SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 ON
FORM 10-K/A
TO ANNUAL REPORT ON FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 0-19771
DATA SYSTEMS AND SOFTWARE INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2786081
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
200 Route 17, Mahwah, New Jersey 07430
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (201) 529-2026
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.1 per share
Common Stock Purchase Rights
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common stock of the registrant held by
non-affiliates of the registrant at March 22, 2000 was approximately $ 38.5
million. Such aggregate market value was calculated by using the closing price
of the stock on that date on the Nasdaq National Market.
Number of shares outstanding of the registrant's common stock, as of March 22,
2000: 7,576,794.
Documents incorporated by reference:
None.
<PAGE>
DATA SYSTEMS & SOFTWARE INC.
AMENDMENT NO. 1 ON FORM 10-K/A
TABLE OF CONTENTS
Page
----
PART III
Item 10 Directors and Executive Officers of the Registrant................ 2
Item 11 Executive Compensation............................................ 4
Item 12 Security Ownership of Certain Beneficial Owners and
Management........................................................ 8
Item 13 Certain Relationships and Related Transactions.................... 9
Signatures........................................................10
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors and Executive Officers
Set forth below is certain information concerning the directors and the
executive officers and key employees of the Company:
Name Age Position
- ---- --- --------
George Morgenstern 66 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")
Robert L. Kuhn 55 Director; Vice Chairman of the Board of DSSI
Yacov Kaufman 42 Vice President and Chief Financial Officer of
DSSI; Vice President and Chief Financial Officer
of DSI Israel
Harvey Eisenberger 55 Director
Sheldon Krause 44 Director and Secretary
Susan L. Malley 51 Director
Maxwell M. Rabb 89 Director
Allen I. Schiff 54 Director
Frank Magnotti 39 President and Chief Operating Officer of
Comverge
Shlomie Morgenstern 37 Vice President-Operations
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.
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 various
administrative capacities. From 1986 to March 1997, Mr. Eisenberger was an
account executive with a New York investment firm.
2
<PAGE>
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 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.
Frank Magnotti has been the President and Chief Operating Officer of
Comverge since October 1997. From 1993 to 1997, Mr. Magnotti was the founder and
General Manager of the Utility Solutions Division of AT&T/Bell Labs, later known
as Lucent.
Shlomie Morgenstern has been Vice President--Operations of the Company
since February 2000. Since 1996 Mr. Morgenstern has been employed by the Company
in various administrative capacities. Mr. Morgenstern is a son of George
Morgenstern, Chairman of the Board, President and Chief Executive Officer of the
Company.
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 1999 all applicable filing
requirements were complied with by its executive officers and directors.
3
<PAGE>
Item 11. Executive and Director Compensation
Executive Compensation
The following table sets forth for the periods indicated information
concerning the compensation of the Chief Executive Officer and the three other
officers of the Company who received in excess of $100,000 in salary during
1999.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term All Other
Annual Compensation Compensation Awards Compensation ($)
------------------- ------------------- ----------------
Securities
Name and Restricted Stock Underlying
Principal Position Year Salary ($) Bonus ($) Awards ($) Options (#)
- ------------------ ---- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
George Morgenstern 1997 420,000 -- -- -- 131,000
Chief Executive 1998 427,600 -- 435,000(1) -- 146,000
Officer 1999 434,700 -- -- (2) 195,280(3)
Yacov Kaufman 1997 108,000 10,000 -- -- 17,000
Chief Financial 1998 124,200 -- -- -- 25,725
Officer 1999 127,200 -- -- (4) 22,000(5)
Shlomie Morgenstern 1998 122,700 -- -- -- --
Vice-President (6) 1999 131,400 -- -- --
Frank Magnotti 1998 143,500 -- -- -- --
President, Comverge 1999 158,000 -- -- -- --
Technologies, Inc.
</TABLE>
- ----------
(1) 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.
(2) In 1999, Mr. Morgenstern was also awarded options to purchase shares of the
Company's Powercom Technologies subsidiary representing 0.5% of such
subsidiary's outstanding stock at an aggregate exercise price of $29,147.
Mr. Morgenstern serves as Chairman of Powercom.
(3) Consists of (i) $107,700 in contributions to a non-qualified retirement
fund, (ii) approximately $25,745 in life insurance premiums, (iii)
approximately $57,835 paid for accrued vacation and (iv) $4,000 in
director's fees
(4) In 1999, Mr. Kaufman was also awarded options to purchase shares of the
Company's Powercom Technologies subsidiary representing 0.5% of such
subsidiary's outstanding stock at an aggregate exercise price of $29,147.
Mr. Kaufman serves as Powercom's Chief Financial Officer.
(5) Represents primarily contributions to severance and pension funds. These
contributions are made on substantially the same basis as those made on
behalf of all Israeli employees.
(6) Appointed Vice-President February 1, 2000.
4
<PAGE>
The following tables summarize (i) the options granted in 1999 to the
executive officers named in the Summary Compensation Table above, (ii) the
potential value of these options at the end of the option term assuming certain
levels of appreciation of the Company's Common Stock, (iii) the number of shares
acquired by such named executive officers upon the exercise of options in 1999
and the value realized thereon, and (iv) the number and value of all options
held by such executive officers at the end of 1999.
OPTION/SAR GRANTS IN 1999
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERM(2)
------------------------------------------------------------ -------------------
NUMBER % OF
OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES BASE OR
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR (%) ($/SHARE) DATE 5% ($) 10% ($)
- ---- ---------- ---------- --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Yacov Kaufman 25,000(3) 6.1% $2.00 12/31/06 20,355 47,436
Yacov Kaufman 30,000(4) 7.3% $1.80 4/12/06 21,983 51,231
Yacov Kaufman 30,000(5) 7.3% $2.50 10/30/06 30,532 71,154
Shlomie Morgernstern 20,000(6) 4.9% $2.6875 12/31/06 32,822 76,490
</TABLE>
- ----------
(1) The Company did not grant any stock appreciation rights (SARs) in 1999.
(2) The dollar amounts under these columns are the result of calculations at
the 5% and 10% compounded annual appreciation rates prescribed by the
Securities and Exchange Commission and, therefore, are not intended to
forecast possible future price appreciation, if any, of the Common Stock.
(3) These options become exercisable as to one-third in December of each year
commencing December 1999. These options were granted as part of Mr.
Kaufman's compensation for 1998. Actual grant of these options was not made
until 1999.
(4) These options become exercisable as to one-third in October of each year
commencing October 1999. These options were granted in April 1999 in
exchange for options to purchase shares of DSI Israel previously granted to
Mr. Kaufman.
(5) These options become exercisable as to one-half in October of each year
commencing October 2000.
(6) These options become exercisable as to one-third in December of each year
commencing December 2000.
5
<PAGE>
AGGREGATED OPTION EXERCISES IN 1999
AND FISCAL YEAR END STOCK OPTION VALUES
<TABLE>
<CAPTION>
NUMBER
OF NUMBER OF SECURITIES VALUE OF
SHARES UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT YEAR END(#) OPTIONS($)(2)
UPON VALUE ------------------------------- -------------------------------
NAME EXERCISE(#)(1) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George Morgenstern -- -- 427,250 20,000 -- --
Yacov Kaufman -- -- 75,000 75,000 27,209 80,666
Shlomie Morgernstern -- -- 22,500 27,500 3,263 17,013
</TABLE>
- ----------
(1) No options were exercised by any of the named persons in 1999.
(2) Based on the closing price for the Common Stock on December 31, 1999, of
$3.375.
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 Compensations and Stock Option Committee,
plus additional amounts in the event of special committee assignments. Dr.
Schiff was paid a total of $24,000 in 1999 in connection with his service on the
Board of Directors and Board committees. Dr. Kuhn was paid an additional $50,000
in 1999 in connection with his service as Vice Chairman of the Company. Dr.
Malley was paid a total of $10,000 in 1999 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 who was not an
employee of the Company (Mr. Krause, Ambassador Rabb, Dr. Malley and Dr. Schiff)
was granted options to purchase 7,500 shares of Common Stock at an exercise
price of $3.69 per share (the fair market value of the Common Stock on such
date). 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.
6
<PAGE>
Compensation Committee Interlocks and Insider Participation
The mandate of the Compensation and Stock Option Committee of the Board of
Directors of the Company encompasses all matters related to compensation,
including determination of stock option and other stock-based compensation and
review and approval of employement terms and compensation of executive officers.
The following persons served both as members of the Board of Directors and
officers of the Company in 1999: Mr. Morgenstern (Chairman of the Board,
President and Chief Executive Officer), Dr. Kuhn (Vice Chairman of the Board)
and Mr. Krause (Secretary). During 1999, 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
the compensation of George Morgenstern or Shlomie Morgenstern. Subject to the
foregoing limitations, each member of the Board of Directors participated in
1999 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
Relationships and Related 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 company
automobiles, premium payments on a life insurance policy owned by Mr.
Morgenstern and other fringe benefits.
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.
In addition to his compensation pursuant to the Employment Agreement, in
January 2000, the Company awarded Mr. Morgenstern a bonus in the amount of
$550,000, at least half of which was to be used to reduce the balance of his
outstanding loan from the Company discussed below at Item 13. The Board also
approved an additional bonus of up
7
<PAGE>
to $300,000, $150,000 payable upon completion of an equity financing of the
Company's Comverge subsidiary of at least $10 million by December 31, 2001, and
$150,000 payable if Mr. Morgenstern remains employed full-time as President and
Chief Executive Officer of the Company through December 2001, provided that at
least one-half of each such bonus be used to reduce the balance of the loan. In
February, the Board of Directors approved a purchase by the Company of an
aggregate of up to $300,000 of the Company's common stock from Mr. Morgenstern,
provided that the proceeds from such purchases be applied to reduce the balance
of the loan.
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).
The stock option agreements with the Company's executive officers generally
provide for accelerated vesting in the event of a "Change in Control of the
Company" (as defined in such agreements).
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table and the notes thereto set forth information, as of
April 15, 2000, 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 .................. 707,673(3) 8.9%
Robert L. Kuhn ...................... 474,906(4) 6.1%
Yacov Kaufman ....................... 76,000(5) 1.0%
Harvey Eisenberger .................. 20,000(6) *
Sheldon Krause ...................... 36,000(7) *
Susan L. Malley ..................... 7,500(6) *
Hon. Maxwell M. Rabb ................ 35,000(6) *
Allen I. Schiff ..................... 35,000(6) *
Shlomie Morgenstern ................. 15,000(6) *
All executive officers and
directors of the Company as
a group (8 people) ................ 1,407,079 16.6%
- ----------
* 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.
8
<PAGE>
(3) Consists of (i) 280,423 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 75,000 currently exercisable options held by
Mr. Kaufman.
(6) Consists of currently exercisable options.
(7) Consists of 1,000 shares and 35,000 currently exercisable options held by
Mr. Krause.
Item 13. Certain Relationships and Related Transactions
During 1996 and 1997, the Company made a loan to George Morgenstern, its
Chairman, President and Chief Executive Officer. 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. 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 1999, the
highest total aggregate balance of loans to Mr. Morgenstern was $614,000. All
loans to Mr. Morgenstern were repaid in the first quarter of 2000. The loans
were repaid in part from the proceeds of sales by Mr. Morgenstern of Common
Stock to the Company on February 2, 2000 and March 2, 2000 at then current
market prices.
During 1999, the Company paid approximately $494,000 for legal services
rendered and reimbursement of out-of-pocket expenses to Ehrenreich Eilenberg &
Krause LLP, a law firm in which Sheldon Krause, a director and Secretary of the
Company, is a member. Mr. Krause is the son-in-law of George Morgenstern,
Chairman, President and Chief Executive Officer of the Company.
As reported on the Summary Compensation Table above, Shlomie Morgenstern, a
son of George Morgenstern, Chairman, President and Chief Executive Officer of
the Company, received compensation in connection with his positions as Director
of Operations of the Company's Databit and International Data Operations
subsidiaries.
9
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Township of
Mahwah, State of New Jersey, on May 1, 2000.
DATA SYSTEMS & SOFTWARE INC.
By: /s/ Sheldon Krause
-------------------------
Sheldon Krause, Secretary
10
