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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
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
DATA SYSTEMS NETWORK CORPORATION
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(Name of Registrant as Specified in Its Charter)
DATA SYSTEMS NETWORK CORPORATION
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(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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DATA SYSTEMS NETWORK LOGO
To Our Shareholders:
You are invited to attend the 1997 Annual Meeting of Shareholders which
will take place at the Novi Hilton Hotel, 21111 Haggerty Road, Novi, Michigan
48375, on Thursday, May 29, 1997. The meeting will start promptly at 10:00 a.m.,
local time.
The attached notice of the meeting and Proxy Statement describe the items
of business to be transacted: (i) the election of four directors, (ii) the
approval of a proposal to amend the 1994 Stock Option Plan to increase the
number of shares subject to the plan to 600,000 and to restrict to 100,000 the
number of shares of Common Stock that may be subject to options granted to any
salaried employee in any two-year period, and (iii) such other business as may
properly come before the meeting or any adjournment thereof. After the formal
business session, there will be a report to the shareholders on the progress of
the Company along with a discussion period.
I look forward to seeing you at this Annual Meeting and hope you will make
plans to attend. Whether or not you plan to attend the meeting, I urge you to
sign, date and return your proxy in the addressed envelope enclosed for your
convenience so that as many shares as possible may be represented at the
meeting. No postage is required if the envelope is mailed in the United States.
Returning the proxy will not affect your right to attend the meeting or your
right to vote in person.
Sincerely,
MICHAEL W. GRIEVES
Michael W. Grieves
Chairman of the Board,
President and Chief Executive Officer
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DATA SYSTEMS NETWORK LOGO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 29, 1997
April 24, 1996
To the Shareholders of Data Systems Network Corporation:
Notice is hereby given that the Annual Meeting of Shareholders of Data
Systems Network Corporation will be held at the Novi Hilton Hotel, 21111
Haggerty Road, Novi, Michigan 48375, on Thursday, May 29, 1997, at 10:00 a.m.,
local time, for the following purposes:
1. To elect four directors of the Company to hold office until the
1998 Annual Meeting of Shareholders or until their successors are elected
and qualified;
2. To approve a proposal to amend the 1994 Stock Option Plan to
increase the number of shares subject to the plan to 600,000 and to
restrict to 100,000 the number of shares of Common Stock that may be
subject to options granted to any salaried employee in any two-year period
in accordance with Section 162(m) of the Internal Revenue Code, as amended;
and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record on April 11, 1997 will be eligible to vote at this
meeting. The stock transfer books of the Company will not be closed, but only
shareholders of record at the close of business on such date will be entitled to
notice of and to vote at the meeting.
By order of the Board of Directors,
DIANE L. GRIEVES
Diane L. Grieves
Executive Vice President and Secretary
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YOUR VOTE IS IMPORTANT, PLEASE DATE, SIGN AND MAIL
THE ENCLOSED FORM OF PROXY IN THE ACCOMPANYING ENVELOPE
AT YOUR EARLIEST OPPORTUNITY.
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DATA SYSTEMS NETWORK LOGO
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Data Systems Network Corporation (the
"Company") to be used at the Annual Meeting of Shareholders, and at any
adjournment thereof, to be held on Thursday, May 29, 1997 at the Novi Hilton
Hotel, 21111 Haggerty Road, Novi, Michigan, beginning at 10:00 a.m., local time.
The address of the principal executive offices of the Company is 34705 West
Twelve Mile Road, Suite 300, Farmington Hills, Michigan 48331. This Proxy
Statement and the accompanying form of proxy, which is being solicited by the
Board of Directors, will be first sent or given to shareholders on or about
April 29, 1997.
Only holders of record of the Company's Common Stock at the close of
business on April 11, 1997 (the "Record Date") will be entitled to notice of and
to vote at the Annual Meeting or any adjournment thereof. Shareholders of record
on the Record Date are entitled to one vote per share on any matter that may
properly come before the Annual Meeting. As of the Record Date, a total of
4,596,206 shares of Common Stock were issued and outstanding and entitled to
vote at the Annual Meeting. The presence, either in person or by properly
executed proxy, of the holders of a majority of the outstanding shares of Common
Stock is necessary to constitute a quorum at the Annual Meeting.
A proxy may be revoked at any time before it is exercised by delivering
written notice to the Secretary of the Company, executing and delivering a later
dated proxy or voting in person at the Annual Meeting. Unless revoked, the
shares represented by each duly executed, timely delivered proxy will be voted
in accordance with the specifications made. IF NO SPECIFICATIONS ARE MADE, SUCH
SHARES WILL BE VOTED FOR THE ELECTION OF DIRECTORS AS PROPOSED IN THIS PROXY
STATEMENT AND IN FAVOR OF THE PROPOSAL TO AMEND THE 1994 STOCK OPTION PLAN. The
Board of Directors does not intend to present any other matters at the Annual
Meeting. However, should any other matters properly come before the Annual
Meeting, it is the intention of such proxy holders to vote the proxy in
accordance with their best judgment. For purposes of determining the number of
votes cast with respect to the election of directors, only those cast "for" are
included. Abstentions and withheld votes are counted only for purposes of
determining whether a quorum is present at the Annual Meeting, and otherwise
have no effect. Broker non-votes are not counted for any purposes and have no
effect.
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitation by mail, the officers and employees of the Company, who
will receive no extra compensation therefor, may solicit proxies personally or
by telephone. The Company will reimburse brokerage houses, custodians, nominees
and fiduciaries for their expenses in mailing proxy material to principals.
ELECTION OF DIRECTORS
Four directors, constituting the entire Board of Directors, are to be
elected at the Annual Meeting. Each director holds office until the next annual
meeting of shareholders and until his successor has been elected and qualified.
The nominees named below have been selected by the Board of Directors of the
Company. If, due to circumstances not now foreseen, any of the nominees named
below will not be available for election, the proxies will be voted for such
other person or persons as the Board of Directors may select. Each of the
nominees is currently a director of the Company.
NOMINEES
The following sets forth information as to each nominee for election at the
Annual Meeting, including his age, present principal occupation, other business
experience during the last five years, directorships in other publicly held
companies and period of service as a director of the Company. The Board of
Directors
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recommends a vote FOR each of the nominees for election. THE PERSONS NAMED IN
THE ACCOMPANYING FORM OF PROXY WILL VOTE FOR THE ELECTION OF THE NOMINEES UNLESS
SHAREHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES. The election of directors
requires a plurality of the votes cast.
MICHAEL W. GRIEVES, 47 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.
WALTER J. ASPATORE, 54 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.
RICHARD A. BURKHART, 45 Mr. Burkhart, a Director of the Company since its
inception in 1986, has been a management consultant with his own firm, Emerald
Asset Management, Inc., since 1991 and for the last thirteen years Mr. Burkhart
has specialized in managing financially troubled businesses. Mr. Burkhart served
as the Company's Treasurer from 1987 until April 1997, when he was appointed
Assistant Treasurer. Since 1992, Mr. Burkhart has served as corporate secretary
of New Century Metals, Inc. and its subsidiaries in Cleveland, Ohio. From 1988
to 1990, he was Chairman of The Pratt & Whitney Machine Tool Company in
Hartford, Connecticut. Prior experiences included executive positions in finance
and planning with major manufacturing companies, including Quanex Corporation
and Republic Steel Corporation.
JERRY A. DUSA, 49 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.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held three (3) meetings during 1996. Standing
committees of the Board include the Audit Committee and the Executive
Compensation Committee, the members of which committees are Mr. Aspatore and Mr.
Dusa. The Board does not have a nominating committee.
The Audit Committee's principal responsibilities include: (a) recommending
the selection of the Company's independent public accountants, (b) reviewing the
scope of audits made by the independent public accountants, (c) reviewing the
audit reports submitted by the independent public accountants, and (d) reviewing
the Company's internal audit activities and matters concerning financial
reporting, accounting and audit procedures. The Audit Committee met one (1) time
during 1996.
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The Executive Compensation Committee's principal responsibilities include:
(a) reviewing on an annual basis the compensation of all executive officers of
the Company, (b) making recommendations to the Board regarding compensation of
executive officers, and (c) reviewing and administering employee benefit plans
pursuant to which securities (including stock options) are granted to the
Company's executive officers. The Executive Compensation Committee met once
during 1996.
In addition to formal meetings, from time to time the Board of Directors
and the Executive Compensation Committee informally discuss issues or matters
under consideration and take formal action by unanimous written consent.
OTHER EXECUTIVE OFFICERS
GREGORY D. COCKE, 41 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.
DIANE L. GRIEVES, 47 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.
PHILIP M. GOY, 47 Mr. Goy has held the positions of Vice President of
Finance and Chief Financial Officer of Company since September 1996. Mr. Goy was
appointed Treasurer in April 1997. Prior to being employed by the Company, Mr.
Goy was a partner in the accounting firm of Deloitte & Touche LLP from 1983
through June 1995. Mr. Goy was an independent consultant from June 1995 until
joining the Company and was a member and chief financial officer of American
Production Machining, LLC from August 1995 until joining the Company.
PROPOSAL TO APPROVE AN AMENDMENT TO THE 1994 STOCK OPTION PLAN
PROPOSED AMENDMENT
The Board of Directors is seeking approval of an amendment to the 1994
Stock Option Plan (the "Option Plan") which will increase the number of shares
reserved under the Option Plan from 200,000 to 600,000 shares (subject to
adjustment for stock splits and certain other corporate events). In addition,
the amendment will limit the number of shares of Common Stock that may be
subject to options granted to any salaried employee in any two-year period. The
amendment has been approved by the Board of Directors, subject to shareholder
approval. Approval of the Option Plan amendment requires the affirmative vote of
the holders of a majority of the shares of Common Stock voted on the matter at
the Annual Meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
THE PROPOSAL.
REASONS FOR THE PROPOSED AMENDMENT
The Option Plan is a key element of the Company's executive compensation
program. The purpose of this program is to attract and retain executive officers
and employees while aligning the financial interests of the Company's executive
officers and employees with the long term interests of the Company and its
shareholders. The Board of Directors believes that additional shares of Common
Stock should be made subject to the Option Plan to facilitate future grants
under the Option Plan consistent with the philosophy and objectives of the
Company's executive compensation program. The approval of shareholders of the
proposed amendment to the Option Plan will permit the Company to continue to
grant stock options as part of its executive compensation program.
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A total of 200,000 shares of Common Stock currently are reserved for
issuance upon exercise of options under the Option Plan. As of March 31, 1997,
options for 185,703 shares are outstanding, no options have been exercised, and
14,297 shares are available for future grants to key employees of the Company.
Options may be granted under the Option Plan until April 29, 2004.
The proposed amendment will also limit the number of shares that may be
subject to options granted to any salaried employee in any two-year period in
accordance with certain provisions of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). Section 162(m) and certain regulations
promulgated thereunder by the Internal Revenue Service contain rules regarding
the federal income tax deductibility of compensation paid to a publicly traded
corporation's chief executive officer and to each of its four most highly paid
executive officers. Under Section 162(m), the Company may deduct compensation
paid to such an executive only to the extent that it does not exceed $1,000,000
during any fiscal year, unless the compensation constitutes "performance-based"
compensation. In general, compensation attributable to a stock option is deemed
to be based on performance if (i) the grant is made by the corporation's
compensation committee, (ii) the plan under which the grant is made includes a
per-employee limit on the number of shares with respect to which options may be
granted during a specific period, and (iii) the amount of compensation the
employee could receive under the terms of the option is based solely on the
increase in value of the stock after the date of the grant. The Board concluded
that it would be advisable to establish certain restrictions on the granting of
options under the Option Plan to exempt from Section 162(m) compensation
realized in connection with future exercises of options. Accordingly, the Option
Plan has been amended, subject to shareholder approval, to limit to 100,000 the
number of shares of Common Stock that may be included in options granted to any
salaried employee in any two-year period. If this amendment is approved by the
shareholders, compensation deductions available to the Company arising from the
exercise of options granted under the Option Plan generally should not be
limited by Section 162(m). The Board believes it is in the best interests of the
shareholders to maximize available tax deductions without unduly burdening the
discretion of the Executive Compensation Committee (the "Committee") in
establishing executive compensation. The permitted size of option awards to a
single individual was established based on the Board's determination of the
maximum number of option shares which would be required to be granted in any
two-year period to retain or attract an executive officer of the Company.
DESCRIPTION OF OPTION PLAN
Options may be granted under the Option Plan until April 29, 2004.
Participants in the Option Plan are those key employees of the Company as the
Committee may select from time to time to receive option grants and non-employee
directors who will receive an option at each annual meeting of shareholders.
There are currently 248 employees and three non-employee directors eligible to
receive options under the Option Plan. The last sale price of the Common Stock
on the Nasdaq Stock Market's SmallCap Market reported for April 23, 1997 was
$10.13.
The Option Plan is administered by the Committee. The Committee may
delegate to one or more officers or managers of the Company the authority to
administer the Option Plan with respect to participants who are not officers or
directors for purposes of Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act").
Options to be granted under the Option Plan may be incentive stock options
("ISOs") meeting the requirements of Section 422 of the Internal Revenue Code of
1986 (the "Code") or may be options other than ISOs (non-qualified options or
"NQSOs"). The exercise price of an ISO will generally be equal to the fair
market value (as defined in the Option Plan) per share of the Common Stock on
the date of grant, but will be higher if the grantee is a substantial
shareholder of the Company. The aggregate fair market value of the Common Stock
on the date of grant for which any participant may be granted ISOs first
exercisable in any year may not exceed $100,000. The exercise price of NQSOs
will be determined by the Committee but may not be less than 85% of the fair
market value per share of the Common Stock on the date of grant. The exercise
price is required to be paid in full at the time of exercise in cash or its
equivalent or in shares of Common Stock.
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Generally, the Committee or its designee has the power to determine the
number and terms of options granted to employees under the Option Plan,
including the time or times at which an option becomes exercisable, unless the
Option Plan provides otherwise. Option grants to non-employee directors occur
automatically on an annual basis. Such options are NQSOs, have an exercise price
equal to the fair market value on the grant date and expire ten years after the
grant date.
ISOs and NQSOs granted under the Option Plan to employees will be
exercisable for a term of not more than ten years as determined by the Committee
and, unless otherwise provided in the stock option agreement relating to a
particular option, will terminate upon the participant's termination of
employment to the extent not then exercisable. Unless the Committee otherwise
provides, an exercisable option will terminate at various times after the
holder's relationship with the Company terminates, based upon the reason for the
holder's termination. If employment is terminated for any reason other than
death, disability or retirement, or if a director's term of office is terminated
for any reason, such option will terminate on the earlier of the expiration date
of the option and the first anniversary of the option holder's termination. If
an employee's relationship with the Company has terminated because such person
has died or become disabled, such option will terminate one year following the
date of the option holder's termination. If an employee's relationship with the
Company has terminated due to retirement, the option will terminate on the
earlier of the expiration date of the option and the second anniversary of the
option holder's termination. Options become immediately exercisable upon a
change in control of the Company (as defined in the Option Plan).
Options granted under the Option Plan are not transferable by the option
holder other than by will, the laws of descent and distribution or, in the case
of NQSOs, pursuant to a qualified domestic relations order. The Option Plan may
be amended from time to time by the Board of Directors.
PREVIOUS GRANTS
The following table sets forth the number of shares subject to options
granted under the Option Plan to the Named Officers, all persons who received 5%
or more of the options granted, all director-nominees, all current executive
officers as a group, all other employees as a group and all non-employee
directors as a group (including the options to be granted as of May 29, 1997).
Except as set forth below, no other options have been granted under the Option
Plan. Options granted to date to employees have exercise prices ranging from
$1.63 to $9.88 per share, become exercisable in equal installments on the first
and second anniversaries of the grant date and expire ten years after grant. The
Options granted to non-employee directors have exercise prices ranging from
$3.00 to $4.00 per share and the options to be granted on May 29, 1997 will have
an exercise price equal to the fair market value on that date.
Michael Grieves............................................. 10,000
Philip Goy.................................................. 50,000
Diane Grieves............................................... 22,500
Gregory Cocke............................................... 22,500
David Scranton.............................................. 15,000
All current executive officers as a group................... 105,000
All other employees as a group.............................. 80,703
All non-employee directors as a group....................... 6,000
FEDERAL INCOME TAX CONSEQUENCES
Under the Code as now in effect, at the time an ISO is granted or
exercised, the optionee will not be deemed to have received any income, and the
Company will not be entitled to a deduction. However, the difference between the
exercise period and the fair market value of the shares of Common Stock on the
date of exercise is a tax preference item which may subject the optionee to the
alternative minimum tax in the year of exercise. The holder of an ISO generally
will be accorded capital gain or loss treatment on the disposition of the Common
Stock acquired by exercise of an ISO, provided the disposition occurs more than
two years from the date the option is granted and more than one year after
exercise. An optionee who disposes of shares acquired by exercise of an ISO
prior to the expiration of the foregoing holding periods realizes ordinary
income
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upon the disposition equal to the difference between the exercise price and the
lesser of the fair market value of the shares on the date of exercise or the
disposition price. To the extent ordinary income is recognized by the optionee,
the Company may deduct a corresponding amount as compensation expense.
Upon the exercise of an NQSO, an optionee will generally recognize ordinary
income equal to the difference between the exercise price and the fair market
value of the Common Stock on the date of exercise. Upon withholding for income
and employment tax, the Company will be entitled to a corresponding compensation
deduction. When the optionee disposes of the shares acquired upon exercise of
the option, any amount received in excess of the fair market value of the shares
on the date of exercise will be treated as capital gain.
SECURITIES OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth, as of March 31, 1997, certain information
with respect to the beneficial ownership of Common Stock by each director of the
Company, each of the current executive officers named in the Summary
Compensation Table under "Executive Compensation", each other person known by
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock and all directors and executive officers as a group.
NUMBER OF PERCENT OF
NAME SHARES(A) CLASS(B)
---- --------- ----------
Michael Grieves(c).......................................... 732,500(d) 15.9%
Walter Aspatore............................................. 7,000 *
Richard Burkhart............................................ 182,625(d) 4.0
Gregory Cocke(c)............................................ 368,750(d) 8.0
Jerry Dusa.................................................. 2,000 *
Diane Grieves............................................... 7,500 *
SofTech, Inc.(c)............................................ 540,000(e) 11.7
Kennedy Capital Management, Inc.(c)......................... 231,140(f) 5.0
All executive officers and directors as a group (7
persons).................................................. 1,313,975(d)(g) 28.6
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* 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, 2,000
shares for Richard Burkhart, 7,500 shares for Gregory Cocke, 2,000 shares
for Walter Aspatore, 2,000 shares for Jerry Dusa and 7,500 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. SofTech
Inc.'s address is 3260 Eagle Park Drive, NE, Grand Rapids, Michigan 49505.
Kennedy Capital Management Inc.'s address is 10829 Olive Blvd., St. Louis,
Missouri 63141.
(d) Includes 225,000, 75,000 and 37,500 shares held in escrow which are owned by
Mr. Grieves, Mr. Cocke and Mr. Burkhart, respectively. Although such shares
may continue to be voted by their owners, such shares may not be sold,
assigned, transferred or otherwise disposed of until released from the
escrow. All of the shares held in escrow will be released to their owners on
November 7, 1999 and will be released earlier if, during the term of the
escrow agreement, the Company has net earnings after taxes of $1.00 or more
per share for any year during such term, if the average closing bid price
for the Company's Common Stock as reported on the Nasdaq Stock Market
exceeds $12.00 per share for 30 consecutive trading days or the Company
enters into a transaction providing for the sale of all or substantially all
of its assets or all of the outstanding shares of Common Stock in a
transaction approved by the Company's shareholders.
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(e) Information regarding SofTech, Inc. is based on the Schedule 13D filed on
September 23, 1996.
(f) Information regarding Kennedy Capital Management Inc. is based on the
Schedule 13G filed on February 7, 1997.
(g) Includes 3,000 shares owned by an executive officer's minor children and 600
shares owned by a general partnership in which such executive officer has a
partnership interest.
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 1996 (collectively, the "Named
Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION -------------------
NAME AND -------------------- SECURITIES
PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS
------------------ ---- ------ ----- ------------------
Michael W. Grieves.......................... 1996 $127,990 -- --
Chairman, President and 1995 $121,000 -- --
Chief Executive Officer 1994 $120,592 -- 10,000
Diane L. Grieves............................ 1996 $127,796 -- 15,000
Executive Vice President 1995 $120,000 -- --
and Secretary 1994 $119,997 -- 7,500
Gregory D. Cocke............................ 1996 $140,100 -- 15,000
Vice President -- Sales 1995 $129,000 -- --
1994 $128,424 -- 7,500
OPTION GRANTS
The following table provides information on option grants in 1996 to the
Named Officers. All such options were granted under the Company's 1994 Stock
Option Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK PRICE
UNDERLYING OPTIONS/SARS APPRECIATION
OPTIONS/SARS GRANTED TO FOR OPTION TERM(B)
GRANTED EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------
NAME (#)(A) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ------------ ---------------- -------------- ---------- ----- ------
Michael Grieves........... -- -- -- -- -- --
Diane Grieves............. 15,000 10.3% $4.00 9/01/06 $37,800 $95,400
Gregory Cocke............. 15,000 10.3% $4.00 9/01/06 $37,800 $95,400
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(a) The options become exercisable in cumulative annual installments of 50% on
the first and second anniversaries of the grant date, or immediately upon a
change of control of the Company.
(b) Represents the value of such option at the end of its 10-year term (without
discounting to present value), assuming the market price of the Common Stock
appreciates from the exercise price beginning on the
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grant date at an annually compounded rate of 5% or 10%. These amounts
represent assumed rates of appreciation only. Actual gains, if any, will be
dependent on overall market conditions and on the future performance of the
Common Stock. There can be no assurance that the price appreciation
reflected in this table will be achieved.
OPTION HOLDINGS
The following table provides information with respect to the unexercised
options held as of the end of 1996 by the Named Officers. The Named Officers did
not exercise any options during 1996.
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS
FISCAL YEAR END(#) AT FISCAL YEAR END($)(A)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Michael Grieves......................... 10,000 0 $46,300 0
Diane Grieves........................... 7,500 15,000 $34,725 $80,700
Gregory Cocke........................... 7,500 15,000 $34,725 $80,700
- -------------------------
(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, 1996 on the Nasdaq Stock Market's SmallCap Market
and the option exercise price.
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee, comprised of directors who are not
employees of the Company, reviews and makes recommendations to the Board of
Directors regarding executive compensation. It is the philosophy of the
Committee that the executive compensation program should align the financial
interests of the Company's executives with the long term interests of the
Company and its shareholders and should attract and retain qualified executives
to lead the Company toward its goals. The key elements of the Company's current
program include a base salary and equity participation through stock options.
Base Salary. The Committee's policy with respect to salaries is to
establish base compensation levels for executives which are competitive in
relation to other companies of similar size within the Company's industry. The
Committee will also take into consideration the executive's responsibilities,
experience level, and individual performance. Salaries are reviewed from time to
time and are adjusted based on the recommendation of management. The Committee
may award performance-based bonuses from time to time but did not award a bonus
to any of the executive officers during 1996, choosing to delay bonuses pending
sustained positive earnings in 1997.
Stock Options. Under the 1994 Stock Option Plan, the Committee may grant
options to purchase Common Stock to employees of the Company, including
executive officers. Option grants become exercisable over a period of time and
generally have an exercise price equal to the fair market value of the Common
Stock on the grant date, creating long term incentives to enhance the value of
the Company's Common Stock. Generally, the Committee considers the grant of
options to executive officers and key managers on an annual basis. The number of
options awarded and the related vesting period are determined based upon
management's contribution to the Company's future growth and profitability and
the recommendation of the Chief Executive Officer.
The Chief Executive Officer's 1996 Compensation. The Committee's approach
to Mr. Grieves' compensation is consistent with the Committee's approach to all
other executive officers. Mr. Grieves receives a base salary based upon his
responsibilities and experience and which the Committee believes is comparable
to the salaries of other chief executive officers at similar companies. Based
upon the recommendation of the Chief Executive Officer, the Committee determined
to allocate the limited number of remaining available stock
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options only to other executive officers and employees. The Chief Executive
Officer was evaluated for bonus compensation on the same basis as other
executive officers.
The Committee believes that the above elements assist the Company in
meeting its short-term and long-term business objectives and appropriately
relate executive compensation to the Company's performance.
WALTER J. ASPATORE JERRY A. DUSA
STOCK PERFORMANCE GRAPH
The following graph compares the percentage change in the cumulative total
shareholder return on the Company's Common Stock during the period beginning on
October 31, 1994 (the date on which the Company's Common Stock began trading
publicly on the NASDAQ Stock Market's SmallCap Market) and ending on December
31, 1996 with the cumulative total return on the NASDAQ Market index and a peer
group index based upon the approximately 450 companies included in a published
index which includes all of the companies in the "computer programming and data
processing" Standard Industrial Classification Code ("Industry Group"). The
comparison assumes that $100 was invested on October 31, 1994 in the Company's
Common Stock and in the foregoing indices and assumes the reinvestment of
dividends.
MEASUREMENT PERIOD DATA SYSTEMS PEER GROUP NASDAQ MARKET
(FISCAL YEAR COVERED) NETWORK CORP
10/31/94 100.00 100.00 100.00
12/31/94 54.86 100.71 95.87
12/31/95 38.86 150.81 124.35
12/31/96 171.43 190.58 154.52
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 re-elected 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.
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CERTAIN 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, 1997, which is the largest
amount outstanding under the Grieves Note since the beginning of 1996.
During 1996, the Company sold computer products and services in the
ordinary course of business to a subsidiary of New Century Metals, Inc. for
approximately $67,000. Mr. Burkhart, a Director, Assistant Treasurer and former
Treasurer of the Company, is an officer and majority shareholder of New Century
Metals, Inc. The terms of the sale of the products and services were no less
favorable to the Company than they would have been if the customer had been an
unaffiliated third party.
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, 1996, 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, a Director and
Assistant Treasurer, filed one late Form 4, disclosing one transaction on an
untimely basis.
INDEPENDENT AUDITORS
The accounting firm of KPMG Peat Marwick LLP acted as independent
accountants to audit the financial statements of the Company for 1996 and the
Company expects to select such firm to audit the financial statements of the
Company for the fiscal year ended December 31, 1997. Representatives of such
firm are expected to be at the Annual Meeting and to be available to respond to
appropriate questions. Such representatives will have the opportunity to make a
statement if they desire to do so.
The accounting firm of Deloitte & Touche LLP had been the Company's
principal accountants for the purposes of auditing its financial statements for
the fiscal years ended December 31, 1989 through December 31, 1994. On August 4,
1995, the Company informed Deloitte & Touche LLP that the Company would not
retain it to audit the Company's financial statements for the Company's fiscal
year ending December 31, 1995. The reports of Deloitte & Touche LLP on the
financial statements of the Company's for each of the past two fiscal years
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principle, other than in
the report dated June 15, 1994 related to the balance sheet for the year ended
December 31, 1993, and the related consolidated statements of operations and
cash flow for the same period ended December 31, 1993 which was modified as to
uncertainty with respect to certain litigation. The auditors report indicated in
part that, "As discussed in note 12 to the financial statements, the company is
involved in litigation with one of its unsecured creditors relating to a claim
from its bankruptcy proceedings. The ultimate outcome of the litigation cannot
presently be determined. Accordingly, no provision for any loss that may result
upon resolution of this matter has been made in the accompanying financial
statements." The Company has had no disagreements with Deloitte Touche LLP on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedures
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which disagreements, if not resolved to the satisfaction of its former principal
accountants, would cause it to make reference to the subject matter of the
disagreements in connection with its reports relating to the auditing for the
Company's two most recently ended fiscal years or during the period from January
1, 1995 to August 4, 1995.
The Company's decision not to continue to retain Deloitte & Touche LLP was
not based on the expectation that any disagreement would arise in connection
with the audit of its financial statements for the current fiscal year. The
decision not to retain Deloitte & Touche LLP was unanimously approved by the
Company's Board of Directors but was not separately acted upon or approved by
the Audit Committee of the Board of Directors.
SHAREHOLDER PROPOSALS
Any shareholder proposal intended to be presented at the 1998 annual
meeting of shareholders must be received by the Company no later than December
24, 1997 in order to be considered for inclusion in the Company's proxy
materials for such meeting.
By Order of the Board of Directors,
DIANE L. GRIEVES
Diane L. Grieves
Executive Vice President and Secretary
April 24, 1997
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PROXY
DATA SYSTEMS NETWORK CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF DATA SYSTEMS NETWORK CORPORATION
The undersigned hereby constitutes and appoints Michael W. Grieves and
Philip M. Goy, and each of them, attorneys, agents and proxies with power of
substitution to vote all of the shares of Common Stock of Data Systems Network
Corporation (the "Company") that the undersigned is entitled to vote at the
Annual Meeting of Shareholders of the Company, to be held at the Novi Hilton
Hotel, 21111 Haggerty Road, Novi, Michigan on May 29, 1997 at 10:00 a.m., local
time, and at any adjournments thereof, upon the matters set forth on the
reverse side of this Proxy, all of which are proposed by the Company.
This Proxy, when properly executed, will be voted in the manner
directed; IF NO DIRECTION IS MADE WITH RESPECT TO A PROPOSAL, THIS PROXY WILL BE
VOTED FOR SUCH PROPOSAL. In their discretion the proxies are also authorized
to vote upon such other matters as may properly come before the meeting,
including the election of any person to the Board of Directors where a nominee
named in the Proxy Statement dated April 24, 1997 is unable to serve or, for
good cause, will not serve.
(TO BE SIGNED ON REVERSE SIDE)
16
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
WITHHOLD FOR AGAINST ABSTAIN
FOR AUTHORITY NOMINEES: Michael W. Grieves, 2. Proposal to approve [ ] [ ] [ ]
1. Election of [ ] [ ] Walter J. Aspatore, and adopt the amend-
Directors Richard R. Burkhart, ment to the Company's
Jerry A. Dusa. 1994 Stock Option
Plan.
UNLESS AUTHORITY IS WITHHELD, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF ALL OF
THE NOMINEES NAMED ABOVE.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's
name on the space provided below.)
----------------------------------------
The undersigned acknowledges receipt of the
Notice of Annual Meeting of Shareholders and
the Proxy Statement dated April 24, 1997 and
the 1996 Annual Report to Shareholders and
ratifies all that the proxies or either of
them or their substitutes may lawfully do or
cause to be done by virtue hereof and revokes
all former proxies.
SIGNATURE(S) DATE
--------------------------------------------------------- ---------------------
NOTE: Please sign exactly as name(s) appear(s) on stock records. When signing as attorney, administrator, trustee,
guardian or corporate officer, please so indicate.
17
DATA SYSTEMS NETWORK CORPORATION
1994 STOCK OPTION PLAN
(AS AMENDED AND RESTATED APRIL 1997)
1. Purpose. The purpose of the Plan is to promote the best interests of the
Company and its shareholders by giving Participants a greater personal interest
in the success of the Company in order to create additional incentive for
Participants to make greater efforts on behalf of the Company.
2. Administration. (a) The Plan shall be administered by the Committee. The
selection of Participants in the Plan and decisions concerning the timing,
pricing and amount of any grant of options under the Plan shall be made by the
Committee. Except as provided in Sections 10 and 13 of the Plan, the Committee
shall interpret the Plan, prescribe, amend, and rescind rules and regulations
relating to the Plan, and make all other determinations necessary or advisable
for its administration. The decision of the Committee on any question concerning
the interpretation of the Plan or any option granted under the Plan shall be
final and binding upon all Participants. Notwithstanding any other provisions of
the Plan, the Committee may impose such conditions on an option as may be
required to satisfy the requirements of Rule 16b-3.
(b) The Committee may delegate to one or more officers or managers of the
Company or a committee of such officers or managers, the authority, subject to
such terms and limitations as the Committee shall determine, to grant options
to, or to cancel, modify, waive rights with respect to, alter, discontinue or
terminate options held by, and otherwise act in lieu of the Committee with
respect to, Participants who are not officers or directors of the Company for
purposes of Section 16 of the Exchange Act.
3. Participants. Participants in the Plan shall be such key Employees as
the Committee may select from time to time and with respect to Director Options,
the Nonemployee Directors. The Committee may grant options to an individual upon
the condition that the individual become an Employee, provided that the option
shall be deemed to be granted only on the date the individual becomes an
Employee.
4. Stock. The stock subject to options under the Plan shall be the Common
Stock and may be either authorized and unissued shares or treasury shares held
by the Company. The total amount of Common Stock on which options may be granted
under the Plan shall not exceed 600,000 shares, subject to adjustment in
accordance with Section 11. Shares subject to any unexercised portion of a
terminated, cancelled or expired option granted under the Plan, and shares of
Common Stock tendered or withheld pursuant to Sections 6 and 7 (to the extent
permitted under Rule 16b-3), shall be available for subsequent grants under the
Plan.
5. Award of Options. (a) Subject to the limitations set forth in the Plan,
the Committee from time to time may grant options to such Participants and for
such number of shares of Common Stock and upon such other terms (including,
without limitation, the exercise price and the times at which the option may be
exercised) as it shall designate; provided that during any two-year period, no
salaried Employee shall receive options to purchase more than 100,000 shares of
Common Stock (as adjusted from time to time upon the occurrence of a corporate
transaction or event described in the first sentence of Section 11). The
Committee may designate any option granted as either an Incentive Stock Option
or a Nonqualified Stock Option, or the Committee may designate a portion of an
option as an Incentive Stock Option or a Nonqualified Stock Option. A
Participant may hold more than one option under the Plan and any other stock
option plan of the Company.
(b) Any option intended to constitute an Incentive Stock Option shall
comply with the following requirements in addition to the other requirements of
the Plan: (i) the exercise price per share for each Incentive Stock Option
granted under the Plan shall be equal to the Fair Market Value per share of
Common Stock on the Grant Date; provided that no Incentive Stock Option shall be
granted to any Participant who owns (within the meaning of Section 424(d) of the
Code) stock of the Company, or any Parent or Subsidiary, possessing more than
10% of the total combined voting power of all classes of stock of such Company,
Parent or Subsidiary unless, at the Grant Date of an option to such Participant,
the exercise price per share for the option is at least 110% of the Fair Market
Value on the Grant Date and the option, by its terms, is not exercisable more
than five years after the Grant Date; (ii) the aggregate Fair Market Value of
the underlying Common Stock on the Grant Date as to which Incentive Stock
Options under the Plan (or a plan of a
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Subsidiary) may first be exercised by a Participant in any calendar year shall
not exceed $100,000 (to the extent that an option intended to constitute an
Incentive Stock Option shall exceed the $100,000 limitation, the portion of the
option that exceeds such limitation shall be deemed to constitute a Nonqualified
Stock Option); and (iii) an Incentive Stock Option shall not be exercisable
after the tenth anniversary of the Grant Date or such lesser period as the
Committee may specify from time to time.
(c) A Nonqualified Stock Option shall not be exercisable after the tenth
anniversary of the Grant Date, or such lesser period as the Committee shall
determine. The exercise price per share of a Nonqualified Stock Option shall not
be less than 85% of the Fair Market Value of the Common Stock on the Grant Date.
(d) No person shall have any rights under any grant made pursuant to the
Plan unless and until the Company and the recipient of the grant have executed
and delivered an agreement expressly granting benefits to such person pursuant
to the Plan and containing the provisions required under the Plan to be set
forth in the Agreement. The terms of the Plan shall govern in the event any
provision of any Agreement conflicts with any term in this Plan as constituted
on the Grant Date.
6. Payment for Shares. The purchase price for shares of Common Stock to be
acquired upon exercise of an option granted hereunder shall be paid in full, at
the time of exercise, in any of the following ways: (a) in cash, (b) by
certified check, bank draft or money order, (c) by tendering to the Company
shares of Common Stock then owned by the Participant, duly endorsed for transfer
or with duly executed stock power attached, which shares shall be valued at
their Fair Market Value as of the date of such exercise and payment or (d) by
delivery to the Company of a properly executed exercise notice, acceptable to
the Company, together with irrevocable instructions to the Participant's broker
to deliver to the Company a sufficient amount of cash to pay the exercise price
and any applicable income and employment withholding taxes, in accordance with a
written agreement between the Company and the brokerage firm ("Cashless
Exercise") if, at the time of exercise, the Company has entered into such an
agreement.
7. Withholding Taxes. The Company shall have the right to withhold from a
Participant's compensation or require a participant to remit sufficient funds to
satisfy applicable withholding for income and employment taxes upon the exercise
of an option. A Participant may make a written election to tender
previously-acquired shares of Common Stock or have shares of Common Stock
withheld from the exercise, provided that the tendered or withheld shares have
an aggregate Fair Market Value on the date of exercise of the option equal to
the applicable withholding taxes or the Cashless Exercise procedure described in
Section 6 may be utilized to satisfy the withholding requirements related to the
exercise of an option.
8. Non-Assignability. No option shall be transferable by a Participant
except by will or the laws of descent and distribution or, in the case of a
Nonqualified Stock Option, pursuant to a qualified domestic relations order as
defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder. During the lifetime of a Participant, an option shall
be exercised only by the optionee. No transfer of an option shall be effective
to bind the Company unless the Company shall have been furnished with written
notice thereof and such evidence as the Company may deem necessary to establish
the validity of the transfer and the acceptance by the transferee of the terms
and conditions of the option.
9. Termination of Employment. The time or times at which an option shall
terminate prior to its Expiration Date shall be determined by the Committee in
its discretion and set forth in the Agreement relating to such Option. Unless
the Agreement otherwise specifies, the following shall apply:
(a) If a Participant's Employment is terminated for any reason prior
to the date that an option or a portion thereof first becomes exercisable,
such option or portion thereof shall terminate and all rights thereunder
shall cease.
(b) To the extent an option is exercisable and unexercised on the date
a Participant's Employment is terminated:
(i) for any reason other than death, Disability or Retirement, the
option shall terminate on the earlier of (A) the Expiration Date, and
(B) the first anniversary of such Participant's termination of
Employment;
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(ii) because the Participant has died or become subject to a
Disability, the option shall terminate on the first anniversary of the
date of such Participant's termination of Employment;
(iii) due to Retirement, the option shall terminate on the earlier
of (A) the Expiration Date and (B) the second anniversary of such
Participant's termination of Employment;
(c) During the period after the Participant's termination of
Employment until the termination of the option, the Participant, or the
person or persons to whom the option shall have been transferred by will or
by the laws of descent and distribution, may exercise the option only to
the extent that such option was exercisable on the date of the
Participant's termination of Employment.
(d) The Committee may, at any time, accelerate the right of a
Participant to exercise an option or extend the exercise period of such an
option; provided, that no option exercise period may be extended beyond the
option's Expiration Date.
(e) The transfer of a Participant from one corporation to another
among the Company, any Parent and any Subsidiary, or a leave of absence
with the written consent of the Company, shall not constitute a termination
of Employment for purposes of the Plan.
10. Director Options. Each Nonemployee Director shall be granted a
"Director Option" on the date of the annual meeting of shareholders in each year
during the term of the Plan beginning in 1995. A "Director Option" shall be a
Nonqualified Stock Option to purchase 1,000 shares (subject to adjustment as
provided in Section 11) of Common Stock at an exercise price equal to the Fair
Market Value per share on the Grant Date. A Director Option shall become
exercisable on the first anniversary of the Grant Date and shall be exercisable
for a term ending on the tenth anniversary of Grant Date; provided, however, (i)
if the term of office of the holder ceases for any reason before such Director
Option becomes exercisable, such Director Option shall terminate and all rights
thereunder shall cease; and (ii) to the extent a Director Option is exercisable
and unexercised on the date the holder's term of office ceases for any reason,
such Director Option shall terminate on the earlier of the Expiration Date of
such Director Option or the first anniversary of the date the holder's term of
office ceased. Each Director Option shall be evidenced by an Agreement that
shall specify the exercise price, the Grant Date, the term, the number of shares
to which the Director Option relates and such other terms as the Committee shall
determine. Notwithstanding any provision in the Plan to the contrary, Sections 5
and 9 of the Plan shall not apply to Director Options.
11. Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Common Stock, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Common Stock or other securities of the Company,
issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other similar corporate transaction or event
affects the Common Stock such that an adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(a) the number and type of shares of Common Stock which thereafter may be made
the subject of options, (b) the number and type of shares of Common Stock
subject to outstanding options, and (c) the exercise price with respect to any
option, or, if deemed appropriate, make provision for a cash payment to the
holder of an outstanding option; provided, however, in each case, that with
respect to Incentive Stock Options no such adjustment shall be authorized to the
extent that such authority would cause the Plan to violate Section 422 of the
Code or any successor provision thereto; and provided further, that any such
adjustment shall provide for the elimination of any fractional share which might
otherwise become subject to an option. In the event of a Change of Control, all
outstanding options under the Plan immediately shall become exercisable in full.
12. Rights Prior to Issuance of Shares. No Participant shall have any
rights as a shareholder with respect to any shares covered by an option until
the issuance of a stock certificate to the Participant for such shares. No
adjustment shall be made for dividends or other rights with respect to such
shares for which the record date is prior to the date such certificate is
issued.
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20
13. Termination and Amendment. (a) The Board may terminate the Plan, or the
granting of options under the Plan, at any time. No Incentive Stock Option shall
be granted under the Plan after April 29, 2004. Termination of the Plan shall
not affect the rights of the holders of any options previously granted.
(b) The Board may amend or modify the Plan at any time and from time to
time.
(c) No amendment, modification, or termination of the Plan shall in any
manner affect any option granted under the Plan without the consent of the
Participant holding the option.
14. Approval of Plan. The Plan shall be subject to the approval of the
holders of at least a majority of the shares of Common Stock of the Company
present and entitled to vote at a meeting of shareholders of the Company held
within 12 months after adoption of the Plan by the Board. No option granted
under the Plan may be exercised in whole or in part until the Plan has been
approved by the shareholders as provided herein. If not approved by shareholders
within such 12-month period, the Plan and any options granted hereunder shall
become void and of no effect.
15. Effect on Employment. Neither the adoption of the Plan nor the granting
of any option pursuant to it shall be deemed to create any right in any
individual to be retained as an Employee.
16. Securities Laws. (a) Anything to the contrary herein notwithstanding,
the Company's obligation to sell and deliver Common Stock pursuant to the
exercise of an option is subject to such compliance with federal and state laws,
rules and regulations applying to the authorization, issuance or sale of
securities as the Company deems necessary or advisable. The Company shall not be
required to sell and deliver Common Stock unless and until it receives
satisfactory assurance (i) that the issuance or transfer of such shares will not
violate any of the provisions of the Securities Act of 1933 or the Exchange Act,
or the rules and regulations promulgated thereunder or those of the National
Association of Securities Dealers, Inc. or any stock exchange on which the
Common Stock may be listed, or the provisions of any state laws governing the
sale of securities, or (ii) that there has been compliance with the provisions
of such acts, rules, regulations and laws.
(b) The Committee may impose such restrictions on any shares of Common
Stock acquired pursuant to the exercise of an option under the Plan as it may
deem advisable, including, without limitation, restrictions (i) under applicable
federal securities laws, (ii) under the requirements of the Nasdaq National
Market or Small Cap Market or any stock exchange or other recognized trading
market upon which such shares of Common Stock are then listed or traded, and
(iii) under any blue sky or state securities laws applicable to such shares. No
shares shall be issued until counsel for the Company has determined that the
Company has complied with all requirements under appropriate securities laws.
17. Certain Definitions.
"Agreement" means the written agreement setting forth the terms of the
Participant's option, including, without limitation, its exercise price, the
time or times it may be exercised, its Expiration Date and the number or shares
of Common Stock subject to the option.
"Board" means the Board of Directors of the Company.
"Change in Control" shall mean (i) consummation of any merger or
consolidation with respect to which the Company or any Parent is a constituent
corporation (other than a transaction for the purpose of changing the Company's
corporate domicile), any liquidation or dissolution of the Company or any sale
of all or substantially all of the Company's assets or (ii) a change in the
identity of a majority of the members of the Company's Board of Directors within
any twelve-month period, which change or changes are not recommended by the
incumbent directors immediately prior to any such change or changes.
The "Code" is the Internal Revenue Code of 1986, as amended from time to
time.
The "Committee" is a committee of two or more directors of the Company,
each of whom shall be a "non-employee director" as such term is defined in Rule
16b-3.
The "Common Stock" is the common stock of the Company.
The "Company" is Data Systems Network Corporation, a Michigan corporation.
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"Director Option" shall have the same meaning as defined in Section 10.
"Disabled" or "Disability" means total and permanent disability as defined
in Section 22(e) of the Code.
"Employee" means an individual with a full-time salaried "employment
relationship" with the Company, or any Parent or Subsidiary, as defined in
Regulation 1.421-7(h) promulgated under the Code, and shall include, without
limitation, employees who are directors of the Company, or any Parent or
Subsidiary.
"Employment" means the state of being an Employee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Expiration Date" means the date set forth in the Agreement relating to an
Option on which the right to exercise shall expire absent a termination of the
Participant's employment, consulting arrangement or term on the Board. Unless
otherwise provided in the Agreement, the Expiration Date for an Option shall be
the tenth anniversary of its Grant Date.
"Fair Market Value" means, for purposes of determining the value of Common
Stock on the Grant Date, (i) the last sale price on the Nasdaq National Market
or the Nasdaq SmallCap Market as reported in The Wall Street Journal for the
Grant Date, or (ii) if the Common Stock is not traded on the Nasdaq National
Market or the Nasdaq SmallCap Market on the Grant Date but is traded on a
national securities exchange on the Grant Date, the closing price on the Grant
Date (if traded on more than one such exchange, the closing price for this
purpose shall be the average of the closing prices on each such exchange on the
Grant Date or (iii) if the Common Stock is not traded on the Nasdaq National
Market, the Nasdaq SmallCap Market or a national securities exchange on the
Grant Date but is traded "over the counter", the average of the bid and asked
prices for the Grant Date; provided, however, that Fair Market Value with
respect to the initial option grants approved prior to the closing of the
Company's initial public offering shall be deemed to be $4.75 per share. In the
event that there were no Common Stock transactions on such date and no published
bid and asked prices, the Fair Market Value shall be determined as of the
immediately preceding date on which there were Common Stock transactions or
published bid and asked prices, as the case may be. "Fair Market Value" for
purposes of determining the value of Common Stock on the date of exercise or the
date Common Stock is tendered or withheld for purposes of Sections 6 or 7 shall
be determined in accordance with the procedure set forth in the preceding
sentence as of the last date preceding the exercise, tender or withholding
rather than the Grant Date.
"Grant Date" means the date on which the Committee authorizes a particular
option, or such later date as shall be designated by the Committee.
An "Incentive Stock Option" is an option intended to meet the requirements
of Section 422 of the Code.
"Nonemployee Director" means a Director who is not an Employee.
A "Nonqualified Stock Option" is an option granted under the Plan other
than an Incentive Stock Option.
"Option" means either an Incentive Stock Option or a Nonqualified Stock
Option to purchase Common Stock.
"Parent" means any "parent corporation" of the Company as defined in
Section 424(e) of the Code.
"Participant" shall have the meaning ascribed in Section 3 of the Plan.
The "Plan" is the 1994 Stock Option Plan.
"Retirement" means normal retirement from Employment at age 65 or older.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act, as in effect from
time to time.
"Subsidiary" means any "subsidiary corporation" of the Company as defined
in Section 424(f) of the Code.
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