposure
and financial impact, if any, should such party fail to be Year 2000 compliant.
Any failure of third parties with whom we have material relationships to resolve
Year 2000 problems in a timely manner could materially affect our business,
financial condition or results of operations.
Risks of Our Year 2000 Issues. We expect to identify and resolve all Year
2000 problems that could materially adversely affect our business, financial
condition or results of operations. However, we believe that it is not possible
to determine with complete certainty that all Year 2000 problems affecting us
have been identified or corrected. Further, we cannot accurately predict how
many failures related to the Year 2000 Problem will occur or the severity,
duration
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<PAGE>
or financial consequences of such failures. We believe that the most reasonably
likely worst case Year 2000 scenario would include a combination of some or all
of the following:
o Our internal operating systems may fail or provide erroneous
information. Such failure could result in: reduced utilization of
technical or other personnel; the inability to timely generate
financial reports and statements; and improper billing and record
keeping;
o A number of system failures that may require significant efforts by us
or our customers to prevent or alleviate material business
disruptions; and
o Failure in HVAC, lighting, telephone, security and similar systems on
which we rely.
Additionally, we cannot guarantee that our products will not be used by
other companies, or our customers, to build applications which might not be Year
2000 compliant, or that our products or applications built with our products
will not be integrated by us or our customers or interact with non-compliant
software or other products which may expose us to claims from our customers.
Costs. Other than time spent by our personnel, the costs associated with
remediating non-compliant custom applications and assessing Year 2000 compliance
issues have not been significant to date. We believe that the continued analysis
of compliance of new releases of products and evaluation of potential Year 2000
problems will result in aggregate expenditures of less than $100,000.
Our Contingency Plans. We believe our plans for addressing the Year 2000
Problem are adequate. We do not believe we will incur a material financial
impact from system failures, or from the costs associated with assessing the
risks of failure, arising from the Year 2000 Problem. We have assembled a
response team which will be on 24 hour call during the change of 1999 to the
year 2000. Consequently, we do not intend to create a detailed contingency plan.
In the event that we do not adequately identify and resolve our Year 2000
issues, the absence of a detailed contingency plan may materially adversely
affect our business, financial condition and results of operations.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
While our operations are not directly regulated, our existing and potential
customers are subject to a variety of United States and foreign governmental
regulations. These regulations may negatively impact the telecommunications
industry, limit the number of potential customers for our products and services
or otherwise have a material adverse effect on our business, financial condition
and results of operations. Recently enacted legislation, including the
Telecommunications Act of 1996 (the "Telecommunications Act"), deregulating the
telecommunications industry may cause changes in the telecommunications
industry, including the entrance of new competitors and possible industry
consolidation, which could in turn reduce our potential customer base, increase
pricing pressures on us, decrease demand for our
- 15 -
<PAGE>
application development tools, application development services and
carrier-to-carrier applications, increase our cost of doing business or
otherwise have a material adverse effect on our business, financial condition
and results of operations. Currently the Federal Communications Commission
("FCC") and state authorities are implementing the provisions of the
Telecommunications Act and several of the decisions by the FCC and state
authorities are being challenged in court. We cannot predict the extent to which
such legislation and related litigation will affect our current and potential
customers or ultimately affect our business, results of operations and financial
condition.
RISKS RELATING TO POTENTIAL ACQUISITIONS
As part of our growth strategy, we intend to continue to pursue
acquisitions of businesses or technologies to broaden our product and service
offerings, add technical or sales personnel, increase our presence in existing
markets, expand into new geographic markets, establish strategic relationships
and obtain desirable customer relationships. If we buy a company or selected
assets or technologies, we could have difficulty assimilating acquired
personnel, operations, customers or vendors. In addition, one or more of such
personnel, customers or vendors may decide not to work for or continue to do
business with us. These difficulties could disrupt our ongoing business,
distract our management and employees and increase our expenses. Although we
conduct due diligence reviews with respect to all acquisitions candidates, we
may not successfully identify all material liabilities or risks related to
potential acquisitions. Furthermore, we may have to incur debt or issue equity
securities to pay for any future acquisitions, the issuance of which could be
dilutive to our existing shareholders.
POSSIBILITY OF VOLATILITY OF STOCK PRICES
The market prices for securities of technology companies have been highly
volatile and the market has experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Announcements of technological innovations or new products or service
offerings by us or our competitors, developments concerning proprietary rights,
including patents and litigation matters, domestic or international regulatory
developments affecting the telecommunications industry, general market
conditions, any shortfall in revenues or earnings from expected levels or other
failures by us to meet expectations of securities analysts and other factors,
may have a significant impact on the market price of the Common Stock.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW AND OTHER PROVISIONS AND NEW
JERSEY LAW.
Anti-takeover provisions of New Jersey law, our Certificate of
Incorporation and our By-Laws could make it more difficult for a third party to
acquire control of us, even if such change would be beneficial to our
shareholders. Our Certificate of Incorporation provides that our board of
directors may issue preferred stock with superior rights and preferences without
common shareholder approval. The issuance of preferred stock could have the
effect of delaying, deterring or preventing a change in control.
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<PAGE>
USE OF PROCEEDS
DSET will not receive any proceeds from the sale of the Shares covered by
this Prospectus. While DSET will receive sums upon any exercise of options by
the Selling Shareholders, DSET currently has no plans for their application,
other than for general corporate purposes. DSET cannot assure that any of such
options will be exercised.
THE SELLING SHAREHOLDERS
The individuals listed below (the "Selling Shareholders") have or will
acquire the Shares being registered pursuant to the exercise of options
previously granted to them by DSET. The Shares may not be sold or otherwise
transferred by the Selling Shareholders unless and until the applicable options
are exercised in accordance with their terms.
The following table sets forth: (i) the name of each Selling Shareholder,
whose name is known as of the date of the filing of this Prospectus; (ii) his or
her position(s), office or other material relationship with DSET and its
predecessors or affiliates, over the last three years; (iii) the number of
shares of Common Stock owned (or subject to options) by each Selling Shareholder
as of the date of this Prospectus and prior to this offering; (iv) the number of
shares of Common Stock which may be offered and are being registered for the
account of each Selling Shareholder by this Prospectus (all of which have been
or may be acquired by the Selling Shareholders pursuant to the exercise of
options subject to the appropriate vesting of such options); and (v) the amount
of Common Stock to be owned by each such Selling Shareholder if such Selling
Shareholder were to sell all of their shares of Common Stock covered by this
Prospectus. DSET cannot assure that any of the Selling Shareholders will offer
for sale or sell any or all of the Shares offered by them pursuant to this
Prospectus.
In addition, options or shares of Common Stock may be issued under the 1998
Stock Plan in amounts and to persons not presently known by DSET. Such
information, when known, may be included in a subsequent version of this
Prospectus.
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES/ NUMBER OF
PERCENTAGE OF SHARES OF NUMBER OF
COMMON STOCK COMMON SHARES/
PRIOR TO STOCK TO BE PERCENTAGE OF
OFFERING (BOTH OFFERED COMMON
HELD DIRECTLY (OPTION STOCK OWNED
POSITION WITH OR SUBJECT TO SHARES HELD + AFTER THE
NAME(1) DSET OPTIONS)(2) OPTIONS HELD) OFFERING(3)
- ------------------------- --------------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
S. Daniel Shia........... Chairman of the Board 1,090,228/9.7% 1,090,228 0/*
and Director
William P. McHale, Jr.... President and CEO 415,850/3.7% 415,400 450/*
Paul Smith............... Senior Vice President- 313,471/2.8% 153,497 159,974/1.4%
Strategic Planning
and Product
Management
Victor W. Mak............ Chief Technology 218,887/2.0% 218,887 0/*
Officer
Vincent J. Sheu.......... Former Vice President- 101,402/* 95,777 5,625/*
Carrier Solutions
Bruce M. Crowell......... Vice President and 78,000/* 78,000 0/*
Chief Financial
Officer
Phil Cavallo............. Senior Vice President- 108,500/* 108,500 0/*
Sales and Marketing
Hui-Yun Rosanna Yuan..... Former Director 54,485/* 54,485 0/*
Jacob J. Goldberg........ Director 25,000/* 25,000 0/*
C. Daniel Yost........... Director 25,000/* 25,000 0/*
Andrew D. Lipman......... Director 25,000/* 25,000 0/*
John C. Thibault......... Former Director 8,333/* 8,333 0/*
Paul Lipari.............. Former Chief Financial 80,387/* 54,887 25,500/*
Officer
Jeffrey Schneider........ Program Manager 34,821/* 34,821 0/*
Stephen Van Houten....... Director of Human 30,756/* 29,546 1,210/*
Resources
Zenn Wang................ Former Regional Sales 19,800/* 19,800 0/*
Manager
Michael Walch............ Director of Accounting 20,500/* 19,500 1,000/*
Ellen Kelley-McHale...... Wife of William 16,005/* 16,005 0/*
McHale
Raghav Trivedi........... Former Project 15,184/* 15,184 0/*
Manager
Jon Pask................. Facility Supervisor, 10,215/* 10,215 0/*
New Jersey
Weidong Li............... Senior Software 7,185/* 7,185 0/*
Engineer
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES/ NUMBER OF
PERCENTAGE OF SHARES OF NUMBER OF
COMMON STOCK COMMON SHARES/
PRIOR TO STOCK TO BE PERCENTAGE OF
OFFERING (BOTH OFFERED COMMON
HELD DIRECTLY (OPTION STOCK OWNED
POSITION WITH OR SUBJECT TO SHARES HELD + AFTER THE
NAME(1) DSET OPTIONS)(2) OPTIONS HELD) OFFERING(3)
- ------------------------- --------------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Neil Fox................. Former Director of 7,000/* 7,000 0/*
Operations
Robert Foley............. Former Director of 6,010/* 6,010 0/*
Professional Services
Ray Li................... Former Systems 4,835/* 4,835 0/*
Engineer
Felicia Knisely.......... Former Marketing 3,480/* 3,480 0/*
Assistant
Yonik Seeley............. Former Project Leader 3,083/* 3,083 0/*
Shu-Wen Wang............. Minor Child of Former 3,000/* 3,000 0/*
Regional Sales
Manager
Shirley Wang............. Minor Child of Former 3,000/* 3,000 0/*
Regional Sales
Manager
Victor Wang.............. Minor Child of Former 3,000/* 3,000 0/*
Regional Sales
Manager
Diane Romano............. Former Corporate 2,500/* 2,500 0/*
Administrative
Assistant
Dean Kaflowitz........... Former Senior 1,773/* 1,773 0/*
Technical Writer
Michael Hui.............. Former Senior 1,500/* 1,500 0/*
Software Engineer
Ellen Kelley-McHale C/F
Liam McHale............ Minor Child of William 1,250/* 1,250 0/*
McHale
Harshwardhan Kulkarni.... Former Member of 1,161/* 1,161 0/*
Technical Staff
Brendan McHale........... Minor Child of William 1,125/* 1,125 0/*
McHale
</TABLE>
- -------------
* Less than one percent.
(1) Certain unnamed non-affiliates of DSET may sell Shares held by them
pursuant to this offering. Each such person, however, holds less than 1,000
Shares from the exercise of stock options and excluding options to purchase
additional shares of Common Stock that each such individual may hold, if
any, at the time of this offering. All such individuals currently hold, in
the aggregate, 5,299 Shares, excluding unexercised options held by them, if
any.
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<PAGE>
(2) Applicable percentage of ownership is based on 10,766,917 shares of Common
Stock outstanding as of November 30, 1999, plus any Common Stock
equivalents held by such holder.
(3) Assumes that all Shares are sold pursuant to this offering and that no
other shares of Common Stock are acquired or disposed of by the Selling
Shareholders prior to the termination of this offering. Because the Selling
Shareholders may sell all, some or none of their Shares or may acquire or
dispose of other shares of Common Stock, no reliable estimate can be made
of the aggregate number of Shares that will be sold pursuant to this
offering or the number or percentage of shares of Common Stock that each
Selling Shareholder will own upon completion of this offering.
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<PAGE>
PLAN OF DISTRIBUTION
The Selling Shareholders have not advised DSET of any specific plan for
distribution of the Shares offered hereby, but it is anticipated that the Shares
will be sold from time to time by the Selling Shareholders or by permitted
pledgees, donees, transferees or other permitted successors in interest. Such
sales may be made in any of the following manners:
o On the Nasdaq National Market (or through the facilities of any
national securities exchange or U.S. inter-dealer quotation system of
a registered national securities association, on which the Shares are
then listed, admitted to unlisted trading privileges or included for
quotation);
o In public or privately negotiated transactions;
o In transactions involving principals or brokers;
o In a combination of such methods of sale; or
o Any other lawful methods.
Although sales of the Shares are, in general, expected to be made at market
prices prevailing at the time of sale, the Shares may also be sold at prices
related to such prevailing market prices or at negotiated prices, which may
differ considerably.
In offering the Shares covered by this Prospectus, each of the Selling
Shareholders and any broker-dealers who sell the Shares for the Selling
Shareholders may be "underwriters" within the meaning of the Securities Act, and
any profits realized by such Selling Shareholders and the compensation of such
broker-dealers may be underwriting discounts and commissions.
Sales through brokers may be made by any method of trading authorized by
any stock exchange or market on which the Shares may be listed, including block
trading in negotiated transactions. Without limiting the foregoing, such brokers
may act as dealers by purchasing any or all of the Shares covered by this
Prospectus, either as agents for others or as principals for their own accounts,
and reselling such Shares pursuant to this Prospectus. The Selling Shareholders
may effect such transactions directly, or indirectly through underwriters,
broker-dealers or agents acting on their behalf. In connection with such sales,
such broker-dealers or agents may receive compensation in the form of
commissions, concessions, allowances or discounts, any or all of which might be
in excess of customary amounts.
Each of the Selling Shareholders is acting independently of DSET in making
decisions with respect to the timing, manner and size of each sale of Shares.
DSET has not been advised of any definitive selling arrangement at the date of
this Prospectus between any Selling Shareholder and any broker-dealer or agent.
To the extent required, the names of any agents, broker-dealers or
underwriters and applicable commissions, concessions, allowances or discounts,
and any other required information with respect to any particular offer of the
Shares by the Selling Shareholders, will be set forth in a Prospectus
Supplement.
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<PAGE>
The expenses of preparing and filing this Prospectus and the related
Registration Statement with the SEC will be paid entirely by DSET. Shares of
Common Stock covered by this Prospectus also may qualify to be sold pursuant to
Rule 144 under the Securities Act, rather than pursuant to this Prospectus. The
Selling Shareholders have been advised that they are subject to the applicable
provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including without limitation, Rule 10b-5 thereunder.
Neither DSET nor the Selling Shareholders can estimate at the present time
the amount of commissions or discounts, if any, that will be paid by the Selling
Shareholders on account of their sales of the Shares from time to time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for DSET by Buchanan Ingersoll Professional Corporation, 650 College Road
East, Princeton, New Jersey 08540.
EXPERTS
The financial statements incorporated by reference in this Prospectus by
reference to the Annual Report on Form 10-K for the year ended December 31,
1998, have been so incorporated herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows DSET to "incorporate by reference" the information DSET
files with the SEC, which means that DSET can disclose important information to
you by referring you to those documents. The information incorporated by
reference is an important part of this Prospectus, and information that DSET
files later with the SEC will automatically update and supersede this
information. DSET incorporates by reference the documents listed below and any
future filings made by DSET with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act until the filing of a post-effective amendment to this
Prospectus which indicates that all securities registered have been sold or
which deregisters all securities then remaining unsold:
o DSET's Annual Report on Form 10-K for the year ended December 31,
1998, filed with the SEC on March 31, 1999;
o All other reports filed by DSET pursuant to Section 13(a) or 15(d) of
the Exchange Act since December 31, 1998; and
o The description of DSET's Common Stock, no par value, which is
contained in DSET's Registration Statement on Form 8-A filed pursuant
to Section 12(g) of the Exchange Act in the form declared effective by
the SEC on March 12, 1998, and any subsequent amendments or reports
filed for the purpose of updating such description.
DSET will provide to any person, including any beneficial owner of its
securities, to whom this Prospectus is delivered, a copy of any or all of the
information that has been
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<PAGE>
incorporated by reference in this Prospectus but not delivered with this
Prospectus. You may make such requests at no cost to you by writing or
telephoning DSET at the following address or number:
DSET Corporation
1160 US Highway 22 East
Bridgewater, New Jersey 08807
Attention: Human Resources
Telephone: (908) 526-7500
You should rely only on the information incorporated by reference or
provided in this Prospectus or any Prospectus Supplement. DSET has not
authorized anyone else to provide you with different information. DSET is not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this Prospectus or any
Prospectus Supplement is accurate as of any date other than the date on the
front of those documents.
WHERE YOU CAN FIND MORE INFORMATION
DSET files annual, quarterly and special reports, proxy statements and
other information with the SEC. DSET's SEC filings are available to the public
over the Internet at the SEC's website at http://www.sec.gov. You may also read
and copy, at prescribed rates, any document DSET files with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the regional offices of the SEC at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330 for further
information on the SEC's Public Reference Room.
DSET has filed with the SEC a Registration Statement on Form S-8 under the
Securities Act with respect to the Shares offered hereby. This Prospectus, which
constitutes a part of that registration statement, does not contain all the
information contained in the registration statement and its exhibits. For
further information with respect to DSET and the Shares, you should consult the
registration statement and its exhibits. Statements contained in this Prospectus
concerning the provisions of any documents are necessarily summaries of those
documents, and each statement is qualified in its entirety by reference to the
copy of the document filed with the SEC. The registration statement and any of
its amendments, including exhibits filed as a part of the registration statement
or an amendment to the registration statement, are available for inspection and
copying as described above.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14A:3-5 of the New Jersey Business Corporation Act permits each New
Jersey business corporation to indemnify its directors, officers, employees and
agents against expenses and liabilities in connection with any proceeding
involving such persons by reason of his serving or having served in such
capacities or for each such person's acts taken in his or her capacity as a
director, officer, employee or agent of the corporation if such actions were
taken in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the corporation, and with respect to any
criminal proceeding, if he or she had no reasonable
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<PAGE>
cause to believe his or her conduct was unlawful, provided that any such
proceeding is not by or in the right of the corporation.
Section 14A:2-7(3) of the New Jersey Business Corporation Act enables a
corporation in its certificate of incorporation to limit the liability of
directors and officers of the corporation to the corporation or its
shareholders. Specifically, the certificate of incorporation may provide that
directors and officers of the corporation will not be personally liable for
money damages for breach of a duty as a director or an officer, except for
liability: (i) for any breach of the director's or officer's duty of loyalty to
the corporation or its shareholders; (ii) for acts or omissions not in good
faith or which involve a knowing violation of law; (iii) as to directors only,
under Section 14A:6-12(1) of the New Jersey Business Corporation Act, which
relates to unlawful declarations of dividends or other distributions of assets
to shareholders or the unlawful purchase of shares of the corporation; or (iv)
for any transaction from which the director or officer derived an improper
personal benefit.
DSET's Amended and Restated Certificate of Incorporation limits the
liability of its directors and officers as authorized by Section 14A:2-7(3).
Article XI of DSET's Amended and Restated By-laws specifies that DSET shall
indemnify its directors, officers, employees and agents to the extent such
parties are a party to any action because he was a director, officer, employee
or agent of DSET. This provision of the By-laws is deemed to be a contract
between DSET and each director and officer who serves in such capacity at any
time while such provision and the relevant provisions of the New Jersey Business
Corporation Act are in effect, and any repeal or modification thereof shall not
offset any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts. The
affirmative vote of the holders of at least 80% of the voting power of all
outstanding shares of capital stock of DSET is required to adopt, amend or
repeal such provisions of the By-laws.
DSET has executed indemnification agreements with each of its officers and
directors pursuant to which DSET has agreed to indemnify such parties to the
full extent permitted by law, subject to certain exceptions, if such party
becomes subject to an action because such party is a director, officer,
employee, agent or fiduciary of DSET.
DSET has also obtained liability insurance for the benefit of its directors
and officers which will provide coverage for losses of directors and officers
for liabilities arising out of claims against such persons acting as directors
or officers of DSET due to any breach of duty, neglect, error, misstatement,
misleading statement, omission or act done by such directors and officers,
except as prohibited by law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling DSET pursuant to
the foregoing provisions, DSET has been informed that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
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<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
The SEC allows DSET to "incorporate by reference" the information DSET
files with the SEC, which means that DSET can disclose important information to
you by referring you to those documents. The information incorporated by
reference is an important part of this Prospectus, and information that DSET
files later with the SEC will automatically update and supersede this
information. DSET incorporates by reference the documents listed below and any
future filings made by DSET with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act until the filing of a post-effective amendment to this
Prospects which indicates that all securities registered have been sold or which
deregisters all securities then remaining unsold:
o DSET's Annual Report on Form 10-K for the year ended December 31,
1998, filed with the SEC on March 31, 1999;
o All other reports filed by DSET pursuant to Section 13(a) or 15(d) of
the Exchange Act since December 31, 1998; and
o The description of DSET's Common Stock, no par value, which is
contained in DSET's Registration Statement on Form 8-A filed pursuant
to Section 12(g) of the Exchange Act in the form declared effective by
the SEC on March 12, 1998, and any subsequent amendments or reports
filed for the purpose of updating such description.
ITEM 4. DESCRIPTION OF SECURITIES.
Not applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14A:3-5 of the New Jersey Business Corporation Act permits each New
Jersey business corporation to indemnify its directors, officers, employees and
agents against expenses and liabilities in connection with any proceeding
involving such persons by reason of his serving or having served in such
capacities or for each such person's acts taken in his or her capacity as a
director, officer, employee or agent of the corporation if such actions were
taken in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the corporation, and with respect to any
criminal proceeding, if he or she had no reasonable cause to believe his or her
conduct was unlawful, provided that any such proceeding is not by or in the
right of the corporation.
Section 14A:2-7(3) of the New Jersey Business Corporation Act enables a
corporation in its certificate of incorporation to limit the liability of
directors and officers of the corporation to
II-1
<PAGE>
the corporation or its shareholders. Specifically, the certificate of
incorporation may provide that directors and officers of the corporation will
not be personally liable for money damages for breach of a duty as a director or
an officer, except for liability: (i) for any breach of the director's or
officer's duty of loyalty to the corporation or its shareholders; (ii) for acts
or omissions not in good faith or which involve a knowing violation of law;
(iii) as to directors only, under Section 14A:6-12(1) of the New Jersey Business
Corporation Act, which relates to unlawful declarations of dividends or other
distributions of assets to shareholders or the unlawful purchase of shares of
the corporation; or (iv) for any transaction from which the director or officer
derived an improper personal benefit.
DSET's Amended and Restated Certificate of Incorporation limits the
liability of its directors and officers as authorized by Section 14A:2-7(3).
Article XI of DSET's Amended and Restated By-laws specifies that DSET shall
indemnify its directors, officers, employees and agents to the extent such
parties are a party to any action because he was a director, officer, employee
or agent of DSET. This provision of the By-laws is deemed to be a contract
between DSET and each director and officer who serves in such capacity at any
time while such provision and the relevant provisions of the New Jersey Business
Corporation Act are in effect, and any repeal or modification thereof shall not
offset any action, suit or proceeding theretofore or thereafter brought or
threatened based in whole or in part upon any such state of facts. The
affirmative vote of the holders of at least 80% of the voting power of all
outstanding shares of capital stock of DSET is required to adopt, amend or
repeal such provisions of the By-laws.
DSET has executed indemnification agreements with each of its officers and
directors pursuant to which DSET has agreed to indemnify such parties to the
full extent permitted by law, subject to certain exceptions, if such party
becomes subject to an action because such party is a director, officer,
employee, agent or fiduciary of DSET.
DSET has also obtained liability insurance for the benefit of its directors
and officers which will provide coverage for losses of directors and officers
for liabilities arising out of claims against such persons acting as directors
or officers of DSET due to any breach of duty, neglect, error, misstatement,
misleading statement, omission or act done by such directors and officers,
except as prohibited by law.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
The issuance of the Shares being offered by the Form S-3 Reoffer Prospectus
were deemed exempt from registration under the Securities Act in reliance upon
either Section 4(2) of the Securities Act as transactions not involving any
public offering or Rule 701 under the Securities Act as transactions made
pursuant to a written compensatory plan or pursuant to a written contract
relating to compensation.
II-2
<PAGE>
ITEM 8. EXHIBITS.
Exhibit Number Description
- -------------------- ----------------------------------------------------------
4.1 DSET Corporation 1993 Stock Option Plan.
4.2 DSET Corporation 1998 Stock Plan.
5.1 Opinion of Buchanan Ingersoll Professional Corporation.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Buchanan Ingersoll Professional Corporation
(contained in the opinion filed as Exhibit 5.1).
24 Power of Attorney (contained on the signature page of this
Registration Statement).
ITEM 9. UNDERTAKINGS.
a. DSET hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished
to the SEC by DSET pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
b. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
c. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Bridgewater, State of New Jersey, on this 30th
day of November, 1999.
DSET CORPORATION
By: /s/ William P. McHale, Jr.
-------------------------------------
William P. McHale, Jr.
President and Chief Executive Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints William P. McHale, Jr., his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same with all exhibits thereto,
and all documents in connection therewith, with the SEC, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- ---------------------------- ------------------------------- -----------------
/s/ William P. McHale, Jr. President, Chief Executive November 30, 1999
- ---------------------------
William P. McHale, Jr. Officer and Director (Principal
Executive Officer)
/s/ Bruce M. Crowell Chief Financial Officer November 30, 1999
- ---------------------------
Bruce M. Crowell (Principal Financial and
Accounting Officer)
/s/ S. Daniel Shia Chairman of the Board, November 30, 1999
- ---------------------------
S. Daniel Shia Chief Technical Officer and
Director
/s/ Bruce R. Evans Director November 30, 1999
- ---------------------------
Bruce R. Evans
/s/ Jacob J. Goldberg Director November 30, 1999
- ---------------------------
Jacob J. Goldberg
/s/ C. Daniel Yost Director November 30, 1999
- ---------------------------
C. Daniel Yost
- --------------------------- Director
Andrew D. Lipman
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------------- ----------------------------------------------------------
4.1 DSET Corporation 1993 Stock Option Plan.
4.2 DSET Corporation 1998 Stock Plan.
5.1 Opinion of Buchanan Ingersoll Professional Corporation.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Buchanan Ingersoll Professional Corporation
(contained in the opinion filed as Exhibit 5.1).
24 Power of Attorney (contained on the signature page of this
Registration Statement).
EXHIBIT 4.1
DSET Corporation 1993 Stock Option Plan
<PAGE>
DSET CORPORATION
STOCK OPTION PLAN
As Adopted September 15, 1993
As Amended August 5, 1994, September 10, 1996, January 30, 1997
1. PURPOSE. This Stock Option Plan (the "Plan") is established to provide
incentive for selected persons to promote the financial success and
progress to DSET Corporation (the "Company") by granting such persons
options to purchase shares of common stock of the Company.
2. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall be approved by the
shareholders of the Company, in any manner permitted by applicable
corporate law, within twelve (12) months before or after the date this Plan
is adopted by the Board and after the date of certain amendments to the
Plan. In addition, no later than twelve (12) months after the Company
becomes subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") the Company will comply with the requirements
of Rule 16b-3 with respect to shareholder approval.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan (the
"Options") may be either (a) incentive stock options ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986 as amended (the
"Code"), or (b) nonqualified stock options ("NQSOs"), as designated at the
time of grant. The shares of stock that may be purchased upon exercise of
Options granted under this Plan (the "Shares") are shares of the common
stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued pursuant
to Options granted under this Plan is Two Million Three Hundred Sixty
Thousand (2,360,000) Shares, subject to adjustment as provided in this
Plan. If any Option is terminated for any reason without being exercised in
whole or in part, the Shares thereby released from such Option shall be
available for purchase under other Options subsequently granted under this
Plan. At all times during the term of this Plan, the Company shall reserve
and keep available such number of Shares as shall be required to satisfy
the requirements of outstanding Options under this Plan.
5. ADMINISTRATION. This Plan may be administered by the Board of Directors of
the Company or a Committee appointed by the Board (the "Committee"). If, at
the time the Company registers under the Exchange Act, a majority of the
Board is not comprised of Disinterested Persons, the Board shall appoint a
Committee consisting of not less than three persons (who need not be
members of the Board), each of whom is a "Disinterested Person" (as defined
in Section 6(b)(iv) of the Plan). As used in this Plan, references to the
"Committee" shall mean either such Committee or the Board if no Committee
has been established. After registration of the Company under the Exchange
Act, Board members who are not Disinterested Persons may not vote on any
matters affecting the administration of this Plan or on the grant of any
Options pursuant to this Plan to any
<PAGE>
officer or director of the Company or other person (in each case, an
"Insider") whose transactions in the Company's common stock are subject to
Section 16(b) of the Exchange Act, but any such member may be counted for
determining the existence of a quorum at any meeting of the Board during
which action is taken with respect to Options or administration of this
Plan and may vote on the grant of any Options pursuant to this Plan other
than to Insiders. The interpretation by the Committee of any of the
provisions of this Plan or any Option granted under this Plan shall be
final and binding upon the Company and all persons having an interest in
any Option or any Shares purchased pursuant to an Option. The Committee may
delegate the authority to officers of the Company to grant Options under
this Plan to Optionees who are not Insiders of the Company.
6. ELIGIBILITY. Options may be granted only to such employees, officers,
directors and consultants of the Company or any Parent, Subsidiary of
Affiliate of the Company (as defined below) as the Committee shall select
from time to time in its sole discretion ("Optionees"), provided that only
employees of the Company or a Parent or Subsidiary of the Company shall be
eligible to receive ISOs. An Optionee may be granted more than one Option
under this Plan.
(a) Assumption of Options. The Company may, from time to time, assume
outstanding options granted by another company, whether in connection
with an acquisition of such other company or otherwise, by either (i)
granting an option under this Plan in replacement of the option
assumed by the Company, or (ii) treating the assumed option as if it
had been granted under this Plan if the terms of such assumed option
could be applied to an option granted under this Plan. Such assumption
shall be permissible if the holder of the assumed option would have
been eligible to be granted an option hereunder. If the other Company
had applied the rules of this Plan to such grant.
(b) Definitions. As used in the Plan, the following terms shall have the
following meanings:
i. "Parent" means any corporation (other than the Company) in an
unbroken chain of corporation ending with the Company if, at the
time of the granting of the Option, each of such corporations
other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the
other corporations in such chain.
ii. "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at
the time of granting of the Option, each of the corporations
other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
<PAGE>
iii. "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by,
or is under common control with another corporation, where
"control" (including the terms "controlled by" and "under common
control with") means the possession, direct or indirect, of the
power of cause the direction of the management and policies of
the corporation, whether through the ownership of voting
securities, by contract or otherwise.
iv. "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3) as promulgated by the Securities and Exchange
Commission ("SEC") under Section 16(b) of the Exchange Act, as
such rule is amended from time to time and as interpreted by the
SEC.
v. "Fair Market Value" shall mean the fair market value of the
Shares as determined by the Committee from time to time in good
faith. If a public market exists for the Shares, the Fair Market
Value shall be the average of the last reported bid and asked
prices for Common Stock of the Company on the last trading day
prior to the date of determination or, in the event the Common
Stock of the Company is listed on a stock exchange or the NASDAQ
National Market System, the Fair Market Value shall be the
closing price on such exchange or quotation system on the last
trading day prior to the date of determination.
7. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine whether each
Option is to be an ISO or an NQSO, the number of Shares for which the
Option shall be granted, the exercise price of the Option, the periods
during which the Option may be exercised, and all other terms and
conditions of the Option, subject to the following terms and conditions:
(a) Form of Option Grant. Each Option granted under this Plan shall be
evidenced by a written Stock Option Grant ("Grant") in such form
(which need not be the same for each Optionee) as the Committee shall
from time to time approve, which Grant shall comply with and be
subject to the terms and conditions of this Plan.
(b) Exercise Price. The exercise price of an Option shall be not less than
the Fair Market Value of the Shares, at the time that the Option is
granted. The exercise price of any Option granted to a person owning
10% or more of the total combined voting power of all classes of stock
of the Company or any Parent or subsidiary of the Company ("Ten
Percent Shareholder") shall not be less than 110% of the Fair Market
Value of the Shares at the time of the grant, as determined by the
Committee in good faith.
(c) Exercise Period. Options shall be exercisable within the times or upon
the events determined by the Committee as set forth in the Grant,
provided, however, that no Option shall be exercisable after the
expiration of ten years from the date the
<PAGE>
Option is granted, and provided further that no Option granted to a
Ten Percent Shareholder shall be exercisable after the expiration of
five years from the date the Option is granted.
(d) Limitations on ISOs. The aggregate Fair Market Value (determined as of
the time an Option is granted) of stock with respect to which ISOs are
exercisable for the first time by an Optionee during the calendar year
(under this Plan or under any other incentive stock option plan of the
Company or any Parent or Subsidiary of the Company) shall not exceed
$100,000. If the Fair Market Value of stock with respect to which ISOs
are first exercised exceeds $100,000, the Options for the first
$100,000 worth of stock shall be ISOs and options for the amount in
excess of $100,000 shall be NQSOs.
(e) Date of Grant. The date of grant of an Option shall be the date on
which the Committee makes the determination to grant such Option
unless otherwise specified by the Committee. The Grant representing
the Option shall be delivered to the Optionee within a reasonable time
after the granting of the Option.
(f) Assumed Options. In the event the Company assumes an option granted by
another company, the terms and conditions of such option shall remain
unchanged (except the exercise price and the number and nature of
shares issuable upon exercise, which will be adjusted appropriately
pursuant to Section 424(c) of the Code). In the event the Company
elects to grant a new option rather than assuming an existing option
(as specified in Section 6(a), such new option need not be granted at
Fair Market Value on the date of grant and may instead be granted with
a similarly adjusted exercise price.
8. EXERCISE OF OPTIONS.
(a) Notice. Options may be exercised only by delivery to the Company of a
written notice and exercise agreement in a form approved by the
Committee, stating the number of Shares being purchased, the
restrictions imposed on the Shares and such representations and
agreements regarding the Optionee's investment intent and access to
information as may be required by the Company to comply with
applicable securities laws together with payment in full of the
exercise price for the number of Shares being purchased.
(b) Payment. Payment for the Shares may be made (i) in cash (by check);
(ii) by surrender of shares of common stock of the Company that have
been owned by Optionee for more than six (6) months (and which have
been paid for within the meaning of SEC Rule 144 and, if such shares
were purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares) or were obtained by
the Optionee in the open public market, having a Fair Market Value
equal to the exercise price of the Option; (iii) where permitted by
applicable law and approved by the Committee in its sole discretion,
by tender of
<PAGE>
a full recourse promissory note having such terms as may be approved
by the Committee; (iv) provided that a public market for the Company's
stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of
Securities Dealers (a "NASD Dealer") whereby the Optionee irrevocably
elects to exercise the Option and to sell a portion of the Shares so
purchased to pay for the exercise price and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company; or (v) by any combination of
the foregoing where approved by the Committee in its sole discretion.
Optionees who are not employees or directors of the Company shall not
be entitled to purchase Shares with a promissory note unless the note
is adequately secured by collateral other than the Shares.
(c) Withholding Taxes. Prior to issuance of the Shares upon exercise of an
Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if
applicable.
(d) Limitations on Exercise. Notwithstanding the exercise periods set
forth in the Grant, exercise of an Option shall always be subject to
the following limitations:
i. If an Optionee ceases to be employed by the Company or any
Parent, Subsidiary or Affiliate of the Company for any reason
except death or disability, the Optionee may exercise such
Optionee's Options to the extent (and only to the extent) that it
would have been exercisable upon the date of termination, within
three (3) months after the date of termination (or such shorter
time period as may be specified in the Grant), provided that, if
Optionee is an Insider and the Company is subject to Section
16(b) of the Exchange Act, the Optionee's Option will be
exercisable for a period of time sufficient to allow such
Optionee from having a matching purchase and sale under Section
16(b), with any extension beyond three (3) months from
termination of employment in the case of an Option constituting
an ISO being deemed to be an NQSO, and provided further that in
no event may an Option be exercisable later than the expiration
date of the Option.
ii. If an Optionee's employment with the Company or any Parent,
Subsidiary or Affiliate of the Company is terminated because of
the death of the Optionee or disability of the Optionee within
the meaning of Section 22(e)(3) of the Code, such Optionee's
Options may be exercised to the extent (and only to the extent)
that it would have been exercisable by the Optionee on the date
of termination, by the Optionee (or the Optionee's legal
representative) within twelve (12) months after the date of
termination (or such shorter time period as may be specified in
the Grant), but in any event no later than the expiration date of
the Options.
iii. The Committee shall have discretion to determine whether the
Optionee has ceased to be employed by the Company or any Parent,
Subsidiary or
<PAGE>
Affiliate of the Company and the effective date on which such
employment terminated.
iv. In the case of an Optionee who is a director, independent
consultant, contractor or advisor, the Committee will have the
discretion to determine whether the Optionee is "employed by the
Company or any Parent, Subsidiary or Affiliate of the Company"
pursuant to the foregoing Sections.
v. An Option shall not be exercisable unless such exercise is in
compliance with the Securities Act of 1933, as amended, and all
applicable state securities laws, as they are in effect on the
date of exercise.
vi. An Option shall not be exercisable if the Optionee is in default
of any obligations owed the Company or any Parent, Subsidiary or
Affiliate of the Company, whether by operation of law or pursuant
to contract.
vii. The Committee may specify a reasonable minimum number of Shares
that may be purchased on any exercise of an Option, provided that
such minimum number will not prevent the Optionee from exercising
the full number of Shares as to which the Option is then
exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an
Option shall be exercisable only by the Optionee. No Option may be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent and distribution.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the rights of
a shareholder with respect to any Shares subject to an Option until the
Option has been validly exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date is
prior to the date of exercise, except as provided in this Plan. The Company
shall provide to each Optionee a copy of the annual financial statements of
the Company, at such time after the close of each fiscal year of the
Company as they are released by the Company to its shareholders.
11. ADJUSTMENT OF OPTIONS SHARES. In the event that the number of outstanding
shares of common stock of the Company is changed by a stock dividend, stock
split, reverse stock split, combination, reclassification or similar change
in the capital structure of the Company without consideration, the number
of Shares available under this Plan and the number of Shares subject to
outstanding options and the exercise price per share of such Options shall
be proportionately adjusted, subject to any required action by the Board or
shareholders of the Company and compliance with applicable securities laws;
provided, however, that no certificate or scrip representing fractional
shares shall be issued upon exercise of any Option and any resulting
fractions of a Share shall be ignored.
12. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted under
this Plan shall confer on any Optionee any right to continue in the employ
of the Company or any Parent, Subsidiary or Affiliate of the Company or
limit in any way the right of the
<PAGE>
Company or any Parent, Subsidiary or Affiliate of the Company to terminate
the Optionee's employment at any time, with or without cause.
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of Shares upon
exercise of any Options shall be subject to and conditioned upon compliance
with all applicable requirements of law, including without limitation
compliance with the Securities Act of 1933, as amended, any required
approval by the Secretary of State of New Jersey, compliance with all other
applicable state securities laws and compliance with the requirements of
any stock exchange on which the Shares may be listed. The Company shall be
under no obligation to register the Shares with the SEC or to effect
compliance with the registration or qualification requirements of any state
securities laws or stock exchange.
14. RESTRICTIONS ON SHARES. At the discretion of the Committee, the Company may
reserve to itself or its assignee(s) in the Grant (a) a right of first
refusal to purchase any Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party and (b) a right to
repurchase all Shares held by an Optionee upon the Optionee's termination
of employment or service with the Company or its Parent, Subsidiary or
Affiliate of the Company for any reason within a specified time as
determined by the Committee at the time of grant at (i) the Optionee's
original purchase price (provided that the right to repurchase at such
price shall lapse at the rate of at least 20% per year from the date of
grant), (ii) the Fair Market Value of such Shares as determined by the
Committee in good faith or (iii) a price determined by a formula or other
provision set forth in the Grant.
15. ASSUMPTION OF OPTIONS BY SUCCESSORS. In the event of a dissolution or
liquidation of the Company, a merger in which the Company is not the
surviving corporation, or the sale of substantially all of the assets of
the Company, any or all outstanding Options shall, notwithstanding any
contrary terms of the Grant, accelerate and become exercisable in full at
least ten days prior to (and shall expire on) the consummation of such
dissolution, liquidation, merger or sale of stock or sale of assets on such
conditions as the Committee shall determine unless the successor
corporation assumes the outstanding Options or substitutes substantially
equivalent options. The aggregate Fair Market Value (determined at the time
an Option is granted) of stock with respect to ISOs which first become
exercisable in the year of such dissolution, liquidation merger, sale of
stock or sale of assets cannot exceed $100,000. Any remaining accelerated
ISOs shall be NQSOs.
16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time terminate
or amend this Plan in any respect (including, but not limited to, any form
of Grant, agreement or instrument to be executed pursuant to this Plan);
provided, however, that the Committee shall not, without the approval of
the holders of a majority of the outstanding voting shares of the Company,
amend this Plan in any manner that requires such shareholder approval
pursuant to the Code or the regulations promulgated
<PAGE>
thereunder as such provisions apply to incentive stock option plans or
pursuant to the Exchange Act or Rule 16b-3 (or its successor) promulgated
thereunder.
17. TERM OF PLAN. Options may be granted pursuant to this Plan from time to
time within a period of ten years from the date this Plan is adopted by the
Board of Directors.
EXHIBIT 4.2
DSET Corporation 1998 Stock Plan
<PAGE>
DSET CORPORATION
1998 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
--------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, non-Employee
members of the Board and Consultants of the Company and its Subsidiaries and to
promote the success of the Company's business. Options granted under the Plan
may be incentive stock options (as defined under Section 422 of the Code) or
non-statutory stock options, as determined by the Administrator at the time of
grant of an option and subject to the applicable provisions of Section 422 of
the Code, as amended, and the regulations promulgated thereunder. Stock purchase
rights may also be granted under the Plan.
2. Certain Definitions. As used herein, the following definitions shall
-------------------
apply:
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board of
---------
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock, without par value, of the
------------
Company.
(f) "Company" means DSET Corporation, a New Jersey corporation.
-------
(g) "Consultant" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(h) "Continuous Status as an Employee" means the absence of any
----------------------------------
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Board, provided that such leave is for a period of not
more than ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) transfers between
locations of the Company or between the Company, its Subsidiaries or its
successor.
<PAGE>
(i) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the value of Common
------------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
Nasdaq National Market, its Fair Market Value shall be the closing
sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange for the last market
trading day prior to the time of determination as reported in the Wall
Street Journal or such other source as the Administrator deems
reliable; or
(ii) If the Common Stock is quoted on Nasdaq (but not on the
National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high and low asked prices for the
Common Stock; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith
by the Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code.
(m) "Nonstatutory Stock Option" means an Option not intended to
---------------------------
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
------
(o) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(p) "Optionee" means an Employee or Consultant who receives an Option.
--------
(q) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this 1998 Stock Plan.
----
(s) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of stock purchase rights under Section 11 below.
-2-
<PAGE>
(t) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(u) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 1,800,000 shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
If an option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
(i) Administration With Respect to Directors and Officers. With
-----------------------------------------------------
respect to grants of Options or stock purchase rights to Employees who are
also officers or directors of the Company, the Plan shall be administered
by (A) the Board if the Board may administer the Plan in compliance with
Rule 16b-3 promulgated under the Exchange Act or any successor thereto
("Rule 16b-3"), or (B) a Committee designated by the Board to administer
the Plan, which Committee shall be constituted in such a manner as to
permit the Plan to comply with Rule 16b-3. Once appointed, such Committee
shall continue to serve in its designated capacity until otherwise directed
by the Board. 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, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
Rule 16b-3 with respect to a plan intended to qualify thereunder.
(ii) Multiple Administrative Bodies. If permitted by Rule 16b-3,
------------------------------
the Plan may be administered by different bodies with respect to directors,
non-director officers and Employees who are neither directors nor officers.
(iii) Administration With Respect to Consultants and Other
-----------------------------------------------------------
Employees. With respect to grants of Options or stock purchase rights to
---------
Employees who are neither directors nor officers of the Company or to
Consultants, the Plan shall be administered by (A) the Board, if the Board
may administer the Plan in compliance with Rule 16b-3, or (B) a Committee
designated by the Board, which Committee shall be constituted in such a
manner as to satisfy the legal requirements relating to the administration
of incentive stock option plans, if any, of New Jersey corporate law and
applicable securities laws and
-3-
<PAGE>
of the Code (the "Applicable Laws"). Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by
the Board. 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, and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
----------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the officers, Consultants and Employees to whom
Options and stock purchase rights may from time to time be granted
hereunder;
(iii) to determine whether and to what extent Options and stock
purchase rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but
not limited to, the share price and any restriction or limitation or waiver
of forfeiture restrictions regarding any Option or other award and/or the
shares of Common Stock relating thereto, based in each case on such factors
as the Administrator shall determine, in its sole discretion);
(vii) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or at the
election of the participant (including providing for and determining the
amount, if any, of any deemed earnings on any deferred amount during any
deferral period);
(ix) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option shall have declined since the date the Option was
granted; and
-4-
<PAGE>
(x) to determine the terms and restrictions applicable to stock
purchase rights and the Restricted Stock purchased by exercising such stock
purchase rights.
(c) Effect of Committee's Decision. All decisions, determinations and
------------------------------
interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of any Options.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause.
6. Term of Plan. The Plan shall become effective upon the effectiveness
------------
of the Company's Registration Statement (Reg. No. 333-43827) filed with the
Securities and Exchange Commission, provided the Plan has been previously
adopted by the Board of Directors and approved by the shareholders of the
Company as described in Section 19 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 15 of the Plan.
-5-
<PAGE>
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option Agreement.
However, in the case of an Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less
than 110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that
-6-
<PAGE>
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the option is
exercised, (6) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price, (7) by
delivering an irrevocable subscription agreement for the Shares which
irrevocably obligates the option holder to take and pay for the Shares not more
than twelve months after the date of delivery of the subscription agreement, (8)
any combination of the foregoing methods of payment, or (9) such other
consideration and method of payment for the issuance of Shares to the extent
permitted under Applicable Laws. In making its determination as to the type of
consideration to accept, the Administrator shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
---------------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment. In the event of termination of an
---------------------------
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (as the case may be), such Optionee may, but only within ninety (90)
days (or such other period of time as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding ninety (90) days) after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth
-7-
<PAGE>
in the Option Agreement), exercise his Option to the extent that Optionee was
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event of termination of an Optionee's consulting relationship
or Continuous Status as an Employee as a result of his total and permanent
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only
within twelve (12) months from the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
-----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. The terms of the Option shall be
binding upon the executors, administrators, heirs, successors and assigns of the
Optionee.
-8-
<PAGE>
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock purchase rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer stock purchase rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 50% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the stock purchase right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the Committee
may determine.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the stock purchase right is
------------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock purchase right is exercised, except as provided in Section 13
of the Plan.
12. Stock Withholding to Satisfy Withholding Tax Obligations. At the
------------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or stock purchase right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by electing to
have the Company withhold
-9-
<PAGE>
from the Shares to be issued upon exercise of the Option, or the Shares to be
issued in connection with the stock purchase right, if any, that number of
Shares having a Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose
shall be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election must comply
with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or stock purchase
right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
13. Adjustments Upon Changes in Capitalization or Merger. Subject to
----------------------------------------------------
any required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into
-10-
<PAGE>
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 of Common Stock
subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger or consolidation of the Company with or into
another corporation or the sale of all or substantially all of the Company's
assets (hereinafter, a "merger"), the Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation. In the event that such successor
corporation does not agree to assume the Option or to substitute an equivalent
option, the Board shall, in lieu of such assumption or substitution, provide for
the Optionee to have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which the Option would not otherwise be
exercisable. If the Board makes an Option fully exercisable in lieu of
assumption or substitution in the event of a merger, the Board shall notify the
Optionee that the Option shall be fully exercisable for a period of fifteen (15)
days from the date of such notice, and the Option will terminate upon the
expiration of such period. For the purposes of this paragraph, the Option shall
be considered assumed if, following the merger, the Option or right confers the
right to purchase, for each Share of stock subject to the Option immediately
prior to the merger, the consideration (whether stock, cash, or other securities
or property) received in the merger by holders of Common Stock for each Share
held on the effective date of the transaction (and if holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger was not solely common stock of the
successor corporation or its Parent, the Board may, with the consent of the
successor corporation and the participant, provide for the consideration to be
received upon the exercise of the Option, for each Share of stock subject to the
Option, to be solely common stock of the successor corporation or its Parent
equal in Fair Market Value to the per share consideration received by holders of
Common Stock in the merger or sale of assets.
14. Time of Granting Options. The date of grant of an Option shall, for
-------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
-11-
<PAGE>
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
---------------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
-------------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
18. Agreements. Options and stock purchase rights shall be evidenced by
----------
written agreements in such form as the Board shall approve from time to time.
19. Shareholder Approval. Continuance of the Plan shall be subject to
---------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law.
-12-
<PAGE>
20. Information to Optionees. The Company shall provide to each Optionee,
------------------
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
shareholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
-13-
EXHIBIT 5.1
Opinion of Buchanan Ingersoll Professional Corporation
<PAGE>
Buchanan Ingersoll Professional Corporation
(Incorporated in Pennsylvania)
650 College Road East
Princeton, New Jersey 08540
December 8, 1999
DSET Corporation
1160 U.S. Highway 22 East
Bridgewater, New Jersey 08807
Gentlemen:
We have acted as counsel to DSET Corporation, a New Jersey corporation (the
"Company"), in connection with the filing by the Company of a registration
statement on Form S-8 (the "Registration Statement"), under the Securities Act
of 1933, as amended, relating to the registration of an aggregate of 4,687,689
shares (the "Shares") of the Company's Common Stock, no par value, of which: (i)
1,253,834 have been issued pursuant to options previously granted by the Company
to its employees, officers, directors and consultants under the Company's 1993
Stock Option Plan (the "1993 Plan Shares"); (ii) 1,633,855 are issuable pursuant
to options previously granted by the Company to its employees, officers,
directors and consultants upon the exercise of options granted under the
Company's 1993 Stock Option Plan ("the 1993 Plan Option Shares"); (iii) 704 have
been issued pursuant to options previously granted by the Company to its
employees, officers, directors and consultants under the Company's 1998 Stock
Plan (the "1998 Plan Shares"); and (iv) 1,799,296 are issuable by the Company to
its employees, officers, directors and consultants upon the exercise of options
granted or to be granted under the Company's 1998 Stock Plan (the "1998 Plan
Option Shares"). The 1993 Stock Option Plan and the 1998 Stock Plan are referred
to collectively as the "Plans."
In connection with the Registration Statement, we have examined such
corporate records and documents, other documents and such questions of law as we
have deemed necessary or appropriate for purposes of this opinion. On the basis
of such examination, it is our opinion that:
1) The issuance of the Shares has been duly and validly authorized;
2) The 1993 Plan Shares and the 1998 Plan Shares have been legally
issued and are fully paid and non-assessable shares of the
Company's Common Stock; and
3) The 1993 Plan Option Shares and the 1998 Plan Option Shares, when
issued, delivered and sold in accordance with the terms of the
respective Plan and the stock options, or other instruments
authorized by such Plans, granted or to be granted thereunder,
will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement.
Very truly yours
Buchanan Ingersoll Professional Corporation
/s/ William J. Thomas, Esq.
-----------------------------
William J. Thomas, Esq.
A Member of the Firm
EXHIBIT 23.1
Consent of PricewaterhouseCoopers LLP
<PAGE>
Exhibit 23.1
INDEPENDENT ACCOUNTANTS' CONSENT
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-8 of our report dated
February 2, 1999 which appears in the 1998 Annual Report to Shareholders of DSET
Corporation on Form 10-K for the year ended December 31, 1998. We hereby consent
to the reference to us under the heading "Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
Florham Park, NJ
December 7, 1999
EXHIBIT 23.2
Consent of Buchanan Ingersoll Professional Corporation
(contained in the opinion filed as Exhibit 5.1)
EXHIBIT 24
Power of Attorney
(contained on the signature page of this Registration Statement)
