UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A1
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the year ended December 31, 1997
Commission File Number: 1-13424
DATA SYSTEMS NETWORK CORPORATION
(Exact name of Registrant as specified in its charter)
Michigan 38-2649874
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
34705 West Twelve Mile Road, Suite 300
Farmington Hills, Michigan 48331
(Address of principal executive offices) (Zip Code)
Registrant's telephone no. including area code: (248) 489-8700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.01 par value Pacific Stock Exchange and
Nasdaq Stock Market's
SmallCap Market
Securities registered pursuant to Section 12(g) of the Act: None
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.
YES X 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. [ ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates(3,196,221 shares) on March 31, 1998 was $20,176,145. For
purposes of this computation only, all executive officers, directors and
beneficial owners of more than 5% of the outstanding shares of common stock
are assumed to be affiliates.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
YES X NO
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock as of the latest practicable date: 4,859,224 shares
of Common Stock outstanding as of March 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the members of the Board of Directors and
the executive officers of the Company and includes information regarding the
individual's age, principal occupation, other business experience,
directorships in other publicly-held companies and term of service with the
Company. Each director holds office until the next annual meeting of
shareholders and until his successor has been elected and qualified.
Name Age Position
- ---- --- --------
Michael W. Grieves 48 Chairman of the Board,
President, Chief Executive
Officer and Director
Walter J. Aspatore 55 Director
Richard R. Burkhart 46 Director
Jerry A. Dusa 50 Director
Gregory D. Cocke 42 Vice President - Sales
Diane L. Grieves 48 Executive Vice President
and Secretary
Mr. Grieves has served as the Company's President, Chief Executive
Officer and Chairman of the Board since its inception in 1986. Prior to
1986, Mr. Grieves served in executive, managerial and technical capacities
with Computer Alliance Corporation, a turnkey system house, Quanex
Management Sciences, a computer services bureau, and Lear Siegler
Corporation, and has more than 25 years of experience in the computer
industry. Mr. Grieves is married to Diane L. Grieves, the Company's
Executive Vice President and Secretary.
Mr. Aspatore, a Director of the Company since November 1994, has
been Managing Director of Amherst Capital Partners, which provides
investment banking services to medium and small businesses, since its
founding in 1994. Prior to the formation of Amherst Capital Partners, Mr.
Aspatore was President of Onset BIDCO, which supplies financing, and
management services to companies with strong growth potential, from 1991 to
November 1994. Mr. Aspatore was the President of Cross & Trecker
Corporation a $500 million worldwide factory automation company, from 1988
to 1991 and served that company in various capacities for approximately 22
years. He has a total of more than 27 years of senior level management
experience in operations and finance in the worldwide factory automation,
automotive, and aerospace industries.
Mr. Burkhart, a Director of the Company since 1986, has been a
management consultant with his own firm, Emerald Asset Management, Inc.,
since 1991 and for the last fifteen years Mr. Burkhart has specialized in
managing financially troubled businesses. Mr. Burkhart served as the
Company's Treasurer from 1986 until April 1997. Since 1992, Mr. Burkhart
has served as President and is principal of New Century Metals, Inc. in
Cleveland, Ohio. From 1986 to 1991, he was Chairman of The Pratt & Whitney
Machine Tool Company in West Hartford, Connecticut. Prior experiences
included executive positions in finance and planning with major
manufacturing companies, including Quanex Corporation and Republic Steel
Corporation.
Mr. Dusa, a Director of the Company since November 1994, has been
the principal of Phase One Partners, an investment and consulting firm,
since September 1994. In September 1996, Mr. Dusa became Vice President of
DIGI International Inc., a producer of data communications hardware and
software, and currently serves as DIGI's President and Chief Executive
Officer. From July 1994 to May 1995, he was Executive Vice President of
Fujitsu Microelectronics Inc., a manufacturer of semiconductors. Prior to
July 1994, Mr. Dusa was President of Eagle Technology, a business unit of
Anthem Electronics and a manufacturer of Ethernet adapter cards, for 1-1/2
years. From 1991 to 1992, Mr. Dusa was President and Chief Operating
Officer of Kalpana, Inc., a manufacturer of high speed network switches,
where he was responsible for general management of all operations. In 1990,
Mr. Dusa served as Chief Operating Officer of Saros, Inc., a database
software developer. From 1987 to 1990, Mr. Dusa was Vice President of North
American sales for 3Com Corporation, a manufacturer of a wide range of
network hardware and software. Mr. Dusa has over 22 years of management
experience in the data processing, information management and networking
industries.
Mr. Cocke, the Company's Vice President - Sales, has held various
sales management and executive positions with the Company since its
inception. Prior to 1986, Mr. Cocke was employed in sales and sales
management capacities at Inacomp Computer Centers, Inc. and Executive Data
Solutions, Inc., both computer sales organizations.
Ms. Grieves, the Company's Executive Vice President and Secretary,
has held executive positions in sales, operations, and administration at the
Company since its inception. From 1984 to 1985, Ms. Grieves was Vice
President of Sales at Executive Data Solutions, Inc., a computer sales
organization. Prior to that, Ms. Grieves held numerous sales and sales
management positions with American Telephone and Telegraph and the Bell
operating companies. Ms. Grieves is married to Michael W. Grieves, the
Company's Chairman, President and Chief Executive Officer.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's 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"). Officers, directors and greater than 10%
shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its review of
the copies of such forms received by it since January 1, 1997, or written
representations from certain reporting persons that no Forms 5 were required
for those persons, the Company believes that all filing requirements
applicable to its officers, directors, and greater than 10% beneficial
owners were complied with, except that Mr. Burkhart, Director, filed one
late Form 4, disclosing one transaction on an untimely basis.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY
The following table sets forth the compensation paid by the Company
to the Chief Executive Officer and the only other executive officers who
earned more than $100,000 in salary and bonus during 1997 (collectively, the
"Named Officers").
Summary Compensation Table
Long-Term
Annual Compensation Awards
Name and Compensation Securities
Principal Position Year Salary Bonus Underlying Options
- ------------------ ---- ------ ----- -------------------
Michael W. Grieves 1997 $160,006 30,000 8,000
Chairman, President and 1996 $121,000 - -
Chief Executive Officer 1995 $121,000 - -
Diane L. Grieves 1997 $120,000 15,375 7,500
Executive Vice President 1996 $120,000 - 15,000
and Secretary 1995 $120,000 - -
Gregory D. Cocke 1997 $108,750 28,500 11,250
Vice President - Sales 1996 $130,000 - 15,000
1995 $129,000 - -
Philip M. Goy 1997 $120,000 - 12,000
Former Treasurer and Chief 1996 83,544(1) - 50,000
Financial Officer
(1) Includes $43,544 earned as a consultant prior to employment as Chief
Financial Officer.
OPTION GRANTS
The following table provides information on option grants in 1997 to
the Named Officers. All such options were granted under the Company's 1994
Stock Option Plan, as amended and restated April 1997.
Option/SAR Grants in Last Fiscal Year
Individual Grants
Potential
Realizable
Value at Assumed
Number of Percent of Annual Rates of
Securities total Stock Price
Underlying Options/SARs Appreciation
Options/SARs Granted to Exercise for Option
Granted Employees in Price Expiration Term(b)
(#)(a) Fiscal Year ($/Share) Date 5%($) 10%($)
------ ----------- --------- ---------- ----- -----
Michael W. Grieves 8,000 3.29% $8.75 6/02/07 $44,022 $111,562
Diane L. Grieves 3,333 1.57 $12.00 7/31/07 25,138 63,743
4,167 1.96 $13.25 10/31/07 34,723 87,995
Gregory D. Cocke 5,000 2.35 $12.00 7/31/07 37,734 95,625
6,250 2.94 $13.25 10/31/07 52,080 131,981
Philip M. Goy 12,000 5.65 $8.75 6/02/07 66,034 167,343
- ------------
(a) The options become exercisable as follows: 50% on the second
anniversary of the grant date and 25% on each of the third and
fourth anniversaries of the grant date, or immediately upon a change
of control.
(b) Represents the value of such option at the end of its 10-year term
(without discounting to present value), assuming the market price of
the Common Stock appreciates from the exercise price beginning on
the grant date at an annually compounded rate of 5% or 10%. These
amounts represent assumed rates of appreciation only. Actual gains,
if any, will be dependent on overall market conditions and on the
future performance of the Common Stock. There can be no assurance
that the price appreciation reflected in this table will be
achieved.
OPTION HOLDINGS
The following table provides information with respect to the
unexercised options held as of the end of 1997 by the Named Officers. The
Named Officers did not exercise any options during 1997.
Aggregated Option/SAR Exercises In
Last Fiscal Year and Fiscal Year-End Option/SAR Values
Number of Unexercised Value of Unexercised
Options/SARs at Fiscal In-the-Money Options/SARs
Year End (#) At Fiscal Year End($)(a)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Michael W. Grieves 10,000 8,000 $ 68,800 $ 23,040
Diane L. Grieves 15,000 15,000 108,825 57,225
Gregory D. Cocke 15,000 18,750 108,825 57,225
Philip M. Goy 25,000 37,000 190,750 225,310
- ----------------
(a) Value was determined by multiplying the number of shares subject to
the option by the difference between the last sale price of the
Common Stock reported for December 31, 1997 on the Nasdaq Stock
Market's SmallCap Market and the option exercise price.
DIRECTOR COMPENSATION
The Company pays non-employee directors an annual retainer of $1,000
and a fee of $500 for each Board or committee meeting attended. On the date
of each annual shareholders meeting, each non-employee director elected or
reelected as such will also receive an option under the 1994 Stock Option
Plan to purchase 1,000 shares of Common Stock, exercisable beginning one
year after the grant date, at an exercise price equal to the fair market
value on the grant date. The Company also reimburses out-of- pocket
expenses related to non-employee directors in attendance at such meetings.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1998, certain
information with respect to the beneficial ownership of Common Stock by each
director of the Company, each of the Named Officers, all current directors
and current executive officers as a group and all other persons known by the
Company to beneficially own more than 5% of the outstanding shares of Common
Stock (each, a "5% Owner").
Number of Percent of
Name Shares (a) Class (b)
- ---- ---------- ----------
Michael W. Grieves(c) 717,500 14.7 %
Walter J. Aspatore 6,000 *
Richard R. Burkhart 143,625 3.0
Gregory D. Cocke(c) 376,250 7.7
Philip M. Goy 38,200 *
Jerry A. Dusa 3,000 *
Diane L. Grieves 15,000 *
Oak Ridge Investments LLC(c) 255,655(d) 5.3
All executive officers and
directors as a group (6 persons) 1,261,375 25.7
- -----------------
* Less than one percent
(a) The column sets forth shares of Common Stock which are deemed to be
"beneficially owned" by the persons named in the table under Rule
13d-3 of the SEC, including 10,000 shares of Common Stock for
Michael Grieves, 3,000 shares for Richard Burkhart, 15,000 shares
for Gregory Cocke, 25,000 shares for Philip Goy, 3,000 shares for
Jerry Dusa and 15,000 shares for Diane Grieves that may be acquired
upon the exercise of stock options that are presently exercisable or
become exercisable within 60 days.
(b) For purposes of calculating the percentage of Common Stock
beneficially owned, the shares issuable to such person under stock
options or warrants exercisable within 60 days are considered
outstanding and added to the shares of Common Stock actually
outstanding.
(c) The address for Messrs. Grieves and Cocke is the Company's address.
Oak Ridge Investments LLC's address is 10 South LaSalle Street,
Suite 1050, Chicago, Illinois 60603.
(d) Information regarding Oak Ridge Investments LLC is based on the
Schedule 13G filed on February 9, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A portion of the consideration for certain 13% subordinated
promissory notes of the Company acquired by Mr. Grieves, the Company's
Chairman, President and Chief Executive Officer, pursuant to the Company's
Plan of Reorganization in 1992 was a $200,000 promissory note (the "Grieves
Note"). The Grieves Note bears interest at the Internal Revenue Service
annual imputed rate, payable annually, and does not become due unless the
maker fails to pay interest in accordance with its terms and demand is made
by the holder. The principal amount due under the Grieves Note will be
reduced in the event and to the extent that such third party may make
payment on certain indebtedness owed to the Company or Mr. Grieves' interest
in such note is assigned to the Company. There is $200,000 outstanding
under the Grieves Note as of March 31, 1998, which is the largest amount
outstanding under the Grieves Note since the beginning of 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
DATA SYSTEMS NETWORK CORPORATION
By: /s/ Michael W. Grieves
---------------------------------------
Michael W. Grieves
Chairman, President and Chief Executive
Officer
Dated April 29, 1998
