SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[_] Definitive Additional Materials by Rule 14a-6(e)(2))
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
DATA SYSTEMS & SOFTWARE INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
________________________________________________________________________________
1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
[_] Fee paid previously with preliminary materials:
________________________________________________________________________________
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
DATA SYSTEMS & SOFTWARE INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 16, 1999
The Annual Meeting of Stockholders of Data Systems & Software Inc. (the
"Company") will be held at The Courtyard by Marriott, 140 Route 17 South,
Mahwah, New Jersey, on Wednesday, June 16, 1999, at 9:30 a.m., for the following
purposes:
(1) To elect seven directors to hold office until the next annual
meeting of stockholders and until their successors have been duly elected
and qualified; and
(2) To consider and act upon such other and further matters as may
properly come before the meeting or any postponements or adjournments
thereof.
Only stockholders of record at the close of business on April 23, 1999, are
entitled to notice of and to vote at the meeting or any postponements or
adjournments thereof.
Regardless of how many shares you own, your vote is very important. WHETHER
OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. No
additional postage is required.
BY ORDER OF THE BOARD OF DIRECTORS,
SHELDON KRAUSE
Secretary
May 20, 1999
Mahwah, New Jersey
<PAGE>
DATA SYSTEMS & SOFTWARE INC.
200 Route 17
Mahwah, New Jersey 07430
-----------------------------------------------------
PROXY STATEMENT
-----------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Data Systems & Software Inc., a
Delaware corporation (the "Company" or "DSSI"), to be voted at the Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be held at The
Courtyard by Marriott, 140 Route 17 South, Mahwah, New Jersey, on Wednesday,
June 16, 1999, at 9:30 a.m., and any postponements or adjournments thereof. This
Proxy Statement and the accompanying materials are being mailed on or about May
20, 1999, to holders of record of the Common Stock, par value $.01 per share, of
the Company (the "Common Stock") as of the record date.
The record date (the "Record Date") for determining stockholders entitled
to notice of, and to vote at, the Annual Meeting has been established as the
close of business on April 23, 1999. On that date, 7,433,278 shares of Common
Stock of the Company were outstanding and entitled to vote. Holders of record of
Common Stock on the Record Date will be entitled to one vote for each share held
on all matters properly brought before the Annual Meeting.
The presence at the Annual Meeting, in person or represented by proxy, of a
majority of the outstanding shares of Common Stock entitled to vote thereat will
constitute a quorum for the transaction of business. If a share is deemed
present at the annual meeting for any matter, it will be deemed present for all
other matters presented to the meeting. Votes withheld from any nominee for
election as a director, abstentions, and shares held by a nominee for a
beneficial owner ("Broker Shares") that are voted on any matter which may come
before the meeting will be included in determining the number of shares present.
Broker Shares that are not voted on any matter will not be included in
determining the number of shares present at the meeting with respect to such
matter.
All properly executed proxies delivered pursuant to this solicitation and
not revoked will be voted at the Annual Meeting in accordance with the
directions given. With respect to the election of directors, stockholders may
vote in favor of all nominees, withhold their votes as to all nominees or
withhold their votes as to specific nominees. Stockholders should specify their
choices on the accompanying proxy card. If no specific instructions are given,
the shares represented by a signed proxy will be voted FOR the election of all
nominees for election as directors. Directors will be elected at the Annual
Meeting by a plurality of the votes cast. Any stockholder of record returning
the accompanying proxy may revoke such proxy at any time prior to its exercise
by (i) giving written notice to the Company of such revocation, (ii) voting in
person at the Annual Meeting or (iii) executing and delivering to the Company a
later-dated proxy. Written revocations and later-dated proxies should be sent to
Data Systems & Software Inc., 200 Route 17, Mahwah, New Jersey 07430, Attention:
Secretary.
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and the notes thereto set forth information, as of the
Record Date, 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 "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.
Percentage of
Name and Address of Number of Common Shares Common Stock
Beneficial Owner(1)(2) Beneficially Owned(2) Outstanding(2)
- ---------------------- --------------------- --------------
George Morgenstern................... 761,489(3) 9.7%
Robert L. Kuhn....................... 474,906(4) 6.2%
Yacov Kaufman........................ 51,000(5) *
Harvey Eisenberger................... 20,000(6) *
Sheldon Krause....................... 28,500(7) *
Susan L. Malley...................... 7,500(6) *
Hon. Maxwell M. Rabb................. 27,500(6) *
Allen I. Schiff...................... 27,500(6) *
All executive officers and
directors of the Company as
a group (8 people)............... 1,396,728 16.8%
- ----------
* 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.
(3) Consists of (i) 334,239 shares held by Mr. Morgenstern, including 155,000
shares received by Mr. Morgenstern pursuant to a restricted stock grant
which are not yet fully vested, and (ii) 427,250 currently exercisable
options held by Mr. Morgenstern.
(4) Consists of 192,656 shares and 282,250 currently exercisable options held
by Dr. Kuhn.
(5) Consists of 1,000 shares and 50,000 currently exercisable options held by
Mr. Kaufman.
(6) Consists of currently exercisable options.
(7) Consists of 1,000 shares and 27,500 currently exercisable options held by
Mr. Krause.
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<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company is currently comprised of seven
members. The entire Board of Directors of the Company is to be elected at the
Annual Meeting. The Board of Directors has nominated the seven current
directors, George Morgenstern, Robert L. Kuhn, Harvey Eisenberger, Sheldon
Krause, Maxwell M. Rabb, Allen I. Schiff and Susan L. Malley, for election as
directors at the Annual Meeting. All nominees have consented to be named and
serve if elected.
With respect to the election of directors, stockholders may vote in favor
of all nominees, withhold their votes as to all nominees or withhold their votes
as to specific nominees. Stockholders should specify their choices on the
accompanying proxy card. If no specific instructions are given, the shares
represented by a signed proxy will be voted FOR the election of all nominees for
election as directors. If any nominee becomes unavailable for any reason to
serve as a director at the time of the Annual Meeting (which event is not
anticipated), proxies will be voted in the discretion of the persons acting
pursuant to the proxy for any nominee who shall be designated by the current
Board of Directors as a substitute nominee. Directors will be elected at the
Annual Meeting by a plurality of the votes cast (i.e., the seven nominees
receiving the greatest number of votes will be elected as directors). Only
persons nominated in accordance with the notice requirements of the Company's
By-laws are eligible for election as directors of the Company.
Certain Information Regarding Directors and Officers
Set forth below is certain information concerning the nominees for director
and the executive officers and key employees of the Company:
Name Age Position
- ---- --- --------
George Morgenstern 65 Director; Chairman of the Board,
President and Chief Executive Officer of
DSSI; Chairman of the Board and Acting
President of the Company's Decision
Systems Israel Ltd. subsidiary ("DSI
Israel"); Chairman of the Board of the
Company's Tower Semiconductor Ltd.
subsidiary ("Tower")
Robert L. Kuhn 54 Director; Vice Chairman of the Board of
DSSI
Yacov Kaufman 41 Vice President and Chief Financial
Officer of DSSI; Vice President and
Chief Financial Officer of DSI Israel
Harvey Eisenberger 54 Director
Sheldon Krause 43 Director and Secretary
Susan L. Malley 50 Director
Maxwell M. Rabb 88 Director
Allen I. Schiff 53 Director
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<PAGE>
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. Since January 1999, Mr. Morgenstern has also served as Acting President of
DSI Israel. 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.
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. 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 Dr. Malley
founded. Dr. Malley is also a Professor of Finance at the Hofstra Graduate
School of Business. From 1990 until 1995, Dr. Malley 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,
Dr. Schiff has been a Professor of Accounting at Fordham University Graduate
School of Business Administration, serving as Chairman of the Accounting
Department from 1981 to 1983 and from 1985 to 1990.
All directors hold office until the next annual meeting of stockholders or
until their successors are elected and qualify. Executive officers hold office
until their successors are chosen and qualify, subject to earlier removal by the
Board of Directors.
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<PAGE>
Meetings of the Board of Directors
During 1998, the Board of Directors of the Company met nine times. Each
person who served as a director in 1998 attended in excess of 75% of the
aggregate of (i) the total number of meetings of the Board of Directors held
during 1998 and (ii) the total number of meetings held during 1998 by each
committee of the Board of Directors on which such director served except for Mr.
Fogel, who attended three meetings and resigned from the Board in December 1998.
Information Concerning Certain Committees of the Board of Directors
The Board of Directors of the Company has a standing Audit Committee
comprised of Dr. Schiff, who serves as Chairman, Dr. Malley and Mr. Krause.
During 1998, the Audit Committee met five times.
The Audit Committee is charged with assisting the directors with the
fulfillment of their responsibilities to stockholders and others relating to the
corporate accounting and reporting practices of the Company and the quality and
integrity of the financial reports of the Company. The Audit Committee reviews
with the Company's independent certified public accountants the Company's
accounting practices and policies; reviews the report of the Company's
independent auditors on the Company's year-end financial statements; examines
from time to time, in consultation with the Company's financial officers and its
independent certified public accountants, the Company's overall accounting and
financial controls; and is available to the Company's independent auditors for
consultation. In addition, the Audit Committee makes recommendations to the
Board of Directors regarding the engagement and discharge of the Company's
auditors.
The Board of Directors has also established a Compensation and Stock Option
Committee which administers the Company's stock-based compensation plans and
approves awards of stock options and other stock-based compensation, as well as
reviewing and approving the employment terms and compensation of executive
officers of the Company. Dr. Schiff, Dr. Malley and Mr. Krause currently serve
on the Committee, with Dr. Schiff acting as Chairman. Ambassador Rabb serves on
the Committee as an alternate member.
The Board of Directors does not have a nominating committee.
EXECUTIVE AND DIRECTOR COMPENSATION
Compensation of Directors
Each director of the Company is paid $1,000 for each meeting which such
director attends and is reimbursed for associated out-of-pocket expenses. Dr.
Schiff is paid an additional amount 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 1998 in connection with his service on the Board of
Directors and Board committees. Dr. Kuhn was paid an additional $50,000 in 1998
in connection with his service as Vice Chairman of the Company. Dr. Malley was
paid a total of $8,000 in 1998 in connection with her service on the Board of
Directors and Board committees.
In addition to the director's fees described above, at the last Annual
Meeting of Stockholders each member of the Board of Directors (other than Dr.
Malley) who was not an employee of the Company (Mr. Krause, Ambassador Rabb and
Dr. Schiff) was granted options to purchase 7,500 shares of Common Stock
- 5 -
<PAGE>
at an exercise price of $2.44 per share (the fair market value of the Common
Stock on such date). Upon her appointment to the Board of Directors in March
1998, Dr. Malley was granted options to purchase 7,500 shares of Common Stock at
an exercise price of $5.5625. 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.
Compensation Committee Interlocks and Insider Participation
Prior to June 1998, the Board of Directors had not established a
compensation committee; all matters related to compensation, except for stock
option and other stock-based compensation, were determined by the Board of
Directors. Matters related to stock options and other stock-based compensation
were determined by the Stock Option Committee. In June 1998, the Board of
Directors approved an expansion of the mandate of the Stock Option Committee,
which was renamed the Compensation and Stock Option Committee. The broadened
mandate of the committee includes review and approval of employment terms and
compensation of executive officers, in addition to stock-based compensation.
The following persons served both as members of the Board of Directors and
officers of the Company in 1998: Mr. Morgenstern (Chairman of the Board,
President and Chief Executive Officer), Dr. Kuhn (Vice Chairman of the Board)
and Mr. Krause (Secretary). During 1998, 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 1998 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 "Certain Related Party Transactions" below.
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, 1997 and extends through December 31, 2001 (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
- 6 -
<PAGE>
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. Pursuant to the
Employment Agreement, Mr. Morgenstern may at any time prior to December 31,
2001, elect to terminate his employment with the Company and thereafter to
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.
Yacov Kaufman serves as Vice President and Chief Financial Officer of the
Company and of DSI Israel pursuant to a two-year employment agreement with the
Company commencing January 1, 1999. The agreement is terminable by either party
upon at least 30 days' notice, or by the Company for cause (as defined in the
agreement).
Until his resignation in December 1998, Samuel Fogel served as President
and General Manager of DSI Israel, pursuant to an employment agreement with the
Company.
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).
Executive Compensation
The following table sets forth for the periods indicated information
concerning the compensation of the Chief Executive Officer and the two other
officers of the Company who received in excess of $100,000 in salary during
1998.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term All Other
Annual Compensation Compensation Awards Compensation ($)
------------------- ------------------- ----------------
Securities
Name and Restricted Stock Underlying
Principal Position Year Salary ($) Bonus ($) Awards ($) Options (#)
- ------------------ ---- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
George Morgenstern 1996 300,000 - 600,000(1) 100,000 85,000
Chief Executive Officer 1997 420,000 - - - 131,000
1998 427,600 - 435,000(2) - 146,000(3)
Samuel Fogel 1996 132,000 - - - 17,600
Executive President(4) 1997 132,000 - - - 17,600
1998 132,000 - - - 17,600(5)
Yacov Kaufman 1996 108,000 5,900 - - 17,000
Vice President 1997 108,000 10,000 - - 17,000
1998 115,200 - 15,356
</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 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.
(2) Represents the fair market value of 155,000 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 two-year period, commencing August 1999.
Dividends, if and when declared by the Company, would be payable on vested
shares; unvested shares are not eligible to receive dividends.
(3) Consists of (i) $107,000 in contributions to a non-qualified retirement
fund, (ii) approximately $35,000 in life insurance premiums and (iii)
director's fees of $4,000.
(4) Mr. Fogel ceased serving as an officer and director of the Company in
December 1998.
(5) Represents contributions to severance and pension funds. These
contributions are made on substantially the same basis as those made on
behalf of all Israeli employees.
In 1998, the Company granted no stock appreciation rights (SARs) or stock
options to the executive officers named in the Summary Compensation Table above.
None of the named executive officers acquired shares of Common Stock upon the
exercise of options in 1998. The following table summarizes the number and value
of all options held by such executive officers at the end of 1998.
- 8 -
<PAGE>
AGGREGATED OPTION EXERCISES IN 1998
AND FISCAL YEAR END STOCK OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares Number of Securities
Acquired Upon Value Underlying Unexercised Value of Unexercised
Name Exercise(#)(1) Realized($) Options at Year End(#) In-the-Money Options($)(2)
- ---- -------------- ----------- --------------------------- ---------------------------
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 - - -
</TABLE>
- ----------
(1) No options were exercised by any of the named persons in 1998.
(2) Based on the closing price for the Common Stock on December 31, 1998 of
$2.625.
Certain Related Party Transactions
During 1996 and 1997, the Company made a loan to George Morgenstern, its
Chairman, President and Chief Executive Officer. The principal of, and interest
on, such loan is payable in installments as follows: (i) 105 bi-weekly payments
of $3,000 each, commencing January 1998, (ii) four annual payments of $72,000
each, commencing December 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. As of December 31, 1998, the balance of this loan,
which bears interest at an annual rate of 7%, was approximately $613,000. In
addition, in 1998, the Company made a loan to Mr. Morgenstern in the amount of
$63,000 in connection with the payment of income tax relating to the vesting of
a restricted stock award. During 1998, the highest total aggregate balance of
loans to Mr. Morgenstern was $718,000.
During 1998, the Company paid approximately $400,000 for legal services
rendered and reimbursement of out-of-pocket expenses to Ehrenreich Eilenberg
Krause & Zivian LLP, a law firm in which Sheldon Krause, a director and
Secretary of the Company, is a member. In addition, Tower paid approximately
$136,000 for legal services rendered and reimbursement of out-of-pocket expenses
to such firm in 1998. Mr. Krause is the son-in-law of George Morgenstern,
Chairman, President and Chief Executive Officer of the Company.
During 1998, Shlomie Morgenstern, Director of Operations for the Company's
Databit and International Data Operations subsidiaries, received compensation of
approximately $122,000. Shlomie Morgenstern is a son of George Morgenstern,
Chairman, President and Chief Executive Officer of the Company.
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<PAGE>
COMPENSATION REPORT OF THE BOARD OF DIRECTORS
The goals of the Company's compensation policy are to (i) attract, retain
and reward executives who contribute to the overall success of the Company by
offering compensation that is competitive, (ii) motivate executives to achieve
the Company's business objectives and (iii) align the interests of executives
with the long-term interests of stockholders. The Board of Directors believes
that there is necessarily an element of subjectivity in establishing
compensation levels for the Company's executives and does not follow specific
objective performance criteria when establishing such compensation levels.
The Board believes that the use of stock options and other stock-based
compensation generally to compensate executive officers encourages and rewards
effective management that results in long-term corporate financial success, as
measured by stock price appreciation. The Board further believes that such use
aligns the interests of the Company's executives with those of the Company's
stockholders. In 1998, the Compensation and Stock Option Committee did not grant
any options to executive officers. In August 1998 the Compensation and Stock
Option Committee approved a grant of restricted stock to Mr. Morgenstern which
is described below.
Compensation decisions with respect to executive officers, other than the
chief executive officer, have been based upon the recommendation of the chief
executive officer (except for decisions relating to stock options, which are
determined by the Compensation and Stock Option Committee as described above).
In 1998, such executives were paid pursuant to employment agreements previously
entered into with the Company. Pursuant to the employment agreement between the
Company and Mr. Morgenstern (described under "Proposal 1--Election of
Directors--Employment Arrangements"), Mr. Morgenstern received a base salary of
$427,000 during 1998. In addition, pursuant to the agreement, the Company made
contributions to Mr. Morgenstern's non-qualified retirement fund of 25% of his
base salary. In August 1998, the Company awarded to Mr. Morgenstern 155,000
shares of restricted stock of the Company. Of these shares, 135,000 vest over a
two-year period, and the vesting of the remainder is subject to satisfaction of
certain stock price performance criteria. The Board and the Compensation and
Stock Option Committee made the award to Mr. Morgenstern to provide additional
incentive to Mr. Morgenstern to remain in the full-time employ of the Company in
his position as President and Chief Executive Officer for the two year period of
the grant rather than electing the consulting option under his employment
agreement.
BOARD OF DIRECTORS
George Morgenstern
Robert L. Kuhn
Harvey Eisenberger
Sheldon Krause
Susan L. Malley
Maxwell M. Rabb
Allen I. Schiff
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<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following stock price performance graph compares the cumulative total
return of the Company's Common Stock, during the period December 31, 1993 to
December 31, 1998, to the cumulative total return during such period of (i) the
Nasdaq Stock Market Index (United States and Foreign) and (ii) the Nasdaq
Computer & Data Processing Stock Index.
COMPARISON OF CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
12/31/93 12/30/94 12/29/95 12/31/96 12/31/97 12/31/98
-------- -------- -------- -------- -------- --------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DSSI 100 37.624 55.446 45.050 33.663 20.792
- ------------------------------------------------------------------------------------------------------------------------
Nasdaq Computer & Data Processing 100 121.443 184.925 228.243 280.390 501.762
Stock Index
- ------------------------------------------------------------------------------------------------------------------------
Nasdaq Stock Market Index 100 96.997 136.235 166.787 203.976 281.691
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and directors, and persons who own
more than 10% of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC"). These persons are also required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on
its review of such forms received by it, or written representations from certain
reporting persons, the Company believes that during 1998 all applicable filing
requirements were complied with by its executive officers and directors.
STOCKHOLDER LIST
Commencing on June 6, 1999, an alphabetical list of the names and addresses
of the stockholders of record of the Company as of the Record Date will be
available at the principal executive offices of the Company for inspection by
any stockholder during normal business hours for any purpose germane to the
Annual Meeting. The Company's principal executive offices are located at 200
Route 17, Mahwah, New Jersey 07430.
INDEPENDENT PUBLIC ACCOUNTANTS AND AUDITORS
Deloitte & Touche LLP served as the Company's independent certified public
accountants and auditors for the year ended December 31, 1998 and has been
selected to serve in that capacity for fiscal year 1999. A representative of
Deloitte & Touche LLP has been invited to and is expected to be present at the
Annual Meeting.
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<PAGE>
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Stockholders may present proposals for inclusion in the Company's 2000
proxy statement provided that (in addition to other applicable requirements)
such proposals are received by the Company in writing at its principal executive
offices no later than April 17, 2000.
Pursuant to the By-laws of the Company, stockholders who wish to nominate
any person for election to the Board of Directors or bring any other business
before the 2000 Annual Meeting must generally give notice thereof to the Company
at its principal executive offices not less than 60 days nor more than 90 days
before the date of the meeting. A copy of the By-laws of the Company is
available upon request from the Secretary of the Company, 200 Route 17, Mahwah,
New Jersey 07430.
OTHER MATTERS
The Board of Directors of the Company does not know of any other matters to
be presented for action at the Annual Meeting other than those listed in the
accompanying Notice of Annual Meeting and described herein. If any other matters
not described herein should properly come before the meeting for stockholder
action, it is the intention of the persons named in the accompanying proxy to
vote, or otherwise act, in respect thereof in accordance with the Board of
Directors' recommendations.
ANNUAL REPORT
A copy of the Company's Annual Report, covering the fiscal year ended
December 31, 1998, including audited financial statements is enclosed with this
Proxy Statement. Such report is not incorporated in this Proxy Statement and is
not a part of the proxy soliciting material.
ADDITIONAL INFORMATION
The cost of soliciting proxies for the Annual Meeting will be borne by the
Company. In addition to use of the mails, proxies may be solicited by personal
interview, telephone, telex or facsimile. The Company will, upon request and in
accordance with applicable regulation, reimburse brokerage firms and others for
their reasonable expenses in forwarding solicitation material to the beneficial
owners of stock.
BY ORDER OF THE BOARD OF DIRECTORS,
SHELDON KRAUSE
Secretary
May 20, 1999
Mahwah, New Jersey
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