<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy (Consent Solicitation) Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. _____)
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement (Consent Solicitation Statement)
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Data Systems & Software Inc.
----------------------------
(Name of Registrant as Specified In Its Charter)
Cummer/Moyers Capital Advisors, Inc.
------------------------------------
(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> 2
THE COMMITTEE TO ENHANCE
DATA SYSTEMS & SOFTWARE INC.
STOCKHOLDER VALUE
C/O: DWAYNE A. MOYERS
3417 HULEN STREET
FORT WORTH, TX 76107
(800) 275-5404
Fax (817) 763-5559
January 7, 1998
Dear Fellow Data Systems & Software Inc. Stockholder:
We are soliciting your assistance in helping us increase the value of
our mutual investment in Data Systems & Software Inc. (the "Company"). As a
fellow stockholder, we need not remind you of the disappointing returns the
Company's stock has produced for us during the past two years. As you know, the
Company has not posted a quarterly profit since the second quarter of 1996.
These disappointing operating results and the resulting poor stock price
performance have led us to form a stockholders' committee - The Committee to
Enhance Data Systems & Software Inc. Stockholder Value - in an effort to
revitalize our Company.
As a committee, we are one of the largest single stockholders of the
Company controlling 413,200 shares, representing 5.61% of the Company. We are
very concerned, and we need your help. We believe that the current Board of
Directors and George Morgenstern, the Company's CEO, are to blame for the poor
performance. Under their watch:
- The Company has lost over $5,600,000 during the last nine months
as reported in their recent quarterly report for the period ending
September 30, 1997;
- The Company's stock price has declined by over 56% since
September 1995;
- The value of the Company's most significant asset - a 24% interest
in Tower Semiconductor Corp., Ltd. - has declined in value by
approximately $75,000,000 since September 1995; and
- The stockholders have suffered significantly since the stock
price has FALLEN 56% from approximately $11 1/2 to $5 1/16 in the
last 2 1/2 years while the market for computer-related companies,
as reflected by the Nasdaq Computer Index, has RALLIED 77% during
that same period.
Despite this poor performance, during the past three years the current
Board of Directors, under the leadership of the Company's Chairman and CEO,
George Morgenstern has:
- Raised Mr. Morgenstern's annual base compensation from $300,000
per year to its current level of $420,000 per year;
- Awarded Mr. Morgenstern stock options, restricted stock, and other
compensation having a value of over $1.75 million;
- Granted Mr. Morgenstern a personal $550,000 loan from our
Company's funds;
- Paid Ehrenreich & Krause, the firm in which Sheldon Krause is a
partner, $1,500,000 (Sheldon Krause is the Secretary of the
Company and a son-in-law of George Morgenstern);
- Attempted to entrench themselves by amending the By-laws of the
Company and severely restricting the rights of the stockholders;
and
<PAGE> 3
- Adopted a "poison pill" Rights Agreement which makes it difficult
for the Company to be bought out.
Because of the past actions of the Board of Directors we are soliciting
your consent to remove the current directors and replace them with a slate of
nominees who are aligned with the interests of all of the stockholders. By
giving your consent, you will be installing new directors to the board who will
be focused on increasing value for all stockholders.
The Company has several subsidiaries and divisions: a semiconductor
foundry, a defense systems contractor, a venture capital fund management
company, a subsidiary providing support to the help desk segment of the software
services market, a company selling baseball CD's (digital baseball cards), a
consulting group, and a value added re-seller of computer equipment among
others. The Committee believes that the various businesses which comprise the
Company lack a strategic fit. In our opinion these businesses neither compliment
each other nor create an ultimate benefit to the value of the Company and our
mutual investment. We believe that several of the Company's businesses or assets
would have more value on a stand-alone basis or if merged into a strategic
partner.
If installed, the Committee's nominees intend to hire a nationally
recognized investment banking firm to provide advice and assistance in
restructuring the Company in a manner aimed at improving value for all
stockholders. We expect that such a restructuring may include the sale,
divestiture, spin-off, merger, repositioning or other reorganization of one or
more of the Company's businesses or assets.
In order to implement our goal of increasing value for all
stockholders, we need your support. With this letter, the enclosed Consent
Solicitation Statement, and the enclosed BLUE Consent Card; we are asking you to
approve the following proposals:
1. Remove the current Board of Directors which has, in the
Committee's opinion, been responsible for the poor performance of
our investment;
2. Fill the vacant directorships with the Committee's five nominees;
3. Add a provision to the Company's By-laws which would prohibit the
current, or any future board, from restricting certain stockholder
rights;
4. Repeal any changes made to the Company's By-laws by the current
Board of Directors, subsequent to the record date of this
solicitation;
5. Amend the By-laws to allow stockholders holding 25% or more of the
Company's common stock to call a special meeting;
6. Repeal certain By-laws which are restrictive to basic stockholders
rights; and
7. Terminate or modify the Company's "poison pill" Rights Agreement.
The enclosed Consent Solicitation Statement will provide you with the
details of the Committee's agenda and proposals. After you review it, the
Committee recommends that you consent to each of the proposals. Your consent is
important no matter how many or how few shares you own. Please sign and date the
enclosed BLUE Consent Card and return it in the enclosed postage paid envelope
promptly. Failure to do so will have the same effect as voting against the
proposals.
If you have any questions regarding this matter please contact:
The Committee to Enhance
Data System & Software Inc.
Stockholder Value
C/O: Dwayne A. Moyers
(800) 275-5404
Fax: (817) 763-5559
<PAGE> 4
CONSENT SOLICITATION STATEMENT OF
THE COMMITTEE TO ENHANCE DATA SYSTEMS & SOFTWARE INC.
STOCKHOLDER VALUE
This Consent Solicitation Statement, the accompanying letter and the enclosed
form of written consent are being furnished by and on behalf of the Committee to
Enhance Data Systems & Software Inc. Stockholder Value (the "Committee") on or
about January 7, 1998, in connection with the solicitation by the Committee from
the holders of shares of common stock, par value $.01 per share (the "Common
Stock") of Data Systems & Software Inc., a Delaware corporation ("DSSI" or the
"Company"), of written consents to take the following actions (the "Proposals")
without a stockholders' meeting, as permitted by Delaware law:
(1) Remove all current members of the Board of Directors, such members being,
at the present time, George Morgenstern, Sheldon Krause, Harvey
Eisenberger, Robert Kuhn, Samuel Fogel, Maxwell Raab and Allen Schiff, and
any person or persons (other than the persons elected pursuant to this
consent) elected or appointed to the Board of Directors of the Company
prior to the effective date of this stockholder action in addition to or in
lieu of any of such individuals to fill any newly-created directorship(s)
or vacancy(ies) on the Board of Directors of the Company, or otherwise,
other than the Committee's nominees;
(2) Elect the five nominees listed under "Committee's Nominees" on Appendix C
hereto as directors of the Company to fill vacated directorships on the
Board of Directors and to serve until their respective successors are duly
elected and qualified;
(3) Add a provision to the By-laws which would prohibit the Board of Directors
from amending the By-laws relating to certain stockholders' rights.
(4) Repeal any changes made to the By-laws subsequent to the Record Date
herein;
(5) Amend Article II, Section 2 of the By-laws of the Company to allow
stockholders to call a special meeting by deleting it in its entirety and
substituting therefor the following: "Special Meetings. Special meetings of
the stockholders may be called at any time by the Board of Directors or the
President of the Corporation or by written consent of a stockholder or
stockholders holding of record at least twenty-five percent (25%) of the
shares of Common Stock of the Corporation issued and outstanding, such
special meeting to be held at such place (within or without the State of
Delaware), date and hour as shall be designated in the notice or waiver of
notice thereof." (see Appendix E for a description of Article II,
Section 2).
(6) Repeal Article II, Sections 6 and 7 of the By-Laws, which two sections were
added to the By-laws of the Company by a Board of Directors amendment in
December 1994 and which two sections substantially limit and impair the
stockholders' ability to exercise many of the rights which they had
previous to the enactment by the Board of such sections and which they
would normally have pursuant to the Delaware General Corporation Law
("DGCL") in connection with their holdings of stock in the Company, and
provide for more lenient and traditional nominating procedures in
compliance with the DGCL. (see Appendix E for a description of Article II,
Sections 6 and 7).
(7) Terminate the "poison pill" Rights Agreement, through which the Board of
Directors has entrenched itself in control of the Company, but only to the
extent that such termination will not result in the exercisability of any
rights under that agreement and/or will not have a negative economic effect
on the Company, or, in the alternative, increase the triggering point to a
twenty-five percent (25%) transfer of the Common Stock of the Company. (see
Appendix D for a description of the "poison pill" Rights Agreement).
1
<PAGE> 5
IMPORTANT
Stockholders of DSSI are being asked to express their consent to the
Proposals by MARKING, SIGNING, DATING the enclosed BLUE Consent Card and
returning it in the postage paid envelope in accordance with the instructions
set forth below. If you hold your DSSI shares in the name of a brokerage firm,
then, in addition to completing the BLUE Consent Card, you should contact the
party at the brokerage firm responsible for your account to make sure that a
Consent Card is executed for your Common Stock on the BLUE Consent Card.
All percentages shown herein assume that the number of shares
outstanding on January 7, 1998 (the "Record Date") is 7,369,178 shares of Common
Stock based on the Company's most recent Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
THE COMMITTEE RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS.
YOUR CONSENT IS IMPORTANT. PLEASE MARK, SIGN AND DATE THE ENCLOSED BLUE CONSENT
CARD AND RETURN IT IN THE ENCLOSED POSTAGE PAID ENVELOPE PROMPTLY. FAILURE TO
RETURN YOUR CONSENT WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE PROPOSALS.
IF THE STOCKHOLDER WHO HAS EXECUTED AND RETURNED THE CONSENT CARD HAS
FAILED TO CHECK A BOX MARKED "CONSENT", "CONSENT WITHHELD" OR "ABSTAIN" FOR ONE
OR MORE OF THE PROPOSALS, SUCH STOCKHOLDER WILL BE DEEMED TO HAVE CONSENTED TO
SUCH PROPOSAL OR PROPOSALS.
If you have any questions about executing your consent or require
assistance, please contact:
THE COMMITTEE TO ENHANCE
DATA SYSTEM & SOFTWARE INC.
STOCKHOLDER VALUE
C/O: Dwayne Moyers
3417 Hulen Street
Fort Worth, TX 76107
1-800-275-5404
Fax: 817-763-5559
2
<PAGE> 6
SUMMARY OF CONSENT PROCEDURE
The Committee believes that the Proposals will become effective on the
date when the written consent of holders of a majority of the shares of the
Company's Common Stock outstanding on the Record Date is delivered to the
Company, so long as such consent is obtained within sixty days after the Record
Date. The Committee established the record date as January 7, 1998 by delivering
to the Company, on that day, an executed form of consent. In order to facilitate
prompt adoption of the Proposals, the Committee requests that you mail your
consent by February 20, 1998.
A consent executed by a stockholder may be revoked in writing at any
time prior to the time that the action authorized by the executed consent is
taken. The Committee intends to deliver executed consents to the Company once
the Committee has obtained valid and unrevoked consents representing a majority
of the issued and outstanding shares of Common Stock of the Company as of the
Record Date. Since the Committee cannot predict the date on which it will
receive a majority of the consents, the period within which a consent may be
revoked is uncertain.
THE COMMITTEE RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS. YOUR
CONSENT IS IMPORTANT. PLEASE MARK, SIGN AND DATE THE ENCLOSED BLUE CONSENT CARD
AND RETURN IT IN THE ENCLOSED POSTAGE PAID ENVELOPE PROMPTLY. FAILURE TO RETURN
YOUR CONSENT WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE PROPOSALS.
If your shares are held in your name, please mark, sign, and date the
enclosed BLUE Consent Card and return it in the postage-paid envelope provided.
If your shares are held in the name of a brokerage firm, bank nominee or other
institution, you should receive a BLUE Consent Card and envelope which should be
used to give your instructions to the person responsible for your account. Only
that institution can execute a BLUE Consent Card with respect to your shares and
only upon receipt of specific instructions from you. The Committee urges you to
confirm in writing your instructions to the person responsible for your account
and to provide a copy of those instructions to the Committee at the address set
forth below so that the Committee will be aware of all instructions given and
can attempt to ensure that such instructions are followed.
THE COMMITTEE TO ENHANCE
DATA SYSTEM & SOFTWARE INC.
STOCKHOLDER VALUE
C/O: Dwayne Moyers
3417 Hulen Street
Fort Worth, TX 76107
1-800-275-5404
Fax: 817-763-5559
3
<PAGE> 7
THE COMMITTEE AND NOMINEES
The Committee is presently composed of its founding members,
Cummer/Moyers Holdings, Inc.; Cummer/Moyers Capital Advisors, Inc.;
Cummer/Moyers Capital Partners, Inc.; Dwayne A. Moyers; and Jeffrey A. Cummer.
The Committee is deemed to be the beneficial owner of 413,200 shares or 5.61% of
the Common Stock of the Company and believes that, when acting as a group, is
one of the largest single stockholders of the Company.
The Committee was formed on January 3, 1998 in response to its members'
concern over the poor financial performance of the Company's operations and the
poor performance of the Company's stock price. The Committee has nominated the
following individuals to serve as directors of the Company:
Dwayne A. Moyers
Jeffrey A Cummer
William Nelson II
Alan M. Steinmetz
Kyle G. Kennedy
Mr. Dwayne A. Moyers and Mr. Jeffrey A. Cummer are executive officers
and directors of Cummer/Moyers Holdings, Inc. and its subsidiaries,
Cummer/Moyers Capital Advisors, Inc., Cummer/Moyers Capital Partners, Inc. and
Cummer/Moyers Securities, Inc. (collectively "CMH") Both are also principal
stockholders of CMH. CMH, through its subsidiaries, is an investment management
and securities brokerage firm registered with the National Association of
Securities Dealers and the Securities and Exchange Commission. CMH manages
approximately $150 million of individual client assets.
William Nelson II is semi-retired from a career in the securities
industry spanning fifty years and is now a private investor living in Nashville,
Tennessee.
Alan M. Steinmetz is an independent real estate and securities attorney
practicing law in New York, New York and holds no shares in the Company. Mr.
Steinmetz is acting as legal advisor to the Committee and will receive a
"success fee" if the Committee is successful in replacing the current Board of
Directors of the Company.
Kyle G. Kennedy is the president of Kennedy & Associates, a sales and
marketing firm representing manufacturers of various consumer products.
In the event that the Committee is successful in replacing the Board of
Directors with its Nominees, the Nominees will, shortly following their
election, adopt a non-qualified stock option plan (the "Stock Plan") covering up
to ten percent (10%) of the then issued and outstanding shares of the Company's
Common Stock for issuance to the Nominees and executive officers of the Company
upon exercise of options granted to such Nominees and executive officers of the
Company under the Stock Plan. The exercise price of any shares of Company Common
Stock subject to options granted under the Stock Plan will be the fair market
value thereof on the Record Date herein. The purpose of the Stock Plan is to
provide Nominees with an incentive to serve on the Board of Directors of the
Company and to motivate such Nominees and executive officers of the Company to
exert their best efforts toward enhancing stockholder value.
For more information related to the Committee and its Nominees see
Appendix A and Appendix C attached hereto.
4
<PAGE> 8
BACKGROUND OF THE CONSENT SOLICITATION
The Committee is soliciting consents to the Proposals due to the
Committee's concerns relating to: (i) the poor financial performance of the
Company's operations; (ii) the poor performance of the Company's Common Stock
price during the last two years; (iii) the extreme deterioration in the market
value of the Company's principal asset - its 24% ownership interest in Tower
Semi Conductor Corp., Ltd. - during the last two years; (iv) the high level of
cash and non-cash compensation paid to the Company's Chairman of the Board of
Directors and CEO, George Morgenstern, despite the deteriorating operating
performance of the Company during the last 9 months and declining stock price of
the Company during the last two years; (v) Mr. Morgenstern's hand-picked Board
of Directors and (a) its excessive generosity in granting him compensation
increases despite the continual poor financial performance of the Company and
the decline of its Common Stock price, (b) the actions taken by the Board of
Directors to reduce and eliminate basic stockholder rights and (c) the
entrenchment measures adopted by Mr. Morgenstern and his Board of Directors;
(vi) the nepotistic relationship between Mr. Morgenstern and the Company's
"outside" legal counsel and the resulting costs to the Company; and (vii) the
lack of strategic fit and synergy between the Company's mix of businesses.
The Committee's Nominees, if elected, intend to pursue a goal of
maximizing stockholder value over the next 24-36 months.
POOR FINANCIAL AND STOCK PRICE PERFORMANCE.
The Committee has been very disappointed with the Company's financial
operating results over the last 6 quarters and the poor market performance of
the Company's stock price during the last two years.
As reported in the Company's most recent Quarterly Report on Form 10-Q, the
Company lost $5,679,000, or $0.77 per share, for the nine months ended September
30, 1997.
Since September 13, 1995, the Company's Common Stock price has DECLINED
by approximately 56%, while the stock of similar companies, as measured by the
NASDAQ Computer Stock Index, has APPRECIATED approximately 63% during that same
period of time. The following chart compares the current value of a $1
investment in the Company's Common Stock to that in the NASDAQ Computer Stock
Index on September 13, 1995.
$1.00 INVESTED IN THE NASDAQ COMPUTER INDEX COMPARED TO
$1.00 INVESTED IN DATA SYSTEMS & SOFTWARE INC. ON SEPTEMBER 13, 1995
[GRAPHIC TO COME]
5
<PAGE> 9
AS ONE OF THE LARGEST STOCKHOLDERS OF THE COMPANY, THE COMMITTEE IS
OBVIOUSLY CONCERNED ABOUT THE SIGNIFICANT LOSS IN MARKET VALUE THAT HAS BEEN
SUFFERED BY ALL COMPANY STOCKHOLDERS. THE COMMITTEE'S INTERESTS AS STOCKHOLDERS
ARE ALIGNED WITH YOURS AND WE HAVE EVERY INCENTIVE TO INCREASE STOCKHOLDER
VALUE.
DETERIORATION OF VALUABLE CORPORATE ASSETS.
The Company's principal asset is its 24% interest in Tower
Semiconductor Corp., Ltd. ("Tower"), a semiconductor manufacturing company
located in Israel and doing business in various countries around the world. The
stock price of Tower has declined from over $35 per share since September 1995
to its current price of $11, representing a decline of approximately 68%. This
severe decline in the market price of Tower common stock has caused the market
value of the Company's holdings in Tower to decline from approximately
$110,000,000 to its current market value of approximately $35,000,000. DSSI's
stockholders have suffered as THE MARKET VALUE OF THE COMPANY'S MOST SIGNIFICANT
ASSET HAS DECLINED BY APPROXIMATELY $75,000,000 SINCE SEPTEMBER 13, 1995.
ACCORDING TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD
ENDED DECEMBER 31, 1996, THE COMPANY CLAIMS TO EXERCISE "CONTROL" OVER TOWER. IN
FACT, THE COMPANY'S CHAIRMAN AND CEO, GEORGE MORGENSTERN, SERVES AS CO-CHAIRMAN
OF TOWER. THE COMMITTEE BELIEVES THAT THE BOARD OF DIRECTORS OF THE COMPANY HAS
NOT BEEN EFFECTIVE IN MAXIMIZING THE VALUE OF TOWER FOR THE BENEFIT OF
STOCKHOLDERS. IF ELECTED, THE COMMITTEE'S NOMINEES INTEND TO HIRE ONE OR MORE
NATIONALLY RECOGNIZED INVESTMENT BANKING FIRMS TO PROVIDE ADVICE AND/OR
RECOMMENDATIONS RELATED TO MAXIMIZING THE VALUE OF THIS ASSET. IT IS EXPECTED
THAT SUCH RECOMMENDATIONS MAY INCLUDE THE SALE, DIVESTITURE, MERGER,
REPOSITIONING, REORGANIZATION OR SPIN-OFF OF TOWER OR THE COMPANY'S HOLDINGS IN
TOWER.
6
<PAGE> 10
The following graph illustrates the decline in the market value of the Company's
share of Tower:
MARKET VALUE OF THE COMPANY'S SHAREHOLDINGS IN TOWER SEMICONDUCTOR CORP., LTD.
[GRAPHIC TO COME]
EXCESSIVE COMPENSATION.
According to the Company's Proxy Statement dated July 25, 1997, the
Company's President and Chief Executive Officer, Mr. George Morgenstern, has
received base annual compensation in the amounts of $300,000; $300,000 and
$300,000 for the years ending 1994, 1995 and 1996, respectively, as well as
additional annual compensation of $85,000; $82,800; and $85,000 for the same
years. During this same period, Mr. Morgenstern also received compensation in
the form of restricted stock grants and incentive stock options which the
Committee believes were worth over $2,400,000.
The following chart details Mr. Morgenstern's compensation over the
past four years:
<TABLE>
<CAPTION>
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Cash $300,000 $300,000 $300,000 $420,000
Stock Options $1,035,000(1) $350,000 (2) $559,000 (3) Not Disclosed (4)
Restricted Stock $600,000 Not Disclosed (4)
Other $85,000 $82,800 $85,000 $105,000 (5)
TOTAL $1,420,000 $732,800 $1,544,000 NOT AVAILABLE
</TABLE>
(1) The fair market value of 200,000 options issued at the market utilizing the
Black-Scholes option pricing model assuming a risk free rate of 7.4%, 59%
volatility, and 10 years to expiration.
(2) The fair market value of 97,500 options issued at the market utilizing the
Black-Scholes option pricing model assuming a risk free rate of 6.7%, and
59% volatility.
(3) The fair market value of 150,000 options issued at the market utilizing the
Black-Scholes option pricing model assuming a risk free rate of 6.3%, and
59% volatility.
(4) The Company has not yet disclosed the compensation relating to stock
options or restricted stock in 1997.
(5) Estimated by the Committee to be 25% of cash compensation as generally
discussed in the Company's 1997 Proxy Statement.
In January 1997 the Board of Directors awarded Mr. Morgenstern a 40%
increase in his annual base compensation from $300,000 to $420,000. The
Committee finds the increase in Mr. Morgenstern's compensation disturbing
because it was granted, in the Committee's opinion, at a time when the operating
results of the Company did not justify a compensation increase for Mr.
Morgenstern and while the stockholders were suffering due to the decline in the
market value of the Company's Common Stock during the prior two years. In 1996,
the Company approved a loan of up to $550,000, bearing interest at an annual
rate of 7%, to Mr. Morgenstern. The Committee is disturbed that the Board of
Directors would allocate such a significant amount of the Company's capital for
Mr. Morgenstern's personal use at a time when the stockholders were forced to
watch the market value of their investment decline. The Committee
7
<PAGE> 11
is disturbed that the Board of Directors has not established a compensation
committee, and the Committee believes that the lack of an independent
compensation committee illustrates the current Board of Directors disinterest in
aligning themselves with the stockholders. An example of this possible
disinterest is Mr. Morgenstern's employment agreement which generally states
that Mr. Morgenstern has the right to terminate his employment with the Company.
Upon termination of his employment contract, Mr. Morgenstern triggers a
provision allowing for the payment of 50% of his salary, presently $420,000 per
year, for "consulting services" for a period of four years and 25% of his salary
for another three years from the termination date, subject to cost of living
adjustments. Also, during this consulting period, Mr. Morgenstern is to receive
the same fringe benefits he was to receive during the time of his employment,
presently a contribution of 25% of his salary to a non-qualified retirement
fund, the use of 2 company automobiles, and premium payments to both a $500,000
whole life and a $1,100,000 term life insurance policy of which his spouse or
his estate, among others, may be beneficiaries. As a further example of his
entrenchment the employment agreement with Mr. Morgenstern states generally: In
the event Mr. Morgenstern elects to terminate his agreement and there has been a
change in control of the company, Mr. Morgenstern is to receive 100% of his
salary until December 31, 2001 and thereafter receive the above mentioned
payment for consulting services for the remainder of the consulting period. (see
the Company's 1996 Annual Report on Form 10-K-A for more details).
MORGENSTERN'S BOARD OF DIRECTORS AND THE ENTRENCHMENT BY MANAGEMENT.
The Committee believes the current Board of Directors consists of
members selected and installed by, and beholden to Mr. Morgenstern. The
Committee believes as a result, the actions of the Board are not independent,
are not necessarily in the best interests of the Company and do not necessarily
represent the goals of the stockholders. In fact, the Committee believes some of
the actions of the Board seem to represent the goals and interests of the Board
itself and could indicate a potential violation of fiduciary duty to the
stockholders. The Committee believes several actions passed by the Board during
the past several years have had as a principal result a diminishing effect in
the rights of the stockholders. The Committee believes these actions have
significantly reduced the ability of the stockholders to exercise the rights
which the stockholders previously held under and pursuant to the By-laws of the
Company and which stockholders generally have pursuant to the Delaware General
Corporate Law.
In December 1994 the Board approved and enacted several amendments to
the By-laws of the Company which significantly limited the ability of the
stockholders to exercise their rights in connection with Company business. These
amendments (i) eliminated the right of stockholders to call a special meeting of
stockholders pursuant to Article II, Section 2 of the By-laws; and (ii) added
Sections 6 and 7 to Article II of the By-laws, two sections which substantially
curtail the stockholders' ability to nominate and install directors to the Board
and to bring business before an annual or special stockholders' meeting. The
Committee believes, as a result, the stockholders were effectively stripped of
the ability to have immediate input into the transaction of business by the
Company since they are unable, in accordance with the By-laws, to conduct a
special meeting and because of the oppressive restrictions present in Article
II, Sections 6 and 7. The Committee believes the further effects of the Sections
6 and 7 are to (a) entrench the present Board of Directors and to provide for
Mr. Morgenstern's maintaining the power to control the directorships and the
Board, (b) to provide for the Board's maintaining of complete and unchallenged
authority and power to operate the Company without input from and accountability
to the stockholders, and (c) the placement of the stockholders into a
subservient, uninvolved and essentially powerless position. (see Appendix E for
a detailed description of Article II, sections 6 and 7)
In March 1996 the Board of Directors created a "poison pill" which
would render unfeasible and economically impossible any effort to obtain control
of the Company through the purchase of a controlling interest of the shares of
the Common Stock. The triggering event for the poison pill is the acquisition or
transfer to an acquiring entity shares representing 15% of the then outstanding
shares of Common Stock of the Company. The Committee believes the purpose of
this agreement was clearly to entrench the present controlling interests of the
Company by preventing any other party from making any attempts to acquire and/or
assert any control over the Company and to render impossible the attempts to
wrest the power and authority over the operations of the Company from the
existing Board of Directors. The Committee believes a further result of this
agreement is to eliminate the need for accountability by the existing Board of
Directors to the stockholders.
NEPOTISM.
Sheldon Krause, the Company's chief legal counsel and a member of the
Board of Directors, is the son-in-law of Mr. Morgenstern. The amount of total
compensation paid to Mr. Krause's firm has been $715,000; $535,000; and $450,000
for the years ending December 31, 1994, 1995, and 1996, respectively. The
Committee's Nominees, if elected,
8
<PAGE> 12
intend to evaluate the services performed by Mr. Krause to ensure that the
amounts paid for such services were consistent with industry standards.
LACK OF STRATEGIC OR SYNERGISTIC MIX OF BUSINESSES.
The Company has several subsidiaries and divisions: a semiconductor
foundry, a defense systems contractor, a venture capital fund management
company, a subsidiary providing support to the help desk segment of the software
services market, a company selling baseball CD's (digital baseball cards), a
consulting group, and a value added re-seller of computer equipment among
others. The Committee believes the various businesses which are part of and
comprise the Company lack a strategic fit and synergy. As a result, these
businesses do not complement each other and do not create an ultimate benefit to
the value of the Company and, ultimately, to the stock price. The Committee
believes that several of the businesses would have an enhanced value on a
stand-alone basis and that the marketplace will value these businesses at a
higher and better level if they are operated as stand-alone "pure-plays", rather
than as part of a "conglomerate." The Committee believes further that
evaluations of the various businesses by independent auditors and financial
advisors will establish realistic values for each and would result in the
ability of the Company to establish a strategy by which it would be able to
maximize asset value for the Company. IF ELECTED, THE COMMITTEE'S NOMINEES
INTEND TO HIRE ONE OR MORE NATIONALLY RECOGNIZED INVESTMENT BANKING FIRMS TO
EVALUATE EACH BUSINESS OF THE COMPANY WITH A VIEW TOWARD RESTRUCTURING THE
COMPANY IN A MANNER AIMED AT IMPROVING STOCKHOLDER VALUE. IT IS EXPECTED THAT
SUCH RESTRUCTURING MAY INCLUDE THE SALE, DIVESTITURE, SPIN-OFF, MERGER,
REPOSITIONING OR OTHER REORGANIZATION OF ONE OR MORE OF THE COMPANY'S BUSINESSES
OR ASSETS.
9
<PAGE> 13
REASONS FOR THE CONSENT SOLICITATION
The Committee is soliciting consents to the Proposals due to the
Committee's concerns relating to: (i) the poor financial performance of the
Company's operations; (ii) the poor performance of the Company's Common Stock
price; (iii) the extreme deterioration in the market value of the Company's
principal asset - its 24% ownership interest in Tower Semiconductor Corp., Ltd.;
(iv) the high level of cash and non-cash compensation paid to the Company's
Chairman of the Board and CEO, George Morgenstern, despite the deteriorating
operating performance and the declining stock price of the Company; (v) Mr.
Morgenstern's hand-picked Board of Directors and (a) its excessive generosity in
granting him compensation increases despite the continual poor financial
performance and declining stock price of the Company, (b) the actions taken by
the Board of Directors to reduce and eliminate basic stockholder rights and c)
the entrenchment measures adopted by Mr. Morgenstern and his Board of Directors;
(vi) the nepotistic relationship between Mr. Morgenstern and the Company's
"outside" legal counsel and the resulting costs to the Company; and (vii) the
lack of strategic fit and synergy between the Company's mix of businesses.
The Committee believes that the stockholders should adopt the Proposals
as soon as possible in order to replace the Board with a slate of nominees who
are committed to returning the Company to profitability and maximizing
stockholder value. The Committee believes the track record of the present
management and Board of Directors speaks for itself against the continuation of
those directors on the Company's Board.
The Committee's goal is to restore the Company's ability to respond
effectively to the challenges it faces by forming a new Board of Directors,
endorsed by the stockholders, which combines independence, integrity and
experienced judgment with a true commitment to the Company and its stockholders.
IF ELECTED, THE COMMITTEE'S NOMINEES INTEND TO HIRE ONE OR MORE NATIONALLY
RECOGNIZED INVESTMENT BANKING FIRMS TO EVALUATE EACH BUSINESS OF THE COMPANY
WITH A VIEW TOWARD RESTRUCTURING THE COMPANY IN A MANNER AIMED AT IMPROVING
STOCKHOLDER VALUE. IT IS EXPECTED THAT SUCH RESTRUCTURING MAY INCLUDE THE SALE,
DIVESTITURE, SPIN-OFF, MERGER, REPOSITIONING OR OTHER REORGANIZATION OF ONE OR
MORE OF THE COMPANY'S BUSINESSES OR ASSETS.
10
<PAGE> 14
PROPOSALS
This Consent Solicitation Statement and the accompanying form of
written consent are first being furnished by the Committee on or about January
7, 1998, in connection with the solicitation by the Committee from the holders
of shares of Common Stock of the Company of written consents to take the
following actions without a stockholders meeting, as permitted by Delaware law:
(1) Remove the existing directors of the Board of Directors (the
"Morgenstern Directors"):
"RESOLVED, that each member of the Board of Directors of the
Company, such members being, at the present time, George Morgenstern, Sheldon
Krause, Harvey Eisenberger, Robert Kuhn, Samuel Fogel, Maxwell Raab and Allen
Schiff, and any person or persons (other than the persons elected pursuant to
this consent) elected or appointed to the Board of Directors of the Company
prior to the effective date of this resolution in addition to or in lieu of any
of the aforenamed individuals to fill any newly created directorships or vacancy
on the Board of Directors of the Company, or otherwise, is hereby removed and
the office of each member of the Board of Directors is hereby declared vacant."
(2) Elect the five (5) persons listed on Appendix C hereto to fill
the vacant directorships.
"RESOLVED, that the following persons are hereby elected as
directors of the Company to fill vacant directorships on the Board of Directors,
and to serve until their respective successors are duly elected and qualified:
Dwayne A. Moyers; Jeffrey A. Cummer; William Nelson II; Kyle G. Kennedy; and
Alan M. Steinmetz."
(3) Amend Article XII of the By-laws to prohibit the Board of Directors
from amending the By-laws relating to stockholders' rights without the written
consent of a majority of stockholders:
"RESOLVED, that Article XII of the By-laws be amended by
appending to the end of said Article XII the following:
;provided, however, that the Board of Directors shall
have no right or authority and shall not be permitted to alter, amend or repeal
any By-law which affects or which would affect, in any way, certain stockholder
rights relating to a) the nomination, removal and election of directors, or b)
the calling of special meetings by the stockholders without the prior written
consent of holders of no less than a majority of the outstanding shares."
(4) Repeal any changes made to the By-laws subsequent to the Record
Dates:
"RESOLVED, that any changes made after the Record Date to the
By-laws by the current Board of Directors be rendered null and void and of no
further force and effect."
(5) Amend Article II, Section 2 of the By-laws of the Company by
deleting it in its entirety and substituting therefor the language indicated:
"RESOLVED, that Article II, Section 2 of the By-laws of the
Company be deleted in its entirety and the following be inserted therein in its
lieu and stead as Section 2 of Article II:
"Special Meetings. Special meetings of the
stockholders may be called at any time by the Board of Directors or the
President of the Corporation or by written consent of a stockholder or
stockholders holding of record at least twenty-five percent (25%) of the shares
of Common Stock of the Corporation issued and outstanding, such special meeting
to be held at such place (within or without the State of Delaware), date and
hour as shall be designated in the notice or waiver of notice thereof."
(6) Repeal Sections 6 and 7 of Article II of the By-Laws and delete
said two sections from the By-laws:
"RESOLVED, that Sections 6 and 7 of Article II of the By-laws
of the Company be rendered null and void and of no further force and effect and
that said Sections 6 and 7 be repealed and deleted from the By-laws of the
Company."
11
<PAGE> 15
(7) Terminate the Rights Agreement dated March 19, 1996 or, in the
alternative, amend said agreement so that the triggering point is at a 25%
transfer of stock:
"RESOLVED, that the Board of Directors shall immediately
undertake to terminate that certain Rights Agreement (the "Agreement") dated
March 19, 1996, between the Company and American Stock Transfer & Trust Co., as
Rights Agent, so that the Agreement shall be rendered null and void, but only to
the extent that the termination of such Agreement would not result in the
exercisability by any rights holder under the Agreement of any rights held
thereunder and/or would not have a negative economic effect on the Company,
which determination shall be made by the Board of Directors in their sole
reasonable discretion, or, in the alternative, upon the Board's reasonable
discretion, provide for an amendment to said Agreement to provide for a
threshold for the triggering of the rights set forth in said Agreement to be
changed from 15% to 25%."
See Appendix C for more information about the Committee's Nominees. The
Committee proposes that the Nominees, once elected, serve until the next annual
meeting of the stockholders and until their successors have been duly elected
and qualified. Each of the Committee's Nominees has consented to serve as a
director of the Company if elected.
Of the five Nominees, none is employed or otherwise affiliated with the
Company. All of the Nominees are citizens of the United States.
CMH has agreed to indemnify each of the Nominees against all
liabilities, including liabilities under the federal securities laws, in
connection with this consent solicitation.
The accompanying BLUE Consent Card will be voted in accordance with the
stockholder's instruction on such BLUE Consent Card. As to the proposals set
forth herein, stockholders may consent to an entire proposal or may withhold
their consent by marking the proper box on the BLUE Consent Card. If the
enclosed BLUE Consent Card is signed and returned and no direction is given, the
stockholder will be deemed to have consented to such proposals.
The Committee seeks the consent of an absolute majority of the
Company's issued and outstanding stock in order to act on the Proposals set
forth in this Consent Solicitation Statement.
BROKER NON-VOTES, ABSTENTIONS AND THE FAILURE TO RETURN A SIGNED
CONSENT WILL HAVE THE SAME EFFECT AS WITHHOLDING CONSENT TO THE PROPOSAL.
The written consent of an absolute majority of the outstanding Common
Stock is required to adopt and approve each of the Proposals. According to the
Company's most recent Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 there were 7,369,178 shares of Common Stock outstanding as of
that date. Each share of Common Stock entitles the holder on the Record Date to
one vote on the Proposals. Accordingly, based upon the information known to the
Committee, written consents by holders representing 3,684,590 shares of Common
Stock will be required to adopt and approve each of the Proposals. Accordingly,
each abstention and broker non-vote with respect to any of the Proposals will
have the same effect as withholding consent to the adoption of such Proposals.
If you were a record holder as of the close of business on the Record
Date, you may elect to consent to, withhold consent or abstain with respect to
each Proposal by marking the "CONSENT", "CONSENT WITHHELD" OR "ABSTAIN" box, as
applicable, underneath each such Proposal on the accompanying BLUE Consent Card
and signing, dating and returning it promptly in the enclosed postage-paid
envelope.
IF THE STOCKHOLDER WHO HAS EXECUTED AND RETURNED THE CONSENT CARD HAS
FAILED TO CHECK A BOX MARKED "CONSENT", "CONSENT WITHHELD" OR "ABSTAIN" FOR ONE
OR MORE OF THE PROPOSALS, SUCH STOCKHOLDER WILL BE DEEMED TO HAVE CONSENTED TO
SUCH PROPOSAL OR PROPOSALS.
THE COMMITTEE RECOMMENDS THAT YOU CONSENT TO EACH OF THE PROPOSALS.
YOUR CONSENT IS IMPORTANT. PLEASE MARK, SIGN AND DATE THE ENCLOSED BLUE CONSENT
CARD AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
FAILURE TO RETURN YOUR CONSENT WILL HAVE THE SAME EFFECT AS WITHHOLDING CONSENT
TO THE PROPOSALS.
12
<PAGE> 16
If your shares are held in the name of a brokerage firm, bank nominee
or other institution, you should contact the person responsible for your account
and give instructions for the BLUE Consent Card representing your shares to be
marked, signed, dated and mailed. Only that institution can execute a BLUE
Consent Card with respect to your shares and only upon receipt of specific
instructions from you. The Committee urges you to confirm in writing your
instructions to the person responsible for your account and to provide a copy of
those instructions to the Committee at the address set forth below so that the
Committee will be aware of all instructions given and can attempt to ensure that
such instructions are followed.
THE COMMITTEE TO ENHANCE
DATA SYSTEM & SOFTWARE INC.
STOCKHOLDER VALUE
C/O: Dwayne Moyers
3417 Hulen Street
Fort Worth, TX 76107
1-800-275-5404
Fax: 817-763-5559
13
<PAGE> 17
THE CONSENT PROCEDURE
Section 228 of the Delaware General Corporation Law (the "DGCL") states
that, unless otherwise provided in the certificate of incorporation, any action
that may be taken at any annual or special meeting may be taken without a
meeting, without prior notice and without a vote, if consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted, and those consents are delivered to the
corporation by delivery to its registered office in Delaware, its principal
place of business or an officer or agent of the corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. In the
case of this Consent Solicitation, written, unrevoked consents of the holders of
a majority of the outstanding shares of Common Stock as of the Record Date must
be delivered to the Company as described above to effect the actions to which
consents are being solicited hereunder. Section 228 of the DGCL further provides
that no written consent shall be effective to take the corporate action referred
to therein unless, within 60 days of the earliest dated consent delivered in the
manner required by Section 228, written consents signed by a sufficient number
of holders to take such action are delivered to the corporation in the manner
required by Section 228. In order to facilitate prompt adoption of the Proposals
the Committee requests that you give your consent by February 20, 1998. The date
on which the earliest consent expires is March 9, 1998.
The Committee intends to tender consents to the Company after it
receives the consent of a majority of the outstanding shares of Common Stock of
the Company. Following such delivery, in the event the Company disputes the
validity of the consents, the Committee intends to file a complaint in the
Delaware Court of Chancery seeking relief pursuant to Section 225 ("Section
225") of the DGCL for, among other things, a declaration that the Nominees
constitute the duly elected board of the Company. Once sufficient unrevoked and
unexpired consents are delivered to the Company to take the actions set forth
herein, such consents will not expire, even if Section 225 proceeding extends
beyond the expiration date of any such consents.
THE COMMITTEE CURRENTLY INTENDS TO DELIVER CONSENTS TO THE COMPANY IN
THE MANNER REQUIRED BY SECTION 228 OF THE DGCL ONCE THE COMMITTEE HAS DETERMINED
THAT VALID AND UNREVOKED CONSENTS REPRESENTING A MAJORITY OF THE ISSUED AND
OUTSTANDING SHARES OF THE COMMON STOCK AS OF THE RECORD DATE HAVE BEEN OBTAINED.
WHEN CONSENTS FOR A MAJORITY OF THE COMPANY'S COMMON STOCK HAVE BEEN OBTAINED
AND DELIVERED TO THE COMPANY, A STOCKHOLDER WILL BE UNABLE TO REVOKE HIS OR HER
CONSENT.
Section 213(b) of the DGCL provides that the record date for a consent
solicitation shall be established by the board of directors of the corporation
or, if no record date is so established, shall be the first date on which a
signed written consent is delivered to the corporation. On January 7, 1998
certain members of the Committee delivered their signed written consent to the
Company thereby establishing the Record Date.
If actions described herein are taken, the Company will promptly notify
the stockholders who have not consented to the actions taken as required by the
DGCL.
Consents may only be executed by stockholders of record at the close of
business on the Record Date. The Committee believes that there were 7,369,178
shares outstanding on the Record Date. Therefore, the number of votes necessary
to effect the Proposals is 3,684,590 (an absolute majority of 7,369,178). Each
share of Common Stock entitles the record holder thereof to cast one vote. The
Company's Certificate of Incorporation and By-laws do not provide for cumulative
voting.
Since the Committee must receive consents from a majority of the
Company's outstanding shares in order for the Proposals to be adopted, a broker
non-vote or direction to withhold authority to vote on the BLUE Consent Card
will have the same effect as a "no" vote with respect to the Committee's
solicitation.
BROKER NON-VOTES, ABSTAINING OR NOT RETURNING A SIGNED CONSENT WILL
HAVE THE SAME EFFECT AS WITHHOLDING CONSENT TO THE PROPOSALS. THE COMMITTEE
URGES EACH STOCKHOLDER TO ENSURE THAT THE RECORD HOLDER OF HIS OR HER SHARES
MARKS, SIGNS, DATES AND RETURNS THE ENCLOSED CONSENT AS SOON AS POSSIBLE.
14
<PAGE> 18
VOTING AND COSTS OF CONSENT SOLICITATION
Consents will be solicited by mail, telephone, telegram and/or personal
solicitation by Members, officers, employees and agents of the Committee. No
such person shall receive additional compensation for such solicitation
services.
The Committee anticipates that a total of approximately $250,000 will
be spent in connection with the solicitation. Actual expenditures may vary
materially from the estimate, however, as many of the expenditures cannot be
readily predicted. To date, expenses of approximately $25,000 have been incurred
in connection with the solicitation, plus an arrangement for Mr. Steinmetz to
receive a fee of $50,000 for his legal services in the event that the Committee
is successful in replacing the Board of Directors with its Nominees. The entire
expense of preparing, assembling, printing and mailing this Consent Solicitation
Statement and any other consent materials and the cost of soliciting consents
will initially be borne by the Committee. If the Committee's Nominees are
elected, the Committee intends to request reimbursement from the Company for
these expenses. This request will not be submitted to a vote of the Company's
stockholders. Banks, brokerage houses and other custodians, nominees and
fiduciaries may be requested to forward the Committee's solicitation material to
the beneficial owners of the shares they hold of record, and the Committee will
reimburse them for their reasonable out-of-pocket expenses.
A consent executed by a stockholder may be revoked at any time before
its exercise by submitting a written, dated revocation of such consent covering
the same shares. A revocation may be in any written form validly signed by the
record holder as long as it clearly states that the consent previously given is
no longer effective and must be executed and delivered prior to the time that
the action authorized by the executed consent is taken. The revocation may be
delivered to the Committee, c/o Dwayne A. Moyers, 3417 Hulen Street, Ft. Worth,
TX 76107. Although a revocation delivered only to the Company will be effective
to revoke a previously executed consent, the Committee requests that if a
revocation is delivered to the Company, a photocopy of the revocation also be
delivered to the Committee, at the address set forth above, so that the
Committee will be aware of such revocation.
YOUR CONSENT IS IMPORTANT. NO MATTER HOW MANY OR HOW FEW SHARES YOU
OWN, PLEASE CONSENT TO THE REMOVAL OF THE CURRENT BOARD OF DIRECTORS, THE
ELECTION OF THE COMMITTEE'S NOMINEES, THE AMENDMENTS TO THE BY-LAWS AND THE
TERMINATION OR AMENDMENT TO THE RIGHTS AGREEMENT BY MARKING, SIGNING, DATING AND
MAILING THE ENCLOSED BLUE CONSENT CARD PROMPLY. ONLY YOUR LASTEST DATED CONSENT
COUNTS.
15
<PAGE> 19
APPENDIX A
The names, business addresses, and number of shares of Common Stock
beneficially owned as of the date hereof by each member of the committee are set
forth below:
COMMITTEE MEMBERS
<TABLE>
<CAPTION>
========================================================================================
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE OF PERCENT OF CLASS
BENEFICIAL OWNERSHIP
========================================================================================
<S> <C> <C>
Cummer/Moyers Capital Advisors, Inc. 182,800 (1) 2.48%
3417 Hulen Street
Ft. Worth, TX. 76107
----------------------------------------------------------------------------------------
Cummer/Moyers Capital Partners, Inc. 207,000 (2) 2.81%
3417 Hulen Street
Ft. Worth, TX. 76107
----------------------------------------------------------------------------------------
Jeffrey A. Cummer 1,800 (3) less than 1%
3417 Hulen Street
Ft. Worth, TX. 76107
----------------------------------------------------------------------------------------
Dwayne A. Moyers 11,600 (4) less than 1%
3417 Hulen Street
Ft. Worth TX. 76107
----------------------------------------------------------------------------------------
Cummer/Moyers Holdings, Inc. 10,000 (5) less than 1%
3417 Hulen Street
Ft. Worth, TX. 76107
----------------------------------------------------------------------------------------
COMMITTEE MEMBERS AS A GROUP 413,200 5.61%
----------------------------------------------------------------------------------------
</TABLE>
(1) Cummer/Moyers Capital Advisors, Inc. ("CMCA") is a SEC registered
investment advisor and has dispositive authority over the shares
held in the names of its clients. As such, CMCA is deemed to be
the beneficial owner as defined in Rule 13d-3 under the Securities
Exchange Act of 1934 of 182,800 shares of common stock of the
Company, as set forth in the foregoing table. Mr. Cummer and
Mr. Moyers are executive officers and directors of CMCA.
(2) Cummer/Moyers Capital Partners, Inc. ("CMCP") is the general
partner of Investors Strategic Partners I, Ltd., a Texas limited
partnership which operates as an investment limited partnership,
investing primarily in equity securities ("ISP"). Mr. Cummer and
Mr. Moyers, as executive officers and directors of CMCP, have
investment and dispositive authority over the shares of common
stock of the Company owned by ISP. Additionally, CMCA is an
investment advisor to ISP and receives compensation based upon the
investment performance results of ISP.
(3) Mr. Cummer directly owns 1,800 shares of common stock of the
Issuer.
(4) Mr. Moyers owns 11,600 shares of common stock of the Issuer
through his IRA.
(5) Includes 10,000 shares of common stock of the Company held by the
Cummer/Moyers Holdings, Inc. Profit Sharing Plan.
16
<PAGE> 20
APPENDIX B
The following information describes the Committee Members purchases of
Company common stock during the last two years:
CUMMER/MOYERS CAPITAL ADVISORS, INC.
<TABLE>
<CAPTION>
DATES NUMBER OF SHARES PRICE
<S> <C> <C>
December, 1995 183,100 $4.75 - $7.50
CUMMER/MOYERS CAPITAL PARTNERS, INC.
DATES NUMBER OF SHARES PRICE
December 29, 1995 - November 12, 1997 207,000 $4.7375 - $8.75
JEFFREY A. CUMMER
DATES NUMBER OF SHARES PRICE
November 25, 1997 1,800 $5.125
DWAYNE A. MOYERS
DATES NUMBER OF SHARES PRICE
December 28, 1995 - July, 7 1997 11,600 $4.8661 - $7.50
CUMMER/MOYERS HOLDINGS, INC.
DATES NUMBER OF SHARES PRICE
March 15, 1996 - June 13, 1997 10,000 $5.00 - 6.625
</TABLE>
17
<PAGE> 21
APPENDIX C
THE COMMITTEE'S NOMINEES
The following sets forth information about the Nominees and their five
years business experience:
DWAYNE A. MOYERS (29) is Vice President and a director of Cummer/Moyers
Holdings, Inc. and its subsidiaries: Cummer/Moyers Capital Advisors, Inc.,
Cummer/Moyers Capital Partners, Inc. and Cummer/Moyers Securities, Inc.
(collectively "CMH"). He is also a principal stockholder of CMH. CMH, through
it's subsidiaries, is an investment management and securities brokerage firm
registered with the National Association of Securities Dealers and the
Securities and Exchange Commission. Mr. Moyers is principally responsible for
the investment oversight of approximately $150,000,000 of CMH clients' assets.
Mr. Moyers has served in these capacities since the formation of these entities
in July 1997. Prior to joining CMH, Mr. Moyers served as an investment
representative with Investment Management & Research, Inc., a subsidiary of
Raymond James Financial, Inc. since 1991.
JEFFERY A. CUMMER (40) is President and a director of Cummer/Moyers
Holdings, Inc. and its subsidiaries; Cummer/Moyers Capital Advisors, Inc.,
Cummer/Moyers Capital Partners, Inc. and Cummer/Moyers Securities, Inc.
(collectively "CMH"). He is also a principal stockholder of CMH. Mr. Cummer is
principally responsible for the investment oversight of approximately
$150,000,000 of CMH clients' assets. Mr. Cummer has served in these capacities
since the formation of these entities in July 1997. Prior to joining CMH, Mr.
Cummer served in the capacity of registered principal and branch manager with
Investment Management & Research, Inc., a subsidiary of Raymond James Financial,
Inc. since 1989.
KYLE G. KENNEDY (39) has served as the president and principal
stockholder of Kennedy & Associates, a company engaged as a manufacturers
marketing representative for various sporting good products since August 1995.
Prior to establishing Kennedy & Associates, Mr. Kennedy served as Executive Vice
President of Quality Products, Inc. where he was in charge of sales and
marketing from April, 1993 until August, 1995. Prior to joining Quality
Products, Inc., Mr. Kennedy was engaged in the securities business and served as
Senior Vice President of Merchants Investment Center, Inc. from August 1991 to
April 1993; Senior Vice President of Robert Thomas Securities, Inc. from January
1990 until August 1991; and as a Vice President of Shearson, Lehman Hutton, Inc.
from September 1988 until January 1990.
WILLIAM NELSON II (73) is currently a semi-retired private investor and
holds no shares in the company. He has been a securities broker and options
principal of Coleman & Co. from June 1996 to June 1997, Lensco Private Ledger
from March 1996 to May 1996, and Hermitage Capital from July 1987 to December
1993. He owned Nelson Investment Co., a registered securities broker-dealer,
from August 1994 to August 1995.
ALAN M. STEINMETZ (38) is an independent real estate and securities
transactional attorney practicing law in New York, New York and holds no shares
in the Company. He is a member of the Bar in the states of New York, New Jersey
and Connecticut. Mr. Steinmetz has served as Vice President and General Counsel
for several real estate companies since 1991, having had principal
responsibility for over 4 million square feet of office space and more than
4,000 apartment units in the metropolitan New York area. Mr. Steinmetz will
serve as a director and may be retained professionally to coordinate and
supervise the Company's securities compliance and litigation. Once the change in
control is complete, Mr. Steinmetz may also be retained by the Company to
provide ongoing legal advice and services. Mr. Steinmetz has advised the
Committee and will be paid by the Committee for his professional time and
expenses through the completion of the Committee's efforts to remove and replace
the incumbent Board of Directors. However, the Committee may seek reimbursement
from the Company for such expenses.
All Nominees have agreed to serve in the capacity of Director if
elected pursuant to the proposals contained herein.
18
<PAGE> 22
APPENDIX D
DESCRIPTION OF THE "POISON PILL" RIGHTS AGREEMENT
The following summary was taken from the Company's Registration
Statement or Form 8-A dated March 26, 1996 and is provided herein as a reference
for stockholders.
On March 19, 1996, the Board of Directors of Data Systems & Software
Inc. (the "Company") declared a dividend distribution of one Right for each
outstanding share of common stock, par value $.01 per share, of the Company
("Common Stock"). The dividend is payable to holders of record of Common Stock
at the close of business on April 1, 1996. Except as described below, each
Right, when it becomes exercisable, entitles the registered holder to purchase
from the Company one-half of one share of Common Stock at a price of $15.00 (the
"Purchase Price"). The description and terms of the Rights are set forth in a
Rights Agreement (the "Rights Agreement") between the Company and American Stock
Transfer & Trust Co., as Rights Agent.
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights Certificate will be
distributed. The Rights will separate from the Common Stock and a Distribution
Date will occur upon the earlier of (i) 10 days following a public announcement
that, subject to certain exceptions set forth in the Rights Plan, a person or
group of affiliated or associated persons (an "Acquiring Person") has acquired,
or obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of Common Stock (the "Stock Acquisition Date") or (ii) 10
business days following the commencement of a tender offer or exchange offer
that would result in a person or group beneficially owning 15% or more of such
outstanding shares of Common Stock. Until the Distribution Date, (i) the rights
will be evidenced by the Common Stock certificates and will be transferred with
and only with such Common Stock certificates, (ii) new Common Stock certificates
issued after March 19, 1996 or new issuances will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on March 19, 2006, unless earlier redeemed or
extended by the Company as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Shares of Common Stock issued
after the Distribution Date will be issued with Rights if such shares are issued
pursuant to the exercise of stock options or under an employee benefit plan, or
upon the conversion of securities issued after adoption of the Rights Agreement.
Except as otherwise determined by the Board of Directors, no other shares of
Common Stock issued after the Distribution Date will be issued with Rights.
In the event a Person becomes an Acquiring Person (unless such
acquisition is made pursuant to a tender or exchange offer for all outstanding
shares of the Company, at a price determined by a majority of the independent
Directors of the Company who are not representatives, nominees, Affiliates or
Associates of an Acquiring Person, after receiving advice from one or more
investment banking firms, to be fair and otherwise in the best interest of the
Company and its stockholders), each holder of a Right will thereafter have the
right to receive, upon exercise, Common Stock (or, in certain circumstances,
cash, property or other securities of the Company), having equal value to two
times the Exercise Price of the Right. The Exercise Price is the Purchase Price
times the number of shares of Common Stock associated with each Right
(initially, one-half of one share). Notwithstanding any of the foregoing,
following the occurrence of any of the events set forth in this paragraph, all
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will be null and
void. However, Rights are not exercisable following the occurrence of any of the
events set forth above until such time as the Rights are no longer redeemable by
the Company as set forth below.
In the event that following the Stock Acquisition Date, (i) the Company
is acquired in a merger or consolidation in which the Company is not the
surviving corporation (other than a merger that follows a tender offer
determined to be fair to the stockholders of the Company, as described in the
preceding paragraph) or (ii) 50% or more of the Company's assets or earning
power is old or transferred, each holder of a Right (except Rights which have
previously been voided as set forth above) shall thereafter have the right to
receive, upon exercise of the Right, common stock of the acquiring company
having value equal to two times the Exercise Price of the Right.
19
<PAGE> 23
The Purchase Price payable, and the number of shares of Common Stock or
other securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or subdivision, combination or reclassification of, the Common
Stock, (ii) if holders of the Common Stock are granted certain rights or
warrants to subscribe for Common Stock or convertible securities at less than
the then current market price of the Common Stock, or (iii) upon the
distribution to holders of the Common Stock of evidences of indebtedness or
assets (excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above). With certain exceptions, no
adjustments in the Purchase Price will be required until cumulative adjustments
amount to at least 1% of the Purchase Price. No fractional shares of Common
Stock will be issued and, in lieu thereof, an adjustment in cash will be made
based on the market price of the Common Stock on the last trading date prior to
the date of exercise.
At any time until 10 days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of one-half
of a cent per Right. Immediately upon the action of the Board of Directors
ordering redemption of the Rights, the Rights will terminate and the only right
of the holders of Rights will be to receive the redemption price. The foregoing
notwithstanding, the Rights generally may not be redeemed for one hundred eighty
(180) days following a change in a majority of the Board as a result of a proxy
contest.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company as set
forth above.
Any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Rights (excluding the interest of any
Acquiring Person), or to shorten or lengthen any time period under the Rights
Agreement, provided such shortening or lengthening is for the purpose of
enhancing the benefits of the Rights. The foregoing notwithstanding, no
amendment shall be made prior to the Distribution Date if at such time the
Rights are not redeemable.
As of March 15, 1996, there were 7,253,453 shares of common Stock of
the Company outstanding and 339,362 shares of Common Stock of the Company held
in treasury. As of March 15, 1996, options and warrants to purchase 1,760,442
shares of Common Stock were outstanding. Each share of Common Stock of the
Company outstanding at the close of business on April 1, 1996, received one
Right. So long as the Rights are attached to the Common Stock, one additional
Right (as such number may be adjusted pursuant to the provisions of the Rights
Agreement) shall be deemed to be delivered for each share of Common Stock issued
or transferred by the Company in the future. In addition, following the
Distribution Date and prior to the expiration or redemption of the Rights, the
Company may issue Rights when it issues Common Stock only if the Board deems it
necessary or appropriate, or in connection with the issuance of shares of Common
Stock pursuant to the exercise of stock options or under employee plans or upon
the exercise, conversion or exchange of certain securities of the Company.
The Rights may have certain anti-takeover effects. The Rights will
cause substantial dilution to a person or group that attempts to acquire the
Company in a manner which causes the Rights to become discount Rights unless the
offer is conditional on a substantial number of Rights being acquired. The
Rights, however, should not affect any prospective offeror willing to make an
offer at a fair price and otherwise in the best interests of the Company and its
stockholders as determined by a majority of the Directors who are not affiliated
with the person making the offer, or willing to negotiate with the Board. The
Rights should not interfere with any merger or other business combination
approved by the Board since the Board may, at its option, at any time until ten
days following the Stock Acquisition Date redeem all but not less than all the
then outstanding Rights at the Redemption Price.
20
<PAGE> 24
APPENDIX E
The following sets forth the current Article II, Section 2 of the Company's
By-laws and Article II, Section 2 of the Company's By-laws as proposed by the
Committee under Proposal 5:
Article II, Section 2 currently:
Section 2. Special Meetings. Special meetings of the stockholders may be called
at any time by the Board or the President of the Corporation, and may not be
called by any other person or persons. Any such special meeting shall be held at
such place (within or without the State of Delaware), date and hour as shall be
designated in the notice or waiver of notice thereof.
Article II, Section 2 as proposed by the Committee under Proposal 5:
Special Meetings. Special meetings of the stockholders may be called at any time
by the Board of Directors or the President of the Corporation or by written
consent of a stockholder or stockholders holding of record at least twenty-five
percent (25%) of the shares of Common Stock of the Corporation issued and
outstanding, such special meeting to be held at such place (within or without
the State of Delaware), date and hour as shall be designated in the notice or
waiver of notice thereof.
The following sets forth the current Article II, Sections 6 and 7 of the
Company's By-laws which were added by the Board of Directors in December 1994
and the Committee is proposing to delete under Proposal 6:
Section 6. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors; provided, however, that the following procedures shall not apply to
the nomination of persons for election as directors by vote of any class or
series of preferred stock of the Corporation. Nominations of persons for
election to the Board of Directors of the Corporation at the annual meeting may
be made at such meeting by or at the direction of the Board of Directors, by any
committee or persons appointed by the Board of Directors or by any common
stockholder of the Corporation entitled to vote for the election of directors at
the meeting who complies with the notice procedures set forth in this Section 6.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the meeting; provided, however,
that in the event that less than 75 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders and the meeting is held
on a day which is not within five calendar days of the date on which the prior
year's meeting was held, notice by the stockholder to be timely must be so
received not later than the close of business on the fifteenth day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class, series and number of shares of capital stock of the
Corporation which are beneficially owned by the person and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to the Rules and
Regulations of the Securities and Exchange Commission under Section 14 of the
Securities Exchange Act of 1934, as amended; and (b) as to the stockholder
giving notice (i) the name and record address of the stockholder and (ii) the
class series and number of shares of capital stock of the corporation which are
beneficially owned by the stockholder. Such notice shall be accompanied by the
executed consent of each nominee to serve as a director if so elected. The
Corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as a director of the Corporation. No person shall
be eligible for election as a director of the Corporation by the holders of the
Common Stock of the Corporation unless nominated in accordance with the
procedures set forth herein. The officer of the Corporation presiding at an
annual meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the foregoing procedure, and
if he should so determine, he shall so declare to the meeting, and the defective
nomination shall be disregarded.
21
<PAGE> 25
Section 7. Advance Notification of Business to be Transacted at
Stockholder Meetings. To be properly brought before the annual or any special
stockholders' meeting, business must be either (a) specified in the notice of
meeting (or any supplement or amendment thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual or any
special stockholders' meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the secretary of the Corporation. To be
timely, a stockholders notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 75 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders and the meeting is held on a day which is not
within five calendar days of the date on which the prior year's meeting was
held, notice by the stockholder to be timely must be so received not later than
the close of business on the fifteenth day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made,
whichever first occurs; provided, further, however, that this Section 7 shall
not apply to any special meeting of stockholders where only the holders of one
or more classes or series of preferred stock of the Corporation are entitled to
vote. Such stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the meeting (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii) the name and record
address of the stockholder proposing such business, (iii) the class, series and
number of shares of capital stock of the Corporation which are beneficially
owned by the stockholder and (iv) any material interest of the stockholder in
such business.
Except as otherwise provided in this Section 7, no business shall be
conducted at the annual or any special meeting except in accordance with the
procedures set forth in this Section 7, provided, however, that nothing in this
Section 7 shall be deemed to preclude discussion by any stockholder of any
business properly brought before the meeting. The officer of the Corporation
presiding at the meeting shall, if the facts warrant, determine and declare to
the meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 7, and if he should so determine,
he shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
22
<PAGE> 26
CONSENT CARD
DATA SYSTEMS & SOFTWARE INC.
CONSENT OF STOCKHOLDERS TO ACTION WITHOUT A MEETING
THIS CONSENT IS SOLICITED BY
THE COMMITTEE TO ENHANCE DATA SYSTEMS & SOFTWARE INC. STOCKHOLDER VALUE
The undersigned, a stockholder of record of DATA SYSTEMS & SOFTWARE
INC. ("DSSI" or the "Company"), hereby consents pursuant to Section 228 of the
Delaware General Corporation Law, with respect to the number of shares of Common
Stock, par value $.01 per share, of the Company held by the undersigned, to each
of the following actions without a prior notice and without a vote as more fully
described in the Committee's Consent Solicitation Statement (receipt thereof is
hereby acknowledged).
THE COMMITTEE STRONGLY RECOMMENDS THAT ALL STOCKHOLDERS CONSENT TO THE FOLLOWING
PROPOSALS:
- --------------------------------------------------------------------------------
PROPOSAL ONE: Remove the members of the Board of Directors pursuant to the
resolutions set forth in the Consent Statement. (the "Morgenstern Directors"):
FOR REMOVAL:
George Morgenstern
Sheldon Krause
Harvey Eisenberger
Robert Kuhn
Samuel Fogel
Maxwell Raab
Allen Schiff
( ) CONSENT ( ) CONSENT WITHHELD ( ) ABSTAIN
To withhold consent to the removal of a Morgenstern Director, specify
the Morgenstern Director or Directors in the following space:
PROPOSAL TWO: Elect the following five persons listed below to fill the newly
created directorships (the "Nominees"):
FOR ELECTION:
Dwayne A. Moyers
Jeffrey A. Cummer
William Nelson II
Alan Steinmetz
Kyle G. Kennedy
( ) CONSENT ( ) CONSENT WITHHELD ( ) ABSTAIN
To withhold consent to the election of a proposed Nominee, specify the
Nominee in the following space:
PROPOSAL THREE: Add an amendment to the By-laws pursuant to the resolutions set
forth in the Consent Solicitation Statement which prohibits the Board of
Directors from making certain changes to the By-laws without the prior written
consent of holders of no less than a majority of the then outstanding shares:
( ) CONSENT ( ) CONSENT WITHHELD ( ) ABSTAIN
PROPOSAL FOUR: Repeal any changes made to the By-Laws subsequent to the Record
Date of the Consent Solicitation Statement:
( ) CONSENT ( ) CONSENT WITHHELD ( ) ABSTAIN
<PAGE> 27
PROPOSAL FIVE: Amend Article II, Section 2 of the By-laws of the Company by
deleting it in its entirety and substituting therefor the following: "Special
Meetings. Special meetings of the stockholders may be called at any time by the
Board of Directors or the President of the Corporation or by written consent of
a stockholder or stockholders holding of record at least 25% of the shares of
Common Stock of the Corporation issued and outstanding, such special meeting to
be held at such place (within or without the State of Delaware), date and hour
as shall be designated in the notice or waiver of notice thereof:"
( ) CONSENT ( ) CONSENT WITHHELD ( ) ABSTAIN
PROPOSAL SIX: Repeal Article II, Sections 6 and 7 of the By-laws to restore
certain stockholder's rights which are normal pursuant to the Delaware General
Corporation Law:
( ) CONSENT ( ) CONSENT WITHHELD ( ) ABSTAIN
PROPOSAL SEVEN: Terminate the Rights Agreement (poison pill) dated March 19,
1996 or, in the alternative, increase the triggering point to a twenty-five
(25%) transfer of the Common Stock of the Company:
( ) CONSENT ( ) CONSENT WITHHELD ( ) ABSTAIN
- --------------------------------------------------------------------------------
PLEASE ACT PROMPTLY. YOUR CONSENT MUST BE DATED AND SIGNED TO BE VALID.
Dated:__________________________
Signature:_______________________________________
Signature (if jointly held):_____________________
Title or Authority
(if applicable): ___________________________________________
Number of Shares: __________________________________________
Please sign exactly as your name appears hereon. If your shares are
registered in more than one name, the signature of all such persons
should be provided. A corporation should sign in its full corporate
name by a duly authorized officer, stating his title. Trustees,
guardians, executors, and administrators should sign in their official
capacity. If shares are held in a partnership, please have the
authorized persons sign on behalf of the partnership. The consent card
votes all shares in all capacities.
PLEASE MARK, SIGN AND DATE THIS CONSENT CARD BEFORE MAILING THIS
CONSENT IN THE ENCLOSED ENVELOPE. IF NO BOX(ES) ARE MARKED WITH RESPECT
TO ANY OF THE PROPOSALS, THE ABOVE SIGNED WILL BE DEEMED TO CONSENT TO
SUCH PROPOSAL AS SET FORTH ABOVE.
( apply broker label here )
