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 Section 240.14a-11(c) or Section
240.14a-12
Data Systems & Software Inc.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
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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.
/ / 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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(4) Date Filed:
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DATA SYSTEMS & SOFTWARE INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 15, 1998
The Annual Meeting of Stockholders of Data Systems & Software Inc. (the
"Company") will be held at The Courtyard by Marriott, 140 Route 17 South,
Mahwah, New Jersey, on Thursday, October 15, 1998, at 9:30 a.m., for the
following purposes:
(1) To elect eight directors to hold office until the next
annual meeting of stockholders and until their successors have been
duly elected and qualified; and
(2) To consider and act upon such other and further matters as
may properly come before the meeting or any postponements or
adjournments thereof.
Only stockholders of record at the close of business on September 11,
1998, are entitled to notice of and to vote at the meeting or any postponements
or adjournments thereof.
Regardless of how many shares you own, your vote is very important.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN
ENVELOPE. No additional postage is required.
BY ORDER OF THE BOARD OF DIRECTORS,
SHELDON KRAUSE
Secretary
September 23, 1998
Mahwah, New Jersey
DATA SYSTEMS & SOFTWARE INC.
200 Route 17
Mahwah, New Jersey 07430
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PROXY STATEMENT
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This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of Data Systems & Software Inc.,
a Delaware corporation (the "Company" or "DSSI"), to be voted at the Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be held at The
Courtyard by Marriott, 140 Route 17 South, Mahwah, New Jersey, on Thursday,
October 15, 1998, at 9:30 a.m., and any postponements or adjournments thereof.
This Proxy Statement and the accompanying materials are being mailed on or about
September 23, 1998 to holders of record of the Common Stock, par value $.01 per
share, of the Company (the "Common Stock") as of the record date.
The record date (the "Record Date") for determining stockholders
entitled to notice of, and to vote at, the Annual Meeting has been established
as the close of business on September 11, 1998. On that date, 7,427,078 shares
of Common Stock of the Company were outstanding and entitled to vote. Holders of
record of Common Stock on the Record Date will be entitled to one vote for each
share held on all matters properly brought before the Annual Meeting.
The presence at the Annual Meeting, in person or represented by proxy,
of a majority of the outstanding shares of Common Stock entitled to vote thereat
will constitute a quorum for the transaction of business. If a share is deemed
present at the annual meeting for any matter, it will be deemed present for all
other matters. Votes withheld from any nominee for election as a director,
abstentions, and shares held by a nominee for a beneficial owner ("Broker
Shares") that are voted on any matter will be included in determining the number
of shares present. Broker Shares that are not voted on any matter will not be
included in determining the number of shares present.
All properly executed proxies delivered pursuant to this solicitation
and not revoked will be voted at the Annual Meeting in accordance with the
directions given. With respect to the election of directors, stockholders may
vote in favor of all nominees, withhold their votes as to all nominees or
withhold their votes as to specific nominees. With respect to each of the other
proposals set forth in the accompanying Notice of Annual Meeting, stockholders
may vote in favor of the proposal, against the proposal or may abstain from
voting. Stockholders should specify their choices on the accompanying proxy
card. If no specific instructions are given with respect to the matters to be
acted upon, the shares represented by a signed proxy will be voted FOR the
election of all nominees for election as directors and FOR each of the other
proposals set forth in the accompanying Notice of Annual Meeting. Any
stockholder returning the accompanying proxy may revoke such proxy at any time
prior to its exercise by (i) giving written notice to the Company of such
revocation, (ii) voting in person at the Annual Meeting or (iii) executing and
delivering to the Company a later-dated proxy. Written revocations and
later-dated proxies should be sent to Data Systems & Software Inc., 200 Route
17, Mahwah, New Jersey 07430, Attention: Secretary.
Directors will be elected at the Annual Meeting by a plurality of the
votes cast. Each other matter to be submitted to stockholders at the Annual
Meeting requires the affirmative vote of a majority of the shares present in
person or represented by proxy at the Annual Meeting and entitled to vote on the
subject matter. Abstentions are counted as if they were "no" votes in
tabulations of the votes cast on matters presented to stockholders, whereas
broker non-votes are not counted for purposes of determining whether a matter
has been approved.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and the notes thereto set forth information, as of
the Record Date, concerning beneficial ownership (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934) of Common Stock by (i) each director of the
Company, (ii) each of the executive officers of the Company named in the Summary
Compensation Table under "Executive and Director Compensation" and (iii) all
executive officers and directors of the Company as a group. Except as indicated
in the table, the Company is not aware of any stockholder that is the beneficial
owner of more than 5% of the outstanding Common Stock of the Company.
Percentage of
Name and Address of Number of Common Shares Common Stock
Beneficial Owner(1)(2) Beneficially Owned(2) Outstanding(2)
- --------------------- ------------------------- ----------------
George Morgenstern................... 711,489(3) 9.1%
Robert L. Kuhn........................... 442,489(4) 5.8%
Samuel Fogel............................... 297,403(5) 3.9%
Yacov Kaufman........................... 41,667(6) *
Harvey Eisenberger..................... 15,000(6) *
Sheldon Krause............................ 20,000(6) *
Susan L. Malley........................... - *
Hon. Maxwell M. Rabb............... 20,000(6) *
Allen I. Schiff.............................. 20,000(6) *
All executive officers and
directors of the Company as
a group (9 people)....................... 1,568,048 18.8%
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* Less than 1%
(1) Business address is in care of the Company.
(2) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated. For purposes of this table,
a person or group of persons is deemed to have "beneficial ownership"
of any shares as of a given date which such person has the right to
acquire within 60 days after such date. For purposes of computing the
percentage of outstanding shares held by each person or group of
persons named above on a given date, any security which such person or
persons has the right to acquire within 60 days after such date is
deemed to be outstanding for the purpose of computing the percentage
ownership of such person or persons, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of
any other person.
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(3) Consists of (i) 334,239 shares held by Mr. Morgenstern, including
221,667 shares received by Mr. Morgenstern pursuant to restricted stock
grants which are not yet fully vested, and (ii) 377,250 currently
exercisable options held by Mr. Morgenstern.
(4) Consists of 192,656 shares and 249,833 currently exercisable options
held by Dr. Kuhn.
(5) Consists of 90,737 shares and 206,666 currently exercisable options
held by Mr. Fogel.
(6) Consists of currently exercisable options.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company is currently comprised of eight
members. The entire Board of Directors of the Company is to be elected at the
Annual Meeting. The Board of Directors has nominated the eight current
directors, George Morgenstern, Robert L. Kuhn, Samuel Fogel, Harvey Eisenberger,
Sheldon Krause, Maxwell M. Rabb, Allen I. Schiff and Susan L. Malley, for
election as directors at the Annual Meeting. All nominees have consented to be
named and serve if elected. If any nominee becomes unavailable for any reason to
serve as a director at the time of the Annual Meeting (which event is not
anticipated), proxies will be voted in the discretion of the persons acting
pursuant to the proxy for any nominee who shall be designated by the current
Board of Directors as a substitute nominee.
With respect to the election of directors, stockholders may vote in
favor of all nominees, withhold their votes as to all nominees or withhold their
votes as to specific nominees. Stockholders should specify their choices on the
accompanying proxy card. If no specific instructions are given, the shares
represented by a signed proxy will be voted FOR the election of all nominees for
election as directors. If any nominee becomes unavailable for any reason to
serve as a director at the time of the Annual Meeting (which event is not
anticipated), proxies will be voted in the discretion of the persons acting
pursuant to the proxy for any nominee who shall be designated by the current
Board of Directors as a substitute nominee. Directors will be elected at the
Annual Meeting by a plurality of the votes cast (i.e., the eight nominees
receiving the greatest number of votes will be elected as directors).
Certain Information Regarding Directors and Officers
Set forth below is certain information concerning the nominees for
director and the executive officers and key employees of the Company:
Name Age Position
George Morgenstern 65 Director; Chairman of the Board, President and Chief
Executive Officer of DSSI; Chairman of the Board of the
Company's Decision Systems Israel Ltd. subsidiary ("DSI
Israel"); Chairman of the Board of the Company's Tower
Semiconductor Ltd. subsidiary ("Tower")
Robert L. Kuhn 53 Director; Vice Chairman of the Board of DSSI
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Name Age Position
Samuel Fogel 52 Director; Executive Vice President of DSSI; President and
General Manager of DSI Israel
Yacov Kaufman 41 Vice President and Chief Financial Officer of DSSI; Vice
President and Chief Financial Officer of DSI Israel
Harvey Eisenberger 54 Director
Sheldon Krause 43 Director and Secretary
Susan L. Malley 49 Director
Maxwell M. Rabb 87 Director
Allen I. Schiff 52 Director
George Morgenstern has been Chairman of the Board since June 1993, and
has been President and Chief Executive Officer of DSSI since its incorporation
in 1986. Mr. Morgenstern also serves as Chairman of the Board of DSI Israel and
as Chairman of the Board of Tower.
Robert L. Kuhn has been a director of DSSI since 1986 and Vice Chairman
of the Board of DSSI since 1994. Since 1991, Dr. Kuhn has been President of
Geneva Financial Corporation, a company specializing in mergers and
acquisitions. Dr. Kuhn has been active in establishing joint ventures and
cross-border transactions with Japan and China, and has been an advisor for the
governments of the People's Republic of China, Israel and Germany on
commercializing science and technology.
Samuel Fogel has been a director and Executive Vice President of DSSI
since March 1997, Vice President of DSSI since June 1993, President of DSI
Israel since October 1991, and General Manager of DSI Israel since June 1990.
Yacov Kaufman has been Vice President and Chief Financial Officer of
DSSI since February 1996. Mr. Kaufman has been a Vice President of DSI Israel
since 1992 and Chief Financial Officer of DSI Israel since 1990.
Harvey Eisenberger has been a director of the Company since 1994. Since
March 1997, Mr. Eisenberger has been employed by the Company in an
administrative capacity. From 1986 to March 1997, Mr. Eisenberger was an account
executive with a New York investment firm.
Sheldon Krause has served as Secretary of the Company since 1986 and as
a director since 1994. Since 1987, Mr. Krause has been engaged in the private
practice of law in New York City and is currently a member of the firm of
Ehrenreich Eilenberg Krause & Zivian LLP (which, prior to January 1998, was
known as Ehrenreich & Krause). From 1981 to 1986, Mr. Krause was associated with
the New York law firm of Cravath, Swaine & Moore. Mr. Krause is the son-in-law
of George Morgenstern, Chairman of the Board, President and Chief Executive
Officer of the Company.
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Susan M. Malley has been a director of the Company since March 1998.
Dr. Malley has served since 1995 as President and Chief Investment Officer of
Malley Associates Capital Management, an asset management firm which Dr. Malley
founded. From 1990 until 1995, Dr. Malley was Co-Chair of the Board of Directors
and Chief Investment Officer of Citicorp Investment Services, a retail brokerage
subsidiary of Citibank, N.A.
Hon. Maxwell M. Rabb has been a director of the Company since 1992.
Ambassador Rabb has been Of Counsel to the law firm of Kramer, Levin, Naftalis &
Frankel since 1991 and was Of Counsel to the law firm of Stroock & Stroock &
Lavan from 1989 to 1991. From 1981 to 1988, Ambassador Rabb was United States
Ambassador to Italy.
Allen I. Schiff has been a director of the Company since 1992. Since
1978 Dr. Schiff has been a Professor of Accounting at Fordham University
Graduate School of Business Administration, serving as Chairman of the
Accounting Department from 1981 to 1983 and from 1985 to 1990.
All directors hold office until the next annual meeting of stockholders
or until their successors are elected and qualify. Executive officers hold
office until their successors are chosen and qualify, subject to earlier removal
by the Board of Directors.
Meetings of the Board of Directors
During 1997, the Board of Directors of the Company met four times. Each
person who served as a director in 1997 (except (i) Ambassador Rabb, who
attended two Board meetings in 1997 and (ii) Mr. Fogel, who was appointed to the
Board during 1997 and did not attend any meetings) attended in excess of 75% of
the aggregate of (a) the total number of meetings of the Board of Directors held
during 1997 and (b) the total number of meetings held during 1997 by each
committee of the Board of Directors on which such director serves.
Information Concerning Certain Committees of the Board of Directors
The Board of Directors of the Company has a standing Audit Committee
comprised of Dr. Schiff, who serves as Chairman, Dr. Malley and Mr. Krause.
During 1997, the Audit Committee met four times.
The Audit Committee is charged with assisting the directors with the
fulfillment of their responsibilities to stockholders and others relating to the
corporate accounting and reporting practices of the Company and the quality and
integrity of the financial reports of the Company. The Audit Committee reviews
with the Company's independent certified public accountants the Company's
accounting practices and policies; reviews the report of the Company's
independent auditors on the Company's year-end financial statements; examines
from time to time, in consultation with the Company's financial officers and its
independent certified public accountants, the Company's overall accounting and
financial controls; and is available to the Company's independent auditors for
consultation. In addition, the Audit Committee makes recommendations to the
Board of Directors regarding the engagement and discharge of the Company's
auditors.
The Board of Directors has also established a Stock Option Committee
which administers the Company's stock-based compensation plans and approves
awards of stock options and other stock-based compensation. In July 1998, the
Board of Directors broadened the mandate of the Committee, which has been
renamed the Compensation and Stock Option Committee. Dr. Schiff, Dr. Malley and
Mr. Krause
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currently serve on the Committee, with Dr. Schiff acting as Chairman. Ambassador
Rabb serves on the Committee as an alternate member.
The Board of Directors does not have a nominating committee.
EXECUTIVE AND DIRECTOR COMPENSATION
Compensation of Directors
Each director of the Company is paid $1,000 for each meeting which such
director attends and is reimbursed for associated out-of-pocket expenses. Dr.
Schiff is paid an additional amount of $20,000 per annum for his service as
Chairman of the Audit Committee and Stock Option Committee plus additional
amounts in the event of special committee assignments. Dr. Schiff was paid a
total of $24,000 in 1997 in connection with his service on the Board of
Directors and Board committees. Mr. Eisenberger was paid an additional $6,000 in
1997 in connection with his service on the Board and the Audit Committee. Dr.
Kuhn was paid an additional $50,000 in 1997 in connection with his service as
Vice Chairman of the Company.
In addition to the director's fees described above, at the last Annual
Meeting of Stockholders each member of the Board of Directors who was not an
employee of the Company (Mr. Krause, Ambassador Rabb and Dr. Schiff) was granted
options to purchase 7,500 shares of Common Stock at an exercise price of $6.50
per share (the fair market value of the Common Stock on such date). Upon her
appointment to the Board of Directors, Dr. Malley was granted options to
purchase 7,500 shares of Common Stock at an exercise price of $5.5625. These
options were granted pursuant to the Company's 1994 Stock Option Plan for
Outside Directors described below.
The Company's 1994 Stock Option Plan for Outside Directors provides for
awards of non-qualified options to directors of the Company who are not
employees of the Company or its affiliates and who meet certain other
eligibility criteria. Pursuant to the plan, (i) upon first election or
appointment to the Board of Directors, each newly elected eligible director will
be granted an option to purchase 7,500 shares of Common Stock and (ii)
immediately following each Annual Meeting of Stockholders of the Company, each
eligible director will generally be granted an option to purchase 7,500 shares
of Common Stock. Options granted under the plan are exercisable beginning on the
first anniversary of the date of the grant until the earliest of (i) 10 years
from the date of grant, (ii) one year from the date of which an optionee ceases
to be an eligible director and (iii) the date an optionee ceases to be a
director (90 days thereafter if due to the death or disability). Options granted
under the plan are required to provide for an exercise price per share equal to
100% of the fair market value per share of Common Stock on the date the option
is granted. The maximum number of shares of Common Stock in respect of which
awards may be granted under the plan is 200,000.
Compensation Committee Interlocks and Insider Participation
Prior to June 1998, the Board of Directors had not established a
compensation committee. All matters related to compensation, except for stock
option and other stock-based compensation, were determined by the Board of
Directors. Matters related to stock options and other stock-based compensation
were determined by the Stock Option Committee.
The following persons served both as members of the Board of Directors
and officers of the Company in 1997: Mr. Morgenstern (Chairman of the Board,
President and Chief Executive Officer), Dr. Kuhn (Vice Chairman of the Board)
and Mr. Krause (Secretary). During 1997, no member of the Board
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of Directors who was also an officer of the Company participated in any
deliberations of the Board of Directors or any committee thereof relating to his
own compensation. In addition, Mr. Krause did not participate in any such
deliberations relating to Mr. Morgenstern's compensation. Subject to the
foregoing limitations, each member of the Board of Directors participated in
1997 in deliberations of the Board of Directors concerning executive officer
compensation. For information concerning transactions with the Company in which
directors or officers may be deemed to have an interest, see "Certain Related
Party Transactions" below.
Employment Arrangements
George Morgenstern serves as Chairman of the Board, President and Chief
Executive Officer of the Company pursuant to an employment agreement which
commenced on January 1, 1994 and was modified in January 1997 (the "Employment
Agreement"). The Employment Agreement provides for a salary of $420,000 per
annum (subject to annual review by the Board and an annual cost of living
adjustment commencing in 1998) plus contributions to a nonqualified retirement
fund equal to 25% of his base salary. Mr. Morgenstern's compensation pursuant to
the Employment Agreement also includes the use of two company automobiles,
premium payments on a life insurance policy owned by Mr. Morgenstern and other
fringe benefits.
The Employment Agreement extends through December 31, 2001. Mr.
Morgenstern may at any time prior to the end of the term, subject to certain
notice requirements, elect to terminate his employment with the Company and
thereafter to continue to serve the Company as a consultant for a period (the
"Consulting Period") ending on December 31 of the seventh year following the
year in which he first commences to serve as a consultant (but in no event prior
to December 31, 2005 if the Consulting Period commences following a Change in
Control of the Company (as defined in the Employment Agreement) or a breach by
the Company of the Employment Agreement). During the Consulting Period, Mr.
Morgenstern would be entitled to receive an annual consulting fee plus
contributions to a nonqualified retirement fund and the same fringe benefits on
the same basis as during the term of his employment as described above. Mr.
Morgenstern's annual consulting fee during the Consulting Period will generally
be equal to 50% of his annual salary in effect immediately prior to the
Consulting Period, reducing to 25% following the end of the fourth full calendar
year of the Consulting Period (subject in all cases to an annual cost of living
adjustment). However, if Mr. Morgenstern elects to become a consultant following
a breach by the Company of its obligations under the Employment Agreement or
following a Change in Control of the Company, Mr. Morgenstern would be entitled
to receive his full annual salary until December 31, 2001, and thereafter to
receive an annual consulting fee as described in the preceding sentence for the
balance of the Consulting Period. The Company is obligated under the Employment
Agreement to fund at the beginning of any Consulting Period all amounts to
become payable to Mr. Morgenstern for consulting services and to fund upon his
death all amounts payable to his estate. During the term of the Employment
Agreement (including any Consulting Period), Mr. Morgenstern may not engage in a
business that is in substantial and direct competition with the business of the
Company or any of its subsidiaries.
Samuel Fogel serves as President and General Manager of DSI Israel,
pursuant to an employment agreement with the Company. The term of the agreement
is automatically extended for an additional one-year period on August 31 of each
year unless terminated for any reason by either party upon three months' prior
written notice or by the Company for cause (as defined). In addition to his cash
compensation, Mr. Fogel also has use of a company automobile and receives other
benefits customarily conferred in Israel upon persons in similar corporate
positions.
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The stock option agreements with the Company's executive officers
generally provide for accelerated vesting in the event of a "Change in Control
of the Company" (as defined in such agreements).
Executive Compensation
The following table sets forth for the periods indicated information
concerning the compensation of the Chief Executive Officer and the three other
officers of the Company who received in excess of $100,000 in salary during
1997. Mr. Weldler was not an officer of the Company in 1995 and ceased serving
as an officer in March 1998.
SUMMARY COMPENSATION TABLE
Long Term Compensation All Other
Annual Compensation Awards Compensation ($)
------------------- ---------------------- ----------------
Securities
Name and Restricted Stock Underlying
Principal Position Year Salary ($) Bonus ($) Awards ($) Options (#)
- ------------------ ---- ---------- --------- ---------------- -----------
George Morgenstern 1995 300,000 - - 97,500 82,800
Chief Executive Officer 1996 300,000 - 600,000(1) 100,000 85,000
1997 420,000 - - - 131,000(2)
Samuel Fogel 1995 132,000 - - 40,000 17,600
Executive President 1996 132,000 - - - 17,600
1997 132,000 - - - 17,000(3)
Yacov Kaufman 1995 99,600 26,200 - 20,000 15,000
Vice President 1996 108,000 5,900 - - 17,000
1997 108,000 10,000 - - 17,000(3)
David Weldler 1996 200,000 - - 10,000 -
Vice President 1997 200,000 - - - -
(1) Represents the fair market value of 100,000 shares of Common Stock
awarded in a restricted stock award pursuant to the Company's 1994 Stock
Incentive Plan, valued at the market price for the Common Stock on the
date of the award. The shares vest over a three-year period commencing
March 1997. Dividends, if and when declared by the Company, would be
payable on vested shares; unvested shares are not eligible to receive
dividends.
(2) Consists of (i) $105,000 in contributions to a non-qualified retirement
fund,(ii) approximately $17,000 paid in lieu of vacation not taken in
1996, (iii) approximately $5,000 in life insurance premiums and (iv)
director's fees of $4,000.
(3) Represents contributions to severance and pension funds. These
contributions are made on substantially the same basis as those made on
behalf of all Israeli employees.
- 8 -
The following tables summarize (i) the options granted in 1997 to the
executive officers named in the Summary Compensation Table above, (ii) the
potential value of these options at the end of the option term assuming certain
levels of appreciation of the Company's Common Stock, (iii) the number of shares
acquired by the named executive officers upon the exercise of options in 1997
and the value realized thereon, and (iv) the number and value of all options
held by such executive officers at the end of 1997.
OPTION/SAR GRANTS IN 1997
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants(1) Option Term(2)
---------------------------------------------------------- -----------------------------
Number of
Securities % of Total Exercise
Underlying Options Granted or Base
Options to Employees in Price Expiration
Name Granted (#) Fiscal Year (%) ($/Share) Date 5% ($) 10% ($)
- ---- ----------- --------------- --------- ----------- ------ -------
Yacov Kaufman 25,000(3) 80.6 5.25 7/31/02 36,262 80,129
(1) The Company granted no stock appreciation rights (SARs) in 1997.
(2) The dollar amounts under these columns are the result of calculations at
the 5% and 10% compounded annual appreciation rates prescribed by the
Securities and Exchange Commission and, therefore, are not intended to
forecast possible future price appreciation, if any, of the Common Stock.
(3) These options become exercisable as to one-third in July of each year
commencing July 1998.
AGGREGATED OPTION EXERCISES IN 1997
AND FISCAL YEAR END STOCK OPTION VALUES
Number of Shares Number of Securities
Acquired Upon Value Underlying Unexercised Value of Unexercised
Name Exercise(#)(1) Realized($) Options at Year End(#) In-the-Money Options($) (2)
- ---- ---------------- ----------- ---------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
George Morgenstern - - 327,250 120,000 - -
Samuel Fogel - - 206,666 33,334 - -
Yacov Kaufman - - 41,667 - - -
David Weldler - - 13,333 6,667 - -
(1) No options were exercised by any of the named persons in 1997.
(2) Based on the closing price for the Common Stock on December 31, 1997 of
$4.75.
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Certain Related Party Transactions
During 1996 and 1997, the Company made a loan to George Morgenstern,
its Chairman, President and Chief Executive Officer. As of August 31, 1998, the
balance of this loan, which bears interest at an annual rate of 7%, was
approximately $650,000. The principal of, and interest on, such loan is payable
in installments as follows: (i) 105 bi-weekly payments of $3,000 each,
commencing on January 2, 1998, (ii) four annual payments of $72,000 each,
commencing on December 31, 1998, and (iii) a final payment on December 31, 2001
in an amount equal to the then remaining outstanding balance of the loan plus
accrued and unpaid interest.
During 1997, the Company paid approximately $401,000 for legal services
rendered and reimbursement of out-of-pocket expenses to Ehrenreich & Krause, a
law firm in which Sheldon Krause, a director and Secretary of the Company, is a
member. (Effective January 1998, such law firm is known as Ehrenreich Eilenberg
Krause & Zivian LLP.) In addition, Tower paid approximately $153,000 for legal
services rendered and reimbursement of out-of-pocket expenses to such firm in
1997. In 1998, the firm is continuing to provide legal services to both the
Company and Tower on a comparable basis. Mr. Krause is the son-in-law of George
Morgenstern, Chairman, President and Chief Executive Officer of the Company.
During 1997, Shlomie Morgenstern, Director of Operations for the
Company's Databit and International Data Operations subsidiaries, received
compensation of approximately $98,000. Through August 31, 1998, Mr. Morgenstern
received compensation of approximately $80,000 during 1998. Shlomie Morgenstern
is a son of George Morgenstern, Chairman, President and Chief Executive Officer
of the Company.
COMPENSATION REPORT OF THE BOARD OF DIRECTORS
The goals of the Company's compensation policy are to (i) attract,
retain and reward executives who contribute to the overall success of the
Company by offering compensation that is competitive, (ii) motivate executives
to achieve the Company's business objectives and (iii) align the interests of
executives with the long-term interests of stockholders. The Board of Directors
believes that there is necessarily an element of subjectivity in establishing
compensation levels for the Company's executives and does not follow specific
objective performance criteria when establishing such compensation levels.
The Board believes that the use of stock options and other stock-based
compensation generally to compensate executive officers encourages and rewards
effective management that results in long-term corporate financial success, as
measured by stock price appreciation. The Board further believes that such use
aligns the interests of the Company's executives with those of the Company's
stockholders. In 1997, the Stock Option Committee granted options to purchase
stock of the company to one executive officer based on the Committee's
subjective evaluation of the executive's past contributions to the Company and
the executive's ability to influence the Company's long-term growth and
profitability.
Compensation decisions with respect to executive officers, other than
the chief executive officer, have been based upon the recommendation of the
chief executive officer (except for decisions relating to stock options, which
are determined by the Stock Option Committee as described above). In 1997, such
executives were paid pursuant to employment agreements previously entered into.
In January 1997, the Board of Directors modified the employment agreement
between the Company and Mr. Morgenstern (described under "Proposal 1--Election
of Directors--Employment Arrangements"). The new agreement provides for an
increased base salary of $420,000 per year. This modification represents an
increase of
- 10 -
$87,500 over the base salary (including cost of living adjustments), that Mr.
Morgenstern would have been entitled to under the prior agreement. In addition,
the new agreement increased contributions to Mr. Morgenstern's non-qualified
retirement fund from 20% of his base salary to 25% of his base salary. In
approving the increased compensation, the Board considered the additional
responsibilities, including increased overseas travel, that Mr. Morgenstern had
assumed as Chairman of the Board of Tower Semiconductor Ltd. The Company
receives a management fee of $360,000 per annum in connection with Mr.
Morgenstern's service as Chairman and other management services provided by the
Company to Tower. In addition, the Board considered the performance of Tower in
1996, including the declaration by Tower of a cash dividend, which resulted in
the receipt by the Company of $4.9 million. In increasing the contribution to
Mr. Morgenstern's nonqualified pension arrangements, the Board also took into
account the fact that the Company had not funded any qualified retirement
arrangements for Mr. Morgenstern.
BOARD OF DIRECTORS
George Morgenstern
Robert L. Kuhn
Harvey Eisenberger
Samuel Fogel
Sheldon Krause
Susan L. Malley
Maxwell M. Rabb
Allen I. Schiff
- 11 -
STOCK PRICE PERFORMANCE GRAPH
The following stock price performance graph compares the cumulative
total return of the Company's Common Stock, during the period February 10, 1992
(date of the Company's initial public offering) to December 31, 1997, to the
cumulative total return during such period of (i) the Nasdaq Stock Market Index
(United States and Foreign) and (ii) the Nasdaq Computer & Data Processing Stock
Index.
COMPARISON OF CUMULATIVE TOTAL RETURN
12/31/92 12/31/93 12/31/94 12/30/95 12/29/96 12/31/97
-------- -------- -------- -------- -------- --------
DSSI 100 226.966 85.393 125.843 102.247 76.404
Nasdaq Computer & Data Processing
Stock Index 100 105.835 128.526 195.739 241.536 296.722
Nasdaq Stock Market Index 100 115.762 112.280 157.691 193.093 236.216
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's executive officers and directors, and persons who
own more than 10% of a registered class of the Company's equity securities to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). These persons are also required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its review of such forms received by it, or written representations
from certain reporting persons, the Company believes that during 1997 all filing
requirements applicable to its executive officers and directors were complied
with.
STOCKHOLDER LIST
Commencing on October 8, 1998, an alphabetical list of the names and
addresses of the stockholders of record of the Company as of the Record Date
will be available at the principal executive offices of the Company for
inspection by any stockholder during normal business hours for any purpose
germane to the Annual Meeting. The Company's principal executive offices are
located at 200 Route 17, Mahwah, New Jersey 07430.
- 12 -
INDEPENDENT PUBLIC ACCOUNTANTS AND AUDITORS
Deloitte & Touche LLP served as the Company's independent certified
public accountants and auditors for the year ended December 31, 1997 and has
been selected to serve in that capacity for fiscal year 1998. A representative
of Deloitte & Touche LLP has been invited to and is expected to be present at
the Annual Meeting.
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Stockholders may present proposals for inclusion in the Company's 1999
proxy statement provided that (in addition to other applicable requirements)
such proposals are received by the Company in writing at its principal executive
offices no later than August 2, 1999.
OTHER MATTERS
The Board of Directors of the Company does not know of any other
matters to be presented for action at the Annual Meeting other than those listed
in the accompanying Notice of Annual Meeting and described herein. If any other
matters not described herein should properly come before the meeting for
stockholder action, it is the intention of the persons named in the accompanying
proxy to vote, or otherwise act, in respect thereof in accordance with the Board
of Directors' recommendations.
ANNUAL REPORT
A copy of the Company's Annual Report, covering the fiscal year ended
December 31, 1997, including audited financial statements is enclosed with this
Proxy Statement. Such report is not incorporated in this Proxy Statement and is
not a part of the proxy soliciting material.
ADDITIONAL INFORMATION
The cost of soliciting proxies for the Annual Meeting will be borne by
the Company. In addition to use of the mails, proxies may be solicited by
personal interview, telephone, telex or facsimile. The Company will, upon
request and in accordance with applicable regulation, reimburse brokerage firms
and others for their reasonable expenses in forwarding solicitation material to
the beneficial owners of stock.
BY ORDER OF THE BOARD OF DIRECTORS,
SHELDON KRAUSE
Secretary
September 23, 1998
Mahwah, New Jersey
- 13 -
DATA SYSTEMS & SOFTWARE INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints George Morgenstern, Robert L. Kuhn and
Sheldon Krause, and each of them, with full power of substitution, as
proxies, to vote at the Annual Meeting of Stockholders of Data Systems &
Software Inc. to be held at The Courtyard by Marriott, 140 Route 17 South,
Mahwah, New Jersey, on Thursday, October 15, 1998, at 9:30 a.m., and any
adjournments and postponements thereof, hereby revoking all proxies
heretofore given, to vote all shares of Common Stock of the Company held or
owned by the undersigned as directed on the reverse, and, in their
discretion, upon such other matters as may properly be brought before the
meeting. The proxy revokes all prior proxies given by the undersigned.
(To be Signed on Reserve Side)
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
DATA SYSTEMS & SOFTWARE INC.
October 15, 1998
/ Please Detach and Mail in the Envelope Provided /
/X/ Please mark your
vote as in this
example.
1. Election of FOR WITHHELD 2. Act upon such other matters as may come before
Directors / / / / Nominees: George Morgenstern the meeting
Robert L. Kuhn
For, except vote withheld from the Samuel Fogel This proxy, when properly executed, will be voted
following nominee(s): Harvey Eisenberger as directed herein by the undersigned stockholder.
Sheldon Krause If no direction is indicated, the proxy will be
- ---------------------------------- Susan L. Malley voted for the election of the directors indicated
Maxwell M. Rabb and for approval of the proposals presented.
Allen I. Schiff
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.