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As filed with the Securities and Exchange Commission on December 16, 1996
Registration No. 33-81350
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 ON FORM S-3 TO
FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DATA SYSTEMS NETWORK CORPORATION (Exact name of Registrant as specified in
its charter)
Michigan 38-2649874
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34705 W. Twelve Mile Road
Suite 300
Farmington Hills, Michigan 48331
(810) 489-7117
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Michael W. Grieves, Chairman, President
and Chief Executive Officer
34705 W. Twelve Mile Road, Suite 300
Farmington Hills, Michigan 48331
(810) 489-7117
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
copy to:
Mark A. Metz, Esq.
Dykema Gossett PLLC
400 Renaissance Center
Detroit, MI 48243
(313) 568-5434
Approximate date of commencement of proposed sale to public: From
time to time after this Registration Statement is declared effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or investment 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 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. [ ]
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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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PROSPECTUS
DATA SYSTEMS NETWORK CORPORATION
1,270,000 SHARES
COMMON STOCK, $.01 PAR VALUE
This Prospectus relates to 1,270,000 shares of Common Stock, $.01
par value (the "Common Stock"), of Data Systems Network Corporation (the
"Company") registered for issuance by the Company upon exercise of the
Redeemable Common Stock Purchase Warrants (the "Purchase Warrants") issued
by the Company to investors in its initial public offering in November 1994
(the "IPO").
Each Purchase Warrant entitles the holder to purchase one share of
Common Stock at a price of $6.25 per share until October 27, 1997 and $7.50
per share thereafter until the Purchase Warrants expire on October 27, 1999.
Such exercise prices are subject to anti-dilution adjustments under certain
circumstances. The Purchase Warrants are redeemable by the Company at $.05
per Purchase Warrant on 30 days prior written notice (i) with the prior
written consent of H. J. Meyers & Co., Inc. (as successor to Thomas James
Associates, Inc.), the Representative of the several underwriters in the IPO
(the "Representative") or (ii) if the average closing bid price of the
Common Stock for a period of 30 consecutive trading days exceeds $12.00 per
share. In the event the Company exercises the right to redeem the Purchase
Warrants, such Purchase Warrants would be exercisable until the close of
business on the date fixed for redemption in such notice. If any
outstanding Purchase Warrant called for redemption is not exercised by such
date, it will cease to be exercisable and the holder will be entitled only
to the redemption price. The Company intends to seek the consent of the
Representative to permit the redemption of the Purchase Warrants at the
earliest possible date.
SEE "RISK FACTORS" ON PAGE 3 FOR CERTAIN INFORMATION WHICH SHOULD BE
CAREFULLY CONSIDERED BEFORE PURCHASING SHARES OF COMMON STOCK OFFERED
HEREBY.
The total gross proceeds to the Company from this offering may range
from zero to $9,525,000, if all of the Purchase Warrants are exercised at a
time when the highest exercise price for the Purchase Warrants is in effect.
The Company will pay estimated expenses relating to this offering of
approximately $40,000. This offering is not being underwritten.
The Company's Common Stock and Purchase Warrants are traded on the
Nasdaq Stock Market's SmallCap Market ("Nasdaq") under the symbols "DSYS"
and "DSYSW," respectively, and on the Pacific Stock Exchange under the
symbols "DSY" and "DSYWS", respectively. On December 9, 1996, the last
reported sale price of the Company's Common Stock and Purchase Warrants on
Nasdaq was $9.63 per share and $3.56 per Purchase Warrant.
The Company's principal executive offices are located at 34705 West
Twelve Mile Road, Suite 300, Farmington Hills, Michigan 48331 (telephone
number: (810) 489-7117).
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.
The date of this Prospectus is December 16, 1996
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NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE DISTRIBUTING SHAREHOLDER. THE
DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
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 and other information with the Securities
and Exchange Commission (the "Commission") and the Pacific Stock Exchange,
Inc. (the "PSE"). Such reports, proxy statements and other information may
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: New York Regional Office, 7
World Trade Center, 13th Floor, New York, New York 10048; and Chicago
Regional Office, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511, and may be inspected at the PSE at 301 Pine Street, San
Francisco, California 94104. In addition, copies of such material can be
obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
also maintains a Web site (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding the Company.
This Prospectus is a part of a Registration Statement filed by the
Company with the Commission under the Securities Act of 1933, as amended
(the "Securities Act"). This Prospectus omits certain of the information
included in such Registration Statement. The Registration Statement may be
inspected by anyone at the office of the Commission without charge, and
copies of all or any part of it may be obtained upon payment of the
Commission's charge for copying. For further information about the Company
and its securities, reference is hereby made to such Registration Statement,
and to the exhibits filed as part thereof or otherwise incorporated herein.
Each summary herein of additional information included in the Registration
Statement or any exhibit thereto is qualified in its entirety by reference
to such information or exhibit.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents (and the amendments thereto) filed by the
Company (Commission File No. 1-13424) with the Commission are hereby
incorporated by reference and made a part hereof:
(a) The description of the Company's Common Stock contained in
the Prospectus forming a part of the Company's Registration
Statement on Form S-1 (No. 33-81350) (incorporated by
reference into the Company's Exchange Act Registration
Statement on Form 8-A, filed on October 25, 1994);
(b) Annual Report on Form 10-K for the year ended December 31,
1995;
(c) Quarterly Reports on Form 10-Q for the Quarters Ended March
31, 1996, June 30, 1996 and September 30, 1996; and
(d) Current Report on Form 8-K filed September 27, 1996.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the offering of the
Securities covered by this Prospectus shall be deemed to be incorporated
herein by reference and to be a part hereof from the respective date of
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filing of each such document. Any statement contained in a document
incorporated by reference or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
To the extent the foregoing documents are incorporated by reference
herein, copies may be obtained without charge (other than for exhibits to
such documents) upon written request directed to: Shareholder Relations,
34705 West Twelve Mile Road, Suite 300, Farmington Hills, Michigan 48331
(telephone number: (810) 489-7117).
RISK FACTORS
Prospective investors should consider carefully the following
factors before purchasing the securities offered hereby.
RECENT OPERATING LOSSES
The Company reported losses of $160,000, $613,000 and $291,000 for
the nine months ended September 30, 1996 and the years ended December 31,
1995 and 1994, respectively. The results for the nine months ended
September 30, 1996 include a $165,000 extraordinary loss relating to the
settlement of the Company's 1992 bankruptcy plan of reorganization and a
$75,000 extraordinary gain relating to the extinguishment of debt, while the
results for the year ended December 31, 1995 include a $620,000 increase in
the Company's inventory reserves to cover the likely risk of future
inventory obsolesence and a gain of $320,000 on the extinguishment of debt.
The recent losses have also been affected by the fact that the Company's
revenue mix has not optimized gross profits. In each period, lower margin
equipment sales comprised a higher percentage of total revenue than desired
by the Company. Although the Company during 1996 has made two strategic
acquisitions, begun several new projects and taken other internal measures
to increase the level of service revenue as a component of total revenue,
there can be no assurance that profit margins will improve to a level
sufficient to cover the operating expense increases anticipated as a result
of the recent acquisitions and geographic expansion.
FUTURE CAPITAL NEEDS
The Company had working capital of $2.0 million at December 31, 1995
and a working capital deficit of $1.8 million at September 30, 1996. The
Company's principal credit facility is a bank line of credit. As of
September 30, 1996, the Company was indebted under the line of credit in the
amount of approximately $5.4 million, all of which is due on demand. There
can be no assurance that the bank will not demand payment at a time at which
the Company is unable to repay or refinance such indebtedness.
In addition, the Company's future capital requirements will depend
on many factors, including cash flow from operations, competing market
developments and future expansion plans, and may require the Company to
raise additional funds through equity or debt financings. Any equity
financings could result in dilution to the Company's shareholders, and any
financing, if available at all, may be on terms unfavorable to the Company.
If adequate funds are not available, the Company may be required to curtail
its activities significantly. The Company may seek to raise capital by
calling the Purchase Warrants for redemption, which would likely influence
the holders of the Purchase Warrants to exercise them prior to the date of
redemption. The Company is not permitted to redeem the Purchase Warrants
except on 30 days prior written notice (i) with the prior written consent of
the Representative or (ii) if the average closing bid price of the Common
Stock for a period of 30 consecutive trading days exceeds $12.00 per share.
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POTENTIAL INABILITY TO MANAGE GROWTH
The Company is experiencing rapid and significant growth which has
placed, and may continue to place, a strain on the Company's management and
resources. From August 1996 through November 1996, the number of the
Company's employees increased from approximately 80 to 245 and further
increases are anticipated during 1997. The Company's future performance and
profitability will depend, in large part, on its ability to manage this
growth, particularly with respect to its decentralized workforce, which will
require the Company to continue to improve its operational, financial and
other internal systems. In addition, the Company will need to train,
motivate and integrate its new employees. If the Company is unable to
manage growth effectively or perform its services at anticipated levels, the
Company's business, financial condition and results of operations may be
materially adversely affected.
VARIABILITY OF OPERATING RESULTS
The Company's quarterly and annual operating results have been
subject to variation, and will continue to be subject to variation, from
period to period depending upon factors such as the Company's revenue mix;
the cost of materials, labor and technology; the costs associated with
initiating new contracts or opening new offices; the economic condition of
the Company's target markets; and the costs of acquiring and integrating new
businesses. As a result of these factors and others, there can be no
assurance that the Company will be profitable in the future on a quarterly
or annual basis. It is possible that in some future quarter the Company's
operating results will be below the expectations of public market analysts
and investors. In such event, or in the event that adverse conditions
prevail or are perceived to prevail generally or with respect to the
Company's business, the price of the Common Stock may be materially
adversely affected.
DEPENDENCE ON MAJOR VENDORS
In general, the Company must be directly authorized by a
manufacturer in order to sell that manufacturer's products. The Company is
an authorized dealer for the microcomputer and related products of over 30
manufacturers. Sales by the Company of products manufactured by Compaq,
Hewlett-Packard, Dell, NetFrame and IBM together accounted for more than 50%
of the Company's total revenues during the nine months ended September 30,
1996 and during each of the years ended December 31, 1995 and 1994. The
Company's authorized dealer agreements with manufacturers are typically
subject to periodic renewal and to termination on short notice. The
Company's authorized dealer agreements, including those with Compaq,
Hewlett-Packard, Dell, NetFrame and IBM, may be terminated by the
manufacturer without cause on 30 to 90 days' notice or immediately upon the
occurrence of certain events. The loss of a major manufacturer or the
deterioration of the Company's relationship with a major manufacturer could
have a material adverse effect on the Company's business. There can be no
assurance that the Company will continue as an authorized dealer for any
manufacturer, or that the current terms of its dealer agreements and other
manufacturer arrangements, including pricing terms, will not be changed.
Some of these major manufacturers have responded to increasing competition
in the microcomputer industry by discounting prices, which could adversely
affect the profitability of the Company.
COMPETITION
The network integration and management market is highly competitive.
The Company competes with local, regional and national computer retail
chains, network integration specialist companies and manufacturers.
Depending on the customer, the Company competes on the basis of
technological capability, price, breadth of product offerings and quality of
service. Many of the Company's competitors are larger and have greater
financial, marketing and human resources and geographic coverage than the
Company. There can be no assurance that the Company will be able to compete
successfully against existing companies or new entrants to the marketplace.
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TECHNOLOGICAL CHANGE
The network integration and management market is characterized by
rapid technological change and frequent introduction of new products and
product enhancements. Although technological change generally increases
demand for the Company's services, there can be no assurance that the
Company's current manufacturers and suppliers will be able to achieve the
technological advances necessary to remain competitive, or that the Company
will be able to obtain authorizations from new manufacturers or for new
products that gain market acceptance. In addition, technological change may
effect the value of inventory and spare parts. While the Company maintains
an allowance for obsolescence which it believes is adequate, there can be no
assurance that material adjustments will not be necessary.
DEPENDENCE ON KEY MANAGEMENT AND SERVICE PERSONNEL
The success of the Company has been largely dependent on the skills,
experience and efforts of its senior management and especially its President
and Chief Executive Officer, Michael Grieves. The loss of the services of
Mr. Grieves or other members of the Company's senior management could have a
material adverse effect on the Company's business and prospects. The
Company maintains a key man life insurance policy on Mr. Grieves in the
amount of $1,000,000.
The Company's business is service-oriented and labor-intensive. The
Company believes that its future success will also depend, to a large
extent, on the continued service of its key technical employees and client
and project managers and on its ability to continue to attract and retain
such personnel. Competition for such personnel is intense, particularly for
highly skilled and experienced technical personnel. Such personnel are in
great demand and are likely to remain a limited resource for the
foreseeable future. There can be no assurance that the Company will be able
to attract, retain and motivate such personnel in the future, and the
inability to do so may have a material adverse effect upon the Company's
business, financial condition and results of operations.
POTENTIAL CLAIMS BY PRE-BANKRUPTCY CREDITORS
The order confirming the Company's bankruptcy plan of reorganization
was entered on May 22, 1992. The Plan provided for certain distributions to
holders of claims against the Company which arose prior to the bankruptcy
petition filing and which have been allowed by the bankruptcy court. These
claims were settled, and the settlement was approved by the bankruptcy court
on October 3, 1996. The settlement requires the payment of certain amounts
and the distribution of certain warrants to such claim holders. Amounts due
pursuant to the settlement have been accrued by the Company but have not yet
been paid.
Some persons who may have had prepetition claims against the Company
did not receive distributions because no proper proof of claim was filed or
because the claim was disallowed based on the Company's objection. Those
persons could file a motion in the bankruptcy court asserting that they did
not receive proper notice of (i) the bankruptcy, (ii) the requirement that
they file a claim or (iii) the objection to their claim. The Company
believes that all required notices were given to all known prepetition
creditors of the Company in connection with the bankruptcy. If one of those
assertions could be proved, however, such a person may have the right to
have their prepetition claim allowed and to receive distributions under the
plan of reorganization. The aggregate amount of claims of such creditors is
not readily quantifiable.
CONTROL OF THE COMPANY
The Company's executive officers and directors beneficially own
approximately 39% of the outstanding shares of Common Stock. Since there
are no cumulative voting rights provided for in the Company's Articles of
Incorporation, these persons, if they act in concert, are likely to be in a
position to effectively control the election of the members of the Board of
Directors and to control most corporate actions requiring shareholder
approval.
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POSSIBLE DELISTING OF SECURITIES
If the Company's securities are subsequently delisted from the
Nasdaq and the PSE, they may become subject to the so-called "penny stock"
rule that imposes additional sales practice requirements on broker-dealers
who sell such securities to persons other than established customers and
accredited investors if the market price per share (as defined) falls below
$5.00. For transactions covered by this rule, the broker-dealer must make a
special suitability determination for the purchaser and must have received
the purchaser's written consent to the transaction prior to sale.
Consequently, delisting, if it occurred, may affect the ability of
broker-dealers to sell the Company's securities and the ability of
shareholders to sell their securities in the secondary market.
In addition, for any non-exempt transaction involving a "penny
stock," the rules require the delivery, prior to the transaction, of a
disclosure schedule relating to the penny stock market. The broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities.
Finally, monthly statements must be sent disclosing recent price information
for the penny stock held in the account and information on the limited
market in penny stock. Generally, transactions with respect to stock of
issuers having at least $2,000,000 in tangible assets, transactions in which
the customer is an institutional accredited investor and transactions that
are not recommended by the broker-dealer are exempt from the disclosure
rule.
POSSIBLE ISSUANCE OF PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of
Preferred Stock. Preferred Stock may be issued in one or more series, the
terms of which may be determined at the time of issuance by the Board of
Directors, without further action by shareholders, and may include voting
rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption
rights and sinking fund provisions. No Preferred Stock is currently
outstanding and the Company has no present plans for the issuance thereof.
The issuance of any Preferred Stock could affect the rights of the holders
of Common Stock, and therefore, reduce the value of the Common Stock and
make it less likely that holders of Common Stock would receive a premium for
the sale of their shares of Common Stock. In particular, specific rights
granted to future holders of Preferred Stock could be issued to restrict the
Company's ability to merge with or sell its assets to a third party, thereby
preserving control of the Company by its present owners.
SALES PURSUANT TO RULE 144
Approximately 1.3 million shares of Common Stock are "restricted
securities" within the meaning of Rule 144 promulgated under the Securities
Act. Except for 300,000 shares which are held in escrow through no later
than October 28, 1999, these "restricted securities" will be eligible for
sale, subject to the volume limitation and other conditions imposed by Rule
144, on February 5, 1997 upon the expiration of an agreement among certain
shareholders and warrant holders prohibiting sales of such shares until such
date. Under Rule 144, a person holding restricted securities for a period
of two years may, every three months, sell in ordinary brokerage
transactions or in transactions directly with a market maker an amount equal
to the greater of one percent of the Company's then outstanding Common Stock
or the average weekly trading volume during the four calendar weeks prior to
such sale. Future sales of such shares and sales of shares underlying
outstanding warrants or options could have an adverse effect on the market
price of the Common Stock.
USE OF PROCEEDS
The Company will receive all of the net proceeds from the sale of
shares of Common Stock offered hereby. The Company intends to use the
proceeds for general corporate and working capital purposes.
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PLAN OF DISTRIBUTION
The shares of Company Common Stock are issuable from time to time
upon the exercise of Purchase Warrants by the holders thereof. Upon
exercise of a Purchase Warrant in accordance with the terms thereof, the
Company shall cause to be delivered, to or upon the written order of such
holder, certificates representing the shares of Common Stock to which such
holder is entitled. The Common Stock issuable upon exercise of the
Warrants, when issued, will be included in the outstanding shares of the
Company listed on Nasdaq and the PSE. The Company will pay the expenses
incident to the registration of the securities being offered hereby.
Pursuant to the terms of the Underwriting Agreement dated October
28, 1994 between the Company and the Representative, the Company agreed that
it would allow a commission of 7% to the Representative upon exercise of any
Purchase Warrant which is exercised after October 28, 1995, a portion of
which commission may be reallowed to other members of the National
Association of Securities Dealers, Inc. ("NASD"), provided that (i) at the
time of exercise, the market price of the Common Stock is then higher than
the exercise price of the Purchase Warrant; (ii) the exercise was solicited
by an NASD member; (iii) the Purchase Warrant was not held in a
discretionary account; (iv) disclosure of the compensation arrangements has
been made in documents provided to customers, both as part of the IPO and at
the time of exercise; and (v) the solicitation of the exercise of the
Purchase Warrant did not violate Rule 10b-6 promulgated under the Exchange
Act. The Representative is not entitled to a commission on any Purchase
Warrant exercised without solicitation by the Representative.
DETERMINATION OF OFFERING PRICE
The offering price of the Common Stock issuable upon exercise of the
Purchase Warrants was contractually established between the Company and the
Representative in connection with and at the time of the IPO.
TRANSFER AGENT
The Transfer Agent for the Common Stock and the Purchase Warrants is
American Stock Transfer and Trust Company, 40 Wall Street, New York, New
York 10005.
LEGAL MATTERS
The validity under Michigan law of the authorization and issuance of
the shares offered hereby will be passed upon for the Company by Dykema
Gossett PLLC, Detroit, Michigan.
EXPERTS
The balance sheet as of December 31, 1995, and the statements of
operations, stockholders' equity and cash flows for the year ended December
31, 1995, included in the Form 10-K which is incorporated by reference in
this Prospectus, have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, as indicated by their report with respect
thereto, and are incorporated herein upon the authority of said firm as
experts in accounting and auditing.
The balance sheet as of December 31, 1994, and the statements of
operations, stockholders' equity and cash flows for the years ended December
31, 1994 and 1993, included in the Form 10-K which is incorporated by
reference in this Prospectus, have been audited by Deloitte & Touche LLP,
independent certified public accountants, as stated in their report with
respect thereto, and are incorporated herein in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following statement sets forth the estimated amounts of
expenses, all of which will be borne by the Company, in connection with the
distribution of the Common Stock offered hereby in addition to the expenses
previously set forth under this item:
Accounting Fees and Expenses ........................... 5,000
Legal Fees and Expenses ................................ 12,000
Blue Sky Fees and Expenses ............................. 2,000
Printing Expenses ...................................... 10,000
Miscellaneous Expenses ................................. 11,000
Total Expenses .........................................$40,000
Item 15. Indemnification of Directors and Officers
Sections 561 through 571 of the Michigan Business Corporation Act
set forth the conditions and limitations governing the indemnification of
officers, directors and other persons.
The Company's Articles of Incorporation and Bylaws require the
Company to indemnify its directors and officers to the fullest extent
permitted by law, and permit the Company to indemnify employees and agents,
for expenses, judgments, penalties, fines and amounts paid in settlement in
connection with any pending, threatened or completed action, suit or
proceeding (other than by or in the right of the Company), to which any such
person was made a party by reason of the fact that he or she was acting in
such capacity for the Company or was serving as such for another corporation
or enterprise at the Company's request, if such persons acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the Company or its shareholders or, in respect to a criminal
proceeding, had no reasonable cause to believe such conduct was unlawful.
In actions by or in the right of the Company, indemnification is limited to
expenses and amounts paid in settlement. Reference is made to Article V of
the Company's Articles of Incorporation, a copy of which is filed as Exhibit
3.1 to the Company's Registration Statement on Form S-1 (No. 33-81350), and
to Article XI of the Company's Bylaws, a copy of which is filed as Exhibit
3.2 to the Company's Registration Statement on Form S-1 (No. 33-81350),
which provide for indemnification of directors and officers of the Company.
Article 11 of the Bylaws also authorizes the Company to purchase and
maintain insurance on behalf of any officer, director, employee or agent of
the Company against any liability asserted against or incurred by them in
such capacity or arising out of their status as such whether or not the
Company would have the power to indemnify such officer, director, employee
or agent against such liability under the provisions of such Article or
Michigan law. The Company currently has an insurance policy covering
directors and officers acting in their capacity as such.
The Michigan Business Corporation Act permits Michigan corporations
to limit the personal liability of directors for a breach of their fiduciary
duty. The Company's Articles of Incorporation limit liability to the
maximum extent permitted by law. The Company's Articles of Incorporation
provide that a director of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for breach of the
director's fiduciary duty. However, they do not eliminate or limit the
liability of a director for any of the following: (i) a breach of the
director's duty of loyalty to the Company or its shareholders; (ii) acts or
omissions not in good faith or that involve intentional misconduct or a
knowing violation of law; (iii) declaring an unlawful dividend or
distribution to shareholders; (iv) a transaction from which the director
derives an improper personal benefit; and (v) an act or omission occurring
prior to September 4, 1987, the effective date of the pertinent article. As
a result of the inclusion of such a provision, shareholders of the Company
may be unable to recover monetary damages against directors for actions
taken by them which constitute negligence or gross negligence or which are
<PAGE>
in violation of their fiduciary duties, although it may be possible to
obtain injunctive or other equitable relief with respect to such actions.
Item 16. Exhibits
A list of exhibits included as part of this Post-Effective Amendment
is set forth in the Exhibit Index which immediately precedes such exhibits
and is incorporated herein by reference.
Item 17. Undertakings
1. Except to the extent that the information is contained in
periodic reports filed by the Company pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 and incorporated by reference into this
registration statement, the undersigned registrant hereby undertakes to
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933 and
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement.
2. The undersigned registrant hereby undertakes: (a) 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, (b) that, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof, and (c) to
remove from registration by means of a post-effective amendment any of the
securities which remain unsold at the termination of the offering.
3. 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 this 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.
4. Insofar as indemnification for liabilities arising under the
Securities Act 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 against public
policy as expressed in the Securities Act of 1933 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 any 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
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Company 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
Post-Effective Amendment on Form S-3 to Form S-1 Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Farmington Hills, State of Michigan on the 13th day of December,
1996.
DATA SYSTEMS NETWORK CORPORATION
By: /S/Michael W. Grieves
--------------------------
Michael W. Grieves, Chairman,
President and 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 indicated on December 13, 1996.
Signature
/S/Michael W. Grieves
- - --------------------------------
Michael W. Grieves
Chairman of the Board, President,
Chief Executive Officer and
Director (Principal Executive
Officer)
/S/Philip M. Goy
- - --------------------------------
Philip M. Goy
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
/S/Julie A. Vitale-Johnston
- - -------------------------------
Julie A. Vitale-Johnston
Controller (Principal
Accounting Officer)
*
- - -------------------------------
Walter J. Aspatore
Director
*
- - -------------------------------
Richard R. Burkhart
Director
- - -------------------------------
Jerry A. Dusa
Director
* By: /S/Michael W. Grieves
-------------------------
Michael W. Grieves
Attorney-in-Fact
EXHIBIT INDEX
Exhibit No. Description of Exhibits
5.1 Opinion of Dykema Gossett PLLC (previously filed)
10.5 Warrant Agreement between the Company and American Stock
Transfer and Trust Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Dykema Gossett PLLC (included in
Exhibit 5.1)
24.1 Power of Attorney of Richard R. Burkhart (previously filed)
24.2 Power of Attorney of Walter J. Aspatore
EXHIBIT 10.5
WARRANT AGREEMENT
THIS WARRANT AGREEMENT has been made as of October 28, 1994, between
DATA SYSTEMS NETWORK CORPORATION, a Michigan corporation (the "Company"),
and AMERICAN STOCK TRANSFER & TRUST COMPANY (the "Warrant Agent").
WHEREAS, the Company proposes to issue and sell to one or more
underwriters, including Thomas James Associates, Inc., the representative of
such underwriters (the "Representative"), for the purpose of a public
offering thereof (the "Offering"), certain Units (including Units subject to
the Underwriters' over-allotment option) (the "Units"), each Unit consisting
of two shares of the Common Stock, $.01 par value per share, of the Company
(the "Common Stock"), and two 60-month stock purchase warrants (the
"Warrants"), each Warrant exercisable to purchase one share of Common Stock
at any time commencing on October 28, 1994 (the "Original Issue Date"), and
ending on October 27, 1999, at an exercise price of $6.25 per share through
October 27, 1997 (36 months from the Original Issue Date), and $7.50 per
share during the remaining 24 months, all subject to adjustment as provided
herein; and
WHEREAS, the Company proposes to issue pursuant to this Agreement
certificates evidencing the Warrants (the "Warrant Certificates"); and
WHEREAS, the Company desires the Warrant Agent, and the Warrant
Agent agrees, to act on behalf of the Company in connection with the
issuance, transfer, exchange, replacement and surrender of the Warrant
Certificates; and
WHEREAS, the Company and the Warrant Agent desire to set forth in
this Warrant Agreement, among other things, the form and provisions of the
Warrant Certificates and the terms and conditions under which they may be
issued, transferred, exchanged, replaced and surrendered in connection with
the exercise of the Warrants;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF WARRANT AGENT; WARRANT CERTIFICATES.
1.1 Appointment of and Acceptance by Warrant Agent. The Company
hereby appoints the Warrant Agent to act on behalf of the Company in
accordance with the provisions of this Agreement. The Warrant Agent hereby
accepts such appointment and the agency established by this Agreement, and
agrees to perform the same upon the terms and conditions herein set forth.
1.2 Form of Warrant Certificates. Each Warrant Certificate
shall be issued in registered form only, in the name of the registered
holder thereof (the "Holder"), and, together with the purchase and
assignment forms to be printed on the reverse thereof, shall be
substantially in the form of Exhibit A annexed hereto. The Warrant
Certificates may also have stamped, printed, lithographed or engraved
thereon such letters, numbers or other marks of identification or
designation, and such legends, summaries or endorsements, as the Company may
deem appropriate from time to time and as are not inconsistent with the
provisions hereof, or as, in any particular case, may be required, in the
opinion of counsel to the Company, to comply with any law, rule or
regulation of any regulatory authority or agency, or to conform to customary
usage.
1.3 Execution of Warrant Certificates. The Warrant Certificates
shall be executed on behalf of the Company by its Chairman of the Board,
President or any Vice President, either manually or by facsimile signature
printed thereon. The Warrant Certificates shall be manually countersigned
and dated the date of countersignature by the Warrant Agent and shall not be
valid for any purpose unless so countersigned and dated. In case any
authorized officer of the Company who shall have signed any Warrant
Certificate shall cease to be such officer of the Company either before or
after delivery thereof by the Company to the Warrant Agent, the signature of
such person on such Warrant Certificate shall nevertheless be valid, and
such Warrant Certificate may be countersigned by the Warrant Agent, and
issued and delivered to the person entitled to receive the Warrants
represented thereby, with the same force and effect as though the person who
signed such Warrant Certificate had not ceased to be such officer of the
Company.
1.4 Issuance and Distribution of Warrant Certificates. Upon
completion of the Offering, the Company shall deliver to the Warrant Agent
an adequate supply of Warrant Certificates executed on behalf of the Company
as provided by Section 1.3. Upon receipt of an order from the Company, the
Warrant Agent shall, within three business days, complete and countersign
and deliver Warrant Certificates representing the total number of Warrants
to be issued hereunder.
2. WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS.
2.1 Exercise Price. Each Warrant Certificate shall, when
executed and countersigned as required by Section 1.3, entitle the Holder
thereof to purchase from the Company one fully paid and non-assessable share
of Common Stock for each Warrant evidenced thereby, at a purchase price of
$6.25 per share if exercised on or before October 27, 1997, and $7.50 per
share if exercised during the next succeeding 24 months, or such adjusted
number of shares at such adjusted purchase price as may be established from
time to time pursuant to the provisions of Section 4, payable in full at the
time of exercise of the Warrant. Except as the context otherwise requires,
as used herein the term "Exercise Price" shall mean the purchase price of
one share of Common Stock, as provided by this Section 2.1 and reflecting
all appropriate adjustments made in accordance with the provisions of
Section 4, which is in effect on the date of the particular Warrant
exercise.
2.2 Exercisability of Warrants. Each Warrant may be immediately
exercised at any time after the Original Issue Date but not after 5:00 p.m.,
New York time, on October 27, 1999 (the "Expiration Date," which term shall
also mean the latest time and date at which the Warrants may be exercised).
From and after the Expiration Date, each Warrant not theretofore exercised
shall be void and of no effect, and all rights thereunder, and all rights in
respect thereof under this Agreement, shall thereupon cease. The Company
has secured the effective registration of the shares of Common Stock
issuable upon exercise of the Warrants under the Securities Act of 1933, as
amended (the "Securities Act"), and has registered or qualified such shares
under applicable state securities laws, as requested by the Representative.
The Company agrees to use reasonable good faith efforts to maintain such
registration and/or qualification in effect and to keep available for
delivery upon the exercise of Warrants a prospectus that meets the
requirements of section 10 of the Securities Act, until the earlier of the
date by which all of the Warrants are exercised or the Expiration Date;
provided, however, that the Company shall have no obligation to maintain the
effectiveness of such registration or qualification or to keep available a
prospectus, as aforesaid, at any time at which such registration or
qualification or the delivery of such prospectus is not then required; and
provided further, that in the event, by amendment to the Securities Act or
otherwise, some other or different requirement shall be imposed by act of
Congress of the United States which shall relate to the issuance of Common
Stock upon exercise of the Warrants, the Company shall use reasonable good
faith efforts to comply with such requirement so long as the same shall not
be substantially more burdensome to the Company than the registration
requirements under the Securities Act.
2.3 Procedure for Exercise of Warrants. From the Original Issue
Date through the Expiration Date, Warrants may be exercised by the Holder
by: (a) surrendering the Warrant Certificates representing such Warrants to
the Warrant Agent at its principal office (its "Principal Office"), which is
currently at 40 Wall Street, New York, New York 10005, with the Election to
Purchase form set forth on the Warrant Certificate (the "Election to
Purchase") duly completed and executed by the Holder, with "Signatures
Guaranteed" (which for purposes hereof shall mean signatures guaranteed by a
member firm of a national securities exchange, a commercial bank or a trust
company located in the United States, or a member of the National
Association of Securities Dealers, Inc.); (b) delivering to the Warrant
Agent for the account of the Company payment in full of the aggregate
Exercise Price for the shares of Common Stock with respect to which such
Warrants are being exercised; and (c) delivering to the Warrant Agent
payment in full of the aggregate amount of the transfer taxes, if any,
referred to in Section 7.1. Such Exercise Price and taxes shall be paid in
full by cash, certified or official bank check, or postal money order, in
each case payable in United States currency to the order of the Warrant
Agent. The date on which Warrants are exercised in accordance with this
Section 2.3 is sometimes referred to herein as the "Date of Exercise" of
such Warrants.
2.4 Issuance of Common Stock. As soon as practicable after the
Date of Exercise of any Warrants, the Warrant Agent shall requisition from
the transfer agent for the Common Stock a certificate or certificates for
the number of full shares of Common Stock to which the Holder of such
Warrants is entitled, registered in accordance with the instructions set
forth in the Election to Purchase. All shares of Common Stock issued upon
the exercise of any Warrants shall be validly authorized and issued, fully
paid and non-assessable, and free from all taxes, liens and charges created
by the Company in respect of the issue thereof. Each person in whose name
any such certificate for shares of Common Stock is issued shall for all
purposes be deemed to have become the Holder of record of the Common Stock
represented thereby on the Date of Exercise of the Warrants resulting in the
issuance of such shares, irrespective of the date of issuance or delivery of
such certificate for shares of Common Stock.
2.5 Certificates for Unexercised Warrants. In the event that
less than all of the Warrants represented by a Warrant Certificate are
exercised, the Warrant Agent shall countersign and mail, by first-class
mail, postage prepaid, within 30 days after the Date of Exercise, to the
Holder of such Warrant Certificate (or to such other person as shall be
designated in the Election to Purchase), a new Warrant Certificate
representing the number of full Warrants not exercised. In no event shall a
fraction of a Warrant be exercised, and the Warrant Agent shall distribute
no Warrant Certificates representing fractions of Warrants under this or any
other provision of this Agreement.
2.6 Reservation of Shares. The Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants such
number of its authorized but unissued and/or treasury shares of Common Stock
as will be sufficient to permit the exercise in full of all outstanding
Warrants.
2.7 Disposition of Proceeds. The Warrant Agent shall account
promptly to the Company with respect to all Warrants exercised, and shall
concurrently deliver to the Company all funds received with respect to the
purchase of shares of Common Stock upon exercise of such Warrants.
3. REDEMPTION OF WARRANTS.
3.1 Redemption; Redemption Price. Commencing 90 days from the
Original Issue Date, the Company may, at its option, redeem the outstanding
Warrants, in whole or in part, upon not less than 30 days' prior notice (the
"Notice of Redemption"), at a price of $.05 per Warrant (the "Redemption
Price") provided, however, that (i) the Representative granted its prior
written consent or (ii) the average of the closing bid price of the Common
Stock for a period of 30 consecutive trading days exceeds $12.00 per share,
in which case the consent of the Representative is not required. If the
Company shall determine so to redeem less than all of the Warrants then
outstanding, then the Warrant Agent shall determine the Warrants to be
redeemed by such manner or method as it shall deem fair and appropriate,
whether by lot or otherwise. No redemption shall affect any Warrant not
issued and outstanding on the date of the Notice of Redemption.
3.2 Notice of Redemption. The Company shall give notice to the
Warrant Agent of any redemption in sufficient time so that the Warrant Agent
shall give the Notice of Redemption to all Holders of Warrant Certificates
to be redeemed at least 30 days prior to the date established for such
redemption (the "Redemption Date"). Each Notice of Redemption shall: (a)
specify the Redemption Date and the Redemption Price; (b) state that payment
of the Redemption Price will be made by the Warrant Agent upon presentation
and surrender, to the Warrant Agent at its Principal Office, of the Warrant
Certificates representing the Warrants being redeemed; (c) state that the
rights to exercise the Warrants then outstanding shall terminate at 5:00
p.m. New York time, on the Redemption Date; and (d) if less than all of the
Warrants then outstanding are being redeemed, specify the serial numbers or
portions of the Warrants to be redeemed. The Company shall also make prompt
public announcement of such redemption by publication in The Wall Street
Journal at the time of the Warrant Agent's mailing of the Notice of
Redemption.
3.3 Payment of Redemption Price. On or prior to the opening of
business on the Redemption Date, the Company shall deposit with the Warrant
Agent cash, or an irrevocable letter of credit issued by a national or state
bank and in form reasonably satisfactory to the Warrant Agent, sufficient in
amount to purchase all of the Warrants stated in the Notice of Redemption to
be redeemed. Payment of the Redemption Price shall be made by the Warrant
Agent upon presentation and surrender of the Warrant Certificates
representing such Warrants to the Warrant Agent at its Principal Office. If
the Notice of Redemption shall have been duly given and if the Company shall
have duly deposited with the Warrant Agent the cash or irrevocable letter of
credit required by this Section 3.3, then any Warrants then outstanding and
not exercised by 5:00 p.m., New York time, on the Redemption Date shall no
longer be deemed to be outstanding, and all rights with respect to such
Warrants shall from and after such time and date cease and terminate, except
only for the right of the Holders thereof to receive the Redemption Price,
without interest.
4. ADJUSTMENTS.
4.1 Certain Dividends and Distributions. In the event that at
any time or from time to time after the Original Issue Date the holders of
Common Stock shall have received, or shall have become entitled (on or after
the record date fixed for the determination of shareholders eligible
therefor) to receive, without payment therefor:
(a) any other or additional stock or other securities or
property (other than cash) by way of dividend (howsoever described); or
(b) any other or additional (or less) stock or other securities
or property (including cash) by way of spin-off, split-up, reverse split,
reclassification, recapitalization, combination of shares, or similar
corporate arrangement;
then the Holder of any Warrant, upon the exercise thereof, shall be entitled
to receive the amount of stock and other securities and property (including
cash in the cases referred to in paragraph (c) of this Section 4.1) which
such Holder would hold on the date of such exercise if on the Original Issue
Date he had been the holder of record of the number of shares of Common
Stock called for on the face of such Warrant and thereafter, during the
period from the Original Issue Date to and including the date of such
exercise, (i) had retained such shares and all such other or additional
stock and other securities and property (including cash in the cases
referred to in paragraph (c) of this Section 4. 1) receivable by him as
aforesaid during such period, or (ii) in the case of a reverse split,
combination of shares or similar arrangement, had given up the proportion of
such shares affected by the reverse split, combination of shares or similar
arrangement, in each case giving effect to all adjustments called for during
such period by Sections 4.2 and 4.3.
4.2 Reorganization, Consolidation, Merger, Etc. In the event
that at any time after the Original Issue Date the Company shall:
(a) effect a reorganization; or
(b) consolidate with or merge into any other entity; or
(c) transfer all or substantially all of its properties or
assets to any other entity under any plan or arrangement contemplating the
dissolution of the Company;
then the Holder of any Warrant, upon the exercise thereof at any time after
the consummation of such reorganization, consolidation or merger, or the
effectiveness of such dissolution, as the case may be, shall be entitled to
receive (and the Company or its successor or purchasing entity shall be
obligated to deliver), in lieu of the Common Stock issuable upon such
exercise immediately prior to such consummation or effectiveness, the amount
of stock and other securities and property (including cash) which such
Holder would have been entitled to receive upon such consummation or such
dissolution, as the case may be, if such Holder had so exercised such
Warrant immediately prior thereto, giving effect to all adjustments called
for after the date of such consummation or dissolution, as the case may be,
by Sections 4.1 and 4.3.
4.3 Other Adjustments.
4.3.1 In General. In the event that the Company shall, at any
time or from time to time after the Original Issue Date, in any case to
which the provisions of Sections 4.1 or 4.2 are not applicable, issue, sell
or otherwise dispose of shares of Common Stock without consideration, or for
a consideration per share less than the Exercise Price in effect on the date
of such issuance, sale or disposition (in each case, a "Disposition"), then
and simultaneously with such Disposition:
(a) the Exercise Price shall be reduced to a price determined by
dividing:
(i) an amount equal to the sum of (A) the total number
of shares of Common Stock outstanding immediately prior to the
Disposition multiplied by the Exercise Price in effect on the date
of the Disposition, plus (B) the consideration, if any, received by
the Company upon the Disposition; by
(ii) the total number of shares of Common Stock
outstanding immediately after the Disposition; and
(b) the number of shares issuable upon exercise of such Warrant
shall be increased by multiplying such number by a fraction, the numerator
of which is the Exercise Price in effect immediately prior to the reduction
provided by this Section 4.3.1 and the denominator of which is the Exercise
Price in effect immediately after such reduction.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 4.3.1 by reason of the issuance of shares of Common Stock (1) upon
exercise of any Warrant, or (2) pursuant to any other commitment of the
Company outstanding on the Original Issue Date, including without limitation
that certain over-allotment option granted to the Underwriters in connection
with the Offering.
4.3.2 Convertible Securities.
(a) In the event that the Company shall at any time or from time
to time after the Original Issue Date issue, sell or otherwise dispose of
any securities which are convertible into or exchangeable for Common Stock
(in each case, an "Issue" of "Convertible Securities"), then a price per
share for which Common Stock is issuable upon the conversion or exchange
thereof shall be determined by dividing:
(i) an amount equal to the sum of (A) the aggregate
amount received or receivable by the Company as consideration for
the Issue of such Convertible Securities, plus (B) the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof; by
(ii) the maximum number of shares of Common Stock
issuable upon the conversion or exchange of all of such Convertible
Securities.
If the price per share so determined shall be less than the Exercise Price
in effect on the date of Issue, then such Issue shall be deemed to be a
"Disposition" (within the meaning of Section 4.3.1) for cash, as of the date
of Issue, and at the price per share so determined, of the maximum number of
shares of Common Stock issuable upon the conversion or exchange of all of
such Convertible Securities, and the appropriate adjustments provided by
Section 4.3.1 shall be made.
(b) In the event that such Convertible Securities shall by their
terms provide for increase(s), with the passage of time, in the amount of
additional consideration, if any, payable to the Company upon the conversion
or exchange thereof, or in the rate of conversion or exchange thereof, then
forthwith upon the effectiveness of any such increase, the Exercise Price
and number of shares, as adjusted pursuant to paragraph (a) of this Section
4.3.2, shall be readjusted to reflect the same.
(c) In the event that the rights of conversion or exchange of
any such Convertible Securities shall expire or be cancelled or otherwise
not in effect without having been exercised, then the Exercise Price and
number of shares, as adjusted pursuant to paragraph (a) of this Section
4.3.2, shall forthwith be readjusted, and thereafter shall be the Exercise
Price and number of shares which would have resulted had an adjustment been
made pursuant to paragraph (a) of this Section 4.3.2 taking into account
only (1) the aggregate amount actually received by the Company as
consideration for the Issue of all such Convertible Securities which were
actually converted or exchanged, (2) the aggregate amount of additional
consideration, if any, actually received by the Company upon the conversion
or exchange thereof, and (3) the number of shares of Common Stock actually
issued upon the conversion or exchange of such Convertible Securities.
4.3.3 Rights, Options Etc.
(a) In the event that the Company shall at any time or from time
to time after the Original Issue Date grant or issue any options (other than
options under the Company's 1994 Stock Option Plan in effect on the Original
Issue Date and warrants described in the Prospectus), warrants or other
rights to subscribe for, purchase or otherwise acquire Common Stock (in each
case, an "Issue" of "Rights"), then a price per share for which Common Stock
is issuable upon the exercise thereof shall be determined by dividing:
(i) an amount equal to the sum of (A) the aggregate
amount, if any, received or receivable by the Company as
consideration for the Issue of such Rights, plus (B) the minimum
aggregate amount of additional consideration payable to the Company
upon the exercise thereof; by
(ii) the maximum number of shares of Common Stock
issuable upon the exercise of all of such Rights.
If the price per share so determined shall be less than the Exercise Price
in effect on the date of Issue, then such Issue shall be deemed to be a
"Disposition" (within the meaning of Section 4.3.1) for cash, as of the date
of Issue, and at the price per share so determined, of the maximum number of
shares of Common Stock issuable upon the exercise of all of such Rights, and
the appropriate adjustments provided by Section 4.3.1 shall be made.
(b) In the event that such Rights shall by their terms provide
for increase(s), with the passage of time, in the amount of additional
consideration payable to the Company upon the exercise thereof, then
forthwith upon the effectiveness of any such increase, the Exercise Price
and number of shares, as adjusted pursuant to paragraph (a) of this Section
4.3.3, shall be readjusted to reflect the same.
(c) In the event that any such Rights shall expire or be
cancelled or otherwise no longer in effect without having been exercised,
then the Exercise Price and number of shares, as adjusted pursuant to
paragraph (a) of this Section 4.3.3, shall forthwith be readjusted, and
thereafter shall be the Exercise Price and number of shares which would have
resulted had an adjustment been made pursuant to paragraph (a) of this
Section 4.3.3 taking into account only (1) the aggregate amount, if any,
actually received by the Company as consideration for the Issue of all such
Rights which were actually exercised, (2) the aggregate amount of additional
consideration actually received by the Company upon the exercise thereof,
and (3) the number of shares of Common Stock actually issued upon the
exercise of such Rights.
4.4 No Adjustments for Minimum Amounts. No adjustment shall be
made pursuant to Section 4.3 until the number of additional shares of Common
Stock issued or issuable as contemplated by Section 4.3 exceeds 5 percent of
the number of shares of Common Stock outstanding immediately after the
Offering. Thereafter no adjustment shall be made pursuant to Section 4.3
until the cumulative adjustment in the Exercise Price shall be five cents or
more; provided, however, that in such case any adjustment that would
otherwise be required then to be made shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment that,
together with any adjustments so carried forward, shall amount to at least
five cents.
4.5 Certificate as to Adjustments. In the event that any
adjustment (or readjustment) is required to be made pursuant to the
provisions of this Section 4, and in each such case, the Company shall, at
its expense, promptly cause such adjustment to be calculated in accordance
with the terms hereof and set forth in a certificate, signed by the
Company's chief financial officer, which shows in detail all of the facts
upon which such adjustment is based, the method of calculation thereof, and
the number of shares of Common Stock then outstanding or deemed to be
outstanding. The Company shall, within 20 days after such adjustment is
required to be made, mail a copy of such certificate to each Holder of a
Warrant and to the Warrant Agent. The Warrant Agent shall not be deemed to
have knowledge of any adjustment unless and until it shall have received
such certificate, and may rely on such certificate without further inquiry.
5. OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF WARRANT
CERTIFICATES.
5.1 Rights of Warrant Holders. No Warrant Certificate shall
entitle the Holder thereof to any of the rights of a shareholder of the
Company, including without limitation the right to vote, to receive
dividends and other distributions, or to receive notice of or to attend
meetings of shareholders or any other proceedings of the Company.
5.2 Lost, Stolen, Mutilated or Destroyed Warrant Certificates.
If any Warrant Certificate shall be lost, stolen, mutilated or destroyed,
the Company in its discretion may direct the Warrant Agent to execute and
deliver, in exchange and substitution for such Warrant Certificate, a new
Warrant Certificate for the number of Warrants represented by the Warrant
Certificate so lost, stolen, mutilated or destroyed, but only upon the
Company's receipt of evidence of such loss, theft, mutilation or destruction
of such Warrant Certificate and of the ownership thereof, and a bond or
indemnity, if requested, all satisfactory to the Company and the Warrant
Agent. Applicants for such substitute Warrant Certificates shall also
comply with such other reasonable regulations and pay other reasonable
charges incidental thereto as the Company or the Warrant Agent may
prescribe. Any such new Warrant Certificate shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant Certificate shall be at any time
enforceable by anyone.
6. SPLIT-UP, COMBINATION, EXCHANGE, TRANSFER AND CANCELLATION OF
WARRANT CERTIFICATES.
6.1 Split-Up, Combination, Exchange and Transfer of Warrant
Certificates. Prior to the Expiration Date, and subject to the provisions
of Section 6.2, Warrant Certificates may be split up, combined or exchanged
for other Warrant Certificates representing a like aggregate number of
Warrants, or may be transferred in whole or in part. Any Holder desiring to
split up, combine or exchange one or more Warrant Certificates shall make
such request in writing delivered to the Warrant Agent at its Principal
Office, and shall surrender the Warrant Certificate(s) so to be split up,
combined or exchange at such office. Subject to any applicable laws, rules
or regulations restricting transferability, any restriction on
transferability that may appear on a Warrant Certificate in accordance with
the terms hereof, or any "stop-transfer" instructions the Company may give
to the Warrant Agent to implement any such restrictions (which instructions
the Company is expressly authorized to give), transfer of outstanding
Warrant Certificate(s) may be effected by the Warrant Agent from time to
time upon the books of the Company to be maintained by the Warrant Agent for
that purpose, upon surrender of the Warrant Certificate(s) to the Warrant
Agent at its Principal Office, with the assignment form set forth in the
Warrant Certificate duly executed by the Holder with Signatures Guaranteed.
Upon any such surrender for split-up, combination, exchange or transfer, the
Warrant Agent shall execute and deliver to the person entitled thereto one
or more Warrant Certificates, as so requested. The Warrant Agent shall not
be required to effect any split-up, combination, exchange or transfer which
will result in the issuance of a Warrant Certificate evidencing a fraction
of a Warrant. The Warrant Agent may, prior to the issuance of any new
Warrant Certificate, require the Holder to pay a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with the
split-up, combination, exchange or transfer of Warrant Certificates.
6.2 Cancellation of Warrant Certificates. Any Warrant
Certificate surrendered upon the exercise of Warrants, or for split-up,
combination, exchange or transfer, or purchased or otherwise acquired by the
Company, shall be cancelled and shall not be reissued by the Company and,
except as provided by Section 2.5 (exercise of less than all of the Warrants
evidenced by a Warrant Certificate) or by Section 6.1 (split-up,
combination, exchange or transfer), no Warrant Certificate shall be issued
in place of a cancelled Warrant Certificate. Any Warrant Certificate so
cancelled shall be destroyed by the Warrant Agent unless otherwise directed
by the Company.
7. PROVISIONS CONCERNING THE WARRANT AGENT AND OTHER MATTERS.
7.1 Payment of Taxes and Charges. The Company shall from time
to time promptly pay to the Warrant Agent, or make provisions satisfactory
to the Warrant Agent for the payment of, all taxes and charges that may be
imposed by the United States or by any state upon the Company or the Warrant
Agent in connection with the issuance or delivery of shares of Common Stock
upon the exercise of any Warrants; provided, however, that any transfer
taxes in connection with the issuance of Warrant Certificates or
certificates for shares of Common Stock in any name other than that of the
Holder of the Warrant Certificate surrendered shall be paid by such Holder
and, in such case, the Company shall not be required to issue or deliver any
Warrant Certificate or certificate for shares of Common Stock until such
taxes shall have been paid or it has been established to the Company's
satisfaction that no tax is due.
7.2 Resignation or Removal of Warrant Agent; Appointment of New
Warrant Agent. The Warrant Agent may resign its duties and be discharged
from all further duties and liabilities hereunder after giving one month's
notice to the Company, except that such shorter notice may be given as the
Company shall, in writing, accept as sufficient. Upon comparable notice to
the Warrant Agent, the Company may remove the Warrant Agent. In any such
event, the Company shall promptly appoint a new Warrant Agent, as
hereinafter provided, and the resignation or removal of the Warrant Agent
shall not be effective until a new Warrant Agent has been duly appointed and
has accepted such appointment. If the Company shall fail to appoint a new
Warrant Agent within 30 days after (a) it has removed the Warrant Agent, or
(b) it has been notified, whether by the Warrant Agent or by any Holder of a
Warrant Certificate, of the resignation or incapacity of the Warrant Agent,
then any Holder of a Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new Warrant Agent. Any new Warrant
Agent appointed hereunder shall execute, acknowledge and deliver to the
former Warrant Agent last in office, and to the Company, an instrument
accepting such appointment under substantially the same terms and conditions
as are contained herein, and thereupon such new Warrant Agent, without any
further act or deed, shall become vested with the rights, powers, duties and
responsibilities of the Warrant Agent, and the former Warrant Agent shall
cease to be the Warrant Agent. Notwithstanding the foregoing, if for any
reason it becomes necessary or expedient to have the former Warrant Agent
execute and deliver any further assurance, conveyance, act or deed, the same
shall be done at the expense of the Company and shall be legally and validly
executed and delivered by the former Warrant Agent.
7.3 Notice of Appointment. No later than the effective date of
the appointment of a new Warrant Agent the Company shall cause notice
thereof to be mailed to the former Warrant Agent and the transfer agent for
the Common Stock, and shall forthwith cause a copy of such notice to be
mailed to each Holder of a Warrant Certificate. Failure to mail such
notice, or any defect contained therein, shall not affect the legality or
validity of the appointment of the successor Warrant Agent.
7.4 Merger of Warrant Agent. Any company into which the Warrant
Agent may be merged or with which it may be consolidated or any company
resulting from any merger or consolidation to which the Warrant Agent may be
a party, shall be the successor Warrant Agent under this Agreement without
further act or deed, so long as such company would be eligible for
appointment as a successor Warrant Agent under the provisions of Section
7.2. Any such successor Warrant Agent may adopt the prior countersignature
of any predecessor Warrant Agent, and may distribute Warrant Certificates
countersigned but not distributed by such predecessor Warrant Agent, or may
countersign Warrant Certificates in its own name.
7.5 Company Responsibilities. The Company shall: (a) pay the
Warrant Agent reasonable remuneration for its services as Warrant Agent
hereunder, and reimburse the Warrant Agent upon demand for all expenses,
advances and expenditures that the Warrant Agent may reasonably incur in the
execution of its duties hereunder (including reasonable fees and expenses of
its counsel); (b) provide the Warrant Agent, upon request, with sufficient
funds to pay any cash due; and (c) perform, execute, acknowledge and deliver
or cause to be performed, executed, acknowledged and delivered all further
and other acts, instruments and assurances as may reasonably be required by
the Warrant Agent for the carrying out or performance by the Warrant Agent
of the provisions of this Agreement.
7.6 Certification for the Benefit of Warrant Agent. Whenever in
the performance of its duties under this Agreement the Warrant Agent shall
deem it necessary or desirable that any matter be proved or established or
that any instructions with respect to the performance of its duties
hereunder be given by the Company prior to taking or suffering any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and
established or such instructions may be given, by a certificate or
instrument signed by the Chief Executive Officer, the President, any Vice
President, the Treasurer or all of the Directors of the Company and
delivered to the Warrant Agent. Such certificate or instrument may be
relied upon by the Warrant Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement, but in its discretion
the Warrant Agent may in lieu thereof accept other evidence of such matter
or may require such further additional evidence as it may deem reasonable.
7.7 Liability of Warrant Agent. The Warrant Agent shall be
liable hereunder for its own negligence or willful misconduct. The Warrant
Agent shall act hereunder solely as an agent for the Company and its duties
shall be determined solely by the provisions hereof. The Warrant Agent
shall not be liable for or by reason of any of the statements of fact or
recitals contained in this Agreement or in the Warrant Certificates (except
its countersignature thereof) or be required to verify the same, but all
such statements and recitals are and shall be deemed to have been made by
the Company only. The Warrant Agent shall not incur any liability or
responsibility to the Company or to any Holder of any Warrant Certificate
for any action taken, or omitted to be taken, in reliance on any notice,
resolution, waiver, consent, order, certificate or other paper, document or
instrument reasonably believed by the Warrant Agent to be genuine and to
have been signed, sent or presented by the proper party or parties. The
Warrant Agent shall not be: (a) under any responsibility in respect of the
validity of this Agreement or the execution and delivery hereof by the
Company, or in respect of the validity or execution of any Warrant
Certificate (except its countersignature thereof); (b) responsible for any
breach by the Company of any covenant or condition contained in this
Agreement or in any Warrant Certificate; (c) responsible for the making of
any adjustment required under the provisions of Section 4, or for the
manner, method or amount of any such adjustment or the facts that would
require any such adjustment; or (d) deemed, by any act hereunder, to make
any representation or warranty as to the authorization or reservation of any
shares of Common Stock or other securities to be issued pursuant to this
Agreement or any Warrant Certificate, or as to whether any shares of Common
Stock or other securities will when issued be validly authorized and issued
and fully paid and non-assessable.
7.8 Use of Attorney, Agents and Employees. The Warrant Agent
may execute and exercise any of the rights or powers hereby vested in it or
perform any duty hereunder either itself or by or through its attorneys,
agents or employees.
7.9 Conflict of Interest. The Warrant Agent and any
shareholder, director, officer or employee of the Warrant Agent may buy,
sell or deal in any of the Warrant Certificates.
7.10 Indemnification. The Company shall indemnify the Warrant
Agent and save it harmless from and against any and all losses, expenses or
liabilities, including judgments, costs and reasonable counsel fees, arising
out of or in connection with its agency under this Agreement, except as a
result of the negligence or willful misconduct of the Warrant Agent.
8. IN GENERAL.
8.1 Changes to Agreement. The Warrant Agent, together with the
Company, may, without the consent or concurrence of any Holder of a Warrant
Certificate, by supplemental agreement or otherwise, make any changes or
corrections in this Agreement that the Warrant Agent and the Company shall
have been advised by counsel (a) are required to cure any ambiguity or to
correct any defective or inconsistent provision or clerical omission or
mistake or manifest error herein contained, (b) add to the covenants and
agreements thereafter to be observed, or (c) result in the surrender of any
right or power reserved to or conferred upon the Company or the Warrant
Agent in this Agreement; but which changes or corrections do not or will not
adversely affect, alter or change the rights, privileges or immunities of
the Holders of Warrant Certificates; provided, however, that this Agreement
shall not otherwise be modified, supplemented or altered in any respect
except with the consent in writing of the Holders of Warrant Certificates
representing not less than 50 percent of the Warrants then outstanding; and
provided further, that no change in the number or nature of the securities
purchasable upon the exercise of any Warrant or the payment of the Exercise
Price therefor, or the acceleration of the Expiration Date, shall be made
without the consent in writing of the Holder of a Warrant Certificate, other
than such changes as are specifically prescribed by this Agreement as
originally executed.
8.2 Assignment. All of the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall
bind and inure to the benefit of their respective successors and assigns.
8.3 Successor to the Company. The Company shall not merge or
consolidate with or into any other corporation or other entity, or sell or
otherwise transfer its property, assets and business substantially as an
entirety to a successor entity, unless the entity resulting from such
merger, consolidation, sale or transfer (if not the Company) shall expressly
assume, by supplemental agreement satisfactory in form and substance to the
Warrant Agent and delivered to the Warrant Agent, the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
8.4 Notices. Any notice, demand or other communication given
under this Agreement shall be in writing. Any such notice, demand or other
communication given to the Company shall be sufficiently given when it is
deposited with the United States Postal Service for first-class or
registered mail delivery, with postage prepaid and addressed (until another
address is filed in writing by the Company with the Warrant Agent) as
follows:
Data Systems Network Corporation
34705 West 12 Mile Road, Suite 300
Farmington Hills, Michigan 48331
Attention: Michael W. Grieves, President
Any such notice, demand or other communication given to the Warrant Agent
shall be sufficiently given when it is deposited with the United States
Postal Service for first-class or registered mail delivery, with postage
prepaid and addressed (until another address is filed in writing by the
Warrant Agent with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: , President
Any such notice, demand or other communication given to the Holder of any
Warrant Certificate shall be sufficiently given, whether or not such Holder
actually receives such notice, three days after it is deposited with the
United States Postal Service for first-class or registered mail delivery,
with postage prepaid and addressed to such Holder at his last address as
shown on the books of the Company maintained by the Warrant Agent. Any such
notice, demand or other communication shall otherwise be deemed given when
received by the party for whom it was intended.
8.5 Defects in Notice. Failure to file any certificate or
notice or to mail any notice, or any defect in any certificate or notice
pursuant to this Agreement shall not affect in any way the rights of any
Holder of a Warrant Certificate or the legality or validity of any
adjustment made pursuant to Section 4, or any transaction giving rise to any
such adjustment, or the legality or validity of any action taken by the
Company.
8.6 Governing Law. The validity, interpretation and
construction of this Agreement, of each Warrant Certificate issued
hereunder, and of the respective terms and provisions thereof, shall be
governed by the laws of the State of New York (without regard to the
principles of conflicts of law thereof).
8.7 Standing. Nothing in this Agreement expressed and nothing
that may be implied from any of the provisions hereof is intended, or shall
be construed, to confer upon, or give to, any person or entity other than
the Company, the Warrant Agent and the Holders of the Warrant Certificates,
any right, remedy or claim under or by reason of this Agreement or of any
covenant, condition, stipulation, promise or agreement contained herein; and
all covenants, conditions, stipulations, promises and agreements contained
in this Agreement shall be for the sole and exclusive benefit of the Company
and the Warrant Agent and their respective successors and assigns, and the
Holders of the Warrant Certificates.
8.8 Sections; Headings. Unless the context otherwise requires,
all references herein to a "Section" shall mean the appropriate Section of
this Agreement. The descriptive headings of the Sections of this Agreement
are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
8.9 Counterparts. This Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an
original, but all of which together shall constitute but one and the same
instrument.
8.10 Availability of the Agreement. The Warrant Agent shall keep
copies of this Agreement available for inspection by Holders of Warrants
during normal business hours at its Principal Office. Copies of this
Agreement may be obtained upon written request made to the Company at the
address set forth in Section 8.4.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto under their respective corporate seals as of the day and year
first above written.
DATA SYSTEMS NETWORK CORPORATION
By: /S/ Michael W. Grieves
----------------------------
Michael W. Grieves
Its: President
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By: /S/ Herbert J. Lemmer
-----------------------------
Herbert J. Lemmer
Its: Vice President
Exhibit 23.1
The Board of Directors
Data Systems Network Corporation:
We consent to incorporation by reference in this Post-Effective Amendment
No. 1 on Form S-3 to the registration statement on Form S-1 of Data Systems
Network Corporation (No. 33-81350) of our report dated March 20, 1996,
relating to the balance sheet of Data Systems Network Corporation as of
December 31, 1995 and the related statements of operations, stockholders'
equity, and cash flows for the year then ended, which report appears in the
December 31, 1995 annual report on Form 10-K of Data Systems Network
Corporation and to the reference to our firm under the heading "Experts" in
the prospectus.
/S/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Detroit, Michigan
December 13, 1996
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 1 on Form S-3 to the Registration Statement of Data Systems
Network Corporation on Form S-1 (No. 33-81350) of our report dated March 10,
1995 (relating to the financial statements of Data Systems Network
Corporation as of December 31, 1994 and the two years in the period ending
December 31, 1994) appearing in the Annual Report on Form 10-K of Data
Systems Network Corporation for the year ended December 31, 1995, and to the
reference to us under the heading "Experts" in the Prospectus, which is a
part of such Registration Statement.
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
Detroit, Michigan
December 16, 1996
Exhibit 24.2
DATA SYSTEMS NETWORK CORPORATION
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned
constitutes and appoints Michael W. Grieves and Philip M. Goy, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, and resubstitution for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments to that certain
Registration Statement on Form S-1 (No. 33-81350) to be filed by Data
Systems Network Corporation, and to file the same with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any
of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Dated: December 13, 1996 /S/ Walter J. Aspatore
----------------------------
Walter J. Aspatore
