<PAGE>
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 Section 240.14a-11(c) or Section
240.14a-12
Data Systems & Software Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / 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>
DATA SYSTEMS & SOFTWARE INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 21, 1997
The Annual Meeting of Stockholders of Data Systems & Software Inc. (the
"Company") will be held at The Courtyard by Marriott, 140 Route 17 South,
Mahwah, New Jersey, on Thursday, August 21, 1997, at 10:00 a.m., for the
following purposes:
(1) To elect seven directors to hold office until the next annual
meeting of stockholders and until their successors have been duly elected
and qualified; and
(2) To consider and act upon such other and further matters as may
properly come before the meeting or any postponements or adjournments
thereof.
Only stockholders of record at the close of business on July 25, 1997, are
entitled to notice of and to vote at the meeting or any postponements or
adjournments thereof.
Regardless of how many shares you own, your vote is very important. WHETHER
OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. No
additional postage is required.
BY ORDER OF THE BOARD OF DIRECTORS,
SHELDON KRAUSE
Secretary
July 25, 1997
Mahwah, New Jersey
<PAGE>
DATA SYSTEMS & SOFTWARE INC.
200 Route 17
Mahwah, New Jersey 07430
--------------------------------------
PROXY STATEMENT
--------------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Data Systems & Software Inc., a
Delaware corporation (the "Company" or "DSSI"), to be voted at the Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be held at The
Courtyard by Marriott, 140 Route 17 South, Mahwah, New Jersey, on Thursday,
August 21, 1997, at 10:00 a.m., and any postponements or adjournments thereof.
This Proxy Statement and the accompanying materials are being mailed on or about
July 25, 1997, to holders of record of the Common Stock, par value $.01 per
share, of the Company (the "Common Stock") as of the record date.
The record date (the "Record Date") for determining stockholders entitled to
notice of, and to vote at, the Annual Meeting has been established as the close
of business on July 25, 1997. On that date, the Company had outstanding and
entitled to vote 7,708,540 shares of Common Stock. Holders of record of Common
Stock on the Record Date will be entitled to one vote for each share held on all
matters properly brought before the Annual Meeting.
The presence at the Annual Meeting, in person or represented by proxy, of a
majority of the outstanding shares of Common Stock entitled to vote thereat will
constitute a quorum for the transaction of business. If a share is deemed
present at the annual meeting for any matter, it will be deemed present for all
other matters. Votes withheld from any nominee for election as a director,
abstentions, and shares held by a nominee for a beneficial owner ("Broker
Shares") that are voted on any matter will be included in determining the number
of shares present. Broker Shares that are not voted on any matter will not be
included in determining the number of shares present.
Any stockholder returning the accompanying proxy may revoke such proxy at
any time prior to its exercise by (i) giving written notice to the Company of
such revocation, (ii) voting in person at the Annual Meeting, or (iii) executing
and delivering to the Company a later-dated proxy. Written revocations and
later-dated proxies should be sent to Data Systems & Software Inc., 200 Route
17, Mahwah, New Jersey 07430, Attention: Secretary.
The cost of soliciting proxies for the Annual Meeting will be borne by the
Company. In addition to use of the mails, proxies may be solicited by personal
interview, telephone, telex or facsimile. The Company will, upon request and in
accordance with applicable regulation, reimburse brokerage firms and others for
their reasonable expenses in forwarding solicitation material to the beneficial
owners of stock.
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and the notes thereto set forth information, as of July
14, 1997, concerning beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) of Common Stock by (i) each person known by the
Company to be the owner of more than 5% of the outstanding shares of Common
Stock, (ii) each director of the Company, (iii) each of the executive officers
of the Company named in the Summary Compensation Table under "Executive and
Director Compensation," and (iv) all executive officers and directors of the
Company as a group.
PERCENTAGE OF
NAME AND ADDRESS OF NUMBER OF COMMON SHARES COMMON STOCK
BENEFICIAL OWNER (1) BENEFICIALLY OWNED (2) OUTSTANDING
- -------------------- ----------------------- -------------
George Morgenstern............................ 493,156(3) 6.1%
Robert L. Kuhn................................ 396,739(4) 5.0%
Samuel Fogel.................................. 270,737(5) 3.4%
Yacov Kaufman................................. 41,667(6) *
David Weldler................................. 13,333(6) *
Harvey Eisenberger............................ 7,500(6) *
Sheldon Krause................................ 12,500(6) *
Hon. Maxwell M. Rabb.......................... 12,500(6) *
Allen I. Schiff............................... 12,500(6) *
All executive officers and directors
of the Company as a group (9 people)..........1,260,632 14.8%
- ------------------------
* Less than 1%
(1) Address is in care of the Company.
(2) Unless otherwise indicated, each person has sole investment and voting power
with respect to the shares indicated. For purposes of this table, a person
or group of persons is deemed to have "beneficial ownership" of any shares
as of a given date which such person has the right to acquire within 60 days
after such date. For purposes of computing the percentage of outstanding
shares held by each person or group of persons named above on a given date,
any security which such person or persons has the right to acquire within 60
days after such date is deemed to be outstanding for the purpose of
computing the percentage ownership of such person or persons, but is not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(3) Consists of (i) 179,239 shares held by Mr. Morgenstern, including 100,000
shares received by Mr. Morgenstern in March 1996 as a restricted stock award
which will vest over a three year period, and (ii) 313,917 currently
exercisable options held by Mr. Morgenstern.
(4) Consists of 192,656 shares and 204,083 currently exercisable options held by
Dr. Kuhn.
(5) Consists of 90,737 shares and 180,000 currently exercisable options held by
Mr. Fogel.
(6) Consists of currently exercisable options.
-2-
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company (the "Board of Directors") is
currently comprised of seven members. The entire Board of Directors is to be
elected at the Annual Meeting. The Board of Directors has nominated the seven
current directors, George Morgenstern, Robert L. Kuhn, Samuel Fogel, Harvey
Eisenberger, Sheldon Krause, Maxwell M. Rabb and Allen I. Schiff, for election
as directors at the Annual Meeting. All nominees have consented to be named and
serve if elected.
With respect to the election of directors, stockholders may vote in favor of
all nominees, withhold their votes as to all nominees or withhold their votes as
to specific nominees. Stockholders should specify their choices on the
accompanying proxy card. If no specific instructions are given, the shares
represented by a signed proxy will be voted FOR the election of all nominees for
election as directors. If any nominee becomes unavailable for any reason to
serve as a director at the time of the Annual Meeting (which event is not
anticipated), proxies will be voted in the discretion of the persons acting
pursuant to the proxy for any nominee who shall be designated by the current
Board of Directors as a substitute nominee. Directors will be elected at the
Annual Meeting by a plurality of the votes cast (i.e., the seven nominees
receiving the greatest number of votes will be elected as directors).
CERTAIN INFORMATION REGARDING DIRECTORS AND OFFICERS
Set forth below is certain information concerning the nominees for election
to the Board of Directors and the executive officers of the Company:
NAME AGE POSITIONS
- ---- --- ---------
George Morgenstern 64 Director; Chairman of the Board, President and
Chief Executive Officer of DSSI; Chairman of
the Board of the Company's Decisions Systems
Israel Ltd. subsidiary ("DSI Israel"); Chairman
of the Board of the Company's Tower
Semiconductor Ltd. subsidiary ("Tower")
Robert L. Kuhn 52 Director; Vice Chairman of the Board of DSSI
Samuel Fogel 51 Director; Executive Vice President of DSSI;
President and General Manager of DSI Israel
Yacov Kaufman 39 Vice President and Chief Financial Officer of
DSSI; Vice President and Chief Financial
Officer of DSI Israel
David Weldler 39 Vice President
Harvey Eisenberger 53 Director
Sheldon Krause 42 Director and Secretary
Maxwell M. Rabb 86 Director
-3-
<PAGE>
Allen I. Schiff 51 Director
GEORGE MORGENSTERN has been Chairman of the Board since June 1993, and has
been President and Chief Executive Officer of DSSI since its incorporation in
1986. Mr. Morgenstern also serves as Chairman of the Board of DSI Israel and as
Chairman of the Board of Tower.
ROBERT L. KUHN has been a director of DSSI since 1986 and Vice Chairman of
the Board of DSSI since 1994. Since 1991, Dr. Kuhn has been President of Geneva
Financial Corporation, a company specializing in mergers and acquisitions. Dr.
Kuhn has been active in establishing joint ventures and cross-border
transactions with Japan and China, and has been an advisor for the governments
of the People's Republic of China, Israel and Germany on commercializing science
and technology.
SAMUEL FOGEL has been a director and Executive Vice President of DSSI since
March 1997, Vice President of DSSI since June 1993, President of DSI Israel
since October 1991, and General Manager of DSI Israel since June 1990.
YACOV KAUFMAN has been Vice President and Chief Financial Officer of DSSI
since February 1996. Mr. Kaufman has been a Vice President of DSI Israel since
1992 and Chief Financial Officer of DSI Israel since 1990.
DAVID WELDLER has been Vice President of DSSI since February 1996. From
February 1995 to February 1996, Mr. Weldler served in various capacities at
DSSI. From 1991 to 1995 Mr. Weldler was president of an international marketing
firm.
HARVEY EISENBERGER has been a director of the Company since 1994. Since
March 1997, Mr. Eisenberger has been employed by the Company's PHD division in
an administrative capacity. From 1986 to March 1997, Mr. Eisenberger was an
account executive with a New York investment firm.
SHELDON KRAUSE has served as Secretary of the Company since 1986 and as a
director since 1994. Since 1987, Mr. Krause has been engaged in the private
practice of law in New York City and is currently a member of the firm of
Ehrenreich & Krause. From 1981 to 1986, Mr. Krause was associated with the New
York law firm of Cravath, Swaine & Moore. Mr. Krause is the son-in-law of George
Morgenstern, Chairman of the Board, President and Chief Executive Officer of the
Company.
HON. MAXWELL M. RABB has been a director of the Company since 1992.
Ambassador Rabb has been Of Counsel to the law firm of Kramer, Levin, Naftalis &
Frankel since 1991 and was Of Counsel to the law firm of Stroock & Stroock &
Lavan from 1989 to 1991. From 1981 to 1988, Ambassador Rabb was United States
Ambassador to Italy.
ALLEN I. SCHIFF has been a director of the Company since 1992. Since 1978 he
has been a Professor of Accounting at Fordham University Graduate School of
Business Administration, serving as Chairman of the Accounting Department from
1981 to 1983 and from 1985 to 1990.
All directors hold office until the next annual meeting of stockholders or
until their successors are elected and qualify. Executive officers hold office
until their successors are chosen and qualify, subject to earlier removal by the
Board of Directors.
-4-
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS
During 1996, the Board of Directors of the Company met three times. Each
person that served as a director in 1996 (except Ambassador Rabb who was absent
from one Board meeting in 1996) attended in excess of 75% of the aggregate of:
(i) the total number of meetings of the Board of Directors held during 1996 and
(ii) the total number of meetings held during 1996 by each committee of the
Board of Directors on which the director served.
INFORMATION CONCERNING CERTAIN COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has a standing Audit Committee
comprised of Dr. Schiff, who serves as Chairman, Mr. Eisenberger and Mr. Krause.
During 1996, the Audit Committee met four times. The Board of Directors does not
have a nominating committee or a compensation committee.
The Audit Committee is charged with assisting the directors with the
fulfillment of their responsibilities to stockholders and others relating to the
corporate accounting and reporting practices of the Company and the quality and
integrity of the financial reports of the Company. The Audit Committee reviews
with the Company's independent certified public accountants the Company's
accounting practices and policies; reviews the report of the Company's
independent auditors on the Company's year-end financial statements; examines
from time to time, in consultation with the Company's financial officers and its
independent certified public accountants, the Company's overall accounting and
financial controls; and is available to the Company's independent auditors for
consultation. In addition, the Audit Committee makes recommendations to the
Board of Directors regarding the engagement or discharge of the Company's
auditors.
EXECUTIVE AND DIRECTOR COMPENSATION
COMPENSATION OF DIRECTORS
Each director of the Company is paid $1,000 for each meeting which such
director attends and is reimbursed for associated out-of-pocket expenses. Dr.
Schiff is paid an additional amount per annum ($12,000 in 1996 and $16,000
beginning in 1997) for his service as Chairman of the Audit Committee and Stock
Option Committee plus additional amounts for committee meeting fees and special
assignments. Dr. Schiff was paid a total of $19,000 in 1996 in connection with
his service on the Board of Directors and Board committees. Mr. Eisenberger is
paid an additional $6,000 per annum in connection with his service on the Audit
Committee. Dr. Kuhn is paid an additional $50,000 per annum in connection with
his service as Vice Chairman of the Company.
In addition to the director's fees described above, each member of the Board
of Directors who is not an executive officer (Mr. Eisenberger, Mr. Krause,
Ambassador Rabb and Dr. Schiff) was granted options in 1996 to purchase 7,500
shares of Common Stock at an exercise price of $6.06 per share (the fair market
value of the Common Stock on the date of the Company's 1996 annual meeting of
stockholders). These options were granted pursuant to the Company's 1994 Stock
Option Plan for Outside Directors described below.
The Company's 1994 Stock Option Plan for Outside Directors provides for
awards of non-qualified options to directors of the Company who are not
employees of the Company or its affiliates and who meet certain other
eligibility criteria. Pursuant to the plan, (i) upon first election or
appointment
-5-
<PAGE>
to the Board of Directors, each newly elected eligible director will
be granted an option to purchase 7,500 shares of Common Stock and (ii)
immediately following each annual meeting of stockholders of the Company, each
eligible director will generally be granted an option to purchase 7,500 shares
of Common Stock. Options granted under the plan are exercisable beginning on the
first anniversary of the date of the grant until the earliest of (i) 10 years
from the date of grant, (ii) one year from the date of which an optionee ceases
to be an eligible director and (iii) the date an optionee ceases to be a
director (90 days thereafter if due to the death or disability). Option granted
under the plan are required to provide for an exercise price per share equal to
100% of the fair market value per share of Common Stock on the date the option
is granted. The maximum number of shares of Common Stock in respect of which
awards may be granted under the plan is 200,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has not established a compensation committee. All
matters related to compensation, except for matters related to stock option and
other stock-based compensation, are determined by the Board of Directors.
Matters related to stock options and other stock-based compensation are
determined by the Stock Option Committee, consisting of Allen I. Schiff
(Chairman), Sheldon Krause and Maxwell M. Rabb (alternate).
The following persons that were members of the Board of Directors in 1996
were also officers of the Company: Mr. Morgenstern (Chairman of the Board,
President and Chief Executive Officer), Dr. Kuhn (Vice Chairman of the Board)
and Mr. Krause (Secretary). During 1996, no member of the Board of Directors who
was also an officer of the Company participated in any deliberations of the
Board of Directors or any committee thereof relating to his own compensation. In
addition, Mr. Krause did not participate in any such deliberations relating to
Mr. Morgenstern's compensation. Subject to the foregoing limitations, each
member of the Board of Directors participated in 1996 in deliberations of the
Board of Directors concerning executive officer compensation.
EMPLOYMENT ARRANGEMENTS
George Morgenstern has served as Chairman of the Board, President and Chief
Executive Officer of the Company pursuant to an employment agreement which
commenced on January 1, 1994. Prior to being modified as described below, the
employment agreement provided for Mr. Morgenstern to receive a salary of
$300,000 per annum (subject to annual review by the Board and an annual cost of
living adjustment commencing in 1997) plus contributions to a nonqualified
retirement fund equal to 20% of salary. In January 1997, the Board of Directors
approved certain modifications to the terms of Mr. Morgenstern's employment,
including (i) an increase in salary to $420,000 per annum (subject to annual
review by the Board and an annual cost of living adjustment commencing in 1998)
and (ii) an increase in the amount to be contributed to Mr. Morgenstern's
nonqualified retirement fund to 25% of salary. Mr. Morgenstern's compensation
pursuant to the employment agreement also includes the use of two company
automobiles, premium payments on a life insurance policy owned by Mr.
Morgenstern and other fringe benefits.
The term of the employment agreement, as modified (the "Employment
Agreement"), extends through December 31, 2001. Mr. Morgenstern may at any time
prior to the end of the term, subject to certain notice requirements, elect to
terminate his employment with the Company and to thereafter continue to serve
the Company as a consultant for a period (the "Consulting Period") ending on
December 31 of the seventh year following the year in which he first commences
to serve as a consultant
-6-
<PAGE>
(but in no event prior to December 31, 2005 if the Consulting Period
commences following a Change of Control of the Company or a breach by the
Company of the Employment Agreement). During the Consulting Period, Mr.
Morgenstern would be entitled to receive an annual consulting fee at the rate
specified in the following sentence plus the same contributions to a
nonqualified retirement fund and the same fringe benefits that he is entitled
to receive during the term of his employment as described above. Mr.
Morgenstern's annual consulting fee during the Consulting Period will
generally be equal to 50% of his annual salary in effect immediately prior to
the Consulting Period, reducing to 25% following the end of the fourth full
calendar year of the Consulting Period (subject in all cases to an annual
cost of living adjustment). However, if Mr. Morgenstern elects to become a
consultant following a breach by the Company of its obligations under the
Employment Agreement or following a Change in Control of the Company (as
defined in the Employment Agreement), Mr. Morgenstern would be entitled to
receive his full annual salary until December 31, 2001, and thereafter to
receive an annual consulting fee as described in the preceding sentence for
the balance of the Consulting Period. The Company is obligated under the
Employment Agreement to fund at the beginning of any Consulting Period all
amounts to become payable to Mr. Morgenstern for consulting services and to
fund upon his death all amounts payable to his estate. During the term of the
Employment Agreement (including any Consulting Period), Mr. Morgenstern may
not engage in a business that is in substantial and direct competition with the
business of the Company or any of its subsidiaries.
Samuel Fogel serves as President and General Manager of DSI Israel, pursuant
to an employment agreement with the Company. The term of the agreement is
automatically extended for an additional one-year period on August 31 of each
year unless terminated for any reason by either party upon three months' prior
written notice or by the Company for cause (as defined). In addition to his cash
compensation, Mr. Fogel also has use of a company automobile and receives other
benefits customarily conferred in Israel upon persons in similar corporate
positions.
The stock option agreements with the Company's executive officers generally
provide for accelerated vesting in the event of a "Change in Control of the
Company" (as defined in such agreements).
-7-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth for the periods indicated information
concerning the compensation of the Chief Executive Officer and the three other
officers of the Company who received in excess of $100,000 in salary during
1996. Mr. Weldler was not an officer of the Company prior to 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
ANNUAL COMPENSATION --------------------------------
NAME AND SECURITIES
PRINCIPAL ------------------------ RESTRICTED STOCK UNDERLYING
POSITION YEAR SALARY ($) BONUS ($) AWARD ($) OPTIONS (#) ALL OTHER COMPENSATION($)
- ---------------------------------- --------- ----------- ----------- ------------------- ----------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
George Morgenstern 1994 300,000 -- -- 200,000 85,000
Chief Executive Officer 1995 300,000 -- -- 97,500 82,800
1996 300,000 -- 600,000(1) 100,000 85,000(2)
Samuel Fogel 1994 132,000 -- 200,000 17,600
Executive Vice President 1995 132,000 -- 40,000 17,600
1996 132,000 -- -- 17,600(3)
Yacov Kaufman 1994 99,600 5,000 -- 25,000 17,600
Vice President 1995 99,600 26,200 -- 20,000 17,600
1996 108,000 5,900 -- -- 17,000(3)
David Weldler 1996 200,000 -- -- 10,000 --
Vice President
</TABLE>
- ------------------------
(1) Represents the fair market value of 100,000 shares of Common Stock awarded
in a restricted stock award pursuant to the Company's 1994 Stock Incentive
Plan, valued at the market price for the Common Stock on the date of the
award. The shares vest over a three-year period, with one-third of the
shares vesting in March of each year commencing March 1997. Dividends, if
and when declared by the Company, would be payable on vested shares;
unvested shares are not eligible to receive dividends. No restricted stock
awards have been previously made to Mr. Morgenstern.
(2) Consists of (i) $60,000 in contributions to a non-qualified retirement fund,
(ii) approximately $17,000 paid in lieu of vacation not taken in 1995, (iii)
approximately $5,000 in life insurance premiums and (iv) director's fees of
$3,000.
(3) Represents contributions to severance and pension funds. These contributions
are made on substantially the same basis as those made on behalf of all DSI
Israel employees.
-8-
<PAGE>
The following tables summarize (i) the options granted in 1996 to the
executive officers named in the Summary Compensation Table above, (ii) the
potential value of these options at the end of the option term assuming certain
levels of appreciation of the Company's Common Stock, (iii) the number of shares
acquired by such named executive officers upon the exercise of options in 1996
and the value realized thereon, and (iv) the number and value of all options
held by such executive officers at the end of 1996.
OPTION/SAR GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERM(2)
------------------------------------------------------ --------------------
% OF
NUMBER TOTAL
OF OPTIONS
SECURITIES GRANTED
UNDERLYING TO EXERCISE OR
OPTIONS EMPLOYEES BASE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR (%) ($/SHARE) DATE 5% ($) 10% ($)
- --------------------------------------------------- ----------- ------------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
George Morgenstern................................. 150,000(3) 76.3 6.00 3/31/01 248,653 549,459
David Weldler...................................... 10,000(3) 5.1 6.00 3/31/01 16,577 36,631
</TABLE>
- ------------------------
(1) The Company did not grant any stock appreciation rights (SARs) in 1996.
(2) The dollar amounts under these columns are the result of calculations at the
5% and 10% compounded annual appreciation rates prescribed by the Securities
and Exchange Commission and, therefore, are not intended to forecast
possible future price appreciation, if any, of the Common Stock.
(3) These options become exercisable as to one-third in March of each year
commencing March 1997.
AGGREGATED OPTION EXERCISES IN 1996
AND FISCAL YEAR END STOCK OPTION VALUES
<TABLE>
<CAPTION>
NUMBER
OF NUMBER OF SECURITIES VALUE OF
SHARES UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT YEAR END(#) OPTIONS($)(1)
UPON VALUE ---------------------------- ------------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ----------- ----------- ------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
George Morgenstern............... -- -- 230,584 216,666 -- --
Samuel Fogel..................... -- -- 146,667 93,333 -- --
-9-
<PAGE>
Yacov Kaufman.............................. -- -- 41,667 -- 18,750 --
David Weldler.............................. 10,000 29,000 10,000 10,000 1,835 --
</TABLE>
- ------------------------
(1) Based on the closing price for the Common Stock on December 31, 1996, of
5-11/16.
CERTAIN RELATED PARTY TRANSACTIONS
In December 1994, the Company made a non-interest bearing loan of
approximately $277,000 to Samuel Fogel, Vice President of the Company and
President of DSI Israel. The loan remains outstanding and is repayable out of
the proceeds of the sale of shares of Common Stock previously issued to Mr.
Fogel.
During 1996, the Company approved a loan of up to $550,000, bearing
interest at an annual rate of 7%, to George Morgenstern, its Chairman and
Chief Executive Officer. The balance of this loan as of December 31, 1996 was
approximately $481,000. The remainder of the loan was drawn down in the first
quarter of 1997. Such loan is repayable in monthly installments over a period
of five years.
During 1996, the Company paid approximately $450,000 for legal services
rendered and reimbursement of out-of-pocket expenses to Ehrenreich & Krause, a
law firm in which Sheldon Krause, director and Secretary of the Company, is a
member.
COMPENSATION REPORT OF THE BOARD OF DIRECTORS
The goals of the Company's compensation policy are to (i) attract, retain
and reward executives who contribute to the overall success of the Company by
offering compensation that is competitive, (ii) motivate executives to achieve
the Company's business objectives and (iii) align the interests of executives
with the long-term interests of stockholders. In 1996, the Company primarily
used salary, stock options and restricted stock to meet these goals. The Board
of Directors believes that there is necessarily an element of subjectivity in
establishing compensation levels for the Company's executives and does not
follow specific objective performance criteria when establishing such
compensation levels.
The salary paid to Mr. Morgenstern, the chief executive officer of the
Company, in 1996 was paid pursuant to an employment agreement entered into by
the Company with Mr. Morgenstern at the beginning of 1994 (described under
"Executive and Director Compensation--Employment Arrangements"). Because Mr.
Morgenstern's cash compensation during 1996 was made solely pursuant to his
employment agreement, the Board of Directors took no action regarding Mr.
Morgenstern's cash compensation during 1996. In addition to being paid salary,
Mr. Morgenstern was granted stock options and restricted stock during 1996. The
decisions with respect to such grants were based upon the subjective evaluation
of the Stock Option Committee of various factors, including the executive's
ability to influence the Company's long-term growth and profitability and the
advisability of using long-term compensation awards as a means of retaining the
services of the executive over the long term and further aligning the interests
of the executive with those of the stockholders.
BOARD OF DIRECTORS
George Morgenstern
-10-
<PAGE>
Robert L. Kuhn
Samuel Fogel
Harvey Eisenberger
Sheldon Krause
Maxwell M. Rabb
Allen I. Schiff
-11-
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following stock price performance graph compares the cumulative total
return of the Company's Common Stock, during the period February 10, 1992 (date
of the Company's initial public offering) to December 31, 1996, to the
cumulative total return during such period of (i) the Nasdaq Stock Market Index
(United States and Foreign) and (ii) the Nasdaq Computer & Data Processing Stock
Index. The comparison in the graph assumes the investment of $100 in the
Company's Common Stock and in each such index on February 10, 1992, and the
reinvestment of all dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
02/10/92 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96
----------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
DSSI...................................... 100 185.33 421.667 158.333 233.333 189.333
Nasdaq Computer & Data Processing Stock
Index................................... 100 100.066 105.905 128.611 195.868 241.754
Nasdaq Stock Market Index................. 100 108.547 125.652 121.874 171.157 209.540
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and directors, and persons who own
more than 10% of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC") . These persons are also required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms that they file. Based
solely on the Company's review of such forms received by it, or written
representations from certain reporting persons, the Company believes that during
1996 all filing requirements applicable to its executive officers and directors
were complied with, except that forms required to be filed by Ambassador Rabb in
connection with his sale of an aggregate of 20,000 shares of Common Stock were
filed late.
-12-
<PAGE>
STOCKHOLDER LIST
Commencing on August 11, 1997, an alphabetical list of the names and
addresses of the stockholders of record of the Company as of the Record Date
will be available at the principal executive offices of the Company for
inspection by any stockholder during normal business hours for any purpose
germane to the Annual Meeting. The Company's principal executive offices are
located at 200 Route 17, Mahwah, New Jersey 07430.
INDEPENDENT PUBLIC ACCOUNTANTS AND AUDITORS
Igal Brightman & Co. (a member of Deloitte Touche Tohmatsu International)
served as the Company's independent certified public accountants and auditors
for the year ended December 31, 1996 and Deloitte & Touche LLP will serve in
that capacity for fiscal year 1997. The Company does not expect a representative
of the Company's independent certified public accountants to be present at the
Annual Meeting.
STOCKHOLDER PROPOSALS FOR THE 1997 ANNUAL MEETING
Stockholders may present proposals for inclusion in the Company's 1998 proxy
statement provided that (in addition to other applicable requirements) such
proposals are received by the Company in writing at its principal executive
offices no later than March 27, 1998.
OTHER MATTERS
The Board of Directors of the Company does not know of any other matters to
be presented for action at the Annual Meeting other than those listed in the
accompanying Notice of Annual Meeting and described herein. If any other matters
not described herein should properly come before the meeting for stockholder
action, it is the intention of the persons named in the accompanying proxy to
vote, or otherwise act, in respect thereof in accordance with the Board of
Directors' recommendations.
ANNUAL REPORT
A copy of the Company's Annual Report, covering the fiscal year ended
December 31, 1996, including audited financial statements is enclosed with this
Proxy Statement. Such report is not incorporated in this Proxy Statement and is
not a part of the proxy soliciting material.
BY ORDER OF THE BOARD OF DIRECTORS,
SHELDON KRAUSE
Secretary
July 25, 1997
Mahwah, New Jersey
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<PAGE>
DATA SYSTEMS & SOFTWARE INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints George Morgenstern, Robert L. Kuhn and
Sheldon Krause, and each of them, with full power of substitution, as
proxies, to vote at the Annual Meeting of Stockholders of Data Sysytems &
Software Inc. to be held at The Courtyard by Marriott, 140 Route 17 South,
Mahwah, New Jersey, on Thursday, August 21, 1997, at 10:00 a.m., and any
adjournments and postponements thereof, hereby revoking all proxies
heretofore given, to vote all shares of Common Stock of the Company held or
owned by the undersigned as directed on the reverse, and, in their
discretion, upon such other matters as may properly be brought before the
meeting. This proxy revokes all prior proxies given by the undersigned.
(TO BE SIGNED ON REVERSE SIDE)
<PAGE>
A / X / PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
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<CAPTION>
<S> <C> <C> <C> <C>
FOR WITHHELD
1. Election of / / / / NOMINEES: George Morgenstern 2. Act upon such other matters as may come before the
Directors Robert L. Kuhn meeting.
Samuel Fogel
Harvey Eisenberger THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS
For, except vote withheld from the following Sheldon Krause DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER, IF NO
nominee(s): Maxwell M. Rabb DIRECTION IS INDICATED, THE PROXY WILL BE VOTED FOR THE
Allen I. Schiff ELECTION OF THE DIRECTORS INDICATED AND FOR APPROVAL OF
- -------------------------------------------- THE PROPOSALS PRESENTED.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
SIGNATURE(S) DATE
-------------------------------------------------------------------------- --------------------------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full titile as such.
</TABLE>
