<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 19, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTEGRATED SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 7372 94-2658153
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer
incorporation or organization) Classification Code Number) identification no.)
</TABLE>
------------------------
201 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 542-1500
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
WILLIAM C. SMITH
VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER
INTEGRATED SYSTEMS, INC.
201 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 542-1500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
FRED M. GREGURAS, ESQ.
KATHERINE TALLMAN SCHUDA, ESQ.
FENWICK & WEST LLP
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
(650) 494-0600
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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, 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(d)
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. / / ______
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED(1) REGISTERED(2) PRICE PER SHARE(3) PRICE(3) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value........................ 1,430,037 shares 10.296875 $14,724,913 $4,094
</TABLE>
(1) Common Stock being registered includes associated Preferred Share Purchase
Rights, which initially are attached to and traded with the shares of the
Registrant's Common Stock.
(2) The shares of Common Stock set forth in the Calculation of Registration Fee
Table, and which may be offered pursuant to this Registration Statement,
include, pursuant to rule 416 of the Securities Act of 1933, as amended,
such additional number of shares of the Registrant's Common Stock that may
become issuable as a result of any stock split, stock dividend or similar
event.
(3) Estimated solely for the purpose of calculating the amount of the
registration fee, pursuant to Rule 457(c) under the Securities Act, based on
the average of the high and low prices of the common stock on the Nasdaq
National Market on October 18, 1999.
------------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE 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.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 19, 1999
1,430,037 SHARES
INTEGRATED SYSTEMS, INC.
COMMON STOCK
---------------------
All of the 1,430,037 shares of common stock of Integrated Systems, Inc. are
being sold by shareholders of ISI. ISI will not receive any proceeds from the
sale of shares offered by the selling shareholders. See "Selling Shareholders"
and "Plan of Distribution."
The common stock is listed on the Nasdaq National Market under the symbol
"INTS." The shares of common stock offered will be sold as described under "Plan
of Distribution."
On October 18, 1999, the closing price per share of the common stock on the
Nasdaq National Market was $9 29/32.
------------------------
THE COMMON STOCK OFFERED INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 3.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES
COMMISSION, HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER , 1999.
<PAGE>
INTEGRATED SYSTEMS, INC.
ISI provides solutions for embedded software development that consist of:
- real-time operating systems and software components for embedded
microprocessors;
- tools for designing, developing and optimizing embedded applications;
- networking products for device connectivity and management; and
- engineering design services for accelerated co-sourced product
development.
Our products help users accelerate the design, development, debugging,
implementation and maintenance of embedded software. Our products and services
are intended to reduce the expense associated with embedded software and system
development and enable customers to develop systems featuring greater
functionality, enhanced performance, improved reliability and ease-of-use. We
market and support our products and provide services on a worldwide basis to a
variety of users in a broad range of industries, including telecommunications,
data communications, automotive, consumer electronics, office products and
point-of-sale and aerospace. Founded in 1980, ISI is headquartered in Sunnyvale,
California, with a worldwide sales and service presence extending throughout
Asia, Europe and the Americas. Our principal executive offices are located at
201 Moffett Park Drive, Sunnyvale, California 94089. Our telephone number is
(408) 542-1500.
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<PAGE>
RISK FACTORS
THIS OFFERING IS RISKY. ANYONE WHO MAY RECEIVE COMMON STOCK UNDER THIS
PROSPECTUS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO
THE OTHER INFORMATION PRESENTED IN OR INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT.
FLUCTUATIONS IN OUR QUARTERLY RESULTS COULD CAUSE THE MARKET PRICE OF OUR COMMON
STOCK TO DECLINE
Our quarterly operating results can vary significantly depending on a number
of factors. These factors include:
- the volume and timing of orders received during the quarter;
- the mix of and changes in customers to whom our products are sold;
- the timing and acceptance of new products and product enhancements by us
or by our competitors;
- changes in pricing;
- buyouts of run-time licenses;
- product life cycles;
- the level of our sales of third party products;
- variances in costs associated with fixed price contracts;
- purchasing patterns of customers;
- competitive conditions in the industry;
- foreign currency exchange rate fluctuations;
- business cycles and economic conditions that affect the markets for our
products; and
- extraordinary events, such as litigation or acquisitions, including
related charges.
All of these factors are difficult to forecast. Our future operating results
may fluctuate as a result of these and other factors, including our ability to
continue to develop innovative and competitive products. An increasing amount of
our sales orders involve products and services that yield revenue over multiple
quarters or upon completion of performance. If license agreements entered into
during a quarter do not meet our revenue recognition criteria, even if we meet
or exceed our forecast of aggregate licensing and other contracting activity, it
is possible that our revenues would not meet expectations.
Due to all of these factors, we believe that period-to-period comparisons of
our results of operations are not necessarily meaningful and should not be
viewed as an indication of our future performance. In the past, we have
experienced actual performance that did not meet financial market expectations.
It is likely that, in some future quarters, our operating results will again be
below the expectations of stock market analysts and investors.
OUR INSIGNIFICANT BACKLOG AND LONG SALES CYCLE COMBINED WITH COSTS THAT ARE
FIXED, MAKE IT DIFFICULT FOR US TO PREDICT FUTURE REVENUE AND COMPENSATE FOR A
REVENUE SHORTFALL
Historically, we have operated with insignificant product backlog because we
generally ship our products when we receive the order. As a result, our product
revenue in any quarter depends on the volume and timing of orders received in
that quarter. In addition, we generally recognize a substantial portion of our
total revenue from sales orders received and shipped in the last two weeks of
the quarter. Thus, the magnitude of quarterly fluctuations may not become
evident until very late in, or
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<PAGE>
after the end of, a particular quarter. In addition, the procurement process of
our customers typically ranges from a few weeks to several months or longer from
initial inquiry to order, making the timing of sales and license fees difficult
to predict. As licensing of our products increasingly becomes a more strategic
decision made at higher management levels, we believe that sales cycles for our
products will lengthen. Because our staffing and operating expenses are based on
anticipated total revenue levels, and a high percentage of our costs are fixed
in the short term and do not vary with revenue, small variations between
anticipated orders and actual orders, as well as non-recurring or large orders,
can cause disproportionate variations in our operating results from quarter to
quarter.
IF OUR NEW PRODUCTS OR PRODUCT ENHANCEMENTS FAIL TO ACHIEVE CUSTOMER ACCEPTANCE,
OR IF WE FAIL TO MANAGE PRODUCT TRANSITIONS, OUR BUSINESS REPUTATION AND
FINANCIAL PERFORMANCE WOULD SUFFER
The market for embedded applications is fragmented and is characterized by
technological change, evolving industry standards and rapid changes in customer
requirements. Our existing products will be rendered less competitive or
obsolete if we fail to introduce new products or product enhancements that
anticipate the features and functionality that customers demand. The success of
our new product introductions will depend on our ability to:
- accurately anticipate industry trends and changes in technology standards;
- timely complete and introduce new product designs and features;
- continue to enhance our existing product lines;
- offer our products across a spectrum of microprocessor families used in
the embedded systems market; and
- respond promptly to customers' requirements and preferences.
In addition, the introduction of new or enhanced products also requires that
we manage the transition from older products to minimize disruption in customer
ordering patterns.
Development delays are commonplace in the software industry. We have
experienced delays in the development of new products and the enhancement of
existing products in the past and are likely to experience delays in the future.
We may not be successful in developing and marketing, on a timely basis or at
all, competitive products, product enhancements and new products that respond to
technological change, changes in customer requirements and emerging industry
standards.
COMPETITION CAN LEAD TO PRICING PRESSURES AND LOSS OF MARKET SHARE
The market for commercially available software tools and embedded operating
systems is fragmented and highly competitive. As the industry continues to
develop, we expect competition to increase in the future from existing
competitors and from other companies that may enter our existing or future
markets with similar or substitute solutions that may be less costly or provide
better performance or functionality than our products. Some of our existing and
many of our potential competitors have substantially greater financial,
technical, marketing and sales resources than we do, and we might not be able to
compete successfully against these companies. If price competition increases
significantly, competitive pressures could cause us to reduce the prices of our
products, which would result in reduced profit margins and could harm our
ability to provide adequate service to our customers. Our pricing model for our
embedded software products is based on a range of mid-priced development license
packages, combined with low-priced per-unit production, or run-time, licenses.
Run-time licenses, which provide for per-unit royalty payments for each embedded
system that incorporates our real-time operating systems, may be subject to
significant pricing pressures, including buy-out arrangements. Also, the market
may demand alternative pricing models in the future. A variety
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<PAGE>
of other potential actions by ISI's competitors, including increased promotion
and accelerated introduction of new or enhanced products, could also harm our
competitive position.
IF WE ENGAGE IN FUTURE ACQUISITIONS, WE MAY FAIL TO INTEGRATE ACQUIRED
BUSINESSES EFFECTIVELY, WHICH COULD DISRUPT OUR ONGOING BUSINESS AND GENERATE
NEGATIVE PUBLICITY
We have completed a number of acquisitions in recent years, most recently
the acquisition of Software Development Systems, Inc. in July 1999. We may
complete additional acquisitions in the future. The process of integrating an
acquired company's business into our operations may result in unforeseen
operating difficulties and expenditures. It may also absorb significant
management attention that would otherwise be available for the ongoing
development of our business. Moreover, the anticipated benefits of an
acquisition might not be realized. Future acquisitions could result in
potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities and amortization expenses related to goodwill and other
intangible assets. In addition, acquisitions involve numerous risks, including
difficulties in the assimilation of the operations, technologies and products of
the acquired companies, difficulties in managing diverse geographic sales and
research and development operations, the diversion of management attention from
other business concerns, risks of entering markets in which we have no or
limited direct prior experience and the potential loss of key employees of the
acquired company.
INTERNATIONAL SALES OF OUR PRODUCTS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR
TOTAL REVENUE, WHICH EXPOSES US TO THE BUSINESS AND ECONOMIC RISKS OF
INTERNATIONAL OPERATIONS
Sales from outside of North America accounted for approximately 38% of our
total revenue in fiscal year 1997, 41% of our total revenue in fiscal year 1998
and 42% of our total revenue in fiscal year 1999 and the first six months of
fiscal year 2000. We expect that international sales will continue to generate a
significant percentage of our total revenue in the foreseeable future.
International operations are subject to a number of special risks. These risks
include:
- foreign government regulation;
- reduced protection of intellectual property rights in some countries where
we do business;
- longer receivable collection periods and greater difficulty in accounts
receivable collection;
- unexpected changes in, or imposition of, regulatory requirements, tariffs,
import and export restrictions and other barriers and restrictions;
- potentially adverse tax consequences;
- the burdens of complying with a variety of foreign laws and staffing and
managing foreign operations;
- general geopolitical risks, such as political and economic instability,
hostilities with neighboring countries and changes in diplomatic and trade
relationships; and
- possible recessionary environments in economies outside the United States.
More generally, recent instability in Asian currency and stock market
economies could adversely affect the economic health of the entire region and
could have an adverse effect on our results of operations. For example, in many
countries in the Asia Pacific region, during fiscal years 1998 and 1999 there
was little or no growth in investment in product development infrastructure by
manufacturing companies.
5
<PAGE>
CURRENCY FLUCTUATIONS CAN CAUSE OUR REVENUE TO DECLINE
We generally denominate sales to and by foreign subsidiaries in local
currency. An increase in the relative value of the dollar against local
currencies would reduce our revenue in dollar terms or make our products more
expensive and, therefore, potentially less competitive in foreign markets. For
example, revenue from sales in Japan during fiscal years 1997 and 1998 was
adversely affected by the weakness of the yen against the dollar. Similarly, the
currencies of many other countries in the Asia Pacific region have recently lost
significant value against the dollar, notably the currencies of Korea and
Taiwan. Our future results of operations could be adversely affected by currency
fluctuations.
IF OUR INTERNATIONAL DISTRIBUTORS AND REPRESENTATIVES DO NOT PROMOTE OUR
PRODUCTS EFFECTIVELY, OUR REVENUES COULD DECLINE
We rely on distributors and representatives for sales of our products in
some foreign countries and, accordingly, depend on their ability to promote and
support our products and, in some cases, to translate them into foreign
languages. Our international distributors and representatives generally offer
products of several different companies, including in some cases products that
are competitive with our products, and these distributors and representatives
are not subject to any minimum purchase or resale requirements. Our
international distributors and representatives may not continue to purchase our
products or provide them with adequate levels of support.
PRODUCT DEFECTS CAN BE EXPENSIVE TO FIX AND CAN CAUSE US TO LOSE CUSTOMERS
As a result of their complexity, software products may contain undetected
errors or compatibility issues, particularly when first introduced or as new
versions are released. Despite testing by us and testing and use by current and
potential customers, errors might be found in new products after commencement of
commercial shipments. The occurrence of errors could result in loss of or delay
in market acceptance of our products. The increasing use of our products for
applications in systems that interact directly with the general public,
particularly applications in transportation, medical systems and other markets
where the failure of the embedded system could cause substantial property damage
or personal injury, could expose us to significant product liability claims. In
addition, our products are used for applications in business systems where the
failure of the embedded system could be linked to substantial economic loss. Our
license and other agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability and other claims.
It is likely, however, that the limitation of liability provisions contained in
our agreements are not effective in all circumstances and in all jurisdictions.
We do not have insurance against product liability risks and insurance may not
be available to us on commercially reasonable terms. Our errors and omissions
insurance may not be adequate to cover claims. A product liability claim or
claim for economic loss brought against us, or a product recall involving our
software, could lead to significant unexpected expenses and lost sales.
Our operations depend on our ability to protect our computer equipment and
the information stored in our databases against damage by fire, natural
disaster, power loss, telecommunications failure, unauthorized intrusion and
other catastrophic events. We believe we have taken prudent measures to reduce
the risk of interruption in our operations. However, these measures might not be
sufficient.
IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL AS
NECESSARY, WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS OR SELL OUR
PRODUCTS
Our future performance depends to a significant degree upon the continued
contributions of our key management, product development, sales, marketing and
operations personnel. We do not have agreements with any of our key personnel
that require them to work for us for a specific term, and we do not maintain any
key person life insurance policies. In addition, we believe our future success
will
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also depend in large part upon our ability to attract and retain highly skilled
managerial, engineering, sales, marketing and operations personnel, many of whom
are in great demand. Competition for qualified personnel is intense in Santa
Clara County, California, where we are headquartered, and we may not be able to
attract and retain personnel.
OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS FROM THIRD-PARTY
CHALLENGES MAY SIGNIFICANTLY IMPAIR OUR COMPETITIVE POSITION
We depend on our proprietary technology. Despite our efforts to protect our
proprietary rights, it may be possible for unauthorized third parties to copy
our products or to reverse engineer or obtain and use information that we regard
as proprietary. Our competitors could independently develop technologies that
are substantially equivalent or superior to our technologies. Policing
unauthorized use of our products is difficult, and while we are unable to
determine the extent to which software piracy of our products exists, software
piracy can be expected to be a persistent problem. In addition, effective
protection of intellectual property rights may be unavailable or limited in
foreign countries. The status of United States patent protection in the software
industry is not well defined and will evolve as the United States Patent and
Trademark Office grants additional patents. Patents have been granted on
fundamental technologies in software, and patents may issue that relate to
fundamental technologies incorporated into our products.
OUR PRODUCTS MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES,
WHICH MAY RESULT IN LAWSUITS AND PREVENT US FROM SELLING OUR PRODUCTS
As the number of patents, copyrights, trademarks and other intellectual
property rights in our industry increases, products based on our technology may
increasingly become the subject of infringement claims. Third parties could
assert infringement claims against us in the future. Infringement claims with or
without merit could be time consuming, result in costly litigation, cause
product shipment delays or require us to enter into royalty or licensing
agreements. Royalty or licensing agreements, if required, might not be available
on terms acceptable to us. In addition, we may initiate claims or litigation
against third parties for infringement of our proprietary rights or to establish
the validity of our proprietary rights. Litigation to determine the validity of
any claims, whether or not the litigation is resolved in our favor, could result
in significant expense to us and divert the efforts of our technical and
management personnel from productive tasks. In the event of an adverse ruling in
any litigation, we may be required to pay substantial damages, discontinue the
use and sale of infringing products, expend significant resources to develop
non-infringing technology or obtain licenses to infringing technology. The
failure of ISI to develop or license a substitute technology could prevent us
from selling our products.
IF WE LOSE THIRD-PARTY LICENSE RIGHTS, WE MAY NOT BE ABLE TO SELL SOME OF OUR
PRODUCTS
We license software development tool products from other companies to
distribute with some of our products. These third parties may not be able to
provide competitive products with adequate features and high quality on a timely
basis or to provide sales and marketing cooperation. In addition, our products
compete with products produced by some of our licensors. When these licenses
terminate or expire, continued license rights might not be available to us on
reasonable terms. In addition, we might not be able to obtain similar products
to substitute into our tool suites.
IF WE OR OUR SIGNIFICANT SUPPLIERS OR SERVICE PROVIDERS FAILS TO BE YEAR 2000
COMPLIANT, OUR BUSINESS MAY BE DISRUPTED AND OUR REVENUES MAY DECLINE
We believe that all of our most current product releases will not cease to
perform nor generate incorrect or ambiguous data or results solely due to a
change in date to or after January 1, 2000, and will calculate any information
dependent on such dates in the same manner, and with the same
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functionality, data integrity and performance, as these products do on or before
December 31, 1999. However, all of our customers may not implement the Year 2000
compliant release of our products in a timely manner, which could lead to
failure of customer systems and product liability claims against us. Even if our
products are Year 2000 compliant, we may, in the future, be subject to claims
based on Year 2000 issues in the products of other companies or issues arising
from the integration of multiple products within a system. The costs of
defending and resolving Year 2000-related disputes, and any liability for Year
2000-related damages, including consequential damages, could be significant. In
addition, Year 2000 failures could have a negative effect on our competitive
position. If any of our critical suppliers do not successfully and timely
achieve Year 2000 compliance, and we are unable to replace them with new or
alternate suppliers, our business would be disrupted.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR STOCK PRICE
VOLATILITY
The prices for our common stock have fluctuated widely in the past. During
the 12 months ended September 30, 1999, the closing price of a share of our
common stock ranged from a high of $17.69 to a low of $6.25. Stock price
volatility has had a substantial effect on the market prices of securities
issued by us and other high technology companies, often for reasons unrelated to
the operating performance of the specific companies. In the past, following
periods of volatility in the market price of a company's securities, securities
class action litigation has often been instituted against the company. We may in
the future be the target of similar litigation. Regardless of the outcome,
securities litigation may result in substantial costs and divert management
attention and resources.
FINANCIAL STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the recorded amounts of assets and liabilities at the
date of the financial statements and the recorded amounts of revenues and
expenses during the reporting period. A change in the facts and circumstances
surrounding these estimates could result in a change to the estimates and impact
future operating results.
CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS
This prospectus (including the documents incorporated by reference) contains
forward-looking statements regarding ISI's plans, expectations, estimates and
beliefs. These statements involve risks and uncertainties, and actual results
could differ materially from those reflected in the forward-looking statements.
Forward-looking statements in this prospectus are typically identified by words
such as "believes," "anticipates," "expects," "intends," "will" and "may" and
other similar expressions. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. ISI will not necessarily update
the information in this prospectus if and when any forward-looking statement
later turns out to be inaccurate. Some of the important risks and uncertainties
that may affect ISI's future results and performance are described in "Risk
Factors," above. Additional information about factors that could affect ISI's
future results and events is included in ISI's reports filed with the SEC and
incorporated by reference in this prospectus.
USE OF PROCEEDS
ISI will not receive any of the proceeds from the sale of shares by the
selling shareholders.
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SELLING SHAREHOLDERS
The following table sets forth certain information known to ISI with respect
to the beneficial ownership of the common stock as of September 30, 1999 by the
selling shareholders. The selling shareholders are the former shareholders of
SDS. They have not had any position, office or other material relationship with
ISI within the three years before July 21, 1999, the date on which ISI acquired
SDS. As of July 21, 1999, James E. Challenger, Jr. was appointed a Vice
President of ISI and Anthony Skiba became an employee of ISI. Mr. Challenger is
a member of the ISI Board of Directors and has an employment contract and a
Non-Competition Agreement with ISI.
The table assumes that the selling shareholders sell all of the shares
offered by them in this offering. However, we are unable to determine the exact
number of shares that will actually be sold or when or if such sales will occur.
This table also assumes that the selling shareholders do not acquire any other
shares of our common stock pending the offering.
The selling shareholders have advised us that they are the beneficial owners
of the shares being offered.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED
AFTER
OWNED BEFORE OFFERING ----------------------------
------------------------ SHARES BEING OFFERING
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------------------------------ --------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
James E. Challenger, Jr. (1)................................ 859,736 3.6 859,736 -- --
Anthony Skiba............................................... 429,868 1.8 429,868 -- --
Robert M. Zieserl (2)....................................... 140,243 * 140,243 -- --
Jeffrey Barth............................................... 190 * 190 -- --
</TABLE>
- ------------------------
* Less than 1%
(1) 429,869 of these shares are held by Mr. Challenger individually. The
remainder are held of record by Mr. Challenger as trustee of the James E.
Challenger, Jr. Trust.
(2) 86,517 of these shares are held individually. The remainder of these shares
are held of record by Mr. Zieserl as trustee under various family trusts.
Under an escrow agreement dated July 15, 1999, we hold in escrow a total of
71,488 shares that are beneficially owned by the selling shareholders. The
escrow shares are included in the totals shown above. The escrow is scheduled to
terminate on July 15, 2000 unless we make a claim against the escrow fund. If we
make a claim against the escrow fund, the escrow will terminate when the claim
is finally resolved. We must consent to any sale of escrow shares until the
escrow terminates.
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling shareholders. The
selling shareholders are former shareholders of Software Development
Systems, Inc., a company that we acquired on July 21, 1999. The selling
shareholders are bound by a registration rights agreement with us. To our
knowledge, the selling shareholders have not entered into any agreement,
arrangement or understanding with any particular broker or market maker with
respect to the sale of the shares covered by this prospectus.
The selling shareholders may offer and sell shares of common stock from time
to time. In addition, a selling shareholder's donees, pledgees, transferees and
other successors in interest may sell shares received from a named selling
shareholder after the date of this prospectus. The selling shareholders will act
independently of ISI in making decisions with respect to the timing, manner and
size of each sale. Sales may be made over the Nasdaq National Market or
otherwise, at then prevailing market
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prices, at prices related to prevailing market prices or at negotiated prices.
The shares may be sold by one or more of the following:
- a block trade in which the broker-dealer engaged by a selling shareholder
will attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
- purchases by the broker-dealer as principal and resale by the broker or
dealer for its account pursuant to this prospectus; and
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
The selling shareholders have advised ISI that they have not, as of the date
of this prospectus, entered into any agreements, understandings or arrangements
with any underwriters or broker-dealers for the sale of shares, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of shares by the selling shareholders.
In connection with distributions of the shares or otherwise, the selling
shareholders may enter into hedging transactions with broker-dealers or other
financial institutions. In connection with these transactions, broker-dealers or
financial institutions may engage in short sales of the shares in the course of
hedging the positions they assume with selling shareholders. The selling
shareholders may also sell shares short and redeliver the shares to close out
these short positions. The selling shareholders may also enter into option or
other transactions with broker-dealers or other financial institutions that
require the delivery to the broker-dealer or financial institution of the
shares, which the broker-dealer or financial institution may resell or otherwise
transfer under this prospectus. The selling shareholders may also loan or pledge
the shares to a broker-dealer or other financial institution and the
broker-dealer or financial institution may sell the shares so loaned or, upon a
default, the broker-dealer may sell the pledged shares under this prospectus. In
addition, any securities covered by this prospectus that qualify for sale under
Rule 144 of the Securities Act may be sold under Rule 144 rather than under this
prospectus.
Transactions under this prospectus may or may not involve brokers or
dealers. The selling shareholders may sell shares directly to purchasers or to
or through broker-dealers, who may act as agents or principals. Broker-dealers
engaged by the selling shareholders may arrange for other broker-dealers to
participate in selling shares. Broker-dealers or agents may receive compensation
in the form of commissions, discounts or concessions from the selling
shareholders in amounts to be negotiated in connection with the sale.
Broker-dealers or agents may also receive compensation in the form of discounts,
concessions or commissions from the purchasers of shares for whom the
broker-dealers may act as agents or to whom they sell as principal, or both.
This compensation as to a particular broker-dealer might exceed customary
commissions.
The selling shareholders and any participating broker-dealers may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
sales of shares covered by this prospectus. Any commission, discount or
concession received by a broker-dealer and any profit on the resale of shares
sold by them while acting as principals might be deemed to be underwriting
discounts or commissions under the Securities Act. Because selling shareholders
may be deemed to be underwriters within the meaning of the Securities Act, the
selling shareholders will be subject to the prospectus delivery requirements of
the Securities Act.
ISI has informed the selling shareholders that the anti-manipulation rules
under the Exchange Act apply to sales of shares in the market and to the
activities of the selling shareholders and their affiliates. The selling
shareholders have advised ISI that during the time they may be engaged in the
attempt to sell registered shares, they will:
- not engage in any stabilization activity in connection with any of ISI's
securities;
10
<PAGE>
- not bid for or purchase any of ISI's securities or any rights to acquire
ISI's securities, or attempt to induce any person to purchase any of ISI's
securities or rights to acquire ISI's securities, other than, in each
case, as permitted under the Exchange Act;
- not sell or distribute the shares until after the prospectus has been
appropriately amended or supplemented, if required, to set forth the terms
of sale or distribution; and
- make all sales of shares in broker's transactions through broker-dealers
acting as agents, in transactions directly with market makers or in
privately negotiated transactions where no broker or other third party
(other than the purchaser) is involved.
ISI has the ability to suspend the use of this prospectus if, in the good
faith judgment of the ISI board of directors, it would be seriously detrimental
to ISI and its shareholders for resales of shares to be made. Each period of
suspension may last up to 60 days, with a maximum of two periods of suspension
in any 12-month period.
This offering will terminate on the earlier of:
- July 21, 2001;
- the date on which all shares held by all selling shareholders can be sold
in a three-month period under Rule 144; or
- the date on which all shares offered have been sold by the selling
shareholders.
ISI has agreed to pay the expenses of registering the shares under the
Securities Act, including registration and filing fees, printing expenses,
administrative expenses and certain legal and accounting fees. The selling
shareholders will bear all discounts, commissions or other amounts payable to
underwriters, dealers or agents as well as fees and disbursements for legal
counsel retained by any selling shareholder.
ISI and the selling shareholders have agreed to indemnify each other and
other related parties against specified liabilities, including liabilities
arising under the Securities Act. The selling shareholders may agree to
indemnify any agent, dealer or broker-dealer that participates in transactions
involving sales of shares against liabilities, including liabilities arising
under the Securities Act.
Upon the occurrence of any of the following events, a supplement to this
prospectus will be filed, if required, under Rule 424(b) under the Securities
Act to include additional disclosure before offers and sales of the securities
in question are made:
- to the extent the securities are sold at a fixed price or at a price other
than the prevailing market price, such price would be set forth in the
prospectus;
- if the securities are sold in block transactions and the purchaser acting
in the capacity of an underwriter wishes to resell, such arrangements
would be described in the prospectus;
- if the selling shareholders sell to a broker-dealer acting in the capacity
as an underwriter, such broker-dealer will be identified in the
prospectus;
- if the compensation paid to broker-dealers is other than usual and
customary discounts, concessions or commissions, disclosure of the terms
of the transaction would be included in the prospectus; and
- if a selling shareholder notifies ISI that a donee or pledgee intends to
sell more than 500 shares.
11
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for ISI by Fenwick & West LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to our Annual Report on Form 10-K for the year ended February 28,
1999, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given upon the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements incorporated by reference to our
Current Report on Form 8-K dated July 21, 1999, as amended, have been so
incorporated in reliance upon the report of KPMG LLP, independent accountants,
given upon the authority of said firm and experts in auditing and accounting.
DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS
The SEC allows ISI to "incorporate by reference" the information that ISI
files with the SEC. This means that ISI can disclose important information by
referring the reader to those SEC filings. The information incorporated by
reference is considered to be part of this prospectus, and later information ISI
files with the SEC will update and supersede this information. ISI incorporates
by reference the documents listed below and any future filings made with the SEC
under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until termination of the offering:
- Annual report on Form 10-K for the fiscal year ended February 28, 1999;
- Quarterly report on Form 10-Q for the quarter ended May 31, 1999;
- Quarterly report on Form 10-Q for the quarter ended August 31, 1999;
- Current report on Form 8-K dated July 21, 1999, as amended;
- The description of ISI's common stock contained in ISI's registration
statement on Form 8-A, and any amendment or report filed for the purpose
of updating such description; and
- The description of ISI's Preferred Stock Purchase Rights contained in
ISI's registration statement on Form 8-A, and any amendment or report
filed for the purpose of updating such description.
SOME OF THE INFORMATION ABOUT ISI THAT MAY BE IMPORTANT TO AN INVESTMENT
DECISION IS NOT PHYSICALLY INCLUDED IN THIS PROSPECTUS. INSTEAD, THE INFORMATION
IS "INCORPORATED" INTO THIS PROSPECTUS BY REFERENCE TO ONE OR MORE DOCUMENTS
THAT ISI FILED WITH THE SEC. THESE DOCUMENTS (INCLUDING ANY EXHIBITS THAT ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMATION THAT THIS PROSPECTUS
INCORPORATES) ARE AVAILABLE UPON REQUEST WITHOUT CHARGE FROM INVESTOR RELATIONS,
INTEGRATED SYSTEMS, INC., 201 MOFFETT PARK DRIVE, SUNNYVALE, CALIFORNIA 94089
(TELEPHONE NUMBER (408) 542-1500). RECIPIENTS SHOULD MAKE ALL REQUESTS FOR
DOCUMENTS BY THE FIFTH BUSINESS DAY BEFORE THEY MAKE THEIR FINAL INVESTMENT
DECISION, TO BE SURE THE DOCUMENTS ARRIVE ON TIME. INFORMATION THAT HAS BEEN
INCORPORATED BY REFERENCE IS CONSIDERED PART OF THIS PROSPECTUS AND DISCLOSED TO
INVESTORS, WHETHER OR NOT INVESTORS OBTAIN A COPY OF THE DOCUMENT CONTAINING THE
INFORMATION.
This prospectus may contain information that updates, modifies or is
contrary to information in one or more of the documents incorporated by
reference in this prospectus. Reports ISI files with the SEC after the date of
this prospectus may also contain information that updates, modifies or is
contrary to information in this prospectus or in documents incorporated by
reference in this prospectus.
12
<PAGE>
Investors should review these reports as they may disclose a change in the
business, prospects, financial condition or other affairs of ISI after the date
of this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
The documents incorporated by reference into this prospectus are available
from us upon request. We will provide a copy of any and all of the information
that is incorporated by reference in this prospectus, not including exhibits to
the information unless those exhibits are specifically incorporated by reference
into this proxy statement prospectus, to any person, without charge, upon
written or oral request.
Requests for documents should be directed to Investor Relations, Integrated
Systems, Inc., 201 Moffett Park Drive, Sunnyvale, California 94089 (telephone
number (408) 542-1500).
We file reports, proxy statements and other information with the Securities
and Exchange Commission. Copies of our reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 5000 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a Website that contains reports, proxy statements and other
information regarding each of us. The address of the SEC Website is
http://www.sec.gov.
ISI has filed a registration statement under the Securities Act with the
Securities and Exchange Commission with respect to the shares to be sold by the
selling shareholders. This prospectus has been filed as part of the registration
statement. This prospectus does not contain all of the information set forth in
the registration statement because certain parts of the registration statement
are omitted in accordance with the rules and regulations of the SEC. The
registration statement is available for inspection and copying as set forth
above.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS IN ANY
JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
PURSUANT TO THIS PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH OR
INCORPORATED HEREIN BY REFERENCE OR IN OUR AFFAIRS SINCE THE DATE OF THIS
PROSPECTUS.
13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The aggregate estimated expenses to be paid by the Registrant in connection
with this offering are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 4,094
Accounting fees and expenses*...................................... 15,000
Legal fees and expenses*........................................... 10,000
Miscellaneous*..................................................... 5,906
---------
Total.......................................................... $ 35,000
=========
</TABLE>
- ------------------------
* Estimate
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation include a provision that
eliminates the personal liability of its directors to the Registrant and its
shareholders for monetary damages for breach of the directors' fiduciary duties
to the fullest extent permitted by law. This limitation has no effect on a
director's liability
- for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law,
- for acts or omissions that a director believes to be contrary to the best
interests of the Registrant or its shareholders or that involve the
absence of good faith on the part of the director,
- for any transaction from which a director derived an improper personal
benefit,
- for acts or omissions that show a reckless disregard for the director's
duty to the Registrant or its shareholders in circumstances in which the
director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of a serious injury to the
Registrant or its shareholders,
- for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to Registrant or its
shareholders,
- under Section 310 of the California Corporations Code (the "California
Code") (concerning contracts or transactions between the Registrant and a
director); or
- under Section 316 of the California Code (concerning directors' liability
for improper dividends, loans and guarantees).
The provision does not extend to acts or omissions of a director in his
capacity as an officer. Further, the provisions will not affect the availability
of injunctions and other equitable remedies available to the Registrant's
shareholders for any violation of a director's fiduciary duty to the Registrant
or its shareholders.
The Registrant's Articles of Incorporation also include an authorization for
the Registrant to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this latter provision, the
Registrant's Bylaws provide for indemnification of the Registrant's directors
and officers. In addition, the Registrant, at its discretion, may provide
indemnification to persons whom the Registrant is not
II-1
<PAGE>
obligated to indemnify. The Bylaws also allow the Registrant to enter into
indemnity agreements with individual directors, officers, employees and other
agents. These indemnity agreements have been entered into with all directors and
executive officers and provide the maximum indemnification permitted by law.
These agreements, together with the Registrant's Bylaws and Articles of
Incorporation, may require the Registrant, among other things, to indemnify such
directors and executive officers against certain liabilities that may arise by
reason of their status or service as directors (other than liabilities resulting
from willful misconduct of a culpable nature), to advance expenses to them as
they are incurred, provided that they undertake to repay the amount advanced if
it is ultimately determined by a court that they are not entitled to
indemnification, and to obtain directors' and officers' insurance if available
on reasonable terms.
Section 317 of the California Code and the Registrant's Bylaws make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify such persons, under certain
circumstances for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
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 and
is, therefore, unenforceable.
ITEM 16. EXHIBITS.
The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.01 Agreement and Plan of Reorganization dated as of July 15, 1999 by and among ISI, Software Development
Systems, Inc., ISI Acquisition Corporation and certain individual shareholders of Software Development
Systems, Inc. Pursuant to Item 601(b)(2) of Regulation S-K, schedules have been omitted but will be
furnished supplementally to the Commission upon request (incorporated by reference to Exhibit Number
2.01 to the Registrant's Current Report on Form 8-K dated July 21, 1999 [the "SDS 8-K"]).
3.01 Registrant's Articles of Incorporation, as amended to date (incorporated by reference to Exhibit Number
3.01(i) to the Registrant's Form 10-K for the fiscal year ended February 28, 1996.)
3.02 Certificate of Determination of Preferences specifying the terms of the Series A Junior Participating
Preferred Stock of Registrant, as filed with the California Secretary of State on October 1, 1998
(incorporated by reference to Exhibit Number 3.2 to the Registrant's Form 8-A filed October 6, 1998
(File No. 000-18668) [the "Rights Plan 8-A"]).
3.03 Registrant's Bylaws, as amended June 12, 1996 (incorporated by reference to Exhibit Number 4.02 to the
Registrant's Registration Statement on Form S-8 filed September 27, 1996 (File No. 333-12799)).
3.04 Certificate of Amendment of Bylaws (incorporated by reference to Exhibit Number 4.05 to the Registrant's
Registration Statement on Form S-8 filed September 28, 1999 (File No. 333-87959)).
4.01 Registration Rights Agreement dated as of April 13, 1987 (incorporated by reference to Exhibit Number
4.02 to the Registrant's Registration Statement on Form S-1 filed January 26, 1990 (File No.
333-33219)).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
--------- --------------------------------------------------------------------------------------------------------
<S> <C>
4.02 Registration Rights Agreement dated as of July 15, 1999 by and among the Registrant and the shareholders
of Software Development Systems, Inc. (incorporated by reference to Exhibit Number 4.01 to the SDS 8-K).
4.03 Rights Agreement dated September 30, 1998 between the Registrant and ChaseMellon Shareholder Services,
as Rights Agent (incorporated by reference to Exhibit Number 4.1 to the Rights Plan 8-A).
4.04 Form of Right Certificate (included in Exhibit 4.03).
5.01 Opinion of Fenwick & West.
23.01 Consent of Fenwick & West (included in Exhibit 5.01).
23.02 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.03 Consent of KPMG LLP.
24.01 Power of Attorney (see Page II-5).
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
pursuant to this Registration Statement, 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 (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 or 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
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); and
(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 (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by
paragraphs (1)(i) or (1)(ii) is contained in any periodic report filed
with or furnished to the Securities and Exchange Commission 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 post-effective amendment shall be deemed a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
II-3
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act, 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 this
Registration Statement 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.
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 provisions described under Item 15 above, 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 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sunnyvale, State of California, on October 19, 1999.
ISI INC.
By: /s/ WILLIAM C. SMITH
-----------------------------------------
William C. Smith
Vice President and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Charles M. Boesenberg and William C. Smith, and
each of them, his or her attorneys-in-fact and agents, each with the power of
substitution, for him or her and in his or her name, place and stead, in any and
all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to sign any registration
statement for the same offering covered by this registration statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
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 or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his or their 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 by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
PRINCIPAL EXECUTIVE OFFICER:
CHARLES M. BOESENBERG President, Chief Executive October 19, 1999
- ------------------------------ Officer and Director
Charles M. Boesenberg
PRINCIPAL FINANCIAL OFFICER
AND PRINCIPAL ACCOUNTING
OFFICER:
WILLIAM C. SMITH Vice President and Chief October 19, 1999
- ------------------------------ Financial Officer
William C. Smith
II-5
<PAGE>
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
ADDITIONAL DIRECTORS:
NAREN K. GUPTA Chairman of the Board of October 19, 1999
- ------------------------------ Directors
Naren K. Gupta
JOHN C. BOLGER Director October 19, 1999
- ------------------------------
John C. Bolger
MICHAEL A. BROCHU Director October 19, 1999
- ------------------------------
Michael A. Brochu
VINITA GUPTA Director October 19, 1999
- ------------------------------
Vinita Gupta
THOMAS KAILATH Director October 19, 1999
- ------------------------------
Thomas Kailath
RICHARD C. MURPHY Director October 19, 1999
- ------------------------------
Richard C. Murphy
JAMES E. CHALLENGER Director October 19, 1999
- ------------------------------
James E. Challenger
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
5.01 Opinion of Fenwick & West.
23.01 Consent of Fenwick & West (included in Exhibit 5.01).
23.02 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.03 Consent of KPMG LLP.
24.01 Power of Attorney (see Page II-5 of this Registration Statement).
</TABLE>
<PAGE>
EXHIBIT 5.01
October 19, 1999
Integrated Systems, Inc.
201 Moffett Park Drive
Sunnyvale, California 94089
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form S-3
(the "REGISTRATION STATEMENT") to be filed by you with the Securities and
Exchange Commission (the "COMMISSION") on or about October 19, 1999, in
connection with the registration under the Securities Act of 1933, as amended,
of an aggregate of 1,430,037 shares of the common stock (the "STOCK") of
Integrated Systems, Inc., a California corporation (the "COMPANY"), all of which
are presently issued and outstanding and will be sold by selling stockholders
(the "SELLING STOCKHOLDERS"). The Selling Stockholders are former shareholders
of Software Development Systems, Inc. ("SDS"), a company that the Company
acquired on July 21, 1999 pursuant to that certain Agreement and Plan of
Reorganization by and among the Company, SDS, certain shareholders of SDS and
ISI Acquisition, Inc. dated as of July 15, 1999 (the "MERGER AGREEMENT").
In rendering this opinion, we have examined the following:
(1) the Company's registration statement on Form 8-A (File Number 0-18268)
filed with the Commission on January 29, 1990, as amended by Amendment
No. 1 filed with the Commission on March 1, 1990, together with the order
of effectiveness issued by the Commission therefor on March 5, 1990;
(2) the Registration Statement, together with the Exhibits filed as a part
thereof;
(3) the Prospectus prepared in connection with the Registration Statement;
(4) the resolutions of the Board of Directors of the Company adopted by
unanimous written consent as of July 15, 1999 with respect to the Merger
Agreement, the transactions contemplated by the Merger Agreement, the
Registration Statement and the Stock;
(5) a letter, dated October 15, 1999 from the Company's transfer agent
stating the number of outstanding shares of the Company's common stock as
of such date;
(6) a Management Certificate addressed to us and dated of even date herewith
executed by the Company containing certain factual and other
representations; and
(7) the Merger Agreement under which the Selling Stockholders acquired the
Stock to be sold by them as described in the Registration Statement.
By telephone call to the offices of the Commission, we have also confirmed
the continued effectiveness of the Company's registration under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"). By review of the records
of the Commission appearing on the Commission's Website, we have confirmed the
timely filing by you of all reports required to be filed by you pursuant to
Sections 13, 14 and 15 of the Exchange Act and the rules promulgated thereunder.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity and completeness of all documents submitted
to us as originals, the conformity to originals of all documents submitted to us
as copies, the legal capacity of all natural persons executing the same, the
lack of any undisclosed termination, modification, waiver or amendment to any
document reviewed by us and the due authorization, execution and delivery of all
documents where due authorization, execution and delivery are prerequisites to
the effectiveness thereof.
<PAGE>
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information included in the documents referred
to above. We have made no independent investigation or other attempt to verify
the accuracy of any of such information or to determine the existence or
non-existence of any other factual matters; HOWEVER, we are not aware of any
facts that would cause us to believe that the opinion expressed herein is not
accurate.
We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the United States of America and
the State of California.
Based upon the foregoing, it is our opinion that the 1,430,037 shares of
Stock to be sold by the Selling Stockholders pursuant to the Registration
Statement are validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof. This
opinion is intended solely for your use as an exhibit to the Registration
Statement for the purpose of the above sale of the Stock and is not to be relied
upon for any other purpose.
Very truly yours,
FENWICK & WEST LLP
By /s/ FRED M. GREGURAS
- --------------------------------------------------------------------------------
Fred M. Greguras, a Partner
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our reports dated March 25, 1999 relating to the
financial statements and financial statement schedule, which appears in
Integrated Systems, Inc.'s Annual Report on Form 10-K for the year ended
February 28, 1999. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
October 19, 1999
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EXHIBIT 23.03
CONSENT OF KPMG LLP
The Board of Directors
Software Development Systems, Inc.:
We consent to the incorporation by reference in the registration statement on
Form S-3 of Integrated Systems, Inc. of our report dated April 30, 1999, with
respect to the consolidated balance sheet of Software Development Systems, Inc.
and subsidiaries as of December 31, 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended, which report appears in the Form 8-K/A of Integrated Systems, Inc. dated
July 21, 1999 and to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ KPMG LLP
Chicago, Illinois
October 15, 1999
