SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
(AMENDMENT NO. 1 TO FORM 10-K)
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from __________ to
__________
Commission File Number 0-23611
DSET CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-3000022
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1160 U. S. Highway 22, Bridgewater, New Jersey 08807
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (908) 526-7500
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Each Exchange on Which Registered
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None Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of Class)
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(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.
Yes: X No:
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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/A or any amendment to
this Form 10-K/A. [_]
State the aggregate market value of the voting common stock held by
non-affiliates of the registrant: $1,656,698 at April 23, 2002 based on the last
sales price on that date.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of April 23, 2002.
Class Number of Shares
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Common Stock, no par value 5,082,402
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A amends the Annual Report on Form 10-K
of DSET Corporation (the "Company," "DSET," "we" or "us"), filed with the
Securities and Exchange Commission on April 1, 2002, for the fiscal year ended
December 31, 2001. This Form 10-K/A is being filed solely to add the information
required by Part III (Items 10, 11, 12 and 13) of Form 10-K. Unless otherwise
indicated, all per share amounts set forth in this Form 10-K/A reflect the
one-for-four reverse stock split capitalization effected by us as of the close
of business on August 21, 2001.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Board of Directors
We currently have seven directors. As set forth in our certificate of
incorporation, the terms of office of the members of the board of directors are
divided into three classes: Class I, whose term will expire at the 2002 Annual
Meeting of shareholders; Class II, whose term will expire at the 2003 Annual
Meeting of shareholders; and Class III, whose term will expire at the 2004
Annual Meeting of shareholders. The current Class I directors are Arun Inam and
Carl Pavarini, the current Class II directors are C. Daniel Yost and Binay Sugla
and the current Class III directors are William P. McHale, Jr., Jacob J.
Goldberg and Andrew D. Lipman. At each annual meeting of shareholders, the
successors to directors whose terms then expire will be elected to serve from
the time of election and qualification until the third annual meeting following
election. Our bylaws permit our board of directors to increase or decrease the
size of our board of directors. Any additional directorships resulting from an
increase in the number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of one-third of the
total number of directors. This classification of the board of directors may
have the effect of delaying or preventing changes in control or management of
DSET.
The current composition of our board of directors is as follows:
Served as a Position(s) with
Name Age Director Since the Company
- ---- --- ---------------- --------------
William P. McHale, Jr........... 53 1997 Chief Executive Officer, Chairman of
the Board and Class III Director
Jacob J. Goldberg............. 55 1999 Class III Director
C. Daniel Yost................ 53 1999 Class II Director
Andrew D. Lipman.............. 50 1999 Class III Director
Binay Sugla, Ph.D............. 42 2001 President and Class II Director
Arun Inam..................... 39 2002 Class I Director
Carl Pavarini................. 53 2002 Class I Director
The principal occupations and business experience, for at least the past
five years, of each above-named individual is as follows:
Mr. McHale joined DSET in January 1997 as President and Chief Operating
Officer and was elected to our board of directors in January 1997. In July 1997,
he became Chief Executive Officer and in June 2000 became Chairman of the Board.
Prior to joining DSET, Mr. McHale was Vice President of Sales and Marketing at
F3 Software Corporation from January 1995 to December 1996.
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From February 1991 to December 1994, Mr. McHale owned and operated a private
firm where he periodically provided senior management or consulting services.
Mr. McHale also served as President and Chief Executive Officer of each of
Mitchell Management Systems from November 1989 to January 1991, and Component
Software Corporation from July 1992 to July 1994. Prior to that, Mr. McHale held
various sales and marketing positions at IBM, Wang Laboratories and Digital
Equipment Corporation.
Mr. Goldberg has been a director of DSET since March 1999. From August 1997
until his retirement in March 2000, Mr. Goldberg served as President of Telecom
Industry Services for Bell Atlantic. From January 1994 to August 1997, Mr.
Goldberg served as Vice President of Wholesale Markets for NYNEX overseeing
marketing, sales and customer service provided to NYNEX's wholesale customers.
Prior to that, from 1989 to December 1993, Mr. Goldberg served as Vice President
of Network Interconnection Marketing and Sales and Managing Director of access
markets at NYNEX. Mr. Goldberg serves on the board of directors of a number of
privately held companies.
Mr. Yost has been a director of DSET since September 1999. Mr. Yost has
over 26 years of experience in telecommunications and business. Mr. Yost
currently sits on the board of directors of ADC Telecommunications Inc., a
publicly traded global supplier of transmission and networking systems for
telecommunications networks, Redstone Telecom, a publicly traded United Kingdom
telecommunications service, and Ace Cash Express Inc., a publicly traded
provider of retail financial services. Mr. Yost has served as President and
Chief Operating Officer of Allegiance Telecom, a publicly traded company, since
February 1998. He was elected to Allegiance Telecom's board in March 1998.
Before joining Allegiance Telecom, from July 1997 to February 1998, he served as
President and Chief Operating Officer at NETCOM On-Line Communication Services,
Inc., a leading Internet service provider. Mr. Yost managed all aspects of
domestic operations, including development and implementation of overall
strategic direction. Prior to that, from April 1994 to July 1997, Mr. Yost was
President of the Southwest region of AT&T Wireless Services, Inc. Mr. Yost has
also served as President of McCaw Cellular Communications/LIN Broadcasting in
the Southwest region and was President, General Manager, and founder of MetroCel
Cellular Telephone Company.
Mr. Lipman has been a director of DSET since November 1999. Mr. Lipman is
currently the Vice Chairman of the Washington D.C. law firm Swidler Berlin
Shereff Friedman, LLP, and a Senior Partner in the firm's Telecommunications
Group. Mr. Lipman has over twenty years of experience in the telecommunications
industry and has advised various Internet, technology, and telecommunications
companies establishing operations in Europe and Asia. Mr. Lipman also served as
Vice President of legal and regulatory affairs at Metropolitan Fiber Systems.
Mr. Lipman serves on the board of directors of several public companies,
including NuSkin International, a creator and distributor of personal care
products, The Management Network Group, Inc., a leading provider of consulting
services to the global telecommunications industry, and NHC Communications Inc.,
a leading manufacturer of physical-layer high-speed Switched Accessed Solutions.
Dr. Binay Sugla has been a director of DSET since January 2002. Dr. Sugla
was the president, chief executive officer and a director of ISPsoft Inc. from
its inception in April 1999 until the merger of ISPsoft with and into DSET in
January 2002. Prior to founding ISPsoft, Dr. Sugla was a Director of Network
Services and Management at Bell Laboratories. During a fifteen year career with
Bell Labs which started in 1985, Dr. Sugla created numerous provisioning and
similar technologies, including an Internet protocol management program; a
number of these technologies
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have been deployed to carriers. Dr. Sugla received the Bell Labs President's
Award for Product Development. Dr. Sugla received his Ph.D. from the University
of Massachusetts at Amherst in 1985 and received a Bachelor of Technology degree
from IIT Kanpur in 1981.
Arun Inam has been a director of DSET since January 2002. Dr. Inam is a
Managing Director at Signal Lake Venture Fund, which he joined in February 2001.
Prior to his tenure at Signal Lake, Dr. Inam was Vice President for Global
Strategy & New Ventures at Motorola, where he reported to the President of the
commercial, government, and industrial solutions sector. Prior to joining
Motorola in 1999, Dr. Inam spent six years as a senior management consultant at
Monitor Company and Braxton Associates. From 1985 to 1994, Dr. Inam conducted
and managed research in high-speed electronics and optics at Bell Communications
Research (Bellcore). Dr. Inam holds a Ph.D. in physics, and has studied at
Rutgers, Carnegie Mellon, the University of Paris and at the Indian Institute of
Technology.
Carl Pavarini has been a director of DSET since January 2002. Dr. Pavarini
is a professor at Rensselaer Polytechnic Institute's Lally School of Management
and Technology and visiting executive and adjunct professor at the Stevens
Institute of Technology School of Engineering. He has also taught in the MBA
program at the Columbia University Graduate School of Business. Prior to
becoming a professor, Dr. Pavarini worked at Lucent Technologies and AT&T, where
he worked for over fifteen years until his retirement in 1999. During his tenure
at Lucent and AT&T, Dr. Pavarini was a corporate officer and held responsibility
for a number of product divisions. Dr. Pavarini also worked for over ten years
in research and engineering development at AT&T Bell. Dr. Pavarini holds a Ph.D.
in systems engineering from Rensselaer Polytechnic Institute and has attended
the MIT Sloan Program for Senior Managers and the INSEAD International
Management Program.
None of our directors is related to any other director or to any executive
officer or key employee of the Company.
Executive Officers
The following table identifies our current executive officers:
Capacities in In Current
Name Age Which Served Position(s) Since
- ---- --- ------------- -----------------
William P. McHale, Jr... 53 Chief Executive Officer and July 1997
Chairman of the Board
Binay Sugla, Ph.D....... 42 President January 2002
Bruce M. Crowell(1)..... 47 Vice President, Chief August 1999
Financial Officer and
Secretary
Jeffrey S. Gill (2)..... 35 Vice President, Professional July 2000
Services
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(1) Mr. Crowell joined DSET in August 1999, and currently serves as Vice
President and Chief Financial Officer. Prior to joining DSET, Mr. Crowell
served as a Vice President and Chief Financial Officer of EPL Technologies
from January 1998 to July 1999. Prior to that, from January 1994 to January
1998, Mr. Crowell served as Vice President and Chief Financial Officer for
Datron Inc., a firm specializing in aerospace and defense technologies. Mr.
Crowell has 25 years of corporate financial experience, including serving
as the Chief Financial Officer of two publicly-traded companies. Mr.
Crowell has also served in various financial capacities with companies
specializing in systems integration and electronics, including software
applications for industries such as telecommunications and aerospace.
(2) Mr. Gill joined DSET in July 2000 as Vice President, Professional Services.
From February 2000 to July 2000, Mr. Gill served as Business Unit Vice
President of Cap Gemini Ernst & Young, managing all aspects of software
development and professional services, inclusive of new business growth,
for a Fortune 10 telecommunications firm. From June 1998 to February 2000,
Mr. Gill served as the Program Director of Cap Gemini Telecommunications
where he assumed responsibility for the management of business
requirements, software development and quality assurance as well as all
relevant financial corporate commitments. From April 1997 to June 1998, Mr.
Gill served as Engagement/Program Manager of Beechwood Data Systems where
he was accountable for all aspects of customer satisfaction as well as P&L
commitments to the corporation. From October 1995 to April 1997, Mr. Gill
served as Senior Project Manager of IMI Systems where he performed project
management duties for an enterprise wide MRP deployment at a
telecommunications manufacturing firm. Prior to that Mr. Gill served in
various capacities at AT&T where he had increasing project management
responsibilities in customer relationship management, billing and
provisioning applications.
Our executive officers are elected annually by our board of directors and
serve until their successors are duly elected and qualified. None of our
executive officers is related to any other executive officer or to any director
of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors, officers and shareholders who beneficially own more than 10% of
any class of our equity securities registered pursuant to Section 12 of the
Exchange Act to file initial reports of ownership and reports of changes in
ownership with respect to our equity securities with the Securities and Exchange
Commission. All reporting persons are required by Securities and Exchange
Commission regulation to furnish us with copies of all reports that such
reporting persons file with the Securities and Exchange Commission pursuant to
Section 16(a).
Based solely on our review of the copies of such forms received by us and
upon written representations of our reporting persons received by us, each such
reporting person has filed all of their respective reports pursuant to Section
16(a) on a timely basis.
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ITEM 11. EXECUTIVE COMPENSATION.
Compensation of Directors
Directors who are not employees or affiliates of DSET or its subsidiaries
(an "Outside Director"), who currently consist of Messrs. Lipman, Yost,
Goldberg, Inam and Pavarini, receive an annual stipend of $10,000 per year and
$2,000 for each meeting of the board of directors or committee meeting attended
in person. In addition, each director receives $2,000 for each meeting held by
conference call which lasts two hours or more and $1,000 for each meeting held
by conference call under two hours in length. Beginning with the Annual Meeting
of shareholders in 2001, effective with each re-election of an Outside Director,
each such Outside Director automatically shall be granted options to purchase
5,000 shares of our common stock, at an exercise price equal to the fair market
value of our common stock on the date of grant, vesting over a three-year
period. All directors are reimbursed for reasonable expenses incurred as a
result of their attendance at board meetings.
In January 2001, Mr. Goldberg executed a consulting agreement with us
pursuant to which he received $56,000 in 2001 in connection with the performance
of certain consulting services. Such services included, among other things,
attending industry shows and conferences, calling on customer accounts, and
assisting with marketing and strategic planning, all on behalf of DSET. In
January 2002, we renewed such arrangement with Mr. Goldberg for fiscal year 2002
on the same terms.
Pursuant to our 1998 Stock Plan, we granted to Mr. Lipman options to
purchase 6,250 shares of our common stock on November 15, 1999, at an exercise
price of $69.50 per share. The options vest to the extent of one-third of the
shares on each of November 15, 2000, 2001 and 2002. Pursuant to our 1998 Stock
Plan, we granted to Mr. Lipman options to purchase 1,250 shares of our common
stock on August 9, 2000, at an exercise price of $101.50 per share. The options
vest to the extent of one-third of the shares on each of August 9, 2001, 2002
and 2003. Pursuant to our 1998 Stock Plan, we granted to Mr. Lipman options to
purchase 1,250 shares of our common stock on June 13, 2001, at an exercise price
of $3.44 per share. The options vest to the extent of one-third of the shares on
each of June 13, 2002, 2003 and 2004. Pursuant to our 1998 Stock Plan, we
granted to Mr. Lipman options to purchase 5,625 shares of our common stock on
June 13, 2001, at an exercise price of $3.44 per share. The options vest to the
extent of one-third of the shares on June 13, 2002 and 8 1/3% each quarter
thereafter. Pursuant to our 1998 Stock Plan, we granted to Mr. Lipman options to
purchase 12,500 shares of our common stock on February 1, 2002, at an exercise
price of $0.98 per share. The options vest to the extent of one-third of the
shares on February 1, 2003 and 8 1/3% each quarter thereafter.
Pursuant to our 1998 Stock Plan, we granted to Mr. Yost options to purchase
6,250 shares of our common stock on September 14, 1999, at an exercise price of
$49.12 per share. The options vest to the extent of one-third of the shares on
each of September 14, 2000, 2001 and 2002. Pursuant to our 1998 Stock Plan, we
granted to Mr. Yost options to purchase 1,250 shares of our common stock on
August 9, 2000, at an exercise price of $101.50 per share. The options vest to
the extent of one-third of the shares on each of August 9, 2001, 2002 and 2003.
Pursuant to our 1998 Stock Plan, we granted to Mr. Yost options to purchase
1,250 shares of our common stock on June 13,
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2001, at an exercise price of $3.44 per share. The options vest to the extent of
one-third of the shares on each of June 13, 2002, 2003 and 2004. Pursuant to our
1998 Stock Plan, we granted to Mr. Yost options to purchase 5,625 shares of our
common stock on June 13, 2001, at an exercise price of $3.44 per share. The
options vest to the extent of one-third of the shares on June 13, 2002 and 8
1/3% each quarter thereafter. Pursuant to our 1998 Stock Plan, we granted to Mr.
Yost options to purchase 12,500 shares of our common stock on February 1, 2002,
at an exercise price of $0.98 per share. The options vest to the extent of
one-third of the shares on February 1, 2003 and 8 1/3% each quarter thereafter.
Pursuant to our 1998 Stock Plan, we granted to Mr. Goldberg options to
purchase 6,250 shares of common stock on March 9, 1999, at an exercise price of
$43.00 per share. The options vest to the extent of one-third of the shares on
each of March 9, 2000, 2001 and 2002. Pursuant to our 1998 Stock Plan, we
granted to Mr. Goldberg options to purchase 1,250 shares of our common stock on
August 9, 2000, at an exercise price of $101.50 per share. The options vest to
the extent of one-third of the shares on each of August 9, 2001, 2002 and 2003.
Pursuant to our 1998 Stock Plan, we granted to Mr. Goldberg options to purchase
1,250 shares of our common stock on June 13, 2001, at an exercise price of $3.44
per share. The options vest to the extent of one-third of the shares on each of
June 13, 2002, 2003 and 2004. Pursuant to our 1998 Stock Plan, we granted to Mr.
Goldberg options to purchase 5,625 shares of our common stock on June 13, 2001,
at an exercise price of $3.44 per share. The options vest to the extent of
one-third of the shares on June 13, 2002 and 8 1/3% each quarter thereafter.
Pursuant to our 1998 Stock Plan, we granted to Mr. Goldberg options to purchase
12,500 shares of our common stock on February 1, 2002, at an exercise price of
$0.98 per share. The options vest to the extent of one-third of the shares on
February 1, 2003 and 8 1/3% of each quarter thereafter.
Pursuant to our 1998 Stock Plan, we granted to Mr. Inam options to purchase
12,500 shares of our common stock on February 1, 2002, at an exercise price of
$0.98 per share. The options vest to the extent of one-third of the shares on
February 1, 2003 and 8 1/3% each quarter thereafter.
Pursuant to our 1998 Stock Plan, we granted to Mr. Pavarini options to
purchase 12,500 shares of our common stock on February 1, 2002, at an exercise
price of $0.98 per share. The options vest to the extent of one-third of the
shares on February 1, 2003 and 8 1/3% each quarter thereafter.
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SUMMARY OF COMPENSATION IN FISCAL 2001, 2000, AND 1999
The following Summary Compensation Table sets forth information concerning
compensation for services in all capacities awarded to or earned by each person
who served as our Chief Executive Officer at any time during 2001 and each of
our other executive officers whose aggregate earnings exceeded $100,000 at the
end of 2001 (referred to herein as, the "Named Executives") during the years
ended December 31, 2001, 2000, and 1999.
SUMMARY COMPENSATION TABLE
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Long-Term
Annual Compensation Compensation
Awards
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Securities
Underlying All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($) ($) (#) ($)
(a) (b) (c) (d) (g) (i)
- ------------------------------------- ------------ ------------------- ---------------- -------------------- ---------------------
William P. McHale, Jr.(1).... 2001 255,445 169,280 50,000 1,205(2)
President, Chief Executive 2000 249,231 83,750 18,750 7,542(3)
Officer and Chairman of the 1999 196,835 140,000 -- 7,419(4)
Board
Bruce M. Crowell(5).......... 2001 218,462 51,875 15,000 6,988(6)
Vice President, Chief 2000 199,808 53,083(7) 5,375 6,870(8)
Financial Officer and Secretary 1999 73,077 18,892 19,500 4,888(9)
Jeffrey S. Gill(10).......... 2001 196,154 39,000 10,000 367(11)
Vice President, Professional 2000 80,308 32,500 14,000 126(12)
Services
Jimmy C. Jobe(13)............ 2001 111,538 17,000 12,500 130,272(14)
Senior Vice President, Product 2000 180,000 15,000 -- 558(15)
Development and Product
Management
Paul R. Smith(16) ........... 2001 33,924 -- -- 109,410(17)
Senior Vice President, 2000 180,000 30,833 -- 13,056(18)
Strategic Planning and Product 1999 188,462 6,000 6,250 21,378(19)
Development
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(1) Mr. McHale was elected Chairman of the Board in June 2000.
(2) Includes compensation relating to life insurance premiums paid on his
behalf of $1,205.
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(3) Includes contributions by the Company under the 401(k) Plan of $6,300 and
compensation relating to life insurance premiums paid on his behalf of
$1,242.
(4) Includes contributions by the Company under the 401(k) Plan of $6,000 and
compensation relating to life insurance premiums paid on his behalf of
$1,419.
(5) Mr. Crowell joined the Company in August 1999 as Vice President, Chief
Financial Officer and Secretary.
(6) Includes contributions by DSET under the 401(k) Plan of $6,300 and
compensation relating to life insurance premiums paid on his behalf of
$688.
(7) Includes a relocation allowance of $29,646.
(8) Includes contributions by the Company under the 401(k) Plan of $6,240, and
compensation relating to life insurance premiums paid on his behalf of
$630.
(9) Includes contributions by the Company under the 401(k) Plan of $4,690 and
compensation relating to life insurance premiums paid on his behalf of
$198.
(10) Mr. Gill joined the Company in July 2000 as Vice President, Professional
Services.
(11) Includes compensation relating to life insurance premiums paid on his
behalf of $367.
(12) Includes compensation relating to life insurance premiums paid on his
behalf of $126.
(13) Mr. Jobe left DSET effective July 13, 2001.
(14) Includes compensation related to severance and accrued vacation payments of
$129,904 and life insurance premiums paid on his behalf of $368.
(15) Includes compensation related to life insurance premiums paid on his behalf
of $558.
(16) Mr. P. Smith resigned from DSET effective March 1, 2001.
(17) Includes compensation related to severance and accrued vacation payments of
$108,027 and an automobile allowance of $1,383.
(18) Includes contributions by DSET under the 401(k) Plan of $6,300, an
automobile allowance of $5,900 and compensation relating to life insurance
premiums paid on his behalf of $856.
(19) Includes contributions by DSET under the 401(k) Plan of $6,000, commissions
of $7,779, an automobile allowance of $6,250 and compensation relating to
life insurance premiums paid on his behalf of $1,349.
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OPTION GRANTS IN 2001
The following table sets forth information concerning individual grants of
stock options made pursuant to our 1998 Stock Plan during 2001 to each of the
Named Executives. We have never granted any stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
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Individual Grants
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Potential Realizable
Value at
Percent of Assumed Annual Rates
Number of Total of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Option
Options Employees or Base Term (2)
Granted in Fiscal Price ---------------------------
Name (#)(1) Year(1) ($/Sh) Expiration Date 5%($) 10%($)
(a) (b) (c) (d) (e) (f) (g)
- --------------------------- ---------------- -------------- ------------ ---------------- ----------- ----------------
William P. McHale, Jr...... 50,000 23.23% 6.752 3/11/11 212,315 538,047
Bruce M. Crowell........... 15,000 6.97% 8.50 1/11/11 80,184 203,202
Jeffrey S. Gill............ 10,000 4.65% 8.50 1/11/11 53,456 135,468
Jimmy C. Jobe.............. 12,500 5.81% 8.50 1/11/11 66,820 169,335
Paul R. Smith.............. -- -- -- -- -- --
- -----------
(1) Based on an aggregate of 215,253 options granted to employees in 2001,
including options granted to the Named Executives.
(2) Based on a grant date fair market value equal to the grant date exercise
price per share of the applicable option for each of the Named Executives
and assumes no adjustments to the grant date exercise price.
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Aggregated Option Exercises in 2001 and Year End Option Values
The following table sets forth information concerning each exercise of
options during 2001 by each of the Named Executives and the year end value of
unexercised in the money options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- ---------------------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Fiscal
Shares Year-End Year-End
Acquired on Value (#) ($)(1)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
- --------------------------- -------------- -------------- ---------------- ----------------
William P. McHale, Jr...... -- -- 72,406/81,250 $0/$0
Bruce M. Crowell........... -- -- 9,748/30,127 $0/$0
Jeffrey S. Gill............ -- -- 3,500/20,500 $0/$0
Jimmy C. Jobe.............. -- -- -- --
Paul R. Smith.............. -- -- -- --
- -----------
(1) Based on a year-end fair market value of the underlying securities equal to
$1.15 less the exercise price payable for such shares, which calculation
results in a negative value.
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EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
William P. McHale, Jr., Chief Executive Officer and Chairman of the Board,
entered into an employment agreement with us in November 1998. He is currently
entitled to receive an annual salary in 2002 of $223,125 and is eligible for an
annual bonus of up to $175,875, the amount and payment of which is within the
discretion of the Compensation Committee. We have also agreed, subject to
certain restrictions, to pay Mr. McHale twelve months salary continuation in the
event that Mr. McHale is terminated without cause or upon a change in control of
DSET. We have also agreed that, under certain circumstances, stock options held
by Mr. McHale shall accelerate in the event Mr. McHale is terminated without
cause in connection with a change in control of DSET. See Item 13 "Certain
Relationships and Related Transactions" for a loan transaction between us and
Mr. McHale.
Binay Sugla, President, entered into an employment agreement with us upon
consummation of the merger of ISPsoft Inc. with and into us in January 2002. He
currently is entitled to receive an annual salary in 2002 of $207,000 and is
eligible for an annual bonus of up to $155,250, the amount and payment of which
is within the discretion of the board of directors or Compensation Committee. We
have also agreed, subject to certain restrictions, to pay Mr. Sugla twelve
months salary continuation in the event that Mr. Sugla is terminated without
cause or upon a change in control of DSET. We have also agreed that, under
certain circumstances, stock options held by Mr. Sugla shall accelerate in the
event Mr. Sugla is terminated without cause in connection with a change in
control of DSET.
Bruce M. Crowell, Vice President, Chief Financial Officer and Secretary,
has been in this position with us since August 1999. Mr. Crowell is currently
entitled to receive an annual salary in 2002 of $190,000 and is eligible for an
annual bonus of up to $57,500. We have also agreed, subject to certain
restrictions, to pay Mr. Crowell nine months salary continuation and benefits in
the event that Mr. Crowell is terminated without cause or upon a change in
control of DSET. We have also agreed that, under certain circumstances, stock
options held by Mr. Crowell shall accelerate in the event Mr. Crowell is
terminated without cause in connection with a change in control of DSET.
Jeffrey S. Gill, Vice President, Professional Services joined us in July
2000. Mr. Gill is currently entitled to receive an annual salary in 2002 of
$180,000 and is eligible for an annual bonus of up to $36,000. We have also
agreed, subject to certain restrictions, to pay Mr. Gill six months salary
continuation and benefits in the event that Mr. Gill is terminated without cause
or upon a change in control of DSET. We have also agreed that, under certain
circumstances, stock options held by Mr. Gill shall accelerate in the event Mr.
Gill is terminated without cause in connection with a change in control of DSET.
We have also agreed, subject to certain restrictions and other terms
specific to each agreement, to pay certain members of our management team salary
continuation in an amount ranging from three to six months and benefits in the
event that any one of them are terminated without cause or upon a change in
control of DSET. We have also agreed that, under certain circumstances, stock
options held by certain members of our management team shall accelerate in the
event they are terminated without cause in connection with a change in control
of DSET.
Each of our executive officers has agreed to maintain the confidentiality
of company information and, for a period of time following the termination of
employment, not to solicit our
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customers or employees. In addition, Mr. McHale has agreed that during the term
of his employment and thereafter for a period of one year, he will not compete
with us in any state or territory of the United States, or any other country,
where we do business by engaging in any capacity in any business which is
competitive with our business. Mr. Sugla has agreed that until the expiration of
one year after the termination of his employment, he shall not, directly or
indirectly, engage in any business enterprise or employment which is directly
competitive with our products or services.
We have executed indemnification agreements with each of our executive
officers and directors pursuant to which we have agreed to indemnify such party
to the full extent permitted by law, subject to certain exceptions, if such
party becomes subject to an action because such party is a director, officer,
employee, agent or fiduciary of DSET.
We generally require our employees to maintain the confidentiality of
company information and to assign inventions to us.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Jacob J. Goldberg, Andrew
D. Lipman and Carl Pavarini. From January 1, 2001 to June 13, 2001, the
Compensation Committee was comprised of Jacob J. Goldberg and Bruce R. Evans,
when Mr. Lipman replaced Mr. Evans who decided not to stand for re-election at
the 2001 Annual Meeting of shareholders. On February 1, 2002, the Compensation
Committee was reconstituted to include Messrs. Goldberg, Lipman and Pavarini.
There are no, and during 2001 there were no, Compensation Committee Interlocks.
In December 1995, we sold an aggregate of 676,361 shares of capital stock
at an aggregate purchase price of $10.0 million to Summit Ventures IV, L.P. and
Summit Investors II, L.P. (collectively, "Summit"). In connection with such
transaction, Bruce R. Evans, a general partner of Summit, was elected to our
board of directors as Summit's designee. In September 1996, we, pursuant to
certain covenants in the transaction documents, issued to Summit, for no
additional consideration, warrants (the "Summit Warrants") to purchase up to a
maximum of 185,331 shares of our common stock. The shares of our common stock
currently held by Summit including the shares of our common stock issuable upon
the exercise of the Summit Warrants are entitled to certain demand and piggyback
registration rights. During 1999, 138,998 warrants were exercised, of which
16,718 underlying common shares were purchased by us for their fair value
aggregating approximately $303,000, which were used to fund the exercise price
of these warrants. During 2000, 46,333 warrants were exercised, of which 4,204
underlying common shares were purchased by us for their fair value aggregating
approximately $92,000, which were used to fund the exercise price of these
warrants. At December 31, 2000, Summit no longer held any warrants to purchase
shares of our common stock. All per share amounts set forth in this paragraph
are on a pre one-for-four reverse stock split basis.
In January 2001, Mr. Goldberg executed a consulting agreement with us
pursuant to which he received $56,000 in 2001 in connection with the performance
of certain consulting services. Such services included, among other things,
attending industry shows and conferences, calling on customer accounts, and
assisting with marketing and strategic planning, all on behalf of DSET. This
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amount was in addition to his director compensation. In January 2002, we renewed
such arrangement with Mr. Goldberg for fiscal year 2002 on the same terms.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
There were, as of March 31, 2002, approximately 79 holders of record and
approximately 3,500 beneficial holders of our common stock. The following table
sets forth certain information, as of March 31, 2002, with respect to holdings
of our common stock by (i) each person known by us to be the beneficial owner of
more than 5% of the total number of shares of common stock outstanding as of
such date, based on currently available Schedules 13D and 13G filed with the
Securities and Exchange Commission, (ii) each of our directors and the Named
Executives, and (iii) all directors and officers as a group.
Amount and Nature of Percent
Name and Address of Beneficial Owner(1) Beneficial Ownership(1) of Class(2)
- ------------------------------------ ---------------------- -----------
(i) Certain Beneficial Owners:
SGM Capital Limited.................................. 742,521(3) 14.6%
Guinness Flight House, P.O. Box 290
Guernsey, GY13RP
NV Partners II L.P................................... 737,134(4) 14.5%
c/o Stephen Socolof
600 Mountain Avenue
Murray Hill, NJ 07974
Signal Lake Venture Fund, L.P........................ 422,381(5) 8.3%
c/o Barton W. Stuck
578 Post Road East
Suite 667
Westport, CT 06880
FMR Corporation...................................... 286,250 5.6%
82 Devonshire Street
Boston, MA 02109-3614
Martinson Family Foundation and Related Party........ 260,400(6) 5.1%
1009 Lenox Drive
Lawrenceville, NJ 08648
(ii) Directors and Named Executives:
William P. McHale, Jr................................ 121,017(7) 2.3%
Binay Sugla.......................................... 363,335(8) 7.0%
Jacob J. Goldberg.................................... 6,666(9) *
C. Daniel Yost....................................... 4,582(10) *
Andrew D. Lipman..................................... 4,582(11) *
Arun Inam............................................ -- *
Carl Pavarini........................................ -- *
Bruce M. Crowell..................................... 40,628(12) *
Jeffrey S. Gill...................................... 8,491(13) *
(iii) All Directors and officers as a group
(9 persons):...................................... 549,301(14) 10.4%
- -----------
* Less than 1%
(1) Except as set forth in the footnotes to this table and subject to
applicable community property law, the persons named in the table have sole
voting and investment power with respect to all shares.
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(2) Applicable percentage of ownership for each holder is based on 5,082,402
shares of our common stock outstanding on March 31, 2002, plus any common
stock equivalents and presently exercisable stock options or warrants held
by each such holder, and options or warrants held by each such holder which
will become exercisable within 60 days after March 31, 2002.
(3) Includes 742,521 shares of common stock issued in connection with our
merger with ISPsoft, Inc., 74,252 shares of which were deposited with an
escrow agent to secure certain indemnification obligations relating to such
merger.
(4) Includes 737,134 shares of common stock issued in connection with our
merger with ISPsoft Inc., 69,088 shares of which were deposited with an
escrow agent to secure certain indemnification obligations relating to such
merger.
(5) Includes 422,381 shares of common stock issued in connection with our
merger with ISPsoft Inc., 34,531 shares of which were deposited with an
escrow agent to secure certain indemnification obligations relating to such
merger.
(6) Includes 85,400 shares of common stock held by John H. Martinson and
175,000 shares of common stock held by the Martinson Family Foundation for
which Mr. Martinson serves as a trustee.
(7) Includes 98,447 shares of common stock underlying options which are or may
be exercisable as of March 31, 2002 or 60 days after such date. Includes
4,002 shares held by Mr. McHale's wife and 639 shares held by Mr. McHale's
minor child.
(8) Includes 43,603 shares of common stock underlying options which are or may
be exercisable as of March 31, 2002 or 60 days after such date. Also
includes 115,504 shares of common stock issued personally to Dr. Sugla in
connection with our merger with ISPsoft Inc., 11,550 shares of which were
deposited with an escrow agent to secure certain indemnification
obligations relating to such merger. Also includes an additional 204,228
shares of common stock issued to other shareholders which were deposited
with an escrow agent to secure certain indemnification obligations relating
to such merger. Pursuant to the terms of an escrow agreement dated January
31, 2002, by and among DSET, American Stock Transfer & Trust Company and
Dr. Sugla, Dr. Sugla as Indemnification Representation, has the right on
behalf of the indemnifying shareholders, in his sole discretion, to direct
the escrow agent in writing as to the exercise of any voting rights
pertaining to the shares held in escrow.
(9) Includes 6,666 shares of common stock underlying options which are or may
be exercisable as of March 31, 2002 or 60 days after such date.
(10) Includes 4,582 shares of common stock underlying options which are or may
be exercisable as of March 31, 2002 or 60 days after such date.
(11) Includes 4,582 shares of common stock underlying options which are or may
be exercisable as of March 31, 2002 or 60 days after such date.
(12) Includes 18,684 shares of common stock underlying options which are or may
be exercisable as of March 31, 2002 or 60 days after such date.
(13) Includes 7,666 shares of common stock underlying options which are or may
be exercisable as of March 31, 2002 or sixty days after such date.
(14) See Notes 7 through 13.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Bruce R. Evans was originally appointed to our board of directors as the
designee of Summit Ventures IV, L.P. and Summit Investors II, L.P. See Item 11.
"Executive Compensation - Compensation Committee Interlocks and Insider
Participation." Mr. Evans elected not to stand for re-election at the 2001
Annual Meeting of shareholders. For information relating to Mr. Goldberg's
consulting arrangement with us, please see Item 11. "Executive Compensation -
Compensation Committee Interlocks and Insider Participation."
On November 17, 1998 and on August 18, 1999, we loaned $150,000 and
$102,728, respectively, to William P. McHale, Jr., our Chief Executive Officer
and Chairman of the Board, on an unsecured basis. Such loans carry an adjustable
interest rate based on the Merrill Lynch Institutional Funds Rate (6.35% per
annum at December 31, 2000). In 2000, we extended three additional loans to Mr.
McHale totaling $902,728 with a 6% interest rate per annum with one due November
2000, one due May 2001 and one due October 2001. As of December 31, 2000, Mr.
McHale paid $527,728 against these loans leaving an outstanding balance of
$627,728, inclusive of the two loans originating in November 1998 and August
1999. On March 1, 2001, we and Mr. McHale entered into both a promissory note
and a pledge and security agreement in order to consolidate all of the then
outstanding loans by us to Mr. McHale. The promissory note is secured through
the pledge and security agreement which includes as security Mr. McHale's
residence in New Jersey, options to purchase our capital stock granted to Mr.
McHale, Mr. McHale's 401k account held with us and the benefits of a severance
agreement between us and Mr. McHale. Effective October 1, 2001, Mr. McHale
entered into a promissory note in the amount of $624,112 which cancelled the
previous March 1, 2001 promissory note. The interest rate for this most recent
promissory note is based on the lower of the alternative Federal short-term rate
or the statutory Federal short-term rate for the month in which payment is made
and there is a forty-one month payment schedule with a balloon payment due at
the end of the term. Additionally, we amended the pledge and security agreement
to reflect the terms of the new promissory note.
Our board of directors has adopted a policy requiring that any future
transactions between us and our officers, directors, principal shareholders and
their affiliates be on terms no less favorable to us than could be obtained from
unrelated third parties and that any such transactions be approved by a majority
of the disinterested members of our board of directors.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused Amendment No. 1 to this
report to be signed on its behalf by the undersigned, thereunto duly authorized
on April 30, 2002.
DSET CORPORATION
By: /s/ William P. McHale, Jr.
----------------------------------------------
William P. McHale, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Amendment to the Annual Report on Form 10-K has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
- -------------------------------------------- ------------------------------------- ----------------
/s/ William P. McHale, Jr. Chief Executive Officer and Chairman April 30, 2002
- -------------------------------------------- of the Board of Directors (Principal
William P. McHale, Jr. Executive Officer)
/s/ Binay Sugla President and Member of the Board of April 30, 2002
- --------------------------------------------
Binay Sugla Directors
/s/ Bruce M. Crowell Chief Financial Officer (Principal April 30, 2002
- --------------------------------------------
Bruce M. Crowell Financial and Accounting Officer)
/s/ Jacob J. Goldberg Director April 30, 2002
- --------------------------------------------
Jacob J. Goldberg
/s/ Arun Inam Director April 30, 2002
- --------------------------------------------
Arun Inam
/s/ Andrew D. Lipman Director April 30, 2002
- --------------------------------------------
Andrew D Lipman
/s/ Carl Pavarini Director April 30, 2002
- --------------------------------------------
Carl Pavarini
/s/ C. Daniel Yost Director April 30, 2002
- --------------------------------------------
C. Daniel Yost