<PAGE>
________________________________________________________________________________
SCHEDULE 14A
(RULE 14a-101)
-------------------
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
-------------------
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
-------------------
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
DSET CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
___________________________________________________________________________
(2) Aggregate number of securities to which transactions applies:
___________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
__
(4) Proposed maximum aggregate value of transaction:
___________________________________________________________________________
(5) Total fee paid:
___________________________________________________________________________
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
___________________________________________________________________________
(2) Form, Schedule or Registration Statement no.:
___________________________________________________________________________
(3) Filing Party:
___________________________________________________________________________
(4) Date Filed:
___________________________________________________________________________
________________________________________________________________________________
<PAGE>
DSET CORPORATION
1160 US HIGHWAY 22 EAST
BRIDGEWATER, NJ 08807
April 28, 2000
To Our Shareholders:
You are cordially invited to attend the 2000 Annual Meeting of Shareholders
of DSET Corporation at 1:00 P.M., local time, on Wednesday, May 24, 2000, at the
Somerset Hills Hotel, 200 Liberty Corner Road, Warren, New Jersey.
The Notice of Meeting and Proxy Statement on the following pages describe
the matters to be presented at the meeting.
It is important that your shares be represented at this meeting to ensure
the presence of a quorum. Whether or not you plan to attend the meeting, we hope
that you will have your shares represented by signing, dating and returning your
proxy in the enclosed envelope, which requires no postage if mailed in the
United States, as soon as possible. Your shares will be voted in accordance with
the instructions you have given in your proxy.
Thank you for your continued support.
Sincerely,
WILLIAM P. MCHALE, JR.
WILLIAM P. MCHALE, JR.
President and
Chief Executive Officer
<PAGE>
DSET CORPORATION
1160 US HIGHWAY 22 EAST
BRIDGEWATER, NJ 08807
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 24, 2000
The Annual Meeting of Shareholders (the 'Meeting') of DSET CORPORATION, a
New Jersey corporation (the 'Company'), will be held at the Somerset Hills
Hotel, 200 Liberty Corner Road, Warren, New Jersey, on Wednesday, May 24, 2000,
at 1:00 P.M., local time, for the following purposes:
(1) To elect five (5) directors to serve until the next Annual Meeting
of Shareholders and until their respective successors shall have been duly
elected and qualified;
(2) To approve the proposal to amend the Company's 1998 Stock Plan to
increase the maximum aggregate number of shares of Common Stock available
for issuance thereunder from 1,800,000 shares to 2,500,000 shares and to
reserve an additional 700,000 shares of Common Stock of the Company for
issuance in connection with awards granted under the 1998 Stock Plan;
(3) To ratify the appointment of PricewaterhouseCoopers LLP as
independent auditors for the year ending December 31, 2000; and
(4) To transact such other business as may properly come before the
Meeting or any adjournment or adjournments thereof.
Holders of Common Stock of record at the close of business on April 17, 2000
are entitled to notice of and to vote at the Meeting, or any adjournment or
adjournments thereof. A complete list of such shareholders will be open to the
examination of any shareholder at the Meeting. The Meeting may be adjourned from
time to time without notice other than by announcement at the Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER OF
SHARES YOU MAY HOLD. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. THE PROMPT RETURN OF PROXIES WILL ENSURE A QUORUM
AND SAVE THE COMPANY THE EXPENSE OF FURTHER SOLICITATION. EACH PROXY GRANTED MAY
BE REVOKED BY THE SHAREHOLDER APPOINTING SUCH PROXY AT ANY TIME BEFORE IT IS
VOTED. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE
REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH SUCH PROXY CARD SHOULD BE
SIGNED AND RETURNED TO ENSURE THAT ALL OF YOUR SHARES WILL BE VOTED.
By Order of the Board of Directors,
BRUCE M. CROWELL
BRUCE M. CROWELL
Secretary
Bridgewater, New Jersey
April 28, 2000
THE COMPANY'S 1999 ANNUAL REPORT ACCOMPANIES THE PROXY STATEMENT.
<PAGE>
DSET CORPORATION
1160 US HIGHWAY 22 EAST
BRIDGEWATER, NJ 08807
----------------------------
PROXY STATEMENT
----------------------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of DSET Corporation (the 'Company') of proxies to be voted at
the Annual Meeting of Shareholders of the Company to be held on Wednesday,
May 24, 2000 (the 'Meeting') at the Somerset Hills Hotel, 200 Liberty Corner
Road, Warren, New Jersey at 1:00 P.M., local time, and at any adjournment or
adjournments thereof. Holders of record of shares of Common Stock, no par value
('Common Stock'), as of the close of business on April 17, 2000, will be
entitled to notice of and to vote at the Meeting and any adjournment or
adjournments thereof. As of that date, there were 11,232,148 shares of Common
Stock issued and outstanding and entitled to vote. Each share of Common Stock is
entitled to one vote on any matter presented at the Meeting. The number of votes
entitled to be cast at the Meeting is 11,232,148.
If proxies in the accompanying form are properly executed and returned, the
Common Stock represented thereby will be voted in the manner specified therein.
If not otherwise specified, the shares of Common Stock represented by the
proxies will be voted (i) FOR the election of the five (5) nominees named below
as Directors, (ii) FOR a proposal to amend the Company's 1998 Stock Plan (the
'1998 Stock Plan') to increase the maximum aggregate number of shares of Common
Stock available for issuance under the 1998 Stock Plan from 1,800,000 shares to
2,500,000 shares and to reserve an additional 700,000 shares of Common Stock of
the Company for issuance in connection with awards granted under the 1998 Stock
Plan, (iii) FOR the ratification of the appointment of PricewaterhouseCoopers
LLP as independent auditors for the year ending December 31, 2000, and (iv) in
the discretion of the persons named in the enclosed form of proxy, on any other
proposals which may properly come before the Meeting or any adjournment or
adjournments thereof. Any Shareholder who has submitted a proxy may revoke it at
any time before it is voted, by written notice addressed to and received by the
Secretary of the Company, by submitting a duly executed proxy bearing a later
date or by electing to vote in person at the Meeting. The mere presence at the
Meeting of the person appointing a proxy does not, however, revoke the
appointment.
The presence, in person or by proxy, of holders of shares of Common Stock
having a majority of the votes entitled to be cast at the Meeting shall
constitute a quorum. The affirmative vote by the holders of a plurality of the
shares of Common Stock represented at the Meeting is required for the election
of Directors, provided a quorum is present in person or by proxy. All actions
proposed herein other than the election of Directors may be taken upon the
affirmative vote of Shareholders possessing a majority of the shares of Common
Stock represented at the Meeting, provided a quorum is present in person or by
proxy.
Abstentions are included in the shares present at the Meeting for purposes
of determining whether a quorum is present, and are counted as a vote against
for purposes of determining whether a proposal is approved. Broker non-votes
(when shares are represented at the Meeting by a proxy specifically conferring
only limited authority to vote on certain matters and no authority to vote on
other matters) are included in the determination of the number of shares
represented at the Meeting for purposes of determining whether a quorum is
present but are not counted for purposes of determining whether a proposal has
been approved and thus have no effect on the outcome.
This Proxy Statement, together with the related proxy card, is being mailed
to the Shareholders of the Company on or about April 28, 2000. The Annual Report
to Shareholders of the Company for the year ended December 31, 1999, including
financial statements (the 'Annual Report'), is being mailed together with this
Proxy Statement to all Shareholders of record as of April 17, 2000. In addition,
the Company has provided brokers, dealers, banks, voting trustees and their
nominees, at the Company's expense, with additional copies of the Annual Report
so that such record holders could supply such materials to beneficial owners as
of April 17, 2000.
<PAGE>
ELECTION OF DIRECTORS
At the Meeting, five Directors are to be elected (which number shall
constitute the entire Board of Directors of the Company) to hold office until
the next Annual Meeting of Shareholders and until their successors shall have
been elected and qualified.
It is the intention of the persons named in the enclosed form of proxy to
vote the shares of Common Stock represented thereby, unless otherwise specified
in the proxy, for the election as Directors of the persons whose names and
biographies appear below. All of the persons whose names and biographies appear
below are at present Directors of the Company. In the event any of the nominees
should become unavailable or unable to serve as a Director, it is intended that
votes will be cast for a substitute nominee designated by the Board of
Directors. The Board of Directors has no reason to believe that the nominees
named will be unable to serve if elected. Each of the nominees has consented to
being named in this Proxy Statement and to serve if elected.
The nominees for election to the Board who are current members of the Board
of Directors are as follows:
<TABLE>
<CAPTION>
SERVED AS A POSITIONS WITH
NAME AGE DIRECTOR SINCE THE COMPANY
- ---- --- -------------- -----------
<S> <C> <C> <C>
William P. McHale, Jr................ 51 1997 President, Chief Executive Officer
and Director
Bruce R. Evans....................... 41 1995 Director
Jacob J. Goldberg.................... 53 1999 Director
C. Daniel Yost....................... 51 1999 Director
Andrew D. Lipman..................... 49 1999 Director
</TABLE>
An additional member of the Board of Directors is not standing for
re-election to the Board:
<TABLE>
<CAPTION>
SERVED AS A POSITIONS WITH
NAME AGE DIRECTOR SINCE THE COMPANY
- ---- --- -------------- -----------
<S> <C> <C> <C>
S. Daniel Shia....................... 48 1989 Chairman of the Board and Director
</TABLE>
The principal occupations and business experience, for at least the past
five years, of each nominee are as follows:
Mr. McHale joined the Company in January 1997 as President and Chief
Operating Officer and was elected to the Board of Directors in January 1997. In
July 1997, he became Chief Executive Officer. Prior to joining the Company,
Mr. McHale was Vice President of Sales and Marketing at F3 Software Corporation
from January 1995 to December 1996. From February 1991 to December 1994,
Mr. McHale owned and operated a private firm where he periodically provided
senior management or consulting services. Mr. McHale also served as President
and Chief Executive Officer of each of Mitchell Management Systems from November
1989 to January 1991, and Component Software Corporation from July 1992 to July
1994. Prior to that, Mr. McHale held various sales and marketing positions at
IBM, Wang Laboratories and Digital Equipment Corporation.
Mr. Evans has been a Director of the Company since December 1995. Since
1991, Mr. Evans has been a general partner with Summit Partners, a venture
capital firm, where he has been employed since 1986. Mr. Evans serves as a
director of Pediatrix Medical Group, Inc., Omtool Ltd. and several
privately-held companies.
Mr. Goldberg has been a Director of the Company since March 1999. From
August 1997 until his retirement in March 2000, Mr. Goldberg served as President
of Telecom Industry Services for Bell Atlantic. From January 1994 to August
1997, Mr. Goldberg served as Vice President of Wholesale Markets for NYNEX
overseeing marketing, sales and customer service provided to NYNEX's wholesale
customers. Prior to that, from 1989 to December 1993, Mr. Goldberg served as
Vice President of Network Interconnection Marketing and Sales and Managing
Director of Access Markets at NYNEX.
Mr. Yost has been a Director of the Company since September 1999. Mr. Yost
has over 26 years experience in telecommunications and business. Mr. Yost
currently serves on the board of directors of ADC Telecommunications Inc., a
publicly traded global supplier of transmission and networking systems for
telecommunications networks, and Ace Cash Express Inc., a publicly traded
provider of retail financial services. Mr. Yost has served as President and
Chief Operating Officer of Allegiance Telecom since February 1998. He was
elected to Allegiance Telecom's board in March 1998. Before
2
<PAGE>
joining Allegiance Telecom, from July 1997 to February 1998, he served as
President and Chief Operating Officer for U.S. Operations at NETCOM On-Line
Communication Services, Inc., a leading internet service provider. Mr. Yost
managed all aspects of domestic operations, including development and
implementation of overall strategic direction. Prior to that, from June 1994 to
July 1997, Mr. Yost was President of the Southwest region of AT&T Wireless
Services, Inc. Mr. Yost has also served as President of McCaw Cellular
Communications/LIN Broadcasting in the Southwest region and was President,
General Manager, and founder of MetroCel Cellular Telephone Company.
Mr. Lipman has been a Director of the Company since November 1999.
Mr. Lipman is currently the Vice Chairman of the Washington D.C. law firm
Swidler Berlin Shereff Friedman, LLP, and a Senior Partner in the firm's
Telecommunications Group. Mr. Lipman has over twenty years of experience in the
telecommunications industry and has advised various Internet, technology, and
telecommunications companies establishing operations in Europe and Asia.
Mr. Lipman also served as Vice President of legal and regulatory affairs at
Metropolitan Fiber Systems.
All Directors hold office until the next annual meeting of Shareholders and
until their successors shall have been duly elected and qualified. There are no
family relationships among any of the Directors, executive officers and key
employees of the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF THE
NOMINEES FOR THE BOARD OF DIRECTORS.
COMMITTEES AND MEETINGS OF THE BOARD
The Board of Directors has a Compensation Committee (the 'Compensation
Committee'), which approves salaries and incentive compensation for executive
officers of the Company and which administers the Company's stock option plans,
and an Audit Committee (the 'Audit Committee'), which reviews the results and
scope of the audit and other services provided by the Company's independent
accountants. In addition, pursuant to the new rules promulgated by the
Securities and Exchange Commission (the 'SEC') and the Nasdaq National Market
which went into effect on March 15, 2000, the Audit Committee will also be
responsible for: (i) reviewing the audited financial statements and Annual
Report of the Company, as well as the Company's unaudited quarterly financial
statements and reports; and (ii) discussing such matters with the Company's
management and independent public accountants. The Compensation Committee
currently consists of Bruce R. Evans and Jacob J. Goldberg. The Compensation
Committee held four meetings in 1999. The Audit Committee currently consists C.
Daniel Yost, Andrew D. Lipman and Jacob J. Goldberg, all of whom are independent
Directors. The Audit Committee held two meetings in 1999. The Company intends to
adopt an Audit Committee Charter at its next meeting of the Board of Directors.
During 1999, there were six meetings of the Board of Directors and three actions
by written consent of Directors. Each incumbent Director attended at least 75%
of the aggregate of all meetings of the Board of Directors held during the
period in which they served as a Director and the total number of meetings held
by the committee on which they served during the period, if applicable.
COMPENSATION OF DIRECTORS
Directors who are not employees or affiliates of the Company or its
subsidiaries, who currently consist of Mr. Goldberg, Mr. Yost, and Mr. Lipman,
receive an annual stipend of $10,000 per year and $2,000 for each meeting of the
Board of Directors or committee meeting attended. All Directors are reimbursed
for reasonable expenses incurred as a result of their attendance at Board
meetings.
Pursuant to the Company's 1998 Stock Plan, the Company granted to
Mr. Lipman options to purchase 25,000 shares of Common Stock on November 15,
1999, at an exercise price of $17.375 per share. The options vest to the extent
of one-third of the shares on each of November 15, 2000, 2001 and 2002.
Pursuant to the Company's 1998 Stock Plan, the Company granted to Mr. Yost
options to purchase 25,000 shares of Common Stock on September 14, 1999, at an
exercise price of $12.28 per share. The options vest to the extent of one-third
of the shares on each of September 14, 2000, 2001 and 2002.
Pursuant to the Company's 1998 Stock Plan, the Company granted to
Mr. Goldberg options to purchase 25,000 shares of Common Stock on March 9, 1999,
at an exercise price of $10.75 per share. The options vest to the extent of
one-third of the shares on each of March 9, 2000, 2001 and 2002.
3
<PAGE>
Mr. Evans does not currently hold options to purchase shares of the
Company's Common Stock.
EXECUTIVE OFFICERS
The following table identifies the current executive officers of the
Company:
<TABLE>
<CAPTION>
CAPACITIES IN IN CURRENT
NAME AGE WHICH SERVED POSITION SINCE
- ---- --- ------------ --------------
<S> <C> <C> <C>
William P. McHale, Jr................... 51 President, Chief Executive January 1997
Officer and Director (Chief Executive
Officer since July
1997)
S. Daniel Shia(1)....................... 48 Chairman of the Board and July 1997
Director
Bruce M. Crowell(2)..................... 45 Vice President, Chief August 1999
Financial Officer and
Secretary
Paul R. Smith(3)........................ 53 Senior Vice President, February 1999
Strategic Planning and
Product Management
</TABLE>
- ---------
(1) Mr. Shia founded the Company and currently serves as its Chairman of the
Board. In connection with Mr. Shia's decision not to stand for re-election
to the Board of Directors, Mr. Shia's term as Chairman of the Board will
terminate upon the election of the new Board of Directors. Mr. Shia served
as President from the Company's founding in 1989 until January 1997.
Mr. Shia also served as Chief Executive Officer from 1989 until July 1997
and Chief Technical Officer from July 1997 to December 1999. Currently,
Mr. Shia is on an unpaid one-year leave of absence from the Company until
December 31, 2000. Prior to founding the Company, Mr. Shia served as a
consultant to Bellcore from October 1985 to January 1989 where he developed
OSI protocols and a distributed network management system for a high
performance metropolitan area network. From 1983 to October 1985, Mr. Shia
was a consultant to AT&T Bell Laboratories.
(2) Mr. Crowell joined the Company in August 1999, and currently serves as Vice
President and Chief Financial Officer. Prior to joining the Company,
Mr. Crowell served as a Vice President and Chief Financial Officer of EPL
Technologies from January 1998 to July 1999. Prior to that, from January
1994 to January 1998, Mr. Crowell served as Vice President and Chief
Financial Officer for Datron Inc., a firm specializing in aerospace and
defense technologies. Mr. Crowell has twenty-five years of corporate
financial experience, including serving as the Chief Financial Officer of
two publicly-traded companies. Mr. Crowell has also served in various
financial capacities with companies specializing in systems integration and
electronics, including software applications for industries such as
telecommunications and aerospace.
(3) Mr. Smith joined the Company in September 1992, and currently serves as
Senior Vice President, Strategic Planning and Product Management. Prior to
joining the Company, from 1987 to 1992, Mr. Smith founded and directed The
Center for Strategic Communications, a marketing consulting firm serving the
telecommunications, health-care and computer industries. Prior to that,
Mr. Smith served in various engineering, marketing, sales, product
management, strategic planning and business development positions with AT&T
Bell Laboratories and AT&T Network Systems from 1968 to 1987.
Executive officers of the Company are elected annually by the Board of
Directors and serve until their successors are duly elected and qualified. None
of the Company's executive officers is related to any other executive officer or
to any Director of the Company.
4
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
'Exchange Act'), requires the Company's Directors, officers and shareholders who
beneficially own more than 10% of any class of equity securities of the Company
registered pursuant to Section 12 of the Exchange Act to file initial reports of
ownership and reports of changes in ownership with respect to the Company's
equity securities with the SEC. All reporting persons are required by SEC
regulation to furnish the Company with copies of all reports that such reporting
persons file with the SEC pursuant to Section 16(a).
Based solely on the Company's review of the copies of such forms received by
the Company and upon written representations of the Company's reporting persons
received by the Company, S. Daniel Shia, Chairman of the Board, Paul R. Smith,
Senior Vice President, Strategic Planning and Project Management and Andrew D.
Lipman, a member of the Board of Directors, did not report on a timely basis
certain transactions. In particular, Mr. Shia failed to timely report on a
Form 5 gifts of an aggregate of 311,280 shares of Common Stock. Mr. Shia filed
such information on a Form 5 with the SEC on February 15, 2000. Mr. Smith failed
to timely report on a Form 5 gifts of an aggregate of 1,100 shares of Common
Stock. Mr. Smith filed such information with the SEC on April 13, 2000.
Mr. Lipman failed to timely report on a Form 3 his election on November 15, 1999
to the Board of Directors and his receipt on such date of options to purchase
25,000 shares of Common Stock at an exercise price of $17.375 per share.
Mr. Lipman filed such information with the SEC on December 16, 1999.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION IN FISCAL 1999, 1998 AND 1997
The following Summary Compensation Table sets forth information concerning
compensation for services in all capacities awarded to, earned by or paid to
each person who served as the Company's Chief Executive Officer at any time
during 1999 and each other executive officer of the Company whose aggregate cash
compensation exceeded $100,000 at the end of 1999 (collectively, the 'Named
Executives') during the years ended December 31, 1999, 1998, and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
- --------------------------- ---- ---------- --------- ---------------- ----------- ----------------
(A) (B) (C) (D) (E) (G) (I)
<S> <C> <C> <C> <C> <C> <C>
William P. McHale, Jr. .... 1999 196,835 170,000 -- -- 7,419(3)
President and
Chief Executive Officer 1998 175,000 68,329 -- 200,000(1) 6,744(4)
1997 157,500 -- -- 364,950(2) 45,171(5)
S. Daniel Shia ............ 1999 200,000 111,000 5,800(6) -- 6,924(7)
Chairman of the Board 1998 200,000 100,000 5,800(6) -- 7,218(8)
1997 198,462 70,165 5,800(6) 12,100 6,805(9)
Paul R. Smith ............. 1999 188,462 39,750 6,250(6) 25,000 15,128(10)
Senior Vice President, 1998 167,320 68,750 5,943(6) 20,000 7,901(11)
Strategic Planning and 1997 120,412 89,521 4,100(6) 20,808 6,660(12)
Product Management
Victor W. Mak(13) ......... 1999 158,692 26,875 -- 60,000 6,349(14)
Former Vice President, 1998 144,800 4,953 -- 20,000 6,317(15)
Network Solutions 1997 117,236 12,452 -- 23,409 5,439(16)
Bruce M. Crowell(17) ...... 1999 73,077 7,017 -- 78,000 4,888(18)
Vice President, Chief
Financial Officer and
Secretary
</TABLE>
- ---------
(1) In exchange for the cancellation of 93,300 options issued to Mr. McHale in
January 1997, such options were issued by the Company in October 1998 at an
exercise price of $6.875 per share.
(2) Includes 93,300 options that were cancelled by the Company in October 1998.
The 93,300 cancelled options were initially granted in January 1997 at an
exercise price of $4.00 per share.
(3) Includes contributions by the Company under the 401(k) Plan of $6,000 and
compensation relating to life insurance premiums paid on his behalf of
$1,419.
(4) Includes contributions by the Company under the 401(k) Plan of $5,700 and
compensation relating to life insurance premiums paid on his behalf of
$1,044.
(5) Includes relocation allowance of $44,446 and compensation relating to life
insurance premiums paid on his behalf of $725.
(6) Represents automobile allowance.
(7) Includes contributions by the Company under the 401(k) Plan of $6,000 and
compensation relating to life insurance premiums paid on his behalf of
$924.
(8) Includes contributions by the Company under the 401(k) Plan of $6,000 and
compensation relating to life insurance premiums paid on his behalf of
$1,218.
(9) Includes contributions by the Company under the 401(k) Plan of $5,700 and
compensation relating to life insurance premiums paid on his behalf of
$1,105.
(footnotes continued on next page)
6
<PAGE>
(footnotes continued from previous page)
(10) Includes contributions by the Company under the 401(k) Plan of $6,000,
commissions of $7,779 and compensation relating to life insurance premiums
paid on his behalf of $1,349.
(11) Includes contributions by the Company under the 401(k) Plan of $6,000 and
compensation relating to life insurance premiums paid on his behalf of
$1,901.
(12) Includes contributions by the Company under the 401(k) Plan of $5,700 and
compensation relating to life insurance premiums paid on his behalf of
$960.
(13) Mr. Mak resigned his position with the Company effective February 2000.
(14) Includes contributions by the Company under the 401(k) Plan of $6,000 and
compensation relating to life insurance premiums paid on his behalf of
$349.
(15) Includes contributions by the Company under the 401(k) Plan of $6,000 and
compensation relating to life insurance premiums paid on his behalf of
$317.
(16) Includes contributions by the Company under the 401(k) Plan of $5,214 and
compensation relating to life insurance premiums paid on his behalf of
$225.
(17) Mr. Crowell joined the Company in August 1999.
(18) Includes contributions by the Company under the 401(k) Plan of $4,690 and
compensation relating to life insurance premiums paid on his behalf of
$198.
OPTION GRANTS IN 1999
The following table sets forth information concerning individual grants of
stock options made pursuant to the Company's 1998 Stock Plan during 1999 to each
of the Named Executives. The Company has never granted any stock appreciation
rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE OPTION TERM(3)
GRANTED IN FISCAL PRICE EXPIRATION -----------------------
NAME (#)(1) YEAR(2) ($/SH) DATE 5% ($) 10% ($)
---- ------ ------- ------ ---- ------ -------
(A) (B) (C) (D) (E) (F) (G)
<S> <C> <C> <C> <C> <C> <C>
William P. McHale, Jr............ -- -- -- -- -- --
S. Daniel Shia................... -- -- -- -- -- --
Paul R. Smith.................... 25,000 2.8% 16.875 11/1/09 265,315 672,360
Victor W. Mak.................... 60,000 6.6% 16.875 11/1/09 636,756 1,613,664
Bruce M. Crowell................. 78,000 8.6% 11.88 8/8/09 582,759 1,476,826
</TABLE>
- ---------
(1) Such options were granted pursuant to and in accordance with the 1998 Stock
Plan. For a complete description of such plan, see '1998 Stock Plan
Proposal.'
(2) Based on an aggregate of 904,913 options granted to employees in 1999,
including options granted to Named Executives.
(3) Based on a grant date fair market value equal to the grant date exercise
price per share of the applicable option for each of the Named Executives
and assumes no adjustments to the grant date exercise price.
7
<PAGE>
AGGREGATED OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
options during 1999 by each of the Named Executives and the year-end value of
unexercised in-the-money options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE FISCAL YEAR-END (#) FISCAL YEAR-END ($)(1)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ ------------ ------------------------- -------------------------
(A) (B) (C) (D) (E)
<S> <C> <C> <C> <C>
William P. McHale, Jr...... 30,390 276,093 99,185/285,825 3,184,660/9,187,284
S. Daniel Shia............. 475,389 4,438,989 330,168/90,000 11,646,247/3,167,550
Paul R. Smith.............. 49,982 983,621 48,515/55,000 1,634,860/1,390,375
Victor W. Mak.............. -- -- 134,512/84,375 4,818,535/1,909,791
Bruce M. Crowell........... -- -- 0/78,000 0/1,968,610
</TABLE>
- ---------
(1) Based on a year-end fair market value of the underlying securities equal to
$37.375, less the exercise price payable for such shares.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
William P. McHale, Jr., President and Chief Executive Officer, entered into
an employment agreement with the Company in November 1998. He currently receives
an annual salary of $250,000 and is eligible for an annual bonus of up to
$167,500, the amount and payment of which is within the discretion of the
Compensation Committee. The Company also has agreed, subject to certain
restrictions, to pay Mr. McHale twelve months salary continuation in the event
that Mr. McHale is terminated without cause, and the equivalent of twelve months
salary, payable in a lump sum, in the event Mr. McHale is terminated without
cause in connection with a change in control of the Company. See 'Certain
Relationships and Related Transactions' for a loan transaction between the
Company and Mr. McHale.
S. Daniel Shia, Chairman of the Board, entered into a five-year employment
agreement with the Company commencing October 1, 1996. Under such agreement, he
is currently entitled to an annual salary of $200,000. Mr. Shia is eligible for
an annual bonus, the amount and payment of which is within the discretion of the
Compensation Committee provided that Mr. Shia shall receive a minimum bonus
equal to 50% of his annual salary multiplied by a percentage equal to the
Company's actual pre-tax profit divided by the budgeted pre-tax profit for the
applicable year. The Company also has agreed, subject to certain restrictions,
to pay Mr. Shia the equivalent of two years salary in the event Mr. Shia is
terminated without cause. Currently, Mr. Shia is on an unpaid one-year leave of
absence from the Company until December 31, 2000.
Bruce M. Crowell, Vice President, Chief Financial Officer and Secretary,
accepted his offer of employment from the Company in August 1999. Mr. Crowell is
currently entitled to an annual salary of $200,000. He also is eligible for an
annual bonus, the amount and payment of which is within the discretion of the
Compensation Committee provided that Mr. Crowell shall receive a minimum bonus
equal to 25% of his annual salary. The Company has also agreed, subject to
certain restrictions, to pay Mr. Crowell six months salary continuation and
benefits in the event that Mr. Crowell is terminated without cause or upon a
change of control.
Each of the Company's executive officers has agreed to maintain the
confidentiality of Company information and, for a period of time following the
termination of employment, not to solicit the Company's customers or employees.
In addition, each of Messrs. McHale and Shia has agreed that during the term of
his employment and thereafter for a period of two years, with respect to
Mr. Shia, and one year, with respect to Mr. McHale, such person will not compete
with the Company in any state
8
<PAGE>
or territory of the United States, or any other country, where the Company does
business by engaging in any capacity in any business which is competitive with
the business of the Company.
The Company has executed indemnification agreements with each of its
executive officers and Directors pursuant to which the Company has agreed to
indemnify such party 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 the Company.
The Company generally requires its employees to maintain the confidentiality
of Company information and to assign inventions to the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of, and during 1999 consisted of, Bruce
R. Evans and Jacob J. Goldberg. There are no, and during 1999 there were no,
Compensation Committee Interlocks.
In December 1995, the Company sold an aggregate of 676,361 shares of capital
stock at an aggregate purchase price of $10.0 million to Summit Ventures IV,
L.P. and Summit Investors II, L.P. (collectively, 'Summit'). In connection with
such transaction, Bruce R. Evans, a general partner of Summit, was elected to
the Company's Board of Directors as Summit's designee. In September 1996, the
Company, pursuant to certain covenants in the transaction documents, issued to
Summit, for no additional consideration, warrants (the 'Summit Warrants') to
purchase up to a maximum of 185,331 shares of Common Stock. The shares of Common
Stock currently held by Summit and the shares of Common Stock issuable upon the
exercise of the Summit Warrants are entitled to certain demand and piggyback
registration rights. During 1999, 138,998 warrants were exercised, of which
16,718 underlying common shares were purchased by the Company for their fair
value aggregating approximately $303,000, which were used to fund the exercise
price of these warrants. At December 31, 1999, warrants to purchase 46,333
shares were outstanding.
9
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Company's Common Stock with the cumulative total return on the Nasdaq Stock
Market (US) Index and a Peer Group (capitalization weighted) for the period
beginning on the date on which the SEC declared effective the Company's
Form 8-A Registration Statement pursuant to Section 12 of the Exchange Act and
ending on the last day of the Company's last completed fiscal year.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)(2)(3)
Among the Company, the Nasdaq Stock Market (US) Index
and a Peer Group Index(4)
(Capitalization Weighted)
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
BASE PERIOD
COMPANY/INDEX NAME MARCH 12, 1998 JUNE 30, 1998 DECEMBER 31, 1998 JUNE 30, 1999 DECEMBER 31, 1999
------------------ -------------- ------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
DSET Corporation........ $100.00 $ 94.53 $ 64.84 $ 87.11 $233.59
Nasdaq Stock Market (US)
Index................. 100.00 107.41 124.30 153.51 226.60
Peer Group Index(4)..... 100.00 108.92 106.91 121.64 247.61
</TABLE>
- ---------
(1) Graph assumes $100 invested on March 12, 1998 in the Company's Common Stock,
the Nasdaq Composite Index and the Peer Group Index (capitalization
weighted).
(2) Cumulative total return assumes reinvestment of dividends.
(3) Year ended December 31.
(4) The Company has constructed a Peer Group Index consisting of Vertel,
Evolving Systems, Micromuse, TTI Team Telecom, Architel and Concord
Communications. The Company believes that these companies most closely
resemble the Company's business mix and that their performance is
representative of the industry.
10
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report:
The Company's executive compensation policy is designed to attract and
retain highly qualified individuals for its executive positions and to provide
incentives for such executives to achieve maximum Company performance by
aligning the executives' interest with that of shareholders by basing a portion
of compensation on corporate performance.
The Compensation Committee generally reviews and determines base salary
levels for executive officers of the Company at or about the start of the fiscal
year and determines actual bonuses after the end of the fiscal year based upon
Company and individual performance.
The Company's executive officer compensation program is comprised of base
salary, discretionary annual cash bonuses, stock options and various other
benefits, including medical insurance and a 401(k) Plan, which are generally
available to all employees of the Company.
Salaries, whether established pursuant to contract or otherwise, are
established in accordance with industry standards through review of publicly
available information concerning the compensation of officers of comparable
companies. Consideration is also given to relative responsibility, seniority,
individual experience and performance. Salary increases are generally made based
on increases in the industry for similar companies with similar performance
profiles and/or attainment of certain division or Company goals.
Bonuses are paid on a quarterly or on an annual basis and are discretionary.
The amount of bonus is based on criteria which are designed to effectively
measure a particular executive's attainment of goals which relate to his or her
duties and responsibilities as well as overall Company performance. In general,
the annual incentive bonus is based on operational and financial results of the
Company and focuses on the contribution to these results of a business unit or
division, and the executive's individual performance in achieving the results.
The stock option program is designed to relate executives' long-term
interests to shareholders' long-term interests. In general, stock option awards
are granted if warranted by the Company's growth and profitability. Stock
options are awarded on the basis of individual performance and/or the
achievement of internal strategic objectives.
On January 27, 1999, the Compensation Committee set the Chief Executive
Officer's salary and aggregate bonus for 1999 at $175,000 and $140,000,
respectively. With respect to the Chief Executive Officer's bonus, $50,000 would
become due and payable to the Chief Executive Officer in August 1999 if the
Company were to meet its financial goals for revenue and net income per share
for the first half of 1999, and the remaining $90,000 would become due and
payable in February 2000 if the Company were to meet its financial goals for
revenue and net income per share for year end December 31, 1999. On May 13,
1999, the Compensation Committee increased the Chief Executive Officer's salary
for 1999 to $210,000. On February 10, 2000, the Compensation Committee approved
the payment of the Chief Executive Officer's full bonus for 1999 of $140,000. In
addition, the Compensation Committee approved the Chief Executive Officer's
annual salary and aggregate bonus for 2000 of $250,000 and $167,500,
respectively. The Compensation Committee also approved the grant to the Chief
Executive Officer of options to purchase 75,000 shares of the Company's Common
Stock at an exercise price of $33.75 per share.
Based on review of available information, the Committee believes that the
current Chief Executive Officer's total annual compensation is reasonable and
appropriate given the size, complexity and historical performance of the
Company's business, the Company's position as compared to its peers in the
industry, and the specific challenges faced by the Company during the year, such
as changes in the market for telecommunications network management solutions and
services and other industry factors. No specific weight was assigned to any of
the criteria relative to the Chief Executive Officer's compensation.
Compensation Committee Members:
Bruce R. Evans and Jacob J. Goldberg
11
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There were, as of March 31, 2000, approximately 86 holders of record and
over 400 beneficial holders of the Company's Common Stock. The following table
sets forth certain information, as of March 31, 2000, with respect to holdings
of the Company's Common Stock by (i) each person known by the Company to be the
beneficial owner of more than 5% of the total number of shares of Common Stock
outstanding as of such date, (ii) each of the Company's Directors (which
includes all nominees) and Named Executives, and (iii) all Directors and
officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(1) CLASS(2)
- --------------------------------------- ----------------------- --------
<S> <C> <C>
Directors (which includes all nominees) and Named
Executives:
William P. McHale, Jr................................. 202,465(3) 1.8
S. Daniel Shia........................................ 1,029,433(4) 9.1
Bruce R. Evans........................................ --(5) *
Jacob J. Goldberg..................................... 8,332(6) *
C. Daniel Yost........................................ -- *
Andrew D. Lipman...................................... -- *
Paul R. Smith......................................... 323,703(7) 2.9
Victor W. Mak......................................... 123,205(8) 1.1
Bruce M. Crowell...................................... 2,000 *
All Directors and officers as a group (8 persons)......... 1,565,933(9) 13.5%
</TABLE>
- ---------
* Less than 1%
(1) Except as set forth in the footnotes to this table and subject to
applicable community property law, the persons named in the table have sole
voting and investment power with respect to all shares.
(2) Applicable percentage of ownership for each holder is based on shares of
Common Stock outstanding on March 31, 2000, plus any Common Stock
equivalents and presently exercisable stock options or warrants held by
each such holder, and options or warrants held by each such holder which
will become exercisable within 60 days after March 31, 2000.
(3) Includes 125,045 shares of Common Stock underlying options which are or may
be exercisable as of March 31, 2000 or 60 days after such date. Also
includes 16,005 shares held by Mr. McHale's wife and 1,925 shares held by
Mr. McHale's child.
(4) Consists of 897,128 shares held by Mr. Shia and 83,100 shares purchasable
upon the exercise of options held by Mr. Shia which are exercisable as of
March 31, 2000 or sixty days thereafter. Also includes 49,205 shares held
by Mr. Shia's wife.
(5) Excludes 44,373 shares and 1,960 shares purchasable upon the exercise of
warrants exercisable as of September 13, 2000 held by Summit Ventures IV,
L.P. and Summit Investors II, L.P., respectively. Mr. Evans is a general
partner of Summit Investors II, L.P. and is a general partner of Stamps,
Woodsum & Co. IV, which is the general partner of Summit Partners IV, L.P.,
which is the general partner of Summit Ventures IV, L.P. The general
partners of Stamps, Woodsum & Co. IV are E. Roe Stamps, IV, Stephen G.
Woodsum, Gregory M. Avis, Martin J. Mannion, John A. Genest, Ernest K.
Jacquet, Bruce R. Evans, Walter G. Kortschak, Thomas S. Roberts and Joseph
F. Trustey. Each of such general partners disclaims beneficial ownership of
the shares held by Summit Ventures IV, L.P., except to the extent of their
respective pecuniary interest therein. Mr. Evans may be deemed to share
voting and investment power with respect to all shares held by the
partnerships. Mr. Evans expressly disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest therein.
(6) Includes 8,332 shares of Common Stock underlying options which are or may
be exercisable as of March 31, 2000 or 60 days after such date.
(footnotes continued on next page)
12
<PAGE>
(footnotes continued from previous page)
(7) Includes 114,747 shares of Common Stock underlying options which are or may
be exercisable as of March 31, 2000 or 60 days after such date.
(8) Includes 11,130 shares of Common Stock underlying options which are or may
be exercisable as of March 31, 2000 or 60 days after such date. Mr. Mak
resigned his position with the Company effective February 2000.
(9) See Notes 3 through 8.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Evans was appointed to the Board of Directors as the designee of Summit.
See 'Compensation Committee Interlocks and Insider Participation.'
On November 17, 1998 and on August 18, 1999, the Company loaned $150,000 and
$102,728, respectively, to William P. McHale, Jr., the Company's President and
Chief Executive Officer, on an unsecured basis. Such loans carry an adjustable
interest rate based on the Merrill Lynch Institutional Funds Rate (5.14% per
annum at December 31, 1999). Such loans are due and payable on May 16, 2000.
The Board of Directors of the Company has adopted a policy requiring that
any future transactions between the Company and its officers, Directors,
principal shareholders and their affiliates be on terms no less favorable to the
Company than could be obtained from unrelated third parties and that any such
transactions be approved by a majority of the disinterested members of the
Company's Board of Directors.
1998 STOCK PLAN PROPOSAL
The 1998 Stock Plan was adopted by the Board of Directors on December 31,
1997 and was approved by the Shareholders of the Company in February 1998. The
1998 Stock Plan became effective on the date of the consummation of the
Company's initial public offering in April 1998 and shall terminate ten years
from such date. Those eligible to receive stock option grants or stock purchase
rights under the 1998 Stock Plan include the Company's employees, non-employee
Directors and consultants. The 1998 Stock Option Plan was adopted to
attract and retain the best available personnel for positions of
substantial responsibility;
provide additional incentives to employees, members of the Board and
consultants of the Company and its subsidiaries; and
promote the success of the Company's business.
Currently there are 1,800,000 shares of Common Stock reserved for issuance upon
the exercise of options and/or stock purchase rights granted under the 1998
Stock Plan.
The 1998 Stock Plan is administered by the Compensation Committee of the
Board of Directors of the Company. The Compensation Committee determines, among
other things, the
nature of the options to be granted;
persons, or grantees, who are to receive options;
number of shares to be subject to each option;
exercise price of the options; and
vesting schedule of the options.
The 1998 Stock Plan provides for the granting of options intended to qualify
as incentive stock options, or ISOs, as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, to employees of the Company. The 1998 Stock
Plan also provides for the granting of non-qualified stock options, or NQSOs, to
employees, non-employee directors and consultants who perform services for the
Company or its subsidiaries. The exercise price of all ISOs granted under the
1998 Stock Plan may not be less than the fair market value of the shares at the
time the option is granted. In addition, no ISO
13
<PAGE>
may be granted to an employee who owns more than 10% of the total combined
voting power of all classes of stock of the Company unless the exercise price as
to that employee is at least 110% of the fair market value of the stock at the
time of the grant. No employee may be granted ISOs which are exercisable for the
first time in any calendar year to the extent that the aggregate exercise value
of such option shares exceeds $100,000 as of the date of grant. Options may be
exercisable for a period of not more than ten years from the date of grant,
provided, however that the term of an ISO granted to an employee who owns more
than 10% of the total combined voting power of all classes of stock of the
Company may not exceed five years. The exercise price of NQSOs granted under the
1998 Stock Plan may not be less than 85% of the fair market value per share of
the Common Stock on the date of grant. No NQSO may be granted to a person who
owns more than 10% of the total combined voting power of all classes of stock of
the Company unless the exercise price to that person is at least 110% of the
fair market value of the stock at the time of the grant. The exercise price must
be paid in full at the time an option is exercised, and at the Compensation
Committee's discretion, all or part of the exercise price may be paid with
previously owned shares or other approved methods of payment. An option is
exercisable as determined by the Compensation Committee. The 1998 Stock Plan
will terminate on December 30, 2007.
Subject to the terms as specified in any option agreement, the following
time table applies with respect to exercising outstanding vested options if a
grantee's employment or consulting relationship is terminated:
<TABLE>
<CAPTION>
REASON FOR TERMINATION
DURING TERM OF EMPLOYMENT
OR CONSULTING RELATIONSHIP LATEST EXERCISE DATE
-------------------------- --------------------
<S> <C>
Disability One year following termination by grantee
Death One year following death by grantee's estate
Any other reason 90 days following termination by grantee
</TABLE>
Options are not assignable or otherwise transferable except by will or the
laws of descent and distribution and shall be exercisable during the grantee's
lifetime only by the grantee.
The 1998 Stock Plan also permits the awarding of stock purchase rights at
not less than 50% of the fair market value of the shares as of the date offered.
The 1998 Stock Plan requires the execution of a restricted stock purchase
agreement in a form determined by the Compensation Committee. Once a stock
purchase right is exercised, the purchaser will have the rights of a
shareholder. The purchaser will be a shareholder when the purchase is entered on
the Company's records.
The 1998 Stock Plan provides that in the event of a
<TABLE>
<S> <C>
reorganization; recapitalization;
stock split; stock dividend;
combination of or reclassification of shares; or any other change in the corporate
structure or shares of the Company,
</TABLE>
the Board of Directors shall make adjustments with respect to the shares that
may be issued under the 1998 Stock Plan or that are covered by outstanding
options, or in the option price per share.
The Board shall notify the grantee at least fifteen days prior to a
dissolution or liquidation of the Company. The outstanding options, not
previously exercised, will terminate immediately prior to the consummation of
such proposed action. In the event of a merger or consolidation of the Company
or the sale of all or substantially all of the Company's assets (a 'merger'),
the outstanding options will be assumed or an equivalent option will be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If such successor corporation does not agree to assume
the outstanding options or to substitute equivalent options, the Board of
Directors will, in lieu of such assumption or substitution, provide accelerated
vesting of outstanding options where the successor corporation does not assume
outstanding options or issue equivalent options. If the Board of Directors makes
an option fully exercisable in lieu of assumption or substitution, in the event
of a merger, the Board of Directors shall notify the grantee that the option
will be fully exercisable for a period of fifteen days from the date of such
notice, and the option will terminate upon the expiration of such period. The
option will be considered assumed if, following the merger, the option confers
the right to purchase, for each share of Common Stock subject to the option
immediately prior to the merger, the
14
<PAGE>
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). If such consideration received in the merger was not solely common
stock of the successor corporation or its parent, the Board of Directors may,
with the consent of the successor corporation and the participant, provide for
the consideration to be received upon the exercise of an 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.
The Board may at any time amend, alter, suspend or discontinue the 1998
Stock Plan, but no such action will be made which would impair the rights of any
grantee under any grant previously made, without such grantee's 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 National Association of
Securities Dealers or an established stock exchange), the Company shall obtain
shareholder approval of any 1998 Stock Plan amendment in such a manner and to
such a degree as required. Any such amendment or termination of the 1998 Stock
Plan is not permitted to affect options already granted and such options will
remain in full force and effect as if the 1998 Stock Plan had not been amended
or terminated, unless mutually agreed otherwise between the grantee and the
Board of Directors, which agreement must be in writing and signed by the grantee
and the Company.
FEDERAL INCOME TAX ASPECTS
(A) INCENTIVE STOCK OPTIONS
Some options to be issued under the 1998 Stock Plan will be designated as
ISOs and are intended to qualify under Section 422 of the Code. Under the
provisions of that Section and the related regulations, an optionee will not be
required to recognize any income for Federal income tax purposes at the time of
grant of an ISO. Additionally, the Company will not be entitled to any
deduction. The exercise of an ISO also is not a taxable event, although the
difference between the option price and the fair market value on the date of
exercise is an item of tax preference for purposes of the alternative minimum
tax. The taxation of gain or loss upon the sale of stock acquired upon exercise
of an ISO depends in part on whether the stock is disposed of at least two years
after the date the option was granted and at least one year after the date the
stock was transferred to the optionee, referred to as the ISO Holding Period.
If the ISO Holding Period is not met, then, upon disposition of such shares,
referred to as a disqualifying disposition, the optionee will realize
compensation, taxable as ordinary income, in an amount equal to the excess of
the fair market value of the shares at the time of exercise over the option
price, limited, however, to the gain on sale. Any additional gain would be
taxable as capital gain (see discussion of capital gains under the section
relating to NQSOs, below). If the optionee disposes of the shares in a
disqualifying disposition at a price that is below the fair market value of the
shares at the time the ISO was exercised and such disposition is a sale or
exchange to an unrelated party, the amount includible as compensation income to
the optionee will be limited to the excess of the amount received on the sale or
exchange over the exercise price.
If the optionee recognizes ordinary income upon a disqualifying disposition,
the Company generally will be entitled to a tax deduction in the same amount.
The holding period for long term capital gain treatment is one year.
Therefore, if the ISO Holding Period is met, any gain on the disposition would
be taxable as a long term capital gain or loss; any such gains are taxable at a
maximum rate of 20%.
A maximum capital gains rate of 18% will apply to certain sales after
December 31, 2000 of shares acquired upon the exercise of an ISO if such shares
have been held for at least five years.
If the ISO is exercised by delivery of previously owned shares of Common
Stock in partial or full payment of the option price, no gain or loss will
ordinarily be recognized by the optionee on the transfer of such previously
owned shares. However, if the previously owned transferred shares were
15
<PAGE>
acquired through the exercise of an ISO, the optionee may realize ordinary
income with respect to the shares used to exercise an ISO if such transferred
shares have not been held for the ISO Holding Period. If an ISO is exercised
through the payment of the exercise price by the delivery of Common Stock, to
the extent that the number of shares received exceeds the number of shares
surrendered, such excess shares will possibly be considered ISO stock with a
zero basis.
(B) NON-QUALIFIED STOCK OPTIONS
Some options to be issued under the 1998 Stock Plan will be designated as
NQSOs. If (as in the case of NQSOs granted under the 1998 Stock Plan at this
time) the NQSO does not have a 'readily ascertainable fair market value' at the
time of the grant, the NQSO is not included as compensation income at the time
of grant. Rather, the optionee realizes compensation income only when the NQSO
is exercised and the optionee has become substantially vested in the shares
transferred. The shares are considered to be substantially vested when they are
either transferable or not subject to a substantial risk of forfeiture. The
amount of income realized is equal to the excess of the fair market value of the
shares at the time the shares become substantially vested over the sum of the
exercise price plus the amount, if any, paid by the optionee for the NQSO. If a
NQSO is exercised through payment of the exercise price by the delivery of
Common Stock, to the extent that the number of shares received by the optionee
exceeds the number of shares surrendered, ordinary income will be realized by
the optionee at that time only in the amount of the fair market value of such
excess shares, and the tax basis of such excess shares will be such fair market
value. When the optionee disposes of the shares acquired pursuant to a NQSO, the
optionee will recognize capital gain or loss equal to the difference between the
amount received for the shares and the optionee's basis in the shares.
Under the 1998 Stock Plan, the optionee's basis in the shares will be the
exercise price plus the compensation income realized at the time of exercise.
The capital gain or loss will be short term (with gains generally subject to tax
as ordinary income) if the shares are disposed of within one year after the
option is exercised and long term (with gains generally subject to tax at a
maximum rate of 20%) if the shares are disposed of more than one year after the
option is exercised.
A maximum capital gains rate of 18% will apply to certain sales, after
December 31, 2000, of shares acquired upon the exercise of a NQSO if such shares
have been held for at least five years.
The Company is generally entitled to a deductible compensation expense in an
amount equivalent to the amount included as compensation income to the optionee.
This deduction is allowed in the Company's taxable year in which the income is
included as compensation to the optionee.
Except as otherwise indicated, the preceding discussion is based upon
Federal tax laws and regulations in effect on the date of the preparation of
this Summary, which are subject to change, and upon an interpretation of the
relevant sections of the Code, their legislative histories and the income tax
regulations which interpret similar provisions of the Code. Furthermore, the
foregoing is only a general discussion of the Federal income tax aspects of the
1998 Stock Plan and does not purport to be a complete description of all Federal
income tax aspects of the 1998 Stock Plan. Optionees may also be subject to
state and local taxes in connection with the grant or exercise of options
granted under the 1998 Stock Plan and the sale or other disposition of shares
acquired upon exercise of the options. Each key employee receiving a grant of
options should consult with his or her personal tax advisor regarding the
Federal, state and local tax consequences of participating in the 1998 Stock
Plan.
PREVIOUSLY GRANTED OPTIONS UNDER THE 1998 STOCK PLAN
As of March 31, 2000, the Company had granted options to purchase an
aggregate of 1,771,663(1) shares of Common Stock under the 1998 Stock Plan at an
average exercise price of $15.69 per share. As of March 31, 2000, 143,103
options to purchase shares were vested and 24,597 options to purchase shares had
been exercised under the 1998 Stock Plan. The following table sets forth the
options granted under the 1998 Stock Plan to: (i) the Named Executives;
(ii) all current executive officers as a group; (iii) each nominee for election
as a Director; (iv) all current Directors who are not executive officers as a
group; (v) each associate of any of such Directors, executive officers or
nominees; (vi) each person who has received or is to receive 5% of such options
or rights; and (vii) all employees, including all current officers who are not
executive officers, as a group:
16
<PAGE>
<TABLE>
<CAPTION>
OPTIONS GRANTED
THROUGH WEIGHTED AVERAGE
NAME MARCH 31, 2000 EXERCISE PRICE EXPIRATION DATE
---- -------------- -------------- ---------------
<S> <C> <C> <C>
William P. McHale, Jr....................... 275,000 $14.106 10/08/08 - 02/10/10
S. Daniel Shia.............................. -- -- --
Paul R. Smith............................... 25,000 $16.875 11/02/09
Victor W. Mak............................... 60,000 $16.875 11/02/09
Bruce M. Crowell............................ 99,500 $16.525 08/09/09 - 02/10/10
Jacob J. Goldberg........................... 25,000 $ 10.75 03/08/09
C. Daniel Yost.............................. 25,000 $ 12.28 09/13/09
Bruce R. Evans.............................. -- -- --
Andrew D. Lipman............................ 25,000 $17.375 11/14/09
All current executive officers as a group
(4 persons)............................... 399,500 $14.882 10/08/08 - 02/10/10
All current Directors who are not executive
officers as a group (4 persons)........... 75,000 $13.468 03/08/09 - 11/14/09
All employees, including all current
officers who are not executive officers,
as a group (234 persons).................. 1,297,163 $16.071 05/06/08 - 02/10/10
</TABLE>
As of March 31, 2000, the market value of the Common Stock underlying the
1998 Stock Plan was $18.438 per share.
- ---------
(1) Of the 1,771,663 options granted as of March 31, 2000, 344,078 of such
options have been canceled and may be reissued by the Company.
(2) Options are granted under the 1998 Stock Plan pursuant to various vesting
schedules. In general, such options vest over four year periods.
(3) All 238 of the Company's employees are eligible to participate in the 1998
Stock Plan.
-------------------
Each of the following individuals holds more than five-percent (5%) of the
total options issuable under the 1998 Stock Plan: William P. McHale, Jr., Bruce
M. Crowell and Phillip V. Cavallo.
PROPOSED AMENDMENT
Shareholders are being asked to consider and vote upon a proposed amendment
(the 'Amendment') to the 1998 Stock Plan to increase the maximum aggregate
number of shares of Common Stock available for issuance under the 1998 Stock
Plan from 1,800,000 shares to 2,500,000 shares and to reserve an additional
700,000 shares of Common Stock of the Company for issuance in connection with
awards granted under the 1998 Stock Plan.
The Board of Directors believes that the Amendment provides an important
inducement to recruit and retain the best available personnel. The Board of
Directors believes that providing employees with an opportunity to invest in the
Company rewards them appropriately for their efforts on behalf of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR FOR THE PROPOSAL TO AMEND THE
COMPANY'S 1998 STOCK PLAN TO INCREASE THE MAXIMUM AGGREGATE NUMBER OF SHARES OF
COMMON STOCK AVAILABLE FOR ISSUANCE UNDER THE 1998 STOCK PLAN FROM 1,800,000
SHARES TO 2,500,000 SHARES AND TO RESERVE AN ADDITIONAL 700,000 SHARES OF COMMON
STOCK OF THE COMPANY FOR ISSUANCE IN CONNECTION WITH AWARDS GRANTED UNDER THE
1998 PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company intends, subject to Shareholder
approval, to retain PricewaterhouseCoopers LLP as independent auditors of the
Company for the year ending December 31, 2000. PricewaterhouseCoopers LLP also
served as independent auditors of the Company for 1998 and 1999. Neither the
firm nor any of its members has any direct or indirect financial interest in or
any connection with the Company in any capacity other than as auditors.
17
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT AUDITORS OF THE
COMPANY FOR THE YEAR ENDING DECEMBER 31, 2000.
One or more representatives of PricewaterhouseCoopers LLP is expected to
attend the Meeting and have an opportunity to make a statement and/or respond to
appropriate questions from Shareholders.
SHAREHOLDERS' PROPOSALS
Shareholders who wish to submit proposals for inclusion in the Company's
proxy statement and form of proxy relating to the 2001 Annual Meeting of
Shareholders must advise the Secretary of the Company of such proposals in
writing by December 29, 2000.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for action
at the Meeting other than the matters referred to above and does not intend to
bring any other matters before the Meeting. However, if other matters should
come before the Meeting, it is intended that holders of the proxies will vote
thereon in their discretion.
GENERAL
The accompanying proxy is solicited by and on behalf of the Board of
Directors of the Company, whose notice of meeting is attached to this Proxy
Statement, and the entire cost of such solicitation will be borne by the
Company.
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone and telegram by Directors, officers and other employees of
the Company who will not be specially compensated for these services. The
Company will also request that brokers, nominees, custodians and other
fiduciaries forward soliciting materials to the beneficial owners of shares held
of record by such brokers, nominees, custodians and other fiduciaries. The
Company will reimburse such persons for their reasonable expenses in connection
therewith.
Certain information contained in this Proxy Statement relating to the
occupations and security holdings of Directors and officers of the Company is
based upon information received from the individual Directors and officers.
DSET CORPORATION WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, INCLUDING FINANCIAL STATEMENTS
AND SCHEDULES THERETO BUT NOT INCLUDING EXHIBITS, TO EACH OF ITS SHAREHOLDERS OF
RECORD ON APRIL 17, 2000, AND TO EACH BENEFICIAL SHAREHOLDER ON THAT DATE UPON
WRITTEN REQUEST MADE TO BRUCE M. CROWELL, SECRETARY, DSET CORPORATION, 1160 US
HIGHWAY 22 EAST, BRIDGEWATER, NEW JERSEY 08807. A REASONABLE FEE WILL BE CHARGED
FOR COPIES OF REQUESTED EXHIBITS.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN
THE ENCLOSED RETURN ENVELOPE. A PROMPT RETURN OF YOUR PROXY CARD WILL BE
APPRECIATED AS IT WILL SAVE THE EXPENSE OF FURTHER MAILINGS.
By Order of the Board of Directors,
BRUCE M. CROWELL
Bruce M. Crowell
Secretary
Bridgewater, New Jersey
April 28, 2000
18
<PAGE>
APPENDIX 1
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
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<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
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<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
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<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.
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<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.
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<PAGE>
APPENDIX 2
Please Detach and Mail in the Envelope Provided
DSET CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby constitutes and appoints William P. McHale, Jr. and
Bruce M. Crowell and each of them, his or her true and lawful agent and proxy
with full power of substitution in each, to represent and to vote on behalf of
the undersigned all of the shares of DSET Corporation (the 'Company') which the
undersigned is entitled to vote at the Annual Meeting of Shareholders of the
Company to be held at the Somerset Hills Hotel, 200 Liberty Corner Road, Warren,
New Jersey at 1:00 P.M., local time, on Wednesday, May 24, 2000, and at any
adjournment or adjournments thereof, upon the following proposals more fully
described in the Notice of Annual Meeting of Shareholders and Proxy Statement
for the Meeting (receipt of which is hereby acknowledged).
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 AND 3.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
DSET CORPORATION
MAY 24, 2000
Please Detach and Mail in the Envelope Provided
...............................................................................
A [X] Please mark your
votes as in this
example
FOR WITHHELD
1. ELECTION OF [ ] [ ] Nominees:
DIRECTORS William P. McHale, Jr.
Bruce R. Evans
Jacob J. Goldberg
Charles Daniel Yost
Andrew D. Lipman
VOTE FOR all the nominees listed at right; except
vote withheld from the following nominee(s) (if any):
- -----------------------------------------------------
FOR AGAINST ABSTAIN
2. APPROVAL OF PROPOSAL TO AMEND THE [ ] [ ] [ ]
COMPANY'S 1998 STOCK PLAN TO INCREASE
THE MAXIMUM AGGREGATE NUMBER OF
SHARES OF COMMON STOCK AVAILABLE FOR
ISSUANCE THEREUNDER FROM 1,800,000
SHARES TO 2,500,000 SHARES AND TO
RESERVE AN ADDITIONAL 700,000 SHARES
OF COMMON STOCK OF THE COMPANY FOR
ISSUANCE IN CONNECTION WITH AWARDS
GRANTED UNDER THE 1998 STOCK PLAN.
FOR AGAINST ABSTAIN
3. APPROVAL OF PROPOSAL TO RATIFY THE [ ] [ ] [ ]
APPOINTMENT OF PRICEWATERHOUSECOOPERS
LLP AS THE INDEPENDENT AUDITORS OF
THE COMPANY FOR THE YEAR ENDING
DECEMBER 31, 2000.
I WILL I WILL NOT
4. In his or her discretion, the proxy [ ] [ ]
is authorized to vote upon other
matters as may properly come before
the Meeting.
attend the Meeting
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
<TABLE>
<S> <C> <C>
Signature of Shareholder Signature of Shareholder Dated:
---------------- ---------------- -------------
IF HELD JOINTLY
</TABLE>
NOTE: This proxy must be signed exactly as name appears hereon. When shares are
held by joint tenants, both should sign. If the signer is a corporation,
please sign full corporate name by duly authorized officer, giving full
title as such. If the signer is a partnership, please sign in partnership
name by authorized person.
