As filed with the Securities and Exchange Commission on March 27, 1998
Registration No. 333-40585
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DATATEC SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
Incorporation or organization)
94-2914253
(I.R.S. Employer
Identification Number)
20C Commerce Way
Totowa, New Jersey 07512
(973) 890-4800
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(Address, including zip code, and telephone
number, including area code, of Registrant's
principal executive offices)
Isaac J. Gaon
Chief Executive Officer
Datatec Systems, Inc.
20C Commerce Way
Totowa, New Jersey 07512
(973) 890-4800
(Name, address and telephone number of agent for service of process)
------------------------------------
Copies to:
Robert H. Friedman, Esq.
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
(212) 753-7200
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Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
------------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Proposed
Maximum Proposed
Offering Maximum
Title of Each Class of Amount to be Price Aggregate Amount of
Securities to be Registered Registered Per Share Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, $.001 par value, issuable 517,500(1) $4.69(1) $2,427,075(1) $735.48
upon exercise of warrants
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Common Stock, $.001 par value, issuable 151,282(2) $3.30(2) $499,230(2) $151.28
upon exercise of options
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Common Stock, $.001 par value, issuable 760,475(3) $4.88(4) $3,711,118(4) $1,124.58
upon conversion of a note
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Common Stock, $.001 par value 3,231,902 $4.88(4) $15,771,681(4) $4,779.30
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Total................................................................................................. $6,790.64
==================================================================================================================================
</TABLE>
(1) Represents 517,500 shares of Common Stock issuable upon the exercise of
outstanding warrants at a weighted average exercise price of $4.69 per
share. Pursuant to Rule 416, there are also registered hereby an
indeterminate number of shares of Common Stock that may become issuable by
reason of anti-dilution provisions of these warrants.
(2) Represents 151,282 shares of Common Stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $3.30 per
share. Pursuant to Rule 416, there are also registered hereby an
indeterminate number of shares of Common Stock that may become issuable by
reason of anti-dilution provisions of these options.
(3) Pursuant to Rule 416, there are also registered hereby (i) an indeterminate
number of shares of Common Stock issuable upon conversion of the
Registrant's convertible notes resulting from the fluctuating conversion
rate of such notes that is determined based upon the market price of the
Company's publicly-traded Common Stock as of the date of the applicable
conversion thereof, and (ii) an indeterminate number of shares of Common
Stock that may become issuable by reason of anti-dilution provisions of
these notes.
(4) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended (the
"Securities Act"), based upon $4.88 the per share average of high and low
sales prices of the Common Stock on the Nasdaq SmallCap Market on March 25,
1998.
(5) Of the Registration Fee, $5,993.51 was paid in connection with the initial
filing of the Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PROSPECTUS
DATATEC SYSTEMS, INC.
4,661,159 SHARES OF COMMON STOCK
This Prospectus relates to the reoffer and resale by certain selling
stockholders (the "Selling Stockholders") of shares (the "Shares") of the Common
Stock, $.001 par value (the "Common Stock"), of Datatec Systems, Inc., a
Delaware corporation (the "Company") comprised of (i) an aggregate of 517,500
shares of Common Stock which will be issued by the Company to a Selling
Stockholder upon the exercise of certain warrants to purchase Common Stock, (ii)
an aggregate of 151,282 shares of Common Stock which will be issued by the
Company to certain Selling Stockholders upon the exercise of certain options to
purchase Common Stock, (iii) 760,475 shares of Common Stock which will be issued
by the Company to a certain Selling Stockholder upon the exercise of a certain
convertible note dated March 9, 1998 (the "Note") and (iv) an aggregate of
3,231,902 shares of Common Stock previously issued by the Company to certain
Selling Stockholders. This Prospectus also relates, pursuant to Rule 416
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
to the offer and resale by certain Selling Stockholders of (i) an indeterminate
number of shares of Common Stock that may become issuable by reason of the
anti-dilution provisions of the aforementioned warrants, options and Note, and
(ii) an indeterminate number of shares of Common Stock issuable upon conversion
of the Note resulting from the fluctuating conversion rate of the Note that is
determined based upon the market price of the Company's publicly-traded Common
Stock as of the date of the applicable conversion thereof.
The Company will not receive any proceeds from the sale of the Shares by
the Selling Stockholders or upon conversion of the Note, but will receive
amounts upon the exercise of the warrants and options, which amounts will be
used for working capital and other corporate purposes. The warrants may be
exercised on a cashless basis. If the warrants are exercised on a cashless
basis, the Company will not receive any cash proceeds upon the exercise of such
warrants. The Company has agreed to bear certain expenses (other than selling
commissions and fees and expenses of counsel and other advisors to the Selling
Stockholders) in connection with the registration and sale of the Shares being
offered by the Selling Stockholders. See "Use of Proceeds."
The Selling Stockholders have advised the Company that the resale of their
Shares may be effected from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of the sale or at prices otherwise negotiated. The
Selling Stockholders may effect such transactions by selling the Shares to or
through broker-dealers who may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agent or to whom they sell
as principal, or both (which compensation as to a particular broker-dealer may
be in excess of customary commissions). Any broker-dealer acquiring the Shares
from the Selling Stockholders may sell such securities in its normal market
making activities, through other brokers on a principal or agency basis, in
negotiated transactions, to its customers or through a combination of such
methods. See "Plan of Distribution."
The Company's Common Stock is traded on the Nasdaq SmallCap Market
("Nasdaq") under the symbol ("DATC"). On March 25, 1998, the closing bid price
for the Common Stock on Nasdaq was $5.06.
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AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK AND SHOULD ONLY BE MADE BY INVESTORS
WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" AT PAGE 4 HEREOF.
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<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CERTAIN MATTERS DISCUSSED IN THIS REGISTRATION STATEMENT ARE FORWARD-LOOKING
STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED.
THE DATE OF THIS PROSPECTUS IS [ ], 1998
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference the
Company's (i) Annual Report on Form 10-K for the fiscal year ended April 30,
1997, (ii) Quarterly Reports on Form 10-Q for the quarters ended July 31, 1997,
as amended, October 31, 1997 and January 31, 1998 and (iii) Current Reports on
Form 8-K dated September 23, 1997, October 20, 1997, January 12, 1998, February
24, 1998, and March 9, 1998, which have been filed with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Exchange Act
of 1934 (the "Exchange Act").
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the date of filing of such
documents.
The Company's Application for registration of its Common Stock under
Section 12(b) of the Exchange Act filed with the Securities and Exchange
Commission on May 2, 1996, is incorporated by reference into this Prospectus and
shall be deemed to be a part hereof.
Any person receiving a copy of this Prospectus may obtain without
charge, upon written or oral request, a copy of any of the documents
incorporated by reference herein, except for the exhibits to such documents
(unless such exhibits are specifically incorporated by reference in such
documents). Such requests should be directed to the Company, 20C Commerce Way,
Totowa, New Jersey 07512, Attention: James M. Caci, Chief Financial Officer,
telephone number (201) 890-4800.
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<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. EACH
PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
INHERENT IN, AND EFFECTING THE BUSINESS OF, THE COMPANY BEFORE MAKING AN
INVESTMENT DECISION.
RECENT CHANGE OF BUSINESS FOCUS. In October 1996, the Company acquired
Datatec Industries Inc. ("Datatec Industries"), a provider of configuration,
integration and deployment services. In June 1997, the Company discontinued its
data communications equipment distribution business in order to focus
exclusively on implementation services. The Company's current business
represents a substantial change from the Company's historical line of business.
Consequently, the Company's historical results of operations do not reflect
combined operations relating to its current business for a significant period of
time and such results may not be indicative of the Company's future results of
operations. Management and other key personnel may not have the experience
required to manage such a substantial change in business focus. If the Company's
efforts are not successful, the Company's results of operations could be
adversely effected.
FLUCTUATION IN QUARTERLY RESULTS; EXTENDED LEAD TIMES FOR REALIZATION
OF REVENUE. The Company's quarterly operating results have varied in the past,
and may vary significantly in the future, depending on a number of factors such
as market acceptance of new or enhanced versions of the Company's services,
changes in the customer mix, changes in the level of operating expenses, the
gain or loss of significant customers, personnel changes and economic conditions
in general and in the Company's industry in particular. Any unfavorable change
in these or other factors could have a material adverse effect on the Company's
operating results for a particular quarter and makes the prediction of revenue
and results of operations on a quarterly basis difficult, and performance
forecasts derived from such predictions unreliable.
The Company has experienced large fluctuations in sales from
quarter-to-quarter due to substantial sales to customers in the retailing
industry. Typically, these customers delay improvements and enhancements during
the fourth quarter of the calendar year to avoid costly interruptions during the
holiday sales season. In addition, a substantial portion of the Company's
operating expenses is related to personnel, facilities, inventory, equipment and
marketing programs. The level of spending for such expenses cannot be adjusted
quickly and is therefore fixed in the short term. The level of these expenses is
based, in significant part, on the Company's expectations of future revenue on a
quarterly basis. If actual revenue levels on a quarterly basis are below
management's expectations, results of operations are likely to be adversely
effected because only a small amount of the Company's expenses varies with its
revenue in the short term.
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<PAGE>
Due to the nature and size of implementation projects that the Company
is now pursuing, there is a longer lead time between the initiation of
prospective business and the consummation of a transaction, if any. As such,
there are likely to be substantial fluctuations in sales volume from
month-to-month and quarter-to- quarter. The fluctuations in the Company's
operating results increase the Company's risk of failure, especially given its
present level of working capital. As a result, if the Company experiences lower
than expected sales volume for an extended period of time, it may have a
material adverse effect on the business, financial condition and results of
operations of the Company.
MANAGEMENT OF GROWTH. Recently, the Company has expanded its operations
rapidly through several acquisitions, which has placed significant demands on
the Company's administrative, operational and financial personnel and systems.
Additional expansion by the Company may further strain the Company's management,
financial and other resources. There can be no assurance that the Company's
systems, procedures, controls and existing space will be adequate to support
expansion of the Company's operations. The Company's future operating results
will substantially depend on the ability of its officers and key employees to
manage changing business conditions and to implement and improve its
operational, financial control and reporting systems. If the Company is unable
to respond to and manage changing business conditions, the quality of the
Company's services, its ability to retain key personnel and its results of
operations could be materially adversely effected.
RELIANCE ON SIGNIFICANT CUSTOMERS; NO ASSURANCE OF BACKLOG. During each
of the past two fiscal years, sales of the Company's services to a limited
number of customers have accounted for a substantial percentage of the Company's
total net sales. For the years ended April 30, 1997 and 1996, the Company's 15
largest customers accounted for 61.5% and 63.0% of the Company's total net
sales, respectively. For the year ended April 30, 1997, Federated Department
Stores, Inc. and Lowe's Companies, Inc. accounted for 11.7% and 10.1%,
respectively, of the Company's total net sales. This concentration of customers
can cause the Company's net sales and earnings to fluctuate from
quarter-to-quarter, based on the requirements of its customers and the timing of
delivery of services. Although the Company believes it has good relationships
with its largest customers and has in the past received a substantial portion of
its revenues from repeat business with established customers, none of the
Company's major customers has any obligation to purchase additional services.
Therefore, there can be no assurance that any of the Company's major customers
will continue to purchase new services in amounts similar to previous years.
Although the particular customers are likely to change from period to period,
the Company believes that large orders from a limited number of customers will
continue to account for a substantial portion of its revenues in any fiscal
period. In any period, the unexpected loss of or decline in net sales from a
major
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<PAGE>
customer, or the failure to generate significant revenues from other customers,
could have a material adverse effect on the business, financial condition and
results of operations of the Company.
The Company's implementation services are generally provided at a fixed
contract price pursuant to purchase orders or other written agreements with its
customers. Although certain traditional customers of Datatec Industries continue
to order services through oral agreements, the Company is in the process of
changing its procedure to assure that in the future all services will be
provided under written agreements. There can be no assurance that the Company
will not be involved in litigation with respect to any oral agreements with
customers or that the outcome of any such litigation might not be unfavorable to
the Company as a result of the lack of a written agreement or purchase order.
Backlog for the Company's services as of February 28, 1998 totaled
approximately $58.5 million. Backlog consists of purchase orders, written
agreements and other oral agreements with customers for which a customer has
scheduled the provision of services within the next 12 months. Orders included
in backlog may be canceled or rescheduled by customers without penalty. A
variety of conditions, both specific to the individual customer and generally
effecting the customer's industry, may cause customers to cancel, reduce or
delay orders that were previously made or anticipated. The Company cannot assure
the timely replacement of canceled, delayed or reduced orders. Significant or
numerous cancellations, reductions or delays in orders by a customer or group of
customers could materially adversely effect the Company's business, financial
condition and results of operations. Backlog should not be relied upon as
indicative of the Company's revenues for any future period.
DEPENDENCE ON INDIRECT CUSTOMERS AND STRATEGIC ALLIANCES. The Company
markets its services in part through indirect customers and strategic alliances
with systems manufacturers, systems integrators, independent software
developers/distributors, and telecommunications carriers, that utilize the
Company's services to provide joint solutions to customers. The Company has
entered into a non-exclusive agreement with Cisco Systems, Inc. ("Cisco"),
pursuant to which the Company has agreed to provide implementation services to
customers of Cisco. Cisco may terminate its agreement with the Company at any
time, with or without cause. Termination of the Cisco agreement, or any similar
agreement that the Company enters into in the future, may have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's strategy is to enter into similar agreements with
other systems manufacturers, independent software vendors, systems integrators
and telecommunications carriers. Because the Company utilizes and will continue
to utilize indirect customers and strategic alliances as a significant
distribution channel, the Company is subject to the risk that its indirect
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<PAGE>
customers or strategic partners will discontinue or decrease their use of the
Company's services for reasons unrelated to the quality or price of, or demand
for, the Company's services, which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
is subject to the risk that the demand for products and services sold by its
indirect customers or strategic partners will decline, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
ACQUISITIONS. A significant portion of the Company's revenue growth is
a result of its recent acquisition of Datatec Industries. The Company has
pursued, and will continue to pursue, opportunities through internal development
and acquisitions of complementary enterprises and products. The Company has not
entered into any agreements involving potential acquisitions at this time. The
Company competes for acquisition and expansion opportunities with many entities
that have substantially greater resources than the Company. In addition,
acquisitions may involve difficulties in the retention of personnel, diversion
of management's attention, unexpected legal liabilities, and tax and accounting
issues. There can be no assurance that the Company will be able to successfully
identify suitable acquisition candidates, complete acquisitions, integrate
acquired businesses or service offerings into its operations or expand into new
markets. Once integrated, acquisitions may not achieve comparable levels of
revenue, profitability or productivity as the existing business of the Company
or otherwise perform as expected. The occurrence of any of these events could
have a material adverse effect on the Company's business, financial condition
and results of operations.
WORKING CAPITAL DEFICIENCIES; HISTORY OF LOSSES. While the Company had
working capital of $7.8 million as of January 31, 1998, it has a history of
limited working capital and had working capital deficiencies of $585,000, $7.7
million and $3.0 million at April 30, 1995, 1996, and 1997 respectively. On
March 19, 1997, the Company entered into a credit facility with a financial
institution that provides for maximum borrowing of $17.0 million. The credit
facility provides for a $15.0 million revolving credit facility, with allowable
borrowing under the facility based on a formula of receivables and inventory.
The credit facility also provides for a term loan of $2.0 million with principal
and interest due monthly. The revolving credit facility bears interest at the
prime rate plus 0.75% per annum an the term loan bears interest at the prime
rate plus 1.5% per annum. The credit facility requires the Company to comply
with certain financial and nonfinancial covenants. As of January 31, 1998, the
Company was not in compliance with certain covenants and is in the process of
obtaining waivers. Outstanding borrowings under the term loan and revolving loan
as of January 31, 1998 were $1.7 million and $4.2 million, respectively.
-7-
<PAGE>
In addition, the Company has incurred net losses of $2.4 million, $13.4
million, $5.0 million and $688,000 for the fiscal years ended April 30, 1995,
1996, and 1997, and the nine months ended January 31, 1998, respectively. There
can be no assurance that the Company will generate sufficient revenues to meet
expenses or to operate profitably in the future. If the Company is unable to
generate sufficient cash flow from its operations it would have to seek
additional borrowings, effect debt or equity offerings or otherwise raise
capital. There can be no assurance that any such financing will be available to
the Company, or if available, that the terms will be acceptable to the Company.
In addition, the ability to raise other capital might be restricted by financial
covenants contained in the Company's currently existing borrowing agreements.
POSSIBLE NEED FOR ADDITIONAL FINANCING. As of January 31, 1998 the
Company had cash and cash equivalents of $120,000. The Company anticipates,
based on currently proposed plans and assumptions relating to its operations
that its existing capital resources will be sufficient to satisfy its
anticipated cash requirements for at least 12 months. In the event that the
Company's plans change, its assumptions change or prove to be inaccurate, the
Company will be required to seek additional financing to finance its working
capital requirements. There can be no assurance that any additional financing,
if required, will be available to the Company on acceptable terms, if at all.
The Company currently has availability of approximately $845,000 under its line
of credit. Any inability by the Company to obtain additional financing, if
required, will have a material adverse effect on the operations of the Company.
SUBSTANTIAL INDEBTEDNESS. As of January 31, 1998, the Company had
outstanding on a consolidated basis approximately $8.2 million of indebtedness.
The level of the Company's indebtedness could have important consequences to its
future prospects, including the following: (i) limiting the ability of the
Company to obtain any necessary financing in the future for working capital,
capital expenditures, debt service requirements or other purposes; (ii)
requiring that a substantial portion of the Company's cash flow from operations,
if any, be dedicated to the payment of principal of and interest on its
indebtedness and other obligations; (iii) limiting its flexibility in planning
for, or reacting to changes in, its business; (iv) the Company will be more
highly leveraged than some of its competitors, which may place it at a
competitive disadvantage; and (v) increasing its vulnerability in the event of a
downturn in its business.
DEPENDENCE ON KEY PERSONNEL. The Company's future success depends in
large part on the continued service of its key personnel. In particular, the
loss of the services of Isaac Gaon, Chairman of the Board and Chief Executive
Officer of the Company, or Christopher Carey, President of the Company, could
have a
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<PAGE>
material adverse effect on the operations of the Company. The Company has
employment agreements with Messrs. Gaon and Carey each of which expire on
October 31, 1999. Each of these employment agreements may be terminated by the
Company for cause or by the employee for good reason. The Company's future
success and growth also depends on its ability to continue to attract, motivate
and retain highly qualified employees, including those with the technical,
managerial, sales and marketing expertise necessary to operate the business of
the Company. Competition for personnel in the configuration, integration and
deployment services industry is intense, and there can be no assurance that the
Company will be successful in attracting and retaining such personnel.
Departures and additions of key personnel may be disruptive to the Company's
business and could have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION. The Company competes with a number of other companies
involved in the design, configuration, installation, integration, deployment and
servicing of computer networking technologies. The market for configuration,
integration and deployment services is highly fragmented, intensely competitive
and rapidly changing and there can be no assurance that the Company will be able
to compete successfully in the future. The Company believes that its ability to
compete successfully depends upon a number of factors both within and beyond its
control, including performance, price, quality and breadth of services, and
industry and general economic trends. In addition to direct competition, the
Company faces indirect competition from its existing and potential future
customers, many of which internally design, integrate and deploy their own
technologies for their particular needs, and therefore may be reluctant to use
services offered by independent providers such as the Company. As a result, the
Company must educate prospective customers as to the advantages of the Company's
services. There can be no assurance that the Company will be able to compete
effectively with its direct competitors or to adequately educate potential
customers to the benefits provided by the Company's services.
Many of the Company's current and potential competitors have longer
operating histories and greater financial, technical, sales, marketing and other
resources, as well as greater name recognition, larger customer bases, and
greater market acceptance of their services, than the Company. As a result, they
may be able to respond more quickly to technological changes or market
opportunities, and to devote greater resources to the development, promotion and
sale of their services than the Company. Also, in the markets in which the
Company operates, there are relatively low barriers to entry and new competition
may arise either from expansion by established companies or from new emerging
companies. Increased competition may result in pressure for price reductions and
related reductions in gross margins and market share, any of which could have a
material adverse effect on the Company's ability
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to achieve its financial and business goals. To achieve its goal of larger
market share, the Company must continue to enhance its existing services,
introduce new service offerings, recruit and train additional deployment and
engineering staff, and recruit and train sales and marketing professionals.
There can be no assurance that the Company will be able to successfully compete
against current and future competitors or that competitive pressures faced by
the Company will not have a material adverse effect on its business, financial
condition and results of operations.
The Company has licensed on a non-exclusive basis, including the right
to sublicense, its Integrator's Workbench Product Series ("Integrator's
Workbench") software tools to certain third parties. As a result of such
licenses, third parties may obtain the right to use Integrator's Workbench and
may compete with the Company in certain instances.
RELIANCE ON UNIONIZED LABOR. A substantial portion of the Company's
deployment force is employed under contracts with the International Brotherhood
of Electrical Workers and the International Brotherhood of Electrical Workers
Local 1430 (collectively, the "IBEW"). The Company's union employees are
responsible for the deployment of the Company's services. The Company's current
contracts with the IBEW expired on December 31, 1997. Negotiations have recently
commenced with respect to the new contracts, however, there can be no assurance
as to the results of the negotiations or whether such contracts will be
negotiated without any work stoppages. Any work stoppages or other labor
disturbances could have a material adverse effect on the Company's business,
financial condition and results of operations.
LIMITED INTELLECTUAL PROPERTY. The Company relies on a combination of
contractual rights, copyright and trade secret laws to establish and protect its
software and other proprietary rights. Currently, the Company has no copyrights
or patents pending for its products and services. Existing trade secret laws
offer only limited protection. There can be no assurance that the steps taken by
the Company to protect these proprietary rights will be adequate to deter
misappropriation. Although the Company does not believe that it is infringing
the intellectual property rights of others, there can be no assurance that such
claims will not be asserted and, if asserted, would not have a material adverse
effect on the Company's business, financial condition and results of operations.
Any such litigation could be costly and divert management's attention, either of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Adverse determinations in such litigation
could result in the loss of the Company's proprietary rights, subject the
Company to significant liabilities, require the Company to seek licenses from
third parties or prevent the Company from selling its services, any one of which
would have a material adverse effect on
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the Company's business, financial conditions and results of operations.
INFLUENCE BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS. As of January 31,
1998, the Company's directors and executive officers owned and/or had the power
to vote approximately 24.6% of the Common Stock. In addition, as of January 31,
1998, Ralph Glasgal, a Director of the Company, through his direct ownership and
through a voting agreement with Direct Connect International Inc. ("DCI") had
the power to vote approximately 14.5% of the Common Stock and Mr. Carey,
President of the Company, had the power to vote approximately 12.0% of the
Common Stock. Accordingly, management will be able to influence (in addition to
their influence as officers and/or directors) the affairs of the Company,
including the election of directors and other matters requiring stockholder
approval.
VOLATILITY OF THE COMPANY'S COMMON STOCK. The market price of the
Company's Common Stock has experienced significant volatility. Announcements of
technological or other innovations for new commercial products or services of
the Company or its competitors, developments concerning propriety rights or
governmental regulations, changes in financial estimates by securities analysts,
or general conditions in the economy or the market for the Company's services,
some of which may be unrelated to the Company's performance and beyond the
Company's control, may have a significant effect on the Company's business and
on the market price of the Company's securities. Sales of a substantial number
of shares by existing security holders could also have an adverse effect on the
market price of the Company's securities. The stocks of many technology
companies have experienced extreme price and volume fluctuations unrelated to
the operating performance of those companies.
SHARES ELIGIBLE FOR FUTURE SALE. The shares of Common Stock issuable
upon exercise of the warrants, options, the Note or the Common Stock registered
in the Registration Statement of which this Prospectus is part will be freely
tradeable without restriction under the Securities Act upon resale by the
Selling Stockholders. The Selling Stockholders are not restricted as to the
price or prices at which they may sell their Shares. Sales of such Shares may
have an adverse effect on the market price of the Common Stock. Moreover, the
Selling Stockholders are not restricted as to the number of Shares that may be
sold at any time, and it is possible that a significant number of Shares could
be sold at the same time which may also have an adverse effect on the market
price of the Company's Common Stock.
No predictions can be made as to the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market,
-11-
<PAGE>
or the perception that such sales could occur, could materially and adversely
effect the market price of the Common Stock and could impair the Company's
ability to raise capital through an offering of its equity securities in the
future.
RIGHTS OF COMMON STOCK SUBORDINATE TO PREFERRED STOCK. The Certificate
of Incorporation of the Company authorizes the issuance of a maximum of
4,000,000 shares of preferred stock, par value $0.001 per share. There are no
shares of preferred stock currently issued and outstanding. However, if shares
of preferred stock are issued in the future, the terms of a series of preferred
stock may be set by the Company's Board of Directors without approval by the
holders of the Common Stock of the Company. Such terms could include, among
others, preferences as to dividends and distributions on liquidation as well as
separate class voting rights. The rights of the holders of the Company's Common
Stock will be subject to, and may be adversely effected by, the rights of the
holders of any preferred stock that may be issued in the future.
CERTAIN ANTI-TAKEOVER CHARTER PROVISIONS. The Company's Certificate of
Incorporation: (i) requires certain procedures to be followed and time periods
to be met for any stockholder to propose matters to be considered at annual
meetings of stockholders, including nominating directors for election at those
meetings; (ii) prohibits stockholders from calling special meetings of
stockholders; and (iii) authorizes the Board of Directors of the Company to
issue up to 4,000,000 shares of preferred stock without stockholder approval and
to set the rights, preferences and other designations, including voting rights,
of those shares as the Board of Directors may determine. These provisions, alone
or in combination with each other and with the matters described under
"--Influence by Management and Principal Stockholders," may discourage
transactions involving actual or potential changes of control of the Company,
including transactions that otherwise could involve payment of a premium over
prevailing market prices to holders of Common Stock. The Company has also
adopted a stockholder rights plan and is subject to certain provisions of the
Delaware General Corporation Law which have certain anti-takeover effects.
NO CASH DIVIDENDS. The Company has not paid cash dividends on its
Common Stock since its inception, other than certain distributions made to
stockholders in amounts sufficient to reimburse the Company's stockholders for
income tax liabilities arising from the Company's former status as a Subchapter
"S" corporation. The Company does not intend to pay cash dividends on its Common
Stock for the foreseeable future. The payment of cash dividends in the future
will be at the discretion of the Company's Board of Directors and will depend
upon such factors as earnings levels, capital requirements, the Company's
financial condition and other factors deemed relevant by the Company's Board of
Directors.
-12-
<PAGE>
In addition, the payment of cash dividends by the Company is restricted by the
Company's current bank credit facility, and future borrowings may contain
similar restrictions.
THE COMPANY
The "Company" provides configuration, integration and rapid deployment
services for the implementation of complex computer networking and connectivity
systems. By combining its standardized process methodology and its Integrator's
Workbench Product Series software tools with extensive project management,
integration and implementation expertise, the Company delivers high quality and
cost effective technology deployment solutions. Utilizing four regional staging
and configuration centers and its own field deployment force of approximately
285 persons operating out of 19 offices, the Company conducts multiple
simultaneous large scale implementations for organizations throughout the United
States and Canada.
In order to provide high quality, consistent, rapid and cost effective
results, the Company has developed an implementation model consisting of (i) a
standardized process methodology, (ii) project management expertise, (iii)
Integrator's Workbench software tools, (iv) regional staging and configuration
centers and (v) its own field deployment force. The Company believes its
implementation model enables its direct customers to accelerate the assimilation
of networking technologies into their organizations, and allows its indirect
customers to accelerate the adoption of their products and services.
The Company markets its services to Fortune 2,000 companies directly
through its sales force and indirectly through systems manufacturers, systems
integrators, independent software vendors and telecommunications carriers. The
Company's direct customers include Bell Atlantic Network Integration, Beneficial
Management Corporation, Blockbuster Entertainment Inc., Federated Department
Stores, Inc., Lowe's Companies, Inc., Ross Stores, Inc., Starbucks Corporation,
Toys "R" Us, Inc., and Walgreen Co. The Company's indirect customers include
Diebold Inc., Electronic Data Systems Incorporated, IBM Global Services, NCR
Corporation and Unisys Corporation. In June 1997, the Company was selected by
Cisco to participate in its new Advanced Installation Services ("AIS") program.
The AIS program is intended to enable faster deployment of Cisco's networking
technology to Fortune 1,000 corporations.
Since April 1996, the Company has completed three acquisitions which
have enabled the Company to focus its business exclusively on providing
implementation services. The Company's objective is to be the premier provider
of configuration, integration and rapid deployment services for the
implementation of complex computer networking solutions. Key elements of the
Company's strategy include: (i) focusing on implementation services; (ii)
targeting
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<PAGE>
complex networking and connectivity implementations; (iii) leveraging the
Company's implementation model; (iv) leveraging existing customers; (v)
establishing strategic alliances; and (vi) pursuing strategic acquisitions.
The Company's executive offices are located at 20C Commerce Way,
Totowa, New Jersey 07512. The telephone number of the Company is (973) 890-4800.
When used in this Prospectus, the term "Company" refers to Datatec Systems,
Inc., a Delaware corporation and its subsidiaries.
USE OF PROCEEDS
No net proceeds will be realized by the Company from the offer and
resale of the Shares offered hereby by the Selling Stockholders or upon
conversion of the Note. The Company will receive a total of approximately
$2,938,572 in the event that all shares of Common Stock offered hereby that are
issuable upon the exercise of warrants and options have been issued, upon such
exercise by certain Selling Stockholders ($511,497 if the warrants are exercised
on a cashless basis). Such proceeds will be used by the Company for working
capital and other corporate purposes. The warrants may be exercised on a
cashless basis. If the warrants are exercised on a cashless basis, the Company
will not receive any cash proceeds upon the exercise of such warrants.
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth (i) the number of shares of Common Stock
beneficially owned by each Selling Stockholder as of March 17, 1998, (ii) the
number of Shares of Common Stock to be offered for resale by each Selling
Stockholder and (iii) the number and percentage of shares of Common Stock to be
beneficially owned by each Selling Stockholder after completion of the offering.
Except as set forth below, none of the Selling Stockholders has had a material
relationship with the Company during the past three years.
<TABLE>
<CAPTION>
No. of Shares of
Common Stock No. of Shares Shares Beneficially Owned
Name Beneficially Owned Offered After Offering(1)
- ---------------------------------------- ---------------------- ----------------- -------------------------------
NUMBER PERCENT
------ -------
<S> <C> <C> <C> <C>
Joseph Stevens & Company, Inc.(2)........ 617,500(3) 517,500(4) 100,000 *
Christopher J. Carey(5).................. 3,439,536(6) 3,060,876(7) 378,660 1.3
Ronald Frey.............................. 29,631 26,266(8) 3,365 *
Mary Carey............................... 118,518 101,344 17,174 *
Amy Carey GRAT........................... 96,296 82,349 13,947 *
Christopher Carey GRAT................... 96,296 82,349 13,947 *
Plan C LLC(9)............................ 15,000 30,000(10) 0 *
David Tobey.............................. 0(11) 760,475(12) 0 *
</TABLE>
* Less than 1%.
- -------------------------------
(1) Assumes that all Common Stock offered by the Selling Stockholders is
sold and that no other shares beneficially owned by the Selling
Stockholders are sold.
(2) Joseph Stevens & Company, Inc. ("Joseph Stevens") acted as the
representative of the underwriters in connection with the Company's
public offering consummated in September 1995 and was also a financial
consultant to the Company from September 1995 until September 1997. In
addition, Joseph Stevens currently makes a market in the Company's
Common Stock. In connection with the 1995 public offering, Joseph
Stevens received a warrant to purchase the securities being offered by
it hereby.
(3) Includes 517,500 shares of Common Stock issuable upon the exercise of
warrants and 100,000 shares of Common Stock issuable upon the exercise
of options, to purchase Common Stock of the Company granted to Joseph
Stevens.
(4) Represents 517,500 shares of Common Stock issuable upon the exercise of
warrants to purchase Common Stock of the Company granted to Joseph
Stevens & Company Inc.
(5) Christopher Carey is the President and a director of the Company.
(6) Includes (i) 96,296 shares held by the Amy Carey GRAT, a trust formed
for the benefit of Mr. Carey's daughter, (ii) 96,296 shares held by the
Christopher Carey GRAT, a trust formed for the benefit of Mr. Carey's
son, (iii) 118,518 shares held by Mr. Carey's wife, and (iv) 15,000
shares beneficially owned by Plan C LLC, a limited liability company of
which Mr. Carey is a member.
(7) Includes 120,353 shares of Common Stock issuable upon the exercise of
options to purchase Common Stock of the Company granted to Mr. Carey.
(8) Includes 929 shares of Common Stock issuable upon the exercise of
options to purchase Common Stock of the Company granted to Mr. Frey.
(9) Plan C LLC is owned by Christopher Carey and his wife. Mr. Carey is an
executive officer and a director of the Company.
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<PAGE>
(10) Represents 30,000 shares of Common Stock issuable upon the exercise of
options to purchase Common Stock of the Company granted to Plan C LLC.
(11) Mr. Tobey is the holder of a Note that becomes convertible upon an
Event of Default (as such term defined in the Note). The principal
amount of the Note is payable by the Company on the earlier to occur of
(i) June 15, 1998, or (ii) the realization by the Company of $3 million
or more from the sale of equity securities.
(12) Represents 760,475 shares of Common Stock that would be issuable to Mr.
Tobey upon conversion of a Note in the principal amount of $1,832,747
held by Mr. Tobey. The number of shares issuable to Mr. Tobey upon the
conversion of such Note is an approximation which is based on the
hypothetical conversion of such Note on March 26, 1998. Such
hypothetical conversion assumes that the liquidity condition of the
Note is not satisfied because as of March 26, 1998 there was not an
effective registration statement covering the resale of the shares of
Common Stock issuable to Mr. Tobey upon conversion of such Note. If
there had been an effective registration statement on the date hereof,
the liquidity condition would have been satisfied and 506,284 shares
would have been issuable to Mr. Tobey upon such hypothetical conversion
of the Note. The actual number of shares of Common Stock that would be
issuable to Mr. Tobey upon conversion of such Note and available for
resale hereunder is determined by a conversion formula which is based,
in part, on the market price of the Common Stock determined as of the
date of conversion and, therefore, can not be determined on the date
hereof.
There is no assurance that the Selling Stockholders which hold options
or warrants to purchase Common Stock from the Company or the convertible Note
will exercise such warrants or options or convert such Notes, or that such
Selling Stockholder or any other Selling Stockholder will otherwise opt to sell
any of the Shares offered hereby. To the extent required, the specific Shares to
be sold, the names of the Selling Stockholders, other additional shares of
Common Stock beneficially owned by such Selling Stockholders, the public
offering price of the Shares to be sold, the names of any agent, dealer or
underwriter employed by such Selling Stockholders in connection with such sale,
and any applicable commission or discount with respect to a particular offer
will be set forth in an accompanying Prospectus Supplement.
The Shares covered by this Prospectus may be sold from time to time so
long as this Prospectus remains in effect; provided, however, that the Selling
Stockholders are first required to contact the Company's Corporate Secretary to
confirm that this Prospectus is in effect. The Selling Stockholders expect to
sell the Shares at prices then attainable, less ordinary brokers' commissions
and dealers' discounts as applicable.
The Selling Stockholders and any broker or dealer to or through whom
any of the Shares are sold may be deemed to be underwriters within the meaning
of the Securities Act with respect to the Common Stock offered hereby, and any
profits realized by the Selling Stockholders or such brokers or dealers may be
deemed to be underwriting commissions. Brokers' commissions and dealers'
discounts, taxes and other selling expenses to be borne by the Selling
Stockholders are not expected to exceed normal selling expenses for sales
over-the-counter or otherwise, as the case may be. The registration of the
Shares under the Securities Act shall not be deemed an admission by the Selling
Stockholders or the Company that the Selling Stockholders are underwriters for
purposes of the Securities Act of any Shares offered under this Prospectus.
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<PAGE>
TRANSFER AGENT
The transfer agent, warrant agent and registrar for the Common Stock is
Continental Stock Transfer & Trust Company, New York, New York.
PLAN OF DISTRIBUTION
This Prospectus covers 4,661,159 shares of the Company's Common Stock.
All of the Shares offered hereby may be sold from time to time by the Selling
Stockholders. The securities covered by this Prospectus may be sold under Rule
144 instead of under this Prospectus. The Company will realize no proceeds from
the sale of the Shares or conversion of the Note by the Selling Stockholders,
but will receive amounts upon exercise of options and warrants, which amounts
will be used for working capital and general corporate purposes.
The distribution of the Shares by the Selling Stockholders is not
subject to any underwriting agreement. The Selling Stockholders may sell the
Shares offered hereby from time to time in transactions on one or more
exchanges, in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices relating to prevailing
market prices or at negotiated prices.
From time to time the Selling Stockholders may pledge their Shares
pursuant to the margin provisions of customer agreements with their respective
brokers. Upon a default by the Selling Stockholders, such brokers may offer and
sell the pledged Shares.
Such transactions may be effected by selling the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of the customary commissions). The Selling
Stockholders and any broker-dealers that participate with the Selling
Stockholders in the distribution of the Shares may be deemed to be underwriters
within the meaning of Section 2(11) of the Securities Act and any commissions
received by them and any profit on the resale of the Shares may be deemed to be
underwriting commissions or discounts under the Securities Act. The Selling
Stockholders will pay any transaction costs associated with effecting any sales
that occur.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with by the Company and the Selling
Stockholders.
-17-
<PAGE>
Any broker-dealer acquiring Common Stock offered hereby may sell such
securities either directly, in its normal market-making activities, through or
to other brokers on a principal or agency basis or to its customers. Any such
sales may be at prices then prevailing on Nasdaq, at prices related to such
prevailing market prices or at negotiated prices to its customers or a
combination of such methods. In addition and without limiting the foregoing, the
Selling Stockholders will be subject to applicable provisions of Regulation M,
which may limit the timing of the purchases and sales of shares of Common Stock
by the Selling Stockholders.
The Selling Stockholders are not restricted as to the price or prices
at which it may sell their Shares. Sales of such Shares may have an adverse
effect on the market price of the Common Stock. Moreover, the Selling
Stockholders are not restricted as to the number of Shares that may be sold at
any time, and it is possible that a significant number of Shares could be sold
at the same time which may also have an adverse effect on the market price of
the Company's Common Stock.
The Company has agreed to pay all fees and expenses incident to the
registration of the Shares, except selling commissions and fees and expenses of
counsel or any other professionals or other advisors, if any, to the Selling
Stockholders.
This Prospectus also may be used, with the Company's consent, by donees
or other transferees of the Selling Stockholders, or by other persons acquiring
the Common Stock under circumstances requiring or making desirable the use of
this Prospectus for the offer and sale of such shares.
-18-
<PAGE>
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by Olshan Grundman Frome & Rosenzweig LLP, New York, New York. Robert
Frome, Robert Friedman and Jeffrey Spindler, members of Olshan Grundman Frome &
Rosenzweig LLP, hold shares of Common Stock. Mr. Friedman is also a director of
the Company and holds options to purchase additional shares of Common Stock.
EXPERTS
The consolidated financial statements as of April 30, 1997 incorporated
by reference in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
To the extent that a firm of independent public accountants audits and
reports on the financial statements of the Company issued at future dates, and
consents to the use of their report thereon, such financial statements also will
be incorporated by reference herein in reliance upon their report and said
authority.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the following
regional offices: 7 World Trade Center, Suite 1300, New York, New York 10048,
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 upon payment of
the fees prescribed by the Commission. In addition, reports, proxy statements
and other information concerning the Company (symbol: DATC) can be inspected and
copied at the offices of the Nasdaq Stock Market, 1735 K Street, N.W.,
Washington, D.C. 20006, on which the Common Stock of the Company is listed. Such
material may also be accessed electronically by means of the Commission's home
page on the internet at http//www.sec.gov.
The Company has also filed with the Commission a Form S-3 Registration
Statement (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Shares offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement.
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<PAGE>
No dealer, salesman or any other person is authorized to give any information or
to make any representations in connection with this offering not contained in
this Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or any other person.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the Securities offered by this Prospectus
or an offer by any person in any jurisdiction where such an offer or
solicitation is not authorized or is unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that information herein is correct as of any time subsequent to
its date.
TABLE OF CONTENTS
PAGE
Incorporation of Certain Documents
By Reference............................................................... 3
Risk Factors................................................................. 4
The Company..................................................................13
Use of Proceeds..............................................................14
Selling Stockholders.........................................................15
Transfer Agent...............................................................17
Plan of Distribution.........................................................17
Legal Matters................................................................19
Experts......................................................................19
Available Information........................................................19
DATATEC SYSTEMS, INC.
4,661,159 SHARES OF COMMON STOCK
PROSPECTUS
[ ], 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses which will be paid
by the Company in connection with the securities being registered. With the
exception of the SEC registration fee, all amounts shown are estimates.
SEC registration fee................................. $6,790.64
Nasdaq listing expenses.............................. 2,000.00
Legal fees and expenses (including Blue Sky)......... 5,000.00
Accounting Fees and Expenses......................... 2,000.00
Miscellaneous........................................ 2,209.36
--------
Total....................................... $18,000.00
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and the By-laws of the Registrant
provides that the Registrant shall indemnify to the extent permitted by Delaware
law any person whom it may indemnify thereunder, including directors, officers,
employees and agents of the Registrant. Such indemnification (other than an
order by a court) shall be made by the Registrant only upon a determination that
indemnification is proper in the circumstances because the individual met the
applicable standard of conduct. Advances for such indemnification may be made
pending such determination. In addition, the Registrant's Certificate of
Incorporation eliminates, to the extent permitted by Delaware law, personal
liability of directors to the Registrant and its stockholders for monetary
damages for breach of fiduciary duty as directors.
The Registrant's authority to indemnify its directors and officers is
governed by the provisions of Section 145 of the Delaware General Corporation
Law, as follows:
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than action by or in the right of the corporation) by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to
II-1
<PAGE>
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of
II-2
<PAGE>
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
(e) Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance of
the final disposition or such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses incurred by other
employees and agents may be paid upon such terms and conditions, if any, as the
board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to the "corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had the power
and authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans, references to "fines" shall include any
excise taxes assessed on a person
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<PAGE>
with respect to any employee benefit plan, and references to "serving at the
request of the corporation" shall include any service as a director, officer,
employee, or agent with respect to any employee benefit plan, its participants
or beneficiaries, and a person who acted in good faith and in a manner
reasonably believed to be in the interest of the participants and beneficiaries
of any employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
The Registrant has entered into Indemnification Agreements with each of
its directors and officers whereby it has agreed to indemnify each director and
officer from and against any and all expenses, losses, claims, damages and
liability incurred by such director or officer for or as a result of action
taken or not taken while such director was acting in his capacity as a director,
officer, employee or agent of the Registrant.
ITEM 16. EXHIBITS
EXHIBIT NO.
4 Specimen Certificate of the Company's Common Stock
(incorporated by reference to the Company's registration
statement on Form S-8, filed with the Commission on March
27, 1998).
**5 Opinion of Olshan Grundman Frome & Rosenzweig LLP with
respect to legality of the Common Stock.
**23.1 Consent of Olshan Grundman Frome & Rosenzweig LLP, included
in Exhibit No. 5.
**23.2 Consent of Arthur Andersen LLP, independent public
accountants.
* 24.1 Power of Attorney, included on the signature page to this
Registration Statement.
- ---------------------
* Previously filed
** Filed herewith.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is
II-4
<PAGE>
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of an
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Totowa, State of New
Jersey on the 27th day of March, 1998.
DATATEC SYSTEMS, INC.
By: /S/ ISAAC J. GAON
---------------------
Isaac J. Gaon
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
____________________________ Director March 27, 1998
Ralph Glasgal
/S/ ISAAC GAON
- ---------------------------- Chairman of the Board March 27, 1998
Isaac J. Gaon and Chief Executive
Officer (principal
executive officer)
____________________________ Director March 27, 1998
Joseph M. Salvani
*
- ---------------------------- Director
Robert H. Friedman March 27, 1998
* Director March 27, 1998
- ---------------------------
Thomas Berry
* Director March 27, 1998
- ---------------------------
David Milch
____________________________ Director March 27, 1998
Christopher Carey
*
- ---------------------------- Chief Financial Officer
James M. Caci (principal financial and March 27, 1998
accounting officer)
*By: /S/ ISAAC J. GAON
-----------------------
Isaac J. Gaon
Attorney-in-Fact
II-6
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
505 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 753-7200
March 27, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Re: Datatec Systems, Inc.-
Amendment No. 1 to Registration
Statement on Form S-3
Ladies and Gentlemen:
Reference is made to Amendment No. 1 to the Registration
Statement on Form S-3 dated the date hereof (the "Registration Statement"),
filed with the Securities and Exchange Commission by Datatec Systems, Inc., a
Delaware corporation (the "Company"). The Registration Statement relates to an
aggregate of 4,661,159 shares (the "Shares") of common stock, par value $.001
per share (the "Common Stock"). The Shares were (i) previously issued by the
Company to the Selling Shareholders named in the Registration Statement, (ii)
will be issued by the Company to the Selling Shareholders named in the
Registration Statement upon the exercise of outstanding warrants and options, or
(ii) will be issued by the Company to the Selling Shareholders named in the
Registration Statement upon the exercise of a convertible promissory note.
We advise you that we have examined, among other things,
originals or copies certified or otherwise identified to our satisfaction of the
Certificate of Incorporation and By-laws of the Company, minutes of meetings of
the Board of Directors and stockholders of the Company and such other documents,
instruments and certificates of officers and representatives of the Company and
public officials, and we have made such examination of the law, as we have
deemed appropriate as the basis for the opinion hereinafter expressed. In making
such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to original
<PAGE>
Securities and Exchange Commission
March 27, 1998
Page -2-
documents of documents submitted to us as certified or photostatic copies.
Based upon the foregoing, we are of the opinion that the
Shares have been duly authorized and either (i) are validly issued, fully paid
and non-assessable or (ii) will be validly issued, fully paid and non-assessable
upon the exercise of the warrants and options, subject, however, to receipt by
the Company of the exercise price for the warrants and options in accordance
with their respective terms.
We hereby consent to use of this opinion in the Registration
Statement and Prospectus, and to the use of our name in the Prospectus under the
caption "Legal Matters".
We advise you that Robert Friedman, a member of this firm is a
director and stockholder of the Company. Other members of this firm are also
stockholders of the Company.
Very truly yours,
/s/ OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
------------------------------------------
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
ARTHUR ANDERSEN LLP
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Glasgal Communications, Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated August 9, 1997
included in Glasgal Communications, Inc. Form 10-K for the year ended April 30,
1997 and to all references to our Firm included in this registration statement.
/S/ ARTHUR ANDERSEN LLP
-----------------------
Arthur Andersen LLP
Roseland, New Jersey
March 24, 1998
