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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A-3
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 18, 1997
DIGITAL GENERATION SYSTEMS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 0-27644 94-3140772
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(STATE OF OTHER JURISDICTION OF INCORPORATION) (COMMISSION FILE NO.) (IRS EMPLOYER IDENTIFICATION NO.)
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875 BATTERY STREET
SAN FRANCISCO, CA 94111
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(Address, including zip code, of principal executive offices)
Registrant's telephone numbers, including area code: (415) 276-6600
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NOT APPLICABLE
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Item 2 is amended and restated in its entirety as follows:
On July 18, 1997, the Registrant acquired all of the issued and
outstanding capital stock of Starcom Mediatech, Inc., a Delaware corporation
("Mediatech") and a wholly-owned subsidiary of IndeNet, Inc., a Delaware
corporation ("IndeNet"), for aggregate consideration of approximately $25.8
million, including approximately $5.4 million in assumed debt (the "Mediatech
Acquisition"). Mediatech is engaged in the business of media duplication and
distribution and the Registrant intends to cause Mediatech to continue this
business activity.
The Mediatech Acquisition was consummated pursuant to the terms and
conditions set forth in a Stock Purchased Agreement, dated as of July 18, 1997
(the "Mediatech Purchase Agreement"), by and between IndeNet and the Registrant.
The consideration delivered by the Registrant to IndeNet in payment for the
capital stock of Mediatech consisted of: (i) $13,988,730 in cash; (ii) 324,355
shares of Common Stock of the Registrant ("the Company Shares"); (iii) a
Subordinated Promissory Note payable to the order of IndeNet in the aggregate
principal amount of $2,243,806.34 and bearing interest at the rate of 9% per
annum (the "Company Note"); and (iv) a Secured Subordinated Promissory Note
payable to the order of Thomas H. Baur, a creditor of IndeNet, in the aggregate
principal amount of $2,206,193.66 and bearing interest at the rate of 9% per
annum (the "Baur Note").
The Mediatech Purchase Agreement provided for an adjustment of the
aggregate purchase price paid by the Registrant to IndeNet to acquire Mediatech
based on a comparison of Mediatech's financial position on July 18, 1997 with
its financial position at a specified date prior to its acquisition by the
Registrant. Based upon a review of Mediatech's financial position on July 18,
1997, the Registrant and IndeNet entered into an agreement on October 27, 1997
pursuant to which the Registrant and IndeNet agreed to reduce the aggregate
purchase price paid by the Registrant to IndeNet to acquire Mediatech by an
amount equal to $625,000. The Registrant and IndeNet agreed that such amount
would be reflected in the form of a $25,000 immediate cash payment by IndeNet to
the Registrant and a reduction of the aggregate principal amount payable under
the Company Note by an amount equal to $600,000. To reflect such reduction, the
Company Note was canceled and replaced with a new Subordinated Promissory Note
payable to the order of IndeNet in the aggregate principal amount of
$1,643,806.34 and bearing interest at the rate of 9% per annum (the "New Company
Note").
In connection with the Mediatech Acquisition, the Registrant granted
certain rights to IndeNet with respect to registration of the Company Shares
under the Securities Act of 1933, as amended (the "Securities Act"). Pursuant to
such registration rights, IndeNet has the right to request the registration of
the Company Shares under the Securities Act in the event that the Registrant
shall register securities under the Securities Act for its own account or the
account of the Registrant's other security holders. In addition, after the first
anniversary of the Mediatech Purchase Agreement, the Registrant has the right to
request the registration of the Company Shares under the Securities Act at any
time provided that the proceeds of any offering of the Company Shares pursuant
to such registration shall exceed $500,000.
The New Company Note is payable in principal installments of
$150,000 plus accrued interest on December 31, 1997, June 30, 1998, December 31,
1998, and June 30, 1999, with the remaining installments payable on the last day
of each successive calendar quarter thereafter until fully paid on March 31,
2001. The Baur Note is also payable in installments, with the first of such
installments due and payable in the amount of $350,000 on July 30, 1997, and the
second and all subsequent installments due and payable in installments of
$200,000 plus accrued interest on the first day of each successive calendar
quarter thereafter, commencing on January 1, 1998. The Baur Note matures on
January 1, 2000.
Prior to the foregoing transaction, no material relationship existed
between IndeNet or Mediatech and the Registrant or any of its affiliates, any
director or officer of the Registrant, or any associate of any such director or
officer.
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The Registrant drew upon two sources of funds to finance the cash
portion of the consideration for the Mediatech Acquisition. An entity affiliated
with Kleiner Perkins Caufield and Byers ("Kleiner Perkins") and another
affiliated with Dawson-Samberg Capital Management, Inc. ("Dawson-Samberg") each
provided the Registrant with a $3.0 million cash loan in exchange for a
promissory note, each in the aggregate principal amount of $3.0 million and
bearing interest at the rate of 10% per annum. The Registrant funded the
remaining portion of the cash consideration for the Mediatech Acquisition from
its internal cash reserves.
On July 14, 1997, the Registrant entered into a Preferred Stock
Purchase Agreement, as amended on July 23, 1997, (as amended, the "Stock
Purchase Agreement"), with certain investors listed on Exhibit A thereto,
pursuant to which the Registrant agreed to issue and sell, in two tranches, up
to an aggregate of 4,950,495 shares of its Series A Convertible Preferred Stock
for aggregate consideration of approximately $17.5 million in cash, or $3.535
per share. The Registrant closed the first of such tranches on July 28, 1997 in
which the Registrant issued and sold an aggregate of 2,012,376 shares of its
Series A Convertible Preferred Stock for aggregate consideration of
approximately $7,113,751 in cash. The Registrant used the proceeds of this first
tranche to repay the entire amount owned under the promissory notes issued by
the registrant in favor of Kleiner Perkins and Dawson-Samberg in connection with
the Mediatech Acquisition. Due to the requirements of the National Association
of Securities Dealers (the "NASD"), the closing of the second of such tranches,
in which the Registrant intended to issue and sell up to an aggregate of
2,938,119 additional shares of its Series A Convertible Preferred Stock, is
contingent upon obtaining shareholder approval therefor. The holders of a
majority of the issued and outstanding shares of its capital stock entitled to
vote thereon entered into a voting agreement pursuant to which such shareholders
agreed to vote in favor of the issuance of shares of Series A Convertible
Preferred Stock in connection with such second tranche. By letter dated August
1, 1997, the NASD gave its approval to close the second tranche, subject to
certain conditions. Upon the satisfaction of such conditions, the Registrant
closed the second tranche on August 26-27, 1997 in which the Registrant issued
and sold an aggregate of 2,938,119 shares of its Series A Convertible Preferred
Stock for aggregate consideration of $10,386,251 in cash. The Registrant used
the proceeds from the sale of such shares in the second tranche to replenish the
cash reserves expended by the Registrant to fund a portion of the cash
consideration for the Mediatech Acquisition.
In connection with the transactions contemplated by the Stock
Purchase Agreement, the Registrant granted certain rights to the investors
purchasing shares of its Series A Convertible Preferred Stock under the Stock
Purchase Agreement with respect to registration under the Securities Act of the
Common Stock underlying such shares of Series A Convertible Preferred Stock.
Such rights are substantially similar to the registration rights granted to
IndeNet in connection with the Mediatech Acquisition, as described above.
The Registrant's issuance, pursuant to the Stock Purchase Agreement,
of shares of its Series A Convertible Preferred Stock in the first and second
tranche described above were exempt from the registration requirements of the
Securities Act in reliance upon the exemption from registration provided by Rule
506 of Regulation D promulgated under the Securities Act.
ITEM 5. OTHER EVENTS
Item 5 is amended and restated in its entirety as follows:
The Registrant entered into the Stock Purchase Agreement described
above pursuant to which the Registrant issued and sold an aggregate of 2,012,376
shares of its Series A Convertible Preferred Stock on July 28, 1997, and an
additional 2,938,119 shares of its Series A Convertible Preferred Stock on
August 26-27, 1997.
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On October 27, 1997 the Registrant and IndeNet entered into an
agreement pursuant to which such parties agreed to reduce the aggregate purchase
price paid by the Registrant to IndeNet to acquire Mediatech by an amount equal
to $625,000. The Registrant and IndeNet agreed that such amount would be
reflected in the form of a $25,000 immediate cash payment by IndeNet to the
Registrant and a reduction of the aggregate principal amount payable under the
Company Note by an amount equal to $600,000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
The audited combined financial statements of Mediatech, Inc. and
Starcom Television Services, Inc. for the years ended March 31, 1997
and 1996 and the unaudited combined financial statements of
Mediatech, Inc. and Starcom Television Services, Inc. for the three
months ended June 30, 1997 and 1996 are attached hereto as Exhibit
7.1.
(B) PRO FORMA FINANCIAL INFORMATION
The unaudited condensed pro forma combined financial statements of
the Registrant, PDR Productions, Inc., and Mediatech, Inc., the pro
forma financial information required by Item 7(b), is attached
hereto as Exhibit 7.2.
(C) EXHIBITS
2.1* Stock Purchase Agreement, dated as of July 18, 1997, by
and between IndeNet, Inc., a Delaware corporation, and
Digital Generation Systems, Inc., a California
corporation.
2.2* Preferred Stock Purchase Agreement, dated as of July 14,
1997, by and among Digital Generation Systems, Inc. and
the parties listed on the Schedule of Purchasers
attached as Exhibit A thereto.
2.3* Amendment to Preferred Stock Purchase Agreement, dated
as of July 23, 1997, by and among Digital Generation
Systems, Inc. and the purchasers listed on Exhibit A
thereto.
2.4* Certificate of Determination of Rights of Series A
Convertible Preferred Stock of Digital Generation
Systems, Inc., filed by the Secretary of State of
California on July 6, 1997.
7.1** The audited combined financial statements of Mediatech,
Inc. and Starcom Television Services, Inc. for the years
ended March 31, 1997 and 1996 and the unaudited combined
financial statements of Mediatech, Inc. and Starcom
Television Services, Inc. for the three months ended
June 30, 1997 and 1996.
7.2** The unaudited condensed pro forma combined financial
statements of Digital Generation Systems, Inc., PDR
Productions, Inc., and Mediatech, Inc.
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* Incorporated by reference to the exhibit bearing the same number
filed with Registrant's Form 8-K which was filed August 1, 1997.
** Incorporated by reference to the exhibit bearing the same number
filled with Registrant's Form 8-K/A-2 which was filed September 29,
1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGITAL GENERATION SYSTEMS, INC.
Dated: November 6, 1997 BY: /S/ THOMAS P. SHANAHAN
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THOMAS P. SHANAHAN
VICE PRESIDENT & CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL AND
CHIEF ACCOUNTING OFFICER)
