AS FILED WITH SECURITIES AND EXCHANGE COMMISSION ON JULY __, 2002
REGISTRATION NO. ___-_____
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
_____________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________
DATA SYSTEMS & SOFTWARE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2786081
(State of (I.R.S. Employer
incorporation) Identification No.)
200 ROUTE 17
MAHWAH, NJ 07430
(201) 529-2026
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
_____________
GEORGE MORGENSTERN
DATA SYSTEMS & SOFTWARE INC.
200 ROUTE 17
MAHWAH, NEW JERSEY 07430
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
SHELDON KRAUSE
EHRENREICH EILENBERG & KRAUSE LLP
11 EAST 44TH STREET
NEW YORK, NEW YORK 10017 (212) 986-9700
_____________
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this registration statement.
If the only securities being registered on this Form are to be 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, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, 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. |_|
_____________
CALCULATION OF REGISTRATION FEE
---------------------------------------------------------------------------------------------
Title of each class Amount Proposed maximum Proposed maximum Amount of
of securities to be to be offering price per aggregate offering registration
registered registered share price fee
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Common Stock 848,417(1) $2.415 $2,048,927(2) $188.50
---------------------------------------------------------------------------------------------
Common Stock 125,000(3) $4.20 $525,000(4) $ 48.30
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Total 973,417 $236.80
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(1) Represents our good faith estimate of the number of shares that are
issuable to the selling security holder following the conversion of
interest and/or principal of a convertible note held by the selling
security holder or our payment of the interest and/or principal of the
convertible note held by the selling security holder with shares of our
common stock.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933. The calculation
of the registration fee is based on the average of the high and low prices
for our common stock on July 5, 2002 as quoted through the NASDAQ National
Market.
(3) Represents the number of shares that may be sold by the selling security
holder following the exercise of a warrant.
(4) Pursuant to Rule 457(g), calculated based upon the exercise price of the
warrant.
_____________
We hereby amend the registration statement on such date or dates as may be
necessary to delay its effective date until we 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 Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. The
selling security holder may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS
(SUBJECT TO COMPLETION, DATED JULY 10, 2002)
DATA SYSTEMS & SOFTWARE INC.
COMMON STOCK
Shares That May be Offered
--------------------------
This prospectus covers the resale of a total of up to an estimated
973,417 shares of our common stock that may be issued pursuant to a convertible
note and a warrant that were issued to the selling security holder in exchange
for a $2 million investment. See "Recent Transactions" on page 4 for additional
details of this transaction. We are not offering any shares.
Method of Sale
--------------
The shares may be sold:
- through the Nasdaq Stock Market, in the over-the-counter market, in
privately negotiated transactions or otherwise;
- directly to purchasers or through agents, brokers, dealers or underwriters;
and
- at market prices prevailing at the time of sale, at prices related to the
prevailing market prices, or at negotiated prices.
Our common stock is listed on the Nasdaq National Market under the symbol
"DSSI." On July 8, 2002, the closing price of our common stock was $2.33.
INVESTING IN OUR SECURITIES INVOLVES CERTAIN RISKS. YOU SHOULD CONSIDER THE
"RISK FACTORS" BEGINNING ON PAGE 1 IN DECIDING WHETHER TO BUY ANY COMMON STOCK.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus in truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is __________, 2002.
TABLE OF CONTENTS
PAGE
_____
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recent Transactions . . . . . . . . . . . . . . . . . . . . . . . . 4
Selling Security Holder . . . . . . . . . . . . . . . . . . . . . . 5
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . 5
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Where You Can Find More Information . . . . . . . . . . . . . . . 6
Information Incorporated by Reference . . . . . . . . . . . . . . . 7
RISK FACTORS
Investing in us entails substantial risk. You should consider the following
risks and other information contained in this prospectus, information
incorporated by reference, and information that we file with the Securities and
Exchange Commission from time to time. The information in this prospectus is
complete and accurate as of this date, but the information may change after the
date of this prospectus.
GENERAL FACTORS
We Have a History of Operating Losses and Expect to Have an Operating Loss for
2002; Our Comverge subsidiary must raise capital or become cash flow neutral in
order to avoid cuts in its operating budget.
We are experiencing and have in the past experienced operating losses. In
the first quarter of 2002, we had an operating loss of approximately $1.8
million, and in 2001, 2000 and 1999 we had operating losses of approximately
$10.3 million, $3.9 million and $5.6 million, respectively. We expect to have an
operating loss for the year ending December 31, 2002. We believe that the
expected net cash flow from all business segments along with the $2 million
raised in the sale of the convertible note and warrant to the selling security
holder will be adequate to fund our US operating and corporate activities for at
least the next 12 months; although we do not expect to be able to utilize cash
generated from dsIT operations to finance US operating or corporate activities
in the foreseeable future because of Israeli tax and company law constraints as
well as the significant minority interest in dsIT. We expect that our dsIT
Technologies and Databit subsidiaries will each have sufficient liquidity to
finance its activities from cash flow from its own operations. However, we do
not expect our subsidiary Comverge Technologies, Inc., which has been the
primary consumer of our cash resources, to be able to finance its own operations
until the fourth quarter of 2002. Comverge used $7.0 million of net cash in its
operating activities in 2001 and $621,000 in the first quarter of 2002. Comverge
will have net negative cash flow from operations for the second and third
quarters of 2002, which we expect will not exceed an aggregate of $2 million. We
anticipate that Comverge will be cash flow neutral in the fourth quarter of 2002
as a result of both anticipated reductions in manufacturing costs and expected
increase in sales from new contracts signed this year. There are no assurances
that in 2003 Comverge will be able to remain cash flow neutral or become cash
flow positive. While Comverge has made significant strides in its effort to
secure sufficient financing to fund its operations and expand its business,
there are no assurances that Comverge will be able to raise capital or raise an
amount sufficient to meet the needs of its business plan. Should Comverge not be
successful in raising capital in 2002 or secure additional new business that
will sustain or increase sales during 2003, Comverge will need to implement a
plan in 2003 to reduce operating costs to a level that will result in breakeven
cash flow. Such an operating plan may include curtailing research and
development expenses, consolidating geographically distant operations, reducing
marketing efforts on new products as well as reducing general administrative and
marketing expenses. The reduction in costs, however, may not result in
operations with breakeven cash flow and may make it difficult to increase
revenues.
The Markets for Our Energy Intelligence Solutions and Software Consulting and
Development Services are Subject to Rapid Technological Change; If We Fail to
Keep Pace, We Will Have Difficulty Developing and Maintaining a Market for Our
Products and Services.
The markets for our energy intelligence solutions and software consulting
and development segments are characterized by rapid technological change. In
the energy intelligence solutions market, communications and networking
technologies are continuously changing and we will need to invest in continued
product development, both hardware and software, in order to keep pace with
these changing technologies. We may not have adequate resources to invest in
development if our Comverge subsidiary does not raise additional capital, and/or
secure additional new business, and our development efforts may not be
successful. In the software consulting and development market, the continuing
evolution of the Internet and introduction of new software systems will require
us to invest in additional personnel training and/or hire new personnel. We may
not have adequate resources to invest in sufficient training or hire personnel
with the necessary skills.
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Exchange Rate Fluctuations Could Increase the Cost of our Israeli Operations.
A significant portion of the sales of our Israeli operations is in New
Israeli Shekels ("NIS") linked to the dollar. Such transactions are negotiated
in dollars; however, for the convenience of the customer, they are settled in
NIS. The dollar value of the revenues of our operations in Israel will decrease
if the dollar is devalued in relation to the NIS during the period from the
invoicing of a transaction to its settlement. In addition, a significant
portion of our expenses in those operations is in NIS, so that if the dollar is
devalued in relation to the NIS, the dollar value of these expenses will
increase.
Loss of the Services of a Few Key Employees Could Harm Our Operations.
We depend on our key management and technical employees. The loss of
certain managers could diminish our ability to develop and maintain
relationships with customers and potential customers. The loss of technical
personnel could harm our ability to meet development and implementation
schedules. Most of our significant employees are bound by confidentiality and
non-competition agreements. We do not maintain a "key man" life insurance policy
on any of our executives or employees. Our future success also depends on our
continuing ability to identify, hire, train and retain other highly qualified
technical and managerial personnel. Competition for such personnel can be
intense. If we fail to attract or retain highly qualified technical and
managerial personnel in the future, our business could be disrupted.
Our share price may decline due to the large number of shares of our common
shares eligible for future sale in the public market including the shares of the
selling security holder.
A substantial number of shares of our common stock will become eligible for
sale in the public market as described below. Sales of substantial amounts of
our shares of common stock in the public market, or the possibility of these
sales, may adversely affect our stock price.
- 182,605 shares of our common stock became eligible on June 13, 2002, for
sale on the public market under a registration statement filed by us with
respect to shares of our common stock that were issued in the acquisition
by our dsIT Technologies subsidiary of Israeli information technology
solutions provider Endan IT Solutions Ltd. On September 13, 2002, an
additional 182,605 shares will become eligible for sale on the public
market under the same registration statement.
- The selling security holder under this registration statement may sell up
to 973,417 shares of our common stock, including 125,000 shares of our
common stock issuable upon the exercise of a warrant and an estimated
848,417 shares of our common stock that may be issued by us upon conversion
by the selling security holder of a convertible note or payment by us of
interest and/or principal of the convertible note. The shares issuable upon
conversion or payment of the convertible note would be issued, if at all,
from the date of this prospectus until June 30, 2003. We may have to
register additional shares if our stock price significantly declines and we
then elect to pay the convertible note with shares of our common stock. See
"Recent Transactions" for the discussion of the transaction in which the
selling security holder acquired the warrant and convertible note.
RISKS RELATED TO THE CONSULTING AND DEVELOPMENT SERVICES SEGMENT
Failure to Accurately Forecast Costs of Fixed-Priced Contracts Could Reduce Our
Margins
When working on a fixed-price basis, we undertake to deliver software or
integrated hardware/software solutions to a customer's specifications or
requirements for a particular project. The profits from these projects are
primarily determined by our success in correctly estimating and thereafter
controlling project costs. Costs may in fact vary substantially as a result of
various factors, including underestimating costs, difficulties with new
technologies and economic and other changes that may occur during the term of
the contract. If, for any reason, our costs are substantially higher than
expected, we may incur losses on fixed-price contracts.
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RISKS RELATED TO THE ENERGY INTELLIGENCE SOLUTIONS SEGMENT
We have made a significant investment in our energy intelligence solutions
segment, which develops and markets load control products and systems offering
two-way automated meter reading and related data management capability to
utilities. Revenues have fluctuated significantly from quarter to quarter and
to date this segment has operated at a loss. The activities of this segment are
subject to many risks, including the following.
The Pace of Utility Deregulation Has Been Slow; The Ultimate Regulatory
Structure of the Utility Industry May Not Provide Mandates or Incentives to
Purchase Our Products.
The electric utility industry is undergoing significant deregulation. The
pace of deregulation appears to have slowed due to the uncertainty about
deregulation in the wake of the energy crisis in California in 2000 and the
recent Enron reorganization. Market observers expect deregulation to include
energy choice and time-of-use pricing requirements, which will mandate, or favor
implementation by utilities of, load control programs and the use of automated
meter reading and data distribution. However, the pace of deregulation has not
been as rapid as expected and to date only a limited number of utilities have
made purchase commitments for automated meter reading and data distribution
systems. Many utilities have also deferred the purchase of load control
systems, pending resolution of broader industry and regulatory developments.
The results of deregulation are uncertain and may not result in the mandates or
incentives for the types of services, which require AMR systems. If the state
and federal regulation does not provide these requirements or incentives, the
market for our products may not develop as we expect.
We Must Compete With Other Utility Solution Providers for Market Acceptance and
Customers.
While we believe that the systems offered by our energy intelligence
solutions segment offer advantages over competing load control and data
communications solutions, there are alternative solutions, and we cannot predict
what share of the market we will obtain. In addition, some of our competitors
have more sales and marketing resources, better brand recognition and/or
technologies that offer alternative advantages. If our potential customers do
not adopt our solutions or do so less rapidly than we expect, our future
financial results and our ability to achieve positive cash flow or
profitability, will be harmed.
We May Encounter Difficulties in Implementing our Technology, Products and
Services.
Problems may occur in the implementation of our technology, products or
services, and we may not successfully complete the commercial implementation of
our technology on a wide scale. Future advances may render our technology
obsolete or less cost effective than competitive systems. Consequently, we may
be unable to offer competitive services or offer appropriate new technologies on
a timely basis or on satisfactory terms.
Delays, Quality Control and Price Problems Could Arise Due to Our Reliance on
Third-Party Manufacturers of Certain Components.
We use a limited number of outside parties to manufacture components of
some of our products. Our reliance on third party manufacturers exposes us to
risks relating to timeliness, quality control and pricing. We have experienced
certain delays and quality control problems from third-party manufacturers in
the past and we may experience such problems with our new manufacturers. In
addition, to diversify our product offerings, we recently contracted with a
third-party manufacturer to develop and manufacture new products and new
features to existing products. Implementing these new product offerings could
cause some transitional delays and the diversification could have a negative
impact on price and quality control. Such delays, price increases and/or
quality control problems at our third-party manufacturers could harm our
relationships with our customers, our operating results and cash flow.
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RISKS RELATED TO THE COMPUTER HARDWARE SEGMENT
We Face Low Margin, Mass Marketing Competition.
The market for PCs and related peripheral hardware sales in which we
operate is characterized by severe competition in price-performance and
financing capabilities. Manufacturers and on-line Internet vendors have been
increasing their direct sales efforts on the Internet and otherwise, reducing
prices to end-users, which reduce profit margins for distributors and
value-added resellers such as our Databit subsidiary. Should this trend
continue, it could make our method of sales uneconomical and bring into question
the long-term viability of the business model used by Databit.
A Large Portion of Our Sales are Concentrated in the Greater New York City Area.
Computer hardware sales to the greater New York City metropolitan area
represented 84%, 78% and 83% of the total segment sales for the years ended
December 31, 2001, 2000 and 1999, respectively. Furthermore, all of the sales
force for the segment is based in Manhattan and northern New Jersey. Sales in
the New York City metropolitan area are significantly lower in 2002 than sales
in 2001. The downturn in sales was significantly exacerbated by the September
11th events. If the region does not recover from the continuing economic
downturn, or recover in a manner commensurate with our expectations or our
ability to control fixed costs, our operating results could deteriorate.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in, or incorporated by reference in, this
prospectus are forward-looking in nature. These statements can be identified by
the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should," or "anticipates," or the negatives thereof or comparable
terminology, or by discussions of strategy. You are cautioned that our business
and operations are subject to a variety of risks and uncertainties and,
consequently, our actual results may materially differ from those projected by
any forward-looking statements. Certain of these risks and uncertainties are
discussed above under the heading "Risk Factors." We make no commitment to
revise or update any forward-looking statements in order to reflect events or
circumstances after the date any such statement is made.
RECENT TRANSACTIONS
On June 11, 2002, we completed a transaction with Laurus Master Fund, Ltd.,
pursuant to which Laurus made a $2 million investment in us in exchange for a
10% convertible note and a three-year warrant to purchase 125,000 shares of our
common stock at an exercise price of $4.20. We intend to use the proceeds of
the investment for general corporate purposes.
Laurus may convert the convertible note at any time into shares of our
common stock at a fixed conversion price of $3.49, subject to certain
restrictions in the purchase agreement. We may pay the principal and interest on
the convertible note, which has a one-year term, in cash, shares of our common
stock or a combination of cash and stock, except prior to the date of this
prospectus we must make such payments solely in cash unless Laurus consents to
payment in stock. If we choose to use our common stock to pay the note, the
conversion price will be the lesser of (i) $3.49 and (ii) 83% of the average of
the 10 lowest closing prices during the 30 trading days prior to the date we
give notice of payment. We make interest only payments until October 1, 2002, at
which time we will pay interest and one-tenth of the principal on the first
business day of each calendar month and on the maturity date of June 30, 2003.
Our subsidiary Databit Inc. secured the convertible note by granting to Laurus a
security interest in Databit's accounts receivable.
We expect to record a debt discount as a result of the issuance of the
warrant to Laurus of approximately $181,000, which amount will be charged to
interest expense over the term of the convertible note using the effective yield
method. Furthermore, upon the date of this prospectus, we expect to record an
additional debt discount as a result of the beneficial conversion feature of
approximately $511,000, which amount will be charged to interest expense over
the remaining term of the convertible note using the effective yield method.
4
Laurus contractually agreed to restrict its ability to convert the
convertible note and/or exercise its warrants and receive shares of our common
stock such that the number of shares of common stock held by it and its
affiliates after such conversion and/or exercise does not exceed 4.9% of the
then issued and outstanding shares of our common stock. However, in the event
we redeem the convertible note, the 4.9% limitation is increased to 9.9%.
We also agreed to file with the Securities and Exchange Commission, and
have declared effective by September 10, 2002, a registration statement
registering the resale of the shares of our common stock issuable to Laurus upon
conversion or payment of the note and exercise of the warrant.
SELLING SECURITY HOLDER
One of our security holders may sell, from time to time, an estimated
973,417 shares of our common stock pursuant to this prospectus, including
125,000 shares of our common stock issuable upon the exercise of a warrant and
an estimated 848,417 shares of our common stock which may be issued to the
selling security holder upon either the conversion of a convertible note or
issuance by us as payment of interest and/or principal of a convertible note.
The table below identifies the selling security holder and indicates the number
of shares that the selling security holder may sell pursuant to this prospectus.
Name Of Selling Security Holder Number Of Shares Number Of Shares
Beneficially Owned Beneficially
Prior To Sale Owned After Sale
---------------------------------- --------------------- -------------------
Laurus Master Fund, Ltd. (1) 973,417(2) 0
____________________
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
Laurus Capital Management, L.L.C., a Delaware limited liability company,
may be deemed a control person of the shares owned by Laurus Master Fund,
Ltd. David Grin and Eugene Grin are the principals of Laurus Capital
Management, L.L.C.
(2) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rule, beneficial ownership includes any shares as
to which the selling security holder has sole or shared voting power or
investment power and also any shares, which the selling stockholder has the
right to acquire within 60 days. The actual number of shares of common
stock issuable upon the conversion or payment of the convertible note is
subject to the future market price of our common stock, and could be
materially less or more than the number estimated in the table. However the
selling stockholder has contractually agreed to restrict its ability to
convert the convertible note or exercise its warrants and receive shares of
our common stock such that the number of shares of common stock held by it
and its affiliates after such conversion or exercise does not exceed 4.9%
of the then issued and outstanding shares of common stock.
USE OF PROCEEDS
The shares covered by this prospectus are being offered by selling security
holders and not by us. Therefore, we will not receive proceeds from the sale of
shares.
PLAN OF DISTRIBUTION
Subject to the restrictions on transfer in the registration rights
agreement with us, the selling security holders may sell shares:
- through the Nasdaq Stock Market, otherwise in the over-the-counter market,
in privately negotiated transactions or otherwise;
5
- directly to purchasers or through agents, brokers, dealers or underwriters;
and
- at market prices prevailing at the time of sale, at prices related to the
prevailing market prices, or at negotiated prices.
If a selling security holder sells shares through agents, brokers, dealers
or underwriters, such agents, brokers, dealers or underwriters may receive
compensation in the form of discounts, commissions or concessions. This
compensation may be greater than customary compensation.
To the extent required, we will use our best efforts to file one or more
supplements to this prospectus to describe any material information with respect
to the plan of distribution not previously disclosed in this prospectus or any
material change in such information.
LEGAL MATTERS
Certain legal matters relating to the shares of common stock that may be
offered pursuant to this prospectus have been passed upon for us by Ehrenreich
Eilenberg & Krause LLP, counsel to our company. Sheldon Krause, a partner of
Ehrenreich Eilenberg & Krause LLP, is a member of our Board of Directors, our
Secretary and the son-in-law of George Morgenstern, the Chairman of our Board of
Directors, President and Chief Executive Officer. During 2001, we paid
approximately $575,000 for legal services rendered and reimbursement of
out-of-pocket expenses to Ehrenreich Eilenberg & Krause LLP. These fees related
to services rendered by Mr. Krause and other members and employees of his firm,
as well as certain special and local counsel retained and supervised by his firm
who performed services on our behalf.
EXPERTS
The consolidated financial statements of Data Systems & Software Inc. and
subsidiaries as of December 31, 2000 and 2001, and for each of the years in the
two year period ended December 31, 2001 have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent accountants, incorporated by reference herein and in the
registration statement, and upon the authority of KPMG LLP as experts in
accounting and auditing. The audit report covering the December 31, 2001
consolidated financial statements refers to a change in accounting for purchase
method business combinations completed after June 30, 2001.
The consolidated statements of operations and comprehensive income (loss),
changes in shareholders' equity and cash flows for the year ended December 31,
1999 incorporated in this prospectus by reference from Data Systems & Software
Inc.'s annual report on Form 10-K have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and has been so incorporated in reliance upon the report of such
firm, given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934. Accordingly, we file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document that we file at the SEC's public reference room in Washington, D.C.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. You can obtain copies of our SEC filings at prescribed rates
from the SEC Public Reference Section at 450 Fifth Street, N.W., Washington,
D.C. 20549. Our SEC filings are also available to you free of charge at the
SEC's web site at http:www.sec.gov.
Shares of our common stock are traded on the Nasdaq National Market.
Documents we file can be inspected at the offices of the National Association of
Securities Dealers, Inc., Reports Section, 1735 K Street, N.W., Washington, D.C.
20006.
You can read and print press releases, financial statements and additional
information about us, free of charge, at our web site at http:www.dssiinc.com.
6
This prospectus is a part of a registration statement on Form S-3 filed by
us with the SEC under the Securities Act of 1933. 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
SEC. For further information with respect to us and the shares of our common
stock offered hereby, please refer to the registration statement. The
registration statement may be inspected at the public reference facilities
maintained by the SEC at the addresses set forth above. Statements in this
prospectus about any document filed as an exhibit are not necessarily complete
and, in each instance, you should refer to the copy of such document filed with
the SEC. Each such statement is qualified in its entirety by such reference.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede previously filed
information, including information contained in this prospectus.
We incorporate by reference into this prospectus the documents listed below
and any future filings we will make with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act until this offering has been completed:
(1) Our Annual Report on Form 10-K for the fiscal year ended December 31, 2001
filed on March 27, 2002, as amended by Amendment No.1 on Form 10-K/A filed
on April 30, 2002.
(2) Our Quarterly Report on Form 10-Q for the three months ended March 31,
2002, filed on May 15, 2002;
(3) Our Current Report on Form 8-K dated June 11, 2002, filed on June 12, 2002;
(4) The description of our common stock contained in our Registration Statement
on Form 8-A, declared effective by the SEC on February 11, 1992, which was
filed pursuant to Section 12 of the Exchange Act, and any amendment or
report filed for the purpose of updating such description; and
(5) The description of our Common Stock Purchase Rights contained in our
Registration Statement on Form 8-A, dated March 22, 1996, which was filed
pursuant to Section 12 of the Exchange Act, and any amendment or report
filed for the purpose of updating such description.
You may request a free copy of these documents by writing to Investor
Relations, Data Systems & Software Inc., 200 Route 17, Mahwah, New Jersey 07430,
or by calling Investor Relations at (201) 529-2026.
You should rely only on the information incorporated by reference or
provided in this prospectus or a prospectus supplement or amendment. We have not
authorized anyone to provide you with different information. This prospectus
does not offer these securities in any state where the offer is not permitted.
Also, this prospectus does not offer to sell any securities other than the
securities covered by this prospectus. You should not assume that the
information in this prospectus or a prospectus supplement or amendment is
accurate as of any date other than the date on the front of the document.
7
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant will pay all expenses incident to the offering and sale to
the public of the shares being registered other than any commissions and
discounts of underwriters, dealers or agents and any transfer taxes. Such
expenses are set forth in the following table. All of the amounts shown are
estimates except the SEC registration fee.
SEC registration fee . . . . . . . . . . . $ 237
Legal fees and expenses . . . . . . . . . 7,500
Accounting fees and expenses . . . . . . . 10,000
Miscellaneous expenses . . . . . . . . . . 1,000
---------
Total . . . . . . . . . . . . . . . . . . . . $ 18,737
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation, as amended, and the Amended Bylaws of the
Registrant provide that the Registrant shall indemnify its officers, directors
and certain others to the fullest extent permitted by the General Corporation
Law of Delaware ("DGCL"). Section 145 of the DGCL provides that the Registrant,
as a Delaware corporation, is empowered, subject to certain procedures and
limitations, to indemnify any person against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with any threatened, pending or completed action,
suit or proceeding (including a derivative action) in which such person is made
a party by reason of his being or having been a director, officer, employee or
agent of the Registrant (each, an "Indemnitee"); provided that the right of an
Indemnitee to receive indemnification is subject to the following limitations:
(i) an Indemnitee is not entitled to indemnification unless he acted in good
faith and in a manner that he reasonable believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such conduct was unlawful and
(ii) in the case of a derivative action, and Indemnitee is not entitled to
indemnification in the event that he is judged to be liable to the Company
(unless and only to the extent that the court determines that the Indemnitee is
fairly and reasonably entitled to indemnification for such expenses as the court
deems proper). The statute provides that indemnification pursuant to its
provisions is not exclusive of other rights of indemnification to which a person
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
Pursuant to Section 145 of the DGCL, the Registrant has purchased insurance
on behalf of its present and former directors and officers against any liability
asserted against or incurred by them in such capacity or arising out of their
status as such.
In accordance with Section 102(b)(7) of the DGCL, the Certificate of
Incorporation of the Registrant eliminates personal liability of the
Registrant's directors to the Registrant or its stockholders for monetary
damages for breach of their fiduciary duties as a director, with certain limited
exceptions set forth in Section 102(b) (7) of the DGCL.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM 16. EXHIBITS.
Please see Index of Exhibits on Page II-5 below.
II-1
ITEM 17. UNDERTAKINGS.
(a) 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:
(i) To include any prospectus required by Section 10(a)(3) Securities Act of
1933 (the "Securities Act");
(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 volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC 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;
(iii) 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; PROVIDED,
HOWEVER, that paragraphs A(1)(i) and A(1)(ii) do not apply if the Registration
Statement is on Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 (the "Exchange Act") that are
incorporated by reference in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment 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
this offering.
B. UNDERTAKING REGARDING FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS
BY REFERENCE.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) 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.
C. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
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 SEC such indemnification is against
public policy as expressed in the Securities 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 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 and will be governed by the final
adjudication of such issue.
II-2
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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Mahwah, New Jersey, on this 10th day of July,
2002.
DATA SYSTEMS & SOFTWARE INC.
By: /s/George Morgenstern
_________________________
George Morgenstern
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints George
Morgenstern and Sheldon Krause, jointly and severally, as attorneys-in-fact,
each with the power of substitution, in any and all capacities, to sign any
amendment to this Registration Statement and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting to sale attorneys-in-fact, 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 connection therewith, as fully to all intents and
purposes they might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact or any of them, or their, his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons on the dates indicated
in the capacities indicated.
SIGNATURE TITLE
--------- -----
/s/George Morgenstern Chairman, President, CEO and Director July 10, 2002
_________________________
George Morgenstern
/s/Yacov Kaufman Vice President, Chief Financial Officer July 10, 2002
________________________ (Principal Financial Officer, Principal
Yacov Kaufman Accounting Officer)
/s/Robert Kuhn Director July 10, 2002
_________________________
Robert Kuhn
/s/Allen I. Schiff Director July 10, 2002
_________________________
Allen I. Schiff
/s/Sheldon Krause Director, Secretary July 10, 2002
_________________________
Sheldon Krause
/s/Susan L. Malley Director July 10, 2002
_________________________
Susan L. Malley
/s/Howard A. Gutzmer Director July 10, 2002
_________________________
Howard A. Gutzmer
/s/Shlomie Morgenstern Director July 10, 2002
_________________________
Shlomie Morgenstern
II-3
INDEX OF EXHIBITS
Exhibit
Number Description
--------------------------------------------------------------------------------
2.3 Certificate of Incorporation of the Registrant, with amendments thereto
(incorporated herein by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-70482)).
2.4. By-laws of the Registrant (incorporated herein by reference to Exhibit 3.2
to the Registrant's Registration Statement on Form S-1 (File No.
33-44027)).
2.5 Amendments to the By-laws of the Registrant adopted December 27, 1994
(incorporated herein by reference to Exhibit 3.3 of the Registrant's
Current Report on Form 8-K dated January 10, 1995).
5.1 Opinion of Ehrenreich Eilenberg & Krause LLP.
10.1 Securities Purchase Agreement, dated as of June 10, 2002, by and among Data
Systems & Software Inc., Databit Inc. and Laurus Master Fund, Ltd. relating
to the purchase and sale of the convertible note and the warrant, including
the forms of convertible note and the warrant (incorporated herein by
reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K,
dated June 11, 2002, filed on June 12, 2002).
23.1 Consent of KPMG LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Ehrenreich Eilenberg & Krause LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included in signature page of this Registration
Statement).
II-4