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 SEPTEMBER 12, 2000
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 Tuesday, September 12, 2000, 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 July 28, 2000, 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
August 15, 2000
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 Tuesday,
September 12, 2000, at 9:30 a.m., and any postponements or adjournments thereof.
This Proxy Statement and the accompanying materials are being mailed on or about
August 17, 2000, 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 July 28, 2000. On that date, 7,468,722 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 one matter, it will be deemed present for
purposes of determining the presence of a quorum 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
deemed present for purposes of determining the presence of a quorum.
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.
Commencing on September 2, 2000, 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, 200 Route
17, Mahwah, New Jersey 07430, for inspection by any stockholder during normal
business hours for any purpose germane to the Annual Meeting.
<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,
the Company is not aware of any person that is the beneficial owner of more than
5% of the outstanding Common Stock of the Company.
<TABLE>
<CAPTION>
Percentage of
Name and Address of Number of Shares of Common Stock Common Stock
Beneficial Owner(1)(2) Beneficially Owned(2) Outstanding(2)
---------------------- --------------------- --------------
<S> <C> <C>
George Morgenstern 610,423(3) 7.8%
Howard Gutzmer 479,015(4) 6.4%
5550 Oberlin Dr.
San Diego, CA 92121
Dimensional Fund Advisors Inc. 386,700(4) 5.2%
1299 Ocean Ave., 11th Fl.,
Santa Monica, CA 90401
Robert L. Kuhn 372,656(5) 4.9%
Yacov Kaufman 64,334(6) *
Harvey Eisenberger 5,000(7) *
Sheldon Krause 43,500(8) *
Susan L. Malley 15,000(7) *
Hon. Maxwell M. Rabb 42,500(7) *
Allen I. Schiff 42,500(7) *
Shlomie Morgenstern 15,000(7) *
Frank Magnotti -- --
All executive officers and directors of the
Company as a group (9 people) 1,215,913 14.8%
</TABLE>
----------
* Less than 1%
(1) Unless otherwise indicated, 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) 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) 330,000 currently exercisable
options held by Mr. Morgenstern.
(4) As of December 31, 1999, based on information in a Schedule 13G filed by
such person.
(5) Consists of 192,656 shares and 180,000 currently exercisable options held
by Dr. Kuhn.
(6) Consists of 1,000 shares and 63,334 currently exercisable options held by
Mr. Kaufman.
(7) Consists of currently exercisable options.
(8) Consists of 1,000 shares and 42,500 currently exercisable options held by
Mr. Krause.
2
<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. Only persons nominated in accordance
with the notice requirements of the Company's By-laws are eligible for election
as directors of the Company. 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).
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:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
George Morgenstern 67 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 Comverge
Technologies, Inc. subsidiary ("Comverge")
Robert L. Kuhn 55 Director; Vice Chairman of the Board of DSSI
Yacov Kaufman 43 Vice President and Chief Financial Officer of DSSI; Vice
President and Chief Financial Officer of DSI Israel; Chief
Financial Officer of Comverge
Harvey Eisenberger 56 Director
Sheldon Krause 45 Director and Secretary
Susan L. Malley 51 Director
Maxwell M. Rabb 89 Director
Allen I. Schiff 54 Director
Frank Magnotti 39 President of Comverge
Shlomie Morgenstern 37 Vice President - Operations
</TABLE>
3
<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 Comverge.
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 also served as a Vice President of DSI
Israel since 1992 and as Chief Financial Officer of DSI Israel since 1990. Mr.
Kaufman also serves ad Chief Financial Officer of Comverge.
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 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 of Comverge since October 1997. From
1993 to 1997, Mr. Magnotti was the founder and General Manager of the Utility
Solutions Division of Lucent Technologies, Inc.
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 the a son of
George Morgenstern, Chairman of the Board, President and Chief Executive Officer
of the Company.
4
<PAGE>
Meetings of the Board of Directors
During 1999, the Board of Directors of the Company met six times. Each
person who served as a director in 1999 attended in excess of 75% of the
aggregate of (i) the total number of meetings of the Board of Directors held
during 1999 and (ii) the total number of meetings held during 1999 by each
committee of the Board of Directors on which such director served except for Mr.
Rabb and Dr. Kuhn, each of whom attended three meetings.
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 1999, the Audit Committee met three times.
In accordance with recently adopted Nasdaq rules, the Company has adopted a
formal written audit committee charter setting forth the responsibilities of the
Audit Committee. 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 is responsible for selecting, evaluating and replacing the independent
auditors and with overseeing the independence of the auditors. The Committee
reviews with the Company's independent auditors 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 auditors,
the Company's overall accounting and financial controls; and is available to the
Company's independent auditors for consultation. The Audit Committee must have
at least three members, all of whom must be independent and must be financially
literate. At least one member of the Audit Committee must have a background in
finance or accounting. Mr. Krause, who is not independent of management as
defined in the Nasdaq rules, may remain on the Committee until June 2001.
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. During 1999, the Compensation and Stock
Option Committee met three times.
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 Compensation 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. Mr. Eisenberger was paid a total of
$8,500 in 1999 in connection with his service on the Board of Directors.
5
<PAGE>
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 is
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 have an exercise price per share equal to
the fair market value of the Common Stock on the date of issuance and are
exercisable beginning on the first anniversary of the date of the grant until
the earliest of (a) ten years from the date of grant, (b) one year from the date
on which an optionee ceases to be an eligible director and (c) the date an
optionee ceases to be a director (90 days thereafter if due to death or
disability). The maximum number of shares of Common Stock in respect of which
awards may be granted under the plan is 200,000.
In addition to serving as a director of the Company, Mr. Eisenberger also
serves as an employee of the Company's Comverge subsidiary and was paid
approximately $80,660 during 1999 in connection with such employment. In 1999,
Mr. Eisenberger was also awarded options to purchase shares which after the
combination of the Company's Comverge and PowerCom subsidiaries represented 0.5%
of the outstanding stock of Comverge, at an aggregate exercise price of $9,925.
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 employment terms and compensation of executive officers.
Certain matters related to the compensation of the Chief Executive Officer are
also considered by the full Board of Directors.
The following persons served both as members of the Board of Directors and
officers or employees of the Company in 1999: George Morgenstern (Chairman of
the Board, President and Chief Executive Officer), Dr. Kuhn (Vice Chairman of
the Board), Mr. Krause (Secretary) and Harvey Eisenberger, who is employed by
the Company's Comverge subsidiary. 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 and George Morgenstern did not participate in any such deliberations
relating to the compensation of Shlomie Morgenstern. Except as described above,
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.
6
<PAGE>
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. 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
would be equal to 50% of his annual salary in effect immediately prior to the
Consulting Period through the end of the fourth calendar year of the Consulting
Period, and 25% of such annual salary for the remainder 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 (as defined in the Employment Agreement), 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 above 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 the compensation provided for 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 under "Certain Related Party
Transactions." The Board also approved an additional bonus of up to $300,000,
$150,000 of which is payable only upon completion of an equity financing of the
Company's Comverge subsidiary of at least $10 million by December 31, 2000, and
$150,000 of which is payable only if Mr. Morgenstern remains employed full-time
as President and Chief Executive Officer of the Company through December 31,
2001. At least one-half of any bonus paid must be used to reduce any then
outstanding balance of the Company's loan to Mr. Morgenstern. 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).
7
<PAGE>
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 $100,000 in salary during
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term All Other
Annual Compensation Compensation Awards Compensation ($)
------------------- -------------------------------- ----------------
Securities
Name and Restricted Stock Underlying
Principal Position Year Salary ($) Bonus ($) Awards ($) Options (#)
------------------ ---- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
George Morgenstern 1997 420,000 -- -- -- 131,000
Chief Executive Officer 1998 427,600 -- 435,000(1) -- 146,000
1999 434,700 -- -- (2) 195,280(3)
Yacov Kaufman 1997 108,000 10,000 -- -- 17,000
Chief Financial Officer 1998 124,200 -- -- -- 25,725
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 which
after the combination of the Company's Comverge and Powercom subsidiaries
represented 0.5% of the outstanding stock of Comverge, at an aggregate
exercise price of $9,925. Mr. Morgenstern serves as Chairman of Comverge.
(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 which
after the combination of the Company's Comverge and Powercom subsidiaries
represented 0.5% of the outstanding stock of Comverge, at an aggregate
exercise price of $9,925.
(5) Represents primarily contributions to severance and pension funds. These
contributions are made on substantially the same basis as those made on
behalf of all Israeli employees.
(6) Appointed Vice President on February 1, 2000.
8
<PAGE>
The following tables summarize (i) the options granted in 1999 to the
executive officers named in the Summary Compensation Table above, (ii) the
potential value of these options at the end of the option term assuming certain
levels of appreciation of the Company's Common Stock, (iii) the number of shares
acquired by such named executive officers upon the exercise of options in 1999
and the value realized thereon, and (iv) the number and value of all options
held by such executive officers at the end of 1999.
OPTION/SAR GRANTS IN 1999
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants(1) for Option Terms (2)
--------------------------------------------------------- --------------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees in Exercise or
Options Fiscal Year Base Price Expiration
Name Granted (#) (%) ($/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% $2.6875 12/31/06 32,822 76,490
</TABLE>
----------
(1) The Company did not grant any stock appreciation rights (SARs) in 1999.
(2) The dollar amounts under these columns are the result of calculations at
the 5% and 10% compounded annual appreciation rates prescribed by the
Securities and Exchange Commission and, therefore, are not intended to
forecast possible future price appreciation, if any, of the Common Stock.
(3) These options become exercisable as to one-third in December of each year
commencing December 1999.
(4) These options become exercisable as to one-third in October of each year
commencing October 1999.
(5) These options become exercisable as to one-half in October of each year
commencing October 2000.
(6) These options become exercisable as to one-third in December of each year
commencing December 2000.
9
<PAGE>
AGGREGATED OPTION EXERCISES IN 1999
AND FISCAL YEAR END STOCK OPTION VALUES
<TABLE>
<CAPTION>
Number of
Shares Number of Securities Underlying
Acquired Unexercised Options Value of Unexercised
Upon Value at Year End (#) In-the-Money Options ($) (2)
Exercise Realized ------------------------------ ----------------------------
Name (#) (1) ($) 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.
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 was 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. The
loans were fully repaid during the first quarter of 2000, 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 during 1999 in connection with his positions
as Director of Operations of the Company's Databit and International Data
Operations subsidiaries.
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.
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
10
<PAGE>
stock options, which are determined by the Compensation and Stock Option
Committee as described above). In early 1999, the Company entered into an
employment agreement with Yacov Kaufman, the Chief Financial Officer of the
Company. The terms of Mr. Kaufman's employment were based on the Company's
desire (i) to recognize Mr. Kaufman's long-term service to the Company, (ii) to
compensate him for his increased responsibilities within the Company as well as
in connection with his duties as CFO of Comverge, which represents the Company's
current strategic focus and (iii) to incentivise his retention, given his
increasingly key role in the affairs of the Company. Therefore, although Mr.
Kaufman's base salary of approximately $128,000 per annum did not significantly
increase, the employment agreement provides for yearly cost of living
adjustments, stock option grants, and certain payments in the event of a change
in control of the Company or termination by the Company other than for cause.
The chief executive officer was paid pursuant to an employment agreement
previously entered into with the Company. In establishing the terms of such
employment agreement, the Board considered the performance of the Company and
its subsidiaries at the time at which the Company entered such agreement.
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 $434,700 during 1999. In addition,
pursuant to the agreement, the Company made contributions to Mr. Morgenstern's
non-qualified retirement fund of 25% of his base salary.
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 1999, the Compensation and Stock Option Committee granted
options to purchase the Company's Common Stock to Yacov Kaufman and Shlomie
Morgenstern. Mr. Kaufman's options were granted pursuant to his employment
agreement described above and also in exchange for options to purchase shares of
DSI Israel previously granted to Mr. Kaufman. Shlomie Morgenstern's options were
granted in recognition of his responsibilities as director of operations of
Databit and International Data Operations.
In addition, Mr. Eisenberger, Mr. Kaufman and George Morgenstern received
options to purchase shares of the combined PowerCom/Comverge subsidiary's common
stock. Such options were granted by the board of the subsidiary and ratified by
the Board. The Board believes that granting options in Comverge to those
executives directly involved in its activities will provide effective incentives
to such executives to improve the performance of this subsidiary, which is the
focus of the Company's most intensive R&D and marketing efforts.
BOARD OF DIRECTORS
George Morgenstern
Robert L. Kuhn
Harvey Eisenberger
Sheldon Krause
Susan L. Malley
Maxwell M. Rabb
Allen I. Schiff
11
<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, 1994 to
December 31, 1999, 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>
----------------------------------------------------------------------------------------------------------------
12/31/94 12/30/95 12/29/96 12/31/97 12/31/98 12/31/99
-------- -------- -------- -------- -------- --------
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DSSI 100 147.368 119.737 89.474 55.263 71.053
----------------------------------------------------------------------------------------------------------------
Nasdaq Computer & Data Processing 100 152.283 187.954 230.899 412.227 871.275
Stock Index
----------------------------------------------------------------------------------------------------------------
Nasdaq Stock Market Index 100 140.356 170.624 209.846 290.171 531.738
----------------------------------------------------------------------------------------------------------------
</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.
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, 1999. The Company has
not completed the selection of its auditors for fiscal year 2000. A
representative of Deloitte & Touche LLP has been invited to and is expected to
be present at the Annual Meeting.
12
<PAGE>
STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
Stockholders may present proposals for inclusion in the Company's 2001
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 June 13, 2001.
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 2001 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.
SOLICITATION OF PROXIES
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
August 15, 2000
Mahwah, New Jersey
13
