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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1996
REGISTRATION NO. 333-16053
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DIGITAL SYSTEMS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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WASHINGTON 91-1273645
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
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6464 185TH AVENUE N.E.
REDMOND, WASHINGTON 98052
(206) 881-7544
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PATRICK S. HOWARD
CHIEF EXECUTIVE OFFICER
DIGITAL SYSTEMS INTERNATIONAL, INC.
6464 185TH AVENUE N.E.
REDMOND, WASHINGTON 98052-6736
(206) 881-7544
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
MICHAEL E. STANSBURY
EVELYN CRUZ SROUFE
PERKINS COIE
1201 THIRD AVENUE, 40TH FLOOR
SEATTLE, WASHINGTON 98101-3099
(206) 583-8888
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, 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 of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL 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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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1996
300,000 SHARES
DIGITAL SYSTEMS INTERNATIONAL, INC.
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COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
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All of the up to 300,000 shares of Common Stock, par value $0.01 per share
(the "Common Stock"), offered hereby are being issued and sold by Digital
Systems International, Inc. ("Digital" or the "Company"). The Common Stock is
traded on the Nasdaq National Market under the symbol "DGTL." On November 22
1996, the last reported sales price of the Common Stock on the Nasdaq National
Market was $14.75 per share. See "Price Range of Common Stock."
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The shares of Common Stock offered by the Company may be sold from time to
time to purchasers directly in one or more transactions at a fixed price, which
may be changed, at varying prices determined at the time of sale or at
negotiated prices. Alternatively, the Company may from time to time sell the
Common Stock in transactions involving broker-dealers who may act as agents
and/or may acquire Common Stock from the Company as principals and who may
receive compensation from the Company and/or the purchasers of the shares.
Broker-dealers who acquire Common Stock as principals may thereafter resell such
Common Stock in transactions, including transactions of the nature described
above. Any broker-dealers who participate in a sale of shares of Common Stock
may be deemed to be "underwriters" as defined in the Securities Act of 1933, as
amended (the "Securities Act"). Any commissions paid or any discounts or
concessions allowed to any such broker-dealers, and, if any such broker-dealers
purchase shares of Common Stock as principals, any profits received on the
resale of such shares of Common Stock, may be deemed to be underwriting
discounts and commissions under the Securities Act.
Under an existing arrangement, a financial advisor to the Company may
receive a fee equal to the lesser of $0.40 per share or 3.0% of the sales price
of the Common Stock offered hereby to the extent it provides assistance with
respect to the sale of such stock. See "Plan of Distribution." The Company will
receive all of the proceeds from the sale of such stock, net of discounts,
commissions or fees, if any, and before deducting offering expenses, estimated
at approximately $42,120, payable by the Company.
The date of this Prospectus is November , 1996.
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AVAILABLE INFORMATION
Digital, a Washington corporation, is subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at certain
regional offices of the Commission located at Suite 1400, Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661, and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a
web site (http://www.sec.gov) that contains certain reports, proxy statements
and other information regarding Digital. Material filed by Digital can also be
inspected at the offices of the National Association of Securities Dealers,
Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits, the "Registration Statement")
under the Securities Act. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. The
Registration Statement and any amendments thereto, including exhibits filed as a
part thereof, also are available for inspection and copying as set forth above.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to herein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS
TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE THEREIN,
ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM THIS PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO THE
SECRETARY, DIGITAL SYSTEMS INTERNATIONAL, INC., 6464 185TH AVENUE N.E., REDMOND,
WASHINGTON 98052-6736, TELEPHONE NUMBER (206) 881-7544.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 0-18511)
pursuant to the Exchange Act or the Securities Act are incorporated herein by
reference:
1. The Company's Current Report on Form 8-K, filed with the Commission
on October 18, 1996;
2. The Company's Registration Statement on Form S-4, including any
amendments thereto, filed with the Commission on October 25, 1996;
3. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
4. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30 and September 30, 1996;
5. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A effective as of June 8, 1990, including
any amendment or report filed for the purpose of updating such description;
and
6. All other documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Offering.
Any statement contained in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified shall not be deemed to
constitute a part of this Prospectus except as so modified, and any statement so
superseded shall not be deemed to constitute part of this Prospectus.
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THE COMPANY
Digital designs, develops, markets and supports call center systems and
application software designed to help organizations improve the productivity,
quality, effectiveness and profitability of their telephone communications with
customers. Digital also offers professional services designed to assist
organizations in integrating their telephone systems with computer and data
management systems. Digital's products are used in a variety of organizations,
including major financial institutions, utilities, telecommunications companies,
educational institutions, government centers and health care organizations. The
mailing address of Digital's principal executive offices is 6464 185th Avenue
N.E., Redmond, Washington 98052-6736, and its telephone number is (206)
881-7544.
THE OFFERING
Digital is offering the shares of Common Stock (the "Offering") in
connection with the Agreement and Plan of Merger, dated as of October 14, 1996
(the "Merger Agreement"), among Digital, ViewStar Corporation, a California
corporation ("ViewStar"), and Vision Merger Corporation, a Washington
corporation and wholly owned subsidiary of Digital ("Merger Sub"). Under the
Merger Agreement, Merger Sub will be merged with and into ViewStar (the
"Merger"), and ViewStar will become a wholly owned subsidiary of the Company. On
October 25, 1996, Digital filed a Registration Statement on Form S-4, File No.
333-14887 (the "Form S-4"), with the Commission registering up to 4,330,826
shares of Common Stock for issuance in connection with the Merger. On November
25, 1996, the Commission declared the Form S-4 effective. Digital and ViewStar
intend to consummate the Merger on or about December 31, 1996. At the Effective
Time of the Merger (the "Effective Time"), up to 4,330,826 shares of the Common
Stock registered under the Form S-4 will be exchanged for all of the outstanding
shares of ViewStar's common stock and preferred stock.
ViewStar provides client/server document workflow software that enables
customers to automate and improve document-intensive business processes across
the enterprise. The ViewStar Enterprise Document Workflow System is a family of
integrated software modules that together provide a complete framework for
designing, developing and deploying enterprise document workflow applications.
The ViewStar system allows customers to define and change work content, work
flows, business rules and user roles, facilitating the rapid design, development
and deployment of business process applications. ViewStar's products are used in
a wide variety of applications, including consumer and mortgage lending, claims
processing, underwriting, trust management, contract management, accounts
payable and customer service.
Digital is planning to sell up to 300,000 shares of Common Stock to ensure
that the Merger will be accounted for as a pooling-of-interests in accordance
with generally accepted accounting principles. The shares of Common Stock
offered hereby will be issued only if and to the extent the Company determines
that the issuance of such shares is necessary to ensure pooling-of-interests
accounting treatment. No shares will be issued if the Merger Agreement should be
terminated.
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Common Stock offered..................... Up to 300,000 shares
Common Stock outstanding after the
Offering(1)(2)......................... Up to 9,741,805 shares
Common Stock outstanding after the
Offering and the Merger(2)(3).......... Up to 13,467,675 shares
Nasdaq National Market Symbol............ DGTL
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(1) Without giving effect to the Merger.
(2) Based upon the number of shares outstanding on October 31, 1996. Does not
include up to 3,505,597 shares reserved for issuance, as of October 31,
1996, pursuant to Digital's employee stock option and purchase plans.
(3) Assumes the issuance of 3,725,870 shares of Common Stock in connection with
the Merger. These shares have been registered by the Company pursuant to the
Form S-4 effective November 25, 1996. Does not include up to 604,956 shares
reserved for issuance upon exercise of ViewStar options and a warrant being
assumed in connection with the Merger.
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RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following in evaluating the Company, its
business and the Merger. This Prospectus contains forward-looking statements
that involve risks and uncertainties. Actual results may differ materially from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in this
section and elsewhere in this Prospectus.
Uncertainties Relating to Integration of Operations. The combination of
ViewStar and Digital will require the dedication of management resources, which
will temporarily distract attention from the day-to-day business of both
companies. The geographical separation of the companies' respective operations
may hinder efforts to integrate operations. There can be no assurance that the
combination will be completed without significant disruption of Digital's and
ViewStar's businesses. Should Digital and ViewStar not be able to combine their
businesses in a timely and coordinated fashion, there could be a material
adverse effect on operating results. In addition, anticipation of the
combination of the two companies could cause uncertainties, hesitation and
possible dissatisfaction among customers and potential customers of Digital and
of ViewStar, which could cause delays or cancellations of orders, resulting in a
decline in revenue. Long sales cycles for many of Digital's and ViewStar's
products could result in difficulty in finding replacement orders. Because of
many of Digital's and ViewStar's costs are fixed in nature, reductions in
revenue, if any, could result in significant reductions in operating income.
Limited Operating Efficiencies as a Result of the Merger. Following the
Merger, Digital intends to operate ViewStar as a separate business unit.
Although some administrative and management functions of the two companies
eventually may be combined, potentially resulting in certain efficiencies and
reductions in overhead, additional operating efficiencies as a result of the
Merger may be limited in the near term or difficult to achieve. The geographical
separation of the companies' respective operations may further limit the
operating efficiencies. In addition, although the respective Boards of Directors
of Digital and of ViewStar expect that the companies' complementary
technologies, distribution channels and shared market vision may enhance the
sales performance of both businesses, there can be no assurance that any synergy
will be realized from the combination of Digital and ViewStar.
ViewStar History of Operating Losses; Accumulated Deficit. ViewStar
incurred net losses in each year through 1995, including net losses of $11.3
million in 1994 and $8.0 million in 1995. As of September 30, 1996, ViewStar had
an accumulated deficit of $31.5 million. Although ViewStar operated profitably
in the first nine months of 1996, there can be no assurance that ViewStar's
business will operate profitably in any quarter or on a sustained basis in the
future.
Uncertainty of Future Operating Results; Fluctuations in Operating Results;
Seasonality. Digital's product sales and ViewStar's license revenues are
difficult to forecast because their respective sales cycles are relatively long
and quarterly revenues depend on relatively few large contracts that are subject
to changes in customer budgets and general economic conditions. Because both
companies' operating expenses are based on anticipated revenue levels and a high
percentage of both companies' expenses are relatively fixed, the timing of
revenues from a single contract can cause significant fluctuations in operating
results from quarter to quarter and may adversely affect operating results. In
addition, both companies historically have operated with little backlog because
their products generally are shipped as orders are received. As a result,
revenues in any quarter are substantially dependent on orders booked and shipped
in that quarter. Further, certain contracts may constitute a significant portion
of the operating profits for the quarter in which they are signed. Digital's and
ViewStar's operating results have fluctuated in the past and are likely to do so
in the future, particularly on a quarterly basis. In addition, changes in levels
of ViewStar's consulting activity and seasonality in its training revenues have
resulted in variability of service revenue from quarter to quarter.
Historically, Digital and ViewStar often have recognized a substantial portion
of their revenues in the last month of the quarter, with these revenues
frequently concentrated in the last week of the quarter. In addition, Digital
and ViewStar generally have realized lower revenues from product sales and
license fees in the first quarter of the year than in the immediately preceding
quarter. Digital and ViewStar believe that this has been due primarily to the
structure of their sales commission programs and the concentration by some
customers of larger capital
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purchases in the fourth quarter of the calendar year to avoid end-of-year
budgetary limitations, followed by lower purchasing activity during the first
quarter of the next calendar year. Further, to the extent that international
operations in the future constitute a higher percentage of total revenues,
Digital and ViewStar anticipate that they ordinarily will experience relatively
weaker demand in the quarter ending September 30 due to reduced customer
activity in Europe during the summer months.
As a result of these and other factors, revenues for any quarter are
difficult to forecast and subject to significant variation. Moreover, results of
operations for any particular period are not necessarily indicative of future
performance. In particular, ViewStar does not believe that the revenue growth
rate it achieved in the first half of 1996 compared to the first half of 1995 is
sustainable. Due to all of the foregoing factors, it is likely that in some
future quarter the combined company's operating results will be below the
expectations of market analysts and investors.
Costs of Integration; Transaction Expenses. Digital and ViewStar estimate
they will incur direct transaction costs of approximately $2.5 million
associated with the Merger, which will be charged to operations upon
consummation of the Merger. The combined company expects to incur additional
charges to operations which are currently not reasonably estimable, to reflect
costs associated with integrating the two companies. There can be no assurance
that the combined company will not incur additional material charges in
subsequent quarters to reflect additional costs associated with the Merger.
Lengthy Sales and Implementation Cycle; Complex Service Requirements. The
purchase or license of Digital's products and the license of ViewStar's software
products is usually a significant decision by prospective customers requiring
each company to engage in a lengthy sales cycle, typically between six and
twelve months, without any assurance that new accounts will result. Moreover,
the cost to the customer of Digital's and ViewStar's products typically is only
a portion of the cost of implementing a large-scale call processing or document
workflow system. For these and other reasons, the sales cycle is subject to a
number of significant delays over which each company has little or no control.
Successful implementation of Digital's and ViewStar's products also often
requires lengthy and complex implementation and integration services, which
services may be provided by Digital or ViewStar or by third-party service
providers. The combined company's future operating results will depend upon its
ability to coordinate these complex service resources and ensure successful
implementation of its products, while limiting costs. The combined company may
have to devote significant additional resources to ensure successful
implementation and integration in certain key accounts that may be likely to
lead to additional business in a particular geographic area or industry. Failure
to achieve customer satisfaction despite such efforts could materially adversely
affect the combined company's future operating results.
Competition. The markets for Digital's and ViewStar's products are highly
competitive. Important competitive factors include price, performance, diversity
of product line, reliability, delivery capabilities, customer support and
service. Some competitors of Digital and ViewStar have significantly greater
financial, technical, manufacturing, marketing and other resources than Digital
and ViewStar. Competitors may develop products and technologies that are less
expensive or technologically superior to Digital's and ViewStar's products, and
there can be no assurance that competitors will not develop products that
incorporate capabilities or technologies that are superior to Digital's and
ViewStar's products. The markets for Digital's and ViewStar's products also are
characterized by significant price competition, and Digital and ViewStar expect
that their products will face increasing price pressure, which could result in
significant price erosion, with a material adverse effect upon results of
operations of the combined company.
ViewStar's competitors offer a variety of document workflow products and
services. ViewStar currently encounters direct competition from a number of
public and private companies or divisions thereof including FileNet Corporation,
International Business Machines Corporation ("IBM") and Wang Software. In
addition, ViewStar may face competition from new competitors including
client/server application vendors such as Oracle, PeopleSoft and SAP; document
management vendors such as Documentum and PC DOCS Group; and vendors of workflow
products such as Action Technologies and Staffware. Certain of these companies
have announced, and others may announce, document workflow capabilities for
their existing or future products. Many of these companies have longer operating
histories, significantly greater financial,
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marketing, service, support, technical and other resources and name recognition,
and a larger installed customer base than ViewStar. As a result, such
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sale of their products than ViewStar. It is also
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share in ViewStar's industry. In addition,
ViewStar expects competition to increase as a result of software industry
consolidation, resulting in possible price reductions, reduced gross margins and
loss of market share. There can be no assurance that ViewStar will be able to
compete successfully against current and future competitors or that competitive
pressures faced by ViewStar will not materially and adversely affect the
business, results of operations and financial condition of the combined company.
ViewStar relies on a number of system integration firms for implementation
of its products, as well as recommendations of its products during the
evaluation stage of the purchasing process. Although ViewStar seeks to maintain
close relationships with these service providers, many of these third parties
have similar, and often more established, relationships with ViewStar's
principal competitors. If ViewStar is unable to develop and retain effective,
long-term relationships with these third parties, ViewStar's competitive
position would be materially adversely affected. Further, there can be no
assurance that these third parties, many of which have significantly greater
financial, marketing, service, support, technical and other resources than
ViewStar, will not market software products in competition with ViewStar's
products in the future.
Digital's principal competitors in the outbound call processing systems
market include Davox Corporation, EIS International, Inc. and Melita Electronic
Labs. The potential entry into the market of major telecommunications equipment
manufacturers also presents a strong competitive threat as these competitors may
elect to purchase Digital's competitors, thereby increasing their market
presence and distribution; resell principal competitors' products; or elect to
develop and market their own predictive dialing application software. In the
market for system integration services in call centers, Digital may compete with
software providers and system integrators such as Andersen Consulting, Genesys
Labs and Nabnasset Corporation. As Digital expands its offering of call center
applications, it also may encounter increased competition from call center
application providers such as Brock Control Systems, Information Management
Associates, Early Cloud (owned by IBM) and Versatility. As Digital expands into
the informal or casual call center market, it also will experience competition
from companies such as Active Voice Corporation, Applied Voice Technology, Inc.
and others which provide network-based applications that have a critical
computer telephony integration component. Many of Digital's current or potential
competitors have greater financial, technical and marketing resources than
Digital. To date, Digital has competed on the basis of the capabilities and the
price/performance of its systems, its applications expertise and the quality of
its customer support. As the call processing market matures and new and existing
companies compete for the same customers, price competition is likely to
intensify, which could adversely affect the operating results of the combined
company.
Dependence on Key Employees. The combined company's future success
depends, in large measure, on its ability to retain certain executives and other
key management, technical and marketing personnel. The loss of the services of
certain key employees could have an adverse effect on the combined company. From
time to time Digital and ViewStar also need to attract additional skilled
personnel in certain areas of their businesses. During 1995 and early 1996,
ViewStar experienced various changes in its senior management team and
engineering and sales personnel, requiring the replacement of some of its
executives and senior managers. There can be no assurance that, following the
Merger, the combined company will be able to retain key personnel or that it
will be able to attract sufficient qualified employees to support growth in its
business.
Technological Change and New Products. The document management and
workflow software market in which ViewStar participates and the call management
market in which Digital participates are characterized by rapid technological
change and frequent product introductions and improvements. Accordingly, the
success of both Digital and ViewStar will depend in part upon their ability to
develop product enhancements and new products that keep pace with continuing
changes in technology and customer preferences while remaining price
competitive. There can be no assurance that either company will be successful in
developing product enhancements or new products, that either will be able to
introduce such products or to adapt its products to
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technological change on a timely basis or that any such products or enhancements
will be successful in the marketplace.
ViewStar has incurred, and expects to continue to incur, substantial
expenses associated with the introduction and promotion of new products,
including its @Work family of products for the Internet and its ServiceReady
products for industry applications. There can be no assurance that the expenses
incurred will not exceed development budgets, that ViewStar will introduce
products in a timely fashion, if at all, or that such products will achieve
market acceptance and generate sales sufficient to offset development costs. In
addition, the success of ViewStar's @Work family of products for the Internet,
the first of which are scheduled to be released before the end of 1996, will
depend upon the acceptance of the Internet, intranets and World Wide Web
technologies. There can be no assurance that ViewStar's new products or
enhancements will meet customer requirements or be compatible with the emerging
standards of the Internet or World Wide Web, nor that the Internet and World
Wide Web will prove to be a viable network with the necessary speed, data
capability and security to support document workflow applications.
Limited Source of Supply. Digital purchases a principal telephone call
switching component for its MOSAIX line of products from a sole-source vendor.
If this component should become unavailable from such supplier, the
establishment of an alternate source could not be accomplished quickly and would
require investment of resources, which would delay Digital's manufacture of its
MOSAIX products. Any such delay could materially adversely affect the operating
results of the combined company.
Dependence on Windows NT and Other Core Microsoft Technologies. The
success of ViewStar's products and new products to be developed by the combined
company depends upon the continued acceptance and use in critical business
applications of Microsoft's Windows NT platform and other core Microsoft
technologies, such as the Windows NT Server, the Microsoft SQL Server database
and related Back Office software on which ViewStar's products are, and many of
the combined company's planned future products will be, based. During the first
nine months of 1996, approximately 80% of ViewStar's license revenues were
generated from Windows NT-based software. There can be no assurance that the
Windows NT platform will continue to achieve market acceptance. If the Windows
NT platform market fails to grow, grows more slowly than anticipated or becomes
obsolete, the business, results of operations and financial condition of the
combined company would be materially adversely affected.
Lack of Product Revenue Diversification. Digital derived over 90% of its
product revenues in the first six months of 1996 from the MOSAIX line of
products and associated applications. While Digital has developed new software
products and services and has established a new indirect channel of
distribution, it expects that the MOSAIX line of products will continue to
account for a significant amount of the combined company's sales in the future.
All of ViewStar's revenues are generated from sales or licenses of the ViewStar
System and related services and maintenance. A decline in demand for Digital's
or ViewStar's products as a result of competition, technological change or other
factors would have a material adverse effect on the combined company's results
of operations.
International Sales. Both Digital and ViewStar sell products to customers
in international markets and accordingly are subject to the normal risks of
international sales, such as currency fluctuations, longer payment cycles,
greater difficulties in accounts receivable collections and compliance with
export laws and a wide variety of foreign laws. Although neither company has
previously experienced significant difficulties under foreign law in exporting
its products to other countries, there can be no assurance that either company
will not experience such difficulties in the future. Any such difficulties would
have a material adverse effect on the combined company's international sales.
Because Digital and ViewStar invoice certain of their foreign sales in local
currency and do not hedge these transactions, fluctuations in exchange rates
could materially adversely affect the combined company's revenues and costs and
could create significant foreign currency losses.
Dependence on Proprietary Rights; Infringement Claims; Uncertainty of
Obtaining Licenses. The combined company's success depends in part upon
protecting its proprietary technology. Although both Digital and ViewStar seek
to protect their products, software, documentation and other written materials
under trade secret and copyright laws, these laws afford only limited
protection. Digital has few, and ViewStar has no, patents or patent applications
pending. Despite both companies' efforts to protect their proprietary
8
<PAGE> 10
rights, unauthorized parties may attempt to copy their products or to obtain and
use information that they regard as proprietary. Policing unauthorized use of
Digital's and ViewStar's products is difficult, and since both companies are
unable to determine the extent to which piracy of their software products
exists, software piracy can be expected to be a persistent problem. In addition,
the laws of some foreign countries do not protect Digital's and ViewStar's
proprietary rights to as great an extent as the laws of the United States. There
can be no assurance that Digital's and ViewStar's means of protecting their
proprietary rights will be adequate or that their competitors will not
independently develop similar technology.
Both Digital and ViewStar have received communications asserting that their
products infringe the proprietary rights of third parties or seeking
indemnification against such infringement. Both Digital and ViewStar believe
that none of their respective products infringe the proprietary rights of third
parties. There can be no assurance, however, that third parties will not claim
infringement by Digital or ViewStar with respect to current or future products.
Digital and ViewStar expect that software product developers will increasingly
be subject to infringement claims as the number of products and competitors in
the respective markets of the companies grow and the functionality of products
in different markets overlaps. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, adversely affect revenues, cause
product shipment delays or require the combined company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to Digital or ViewStar, if at all, which could
have a material adverse effect on the combined company's business, results of
operations and financial condition.
ViewStar and, to a lesser extent, Digital, also rely on certain software
that they license from third parties, including software that is integrated with
internally developed software and used in their products to perform key
functions. There can be no assurance that such firms will remain in business,
that they will continue to support their products or that their products will
otherwise continue to be available to the combined company on commercially
reasonable terms. The loss or inability to maintain any of these software
licenses could materially adversely affect the combined company's business.
Risk of Product Defects. Software and other products as internally complex
as those offered by Digital and ViewStar frequently contain errors or defects,
especially when first introduced or when new versions are released. Although
both companies conduct extensive product testing during product development,
both have experienced delays in the commercial release of products pending the
correction of software problems and, in some cases, have provided product
enhancements to correct errors or defects in released products. The combined
company could, in the future, lose revenues as a result of software errors or
other product defects. The combined company's products and future products are
intended for use in applications that are critical to a customer's business. As
a result, Digital and ViewStar expect that their customers and potential
customers have a greater sensitivity to product defects than the market for
software products generally. There can be no assurance that, despite testing by
Digital and ViewStar and by current and potential customers, errors or other
product defects will not be found in new products or releases after commencement
of commercial shipments, resulting in loss of revenue, delay in market
acceptance, diversion of development resources, damage to Digital's or
ViewStar's reputation or increased service and warranty costs, any of which
could have a material adverse effect on the combined company's business, results
of operations and financial condition.
Product Liability. Digital's and ViewStar's license agreements with their
customers typically contain provisions intended to limit their exposure to
potential product liability claims. However, it is possible that the limitation
of liability provisions contained in their license agreements may not be
effective. Although both companies carry product liability insurance coverage,
there can be no assurance that such insurance coverage will be sufficient in the
event of a successful product liability claim brought against either of them. A
successful product liability claim in excess of such insurance coverage could
have a material adverse effect on the combined company. In addition, there can
be no assurance that product liability coverage will continue to be available to
the combined company in sufficient amounts or at an acceptable cost.
Governmental Regulation. Digital's products are subject to and conform
with Federal Communications Commission regulations under the Communications Act
of 1934. Future products developed by Digital also may be required to comply
with certain registration and technical requirements before they can be sold in
the
9
<PAGE> 11
United States. As Digital expands its operations in other countries, its
products will become subject to regulation by foreign governments. Certain of
Digital's products are currently certified for use in the United Kingdom,
Canada, Australia, Japan and Hong Kong pursuant to applicable regulations.
While existing industry legislation does not directly regulate the
manufacture and sale of Digital's products, certain existing legislation may
affect the ability of Digital's customers to utilize some of its products in
certain ways. For example, Digital's MOSAIX systems may not be used for certain
prohibited debt collection and remote telephone solicitation practices, nor may
they be used under certain circumstances to leave or play artificial or
prerecorded messages. Other federal legislation that has been proposed from time
to time includes bills that would, if enacted, recognize certain privacy rights
of employees at the work site and regulate the ability of employers to monitor
job performance, including monitoring employees' telephone communications or
gathering information regarding such communications. It is possible that such
legislation, if enacted, might directly or indirectly affect how Digital's
systems, or some features thereof, can be used.
In addition, most states have enacted and/or proposed legislation limiting
certain telephone solicitation practices or restricting certain uses of
automatic dialing and announcement devices. If passed, such legislation may
directly or indirectly affect Digital's business. Digital is not presently aware
of any recently enacted state regulations or legislation materially affecting
use of Digital's products.
Deferred Tax Assets. Deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. ViewStar has provided a
full valuation allowance against its net deferred tax assets as it has
determined that it is more likely than not that the deferred tax assets will not
be realized. ViewStar's accounting for deferred taxes under Statement of
Financial Accounting Standards No. 109 involves the evaluation of a number of
factors concerning the realizability of ViewStar's deferred tax assets. To
support ViewStar's conclusion that a full valuation allowance was required,
management primarily considered such factors as ViewStar's history of operating
losses, the nature of ViewStar's deferred tax assets, and the lack of
significant firm sales backlog. Although management's operating plans assume
taxable and operating income in future periods, management's evaluation of all
the available evidence in assessing the realizability of the deferred tax assets
indicates that such plans were not considered sufficient to overcome the
available negative evidence.
Shares Subject to Future Sale. Digital will issue approximately 3,735,000
shares of Common Stock in the Merger, and up to approximately 600,000 shares of
Common Stock will be issuable upon the future exercise of the converted ViewStar
options. In general, the shares issued in the Merger, other than to affiliates
of ViewStar, will be freely tradable following the Merger. The shares issued
after the Effective Time upon the exercise of the converted ViewStar options
will be registered pursuant to a registration statement to be filed by Digital
under the Securities Act prior to the Effective Time. In addition, persons who
may be considered affiliates of Digital or ViewStar, respectively, have agreed
pursuant to a separate Shareholders Agreement that they will not transfer, sell,
exchange, pledge or otherwise dispose of any shares of Common Stock now held by
such holders or received by them in the Merger from 30 days prior to the
Effective Time until the date Digital shall have publicly released financial
results for a period that includes at least 30 days of combined operations of
Digital and ViewStar (the "Affiliates Expiration Date"). Immediately after the
Affiliates Expiration Date, these shares of Common Stock will be eligible for
sale in the public market, subject to compliance with Rules 144 and 145 under
the Securities Act. The sale of any of the foregoing shares of Common Stock may
cause substantial fluctuations in the price of the Common Stock.
Volatility of Stock Price. The market price of the Common Stock is highly
volatile. The market price of the Common Stock could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by the combined
company or its competitors, changes in prices of the combined company's or its
competitors' products and services, changes in product mix, and changes in
revenue and revenue growth rates for the combined company, as well as other
events or factors. Statements or changes in opinions, ratings or earnings
estimates made by brokerage firms or industry analysts relating to the market in
which the combined company does business have resulted, and could in the future
result, in an immediate and adverse effect on the market price of the Common
Stock.
10
<PAGE> 12
Statements by financial or industry analysts regarding the extent of the
dilution in Digital's net income per share resulting from the Merger and the
extent to which such analysts expect potential business synergies to offset such
dilution can be expected to contribute to volatility in the market price of the
Common Stock. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations that have particularly affected the market
price for the securities of many high-technology companies and often have been
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Common Stock.
Antitakeover Effect of Certain Charter and Bylaw Provisions and Washington
Law. Certain provisions of Digital's Restated Articles of Incorporation and
Digital's Restated Bylaws may have the effect of making it more difficult for a
third party to acquire, or discouraging a third party from attempting to
acquire, control of Digital. Certain of these provisions allow Digital to issue
preferred stock without any vote or further action by the shareholders,
eliminate cumulative voting, provide for a classified board of directors, limit
the rights of shareholders to call a special meeting and specify procedures for
director nominations by shareholders and submission of other proposals for
consideration at shareholder meetings. Digital is subject to the Washington
Antitakeover Act, which prohibits a "target corporation," with certain
exceptions, from engaging in certain "significant business transactions"
(including, among other things, mergers, consolidations or dispositions of
assets) with or to a person or group of persons that beneficially owns 10% or
more of the voting securities of the target corporation for a period of five
years after such acquisition, unless the transaction or acquisition of shares is
approved by a majority of the members of the target corporation's board of
directors prior to the time of acquisition. After the five-year period, a
"significant business transaction" may take place as long as it complies with
certain "fair price" provisions of the statute. These provisions could have the
effect of delaying, deferring or preventing a change in control of Digital,
including, without limitation, discouraging a proxy contest or making more
difficult the acquisition of a substantial block of the Company's Common Stock.
These provisions also could limit the price that investors might be willing to
pay in the future for the Company's Common Stock.
USE OF PROCEEDS
The net proceeds, not including any commissions paid or any discounts or
concessions that may be allowed to broker-dealers who may participate in the
Offering, to the Company from the sale of the Common Stock offered in the
Offering (if the Company sells the maximum of 300,000 shares offered hereby) at
an assumed public offering price of $14.75 per share are estimated to be
approximately $4.4 million. The Company anticipates that all of the net proceeds
of the Offering will be used for working capital and general corporate purposes.
PLAN OF DISTRIBUTION
The shares of Common Stock offered by the Company may be sold from time to
time to purchasers directly in one or more transactions at a fixed price, which
may be changed, at varying prices determined at the time of sale or at
negotiated prices. Alternatively, the Company may from time to time sell the
Common Stock in transactions involving broker-dealers who may act as agents
and/or may acquire Common Stock from the Company as principals and who may
receive compensation from the Company and/or the purchasers of the shares.
Broker-dealers who acquire Common Stock as principals may thereafter resell such
Common Stock in transactions, including transactions of the nature described
above. Broker-dealers may be entitled, under agreements that may be entered into
with the Company, to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act. Any broker-dealers who
participate in a sale of shares of Common Stock may be deemed to be
"underwriters" as defined in the Securities Act. Any commissions paid or any
discounts or concessions allowed to any such broker-dealers, and, if any such
broker-dealers purchase shares of Common Stock as principals, any profits
received on the resale of such shares of Common Stock, may be deemed to be
underwriting discounts and commissions under the Securities Act.
The rules of the Commission generally prohibit underwriters, brokers,
dealers and certain other persons engaged or participating in the distribution
of the Common Stock from making a market in such Common Stock during the
"cooling off" period preceding the commencement of such distribution.
11
<PAGE> 13
In order to comply with the securities laws of certain states, if
applicable, the Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Common Stock may not be sold unless it has been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
On September 20, 1996, the Company engaged Dain Bosworth Incorporated
("Dain Bosworth") to act as its financial advisor in connection with the Merger
pursuant to the terms of an engagement letter (the "Engagement Letter"). Digital
also has negotiated the terms of a supplemental engagement letter (the
"Supplemental Letter") pursuant to which Dain Bosworth will use its best efforts
to sell the shares of Common Stock offered hereby in open market transactions at
prevailing market prices. Such assistance may consist of effecting sales of the
shares of Common Stock offered hereby through market making activities or in
block trades at its usual and customary commissions for such trades. Should Dain
Bosworth effect the sale of any of the shares of Common Stock offered hereby, it
will receive a fee equal to the lesser of $0.40 per share or 3.0% of the sales
price of the Common Stock sold. Dain Bosworth currently has no obligation to
take or pay for any shares of Common Stock offered hereby. The Supplemental
Letter contains other customary terms and conditions, including indemnification
provisions described in the next paragraph. If Dain Bosworth provides such
assistance, it may thereby be subject to restrictions on market making
activities during the "cooling off" period described above.
Pursuant to the Engagement Letter, the fees payable to Dain Bosworth in
connection with the Merger consist of a $25,000 engagement fee, a $125,000 fee
for rendering its fairness opinion to Digital's Board of Directors on October 9,
1996 in connection with the transaction contemplated by the Merger Agreement and
a $350,000 transaction fee payable upon consummation of the Merger. Digital also
has agreed pursuant to the Engagement Letter to reimburse Dain Bosworth for its
reasonable out-of-pocket expenses in connection with the Merger, which are not
expected to exceed $20,000. Under the Supplemental Letter Digital would be
required to reimburse Dain Bosworth for up to $10,000 of reasonable
out-of-pocket expenses in connection with the sale of the shares of Common Stock
offered hereby. In addition, Digital has agreed to indemnify Dain Bosworth
against certain expenses and liabilities arising in connection with its
engagement, including liabilities under the Securities Act and the Exchange Act
arising from any untrue statement or alleged untrue statement of a material fact
contained in any report, filing or other document used in connection with the
Merger or this Offering or any omission or alleged omission to state a material
fact necessary to make the statements therein not misleading. Dain Bosworth has
from time to time issued research reports and recommendations on the Common
Stock and, in the ordinary course of business, makes a market in the Common
Stock. In the course of its market making and other trading activities, Dain
Bosworth may from time to time have a long or short position in, and buy and
sell, securities of Digital.
There can be no assurance that the Company will sell any or all of the
shares of Common Stock offered hereby. It is anticipated that this Offering will
remain in effect until the shares of Common Stock offered hereby have been sold,
but in no event will any shares be sold in the Offering after the closing of the
Merger.
EXPERTS
The audited consolidated financial statements and consolidated financial
statement schedule of Digital Systems International, Inc. and its subsidiaries
as of December 31, 1994 and 1995 and for each of the years in the three-year
period ended December 31, 1995 and the consolidated financial statements and
consolidated financial statement schedule of ViewStar Corporation and
subsidiaries as of December 31, 1994 and 1995 and for each of the years in the
three-year period ended December 31, 1995 have been incorporated herein by
reference in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated herein by reference, and upon the
authority of said firm as experts in accounting and auditing.
VALIDITY OF COMMON STOCK
The validity of the Common Stock offered in the offering will be passed
upon for the Company by Perkins Coie, Seattle, Washington.
12
<PAGE> 14
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 3
The Offering.......................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 11
Plan of Distribution.................. 11
Experts............................... 12
Validity of Common Stock.............. 12
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
300,000 SHARES
DIGITAL SYSTEMS
INTERNATIONAL, INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
------------------------
PROSPECTUS
------------------------
NOVEMBER , 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 15
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts, payable by the registrant in connection with the sale of
Common Stock being registered. All amounts are estimates except the Commission
registration fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Commission registration fee................................................ $ 1,120
Nasdaq National Market listing fee......................................... 6,000
Printing and engraving expenses............................................ 2,500
Legal fees and expenses.................................................... 15,000
Accounting fees and expenses............................................... 7,500
Blue sky fees and expenses................................................. 5,000
Miscellaneous fees and expenses............................................ 5,000
-------
Total............................................................ $42,120
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act. Section 10 of the registrant's
Bylaws provides for indemnification of the registrant's directors, officers,
employees and agents to the maximum extent permitted by Washington law. Certain
of the directors of the registrant, who are affiliated with principal
shareholders of the registrant, also may be indemnified by such shareholders
against liability they may incur in their capacities as directors of the
registrant, including pursuant to a liability insurance policy to be maintained
by the registrant for such purpose.
Section 23B.08.320 of the Washington Business Corporation Act authorizes a
corporation to limit a director's liability to the corporation or its
shareholders for monetary damages for acts or omissions as a director, except in
certain circumstances involving intentional misconduct, knowing violations of
law or illegal corporate loans or distributions, or any transaction from which
the director personally receives a benefit in money, property or services to
which the director is not legally entitled. Article 7 of the registrant's
Articles of Incorporation contains provisions implementing, to the fullest
extent permitted by Washington law, such limitations on a director's liability
to the registrant and its shareholders.
II-1
<PAGE> 16
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
2.1** Agreement and Plan of Merger, dated as of October 14, 1996
4.1* Form of Certificate evidencing Common Stock, par value $0.01 per share, of the
Registrant
4.2** Warrant to purchase 12,245 shares of ViewStar Common Stock issued to Comdisco, Inc.,
dated May 31, 1996
5.1+ Opinion of Perkins Coie, counsel to the Registrant
23.1 Consent of KPMG Peat Marwick LLP, independent auditors (contained on page II-5)
23.2 Consent of KPMG Peat Marwick LLP, independent auditors (contained on page II-6)
23.3+ Consent of Perkins Coie (contained in Exhibit 5.1)
24.1+ Power of attorney
99.1 Engagement Letter with Dain Bosworth Incorporated dated September 20, 1996
99.2 Form of Supplemental Engagement Letter with Dain Bosworth Incorporated
</TABLE>
- ---------------
* Incorporated by reference from exhibits filed in connection with the
Registration Statement on Form S-1 (Registration No. 33-34561) filed with the
Securities and Exchange Commission on April 26, 1990, as amended.
** Incorporated by reference from exhibits filed in connection with the
Registration Statement on Forms S-4 (Registration No. 333-14887) filed with
the Securities and Exchange Commission on October 25, 1996, as amended.
+ Previously filed on November 12, 1996 (Registration No. 333-16053).
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 to include
any material information with respect to the plan of distribution not
previously disclosed in this Registration Statement or any material change
to such information in this Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof; and
(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.
B. 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 in Item 15, 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 of 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
<PAGE> 17
C. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
D. 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 herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Redmond, State of Washington, on the 26th day of
November, 1996.
DIGITAL SYSTEMS INTERNATIONAL, INC.
By: /s/ PATRICK S. HOWARD
------------------------------------
Patrick S. Howard
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities indicated below on the 26th day of November, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ PATRICK S. HOWARD Chairman, President and Chief Executive
- --------------------------------------------- Officer (Principal Executive Officer)
Patrick S. Howard
/s/ JOHN J. FLAVIO Senior Vice President and Chief
- --------------------------------------------- Financial Officer (Principal
John J. Flavio Financial Officer)
*RICHARD L. ANDERSON Vice President and Controller
- --------------------------------------------- (Principal Accounting Officer)
Richard L. Anderson
*TOM ALBERG
- --------------------------------------------- Director
Tom Alberg
*H. ROBERT GILL Director
- ---------------------------------------------
H. Robert Gill
*HARVEY N. GILLIS Director
- ---------------------------------------------
Harvey N. Gillis
*DAVID J. LADD Director
- ---------------------------------------------
David J. Ladd
*ROBERT S. LEVENTHAL Director
- ---------------------------------------------
Robert S. Leventhal
*CYNTHIA STROUM Director
- ---------------------------------------------
Cynthia Stroum
*By /s/ JOHN J. FLAVIO
- ---------------------------------------------
John J. Flavio
Attorney-in-fact
</TABLE>
II-4
<PAGE> 19
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Digital Systems International, Inc.:
We consent to the use of our reports incorporated herein by reference and
to the reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Seattle, Washington
November 25, 1996
II-5
<PAGE> 20
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
ViewStar Corporation:
We consent to the use of our reports incorporated herein by reference and
to the reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
San Jose, California
November 25, 1996
II-6
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBER
NUMBER DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------- ------------
<C> <S> <C>
2.1** Agreement and Plan of Merger, dated as of October 14, 1996
4.1* Form of Certificate evidencing Common Stock, par value $0.01 per
share, of the Registrant
4.2** Warrant to purchase 12,245 shares of ViewStar Common Stock issued to
Comdisco, Inc., dated May 31, 1996
5.1+ Opinion of Perkins Coie, counsel to the Registrant
23.1 Consent of KPMG Peat Marwick LLP, independent auditors (contained on
page II-5)
23.2 Consent of KPMG Peat Marwick LLP, independent auditors (contained on
page II-6)
23.3+ Consent of Perkins Coie (contained in Exhibit 5.1)
24.1+ Power of attorney
99.1 Engagement Letter with Dain Bosworth Incorporated dated September 20,
1996
99.2 Form of Supplemental Engagement Letter with Dain Bosworth Incorporated
</TABLE>
- ---------------
* Incorporated by reference from exhibits filed in connection with the
Registration Statement on Form S-1 (Registration No. 33-34561) filed with the
Securities and Exchange Commission on April 26, 1990, as amended.
** Incorporated by reference from exhibits filed in connection with the
Registration Statement on Forms S-4 (Registration No. 333-14887) filed with
the Securities and Exchange Commission on October 25, 1996, as amended.
+ Previously filed on November 12, 1996 (Registration No. 333-16053).
<PAGE> 1
[DAIN BOSWORTH LETTERHEAD]
EXHIBIT 99.1
CORPORATE FINANCE DEPARTMENT
September 20, 1996
PRIVILEGED AND CONFIDENTIAL
Digital Systems International, Inc.
6464 185th Avenue North East
Redmond, WA 98052
Attention: Patrick Howard
Chairman of the Board and CEO
Dear Mr. Howard:
By this letter agreement (the "Agreement") Digital Systems
International, Inc. (the "Company") retains Dain Bosworth Incorporated ("Dain")
as its exclusive financial advisor, on the terms and subject to the conditions
set forth herein, in connection with a transaction (the "Transaction") generally
described as the purchase of all or substantially all of the assets, business,
or equity securities of Viewstar Corp. (the "Target"), by the Company or any of
its subsidiaries or affiliates. In addition, Dain is retained to provide an
opinion with respect to the fairness to the shareholders of the Company from a
financial perspective of the consideration to be paid by the Company in
connection with the Transaction (the "Fairness Opinion"). This Agreement
confirms the understanding between the Company and Dain with respect to the
services Dain will provide and confirms the parties' understanding concerning
fees and expenses, indemnification obligations and other matters. The
appointment of Dain is exclusive and is for a period of twelve months commencing
on the date of acceptance of this Agreement by the Company (the "Appointment
Period"), subject to extension by written agreement of the Company and Dain and
subject to termination pursuant to Section 8 hereof.
1. SERVICES PROVIDED
Financial Advisory Services. As the Company's financial advisor in
connection with the Transaction, Dain will assist the Company in such
activities, analysis, negotiation and planning as the Company reasonably may
require or request, including:
i) valuing the Target;
<PAGE> 2
ii) developing strategies for consummating a Transaction
successfully;
iii) structuring Transaction proposals;
iv) analyzing the economic effects of various Transaction
structures on the Company;
v) preparing and presenting a Transaction proposal, and
negotiating changes to such proposal;
vi) performing due diligence on the Target;
vii) preparing and negotiating documents related to a
Transaction; and
viii) completing other matters related to closing a
Transaction.
For purposes of this Agreement, a Transaction, whether effected in one
transaction or in a series of transactions, means (i) any merger, consolidation,
reorganization or other business combination pursuant to which the Company
directly or indirectly acquires the business of the Target, or (ii) the
acquisition by the Company directly or indirectly of all of the capital stock or
equity interests in the Target or all or substantially all of the assets of the
Target, in each case whether by way of tender offer, exchange offer, negotiated
purchase, or otherwise.
Fairness Opinion. Dain will render the Fairness Opinion after
undertaking such reasonable due diligence investigation and financial analysis
as it deems appropriate consistent with the generally accepted standards of
practice in the investment banking industry for such opinions. In connection
with its financial analysis, it is expressly understood that Dain will not
independently verify the accuracy of financial statements and projections
furnished to it. The Fairness Opinion will be delivered when given orally or in
writing to the Board of Directors of the Company (the "Board"), and the Fairness
Opinion and any related supporting reports provided by Dain may be relied upon
solely by the Board. If the Board determines that the Fairness Opinion must be
reproduced in a proxy statement or similar document to be distributed to its
shareholders, Dain must approve of any reference to or description of Dain, the
Fairness Opinion or the related supporting reports in the proxy statement or
similar document. The Fairness Opinion, related supporting reports and related
written or oral advice provided to the Board by Dain may not be otherwise used,
circulated, quoted or otherwise referred to for any purpose without the prior
written approval of Dain.
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<PAGE> 3
2. OTHER SERVICES; INVESTMENT BANKING SERVICES
In the event the Company requests services by Dain which are outside
the scope of this Agreement, the services to be performed and the fees to be
charged will be described in a separate agreement between the Company and Dain.
Any such additional engagement will be described in a separate agreement between
the Company and Dain specifying terms and conditions which are reasonable and
customary for Dain and mutually acceptable.
3. COMPENSATION
In consideration for the services provided under the terms of this
Agreement, the Company agrees to pay Dain the following non-refundable
compensation and expense reimbursement:
(a) Engagement Fee. The Company shall pay Dain a nonrefundable
cash engagement fee of $25,000, payable upon the execution of this Agreement.
(b) Transaction Fee. If, but only if, a Transaction is
consummated prior to the later of (i) the expiration of the Appointment Period
or (ii) six months after termination of this Agreement in accordance with
paragraph 8, the Company will pay or cause to be paid in cash to Dain a
transaction fee in the amount of $350,000.
(c) Expense Reimbursement. The Company shall reimburse Dain,
promptly upon request, for all reasonable out-of-pocket costs and expenses
incurred by Dain and its affiliates in connection with this engagement, whether
or not a Transaction is closed or a Fairness Opinion is delivered, including
travel expenses and fees and expenses of Dain's counsel and accountants;
provided that the Company shall not be responsible for such costs and expenses
in excess of $25,000 without its prior written consent.
(d) Fairness Opinion Fee. The Company shall pay Dain a
fairness opinion fee with respect to each Fairness Opinion of $125,000, payable
upon delivery of the Fairness Opinion to the Company's Board. In addition, the
Company will pay Dain an additional fee of $35,000 for each separate
confirmation or reaffirmation of a Fairness Opinion.
4. INDEMNIFICATION
The Company agrees to indemnify and hold Dain harmless in accordance
with the terms and conditions of Exhibit A attached hereto and made a part
hereof as though fully set forth in this Agreement.
-3-
<PAGE> 4
5. COOPERATION
The Company agrees to furnish or cause to be furnished to Dain such
information and data relating to the Company, the Target, and the Transaction as
Dain determines is reasonably appropriate, and agrees to provide Dain with
access to the Company's officers, directors, employees, consultants, counsel,
and independent accountants. The Company agrees to inform Dain promptly of any
developments which concern or could affect the Company, the Target, or the
Transaction. The Company warrants and represents the accuracy and completeness
of all information furnished to Dain by or on behalf of the Company, including
any various corporate reports or filings and any other materials or documents
used in connection with consummating the Transaction (collectively, the
"Documents") and any other information provided by the Company's officers,
directors, employees, consultants, counsel, and independent accountants. The
Company acknowledges that Dain will rely on the completeness and accuracy of the
information furnished to it pursuant to this Section 5 without undertaking
independent verification and that Dain does not assume responsibility for the
completeness or accuracy of such information. Dain does not intend to provide an
independent appraisal of the assets of the Company or the Target. The Company
agrees to retain its own legal counsel and accountants for any necessary legal,
tax, and accounting advice.
At the request of Dain, the Company shall cause any entity which it may
form or in which it may invest in connection with a Transaction to execute this
Agreement and to agree not to use or retain any financial advisor other than
Dain in respect of its consideration of a Transaction.
6. CONFIDENTIALITY
Except to the extent authorized by the Company or required by any
Federal or state law, rule or regulation or any decision or order of any court
or regulatory authority, Dain agrees that it will use its best efforts not to
disclose to any person, other than to any officer, director, employee, agent,
attorney, accountant or employee of Dain who needs to know the information in
connection with the performance of Dain's services under this Agreement, any
confidential information received by Dain from the Company or its officers,
directors, employees, consultants, counsel, and independent accountants in
connection with the performance of Dain's services under this Agreement,
provided that information shall not be deemed to be confidential if such
information (i) is or becomes generally available to the public, other than as a
result of a breach of this Agreement by Dain, (ii) is lawfully obtained by Dain
from a third party, provided that the third party is not, to Dain's knowledge,
bound by a
-4-
<PAGE> 5
nondisclosure agreement with respect to the information, or (iii) is
subsequently developed by Dain from independent sources.
Any advice provided to the Company by Dain pursuant to this Agreement
is solely for the information and assistance of the Board. Such advice shall be
treated as confidential information, shall not be disclosed publicly in any
manner without Dain's prior written approval and shall not be relied upon by the
Company's shareholders or any third party. Any reference to Dain or to any
affiliate of Dain in any release or communication to any party outside the
Company is subject to Dain's prior written approval. If this Agreement is
terminated prior to any release or communication, no reference shall be made to
Dain without Dain's prior written approval. To the extent that the Company seeks
to disclose our opinion in any proxy or registration statement to be filed under
the federal securities laws, we will not unreasonably withhold our consent
thereto so long as the full text of the opinion is disclosed and we have had a
reasonable opportunity to comment on the text of any accompanying disclosure.
7. ADVERTISEMENTS
Dain shall have the right to place advertisements in financial and
other newspapers and journals at its own expense describing its services to the
Company under this Agreement, provided that Dain shall have submitted a copy of
any such proposed advertisements to the Company for its prior approval, which
approval shall not be unreasonably withheld or delayed.
8. TERMINATION
Either the Company or Dain may terminate this Agreement at any time by
fifteen days' written notice to the other. Notwithstanding such termination by
the Company, the provisions of Sections 3, 4, 6, 11 and Exhibit A shall survive
termination.
9. OTHER ACTIVITIES OF DAIN
In the ordinary course of its business and at any time, Dain and its
affiliates may hold long or short positions and may trade or otherwise effect
transactions as principal or for the account of customers in debt or equity
securities or options on securities of the Company or any other party that is or
may be involved in the Transaction. Dain may provide published research on, and
represent in transactions, other entities which may be in the same general
business as the Company and may compete with the Company.
-5-
<PAGE> 6
10. THIRD PARTY BENEFICIARY
This Agreement is solely for the benefit of the Company, Dain and the
other Indemnified Person(s) described in Exhibit A and their respective
permitted successors and assigns. This Agreement is not intended to confer
rights upon any other persons, including shareholders, employees or creditors of
the Company or its affiliates. Dain is acting as an independent contractor under
this Agreement.
11. GOVERNING LAW
This Agreement is governed by the laws of the State of Minnesota,
without regard to principles of conflicts of laws.
12. SURVIVAL; BINDING EFFECT; ASSIGNMENT
The provisions of this Agreement relating to the payment of all fees,
reimbursement of expenses, indemnification and contribution shall survive the
expiration of the Appointment Period (including any extension thereof) or the
termination of this Agreement pursuant to Section 8 or completion of the
Transaction, as the case may be. This Agreement shall be binding upon and inure
to the benefit of the Company, Dain, the Indemnified Person(s) and their
respective permitted successors and assigns. This Agreement may not be assigned
without the prior written consent of the other party to this Agreement.
13. ENTIRE AGREEMENT; AMENDMENTS; PRIOR AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and, except as otherwise
explicitly provided, supersedes all prior understandings, written or oral, with
respect to the subject matter hereof. This Agreement may be amended by an
agreement in writing signed by Dain and the Company.
14. NOTICES
Notice given pursuant to any of the provisions of this Agreement shall
be in writing and shall be mailed or delivered to the Company at 6464 185th
Avenue North East, Redmond, WA 98052, Attention Mr. Pat Howard, and to Dain at
60 South Sixth Street, 18th Floor, Minneapolis, MN 55402, Attention Travis J.
Winkey.
15. MISCELLANEOUS
Any determination that any provision of this Agreement may be or is
unenforceable shall not affect the enforceability of the remaining provisions of
this
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<PAGE> 7
Agreement. The section headings in this Agreement are for convenience of
reference and are not to be deemed to be a part of this Agreement. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed to be an original but all of which shall constitute one
and the same instrument. The obligations of the Company under this Agreement
shall be joint and several obligations of the entities comprising the Company.
If the terms set forth in this Agreement are acceptable to you, please
sign and date the enclosed copy of this letter and return it to Dain.
DAIN BOSWORTH INCORPORATED
By: [Illegible]
__________________________________
Title: Vice President
_______________________________
Agreed and accepted as of
September 25 , 1996
____________________
DIGITAL SYSTEMS INTERNATIONAL, INC.
By: John J. Flavio
_______________________________
Its: Sr. V-P
______________________________
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<PAGE> 8
EXHIBIT A
This Exhibit A is a part of and is incorporated into that certain
letter agreement dated September 20, 1996, between Digital Systems
International, Inc. (the "Company") and Dain Bosworth Incorporated ("Dain") (the
letter agreement and this Exhibit A are referred to herein as the "Agreement").
Capitalized terms used herein without definition shall have the meanings
ascribed to them in such letter agreement.
The Company agrees to indemnify and hold harmless Dain, any affiliates
and the respective officers, directors, partners, representatives and agents and
any other persons controlling Dain or any affiliates within the meaning of
Section 15 of the Securities Act of 1933, as amended, or Section 20 of the
Securities Exchange Act of 1934, as amended (Dain and each such other person or
entity each being referred to as an "Indemnified Person"), to the fullest extent
lawful, from and against all claims, liabilities, losses, damages, and expenses,
(including without limitation and as incurred, reimbursement of all costs of
investigating, preparing, pursuing, or defending any such claim or action,
including fees and expenses of counsel to, whether or not arising out of pending
litigation, governmental investigation, arbitration or other alternative dispute
resolution, or other action or proceeding or threatened litigation, governmental
investigation, arbitration or other alternative dispute resolution, or other
action or proceeding) directly or indirectly related to or arising out of, or in
connection with (i) actions taken or omitted to be taken by the Company, its
affiliates, employees, directors, partners, representatives or agents in
connection with any Transaction or activities contemplated by, this Agreement;
(ii) actions taken or omitted to be taken by any Indemnified Person pursuant to,
the terms of, or in connection with services rendered pursuant to this
Agreement, provided that in the case of this subsection (ii), the Company shall
not be responsible for any claim, liability, loss, damage or expense arising
primarily out of or based primarily upon the willful misconduct or gross
negligence (as determined by the judgment of a court of competent jurisdiction,
no longer subject to appeal or further review) of or by such Indemnified Person;
and (iii) any untrue statement or alleged untrue statement of a material fact
contained in any Document or any omission or alleged omission to state a
material fact necessary to make the statements therein not misleading (other
than untrue statements or alleged untrue statements in, or omissions or alleged
omissions from, information relating to an Indemnified Person furnished in
writing by or on behalf of such Indemnified Person expressly for use in such
Document). If multiple claims are brought against an Indemnified Person in an
arbitration with respect to at least one of which indemnification is permitted
under applicable law and provided for under this Agreement, the Company agrees
that any
<PAGE> 9
arbitration award shall be conclusively deemed to be based on claims as to which
indemnification is permitted and provided for, except to the extent that the
arbitration award expressly states that the award, or any portion thereof, is
based solely on a claim as to which indemnification is not available.
If the indemnification provided for herein is unavailable to an
Indemnified Person in respect of any claims, liabilities, losses, damages or
expenses, then the Company, in lieu of indemnifying such Indemnified Person,
shall contribute to the amount paid or payable by such Indemnified Person as a
result of such claims, liabilities, losses, damages or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and by Dain on the other, from the services rendered
under this Agreement, or (ii) if the allocation provided by clause (i) is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above, but also the
relative fault of the Company on the one hand and the Indemnified Person on the
other, as well as any other relevant equitable considerations. It is further
agreed that the relative benefits to the Company on the one hand and Dain on the
other hand with respect to the services rendered under this Agreement shall be
deemed to be in the same proportion as (i) the aggregate Transaction Value bears
to (ii) the fees actually paid to Dain with respect to the services provided
pursuant to this Agreement in connection with the Transaction. The Company also
agrees that no Indemnified Person shall have any liability to the Company for or
in connection with this Agreement and the engagement of Dain hereunder, except
for such claims, liabilities, losses, damages, or expenses incurred by the
Company to the extent they are appropriately judicially determined (without
possibility of appeal or review) to have resulted primarily from such
Indemnified Person's willful misconduct or gross negligence, and the Company
agrees that in no event shall the Indemnified Persons be required to contribute
an amount in the aggregate greater than the fees actually received by Dain for
its services performed under this Agreement.
Promptly after receipt by any Indemnified Persons of notice of any
pending or threatened litigation, such Indemnified Persons will promptly notify
the Company in writing of such matter, provided, however, that the failure to
provide such prompt notice to the Company shall not relieve the Company of any
liability it may have to such Indemnified Persons unless such failure to provide
such prompt notice to the Company has prejudiced the defense of the litigation.
In the event any such action is brought against any Indemnified Person, the
Company shall be allowed to participate therein and assume the defense thereof,
with counsel reasonably satisfactory to the Indemnified Person, provided,
however, that if the defendants in such action include both the Company and the
Indemnified Persons and the Indemnified Persons shall have reasonably concluded
that there may be legal defenses available to them which
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<PAGE> 10
are different from or additional to those available to the Company, the
Indemnified Persons shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such action
on behalf of such Indemnified Persons, it being understood that the Company
shall not be liable for the expenses of more than one separate counsel (together
with the appropriate local counsel) approved by the Company representing all of
the Indemnified Persons. The Company shall be liable as provided herein for any
settlement of any claim against Dain or any Indemnified Person made with the
Company's written consent, which consent shall not be unreasonably withheld. The
Company agrees that it will not, without the prior written consent of Dain,
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding relating to the matters contemplated by
Dain's engagement (whether or not any Indemnified Person is a party thereto)
unless such settlement, compromise or consent includes an unconditional release
of Dain and each other Indemnified Person from all liability arising or that may
arise out of such claim, action, or proceeding.
The indemnity and contribution obligations of the Company set forth
herein shall be in addition to any liability or obligation the Company may
otherwise have to any Indemnified Person. The Company hereby consents to
personal jurisdiction, service and venue in any court in which any claim which
is subject to this Agreement is brought against Dain or any other Indemnified
Person.
It is understood that, in addition to Dain's engagement pursuant to
this Agreement, Dain may also be engaged to act for the Company in one or more
additional capacities, and that the terms of such additional engagements may be
embodied in one or more separate written agreements. The provisions of this
Exhibit A shall apply to any such separate agreements, any modifications of this
Agreement, and any modifications of such separate agreements, and the provisions
of this Exhibit A shall remain in full force and effect following the
completion, expiration or termination of this Agreement or such additional
agreements or modifications of any of the foregoing.
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<PAGE> 1
EXHIBIT 99.2
[DAIN BOSWORTH LETTERHEAD]
___________, 1996
Digital Systems International, Inc.
6464-185th Avenue North East
Redmond, Washington 98052
Attention: Patrick Howard
Chairman and Chief Executive Officer
Dear Mr. Howard:
This letter agreement serves to supplement (the "Supplement") the
agreement dated September 20, 1996 (the "Agreement") between Digital Systems
International, Inc. (the "Company") and Dain Bosworth Incorporated ("Dain") to
describe additional services to be provided by Dain to the Company.
1. Additional Services.
In connection with the pending acquisition of ViewStar Corporation
("ViewStar") in a stock for stock merger (the "Merger") and in order for the
Merger to qualify for the pooling of interests accounting treatment, the
Company intends to sell up to 300,000 shares of its common stock, $.01 par
value per share, (the "Common Stock") in a Rule 415 offering pursuant to the
Form S-3 Registration Statement, Statement No. 333-16053 (the "Registration
Statement"). Dain will use its best efforts to sell in open market
transactions at prevailing market prices for the Common Stock less the a
discount of the lesser of $.40 per share or 3.0% from the sales price such
number of shares covered by the Registration Statement when it is effective and
at such times as the Company may request. The compensation for Dain's services
under this paragraph shall be the amount of the discount referred to in the
preceding sentence. In addition, the Company will reimburse Dain for
reasonable out of pocket cost and expenses in connection with this Supplement
and the transactions contemplated by this paragraph 1 up to $10,000.
2. Representations and Warranties.
The Company represents and warrants to and agrees with Dain as follows
as of the date hereof and as of the date of each sale of shares pursuant to
paragraph 1:
(a) All of the representations and warranties made by the
Company in the Agreement and Plan of Merger dated October 14, 1996
(the "Merger Agreement") among the Company, Vision Merger Corporation
and ViewStar are true and correct and the Company has complied with
all of its covenants and agreement under the Merger Agreement. To the
best of the knowledge of the Company after due inquiry and
<PAGE> 2
investigation, the representations and warranties made by ViewStar in
the Merger Agreement are true and correct and ViewStar has complied
with all of its covenants and agreement under the Merger Agreement.
(b) The Registration Statement has been declared effective
under the Securities Act of 1933, as amended (the "1933 Act") and no
post-effective amendment to the Registration Statement has been filed.
No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been
instituted or threatened by the Securities Exchange Commission (the
"Commission").
(c) No order preventing or suspending the use of the
prospectus which is part of the Registration Statement (the
"Prospectus") has been issued by the Commission, and the Prospectus,
at the time of filing thereof, conformed in all material respects to
the requirements of the 1933 Act and the rules and regulations of the
Commission promulgated thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
provided, however, the Company makes no representation or warranty as
to information contained in or omitted in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of Dain expressly for use in the preparation thereof.
(d) The documents incorporated by reference in the
Prospectus, when they became effective or were filed with the
Commission, as the case may be, conformed in all material respects to
the requirements of the 1933 Act or the Securities Exchange Act of
1934, as amended (the "1934 Act"), as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed
and incorporated by reference in the Prospectus, when such documents
become effective or are filed with the Commission, as the case may be,
will conform in all material respects to the requirements of the 1933
Act or the 1934 Act, as applicable, and the rules and regulations of
the Commission thereunder and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(e) The Registration Statement conforms, and the Prospectus
and any amendments or supplements thereto will conform, in all
material respects to the requirements of the 1933 Act and the rules
and regulations thereunder. Neither the Registration Statement nor
any amendment thereto, and neither the Prospectus nor any supplement
thereto, contains or will contain, as the case may be, any untrue
statement of a material fact or omits or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes
no representation or warranty as to information contained in or
omitted from the Registration Statement or the
<PAGE> 3
Prospectus, or any such amendment or supplement, in reliance upon, and
in conformity with, written information furnished to the Company by or
on behalf of Dain expressly for use in the preparation thereof.
(f) The outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. All offers and sales by the Company of outstanding
shares of capital stock and other securities of the Company were made
in compliance with the 1933 Act and all applicable state securities or
blue sky laws. The shares to be issued and sold by the Company
pursuant to the Registration Statement have been duly authorized and,
when issued and paid for, will be validly issued, fully paid and
nonassessable. Except for that certain Shareholders Agreement among
the Company, certain shareholders of the Company and certain
shareholders of ViewStar dated as of October 14, 1996, there are no
preemptive rights or other rights to subscribe for or to purchase, or
any restriction upon the voting or transfer of, any shares of capital
stock of the Company pursuant to the Company's Articles of
Incorporation, Bylaws or any agreement or other instrument to which
the Company is a party or by which the Company is bound. Neither the
filing of the Registration Statement nor the offering or the sale of
the shares as contemplated by this Supplement gives rise to any rights
for, or relating to, the registration of any shares of capital stock
or other securities of the Company, except such rights which have been
validly waived or satisfied.
(g) The financial statements, together with the related notes
and schedules as set forth or incorporated by reference in the
Registration Statement and Prospectus, present fairly the financial
position, results of operations and changes in financial position of
the Company and its subsidiaries on the basis stated in the
Registration Statement at the indicated dates and for the indicated
periods. Such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied
throughout the periods involved, and all adjustments necessary for a
fair presentation of results for such periods have been made, except
as otherwise stated therein.
(h) The issuance and sale of the shares of Common Stock by
the Company covered by the Registration Statement and the compliance
by the Company with all of the provisions of this Supplement and the
consummation of the transactions contemplated herein will not violate
any provision of the Articles of Incorporation or Bylaws of the
Company or any of its subsidiaries or any statute or any order,
judgment, decree, rule, regulation or authorization of any court or
governmental or administrative agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties, and
will not conflict with, result in a breach or violation of, or
constitute, either by itself or upon notice or passage of time or
both, a default under any indenture, mortgage, deed of trust, loan
agreement, lease, franchise, license or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any
property or assets of the Company or any of its subsidiaries is
subject. No approval, consent, order, authorization, designation,
declaration or filing by or with any court or governmental agency or
body is required for
<PAGE> 4
the execution and delivery by the Company of this Supplement and the
consummation of the transactions herein contemplated, except as may be
required under the 1933 Act.
(i) The Company has the power and authority to enter into
this Supplement and to authorize, issue and sell the shares of Common
Stock it will sell hereunder. This Supplement has been duly and
validly authorized, executed and delivered by the Company.
(j) KPMG Peat Marwick LLP which has certified certain of the
financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required
by the Act and the rules and regulations thereunder.
(k) The Company has not taken and will not take, directly or
indirectly, any action designed to, or which has constituted, or which
might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock.
(l) The shares of Common Stock covered by the Registration
Statement have been approved for listing upon notice of issuance on
the Nasdaq National Market.
(m) The Company has not distributed and will not distribute
any prospectus or other offering material in connection with the
offering and sale of the shares of Common Stock covered by the
Registration Statement other than the Prospectus or other materials
permitted by the 1933 Act to be distributed by the Company.
(n) The Company is in compliance with all provisions of
Florida Statutes Section 517.075 (Chapter 92-198, laws of Florida).
The Company does not do any business, directly or indirectly, with the
government of Cuba or with any person or entity located in Cuba.
3. Covenants of the Company. The Company covenants and agrees
with Dain as follows:
(a) The Company will furnish Dain with as many copies of
the Prospectus as Dain may reasonably request.
(b) If, during the period in which a prospectus is
required by law to be delivered by an underwriter or dealer, any event
shall occur as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statement therein, in light of the circumstances existing at the time
the Prospectus is delivered to a purchaser, not misleading, or if for
any other reason it shall be necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly
will prepare and file with the Commission an appropriate amendment to
the Registration Statement or supplement to the Prospectus so that the
Prospectus as so amended or supplemented will not include an untrue
statement of a material fact or omit to state any
<PAGE> 5
material fact necessary in order to make the statements therein in
light of the circumstances existing when it is so delivered, not
misleading, or so that the Prospectus will comply with law.
(c) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not
later than 18 months after the effective date of the Registration
Statement, an earnings statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months
beginning after the effective date of the Registration Statement,
which earnings statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 thereunder and will advise you in
writing when such statement has been so made available.
4. Deliveries by the Company. In connection with the sale of any
shares of Common Stock pursuant to paragraph 1, the obligations of Dain
hereunder shall be subject to the receipt by Dain of the following documents
from the Company:
(a) The opinion of Perkins Coie, counsel for the Company,
addressed to Dain to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the
laws of the state of Washington, with corporate power and
authority to own or lease its properties and conduct its
business as described in the Prospectus.
(ii) The Company has authorized and outstanding
capital stock as described in the Prospectus. The form of
certificate for the shares is in due and proper form and
complies with all applicable statutory requirements. The
shares to be issued and sold by the Company pursuant to the
Registration Statement have been duly authorized and, when
issued and paid for, will be validly issued, fully paid and
nonassessable. No preemptive rights exist with respect to any
of such shares or the issue and sale thereof. The capital
stock of the Company conforms in all material respects to the
description thereof contained in the Prospectus.
(iii) The Registration Statement has become
effective under the 1933 Act and, to the knowledge of such
counsel, no stop order proceedings with respect thereto have
been instituted or are pending or threatened by the
Commission.
(iv) The Registration Statement, the Prospectus and
each amendment or supplement thereto comply as to form in all
material respects with the requirements of the 1933 Act and
the rules and regulations thereunder (except that such counsel
need express no opinion as to the financial statements and
related schedules included therein). The documents
incorporated by reference in the Prospectus (other than the
financial statements and related schedules therein, as to
which such counsel need express no opinion), when they became
effective or were filed with the Commission, as the case may
be, complied as to form in all material respects
<PAGE> 6
with the requirements of the 1933 Act or the 1934 Act, as
applicable, and the rules and regulations of the commission
thereunder.
(v) The execution and delivery of this Supplement
and the Agreement and the consummation of the transactions
contemplated by the Supplement do not and will not conflict
with or result in a violation of or default under the charter
or bylaws of the Company.
(vi) The Company has the corporate power and
authority to enter into this Supplement and the Agreement and
to authorize, issue and sell the shares of Common Stock as
contemplated hereby. This Supplement and the Agreement have
been duly and validly authorized, executed and delivered by
the Company.
(vii) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body is necessary in
connection with the execution and delivery of this Supplement
and the consummation of the transactions herein contemplated
(other than as may be required by state securities and blue
sky laws, as to which such counsel need express no opinion)
except such as have been obtained or made, specifying the
same.
(b) The statement of Perkins Coie, addressed to Dain, to the
effect that Perkins Coie has participated in conferences with officers
and other representatives of the Company, representatives of the
independent accountants for the Company and representatives of
ViewStar in which the contents of the Registration Statement and the
Prospectus and related matters were discussed, and although Perkins
Coie has not independently verified the factual accuracy, completeness
or fairness of the statements contained in the Registration Statement
or the Prospectus (except as stated in its opinion referred to in
paragraph (a) of this Section 4), nothing has come to their attention
that leads them to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made by the
Company (other than all information relating to ViewStar, as well as
the financial statements and related schedules and any statistical
information therein and the documents incorporated by reference into
the Registration Statement, other than the Registration Statement on
Form S-4 relating to the Merger (the "Form S-4"), as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company (other than all
information relating to ViewStar, as well as the financial statements
and related schedules and any statistical information therein and the
documents incorporated by reference into the Prospectus, other than
the Form S-4, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading or that, as
of the date of the opinion, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by the
<PAGE> 7
Company prior to such date, as the case may be, (other than all
information relating to ViewStar, as well as the financial statements
and related schedules and any statistical information therein and the
documents incorporated by reference into the Prospectus, other than
the Form S-4, as to which such counsel need express no opinion)
contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; and they do
not know of any amendment to the Registration Statement required to be
filed.
(c) A certificate from the Chief Executive Officer and Chief
Financial Officer to the effect that the representations and
warranties of the Company under paragraph 2 above are true, correct
and complete.
5. Indemnification.
The Company agrees to indemnify and hold Dain harmless in accordance
with the terms and conditions of Exhibit A to the Agreement with respect to the
additional services to be provided by Dain pursuant to this Supplement. The
provisions of this paragraph shall survive any termination of the Agreement or
this Supplement.
6. Binding Effect.
The Agreement as supplemented hereby shall continue in full force and
effect in accordance with the terms of this Agreement and this Supplement.
<PAGE> 8
If the foregoing sets forth our supplemental agreement, please sign
and dated the enclosed copy of this letter and return it to Dain.
DAIN BOSWORTH INCORPORATED
By________________________________
Its_______________________________
Agreed and accepted as of
_____________, 1996
DIGITAL SYSTEMS INTERNATIONAL, INC.
By________________________________
Its_______________________________
