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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, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number 0-19771
DATA SYSTEMS AND SOFTWARE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2786081
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(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 $0.1 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 reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common stock of the registrant held by
non-affiliates of the registrant at March 18, 1998 was approximately $ 38.8
million. Such aggregate market value was calculated by using the closing price
of the stock on that date on the Nasdaq National Market.
Number of shares outstanding of the registrant's common stock, as of March 18,
1998: 7,369,178.
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
PART III
Item 10 Directors and Executive Officers of the Registrant...... 3
Item 11 Executive Compensation.................................. 5
Item 12 Security Ownership of Certain Beneficial Owners and
Management.............................................. 9
Item 13 Certain Relationships and Related Transactions..........10
Signatures..............................................11
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning the Board of
Directors and the executive officers of Data Systems & Software, Inc. ("DSSI" or
the "Company"):
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- -------------- ------ -----------------
<S> <C> <C>
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 53 Director; Vice Chairman of the Board of DSSI
Samuel Fogel 52 Director; Executive Vice President of DSSI; President and
General Manager of DSI Israel
Yacov Kaufman 40 Vice President and Chief Financial Officer of DSSI; Vice President
and Chief Financial Officer of DSI Israel
Harvey Eisenberger 53 Director
Sheldon Krause 42 Director and Secretary
Susan L. Malley 49 Director
Maxwell M. Rabb 87 Director
Allen I. Schiff 51 Director
</TABLE>
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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.
3
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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.
HARVEY EISENBERGER has been a director of the Company since 1994.
Since March 1997, Mr. Eisenberger has been employed by the Company 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 Eilenberg Krause & Zivian LLP (which prior to January 1998 was known
as 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.
SUSAN M. MALLEY has been a director of the Company since March 1998.
Dr. Malley has served since 1995 as President and Chief Investment Officer of
Malley Associates Capital Management, an asset management firm which she
founded. From 1990 until 1995, she was Co-Chair of the Board of Directors and
Chief Investment Officer of Citicorp Investment Services, a retail brokerage
subsidiary of Citibank, N.A.
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.
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
1997 all filing requirements applicable to its executive officers and directors
were complied with.
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Item 11. EXECUTIVE AND DIRECTOR COMPENSATION
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 $100,000 in compensation
during 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS
ANNUAL COMPENSATION ------------------------------------
NAME AND RESTRICTED SECURITIES
PRINCIPAL ---------------------------- STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) AWARD ($) OPTIONS (#) COMPENSATION($)
- --------------------------------- --------- --------- ----------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
George Morgenstern 1995 300,000 -- -- 97,500 82,800
Chief Executive Officer 1996 300,000 -- 600,000(1) 100,000 85,000
1997 420,000 -- -- -- 131,000(2)
Samuel Fogel 1995 132,000 -- -- 40,000 17,600
Executive Vice President 1996 132,000 -- -- -- 17,600
1997 132,000 -- -- -- 17,600(3)
Yacov Kaufman 1995 99,600 26,200 -- 20,000 15,000
Vice President 1996 108,000 5,900 -- -- 17,000
1997 108,000 10,000 -- -- 17,000(3)
David Weldler 1996 200,000 -- -- 10,000 --
Vice President(4) 1997 200,000 -- -- -- --
</TABLE>
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(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) $105,000 in contributions to a non-qualified retirement
fund,(ii) approximately $17,000 paid in lieu of vacation not taken in 1996,
(iii) approximately $5,000 in life insurance premiums and (iv) director's
fees of $4,000.
(3) Represents contributions to severance and pension funds. These contributions
are made on substantially the same basis as those made on behalf of all
Israeli employees.
(4) Mr. Weldler ceased serving as an officer and employee of the Company in
March 1998.
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The following tables summarize (i) the options granted in 1997 to the
executive officers named in the Summary Compensation Table above, (ii) the
potential value of these options at the end of the option term assuming certain
levels of appreciation of the Company's Common Stock, (iii) the number of shares
acquired by such named executive officers upon the exercise of options in 1997
and the value realized thereon, and (iv) the number and value of all options
held by such executive officers at the end of 1997.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN 1997
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERM(2)
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% OF
NUMBER TOTAL
OF OPTIONS
SECURITIES GRANTED
UNDERLYING TO EXERCISE OR
OPTIONS EMPLOYEES BASE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR (%) ($/SHARE) DATE 5% ($) 10% ($)
- ------------------------- ----------- ------------- ------------- --------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Yacov Kaufman 25,000 80.6 5.25 7/31/02 36,262 80,129
</TABLE>
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(1) The Company did not grant any stock appreciation rights (SARs) in 1997.
(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 July of each year
commencing July 1998.
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<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1997
AND FISCAL YEAR END STOCK OPTION VALUES
NUMBER
OF NUMBER OF SECURITIES VALUE OF
SHARES UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT YEAR END(#) OPTIONS($)(2)
UPON VALUE ----------------------- ------------------------
NAME EXERCISE(#)(1) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ -------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George Morgenstern...... -- -- 327,250 120,000 -- --
Samuel Fogel.............. -- -- 206,666 33,334 -- --
Yacov Kaufman........... -- -- 41,667 -- -- --
David Weldler............. -- -- 13,333 6,667 -- --
</TABLE>
- --------------------------
(1) No options were exercised by any of the named persons in 1997.
(2) Based on the closing price for the Common Stock on December 31, 1997, of
$4-3/4.
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 of $20,000 per annum for his service as
Chairman of the Audit Committee and Stock Option Committee plus additional
amounts in the event of special committee assignments. Dr. Schiff was paid a
total of $24,000 in 1997 in connection with his service on the Board of
Directors and Board committees. Mr. Eisenberger was paid an additional $6,000 in
1997 in connection with his service on the Board and the Audit Committee. Dr.
Kuhn was paid an additional $50,000 in 1997 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 employee of the Company (Mr. Krause, Ambassador Rabb
and Dr. Schiff) was granted options in 1997 to purchase 7,500 shares of Common
Stock at an exercise price of $6.50 per share (the fair market value of the
Common Stock on the date of the Company's 1997 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 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). Options 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.
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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.
The following persons served both as members of the Board of Directors and
officers of the Company in 1997: Mr. Morgenstern (Chairman of the Board,
President and Chief Executive Officer), Dr. Kuhn (Vice Chairman of the Board)
and Mr. Krause (Secretary). During 1997, 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 1997 in deliberations of the
Board of Directors concerning executive officer compensation. For information
concerning transactions with the Company in which directors or officers may be
deemed to have an interest, see Item 13-- "Certain Relationships and Related
Transactions."
EMPLOYMENT ARRANGEMENTS
George Morgenstern serves as Chairman of the Board, President and Chief
Executive Officer of the Company pursuant to an employment agreement which
commenced on January 1, 1994 and was modified in January 1997 (the "Employment
Agreement"). The Employment Agreement provides for a salary of $420,000 per
annum (subject to annual review by the Board and an annual cost of living
adjustment commencing in 1998) plus contributions to a nonqualified retirement
fund equal to 25% of his base 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 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 (but in no event prior
to December 31, 2005 if the Consulting Period commences following a Change in
Control of the Company (as defined in the Employment Agreement) 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 plus
contributions to a nonqualified retirement fund and the same fringe
benefits on the same basis as 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,
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
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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).
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and the notes thereto set forth information, as of April
18, 1998, concerning beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) of Common Stock by (i) each director of the
Company, (ii) each of the executive officers of the Company named in the Summary
Compensation Table under Item 11--"Executive and Director Compensation," and
(iii) all executive officers and directors of the Company as a group. Except as
indicated in the table, the Company is not aware of any stockholder that is the
beneficial owner of more than 5% of the outstanding Common Stock of the Company.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS OF NUMBER OF COMMON SHARES COMMON STOCK
BENEFICIAL OWNER (1) BENEFICIALLY OWNED (2) OUTSTANDING
- ------------------------------------ ------------------------ -------------
<S> <C> <C>
George Morgenstern............................... 556,489(3) 7.2%
Robert L. Kuhn................................... 442,489(4) 5.4%
Samuel Fogel..................................... 297,403(5) 3.7%
Yacov Kaufman.................................... 41,667(6) *
Harvey Eisenberger............................... 15,000(6) *
Sheldon Krause................................... 20,000(6) *
Susan L. Malley.................................. -- *
Hon. Maxwell M. Rabb............................. 20,000(6) *
Allen I. Schiff.................................. 20,000(6) *
All executive officers and directors
of the Company as a group (9 people)............. 1,413,048 17.0%
</TABLE>
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* Less than 1%
(1) Business 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 vesting over a three-year period, and (ii) 377,250 currently
exercisable options held by Mr. Morgenstern.
(4) Consists of 192,656 shares and 249,833 currently exercisable options held
by Dr. Kuhn.
(5) Consists of 90,737 shares and 206,666 currently exercisable options held
by Mr. Fogel.
(6) Consists of currently exercisable options.
9
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Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996 and 1997, the Company made a loan to George Morgenstern, its
Chairman, President and Chief Executive Officer. As of December 31, 1997, the
balance of this loan, which bears interest at an annual rate of 7%, was
approximately $650,000. The principal of, and interest on, such loan is payable
in installments as follows: (i) 105 bi-weekly payments of $3,000 each,
commencing on January 2, 1998, (ii) four annual payments of $72,000 each,
commencing on December 31, 1998, and (iii) a final payment on December 31, 2001
in an amount equal to the then remaining outstanding balance of the loan plus
accrued and unpaid interest.
During 1997, the Company paid approximately $401,000 for legal services
rendered and reimbursement of out-of-pocket expenses to Ehrenreich & Krause, a
law firm in which Sheldon Krause, a director and Secretary of the Company, is a
member. (Effective January 1998, such law firm is known as Ehrenreich Eilenberg
Krause & Zivian LLP.) In addition, Tower paid approximately $153,000 for legal
services rendered and reimbursement of out-of-pocket expenses to such firm in
1997. Prior to 1997, Tower's financial results were included in the Company's
consolidated financial statements, and payments by both companies to Ehrenreich
& Krause were reported on a combined basis. Mr. Krause is the son-in-law of
George Morgenstern, Chairman, President and Chief Executive Officer of the
Company.
During 1997, Shlomie Morgenstern, Director of Operations for the Company's
Databit and International Data Operations subsidiaries, received compensation of
approximately $98,000. Shlomie Morgenstern is a son of George Morgenstern,
Chairman, President and Chief Executive Officer of the Company.
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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 19, 1998.
DATA SYSTEMS & SOFTWARE INC.
By: /s/ Sheldon Krause
----------------------------
Sheldon Krause, Secretary
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