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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 ON
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19771
DATA SYSTEMS & SOFTWARE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2786081
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
200 ROUTE 17, MAHWAH, NEW JERSEY 07430
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (201) 529-2026
-----------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Common Stock Purchase Rights
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by
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reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]
As of March 27, 1997, there were 7,369,178 shares of the registrant's common
stock outstanding. The aggregate market value of the common stock held by
non-affiliates of the registrant at March 27, 1997 was approximately
$38,024,503. The aggregate market value was calculated by using the closing
price of the stock on that date on the Nasdaq National Market.
Documents incorporated by reference:
None.
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DATA SYSTEMS & SOFTWARE INC.
AMENDMENT NO. 1 ON FORM 10-K/A
TABLE OF CONTENTS
PAGE
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PART III
Item 10 Directors and Executive Officers of the Registrant.................. 4
Item 11 Executive Compensation.............................................. 6
Item 12 Security Ownership of Certain Beneficial Owners and
Management..........................................................12
Item 13 Certain Relationships and Related Transactions......................14
Signatures..........................................................15
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the directors,
executive officers of the Company.
NAME AGE POSITION
---- --- --------
George Morgenstern 63 Director; Chairman of the Board, President
and Chief Executive Officer of DSSI; Chairman
of the Board of DSI Israel; Chairman of the
Board of 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 52 Director
Sheldon Krause 41 Director and Secretary
Maxwell M. Rabb 86 Director
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. Mr. Morgenstern co-founded Decision Systems,
Inc. in 1960 and served as its President and Chief Executive Officer until 1991.
ROBERT L. KUHN has been a director of DSSI since 1986 and Vice Chairman of
the Board of DSSI since 1994. Since 1991,
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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 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 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 DSSI since 1992. Ambassador
Rabb has been Of Counsel to the law firm of Kramer, Levin, Naftalis, Nessen,
Kamin & 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
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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.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
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 they file. Based
solely on its 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.
Item 11. EXECUTIVE AND DIRECTOR 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 $100,000 in salary during
1996. Mr. Weldler was not an officer of the Company in 1995.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
All Other
Annual Compensation Long Term Compensation Awards Compensation ($)
------------------- ----------------------------- ----------------
Securities
Name and Salary Bonus Restricted Stock Underlying
Principal Position Year ($) ($) Awards ($) Options (#)
- ------------------ ---- ----- ---- ----------------- -----------------
<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(3)
Executive President 1995 132,000 - - 40,000 17,600(3)
1996 132,000 - - - 17,000(3)
Yacov Kaufman 1994 99,600 5,000 - 25,000 13,000(3)
Vice President 1995 99,600 26,200 - 20,000 15,000(3)
1996 108,000 5,900 - - 17,000(3)
David Weldler
Vice President 1996 200,000 - - 10,000 -
- -----------------------------
</TABLE>
(1) Represents the fair market value of 100,000 shares of Common Stock
awarded in a restricted stock award pursuant to the 1994 Stock Incentive
Plan, valued at the market price for the Common Stock on the date of the
grant. The shares vest over a three years 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 $3,000.
(3) Represents contributions to severance and pension funds. These
contributions are made on substantially the same basis as those made on
behalf of all DSI Israel employees.
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The following tables summarize (i) the options granted in 1996 to the
executive officers named in the Summary Compensation Table above, (ii) the
potential value of these options at the end of the option term assuming certain
levels of appreciation of the Company's Common Stock, (iii) the number of shares
acquired by the named executive officers upon the exercise of options in 1996
and the value realized thereon, and (iv) the number and value of all options
held by such executive officers at the end of 1996.
OPTION/SAR GRANTS IN 1996
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants(1) Option Term(2)
----------------------------------------------------------------- ------------------------
Number of
Securities % of Total Exercise
Underlying Options Granted or Base
Options to Employees in Price Expiration
Name Granted (#) Fiscal Year (%) ($/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 granted no 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.
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AGGREGATED OPTION EXERCISES IN 1996 AND FISCAL YEAR END STOCK OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares Value Number of Securities Underlying
Acquired Upon Realized Unexercised Options at Year End Value of Unexercised In-the-
Name Exercise (#) ($) (#) Money Options ($)(1)
- ---- ---------------- --------- -------------------------------- -----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George Morgenstern - - 230,584 216,666 -0- -0-
Samuel Fogel - - 146,667 93,333 - -0-
Yacov Kaufman - - 41,667 - 18,750 -
David Weldler 10,000 29,000 10,000 10,000 1,835 -0-
</TABLE>
- -------------------------
(1) Based on the closing price for the Common Stock on
December 31, 1996 of 5-11/16.
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COMPENSATION OF DIRECTORS
Each director of the Company is paid $1,000 for each meeting which such
director attends, plus reimbursement of associated out-of-pocket expenses.
Dr. Schiff receives an additional $12,000 per annum ($16,000 per annum
beginning 1997) for his service as Chairman of the Audit Committee and Stock
Option Committees, plus additional amounts for committee meeting fees and
special assignments. In 1996, Dr. Schiff received a total of $19,000 in
connection with his service on the Board and Board committees. Mr.
Eisenberger receives an additional $6,000 per annum in connection with his
service on the Audit Committee. Dr. Kuhn receives $50,000 per annum in
connection with his service as Vice Chairman of the Company.
In addition members of the Board of Directors who are not executive
officers (Mr. Eisenberger, Mr. Krause, Ambassador Rabb and Dr. Schiff) were
granted options to purchase 7,500 shares at an exercise price of $6.06 (the
fair market value of the Common Stock on the date of the Company's 1996
annual meeting of stockholders).
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
officers or employees of the Company or its affiliates and who meet certain
other eligibility criteria. Pursuant to the plan, (i) upon first election or
appointment to the Board, 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, except in the event of death or disability, 90 days from the date
of such death or disability. The exercise price per share of Common Stock
shall be 100% of fair market value per share 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.
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EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
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. Pursuant to the agreement, Mr.
Morgenstern received a salary of $300,000 per annum, plus contributions to a
nonqualified retirement fund equal to 20% of salary. The agreement provided
for annual review of the salary by the Board of Directors and an annual cost
of living adjustment commencing in 1997. No changes were made to Mr.
Morgenstern's cash compensation in 1995 or 1996.
In January 1997, the Board of Directors approved certain modifications to
the terms of Mr. Morgenstern's employment, including (i) an increase in Mr.
Morgenstern's base salary to $420,000 per annum and (ii) an increase in the
percentage of Mr. Morgenstern's salary contributed to Mr. Morgenstern's
non-qualified retirement fund to 25% of base salary. The annual salary will be
subject to cost of living adjustment commencing in 1998.
Under the employment agreement, as modified by the Board, Mr. Morgenstern
is entitled to terminate his employment and continue to serve the Company as a
consultant through the end of 2005. Mr. Morgenstern may exercise such right:
(x) if there is a "Change in Control of the Company" (as defined in the
agreement, such as the acquisition by a third party of 20% or more of the
Company's outstanding voting stock, a merger or sale of all or substantially all
of the assets of the Company, approval of a liquidation or dissolution of the
Company or certain changes in the composition of the Company's Board of
Directors), in which case he would continue to receive compensation at the
annual rate in effect at the time of such election, adjusted annually commencing
in 1998 for increases in the cost of living (the "Base Rate"), or (y) upon 120
days' prior written notice at any time before December 31, 2001, in which case
he would receive compensation at an annual rate equal to 50% of the Base Rate
for four years and at 25% of the Base Rate thereafter. During any consulting
period, Mr. Morgenstern would provide advice and consultative services
concerning the business of the Company upon request of the Board of Directors,
and report directly to the Board of Directors. The Company is obligated under
the 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 agreement
(including any consulting period), Mr.
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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 provide
for accelerated vesting in the event of a "Change in Control of the Company"
(which is defined substantially the same as in the employment agreement for Mr.
Morgenstern described above).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has not established a compensation committee. All
matters related to compensation, except for stock option and other stock-based
compensation and matters, are determined by the Board of Directors. Stock
option matters are determined by the Stock Option Committee, consisting of Allen
I. Schiff (Chairman), Sheldon Krause and Maxwell M. Rabb (alternate). Mr.
Morgenstern and Mr. Krause, Chairman and Chief Executive Officer and Secretary
of the Company, respectively, participated in deliberations relating to
compensation of officers. Neither Mr. Morgenstern nor Mr. Krause participated
in any deliberations relating to compensation of Mr. Morgenstern.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and the notes thereto set forth information, as of
April 15, 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 listed under "Summary Compensation Table" above, and (iv) all
executive officers and directors of the Company as a group.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Shares
Name and Address of Beneficially Percent
Beneficial Owner(1) Owned(2) Of Class
- ------------------- ------------ --------
George Morgenstern 459,823(3) 6.0%
Robert L. Kuhn 363,406(4) 4.8%
Samuel Fogel 237,404(5) 3.1%
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) 1,160,633 14.4%
* 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
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a three year period, and (ii) 280,584 currently exercisable options held by
Mr. Morgenstern.
(4) Consists of 192,656 shares and 170,750 currently exercisable options held
by Dr. Kuhn.
(5) Consists of 90,737 shares and 146,667 currently exercisable options held by
Mr. Fogel.
(6) Consists of currently exercisable options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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 in payment 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.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Township of
Mahwah, State of New Jersey, on April 30, 1997.
DATA SYSTEMS & SOFTWARE INC.
By: /s/ George Morgenstern
--------------------------------
George Morgenstern
Chairman, President and
Chief Executive Officer
