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As filed with the Securities and Exchange Commission on December 31, 1998
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DIGITAL GENERATION SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 94-3140772
(State or Other Jurisdiction (I.R.S. Employer Identification Number)
of Incorporation or Organization)
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875 BATTERY STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 276-6600
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
HENRY W. DONALDSON
PRESIDENT AND CHIEF OPERATING OFFICER
DIGITAL GENERATION SYSTEMS, INC.
875 BATTERY STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 276-6600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
STEVEN M. SPURLOCK, ESQ.
GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
155 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
(650) 321-2400
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, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Title of each class of Amount to be Offering Price Proposed Maximum Aggregate Amount of
Securities to be Registered Registered per Security(1) Offering Price(1) Registration Fee
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Common Stock, no par value 16,201,761 shares $5.46875 $88,603,380.46 $24,631.74
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(1) The price of $5.46875 per share, which was the average of the high and low
prices of the Common Stock on the Nasdaq National Market on December 29,
1998 is set forth solely for the purpose of calculating the registration
fee in accordance with Rule 457(c) of the Securities Act of 1933, as
amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED ___________, 1999
16,201,761 SHARES
DIGITAL GENERATION SYSTEMS, INC.
COMMON STOCK
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THIS PROSPECTUS RELATES TO THE PUBLIC OFFERING OF 16,201,761 SHARES
OF THE COMMON STOCK OF DIGITAL GENERATION SYSTEMS, INC.
THIS OFFERING IS NOT BEING UNDERWRITTEN.
-----------
INVESTING IN THE COMMON STOCK INVOLVES CONSIDERABLE RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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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From time to time, the shares (the "Shares") of Common Stock (the
"Common Stock") may be offered by certain shareholders (the "Selling
Shareholders") of Digital Generation Systems, Inc. ("DG Systems" or the
"Company") in transactions (i) on the Nasdaq National Market, (ii) in privately
negotiated transactions, or (iii) by a combination of such methods of sale. Such
sales may occur at fixed prices that are subject to change, at prevailing market
prices or at negotiated prices.
Selling Shareholders may sell Shares through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders, the purchasers of the Shares, or
both. Selling Shareholders may also sell Shares to broker-dealers buying for
their own account, and these broker-dealers may receive similar compensation
from such Selling Shareholders. Compensation received by such broker-dealers may
exceed that which is considered customary. See "Selling Shareholders" and "Plan
of Distribution."
DG Systems will not receive any of the proceeds from the sale of the
Shares by the Selling Shareholders. We have agreed to bear certain expenses in
connection with the registration and sale of the Shares being offered by the
Selling Shareholders.
The Selling Shareholders and any broker-dealers or agents that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
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On December 29, 1998, the closing bid price of the Company's Common
Stock on the Nasdaq National Market was $5.50 per share. The Common Stock is
traded on the Nasdaq National Market under the symbol "DGIT."
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THE DATE OF THIS PROSPECTUS IS __________, 1999
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary....................................................... 3
Risk Factors............................................................. 4
Use of Proceeds.......................................................... 14
Selling Shareholders..................................................... 15
Plan of Distribution..................................................... 19
Description of Capital Stock............................................. 20
Legal Matters............................................................ 23
Experts.................................................................. 23
Available Information.................................................... 23
Information Incorporated by Reference.................................... 24
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information appearing elsewhere in this Prospectus and the document incorporated
by reference in this Prospectus.
This Prospectus, including the documents incorporated by reference
herein, contains forward-looking statements. Statements contained in this
Prospectus or incorporated by reference herein that are not purely historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended ("the Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including
without limitation statements regarding our expectations, beliefs, intentions or
strategies regarding the future. All forward-looking statements included in this
document are based on information available to DG Systems on the date hereof,
and we assume no obligation to update any such forward-looking statements. A
forward-looking statement involves a prediction, the accuracy of which is
subject to risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including, but not limited to, those set forth in this
Prospectus under "Risk Factors." You should carefully consider the risks
described in the "Risk Factors" section, in addition to the other information
set forth in this Prospectus and incorporated by reference herein, before making
an investment decision.
THE COMPANY
Digital Generation Systems, Inc. ("DG Systems" or the "Company") was
incorporated in 1991. We operate a nationwide multimedia network designed to
provide media distribution and related services to the broadcast industry by
linking content providers to radio and television stations. We primarily provide
electronic and physical distribution of audio and video spot advertising to
radio and television stations, and advertising agencies and production studios
generate most of our revenue. Our principal executive offices are located at 875
Battery Street, San Francisco, California 94111, and our telephone number is
(415) 276-6600.
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RISK FACTORS
An investment in the Common Stock involves a high degree of risk. In
addition to the other information contained in this Prospectus, prospective
investors should carefully consider the following risk factors before investing
in the Common Stock. All statements, trend analysis and other information
contained in this Prospectus and in the documents incorporated by reference in
this Prospectus relative to markets for the Company's products and services and
trends in total revenues, gross margin and anticipated expense levels, as well
as other statements incorporating words such as "anticipate," "believe," "plan,"
"estimate," "expect" and "intend" and other similar expressions, constitute
forward-looking statements. These forward-looking statements are subject to
business and economic risks, and our actual results of operations may differ
materially from those contained in the forward-looking statements. The
cautionary statements apply to all forward-looking statements wherever they
appear in this Prospectus and in the documents incorporated by reference in this
Prospectus.
HISTORY OF LOSSES; FUTURE OPERATING RESULTS UNCERTAIN
DG Systems was founded in 1991 and has been unprofitable since its
inception. We expect to continue to generate net losses for much of the next
twelve months. As of September 30, 1998, our accumulated deficit was $88.5
million. Although the Company has recently experienced significant growth, a
significant portion of such growth is due to acquisitions. In addition, such
growth rates may not be sustainable and you should not use such growth rates as
an indication of future sales growth, if any, or as an indication of future
operating results. Our future success also depends in part on obtaining
continued reductions in delivery and service costs, particularly our ability to
continue to automate order processing and to reduce telecommunications costs. As
a result of the foregoing factors, there can be no assurance that our sales will
grow or that our sales will be sustained in future periods. In addition, there
can be no assurance that we will be able to reduce delivery and service costs,
or that we will achieve or sustain profitability in any future period.
DEPENDENCE ON ELECTRONIC VIDEO ADVERTISING DELIVERY SERVICE DEPLOYMENT
We have made a substantial investment in upgrading and expanding our
network operating center and in populating television stations with the units
necessary for the receipt of electronically delivered video advertising content.
However we cannot assure you that the placement of these units will cause this
service to achieve adequate market acceptance among customers that require video
advertising content delivery. Our inability to place units in an adequate number
of stations or our inability to capture market share among content delivery
customers which may be the result of price competition, new product
introductions from competitors or otherwise would seriously harm our business,
operating results and financial position.
In addition, we believe that in order to more fully address the needs of
potential video delivery customers we will need to develop a set of ancillary
services that typically are provided by dub and ship houses. These ancillary
services include physical archiving, closed captioning, modification of slates
and format conversions. Such services will need to be provided on a localized
basis in each of the major cities in which we provide services directly to
agencies and advertisers. We currently have the capability to provide such
services through our facilities in New York, Los Angeles and Chicago. However,
we cannot assure you that we will be able to successfully contract for and
provide these services in each or any major metropolitan area or that we will be
able to provide competitive video distribution services in other U.S. markets.
Also, although we are taking the steps we believe are required to achieve the
network capacity and scalability necessary to deliver video content reliably and
cost effectively as video advertising delivery volume grows, we cannot assure
you that we will achieve such goals and our failure to do so may seriously harm
our business, operating results and financial position. In addition, we may be
unable to retain current audio delivery customers or attract future audio
delivery customers who may ultimately demand delivery of both media content
unless we can successfully continue to develop and provide video transmission
services. The failure to retain such customers could seriously harm our results
of operations and financial condition.
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DEPENDENCE ON EMERGING MARKETS
The market for the electronic delivery of digital audio and video
transmissions by advertisers, advertising agencies, production studios, and
video and music distributors to radio and television stations, is relatively
new, and alternative technologies are rapidly evolving. Our marketing task
requires us to overcome buyer inertia related to the diffuse and relatively low
level decision making regarding an agency's choice of delivery services and long
standing relationships with existing dub and ship vendors. Therefore, it is
difficult to predict the rate at which the market for the electronic delivery of
digital audio and video transmissions will grow, if such market grows at all. If
the market fails to grow, or grows more slowly than anticipated, our business,
operating results and financial condition would be seriously harmed. Even if the
market does grow, we cannot assure you that our products and services will
achieve commercial success. Although we intend to conform our products and
services to meet existing and emerging standards in the market for the
electronic delivery of digital audio and video transmissions, we cannot assure
you that we will be able to conform our products to such standards in a timely
fashion, or that we be able to conform our products to such standards at all. We
believe that our future growth will depend, in part, on our ability to add these
services and additional customers in a timely and cost-effective manner.
However, we cannot assure you that we will be successful in developing such
services, or in obtaining new customers for such services. See "Dependence on
New Product Introductions." Furthermore, we cannot assure you that we will be
successful in obtaining a sufficient number of radio and television stations,
radio and television networks, advertisers, advertising agencies, production
studios, and audio and video distributors who are willing to bear the costs of
expanding and increasing the integration of our network, including our field
receiving equipment and rooftop satellite antennae.
Our marketing efforts to date with regard to our products and services
have involved identification and characterization of specific market segments
for these products and services with a view to determining the target markets
that will be the most receptive to such products and services. We cannot assure
you that we have correctly identified such markets or that our planned products
and services will address the needs of such markets. Furthermore, we cannot
assure you that our technologies, in their current form, will be suitable for
specific applications or that further design modifications, beyond anticipated
changes to accommodate different markets, will not be necessary. Broad
commercialization of our products and services will require us to overcome
significant market development hurdles, many of which may not currently be
foreseen.
OTHER RISKS ASSOCIATED WITH NASDAQ NATIONAL MARKET LISTING QUALIFICATION
The holders of the registered Common Stock of DG Systems currently
enjoy a substantial benefit in terms of liquidity by having such Common Stock
listed on the Nasdaq National Market trading system. This benefit would be lost
if we were to be delisted from the Nasdaq National Market. On November 25, 1998,
we received notice from the Nasdaq Stock Market, Inc. ("Nasdaq") that, on the
basis of our Quarterly Report on Form 10-Q for the quarter ending September 30,
1998, our net tangible assets had fallen below the level required for continued
inclusion of our common stock on the Nasdaq National Market trading system. On
December 10, 1998, we submitted information to Nasdaq that we had raised
approximately $11 million and, therefore, believed that we were once again in
compliance with all of the requirements for continued listing on the Nasdaq
National Market. Nasdaq subsequently requested additional information regarding
our August 1998 and December 1998 financing activities as well as our
acquisition of substantially all of the assets of Digital Courier International,
Inc. ("DCI") in order to ascertain our compliance with applicable corporate
governance rules. On December 17, 1998, we submitted additional information to
Nasdaq in response to this request. While we believe we are in compliance with
Nasdaq's continued listing requirements and corporate governance rules, we
cannot assure you that Nasdaq will make such a finding or that we will be able
to continue to have our registered Common Stock listed on the Nasdaq National
Market or similar public securities exchange.
UNCERTAINTIES RELATING TO INTEGRATION OF OPERATIONS
We effected the recent acquisitions of PDR Productions, Inc. ("PDR"), a
media duplication and distribution company, Starcom Mediatech, Inc.
("Mediatech"), a company with services typical of a traditional dub and ship
house, and DCI, a supplier of electronic distribution and communications
services for the radio broadcast industry in
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the United States and Canada, with the expectation that such strategic
acquisitions would result in enhanced efficiencies for the combined company. To
date we have not fully completed the integration of PDR, Mediatech or DCI with
DG Systems. Achieving the anticipated benefits of these acquisitions will depend
in part upon whether the integration of the organizations and businesses of PDR,
Mediatech and DCI with those of DG Systems is achieved in an efficient,
effective and timely manner. However, we cannot assure you that such an
integration will occur. The successful integration and expansion of our business
following our acquisition of PDR, Mediatech and DCI requires communication and
cooperation among the senior executives and key technical personnel of DG
Systems, PDR, Mediatech and DCI. Given the inherent difficulties involved in
completing a business combination, we cannot assure you that such cooperation
will occur or that the integration of the respective organizations will be
successful and will not result in disruptions in one or more sectors of our
business. The failure to effectively accomplish the integration of the
operations of PDR, Mediatech and DCI with those of DG Systems could seriously
harm our results of operations and financial condition. In addition, we cannot
assure you that all of our current and potential customers will favorably view
our services as offered through PDR, Mediatech and DCI or that we will realize
any of the other anticipated benefits of the acquisitions. Moreover, as a result
of these acquisitions, certain of our customers may perceive PDR, Mediatech or
DCI to be a competitor, and this could affect such customers' willingness to do
business with us in the future. The loss of significant customers would
seriously harm our results of operations and financial condition.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
We intend to continue making capital expenditures to produce and install
Record Sent Terminals ("RSTs"), ADvantage Receive Playback Terminals ("RPTs"),
Video Record Transmission Systems ("VRTSs") and ADvantage Digital Video Playback
Systems ("DVPS") units and to introduce additional services. In addition, we
continually analyze the costs and benefits of acquiring certain businesses,
products or technologies that we may from time to time identify, and our related
ability to finance such acquisitions. Assuming that we do not pursue one or more
additional acquisitions funded by internal cash reserves, we anticipate that our
existing capital, cash from operations, and funds available under existing term
loan and line of credit agreements should be adequate to satisfy our capital
requirements until the fourth quarter of 1999. However, we cannot assure you
that we will not require additional capital sooner than currently anticipated or
that any such additional funds will be adequate to fund our capital needs, which
capital needs depend upon numerous factors, including:
- the progress of our product development activities;
- the cost of increasing our sales and marketing activities; and
- the amount of revenues generated from operations.
None of the foregoing factors can be predicted with certainty. In addition, we
are unable to predict the precise amount of future capital that we will require,
particularly if we pursue one or more such acquisitions. Furthermore, we can not
assure you that either additional financing will be available to us, or if it is
available, that such additional financing will be available on acceptable terms.
Our inability to obtain financing for such acquisitions on acceptable terms may
prevent us from completing advantageous acquisitions and consequently could
seriously harm our prospects and future rates of growth. Our inability to obtain
additional funding for continuing operations or an acquisition would seriously
harm our business, financial condition and results of operations. Consequently,
we could be required:
- to significantly reduce or suspend our operations,
- to seek a merger partner, or
- to sell additional securities on terms that are highly dilutive
to our existing investors.
DEPENDENCE ON TECHNOLOGICAL DEVELOPMENTS
The market for the distribution of digital audio and video transmissions
is characterized by rapidly changing technology. Our success will depend, in
part, on the technological quality of our products and processes relative to
those of our competitors and our ability to develop and introduce new and
enhanced products and services at competitive prices and in a timely and
cost-effective fashion. Our development efforts have been focused on:
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- Satellite transmission technology;
- Video compression technology;
- TV station systems interfaces; and
- Reliability and throughput enhancements to the network.
The growth of our electronic video delivery services also depends on our
ability to obtain reliable and cost-effective satellite delivery capability.
Development efforts in satellite transmission technology are oriented to
development and deployment of software to lower transmission costs and increase
delivery reliability. Development efforts in video compression technology are
directed toward integration of emerging broadcast quality compression systems
within our existing network, thereby continuing to improve picture quality while
maintaining compliance with industry standards. TV station system interface
implementation includes various system control protocols and improvements of the
system throughput and reliability. We have an agreement with Hughes Network
Systems, Inc. ("Hughes") giving us access to Hughes' satellite capacity for
electronic delivery of digital audio and video transmissions by that media. We
have developed and incorporated the software designed to enable the current
DVPSs to receive digital satellite transmissions over the Hughes satellite
system. However, the Hughes satellite system may not have the capacity to meet
our future delivery commitments and broadcast quality requirements on a
cost-effective basis, if at all. See "Dependence on Certain Suppliers."
The introduction of new products can render existing products obsolete or
unmarketable. We may not be successful in identifying, developing, contracting
for the manufacture of, and marketing product enhancements or new products that
respond to technological change. In addition, we may experience difficulties
that could delay or prevent the successful development, introduction and
marketing of any new products or product enhancements, and these products may
not adequately meet the requirements of the marketplace and achieve market
acceptance. Delays in the introduction of new products and services or
enhancements to existing products and services may result in customer
dissatisfaction and delay or loss of revenue. The inability to develop and
introduce new products and services or enhancements of existing products and
services in a timely manner or with a significant degree of market acceptance
could seriously harm our business, financial condition and results of
operations.
DEPENDENCE ON RADIO ADVERTISING
Prior to our acquisitions of PDR and Mediatech, our revenues were derived
principally from a single line of business, the delivery of radio advertising
spots from advertising agencies, production studios and dub and ship houses to
radio stations in the United States. We expect the delivery of such services to
continue to account for a significant portion of our revenues for some time. A
decline in demand for, or average selling prices of, our radio advertising
delivery services for any of the following reasons, or otherwise, would
seriously harm our business, financial condition and results of operations:
- competition from new advertising media;
- new product introductions or price competition from competitors;
- a shift in purchases by customers away from our premium
services, such as DG Priority or DG Express; and
- a change in the technology used to deliver such services.
Additionally, we are dependent on our relationship with the radio stations in
which we have installed communications equipment. Should a substantial number of
these stations go out of business, experience a change in ownership, or
discontinue the use of our equipment in any way, it could seriously harm our
business, financial condition and results of operations.
ABILITY TO MAINTAIN AND IMPROVE SERVICE QUALITY
Our business is dependent on our ability to make cost-effective
deliveries to broadcast stations within the time periods requested by customers.
Any failure to do so, whether or not within our control, could result in an
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advertisement not being run and in the station losing air-time which it could
have otherwise sold. Although we disclaim any liability for lost air-time,
claims by stations for lost air-time may nevertheless be asserted in these
circumstances and dissatisfied advertisers may refuse to make further deliveries
through DG Systems in the event of a significant occurrence of lost deliveries,
either of which would seriously harm our business, financial condition and
results of operations. Although we maintain insurance against business
interruption, such insurance may not be adequate to protect us from significant
loss in these circumstances or from the effects of a major catastrophe (such as
an earthquake or other natural disaster) which could result in a prolonged
interruption of our business. In particular, our network operating center is
located in the San Francisco Bay area, which has in the past and may in the
future experience significant, destructive seismic activity that could damage or
destroy our network operating center. In addition, our ability to make
deliveries to stations within the time periods requested by customers depends on
a number of factors, some of which are outside of its control, including:
- Equipment failure;
- Interruption in services by telecommunications service
providers; and
- The inability to maintain our installed base of RSTs, RPTs,
VRTSs and DVPS video units that comprise our distribution
network.
Failure to make timely deliveries for whatever reason could result in
dissatisfied advertisers refusing to make further deliveries through DG Systems
which would seriously harm our business, financial condition and results of
operations.
COMPETITION
We currently compete in the market for the distribution of audio
advertising spots to radio stations and the distribution of video advertising
spots to television stations. The principal competitive factors affecting these
markets are ease of use, price, timeliness and accuracy of delivery. The Company
competes with a variety of dub and ship houses and production studios that have
traditionally distributed taped advertising spots via physical delivery.
Although such dub and ship houses and production studios do not currently offer
electronic delivery, they have long-standing ties to local distributors that
will be difficult for us to replace. Some of these dub and ship houses and
production studios have greater financial, distribution and marketing resources
and have achieved a higher level of brand recognition than we have. In September
1998, we acquired substantially all of the assets of DCI, a supplier of
electronic distribution and communications services for the radio broadcast
industry in the United States and Canada. This acquisition has resulted in:
- Expansion of our customer base;
- An increase in the number of radio stations included in
our network; and
- An improvement in our ability to provide a point to point
delivery service between the radio stations and groups.
We believe that we now offer the only nationwide electronic delivery
option for audio spot distribution. In the market for the distribution of video
content to television stations, we encounter competition from numerous large
and small dub and ship houses and production studios, certain of which currently
function as marketing partners with DG Systems in the audio distribution market.
To the extent that we are successful in entering new markets, such as the
delivery of other forms of content to radio and television stations, we would
expect to face competition from companies in related communications markets
and/or package delivery markets. Some of these companies in related markets
could offer products and services with functionality similar or superior to that
offered by our products and services. Telecommunications providers such as AT&T,
MCI Worldcom and Regional Bell Operating Companies could also enter the market
as competitors
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with materially lower electronic delivery transportation costs. We could also
face competition from entities with package delivery expertise such as Federal
Express, United Parcel Service, DHL and Airborne if any such companies enter the
electronic data delivery market. Radio networks such as ABC or Westwood One
could also become competitors by selling and transmitting advertisements as a
complement to their content programming.
Many of our current and potential competitors in the markets for audio
and video transmissions have substantially greater financial, technical,
marketing and other resources and larger installed customer bases than DG
Systems. We may not be able to compete successfully against current and future
competitors based on these and other factors. We expect that an increasingly
competitive environment will result in price reductions that could result in
lower profits and loss of market share, all of which would seriously harm our
business, financial condition and results of operations. Moreover, the market
for the distribution of audio and video transmissions has become increasingly
concentrated in recent years as a result of acquisitions, which are likely to
permit many of our competitors to devote significantly greater resources to the
development and marketing of new competitive products and services. We expect
that competition will increase substantially as a result of these and other
industry consolidations and alliances, as well as the emergence of new
competitors. Accordingly, we may not be able to compete successfully with new or
existing competitors, and the effects of such competition could seriously harm
our business, financial condition and results of operations.
ABILITY TO MANAGE GROWTH
We have recently experienced a period of rapid growth that has resulted
in new and increased responsibilities for management personnel and that has
placed and continues to place a significant strain on our operating, management
and financial systems and resources. To accommodate this recent growth and to
compete effectively and manage future growth, if any, we must continue to
implement and improve our operational, financial and management information
systems, procedures and controls on a timely basis and to expand, train,
motivate and manage our work force. In particular, we believe that to achieve
these objectives we must complete the following:
- Automation of the customer order entry process;
- Integration of the delivery fulfillment process into the
customer billing system; and
- Combination of these systems with those of PDR, Mediatech
and DCI.
Our personnel, systems, procedures and controls may not be adequate to support
our existing and future operations. Any failure to implement and improve our
operational, financial and management systems or to expand, train, motivate or
manage our employees could seriously harm our business, financial condition and
results of operations.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date codes fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, many such
currently installed computer systems and software products used by many
companies will need to be upgraded to enable such systems and computer hardware
and software products to avoid the potential effects associated with this year
2000 coding problem. We have done a preliminary internal assessment of the
components and applications of our network and have determined that a number of
these components are year 2000 compliant. To further identify potential issues,
we have hired a third party consulting firm to inventory the various internal
and external systems and related applications upon which we may be dependent and
to assess both the level of dependence and the exposure in each area to year
2000 risks. This study is not yet complete, and we have not yet fully completed
our assessment of the full range of risks. A complete action plan awaits the
completion of this report and is expected to be in place early in 1999.
In the interim, we are continuing to take the steps we believe are
necessary to address the network and related applications we have identified
that are not year 2000 compliant. These issues will be addressed primarily
through internal development efforts. Although we have direct programming
control over our network applications, our computer hardware and software
products may not contain all necessary code changes in their date code fields to
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avoid any or all damaging interruptions and other problems associated with date
entry limitations. We are also dependent upon other third parties, in particular
our telephone and satellite transmission suppliers, in order to provide our
electronic distribution services. See "Dependence on Certain Suppliers." We are
in the process of obtaining relevant information from these suppliers in order
to increase awareness of potential issues. If such vendors' systems are not year
2000 compliant it could have a material adverse effect on our operations. At
this time we have not fully quantified the potential impact of third party
vendor year 2000 issues. We currently do not anticipate that the direct resource
requirements or expenses related to resolving year 2000 issues will have a
significant adverse effect on our operating results or financial position.
We believe that the purchasing pattern of our current and potential
customers may be affected by the year 2000 problem described above in a variety
of ways. For example, as the year 2000 approaches, some of our current customers
may develop concerns about the reliability of our electronic delivery services
and, as a result, shift their delivery work to less technical dub and ship
operations. Likewise, some potential customers with the same concern may elect
not to utilize our electronic delivery services until after year 2000 and
beyond. If any potential customers elect to not utilize our delivery services
for any period of time on the basis of year 2000 concerns, our business and
financial prospects for growth could be adversely affected. If any of our
current customers shift some or all of their delivery work to other delivery
providers, our business, financial condition and results of operations would be
adversely affected. In addition to the foregoing, in the event that we do
experience interruptions and problems with our computer hardware and software
products due to year 2000 limitations, some or all of our current customers may
shift some or all of their delivery work to other delivery providers without
year 2000 problems. Moreover, potential customers of DG Systems may elect not to
utilize our delivery services in the event of any such interruptions and
problems. Any of the foregoing could seriously harm our business, financial
condition and results of operations. At this time we have not fully developed
detailed contingency plans for the possibility of significant disruption due to
year 2000 issues. Preliminary discussions have been held but timing of the
development of such a contingency plan will be dependent upon the findings and
resulting actions taken based on the risk assessment studies discussed above.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY
Our quarterly operating results have in the past and may in the future
vary significantly depending on factors such as:
- Volume of advertising in response to seasonal buying patterns;
- Timing of introductions of new products and services;
- Increased competition;
- Timing of our promotional efforts; and
- General economic factors.
For example, we have historically experienced lower sales in the first quarter
and higher sales in the fourth quarter due to increased customer advertising
volumes for the Christmas selling season. As a result, we believe that period to
period comparisons of our results of operations are not necessarily meaningful
and should not be relied upon as an indication of our future performance. In any
single period, our revenues and delivery costs are subject to variation based on
changes in the volume and mix of deliveries performed during such period. In
particular, our operating results have historically been significantly
influenced by the volume of deliveries ordered by television stations during the
"Sweeps" rating periods that currently take place in February, May, August and
November. The increased volume of these deliveries during such periods and our
relatively higher prices for "Sweeps" advertisements have historically increased
the total revenues and revenues per delivery and tended to reduce relative
delivery costs. Our expense levels are based, in part, on our expectations of
future sales levels. If sales levels are below expectations, operating results
are likely to be seriously harmed. In addition, we have historically operated
with little or no backlog. The absence of backlog increases the difficulty of
predicting sales and operating results. Fluctuations in sales due to seasonality
may become more pronounced as our sales growth rate slows. Due to the unique
nature of our products and services, we believe that we will incur significant
expenses for sales and marketing, including advertising, to educate potential
customers about such products and services.
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<PAGE> 12
DEPENDENCE ON KEY PERSONNEL
Our success depends to a significant degree upon the continuing
contributions of, and on our ability to attract and retain, qualified
management, sales, operations, marketing and technical personnel. We generally
have not entered into employment or noncompetition agreements with any of our
employees. We do not maintain key man life insurance on the lives of any of our
key personnel. The competition for qualified personnel, particularly engineering
staff, is intense, and it possible that we may not be able to continue to
attract and retain qualified management, sales and technical personnel for the
development of its business. If we are unable to attract, hire and retain
qualified personnel in the future, the success of our business could be
impaired, and this could seriously harm our business, operating results and
financial condition.
DEPENDENCE ON CERTAIN SUPPLIERS
We rely on certain single or limited-source suppliers for integral
components used for the assembly of our audio and video units. Although these
suppliers are generally large, well-financed organizations, in the event that a
supplier were to experience financial or operational difficulties that resulted
in a reduction or interruption in component supply to DG Systems, it would delay
our deployment of audio and video units. This would have the effect of
depressing our business until we were able to establish sufficient component
supply through an alternative source. We believe that there are currently
alternative component manufacturers that could supply the components required to
produce our products, but we are not currently pursuing agreements or
understandings with such alternative sources. If a reduction or interruption of
supply were to occur, it could take a significant period of time for us to
qualify an alternative subcontractor, redesign its products as necessary and
contract for the manufacture of such products. We do not have long-term supply
contracts with our sole- or limited-source vendors, and we purchase our
components on a purchase order basis. We have experienced component shortages in
the past, and material component shortages or production or delivery delays may
occur in the future. The inability to continue to obtain sufficient quantities
of components in a timely manner, as required, or to develop alternative
sources, as required, could result in delays or reductions in product shipments
or product redesigns, which would seriously harm our business, financial
condition and results of operations.
Pursuant to our development efforts in the area of satellite transmission
technology, we have successfully completed live field trials of software
designed to enhance and enable the current RPTs to receive digital satellite
transmissions over the Hughes satellite system. Our dependence on Hughes'
satellite system entails a number of significant risks. Our business, results of
operations and financial condition would be seriously harmed if Hughes were
unable for any reason to continue to meet our delivery commitments on a
cost-effective basis or if any transmissions failed to satisfy our quality
requirements. In the event that we were unable to continue to use Hughes'
satellite capacity, we would have to identify, qualify and transition deliveries
to an acceptable alternative satellite transmission vendor. Such an alternative
satellite transmission vendor may not be available in a position to satisfy our
delivery requirements on a timely and cost-effective basis, if at all. In the
event that such an alternative satellite transmission vendor were available, the
identification, qualification and transition process could take up to nine
months or longer.
We obtain our local access telephone transmission services through
Teleport Communications Group. We obtain our long distance telephone access
through an exclusive contract with MCI Worldcom, which expires in 2001. Any
material interruption in the supply or a material adverse change in the price of
either local access or long distance carrier service could seriously harm our
business, results of operations and financial condition.
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS
Our future growth depends on the successful and timely introduction of
new products and services in markets that do not currently exist or are just
emerging. Our goal is to introduce new services, such as media archiving and the
ability to quickly and reliably give an agency the ability to preview and
authorize electronic delivery of video advertising spots. We may not be able to
successfully complete development of such products and services. Even if any
such development is completed, we may not be able to introduce these products
and services and they may not realize market acceptance or meet the technical or
other requirements of potential customers. The failure to
11
<PAGE> 13
successfully development and introduce new products and services could seriously
harm our business, financial condition and results of operations.
DEPENDENCE ON PROPRIETARY TECHNOLOGY, PROTECTION OF TRADEMARKS, COPYRIGHTS, AND
OTHER PROPRIETARY INFORMATION; RISK OF THIRD PARTY CLAIMS OF INFRINGEMENT
We consider our trademarks, copyrights, advertising, and promotion design
and artwork to be of value and important to our business. We rely on a
combination of trade secret, copyright and trademark laws and nondisclosure and
other arrangements to protect our proprietary rights. We do not have any patents
or patent applications pending. We generally enter into confidentiality or
license agreements with our employees, distributors and customers, and limit
access to and distribution of our software, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or obtain and use information that we regard as
proprietary. The steps that we have taken to protect our proprietary information
may not prevent misappropriation of such information and such protection may not
preclude competitors from developing confusingly similar brand names or
promotional materials or developing products and services similar to those of
the Company. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States. While
we believe that our trademarks, copyrights, advertising and promotion design and
artwork do not infringe upon the proprietary rights of third parties, we may
still receive future communications from third parties asserting that we are
infringing, or may be infringing, on the proprietary rights of third parties.
Any such claims, with or without merit, could be time-consuming, require us to
enter into royalty arrangements or result in costly litigation and diversion of
management personnel. If such claims are successful, we may not be able to
obtain any licenses necessary for the operation of our business or, if
obtainable, such licenses may not be able to obtained on commercially reasonable
terms. In the event of a successful claim of infringement and our failure or
inability to license the infringed or similar proprietary information, our
business, financial condition and results of operations could be seriously
harmed.
CONCENTRATION OF STOCK OWNERSHIP; ANTITAKEOVER PROVISIONS
The present executive officers and directors of DG Systems and their
respective affiliates own approximately 46% of our Common Stock. As a result,
these shareholders will be able to control or significantly influence all
matters requiring shareholder approval, including the election of directors and
the approval of significant corporate transactions. Such concentration of
ownership may have the effect of delaying or preventing a change in control of
DG Systems. Furthermore, certain provisions of our Amended and Restated Articles
of Incorporation and Bylaws, and of California law, could have the effect of
delaying, deferring or preventing a change in control of DG Systems.
PREFERENTIAL RIGHTS OF PREFERRED STOCK
DG Systems presently has 15,000,000 shares of Preferred Stock authorized.
On August 12, 1998, the holders of 4,950,495 shares of Series A Convertible
Preferred Stock, constituting all of the outstanding shares of the Series A
Convertible Preferred Stock, elected to convert such shares into shares of our
Common Stock. Accordingly, pursuant to our Articles of Incorporation, the Board
of Directors has the authority to issue up to 10,049,505 additional shares of
Preferred Stock and may divide such 10,049,505 remaining authorized shares of
Preferred Stock into any number of series, to fix the number of shares of any
such series and to determine the rights, preferences, privileges and
restrictions granted to or imposed upon, any such series.
REGISTRATION RIGHTS
In connection with the recent private placements of shares of our
Common Stock, each as further described in "Description of Capital Stock," we
agreed to use diligent efforts to prepare and file the registration statement on
Form S-3, to which this prospectus forms a part, with the SEC for the purposes
of registering the resale of such shares and to list such shares on the Nasdaq
National Market. Certain other holders of our Common Stock, including former
holders of our Series A Convertible Preferred Stock, previously have been
granted demand and piggy-back registration rights, such that such holders will
be entitled to include their shares in this registration
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<PAGE> 14
process and any other such registration process. In addition, in connection with
the December 9, 1998 issuance of warrants to purchase our Common Stock, as
further described in "Description of Capital Stock," we granted the holders of
such warrants demand registration rights with respect to the shares of Common
Stock issuable upon exercise of such warrants.
Following the successful completion of this registration and listing
processes, the additional shares of DG Systems' Common Stock registered
hereunder will be freely tradable in the public market, subject to volume
limitations applicable to affiliates of DG Systems. The Registration Statement
to which this Prospectus forms a part registers approximately 16,201,761 shares
of our Common Stock, including shares of Common Stock issued upon conversion of
our former Series A Convertible Preferred Stock. Sales of a substantial number
of additional shares in the public market could seriously harm the market price
of DG System's Common Stock and could impair our future ability to raise capital
through the sale of its equity securities.
EXPANSION INTO INTERNATIONAL MARKETS
Although our long-term plans include expansion of our operations to
Europe and Asia, we do not at present have network operating center personnel
experienced in operating in these locations. Telecommunications standards in
foreign countries differ from those in the United States and may require us to
incur substantial costs and expend significant managerial resources to obtain
any necessary regulatory approvals and to comply with differing equipment
interface and installation standards promulgated by regulatory authorities of
those countries. Changes in government policies, regulations and
telecommunications systems in foreign countries could require our products and
services to be redesigned, causing product and service delivery delays that
could seriously harm our operating results. Our ability to successfully enter
these new markets will depend, in part, on our ability to attract personnel with
experience in these locations and to attract partners with the necessary local
business relationships. However, we cannot assure you that our products and
services will achieve market acceptance in foreign countries. Our inability to
successfully establish and expand our international operations may also limit
our ability to obtain significant international revenues and could seriously
harm our business, operating results and financial condition. Furthermore,
international business is subject to a number of country-specific risks and
circumstances, including
- different tax laws,
- difficulties in expatriating profits,
- currency exchange rate fluctuations, and
- the complexities of administering business abroad.
Moreover, to the extent we increase our international sales, our business,
operating results and financial condition could be seriously harmed by these
risks and circumstances, as well as by increases in duties, price controls or
other restrictions on foreign currencies, and trade barriers imposed by foreign
governments, among other factors.
POSSIBLE VOLATILITY OF SHARE PRICE
The trading prices of our Common Stock may be subject to wide
fluctuations in response to a number of factors, including:
- variations in operating results,
- changes in earnings estimates by securities analysts,
- announcements of extraordinary events such as litigation or
acquisitions,
- announcements of technological innovations or new products or
services by DG Systems or our competitors, and
- general economic, political and market conditions.
In addition, stock markets have experienced extreme price and volume trading
volatility in recent years. This volatility has had a substantial effect on the
market prices of the securities of many high technology companies for reasons
frequently unrelated to the operating performance of specific companies. These
broad market fluctuations may adversely affect the market price of our Common
Stock.
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<PAGE> 15
USE OF PROCEEDS
DG Systems will not receive any proceeds from the sale of the Shares by
the Selling Shareholders.
14
<PAGE> 16
SELLING SHAREHOLDERS
The following table sets forth certain information, as of December
10, 1998, with respect to the number of shares of Common Stock owned by the
Selling Shareholders and as adjusted to give effect to the sale of the Shares
offered hereby. The Shares are being registered to permit public secondary
trading of the Shares, and the Selling Shareholders may offer the Shares for
resale from time to time. See "Plan of Distribution."
The Shares being offered by the Selling Shareholders were acquired
from the Company pursuant to private placement transactions effected on August
14, 1998 and December 9, 1998 and certain other private placement transactions.
The Shares were issued pursuant to the exemption from the registration
requirements of the Securities Act provided by Section 4(2) thereof. Each of the
Selling Shareholders represented to the Company that it was acquiring the Shares
for investment and with no present intention of distributing the Shares.
The Company has filed with the Commission, under the Securities Act,
a Registration Statement on Form S-3, of which this Prospectus forms a part,
with respect to the resale of the Shares from time to time on the Nasdaq
National Market or in privately-negotiated transactions. The Company has agreed
to use commercially reasonable efforts to keep such Registration Statement
effective for the lesser of until the date as to which all of the Shares may be
sold by the holders of such Shares without registration in a single transaction
pursuant to Rule 144(k) or until all Shares have been sold.
The Shares offered by this Prospectus may be offered from time to
time by the Selling Shareholders named below:
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned After the Offering
------------------------ ------------------------
Number of Number of Shares Number of
Name and Address of Selling Shareholder Shares Percent(1) Being Offered Shares Percent(1)
- --------------------------------------- --------- ---------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Entities and individuals affiliated with East River 446,428 1.7% 446,428 -- *
Ventures(2)
645 Madison Avenue
New York, NY 10022
Scott K. Ginsburg(3) 4,004,819 15.3% 3,634,419 370,400 1.4%
17340 Club Hill Drive
Dallas, TX 75248
GE Capital Information Technology Solutions 933,521 3.6% 933,521 -- *
700 Canal Street
Stamford, CT 06902
Entities affiliated with Integral Capital Partners(4) 1,475,448 5.6% 1,475,448 -- *
2750 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned After the Offering
------------------------ ------------------------
Number of Number of Shares Number of
Name and Address of Selling Shareholder Shares Percent(1) Being Offered Shares Percent(1)
- --------------------------------------- --------- ---------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Entities and individuals affiliated with Glynn 646,113 2.5% 566,113 80,000 *
Capital Management and Crown Advisors, Ltd.(5)
Bldg. 4, Suite 235
3300 Sand Hill Road
Menlo Park, CA 94205
London Merchant Securities plc(6) 1,783,105 6.8% 495,605 1,287,500 4.9%
Carlton House
33 Robert Adam Street
London W1M 5AH
ENGLAND
Entities affiliated with Damson-Samberg Capital 4,746,178 18.2% 4,746,178 -- *
Management, Inc.(7)
354 Pequot Avenue
Southport, CT 06490-0760
Entities affiliated with Sierra Ventures(8) 1,895,464 7.3% 1,895,464 -- *
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
Entities affiliated with Technology Crossover 2,785,659 10.7% 1,967,859 817,800 %
Ventures(9)
56 Main Street
Suite 210
Millburn, NJ 07041
Jeffrey Weinstein 1,250 * 1,250 -- *
800 Keeler Avenue
Berkeley, CA 94708
Bert L. Zaccaria 39,476 * 39,476 -- *
3000 Sand Hill Road
Bldg. 3, Suite 210
Menlo Park, CA 94025
========== ==== ========== ========= ===
TOTAL 18,757,461 71.8% 16,201,761 2,555,700 9.8%
</TABLE>
- ----------------
* Less than 1%
16
<PAGE> 18
1 Based upon 26,129,525 shares of Common Stock outstanding on December 10,
1998. This Registration Statement shall also cover any additional shares
of Common Stock which become issuable in connection with the shares
registered for sale hereby by reason of any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt
of consideration which results in an increase in the number of the
Company's outstanding shares of Common Stock.
2 Includes 357,142 shares held in the name of Victory Ventures LLC, all of
which are being offered hereby, and 89,286 shares held in the name of ERV
Partners LLC, all of which are being offered hereby. Walter Carozza and
Alexander Paluch are the co-Presidents and Managing Members of Victory
Ventures LLC and ERV Partners LLC, respectively, and share voting and
dispositive power with respect to the shares owned by such entities. Mr.
Carozza and Mr. Paluch disclaim beneficial ownership of such shares except
to the extent of their pecuniary interests therein.
3 Includes 2,920,134 shares held in the name of Moon Doggie Family
Partnership. Scott K. Ginsburg, the Company's Chairman and Chief Executive
Officer, is the sole general partner of Moon Doggie Family Partnership.
4 Includes 653,597 shares held in the name of Integral Capital Partners III,
L.P., all of which are being offered hereby, 147,674 shares held in the
name of Integral Capital Partners International III, L.P., all of which
are being offered hereby, 670,751 shares held in the name of Integral
Capital Partners IV, L.P., all of which are being offered hereby, and
3,426 shares held in the name of Integral Capital Partners IV MS Side
Fund, L.P., all of which are being offered hereby. Integral Capital
Management III, L.P. is the sole general partner of Integral Capital
Partners III, L.P. and the sole investment general partner of Integral
Capital Partners International III, L.P. Integral Capital Management IV,
LLC is the sole general partner of Integral Capital Partners IV, L.P. ICP
MS Management IV, LLC is the sole general partner of Integral Capital
Partners IV MS Side Fund, L.P. Integral Capital Management III, L.P.,
Integral Capital Management IV, LLC and ICP MS Management IV, LLC disclaim
beneficial ownership of such shares except to the extent of their
pecuniary interests therein.
5 Includes 178,572 shares held in the name of Glynn Ventures IV, L.P., all
of which are being offered hereby, 79,166 shares held in the name of Glynn
Ventures III, L.P., all of which are being offered hereby, 100,605 shares
held in the name of Crown-Glynn Associates, L.P., all of which are being
offered hereby, and 207,770 shares held in the name of Crown Associates
III, L.P., all of which are being offered hereby. John W. Glynn, Jr. is
the general partner of Glynn Ventures IV, L.P. and Glynn Ventures III,
L.P. Crown-Glynn Partners, L.P. is the general partner of Crown-Glynn
Associates, L.P. Crown Partners III, L.P. is the general partner of Crown
Associates III, L.P. Crown-Glynn Advisors Ltd. is an investment advisor to
Crown-Glynn Associates, L.P. and Crown Associates III, L.P. Each of the
foregoing affiliated entities may be deemed to beneficially own such
shares. Also includes 80,000 shares owned directly by John W. Glynn, Jr.,
none of which are being offered hereby and with respect to which Mr. Glynn
has sole voting and dispositive power.
6 Includes 560,824 shares held in the name of Lion Investments Limited,
130,824 of which are being offered hereby, and 1,222,281 shares held in
the name of Westpool Investment Trust plc, 364,781 of which are being
offered hereby. Lion Investments Limited and Westpool Investment Trust plc
are wholly-owned subsidiaries of London Merchant Securities plc.
7 Includes 348,201 shares held in the name of Pequot Offshore Private Equity
Fund, Inc., all of which are being offered hereby, 2,750,173 shares held
in the name of Pequot Private Equity Fund, L.P., all of which are being
offered hereby, 823,902 shares held in the name of Pequot International
Fund, Inc., all of which are being offered hereby, and 823,902 shares held
in the name of Pequot Partners Fund, L.P., all of which are being offered
hereby. Dawson-Samberg Capital Management, Inc. is the investment advisor
to Pequot Offshore Private Equity Fund, Inc., Pequot Private Equity Fund,
L.P., Pequot International Fund, Inc. and Pequot Partners Fund, L.P. and
may be deemed to beneficially own all of such shares. Lawrence D. Lenihan,
Jr., a member of the Company's Board of Directors, is a fund manager of
Dawson-Samberg Capital Management, Inc. Mr. Lenihan disclaims beneficial
ownership of all shares held or beneficially owned by or through such
entity.
8 Includes 1,817,792 shares held in the name of Sierra Ventures IV, all of
which are being offered hereby, and 77,672 shares held in the name of
Sierra Ventures IV International, all of which are being offered hereby.
SV Associates IV, L.P. is the sole general partner of Sierra Ventures IV
and Sierra Ventures IV International. Jeffrey M. Drazan, a member of the
Company's Board of Directors, is a general partner of SV Associates IV,
L.P. Mr. Drazan disclaims beneficial ownership of all shares held or
beneficially owned by or through such entity except to the extent of his
pecuniary interest therein arising from general partnership interests
therein.
9 Includes 875,890 shares held in the name of Technology Crossover Ventures,
L.P., 607,820 of which are being offered hereby, 69,365 shares held in the
name of Technology Crossover Ventures, C.V., 48,135 of which are being
offered hereby, 28,599 shares held in the name of TCV II, V.O.F., 20,387
of which are being offered hereby, 880,402 shares held in the name of
Technology Crossover Ventures II, L.P., 627,582 of which are being offered
hereby, 676,864 shares held in the
17
<PAGE> 19
name of TCV II (Q), L.P., 482,493 of which are being offered hereby,
120,118 shares held in the name of TCV II Strategic Partners, L.P., 85,624
of which are being offered hereby, and 134,421 shares held in the name of
Technology Crossover Ventures II, C.V., 95,818 of which are being offered
hereby. Technology Crossover Management, L.L.C. is the sole general partner
of Technology Crossover Ventures, L.P. and the sole investment general
partner of Technology Crossover Ventures, C.V. Technology Crossover
Management II, L.L.C. is the sole general partner of Technology Crossover
Ventures II, L.P., TCV II (Q), L.P. and TCV II Strategic Partners, L.P. and
the sole investment general partner of TCV II, V.O.F. and Technology
Crossover Ventures, C.V. Technology Crossover Management, L.L.C. and
Technology Crossover Management II, L.L.C. disclaim beneficial ownership of
such shares except to the extent of their pecuniary interests therein.
18
<PAGE> 20
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering. The Shares
offered hereby may be sold by the Selling Shareholders from time to time in
transactions in the over-the-counter market, on the Nasdaq National Market, in
privately negotiated transactions, or by a combination of such methods of sale,
at fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at negotiated prices. The
Selling Shareholders may effect such transactions by selling the Shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Shareholders
and/or the purchasers of the Shares for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have 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.
The Selling Shareholders and any broker-dealers or agents that
participate with the Selling Shareholders in the distribution of the Shares may
under certain circumstances be deemed to be "underwriters" within the meaning of
the Securities Act, and any commissions received by them and any profit realized
on the resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Shareholders may
agree to indemnify such broker-dealers against certain liabilities, including
liabilities under Securities Act.
Any broker-dealer participating in such transactions as agent may
receive commissions from the Selling Shareholders (and, if it acts as agent for
the purchase of such Shares, from such purchaser). Broker-dealers may agree with
the Selling Shareholders to sell a specified number of Shares at a stipulated
price per share, and, to the extent such a broker-dealer is unable to do so
acting as agent for the Selling Shareholders, to purchase as principal any
unsold Shares. Brokers-dealers who acquire Shares as principal may thereafter
resell such Shares from time to time in transactions (which may involve crosses
and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, on the Nasdaq National Market, in privately negotiated
transactions, or by a combination of such methods of sale, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices, and in
connection with such resales may pay to or receive from the purchasers of such
Shares commissions computed as described above.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Shares may not simultaneously engage
in market making activities with respect to the Common Stock of the Company for
a period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, the Selling Shareholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Shareholders.
The Selling Shareholders will pay all commissions and other expenses
associated with the sale of Shares by it. The Shares offered hereby are being
registered pursuant to contractual obligations of the Company, and the Company
has agreed to bear certain expenses in connection with the registration and sale
of the Shares being offered by the Selling Shareholders. The Company has not
made any underwriting arrangements with respect to the sale of Shares offered
hereby.
19
<PAGE> 21
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000
shares of Common Stock, without par value, and 15,000,000 shares of Preferred
Stock, without par value.
COMMON STOCK
On August 14, 1998, the Company issued 4,589,287 shares of Common
Stock to certain existing institutional and closely associated investors in a
private placement transaction pursuant to the terms of the Common Stock
Subscription Agreement, effective August 14, 1998. These additional shares of
Common Stock were issued at $2.80 per share, and the total proceeds to the
Company, net of issuance costs, was approximately $12.7 million.
On December 9, 1998, the Company issued 3,843,212 shares of Common
Stock to certain other existing institutional and closely associated investors,
2,920,134 of which were issued pursuant to the terms of that certain Common
Stock Subscription Agreement, dated September 29, 1998, at a price per share of
$2.7396, and 923,078 of which were issued pursuant to that certain Common Stock
and Warrant Subscription Agreement, dated December 9, 1998, at a price per share
of $3.25. These gross proceeds to the Company from the issuance of these
additional shares was approximately $11 million.
As of December 10, 1998, there were 26,129,525 shares of Common Stock
outstanding that were held of record by approximately 143 shareholders. The
holders of Common Stock are entitled to one vote per share on all matters to be
voted upon by the shareholders. Subject to preferences that may be applicable to
any outstanding Preferred Stock, the holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of the liquidation, dissolution, or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and nonassessable, and the shares of Common Stock
to be issued upon completion of this offering will be fully paid and
nonassessable.
PREFERRED STOCK
The Company's Articles of Incorporation authorizes 15,000,000 shares
of Preferred Stock. The Board of Directors has the authority to issue the
Preferred Stock in one or more series and to fix the rights, preferences,
privileges, and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences, and the number of shares constituting any series or the
designation of such series, without further vote or action by the shareholders.
The issuance of Preferred Stock may have the effect of delaying, deferring, or
preventing a change in control of the Company without further action by the
shareholders and may adversely affect the voting and other rights of the holders
of Common Stock. The issuance of Preferred Stock with voting and conversion
rights may adversely affect the voting power of the holders of Common Stock,
including the loss of voting control to others. At present, the Company has no
plans to issue any of the Preferred Stock.
CONVERSION OF SERIES A CONVERTIBLE PREFERRED STOCK
All 4,950,495 outstanding shares of the Company's Series A
Convertible Preferred Stock were converted to Common Stock pursuant to the terms
of the Series A Preferred Stock Conversion Agreement effective August 12, 1998.
Each holder of Series A Preferred Stock received 1.1 shares of Common Stock for
each Preferred share converted. The conversion of the Series A Convertible
Preferred Stock to Common Stock at a ratio greater than 1:1 resulted in a deemed
dividend equal to the value of the additional shares granted to the holders of
Series A Convertible Preferred Stock on the date of conversion. This deemed
dividend will be considered a reduction in earnings in the computation of basic
and diluted earnings per share for the quarter ended September 30, 1998.
20
<PAGE> 22
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
Certain provisions of law and the Company's Articles of Incorporation
and Bylaws could make the acquisition of the Company by means of a tender offer,
a proxy contest, or otherwise and the removal of incumbent officers and
directors more difficult. These provisions are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the Company to first negotiate
with the Company. The Company's Articles of Incorporation also provide that so
long as the Company shall have a class of stock registered pursuant to the
Securities Exchange Act of 1934, as amended, shareholder action can be taken
only at an annual or special meeting of shareholders and may not be taken by
written consent.
REGISTRATION RIGHTS
As of December 10, 1998, the holders of up to approximately
20,000,000 shares of Common Stock (assuming no exercise of options outstanding)
(the "Registrable Securities") were entitled to certain rights with respect to
the registration of such shares under the Securities Act. Under the terms of the
agreements between the Company and the holders of such Registrable Securities,
if the Company proposed to register any of its securities under the Securities
Act, either for its own account or, for certain such holders, for the account of
other security holders exercising registration rights, such holders are entitled
to notice of such registration and are entitled to include shares of such Common
Stock therein. Additionally, certain of such holders are also entitled to
certain demand registration rights pursuant to which they may require the
Company to file a registration statement under the Securities Act at its expense
with respect to their shares of Common Stock, and the Company is required to use
its reasonable efforts to effect such registration. Further, certain such
holders may require the Company to file additional registration statements on
Form S-3. All of these registration rights are subject to certain conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares included in such registration.
WARRANTS
In connection with certain financing and leasing transactions made in
1993 through 1996, the Company issued warrants to purchase at fair market value
an aggregate of 35,000 shares of Series A Preferred Stock with exercise prices
at a range of $2.00 to $3.00 per share in January 1993 and April 1994, 71,174
shares of Series B Preferred Stock at an exercise price of $2.70 per share in
October 1994, 60,000 shares of Series C Preferred Stock at an exercise price of
$6.00 per share in June 1995 and 67,500 shares of Series D Preferred Stock at an
exercise price of $8.00 per share in January 1996. On December 31, 1995,
warrants to purchase 15,000 shares of Series C Preferred Stock were canceled
pursuant to the terms of the warrant agreement. A total of 29,161 of warrants to
purchase Series A Preferred Stock were exercised in return for surrender of the
remaining 5,839 warrants upon the closing of the Company's initial public
offering in February 1996. The remaining warrants to purchase Series B, Series C
and Series D Preferred Stock, which expire on the earlier of ten years from the
date of the related warrant agreement or five years from the effective date of
the Company's initial public offering, were converted into warrants to purchase
Common Stock of the Company as per the conversion terms of the respective
agreements.
In December 1996, the Company issued warrants to purchase 9,351
shares of Common Stock at an exercise price of $8.02 per share in connection
with an increase in an existing lease line. The warrants expire in 2006.
In January 1997, the Company completed an agreement to finance an
additional $6.0 million of equipment purchases through a long-term credit
facility which can be drawn against through December 31, 1997. In December 1997,
the term of the agreement was extended to June 30, 1998. Warrants to purchase
112,500 shares of the Company's Common Stock at an exercise price of $8.00 per
share were issued to the lender per the terms of the agreement and the warrants
were subsequently repriced at an exercise price of $4.42 per share in return for
the extension of the agreement.
In December 1997, warrants to purchase 186,652 shares of the
Company's Common Stock were issued at an exercise price of $4.42 in connection
with a new loan agreement to finance an additional $2 million of equipment
21
<PAGE> 23
purchases and $3.5 million of working capital through a long-term facility which
can be drawn upon through December 1998.
In December 1998, warrants to purchase 1,921,607 shares of the
Company's Common Stock were issued at an exercise price of $3.25 in connection
with the private placement of Common Stock to certain existing institutional and
other closely associated investors. The warrants are not exercisable for a
minimum of one year and, thereafter, their exercisability is based on the
performance of the Company's Common Stock. The warrants expire in December 2001.
In December 1998, a warrant to purchase 1,548,460 shares of the
Company's Common Stock were issued at an exercise price of $3.25 in connection
with the appointment of the Company's new Chairman of the Board and Chief
Executive Officer. The warrant is not exercisable for a minimum of one year and,
thereafter, its exercisability is based on the performance of the Company's
Common Stock and the continued service of the Company's Chief Executive Officer.
The warrant expires in December 2003.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
22
<PAGE> 24
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California.
EXPERTS
The consolidated financial statements incorporated in this Prospectus
by reference to the Annual Report on Form 10-K of Digital Generation Systems,
Inc. for the year ended December 31, 1997 have been so incorporated in reliance
on the report of Arthur Andersen LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
No dealer, salesperson, Selling Stockholders or any other person has
been authorized to give any information or make any representations in
connection with this offering 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 by the Company, the Selling Stockholders or any other
person. This Prospectus does not constitute an offer to sell or a solicitation
of any offer to buy any of the securities offered hereby by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date of the Prospectus.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information filed by
the Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the Commission's following Regional
Offices: Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and New York Regional Office, 7 World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
at prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004. Reports, proxy
and information statements and other information filed electronically by the
Company with the Commission are available at the Commission's world wide web
site at http://www.sec.gov.
The Company has filed with the Commission a registration statement on
Form S-3 (herein, together with all amendments, exhibits and schedules, referred
to as the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with the Commission, with respect to the Shares offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, and to
which reference is hereby made. Statements contained in this Prospectus
regarding the contents of any contract or other document to which reference is
made 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 its entirety by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of such material may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon the payment of the fees prescribed by the Commission.
23
<PAGE> 25
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the
Commission pursuant to the Exchange Act are hereby incorporated by reference in
this Prospectus and made a part hereof:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997, filed with the Commission on March 31, 1998.
2. The Company's Quarterly Report on Form 10-Q, dated March 31,
1998, filed with the Commission on May 15, 1998.
3. The Company's Quarterly Report on Form 10-Q, dated June 30,
1998, filed with the Commission on August 14, 1998.
4. The Company's Quarterly Report on Form 10-Q, dated September 30,
1998, filed with the Commission on November 16, 1998.
5. The Company's Current Report on Form 8-K, dated January 8, 1998,
filed with the Commission on January 26, 1998.
6. The Company's Current Report on Form 8-K, dated September 25,
1998, filed with the Commission on October 13, 1998, and as
amended November 12, 1998.
7. The Company's Current Report on Form 8-K, dated December 3,
1998, filed with the Commission on December 3, 1998.
8. The Company's Current Report on Form 8-K, dated December 11,
1998, filed with the Commission on December 28, 1998.
9. The company's Definitive Proxy Statement as filed with the
Commission on March 31, 1998.
10. The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A as filed with the Commission
on January 26, 1996.
All documents filed with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in any document 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 such statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus.
Upon written or oral request, the Company will provide without charge
to each person to whom a copy of the Prospectus is delivered a copy of the
documents incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference
herein). Requests should be directed to Investor Relations, Digital Generation
Systems, Inc., 875 Battery Street, San Francisco, California 94111, (415)
276-6600.
-----------------
DGS, Digital Generation Systems and the DG logo are trademarks of the
Company. All other trademarks or trade names referred to herein are the property
of their respective owners.
-----------------
24
<PAGE> 26
16,201,761 SHARES
DIGITAL GENERATION SYSTEMS, INC.
COMMON STOCK
-----------
, 1999
-----------
<PAGE> 27
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The fees and expenses incurred by the Registrant in connection with
the offering are payable by the Registrant and, other than filing fees, are
estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........ $24,631.74
Legal Fees and Expenses.................................... *
Accounting Fees and Expenses............................... *
Printing and Engraving Expenses............................ *
Transfer Agent and Registrar Fees.......................... *
Miscellaneous.............................................. *
Total................................................. *
</TABLE>
- -----------
* To be filed by amendment
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 317 of the California Corporations Code authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit indemnification (including
reimbursement of expenses incurred) under certain circumstances for liabilities
arising under the Securities Act. The Registrant's Restated Articles of
Incorporation, as amended, and Amended Bylaws provide for indemnification of its
directors, officers, employees and other agents to the maximum extent permitted
by the California Corporations Code. In addition, the Company has entered into
Indemnification Agreements with each of its directors and officers.
The Registrant also provides liability insurance for its directors
and officers which provides for coverage against loss from claims made against
directors and officers in their capacity as such, including liabilities under
the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS.
The exhibits listed in the Exhibit Index as filed as part of this
Registration Statement.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
4.1(a) Restated Articles of Incorporation of the Registrant.
4.2(b) Bylaws of the Registrant, as amended to date.
4.3(c) Amendment and Restatement No. 5 of the Registration Rights Agreement,
dated July 14, 1997, by and among the Registrant and certain of its
securityholders.
4.4(c) Amended and Restated Registration Rights Agreement, dated December 9,
1998, by and among the Registrant and certain of its securityholders.
4.5(c) Registration Rights Agreement, dated December 9, 1998, by and among
the Registrant and certain of its securityholders.
4.6(b) Form of Common Stock Certificate.
5.1(d) Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
23.1(c) Consent of Independent Public Accountants
</TABLE>
II-1
<PAGE> 28
<TABLE>
<S> <C>
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP (included in the opinion filed as Exhibit 5.1).
23.3(c) Consent of Independent Chartered Accountants.
24.1 Power of Attorney (reference is made to the signature page of this
Registration Statement).
</TABLE>
(a) Incorporated by reference from the Company's Quarterly Report on Form
10-Q filed May 3, 1996, as amended.
(b) Incorporated by reference from the Company's Registration Statement
on Form S-1 (Registration No. 33-80203).
(c) Filed herewith.
(d) To be filed by amendment.
-------------------
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to include
any prospectus required by section 10(a)(3) of the Securities Act; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
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
II-2
<PAGE> 29
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.
II-3
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in San Francisco, State of California, on the 31st day of
December, 1998.
DIGITAL GENERATION SYSTEMS, INC.
By: /s/ Scott K. Ginsburg
----------------------------------
Scott K. Ginsburg
Chairman of the Board and
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints Scott K. Ginsburg, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to the Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that each said attorneys-if-fact
and agents or any of them or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Scott K. Ginsburg Chairman of the Board and Chief Executive Officer December 31, 1998
- ------------------------------------ (Principal Executive Officer)
Scott K. Ginsburg
/s/ Henry W. Donaldson President, Chief Operating Officer and Director December 30, 1998
- ------------------------------------
Henry W. Donaldson
/s/ Paul W. Emery, II Chief Financial Officer (Principal Financial and December 30, 1998
- ------------------------------------ Accounting Officer)
Paul W. Emery, II
/s/ Kevin R. Compton Director December 30, 1998
- ------------------------------------
Kevin R. Compton
/s/ Jeffrey M. Drazan Director December 30, 1998
- ------------------------------------
Jeffrey M. Drazan
/s/ Richard H. Harris Director December 30, 1998
- ------------------------------------
Richard H. Harris
/s/ Lawrence D. Lenihan, Jr. Director December 30, 1998
- ------------------------------------
Lawrence D. Lenihan, Jr.
</TABLE>
<PAGE> 31
<TABLE>
<S> <C> <C>
/s/ Leonard S. Matthews Director December 30, 1998
- ------------------------------------
Leonard S. Matthews
</TABLE>
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
4.1(a) Restated Articles of Incorporation of the Registrant.
4.2(b) Bylaws of the Registrant, as amended to date.
4.3(c) Amendment and Restatement No. 5 of the Registration Rights Agreement,
dated July 14, 1997, by and among the Registrant and certain of its
securityholders.
4.4(c) Amended and Restated Registration Rights Agreement, dated December 9,
1998, by and among the Registrant and certain of its securityholders.
4.5(c) Registration Rights Agreement, dated December 9, 1998, by and among
the Registrant and certain of its securityholders.
4.6(b) Form of Common Stock Certificate.
5.1(d) Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
23.1(c) Consent of Independent Public Accountants.
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP (included in the opinion filed as Exhibit 5.1).
23.3(c) Consent of Independent Chartered Accountants.
24.1 Power of Attorney (reference is made to the signature page of this
Registration Statement).
</TABLE>
(a) Incorporated by reference from the Company's Quarterly Report on Form
10-Q filed May 3, 1996, as amended.
(b) Incorporated by reference from the Company's Registration Statement
on Form S-1 (Registration No. 33-80203).
(c) Filed herewith.
(d) To be filed by amendment.
-------------------
<PAGE> 1
EXHIBIT 4.3
DIGITAL GENERATION SYSTEMS, INC.
AMENDMENT AND RESTATEMENT NO. 5
TO
RIGHTS AGREEMENT
July 14, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Registration Rights 3
1.1 Certain Definitions 3
1.2 Company Registration 4
1.3 Form S-3 Registration 6
1.4 Expenses of Registration 7
1.5 Registration Procedures 8
1.6 Indemnification 8
1.7 Information by Holder 11
1.8 Rule 144 Reporting 11
1.9 Assignment of Registration Rights 11
1.10 Termination of Registration Rights 12
Section 2. Miscellaneous 12
2.1 Assignment 12
2.2 Third Parties 12
2.3 Governing Law 12
2.4 Counterparts 12
2.5 Notices 12
2.6 Severability 13
2.7 Amendments and Waivers 13
2.8 Effect of Amendment or Waiver 13
2.9 Rights of Holders 13
2.10 Delays or Omissions 13
2.11 Coordination of Prior Rights and Effectiveness 14
</TABLE>
<PAGE> 3
DIGITAL GENERATION SYSTEMS, INC.
AMENDMENT AND RESTATEMENT NO. 5
TO
RIGHTS AGREEMENT
This AMENDMENT AND RESTATEMENT NO. 5 TO RIGHTS AGREEMENT (this "Rights
Agreement") is entered into as of July 14, 1997, by and among Digital Generation
Systems, Inc., a California corporation (the "Company"), purchasers of the
Company's Series A Convertible Preferred Stock listed on Exhibit A as New Rights
Holders and IndeNet, Inc., a Delaware corporation ("IndeNet" and, collectively,
with the purchasers of the Company's Series A Convertible Preferred Stock, the
"New Rights Holders") and certain securityholders of the Company listed on
Exhibit A attached hereto signing a counterpart signature page hereto (the
"Existing Rights Holders").
R E C I T A L S
A. On November 9, 1992, in connection with the Series A Preferred Stock
Purchase Agreement, the Company, certain holders of the Company's Series A
Preferred Stock, and John Armstrong, Ron Denman, Dan Carrico and Randy Morser
(the "Founders") entered into an Amendment and Restatement No. 1 to Rights
Agreement (the "Restatement No. 1"), which conferred upon "Shareholders" (as
that term is defined therein) certain rights including registration rights and
rights of first offer, and conferred upon certain Founders and holders of Series
A Preferred rights to co-sale.
B. On December 4, 1992, in connection with IAI Venture Partner II's
("IAI") (now "Coral Partners II") purchase of the Company's Series A Preferred
Stock pursuant to the Series A Preferred Stock Purchase Agreement dated December
4, 1992, the Company and certain parties to the Restatement and IAI entered into
the First Amendment to the Restatement No. 1 (the "First Amendment"), which
provided that IAI would be considered a "Shareholder" under the Restatement No.
1 to the same extent as if it had been one of the original parties to the
Restatement No. 1.
C. On January 22, 1993, in connection with the issuance to Phoenix
Leasing Incorporated ("Phoenix") of a warrant to purchase Series A Preferred
Stock (the "Series A Warrant") pursuant to an equipment lease agreement, the
Company and certain parties to the Restatement No. 1 and Phoenix entered into
the Second Amendment to the Restatement No. 1 (the "Second Amendment"), which
provided that Phoenix would be considered a "Shareholder" under the Restatement
No. 1 to the same extent as if it had been one of the original parties to the
Restatement No. 1.
<PAGE> 4
D. On March 10, 1994, in connection with the sale of Series B Preferred
Stock pursuant to the Series B Preferred Stock Purchase Agreement dated March
10, 1994, the Company, certain parties to the Restatement No. 1 and the holders
of Series B Preferred Stock (the "Series B Holders"), entered into the Third
Amendment (the "Third Amendment") which provided that the Series B Holders would
be considered "Shareholders" under the Restatement No. 1 to the same extent as
if they had been original parties to the Restatement No. 1.
E. On November 14, 1994, in connection with the sale of additional shares
of Series B Preferred Stock (the "New Series B Shares") to certain existing
Series B Holders, pursuant to the Amendment No. 1 to the Series B Stock Purchase
Agreement, the Company and the Existing Rights Holders entered into an Amendment
and Restatement No. 2 to Rights Agreement (the "Restatement No. 2"), amending
and restating the Restatement No. 1, as amended, to extend certain rights,
including registration rights and rights of first offer, to the New Series B
Shares.
F. On November 18, 1994, in connection with the sale of Series C
Preferred Stock pursuant to the Series C Preferred Stock Purchase Agreement
dated November 18, 1994, the Company, certain parties to the Restatement No. 2
and the holders of Series C Preferred Stock (the "Series C Holders") entered
into an Amendment and Restatement No. 3 to Rights Agreement (the "Restatement
No. 3") amending and restating the Restatement No. 2 to confer upon the Series C
Holders certain rights, including registration rights and rights of first offer.
G. On July 27, 1995, in connection with the sale of Series D Preferred
Stock pursuant to the Series D Preferred Stock Purchase Agreement dated [July
27, 1995], the Company, certain parties to the Restatement No. 3 and the holders
of Series D Preferred Stock (the "Series D Holders") entered into an Amendment
and Restatement No. 4 to Rights Agreement (the "Restatement No. 4") amending and
restating the Restatement No. 3 to confer upon the Series D Holders certain
rights, including registration rights and rights of first offer.
H. On December 6, 1995, in connection with the initial firm commitment
underwritten offering of the Common Stock of the Company, certain parties to the
Restatement No. 4 signed a letter (the "Waiver Letter") transmitting a Waiver,
Consent and Election (the "Waiver") waiving certain registration rights and
certain rights of first offer and co-sale.
I. The Company and the Existing Rights Holders, constituting the holders
of a majority of the Registrable Securities (as that term is defined in the
Restatement No. 4), in order to induce the New Rights Holders to purchase shares
in the Company, desire to enter into a new agreement, which will supersede the
Restatement No. 4, in its entirety, containing substantially similar provisions,
eliminating the provisions of the Restatement No. 4. waived pursuant to the
Waiver Letter and the Waiver, and granting registration rights to the holders of
Series A Convertible Preferred Stock purchased by them pursuant to that certain
Preferred Stock Purchase Agreement dated July [14], 1997 between the Company and
such holders of Series A Convertible Preferred Stock, as well as shares of
Common Stock issued to IndeNet (the "IndeNet Shares") pursuant to that certain
Stock Purchase Agreement (the "IndeNet Agreement") between the Company and
IndeNet dated July [14], 1997. The holders of the Company's securities listed
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on Exhibit A attached hereto are hereinafter referred to as "Shareholders" and
individually as a "Shareholder".
The parties hereto agree as follows:
Section 1. Registration Rights.
1.1 Certain Definitions. As used in this Rights Agreement, the following
definitions shall apply:
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Conversion Stock" means the shares of the Common Stock issuable or
issued upon conversion of the Shares, if applicable.
"Founders Securities" means the shares of the Common Stock held by the
Founders.
"Holder" means any holder of outstanding Registrable Securities;
provided, however, that for all purposes under this Section, the holder of any
Shares shall be deemed to be the Holder of the Registrable Securities into which
such Shares are then convertible.
"Initiating Holders" means Holders of not less than 50% of the
Registrable Securities.
"Registrable IndeNet Shares" means (i) from the date of this Agreement
until January 31, 1998, none of the IndeNet Shares, (ii) from February 1, 1998
through May 31, 1998, 100,000 of the IndeNet Shares, (iii) from June 1, 1998
until the date prior to the first anniversary of the date of this Agreement, an
aggregate of 200,000 of the IndeNet Shares, and (iv) from the first anniversary
of this Agreement and thereafter all of the IndeNet Shares.
"Registrable Securities" means (i) the Conversion Stock, (ii) the
Warrant Stock, (iii) the Registrable IndeNet Shares, and (iv) any shares of
Common Stock of the Company issued upon a dividend, recapitalization, or similar
event with respect to the Conversion Stock, the Registrable IndeNet Shares or
the Warrant Stock, provided, however, that Registrable Securities shall not
include any shares of Common Stock which have been registered and sold to the
public, any shares sold pursuant to Rule 144 (or successor rule) promulgated by
the Commission or Registrable Securities sold by a person in a transaction in
which rights under this Rights Agreement are not assigned.
"Registration Expenses" means all expenses incurred by the Company in
complying with Sections 1.2 and 1.3, including, without limitation, all
registration, qualification, filing fees, printing expenses, escrow fees, fees
and disbursements of counsel for the Company, blue sky fees and expenses, and
the expense of any special audits incident to or required by any
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such registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company), all reasonable fees
and disbursements of a single counsel designated by the Holders of a majority of
the Registrable Securities to be registered for any Holder. Registration
Expenses shall not include selling commissions, discounts or other compensation
paid to underwriters or other agents or brokers to effect the sale.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, as shall be in effect at the time.
"Shares" means shares of the Company's Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series A Convertible Preferred Stock issued to the Shareholders and Common Stock
issued to IndeNet pursuant to the IndeNet Agreement.
"Warrant Stock" shall mean shares of Common Stock issuable upon
conversion of Shares of Series A Preferred Stock issuable upon exercise of
warrants issued by the Company to Phoenix.
The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective amendments filed or
required to be filed), and the declaration or ordering of the effectiveness of
such registration statement.
1.2 Company Registration.
(a) Notice of Registration. If at any time or from time to time, the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than a
registration relating solely to employee benefit plans, or a registration
relating solely to a Rule 145 transaction, the Company shall:
(i) promptly give to each Holder and to each Founder written
notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities and Founders Securities specified in a
written request by each Holder and by each Founder received by the Company
within fifteen (15) days after the Company mails such written notice, subject to
the provisions below.
(b) Underwriting. The right of any Holder and any Founder to
registration pursuant to this Section 1.2 shall be conditioned upon the
participation by such Holder or such Founder in such underwriting, if any, and
the inclusion of the Registrable Securities of such Holder or the Founders
Securities of such Founder in the underwriting to the extent provided herein.
All Holders and all Founders proposing to distribute their securities through
such
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underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company. Notwithstanding any other provision of this Section 1.2, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities and Founders Securities to be included in such
registration. The Company shall so advise all Holders and all Founders
distributing their securities through such underwriting, and there shall be
excluded from such registration and underwriting, to the extent necessary to
satisfy such limitation, first shares held by the Founders, then shares held by
Holders, then shares which the Company wishes to register for its own account.
As among the Holders as a group, the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among the Holders, in proportion, as nearly as practicable, to the respective
amounts of securities held by such Holders at the time of filing the
registration statement, provided that in no event shall the number of
Registrable Securities included in any such offering be reduced below 25% of the
total number of securities included in such offering. To facilitate the
allocation of shares in accordance with the above provisions, the Company may
round the number of shares allocated to any Holder or to any Founder to the
nearest 100 shares.
If any Holder or Founder disapproves of the terms of any such
underwriting, such Holder or Founder may elect to withdraw therefrom by written
notice to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration. The
Registrable Securities so withdrawn shall also be withdrawn from registration,
and such Registrable Securities shall not be transferred in a public
distribution prior to sixty (60) days after the effective date of such
registration, or such other shorter period of time as the underwriters may
require. If, by the withdrawal of such Registrable Securities, a greater number
of Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities in the registration the right to include additional Registrable
Securities in the same proportion and manner used in determining the underwriter
limitation in this Section 1.2(b).
(c) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 1.2
prior to the effectiveness of such registration whether or not any Holder or any
Founder has elected to include securities in such registration.
(d) Amendment of Founders Rights. Any amendment to this Section 1.2
which adversely affects the rights of the Founders shall be effected only by an
amendment to this Agreement by the written consent of the holders of a majority
of the Common Stock held by the Founders, by a majority in interest of the
Shareholders and by the Company.
(e) No Limit on Piggyback Registrations. There is no limitation on
the number of times that a Holder or Founder may make a request for registration
pursuant to this Section 1.2.
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1.3 Form S-3 Registration. In case the Company shall receive from a Holder
or Holders a written request that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to an amount of the
Registrable Securities owned by such Holder or Holders for which the anticipated
aggregate offering price would be at least $500,000, the Company shall:
(a) promptly give written notice of the proposed registration and any
related qualification or compliance to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 20
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification, or compliance pursuant to this Section 1.3:
(1) if Form S-3 is not available for such offering by the
Holders;
(2) if the Company shall furnish to the Holders a certificate
signed by the president of the Company stating that in the good faith judgment
of the board of directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such Form S-3 Registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more than
sixty (60) days after receipt of the initiating request of the Holder or Holders
under this Section 1.3; provided, however, that the Company shall not utilize
this right more than once in any twelve (12) month period;
(3) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Section 1.3; provided, however, that
in any event, even if two such registrations will have occurred within such
twelve month period, IndeNet may, on one occasion on or after February 1, 1998,
but prior to the first anniversary of this Agreement, make a written request
that the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to the Registrable IndeNet Shares; provided further
that the expected proceeds of such offering shall be at least $500,000, in which
case (i) no other Registrable Securities may participate in such registration
without the approval of IndeNet and the Company, and (ii) the 60 day deferral
permitted pursuant to subsection 1.3 (b)(2) shall not apply;
(4) in any jurisdiction in which the Company would be required
to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act.
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Subject to the foregoing, the Company shall effect such registration,
qualification, or compliance (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky (except that in no event shall the Company be required to
qualify to do business as a foreign corporation in any jurisdiction where it
would not, but for the requirements of this paragraph (d), be required to be so
qualified, to subject itself to taxation in any such jurisdiction or to consent
to general service of process in any such jurisdiction) or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
covering the Registrable Securities and other securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Holders. Registrations effected pursuant to this Section 1.3 shall not be
counted as registrations effected pursuant to Section 1.2.
If the registration to be effected pursuant to this Section 1.3 is to be an
underwritten public offering, it shall be managed by an underwriter or
underwriters acceptable to the Company selected by a majority in interest of the
Holders requesting registration. In such event, the right of any Holder to
registration pursuant to this Section 1.3 shall be conditioned upon the
participation by such Holder in such underwriting and the inclusion of the
Registrable Securities of such Holder in the underwriting to the extent provided
herein. If the managing underwriter so selected determines that marketing
factors require a limitation of the number of shares to be underwritten, the
managing underwriter may limit the Registrable Securities held by such Holders
to be included in such registration, provided that no limitation shall apply to
the Registrable IndeNet Shares. The Company shall so advise such Holders, and
the number of shares of Registrable Securities that may be included in the
registration shall be allocated among such Holders in proportion to the
respective amounts of Registrable Securities which would be held by each of such
Holders at the time of filing of the registration statement; provided however,
that on one occasion, in respect of a registration request pursuant to this
Section 1.3 with expected gross proceeds to the Holders of more than
$15,000,000, at the written request of the holders of the Series A Convertible
Preferred, the number of shares of Registrable Securities that may be included
in such offering shall be allocated (x) first to IndeNet, (y) thereafter to the
holders of the Series A Convertible Preferred Shares for up to 75% of the total
offering among such Series A Preferred Stock Holders in proportion to the
respective amounts of Registrable Securities which would be held by each of such
Series A Preferred Stock Holders at the time of filing of the registration
statement, with the remainder allocated to all other Holders of Registrable
Securities in proportion to the respective amounts of Registrable Securities
which would be held by each of such Holders at the time of filing of the
registration statement. Any Registrable Securities that are so excluded from the
underwriting shall be excluded from the registration. As used throughout this
Section the term "Form S-3" shall be deemed to include any equivalent successor
form for registration pursuant to the Securities Act.
1.4 Expenses of Registration. All Registration Expenses incurred in
connection with the registration, qualification or compliance pursuant to
Sections 1.2 and 1.3 shall be borne by the Company.
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1.5 Registration Procedures. If and whenever the Company is required by
the provisions of this Section 1 to use its best efforts to effect promptly the
registration of Registrable Securities, the Company shall:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become and remain effective as provided herein
(provided, however, that before filing a registration statement or prospectus or
any amendments or supplements thereto, or comparable statements under securities
or blue sky laws of any jurisdiction, the Company will furnish to one counsel
for the Holders participating in the planned offering (selected by the majority
of the Registrable Securities) and the underwriters, if any, copies of all such
documents proposed to be filed (including all exhibits thereto), which documents
will be subject to the reasonable review and reasonable comment of such counsel,
and, with respect to demand registration rights pursuant to Section 1.3 hereof,
the Company shall not file any registration statement or amendment thereto or
any prospectus or supplement thereto to which the holders of a majority of the
Registrable Securities covered by such registration statement or the
underwriters, if any, shall reasonably object in writing).
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
current and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of all Registrable Securities covered by such
registration statement, including such amendments and supplements as may be
necessary to reflect the intended method of disposition of the prospective
seller or sellers of such Registrable Securities, but for no longer than 180
days subsequent to the effective date of such registration in the case of a
registration statement on Form S-1 (or any similar form of registration
statement required to set forth substantially identical information) and for no
longer than 120 days in the case of a registration statement on Form S-3.
(c) Furnish to each prospective seller of Registrable Securities such
number of copies of a registration statement and the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents, as such seller and the underwriter, if any, may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities of such seller.
(d) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
1.6 Indemnification. In the event any of the Registrable Securities or
Founders Securities are included in a registration statement under this Section
1:
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(a) The Company will indemnify and hold harmless (to the fullest
extent permitted by law) each Holder, each of its officers and directors and
partners and such Holder's separate legal counsel and independent accountants,
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, and each Founder, and each underwriter, if any, and each person
who controls any underwriter within the meaning of Section 15 of the Securities
Act, against all expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, preliminary, final or summary prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers and
directors, fiduciaries, employees, general and limited partners and such
Holders' separate legal counsel and independent accountants and each person
controlling such Holder, each Founder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses as
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder, such Founder or underwriter and stated to be
specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected and each Founder will, if Founders Securities held
by such Founder are included in the securities as to which such registration,
qualification or compliance is being affected, indemnify the Company, each of
its directors and officers and its legal counsel and independent accountants,
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of Section 15 of the Securities Act, and each other such
Holder, each of its officers and directors and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, and each other
such Founder, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, persons, such Founders,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
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omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder or such
Founder, as the case may be, and stated to be specifically for use therein;
provided, however, that the obligations of each Holder and each Founder
hereunder shall be limited to an amount equal to the net proceeds to each such
Holder of Registrable Securities sold as contemplated herein and the proceeds to
each such Founder of Founders Securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1.6(c) except to the extent that the failure
to give such notice is materially prejudicial to an Indemnifying Party's ability
to defend such action and provided further, that the Indemnifying Party shall
not assume the defense for matters as to which there is a conflict of interest
or separate and different defenses but shall continue to be liable for the costs
of such defense. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnifying Party shall be liable for indemnification hereunder
with respect to any settlement or consent to judgment, in connection with any
claim or litigation to which these indemnification provisions apply, that has
been entered into without the prior consent of the Indemnifying Party (which
consent will not be unreasonably withheld).
(d) If the indemnification provided for in this Section is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying the Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party with
respect to such loss, liability, claim, damage or expense in the proportion that
is appropriate to reflect the relative fault of the Indemnifying Party and the
Indemnified Party in connection with the statements or omissions that resulted
in such loss, liability, claim, damage or expense, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of material fact or the omission
to state a material fact relates to information supplied by the Indemnifying
Party or by the Indemnified Party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
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(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company, Holders and Founders under this
Section 1.6 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.7 Information by Holder. Each Holder of Registrable Securities and each
Founder holding Founders Securities included in any registration shall furnish
to the Company such information regarding such Holder or such Founder and the
distribution proposed by such Holder or such Founder as the Company may request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.8 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, the
Company shall use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, beginning ninety
(90) days after (i) the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public, (ii) the
Company registers a class of securities under Section 12 of the Securities
Exchange Act of 1934, as amended, or (iii) the Company issues an offering
circular meeting the requirements of Regulation A under the Securities Act;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act of 1934, as amended (at any time after it has become subject to
such reporting requirements);
(c) Furnish to any Holder promptly upon request a written statement
as to its compliance with the reporting requirements of Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Securities Exchange Act of 1934 (at
any time after it has become subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the possession of
or reasonably obtainable by the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder to
sell any such securities without registration.
1.9 Assignment of Registration Rights. The rights to cause the Company to
register securities granted under this Section may be assigned to a transferee
or assignee in connection with the transfer or assignment of shares of
Registrable Securities only if such shares represent at least 1% of the
outstanding shares of the Company's Common Stock (assuming conversion of all
Preferred Stock to Common Stock) on the date of such assignment.
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1.10 Termination of Registration Rights. No Holder shall be entitled to
exercise any right provided for in this Section 1 after five (5) years following
the consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its securities to the general public.
Section 2. Miscellaneous.
2.1 Assignment. Except as otherwise expressly provided herein, the terms
and conditions of this Rights Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto.
2.2 Third Parties. Nothing in this Rights Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Rights Agreement, except as expressly
provided herein.
2.3 Governing Law. This Rights Agreement shall be governed by and construed
under the laws of the State of California in the United States of America.
2.4 Counterparts. This Rights Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.5 Notices.
(a) All notices, requests, demands and other communications under
this Rights Agreement or in connection herewith shall be given to or made upon
the respective parties as follows:
To Digital Generation
Systems, Inc.: Digital Generation Systems, Inc.
150 Spear Street, Suite 1850
San Francisco, CA 94015
Telephone: (415) 546-6600
Telecopy: (415) 546-6601
Attention: Secretary
To the Shareholders: at their respective addresses as set forth in the stock
purchase agreement pursuant to which their Shares were
purchased.
(b) All notices, requests, demands and other communications given or
made in accordance with the provisions of this Rights Agreement shall be in
writing, and shall be sent by airmail, return receipt requested, or by telex or
telecopy (facsimile) with confirmation of receipt, and shall be deemed to be
given or made when receipt is so confirmed.
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(c) Any party may, by written notice to the other, alter its address
or respondent, and such notice shall be considered to have been given ten (10)
days after the airmailing, telexing or telecopying thereof.
2.6 Severability. If one or more provisions of this Rights Agreement are
held to be unenforceable under applicable law, portions of such provisions, or
such provisions in their entirety, to the extent necessary, shall be severed
from this Rights Agreement, and the balance of this Rights Agreement shall be
enforceable in accordance with its terms.
2.7 Amendments and Waivers. Except as set forth in Section 1.2(d), any term
of this Rights Agreement may be amended and the observance of any term of this
Rights Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written consent of the
Company and the holders of a majority of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, each Founder
and the Company.
2.8 Effect of Amendment or Waiver. Each Shareholder and its successors and
assigns acknowledge that by the operation of Section 2.7 hereof the holders of a
majority of the outstanding Registrable Securities, acting in conjunction with
the Company, will have the right and power to diminish or eliminate all rights
pursuant to this Rights Agreement, provided that any consent, waiver,
modification or amendment shall apply equally to all Holders.
2.9 Rights of Holders. Each holder of Registrable Securities shall have the
absolute right to exercise or refrain from exercising any right or rights that
such holder may have by reason of this Rights Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Rights Agreement, and such holder shall not incur any liability to
any other holder of any securities of the Company as a result of exercising or
refraining from exercising any such right or rights.
2.10 Delays or Omissions. No delay or omission to exercise any right, power
or remedy accruing to any party to this Rights Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this Rights
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Rights Agreement, must be made in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Rights Agreement, or by law or otherwise afforded to
any holder, shall be cumulative and not alternative.
13
<PAGE> 16
2.11 Coordination of Prior Rights and Effectiveness. The Existing Rights
Holders hereby agree that the execution and delivery of this Rights Agreement is
an amendment and restatement of the Restatement No. 4 and the rights contained
in the Restatement No. 4 shall be null and void as of the execution hereof by
(a) the holders of a majority of the Registrable Securities, (b) the Company,
and (c) each of the New Rights Holders, whereupon Restatement No. 4 shall be
superseded in its entirety by the terms of this Rights Agreement.
14
<PAGE> 17
Signature page to Amendment and Restatement No. 5 to Rights Agreement
IN WITNESS WHEREOF, the parties hereto have executed this Rights Agreement
as of the day and year first above written.
COMPANY:
DIGITAL GENERATION SYSTEMS, INC.,
a California corporation
By:
--------------------------------------------------
Henry Donaldson, Chief Executive Officer
EXISTING RIGHTS HOLDERS:
COWEN INVESTMENT PARTNERSHIP XXII
By:
--------------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
NEEDHAM EMERGING GROWTH PARTNERS, L.P.
By:
--------------------------------------------------
Raj Rajaratnam, Managing General Partner
CROWN-GLYNN ASSOCIATES,
a Limited Partnership
By:
--------------------------------------------------
John W. Glynn, Jr., General Partner
CROWN ASSOCIATES III,
A Limited Partnership
15
<PAGE> 18
By:
--------------------------------------------------
John W. Glynn, Jr., General Partner
THE CROWN TRUST
By:
--------------------------------------------------
Lisa Solomon, Trust Administrator
SIERRA VENTURES IV, a
California Limited Partnership
By its General Partner,
WENDELL TOBKIN & DRAZAN ASSOCIATES,
a California Limited Partnership
By:
--------------------------------------------------
Jeff Drazan, General Partner
SIERRA VENTURES IV INTERNATIONAL,
a California Limited Partnership
By its General Partner,
WENDELL TOBKIN & DRAZAN ASSOCIATES,
a California Limited Partnership
By:
--------------------------------------------------
Jeff Drazan, General Partner
16
<PAGE> 19
Signature page to Amendment and Restatement No. 5 to Rights Agreement
AT&T VENTURE COMPANY, L.P.
By:
--------------------------------------------------
Neal Douglas, General Partner
KLEINER, PERKINS, CAUFIELD & BYERS VI, L.P.
By:
--------------------------------------------------
Brook Byers, General Partner
KPCB VI FOUNDER'S FUND
By:
--------------------------------------------------
Brook Byers, General Partner
MAYFIELD ASSOCIATES FUND II
By:
--------------------------------------------------
Michael Levinthal, General Partner
MAYFIELD VII
By:
--------------------------------------------------
Michael Levinthal, General Partner
17
<PAGE> 20
Signature page to Amendment and Restatement No. 5 to Rights Agreement
CORAL PARTNERS II, a limited partnership
By:
--------------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
- ------------------------------------------------------
B. J. Cassin
- ------------------------------------------------------
Peter A. Howley
- ------------------------------------------------------
Roger L. Headrick
- ------------------------------------------------------
Linda L. Watchmaker
DAIN BOSWORTH INC.
Custodian FBO Yuval Almog SEP/IRA
By:
--------------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
GLYNN VENTURES III, L.P.
By:
--------------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
18
<PAGE> 21
Signature page to Amendment and Restatement No. 5 to Rights Agreement
FOUNDERS:
- ------------------------------------------------------
John Armstrong
- ------------------------------------------------------
Ronald Denman
NEW RIGHTS HOLDERS
INDENET, INC.
By:
--------------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
PEQUOT PRIVATE EQUITY FUND, L.P.
By:
--------------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
PEQUOT PARTNERS FUND, L.P.
By:
--------------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
Signature page to Amendment and Restatement No. 5 to Rights Agreement
PEQUOT OFFSHORE PRIVATE EQUITY FUND, INC.
By:
--------------------------------------------------
19
<PAGE> 22
Name:
-------------------------------------------
Title:
-------------------------------------------
PEQUOT INTERNATIONAL FUND, INC.
By:
--------------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
GENERAL ELECTRIC CAPTIAL
INFORMATION TECHNOLOGY SOLUTIONS
By:
--------------------------------------------------
Name:
-------------------------------------------
Title:
-------------------------------------------
TECHNOLOGY CROSSOVER VENTURES, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management, L.L.C.,
Its: General Partner
By:
--------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
Signature page to Amendment and Restatement No. 5 to Rights Agreement
TECHNOLOGY CROSSOVER VENTURES, C.V.
a Netherlands Antilles Limited Partnership
By: Technology Crossover Management, L.L.C.,
Its: Investment General Partner
By:
--------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
20
<PAGE> 23
TCV II, V.O.F.
a Netherlands Antilles General Partnership
By: Technology Crossover Management II, L.L.C.,
Its: Investment General Partner
By:
--------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TECHNOLOGY CROSSOVER VENTURES II, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: General Partner
By:
--------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
Signature page to Amendment and Restatement No. 5 to Rights Agreement
TCV II (Q), L.P.
a Delaware General Partnership
By: Technology Crossover Management II, L.L.C.,
Its: General Partner
By:
--------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV II STRATEGIC PARTNERS, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: General Partner
By:
--------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
21
<PAGE> 24
TECHNOLOGY CROSSOVER VENTURES II, C.V.
a Netherlands Antilles Limited Partnership
By: Technology Crossover Management II, L.L.C.,
Its: Investment General Partner
By:
--------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
INTEGRAL CAPITAL PARTNERS III, L.P.
By: Integral Capital Management III, L.P.,
Its: General Partner
By:
--------------------------------------------------
Name: Pamela K. Hagenah
Title: a General Partner
Signature page to Amendment and Restatement No. 5 to Rights Agreement
INTEGRAL CAPITAL PARTNERS
INTERNATIONAL III, L.P.
By: Integral Capital Management III, L.P.,
Its: Investment General Partner
By:
--------------------------------------------------
Name: Pamela K. Hagenah
Title: a General Partner
22
<PAGE> 25
EXHIBIT A
NEW RIGHTS HOLDERS
IndeNet, Inc.
Pequot Private Equity Fund, L.P.
Pequot Partners Fund, L.P.
Pequot Offshore Private Equity Fund, Inc.
Pequot International Fund, Inc.
General Electric Information Technology Solutions
Technology Crossover Ventures, L.P.
Technology Crossover Ventures, C.V.
TCV II, V.O.F.
Technology Crossover Ventures II, L.P.
TCV II (Q), L.P.
TCV II Strategic Partners, L.P.
Technology Crossover Ventures II, C.V.
Integral Capital Partners III, L.P.
Integral Capital Partners International III, L.P.
EXISTING RIGHTS HOLDERS
Cowen Investment Partnership XXII
Needham Emerging Growth Partners, L.P.
Crown-Glynn Associates, a Limited Partnership
Crown Associates III, A Limited Partnership
The Crown Trust
Sierra Ventures IV
Sierra Ventures IV International
AT&T Venture Company, L.P.
Kleiner, Perkins, Caufield & Byers VI, L.P.
KPCB VI Founder's Fund
Mayfield Associates Fund II
Mayfield VII
Coral Partners II (formerly "IAI Venture Partners II")
B.J. Cassin
Peter A. Howley
Linda L. Watchmaker
Dain Bosworth Inc
Custodian FBO Yuval Almog SEP/IRA
Glynn Ventures III, L.P.
23
<PAGE> 26
FOUNDERS
John Armstrong
Daniel Carrico
Ronald Denman
Randall Morser
SHAREHOLDERS
Yuval Almog
John Armstrong
AT&T Venture Company, L.P.
Daniel A. Carrico and Esther Lerner Carrico, JTWROS
B.J. Cassin
Coral Partners II (formerly "IAI Venture Partners II")
Dain Bosworth Inc.
Custodian FBO Yuval Almog SEP/IRA
Ronald J. Denman
Henry Donaldson
Patrick Dugan
Barbara Evans
James C. Fensel
Ted Gettelmen
Glynn Ventures III, L.P.
John B. Goodrich
Linda Graf
H. Irving Grousbeck
Mark C. Headrick
Peter A. Howley
Kleiner Perkins Caufield & Byers VI
David Koehler
KPC&B Founder's Fund
Herb Levitin
Mayfield Associates Fund
Mayfield VII
Edward F. Mclaughlin
Peter H. McNerney
Randall E. Morser
Dennis and Amy Peck
Phoenix Leasing Incorporated
24
<PAGE> 27
William Shideler
Sierra Ventures IV
Sierra Ventures IV International
Robin Solis
Stanford University
Erick Steinberg
Carrie-Ann Stern
Mort Topfer
Dave Wallach
Linda L. Watchmaker
Jeffrey Weinstein
WS Investment Company 92B
Bert Zaccaria
25
<PAGE> 1
EXHIBIT 4.4
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made as of the 9th day of December, 1998, by and between
Digital Generation Systems, Inc., a California corporation (the "COMPANY"), and
each of the persons listed on Schedule A hereto (collectively, the "HOLDERS").
RECITALS
WHEREAS, the Holders possess certain registration rights granted pursuant
to that certain Registration Rights Agreement, dated November 25, 1998, between
the Company and the persons listed on the Schedule of Investors attached thereto
(the "Prior Agreement");
WHEREAS, the Company issued 4,589,287 shares of its Common Stock (the
"Private Placement Shares") to certain of the Holders in a private placement
transaction pursuant to those certain Common Stock Subscription Agreements (the
"August Subscription Agreements") entered into in July 1998 and August 1998 and
effective as of August 14, 1998;
WHEREAS, the Company issued 2,920,134 shares of its Common Stock (the
"Ginsburg Common Shares") to an investor in a private placement transaction
pursuant to that certain Common Stock Subscription Agreement dated September 29,
1998 (the "September Subscription Agreement") and effective as of December 9,
1998;
WHEREAS, the Company issued warrants to purchase up to an additional
3,008,527 shares of its Common Stock (the "Ginsburg Warrant Shares") to such
investor pursuant to that certain Warrant No. 1 to Purchase Common Stock and
Warrant No. 2 to Purchase Common Stock, each dated December 9, 1998 (the
"Ginsburg Warrants");
WHEREAS, the Company issued 923,078 shares of its Common Stock (the
"Investor Common Shares" and to together with the Ginsburg Common Shares, the
"Common Shares") and warrants (the "Investor Warrants" and together with the
Ginsburg Warrants, the "Warrants") to purchase up to an additional 461,540
shares of its Common Stock (the "Investor Warrant Shares" and together with the
Ginsburg Warrant Shares, the "Warrant Shares") to certain investors in a private
placement transaction pursuant to that certain Common Stock and Warrant Purchase
Agreement dated December 9, 1998 (the "Purchase Agreement"); and
WHEREAS, in order to induce such investors to invest funds in the Company
and to enter into the September Subscription Agreement, the Warrants and the
Purchase Agreement, the Company and the Holders hereby agree to waive their
rights under the Prior Agreement, and the Holders and the Company hereby agree
that this Agreement shall govern the rights of the Holders to cause the Company
to register certain shares of Common Stock issued or issuable to such persons,
and certain other matters as set forth herein;
<PAGE> 2
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "ACT" means the Securities Act of 1933, as amended.
(b) The term "1934 ACT" shall mean the Securities Exchange Act
of 1934, as amended.
(c) The terms "REGISTER," "REGISTERED," and "REGISTRATION" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(d) The term "REGISTRABLE SECURITIES" means the Private
Placement Shares and any Common Stock of the Company issued as a dividend or
other distribution with respect to the Private Placement Shares.
(e) The term "RULE 144" shall mean Rule 144 promulgated under
the Act, as amended, or any similar successor rule thereto that may be
promulgated by the SEC.
(f) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Registration.
(a) The Company shall use diligent efforts to prepare and file,
on or before December 31, 1998, a registration statement on Form S-3 and any
related qualification or compliance with respect to all of the Registrable
Securities owned by the Holders so as to permit or facilitate the sale and
distribution of the Holder's Registrable Securities.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to effect any such registration, qualification or compliance, pursuant
to this Section 1.2:
(i) if Form S-3 is not available for such offering by the
Holders;
(ii) if the Company shall furnish to the Holders a
certificate signed by the president of the Company stating that in the good
faith judgment of the board of directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such Form S-3 Registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a
2
<PAGE> 3
period of not more than sixty (60) days after such date, provided that such
right to defer filing shall be exercised by the Company not more than once in
any twelve (12) month period; and
(iii) in any jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Act.
(c) Subject to the foregoing, the Company shall effect such
registration, qualification, or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky (except that in no event shall the
Company be required to qualify to do business as a foreign corporation in any
jurisdiction where it would not, but for the requirements of this paragraph (c),
be required to be so qualified, to subject itself to taxation in any such
jurisdiction or to consent to general service of process in any such
jurisdiction) or other state securities laws and appropriate compliance with
applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) covering the Registrable Securities
and other securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holders.
1.3 Obligations of the Company. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, the Company shall:
(a) Prepare and file with the SEC, a registration statement on Form
S-3 with respect to such Registrable Securities and use all commercially
reasonable efforts to cause such registration statement to become effective,
and, subject to the provisions below, use commercially reasonable efforts to,
keep such registration statement effective until the earlier of (i) the date on
which all of the Registrable Securities held by each Holder can be sold without
registration in a single transaction pursuant to Rule 144(k) of the Act or (ii)
the date on which all of the Registrable Securities have been sold to the
public. If at any time after a registration statement becomes effective, the
Company advises the Holders in writing that the registration statement shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, or any prospectus comprising a part of such registration
statement shall contain any untrue statement of a material fact or 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 or the occurrence or existence of any pending corporate
development that, in the reasonable discretion of the Company, makes it
appropriate to suspend the availability of the registration statement and the
related prospectus, the Company shall give notice to the Holders that the
availability of the registration statement is suspended and the Holders shall
suspend any further sale of Registrable Securities pursuant to the registration
statement until the Holders have been informed in writing that the registration
statement is available. The Company shall be entitled to exercise its right to
suspend the availability of the registration statement for a period of not more
than sixty (60) days in any three (3) month period, not to exceed in the
aggregate ninety (90) days in any twelve (12) month period.
3
<PAGE> 4
(b) Subject to subsection 1.3(a), prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders requesting registration such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(d) Use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
1.4 Information from Holders. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of a Holder that such Holder shall furnish
to the Company the information requested on Appendix 1.4 hereto, which shall
include such information regarding itself, himself or herself, the Registrable
Securities held by it, him or her, and the intended method of disposition of
such securities, and such other information as shall be reasonably requested by
the Company and required to effect the registration of the Registrable
Securities.
1.5 Expenses of Registration. All expenses of the Holders, except
underwriting discounts (if any) or commissions, including (without limitation)
all registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company shall be borne by the Company;
provided, however, that the Company shall not be required to pay any
professional fees incurred by any Holders.
1.6 No Assignment of Registration Rights. The registration rights provided
hereunder are not assignable.
1.7 Indemnification. With respect to all Registrable Securities included
in the registration statement referred to in this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners or officers, directors and shareholders
of each Holder, and each person, if any, who controls such Holder within the
meaning of the Act or the 1934 Act, against any losses, claims, damages or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or any state securities laws, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively, a "VIOLATION"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration
4
<PAGE> 5
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) any omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any state
securities laws or any rule or regulation promulgated under the Act, the 1934
Act or any state securities laws; and the Company will reimburse each such
Holder or controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection l.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder or controlling person; provided
further, however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Holder, or any
person controlling such Holder, from whom the person asserting any such losses,
claims, damages or liabilities purchased shares in the offering, if a copy of
the prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of such Holder to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the shares to
such person, and if the prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage or liability.
(b) To the extent permitted by law, each Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Act, any other Holder selling securities in such
registration statement and any controlling person of any such other Holder,
against any losses, claims, damages or liabilities (joint or several) to which
any of the foregoing persons may become subject, under the Act, the 1934 Act or
any state securities laws, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by Holder expressly for use in connection with such registration; and
Holder will reimburse any person intended to be indemnified pursuant to this
subsection l.7(b), for any legal or other expenses reasonably incurred by such
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection l.7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld), provided that in no event shall any indemnity
under this subsection l.7(b) exceed the net proceeds from the offering received
by Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.7 of notice of the commencement of any action (including any governmental
action),
5
<PAGE> 6
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 1.7, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding.
(d) If the indemnification provided for in this Section 1.7 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) The obligations of each Holder under this Section 1.7 shall
survive the completion of any offering of Registrable Securities in the
registration statement under this Section 1, and otherwise.
1.8 Termination of Registration Rights. The registration rights provided
in this Section 1 shall terminate with respect to a particular Holder if the
Registrable Securities owned by such Holder have been held for the necessary
holding period under Rule 144 and all shares of Registrable Securities held by
such Holder may be sold pursuant to Rule 144 in any three (3) month period. Upon
the termination of registration rights pursuant to this Section 1.8, the Company
shall have the right to withdraw the registration statement, or any portion
thereof, covering the Registrable Securities.
2. Miscellaneous.
2.1 General. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
6
<PAGE> 7
2.2 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
2.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
2.5 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon delivery by
confirmed facsimile transmission, nationally recognized overnight courier
service, or upon deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties.
2.6 Expenses. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Holders holding a majority of the
Registrable Securities.
2.8 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
2.9 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and is intended to supersede in their entirety any and all
registration rights granted to the Holders in connection with the purchase of
the Private Placement Shares pursuant to Paragraph 2 of Annex 1 to the August
Subscription Agreements, including, without limitation, the requirement set
forth in Section 7 the August Subscription Agreements that the Company
undertake, within sixty (60) days of the closing of the round in which the
Private Placement Shares were purchased, to use its diligent efforts to prepare
and file a registration statement with the SEC on Form S-3 registering such
shares under the Act.
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<PAGE> 8
2.10 Shareholder Approval. The Holders hereby consent to the issuance of
the Common Shares, the Warrants and the Warrant Shares pursuant to the terms set
forth in the Warrants, the September Subscription Agreement and the Purchase
Agreement. The Holders further agree to take any and all actions reasonably
necessary to evidence and effect such consent, including, but not limited to,
executing any necessary shareholder consents or proxies and voting all voting
securities of the Company then held by such Holder at any shareholder meeting in
favor of approving the aforementioned issuances.
2.11 Prior Agreement. The Prior Agreement is hereby superseded in its
entirety and shall be of no further force or effect.
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<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
DIGITAL GENERATION SYSTEMS, INC.:
By:
------------------------------------
Henry W. Donaldson
Chief Executive Officer
Address:
Digital Generation Systems, Inc.
875 Battery Street
San Francisco, CA 94111
HOLDERS:
----------------------------------------
Signature
Address:
----------------------------------------
----------------------------------------
SIGNATURE PAGE TO DIGITAL GENERATION SYSTEMS, INC.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
<PAGE> 10
SCHEDULE A
Pequot Offshore Private Equity Fund, Inc.
354 Pequot Avenue
Southport, CT 06490-0760
Pequot Private Equity Fund, L.P.
354 Pequot Avenue
Southport, CT 06490-0760
Pequot International Fund, Inc.
354 Pequot Avenue
Southport, CT 06490-0760
Pequot Partners Fund, L.P.
354 Pequot Avenue
Southport, CT 06490-0760
Scott K. Ginsburg
17340 Club Hill Drive
Dallas, TX 75248
Glynn Ventures IV
Suite 235, Bldg. 4
3300 Sand Hill Road
Menlo Park, CA 94205
Integral Capital Partners IV, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025
Integral Capital Partners IV
MS Side Fund, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025
Lion Investments Limited
Carlton House
33 Robert Adam Street
London W1M 5AH
ENGLAND
<PAGE> 11
Westpool Investment Trust plc
Carlton House
33 Robert Adam Street
London W1M 5AH
ENGLAND
Technology Crossover Ventures, L.P.
56 Main Street
Suite 210
Millburn, NJ 07041
Technology Crossover Ventures, C.V.
56 Main Street
Suite 210
Millburn, NJ 07041
TCV II, V.O.F
56 Main Street
Suite 210
Millburn, NJ 07041
Technology Crossover Ventures II, L.P.
56 Main Street
Suite 210
Millburn, NJ 07041
TCV II (Q), L.P.
56 Main Street
Suite 210
Millburn, NJ 07041
TCV II Strategic Partners, L.P.
56 Main Street
Suite 210
Millburn, NJ 07041
Technology Crossover Ventures II, C.V.
56 Main Street
Suite 210
Millburn, NJ 07041
East River Ventures, L.P.
645 Madison Avenue
New York, NY 10022
<PAGE> 12
APPENDIX 1.4
SHAREHOLDER INFORMATION QUESTIONNAIRE:
All information furnished below by the undersigned for use in the Registration
Statement on Form S-3 is, and on the date such shares registered thereunder,
will be true, correct, and complete in all material respects, and does not, and
on the date on which the undersigned sells such shares, will not, contain any
untrue statement of a material fact or omit to state any material fact necessary
to make such information not misleading. By completing and returning this
information statement, the undersigned hereby consents to the use of his or her
name, address, and share ownership information in the Form S-3 of Digital
Generation Systems, Inc.
A. Date.
Fill in Date: ________________________________________
B. Name. Print:
Print and sign name or names ________________________________________
exactly as name or names appear
on share certificate. If
certificate is held in more than ________________________________________
one name, all must sign.
Sign:
________________________________________
________________________________________
C. Address.
Fill in your address: ________________________________________
________________________________________
________________________________________
<PAGE> 13
<TABLE>
<CAPTION>
D. Stock Owned.
<S> <C> <C>
Fill in number of shares of Common Of Record Beneficially
Stock owned of record and
beneficially. _________________________ ________________________
</TABLE>
E. Aggregate Number of Shares of Common Stock Acquired in Private Placement of
Common Stock to be Registered on Form S-3:
_____________ Shares
F. Status.
The signatory hereto is an individual ( ), partnership ( ), corporation
( ), or other, as more fully described below ( ). The signatory is not acting in
a fiduciary capacity or as a nominee in selling shares in the public offering,
except as indicated below.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
<PAGE> 1
EXHIBIT 4.5
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 9th day of December,
1998, by and between Digital Generation Systems, Inc., a California corporation
(the "COMPANY"), and each of the persons listed on Schedule A hereto
(collectively, the "HOLDERS").
RECITALS
WHEREAS, the Company issued 2,920,134 shares of its Common Stock (the
"Ginsburg Common Shares") to a Holder in a private placement transaction
pursuant to that certain Common Stock Subscription Agreement dated September 29,
1998 (the "Subscription Agreement") and effective as of December 9, 1998;
WHEREAS, the Company issued warrants to purchase up to an additional
3,008,527 shares of its Common Stock (the "Ginsburg Warrant Shares") to such
Holder pursuant to that certain Warrant No. 1 to Purchase Common Stock and
Warrant No. 2 to Purchase Common Stock, each dated December 9, 1998 and issued
to the Moon Doggie Family Partnership (the "Ginsburg Warrants");
WHEREAS, the Company issued 923,078 shares of its Common Stock (the
"Investor Common Shares" and to together with the Ginsburg Common Shares, the
"Common Shares") and warrants (the "Investor Warrants" and together with the
Ginsburg Warrants, the "Warrants") to purchase up to an additional 461,540
shares of its Common Stock (the "Investor Warrant Shares" and together with the
Ginsburg Warrant Shares, the "Warrant Shares") to certain of the Holders in a
private placement transaction pursuant to that certain Common Stock and Warrant
Purchase Agreement dated December 9, 1998 (the "Purchase Agreement"); and
WHEREAS, in order to induce the Holders to invest funds in the Company and
to enter into the Subscription Agreement, the Warrants and the Purchase
Agreement, the Company and the Holders agreed to enter into this Agreement and
hereby agree that this Agreement shall govern the rights of the Holders to cause
the Company to register the Common Shares and the Warrant Shares and certain
other matters as set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "ACT" means the Securities Act of 1933, as amended.
<PAGE> 2
(b) The term "1934 ACT" shall mean the Securities Exchange Act
of 1934, as amended.
(c) The terms "REGISTER," "REGISTERED," and "REGISTRATION" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(d) The term "REGISTRABLE SECURITIES" means the Common Shares
and the Warrant Shares issued or issuable upon exercise of the Warrants and any
Common Stock of the Company issued as a dividend or other distribution with
respect to the Common Shares or the Warrant Shares.
(e) The term "RULE 144" shall mean Rule 144 promulgated under
the Act, as amended, or any similar successor rule thereto that may be
promulgated by the SEC.
(f) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Initial S-3 Registration.
(a) The Company shall use diligent efforts to prepare and file,
on or before December 31, 1998, a registration statement on Form S-3 and any
related qualification or compliance with respect to all of the Common Shares
owned by the Holders so as to permit or facilitate the sale and distribution of
the Holders' Common Shares.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to effect any such registration, qualification or compliance, pursuant
to this Section 1.2:
(i) if Form S-3 is not available for such offering by the
Holders;
(ii) if the Company shall furnish to the Holders a
certificate signed by the chief executive officer or the president of the
Company stating that in the good faith judgment of the board of directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than sixty (60) days after such date,
provided that such right to defer filing shall be exercised by the Company not
more than once in any twelve (12) month period; or
(iii) in any jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration,
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<PAGE> 3
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Act.
(c) Subject to the foregoing, the Company shall effect such
registration, qualification, or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky (except that in no event shall the
Company be required to qualify to do business as a foreign corporation in any
jurisdiction where it would not, but for the requirements of this paragraph (c),
be required to be so qualified, to subject itself to taxation in any such
jurisdiction or to consent to general service of process in any such
jurisdiction) or other state securities laws and appropriate compliance with
applicable regulations issued under the Act and any other governmental
requirements or regulations) covering the Common Shares and other securities so
entitled to be registered as soon as practicable in accordance with the terms
hereof.
1.3 Subsequent S-3 Registration. In case the Company shall receive
from either (x) the Holders of at least forty (40%) of the Warrant Shares issued
or issuable upon exercise of the Investor Warrants or (y) the Holders of at
least fifty percent (50%) of the Warrant Shares issued or issuable upon exercise
of the Warrants, a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Warrant Shares owned by such Holder or Holders,
the Company shall:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) use all commercially reasonable efforts to effect, as soon
as practicable, such registration and all such qualifications and compliances as
may be so requested and as would permit or facilitate the sale and distribution
of all or such portion of such Holders' Warrant Shares as are specified in such
request, together with all or such portion of the Warrant Shares of any other
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company,
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this section 1.3:
(i) if Form S-3 is not available for such offering by the
Holders;
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Warrant Shares and such other securities entitled to inclusion in such
registration (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $1,500,000;
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chief Executive Officer or President of the Company
stating that in the good faith judgment of the board of directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 registration to be effected at such time, in
3
<PAGE> 4
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty (120)
days after receipt of the request of the Holder or Holders under this Section
1.3; provided, however, that the Company shall not utilize this right more than
once in any twelve (12) month period;
(iv) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Agreement; or
(v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Warrant Shares and other securities so
entitled to be registered as soon as practicable after receipt of the request or
requests of the Holders.
1.4 Obligations of the Company. When required under Section 1 to
effect the registration of the Registrable Securities, the Company shall:
(a) Prepare and file with the SEC, a registration statement on
Form S-3 with respect to such Registrable Securities and use all commercially
reasonable efforts to cause such registration statement to become effective,
and, subject to the provisions below, use commercially reasonable efforts to
keep such registration statement effective:
(i) In the event of a registration under Section 1.2
hereof, until the earlier of (A) the date on which all of the Common Shares held
by each Holder can be sold without registration in a single transaction pursuant
to Rule 144(k) of the Act, or (B) the date on which all of the Common Shares
have been sold to the public; or
(ii) In the event of a registration under Section 1.3
hereof, upon the request of the Holders of a majority of the Warrant Shares
registered thereunder, for a period of up to one hundred twenty (120) days or,
for such earlier period as is necessary to complete the distribution
contemplated in the registration statement;
(b) If at any time after a registration statement becomes
effective, the Company advises the Holders in writing that the registration
statement shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, or any prospectus comprising a part of such
registration statement shall contain any untrue statement of a material fact or
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 or the occurrence or existence of any pending corporate
development that, in the reasonable discretion of the Company, makes it
appropriate to suspend the availability of the registration statement and the
related prospectus, the Company shall give notice to the Holders that the
availability of the registration statement is suspended and the Holders shall
suspend any further
4
<PAGE> 5
sale of Registrable Securities pursuant to the registration statement until the
Holders have been informed in writing that the registration statement is
available. The Company shall be entitled to exercise its right to suspend the
availability of the registration statement for a period of not more than sixty
(60) days in any three (3) month period, not to exceed in the aggregate ninety
(90) days in any twelve (12) month period.
(c) Subject to subsections 1.4(a) and (b), prepare and file with
the SEC such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement.
(d) Furnish to the Holders requesting registration such numbers
of copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(e) Use commercially reasonable efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Act.
1.5 Information from Holders. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of a Holder that such Holder shall
furnish to the Company the information requested on Appendix 1.5 hereto, which
shall include such information regarding itself, himself or herself, any of the
Registrable Securities held by it, him or her, and the intended method of
disposition of such securities, and such other information as shall be
reasonably requested by the Company and required to effect the registration of
any of the Registrable Securities.
1.6 Expenses of Registration. All expenses of the Holders, except
underwriting discounts (if any) or commissions, including (without limitation)
all registration, filing and qualification fees, printers' and accounting fees,
and fees and disbursements of counsel for the Company shall be borne by the
Company; provided, however, that the Company shall not be required to pay any
professional fees incurred by any of the Holders.
1.7 Assignment of Registration Rights. The registration rights
provided pursuant to Section 1.2 are not assignable. The rights to cause the
Company to register the Warrant Shares pursuant to Section 1.3 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities that after such assignment or transfer, holds all of the
Warrant Shares issuable or issued upon conversion of the Warrants that were
previously held by such Holder, provided: (a) the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or
5
<PAGE> 6
assignee and the securities with respect to which such registration rights are
being assigned; (b) such transferee or assignee agrees in writing to be bound by
and subject to the terms and conditions of this Agreement; and (c) such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act.
1.8 Indemnification. With respect to all Registrable Securities
included in the registration statement referred to in this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners or officers, directors and
shareholders of each Holder, and each person, if any, who controls such Holder
within the meaning of the Act or the 1934 Act, against any losses, claims,
damages or liabilities (joint or several) to which they may become subject under
the Act, the 1934 Act or any state securities laws, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively, a "VIOLATION"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) any omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities laws or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities laws; and the Company will reimburse each such Holder or controlling
person for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection l.8(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is based upon
a Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder or controlling person; provided further, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Holder, or any person controlling such Holder,
from whom the person asserting any such losses, claims, damages or liabilities
purchased shares in the offering, if a copy of the prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Holder to
such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the shares to such person, and if the
prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.
(b) To the extent permitted by law, each Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers, each
person, if any, who controls the Company within the meaning of the Act, any
other Holder selling securities in such registration statement and any
controlling person of any such other Holder, against any
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<PAGE> 7
losses, claims, damages or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, the 1934 Act or any state
securities laws, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by Holder
expressly for use in connection with such registration; and Holder will
reimburse any person intended to be indemnified pursuant to this subsection
l.8(b), for any legal or other expenses reasonably incurred by such person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection l.8(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder (which consent shall not be unreasonably
withheld), provided that in no event shall any indemnity under this subsection
l.8(b) exceed the net proceeds from the offering received by Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding.
(d) If the indemnification provided for in this Section 1.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
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<PAGE> 8
(e) The obligations of each Holder under this Section 1.8 shall
survive the completion of any offering of Registrable Securities in the
registration statement under this Section 1, and otherwise.
1.9 Termination of Registration Rights. The registration rights
provided in this Section 1 shall terminate with respect to a particular Holder
if all Registrable Securities held by such Holder may be sold pursuant to Rule
144 in any three (3) month period. Upon the termination of registration rights
pursuant to this Section 1.9, the Company shall have the right to withdraw the
registration statement, or any portion thereof, covering Registrable Securities.
2. Miscellaneous.
2.1 General. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
2.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
2.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission, nationally recognized overnight
courier service, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
2.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of
8
<PAGE> 9
(a) the Company, (b) the Holders holding a majority of the Registrable
Securities, not including any Registrable Securities held by Scott K. Ginsburg
or the Moon Doggie Family Partnership, and (c) the Moon Doggie Family
Partnership.
2.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
2.9 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and is intended to supersede in their entirety any and all
registration rights granted to certain of the Holders in connection with the
purchase of the Ginsburg Common Shares pursuant to Paragraph 2 of Annex 1 to the
Subscription Agreement, including, without limitation, the requirement set forth
in Section 7 the Subscription Agreement that the Company undertake, within sixty
(60) days of the closing of the round in which the Ginsburg Common Shares were
purchased, to use its diligent efforts to prepare and file a registration
statement with the SEC on Form S-3 registering such shares under the Act.
2.10 Issuance of Common Shares, Warrants and Warrant Shares. The
Holders hereby consent to the issuance of the Common Shares, Warrants and
Warrant Shares pursuant to the terms set forth in the Warrants, Subscription
Agreement and Purchase Agreement. The Holders further agree to take any and all
actions reasonably necessary to evidence and effect such consent, including, but
not limited to, executing any necessary shareholder consents or proxies and
voting all voting securities of the Company then held by such Holder at any
shareholder meeting in favor of approving the aforementioned issuances.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
DIGITAL GENERATION SYSTEMS, INC.:
By: ____________________________________
Henry W. Donaldson
Chief Executive Officer
Address:
Digital Generation Systems, Inc.
875 Battery Street
San Francisco, CA 94111
HOLDERS:
________________________________________
Signature
Address:
________________________________________
________________________________________
SIGNATURE PAGE TO DIGITAL GENERATION SYSTEMS, INC.
REGISTRATION RIGHTS AGREEMENT
<PAGE> 11
SCHEDULE A
Moon Doggie Family Partnership
17340 Club Hill Drive
Dallas, TX 75248
Integral Capital Partners IV, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025
Integral Capital Partners IV MS Side Fund,
L.P.
2750 Sand Hill Road
Menlo Park, CA 94025
Pequot Private Equity Fund, LP
354 Pequot Avenue
Southport, CT 06490
Pequot Offshore Private Equity Fund, Inc.
354 Pequot Avenue
Southport, CT 06490
Technology Crossover Ventures, L.P.
56 Main Street, Suite 210
Millburn, NJ 07041
Technology Crossover Ventures, C.V.
56 Main Street, Suite 210
Millburn, NJ 07041
TCV II, V.O.F.
56 Main Street, Suite 210
Millburn, NJ 07041
Technology Crossover Ventures II, L.P.
56 Main Street, Suite 210
Millburn, NJ 07041
TCV II (Q), L.P.
56 Main Street, Suite 210
Millburn, NJ 07041
<PAGE> 12
TCV II Strategic Partners, L.P.
56 Main Street, Suite 210
Millburn, NJ 07041
Technology Crossover Ventures II, C.V.
56 Main Street, Suite 210
Millburn, NJ 07041
Lion Investments Limited
Carlton House
33 Robert Adam Street
London W1M 5AH
ENGLAND
Westpool Investment Trust plc
Carlton House
33 Robert Adam Street
London W1M 5AH
ENGLAND
<PAGE> 13
APPENDIX 1.5
SHAREHOLDER INFORMATION QUESTIONNAIRE:
All information furnished below by the undersigned for use in the Registration
Statement on Form S-3 is, and on the date such shares registered thereunder,
will be true, correct, and complete in all material respects, and does not, and
on the date on which the undersigned sells such shares, will not, contain any
untrue statement of a material fact or omit to state any material fact necessary
to make such information not misleading. By completing and returning this
information statement, the undersigned hereby consents to the use of his or her
name, address, and share ownership information in the Form S-3 of Digital
Generation Systems, Inc.
<TABLE>
<S> <C> <C>
A. Date.
Fill in Date: ________________________________________
B. Name. Print:
Print and sign name or names ________________________________________
exactly as name or names appear
on share certificate. If ________________________________________
certificate is held in more than
one name, all must sign.
Sign:
________________________________________
________________________________________
C. Address.
Fill in your address: ________________________________________
________________________________________
________________________________________
</TABLE>
<PAGE> 14
<TABLE>
<S> <C> <C>
D. Stock Owned.
Fill in number of shares of Common Of Record Beneficially
Stock owned of record and
beneficially. _____________________ ________________
</TABLE>
E. Aggregate Number of Shares of Common Stock to be Registered on Form S-3:
_____________ Shares
F. Status.
The signatory hereto is an individual ( ), partnership ( ), corporation
( ), or other, as more fully described below ( ). The signatory is not acting in
a fiduciary capacity or as a nominee in selling shares in the public offering,
except as indicated below.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in the Prospectus constituting part of this Registration Statement
on Form S-3 of our report dated February 4, 1998, on the December 31, 1997
consolidated financial statements of Digital Generation Systems, Inc., which
report appears in Digital Generation Systems, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1997, filed with the Securities and Exchange
Commission on March 31, 1998. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
ARTHUR ANDERSEN LLP
San Francisco, California,
December 22, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
November 14, 1997, except as to the notes 9(c)(i) and 15(b) which are as of
December 24, 1997, on the consolidated financial statements of Digital Courier
International Corporation, which report appears in Digital Generations Systems,
Inc.'s Current Report on Form 8-K/A filed with the Securities and Exchange
Commission on November 12, 1998. Our report includes additional comments for
U.S. readers on Canada - U.S. reporting difference with respect to conditions
that cause substantial doubt as to Digital Courier International Corporation's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of that
uncertainty.
KPMG LLP
Chartered Accountants
Vancouver, Canada
December 30, 1998
