SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 ON FORM 10-K/A
TO ANNUAL REPORT ON FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
COMMISSION FILE NUMBER: 0-19771
DATA SYSTEMS & SOFTWARE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 22-2786081
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 ROUTE 17, MAHWAH, NEW JERSEY 07430
(Address of principal executive offices) (Zip Code)
(201) 529-2026
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
COMMON STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the common stock held by non-affiliates of
the registrant at March 12, 2002 was approximately $25.5 million. The aggregate
market value was calculated by using the closing price of the stock on that date
on the Nasdaq National Market.
Number of shares outstanding of the registrant's common stock, as of March
12, 2002: 7,353,163.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
DATA SYSTEMS & SOFTWARE INC.
AMENDMENT NO. 1 ON FORM 10-K/A
TO ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
PART III
Item 10 Directors and Executive Officers of the Registrant................. 1
Item 11 Executive Compensation............................................. 4
Item 12 Security Ownership of Certain Beneficial Owners and
Management......................................................... 10
Item 13 Certain Relationships and Related Transactions..................... 11
Signatures......................................................... 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS, EXECUTIVE OFFICERS AND KEY MANAGERS
Set forth below is certain information concerning the directors and the
executive officers and key managers of the Company:
Name Age Position
George Morgenstern 68 Director, Chairman of the Board, President and Chief
Executive Officer; Chairman of the Board of our DSIT
Technologies Ltd. subsidiary (formerly Decision
Systems Israel Ltd.) ("DSIT"); and Chairman of the
Board of our Comverge Technologies, Inc. subsidiary
("Comverge")
Robert L. Kuhn 57 Director and Vice Chairman of the Board
Sheldon Krause 46 Director and Secretary; and Director and Assistant
Secretary of Comverge
Susan L. Malley 53 Director
Maxwell M. Rabb 91 Director
Allen I. Schiff 56 Director
Shlomie Morgenstern 39 Director and Vice President--Operations; and
Director of Comverge
Howard Gutzmer 70 Director
Jacob Neuwirth (Noy) 55 Chief Executive Officer and President of DSIT
Yacov Kaufman 44 Vice President and Chief Financial Officer; and Vice
President and Chief Financial Officer of DSIT
Robert M. Chiste 54 Chief Executive Officer and Vice Chairman of the
Board of Comverge
Frank Magnotti 41 President and Director of Comverge
Joseph D. Esteves 41 Executive Vice President of Comverge
GEORGE MORGENSTERN has been our Chairman of the Board since June 1993, and
has been our President and Chief Executive Officer since our incorporation in
1986. Mr. Morgenstern also serves as Chairman of the Board of DSIT, and as
Chairman of the Board of Comverge.
ROBERT L. KUHN has been a director since 1986 and Vice Chairman of the
Board since 1994. Since 1991, Dr. Kuhn has been President of Geneva Financial
Corporation, a company specializing in mergers and acquisitions.
1
SHELDON KRAUSE has served as Secretary since 1986 and as a director since
1994. Since 1987, Mr. Krause has been engaged in the private practice of law in
New York City and is currently a member of the firm of Ehrenreich Eilenberg &
Krause LLP. From 1981 to 1986, Mr. Krause was associated with the New York law
firm of Cravath, Swaine & Moore. Mr. Krause is the son-in-law of George
Morgenstern, our Chairman of the Board, President and Chief Executive Officer.
SUSAN L. MALLEY has been a director 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 1995
to January 2001, Dr. Malley was also a Professor of Finance at the Hofstra
University School of Business. From 1990 until 1995, Dr. Malley was Co-Chair of
the Board of Directors and Chief Investment Officer of Citicorp Investment
Services, a retail brokerage subsidiary of Citibank, N.A.
HON. MAXWELL M. RABB has been a director 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 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.
SHLOMIE MORGENSTERN has been Vice President-Operations since February 2000
and a director since November 2001. Mr. Morgenstern also serves as President of
our Databit subsidiary and as a director of Comverge. Since 1996, Mr.
Morgenstern has been employed by us in various administrative capacities. Mr.
Morgenstern is the son of George Morgenstern, our Chairman of the Board,
President and Chief Executive Officer.
HOWARD GUTZMER has been a director since July 2001. Since 1990, Mr. Gutzmer
has been the Chairman, Chief Executive Officer, President and majority
shareholder of Unlimited Systems Corp., which manufactures hardware and develops
software for computer-telephone interfaces.
JACOB NEUWIRTH (NOY) has been Chief Executive Officer and President of DSIT
since December 2001. From 1994 to 2001, he was the President and the founder of
Endan IT Solutions Ltd., an Israeli IT solutions provider specializing in
billing and healthcare IT solutions.
YACOV KAUFMAN has been Vice President and Chief Financial Officer since
February 1996. Mr. Kaufman has also served as a Vice President of DSIT since
1992 and as Chief Financial Officer of DSIT since 1990, having served as
Controller of DSIT since 1986. Mr. Kaufman also served as Chief Financial
Officer of Comverge from October 1997 to October 2001.
ROBERT M. CHISTE was appointed Chief Executive Officer and Vice Chairman of
the Board of Comverge in September 2001. From 1999 to 2001, Mr. Chiste served as
Chairman and Chief Executive officer of FuelONE, Inc., a technology oriented
fuel and lubricant wholesale distribution company that he co-founded, and as
Chairman of FuelQuest Inc., a related e-commerce enterprise. In 1998 Mr. Chiste
co-founded Tri-Active Inc., a network and systems management company. From 1997
to 1998, Mr. Chiste served as Executive Vice President with Philip Services
Corp. and as President of their Industrial Services/Utilities Management
Division. Mr. Chiste is also a director of Pentacon, Inc.
FRANK MAGNOTTI has been the President and a director of Comverge since
October 1997. From 1993 to 1997, Mr. Magnotti was the founder and General
Manager of the Utility Solutions Division of Lucent Technologies, Inc.
2
JOSEPH D. ESTEVES has been the Executive Vice President of Comverge since
March 2001. From 1995 to March 2001, Mr. Esteves served as an officer of UBS
Warburg and its predecessor Union Bank of Switzerland, most recently serving as
Executive Director of Global Power & Pipelines. From 1991 to 1995, Mr. Esteves
served as a Vice President of Goldman, Sachs & Co., and from 1986 to 1991 he
served as a Vice President of Salomon Brothers.
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 our executive officers and directors, and persons who own more than 10%
of a registered class of our 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 us with copies of all
Section 16(a) forms they file. Based solely on its review of such forms received
by us or written representations from certain reporting persons, except as
described below we believe that during 2001 all applicable filing requirements
were complied with by our executive officers and directors.
Although Mr. Gutzmer filed all of his Form 4's on a timely basis during
2001, Mr. Gutzmer failed to report 12 purchase transactions in his Form 4's for
the months of August, September and October 2001. These transactions, for an
aggregate of 14,500 shares of our common stock, were reported in Mr. Gutzmer's
Form 5, which was filed on a timely basis in February 2002.
3
Item 11. EXECUTIVE AND DIRECTOR COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth for the periods indicated information
concerning the compensation of our Chief Executive Officer and the four other of
our officers who received in excess of $100,000 in salary and bonus during 2001.
Mr. Chiste, the Chief Executive Officer of Comverge, joined the Company in
September 2001. His annual salary is $250,000.
SUMMARY COMPENSATION TABLE
Long Term All Other
Annual Compensation Compensation Awards Compensation ($)
-------------------- --------------------------------- ----------------
Securities
Name and Restricted Stock Underlying
Principal Position Year Salary ($) Bonus ($) Awards ($) Options (#)
------------------ ---- ---------- --------- ---------------- -----------
George Morgenstern 1999 434,700 -- -- (1) 195,300
Chief Executive Officer 2000 446,600 550,000 -- -- 193,900
2001 460,341 150,000 -- -- 187,721(2)
Yacov Kaufman 1999 127,200 -- -- (1) 22,000
Chief Financial Officer 2000 150,000 32,000 -- -- 27,400
2001 158,403 50,000 -- -- 48,400(3)
Shlomie Morgenstern 1999 131,400 -- -- -- --
Vice President 1000 160,000 100,000 -- -- --
2001 193,500 -- -- (1) --
Frank Magnotti 1999 158,000 -- -- -- --
President, Comverge 2000 175,400 -- -- -- --
Technologies, Inc. 2001 185,640 -- -- -- --
-------------
(1) In 1999, each of Mr. George Morgenstern and Mr. Kaufman was awarded options
to purchase shares which after the combination of the Company's Comverge
and Powercom subsidiaries represented 0.5% of the outstanding stock of
Comverge, each at an aggregate exercise price of $9,925. Mr. Morgenstern
has served as Chairman of Comverge since October 1997, and Mr. Kaufman also
served as CFO of Comverge from October 1997 until October 2001. In 2001,
Mr. Shlomie Morgenstern was awarded options to purchase shares of Comverge
representing 0.5% of the outstanding stock of Comverge, at an aggregate
exercise price of $35,340. Mr. Shlomie Morgenstern has served as a director
of Comverge since June 1999.
(2) Consists of (i) $115,101 in contributions to a non-qualified retirement
fund, (ii) $16,780 in life insurance premiums, (iii) $42,940 paid for
accrued vacation, (iv) $4,000 in director's fees and (v) $8,900 with
respect to the imputed value of automobile fringe benefits.
(3) Represents primarily contributions to severance and pension funds. These
contributions are made on substantially the same basis as those made on
behalf of all Israeli employees.
4
The following tables summarize (i) the options granted in 2001 to the
executive officers named in the Summary Compensation Table above, (ii) the
potential value of these options at the end of the option term assuming certain
levels of appreciation of our common stock, (iii) the number of shares acquired
by such named executive officers upon the exercise of options in 2001 and the
value realized thereon, and (iv) the number and value of all options held by
such executive officers at the end of 2001.
OPTION/SAR GRANTS IN 2001
Potential Realizable Value at Assumed Annual
Rates of Stock Price Appreciation
Individual Grants(1) for Option Terms(2)
---------------------------------------------------- --------------------------------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees in Exercise or
Options Fiscal Year Base Price Expiration
Name Granted (#) (%) ($/Share) Date 5% ($) 10% ($)
---- ----------- --- --------- ---- ------ -------
Yacov Kaufman 40,000 9% $4.80 12/31/06 61,725 139,121
George Morgenstern 50,000 12% $4.80 12/31/06 76,518 172,291
Shlomie Morgenstern 27,500 7% $4.80 12/31/06 42,659 96,209
Yacov Kaufman 15,000 4% $5.44 12/31/06 22,762 50,365
Robert Chiste 75,000 18% $5.95 12/31/06 132,783 296,396
George Morgenstern 150,000(3) 35% $6.00 3/31/06 248,653 549,459
-------------
(1) The Company did not grant any stock appreciation rights (SARs) in 2001.
(2) The dollar amounts under these columns are the result of calculations at
the 5% and 10% compounded annual appreciation rates prescribed by the
Securities and Exchange Commission and, therefore, are not intended to
forecast possible future price appreciation, if any, of our common stock.
(3) These options represent extensions of options previously granted and
scheduled to expire on March 31, 2001. Such options were extended under
their original terms.
5
AGGREGATED OPTION EXERCISES IN 2001
AND FISCAL YEAR END STOCK OPTION VALUES
Number of
Shares
Acquired
Upon Value Number of Securities Underlying
Exercise Realized Unexercised Options Value of Unexercised
Name __(#)__ ___($)___ at Year End (#) In-the-Money Options ($) (1)
---- --- --- ------------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
George Morgenstern -- -- 213,916 283,334 817 1,633
Yacov Kaufman -- -- 164,334 40,666 235,798 1,307
Robert Chiste -- -- 25,000 50,000 -- --
Shlomie Morgenstern -- -- 45,000 25,000 48,823 15,307
-------------
(1) Based on the closing price for our common stock on December 31, 2001, of
$4.849.
COMPENSATION OF DIRECTORS
Each of our directors is generally paid $1,000 for each Board and $500 for
each committee meeting which such director attends (except if a committee
meeting is held on the same day as a Board meeting) and is reimbursed for
associated out-of-pocket expenses. Dr. Schiff is paid $24,000 per annum for his
service as Chairman of the Audit Committee and Compensation Committee, plus
additional amounts in the event of special committee assignments, and was paid a
total of $28,000 in 2001 in connection with his service on the Board of
Directors and Board committees. Dr. Kuhn was paid an additional $50,000 in 2001
in connection with his service as Vice Chairman of the Company. Dr. Malley was
paid a total of $17,500 in 2001 in connection with her service on the Board of
Directors and Board committees. Mr. Eisenberger, who resigned from the Board in
November 2001, was paid a total of $7,500 in 2001 in connection with his service
on the Board of Directors.
In addition to the directors' fees described above, at the last Annual
Meeting of Stockholders each member of the Board of Directors who was not one of
our employees (Mr. Krause, Ambassador Rabb, Dr. Malley and Dr. Schiff) was
granted options to purchase 7,500 shares of our common stock at an exercise
price of $6.89 per share (the fair market value of our common stock on such
date). On July 31, 2001, Mr. Gutzmer was granted an option to purchase 7,500
shares at an exercise price of $5.95 (the fair market value of our common stock
on such date) in connection with his appointment a director earlier that month.
These options were granted pursuant to our 1994 Stock Option Plan for Outside
Directors described below.
Our 1994 Stock Option Plan for Outside Directors provides for awards of
non-qualified options to our directors who are not one of our employees or
employees of any of our affiliates and who meet certain other eligibility
criteria. Pursuant to the plan, (i) upon first election or appointment to the
Board of Directors, each newly elected eligible director is granted an option to
purchase 7,500 shares of common stock and (ii) immediately following each Annual
Meeting of Stockholders, each eligible director will generally be granted an
option to purchase 7,500 shares of common stock. Options granted under the plan
have an exercise price per share equal to the fair market value of our common
stock on the date of issuance and are exercisable beginning on the first
anniversary of the date of the grant until the earliest of (i) ten years from
the date of grant and (ii) one year from the date on which an optionee ceases to
be a director. The maximum number of shares of common stock in respect of which
awards may be granted under the plan is 400,000, of which 227,500 non-expired
options have been granted to date.
6
In addition to serving as a director until his resignation in November
2001, Mr. Eisenberger also serves as an employee of our Comverge subsidiary and
was paid $110,294 during 2001 in connection with such employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The mandate of the Compensation Committee of our Board of Directors
encompasses all matters related to compensation, including determination of
stock option and other stock-based compensation and review and approval of
employment terms and compensation of executive officers. Certain matters related
to the compensation of the Chief Executive Officer are also considered by the
full Board of Directors.
The following persons served both as members of the Board of Directors and
as one of our officers or employees in 2001: George Morgenstern (Chairman of the
Board, President and Chief Executive Officer), Dr. Kuhn (Vice Chairman of the
Board), Mr. Krause (Secretary) and Mr. Eisenberger, who is employed by the
Company's Comverge subsidiary and resigned from the Board in November 2001.
During 2001, no member of the Board of Directors who was also one of our
officers participated in any deliberations of the Board of Directors or any
committee thereof relating to his own compensation or to the compensation of any
person to whom he is related. Except as described above, each member of the
Board of Directors participated in 2001 in deliberations of the Board of
Directors concerning executive officer compensation. During 2001, Dr. Malley and
Mr. Krause engaged in transactions with us in which they were deemed to have an
interest. For further information, see "Certain Relationships and Related
Transactions" below.
EMPLOYMENT ARRANGEMENTS
George Morgenstern serves as our Chairman of the Board, President and Chief
Executive Officer pursuant to an employment agreement that commenced on January
1, 1997 and was amended in March 2002 to extend through December 31, 2003 (the
"Employment Agreement"). The Employment Agreement provides for a base salary of
$420,000 per annum (currently $446,500 due to cost of living adjustments),
subject to annual review by the Board and an annual cost of living adjustment,
plus contributions to a nonqualified retirement fund equal to 25% of his base
salary. Mr. Morgenstern's compensation pursuant to the Employment Agreement also
includes the use of two company automobiles, premium payments on a life
insurance policy owned by Mr. Morgenstern and other fringe benefits.
Pursuant to the Employment Agreement, Mr. Morgenstern may at any time prior
to December 31, 2003, elect to terminate his employment with us and thereafter
to continue to serve us as a consultant for a period (the "Consulting Period")
ending on December 31 of the seventh year following the year in which he first
commences to serve as a consultant. During the Consulting Period, Mr.
Morgenstern would be entitled to receive an annual consulting fee plus
contributions to a nonqualified retirement fund and fringe benefits on the same
basis as during the term of his employment as described above. Mr. Morgenstern's
annual consulting fee during the Consulting Period would be equal to 50% of his
annual salary in effect immediately prior to the Consulting Period through the
end of the fourth full calendar year of the Consulting Period, and 25% of such
annual salary for the remainder of the Consulting Period (subject in all cases
to an annual cost of living adjustment). However, if Mr. Morgenstern elects to
become a consultant following a breach by us of our obligations under the
Employment Agreement or following a change in control of the Company (as defined
in the Employment Agreement), Mr. Morgenstern would be entitled to receive his
full annual salary until December 31, 2002, and thereafter to receive an annual
consulting fee as described above for the balance of the Consulting Period. We
are obligated under the Employment Agreement to fund at the beginning of the
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
7
Consulting Period), Mr. Morgenstern may not engage in a business that is in
substantial and direct competition with our business or the business of any of
our subsidiaries.
In addition to the compensation provided for Employment Agreement, in
January 2000, the Board approved, among other things, a bonus of $150,000 if Mr.
Morgenstern remained employed full-time as our President and Chief Executive
Officer through December 31, 2001.
Yacov Kaufman serves as our Vice President and Chief Financial Officer and
also holds such positions for DSIT pursuant to an employment agreement entered
into with us on January 1, 1999. Although the employment agreement with Mr.
Kaufman expired by its terms on December 31, 2000 and has not been formally
renewed, we continue to employ Mr. Kaufman, and Mr. Kaufman continues to serve
as our and DSIT's Vice President and Chief Financial Officer, pursuant to the
terms of such employment agreement.
In addition to the compensation provided for by Mr. Kaufman's employment
agreement, in November 2001, the Board approved a $50,000 bonus and the grant to
Mr. Kaufman of options to purchase 15,000 shares of our common stock (at an
exercise price equal to the fair market value on the date of grant) in
connection with his efforts in the acquisition by our Israeli subsidiary, DSIT,
of Endan IT Solutions Ltd. The payment of the bonus and the grant of the options
were both contingent upon the closing of the Endan acquisition, which occurred
on December 13, 2001.
Mr. Kaufman also has severance arrangements under his employment agreement
under certain circumstances. If Mr. Kaufman's employment agreement is terminated
by us or by him for reasons other than for cause, we must pay him (i) an amount
equal to 150% of his last month's salary multiplied by the number of years
(including partial years) that Mr. Kaufman worked for us, plus (ii) an amount
equal to five times his last month's salary or two times such salary if Mr.
Kaufman terminates his employment agreement other than after a change in control
or a breach by us of his employment agreement. Our severance obligation would be
reduced by the amount contributed by us to certain Israeli pension and severance
funds pursuant to Mr. Kaufman's employment agreement. As of December 31, 2001,
the unfunded portion of such severance obligation was $64,000.
Robert Chiste serves as Vice Chairman of the Board and Chief Executive
Officer of Comverge pursuant to an employment agreement that commenced on
September 1, 2001. Mr. Chiste's employment agreement provides for a base salary
of $250,000 per annum, plus an annual bonus up to 75% of his base salary upon
Mr. Chiste's achieving performance objectives established each year by the Board
of Directors of Comverge. Under his employment agreement, Mr. Chiste is also
entitled to a one-time bonus of $250,000 if Comverge completes an initial public
offering with gross proceeds of at least $10 million or there is a change of
control in which Comverge receives either $20 million in cash or $25 million in
publicly traded securities. Mr. Chiste's employment agreement also provides for
the reimbursement, until September 1, 2002, of up to $3,500 per month for Mr.
Chiste's auto, living and personal travel expenses.
In connection with the signing of his employment agreement, Mr. Chiste
received an option to purchase 6% of the outstanding shares of Comverge common
stock (on a fully diluted basis) at an exercise price of $1.20 per share. The
exercise price was determined based upon a valuation of Comverge as of July 31,
2001, performed by an independent appraiser. Mr. Chiste's Comverge option will
be adjusted for issuances of common stock until Comverge's paid in capital is at
least $15 million. Mr. Chiste also received a stock option under our 1994 Stock
Incentive Plan to purchase 75,000 shares of our common stock at an exercise
price of $5.95.
In addition to the options, pursuant to his employment agreement, Mr.
Chiste purchased 50,000 shares of our common stock at a price of $5.95 per
share. Mr. Chiste paid for the common stock by assigning and endorsing to us a
6% subordinated note, due April 15, 2010, in the principal amount of $297,500 of
Philip Services Corp. (NasdaqNM: PSCD). The subordinated note is due April 15,
2010; is assignable; pays interest
8
semi-annually; and is subject to a sinking fund for the mandatory redemption of
the subordinated note by no more than four annual payments, beginning in April
15, 2006.
Mr. Chiste will receive retirement payments from Comverge if, after his
60th birthday, his employment agreement is terminated without cause or because
of Mr. Chiste's death or disability. Mr. Chiste will not receive any retirement
payment if his employment is terminated prior to his 60th birthday. Mr. Chiste's
retirement payments will be made over seven years commencing on the date of
termination. During the first four years, Mr. Chiste's retirement payments will
be equal to 50% of his base salary in effect at the time of his termination, and
during the last three years the retirement payments will be equal to 25% of the
base salary.
Mr. Chiste may in certain circumstances receive severance payments from
Comverge. Under his employment agreement, if Mr. Chiste's employment is
terminated without cause, Comverge would have to pay Mr. Chiste one year of base
salary, or if there has been an IPO for Comverge, three years of base salary
plus up to 15% of any excess parachute payment, plus, if such termination is
before December 31, 2002, his base salary through December 31. Mr. Chiste will
not be entitled to any severance payments under his employment agreement if he
voluntarily terminates his employment.
The stock option agreements with the Company's executive officers generally
provide for accelerated vesting in the event we have a change in control.
9
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and the notes thereto set forth information, as of
April 22, 2002 (except as otherwise set forth herein), 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," (iii) all executive officers and directors of the
Company as a group and (iv) each holder of 5% or more of the Company's
outstanding shares of Common Stock.
Number of Shares of Percentage of
Name and Address of Common Stock Common Stock
Beneficial Owner(1)(2) Beneficially Owned(2) Outstanding(2)
---------------------- --------------------- --------------
George Morgenstern 758,104(3) 9.7%
Howard Gutzmer 774,105(4) 10.5%
5550 Oberlin Drive
San Diego, CA 92121
Dimensional Fund Advisors Inc. 523,000(5) 7.1%
1299 Ocean Avenue
Santa Monica, CA90401
Robert L. Kuhn 297,526(6) 4.0%
Sheldon Krause 58,500(7) *
Susan L. Malley 23,200(8) *
Hon. Maxwell M. Rabb 51,500(9) *
Allen I. Schiff 50,200(10) *
Shlomie Morgenstern 45,000(11) *
Yacov Kaufman 164,334(11) 2.2%
Robert M. Chiste 75,000(12) 1.0
Frank Magnotti -- --
All executive officers and directors
of the Company as a group
(11 people) 2,297,469 27.4%
* Less than 1%
(1) Unless otherwise indicated, business address is in care of the Company.
(2) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of any
shares as of a given date which such person has the right to acquire within
60 days after such date. Percentage information is based on the number of
Shares outstanding as of April 22, 2002.
(3) Consists of (i) 260,854 shares held by Mr. Morgenstern, including 20,000
shares received by Mr. Morgenstern pursuant to a restricted stock grant
which are not yet fully vested, and (ii) 497,250 currently exercisable
options held by Mr. Morgenstern.
(4) As of December April 22, 2002, based on information in Amendment No. 1 to
Schedule 13G filed on December 21, 2001, and Form 4's filed by Mr. Gutzmer.
Consists of 225,914 shares owned by Mr. Gutzmer (including shares held in
his IRA); 426,015 shares owned by the Gutzmer Family Trust, of which Mr.
Gutzmer is a co-trustee; 48,950 shares held in an IRA of Dorene Gutzmer,
Mr. Gutzmer's wife; 50,126 shares owned by Unlimited Systems Corp., of
which Mr. Gutzmer is an executive officer, director and principal
shareholder; and 23,100 shares owned by Gutzmer Enterprises Ltd., a
California limited partnership, the general partner of which is KNX
Management Inc., a California corporation, of which Mr. Gutzmer is the sole
shareholder, officer and director.
10
(5) As of December 31, 2001, based on information in Amendment No. 1 to
Schedule 13G filed on February 12, 2002.
(6) Consists of 192,656 shares and 105,000 currently exercisable options held
by Dr. Kuhn.
(7) Consists of 1,000 shares and 57,500 currently exercisable options held by
Mr. Krause.
(8) Consists of 700 shares and 22,500 currently exercisable options held by Dr.
Malley.
(9) Consists of 1,500 shares and 50,000 currently exercisable options held by
Ambassador Rabb.
(10) Consists of 200 shares and 50,000 currently exercisable options held by Dr.
Schiff.
(11) Consists of currently exercisable options.
(12) Consists of 50,000 shares and 25,000 currently exercisable options held by
Mr. Chiste.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2001, we paid approximately $530,000 for legal services rendered and
reimbursement of out-of-pocket expenses to Ehrenreich Eilenberg & Krause LLP, a
law firm in which Sheldon Krause, one of our directors and our Secretary, is a
member. Such fees related to services rendered by Mr. Krause and other members
and employees of his firm, as well as certain special and local counsel retained
and supervised by his firm who performed services on our behalf. Mr. Krause is
the son-in-law of George Morgenstern, our Chairman, President and Chief
Executive Officer.
As reported on the Summary Compensation Table above, Shlomie Morgenstern,
the son of George Morgenstern, our Chairman, President and Chief Executive
Officer, received compensation during 2001 in connection with his position as
Vice President--Operations.
In March 2001, we retained Malley Associates Capital Management, an asset
management firm that is controlled by Susan L. Malley, one of our directors, to
provide discretionary asset management services to us with respect to $2 million
of our funds. Investments may include fixed income government and corporate
securities, money market mutual funds, short-term money market instruments and
equity securities. Malley Associates has complete discretion and authority to
invest our funds in these accounts without prior consultation with us.
Investments to date have been limited to debt securities and commercial paper.
The agreement provides for a management fee of 1% per annum of the amount under
management. Through December 31, 2001, we have paid fees to Malley Associates of
approximately $13,400.
11
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Township of
Mahwah, State of New Jersey, on April 29, 2002.
DATA SYSTEMS & SOFTWARE INC.
By: /s/ Sheldon Krause
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Sheldon Krause, Secretary