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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY 24, 1999
INTERNATIONAL MICROCOMPUTER
SOFTWARE, INC.
(Exact name of Registrant as specified in its Charter)
CALIFORNIA 0-15949 94-2862863
(State or other jurisdiction of Commission (I.R.S. Employer
incorporation or organization) File No. Identification No.)
75 ROWLAND WAY, NOVATO, CALIFORNIA 94945
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 878-4200
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ITEM 5. OTHER EVENTS
On May 25, 1999, International Microcomputer Software, Inc. ("IMSI") announced
that it had raised $5 million through a private placement of a three-year, 9%
subordinated convertible note, with a fund managed by BayStar Capital, L.P. IMSI
issued a 9% convertible note in the principal amount of $5 million, which is
initially convertible into common stock at $7.59 per share, pursuant to the
Securities Purchase Agreement attached to this Report as an exhibit. In
addition, the investor received warrants to purchase an additional 250,000
shares of common stock at an initial exercise price of $7.59 per share. The
Securities Purchase Agreement provides that IMSI will file a registration
statement covering the possible resale of the common stock. Included in the
terms of the agreement are various other provisions, including certain
anti-dilution provisions and other provisions that may increase the number of
shares issuable upon conversion of the note or exercise of the warrant depending
upon the occurrence of certain events including, among others, the future market
price of the common stock and the terms of certain kinds of future equity
issuances by IMSI.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(C) LISTING OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
4.1 Securities Purchase Agreement dated May 24, 1999, between IMSI and
BayStar Capital, L.P.
4.2 9% Senior Subordinated Convertible Note dated May 24, 1999,
between IMSI and BayStar Capital, L.P.
4.3 Common Stock Purchase Warrant Certificate dated May 24, 1999,
between IMSI and BayStar Capital, L.P.
4.4 Registration Rights Agreement dated May 24, 1999, between IMSI and
BayStar Capital, L.P.
99.1 Press release of IMSI dated May 26, 1999.
</TABLE>
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: June 1, 1999
INTERNATIONAL
MICROCOMPUTER SOFTWARE, INC.
By: ____________________________________
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
4.1 Securities Purchase Agreement dated May 24, 1999, between IMSI and
BayStar Capital, L.P.
4.2 9% Senior Subordinated Convertible Note dated May 24, 1999,
between IMSI and BayStar Capital, L.P.
4.3 Common Stock Purchase Warrant Certificate dated May 24, 1999,
between IMSI and BayStar Capital, L.P.
4.4 Registration Rights Agreement dated May 24, 1999, between IMSI and
BayStar Capital, L.P.
99.1 Press release of IMSI dated May 26, 1999.
</TABLE>
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EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of May
24, 1999, by and between International Microcomputer Software, Inc., a
California corporation, with headquarters located at 75 Rowland Way, Novato,
California 94949 (the "COMPANY"), and BayStar Capital, L.P., a Delaware limited
partnership (the "BUYER").
WHEREAS:
A. The Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 ACT");
B. The Company has authorized the issuance of an aggregate of $5
million of its 9% Senior Subordinated Convertible Notes due May 24, 2002 (the
"CONVERTIBLE NOTES") in the form attached hereto as Exhibit A, which shall be
convertible into shares of the Company's Common Stock, no par value per share
(the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in accordance with
the terms of the Convertible Notes;
C. The Company shall authorize the issuance of Common Stock
Purchase Warrants (the "WARRANTS") in the form attached hereto as Exhibit B, to
acquire shares of Common Stock (such shares of Common Stock issued upon exercise
of the Warrants are hereinafter referred to as the "WARRANT SHARES", and
together with the Convertible Notes, the Warrants and the Conversion Shares, the
"SECURITIES");
D. The Buyer wishes to purchase, upon the terms and conditions
stated in this Agreement, an aggregate of $5 million of the Convertible Notes;
and to receive, in consideration for such purchase, the Warrants, to purchase an
aggregate 250,000 shares of Common Stock, subject to adjustment as provided
therein in the form attached hereto as Exhibit B; and
E. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement in the form attached hereto as Exhibit C (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW, THEREFORE, the Company and the Buyer hereby agree as
follows:
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1. PURCHASE AND SALE OF CONVERTIBLE NOTE.
a. Purchase of Convertible Note. Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 6 and 7 below, the Company
shall issue and sell to the Buyer and the Buyer shall purchase from the Company
a $5 million Subordinated Convertible Note (the "CLOSING"). On the Closing Date
(as defined below) the Company shall deliver to the Buyer the Convertible Note
which the Buyer is then purchasing, duly executed on behalf of the Company and
registered in the name of the Buyer or its designee.
b. Closing Date. The date and time of the Closing (the
"CLOSING DATE") shall be 10:00 a.m. Eastern Standard Time on May 24, 1999,
subject to notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below (or such later date as is mutually
agreed to by the Company and the Buyer). The Closing shall occur on the Closing
Date at the offices of Latham & Watkins, 505 Montgomery Street, Suite 1900, San
Francisco, CA 94111.
c. Form of Payment. On the Closing Date, the Buyer shall pay
the Company for the principal face amount of the Convertible Note to be issued
and sold to the Buyer at the Closing, by wire transfer of immediately available
funds in accordance with the Company's written wire instructions provided to the
Buyer at least two days prior to the Closing Date.
d. Warrants. In consideration of the purchase of the
Convertible Note, the Company shall, on the Closing Date, issue and deliver to
the Buyer, Warrants to acquire 250,000 shares of Common Stock .
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
The Buyer represents and warrants that:
a. Investment Purpose. The Buyer (i) is acquiring the
Convertible Note and the Warrants and (ii) upon conversion of the Convertible
Note and exercise of the Warrants, will acquire the Conversion Shares and
Warrant Shares, respectively, then issuable for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales registered or exempted
from registration under the 1933 Act; provided, however, that by making the
representations herein, the Buyer does not agree to hold any Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement of an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) or Regulation D.
c. Reliance on Exemptions. The Buyer understands that the
Convertible Note and Warrants are being offered and sold to it in reliance on
specific exemptions from the registration requirements of United States federal
and state securities laws and that the
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Company is relying in part upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Convertible Note and the Warrants.
d. Information. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Convertible
Note and the Warrants which have been requested by the Buyer. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigations
conducted by the Buyer or its advisors, if any, or its representatives shall
modify, amend or affect the Buyer's right to rely on the Company's
representations and warranties contained in Section 3 below.
e. No Governmental Review. The Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Convertible Note and the Warrants or the fairness or suitability of the
investment in the Securities nor have such authorities passed upon or endorsed
the merits of the offering of the Convertible Note and the Warrants.
f. Transfer or Resale. The Buyer understands that except as
provided in the Registration Rights Agreement: (i) Securities have not been and
are not being registered under the 1933 Act or any state securities laws, and
may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) the Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form to the effect that
such Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such
securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("RULE 144"); (ii) any sale of
such securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
g. Legends. The Buyer understands that the certificates or
other instruments representing the Convertible Note and the Warrants, and, until
such time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Securities upon which it is
stamped, if (i) any such Securities are registered for sale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of any of the Securities may be made without
registration under the 1933 Act, or (iii) any of the Securities can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold. The Buyer
acknowledges, covenants and agrees to sell any of the Securities represented by
a certificate(s) from which the legend has been removed, only pursuant to (i) a
registration statement effective under the 1933 Act, or (ii) advice of counsel
that such sale is exempt from registration required by Section 5 of the 1933
Act. In the event the above legend is removed from any of the Securities, the
Company may, upon reasonable advance notice to the holder, require that the
above legend be placed on any of the Securities that cannot then be sold
pursuant to an effective registration statement or Rule 144(k) under the 1933
Act (or any successor rule thereto).
h. Authorization; Enforcement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of the Buyer and is a
valid and binding agreement of the Buyer enforceable in accordance with its
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Residency. The Buyer is a resident of the United States.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Buyer that except
as disclosed in the Disclosure Letter separately delivered by the Company to
Buyer before the Closing and incorporated herein by this reference (with all
references below in this Section 3 to Schedules being deemed to refer to
Schedules included in such Disclosure Letter):
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a. Organization and Qualification. The Company and its
subsidiaries (a complete list of which is set forth in Schedule 3(a)) are
corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a Material Adverse Effect. "MATERIAL ADVERSE
EFFECT" means any material adverse effect on (i) the business, properties,
operations, condition (financial or otherwise) or results of operations of the
Company and its subsidiaries, with respect to such effects individually or taken
as a whole, (ii) on the ability of the Company to perform its obligations
hereunder or under the agreements or instruments to be entered into or filed in
connection herewith, or (iii) the Securities.
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement and the Registration Rights Agreement, to
issue, sell and perform its obligations with respect to the Convertible Note and
the Warrants in accordance with the terms hereof, and to issue the Conversion
Shares and the Warrant Shares upon conversion of the Convertible Note and the
exercise of the Warrants, respectively, in accordance with the Convertible Note
and the Warrants, respectively, (ii) the execution and delivery of this
Agreement, the Convertible Note, the Warrants and the Registration Rights
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the Convertible Note and the Warrants and the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion of the Convertible
Note and the Warrant Shares upon exercise of the Warrants have been duly
authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders, (iii) this Agreement, the Registration Rights Agreement, the
Convertible Note and the Warrants have been duly executed and delivered by the
Company, and (iv) this Agreement, the Registration Rights Agreement, the
Convertible Note and the Warrants constitute the valid and binding obligations
of the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 300,000,000 shares of Common Stock, of
which as of the date hereof, 6,962,972 shares were issued and outstanding, and
20,000,000 shares of Preferred Stock, of which as of the date hereof, no shares
were issued and outstanding. All of such outstanding shares have been validly
issued and are fully paid and nonassessable. Except as disclosed in Schedule
3(c), no shares of Common Stock or Preferred Stock are subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company. Except as disclosed in Schedule 3(c), as of the date
hereof, (i) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of
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its subsidiaries, or contracts, commitments, understandings or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement). Except as disclosed in Schedule 3(c), there are
no securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of any of the Securities as described in this
Agreement. The Company has furnished to the Buyer true and correct copies of the
Company's Articles of Incorporation, as amended and as in effect on the date
hereof (the "CERTIFICATE OF INCORPORATION"), and the Company's By-laws, as in
effect on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
d. Issuance of Securities. The Securities are duly authorized
and, upon issuance in accordance with the terms hereof, the Convertible Note and
the Warrants shall be (i) validly issued, fully paid and non-assessable, (ii)
free from all taxes, liens and charges with respect to the issue thereof, and
(iii) entitled to the rights and preferences set forth in the Convertible Note
and the Warrants, respectively. Not less than 1,375,000 shares of Common Stock
have been duly authorized and reserved for issuance upon conversion of the
Convertible Note and exercise of the Warrants. Upon conversion or exercise in
accordance with the Convertible Note and the Warrants, as applicable, the
Conversion Shares and Warrant Shares will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof with the holders being entitled to all rights accorded to a holder
of Common Stock.
e. No Conflicts. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement, the Convertible Note and the
Warrants by the Company, the performance by the Company of its obligations under
the Convertible Note and the Warrants and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Securities) will not (i) result in a violation of the Articles
of Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of Preferred Stock of the Company or By-laws or (ii) except
as disclosed in Schedule 3(e), violate or conflict with, or result in a breach
of any provision of, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the principal market or exchange on
which the Common Stock is traded or listed) applicable to the Company or any of
its subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected. Neither the Company nor its subsidiaries is
in violation of any term of or in default under its Articles of Incorporation,
any Certificate of Designations,
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Preferences and Rights of any outstanding series of Preferred Stock of the
Company or By-laws or their organizational charter or by-laws, respectively, or
any material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its subsidiaries, where such violation could reasonably be expected
to have a Material Adverse Effect. The business of the Company and its
subsidiaries is not being conducted in violation of any law, ordinance or
regulation of any governmental entity, which violation could reasonably be
expected to have a Material Adverse Effect. Except as specifically contemplated
by this Agreement and as required under the 1933 Act, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental or regulatory or self-regulatory
agency in order for it to execute, deliver or perform any of its obligations
under or contemplated by this Agreement, the Convertible Note, the Registration
Rights Agreement or the Warrants in accordance with the terms hereof or thereof.
Except as disclosed in Schedule 3(e), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. The Company is not in violation of the listing requirements of the
Nasdaq National Market ("NASDAQ") and does not reasonably anticipate that the
Common Stock will be delisted by NASDAQ in the foreseeable future. The Company
and its subsidiaries are unaware of any facts or circumstances which might give
rise to any of the foregoing.
f. SEC Documents; Financial Statements. Since January 1, 1998,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
DOCUMENTS"). The Company (i) has delivered to the Buyer or its representative
true and complete copies of the SEC Documents as the Buyer or its representative
has requested from the Company and (ii) agrees to deliver to the Buyer or its
representative true and complete copies of any additional SEC Documents, upon
request. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the Note thereto, or (ii) in the case
of unaudited interim statements, to the extent they may exclude footnotes or may
be condensed or summary statements) and fairly present in all material respects
the financial position of the Company as of the dates thereof and the results of
its operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments). No other
information provided by
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or on behalf of the Company to the Buyer which is not included in the SEC
Documents, including, without limitation, information referred to in Section
2(d) of this Agreement, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they are or were made,
not misleading. The Company has not provided and will not provide to the Buyer
any material non-public information which, according to applicable law, rule or
regulation should have been disclosed publicly by the Company but which has not
been so disclosed as of the date hereof.
g. Absence of Certain Changes. Except as expressly set forth
in Schedule 3(g), as disclosed in the public press releases referred to in
Schedule 3(g), or as disclosed in the SEC Documents (exclusive of the exhibits
thereto), since June 30, 1998, there has been no material adverse change and no
material adverse development in the business, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company and
its subsidiaries individually or taken as a whole. The Company has not taken any
steps, and does not currently expect to take any steps, to seek protection
pursuant to any bankruptcy law nor does the Company or its subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or its subsidiaries or their respective directors or
officers, or the Common Stock, wherein an unfavorable decision, ruling or
finding would individually or in the aggregate have a Material Adverse Effect.
Schedule 3(h) contains a complete list and summary description of any pending,
or to the knowledge of the Company, threatened proceeding against or affecting
the Company or any of its subsidiaries, without regard to whether it could have
a Material Adverse Effect.
i. Acknowledgment Regarding Buyer's Purchase of the
Convertible Note. The Company acknowledges and agrees that the Buyer is acting
solely in the capacity of arm's length purchaser with respect to this Agreement
and the transactions contemplated hereby. The Company further acknowledges that
the Buyer is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by the Buyer or any of its
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Buyer's purchase of the
Convertible Note. The Company further represents to the Buyer that the Company's
decision to enter into this Agreement has been based solely on the independent
evaluation by the Company and its representatives.
j. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of any of
the Securities offered hereby.
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k. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act or cause the offering of any of the Securities
to be integrated with prior offerings by the Company for purposes of the 1933
Act or any applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of NASDAQ.
l. Employment Matters; ERISA Matters. The Company and its
subsidiaries are in compliance with all federal, state, local and foreign laws
and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hour except where failure to be in
compliance would not have a Material Adverse Effect. There are no pending
investigations involving the Company or any of its subsidiaries by the U.S.
Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations. There
is no unfair labor practice charge or complaint against the Company or any of
its subsidiaries pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened
against or involving the Company or any of its subsidiaries. Except as set forth
in Schedule 3(l), no representation question exists respecting the employees of
the Company or any of its subsidiaries, and no collective bargaining agreement
or modification thereof is currently being negotiated by the Company or any of
its subsidiaries. No grievance or arbitration proceeding is pending under any
expired or existing collective bargaining agreements of the Company or any of
its subsidiaries. No material labor dispute with the employees of the Company or
any of its subsidiaries exists or, to the knowledge of the Company, is imminent.
The Company has no employee benefit plans subject to the Employee Retirement
Income Security Act of 1974, as amended.
m. Intellectual Property Rights. The Company and its
(i)subsidiaries own or possess the requisite rights or licenses to use all
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights (collectively,
"INTELLECTUAL PROPERTY RIGHTS") necessary to conduct their respective businesses
as now conducted and as presently contemplated to be operated in the future.
None of the Intellectual Property Rights or other intellectual property rights
have expired or terminated, or are expected to expire or terminate in the near
future. The Company and its subsidiaries do not have any knowledge of any event,
fact or circumstance relating to (i) any infringement by the Company or its
subsidiaries of any trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets or other similar
rights of others, or of any such development of similar or identical trade
secrets or technical information by others or (ii) any person or entity now
infringing any Intellectual Property Rights or other similar rights or any such
development of similar or identical trade secrets or technical information owned
or used by the Company or any of its subsidiaries. Except as set forth on
Schedule 3(m), there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company or
its subsidiaries regarding (i) any trademarks, trade names, service
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marks, service mark registrations, service names, patents, patent rights,
copyrights, inventions, licenses, approvals, governmental authorizations, trade
secrets or other similar rights of others, or of any such development of similar
or identical trade secrets or technical information by others or (ii) any person
or entity now infringing any Intellectual Property Rights or other similar
rights or any such development of similar or identical trade secrets or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company and its
subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their material Intellectual Property Rights.
n. Environmental Laws. (i) The Company and its subsidiaries
(A) are in compliance with any and all Environmental Laws, (B) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses, and (C) are in
compliance with all terms and conditions of any such permit, license or
approval. With respect to the Company and/or its subsidiaries (A) there are no
past or present releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under any Environmental Law and (B) neither the Company nor any of its
subsidiary has received any notice with respect to the foregoing, nor is any
action pending or to the Company's knowledge, threatened in connection with the
foregoing. The term "ENVIRONMENTAL LAWS" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient, air surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, "HAZARDOUS Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released on
or about any real property previously owned, leased or used by the Company or
any of its subsidiaries during the period the property was owned, leased or used
by the Company or any of its subsidiaries.
(iii) Except as set forth in Schedule 3(n), there are no
underground storage tanks on or under any real property owned, leased or used by
the Company or any of its subsidiaries that are not in compliance with
applicable law.
o. Title. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each
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case free and clear of all liens, encumbrances and defects except such as are
described in Schedule 3(o) or such as do not materially affect the value of such
property and do not interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries. Any real property and facilities
held under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries.
p. Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as is prudent and customary in the businesses in
which the Company and its subsidiaries are engaged. Neither the Company nor any
such subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not individually or in the aggregate have Material
Adverse Effect.
q. Regulatory Permits; Compliance The Company and its
subsidiaries possess all franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders necessary to own, lease
and operate its properties and to conduct their respective businesses as
currently being conducted (collectively, the "COMPANY PERMITS"), except as
specified in Schedule 3(q). There is no action pending, or to the knowledge of
the Company, threatened regarding the suspension or cancellation of any of the
Company Permits. Except as specified in Schedule 3(q) either the Company nor any
of its subsidiaries is in conflict with, or in default or violation of, any of
the Company Permits. Neither the Company nor any of its subsidiaries has
received any notification with respect to possible conflicts, defaults, or
violations of applicable laws.
r. Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
s. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its subsidiaries is subject to any charter, corporate or other legal
restrictions, or any judgment, decree, order, rule or regulation which in the
reasonable judgment of the Company's officers has or is expected in the future
individually or in the aggregate to have a Material Adverse Effect. Neither the
Company nor any of its subsidiaries is a party to any contract or agreement
which in the reasonable judgment of the Company's officers has or is expected to
have a Material Adverse Effect.
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t. Tax Status. Except as set forth on Schedule 3(t), the
Company and each of its subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are not unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect to
the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. None of the Company's tax returns is
currently being audited by any taxing authority.
u. Certain Transactions. Except as set forth on Schedule 3(u)
or the SEC Documents (other than the exhibits thereto) and except for arm's
length transactions pursuant to which the Company makes payments in the ordinary
course of business upon terms no less favorable than the Company could obtain
from third parties and other than the grant of stock options disclosed on
Schedule 3(c), none of the officers, directors or employees of the Company is
presently a party to any transaction with the Company (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director or any such employee has a substantial interest or is an
officer, director, trustee or partner.
v. S-3 Registration. The Company is currently eligible to
register the resale of securities, including the Conversion Shares and the
Warrant Shares, on a registration statement on Form S-3 under the 1933 Act.
w. Disclosure. All information relating to or concerning the
Company or any of its subsidiaries set forth in this Agreement and provided to
the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
information exists with respect to the Company or any of its subsidiaries or its
or their business, properties, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company's reports filed under the 1934 Act
are being incorporated into an effective registration statement filed by the
Company under the 1933 Act).
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x. No Qualified Opinion. The Company has not received an
opinion, report or letter from its auditors qualified in any respect, including
as to the Company's ability to proceed as a going concern in connection with the
Company's financial statements for the fiscal year ended June 30, 1998 and
provided that the transactions contemplated hereby are consummated, does not
anticipate or know of any basis upon which its auditors might issue any such
opinion, report or letter.
y. Investment Company Status. The Company is not and upon
consummation of the sale of the Securities will not be an "investment company,"
a company controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.
z. Foreign Corrupt Practices. Neither the Company nor any of
its subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has, in the course of his
actions for, or on behalf of, the Company used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic governmental
official or employee.
aa. No Brokers. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or the transactions contemplated
hereby.
4. COVENANTS AND AGREEMENTS.
a. Best Efforts. Each party shall use its reasonable best
efforts timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
the Buyer promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Buyer at the Closing pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyer on or prior to
the Closing Date.
c. Reporting Status. Until the earlier of (i) six months after
the date as of which the Investors (as that term is defined in the Registration
Rights Agreement) may sell all of the Conversion Shares and Warrant Shares
without restriction pursuant to Rule 144 or Rule 144(k) promulgated under the
1933 Act (or successor thereto) or (ii) the date which is six months after the
date on which none of the Convertible Note or Warrants are outstanding (the
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"REGISTRATION PERIOD"), the Company (x) shall timely file all reports required
to be filed with the SEC pursuant to the 1934 Act, and the Company shall not
voluntarily terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
otherwise permit such termination and (y) will use its best efforts and take all
necessary action to maintain its ability and eligibility to register securities
for resale on Form S-3; provided that this Section 4(c) shall not prohibit a
sale, merger or other transaction where the Company is not the surviving entity
to the extent such sale, merger or other transaction is permitted pursuant to
Section 4(l) and the terms and provisions of the Convertible Notes, and all such
terms and provisions are complied with by the Company.
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Convertible Note and Warrants for general working capital purposes,
acquisitions and the retirement of up to $1,800,000 in indebtedness of the
Company.
e. Financial Information. The Company agrees to file all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the 1934 Act. The
financial statements of the Company will be prepared in accordance with
generally accepted accounting principles, consistently applied, and will fairly
present in all material respect the consolidated financial position of the
Company and its consolidated subsidiaries and results of their options and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). The Company will use its best efforts to
send the following to each Investor (as that term is defined in the Registration
Rights Agreement) during the Registration Period: (i) within five (5) days after
any written request therefor by the Buyer, a copy of its Annual Reports on Form
10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any registration statements or amendments filed pursuant to the 1933 Act; (ii)
within one (1) day after release thereof, copies of all press releases issued by
the Company or any of its subsidiaries; and (iii) copies of any notices and
other information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, reserved for the purpose of issuance,
no less than the number of shares of Common Stock necessary to provide for the
issuance of the maximum number of Conversion Shares and Warrant Shares issuable
upon conversion of the Convertible Note and the exercise of the Warrants,
respectively, in accordance with the terms of this Agreement, the Convertible
Note and the Warrants.
g. Listing. The Company shall promptly secure the listing of
the Conversion Shares and Warrant Shares upon NASDAQ (subject to official notice
of issuance) and shall maintain, so long as any other shares of Common Stock
shall be so listed, the listing of all Conversion Shares and Warrant Shares from
time to time issuable under the terms of this Agreement, the Convertible Note
and the Warrants on each national securities exchange and automated quotation
system (including the Nasdaq National Market System and Nasdaq SmallCap), if
any, upon which shares of Common Stock are then listed. The Company shall
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promptly provide to the Buyer copies of any notices it receives from the NASDAQ
regarding the continued eligibility of the Common Stock for listing on NASDAQ or
other principal exchange or quotation system on which the Common Stock is listed
or traded. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 4(g).
h. Expenses. Each of the Company and the Buyer shall each pay
its respective costs and expenses incurred by such party in connection with the
negotiation, investigation, preparation, execution, delivery and performance of
this Agreement or the Convertible Note, the Warrants and the Registration Rights
Agreement; provided, that at the Closing the Company shall reimburse the Buyer
by wire transfer from the proceeds of the Closing for Buyer's reasonable
attorneys' fees and expenses incurred in connection with the preparation of this
Agreement, the Convertible Note, the Warrants and the Registration Rights
Agreement in accordance with the provisions of the Term Sheet dated March 17,
1999 between the Company and the buyer; and provided further that all costs and
expenses of enforcing this Agreement, the Convertible Note or the Registration
Rights Agreement shall be payable by the prevailing party pursuant to the terms
of Section 15 of the Convertible Note.
i. ADDITIONAL ISSUANCES OF SECURITIES. To the extent specified
below the Company will not, without the prior written consent of the Buyer,
contract with or commit to any party to issue additional preferred, common or
other equity securities (including debt securities with an equity component,
debt convertible into equity or debt with warrants or any other equity or
equity-type security delivered in the same transaction or related transactions)
(collectively, an "EQUITY FINANCING"):
(i) During the period (the "LOCK-UP PERIOD") beginning on
the Closing Date and ending one year from the date the Registration Statement
(as defined in the Registration Rights Agreement) is declared effective (plus
any days during such one-year period in which sales cannot be made thereunder),
the Company shall not engage in an Equity Financing that involves the issuance
of convertible securities that are convertible into an indeterminate number of
shares of Common Stock.
(ii) During the Lock-Up Period the Company shall not engage
in an Equity Financing contemplating the issuance of or commitment to issue
Common Stock (whether upon conversion or exercise of a security convertible into
or exercisable for Common Stock or otherwise) at a discount of more than 15% to
the Average Market Price (as defined in the Convertible Note) on the date of
issuance thereof (i.e. at a purchase or exercise price less than 85% of the
Average Market Price) or, in the case of a security convertible into or
exercisable for Common Stock, the date of issuance of such security (taking into
account the value in all cases of any warrants or options to acquire Common
Stock issued in connection therewith with an exercise price that is or, at the
time of exercise could be, below the Average Market Price at the time of
issuance ).
The prohibitions on Equity Financings specified in clauses (i)
through (iii) of this Section 4(i) shall not apply to any transaction involving
(A) issuances of securities upon conversion of the Convertible Note and upon
exercise of the Warrants, (B) the issuance of
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securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof or pursuant to
the grant of additional options or warrants, or the issuance of additional
securities, under any Approved Stock Plan (as defined in the Convertible Note),
(C) issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act), (D)
issuances of securities as consideration for a merger, consolidation or purchase
of assets, or in connection with any strategic partnership or joint venture with
an operating company other than any commercial finance lender (the primary
purpose of which is not to raise equity capital), (E) issuances of securities in
connection with the disposition or acquisition of a business, product or license
by the Company, (F) issuances of Common Stock at an issuance price, or
securities convertible or exercisable for Common Stock at a conversion or
exercise price (taking into account the value in all cases of any warrants or
options to acquire Common Stock issued in connection therewith) greater than the
then-applicable Conversion Price, or (G) issuances in connection with customary
shareholder rights plans adopted in connection with strategic planning
concerning actual or future possible change of control events relating to the
Company, and such transactions shall not constitute Equity Financing.
During the Lock-Up Period the Company shall, at least seven
(7) business days prior to the closing of any Equity Financing, deliver to Buyer
written notice describing the proposed Equity Financing, including the
definitive terms and conditions thereof, and providing Buyer an option during
the seven (7) business day period following delivery of such notice to purchase
50% of the securities being offered in the Equity Financing on the same terms as
contemplated by such Equity Financing (the "RIGHT OF FIRST REFUSAL"); provided
that Buyer shall not be entitled to purchase more than $2,500,000 principal
amount of the securities offered. If the terms and conditions of a proposed
Equity Financing are amended in any respect after delivery of the notice to the
Buyer concerning the proposed Equity Financing, the Company shall deliver a new
notice to the Buyer describing the amended terms and conditions of the proposed
Equity Financing and the Buyer thereafter shall have an option during the ten
(10) day period following delivery of such new notice to purchase the securities
being offered on the same terms as contemplated by such proposed Equity
Financing, as amended. Buyer's Right of First Refusal under this Section 4(i)
shall extend only to such portion of the issuance as is not purchased by Capital
Ventures International, pursuant to Section 4(j) of the Securities Purchase
Agreement dated March 3, 1999, between Capital Ventures International and the
Company, as in effect on the date hereof, provided that this limitation shall
only remain in effect until the expiration or termination of such rights of
Capital Ventures International rights of Capital Ventures International.
j. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares and Warrant Shares issuable upon conversion
of the Convertible Note and exercise of the Warrants, respectively, will
increase in certain circumstances. The Company further acknowledges and agrees
that its obligation to issue Conversion Shares and Warrant Shares upon
conversion of the Convertible Note and exercise of the Warrants, respectively,
in accordance with this Agreement, the Convertible Note, and the Warrants, as
applicable, is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
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k. Disclosure. From and after the date hereof, the Company
will not provide to the Buyer any material non-public information which,
according to applicable law, rule or regulation should be disclosed publicly by
the Company but which has not been so disclosed.
l. Corporate Existence. So long as the Buyer beneficially owns
any Securities, the Company shall maintain its corporate existence in good
standing under the laws of the jurisdiction in which it is currently
incorporated and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company's assets, where the surviving or successor
entity in such transaction (i) assumes the Company's obligations hereunder and
under the agreements and instruments entered into or filed in connection
herewith and (ii) is a publicly traded corporation whose Common Stock is listed
for trading on AMEX, NASDAQ or the New York Stock Exchange.
m. Solvency; Compliance with Law. The Company (both before and
after giving effect to the transactions contemplated by this Agreement) is
solvent (i.e., its assets have a fair market value in excess of the amount
required to pay its probable liabilities on its existing debts as they become
absolute and matured) and currently the Company has no information that would
lead it to reasonably conclude that the Company would not have, nor does it
intend to take any action that would impair, the ability to pay its debts from
time to time incurred in connection therewith as such debts mature. The Company
will conduct its business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business, including,
without limitation, all applicable local, state and federal environmental laws
and regulations the failure to comply with which would have a Material Adverse
Effect.
n. Insurance. The Company shall maintain liability, casualty
and other insurance (subject to customary deductions and retentions) with
responsible insurance companies against such risk of the types and in the
amounts customarily maintained by companies of comparable size to the Company.
o. No Integration. The Company will not conduct any future
offering in such a way as to cause such offering to be integrated with the
issuance of the Securities for purposes of the rules promulgated by the SEC
(unless a valid exemption under Section 5 of the 1933 Act continues to exist for
the Securities notwithstanding the future offering) or NASDAQ.
p. Selling Restrictions. The Buyer, on behalf of itself and
any affiliates, agrees that, in connection with the purchase of the Securities
hereunder,
(i) as of the Closing Date, it will not have a net short
position in the Common Stock of the Company;
(ii) it will not create new trading lows through sales of
Common Stock in order to create a lower Reset Fixed Conversion Price (as defined
in the Convertible Note) or a lower Reset Exercise Price (as defined in the
Warrant);
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(iii) during any period of determination of the Reset
Exercise Price or Reset Conversion Price, if Buyer (or others acting under its
direction or control) engages in short sale transactions or other hedging
activities which involve, among other things, sales of Common Stock, Buyer will
place its sales orders for such shares of Common Stock in the course of
activities so as not to complete or effect any such sale on any trading day
during such period at a period which is lower than the lowest sale effected for
shares of Common Stock on such day by persons other than Buyer (or others acting
under its direction or control); and
(iv) Buyer will conduct all sales of Common Stock,
including in connection with any hedging activities, in compliance with all
applicable securities laws and regulations.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent (in the form attached hereto as Exhibit D) to issue certificates,
or at the Buyer's request, to electronically issue such shares (e.g., through
DWAC or DTC), registered in the name of the Buyer or its nominee(s), for the
Conversion Shares or Warrant Shares in such amounts as specified from time to
time by the Buyer to the Company upon conversion of the Convertible Note or
exercise of the Warrants, respectively (the "IRREVOCABLE TRANSFER AGENT
Instructions"). Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act, such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Conversion Shares and Warrant Shares, prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act)
will be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement, the Registration Rights Agreement, the
Convertible Note and the Warrants. Nothing in this Section 5 shall affect in any
way the Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of any of the Securities. If the Buyer provides the
Company with an opinion of counsel, reasonably satisfactory in form and
substance to the Company, that registration of a resale by the Buyer of any of
the Securities is not required under the 1933 Act, the Company shall permit the
transfer, and, in the case of the Conversion Shares or Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by the Buyer. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Buyer by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section 5, that the Buyer shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
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6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Convertible Note and Warrants to the Buyer at the Closing is subject to the
satisfaction at or before the Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion;
a. The Buyer shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. The Buyer shall have delivered to the Company the purchase
price for the Convertible Note being purchased by the Buyer at the Closing by
wire transfer of immediately available funds pursuant to the wire instructions
provided by the Company.
c. The representations and warranties of the Buyer shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer at or prior to the Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
a. The obligation of the Buyer hereunder to purchase the
Convertible Note and Warrants at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Buyer's sole benefit and may be waived by the Buyer
at any time in its sole discretion:
b. The Company shall have executed this Agreement, the
Convertible Note and the Registration Rights Agreement, and delivered the same
to the Buyer.
c. The Common Stock generally shall be authorized for trading
on NASDAQ, and trading in the Common Stock shall not have been suspended by the
SEC or NASDAQ.
d. The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by the Buyer including,
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without limitation, an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
e. The Buyer shall have received the opinion of the Company's
General Counsel as to corporate matters, and an opinion of Fenwick & West,
special counsel to the Company as to enforceability of this Agreement, the
Convertible Note, the Warrant and the Registration Rights Agreement dated as of
the Closing Date, in each case in form, scope and substance reasonably
satisfactory to the Buyer.
f. The Company shall have executed and delivered to the Buyer
the Warrants being purchased by the Buyer at the Closing.
g. As of the Closing Date, the Company shall have reserved out
of its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Convertible Note and the exercise of the Warrants,
1,375,000 shares of Common Stock to provide for the issuance of the Conversion
Shares and Warrant Shares in accordance with the terms of this Agreement, the
Convertible Note and the Warrants.
h. The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to and acknowledged in
writing by the Company's transfer agent.
i. The transactions contemplated hereby shall not violate any
law, regulation or order then in effect and applicable to the Buyer or the
Company.
8. INDEMNIFICATION.
In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Securities hereunder and in addition to all of the
Company's other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Buyer and each of the Buyer's officers,
directors, employees and agents (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "BUYER INDEMNITEES") from and against any and all actions,
causes of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, suffered or claimed in actions, causes of action, suits or claims made
by third parties and expenses in connection therewith (irrespective of whether
the Buyer Indemnitee is a party of the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "BUYER INDEMNIFIED LIABILITIES"), incurred by the Buyer Indemnitee (and
shall advance the same) as a result of, or arising out of, or relating to (a)
subject to Section 9(i), any misrepresentation or breach of any representation
or warranty made by the Company in this Agreement, the Convertible Note, the
Warrants, the Registration Rights Agreement or any other certificate, instrument
or document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement, the
Convertible Note, the Warrants or the Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim brought or made against the Buyer Indemnitee and
arising out of or resulting from the execution, delivery, performance or
20
<PAGE> 22
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Buyer Indemnitees, any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Convertible Note and Warrants or the status of
the Buyer or holder of any of the Securities as an investor in the Company. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Buyer Indemnified Liabilities which is
permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California without
regard to the principles of conflict of laws. The Company irrevocably consents
to the jurisdiction of the United States federal courts and the state courts
located in San Francisco, California in any suit or proceeding based on or
arising under this Agreement and irrevocably agrees that all claims in respect
of such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company further agrees that service of process upon
the Company mailed by first class mail shall be deemed in every respect
effective service of process upon the Company in any such suit or proceeding.
Nothing herein shall affect the right of the Purchaser to serve process in any
other manner permitted by law. The Company agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyer, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the documents referenced herein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor the Buyer makes any representation, warranty, covenant
or undertaking
21
<PAGE> 23
with respect to such matters. No provision of this Agreement may be waived or
amended other than by an instrument in writing signed by the party to be charge
with enforcement.
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, California 94949
Telephone: (415) 257-3000
Facsimile: (415) 897-2544
Attention: Chief Financial Officer
With a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Telephone: (650) 858-7600
Facsimile: (650) 494-1417
Attention: C. Kevin Kelso, Esq.
If to the Buyer:
BayStar Capital, L.P.
c/o Stark Investments
1500 West Market Street, Suite 200
Mequon, WI 53092
Telephone: (414) 241-7728
Facsimile: (414) 241-7704
Attention: Brian Davidson
22
<PAGE> 24
With a copy to:
BayStar Capital, L.P.
c/o LG Capital Group
505 Montgomery Street, 20th Floor
San Francisco, CA 94111
Telephone: (415) 835-7260
Facsimile: (415) 835-3777
Attention: Steven Lamar
With a copy to:
Latham & Watkins LLP
505 Montgomery Street, Suite 1900
San Francisco, CA 94111
Telephone: (415) 391-0600
Facsimile: (415) 395-8095
Attention: Warren Lilien, Esq.
Each party shall provide five (5) days' prior written notice
to the other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Securities. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Buyer, except pursuant to a Major Transaction (as defined
in the Convertible Note) in accordance with the terms of the Convertible Note.
The Buyer may assign some or all of its rights hereunder without the consent of
the Company, provided, however, that (i) any such assignment shall not release
the Buyer from its obligations hereunder unless such obligations are assumed by
such assignee and the Company has consented to such assignment and assumption
and (ii) the Buyer may not assign its rights hereunder in a manner that would
cause the offering of Securities hereunder to be required to be registered under
the 1933 Act.
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. The representations and warranties of the Company
and the Buyer contained in Sections 3 and 2, respectively, shall survive the
Closing until three years after the Closing Date, including, without limitation,
all financial statements thereto. The agreements and covenants set forth in
Section 4, 5 and 9, and the indemnification provisions set forth in Section 8,
shall survive the Closing. The Buyer shall be responsible only for its
representations, warranties, agreements and covenants hereunder.
23
<PAGE> 25
j. Publicity. The Company and the Buyer shall have the right
to approve before issuance any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of the Buyer, to make
any press release or other public disclosure with respect to such transactions
as is required by applicable law and regulations (although the Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof); but only to the extent the Company believes in good faith that such
disclosure is required by such law or regulation.
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
m. Equitable Relief. The Company recognizes that in the event
that it fails to perform, observe, or discharge any or all of its obligations
under this Agreement, any remedy at law may prove to be inadequate relief to the
Buyer. The Company therefore agrees that the Buyer shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
IN WITNESS WHEREOF, the Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYER:
INTERNATIONAL MICROCOMPUTER BAYSTAR CAPITAL L.P.
SOFTWARE, INC.
By: BAYSTAR MANAGEMENT LLC,
By: _________________________________ ITS GENERAL PARTNER
Name: Costa John
Its: Chief Financial Officer
By: ___________________________
Name:
Its:
24
<PAGE> 1
EXHIBIT 4.2
9% SENIOR SUBORDINATED CONVERTIBLE NOTE
<PAGE> 2
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAW, OR AN EXEMPTION FROM SUCH REGISTRATION.
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
9% SENIOR SUBORDINATED CONVERTIBLE NOTE DUE 2002
FOR VALUE RECEIVED, INTERNATIONAL MICROCOMPUTER SOFTWARE, INC., a
California corporation (the "COMPANY"), hereby promises to pay to BAYSTAR
CAPITAL, L.P., a Delaware limited partnership (the "HOLDER") the principal sum
of FIVE MILLION DOLLARS ($5,000,000) on May 24, 2002 (the "MATURITY DATE") and
to pay interest on the principal amount outstanding from time to time under this
note (the "OUTSTANDING PRINCIPAL AMOUNT"), at the rate of 9% per annum, payable
quarterly in arrears in cash on the last day of each calendar quarter during the
term hereof and on the final day when such principal amount becomes due (each
such date, an "INTEREST PAYMENT DATE").
This note is the subordinated convertible promissory note (the
"NOTE") of the Company referred to in the Securities Purchase Agreement, dated
as of May 24, 1999 by and between the Company and the Holder (the "PURCHASE
AGREEMENT").
1. Definitions. For purposes hereof the following definitions
shall apply:
"ACCELERATION PRICE" shall have the meaning set forth in Section
5(b).
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares
(including treasury shares) of Common Stock issued or sold or deemed to be
issued by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company other than (i) shares of Common Stock
issued upon conversion of the Note, (ii) shares of Common Stock issued upon
exercise of the Warrants, (iii) shares of Common Stock issued pursuant to
Approved Stock Plans, (iv) shares of Common Stock issued upon exercise of
options, warrants, or other rights or agreements to issue securities of the
Company outstanding as of the Issuance Date, (v) shares of Common Stock issued
pursuant to any firm commitment underwritten public offering (excluding a
continuous offering pursuant to Rule 415 under the Securities Act), (vi) shares
of Common Stock issued in connection with the disposition or acquisition of a
business, product or license by the Company, or issuances of securities as
consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership or joint venture (the primary purpose
of which is not to raise equity capital).
"ADJUSTING CLOSING BID PRICES" shall have the meaning set forth
in Section 3(d).
<PAGE> 3
"APPROVED STOCK PLAN" shall mean any contract, plan or agreement
which has been or shall be approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any employee,
officer, director, consultant or other service provider of the Company in an
aggregate amount that does not exceed, together with all other Approved Stock
Plans, 200% of the number of securities issuable as of the Closing Date pursuant
to any currently existing Approved Stock Plan.
"AVERAGE MARKET PRICE" shall mean the average of the Closing Bid
Prices of the Common Stock for the five (5) trading days immediately preceding
the applicable date.
"BLOCKAGE NOTICE" shall have the meaning set forth in Section
18(b).
"BUSINESS DAY" shall have the meaning set forth in Section 2(c).
"BUY IN ACTUAL DAMAGES" shall have the meaning set forth in
Section 3(e)(v).
"CLOSING BID PRICE" shall mean, for any security as of any date,
the last closing bid price on the Nasdaq National Market ("NASDAQ") as reported
by Bloomberg, L.P. ("BLOOMBERG"), or, if the NASDAQ is not the principal
securities exchange for such security, the last closing bid price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last closing bid price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price is reported for such security by
Bloomberg, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc.
"CLOSING DATE" shall mean May 24, 1999.
"CLOSING PRICE" shall mean $6.604.
"COMMON STOCK" shall mean, the common stock of the Company, no
par value per share.
"COMPANY" shall have the meaning set forth in the Preamble.
"CONVERSION DATE" shall have the meaning set forth in Section
3(e)(i).
"CONVERSION NOTICE" shall have the meaning set forth in Section
3(e)(i).
"CONVERSION PRICE" shall mean (i) prior to the first anniversary
of the Closing Date, the Fixed Conversion Price; and (ii) on and following the
first anniversary of the Closing Date, the lesser of (a) the Fixed Conversion
Price and (b) the Reset Fixed Conversion Price; provided, that the applicable
"Conversion Price" shall be subject to certain adjustments as described in
Section 3(d).
2
<PAGE> 4
"CONVERSION SHARES" shall have the meaning set forth in Section
5(d)(i).
"CONVERTIBLE SECURITIES" shall have the meaning set forth in
Section 3(d)(iv).
"DEFAULT" shall have the meaning set forth in Section 19.
"DEFAULT RATE" shall have the meaning set forth in Section
2(a)(i).
"DELISTING PERIOD" shall have the meaning set forth in Section
5(d)(ii).
"DOCUMENT" or "DOCUMENTS" means this Note, the Registration
Rights Agreement, the Purchase Agreement, the Warrants and the other agreements,
documents and instruments furnished in connection therewith.
"FIXED CONVERSION PRICE" shall mean 115% of the Closing Price.
"HOLDER" shall have the meaning set forth in the Preamble.
"INABILITY TO FULLY CONVERT NOTICE" shall have the meaning set
forth in Section 6(b).
"INDEBTEDNESS" shall have the meaning set forth in Section 19(a).
"INTEREST PAYMENT DATE" shall have the meaning set forth in the
Preamble.
"ISSUANCE DATE" shall mean May 24, 1999.
"LIEN" shall have the meaning set forth in Section 8(g).
"MAJOR TRANSACTION ACCELERATION PRICE" shall have the meaning set
forth in Section 5(a).
"MAJOR TRANSACTION" shall have the meaning set forth in Section
5(c).
"MANDATORY PAYMENT" shall have the meaning set forth in Section
6(a)(i).
"MANDATORY PAYMENT PRICE" shall have the meaning set forth in
Section 6(a)(i).
"MARKET PRICE" shall mean, on any date specified, herein, the
amount per share of the Common Stock equal to (i) the last reported sale price
of such Common Stock, regular way, on such date or, in case no such sale takes
place on such date, the average of the closing bid and asked prices thereof,
regular way, on such date, in either case as officially reported on the
principal national securities exchange on which such Common Stock is then listed
or admitted for trading, (ii) if such Common Stock is not then listed or
admitted for trading on any national securities exchange but is designated as a
national market system security by the NASD, the last reported trading price of
the Common Stock on such date, or in the case no such sale takes place on such
date, or if the Common Stock is not so designated, the average of the closing
bid and
3
<PAGE> 5
asked prices of the Common Stock on such date as shown by the NASD automated
quotations system, or (iii) if such Common Stock is not then listed or admitted
for trading on any national exchange or quoted in the over-the-counter market,
the fair value thereof (as of a date which is within 20 days of the date as of
which the determination is to be made) determined in good faith by the Board of
Directors of the Company and the Holder, provided, however, that if such parties
are unable to reach agreement within a reasonable period of time, the Market
Price shall be determined in good faith by an independent investment banking
firm selected by the Company and the Holder or, if that selection cannot be made
within ten days, by an independent investment banking firm selected by the
American Arbitration Association in accordance with its rules, and provided,
further, that the Company shall pay all of the fees and expenses of any third
parties incurred in connection with determining the Market Price.
"MATURITY DATE" shall have the meaning set forth in the Preamble.
"NEW OPTION ISSUANCE PRICE" shall have the meaning set forth in
Section 3(d)(iv).
"NOTE" shall have the meaning set forth in the Preamble.
"NOTE REGISTER" shall have the meaning set forth in Section
17(b).
"NOTICE OF ACCELERATION AT OPTION OF HOLDER UPON TRIGGERING
EVENT" shall have the meaning set forth in Section 5(e).
"NOTICE OF MAJOR TRANSACTION" shall have the meaning set forth in
Section 5(e).
"OPTIONS" shall have the meaning set forth in Section 3(d)(iv).
"ORGANIC CHANGE" shall mean, any recapitalization,
reorganization, reclassification, consolidation, merger, sale of all or
substantially all of the Company's assets to another Person or other transaction
which is effected in such a way that the Holder of Common Stock is entitled to
receive (either directly or upon subsequent liquidation) stock, securities or
assets with respect to or in exchange for Common Stock.
"OTHER TAXES" shall have the meaning set forth in Section 20.
"OUTSTANDING COMMON AMOUNT" shall have the meaning set forth in
Section 3(a).
"OUTSTANDING PRINCIPAL AMOUNT" shall have the meaning set forth
in the Preamble.
"PERSON" shall mean, an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
"PREPAYMENT AMOUNT" shall have the meaning set forth in Section
4.
4
<PAGE> 6
"PREPAYMENT DATE" shall have the meaning set forth in Section 4.
"PREPAYMENT NOTICE" shall have the meaning set forth in Section
4.
"PROCEEDING" shall have the meaning given in Section 19(f).
"PURCHASE AGREEMENT" shall have the meaning set forth in the
Preamble.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration
Rights Agreement, dated as of May 24, 1999, by and between the Company and the
Holder.
"RESET DATE" shall mean the twelve (12) month anniversary of the
Closing Date.
"RESET FIXED CONVERSION PRICE" shall mean the greater of 115% of
the average of the Closing Bid Prices of the Common Stock for the twenty (20)
trading days immediately preceding the Reset Date and (ii) 70% of the Closing
Price.
"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time, and the rules and regulations thereunder, or any successor
statute.
"SENIOR DEBT" shall mean all senior indebtedness of the Company
for borrowed money, now existing or hereafter incurred, in favor of a bank,
including without limitation Union Bank of California, N.A. and Silicon Valley
Bank (each, a "SENIOR LENDER" and collectively, the "SENIOR LENDERS"), insurance
company or other financial institution under a Senior Loan Document, for
principal and interest (including interest accruing subsequent to the
commencement of any Proceeding) unless the Senior Loan Document expressly
provides that it is not senior or superior in right of payment of this Note,
including all renegotiations, amendments, replacements or novations thereof;
provided that such senior indebtedness (i) shall not exceed, in the aggregate,
twenty million dollars ($20,000,000) at any time outstanding and (ii) shall not,
be convertible into or exchangeable for, or (except in the case of Senior Debt
existing on the date of this Agreement) entitle the provider as consideration
for the provision thereof, any equity securities of the Company except for stock
purchase warrants with an exercise price at or above the then-Average Market
Price on the date the warrants are granted in customary amounts and upon
customary terms. Notwithstanding the foregoing, "SENIOR DEBT" shall not include
(x) any indebtedness of the Company to any of its Subsidiaries or its
affiliates, or (y) any indebtedness (other than indebtedness owed by the Company
to Silicon Valley Bank) that is expressly subordinated to any other indebtedness
of the Company.
"SENIOR DEBT DEFAULT" shall have the meaning set forth in Section
18(b).
"SENIOR LOAN DOCUMENT" shall mean a credit agreement, loan
agreement, indenture or other agreement, document or instrument evidencing or
governing any Senior Debt, including without limitation those agreements between
the Company and Silicon Valley Bank and the Company and Union Bank of
California, N.A.
5
<PAGE> 7
"SOLVENT" shall mean, with respect to any Person on a particular
date, that on such date (i) the fair value of the property of such Person is not
less than the total amount of the liabilities of such Person, (ii) the present
fair salable value of the assets of such Person is not less than the amount
required to pay the probable liability on such Person's existing debts as they
become absolute and matured, (iii) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (iv) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature and (v) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
"SUBORDINATED DEBT" shall mean all indebtedness of the Company
now or hereafter evidenced by the Note and all interest thereon.
"SUBSIDIARY" shall mean, any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other Persons performing similar functions are at the time
directly or indirectly owned by the Company.
"SUSPENSION DAYS" shall have the meaning set forth in Section
5(d)(i).
"SUSPENSION PERIOD" shall have the meaning set forth in Section
5(d)(i).
"TAXES" shall have the meaning set forth in Section 20.
"TRANSFER AGENT" shall have the meaning set forth in Section
3(e)(i).
"TRIGGERING EVENT" shall have the meaning set forth in Section
5(d).
"TRIGGERING EVENT ACCELERATION PRICE" shall have the meaning set
forth in Section 5(b).
"WARRANTS" shall mean the Common Stock Purchase Warrants to
purchase up to an aggregate of 250,000 shares of the Company's Common Stock,
issued to the Holder by the Company pursuant to the terms of the Purchase
Agreement.
"WARRANTS SHARES" shall have the meaning set forth in Section
5(d)(i).
2. General Provisions. (a) Any amount of principal or interest
hereof that is not paid when due (whether upon demand, by acceleration or
otherwise) shall bear interest from the day when due until such principal amount
is paid in full, payable on demand, at an interest rate per annum equal at all
times to the lesser of 18% per annum or the maximum amount permitted by
applicable law (the "DEFAULT RATE"). All interest shall be computed on the basis
of a year of 360 days for the actual number of days (including the first day but
excluding the last day) elapsed. Notwithstanding any other provision of this
Note, interest paid or becoming due hereunder shall in no event exceed the
maximum rate permitted by applicable law. All regularly
6
<PAGE> 8
scheduled interests payments made hereunder shall be made in cash in immediately
available funds.
(b) All payments made to the Holder in accordance with the
terms hereof shall be noted by the Holder on Schedule I attached hereto and
hereby made a part hereof and shall be binding absent manifest error; provided,
however, that any error or omission by the Holder in this regard shall not
affect the obligation of the Company to pay the full amount of the principal and
interest due hereunder.
(c) If any amount payable hereunder shall be due on a Saturday
or a Sunday or a day on which commercial banking institutions in the City of New
York are authorized by law to be closed (any other day being a "BUSINESS DAY"),
such payment may be made on the next succeeding Business Day, and such extension
of time shall in such case be included in the computation of interest payable
hereon.
(d) Both principal and interest are payable in lawful money of
the United States and in immediately available funds at the offices of Holder,
c/o Stark Investments, 1500 West Market Street, Mequon, WI 53092, Attn: Brian
Davidson, or at such other place as the Holder shall designate in writing to the
Company.
(e) This Note may be transferred in whole or in part only by
registration of such transfer on the Note Register maintained for such purpose
by the Company as provided in Section 17(b) hereof. No such transfer shall be
permitted unless made in compliance with applicable state and federal securities
laws, and the transferor and transferee shall execute such documents as the
Company shall reasonably request to evidence compliance with applicable state
and federal securities laws.
3. Holder's Conversion of Note.
(a) Conversion Right. The Holder shall have the right, at its
option, to convert the Note, in whole or in part, into fully paid, validly
issued and nonassessable shares of the Company's Common Stock at any time and
from time to time (including, without limitation, during the continuance of a
Senior Debt Default) that this Note is outstanding. If this Note is converted in
part, the remaining portion of this Note not so converted shall remain entitled
to the conversion and other rights provided herein.
(b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of the Note pursuant to Section 3(a) shall be
determined in accordance with the following formula:
7
<PAGE> 9
N = P
---------
C
N = Number of shares of Common Stock to be issued;
P = Outstanding Principal Amount submitted for conversion,
together with any accrued and unpaid interest on such
Outstanding Principal Amount through the date of conversion;
and
C = The then-applicable Conversion Price.
(c) [INTENTIONALLY OMITTED]
(d) Anti-Dilution. In order to prevent dilution of the rights
granted under this Note, the Conversion Price and the Closing Bid Prices for any
days during any measuring period for determination of the Reset Fixed Conversion
Price prior to any of the events set forth below (the "ADJUSTING CLOSING BID
PRICES") will be subject to adjustment from time to time as provided in this
Section 3(d); provided that no such adjustment will be made in connection with
the issuance, within 60 days of the Closing Date, to The Learning Company (or
any affiliate thereof) of Common Stock or options to purchase Common Stock in an
amount not to exceed 200,000 shares:
(i) Dividends and Distributions. If the Company shall
declare or pay to the Holder of the Common Stock a dividend or other
distribution payable in shares of Common Stock or any other security convertible
into or exchangeable for shares of Common Stock, the Holder of the Note
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common Stock or other securities convertible into or exchangeable for
shares of Common Stock, as applicable, which the Holder would have owned or been
entitled to receive after the declaration and payment of such dividend or other
distribution as if the Note had been converted immediately prior to the record
date for the determination of stockholders entitled to receive such dividend or
other distribution.
(ii) Stock Splits and Combinations. If the Company shall
subdivide (by means of any stock split, stock dividend, recapitalization or
otherwise) the outstanding shares of Common Stock into a greater number of
shares of Common Stock, or combine (by means of any combination, reverse stock
split or otherwise) the outstanding shares of Common Stock into a lesser number
of shares, or issue by reclassification of shares of Common Stock any shares of
the Company, the Conversion Price and the Adjusting Closing Bid Prices in effect
immediately prior thereto shall be adjusted so that the Holder shall be entitled
to receive the number of shares of Common Stock which the Holder would have
owned or been entitled to receive after the happening of any and each of the
events described above if the Note had been converted immediately prior to the
happening of each such event on the day upon which such subdivision or
combination, as the case may be, becomes effective.
(iii) Organic Changes. In case the Company shall effect an
Organic Change, then the Holder shall be given a written notice from the Company
informing
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<PAGE> 10
such Holder of the terms of such Organic Change and of the record date thereof
for any distribution pursuant thereto, at least twenty (20) days in advance of
such record date, and, if such record date shall precede the Maturity Date, the
Holder shall have the right thereafter to receive, upon conversion of the Note,
the number of shares of stock or other securities, property or assets of the
Company, or its successor or transferee or any affiliate thereof, or cash
receivable upon or as a result of such Organic Change that would have been
received by a holder of the number of shares of Common Stock equal to the number
of shares the Holder would have received had such Holder converted the Note
prior to such event at the Conversion Price immediately prior to such event. In
any such case, the Company will make appropriate provision (in form and
substance reasonably satisfactory to the Holder) with respect to such Holder's
rights and interests to insure that the provisions of this Section 3(d)(iii)
will thereafter be applicable to the Note (including, in the case of any such
Organic Change in which the successor entity or purchasing entity is other than
the Company, an immediate adjustment of the Conversion Price to the value for
the Common Stock reflected by the terms of such Organic Change, if the value so
reflected is less than the Conversion Price in effect immediately prior to such
Organic Change). The Company will not effect any such Organic Change unless
prior to the consummation thereof the successor entity (if other than the
Company) resulting from such Organic Change assumes, by written instrument (in
form and substance satisfactory to the Holder), the obligation to deliver to
Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to acquire. The provisions of
this subparagraph (iii) shall similarly apply to successive Organic Changes.
(iv) Deemed Issuances. For the purpose of making any
adjustment to the Conversion Price under Section 3(d)(vi) below, if the Company
in any manner grants any rights or options to subscribe for or to purchase one
or more classes of its Common Stock (other than pursuant to an Approved Stock
Plan, pursuant to a transaction that would not constitute the issuance of
Additional Shares of Common Stock, or upon conversion of the Note) or any stock
or other securities convertible into or exchangeable for Common Stock (such
rights or options being herein called "OPTIONS" and such convertible or
exchangeable stock or securities being herein called "CONVERTIBLE SECURITIES"),
and if the quotient determined by dividing the total number of Additional Shares
of Common Stock issued or sold, or deemed to have been issued or sold, by the
Company hereunder, into the aggregate consideration received, or deemed to have
been received hereunder, by the Company, for the issue of such Additional Shares
of Common Stock (computed without reference to any additional or similar
protective or antidilution clauses) (the "EFFECTIVE PRICE"), is less than the
Conversion Price immediately prior to such time, then the Company shall be
deemed to have issued, at the time of the issuance of such Options or
Convertible Securities, that number of Additional Shares of Common Stock that is
equal to the maximum number of shares of Common Stock issuable upon exercise or
conversion of such Options or Convertible Securities upon their issuance and to
have received, as the aggregate consideration received for the issuance of such
shares, an amount equal to the total amount of the consideration, if any,
received by the Company for the issuance of such Options or Convertible
Securities, plus, in the case of such Options, the minimum amounts of
consideration, if any, payable to the Company upon the exercise in full of such
Options, plus, in the case of Convertible Securities, the minimum amounts of
consideration, if any, payable to the Company
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<PAGE> 11
(other than by cancellation of liabilities or obligations evidenced by such
Convertible Securities) upon the conversion or exchange thereof; provided that:
(a) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
then the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses;
(b) if the minimum amount of consideration payable to the
Company upon the exercise of Options or the conversion or exchange of
Convertible Securities is reduced over time or upon the occurrence or
non-occurrence of specified events other than by reason of antidilution or
similar protective adjustments, then the Effective Price shall be recalculated
using the figure to which such minimum amount of consideration is reduced; and
(c) if the minimum amount of consideration payable to the
Company upon the exercise of such Options or the conversion or exchange of
Convertible Securities is subsequently increased, then the Effective Price shall
again be recalculated using the increased minimum amount of consideration
payable to the Company upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the issuance of
such Options or Convertible Securities, shall be made as a result of the actual
issuance of shares of Common Stock on the exercise of any such Options or the
conversion or exchange of any such Convertible Securities.
(v) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for any class of Common Stock be reduced at any time below the
Conversion Price immediately prior to such change, the Conversion Price at the
time of such change shall be adjusted, effective on and after the date of such
change, to the Conversion Price which would have been in effect on the date of
such change had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold; provided that no adjustment shall be made if such adjustment would result
in an increase of the Conversion Price then in effect.
(vi) Issuance of Additional Shares of Common Stock. In
case the Company at any time or from time to time after the date hereof shall
issue or sell Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 3(d)(ii), (iv) and (v)),
without consideration or for a consideration per share less than the Conversion
Price immediately prior to such issue or sale, then, and in such case, the
Conversion Price shall be reduced, to a price determined by multiplying such
Conversion Price by a fraction:
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<PAGE> 12
(A) the numerator of which shall be the sum of (i)
the number of shares of Common Stock outstanding immediately prior to such issue
or sale and (ii) the number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of such Additional
Shares of Common Stock so issued or sold would purchase at the Market Price; and
(B) the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such issue or sale,
provided, that, for the purposes of this Section 3(d)(vi), immediately after any
Additional Shares of Common Stock are deemed to have been issued pursuant to
Section 3(c)(ii), (iv) or (v), (x) such Additional Shares of Common Stock shall
be deemed to be outstanding, and (y) treasury shares of Common Stock shall not
be deemed to be outstanding.
(iv) Other Dilutive Events. In case any event shall occur
as to which the provisions of this Section 3(d) are not strictly applicable or
if strictly applicable would not fairly protect the conversion rights of the
Holder in accordance with the essential intent and principles of this Section
3(d), then, in each such case, the Board of Directors of the Company shall make
an adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to preserve, without dilution, the
conversion rights represented by this Note.
(v) No Dilution or Impairment. The Company shall not, by
amendment of its certificate of incorporation or through any Organic Changes or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Note, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (i) shall take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock, free from all taxes, liens, security
interests, encumbrances, preemptive rights and charges on the conversion of this
Note from time to time outstanding, (ii) shall not take any action which results
in any adjustment of the Conversion Price or the Adjusting Closing Bid Prices if
the total number of shares of Common Stock issuable after the action upon the
conversion of this Note would exceed the total number of shares of Common Stock
then authorized by the Company's certificate of incorporation and available for
the purpose of issue upon such exercise, (iii) shall not permit the par value of
any shares of stock receivable upon the conversion of this Note to exceed the
amount payable therefor upon such exercise and (iv) shall not issue any capital
stock of any class which is preferred as to dividends or as to the distribution
of assets upon voluntary or involuntary dissolution, liquidation or winding-up,
unless the rights of the Holder thereof shall be limited to a fixed sum or
percentage of par value or a sum determined by reference to a formula by a
financial institution or a similar indicator of interest rates in respect of
participation in dividends and to a fixed sum or percentage of par value in any
such distribution of assets.
(vi) Notices.
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<PAGE> 13
(A) Immediately upon any adjustment pursuant hereto
of the Conversion Price or the Adjusting Closing Bid Prices, the Company will
give written notice thereof to the Holder, setting forth in reasonable detail
and certifying the calculation of such adjustment.
(B) The Company will give written notice to the
Holder at the time it notifies its common shareholders (I) with respect to any
dividend or distribution upon the Common Stock, or (II) for determining rights
to vote with respect to any Organic Change, dissolution or liquidation; provided
that in no event shall such notice be provided to the Holder prior to such
information being made known to the public.
(C) The Company will also give written notice to the
Holder at least twenty (20) days prior to the date on which any Organic Change,
dissolution or liquidation will take place.
(vii) Further Adjustments. Successive adjustments in the
Conversion Price and Adjusting Closing Bid Prices shall be made whenever any
event specified above shall occur. All calculations under this Section 3(d)
shall be made to the nearest cent. No adjustment in the Conversion Price or the
Adjusting Closing Bid Prices shall be made if the amount of such adjustment
would be less than $0.01, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together with
any subsequent adjustment which, together with such amount and any other amount
or amounts so carried forward shall aggregate $0.01 or more.
(e) Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice as provided
for in Section 6 below:
(i) Holder's Delivery Requirements. To convert the Note
into full shares of Common Stock on any date (the "CONVERSION DATE"), the Holder
shall (A) deliver or transmit by facsimile, for receipt on or prior to 11:59
p.m., Pacific Time on such date, a copy of a fully executed notice of conversion
in the form attached hereto as Exhibit A (the "CONVERSION NOTICE"), to the
Company or its designated transfer agent (the "TRANSFER AGENT") to the effect
that the Holder elects to convert a specified amount of the Outstanding
Principal Amount of this Note and (B) surrender to a common carrier for delivery
to the Company or the Transfer Agent as soon as practicable following such date,
the originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall on or prior to the next
Business Day send, via facsimile, a confirmation of receipt of such Conversion
Notice to the Holder. Upon receipt by the Company or the Transfer Agent of the
originally executed Conversion Notice, the Company or the Transfer Agent (as
applicable) shall, on the next Business Day following the date of receipt (or
the second Business Day following the date of receipt if received after 11:00
a.m. local time of the Company or Transfer Agent, as applicable), (A) issue and
surrender to a common carrier for overnight delivery to the address as specified
in the Conversion Notice, a certificate(s), registered in the name of the Holder
or its designee, for the number of shares of
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<PAGE> 14
Common Stock to which the Holder shall be entitled, (B) credit such aggregate
number of shares of Common Stock to which the Holder shall be entitled to the
Holder's or its designee's balance account with The Depositary Trust Company or
(C) if the Holder requests, issue shares in electronic format (e.g., via DWAC).
(iii) Dispute Resolution. In the case of a dispute as to
the determination of the Conversion Price, the Company shall promptly issue to
the Holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the Holder via
facsimile within one (1) Business Day of receipt of such Holder's Conversion
Notice. If such Holder and the Company are unable to agree upon the
determination of the Conversion Price within one (1) Business Day of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall use it best efforts to within two (2) Business Days
submit via facsimile the disputed determination of the Conversion Price to an
independent, reputable accounting firm of national standing acceptable to the
Company and the Holder. The Company shall use its best efforts to cause such
accounting firm to perform the determinations or calculations and notify the
Company and the Holder of the results no later than forty-eight (48) hours from
the time it receives the disputed determinations or calculations. Such
accounting firm's determination shall be binding upon all parties absent
manifest error.
(iv) Record Holder. The Person or Persons entitled to
receive the shares of Common Stock issuable upon a conversion of the Note shall
be treated for all purposes as the record holder or Holder of such shares of
Common Stock on the applicable Conversion Date.
(v) Company's Failure to Timely Convert. If the Company
shall fail (other than as a result of the situations described in Section 6(a)
with respect to which the Holder has elected, and the Company has satisfied its
obligations under, one of the options set forth in subparagraphs (i) through
(iv) of Section 6(a)) to issue to the Holder on a timely basis as described in
this Section 3(e), a certificate(s) for the aggregate number of shares of Common
Stock to which the Holder is entitled upon the Holder's conversion of the Note
as reflected in the applicable Conversion Notice, the Company shall pay damages
to the Holder equal to the greater of (A) actual damages incurred by the Holder
as a result of the Holder's needing to "buy in" shares of Common Stock to the
extent necessary to satisfy its securities delivery requirements ("BUY IN ACTUAL
DAMAGES") and (B) if the Company fails to deliver such certificates within five
days after the last possible date which the Company could have issued such
Common Stock to the Holder without violating this Section 3(e), on each date
such conversion is not timely effected in an amount equal to 1% of the product
of (I) the number of shares of Common Stock not issued to the Holder on a timely
basis and to which the Holder is entitled and (II) the Closing Bid Price of the
Common Stock on the last possible date which the Company could have issued such
Common Stock to the Holder without violating this Section 3(e).
(f) Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon any conversion shall be
rounded up or down to the nearest whole share.
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<PAGE> 15
(g) Taxes. The Company shall pay any and all taxes which may
be imposed upon it with respect to the issuance and delivery of Common Stock
upon any conversion.
4. Prepayment at the Option of the Company.
So long as, for a thirty (30) consecutive Business Day period
prior to a Prepayment Notice (as defined below), and continuing through the date
of prepayment, (a) all shares of Common Stock issuable upon conversion of the
entire outstanding principal amount of the Note are (i) authorized and reserved
for issuance, (ii) registered for resale under the Securities Act by the Holder
(or may be otherwise sold publicly by the Holder without restriction), and (iii)
eligible to be traded on the NASDAQ, the New York Stock Exchange, the American
Stock Exchange or any other national securities exchange or market and (b) there
is not a Default then-continuing, then at any time nine commencing (9) months
after the Closing Date, the Company may, upon irrevocable notice (the
"PREPAYMENT NOTICE") to the Holder specifying a date for mandatory prepayment
which is twenty (20) Business Days after the Holder's receipt of the Prepayment
Notice (the "PREPAYMENT DATE"), prepay the Note in an amount equal to the
Prepayment Amount. Notwithstanding the foregoing, such nine month period prior
to prepayment shall be extended, day for day, for each day commencing on the
120th day following the Closing Date that the Holder is unable to sell Common
Stock of the Company pursuant to an effective Registration Statement under the
Registration Rights Agreement; provided that the Holder shall not be prohibited
from converting the Note pursuant to Section 3 during such twenty (20) day
period. The Company shall pay the Holder on such Prepayment Date, in immediately
available funds, an amount equal to 125% of the then Outstanding Principal
Amount, plus accrued and unpaid interest to the date of such prepayment. Upon
receipt of such funds (the "PREPAYMENT AMOUNT"), the Holder shall surrender the
Note, duly endorsed for cancellation, to the Company or the Transfer Agent. No
Person shall thereafter have any rights in respect of the Note, except the right
to receive the payment set forth in this Section 4 and except as otherwise
provided in the Documents. The provisions of this Section 4 shall not be deemed
to restrict the ability of the Holder to convert the Note pursuant to the
provisions of Section 3 at any time prior to the Prepayment Date.
5. Acceleration Provisions.
(a) Acceleration Upon Major Transaction. In addition to all
other rights of the Holder contained herein (including, without limitation, the
provisions of Section 3), after a Major Transaction the Holder shall have the
right, at the Holder's option, to require that the Company prepay the then
Outstanding Principal Amount of the Note in an amount equal to the greater of
(i) the Prepayment Amount as if the Prepayment Date occurred on the date the
Major Transaction was consummated, together with accrued and unpaid interest and
all other amounts due hereunder and (ii) the product of (A) the number of shares
of Common Stock that would be issued upon conversion of this Note in accordance
with Section 3(b) hereof and (B) the Average Market Price ("MAJOR TRANSACTION
ACCELERATION Price") on the date immediately preceding the Major Transaction.
The provisions of this Section 5(a) shall not be deemed to
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<PAGE> 16
restrict the ability of the Holder to convert the Note pursuant to the
provisions of Section 3 at any time and from time to time before the
consummation of a Major Transaction.
(b) Acceleration Option Upon Triggering Event. In addition to
all other rights of the Holder contained herein (including, without limitation,
the provisions of Section 3), after a Triggering Event, the Holder shall have
the right, at the Holder's option, to declare all or a portion of the
Outstanding Principal Amount of the Note to be due and payable at a price equal
to the greater of:
(1) the product of (i) the aggregate number of shares of
Common Stock for which the amount of the Note being converted would be converted
into as of the date immediately preceding such Triggering Event on which the
exchange or market on which the Common Stock is traded is open multiplied by
(ii) the greater of (A) the Conversion Price calculated as if the Conversion
Date were the date immediately preceding such Triggering Event and (B) the
Market Price of the Common Stock on such date ("TRIGGERING EVENT ACCELERATION
PRICE" and, collectively with "Major Transaction Acceleration Price," the
"ACCELERATION PRICE"). The provisions of this Section 5(b) shall not be deemed
to restrict the ability of the Holder to convert the Note pursuant to the
provisions of Section 3 at any time and from time before the Holder receives the
Triggering Event Acceleration Price; or
(2) 125% of the outstanding principal amount of the Note, plus
accrued and unpaid interest.
(c) "Major Transaction". A "MAJOR TRANSACTION" shall be deemed
to have occurred at such time as any of the following events:
(i) the consolidation or merger of the Company with or
into another Person (other than pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company or
pursuant to a merger after which the holders of the Company's outstanding
capital stock immediately prior to the merger own a number of shares of the
resulting company's outstanding capital stock sufficient to elect a majority of
the resulting company's board of directors) where the purchase price is paid in
cash or where the surviving entity is not a publicly traded company whose shares
are then eligible to be traded on the NASDAQ, the New York Stock Exchange, the
American Stock Exchange or another national securities exchange or market;
(ii) the sale, transfer, lease, disposal or abandonment of
(whether in one transaction or in a series of transactions) substantially all of
the Company's assets (other than a sale or transfer to an entity controlling,
controlled by or under common control with the Company); or
(iii) a purchase, tender or exchange offer for more than
50% of the outstanding shares of Common Stock is made and accepted by the
holders thereof where the purchase price is paid in cash or where the surviving
entity is not a publicly traded company whose shares are then eligible to be
traded on the NASDAQ, the New York Stock Exchange, the American Stock Exchange
or another national securities exchange or market.
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<PAGE> 17
(d) "Triggering Event". A "TRIGGERING EVENT" shall be deemed
to have occurred at such time as any of the following events:
(i) notice from the Company that Common Stock issued or
issuable upon conversion of this Note or otherwise issuable pursuant hereto (the
"CONVERSION SHARES") or the Warrants (the "WARRANT SHARES") cannot be sold under
the Registration Statement covering such Common Stock (the "SUSPENSION PERIOD"),
for any period exceeding any Allowed Delays under the Registration Rights
Agreement by more than five Business Days, or for more than two periods of
Allowed Delays during any period of 12 months, or for more than three periods of
Allowed Delays during any period of 24 months, in each of the above cases, that
is (A) after the date the Registration Statement has been declared effective by
the SEC and (B) prior to the time that the Conversion Shares may be sold without
limitation in accordance with Rule 144(k) or Rule 144 under the Securities Act;
provided that any demand for acceleration under this Section 5(d)(i) must be
made by the Holder within 15 days after receipt of notice from the Company of
the termination of the Suspension Period; and, provided further that if the
aggregate number of days in all Suspension Periods (the "SUSPENSION DAYS") is
equal to or greater than 20 days, then the Maturity Date may, at the option of
the Holder, be extended by the aggregate number of Suspension Days;
(ii) the failure of the Common Stock, Conversion Shares,
or Warrant Shares to be listed on the AMEX, The New York Stock Exchange or
NASDAQ for a period of ten (10) consecutive trading days or any twenty (20)
non-consecutive trading days during any period of 180 consecutive days (the
"DELISTING PERIOD") (i) provided, however, that any demand for acceleration
under this Section 5(d)(ii) must be made by the Holder within 30 days after
receipt of the Notice of Triggering Event (as defined in Section 5(f)); or
(iii) the Company's notice to the Holder, including by way
of public announcement, at any time, of its intention not to comply with proper
requests for conversion of the Note or exercise of the Warrants into shares of
Common Stock, including due to any of the reasons set forth in Section 6(a)
below, except in any case in which the basis for such intention by the Company
is a bona fide dispute as to the right of the Holder of such conversion.
(e) Mechanics of Acceleration Upon Major Transaction. The
Company shall use its best efforts to, no sooner than fifteen (15) days nor
later than ten (10) days prior to the consummation of a Major Transaction, but
not prior to the public announcement of such Major Transaction, and in any case
shall at least five days prior to such consummation, deliver written notice
thereof via facsimile and overnight courier ("NOTICE OF MAJOR TRANSACTION") to
the Holder.
(f) Mechanics of Acceleration at Option of Holder Upon
Triggering Event. Within one (1) day after the occurrence of a Triggering Event,
the Company shall deliver written notice thereof via facsimile and overnight
courier ("NOTICE OF TRIGGERING EVENT") to the Holder. After any Triggering
Event, unless prior to the time of delivery of such notice the Triggering Event
has been cured and remains so cured for a period of twenty (20) consecutive
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<PAGE> 18
Business Days, the Holder may require the Company to prepay the Note in
accordance with Sections 5(b) and 5(d) hereof by delivering written notice
thereof via facsimile and overnight courier ("NOTICE OF ACCELERATION AT OPTION
OF HOLDER UPON TRIGGERING EVENT") to the Company, which Notice of Acceleration
at Option of Holder Upon Triggering Event shall indicate the applicable
Acceleration Price, as calculated pursuant to Section 5(b) above.
(g) Payment of Acceleration Price. Promptly after the
occurrence of a Major Transaction or upon the Company's receipt of a Notice of
Acceleration at Option of Holder Upon Triggering Event from the Holder, the
Company shall immediately notify the Holder by facsimile of the mechanics of the
delivery of the Holder's Note and the Holder shall thereafter promptly send the
Note to the Company or its Transfer Agent. The Company shall deliver the
applicable Acceleration Price to the Holder within ten (10) days after the
Company's delivery of a Notice of Major Transaction or the Company's receipt of
the applicable notice to affect an acceleration; provided that the Holder's Note
shall have been so delivered to the Company or its Transfer Agent. In the event
of a dispute as to the determination of the arithmetic calculation of the
Acceleration Price, such dispute shall be resolved pursuant to Section 3(e)(iii)
above. Payments provided for in this Section 5 shall have priority to payments
to other stockholders in connection with a Major Transaction.
6. Inability to Fully Convert Note.
(a) Holder's Option if Company Cannot Fully Convert. If, upon
the Company's receipt of a Conversion Notice, the Company cannot issue shares of
Common Stock registered for resale under the Registration Statement for any
reason, including, without limitation, because the Company (x) does not have a
sufficient number of shares of Common Stock authorized and available, (y) is
otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its securities, including
without limitation the AMEX or NASDAQ, from issuing all of the Common Stock
which is to be issued to the Holder pursuant to a Conversion Notice or (z) fails
to have a sufficient number of shares of Common Stock registered for resale
under the Registration Statement, then the Company shall issue as many shares of
Common Stock as it is able to issue in accordance with the Holder's Conversion
Notice and pursuant to Section 3(e) above, and with respect to the unconverted
portion of the Note, the Holder, solely at its option, can elect to (unless the
Company issues and delivers the Conversion Shares underlying the unconverted
portion of the Note prior to the Holder's election hereunder, in which case the
Holder shall only be entitled to receive Buy In Actual Damages under Section
3(e)(v)):
(i) require the Company to pay the Holder for the portion
of Outstanding Principal Amount of the Note plus accrued interest thereon for
which the Company is unable to issue Common Stock in accordance with the
Holder's Conversion Notice ("MANDATORY PAYMENT") in an amount (the "MANDATORY
PAYMENT PRICE") equal to the Triggering Event Acceleration Price as of such
Conversion Date;
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<PAGE> 19
(ii) if the Company's inability to fully convert the Note
is pursuant to Section 6(a)(z) above, require the Company to issue restricted
shares of Common Stock in accordance with the Holder's Conversion Notice and
pursuant to Section 3(e) above;
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted portion of the Note that was to
be converted pursuant to the Holder's Conversion Notice; or
(iv) if the Company's inability to fully convert the Note
is pursuant to the AMEX or the NASDAQ rules and regulations described in Section
6(a)(y) above, require the Company to issue shares of Common Stock in accordance
with the Holder's Conversion Notice and pursuant to Section 3(e) above at a
Conversion Price equal to the Average Market Price of the Common Stock preceding
the Holder's Notice in Response to Inability to Convert (as defined below).
(b) Mechanics of Fulfilling Holder's Election. The Company
shall immediately send via facsimile to the Holder, upon receipt of a facsimile
copy of a Conversion Notice from the Holder which cannot be fully satisfied as
described in Section 6(a) above, a notice of the Company's inability to fully
satisfy the Holder's Conversion Notice (the "INABILITY TO FULLY CONVERT
NOTICE"). Such Inability to Fully Convert Notice shall indicate (i) the reason
why the Company is unable to fully satisfy the Holder's Conversion Notice, (ii)
the portion of the Outstanding Principal Amount of the Note plus accrued
interest thereon which cannot be converted and (iii) the applicable Mandatory
Payment Price. The Holder must within five (5) Business Days after receipt of
such Inability to Fully Convert Notice deliver written notice via facsimile to
the Company ("NOTICE IN RESPONSE TO INABILITY TO CONVERT") of its election
pursuant to Section 6(a) above.
(c) Payment. If the Holder shall elect to have its Note
prepaid pursuant to Section 6(a)(i) above, the Company shall pay the Mandatory
Payment Price in immediately available funds to the Holder within ten (10) days
of the Company's receipt of the Holder's Notice in Response to Inability to
Convert. If the Company shall fail to pay the applicable Mandatory Payment Price
to the Holder on a timely basis as described in this Section 6(c) (other than
pursuant to a dispute as to the determination of the arithmetic calculation of
the Acceleration Price), in addition to any remedy the Holder may have under
this Note, such unpaid amount shall bear interest at the Default Rate until paid
in full. Until the full Mandatory Payment Price is paid in full to the Holder,
the Holder may void the request for the Mandatory Payment with respect to the
portion of the Note for which the full Mandatory Payment Price has not been paid
and in no event shall such voidance be deemed forgiveness of any amounts due
under this Note. Notwithstanding the foregoing, if the Company fails to pay the
applicable Mandatory Payment Price within such ten (10) day time period due to a
dispute as to the determination of the arithmetic calculation of the
Acceleration Price, such dispute shall be resolved pursuant to Section 3(e)(iii)
above.
(d) Limitation on Number of Common Shares to be Issued.
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<PAGE> 20
(i) Notwithstanding anything to the contrary contained in
this Note, if, at any time, the aggregate number of shares of Common Stock then
issued upon conversion of this Note equals 19.99% of the outstanding Common
Stock of the Company on the Issuance Date, subject to adjustments for stock
dividends, stock splits, combinations or similar events, this Note shall, from
that time forward, cease to be convertible into Common Stock in accordance with
the terms of Section 3, unless the Company (x) has obtained approval of the
issuance of this Note by a majority of the total votes eligible to be cast on
such proposal, in person or by proxy, by the holders of the then-outstanding
Common Stock (the "STOCKHOLDER APPROVAL"), (y) shall have otherwise obtained
permission to allow such issuance from the Nasdaq or such other principal
exchange upon which the Common Stock is then trading (the "COMMON STOCK
EXCHANGE"); or (z) is no longer governed by a rule promulgated by a stock
exchange, Nasdaq or other applicable body prohibiting the issuance of Common
Stock upon conversion of the Note in excess of 19.99% of the outstanding Common
Stock without shareholder approval.
(ii) The maximum number of shares of Common Stock issuable
as a result of the limitation set forth in Section 6(d)(i) is hereinafter
referred to as the "MAXIMUM SHARE AMOUNT." With respect to each Holder of Notes,
the Maximum Share Amount shall refer to such Holder's pro rata share thereof, as
determined to subsection (iii), below. The Company will use its best efforts to
seek and obtain Stockholder Approval (or obtain such other relief as will allow
conversions hereunder in excess of the Maximum Share Amount) no later than 60
days following any date that the shares of Common Stock issued and issuable upon
exercise of the Warrants plus the number of shares issued and issuable upon
conversion of the Notes at (a) prior to the Reset Date, the lowest possible
Conversion Price as of the Reset Date, and (b) after the Reset Date, the
Conversion Price, in each case exceeds the Maximum Share Amount. In the event
that the Company obtains Stockholder Approval, the approval of the Common stock
exchange or otherwise concludes that it is able to increase the number of shares
to be issued above the Maximum Share Amount (such increased number being the
"NEW MAXIMUM SHARE AMOUNT"), the references to Maximum Share Amount, above,
shall be deemed to be instead, references to the great New Maximum Share Amount.
In the event that Stockholder Approval is obtained, but there are insufficient
reserved or authorized shares or a registration statement covering the
additional shares of Common stock which constitute the New Maximum Share Amount
is not effective prior to the Maximum Share Amount being issued (if such
registration statement is necessary to allow for the public resale of such
securities), the Maximum Share Amount shall remain unchanged; provided, however,
that the Holder may grant an extension to obtain a sufficient reserved or
authorized amount of shares or of the period for obtaining effectiveness of such
registration statement.
(iii) Allocation of Reserved Amount, Maximum Share Amount.
The number of shares reserved for issuance of Common Stock ("RESERVED AMOUNT")
and the Maximum Share Amount shall be allocated among the initial Holders
according to the principal amount of the Notes issued to each such Holder on the
Issuance Date. Any shares constituting the Reserved Amount or the Maximum Share
Amount which were initially allocated to any Holder remaining after such Holder
no longer owns Notes shall be allocated among the
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<PAGE> 21
remaining Holders pro rata, based on the principal amount of the Notes then held
by such Holders.
7. Representations and Warranties.
Each of the representations and warranties made by the Company
in the Purchase Agreement as in effect on the date hereof, without regard to any
amendment, modification or waiver of such provisions, is true and correct on the
date hereof as if made on the date hereof (except for those representations and
warranties that speak as of a specific date), which representations and
warranties (together with all related definitions and ancillary provisions) are
hereby incorporated by reference as if set forth herein in their entirety,
provided, that: (i) references to "this Agreement", "herein", "hereunder", and
words of similar import shall mean and be a reference to this Note; (ii)
references to an "Exhibit" and "Schedule" shall mean and be a reference to the
applicable Exhibit and Schedule to the Purchase Agreement (as in effect on the
date hereof, without regard to any amendment, modification or waiver of such
provisions and without regard to whether or not the Purchase Agreement remains
in effect); and (iii) references to Sections in such representations and
warranties shall be references to Sections of the Purchase Agreement, provided
that to the extent such reference Sections are themselves incorporated in this
Note by reference, references herein to such Sections shall be to such Sections
as they are incorporated.
8. Covenants. (a) So long as any principal or interest is due
hereunder and shall remain unpaid, and so long as any amounts are owed to the
Holder under any provision of the Registration Rights Agreement, the Company
will, unless the Holder shall otherwise consent in writing:
(i) Furnish to the Holder: (i) as soon as possible and in any
event within five days after the occurrence of a Default or any event that, with
the giving of notice or the lapse of time or both, would constitute a Default,
the written statement of the chief financial officer of the Company, setting
forth the details of such Default or event and the action that the Company
proposes to take with respect thereto and (ii) promptly upon request, such other
information concerning the condition or operations, financial or otherwise, of
the Company or any of its Subsidiaries as the Holder from time to time may
reasonably request;
(ii) Comply, and cause each of its Subsidiaries to comply, in
all material respects with all applicable laws, rules, regulations and orders,
such compliance to include, without limitation, payment before the same become
delinquent all taxes, assessments and governmental charges imposed upon it or
upon its property except to the extent contested in good faith and for which
adequate reserves (as determined in accordance with generally accepted
accounting principles consistently applied) have been set aside.
(iii) Maintain and preserve its existence, rights and
privileges, and obtain, maintain and preserve all material permits, licenses,
authorizations and approvals that are necessary in the proper conduct of its
business;
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<PAGE> 22
(iv) Keep adequate records and books of account, in which
complete and correct entries will be made in accordance with generally accepted
accounting principals consistently applied, reflecting all financial
transactions of the Company;
(v) Comply with each of the affirmative and negative
covenants contained in the Purchase Agreement (as in effect on the date hereof,
without regard to any amendment, modification or waiver of such provisions and
without regard to whether or not the Purchase Agreement remains in effect) which
covenants are hereby incorporated by reference as if set forth herein in their
entirety provided that any reference changes provided for in Section 7 hereof
shall also be applicable to this Section 8(a).
(vi) Not create or suffer to exist, or permit any of its
subsidiaries to create or suffer to exist, any lien, mortgage, security
interest, charge or other encumbrance (each, a "LIEN") upon or with request to
any of their properties, rights or other assets, whether now owned or hereafter
acquired, or assign or otherwise transfer or permit any of its Subsidiaries to
assign or otherwise transfer, any right to receive income other than Liens as
may be permitted under any Senior Loan Document.
9. [INTENTIONALLY OMITTED.]
10. No Impairment. The Company shall not intentionally take any
action which would impair the rights and privileges of the Note set forth herein
or the Holder.
11. Limitation on Number of Conversion Shares. Notwithstanding
any provision to the contrary contained herein, in no event shall the Holder be
entitled to convert this Note such that upon giving effect to such conversion,
the aggregate number of shares of Common Stock then beneficially owned by the
Holder and its "affiliates" as defined in Rule 144 of the Act would exceed 4.99%
of the total issued and outstanding shares of the Common Stock following such
conversion. For purposes of this Section, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.
12. Obligations Absolute. No provision of this Note shall alter
or impair the obligation of the Company, which is absolute and unconditional, to
convert this Note pursuant to the provisions of Section 3, and to pay the
principal of, and interest on, this Note at the time, place and rate, and in the
manner, herein prescribed.
13. Waivers of Demand, Etc. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of acceleration or intent to accelerate,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payment of all
sums owing and to be owning hereon, regardless of and without any notice,
diligence, act or omissions as or with respect to the collection of any amount
called for hereunder.
14. Replacement Note. In the event that the Holder notifies the
Company that its Note has been lost, stolen or destroyed, a replacement Note
identical in all respect to the
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<PAGE> 23
original Note (except for the registration number of Outstanding Principal
Amount, if different than that shown on the original Note) shall be issued by
the Company to the Holder, provider that the Holder executes and delivers to the
Company an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such Note, but in no
event shall the aggregate amount of such indemnification exceed the Outstanding
Principal Amount of the Note.
15. Payment of Expenses; Indemnification. The Company agrees to
pay on demand from the proceeds of the sale of the Notes all reasonable costs
and expenses (including, without limitation, fees and expenses of counsel to the
Holder) incurred by the Holder in connection with the preparation, execution and
delivery of this Note and the other Documents, up to $25,000. All costs and
expenses (including, without limitation, fees and expenses of counsel) incurred
by either party in connection with the enforcement of the such party's rights
under this Note, the Warrants, the Registration Rights Agreement or the Purchase
Agreement shall be paid by the prevailing party as determined by any court of
competent jurisdiction. The Company hereby agrees to indemnify and hold harmless
the Holder and its members, partners, agents, employees, affiliates and advisors
from and against any and all claims, damages, losses, liabilities and expenses
(including without limitation, all fees and other client charges of counsel to
the Holder) which may be incurred by or asserted against the Holder or any such
member, partner, agent, employee, affiliate or advisor by any third party in
connection with or arising out of any investigation, litigation or proceeding
related to or arising out of this Note or any other Document or any transaction
contemplated hereby or thereby. The obligations of the Company under this
paragraph shall survive the payment in full of this Note.
16. Restriction on Cash Dividends With Respect to Common Stock.
Until the Note has been converted or redeemed in its entirety as provided
herein, the Company shall not, directly or indirectly, declare or pay any cash
dividend on its Common Stock without the prior express written consent of the
Holder.
17. Assignment and Transfer of Note.
(a) Subject to the restrictions on transfer contained herein,
if applicable, this Note and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Note with
the properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company.
(b) This Note shall be registered in a register (the "NOTE
Register") as it is issued and transferred, which Note Register shall be
maintained by the Company at its principal office or, at the Company's election
and expense, by the Company's Transfer Agent. The Company shall be entitled to
treat the registered holder of the Note on the Note Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Note on the part of any other Person, and
shall not be affected by any notice to the contrary, except that, if and when
any Note is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of such Note
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<PAGE> 24
for all purposes. All of the rights provided to the Holder under this Note, if
properly assigned, may be exercised by a new holder without a new note first
having been issued.
18. Subordination.
(a) Agreement to Subordinate. The Subordinated Debt is and
shall be subordinate, to the extent and in the manner hereinafter set forth, in
right of payment to the prior payment in full of the Senior Debt.
(b) Restrictions on Payment of the Subordinated Debt. All
Senior Debt shall first be paid in full, or such payment shall have been
provided for, before any payment shall be made to the Holder in respect of the
Subordinated Debt; provided, however, that notwithstanding the foregoing, above,
but expressly subject to Section 18(c), below, the Holder may receive, and the
Company may pay, principal of and interest on the Subordinated Debt evidenced by
the Note in the stated amounts and on the stated dates of payment hereof (the
"PERMITTED PAYMENTS"); and (ii) nothing in this Section 18 or otherwise
contained in this Note shall prohibit the Holder, upon maturity of this Note by
acceleration, demand or otherwise, from asserting claims against the Company for
purposes of protecting the Holder's position against the Company vis-a-vis other
creditors, subject to the priority of payment specified in the first sentence of
this Section 18(b).
(c) Payment Blockage and Standstill. Notwithstanding anything
to the contrary contained in this Section 18 or elsewhere in the Documents,
Holder shall not, after delivery to Holder of written notice from a Senior
Lender that (i) an Event of Default under a Senior Loan Document arising out of
the failure by the Company to make a payment on account of principal of or
interest on the Senior Debt (a "SENIOR PAYMENT DEFAULT") shall have occurred and
be continuing (a "SENIOR PAYMENT DEFAULT NOTICE") or (ii) an Event of Default
under a Senior Loan Document other than a Senior Payment Default has occurred
and is continuing (a "BLOCKAGE AND STANDSTILL NOTICE"), accept or receive any
payment of any kind, including any Permitted Payments, of or on account of the
Subordinated Debt, or accelerate the maturity of any Subordinated Debt or
initiate or pursue any other remedies otherwise available to it, including,
without limitation, any enforcement remedy against the Company or any security
for the Subordinated Debt (including, without limitation, any right to sue the
Company on the Subordinated Debt or to file or participate in the filing of an
involuntary bankruptcy petition against the Company), (A) in the case of any
event described in clause (i) above, unless and until the occurrence of one or
more of the events or circumstances described in clauses (ii) through (v) of the
definition of "Blockage Period," below or (B) in the case of any event described
in clause (ii) above, unless and until the expiration or termination of the
Blockage Period. After expiration or termination of the period described in (A)
or (B) in the preceding sentence, Holder shall be entitled to receive all
Permitted Payments not previously paid. Each Senior Payment Default Notice or
Blockage and Standstill Notice shall be effective as of the date of delivery
thereof to Holder. Only one (1) Blockage and Standstill Notice related to the
same or similar set of facts giving rise to the right to deliver a Blockage
Notice may be delivered by each Senior Lender within any 360 day period. As used
herein, a "BLOCKAGE PERIOD" means a period of time beginning on the delivery
date of a Blockage and Standstill Notice and terminating on the earliest to
occur of:
(i) the ninetieth (90th) day following such date;
(ii) the written consent of the Senior Lender who delivered
the Blockage and Standstill Notice to such termination;
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<PAGE> 25
(iii) commencement of a judicial proceeding by a Senior
Lender to collect or enforce any of the Senior Debt or giving notice of the
non-judicial sale of any of the collateral for the Senior Debt;
(iv) the cure to the reasonable satisfaction of the Senior
Lender of each Event of Default which is the basis for the applicable Blockage
and Standstill Notice (such cure of each of the Events of Default which is the
basis for such Blockage and Standstill Notice being deemed to also be a cure of
any default under the Documents arising as a result of the occurrence and
continuance of any such Event of Default); and
(v) Any assignment by the Company for the benefit of the
Company's creditors, any bankruptcy proceedings instituted by or against the
Company, the appointment of any receiver for the Company or the Company's
business or assets, or any dissolution or other winding up of the affairs of the
Company or the Company's business.
Nothing contained in this Section 18 shall limit or affect
the right of a Senior Lender to deliver to Holder a Senior Payment Default
Notice subsequent to the delivery of a Blockage and Standstill Notice if a
Senior Payment Default shall have occurred. Nothing contained in this Section 18
shall limit or affect the right of the Holder to convert this Note pursuant to
Section 3 (including, without limitation, in accordance with the provisions of
Section 19 hereof, and the remedies specified therein) at any time and from time
to time, notwithstanding the occurrence and continuation of any Senior Payment
Default, the delivery of any Senior Payment Default Notice or Blockage and
Standstill Notice, or otherwise. Notwithstanding the delivery of a Blockage and
Standstill Notice , the Holder shall have the right to claim, demand and receive
regularly scheduled interest payments on this Note through December 31, 1999,
unless and until a Senior Payment Default Notice has been properly delivered.
(d) Effect of Subordination.
(i) Except to the extent that the Holder has authorized
the Company, and the Company has bound itself, not to make any payment on the
Subordinated Debt other than in accordance with this Note, as set forth in the
Company's undertaking appearing in this Note, nothing contained herein shall
impair, as between the Company and the Holder, the obligation of the Company,
which is absolute and unconditional to convert this Note pursuant to the
provisions of Section 3 and to pay the principal amount of and interest on the
Subordinated Debt in accordance with the terms hereof, or affect the relative
rights of the Holder and creditors of the Company other than the Holder of the
Senior Debt, nor shall anything herein prevent the Holder from exercising all
remedies otherwise permitted by applicable law upon default, subject to the
rights, if any, under this Note of the Holder of the Senior Debt. In no event
shall any term, covenant, condition or restriction in this Section 18 of this
Note affect in any way any right, power or privilege of the Holder as to the
Company in respect of principal of or interest on the Note, or any related
obligation.
(ii) The Holder shall not at any time be charged with
knowledge of the existence of any facts which would prohibit the making of any
payment to it or the taking of any other action under this Note, unless and
until the Holder and the Company shall
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<PAGE> 26
have received a notice thereof from the applicable holders of the Senior Debt
and, prior to the receipt of any such notice, the Holder shall be entitled to
assume that no such facts exist.
(e) This Section 18 is expressly for the benefit of each
Senior Lender, including without limitation Union Bank of California, N.A., and
Silicon Valley Bank, and the terms and provisions in this Section 18 may be
modified, amended or waived only with the prior written consent of each Senior
Lender, including Union Bank of California, N.A., and Silicon Valley Bank.
Holder agrees to send by facsimile a copy of any notice of acceleration
delivered to the Company to each Senior Lender that has requested such notice in
writing, at the facsimile number specified in such request, at the same time as
any such notice is delivered to the Company; provided that as between Holder and
the Company such notice to the Senior Lenders shall not be required to make the
notice to the Company effective.
19. Events of Default. If any of the following shall occur (each
a "DEFAULT"):
(a) The Company shall fail to pay any principal of this Note
when due (whether by scheduled maturity, acceleration, demand or otherwise), or
shall fail to pay interest or any other amount due under this Note, the Purchase
Agreement or the Registration Rights Agreement within five Business Days of the
date such amount becomes due; or
(b) any representation or warranty made by the Company in
this Note, in any other Document heretofore or hereafter furnished by or on
behalf of the Company (including, without limitation, the Purchase Agreement) or
in any document or certificate in connection with the execution and delivery of
this Note shall have been incorrect in any material respect when made, and the
incorrect fact(s) could reasonably be expected to have a material adverse effect
on (i) the business, properties, operations, condition (financial or otherwise)
or results of operations of the Company and its subsidiaries, taken as a whole,
or (ii) on the ability of the Company to perform its obligations hereunder or
under the agreements or instruments to be entered into or filed in connection
herewith (a "MATERIAL ADVERSE EFFECT") and such incorrect representation or
warranty shall not have been corrected on or prior to the date that is fifteen
(15) days following the earlier of (i) the day any officer of the Company has
knowledge of such incorrect representation or warranty, or (ii) notice from
Holder to that effect; or
(c) the Company shall fail to perform or observe any material
term, covenant or agreement contained in any Document (including, without
limitation, the failure to honor any Conversion Notice or an Election to
Purchase Shares (as defined in the Warrants)) to be performed or observed by the
Company, and such failure could reasonably be expected to have a Material
Adverse Effect (provided that the failure to honor any Conversion Notice or
Election to Purchase Shares shall be deemed to have a Material Adverse Effect);
or
(d) the Company shall fail to pay any debt for borrowed money
or other similar obligation or liability ("INDEBTEDNESS") (excluding
Indebtedness evidenced by this Note, but expressly including Senior Debt), or
any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure shall
continue after the applicable
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<PAGE> 27
grace period, if any, specified in the agreement or instrument relating to such
Indebtedness, or any other default under any agreement or instrument relating to
any such Indebtedness, or any other event, shall occur and shall continue after
the applicable grace period, if any, specified in such agreement or instrument,
if (i) the holder of such indebtedness accelerates the maturity of such
Indebtedness, and (ii) the holder of such indebtedness commences the exercise of
remedies with respect to repayment of the indebtedness (i.e., files an action or
proceeding against the Company thereon or exercises any other remedy against the
Company or any collateral for such indebtedness available to such holder under
applicable law or in equity); or
(e) one or more judgments or orders for the payment of money
exceeding any applicable insurance coverage by more than $1,000,000 shall be
rendered against the Company, and either (i) enforcement proceedings shall have
been commenced by any creditor upon any such judgment or order, or (ii) there
shall be any period of ten (10) consecutive days during which a stay of
enforcement of any such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(f) the Company shall admit in writing its inability to pay
its debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Company
seeking to adjudicate it as bankrupt or insolvent, or seeking dissolution,
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for the Company or for any substantial part of its property (a
"PROCEEDING") and such Proceeding shall remain undismissed or unstayed for a
period of thirty (30) days; or the Company shall take any action to authorize or
effect any of the actions set forth above in this clause (f); or
(g) any material provision of this Note or any other Document
(including, without limitation, the Registration Rights Agreement and the
Purchase Agreement) shall at any time for any reason be declared to be null and
void by a court of competent jurisdiction (other than indemnity provisions of
such agreements found by such a court to be void or voidable as against public
policy), or the validity or enforceability thereof shall be contested by the
Company, or a proceeding shall be commenced by the Company seeking to establish
the invalidity or unenforceability thereof; or
(h) a Senior Debt Default shall have occurred and be
continuing and the creditor of the Company with respect to such Senior Debt
accelerates the maturity of such Indebtedness; or
(i) the company fails to use its good faith best efforts to
obtain effectiveness of the Registration Statement (as defined in the
Registration Rights Agreement) in accordance with the Registration Rights
Agreement;
then the Holder may:
(i) declare the Outstanding Principal Amount of this Note
and all other amounts due hereunder to be immediately due and payable, whereupon
the Outstanding Principal Amount of this Note and all such other amounts shall
become and shall be forthwith
26
<PAGE> 28
due and payable, without diligence, presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived and all such amounts, if
unpaid, shall bear interest at the Default Rate. In such event, this Note shall
be prepaid at a prepayment price equal to 125% of the Outstanding Principal
Amount of the Note plus accrued but unpaid interest and all other amounts due
thereon; and
(ii) notwithstanding any provision to the contrary
contained herein (but subject to Section 6(d), convert this Note at the
then-applicable Conversion Price, or, at the Holder's sole option upon 15 days'
prior written notice to the Company (during which notice period the Company
shall be entitled to pay all amounts due and owing to the Holder under this
Note), convert this Note in accordance with the terms hereof, with the
Conversion Price being modified to equal the lesser of (x) the Closing Bid Price
on the date prior to each such Conversion or (y) the Conversion Price then
otherwise in effect; provided that in the case of a Default described in Section
19(g) which occurs solely as a result of actions and circumstances outside of
the control of Borrower and its affiliates, the Conversion Price shall not be
reduced to the Closing Bid Price on the date prior to Conversion for purposes of
Holder exercising its remedies under this clause (ii); and
(iii) exercise any and all of its other rights under
applicable law, hereunder and under the other Documents.
Upon a Default for the failure to pay interest described in
Section 19(a), the Holder shall have the right, in its sole discretion, in lieu
of accelerating the obligations under clause (i), above, to provide a notice to
the Company of such late interest payment ("INTEREST CONVERSION NOTICE"). Within
five days of the date of delivery of the Interest Conversion Notice the Company
shall be obligated to:
(x) make such late interest payment to Holder; or
(y) subject to Section 6(d), issue fully registered and listed
shares of Common Stock to the Holder equal to 200% of the amount of the late
interest payment multiplied by the Average Closing Price of the Common Stock on
the date prior to payment; provided that the Company shall only be permitted to
so issue stock in lieu of a delinquent interest payment if for a thirty (30)
consecutive Business Day period prior to a Prepayment Notice (as defined below),
and continuing through the date of prepayment: (1) all shares of Common Stock
issuable upon conversion of the entire outstanding principal amount of the Note
are (i) authorized and reserved for issuance, (ii) registered for resale under
the Securities Act by the Holder (or may be otherwise sold publicly by the
Holder without restriction), and (iii) eligible to be traded on the NASDAQ, the
New York Stock Exchange, the American Stock Exchange or any other national
securities exchange or market and (2) there is not a Default (other than failure
to pay interest) then-continuing.
If, after receipt of an Interest Conversion Notice, the Company
shall satisfy either clause (x) or clause (y), above, within the five (5) day
notice period, the late interest payment shall be deemed cured, and Holder shall
have no further remedies as a result solely of such late interest payment (but
excluding remedies available under this Note for other Defaults or any
27
<PAGE> 29
future failure of the Company to timely pay interest). Company's failure to
satisfy either clause (x) or clause (y), above, within the five (5) day notice
period shall constitute a Default.
Upon a Default described in Section 19(f) relating to a
Proceeding affecting the Company, all amounts (inclusive of principal, interest,
premium, and other amounts owed) outstanding under this Note shall become
immediately due and payable without further any further action, notice or demand
by Holder.
20. Taxes, etc. All payments made by the Company hereunder will
be made without setoff, counterclaim or other defense except those, if any, as
are required by law. All such payments shall be made free and clear of and
without deduction for any present or future income, stamp or other taxes,
levies, imposts, deductions, charges, fees, withholding, restrictions or
conditions of any nature now or hereafter imposed, levied, collected, withheld
or assessed by any jurisdiction or by any political subdivision or taxing
authority thereof or therein, and all interest, penalties or similar
liabilities, excluding taxes on the overall net income of the Holder (such
non-excluded taxes are hereinafter collectively referred to as the "TAXES"). If
the Company shall be required by law to deduct or to withhold any Taxes from or
in respect of any amount payable hereunder, (i) the amount so payable shall be
increased to the extent necessary so that after making all required deductions
and withholdings (including Taxes on amounts payable to the Holder pursuant to
this sentence) the Holder receives an amount equal to the sum it would have
received had no such deductions or withholdings been made, (ii) the Company
shall make such deductions or withholdings and (iii) the Company shall pay the
full amount deducted or withheld to the relevant taxation authority in
accordance with applicable law. Whenever any Taxes are payable by the Company,
as promptly as possible thereafter the Company shall send the Holder an official
receipt showing payment. In addition, the Company agrees to pay any present or
future taxes, charges or similar levies which arise from any payment made
hereunder or from the execution, delivery, performance, recordation or filing
of, or otherwise with respect to, this Note or any other Document, except for
the excluded taxes referred to in the second sentence of this Section 20
(hereinafter referred to as "OTHER TAXES"). The Company will indemnify the
Holder for the full amount of Taxes or Other Taxes (including, any Taxes or
Other Taxes on amounts payable to the Holder under this paragraph) paid by the
Holder and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, upon written demand by the Holder therefor.
21. Miscellaneous.
(a) The Company agrees that all notices or other
communications provided for hereunder shall be in writing (including
telecommunications) and shall be mailed, telecopied or delivered to the Company
at the address of the Company set forth next to its signature, or at such other
address as may hereafter be specified by the Company to the Holder in writing.
All notices and communications shall be effective (i) if mailed, when received,
(ii) if telecopied, when transmitted, and (iii) if delivered, upon delivery.
(b) No failure on the part of the Holder to exercise, and no
delay in exercising, any right, power, privilege or remedy hereunder shall
operate as a waiver thereof, nor
28
<PAGE> 30
shall any single or partial exercise thereof by the Holder preclude any other or
further exercise thereof or the exercise of any other right, power, privilege or
remedy of the Holder. No amendment or waiver of any provision of this Note, nor
consent to any departure by the Company therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Holder, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
(c) Any provision hereof which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
(d) The Company (by its acceptance hereof) waives any right
to trial by jury in any action, proceeding or counterclaim arising out of or
relating to this Note.
(e) This Note shall be governed by and interpreted in
accordance with the laws of the State of California without regard to the
principles of conflict of laws. The Company irrevocably consents to the
jurisdiction of the United States federal courts and the state courts located in
San Francisco, California in any suit or proceeding based on or arising under
this Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process upon the Company mailed by
first class mail shall be deemed in every respect effective service of process
upon the Company in any such suit or proceeding. Nothing herein shall affect the
right of the Purchaser to serve process in any other manner permitted by law.
The Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner. The Company acknowledges
that if it fails to perform, observe or discharge any or all of its obligations
under this Note, any remedy at law may prove to be inadequate relief to the
Holder. The Company therefore agrees that the Holder shall be entitled to
temporary or permanent injunctive relief in any such case without the necessity
of affirmatively proving irreparable harm, uncertainty of damages, or other
factors that might otherwise be required to be found prior to the granting of
injunctive relief.
29
<PAGE> 31
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
By: ______________________________________
Name:
Title:
Address:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, California 94949
Telephone: (415) 257-3000
Facsimile: (415) 257-3565
Attention: Costa John
Accepted:
BAYSTAR CAPITAL L.P.
By: BAYSTAR MANAGEMENT LLC,
ITS GENERAL PARTNER
By: __________________________
Name:
Its:
30
<PAGE> 32
SCHEDULE I
PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Principal Principal Notation
Paid or Prepaid Balance Made By
--------------- --------- --------
<S> <C> <C>
</TABLE>
<PAGE> 33
EXHIBIT A
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
CONVERSION NOTICE
Reference is made to the 9% Senior Subordinated Convertible Note due May 24,
2002 (the "NOTE"), made by International Microcomputer Software, Inc., a
California corporation (the "COMPANY"), to the order of BayStar Capital, L.P., a
California limited partnership. In accordance with and pursuant to the Note, the
undersigned hereby elects to convert the amount under this Note indicated below
into shares of Common Stock, $.01 par value per share of the Company (the
"COMMON STOCK"), by tendering the Note as of the date specified below.
Date of Conversion: _________________________________
Outstanding Principal Amount of Note to
be converted: _________________________________
Please confirm the following information: _________________________________
Conversion Price: _________________________________
Number of shares of Common Stock to
be issued: _________________________________
Please issue the Common Stock and, if applicable, any check drawn on an account
of the Company into which Note is being converted in the following name and to
the following address:
Issue to: _________________________________
_________________________________
_________________________________
Facsimile Number _________________________________
_________________________________
Authorization: _________________________________
By: __________________________
Title: __________________________
Dated: _________________________________
<PAGE> 34
EXHIBIT B
FORM OF ASSIGNMENT
[To be executed only upon assignment of the Note]
For value received, the undersigned registered Holder of the within Note hereby
sells, assigns and transfers unto ___________ the right represented by such
Note, and appoints ___________ Attorney to make such transfer on the Note
Register of International Microcomputer Software, Inc., maintained for such
purpose, with full power of substitution in the premises.
Dated: ________________________
(Signature must conform in all respects to
the name of holder as specified on the face
of the Note)
___________________________________________
(Street Address)
___________________________________________
(City) (State) (Zip Code)
Signed in the presence of:
<PAGE> 1
EXHIBIT 4.3
COMMON STOCK PURCHASE WARRANT CERTIFICATE
<PAGE> 2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated: 24th May 1999
to Purchase 250,000 Shares of Common Stock of
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC., a California corporation (the
"COMPANY"), hereby certifies that BAYSTAR CAPITAL, L.P., a Delaware limited
partnership, its permissible transferees, designees, successors and assigns
(collectively, the "HOLDER"), for value received, is entitled to purchase from
the Company at any time commencing on May 24, 1999 ("ISSUANCE DATE") and
terminating on the fourth anniversary of the Issuance Date up to Two Hundred
Fifty Thousand (250,000) shares (each a "SHARE" and collectively the "SHARES")
of the Company's common stock (the "COMMON STOCK"), at an initial exercise price
of $7.5946 , subject to adjustment as provided in Sections 1(c) and 4 hereof (as
so adjusted, the "EXERCISE PRICE"). The number of Shares purchasable hereunder
is subject to adjustment as provided in Section 4 hereof.
1. Exercise of Warrants.
(a) Upon presentation and surrender of this Common Stock
Purchase Warrant Certificate ("WARRANT CERTIFICATE" or "CERTIFICATE"), or a Lost
Certificate Affidavit (as defined below), accompanied by a completed Election to
Purchase in the form attached hereto as Exhibit A (the "ELECTION TO PURCHASE")
duly executed, at the principal office of the Company at 75 Rowland Way, Novato,
CA 94949, Attn: Chief Financial Officer, together with a check payable to the
Company in the amount of the Exercise Price multiplied by the number of Shares
being purchased, the Company or the Company's Transfer Agent as the case may be,
shall, within three (3) trading days of receipt of the foregoing, deliver to the
Holder hereof, certificates of fully paid and non-assessable Common Stock which
in the aggregate represent the number of Shares being purchased. The
certificates so delivered shall be in such denominations as may be reasonably
requested by the Holder and shall be registered in the name of the Holder or
such other name as shall be designated by the Holder. All or less than all of
the Warrants represented by this Certificate may be exercised and, in case of
the exercise of less than all, the Company, upon surrender hereof, will at the
Company's expense deliver to the Holder a new Warrant
<PAGE> 3
Certificate or Certificates (in such denominations as may be requested by the
Holder) of like tenor and dated the date hereof entitling said holder to
purchase the number of Shares represented by this Certificate which have not
been exercised and to receive Registration Rights with respect to such Shares,
and all other rights with respect to the shares which the Holder has on the date
hereof.
(b) Cashless Exercise. Notwithstanding the foregoing provision
regarding payment of the Exercise Price in cash, the Holder may elect, in the
Holder's sole discretion on a case by case basis, to receive a reduced number of
Shares in lieu of tendering the Exercise Price in cash ("CASHLESS EXERCISE"). In
such case, the number of Shares to be issued to the Holder shall be computed
using the following formula:
X = Y(A-B)
------
A
where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares to be exercised under this Warrant
Certificate;
A = the Market Value (defined below) of one share of Common Stock on
the day immediately prior to the date that the Election to
Purchase is duly surrendered to the Company for full or partial
exercise; and
B = the Exercise Price.
The term "MARKET VALUE" means, for any security as of any date, the twenty-day
average closing bid price of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg Financial Markets or a comparable reporting service of national
reputation selected by the Company and reasonably acceptable to the Holder if
Bloomberg Financial Markets is not then reporting closing bid prices of such
security (collectively, "BLOOMBERG"), or if the foregoing does not apply, (ii)
if such Common Stock is not then listed or admitted for trading on any national
securities exchange but is designated as a national market system security by
the NASD, the last reported trading price of the Common Stock on such date, or
in the case no such sale takes place on such date, or if the Common Stock is not
so designated, the average of the closing bid and asked prices of the Common
Stock on such date as shown by the NASD automated quotations system, or (iii) if
such Common Stock is not then listed or admitted for trading on any national
exchange or quoted in the over-the-counter market, the fair value thereof (as of
a date which is within 20 days of the date as of which the determination is to
be made) determined in good faith by the Board of Directors of the Company and
the Holder, provided, however, that if such parties are unable to reach
agreement within a reasonable period of time, the Market Value shall be
determined in good faith by an independent investment banking firm selected by
the Company and the Holder or, if that selection cannot be made within ten days,
by an independent investment banking firm selected by the American Arbitration
Association in accordance with its rules, and provided, further, that the
Company shall pay all of the fees and expenses of any third parties incurred in
connection with determining the Market Value.
2
<PAGE> 4
(c) Adjustment to Exercise Price. On the date that is one year
following the date of issuance of this Warrant Certificate (the "RESET DATE"),
if the Reset Exercise Price is lower than the original exercise price of this
Warrant Certificate, then the Exercise Price shall be adjusted to, and shall
thereafter equal, the Reset Exercise Price. For purposes hereof, the "RESET
EXERCISE PRICE" shall equal the greater of (i) 115% of the average of the
closing bid prices of the Common Stock, as reported on the national exchange or
market upon which the Common Stock is then listed, for the twenty (20) trading
days immediately preceding the Reset Date and (ii) 70% of the Closing Price.
2. Exchange, Transfer and Replacement.
(a) At any time prior to the exercise hereof, this Warrant
certificate may be exchanged upon presentation and surrender to the Company,
alone or with other Warrant Certificates of like tenor of different
denominations registered in the name of the same Holder, together with a duly
executed Assignment in substantially the form and substance of the Form of
Assignment which accompanies this Warrant Certificate. The Warrant Certificate
or Certificates shall be exchanged for another Warrant Certificate or
Certificates of like tenor in the name of such Holder and/or the transferees
named in such Assignment, exercisable for the aggregate number of Shares as the
Certificate or Certificates surrendered, provided that the Company shall not be
obligated to issue exchange or transfer Certificates for an exchange or transfer
of less than 12,000 shares. The Company shall issue any Warrant Certificates
reflecting such transfer or assignment (including such portion of this Warrant
Certificate, if any, as shall not have been transferred or assigned) within
three (3) business days after receipt of the requisite Warrant Certificate(s)
and duly completed Assignment.
(b) Replacement of Warrant Certificate. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction,
or mutilation of this Warrant Certificate and, in the case of any such loss,
theft, or destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company (collectively, a "LOST
CERTIFICATE AFFIDAVIT"), or, in the case of any such mutilation, upon surrender
and cancellation of this Warrant Certificate, the Company, at its expense, will
execute and deliver in lieu thereof, a new Warrant Certificate of like tenor.
(c) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant Certificate in connection with any transfer, exchange or
replacement as provided in this Section 2, this Warrant Certificate shall be
promptly canceled by the Company. The Company shall pay all taxes (other than
securities transfer taxes) and all other expenses (other than legal expenses, if
any, incurred by the Holder or transferees) and charges payable in connection
with the preparation, execution and delivery of Warrant Certificates pursuant to
this Section 2.
(d) Warrant Register. The Company shall maintain, at its
principal executive offices (or at the offices of the transfer agent for the
Warrant Certificate or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant
Certificate (the "WARRANT REGISTER"), in which the Company shall record the name
3
<PAGE> 5
and address of the person in whose name this Warrant Certificate has been
issued, as well as the name and address of each permitted transferee and each
prior owner of this Warrant Certificate.
3. Rights and Obligations of Holders of this Certificate. The
Holder of this Certificate shall not, by virtue hereof, be entitled to any
rights of a stockholder in the Company, either at law or in equity; provided,
however, that in the event any certificate representing shares of Common Stock
or other securities is issued to the holder hereof upon exercise of some or all
of the Warrants, such holder shall, for all purposes, be deemed to have become
the holder of record of such Common Stock on the date on which this Warrant
Certificate, together with a duly executed Purchase Form, was surrendered and
payment of the aggregate Exercise Price was made, irrespective of the date of
delivery of such share certificate.
4. Adjustments. For purposes of this Section 4, "ADDITIONAL
SHARES OF COMMON STOCK" shall have the meaning given to that term in the
Convertible Senior Subordinated Notes of the Company dated as of the Issuance
Date. In order to prevent dilution of the rights granted under this Warrant
Certificate, the closing bid prices for any days during any measuring period for
determination of the Reset Exercise Price prior to any of the events set forth
below (the "ADJUSTING CLOSING BID PRICES") and the Exercise Price will be
subject to adjustment from time to time as provided in this Section 4; provided
that no such adjustment will be made in connection with the issuance, within 60
days of the Closing Date, to The Learning Company (or any affiliate thereof) of
Common Stock or options to purchase Common Stock in an amount not to exceed
200,000 shares:
(a) Dividends and Distributions. If the Company shall declare
or pay to the Holders of the Common Stock a dividend or other distribution
payable in shares of Common Stock or any other security convertible into or
exchangeable for shares of Common Stock, the Holder of this Warrant Certificate
thereafter surrendered for exercise shall be entitled to receive the number of
shares of Common Stock or other securities convertible into or exchangeable for
shares of Common Stock, as applicable, which the Holder would have owned or been
entitled to receive after the declaration and payment of such dividend or other
distribution as if this Warrant Certificate had been exercised immediately prior
to the record date for the determination of stockholders entitled to receive
such dividend or other distribution.
(b) Stock Splits and Combinations. If the Company shall
subdivide (by means of any stock split, stock dividend, recapitalization or
otherwise) the outstanding shares of Common Stock into a greater number of
shares of Common Stock, or combine (by means of any combination, reverse stock
split or otherwise) the outstanding shares of Common Stock into a lesser number
of shares, or issue by reclassification of shares of Common Stock any shares of
the Company, the Exercise Price and the Adjusting Closing Bid Prices in effect
immediately prior to any Reset Exercise Price shall be adjusted so that the
Holder shall be entitled to receive the number of shares of Common Stock which
the Holder would have owned or been entitled to receive after the happening of
any and each of the events described above if this Warrant Certificate had been
converted immediately prior to the happening of each such event on the day upon
which such subdivision or combination, as the case may be, becomes effective.
4
<PAGE> 6
(c) Organic Changes. In case the Company shall effect an
Organic Change (as defined in the Convertible Senior Subordinated Notes of the
Company dated as of the Issuance Date), then the Holder shall be given a written
notice from the Company informing such Holder of the terms of such Organic
Change and of the record date thereof for any distribution pursuant thereto, at
least twenty (20) days in advance of such record date, and, if such record date
shall precede the Maturity Date, the Holder shall have the right thereafter to
receive, upon exercise of the Warrant Certificate, the number of shares of stock
or other securities, property or assets of the Company, or its successor or
transferee or any affiliate thereof, or cash receivable upon or as a result of
such Organic Change that would have been received by a holder of the number of
shares of Common Stock equal to the number of shares the Holder would have
received had such Holder converted the Warrant Certificate prior to such event
at the Exercise Price immediately prior to such event. In any such case, the
Company will make appropriate provision (in form and substance reasonably
satisfactory to the Holder) with respect to such Holder's rights and interests
to insure that the provisions of this Section 4(c) will thereafter be applicable
to the Warrant Certificate (including, in the case of any such Organic Change in
which the successor entity or purchasing entity is other than the Company, an
immediate adjustment of the Exercise Price to the value for the Common Stock
reflected by the terms of such Organic Change, if the value so reflected is less
than the Exercise Price in effect immediately prior to such Organic Change). The
Company will not effect any such Organic Change unless prior to the consummation
thereof the successor entity (if other than the Company) resulting from such
Organic Change assumes, by written instrument (in form and substance
satisfactory to the Holder), the obligation to deliver to Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to acquire. The provisions of this subparagraph
(iii) shall similarly apply to successive Organic Changes.
(d) Deemed Issuances. For the purpose of making any adjustment
to the Exercise Price under Section 4(f) below, if the Company in any manner
grants any rights or options to subscribe for or to purchase one or more classes
of its Common Stock (other than pursuant to an Approved Stock Plan, pursuant to
a transaction that would not constitute the issuance of Additional Shares of
Common Stock, or upon exercise of the Warrant Certificate) or any stock or other
securities convertible into or exchangeable for Common Stock (such rights or
options being herein called "OPTIONS" and such convertible or exchangeable stock
or securities being herein called "CONVERTIBLE SECURITIES"), and if the quotient
determined by dividing the total number of Additional Shares of Common Stock
issued or sold, or deemed to have been issued or sold, by the Company hereunder,
into the aggregate consideration received, or deemed to have been received
hereunder, by the Company, for the issue of such Additional Shares of Common
Stock (computed without reference to any additional or similar protective or
antidilution clauses) (the "EFFECTIVE PRICE"), is less than the Exercise Price
immediately prior to such time, then the Company shall be deemed to have issued,
at the time of the issuance of such Options or Convertible Securities, that
number of Additional Shares of Common Stock that is equal to the maximum number
of shares of Common Stock issuable upon exercise or exercise of such Options or
Convertible Securities upon their issuance and to have received, as the
aggregate consideration received for the issuance of such shares, an amount
equal to the total amount of the consideration, if any, received by the Company
for the issuance of such Options or Convertible Securities, plus, in the case of
such Options, the minimum amounts of consideration, if any,
5
<PAGE> 7
payable to the Company upon the exercise in full of such Options, plus, in the
case of Convertible Securities, the minimum amounts of consideration, if any,
payable to the Company (other than by cancellation of liabilities or obligations
evidenced by such Convertible Securities) upon the exercise or exchange thereof;
provided that:
(i) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
then the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses;
(ii) if the minimum amount of consideration payable to the
Company upon the exercise of Options or the exercise or exchange of Convertible
Securities is reduced over time or upon the occurrence or non-occurrence of
specified events other than by reason of antidilution or similar protective
adjustments, then the Effective Price shall be recalculated using the figure to
which such minimum amount of consideration is reduced; and
(iii) if the minimum amount of consideration payable to
the Company upon the exercise of such Options or the conversion or exchange of
Convertible Securities is subsequently increased, then the Effective Price shall
again be recalculated using the increased minimum amount of consideration
payable to the Company upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
No further adjustment of the Exercise Price, adjusted upon
the issuance of such Options or Convertible Securities, shall be made as a
result of the actual issuance of shares of Common Stock on the exercise of any
such Options or the conversion or exchange of any such Convertible Securities.
(e) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for any class of Common Stock be reduced at any time below the
Exercise Price immediately prior to such change, the Exercise Price at the time
of such change shall be adjusted, effective on and after the date of such
change, to the Exercise Price which would have been in effect on the date of
such change had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold; provided that no adjustment shall be made if such adjustment would result
in an increase of the Exercise Price then in effect.
(f) Issuance of Additional Shares of Common Stock. In case the
Company at any time or from time to time after the date hereof shall issue or
sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 4(b), (d) and (e)), without
consideration or for a consideration per share less than the Exercise Price
immediately prior to such issue or sale, then, and in such case, the Exercise
Price shall be reduced, to a price determined by multiplying such Exercise Price
by a fraction:
6
<PAGE> 8
(A) the numerator of which shall be the sum of (i) the number
of shares of Common Stock outstanding immediately prior to such issue or sale
and (ii) the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of such Additional Shares of Common
Stock so issued or sold would purchase at the Market Price; and
(B) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale, provided, that,
for the purposes of this Section 4(f), immediately after any Additional Shares
of Common Stock are deemed to have been issued pursuant to Section 4(b), (d) or
(e), (x) such Additional Shares of Common Stock shall be deemed to be
outstanding, and (y) treasury shares of Common Stock shall not be deemed to be
outstanding.
(g) Other Dilutive Events. In case any event shall occur as to
which the provisions of this Section 4 are not strictly applicable or if
strictly applicable would not fairly protect the exercise rights of the Holder
in accordance with the essential intent and principles of this Section 4, then,
in each such case, the Board of Directors of the Company shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to preserve, without dilution, the
exercise rights represented by this Warrant Certificate.
(h) No Dilution or Impairment. The Company shall not, by
amendment of its certificate of incorporation or through any Organic Changes or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant Certificate, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder against dilution or other impairment. Without limiting the generality of
the foregoing, the Company (i) shall take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock, free from all taxes, liens, security
interests, encumbrances, preemptive rights and charges on the exercise of this
Warrant Certificate from time to time outstanding, (ii) shall not take any
action which results in any adjustment of the Exercise Price or the Adjusting
Closing Bid Prices if the total number of shares of Common Stock issuable after
the action upon the exercise of this Warrant Certificate would exceed the total
number of shares of Common Stock then authorized by the Company's certificate of
incorporation and available for the purpose of issue upon such exercise, (iii)
shall not permit the par value of any shares of stock receivable upon the
exercise of this Warrant Certificate to exceed the amount payable therefor upon
such exercise and (iv) shall not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding-up, unless the rights of the
Holder thereof shall be limited to a fixed sum or percentage of par value or a
sum determined by reference to a formula by a financial institution or a similar
indicator of interest rates in respect of participation in dividends and to a
fixed sum or percentage of par value in any such distribution of assets.
(i) Notices.
7
<PAGE> 9
(A) Immediately upon any adjustment pursuant hereto
of the Exercise Price or the Adjusting Closing Bid Prices, the Company will give
written notice thereof to the Holder, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(B) The Company will give written notice to the
Holder at the time it notifies its common shareholders (I) with respect to any
dividend or distribution upon the Common Stock, or (II) for determining rights
to vote with respect to any Organic Change, dissolution or liquidation; provided
that in no event shall such notice be provided to the Holder prior to such
information being made known to the public.
(C) The Company will also give written notice to
the Holder at least twenty (20) days prior to the date on which any Organic
Change, dissolution or liquidation will take place.
(j) Further Adjustments. Successive adjustments in the
Exercise Price and Adjusting Closing Bid Prices shall be made whenever any event
specified above shall occur. All calculations under this Section 4 shall be made
to the nearest cent. No adjustment in the Exercise Price or the Adjusting
Closing Bid Prices shall be made if the amount of such adjustment would be less
than $0.01, but any such amount shall be carried forward and an adjustment with
respect thereto shall be made at the time of and together with any subsequent
adjustment which, together with such amount and any other amount or amounts so
carried forward shall aggregate $0.01 or more.
5. Company's Representations.
(a) The Company covenants and agrees that all shares of Common
Stock issuable upon exercise of this Warrant Certificate will, upon delivery, be
duly and validly authorized and issued, fully-paid and non-assessable and free
from all taxes liens, claims and encumbrances.
(b) The Company covenants and agrees that it will at all times
reserve and keep available an authorized number of shares of its Common Stock
and other applicable securities sufficient to permit the exercise in full of all
outstanding options, warrants and rights, including this Warrant Certificate.
(c) The Company has taken all necessary action and proceedings
as required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of this Warrant Certificate to the Holder under this Warrant
Certificate.
6. Registration Rights. The Holder is entitled to such
registration rights with respect to the Shares as are set forth in the
Registration Rights Agreement dated as of May 24, 1999, by and between the
Company and the Holder (the "REGISTRATION RIGHTS AGREEMENT"), including the
right to assign such rights to certain assignees as provided therein.
7. Issuance of Certificates. Within three (3) trading days of
receipt of a duly completed Election to Purchase form, together with this
Certificate and payment of the Exercise
8
<PAGE> 10
Price, the Company, at its expense, will cause to be issued in the name of and
delivered to the Holder of this Warrant, a certificate or certificates for the
number of fully paid and non-assessable shares of Common Stock to which that
holder shall be entitled on such exercise. In lieu of issuance of a fractional
share upon any exercise hereunder, the Company will pay the cash value of that
fractional share, calculated on the basis of the Exercise Price.
8. Disposition of Warrants or Shares. The Holder of this Warrant
Certificate, each transferee hereof and any holder and transferee of any Shares,
by his or its acceptance thereof, agrees that no public distribution of Warrants
or Shares will be made in violation of the provisions of the 1933 Act. It shall
be a condition to the transfer of the Warrants that any transferee thereof
deliver to the Company his or its written agreement to accept and be bound by
all of the relevant terms and conditions contained in this Warrant Certificate
and in the Securities Purchase Agreement.
9. Notices. Except as otherwise specified herein to the contrary,
all notices, requests, demands and other communications required or desired to
be given hereunder shall only be effective if given in writing by certified or
registered U.S. mail with return receipt requested and postage prepaid; by
private overnight delivery service (e.g. Federal Express); by facsimile
transmission (if no original documents or instruments must accompany the
notice); or by personal delivery. Any such notice shall be deemed to have been
given (a) five business days following the mailing thereof, if mailed by
certified or registered U.S. mail as specified above; (b) on the business day
immediately following deposit with a private overnight delivery service if sent
by said service; (c) upon receipt of confirmation of transmission if sent by
facsimile transmission; or (d) upon personal delivery of the notice. All such
notices shall be sent to the following addresses (or to such other address or
addresses as a party may have advised the other in the manner provided in this
Section 10):
If to the Company:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, California 94949
Telephone: (415) 257-3000
Facsimile: (415) 897-2544
Attention: Chief Financial Officer
With a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Telephone: (650) 858-7600
Facsimile: (650) 494-1417
Attention: C. Kevin Kelso, Esq.
9
<PAGE> 11
If to the Holder:
BayStar Capital, L.P.
1500 West Market Street, Suite 200
Mequon, WI 53092
Telephone: (414) 241-7728
Facsimile: (414) 241-7704
Attention: Brian Davidson
With a copy to:
BayStar Capital, L.P.
505 Montgomery Street, 20th Floor
San Francisco, CA 94111
Telephone: (415) 835-7260
Facsimile: (415)
Attention: Steven Lamar
With a copy to:
Latham & Watkins
505 Montgomery Street, Suite 1900
San Francisco, CA 94111
Telephone: (415) 391-0600
Facsimile: (415) 395-8095
Attention: Warren Lilien, Esq.
Notwithstanding the time of effectiveness of notices set forth in this Section,
an Election to Purchase shall not be deemed effectively given until it has been
duly completed and submitted to the Company together with the original Warrant
Certificate to be exercised and payment of the Exercise Price in a manner set
forth in this Section.
10. Governing Law. This Warrant Certificate and all rights and
obligations hereunder shall be deemed to be made under and governed by the laws
of the State of California without giving effect to its conflicts of laws
provisions. The Holder hereby irrevocably consents to the venue and jurisdiction
of the State and Federal Courts located in the State of California.
11. Successors and Assigns. This Warrant Certificate shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
12. Headings. The headings of various sections of this Warrant
Certificate have been inserted for reference only and shall not affect the
meaning or construction of any of the provisions hereof.
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<PAGE> 12
13. Severability. If any provision of this Warrant Certificate is
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant Certificate, and the balance hereof shall be interpreted as if
such provision were so excluded.
14. Modification and Waiver. This Warrant Certificate and any
provision hereof may be amended, waived, discharged or terminated only by an
instrument in writing signed by the Company and the Holder.
15. Specific Enforcement. The Company and the Holder acknowledge
and agree that irreparable damage would occur in the event that any of the
provisions of this Warrant Certificate were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Warrant Certificate and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which either of them may be entitled by law or equity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or by facsimile, by one of its
officers thereunto duly authorized.
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.,
a California corporation
Date: _____________________________ By: _____________________________________
Name:
Title:
12
<PAGE> 14
ELECTION TO PURCHASE
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby elects to exercise _______ of the
Warrants represented by the attached Common Stock Purchase Warrant Certificate,
and to purchase the shares of Common Stock issuable upon the exercise of such
Warrants, and requests that certificates for securities be issued in the name
of:
_______________________________________________________________
(Please type or print name and address)
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
(Social Security or Tax Identification Number)
and delivered to: ______________________________________________________________
_______________________________________________________________________________.
(Please type or print name and address if different from above)
If such number of Warrants being exercised hereby shall not be all the Warrants
evidenced by the attached Common Stock Purchase Warrant Certificate, a new
Common Stock Purchase Warrant Certificate for the balance of such Warrants shall
be registered in the name of, and delivered to, the Holder at the address set
forth below.
[In full payment of the purchase price with respect to the
Warrants exercised and transfer taxes, if any, the undersigned hereby tenders
payment of $_______ by check, money order or wire transfer payable in United
States currency to the order of International Microcomputer Software, Inc.] or
[The undersigned elects cashless exercise in accordance with Section 1(b) of the
Common Stock Purchase Warrant Certificate.]
<PAGE> 15
Holder hereby represents and covenants that it has complied with,
or will comply with, any and all prospectus delivery requirements with respect
to its sale of the Common Stock of the Company being purchased herewith.
HOLDER:
Date: _____________________________ By: _____________________________________
Name:
Title:
Address: ____________________________
____________________________
____________________________
2
<PAGE> 16
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers unto
the right represented by the within Warrant to purchase ______ shares of Common
Stock of International Microcomputer Software, Inc., to which the within Warrant
relates, and appoints ________________ Attorney to transfer such right on the
books of International Microcomputer Software, Inc., with full power of
substitution of premises.
Date: _____________________________ By: _____________________________________
Name:
Title:
(signature must conform to name of holder
as specified on the face of the Warrant)
Address: _________________________________
_________________________________
_________________________________
Signed in the presence of:
_________________________________
<PAGE> 1
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of
24th May 1999, by and among International Microcomputer Software, Inc., a
California corporation, with headquarters located at 75 Rowland Way, Novato, CA
94949 (the "COMPANY"), and the undersigned buyers (each, a "BUYER" and
collectively, the "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and
among the parties of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue to the Buyers the Company's 9% Senior
Subordinated Convertible Notes due May 24, 2002 in the aggregate principal
amount of $5 million (the "CONVERTIBLE NOTES"), which will be convertible into
shares of the Company's common stock, no par value per share (the "COMMON
STOCK") (as converted, the "CONVERSION SHARES") in accordance with the terms of
the Convertible Notes;
B. In consideration for the Buyers agreeing to purchase the
Convertible Notes, the Company shall issue and deliver to the Buyers common
stock purchase warrants (the "WARRANTS") to acquire additional shares of Common
Stock pursuant to the terms of the Securities Purchase Agreement (the shares of
Common Stock issued or issuable upon exercise of the Warrants are hereinafter
referred to as the "WARRANT SHARES"); and
C. To induce the Buyers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. definitions.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9.
b. "PERSON" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
<PAGE> 3
c. "REGISTER", "REGISTERED", and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("RULE 415"), and the declaration or ordering of effectiveness of such
Registration Statement(s) by the United States Securities and Exchange
Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means (i) the Conversion Shares
and any other shares of Common Stock issued or issuable upon conversion of the
Convertible Notes (including, without limitation, any shares issuable pursuant
to the Convertible Note in lieu of any delinquent payment of interest
thereunder), (ii) the Warrant Shares issued or issuable upon exercise of the
Warrants and (iii) any shares of capital stock issued or issuable with respect
to the Conversion Shares, the Convertible Notes, the Warrant Shares or the
Warrants as a result of any stock split, stock dividend, recapitalization,
exchange or similar event.
e. "REGISTRATION STATEMENT" means a registration statement of
the Company filed under the 1933 Act.
Capitalized terms used herein are not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. registration.
a. Mandatory Registration. The Company shall prepare, and,
within thirty (30) days after the date of issuance of the Convertible Notes file
with the SEC a Registration Statement or Registration Statements (as is
necessary) on Form S-3 (or, if such form is unavailable for such a registration,
or such other form as is available for such a registration), covering the resale
of all of the Registrable Securities. The Registration Statement shall cover the
resale of the Registrable Securities, the resale of such other securities as are
specified on Schedule 2(a) and, if the Company so chooses, the resale of the
common stock issuable to Capital Ventures International pursuant to the
transactions contemplated by the Securities Purchase Agreement dated as of March
3, 1999 between the Company and Capital Ventures International. The Registration
Statement(s) shall state that, in accordance with Rule 416 promulgated under the
1933 Act, such Registration Statement(s) also covers such indeterminate number
of additional shares of Common Stock as may become issuable upon conversion of
the Convertible Notes to prevent dilution resulting from stock splits, stock
dividends or similar transactions. Such Registration Statement shall initially
register for resale 1,375,000 shares of Common Stock, subject to adjustment as
provided in Section 3(b). The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC within one hundred twenty
(120) days after the date of issuance of the Convertible Notes.
b. Counsel and Investment Bankers. Subject to Section 5
hereof, in connection with any offering pursuant to Section 2, the Investors
shall have the right to select legal counsel to the Investors and an investment
banker or bankers and manager or managers to administer their interest in the
offering, which investment banker or bankers or manager or
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<PAGE> 4
managers shall be reasonably satisfactory to the Company. The Company shall
reasonably cooperate with any such counsel and investment bankers.
c. Eligibility for Form S-3. The Company represents, warrants
and covenants that it does, and will meet the requirements for the use of Form
S-3 for registration of the sale by the Buyers and any other Investor of the
Registrable Securities and the Company has filed and shall file all reports
required to be filed by the Company with the SEC in a timely manner so as to
maintain such eligibility for the use of Form S-3. In the event that Form S-3 is
not available for sale by the Investors of the Registrable Securities, then the
Company (i) shall file a registration statement to register the resale of the
Registrable Securities on another appropriate form and not more than twenty (20)
days after being notified that Form S-3 is not available and use its best
efforts to cause such registration statement to be declared effective as soon as
possible, and (ii) the Company shall undertake to register the Registrable
Securities on Form S-3 as soon as such form is available, provided that the
Company shall maintain the effectiveness of the Registration Statement then in
effect until such time as a Registration Statement on Form S-3 covering the
Registrable Securities has been declared effective by the SEC.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a
Registration Statement with the SEC pursuant to Section 2(a), the Company will
use its best efforts to effect the registration of the Registrable Securities in
accordance with the intended method of disposition thereof and, pursuant
thereto, the Company shall have the following obligations:
a. (1) The Company shall within the time period specified in
Section 2(a) prepare and file with the SEC a Registration Statement with respect
to the Registrable Securities and use its best efforts to cause such
Registration Statement(s) relating to Registrable Securities to become effective
pursuant to Section 2(a), and keep the Registration Statement(s) effective
pursuant to Rule 415 at all times until the earlier of (i) the date as of which
the Investors may sell all of the Registrable Securities without restriction
pursuant to Rule 144 or Rule 144(k) promulgated under the 1933 Act (or successor
thereto) or (ii) the date on which (A) the Investors shall have sold all the
Registrable Securities and (B) none of the Convertible Notes is outstanding (the
"REGISTRATION Period"). Such Registration Statement(s) (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(2) If the Registration Statement is not declared effective by
the SEC within 120 days after the issuance of the Convertible Notes, until the
Registration Statement is declared effective by the SEC, the Company will incur
a cash penalty of 1% of the original principal amount of the Notes as of the
Issuance Date (as defined in the Notes) for each 30 days thereafter (pro rated
for any partial period thereof), until the earlier to occur of (i) the date that
the Investor may sell all of the Registrable Securities without restriction
pursuant to Rule 144 or
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<PAGE> 5
Rule 144(k), (ii) the date that the Investor has sold all of the Investor's
Registrable Securities, or (iii) the date that the Convertible Note held by the
Investor is no longer outstanding, and payable at the earlier of the end of each
such 30-day period or on the declared effectiveness of the Registration
Statement. If, (i) after the Registration Statement has been declared effective,
sales cannot be made pursuant thereto, or (ii) the Common Stock is not listed or
included for quotation on any one or more of the Nasdaq National Market, the New
York Stock Exchange or the American Stock Exchange after being so listed or
included for quotation (either or both of (i) and (ii), an "ILLIQUIDITY EVENT"),
then, until the cessation of such Illiquidity Event, the Company will incur a
cash penalty of 1% of the original principal amount of the Convertible Notes
commencing on the date of such Illiquidity Event, for each 30 days thereafter
(pro rated for any partial period thereof), exclusive of the period of any
Allowed Delays (as defined below), payable at the earlier of the end of each
such 30-day period or on the date that such Illiquidity Event ceases.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement(s) and the prospectus(es) used in connection with the
Registration Statement(s), which prospectus(es) are to be filed pursuant to Rule
424 promulgated under the 1933 Act, as may be necessary to keep the Registration
Statement(s) effective at all times during the Registration Period, and, during
such period, the Company and the Investors agree to comply with the provisions
of the 1933 Act with respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement(s) until such time as all of
such Registrable Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
the Registration Statement(s). In the event the number of shares available under
a Registration Statement filed pursuant to this Agreement is insufficient to
cover all of the Registrable Securities issuable as of such date (including,
without limitation, as a result of the issuance of shares of Common Stock in
lieu of payment of any delinquent interest payment, or any other issuance of
Common Stock during a "Default" under the Convertible Note), the Company shall
amend the Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover all of
the Registrable Securities, in each case, as soon as practicable, but in any
event within fifteen (15) days after the necessity therefor arises (based on the
market price of the Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its best efforts to cause any
such necessary amendment and/or new Registration Statement to become effective
as soon as practicable following the filing thereof. In addition, any such
amendment or new Registration Statement shall for purposes of Section 3(a) above
be deemed to be a "REGISTRATION STATEMENT". For purposes of the foregoing
provisions, if applicable, the number of shares available under a Registration
Statement shall be deemed "insufficient to cover all of the Registrable
Securities" if at any time the maximum number of Registrable Securities issued
or issuable upon conversion and redemption of the Convertible Notes (taking into
account, prior to the Reset Date (as defined in the Convertible Note) the lowest
potential Reset Fixed Conversion Price (as defined in the Convertible Note)) and
exercise of the Warrants is greater than the number of shares so registered. For
purposes of the calculation set forth in the foregoing sentence, any
restrictions on the convertibility of the Convertible Notes shall be disregarded
and such calculation shall assume that the Convertible Notes are then
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<PAGE> 6
convertible into shares of Common Stock at the then prevailing Conversion Price
(as defined in the Convertible Note).
c. The Company shall use its best efforts to furnish to each
Investor whose Registrable Securities are included in the Registration
Statement(s) and its legal counsel without charge (i) promptly after the same is
prepared and filed with the SEC at least one copy of the Registration Statement
and any amendment thereto, including financial statements and schedules, all
documents incorporated therein by reference and all exhibits, the prospectus(es)
included in such Registration Statement(s) (including each preliminary
prospectus) and, with regards to the Registration Statement, any correspondence
by or on behalf of the Company to the SEC or the staff of the SEC and any
correspondence from the SEC or the staff of the SEC to the Company or its
representatives, (ii) upon the effectiveness of any Registration Statement, ten
(10) copies of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including any
preliminary prospectus, as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Investor.
The Company will promptly respond to any and all comments received from the SEC,
and shall use its best efforts to cause any Registration Statement or any
amendment thereto to be declared effective by the SEC as soon as practicable
following the resolution or clearance of all SEC comments or, if applicable,
following notification by the SEC that the Registration Statement or any
amendment thereto will not be subject to review.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement(s)
under such other securities or "blue sky" laws of such jurisdictions in the
United States as any Investor reasonably requests, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (x) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (y) subject itself to general taxation in any such jurisdiction,
or (z) file a general consent to service of process in any such jurisdiction,
which in each case, the Board of Directors of the Company determines to be
contrary to the best interests of the Company and its stockholders. The Company
shall promptly notify each Investor who holds Registrable Securities of the
receipt by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
e. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters for the
offering, the Company shall,
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<PAGE> 7
subject to Section 5 hereof, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. If at any time during the Registration Period, counsel to
the Company should determine in good faith that the compliance by the Company
with its disclosure obligations in connection with the Registration Statement
may require the disclosure of information which the Chief Executive Officer of
the Company has identified as material and which the Chief Executive Officer has
determined that the Company has a bona fide business purpose for preserving as
confidential, the Company shall promptly, (i) notify the Investors in writing of
the existence of (but in no event, without the prior written consent of an
Investor, shall the Company disclose to such investor any of the facts or
circumstances regarding) material non-public information and (ii) advise the
Investors in writing to cease all sales under the Registration Statement until
such information is disclosed to the public or ceases to be material. In such
instance, the Company's obligation to make payments under clause (ii) of the
penultimate sentence in the first paragraph of Section 2(c) shall be suspended
for a period (an "ALLOWED DELAY") expiring upon the earlier to occur of (A) the
date on which such material information is disclosed to the public or the
Company notifies the Investors that the information has ceased to be material or
the Company supplements or amends (and such amendment is declared effective) the
Registration Statement to disclose such information, or (B) 15 trading days
after the Company first notifies the Investor of such good faith determination.
There shall not be more than two (2) Allowed Delays in any twelve (12) month
period nor more than three (3) Allowed Delays in any twenty-four (24) month
period.
If an event giving rise to an Allowed Delay occurs, the
Company shall, within the 15 trading day period described in the preceding
paragraph, prepare a supplement or amendment to the Registration Statement to
correct any such untrue statement or omission, and deliver ten (10) copies of
such supplement or amendment to each Investor (or such other number of copies as
such Investor may reasonably request). The Company shall also promptly notify
each Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify each Investor who holds Registrable
Securities being sold (and, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution there or
its receipt of actual notice of the initiation or threat of any proceeding for
such purpose.
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<PAGE> 8
h. The Company shall permit a single firm of counsel,
initially Latham & Watkins or such other counsel as thereafter designated as
selling stockholders' counsel by the Investors who hold a majority of the
Registrable Securities being sold, to review and comment upon the Registration
Statement(s) and all amendments and supplements thereto at least seven (7) days
prior to their filing with the SEC, and not file any document in a form to which
such counsel reasonably objects. The Company shall not subject a request for
acceleration of the effectiveness of a Registration Statement(s) or any
amendment or supplement thereto without the prior approval of such counsel,
which consent shall not be unreasonably withheld.
i. At the request of the Investors who hold a majority of the
Registrable Securities being sold in any underwritten offering undertaken in
compliance with the other terms of this Agreement, the Company shall furnish, on
the date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with the Registration Statement, at the expense of the
Investors who are selling Registrable Securities in the underwritten offering
(i) if required by an underwriter, a letter, dated such date, from the Company's
independent certified public accounts in customary form and addressing such
matters as are addressed in letters customarily given by independent certified
public accountant to underwriters in an underwritten public offering, addressed
to the underwriters, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in
customary form and addressing such matters as are addressed in opinions
customarily given in an underwritten public offering, addressed to the
underwriters and the Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in strict confidence and shall not make any disclosure (except to an
Investor) or use of any Record or other information which the Company determines
in good faith to be confidential, and of which determination the Inspectors are
so notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required under the 1933 Act, (b) the release of such Records is ordered pursuant
to a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
agreement. Each Investor agrees that it shall, upon learning that disclosure of
such Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, given prompt notices to the Company and
allow the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any
7
<PAGE> 9
Investor) shall be deemed to limit the Investors' ability to sell Registrable
Securities in a manner which is otherwise consistent with applicable laws and
regulations.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this or any other agreement. The
Company agrees that it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt written notice to
such Investor and allow such Investor, at the Investor's expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
l. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on the Nasdaq National Market System or the Nasdaq
SmallCap Market for such Registrable Securities and without limiting the
generality of the foregoing, to arrange for at least two market makers to
register with the AMEX or, if applicable, the National Association of Securities
Dealers, Inc. as such with respect to such Registrable Securities. The Company
shall pay all fees and expenses in connection with satisfying its obligation
under this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request. Not later than the date on which any Registration
Statement registering the resale of Registrable Securities is declared
effective, the Company shall deliver to its transfer agent instructions,
accompanied by any opinion of counsel reasonably required by the transfer agent,
that permit sales of unlegended securities in a timely fashion that complies
with then mandated securities settlement procedures for regular way market
transactions; provided that the Investor shall comply with any applicable
prospectus delivery requirements.
n. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
8
<PAGE> 10
o. The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of such
Registration Statement.
p. If requested by the managing underwriters or an Investor,
the Company shall, subject to Allowed Delays, as promptly as is reasonably
possible incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriters and the Investors agree should be
included therein relating to the sale and distribution of Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters, the purchase
price being paid therefor by such underwriters and with respect to any other
terms of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; make all required filings of
such prospectus supplement or post-effective amendment as soon as notified of
the matters to be incorporated in such prospectus supplement or post-effective
amendment; and supplement or make amendments to any Registration Statement if
requested by a shareholder or any underwriter of such Registrable Securities. q.
The Company shall use its best efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other government agencies or authorities as may be necessary to
consummate to disposition of such Registrable Securities.
r. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor or its counsel in writing of the information the Company requires from
each such Investor if such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement. It shall be a
condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular investor that such Investor shall furnish to the
Company such information as may be requested in writing by the Company regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement(s) hereunder unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
c. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f),
such Investor will
9
<PAGE> 11
immediately discontinue disposition of Registrable Securities pursuant to the
Registration Statement(s) covering such Registrable Securities until such
Investor's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(f) or the first sentence of 3(f) and, if so directed
by the Company, such Investor shall deliver to the Company (at the expense of
the Company) or destroy all copies in such Investor's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions and other expenses in connection with an underwritten offering to be
paid by the Investors pursuant to the terms hereof, incurred in connection with
registrations, filings or qualifications pursuant to Sections 2 and 3,
including, without limitation, all registration, listing and qualifications
fees, printers and accounting fees, and fees and disbursements of counsel for
the Company and fees and disbursements of one counsel for the Investors, shall
be paid by the Company. In addition, the prevailing party shall pay the other
party's legal fees incurred in connection with any judicial action to enforce
any rights hereunder.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents and each Person, if any, who controls any Investor within the meaning of
the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
ACT"), and any underwriter (as defined in the 1933 Act) for the Investors, and
the directors and officers of, and each Person, if any, who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several (collectively, "CLAIMS"), incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto, in each case brought by a third party ("INDEMNIFIED
DAMAGES"), to which any of them may become subject insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other "blue sky" laws of any jurisdiction
in which Registrable Securities are offered, or the omission or alleged omission
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which the statements
therein were made, not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any
10
<PAGE> 12
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder, in each case relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the matters in the
foregoing clauses (i) through (iii) being, collectively, "VIOLATIONS"). Subject
to the restrictions set forth in Section 6(d) with respect to the number of
legal counsel, the Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c); (ii) with respect to any preliminary prospectus, shall
not inure to the benefit of any such person from whom the person asserting any
such Claim purchased the Registrable Securities that are the subject thereof (or
to the benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(c), and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it; and (iii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages 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 to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any reasonable legal or
other expenses reasonably
11
<PAGE> 13
incurred by them in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 6(b)
and the agreement with respect to contribution contained in Section 7 shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Section 6(b) for only that amount of a Claim or Indemnified
Damages as does not exceed the net proceeds to such Investor as a result of the
sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professional participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for including in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, 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 control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the Indemnified Person or
Indemnified Party, as the case may be, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The Company shall pay reasonable fees for only one
separate legal counsel for the Investors, and such legal counsel shall be
selected by the Investors holding a majority in interest of the Registrable
Securities included in the Registration Statement to which the Claim relates.
The Indemnified Party or Indemnified Person shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The indemnifying party
shall keep the Indemnified Party or Indemnified Person fully apprised at
12
<PAGE> 14
all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its written consent, provided,
however, that the indemnifying party shall not unreasonably withhold, delay or
condition its consent. No indemnifying party shall, without the consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Party or Indemnified
Person under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
e. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
f. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation shall be entitled to indemnification or contribution
hereunder; and (iii) contribution (together with any indemnification or other
obligations under this Agreement) by any seller of Registrable Securities shall
be limited in amount to the net amount of proceeds received by such seller from
the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
13
<PAGE> 15
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assignable by the Investors to
any transferee or assignee (a "TRANSFEREE") of all or any portion (but not less
than $1,000,000 face amount of Convertible Notes) of Registrable Securities if:
(i) the Investor agrees in writing with the Transferee to assign such rights,
and a copy of such agreement is furnished to the Company within a reasonable
time after such assignment; (ii) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of (a) the name and
address of such Transferee, and (b) the securities with respect to which such
registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such securities
by the Transferee is restricted under the 1933 Act and applicable state
securities laws; (iv) at or before the time the Company receives the written
notice contemplated by clause (ii) of this sentence the Transferee agrees in
writing with the Company to be bound by all of the provisions contained herein;
(v) such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement; (vi) such Transferee shall be
an "accredited investor" as that term is defined in Rule 501 of Regulation D
promulgated under the 1933 Act; and (vii) in the event the assignment occurs
subsequent to the date of effectiveness of the Registration Statement required
to be filed pursuant to Section 2(a), the Transferee agrees to pay all
reasonable expenses of amending or supplementing such Registration Statement to
reflect such assignment.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
14
<PAGE> 16
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days
after being sent by U.S. certified mail, return receipt requested; or (iv) one
(1) day after deposit with a nationally recognized overnight delivery service,
in each case properly addressed to the party to receive the same. The addresses
and facsimile numbers of such communications shall be:
If to the Company:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, California 94949
Telephone: (415) 257-3000
Facsimile: (415) 897-2544
Attention: Chief Financial Officer
With a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Telephone: (650) 858-7600
Facsimile: (650) 494-1417
Attention: C. Kevin Kelso, Esq.
If to the Buyer:
BayStar Capital, L.P.
c/o Stark Investments
1500 West Market Street, Suite 200
Mequon, WI 53092
Telephone: (414) 241-7728
Facsimile: (414) 241-7704
Attention: Brian Davidson
With a copy to:
15
<PAGE> 17
BayStar Capital, L.P
c/o LG Capital
505 Montgomery Street, 20th Floor
San Francisco, CA 94111
Telephone: (415) 835-7260
Facsimile: (415) 835-3777
Attention: Steven Lamar
With a copy to:
Latham & Watkins
505 Montgomery Street, Suite 1900
San Francisco, CA 94111
Telephone: (415) 391-0600
Facsimile: (415) 395-8095
Attention: Warren Lilien, Esq.
if to a Buyer, to its address and facsimile number on the signature pages, with
copies to such Buyer's counsel as set forth on such signature pages.
Each party shall provide five (5) days prior notice to the other
party of any change in address, phone number or facsimile number.
c. Failure to any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California without regard to the
principles of conflict of laws. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. This Agreement, the Convertible Notes, the Warrants and the
Securities Purchase Agreement (including all schedules and exhibits thereto)
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. The aforementioned documents supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
16
<PAGE> 18
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
17
<PAGE> 19
IN WITNESS WHEREOF, the parties have caused this Registration
Rights Agreement to be duly executed as of the day and year first above written.
COMPANY: BUYER:
INTERNATIONAL MICROCOMPUTER BAYSTAR CAPITAL L.P.
SOFTWARE, INC.
By: BAYSTAR MANAGEMENT LLC,
ITS GENERAL PARTNER
By: __________________________________ By: __________________________________
Name: Costa John Name:
Its: Chief Financial Officer Its:
18
<PAGE> 20
SCHEDULE 2(a)
Other Securities to be Included in Registration Statement
19
<PAGE> 1
EXHIBIT 99.1
PRESS RELEASE
MEDIA CONTACT:
Patricia A. Roche'
Manager of Public Relations
Phone: (415) 878-4001
Fax: (415) 893-9086
[email protected]
FOR IMMEDIATE RELEASE
INTERNET AND SOFTWARE COMPANY IMSI RAISES
$5 MILLION THROUGH PRIVATE PLACEMENT
CAPITAL TO ASSIST IN GROWTH OF INTERNET BUSINESS
NOVATO, CALIFORNIA, MAY 26, 1999 - IMSI(R) (NASDAQ: IMSI) - software developer
and creator of one of the fastest growing visual content and precision graphics
portals on the web - today announced it has raised $5 million through a private
placement of a three-year, 9% subordinated convertible note.
BAYSTAR CAPITAL, a private placement investment fund, purchased the note.
"This investment will help IMSI further revolutionize the way design
professionals interact over the Internet," says Steven Lamar, general partner at
Baystar Capital. "IMSI's roots in the graphics software and visual content
markets have proven invaluable in the development of one of the fastest growing
digital image portals on the Web today and fits perfectly with Baystar's
strategic mandate of financing publicly traded and late- stage private,
high-growth companies."
Under the terms of the agreement, IMSI issued a 9% convertible note in the
principal amount of $5 million, which is initially convertible into common stock
at $7.59 per share. Baystar Capital received a warrant to purchase an additional
250,000 shares of common stock at $7.59 per share.
"This capital infusion will support our operations and allow us to actively
pursue our strategy, which includes developing and growing our premier Internet
business," says Costa John, chief executive officer for IMSI.
<PAGE> 2
-- more --
BAYSTAR/IMSI
2-2-2-2
ABOUT IMSI
Headquartered in Novato, California, IMSI (International Microcomputer Software,
Inc.) produces and sells its software in 13 languages and in more than 60
countries worldwide. IMSI web sites receive in excess of 2 million visitors per
month and include ARTTODAY.COM (http://www.arttoday.com), TURBOCAD.COM
(http://www.turbocad.com), HIJAAKPRO.COM (http://www.hijaakpro.com),
MASTERCLIPS3D.COM (http://www.masterclips3d.com), and SOLUTIONCITY.COM
(http://solutioncity.com).
The company has offices in the United Kingdom, France, Germany, Australia, South
Africa, and Sweden - and a wholly owned subsidiary, ZEDCOR, INC. For more
information, please contact IMSI public relations at (415) 878-4000, or visit
www.imsisoft.com.
Forward Looking Statement:
To the extent that any of the statements contained herein relating to IMSI's
financial health are forward-looking, such statements are based on current
expectations that involve a number of uncertainties and risks. Such
uncertainties and risks include, but are not limited to, the ability of the
company to fund ongoing operations, factors related to conversion of financing
instruments, the development of new products, the enhancement of existing
products, competitive pricing pressures, product volume and mix, timing of
orders received and the introduction of competitive products having
technological and/or pricing advantages. As a result, the Company's operating
results may fluctuate, especially when measured on a quarterly basis. For
further information, refer to the risk factors included on the Company's Annual
Report and Form 10-K for the year ended June 30, 1998 as filed with the
Securities and Exchange Commission.
IMSI is a registered trademark of International Microcomputer Software, Inc.
Other company and product names mentioned herein are the trademarks or
registered trademarks of their respective owners.
<PAGE> 3
QUARTERLY P&L 1998-2000: ACTUAL AND FORECAST
<TABLE>
<CAPTION>
1998 1999
Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
------ ------- ------- ------- ------- -------- -------- -------
<S> <C>
Network Revenue
Digital entertainment sponsorships $4,376 $ 2,178 $ 34 $ 477 $ 672 $ 1,765 $ 4,178 $ 6,323
eCommerce -- -- -- -- -- -- 94 256
Advertising -- -- -- -- -- -- 33 65
Content Syndication -- -- -- -- -- -- -- --
Studio Services 491 275 514 289 224 500 500 500
------ ------- ------- ------- ------- -------- -------- -------
Net Revenue 4,867 2,453 548 766 897 2,265 4,805 7,144
Cost of Merchandise Sold -- -- -- -- -- -- 84 231
Production Costs - Network 3,225 1,772 567 810 2,537 6,614 7,581 5,476
Production Costs - Studio 206 300 356 512 160 470 470 470
Research and Engineering 586 722 1,937 1,238 2,132 4,096 3,700 3,546
Sales and Marketing 358 574 681 907 1,390 7,715 3,451 3,611
General and Administration 871 633 649 1,032 1,792 2,315 2,587 2,711
Depreciation 44 86 140 260 430 972 1,043 1,019
------ ------- ------- ------- ------- -------- -------- -------
Total Expenses 5,289 4,087 4,350 4,757 8,462 22,212 18,832 18,863
Quokka Interest in CDME (add'l loss) (452) (735) (545) (28)
Other Income/(Expense) 1 (2) (14) (58) 169 -- 80 50
------ ------- ------- ------- ------- -------- -------- -------
Net Income/(Loss) $ (421) $(1,636) $(3,828) $(4,046) $(7,848) $(20,682) $(14,577) $(9,928)
------ ------- ------- ------- ------- -------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
2000
Mar. 31 June 30 Sept. 30 Dec. 31
------ ------- ------- -------
<S> <C>
Network Revenue
Digital entertainment sponsorships $ 7,149 $ 8,221 $ 9,651 $10,723
eCommerce 90 118 8,279 2,153
Advertising 248 546 562 298
Content Syndication -- -- -- --
Studio Services 500 500 250 250
-------- -------- -------- -------
Net Revenue 7,988 9,715 18,742 13,424
Cost of Merchandise Sold 81 404 5,651 1,937
Production Costs - Network 6,340 7,809 12,047 5,706
Production Costs - Studio 470 470 235 235
Research and Engineering 3,671 3,864 4,950 4,057
Sales and Marketing 4,764 5,240 7,145 6,689
General and Administration 2,774 2,833 3,010 3,187
Depreciation 1,102 1,212 1,543 1,653
-------- -------- -------- -------
Total Expenses 19,120 21,227 28,930 21,507
Quokka Interest in CDME (add'l loss) 29 63 65 34
Other Income/(Expense) 50 200 150 100
-------- -------- -------- -------
Net Income/(Loss) $(11,136) $(11,652) $(17,624) $(9,886)
-------- -------- -------- -------
</TABLE>
