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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 8, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
(Exact name of the Registrant as specified in its charter)
CALIFORNIA 94-2862863
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
75 ROWLAND WAY
NOVATO, CALIFORNIA 94945
(415) 257-3000
(Address and telephone number of the Registrant's principal executive offices)
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COSTA JOHN
CHIEF EXECUTIVE OFFICER
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
75 ROWLAND WAY,
NOVATO, CA 94945
(415) 257-3000
(Name, address and telephone number of the Registrant's agent for service)
----------------------
Copies to:
KEVIN KELSO
FENWICK & WEST LLP
TWO PALO ALTO SQUARE, SUITE 800
PALO ALTO, CALIFORNIA 94306
(650) 494-0600
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Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF SHARES OF AMOUNTS TO OFFERING PRICE MAXIMUM AMOUNT OF
COMMON STOCK BE PER SHARE(1) AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) OFFERING PRICE(1) FEE
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<S> <C> <C> <C> <C>
common stock no par value 2,524,823 $6.25 $15,780,144 $4,390
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of registration
fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low prices of the common stock on the
Nasdaq Stock Market on June 3, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED JUNE 8, 1999
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PROSPECTUS
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INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
2,524,823 SHARES OF COMMON STOCK
International Microcomputer Software's common stock currently trades on the
Nasdaq Stock Market.
Last reported sale price on June 3, 1999: $6.25 per share.
Trading Symbol: IMSI
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THE OFFERING
The selling stockholders named on page 13 of this prospectus are selling
all of the shares of Common stock offered in this prospectus. International
Microcomputer Software, Inc., or "IMSI", will not receive any of the
proceeds from the sale of these shares. These shares are being offered on a
continuous basis under Rule 415 of the Securities Act of 1933 and will be
sold from time to time as described under "Plan of Distribution."
IMSI will pay approximately $50,000 in registration expenses. IMSI will not
be required to pay any discounts, commissions or selling expenses in
connection with this registration. The selling stockholders, and
broker-dealers who may participate in sale of the shares covered by this
prospectus, may use this prospectus. The shares covered by this prospectus
may, if qualified, also be sold pursuant to Rule 144 of the Securities Act
or any other applicable exemption.
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THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. PLEASE CAREFULLY CONSIDER
THE "RISK FACTORS" BEGINNING ON PAGE 2 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this prospectus is _____, 1999
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
================================================================================
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IN CONNECTION WITH THIS OFFERING, NO PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
SUCH INFORMATION IS GIVEN OR REPRESENTATIONS MADE, YOU MAY NOT RELY ON SUCH
INFORMATION OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS
IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THOSE REGISTERED HEREBY, NOR IS IT AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SECURITIES WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. YOU MAY NOT IMPLY FROM THE DELIVERY OF THIS PROSPECTUS, NOR FROM ANY
SALE MADE UNDER THIS PROSPECTUS, THAT OUR AFFAIRS ARE UNCHANGED SINCE THE DATE
OF THIS PROSPECTUS OR THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
CORRECT AS OF ANY TIME AFTER THE DATE OF THIS PROSPECTUS.
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TABLE OF CONTENTS
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Risk Factors......................................................2
Use of Proceeds..................................................13
Selling Stockholders.............................................13
Plan of Distribution.............................................16
Where You Can Find More Information..............................18
Documents Incorporated by Reference..............................19
Legal Matters....................................................18
Unless the context otherwise requires, the terms "we," "our," "us" and
"IMSI" refer to International Microcomputer Software, Inc., a California
corporation.
IMSI
We are a provider of productivity software for growing businesses. We
distribute our products in more than 60 countries and in 13 languages via
retail, direct, and on-line channels. Since our founding in 1982, we have sold
more than ten million units worldwide. We offer a broad spectrum of
award-winning solutions for growing businesses in the computer-aided design
("CAD"), business applications, visual content and utilities categories. Our
headquarters are located in California and we have offices in Canada, France,
Germany, Australia, South Africa, Sweden, Japan and the United Kingdom.
RISK FACTORS
Please carefully consider the specific factors set forth below as well
as the other information contained in, or incorporated by reference into, this
prospectus before purchasing shares of our common stock. This prospectus
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below.
WE EXPECT A LARGE LOSS IN THE FISCAL YEAR ENDED JUNE 30, 1999.
We anticipate that IMSI will have a net loss for its fourth fiscal
quarter ending June 30, 1999 and will have a net loss for the entire fiscal
year. Results for Fiscal 2000 will be affected by, among other factors, the
timing and the number of new product releases or upgraded versions of existing
products, as well as marketing and promotional expenditures in connection with
the product releases and the timing of product announcements or introductions by
our competitors.
WE ARE IN NEGOTIATIONS REGARDING OUR BANK LINE OF CREDIT UNDER WHICH CERTAIN
EVENTS OF DEFAULT HAVE OCCURRED.
IMSI has a line of credit agreement with Union Bank under which it can
borrow the lesser of $13,500,000 or 80% of eligible accounts receivable, at
Union Bank's reference rate plus 1/2 % or LIBOR plus 2%, at IMSI's option. The
line of credit agreement requires IMSI to comply with certain financial
covenants including maintenance of net worth and working capital requirements.
Under the terms of the agreement, all assets not subject to liens of other
financial institutions have been pledged as collateral against the line of
credit. The credit line expires October 31, 1999.
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As a result of covenant violations, certain events of default have
occurred that, among other things, entitle Union Bank to declare all loans and
other obligations of IMSI under the line of credit to be immediately due and
payable and to commence immediate enforcement and collection actions, except for
the agreements described in the next paragraph.
On March 5, 1999, IMSI and Union Bank executed a forbearance agreement,
whereby IMSI agreed to pay down the amount by which IMSI's obligations to Union
Bank exceeded the sum permitted to be borrowed in accordance with the agreement
such that the remaining over-advance did not exceed $2,250,000. IMSI accordingly
paid approximately $1,773,000 of the balance outstanding on the line of credit
in March 1999. Union Bank agreed to forbear taking any enforcement actions until
April 5, 1999. IMSI and Union Bank recently entered into agreements amending the
credit agreement and related instruments. Subject to IMSI's compliance with the
amendment agreements, Union Bank waived IMSI's compliance with certain of the
covenants contained in the credit agreements with respect to our third and
fourth quarters of fiscal 1999, subject to certain conditions including payments
by us to reduce our outstanding balance under the credit facility by at least
$1,800,000. We used a portion of the proceeds that we received from the BayStar
financing described in the next paragraph below to make this payment. If we
breach the provisions of the credit agreements as amended or violate one or more
of the covenants in the amended agreements, Union Bank could declare all loans
and the obligations under the agreements to be immediately due and payable and
could commence immediate enforcement and collection actions, which could have a
material adverse effect on IMSI's business, operating results and financial
condition.
WE NEED TO RAISE ADDITIONAL FUNDS.
On May 26, 1999, we announced that we completed a private placement
transaction (the "BayStar Financing") in which we received $5,000,000 from
BayStar Capital and we issued to BayStar a three-year $5,000,000 principal
amount 9% subordinated convertible note, and a warrant to acquire 250,000 shares
of common stock at an initial exercise price of $7.59 per share. The note is
convertible into shares of common stock at an initial conversion price of $7.59
per share. The note and warrant contain various anti-dilution and other
provisions which could, depending upon the occurrence of certain events
including the market price of the common stock at future dates and the terms of
certain kinds of future equity financing transactions, result in additional
shares being issuable upon conversion of the note or exercise of the warrant.
Even with the proceeds from the BayStar Financing, we currently anticipate that
the available funds and cash flows generated from operations will not be
sufficient to meet our anticipated needs for working capital and capital
expenditures for the next 12 months. Therefore, we will need to raise additional
funds i the near future. As a result of our need for funds and our substantial
losses during fiscal 1999 to date, during fiscal 1999 we instituted measures to
improve operations and cash flows, including substantial personnel reductions
and the initiation of certain cost cutting programs, and we may take further
measures, including further personnel reductions, during fiscal 1999 and
thereafter. We will need to raise significant new working capital through
additional debt or equity financing in order to sustain our operations and fund
our operating plans, and to fund business expansion, develop new or enhanced
products, respond to competitive pressures or acquire complementary products,
businesses or technologies. If we successfully raise additional funds, it is
likely that they will be raised through the issuance of equity or convertible
debt securities, and thus the percentage of ownership of the stockholders will
be reduced, stockholders will experience additional dilution and such securities
may have rights, preferences or privileges senior to those of the holders of our
common stock.
We cannot provide any assurance that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, we may not be able to fund
expansion, take advantage of unanticipated acquisition opportunities, develop or
enhance services or products or respond to competitive pressures. In addition,
such inability could have a material adverse effect on our business, operating
results and financial condition.
Our financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business. The losses discussed above, and other factors
such as our liquidity, raise questions concerning our ability to continue as a
going concern. Our financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should we be
unable to continue as a going concern. Our continuation as a going concern is
dependent upon our ability to obtain additional financing or refinancing, to
generate sufficient cash flow to meet our obligations on a timely basis, and
ultimately to attain successful operations.
OUR PREVIOUS AUDIT FIRM RESIGNED.
As we reported in a Form 8-K filed on April 26, 1999, Deloitte & Touche,
LLP resigned in April 1999 as our independent auditor. As reported in the Form
8-K filed by IMSI on May 12, 1999, IMSI retained Grant Thornton, LLP as our new
independent auditor.
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WE EXPERIENCE FLUCTUATIONS IN OUR OPERATING RESULTS.
We have experienced, and expect to continue to experience, significant
fluctuations in operating results due to a variety of factors. We experienced
growth during fiscal 1998, 1997, and 1996. However, during fiscal year 1999, we
suffered a significant decline in revenue from $45.6 million in the nine months
ended March 31, 1998 to $30.9 million in the nine months ended March 31, 1999.
This decline in revenue has resulted in our reporting net losses for the first
three quarters of fiscal 1999 with a net loss of $5.4 million in the nine months
ended March 31, 1999, compared with a net loss of $1.9 million in the six months
ended December 31, 1997.
Factors that may cause fluctuations in operating results in the future
include, but are not limited to,
- market acceptance of our products or those of our competitors;
- the timing of introductions of new products and new versions of
existing products;
- expenses relating to the development and promotion of such new
products and new version introductions;
- product returns and reserves; changes in pricing policies by us
or our competitors;
- projected and actual changes in platforms and technologies;
- the accuracy of forecasts of, and fluctuations in, consumer
demand;
- the extent of third party royalty payments;
- the rate of growth of the consumer software market;
- fluctuations in foreign exchange rates;
- the timing of orders or order cancellation from major customers;
- changes or disruptions in the consumer software distribution
channels;
- the successful acquisition and integration of new businesses,
products and technologies;
- the timing of any write-offs in connection with such
acquisitions; and
- economic conditions, both generally and within our industry.
We may also be required to pay fees in advance or to guarantee
royalties, which may be substantial, or to obtain software licenses from third
parties. As a result of these and other factors, our operating results in any
given period are inherently difficult to predict. Any significant shortfall in
revenues and earnings from the levels expected by securities analysts and
stockholders could result in a substantial decline in the trading price of our
common stock.
While our business has not generally been materially affected by
seasonal trends, the seasonality of the European, Asia/Pacific and other
international markets could impact our operating results and financial condition
in a particular quarter given the significant portion of net revenues
contributed by international operations. The markets for our products are also
characterized by significant price competition, which may cause our operating
results to fluctuate.
WE ANTICIPATE A SIGNIFICANT RESTRUCTURING CHARGE DURING THE FOURTH QUARTER OF
FISCAL 1999.
IMSI is in the process of implementing a company-wide restructuring in
response to its fiscal 1999 decline in revenues and net losses. In this regard,
we are attempting to reduce the costs associated with our retail
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operations, to focus on our strongest product franchises, and to discontinue
investment in non-strategic products. We plan to move to a more variable cost
model and reduce fixed infrastructure. We expect to incur a significant
restructuring charge in the current fourth quarter of fiscal year 1999. This
charge may include write-downs of inventories and other intangible assets
relating to non-strategic products, as well as costs associated with personnel
reductions and facilities closures.
WE MAY NOT BE PROFITABLE IN THE FACE OF RAPIDLY CHANGING TECHNOLOGY.
The markets for our products are characterized by rapidly changing
technology, frequent new product introductions and uncertainty due to new and
emerging technologies, as well as changes in customer requirements and
preferences. Changes in technologies and customer requirements and preferences,
product obsolescence and advances in computer software and hardware will require
us to develop or acquire new products and to enhance our products in a timely
manner at improved price/performance levels in order to remain competitive. The
pace of change has recently accelerated due to the Internet, corporate
intranets, the introduction of 32-bit operating systems such as Windows 95,
Windows 98 and Windows NT 4.0, and new programming languages, such as Java. PC
hardware, in particular, is steadily advancing in power and function,
facilitating expansion of the market for increasingly complex and flexible
software products. This, in turn, has resulted in escalating development costs,
longer periods necessary for development of new products and a greater degree of
unpredictability in the time necessary to develop products. Due to potential
difficulties in the development process, we cannot provide assurance that future
products and upgrades will be released in a timely manner or that they will
receive market acceptance, if and when released. Despite significant testing by
us and by current and potential customers, errors or "bugs" may still be found
in new products or upgrades after commencement of commercial shipments,
especially when first introduced. Delays in the commencement of commercial
shipments of new products or upgrades, as well as the discovery of errors or
"bugs" after release, may result in adverse publicity, customer dissatisfaction
and delay or loss of product revenues. In addition, such errors or "bugs" could
require significant design modification or corrective releases and could result
in an increase in product returns. Furthermore, from time to time we and others
may announce new products, capabilities or technologies that have the potential
to replace or shorten the life cycles of our existing products. We cannot assure
that announcement of currently planned or other new products by us or by our
competitors will not cause customers to defer purchasing our products existing
or cause distributors to return products to us. In addition, rapid changes in
the market and increasing numbers of new products available to consumers have
increased the degree of consumer acceptance risk with respect to any specific
title that we may publish. We expect that this trend will continue and may
become more pronounced in the future. Consumer preferences are difficult to
predict, and few consumer products achieve sustained market acceptance.
We cannot provide assurance that we will be successful in our product
development efforts or that we will have the resources required to respond to
technological changes or to compete successfully in the future. Delays or
difficulties associated with new product introductions or upgrades could have a
material adverse effect on our business, operating results and financial
condition. In addition, because we expect that the cost of developing and
introducing new products will continue to increase, the financial risks
associated with new product development will increase as will the risks
associated with material delays in the introduction of such new products. If we
are unable to develop or acquire new products in a timely manner as revenues
decrease from products reaching the end of their natural life cycles, our
operating results will be adversely affected. Because of our small size and
capital resources relative to some of our competitors, our ability to avoid
technological obsolescence through acquisition or development of new products or
upgrades of existing products may be more limited than companies with greater
funds.
WE FACE RISKS IN INITIATING AND EXECUTING OUR INTERNET STRATEGY.
Our marketplace has recently experienced a higher emphasis on online and
Internet-related services and content tailored for this new delivery vehicle. We
have taken and will continue to take steps, at significant cost, to take
advantage of opportunities created by the Internet and online networks, and we
expect to continue incurring significant additional costs in connection with our
Internet infrastructure. These changes include material and costly additions to
our existing hardware, substantial increase in personnel for experienced web
designers, acquisitions and cross licenses to drive traffic to our web sites and
a transition to an Internet sales and marketing strategy. We cannot provide any
assurance that our Internet strategy will be successful, or that the costs and
investments in this area will
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provide adequate, or any, results. Delivery of software using online services or
the Internet will necessitate certain changes in our business and operations
including addressing operational challenges such as improving download time for
pictures, images and programs, ensuring proper regulation of content quality and
developing sophisticated security for transmitting payments. Our failure to
adapt to and utilize such technologies and media successfully and in a timely
manner could materially and adversely affect our competitive position and our
financial results.
IMSI depends to some extent and is increasing its dependence on
relationships with other online companies. These relationships include, but are
not limited to, agreements for anchor tenancy, promotional placements,
sponsorships and banner advertisements. Generally, these agreements have terms
for up to a year, are not exclusive and do not provide for guaranteed renewal.
The risks included in this dependence include:
(i) the possibility that a competitor will purchase exclusive rights
to attractive space on one or more key sites;
(ii) the uncertainty that significant spending on these relationships
will increase IMSI's revenues substantially or at all;
(iii) the possibility that potential revenue increases resulting from
such spending will not occur within the time periods that IMSI
is expecting;
(iv) the possibility that space on web sites may increase in price or
cease to be available on reasonable terms or at all;
(v) the possibility that such online companies will be unable to
deliver a sufficient number of customer visits or impressions;
and
(vi) the possibility that such online companies will compete with
IMSI for limited online revenues. Any termination of our
arrangements with other online companies could have a material
adverse effect on IMSI's business, results of operations and
financial condition.
A key element of our Internet strategy is to generate a high volume of
traffic to, and use of, our Website. IMSI's revenues will depend primarily on
the number of customers who use our Website to purchase merchandise.
Accordingly, the satisfactory performance, reliability and availability of our
Website, transaction-processing systems, network infrastructure and delivery and
shipping systems are critical to IMSI's operating results, as well as to our
reputation and our ability to attract and retain customers and maintain adequate
customer service levels. IMSI periodically has experienced minor systems
interruptions, including Internet disruptions, which it believes may continue to
occur from time to time. Any systems interruptions, including Internet
disruptions, that result in the unavailability of our Website or reduced order
fulfillment performance would reduce the volume of goods sold, which could have
a material adverse effect on IMSI's business, results of operations and
financial condition. IMSI is continually enhancing and expanding its
transaction-processing systems, network infrastructure, delivery and shipping
systems and other technologies to accommodate a substantial increase in the
volume of traffic on IMSI's Website. There can be no assurance that IMSI will be
successful in these efforts or that IMSI will be able to accurately project the
rate or timing of increases, if any, in the use of our Website or timely expand
and upgrade our systems and infrastructure to accommodate such increases. There
can be no assurance that IMSI's or our suppliers' network will be able to timely
achieve or maintain a sufficiently high capacity of data transmission,
especially if the customer usage of our Website increases. IMSI's failure to
achieve or maintain high capacity data transmission could significantly reduce
consumer demand for our services and have a material adverse effect on our
business, results of operations and financial condition.
WE MAY HAVE DIFFICULTIES SUCCESSFULLY INCORPORATING NEWLY ACQUIRED PRODUCTS AND
TECHNOLOGIES INTO OUR BUSINESS.
We have acquired businesses, technologies, services, product lines
and/or content databases that are complementary to our business in order to
broaden our product lines and geographic sales channels. For example, during the
first quarter of fiscal 1998, we acquired a number of products in the CAD,
diagramming and consumer categories from Corel Corporation; entered into a
technology licensing agreement with Dragon Systems, a developer of speech
recognition products; acquired from Quarterdeck
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Corporation exclusive worldwide licensing rights to the HiJaak graphics utility
products; acquired certain assets of MediaPaq, Inc., including our browser
technology; and acquired certain assets of MapLinx, Inc., including a mapping
software program. We believe that our future growth will depend, in part, upon
the success of our recent and possible future acquisitions. We cannot provide
assurances that the anticipated benefits of recently concluded business
combinations and product acquisitions will be realized, or that we will be
successful in identifying suitable acquisition opportunities in the future. We
may face increased competition for future acquisition opportunities, which may
inhibit our ability to consummate suitable acquisitions and increase the costs
of completing such acquisitions. Further, we cannot provide assurances that we
will be able successfully to integrate acquired technologies, services, product
lines or businesses. Acquisitions entail a number of risks, including managing a
larger and more geographically disparate business; diversion of management
attention; development of and marketing acquired products to markets with which
we may not be familiar; integrating the acquired products into our product
lines; coordinating diverse operating structures, policies and practices; and
integrating the employees of the acquired companies into our organization and
culture. Our failure to integrate and manage acquired businesses successfully,
to retain our employees and to successfully address new markets associated with
such acquired businesses would have a material adverse effect on our business,
operating results and financial condition. Certain of our acquisitions have
involved issuances of equity securities and resulted in various charges and
expenses that have adversely affected, and will continue to adversely affect,
our operating results and financial condition. Future acquisitions may also
result in potential charges that may adversely affect our earnings and may
involve the issuance of shares of our stock to owners of acquired businesses,
resulting in dilution in the percentage of our stock owned by other
stockholders.
OUR SUCCESS DEPENDS ON KEY PERSONNEL.
We have recently experienced changes in our board of directors and
management. As previously reported in a press release and in our quarterly
Report on Form 10-Q for the period ended March 31, 1999, IMSI announced the
appointment of Costa John, our Chief Financial Officer, as our Chief Executive
Officer. Mr. John remains the Chief Financial Officer. Martin Sacks, formerly
Chief Executive Officer and President of IMSI, resigned as CEO and President but
remains a director and was elected Chairman of the Board. As part of the
restructuring of the management team and the Board, Geoffrey Koblick, formerly
Chief Operating Officer and Chairman, has retired from both positions and as a
director, but continues to be available as an advisor to IMSI. In addition,
Robert Mayer, who continues as executive Vice President of Worldwide Sales and
Marketing, has resigned as a director.
Our success depends to a significant extent on the performance and
continued service of our senior management and certain key employees. We
maintain no key person insurance and do not have employment agreements or
non-competition agreements with all of our key employees. Competition for highly
skilled employees with technical, Internet, management, marketing, sales,
product development and other specialized training is intense, and the supply is
limited. In particular, we have historically experienced difficulty in
attracting highly qualified programmers and software engineers in the U.S. We
cannot provide any assurance that we will be successful in attracting,
motivating and retaining such personnel. In addition, we cannot provide any
assurance that one or more key employees will not leave us or compete against
us. Our failure to attract qualified employees or to retain the services of key
personnel could materially adversely affect our business, operating results and
financial condition.
COMPETITION WITHIN DISTRIBUTION CHANNELS MAY ADVERSELY AFFECT OUR BUSINESS.
The distribution channels through which consumer software products are
sold have been characterized by intense competition and continuing
uncertainties, including consolidations and financial difficulties of certain
distributors and resellers, the emergence of new resellers such as general mass
merchandisers and superstores, the development of new channels such as the
Internet and the desire of large customers such as retail chains and corporate
users to purchase directly from software developers. Competition for access to
distribution channels and for retail shelf space is intense. We have no
long-term distribution agreements with any reseller. We cannot provide any
assurance that our distributors and retailers will continue to purchase our
products or provide our products with adequate levels of shelf space and
promotional support or that we will be able to distribute our products
effectively through new distribution channels. Our distributors and retailers
carry competing product lines, and there is substantial pressure from
distributors and retailers to obtain marketing and promotional funds, price
discounts and favorable return policies in connection with access to shelf
space, in-store promotions and sales of products, which has an adverse impact on
our net revenues and profitability. In addition, consolidation among the
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companies within our distribution channels has reduced the number of available
distributors, which has increased the competition for shelf-space. We cannot
provide any assurance that these pressures will not continue or increase.
We allow distributors to return products in exchange for new products or
for credit towards future purchases as part of stock balancing programs. In
addition, we provide price protection to our distributors when we reduce the
price of our products. End users may return products through dealers and
distributors within a reasonable period from the date of purchase for a full
refund, and retailers may return older versions of products. Various
distributors and resellers may have different return policies. Substantial
product returns occur when we introduce upgrades and new versions of products or
when distributors or resellers overestimate demand. We anticipate that product
returns in future periods will continue to be adversely affected by product
update cycles, new product releases and software quality. We establish
allowances based on estimated future returns of products after considering
various factors, and accordingly, if the level of actual returns exceeds our
estimates, it could have a material adverse impact on our operating results and
financial condition. While we attempt to monitor channel inventories and provide
appropriate reserves, actual product returns may differ from our reserve
estimates, and such differences could be material to our operating results and
financial condition.
We manufacture our products based upon estimated future sales, and
accordingly, if the level of actual orders of products falls short of
management's estimates, inventory levels could be excessive, which could add to
inventory write-offs and have an adverse impact on our business, operating
results and financial condition.
WE DEPEND ON A LIMITED NUMBER OF DISTRIBUTORS AND RETAILERS FOR A SUBSTANTIAL
AMOUNT OF REVENUES.
Sales to a limited number of distributors and retailers have constituted
and are expected to continue to constitute a substantial amount of our revenues.
Sales to our two largest distributors during the nine months ending on March 31,
1999 accounted for approximately 36% of net revenues for that period. Sales to
our two largest distributors during fiscal 1998 accounted for an aggregate of
35% and 25% of our revenues during fiscal 1997, respectively. Arrangements with
our distributors and retailers may generally be terminated at any time by the
distributor or retailer. While we are currently attempting to negotiate direct
sales relationships with the major retailers, there is no guarantee we will be
able to reduce our reliance on distributors either quickly or at all. The loss
of a significant reduction in sales due to the inability to collect receivables
from, or any other adverse change in our relationship with, any of our principal
distributors or retailers, or principal accounts sold through such distributors,
could materially adversely affect our operating results and financial condition.
In addition, sales of our products are typically made on credit with terms that
vary depending upon the customer and the nature of the product. Our distributors
and retailers compete in a volatile industry and are subject to the risk of
bankruptcy or other business failure, and certain distributors and retailers
have experienced difficulties. Although we maintain a reserve for uncollectible
receivables, we cannot provide any assurance that our reserve will prove to be
sufficient or that the difficulties for these or additional distributors and
retailers will not continue, which could have an adverse effect on our business,
operating results and financial condition.
OUR SUCCESS DEPENDS ON THE SUCCESS OF A FEW PRODUCT LINES.
During the nine months ended March 31, 1999, 52% of our net revenues
were derived from sales of our business applications, 12% of our net revenues
were derived from sales of our utilities, and 42% of our net revenues were
derived from sales of our visual content products. During fiscal 1998, 43% of
our net revenues were derived from sales of our business applications, 19% of
our net revenues were derived from sales of our utilities, and 29% of our net
revenues were derived from sales of our visual content products. During fiscal
1997, 34% of our net revenues were derived from sales of our business
applications, 11% of our net revenues were derived from sales of our utilities,
and 46% of our net revenues were derived from sales of our visual content
products. Within the business applications category, the products within the
business drawing category (primarily the TurboCAD product line) accounted for
approximately 20% of our net revenues during the nine months ended March 31,
1999, 22% of our net revenues during fiscal 1998, and 20% of our net revenues
during fiscal 1997. Within the visual content category, the MasterClips product
family accounted for approximately 46% of our net revenues during the nine
months ended March 31, 1999, 29% of our net revenues during fiscal 1998, and 46%
of our net revenues during fiscal 1997. These were the leading products in their
respective categories and, although we publish a broad range of products, these
product lines are expected to continue to account for a material percentage of
net revenues in fiscal 1999 and thereafter. Accordingly, our future operating
results will depend, in part, on continued and expanded market acceptance of
these product lines, as well as our ability to continue to enhance these product
lines
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<PAGE> 10
and to introduce new products. We cannot provide any assurance that sales levels
of any of these families of products will increase or be sustained, especially
in light of increased competition in the marketplace. Any circumstances
adversely affecting sales of these families of products, including such factors
as product life cycles, market acceptance, product performance and reliability,
reputation, price competition and the availability of third-party applications,
could have a material adverse effect on our business, operating results and
financial condition. The failure of new products in these families to achieve
market acceptance could also have a material adverse effect on our business,
operating results and financial condition.
OUR INTELLECTUAL PROPERTY MAY BE VULNERABLE.
As the number of software products in the industry increases and the
functionality of these products further overlaps, software developers and
publishers may increasingly become subject to infringement claims. From time to
time, we have received, and may receive in the future, notice of claims of
infringement of other parties' proprietary rights. Although we investigate
claims and respond as we deem appropriate, we cannot provide any assurance that
infringement or invalidity claims (or claims for indemnification resulting from
infringement claims) will not be asserted or prosecuted against us. Irrespective
of the validity or the successful assertion of such claims, we would incur
significant costs and diversion of resources with respect to the defense of such
claims, which could have a material adverse effect on our business, operating
results and financial condition. If any valid claims or actions were asserted
against us, we might seek to obtain a license under a third-party's intellectual
property rights. We cannot provide any assurance, however, that under such
circumstances a license would be available on commercially reasonable terms, or
at all.
We provide our products to end users under non-exclusive licenses, which
generally are non-transferable and have a perpetual term. We make source code
available for certain of our products. The provision of source code may increase
the likelihood of misappropriation or other misuse of our intellectual property.
We license all of our products pursuant to shrink-wrap licenses that are not
signed by licensees and therefore may be unenforceable under the laws of certain
jurisdictions.
OUR MARKETPLACE IS INTENSELY COMPETITIVE AND RAPIDLY CHANGING AND WE MAY NOT BE
ABLE TO COMPETE SUCCESSFULLY IN THE FUTURE.
The PC productivity software industry is highly competitive and is
characterized by rapid changes in technology and customer requirements.
Important factors in the market include product features and functionality,
quality and performance, reliability, brand recognition, ease of understanding
and operation, advertising and dealer merchandising, access to distribution
channels and retail shelf space, marketing, pricing and availability and quality
of support services. We face competition from a large number of sources. There
has been a consolidation among competitors in the market for our products, and
many of our current and potential competitors have larger technical staffs, more
established and larger marketing and sales organizations, significantly greater
financial resources and greater name recognition and better access to consumers
than we do. Our relatively small size could adversely affect our ability to
compete with larger companies for sales to dealers, distributors and retail
outlets, to obtain shelf space for our products in retail outlets and to acquire
products from third parties, who may desire to have their products sold or
published by larger entities. The rapid pace of technological change constantly
creates new opportunities for existing and new competitors and can quickly
render existing technologies less valuable. It also requires us to enhance our
existing products and to offer new products on a timely basis. We have limited
resources and therefore must restrict our product development efforts to a
relatively small number of projects.
We compete with other software companies in our efforts to acquire
products or companies and to publish software developed by third parties. The
competition to publish software developed by third parties is primarily on the
basis of brand-name reputation, the terms offered to software developers and the
ability to market new products.
Each of our major products competes with one or more products from one
or more major independent software vendors. For example:
- TurboCAD competes with AutoCAD from Autodesk Inc. and IntelliCAD
from Visio Corporation.
- WinDelete competes with Uninstaller from CyberMedia Inc.,
CleanSweep and Norton Uninstaller from Symantec Corporation.
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- MasterClips competes with ClickArt from Broderbund Software
Inc., MegaGallery from Corel Corporation, Holy Cow! from
Macmillan Digital Publishing USA and Art Explosion from Nova
Development.
- VoiceDirect competes with various speech recognition products
from IBM, Dragon Systems, Inc., Kurzweil and Lernout & Hauspie.
- Net Accelerator competes with SurfExpress from Connectix, Speed
Surfer from Kissco and Net.jet from Peak Technologies.
- FloorPlan competes with Home Architect from Cendant Corporation,
Home Design Suite from Autodesk, Dream Home Designer from Alpha
Software Corporation and Home Design 3D from Expert Software,
Inc.
- TurboProject competes with Microsoft Project.
Our strategy has been to develop productivity and utility applications
that do not compete directly with applications or features included in operating
systems and applications suites offered by major software vendors such as
Microsoft, Lotus Development Corp. and Corel. However, such software vendors may
in the future choose to expand the scope and functionality of their products to
support some or all of the features currently offered by certain of our
products, which could adversely affect demand for our products. In particular,
Microsoft has periodically added utility features (e.g. disk compression
utilities and desk-top facing features) to its Windows operating systems that
were previously only supported by third-party vendors and that materially
reduced demand for third-party utility products. In addition, Microsoft's
Windows 98 contains features for the automatic updating of Windows 98 (including
third party device drivers) and many Microsoft applications via the Internet,
which could adversely impact sales of our Update Now! product. Windows 98 also
contains the latest version of Microsoft's Internet Explorer which handles the
caching of Web pages more efficiently. This feature may adversely impact sales
of our Net Accelerator product family.
The software industry has limited barriers to entry, and the
availability of personal computers with continuously expanding capabilities, at
progressively lower prices, contributes to the ease of market entry. We believe
that competition in the industry will continue to intensify as a number of
software companies extend their product lines into additional product categories
and as additional competitors enter the market. In addition, widespread use of
the Internet has reduced barriers to entry in the software market by allowing
software developers to distribute their products online without relying on
access to traditional distribution networks. As a result of the proliferation of
competing software developers, an increasingly large number of products are
competing for limited shelf space. There can be no assurance that our products
will achieve and/or sustain market acceptance and generate significant levels of
revenues in subsequent quarters or that we will have the resources required to
compete successfully in the future.
OUR DEPENDENCE ON THIRD PARTY DEVELOPERS COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS.
Our business strategy has historically depended in part on our
relationships with third-party developers, who provide products that expand the
functionality of our software. Many of these licenses require payment of
royalties based on the number of products sold. In other cases, we may be
required to pay substantial up-front royalties and development fees to software
developers before the commercial viability of their products has been tested.
Failure of such products to achieve commercial success could result in
substantial charges against our earnings. Licenses from third parties for
several of our products have limited terms and are non-exclusive. We cannot
provide any assurance that these third-party software licenses for current
products or for new products will continue to be available on commercially
reasonable terms, or that the software will be appropriately supported,
maintained or enhanced by the licensors. The loss of licenses to, or the
inability to support, maintain and enhance, any such software, could result in
increased costs, or in delays or reductions in product shipments until
equivalent software could be developed, identified, licensed and integrated,
which would have a material adverse effect on our business, operating results
and financial condition. In addition, because talented development personnel are
in high demand, we cannot provide any assurance that independent developers,
including those who have developed products for us in the past, will be able to
provide development support to us in the future. If sales of software
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utilizing third-party technology increase disproportionately, operating income
as a percent of revenue may be below historical levels due to third-party
royalty obligations.
THERE ARE RISKS ASSOCIATED WITH OUR USE OF DEVELOPMENT TEAMS OUTSIDE THE UNITED
STATES.
Most program coding and quality testing of our products are performed
using contract programmers in development centers in various locations in
Russia, Ukraine, India, and several other countries. Although the cost of
programmers outside of the United States is significantly lower than the cost of
programmers available to us domestically, our reliance on such programmers
presents a number of risks. Due to the geographic distance between our
engineering management personnel in California and the contract programmers
overseas, it is more difficult for us to manage, oversee and control the
programming process. In addition, cultural and language differences make
coordination of our United States management and overseas programming efforts
more difficult. While our agreement with the entity through which we compensate
these programmers provides that we own the code developed by the programmers,
the location of the source code outside the United States may make it more
difficult for us to ensure that access to our source code is adequately
restricted. Given our reliance on programmers outside the United States, our
business, operating results and financial condition would be materially
adversely affected if we were to lose the services of these programmers.
Although we would likely be able to locate alternative programmers within the
United States or in other countries to the extent that the overseas programmers
were no longer available, the costs associated with such alternative programmers
could significantly increase our operating expenses.
WE FACE DIFFICULTIES IN MANAGING CHANGE.
In recent years, we have experienced changes in our operations that have
placed significant demands on our administrative, operational and financial
resources. The growth in our Internet customer base and expansion of our
Internet product families, together with our acquisition of other businesses and
their employees, have challenged and are expected to continue to challenge our
management and operations, including our sales, marketing, customer support,
research and development and finance and administrative operations. In order to
address certain of these challenges, we need to upgrade elements of our
information systems. We cannot provide any assurance that we will successfully
overcome difficulties with such upgrades in a timely manner, which could
adversely affect our ability to continue to manage the growth of our operations.
Our future performance will depend in part on our ability to manage change
successfully, in both our domestic and our international operations, and to
adapt our operational and financial control systems, if necessary, to respond to
changes in our business and to facilitate the integration of acquired businesses
with our operations. The failure of our management to effectively respond to and
manage growth could have a material adverse effect on our business, operating
results and financial condition.
WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.
For the nine months ended March 31, 1999, net revenues from
international sales were $9,392,000 or 30% of net revenues. International sales
represented 33% of revenues for the nine months ended March 31, 1999, 30% of our
revenues during fiscal 1998, 41% of our revenues during fiscal 1997. We expect
that international sales will account for an increasing portion of our revenues
in the future. Most of our international revenues are denominated in foreign
currencies. Consequently, a decrease in the value of a relevant foreign currency
in relation to the U.S. dollar can adversely affect our net revenues. Further, a
decrease in the value of a relevant foreign currency in relation to the U.S.
dollar occurring after prices and before receipt of payment by us would have an
adverse effect on our results of operations. Additionally, we may be materially
and adversely affected by increases in duty rates, exchange or price controls,
changes in tariffs, difficulties managing accounts receivable, longer collection
cycles, repatriation restrictions or other restrictions on foreign currencies.
Our international operations are subject to certain other risks common to
international operations, including without limitation, difficulties managing
foreign operations, the timely and successful launch of foreign products,
government regulations, import and export restrictions, changes in international
tax laws, political instability and, in certain jurisdictions, reduced
protection for our intellectual property rights. We have committed and continue
to commit significant time and development resources to customizing certain of
our products for selected international markets and to developing international
sales and support channels. We cannot provide any assurance that our efforts to
develop products for targeted international markets or to develop additional
international sales and support channels will be successful. The failure of such
efforts, which can entail considerable expense, could have a material adverse
effect on our business, operating results and financial condition.
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Although IMSI believes that the risks associated with transactions in
foreign currencies are mitigated by diversified exposure to multiple currencies,
IMSI's operating results may be affected by the risks customarily associated
with international operations, including a devaluation of the U.S. dollar,
increases in duty rates, exchange or price controls, longer collection cycles,
government regulations, political instability, and changes in international tax
laws.
WE HAVE EXPERIENCED SIGNIFICANT DILUTION.
We have issued common stock in connection with strategic acquisitions
and other transactions. As a result, we have experienced common stock dilution.
On June 30, 1998, IMSI had 5.7 million shares issued and outstanding. On March
31, 1999, IMSI had approximately 6.8 million shares issued and outstanding. This
prospectus covers 2,524,823 shares of common stock, of which 1,100,857 shares
are outstanding and 1,423,966 shares may be issuable in the future upon the
occurrence of certain events. IMSI may issue additional shares of common stock
during Fiscal 1999 and thereafter.
DIRECTORS AND OFFICERS BENEFICIALLY OWN A SIGNIFICANT PERCENTAGE OF OUR SHARES.
As of the date of this prospectus, the present directors and executive
officers of IMSI and their respective affiliates, in the aggregate, beneficially
owned approximately 16% of our outstanding common stock. As a result, these
stockholders will possess significant influence over us. Such influence may have
the effect of delaying or preventing a change in control, impeding a merger,
consolidation, takeover or other business combination involving IMSI or
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us.
OUR RELIANCE ON OUTSOURCING COULD MATERIALLY ADVERSELY AFFECT OUR OPERATING
RESULTS.
We outsource most of the production of our products, which primarily
involves duplication of various media and the printing of user manuals and
packaging materials. So long as it remains economically advantageous to do so,
we intend to continue, and possibly to increase, outsourcing in the future.
Although we believe that we have adequate alternative suppliers of such
services, the loss of a supplier or our inability to perform contract services
could materially adversely affect our operating results.
OUR COMMON STOCK PRICE IS HIGHLY VOLATILE AND IS SUBJECT TO WIDE FLUCTUATIONS.
The market price of our common stock is highly volatile and could be
subject to wide fluctuations in response to factors such as actual or
anticipated variations in our operating results, announcements of technological
innovations, new products or services introduced by us or our competitors,
changes in financial estimates by securities analysts, conditions and trends in
the software market, general market conditions and other factors. Historically,
the trading volume of the common stock has been very small and the market for
the common stock has been materially less liquid than that of most other
publicly traded companies. Significant sales of common stock could have an
adverse effect on the market price of the common stock. Further, the stock
markets, and in particular the Nasdaq Stock Market, have experienced extreme
price and volume fluctuations that have particularly affected the market prices
of equity securities of many technology companies and that often have been
unrelated or disproportionate to the operating performance of such companies.
The trading prices of many technology companies' stocks are at or near
historical highs and reflect price to earnings ratios substantially above
historical levels. We cannot provide any assurance that these trading prices and
price to earnings ratios will be sustained. These broad market factors may
adversely affect the market price of our common stock. These market
fluctuations, as well as general economic, political and market conditions such
as recessions, interest rates or international currency fluctuations, may
adversely affect the market price of the common stock.
YEAR 2000 ISSUES COULD AFFECT OUR BUSINESS.
We recognize the need to ensure that our operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. We have established procedures for evaluating and managing the
risks and costs associated with
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this problem, and, as part of the general upgrade of our information systems, we
are putting in place systems which will be Year 2000 compliant.
IMSI has initiated a Year 2000 Compliance Plan that addresses three
types of systems that must be Year 2000 compliant.
PRODUCTS: IMSI's software products have been undergoing Year 2000
Compliance testing since January 1998. Approximately 85% of our currently
supported products have been verified as Year 2000 Compliant; the remaining
products are expected to be verified as compliant by June 1999.
IT SYSTEMS: We have identified all internal data processing and
networking systems that we believe are at risk from the Year 2000 problem and we
are currently reviewing the manufacturer's Year 2000 Compliance statement for
each system. Any systems that are determined to be non-compliant will be
upgraded or replaced. Internal testing will be initiated for any missing
critical system for which the manufacturer's Year 2000 Compliance statement is
not adequate to ensure the reliability of the system. All IT systems will be
verified as Year 2000 Compliant by July 1999. In addition, no new IT systems
will be implemented without first ensuring that they are Year 2000 Compliant.
NON-IT-SYSTEMS: We have identified a wide range of general computing and
facilities systems that must be verified as Year 2000 Compliant. The majority of
these systems will be upgraded or replaced as necessary during normal
maintenance if they are not compliant. The manufacturer's Year 2000 Compliance
statements are currently under review for the remaining systems and will be
upgraded or replaced if necessary. Because new systems are continually being
integrated into IMSI, the effort to ensure Year 2000 Compliance for these
systems is an ongoing effort.
We have communicated with others with whom we do significant business to
determine their Year 2000 compliance readiness and the extent to which IMSI is
vulnerable to any third party Year 2000 issues. However, there can be no
guarantee that the systems of other companies on which our systems rely will be
timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with our systems, would not have a material
adverse effect on IMSI, results of operations and our financial condition.
USE OF PROCEEDS
Except in the event that warrants are exercised for cash (in which case
we would receive proceeds from the exercise) rather than being net exercised,
for the exercise of warrants we will not receive any proceeds from the sale of
the common stock by the selling stockholders.
SELLING STOCKHOLDERS
We are registering the shares of common stock pursuant to the following
agreements:
(1) an Exchange Agreement among Zedcor, Inc., certain Zedcor, Inc.
stockholders and IMSI dated September 17, 1998 (the "Exchange
Agreement");
(2) a Warrant Subscription Agreement between Silicon Valley Bank and
IMSI dated November 3, 1998 (the "Warrant Agreement");
(3) an Asset Purchase Agreement between clipartconnection.com and
IMSI dated December 24, 1998 (the "Asset Purchase Agreement");
(4) a Fee Agreement between IMSI and the Law Offices of Mark Garay,
Inc., dated January 11, 1999 (the "Garay Fee Agreement")
(5) a Fee Agreement between IMSI and The Learning Company ("TLC")
dated January 21, 1999 (the "TLC Fee Agreement");
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(6) a Fee Agreement between IMSI and Green Tree Technologies, Inc.
dated February 18, 1999 (the "Green Tree Fee Agreement");
(7) a Fee Agreement between IMSI and Zedcor, Inc., dated February
25, 1999 (the "Zedcor Fee Agreement");
(8) an agreement between IMSI and Capital Ventures International
dated March 3, 1999 (the "Capital Ventures International
Agreement");
(9) a Fee Agreement between IMSI and HomeStyles, Inc., dated January
11, 1999 (the "HomeStyles Agreement");
(10) a Fee Agreement between IMSI and Joseph Minnevich, dated January
11, 1999 (the "Minnevich Agreement");
(11) a Fee Agreement between IMSI and Gateway Acceptance, dated March
1, 1999 (the "Gateway Agreement");
(12) a Fee Agreement between IMSI and Spatial Technologies, dated
March 25, 1999 (the "Spatial Agreement") and
(13) a Fee Agreement between IMSI and StarBase Corp., dated March 26,
1999 (the "StarBase Agreement.")
(14) an Amendment dated as of May 10, 1999, between IMSI, Zedcor and
its former shareholders, amending the Exchange Agreement and
Zedcor Fee Agreement, among other agreements.
Zedcor Agreements. In October 1998, IMSI acquired all the outstanding
common stock of Zedcor, Inc. ("Zedcor"), an Internet provider of art and
animations, pursuant to the Exchange Agreement. The total purchase price
consisted of cash, a promissory note for $2,229,500, and 176,455 shares of
common stock. Pursuant to the terms of the Exchange Agreement, we are
registering the shares of common stock that the Zedcor stockholders listed below
received in this transaction. On February 25, 1999, IMSI entered into a fee
agreement with Zedcor. Under the terms of the Zedcor Fee Agreement, IMSI issued
190,797 shares of common stock (as amended in May 1999) and in satisfaction of a
debt owed Zedcor under the terms of the Exchange Agreement described above. The
shares were priced at $8.00 and on the closing date the closing price of the
common stock was $11.438. In May 1999, IMSI entered into an agreement with
Zedcor and its former shareholders pursuant to which IMSI agreed, among other
things, to issue approximately 10,000 shares of common stock in consideration of
the release of a security interest in favor of the former Zedcor shareholders
and certain other agreements by those shareholders. IMSI agreed to register the
above shares for resale.
The Warrant Agreement. On November 3, 1998, we borrowed funds under a
three-year subordinated loan facility with Silicon Valley Bank. As part of the
loan facility, IMSI issued warrants, which have a five-year term, to purchase
30,000 shares of common stock with an exercise price of $7.00 per share. As part
of the original loan agreement dated November 3, 1998, IMSI was required to
register shares by February 1, 1999. On January 26, 1999, Silicon Valley Bank
and IMSI agreed to extend this deadline until May 5, 1999. Additional warrants
are required to be granted as follows:
<TABLE>
<CAPTION>
If not paid in full prior to: Additional warrants to be issued Exercise price per share
- ----------------------------- -------------------------------- ------------------------
<S> <C> <C>
October 31, 1999 5,000 $7.00
January 31, 2000 25,000 7.00
April 30, 2001 65,000 6.00
October 31, 2001 125,000 5.00
</TABLE>
IMSI is registering 30,000 of the shares issuable upon exercise of these
warrants, under the terms of IMSI's agreements with the bank. If it is necessary
to register the remaining shares, IMSI will do so at a later date.
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Asset Purchase Agreement. On December 24, 1998, IMSI purchased certain
assets of clipartconnection.com, an Internet provider of art and animation, for
a purchase price of 18,053 shares of common stock. The share price used for
calculation and the closing price on the Closing were commensurate. IMSI agreed
to register those shares for resale.
Garay Fee Agreement. On January 11, 1999, IMSI entered into a fee
agreement with the Law Offices of Mark Garay, Inc. ("Garay") Under the terms of
the Garay Fee Agreement, IMSI issued 11,112 shares of our common stock in
satisfaction of a debt owed to Garay. The shares were priced at $9.00 and on the
closing date the closing price of the common stock was IMSI common stock was
trading at $10.25. IMSI agreed to register those shares for resale.
TLC Fee Agreement. On October 2, 1998, The Learning Company, Inc.
("TLC") and IMSI entered into a software license agreement whereby TLC sold Org
Plus to us in exchange for current and future cash payments. In January 1999,
IMSI and TLC agreed to amend the terms of the Org Plus agreement to allow IMSI
to settle the portion of the purchase price not paid at the closing by the
issuance of 200,000 shares of common stock. The shares were priced at $9.00, and
on the closing date the closing price of the common stock was $12.00. IMSI
agreed to register those shares for resale. In addition, IMSI has agreed that if
TLC sells any shares pursuant to this prospectus within 30 days of the effective
date of the registration statement to which this registration statement relates,
at a sale price of less than the price per share of the common stock as of April
30, 1999, IMSI will pay TLC the difference between the price TLC receives per
share and the price per share as of April 30, 1999 in cash, or IMSI may make up
the shortfall by issuing additional shares equal to the difference in the
selling price multiplied by the weighted average of the shares during the thirty
day protection period.
Green Tree Fee Agreement. On February 18, 1999, IMSI entered into a fee
agreement with Green Tree Technologies, Inc. ("Green Tree")to satisfy a debt we
owed Green Tree under the terms of a software license agreement between IMSI and
Green Tree. In settlement of this debt, we issued to Green Tree 18,053 shares.
The shares were priced at $8.31 and on the closing date the closing price of the
common stock was $11.00. IMSI agreed to register those shares for resale.
Capital Ventures International Agreement. On March 3, 1999, IMSI entered
into a stock purchase agreement and related agreements with Capital Ventures
International ("CVI"). Under the terms of the agreement, CVI paid us $5,000,000
and we issued 437,637 shares of our common stock. We may be required to issue
additional shares depending on the occurrence of certain events, including the
market price of the common stock on certain future dates. In particular, if the
average of the closing prices of our common stock for the five trading days
before the date that the registration statement of which this prospectus is a
part is declared effective by the SEC is less than $11.42, then we are obligated
to issue additional shares to CVI so that CVI's per share purchase price equals
that average market price, but in all events no lower than approximately $7.99.
This floor price can be reduced if we complete a "Financing Transaction," as
defined in the agreements with CVI, at certain prices within certain periods of
time after the closing of the CVI transaction. The shares were priced at $11.42
and on the closing date the closing price of the common stock was $11.563.
Additionally, pursuant to the CVI agreement, CVI can purchase up to $3,000,000
worth of additional shares of common stock, up to a maximum of 375,117 shares.
CVI also acquired a warrant to purchase 131,291 shares of common stock. IMSI
agreed to register the shares issued or issuable pursuant to these agreements.
Under the agreements with CVI, if the registration statement is not declared
effective before July 3, 1999, then we are obligated to pay to CVI certain
amounts, which could be material depending on several factors including the
length of time before this registrations statement is declared effective.
Following the closing of the BayStar Financing, CVI notified IMSI that
CVI believes that as a result of the BayStar Financing, the floor price under
the CVI agreements relating to possible issuance of additional shares to CVI
depending on the average market price of our common stock on the date this
registration statement is declared effective should be reduced from $7.99 to a
significantly lower number, possibly approximately $4.25. IMSI disagrees with
CVI's assertions concerning the extent of any reduction to this share limit
price. To our knowledge, CVI has not yet filed any lawsuits against us, but CVI
may in the future file an action against us asserting the above claims and
possibly other claims, seeking damages and other relief including issuance of
additional shares of common stock to CVI, depending on the market price of our
common stock when this registration statement is declared effective. If CVI were
ultimately to prevail in any such action, we might be required to pay damages
and/or issue additional shares of common stock to CVI. We currently believe that
the maximum number of additional shares we would be required to issue if CVI
were to prevail would be approximately 738,834 shares, but we cannot provide any
assurances concerning the outcome of any such action, if brought. This
prospectus includes an additional 700,000 shares of common stock which may,
depending on various circumstances described above, become issuable to CVI.
HomeStyles Agreement. On January 11, 1999, IMSI entered into a fee
agreement with HomeStyles, Inc. ("HomeStyles") to satisfy a $90,000 debt we owed
HomeStyles under the terms of various software license agreement between IMSI
and HomeStyles. In settlement of this debt, we issued to HomeStyles 10,000
shares of common stock. The shares were priced at $9.00 and on the closing date
the closing price of the common stock was $10.25. IMSI agreed to register those
shares for resale.
Minnevich Agreement. On January 11, 1999, IMSI entered into a fee
agreement with Joseph Minnevich ("Minnevich") to satisfy a $45,000 debt we owed
Minnevich under the terms of various software license agreement between IMSI and
Minnevich. In settlement of this debt, we issued to Minnevich 5,000 shares of
common stock. The shares were priced at $9.00 and on the closing date the
closing price of the common stock was $10.25. IMSI agreed to register those
shares for resale.
Gateway Agreement. On March 1, 1999, IMSI entered into a fee agreement
with Gateway Acceptance Co. ("Gateway") to satisfy a $72,000 debt we owed
Gateway under the terms of various manufacturing agreements between IMSI and
Gateway. In settlement of this debt, we issued to Gateway 8,000 shares of common
stock. The shares were priced at $9.00 and on the closing date the closing price
of the common stock was $11.438. IMSI agreed to register those shares for
resale.
15
<PAGE> 17
Spatial Agreement. On March 25, 1999, IMSI entered into a fee agreement
with Spatial Technology, Inc. ("Spatial") to satisfy a $45,000 debt we owed
Spatial under the terms of various software license agreements between IMSI and
Spatial. In settlement of this debt, we issued to Spatial 5,000 shares of common
stock. The shares were priced at $9.00 and on the closing date the closing price
of the common stock was $11.25. IMSI agreed to register those shares for resale.
StarBase Agreement. On March 26, 1999, IMSI entered into a fee agreement
with StarBase Corporation ("StarBase") to satisfy a debt we owed StarBase under
the terms of various software license agreements between IMSI and StarBase. In
settlement of this debt, we issued to StarBase 10,750 shares of common stock.
The share price used for calculation and the closing price on the closing were
commensurate. IMSI agreed to register those shares for resale.
The following table sets forth information with respect to the selling
stockholders and the shares of the common stock that may be offered pursuant to
this prospectus (the "shares"). Except as provided below, none of the selling
stockholders has, or within the past three years has had, any position, office
or other material relationship with us or any of our predecessors or affiliates.
The selling stockholders may from time to time offer and sell any or all
of their shares pursuant to this prospectus. Because the selling stockholders
are not obligated to sell shares of common stock, and because selling
stockholders may also acquire publicly traded shares of our common stock, we
cannot estimate how many shares of common stock each selling stockholder will
beneficially own after this offering
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned (1)
Prior to the Offering
and Being Offered
Name Number Percent
- ---- ------ -------
<S> <C> <C>
Michael A. Gariepy and Marcella
A. Gariepy Living Trust(2) 301,802 4.36%
Peter M. Gariepy(2) 75,450 1.09%
Silicon Valley Bank 30,000 less than 1%
Clipartconnection.com 18,053 less than 1%
Law Offices of Mark Garay, Inc. 11,112 less than 1%
The Learning Company, Inc. 200,000 2.89%
Green Tree Technologies, Inc. 18,053 less than 1%
Capital Ventures
International(3) 1,131,603 16.36%
HomeStyles, Inc. 10,000 less than 1%
Joseph Minnevich 5,000 less than 1%
Gateway Acceptance Co. 8,000 less than 1%
Spatial Technology, Inc. 5,000 less than 1%
StarBase Corp. 10,750 less than 1%
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Unless otherwise indicated below, the persons
and entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable.
(2) These shares are being offered pursuant to the Zedcor Exchange Agreement and
the Zedcor Fee Agreement.
(3) These shares include the 437,637 shares initially issued, and up to 693,966
additional shares that may be issued to CVI under the Capital Ventures
International Agreement. Does not include any additional shares that may become
issuable to CVI by virtue of certain provisions in the agreements with CVI
providing for issuance of additional shares depending on the market price of the
common stock on the date the registration statement is declared effective.
PLAN OF DISTRIBUTION
We have filed a Registration Statement of which this prospectus forms a
part pursuant to registration rights we granted to the selling stockholders
pursuant to (1) the Exchange Agreement; (2) the Warrant Agreement; (3) the Asset
Purchase Agreement; (4) the Garay Fee Agreement; (5) the TLC Fee Agreement; (6)
the Greentree Fee Agreement; (7) the Zedcor Fee Agreement; and (8) the Capital
Ventures International agreements.
16
<PAGE> 18
To IMSI's knowledge, no selling stockholder has entered into any
agreement, arrangement or understanding with any particular broker or market
maker with respect to the shares of common stock offered hereby, nor does IMSI
know the identity of the brokers or market makers that will participate in the
sale of the shares. As used in this prospectus, the term "selling stockholders"
includes donees and pledgees selling shares received from a named selling
stockholder after the date of this prospectus.
Who May Sell; How Much; Applicable Restrictions. The selling
stockholders may from time to time offer the shares of common stock through
brokers, dealers or agents who may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders and/or the
purchasers of the shares of common stock for whom they may act as agent. In
effecting sales, broker-dealers that are engaged by the selling stockholders may
arrange for other broker-dealers to participate. The selling stockholders and
any such brokers, dealers or agents who participate in the distribution of the
shares of common stock may be deemed to be "underwriters," and any profits on
the sale of the shares of common stock by them and any discounts, commissions or
concessions received by any such brokers, dealers or agents might be deemed to
be underwriting discounts and commissions under the Securities Act. To the
extent the selling stockholders may be deemed to be underwriters, the selling
stockholders may be subject to certain statutory liabilities of, including but
not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5
under the Exchange Act. To our knowledge, there are currently no plans,
arrangements or understandings between any selling stockholders and any broker,
dealer, agent or underwriter regarding the sale of the shares of common stock by
the selling stockholders.
Manner of Sales and Applicable Restrictions. The selling stockholders
will act independently of IMSI in making decisions with respect to the timing,
manner and size of each sale. Such sales may be made over the Nasdaq Stock
Market or otherwise, at then prevailing market prices, at prices related to
prevailing market prices or at negotiated prices. The shares of common stock may
be sold according to one or more of the following methods:
(a) a block trade in which the broker or dealer so engaged will
attempt to sell the shares of common stock as agent but may
position and resell a portion of the block as principal to
facilitate the transaction;
(b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus;
(c) an over-the-counter distribution in accordance with the Nasdaq
rules;
(d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
(e) privately negotiated transactions.
Certain persons participating in this offering may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock, including the entry of stabilizing bids or syndicate covering
transactions or the imposition of penalty bids. The selling stockholders and any
other person participating in such distribution will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder
including, without limitation, Regulation M (which regulation may limit the
timing of purchases and sales of any of the shares of common stock by the
selling stockholders and any other such person). The anti-manipulation rules
under the Exchange Act may apply to sales of shares of common stock in the
market and to the activities of the selling stockholders and their affiliates.
Furthermore, Regulation M of the Exchange Act may restrict the ability of any
person engaged in the distribution of the shares of common stock to engage in
market-making activities with respect to the particular shares of common stock
being distributed for a period of up to five business days prior to the
commencement of such distribution. All of the foregoing may affect the
marketability of the shares of common stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
common stock. Under the terms of its asset purchase agreement,
clipartconnection.com agreed to limit to ten percent of the total number of
shares, the number of shares it holds that are covered by this prospectus it
will sell in any one month period during the twelve months following the date
its shares become tradable unless we consent otherwise. Clipartconnection.com
also agreed to give us ten business days advance notice of any proposed sale of
common stock. IMSI has a perpetual right of first refusal to either purchase
such shares or to arrange for a third party to purchase the shares.
17
<PAGE> 19
Rules 101 and 102 of Regulation M under the Exchange Act, among other
things, generally prohibit certain participants in a distribution from bidding
for or purchasing for an account in which the participant has a beneficial
interest, any of the securities that are the subject of the distribution. Rule
104 of Regulation M governs bids and purchases made to stabilize the price of a
security in connection with a distribution of the security.
Hedging and Other Certain Transactions with Broker-Dealers. In
connection with distributions of the shares of common stock or otherwise, the
selling stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares of common stock registered hereunder in the course of hedging the
positions they assume with selling stockholders. The selling stockholders may
also sell shares of common stock short and redeliver the shares of common stock
to close out such short positions. The selling stockholders may also enter into
option or other transactions with broker-dealers which require the delivery to
the broker-dealer of the shares of common stock registered hereunder, which the
broker-dealer may resell or otherwise transfer pursuant to this prospectus.
Selling stockholders may also loan or pledge the shares of common stock
registered hereunder to a broker-dealer and the broker-dealer may sell the
shares of common stock so loaned or, upon a default, the broker-dealer may
effect sales of the pledged shares of common stock pursuant to this prospectus.
Expenses Associated With Registration. We have agreed to pay the
expenses of registering the shares of common stock under the Securities Act,
including registration and filing fees, printing expenses, administrative
expenses and certain legal and accounting fees. Each of the selling stockholders
will bear its pro rata share of all discounts, commissions or other amounts
payable to underwriters, dealers or agents as well as fees and disbursements for
legal counsel retained by any such selling stockholder.
Indemnification. Under the terms of the Garay Fee Agreement, the TLC Fee
Agreement, the Capital Ventures International Agreement, the Greentree Fee
Agreement, and the Zedcor Fee Agreement, we have agreed to indemnify each of the
parties to the agreements and certain other persons against certain liabilities
in connection with the offering of the shares of common stock, including
liabilities arising under the Securities Act.
Prospectus Updates; Suspension of this Offering. At any time a
particular offer of the shares of common stock is made, a revised prospectus or
prospectus supplement, if required, will be distributed. Such prospectus
supplement or post-effective amendment will be filed with the SEC to reflect the
disclosure of required additional information with respect to the distribution
of the shares of common stock. Under the terms of the Garay Fee Agreement, the
TLC Fee Agreement, the Greentree Fee Agreement, and the Zedcor Fee Agreement,
upon the occurrence of any event known to our executive officers as a result of
which this prospectus is known by our executive officers to include an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, the parties have each agreed not to
trade shares of common stock from the time the selling stockholder receives
notice from IMSI of such an event until such party receives a prospectus
supplement or amendment. Upon the occurrence of such an event, a prospectus
supplement or post-effective amendment, if required, will be distributed to the
parties.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, we file reports and other
information with the Securities and Exchange Commission. Reports, registration
statements, proxy and information statements, and other information that we have
filed can be inspected and copied at the public reference facilities maintained
by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as the regional offices of the SEC located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite
1300, New York, New York 10048. You may obtain copies of such material from the
Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 at rates prescribed by the SEC. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains a World Wide Web site that contains reports, proxy and
information statements, and other information that is filed electronically with
the SEC. This Web site can be accessed at http://www.sec.gov. Our common stock
is listed on the Nasdaq Stock Market and reports, proxy statements and other
information concerning IMSI may be inspected at
18
<PAGE> 20
the offices of the National Association of Securities Dealers, Inc., 9513 Key
West Avenue, Rockville, Maryland 20850.
We have filed with the SEC a registration statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the common stock offered
hereby. This prospectus does not contain all of the information set forth in the
Registration Statement and its exhibits and schedules, certain parts of which
are omitted in accordance with the rules and regulations of the SEC. For further
information with respect to us and our common stock, please refer to the
Registration Statement and its exhibits and schedules. Statements contained in
this prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement.
Each such statement is qualified in all respects by such reference. Copies of
the Registration Statement, including exhibits thereto, may be inspected without
charge at the SEC's principal office in Washington, D.C., and you may obtain
copies from this office upon payment of the fees prescribed by the SEC.
We will furnish without charge to each person, including any beneficial
owner, to whom a copy of this prospectus is delivered, upon such person's
written or oral request, a copy of any and all of the information that has been
incorporated by reference into this prospectus (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference
herein as well). Requests for such copies should be directed to Susan Wisor at
(415) 878-4244.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents that we have filed with the SEC are incorporated
by reference into this prospectus:
(a) the Registration Statement and the exhibits and schedules filed
therewith;
(b) our annual report on Form 10-K for the fiscal year ended June
30, 1998, as amended; provided, however, that the financial
statements and the report of our independent auditor that is
included in the Form 10-K will not be incorporated by reference
until an appropriate consent of our independent auditor is filed
by amendment as part of the Registration Statement of which this
prospectus is a part;
(c) all other reports filed pursuant to Section 13(a) or 15(d) of
the Exchange Act since June 30, 1998, including: (1) our
quarterly reports on Form 10-Q for the fiscal quarters ended
September 30, 1998, December 31, 1998, and March 31, 1999; and
(2) our Proxy Statement on Form DEF 14A filed on December 29,
1998, as revised on Form DEFR 14 A filed on December 30, 1998;
(d) all other information that we file with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this prospectus and prior to the
termination of this offering;
(e) our Report on Form 8-K filed on April 26, 1999; and
(f) our Report on Form 8-K filed on May 12, 1999.
Any statement incorporated herein shall be deemed to be modified or
superseded for the purposes of this prospectus and the Registration Statement to
the extent that a statement contained herein or in any other subsequently filed
document that is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
prospectus and the Registration Statement.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered
hereby will be passed upon for us by our in-house counsel, Geoffrey B. Koblick.
19
<PAGE> 21
================================================================================
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
2,524,823 Shares of Common Stock
--------------------
PROSPECTUS
--------------------
================================================================================
<PAGE> 22
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses to be paid by the Registrant in connection with this
offering are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee $ 4,390
Accounting fees and expenses $25,000
Legal fees and expenses $15,000
Miscellaneous $ 5,000
-------
Total $49,390
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317 of the California Corporations Code provides that a corporation
shall have the power to indemnify any person who was or is a party or is
threatened to be made a party to any proceeding (other than an action by or in
the right of the corporation to procure a judgment in its favor) by reason of
the fact that the person is or was an agent of the corporation, against
expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with the proceeding if that person acted in
good faith and in a manner the person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of the person was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in the best interests of the corporation or
that the person had reasonable cause to believe that the person's conduct was
unlawful.
Section 5 of Article II of IMSI's By-laws, provides as follows:
Section 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
(a) Authorization. The corporation may indemnify any director, officer,
agent or employee as to those liabilities and on those terms and
conditions as are specified in Section 317 of the General Corporation
Law. In any event, the corporation shall have the right to purchase and
maintain insurance on behalf of any such persons whether or not the
corporation would have the power to indemnify such person again the
liability insured against.
(b) Indemnification. To the fullest extent permissible under Section 317
of the General Corporation Law, the corporation shall indemnify its
directors and officers against all expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred by them
in connection with any proceeding, including an action by or in the
right of the corporation, by reason of the fact that such person is or
was a director, officer employee or other agent of the corporation, or
is or was serving at the request of the corporation as a director,
officer, trustee, employee or agent of another corporation, at the
request of the corporation as a director, officer, trustee, employee or
agent of another corporation, or of a partnership, joining venture,
trust or other enterprise (including service with respect to employee
benefit plans), or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of
the corporation or of another enterprise at the request of the
predecessor corporation. To the fullest extent permissible under Section
317 of the General Corporation Law, expenses incurred by a director or
officer seeking indemnification under this By-law in defending any
proceeding shall be advanced by the corporation as they are incurred
upon receipt by the corporation of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be
determined that the director or officer is not entitled to be
indemnified by the corporation for those expenses. The rights granted by
this By-law are contractual in nature and, as such, may not be altered
with respects to any present or former director or officer without the
written consent of that person.
(c) Procedure. Upon written request to the Board of Directors by a
person seeking indemnification under this By-law, the Board shall
promptly determine in accordance with
20
<PAGE> 23
Section 317(e) of the General Corporation Law whether the applicable
standard of conduct has been met and, if so, the Board shall authorize
indemnification. If the Board cannot authorize indemnification because
the number of directors who are parties to the proceeding with respect
to which indemnification is sought prevents the formation of a quorum of
directors who are not parties to the proceeding, then, upon written
request by the person seeking indemnification, independent legal counsel
(by means of a written opinion obtained at the corporation's expense) or
the corporation's stockholders shall determine whether the applicable
standard of conduct has been met and, if so, shall authorize
indemnification.
(d) Definitions. The term "proceeding" means any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative
or investigative. The term "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to
indemnification.
ITEM 16. EXHIBITS.
The following exhibits are filed herewith or incorporated by reference herein:
4.1 -- An agreement between IMSI and Capital Ventures International dated March
3, 1999
4.2 -- Asset Purchase Agreement between clipartconnection.com and IMSI dated
December 24, 1998
4.3 -- Exchange Agreement among Zedcor, Inc., certain Zedcor, Inc. stockholders
and IMSI dated September 17, 1998
4.4 -- Fee Agreement by and between IMSI and The Learning Company dated as of
January 21, 1999
4.5 -- Fee Agreement between IMSI and Greentree Technologies, Inc. dated
February 18, 1999
4.6 -- Fee Agreement between IMSI and Zedcor, Inc. dated February 25, 1999
4.7 -- Fee Agreement between IMSI and the Law Offices of Mark Garay, Inc. dated
January 11, 1999
4.8 -- Warrant Subscription Agreement between Silicon Valley Bank and IMSI dated
November 3, 1998
4.9 -- Fee Agreement between IMSI and HomeStyles, Inc. dated January 11, 1999
4.10 -- Fee Agreement between IMSI and Gateway Acceptance Co. dated March 1,
1999
4.11 -- Fee Agreement between IMSI and Spatial Technology Inc. dated March 26,
1999
4.12 -- Fee Agreement between IMSI and StarBase Corporation dated March 26, 1999
4.13 -- Fee Agreement between IMSI and Joseph Minnevich dated January 11, 1999
4.14 -- Agreement between IMSI, Zedcor and the former shareholders of Zedcor
dated as of May 10, 1999.
5.1 -- Opinion of Counsel regarding the legality of common stock.
23.1 -- Independent Auditors' Consent.*
23.2 -- Consent of Counsel (included in Exhibit 5.1).
24.1 -- Power of Attorney (see page II-5).
- -------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
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<PAGE> 24
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described under Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the
"Securities Act"); (ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in the Registration Statement;
and (iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that (i) and (ii) do not apply if the information required to be
included in a post-effective amendment thereby is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all for the requirements
for filing on Form S-3 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Novato, State of California, on the ___ day of June, 1999.
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
By: ______________________________________
Costa John, CEO
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each individual whose signature appears below
constitutes and appoints Costa John and Martin Sacks, and each of them, his
attorneys-in-fact, and agents, each with the power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
- --------------------------------
Costa John Chief Executive Officer June __, 1999
DIRECTORS:
- --------------------------------
Martin Sacks Chairman of the Board June __, 1999
- --------------------------------
Charles Federman Director June __, 1999
- --------------------------------
Abe Ostrovsky Director June __, 1999
- --------------------------------
William H. Lane III Director June __, 1999
</TABLE>
24
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- -------- -------------
<S> <C>
4.1 An agreement between IMSI and Capital Ventures International dated March
3, 1999.
4.2 Asset Purchase Agreement between clipartconnection.com and IMSI dated
December 24, 1998
4.3 Exchange Agreement among Zedcor, Inc., certain Zedcor, Inc. stockholders
and IMSI dated September 17, 1998
4.4 Fee Agreement by and between IMSI and The Learning Company dated as of
January 21, 1999
4.5 Fee Agreement between IMSI and Greentree Technologies, Inc. dated
February 18, 1999
4.6 Fee Agreement between IMSI and Zedcor, Inc., dated February 25, 1999
4.7 Fee Agreement between IMSI and the Law Offices of Mark Garay, Inc.,
dated January 11, 1999
4.8 Warrant Subscription Agreement between Silicon Valley Bank and IMSI
dated November 3, 1998
4.9 Fee Agreement between IMSI and HomeStyles, Inc. dated January 11, 1999
4.10 Fee Agreement between IMSI and Gateway Acceptance Co. dated March 1,
1999
4.11 Fee Agreement between IMSI and Spatial Technology Inc. dated March 26,
1999
4.12 Fee Agreement between IMSI and StarBase Corporation dated March 26, 1999
4.13 Fee Agreement between IMSI and Joseph Minnevich dated January 11, 1999
4.14 Agreement dated as of May 10, 1999 between IMSI, Zedcor and the former
shareholders of Zedcor.
5.1 Opinion of Counsel regarding the legality of common stock
23.1 Independent Auditors' Consent*
23.2 Consent of Counsel (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5)
</TABLE>
* To be filed by amendment.
<PAGE> 1
EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of March 3,
1999, by and among INTERNATIONAL MICROCOMPUTER SOFTWARE, INC., a corporation
organized under the laws of the State of California (the "COMPANY"), with
executive offices located at 75 Rowland Way, Novato, California 94949, and the
purchaser (the "PURCHASER") set forth on the execution page hereof (the
"EXECUTION PAGE").
WHEREAS:
A. The Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions 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 "SECURITIES ACT").
B. The Purchaser desires to purchase, subject to the terms and
conditions stated in this Agreement, (i) up to $8,000,000 of the Company's
common stock, no par value (the "COMMON STOCK"), constituting Tranche 1 Shares,
as defined in Section 1(c) below, and Optional Tranche 2 Shares, as defined in
Section 1(d) below, and (ii) warrants in the form attached hereto as Exhibit A
(the "WARRANTS"), to acquire shares of Common Stock. The Tranche 1 Shares,
Optional Tranche 2 Shares, if any, and the Adjustment Shares, as defined in
Section 1(e) below, if any, are collectively referred to herein as the "SHARES"
and the shares of Common Stock issuable upon exercise of or otherwise pursuant
to the Warrants are referred to herein as the "WARRANT SHARES." The Shares, the
Warrants and the Warrant Shares are collectively referred to herein as the
"SECURITIES."
C. Contemporaneous 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 B (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF SHARES AND WARRANTS.
a. Certain Definitions. For purposes of Agreement, the following terms
shall have the meanings ascribed to them as provided below:
"ADJUSTMENT DATE" shall mean the date the registration statement filed
by the Company pursuant to Section 2(a)(i) of the Registration Rights Agreement
is declared effective by the SEC; or, in the event such registration statement
is not declared effective by the SEC within 180 days following the Tranche 1
Closing Date, the earlier of any date selected by the Purchaser
<PAGE> 2
following such 180 day period or the 365th day following the Tranche 1 Closing
Date (proposed mandatory adjustment on first year anniversary under
consideration).
"ADJUSTMENT DATE MARKET PRICE" shall mean the average Closing Price
during the five (5) Trading Days, as defined below, immediately preceding the
Adjustment Date, appropriately adjusted to reflect any pending stock dividend,
stock split or similar transaction.
"BUSINESS DAY" shall mean any day on which the principal United States
securities exchange or trading market where the Common Stock is listed or traded
as reported by Bloomberg, as defined below, is open for trading.
"CAPITAL TRANSACTION" shall mean any transaction or series of
transactions in which: (a) the Company or any of its material subsidiaries
sells, conveys or disposes of all or substantially all of its assets; (b) the
Company or any of its material subsidiaries merges, consolidates or engages in
any other business combination with any other entity other than a merger in
which the Company is the surviving or continuing entity and its capital stock is
unchanged; (c) the Company has fifty percent (50%) or more of the voting power
of its capital stock owned beneficially by one person, entity or "group" (as
such term is used under Section 13(d) of the Securities Exchange Act of 1934, as
amended); (d) the Company shall declare or make any distribution of its assets
(or rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Company's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off);
(e) there is a recapitalization, reclassification or change of the outstanding
shares of Common Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination) or (f) there is any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property.
"CLOSING DATE" shall mean the Tranche 1 Closing Date with respect to
the Tranche 1 Shares and Warrants and the Tranche 2 Closing Date with respect to
the Optional Tranche 2 Shares.
"CLOSING PRICE" shall mean for the Common Stock as of any date, the
closing bid price of such security on the principal United States 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 Purchaser and reasonably acceptable to the Company if
Bloomberg Financial Markets is not then reporting closing bid prices of such
security) (collectively, "BLOOMBERG"), or if the foregoing does not apply, the
last reported sale 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
sale 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., in each case for such date or, if such
date was not a Trading Day (as defined below) for such security, on the next
preceding day which was a Trading Day. If the Closing Price cannot be calculated
for a share of Common Stock as of either of such dates on any of the foregoing
bases, the Closing Price of such security
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<PAGE> 3
on such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Purchaser and reasonably acceptable to
the Company, with the costs of such appraisal to be borne by the Company.
"FINANCING TRANSACTION" shall mean any financing transaction pursuant
to Regulation D and/or any other private placement exemption of equity
securities of the Company, or securities or rights convertible into or
exercisable or exchangeable for such securities, involving (i) an amount in
excess of $500,000 and (ii) securities which, based on the purchase price paid,
reflect a valuation of the Company which, when expressed on the basis of a share
of Common Stock is less than seventy percent (70%) of the Market Price on the
Tranche I Closing Date; provided that the definition of Financing Transaction
shall not include mergers and other strategic transactions the primary purpose
of which is not to raise capital or transactions presently under consideration
by the Company and disclosed in writing by the Company to the Purchaser on the
Tranche 1 Closing Date.
"MARKET PRICE" shall mean with respect to any date of determination (i)
the average Closing Price during the five (5) Trading Days, as defined below,
preceding such date of determination or (ii) the Closing Price on the Trading
Day immediately preceding such date of determination, whichever price is lower,
and in each case appropriately adjusted to reflect any pending stock dividend,
stock split or similar transaction.
"MATERIAL ADVERSE EFFECT" shall mean any material adverse effect on (i)
the ability of the Company to perform its obligations hereunder (including the
issuance of the Shares and the Warrants) and under the Warrants (including the
issuance of the Warrant Shares) or the Registration Rights Agreement or (ii) the
business, operations, properties or financial condition of the Company and its
subsidiaries, taken as a whole.
"ROFO FINANCING TRANSACTION" shall mean any financing transaction
involving the issuance of equity or equity-linked securities of the Company, or
securities or rights convertible into or exercisable or exchangeable for such
securities; provided that the definition of ROFO Financing Transaction shall not
include mergers and other strategic transactions the primary purpose of which is
not to raise capital or transactions presently under consideration by the
Company and disclosed in writing by the Company to the Purchaser on the Tranche
1 Closing Date.
"SEC" means the United States Securities and Exchange Commission.
"SHARE LIMIT" shall mean a number equal to the quotient of (x) Five
Million Dollars ($5,000,000) and (y) the product of (1) the Market Price on the
Tranche 1 Closing Date and (2) .70. From the Tranche 1 Closing Date through and
including the Adjustment Date, if the Company conducts a Financing Transaction,
then the Share Limit shall be adjusted ("SHARE LIMIT ADJUSTMENT") to the
quotient of (A) Five Million Dollars ($5,000,000) and (B) the valuation per
share of the securities to be sold by the Company in such Financing Transaction.
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<PAGE> 4
"TRADING DAY" shall mean a Business Day on which the Common Stock
trades on the principal United States securities exchange or trading market
where such security is listed or traded as reported by Bloomberg.
b. Generally. Except as otherwise provided in this Section 1 and
subject to the satisfaction (or waiver) of the conditions set forth in Section 5
and Section 6 below, the Purchaser shall purchase the Warrants and the number of
Shares determined as provided in this Section 1, and the Company shall issue and
sell such Warrants and Shares to the Purchaser for the purchase price(s) as
provided below.
c. Tranche 1 Purchase Price; Number of Tranche 1 Shares and Warrants;
Form of Payment; Tranche 1 Closing Date.
i. On the Tranche 1 Closing Date, the Company shall sell and
the Purchaser shall buy (A) the number of whole shares of Common Stock
as is equal to the quotient of (I) Five Million Dollars ($5,000,000)
divided by (II) an amount (the "TRANCHE 1 PER SHARE PRICE") equal to
$11.425, and (B) Warrants to acquire the number of Warrant Shares equal
to thirty percent (30%) of the number of Tranche 1 Shares. The shares
of Common Stock acquired on the Tranche 1 Closing Date are referred to
herein as the "TRANCHE 1 SHARES." On the Tranche 1 Closing Date, the
Purchaser shall pay the Company an amount (the "TRANCHE 1 PURCHASE
PRICE") equal to the product of (i) the number of Tranche 1 Shares to
be acquired on the Tranche 1 Closing Date in accordance with the terms
of this Section 1 and (ii) the Tranche 1 Per Share Price which amount
shall constitute the total purchase price for the Tranche 1 Shares and
the Warrants.
ii. On the Tranche 1 Closing Date, the Purchaser shall pay the
Tranche 1 Purchase Price by wire transfer to the Company, in accordance
with the Company's written wiring instructions against delivery of
certificates representing the Tranche 1 Shares and duly executed
Warrants and the Company shall deliver the Tranche 1 Shares and the
Warrants against delivery of the Tranche 1 Purchase Price.
iii. Subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 5 and Section 6 below, the date and time
of the sale of the Tranche 1 Shares and the Warrants pursuant to this
Agreement (the "TRANCHE 1 CLOSING") shall be 5:00 p.m. San Francisco
Time on March 5, 1999 or such other date as the parties may mutually
agree ("TRANCHE 1 CLOSING DATE"). The Tranche 1 Closing shall occur at
the offices of Gibson, Dunn & Crutcher LLP, One Montgomery Street,
Telesis Tower, San Francisco, California 94104, or at such other place
as the parties may otherwise agree.
d. Tranche 2 Purchase Price; Number of Optional Tranche 2 Shares; Form
of Payment; Tranche 2 Closing Date.
i. Upon both (A) the expiration of 18 months following the
Tranche 1 Closing Date (the "TRANCHE 2 TRIGGER DATE"), and, if earlier,
(B) the announcement of a transaction which, if consummated, would be a
Capital Transaction and during the period from such announcement
through and including the date on which the Capital
4
<PAGE> 5
Transaction is consummated but in all events no later than the Tranche
2 Trigger Date (the "CAPITAL TRANSACTION PERIOD"), the Purchaser shall
have the right, but not the obligation, to buy, and the Company shall
have the obligation to sell to the Purchaser, on the Tranche 2 Closing
Date (as hereafter defined), a maximum number of whole shares of Common
Stock as is equal to the quotient of (I) Three Million Dollars
($3,000,000) divided by (II) an amount (the "TRANCHE 2 PER SHARE
PRICE") equal to the lesser of (x) $14.28 , or (y) the Market Price on
September 6, 1999, but not less than $7.9975. For avoidance of doubt,
clause (y) of the preceding sentence shall be applicable only in
connection with Optional Tranche 2 Shares issued on or after September
6, 1999. The shares of Common Stock acquired on the Tranche 2 Closing
Date are referred to herein as the "OPTIONAL TRANCHE 2 SHARES." On the
Tranche 2 Closing Date, the Purchaser shall pay the Company an amount
(the "TRANCHE 2 PURCHASE PRICE") equal to the product of (i) the number
of Optional Tranche 2 Shares to be acquired on the Tranche 2 Closing
Date in accordance with the terms of this Section 1(d) and (ii) the
Tranche 2 Per Share Price which amount shall constitute the total
purchase price for the Optional Tranche 2 Shares. The Purchaser shall
notify the Company in writing (the "TRANCHE 2 PURCHASE NOTICE") no
later than 11:00 a.m. San Francisco Time on the third Business Day
preceding the Tranche 2 Trigger Date, or, during the Capital
Transaction Period, at any time beginning on the commencement of the
Capital Transaction Period and ending on the third Business Day
preceding the proposed consummation of the Capital Transaction, but in
all events no later than the third Business Day preceding the Tranche 2
Trigger Date, whether the Purchaser desires to purchase the Optional
Tranche 2 Shares, setting forth the number of shares the Purchaser
desires to purchase; provided, however, that the Tranche 2 Purchase
Notice may condition the Purchaser's election to close such purchase
upon the consummation of the Capital Transaction.
ii. The Tranche 2 Per Share Price or the Optional Tranche 2
Shares shall be subject to adjustment from time to time as follows:
(A) If the Company at any time after the Tranche 1
Closing Date, but before the Tranche 2 Closing Date,
subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of
shares, then, after the date of record for effecting such
subdivision, the Tranche 2 Per Share Price in effect
immediately prior to such subdivision will be proportionately
reduced. If the Company at any time after the Tranche 1
Closing combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the
date of record for effecting such combination, the Tranche 2
Per Share Price in effect immediately prior to such
combination will be proportionately increased.
(B) In case, after the Tranche 1 Closing Date but
before the Tranche 2 Closing Date of any consolidation of the
Company with, or merger of the Company into any other entity
in which the Company is not the surviving entity, or in case
of any sale or conveyance of all or substantially all of the
assets of the
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<PAGE> 6
Company other than in connection with a plan of complete
liquidation of the Company at any time after the Tranche 1
Closing, then as a condition of such consolidation, merger or
sale or conveyance, adequate provision will be made whereby
the Purchaser will have the right, at its sole option, to
acquire and receive in lieu of the Optional Tranche 2 Shares
such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for the Optional
Tranche 2 Shares acquirable hereunder had such Optional
Tranche 2 Shares been issued immediately prior to the
consummation of such consolidation, merger or sale or
conveyance. In any such case, the Company will make
appropriate provision to insure that the provisions of this
Section 1.d.ii (B) hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or
securities thereafter deliverable in lieu of the Optional
Tranche 2 Shares. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to
the consummation thereof, the successor corporation (if other
than the Company) assumes by written instrument the
obligations under this Section 1.d.ii and the obligations to
deliver to the Purchaser such shares of stock, securities or
assets as, in accordance with the foregoing provisions, the
Purchaser may be entitled to acquire.
(C) In case after the Tranche 1 Closing Date, but
before the Tranche 2 Closing Date, the Company shall declare
or make any distribution of its assets (or rights to acquire
its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise
(including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares)
of capital stock of a subsidiary) (a "DISTRIBUTION") at any
time after the Tranche 1 Closing, then, in each case, the
Tranche 2 Purchase Price shall be reduced as of the seventh
business day after the record date with respect to such
distribution so that the same shall be equal to the price
determined by multiplying the Tranche 2 Purchase Price in
effect immediately prior to the close of business on such
record date by a fraction the numerator of which is the
average Closing Price for the five trading days immediately
after such record date, and the denominator shall be the
average Closing Price for the five trading days immediately
prior to such record date, such reduction to become effective
immediately prior to the opening of business on the day
following the record date.
iii. On the Tranche 2 Closing Date, the Purchaser shall pay
the Tranche 2 Purchase Price by wire transfer to the Company, in
accordance with the Company's written wiring instructions against
delivery of certificates representing the Optional Tranche 2 Shares
against delivery of the Tranche 2 Purchase Price.
iv. Subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 5 and Section 6 below, the date and time
of the sale of the Optional Tranche 2 Shares pursuant to this Agreement
(the "TRANCHE 2 CLOSING") shall be 5:00 p.m. San Francisco Time on the
fifth Business Day following the date of the Tranche 2 Purchase Notice
or such later date if mutually agreed by the parties hereto (the
"TRANCHE 2 CLOSING
6
<PAGE> 7
DATE"). The Tranche 2 Closing shall occur at the offices of Gibson,
Dunn & Crutcher LLP, One Montgomery Street, Telesis Tower, San
Francisco, California 94104 or at such other place as the parties may
otherwise agree.
v. If the Company fails for any reason to issue the Optional
Tranche 2 Shares on the Tranche 2 Closing Date, then in addition to all
other rights and remedies that the Purchaser may have under this
Agreement or at law or equity, the Company shall pay to the Purchaser
as liquidated damages ("TRANCHE 2 LIQUIDATED DAMAGES") an amount equal
to (I) Thirty Thousand Dollars ($30,000) for the first month following
the Tranche 2 Closing Date and (II) Sixty Thousand Dollars ($60,000)
for each month thereafter that the Company fails to issue the Optional
Tranche 2 Shares. In addition, the Purchaser shall have the option to
demand at any time beginning five Business Days after the Tranche 2
Closing Date, that the Company pay to it an amount (the "OPTIONAL
TRANCHE 2 DAMAGES") in cash equal to (x) the difference between the
Tranche 2 Per Share Price and the Closing Price on the Tranche 2
Closing Date, multiplied by (y) the number of Optional Tranche 2 Shares
the Company was to have delivered to the Purchaser on the Tranche 2
Closing Date. If the Company fails to pay the Purchaser the Optional
Tranche 2 Damages within one Business Day (the "OPTIONAL DAMAGES
PAYMENT DATE") of the date the Purchaser makes such demand, then the
Company shall pay to the Purchaser an amount equal to (A) one percent
(1%) of the amount of the Optional Tranche 2 Damages for the first
month following the Optional Damages Payment Date and (B) two percent
(2%) of the amount of the Optional Tranche 2 Damages for each month
thereafter that the Company fails to pay the Optional Tranche 2
Damages.
e. Adjustment Shares; Share Limit. If the Market Price on the
Adjustment Date is lower than the Tranche 1 Per Share Price paid by the
Purchaser on the Tranche 1 Closing Date, then, within three Business Days of the
Adjustment Date, the Company shall cause to be issued to the Purchaser a number
of additional whole shares of Common Stock (the "ADJUSTMENT SHARES") equal to
(I) the quotient of (x) Five Million Dollars ($5,000,000) divided by (y) an
amount equal to the Market Price on the Adjustment Date; minus (II) the number
of Tranche 1 Shares purchased by the Purchaser on the Tranche 1 Closing Date;
provided, however, that the Company shall not be required to issue to the
Purchaser a number of shares which, when aggregated with the Tranche 1 Shares,
would exceed the Share Limit. The Adjustment Shares shall deemed to be
outstanding as of the Adjustment Date.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES.
The Purchaser represents and warrants to the Company as follows:
a. Purchase for Own Account. The Purchaser is purchasing the Securities
for the Purchaser's own account and not with a present view towards the
distribution thereof. Notwithstanding anything in this Section 2(a) to the
contrary, by making the foregoing representation, the Purchaser does not agree
to hold the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or
7
<PAGE> 8
pursuant to a registration statement or an exemption from registration under the
Securities Act and any applicable state securities laws.
b. Information. The Purchaser has been furnished all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by the
Purchaser. The Purchaser has been afforded the opportunity to ask questions of
the Company and have received what the Purchaser believes to be satisfactory
answers to any such inquiries. Neither such inquiries nor any other due
diligence investigation conducted by the Purchaser or its counsel or any of its
representatives shall modify, amend or affect the Purchaser's right to rely on
the Company's representations and warranties contained in Section 3 below.
c. Governmental Review. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
d. Authorization; Enforcement. The Purchaser has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and to purchase the Shares and the Warrants in accordance with
the terms thereof. This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Purchaser and is a valid and binding agreement of
the Purchaser enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
other laws affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
e. Transfer or Resale. The Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be transferred unless (a) subsequently registered thereunder, or (b)
the Purchaser shall have delivered to the Company an opinion of counsel
reasonably acceptable to the Company (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable transactions) to the
effect that the Securities to be sold or transferred may be sold or transferred
under an exemption from such registration, or (c) sold under Rule 144
promulgated under the Securities Act (or a successor rule), or (d) sold or
transferred to an affiliate of the Purchaser pursuant to an exemption under the
Securities Act; and (ii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder, in each case, other than pursuant to the Registration Rights
Agreement.
f. Legends. The Purchaser understands that the Tranche 1 Shares, the
Adjustment Shares and the Optional Tranche 2 Shares, if any, and the Warrants
and Warrant Shares and, until such time as the Tranche 1 Shares, the Adjustment
Shares, the Tranche 2 Shares and Warrant Shares, , respectively, have been
registered under the Securities Act (including registration pursuant to Rule 416
thereunder) as contemplated by the Registration Rights Agreement or otherwise
may be sold by the Purchaser under Rule 144 (k), the certificates for the
Tranche 1
8
<PAGE> 9
Shares, the Adjustment Shares, the Tranche 2 Shares, the Warrants and the
Warrant Shares, respectively, may bear a restrictive legend in substantially the
following form:
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 in the absence of an effective registration
statement for the securities under applicable securities laws unless
offered, sold or transferred under an available exemption from the
registration requirements of those laws.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
such Security is registered under the Securities Act (including registration
pursuant to Rule 416 thereunder), or (b) such holder provides the Company with
an opinion of counsel reasonably acceptable to the Company, in form, substance
and scope customary for opinions of counsel in comparable transactions, to the
effect that a public sale or transfer of such Security may be made without
registration under the Securities Act or (c) such holder provides the Company
with reasonable assurances that such Security can be sold under Rule 144(k). The
Purchaser agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, pursuant to an effective
registration statement or under an exemption from the registration requirements
of the Securities Act. Such legend shall be removed when such Security may be
sold pursuant to an effective registration statement or sold under Rule 144(k).
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchaser that, except as
set forth in the Company's Disclosure Letter delivered to the Purchaser at the
Closing Date, as follows:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of 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 and where the failure so to qualify would have a Material Adverse
Effect.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrants and the Registration Rights Agreement, to issue and
sell the Shares and the Warrants in accordance with the terms hereof and to
issue the Warrant Shares upon exercise of the Warrants in accordance with the
terms thereof; (ii) the execution, delivery and performance of this Agreement,
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 reservation for issuance and issuance of the
Shares and the issuance of the Warrants, and the reservation for issuance and
issuance of the Warrant Shares) have been duly
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<PAGE> 10
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors or its shareholders is
required; (iii) this Agreement has been duly executed and delivered by the
Company; and (iv) this Agreement constitutes, and, upon execution and delivery
by the Company of the Registration Rights Agreement and the Warrants, such
agreements will constitute, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other laws affecting creditors' rights and remedies
generally and to general principles of equity (regardless of whether enforcement
is sought in a proceeding at law or in equity).
c. Capitalization. The capitalization of the Company as of the date
hereof including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities exercisable for, or convertible into or
exchangeable for any shares of capital stock, the number of Shares to be issued
pursuant to the terms hereof and the Warrant Shares to be issued upon the
exercise of the Warrants is set forth on Schedule 3(c). All of such outstanding
shares of capital stock have been, or upon issuance will be, validly issued,
fully paid and nonassessable. Except as set forth on Schedule 3(c), no shares of
capital stock of the Company (including the Shares and the Warrant Shares) are
subject to preemptive rights or any other similar rights of the shareholders of
the Company or any liens or encumbrances. Except for the Securities and as
disclosed in Schedule 3(c), as of the date of this Agreement, (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 or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, 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, and (ii) there are no
agreements or arrangements under which the Company or any of its subsidiaries is
obligated to register the sale of any of its or their securities under the
Securities Act (except the Registration Rights Agreement). Except as set forth
on Schedule 3(c), there are no securities or instruments containing antidilution
or similar provisions that may be triggered by the issuance of the Securities in
accordance with the terms of this Agreement or the Warrants and the holders of
the securities and instruments listed on such Schedule 3(c) have waived any
rights they may have under such antidilution or similar provisions in connection
with the issuance of the Securities in accordance with the terms of this
Agreement or the Warrants. The Company has made available to the Purchaser true
and correct copies of the Company's Articles of Incorporation as in effect on
the date hereof ("ARTICLES OF INCORPORATION"), the Company's By-laws as in
effect on the date hereof (the "BY-LAWS") and all other instruments and
agreements governing securities convertible into or exercisable or exchangeable
for capital stock of the Company, except for stock options granted under any
employee benefit plan or director stock option plan of the Company.
d. Issuance of Shares. The Shares are duly authorized and when issued
and paid for in accordance with the terms hereof will be validly issued, fully
paid and non-assessable, freely transferable and free from all taxes, liens,
claims and encumbrances and will not be subject to preemptive rights or other
similar rights of shareholders of the Company and will not impose
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personal liability upon the holder thereof. The Warrant Shares are duly
authorized and reserved for issuance, and, upon exercise of the Warrants in
accordance with the terms thereof, will be validly issued, fully paid and
non-assessable, freely transferable and free from all taxes, liens, claims and
encumbrances and will not be subject to preemptive rights or other similar
rights of shareholders of the Company and will not impose personal liability
upon the holder thereof.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Warrants by the Company,
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the reservation for issuance and
issuance of the Shares and the Warrant Shares and the issuance of the Warrants)
will not (i) conflict with or result in a violation of the Articles of
Incorporation or By-laws or (ii) conflict with, 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 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 United States federal and state
securities laws and regulations) 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 (except, with respect to clause (ii), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its subsidiaries is in violation
of its Articles of Incorporation, By-laws or other organizational documents and
neither the Company nor any of its subsidiaries is in default (and no event has
occurred which, with notice or lapse of time or both, would put the Company or
any of its subsidiaries in default) under, nor has there occurred any event
giving others (with notice or lapse of time or both) any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, except
for actual or possible violations, defaults or rights as would not, individually
or in the aggregate, have a Material Adverse Effect. The businesses of the
Company and its subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for actual or
possible violations, if any, the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the Securities Act and any
applicable state securities laws, the Company is not required to obtain any
consent, approval, authorization or order of, or make any filing or registration
with, any court or governmental agency or any regulatory or self regulatory
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement (including, without limitation the issuance and sale of the
Shares and Warrant as provided hereby), or the Warrants (including the issuance
of the Warrant Shares), in each case in accordance with the terms hereof or
thereof. 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.
f. SEC Documents Financial Statements. Since January 1, 1996, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"),
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and, since January 1, 1998, has timely filed all such reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the Exchange Act, and has filed all registration statements and other
documents required to be filed by it with the SEC pursuant to the Securities Act
(all of the foregoing filed after January 1, 1996 and 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
herein as the "SEC DOCUMENTS"). The Company has made available to the Purchaser
true and complete copies of the SEC Documents, except for the exhibits and
schedules thereto and the documents incorporated therein. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act or the Securities Act, as the case may be, 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. Any statements made in any such SEC Documents that are or were
required to be updated or amended under applicable law has been or have been so
updated or amended. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC applicable with respect thereto. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the consolidated financial position of the Company and
its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal and recurring year-end audit
adjustments). Except as set forth in the SEC Documents filed prior to the date
hereof, the Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such SEC Documents and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected in such SEC Documents, which
liabilities and obligations referred to in clauses (i) and (ii), individually or
in the aggregate would not have a Material Adverse Effect.
g. Absence of Certain Changes. Except as disclosed in the SEC
Documents, since December 31, 1998, there has been no change or development
which individually or in the aggregate has had or would have a Material Adverse
Effect.
h. Absence of Litigation. Except as disclosed in the SEC Documents,
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 threatened against or affecting the Company, any of its subsidiaries,
or any of their respective directors or officers in their capacities as such
which would have a Material Adverse Effect or which would adversely affect the
validity, enforceability of, or the authority or ability of the Company to
perform its obligations under this Agreement (including the issuance of the
Shares and the Warrants), the
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<PAGE> 13
Registration Rights Agreement, the Warrants (including the issuance of the
Warrant Shares) or any other agreement or document delivered pursuant hereto or
thereto.
i. Intellectual Property. Each of the Company and its subsidiaries owns
or is licensed to use all patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright applications,
licenses, permits, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, "INTANGIBLES")
necessary for the conduct of its business as now being conducted. Neither the
Company nor any subsidiary of the Company infringes or is in conflict with any
other person with respect to any Intangibles which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a Material Adverse Effect. Neither the Company nor any of its subsidiaries
has received written notice that it is infringing upon third party Intangibles.
Neither the Company nor any of its subsidiaries has entered into any consent,
indemnification, forbearance to sue or settlement agreements with respect to the
validity of the Company's or its subsidiaries' ownership or right to use its
Intangibles and there is no reasonable basis for any such claim to be
successful. The Intangibles are valid and enforceable and no registration
relating thereto has lapsed, expired or been abandoned or canceled or is the
subject of cancellation or other adversarial proceedings, and all applications
therefor are pending and in good standing. The Company and its subsidiaries have
complied, in all material respects, with their respective contractual
obligations relating to the protection of the Intangibles used pursuant to
licenses. To the Company's knowledge, person is infringing on or violating the
Intangibles owned or used by the Company or its subsidiaries.
j. 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 United States Foreign Corrupt Practices Act
of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
k. Environment. Except as disclosed in the SEC Documents (i) there is
no material environmental liability, nor factors likely to give rise to any
environmental liability, affecting any of the material properties of the Company
or any of its subsidiaries that, individually or in the aggregate, would have a
Material Adverse Effect and (ii) neither the Company nor any of its subsidiaries
has violated or infringed any environmental law now in effect nor has any such
entity violated or infringed any then current environmental law as applied at
that time, other than such violations or infringements that, individually or in
the aggregate, have not had and will not have a Material Adverse Effect.
l. Title. The Company and its subsidiaries have good title in fee
simple to all real property and good title to all personal property owned by
them which is material to the business
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<PAGE> 14
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except for such defects in title that, individually or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect. 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 which have not had and will not have a Material Adverse
Effect.
m. Insurance. Each of the Company and each of its subsidiaries has its
assets insured against loss or damage as is appropriate to its business and
assets, in such amounts and against such risks as are customarily carried and
insured against by owners of comparable businesses and assets, and such
insurance coverages will be continued in full force and effect to and including
each Closing Date other than those insurance coverages in respect of which the
failure to continue in full force and effect could not reasonably be expected to
have a Material Adverse Effect.
n. Disclosure. All information relating to or concerning the Company
set forth in this Agreement or provided to the Purchaser pursuant to Section
2(b) 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 exists with
respect to the Company or its subsidiaries or their respective businesses,
properties, operations, prospects or financial conditions, which has not been
publicly disclosed but, under applicable law, rule or regulation, would be
required to be disclosed by the Company in a registration statement filed on the
date hereof by the Company under the Securities Act with respect to a primary
issuance of the Company's securities. The Company has not provided, and without
the Purchaser's consent thereto, will not hereafter provide to the Purchaser,
any information which, according to applicable law, rule or regulation, should
have been disclosed publicly by the Company but which has not been disclosed.
o. Acknowledgment Regarding the Purchaser's Purchase of the Securities.
The Company acknowledges and agrees that the Purchaser is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement or the transactions contemplated hereby, and the
relationship between the Company and the Purchaser is "arms length" and that any
statement made by the Purchaser or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is merely incidental to the Purchaser's purchase
of Securities and has not been relied upon by the Company, its officers or
directors in any way. The Company further represents to the Purchaser that the
Company's decision to enter into this Agreement has been based solely on an
independent evaluation by the Company and its representatives.
p. No Brokers to be Paid by Purchaser. The Company has not engaged any
person to which or to whom brokerage commissions, finder's fees, financial
advisory fees or similar payments are or will become due in connection with this
Agreement or the transactions contemplated hereby.
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<PAGE> 15
q. Tax Status. The Company and each of its subsidiaries has made or
filed all federal, state and local 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 provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction. The Company has not
executed a waiver with respect to any statute of limitations relating to the
assessment or collection of any federal, state or local tax. Except as set forth
in Schedule 3(q), none of the Company's tax returns has been or is being audited
by any taxing authority.
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4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 5 and Section 6 of this
Agreement.
b. Form D; Blue Sky Laws. 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 Purchaser promptly after such filing. The Company shall, on or
before each of the Tranche 1 Closing Date and Tranche 2 Closing Date, as
applicable, take such action as is the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Purchaser pursuant to this
Agreement under applicable securities or "blue sky" laws of the states of the
United States or obtain exemption therefrom, and shall provide evidence of any
such action so taken to the Purchaser on or prior to the Tranche 1 Closing Date
and Tranche 2 Closing Date, as applicable.
c. Reporting Status. So long as the Purchaser beneficially owns any
Securities or has the right to acquire any Securities pursuant to this Agreement
or the Warrants, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and shall not terminate its status as
an issuer required to file reports under the Exchange Act even if the Exchange
Act or the rules and regulations thereunder would permit such termination.
d. Use of Proceeds. The Company shall use the net proceeds from the
sale of the Shares and the Warrants for working capital and general corporate
purposes, but in no event shall the Company use such net proceeds to repurchase
any outstanding securities of the Company without the Purchaser's prior written
consent.
e. Expenses. The Company shall reimburse the Purchaser at each Closing
for the out-of-pocket expenses reasonably incurred by the Purchaser and its
affiliates and advisors in connection with the negotiation, preparation,
execution and delivery of this Agreement, the Registration Rights Agreement, the
Warrants and the other agreements to be executed in connection herewith,
including, without limitation, in conducting such Purchaser's and its
affiliates' and advisors' reasonable due diligence and such Purchaser's and its
affiliates reasonable attorneys' fees and expenses up to a maximum of $15,000
(the "EXPENSES"). In addition, from time to time, after any Closing, upon the
Purchaser's written request, the Company shall reimburse the Purchaser for such
Expenses, if any, not covered by the payment made to the Purchaser at any prior
Closing (up to the $15,000 maximum). Notwithstanding the foregoing, the Company
shall not be obligated to reimburse the Purchaser for more than $15,000 pursuant
to this Section 4(e).
f. Financial Information. For a period of two (2) years following the
last Closing, the Company agrees to send the following reports to the Purchaser:
(i) within ten (10) days after the filing with the SEC, a copy of its Annual
Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy and
information statements and any Current Reports on Form 8-K; and (ii) within
three (3) days after release, copies of all earnings and similar financial press
releases issued by the Company or its subsidiaries, if any.
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<PAGE> 17
g. Reservation of Shares. The Company has and shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the issuance of the maximum number of
Shares as provided in Section 1 hereof and the full exercise of the Warrants and
the issuance of the Warrant Shares in connection therewith and as otherwise
required hereby and by the Warrants. The Company shall not reduce the number of
shares reserved for issuance hereunder or upon the full exercise of the Warrants
(except as a result of any such conversion or exercise) without the consent of
the Purchaser.
h. Listing. On each Closing Date, the Company shall have secured the
listing of the Shares and Warrant Shares, in each case, upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed or quoted (subject to official notice of issuance)
and shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all Shares from time to time issuable hereunder and all
Warrant Shares from time to time issuable upon exercise of the Warrants. The
Company will use its best efforts to continue the listing and trading of its
Common Stock on NASDAQ, the New York Stock Exchange ("NYSE") or the American
Stock Exchange and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the NYSE or any other
exchanges, as applicable, and the National Association of Securities Dealers
("NASD").
i. Corporate Existence. So long as the Purchaser beneficially owns any
Securities or the right to acquire any Securities pursuant to this Agreement or
the Warrants, the Company shall maintain its corporate existence, except in the
event of a merger, consolidation or sale of all or substantially all of the
Company's assets, as long as the surviving or successor entity in such
transaction assumes the Company's obligations hereunder and under the Warrants
and under the agreements and instruments entered into in connection herewith.
j. Right of First Offer. For a period of 360 days following the Tranche
1 Closing Date, prior to engaging in a ROFO Financing Transaction, the Company
shall first offer the Purchaser the right ("RIGHT OF FIRST OFFER") to fund fifty
percent (50%), up to a maximum amount of Two Million Five Hundred Thousand
Dollars ($2,500,000), of a ROFO Financing Transaction before offering to any
third party the opportunity to participate in such ROFO Financing Transaction.
If the Company desires to enter into a ROFO Financing Transaction, the
Company shall deliver to the Purchaser a written statement ("OFFER NOTICE")
notifying the Purchaser of the proposed terms of the ROFO Financing Transaction,
including the material terms of the proposed ROFO Financing Transaction, and
offering the Purchaser the opportunity to participate in such ROFO Financing
Transaction on terms consistent with this Section 4(j). The Purchaser shall have
no more than five (5) days (the "OFFER PERIOD") from the date of receipt of the
Offer Notice to exercise its Right of First Offer by delivering written notice
to the Company that it intends to exercise its Right of First Offer. If (a) the
Purchaser fails to exercise its Right of First Offer during the Offer Period,
(b) the Purchaser notifies the Company in writing that it does not intend to
exercise its Right of First Offer, (c) the Purchaser exercises its Right of
First Offer, but the parties are unable to consummate the ROFO Financing
Transaction within the time period
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<PAGE> 18
specified for such consummation in the definitive documentation with respect to
such ROFO Financing Transaction, unless such inability to consummate is due to
no fault of the Purchaser, or (d) the Purchaser does not make its required funds
available on request or otherwise fulfill its obligations to the transaction
agreement with respect to the ROFO Financing Transaction at the time the ROFO
Financing Transaction is scheduled to be consummated, then the Company shall be
immediately free to deal with third parties with respect to such ROFO Financing
Transaction on the same terms as were set forth in the Offer Notice; provided,
however, that if the Company fails to consummate the ROFO Financing Transaction
within two (2) months of the delivery of the Offer Notice, such ROFO Financing
Transaction shall then become the subject of a new Right of First Offer, which
the Purchaser may choose to exercise in accordance with this Section 4(j).
5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Shares
and the Warrants to the Purchaser hereunder is subject to the satisfaction, at
or before each Closing Date, of each of the following conditions thereto.
a. The Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
b. The Purchaser shall have delivered (i) the Tranche 1 Purchase Price
in accordance with Section 1(c) above at the Tranche 1 Closing and (ii) the
Tranche 2 Purchase Price in accordance with Section 1(d) above at the Tranche 2
Closing.
c. The representations and warranties of the Purchaser shall be true
and correct as of the date when made and as of each Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and the Purchaser 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 Purchaser at
or prior to each Closing Date.
d. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
6. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE THE SHARES AND THE
WARRANTS.
The obligation of the Purchaser hereunder to purchase the Shares and
the Warrants hereunder is subject to the satisfaction, at or before each Closing
Date (except as otherwise specifically referred to in this Section 6), of each
of the following conditions, provided that these
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conditions are for the Purchaser's sole benefit and may be waived by the
Purchaser at any time in the Purchaser's sole discretion:
a. The Company shall have executed the signature page to this Agreement
and the Registration Rights Agreement, and delivered the same to the Purchaser.
b. The Company shall have delivered to the Purchaser (i) at the Tranche
1 Closing, certificates representing the number of Tranche 1 Shares determined
as provided in Section 1(c) above and duly executed Warrants in accordance with
Section 1(c) above; (ii) at the Tranche 2 Closing, certificates representing the
number of Optional Tranche 2 Shares determined as provided in Section 1(d)
above.
c. The Shares shall be authorized for quotation on NASDAQ and trading
in the Common Stock (or NASDAQ generally) shall not have been suspended or be
under threat of suspension by the SEC or NASDAQ.
d. The representations and warranties of the Company shall be true and
correct as of the date when made and as of each Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
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 each Closing Date. The Purchaser shall have received a certificate, executed
on behalf of the Company by its Chief Financial Officer, dated as of each
Closing Date, to the foregoing effect.
e. No statute, rule, regulation, executive order, decree, ruling,
injunction, action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory organization, or the staff of
any thereof, having authority over the matters contemplated hereby which
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.
f. The Purchaser shall have received an opinion of the Company's
counsel, dated as of each Closing Date, in substantially the form of Exhibit C
attached hereto.
g. Subsequent to the date of this Agreement, there shall not have
occurred any Material Adverse Effect.
With respect to the Tranche 2 Closing, the conditions in paragraphs d.,
f. and g. of this Section 6 shall not apply.
7. GOVERNING LAW MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and
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to be performed in the State of California. 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
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. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution 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 or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement, Amendments; Waiver. This Agreement and the
instruments 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 Purchaser
make any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived other than by an
instrument in writing signed by the party to be charged with enforcement and no
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Purchaser. Any waiver by any party of a
breach of any provision of this Agreement shall not operate as or be construed
to be a waiver of any other breach of such provision of or any breach of any
other provision of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered
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personally or by courier or by confirmed telecopy, and shall be effective five
days after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by courier or confirmed telecopy, in each
case addressed to a party. The addresses for such communications shall be:
If to the Company:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, California 94949
Telephone No.: (415) 257-3000
Telecopy No.: (415) 257-3565
Attention: Ken Fineman
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Telephone No.: (650) 858-7600
Telecopy No.: (650) 494-1417
Attention: C. Kevin Kelso, Esq.
If to the Purchaser, to the address set forth under the Purchaser's
name on the signature page hereto executed by the Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser; provided that, for purposes
of this Section 7.g., a merger or consolidation in which the Company is not the
surviving entity or sale of all or substantially all of the Company's assets
shall not be deemed an assignment, as long as the surviving or successor entity
in such transaction assumes the Company's obligations hereunder and under the
Warrants and the agreements and instruments entered into in connection herewith.
h. 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
agreements and covenants set forth in Sections 3, 4 and 7 shall survive each of
the Closings hereunder notwithstanding any due diligence investigation conducted
by or on behalf of the Purchaser. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies the Purchaser may have under applicable federal or state
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securities laws. The Company agrees to indemnify and hold harmless the Purchaser
and each of the Purchaser's officers, directors, employees, partners, members,
agents and affiliates for loss or damage relating to the Securities purchased
hereunder arising as a result of or related to any breach by the Company of any
of its representations or covenants set forth herein, including advancement of
expenses as they are incurred.
j. Publicity. The Company and the Purchaser shall have the right to
review and comment upon, before issuance any press releases, SEC, NASDAQ or NASD
filings, 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 Purchaser, to make any press release or SEC,
NASDAQ or NASD filings with respect to such transactions as is required by
applicable law and/or exchange regulations (although the Purchaser shall be
entitled to review and comment upon any such press release prior to its
release).
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. Termination. In the event that the Tranche 1 Closing Date shall not
have occurred on or before March 10, 1999, unless the parties agree otherwise,
this Agreement shall terminate at the close of business on such date.
Notwithstanding any termination of this Agreement, any party not in breach of
this Agreement shall preserve all rights and remedies it may have against
another party hereto for a breach of this Agreement prior to or relating to the
termination hereof.
m. Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Registration
Rights Agreement and the Warrants. As such, the language used herein and therein
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
party to this Agreement, the Registration Rights Agreement or the Warrants.
n. Equitable Relief. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Purchaser by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations hereunder will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that the
Purchaser 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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IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
COMPANY:
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
By:__________________________________________
Name:
Title:
PURCHASER:
CAPITAL VENTURES INTERNATIONAL
By:__________________________________________
Name:
Title:
Residence: Cayman Islands
Address: c/o Heights Capital Management
425 California, Suite 1100
San Francisco, CA 94104
Telephone No.: (415) 403-6500
Telecopy No.: (415) 403-6525
Attention: Michael Spolan, Esq.
with copies of all notices to:
Gibson, Dunn & Crutcher LLP
One Montgomery Street
Telesis Tower
San Francisco, CA 94104
Telephone No.: (415) 383-8200
Telecopy No.: (415) 986-5309
Attention: William L. Hudson, Esq.
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EXHIBIT 4.2
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "AGREEMENT") is made and entered
into effective as of 24th December, 1998, between clipartconnection.com, a
_______ [corporation/individual] with offices located at
_________________________________, (the "SELLER") and IMSI, a California
corporation with offices located at 75 Rowland Way, Novato, CA 94945, ("IMSI").
PRELIMINARY STATEMENT
The IMSI desires to purchase, and the Seller desires to sell, certain of
the assets of the Seller, for the consideration set forth below, subject to the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. SALE AND DELIVERY OF THE ASSETS
1.1 Assets to be Purchased
(a) Subject to and upon the terms and conditions of this
Agreement at the closing of the transactions contemplated
by this Agreement (the "CLOSING"), the Seller shall sell,
transfer, convey, assign, deliver and where applicable,
license to the IMSI, and the IMSI shall purchase from the
Seller, the following properties, assets and other rights
and interests of the Seller including:
(i) all web site materials including, without
limitation, all website content, web links,
databases, agreements, records and object and
source code relating to the URL known as
"clipart.com" (collectively, the "SITE");
(ii) all books, records and accounts, correspondence,
production records, technical, accounting, customer
lists, customer registration files and databases,
and any confidential information which has been
reduced to writing relating to the Site;
(iii) all of the Seller's right, title and interest i
and to, including the right to enforce, all
intangible property rights, including but not
limited to inventions, discoveries, trade secrets,
United States and foreign patents and
applications, the domain name
"clipartconnection.com" and any derivation
thereof, trademark registrations, applications for
trademark registrations, logos, copyrights,
copyright registrations, owned or where not owned
used by the Seller in its business as it relates
to the Site (collectively, the "INTANGIBLE
Property");and
(b) The Site, Intangible Property and other properties, assets
and business of the Seller described in paragraph (a)
above shall be referred to collectively as the "ASSETS."
1.2 Further Assurances. At any time and from time to time after the
Closing, at the IMSI's request and without further consideration, the Seller
promptly shall execute and deliver such instruments of sale, transfer,
conveyance, assignment and conformation, and take such other action, as the IMSI
may reasonably request to more effectively transfer, convey and assign to the
IMSI, and to confirm the IMSI's title to, all of the Assets, to put the IMSI in
actual possession and operating control thereof, to assist the IMSI in
exercising all rights with respect thereto and to carry out the purpose and
intent of this Agreement. Seller agrees to effectuate the transfer of the Domain
Name registration in a timely manner. Specifically, Seller agrees to prepare and
transmit the necessary InterNIC (or any successor domain name registration
organization) registration templates and/or to correspond with InterNIC to
authorize transfer of the Domain Name and pay any fees associated therewith.
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1.3. Purchase Price.
(a) The purchase price for the Assets shall be equal to the
sum of three hundred ten thousand dollars (U.S.
$310,000.00), one hundred sixty thousand dollars (U.S.
$160,000.00) in cash and one hundred fifty thousand
dollars (U.S. $150,000.00) in common stock of IMSI,
payable as follows:
- One hundred sixty thousand dollars (U.S. $160,000.00)
shall be paid pursuant to the terms of the IMSI Note.
- Within thirty (30) days of the Closing, IMSI shall
deliver to the Seller the number of shares of IMSI
Common Stock equal to the average of the closing
prices per share of IMSI Common Stock (in U.S.
dollars) as quoted on the Nasdaq National Market (or
such other exchange or quotation system on which IMSI
Common Stock is then traded or quoted) and reported
in The Wall Street Journal for the ten (10) trading
days ending on, and inclusive of, the date as of
which such determination is being made for a total
value of one hundred fifty thousand dollars (U.S.
$150,000.00.)
1. Fractional Shares. No fractional shares
of IMSI Common Stock shall be issued in
connection with the Exchange.
2. Registration Rights. Effective upon the
Closing, the Seller shall be granted
registration rights under the Securities
Act of 1933, as amended (the "1933
ACT".) IMSI shall endeavor to register
the Seller's shares of IMSI Common the
next time IMSI does a stock registration
filing with the SEC on a form suitable
for registration of such shares (i.e.,
not a form relating to employee benefit
plans, a merger or similar transaction.)
Nothing herein shall require IMSI to
separately register the Seller's shares
of IMSI Common Stock.
3. Limitations on Sale, Transfer of IMSI
Common Stock. The Seller shall not sell,
transfer, gift or encumber in excess of
ten percent (10%) of the total number of
shares of IMSI Common Stock provided to
the Seller pursuant to this Agreement,
in any one calendar month during the
twelve (12) month period following the
date the IMSI Common Stock becomes
tradable without the prior written
consent of IMSI. Additionally, the
Seller shall give IMSI advance written
notice of any proposed sale of IMSI
Common Stock pursuant to this Agreement,
at least ten (10) business days in
advance of the proposed sale. IMSI shall
have a perpetual right of first refusal
to either purchase such proposed sale
shares or to arrange for a third party
to purchase such shares.
1.4 No Liabilities. IMSI shall assume no liabilities, obligations or
agreements of the Seller whatsoever and the Seller shall remain
solely responsible for, and shall indemnify the IMSI against, all
such liabilities, obligations and agreements.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the IMSI as follows:
2.1 Authorization. The execution, delivery and performance by the
Seller of this Agreement and the agreements provided for herein,
and the consummation by the Seller of the transactions
contemplated hereby and thereby, will not, with or without the
giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the
Seller; or (b) violate any judgment, decree, order or award of
any court, governmental body or arbitrator.
2.3 Ownership of the Assets. Seller is the exclusive owner of all
right, title and interest in and to the assets.
2.4 Litigation and Claims. The Seller is not a party to, or
threatened with, and none of the Assets are subject to, any
litigation, suit, action, investigation, proceeding or
controversy before any court, administrative agency or other
governmental authority relating to or affecting the Assets.
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<PAGE> 3
2.6 No Infringement. The Site and the Intangible property do not
infringe on any patent, trademark, trade name, copyright or other
proprietary right of any third party.
2.7 Regulatory Approvals. All consents, approvals, authorizations and
other requirements prescribed by any law, rule or regulation
which must be obtained or satisfied by the Seller and which are
necessary for the execution and delivery by the Seller of this
Agreement and the documents to be executed and delivered by the
Seller in connection herewith have been obtained and satisfied.
2.8 Disclosure. No representation or warranty by the Seller in this
Agreement contains any untrue statement of a material fact.
3. REPRESENTATIONS AND WARRANTIES OF THE IMSI
The IMSI represents and warrants to the Seller as follows:
Authorization. The execution, delivery and performance of this Agreement
and the agreements provided for herein, and the consummation by the IMSI
of the transactions contemplated hereby and thereby, will not, with or
without the giving of notice or the passage of time or both, (a) violate
the provisions of any law, rule or regulation applicable to such party;
(b) violate the provisions of the Certificate of Incorporation; or
By-laws of the IMSI (c) violate any judgment, decree, order or aware of
any court, governmental body or arbitrator.
4. INDEMNIFICATION
4.1 The Seller hereby indemnifies and holds harmless the IMSI against
all claims, damages, losses, liabilities, costs and expenses
(including, without limitation, settlement costs and any legal,
accounting or other expenses for investigating or defending any
actions or threatened actions) incurred by the IMSI in connection
with each and all of the following:
(a) Any breach by the Seller of any
representation or warranty in this
Agreement;
(b) Any intellectual property or other
proprietary claim relating to Site or
anything on the Site;
and
(c) Any tax liabilities or obligations of
the Seller.
4.2 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder the IMSI (the "INDEMNIFIED PARTY")
shall promptly notify the Seller (the "INDEMNIFYING PARTY") of
the claim and, when known, the facts constituting the basis for
such claim. In the event of any such claim for indemnification
hereunder resulting from or in connection with any claim or legal
proceedings by a third party. The Indemnified Party shall not
settle or compromise any claim by a third party for which it is
entitled to indemnification hereunder without the prior written
consent of the Indemnifying Party, which shall not be
unreasonable withheld, unless suit shall have been instituted
against it and the Indemnifying Party shall not have taken
control of such suit after notification thereof as provided in
Section 4.1 of this Agreement.
4.3 Payment of Indemnification Obligation. The Seller hereby agrees
that any claim for indemnification by the IMSI under this Section
4 or under any other provision of this Agreement may, at IMSI's
option, be set off against any of the IMSI's obligations to make
payments to the Seller under this Agreement, if any.
5. CONFIDENTIALITY
5.1 All documentation and information provided to in anticipation
of this agreement, both written and oral, by the party
disclosing the information ("the Disclosing Party") is
proprietary or confidential, including without limitation the
terms of this or any other agreement between the parties,
financial documents, copies of third party agreements in whole
or in part, drawings, computer program listings, techniques,
algorithms and processes and technical and marketing
information ("Confidential Information.") All information
supplied by the Disclosing Party in connection with this
Agreement shall be treated confidentially by the recipient of
the confidential information ("Recipient") and its employees,
and shall
3
<PAGE> 4
not be disclosed by the Recipient without the Disclosing Party's
prior written consent.
5.2 The parties agree that, in the event of Recipient's breach or
threatened breach of the confidentiality provision hereof, an
action at law for damages would not be adequate to protect the
rights of the Disclosing Party. Therefore, Recipient agrees that
in the event of a breach or threatened breach, the disclosing
party shall be entitled to injunctive and/or other equitable
relief to prevent a breach thereof and to secure their
enforcement, which shall be in addition to any other rights of
the disclosing party. Recipient acknowledges and agrees that the
Disclosing party shall be entitled to punitive damages in the
event that the confidentiality provision is breached.
6. MISCELLANEOUS
6.1 Notices Any notices or other communications required or permitted
hereunder shall be sufficiently given if delivered personally or sent by
telex, federal express, registered or certified mail, postage prepaid,
addressed as follows or to such other address of which the parties may
have given notice:
If to IMSI; If to Seller:
IMSI ______________________
75 Rowland Way Attention: ___________
Novato, CA 94945 ______________________
Telephone: ___________
Telephone (415) 257-3000 Facsmile: ___________
Facsimile: (415) 897-7360
Copy to:
Legal Department
FAX: #415/893-9860
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally; or (b) three
business days after being sent, if sent by registered or certified mail.
6.2 Successors and Assigns. Neither party may assign its respective
obligations hereunder without the prior written consent of the
other party. Any assignment in contravention of this provision
shall be void.
6.3 Entire Agreement. This Agreement represents the entire
understanding between the parties hereto with respect to the
subject matter hereof and supersede all prior oral and written
and all contemporaneous oral negotiations, commitments and
understandings between such parties.
6.4 Expenses. Except as otherwise expressly provided herein, the IMSI
and the Seller shall each pay their own expenses in connection
with this Agreement and the transactions contemplated hereby.
6.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of California, notwithstanding any
conflict of laws.
6.6 Section Headings. The section headings are for the convenience of
the parties and in no way alter, modify, amend, limit, or
restrict the contractual obligations of the parties.
6.7 Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
signed under seal as of the date first set forth above.
____________________ IMSI
By: By:
Name: Name:
Title: Title:
4
<PAGE> 5
SCHEDULE A
LIST OF SITE ADVERTISING AGREEMENTS AND MONTHLY REVENUE
5
<PAGE> 6
SCHEDULE B
SITE TRAFFIC STATISTICS
6
<PAGE> 7
SCHEDULE C
SECURED PROMISSORY NOTE
IN THE AMOUNT OF International Microcomputer Software Inc.
US$160,000.00 December 24th, 1998
1. OBLIGATION. In partial consideration for the exchange (the terms and
conditions set forth in the Asset Purchase Agreement (the "Asset Purchase
Agreement") between the parties and incorporated herein by reference) by
_______., (Seller) an ________ corporation, International Microcomputer Software
Inc., (IMSI) a California corporation, promises to pay to Seller at Seller's
then current address, the unpaid principal amount due under this Secured
Promissory Note ("Note.") Full payment of this Note by IMSI is contingent upon
the successful unencumbered transfer of the Assets to IMSI as described in the
Asset Purchase Agreement.
2. REPAYMENT. This Note will be repaid by IMSI to Seller in full on 15th March
1999. This Note, or any portion thereof, can be paid in advance by IMSI at any
time without penalty.
3. EVENTS OF DEFAULT BY PURCHASER. If any of the following events should occur
(each herein individually referred to as an "Event of Default"), Seller may
declare the entire unpaid principal on this Note, immediately due and payable,
by notice in writing to IMSI, without any other presentment, demand, protest or
other notice of any kind of character, all of which are hereby expressly waived,
anything herein to the contrary notwithstanding:
3.1 FAILURE TO MAKE PAYMENT. Default in the payment of this Note when
due and payable pursuant to the provisions of Section 2 if such default is not
cured by IMSI within thirty (30) days after Seller notifies IMSI of such
payment's past due status in writing.
3.2 INSTITUTION OF BANKRUPTCY. The institution by IMSI of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to institution of
bankruptcy or insolvency proceedings against it or the filing by it of a
petition or answer or consent seeking reorganization or release under the
Federal Bankruptcy code, or any other similar federal or state law, or the
consent by it to the filing of any such petition or the appointment of a
receiver, liquidator, assignee, trustee, or other similar official, of IMSI, or
of any substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its inability
to pay its debts generally as they become due or the taking of corporate action
by IMSI in furtherance of any such action or comparable proceedings in IMSI's
non-U.S. jurisdiction; or
3.3 NONDISMISSAL OF BANKRUPTCY PROCEEDINGS. If, within thirty (30) days
after the commencement of an action against IMSI seeking any bankruptcy,
insolvency, reorganization, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such action will not have been
dismissed or all orders or proceedings thereunder affecting the operations or
the business of IMSI stayed, or if the stay of any such order or proceeding will
thereafter be set aside, or if, within thirty (30) days after the appointment
without the consent or acquiescence of IMSI of any trustee, receiver or
liquidator of IMSI or of all of any substantial part of the properties of IMSI,
such appointment will not have been vacated or comparable proceedings in IMSI's
non-U.S. jurisdiction.
4. EVENT OF DEFAULT BY SELLER. If the Seller has failed to comply with any term
or condition of the Asset Purchase Agreement, this Note will not mature until
such failure of Seller is either remedied or excused by IMSI in writing.
5. PAYMENT OF EXPENSES AND ATTORNEYS' FEES. In case of default in the payment of
this Note by IMSI or an Event of Default by Seller, the defaulting party will
pay to the non-defaulting party such amount as will be sufficient to cover the
cost and expenses of collection, including, without limitation, reasonable
attorney's fees, expenses, and disbursements. No course of dealing and no delay
on the part of the non-defaulting party in exercising any right will operate as
a waiver thereof or otherwise prejudice it's right,
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<PAGE> 8
powers, or remedies. No right, power, or remedy conferred by this Note upon the
non-defaulting party will be exclusive of any other rights, power, or remedy
referred to in this Note, or now or hereafter available at law, in equity, by
statute, or otherwise.
6. GOVERNING LAW. The validity, construction and performance of this Note will
be governed by the laws of the State of California, excluding that body of law
pertaining to conflicts of law.
IN WITNESS WHEREOF, IMSI has caused this Note to be executed as
of the date and year first above written.
International Microcomputer Software Inc.
By:
Name: Kenneth R. Fineman
Title: Chief Financial Officer
8
<PAGE> 1
EXHIBIT 4.3
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "AGREEMENT") is made and entered into as
of September 17th, 1998 (the "AGREEMENT DATE") by and among INTERNATIONAL
MICROCOMPUTER SOFTWARE, INC., a California corporation ("IMSI"), and ZEDCOR,
INC. an Arizona corporation ("Zedcor") and the persons who execute this
Agreement as Shareholders of Zedcor (each individually a "ZEDCOR SHAREHOLDER"
and collectively the "ZEDCOR SHAREHOLDERS").
RECITALS
A. The parties intend that, subject to the terms and conditions of this
Agreement, IMSI will acquire 100% of the outstanding share capital of Zedcor
from the Zedcor Shareholders pursuant to the terms and conditions set forth
herein in exchange for cash and shares of IMSI Common Stock.
B. Upon the effectiveness of the Exchange (as defined below), all the
outstanding shares of Zedcor will be transferred to IMSI in exchange for cash
and shares of IMSI Common Stock.
C. The representations and warranties of Zedcor and the Zedcor
Shareholders herein are a material inducement to IMSI to enter into this
Agreement.
D. To the extent possible, the parties intend that the Exchange qualify
as a reorganization under Section 368 of the U.S. Internal Revenue Code of 1986,
as amended (the "CODE").
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
will have the meanings set forth below:
1.1 "IMSI ANCILLARY AGREEMENTS" means, collectively, each
agreement, certificate or document (other than this Agreement) which IMSI is to
enter into as a party thereto, or is to otherwise execute and deliver, pursuant
to or in connection with this Agreement.
1.2 "IMSI AVERAGE PRICE PER SHARE" means six dollars and forty
seven cents ($6.47.)
1.3 "IMSI COMMON STOCK" means the Common Stock, of IMSI.
1.4 "IMSI NOTE" shall mean the promissory note of IMSI
representing the balance of the purchase price described in Section 2.1(d)
below, and as attached hereto as Exhibit B.
<PAGE> 2
1.4 "ZEDCOR ANCILLARY AGREEMENTS" means, collectively, each
agreement, certificate or document (other than this Agreement) which Zedcor is
to enter into as a party thereto, or is to otherwise execute and deliver,
pursuant to or in connection with this Agreement.
1.5 "ZEDCOR CERTIFICATES" means the share certificates
representing the entire Zedcor Shareholders' shares of Zedcor Stock.
1.6 "ZEDCOR STOCK" means the common stock of Zedcor, one cent
($0.01) par value per share, comprising the authorized capital of Zedcor, as
constituted immediately prior to the Closing.
1.7 "ZEDCOR DERIVATIVE SECURITIES" means, collectively: (a) any
warrant, right or other security that entitles the holder thereof to purchase or
otherwise acquire any shares of the capital stock of Zedcor (collectively,
"ZEDCOR STOCK RIGHTS"); (b) any note, evidence of indebtedness, stock or other
security of Zedcor that is convertible into or exchangeable for any shares of
the capital stock of Zedcor or any Zedcor Stock Rights ("ZEDCOR CONVERTIBLE
SECURITY"); and (c) any warrant, option, right, note, evidence of indebtedness,
stock or other security that entitles the holder thereof to purchase or
otherwise acquire any Zedcor Stock Rights or any Zedcor Convertible Security;
provided, however, that the term "Zedcor Derivative Securities" does not include
any Zedcor Options (as defined below).
1.8 "ZEDCOR FULLY DILUTED NUMBER" means that number that is
equal to the sum of: (a) the total number of shares of Zedcor Stock that are
issued and outstanding immediately prior to the Closing; plus (b) the total
number of shares of Zedcor Stock that are issuable by Zedcor upon the exercise
of all Zedcor Options that are issued and outstanding immediately prior to the
Closing; plus (c) the total number of shares of Zedcor Stock that, immediately
prior to the Closing, are directly or indirectly ultimately issuable by Zedcor
upon the exercise, conversion or exchange of all Zedcor Derivative Securities
(if any) that are issued and outstanding immediately prior to the Closing.
1.9 "ZEDCOR OPTIONEES" means those individuals with outstanding
options to purchase shares of Zedcor Stock.
1.10 "ZEDCOR OPTIONS" means those options to purchase shares of
Zedcor Stock granted by Zedcor to the Zedcor Optionees.
1.11 "ZEDCOR SHAREHOLDERS" means those persons who, immediately
prior to the Closing, hold the shares of Zedcor Stock that are outstanding
immediately prior to the Closing, who will consist solely of those persons and
entities listed on EXHIBIT A hereto.
1.12 "CLOSING" is defined in Section 7.1.
1.13 "CLOSING DATE" is defined in Section 7.1.
1.14 "EXCHANGE" means, collectively, the exchange of all of the
outstanding Zedcor Stock for cash and the Exchange Shares.
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<PAGE> 3
1.15 "EXCHANGE NUMBER" means the quotient obtained by dividing
(i) the Transaction Shares (as defined below) by (ii) the Zedcor Fully Diluted
Number.
1.16 "EXCHANGE SHARES" means the total number of shares of IMSI
Common Stock, as presently constituted, that will be issued under this Agreement
in exchange for all of the shares of Zedcor Stock that are issued and
outstanding immediately prior to the Closing and is equal to the product
obtained by multiplying (i) the total number of shares of Zedcor Stock that are
issued and outstanding immediately prior to the Closing by (ii) the Exchange
Number.
1.17 "MAJORITY ZEDCOR SHAREHOLDERS" means Michael Gariepy and
Peter Gariepy.
1.18 "SHAREHOLDER ANCILLARY AGREEMENTS" means (if applicable),
collectively the Investment Representation Letter, the Stock Power, Form W-8 and
each other agreement, certificate or document (other than this Agreement) to
which a Zedcor Shareholder is to enter into as a party thereto, or is to
otherwise execute and deliver pursuant to or in connection with this Agreement.
1.19 "TRANSACTION SHARES" means 150,000 shares of IMSI Common
Stock.
1.20 "PURCHASE PRICE" means $3.5 US million dollars to be
fulfilled by the Transaction Shares and cash.
1.21 "PURCHASE PRICE BALANCE" means the difference between the
Purchase Price and the amount paid by IMSI to Zedcor on the Closing Date, using
the calculations contained herein. The Purchase Price Balance shall be due upon
the sooner of the following; (a) thirty six (36) months from the Closing Date,
(b) any increase in the capital of IMSI via a new stock offering in excess of
twenty percent (20%) of the then outstanding shares of common stock (a secondary
offering), (c) the sale of all or substantially all of the assets of IMSI, or
(d) the merger of IMSI with any other entity in which IMSI is not the surviving
corporation, i.e., the shareholders of IMSI, immediately before the transaction,
hold less than fifty percent (50%) of the acquiring company immediately after
the transaction.
Other capitalized terms defined elsewhere in this Agreement and not
defined in this Section 1 shall have the meanings assigned to such terms in this
Agreement.
2. THE EXCHANGE
Subject to the terms and conditions of this Agreement, at the Closing:
(a) each of the Zedcor Shareholders shall irrevocably assign and
transfer to IMSI all of their shares of Zedcor Stock, the amounts of which are
set forth beside their respective names on Exhibit 2, and in exchange therefor
IMSI shall issue to the Zedcor Shareholders the aggregate number of shares of
IMSI Common Stock determined in accordance with Section 2.1 below;
(b) in addition, on or before November 1, 1998, IMSI shall pay
the Zedcor Shareholders the sum of U.S. $300,000 and any other payment that may
be due pursuant to the Note;
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(c) all Zedcor Options and other Zedcor employee benefits shall
be fulfilled or terminated by Zedcor prior to the Closing;
(d) Zedcor shall have until October 31, 1998, to negotiate
Zedcor long term and short term debts as described in Section 2.2 below; and
(e) The balance of the purchase price shall be $3.5 million
minus (i) the Transaction Shares multiplied by the IMSI Average Price per Share,
minus (ii) $300,000. Such balance shall be paid pursuant to the terms of the
IMSI Note.
2.1 Exchange of Shares.
2.1.1 Exchange of Zedcor Stock. At the Closing, each
share of Zedcor Stock that is issued and outstanding immediately prior to the
Closing will be exchanged for a number of shares of IMSI Common Stock equal to
the Exchange Number, subject to the provisions of Section 2.1.2 regarding the
elimination of fractional shares. Subject to surrender and delivery to IMSI by
each Zedcor Shareholder of the applicable Zedcor Certificates at the Closing and
an accompanying Stock Power (in a form approved by counsel to IMSI and IMSI's
transfer agent) and Form W-8, each Zedcor Shareholder shall receive a stock
certificate for its Exchange Shares within twenty (20) business days after the
Closing Date.
2.1.2 Fractional Shares. No fractional shares of IMSI
Common Stock shall be issued in connection with the Exchange.
2.1.3 Registration Rights. Effective upon the Closing,
each Zedcor Shareholder who receives shares of IMSI Common Stock in the Exchange
shall be granted registration rights under the Securities Act of 1933, as
amended (the "1933 ACT".) IMSI shall endeavor to register the Zedcor shares of
IMSI Common Stock in the Exchange the next time IMSI does a stock registration
filing with the SEC on a form suitable for registration of such shares (i.e.,
not a form relating to employee benefit plans, a merger or similar transaction.)
Nothing herein shall require IMSI to separately register the Zedcor shares of
IMSI Common Stock in the Exchange.
2.1.4 Limitations on Sale, Transfer of IMSI Common
Stock. Zedcor and the Zedcor shareholders respectively, shall not sell,
transfer, gift or encumber in excess of thirty three and one third percent
(33.3%) of the total number of shares of IMSI Common Stock provided to such
Zedcor shareholder pursuant to this Agreement, in any one calendar month during
the three (3) month period following the date the IMSI Common Stock becomes
tradable without the prior written consent of IMSI. Additionally, the Zedcor
shareholders shall give IMSI advance written notice of any proposed sale of IMSI
Common Stock pursuant to this Agreement, at least five (5) business days in
advance of the proposed sale. IMSI shall have a perpetual right of first refusal
to either purchase such proposed sale shares or to arrange for a third party to
purchase such shares.
2.2 Settlement Account. Zedcor shall have until October 31,
1998, to negotiate Zedcor long term and short term debts and Zedcor shall have
limited access to cash on the balance sheet after the Agreement Date to effect
such negotiations. Except for cash in Zedcor's operating account immediately
prior to the Agreement, Zedcor shall not dispose of, transfer title or otherwise
encumber the Zedcor assets without the prior written approval of IMSI. On or
before October 31, 1998, Zedcor shall use best efforts to deliver to IMSI a zero
balance sheet including all accruals for
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all expenses (including taxes) incurred up to and including October 31, 1998,
prepared in accordance with generally accepted accounting principals and subject
to final review and approval by IMSI. However IMSI shall accept residual long or
short term debt in an amount not to exceed fifty thousand dollars ($50,000.00.)
Residual long or short term debt in an amount not to exceed fifty thousand
dollars ($50,000.00) will not constitute a material breach of this Agreement.
Any residual long or short term debt in excess of fifty thousand dollars
($50,000.00) shall be deducted from the initial payment. IMSI shall be entitled
to make payments on such residual long or short term debt according to IMSI's
internal accounting procedures, and Zedcor shall not bind IMSI to any payment
schedule without the prior written consent of IMSI.
2.3 Adjustments for Capital Changes. Notwithstanding the
provisions of Section 2.1, if at any time after the Agreement Date and prior to
the Closing, IMSI or Zedcor recapitalizes, either through a subdivision (or
stock split) of any of its outstanding shares into a greater number of shares,
or a combination (or reverse stock split) of any of its outstanding shares into
a lesser number of shares, or reorganizes, reclassifies or otherwise changes its
outstanding shares into the same or a different number of shares of other
classes (other than through a subdivision or combination of shares provided for
in the previous clause), or declares a dividend on its outstanding shares
payable in shares or securities convertible into shares of IMSI Common Stock (a
"CAPITAL CHANGE"), then the number of shares of IMSI Common Stock for which
shares of Zedcor Stock are to be exchanged in the Exchange, shall be
appropriately, equitably and proportionately adjusted (as agreed to by IMSI and
Zedcor if the adjustment for such Capital Change involves something other than a
mathematical adjustment) so as to maintain the proportionate interests of the
shareholders of Zedcor and the shareholders of IMSI contemplated hereby so as to
maintain the proportional interests of the holders of Zedcor Stock and
contemplated by this Agreement. The provisions of this Section shall not apply
to any transaction not permitted to be undertaken by Zedcor under the provisions
of this Agreement. In the event that a Capital Change affecting IMSI Common
Stock occurs prior to the Closing, then all prices per share and numbers of
shares used to compute the Exchange Number shall be deemed to have been
equitably adjusted to reflect such Capital Change as necessary to effect the
purposes and intent of this Section.
2.4 Hold Back. After the Closing and prior to or in conjunction
with any accelerated payment by IMSI of the Purchase Price Balance, IMSI may, in
its sole discretion, withhold four hundred thousand dollars ($400,000.00) of the
Purchase Price Balance to be paid to the Zedcor Shareholders in accordance with
Section 2, (the "HOLD BACK FUNDS") as security for the Zedcor Shareholders'
indemnification obligations under Section 11. The Hold Back Funds will be held
by IMSI for thirty months after the Closing Date. Upon the thirtieth month after
the Closing Date, IMSI shall release one hundred thousand dollars ($100,000.00)
of the Hold Back Funds assuming any monies are remaining, to the Zedcor
shareholders. Upon the thirty sixth month following the Closing Date, IMSI shall
release to the Zedcor Shareholders the remaining Hold Back Funds. The Zedcor
Shareholders hereby consent to, approve and agree to be personally bound by the
indemnification provisions of Section 11 of this Agreement and the appointment
of Michael Gariepy as the representative of the Zedcor Shareholders and as the
attorney-in-fact and agent for and on behalf of each Zedcor Shareholder, and the
taking by the Representative of any and all actions and the making of any and
all decisions required or permitted to be taken by the Representative under this
Agreement (including, without limitation, the exercise by the Representative of
the power to: (i) authorize the use of the Hold Back Funds in satisfaction of
the Set Off claims by IMSI or any other Indemnified Person (as defined herein);
(ii) agree to, negotiate
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and enter into settlements and compromises of such claims, and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to such claims; (iii) arbitrate, resolve, settle or compromise any claim
for indemnity made pursuant to Section 11; and (iv) take all actions necessary
in the judgment of the Representative for the accomplishment of the foregoing).
The Representative will have unlimited authority and power to act on behalf of
each Zedcor Shareholder with respect to the Hold Back Funds and the disposition,
settlement or other handling of all claims governed by this Agreement, and all
rights or obligations arising under this Agreement so long as all Zedcor
Shareholders are treated in the same manner. The Zedcor Shareholders will be
bound by all actions taken by the Representative, and IMSI will be entitled to
rely on any action or decision of the Representative. In performing the
functions specified in this Agreement, the Representative will not be liable to
the Zedcor Shareholders in the absence of gross negligence or willful misconduct
on the part of the Representative. Any out-of-pocket costs and expenses
reasonably incurred by the Representative in connection with actions taken
pursuant to this Agreement will be paid by the Zedcor Shareholders to the
Representative in proportion to their respective percentage interest.
2.5 Further Assurances. If, at any time after the Closing, IMSI
considers or is advised that any further instruments, deeds, assignments or
assurances are reasonably necessary or desirable to consummate the Exchange or
to carry out the purposes of this Agreement at or after the Closing, then IMSI,
Zedcor and their respective officers and directors may, and each Zedcor
Shareholder shall, execute and deliver all such proper deeds, assignments,
instruments and assurances and do all other things necessary or desirable to
consummate the Exchange and to carry out the purposes and intent of this
Agreement, in the name of Zedcor or otherwise.
2.6 Securities Laws Issues. IMSI shall issue the Exchange Shares
and the IMSI Options pursuant to an exemption from registration under Section
4(2) and/or Regulation D promulgated under the 1933 Act. Concurrently with
execution of this Agreement, each Zedcor Shareholder will execute and deliver to
IMSI an Investment Representation Letter in the form of EXHIBIT 2.6-A hereto
(the "INVESTMENT REPRESENTATION LETTER").
3. REPRESENTATIONS AND WARRANTIES OF ZEDCOR AND THE ZEDCOR SHAREHOLDERS
Zedcor and each of the Zedcor Shareholders hereby jointly and
severally represent and warrant to IMSI that, except as set forth in a letter
addressed to IMSI from Zedcor dated the Agreement Date and delivered by Zedcor
to IMSI concurrently herewith (the "ZEDCOR DISCLOSURE LETTER"), each of the
following representations and statements in this Section 3 are true and correct.
3.1 Organization and Good Standing. Zedcor is a corporation duly
organized, validly existing and in good standing under the laws of Arizona.
Zedcor has the corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted and as proposed to be
conducted, and is duly qualified to transact business as a foreign corporation
in each jurisdiction in which its failure to be so qualified would have a
Material Adverse Effect. As used in this Agreement, the term "MATERIAL ADVERSE
EFFECT" when used with reference to Zedcor (either alone or collectively with
all Zedcor Subsidiaries, as defined below), means any event, change or effect
that is (or will with the passage of time be) materially adverse to Zedcor's
condition (financial or otherwise), properties, assets, liabilities, business,
operations, results of operations or prospects.
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3.2 Power, Authorization and Validity.
3.2.1 Zedcor has the right, power, legal capacity and
authority to enter into, execute, deliver and perform its obligations under this
Agreement and all Zedcor Ancillary Agreements and Zedcor has all requisite
corporate power and authority to consummate the Exchange. The execution,
delivery and performance of this Agreement and each of the Zedcor Ancillary
Agreements by Zedcor have been duly and validly approved and authorized by all
necessary corporate action on the part of Zedcor's Board of Directors. Each of
the Zedcor Shareholders has the right, power, legal capacity and authority to
enter into, execute, deliver and perform such Zedcor Shareholder's obligations
under this Agreement and all Shareholder Ancillary Agreements and has the
requisite power and authority to consummate the Exchange. The execution,
delivery and performance of this Agreement and each of the Shareholder Ancillary
Agreements by such Zedcor Shareholder have been duly and validly approved and
authorized by all necessary action specified in its governing instruments or
agreement and on the part of such Zedcor Shareholder's trustor(s), trustee(s)
and beneficiaries, as applicable. Any Zedcor Options shall have been bought out
from Zedcor funds on or before the Closing Date.
3.2.2 No filing, authorization, consent, approval or
order, governmental or otherwise, is necessary or required to be made or
obtained by Zedcor or any Zedcor Shareholder or Zedcor Optionee to enable Zedcor
and the Zedcor Shareholders or Zedcor Optionees to lawfully enter into, and to
perform their respective obligations under, this Agreement, the Zedcor Ancillary
Agreements and/or the Shareholder Ancillary Agreements.
3.2.3 This Agreement is, or when executed by Zedcor will
be, valid and binding obligations of Zedcor enforceable in accordance with their
respective terms, except as to the effect, if any, of (a) applicable bankruptcy
and other similar laws affecting the rights of creditors generally and (b) rules
of law governing specific performance, injunctive relief and other equitable
remedies. This Agreement and the Shareholder Ancillary Agreements are, or when
executed by such Zedcor Shareholder will be, valid and binding obligations of
such Zedcor Shareholder enforceable in accordance with their respective terms,
except as to the effect, if any, of (a) applicable bankruptcy and other similar
laws affecting the rights of creditors generally and (b) rules of law governing
specific performance, injunctive relief and other equitable remedies.
3.2.4 All representations, warranties and other
statements made by each Zedcor Shareholder in the Investment Representation
Letter executed and delivered to IMSI by such Zedcor Shareholder pursuant hereto
(a) is now, and at the Closing shall be true and correct, and (b) shall be
deemed to be representations and warranties made pursuant to this Section 3 for
all purposes of this Agreement (including but not limited to Section 11 hereof.)
3.3 Capitalization of Zedcor.
3.3.1 Outstanding Stock. The authorized capital stock of
Zedcor consists entirely of one million shares of Common Stock, $0.01 U.S. par
value per share, of which a total of 226,878 shares are issued and outstanding,
all of which are now owned and held (and all of which at the Closing will be
owned and held) only by the Zedcor Shareholders in the respective amounts shown
in Exhibit A. No other shares of the capital stock of Zedcor are (or will at
Closing be) authorized, issued or outstanding. No fractional shares of Zedcor
Stock are (or will at Closing be)
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issued or outstanding. All issued and outstanding shares of Zedcor Stock have
been duly authorized and validly issued, are fully paid and nonassessable, are
not subject to any claim, lien, preemptive right, or right of rescission, and
have been offered, issued, sold and delivered by Zedcor (and, if applicable,
transferred) in compliance with all registration or qualification requirements
(or applicable exemptions therefrom) of all applicable securities laws, Zedcor's
Articles of Incorporation and other charter documents and all agreements to
which Zedcor or any Zedcor Shareholder is a party. A list of all holders of
Zedcor Stock, and the number of shares of Zedcor Stock owned by each such holder
has been delivered by Zedcor to IMSI herewith as Exhibit A. There are not, or
will not be at the Closing, any Zedcor Options or Zedcor Optionees.
3.3.2 No Options, Warrants or Rights. There are no
Zedcor Options, warrants or rights.
3.3.3 No Voting Arrangements or Registration Rights.
There are no voting agreements, voting trusts, rights of first refusal or other
restrictions (other than normal restrictions on transfer under applicable
securities laws) applicable to any of Zedcor's outstanding securities or to the
conversion of any shares of Zedcor Stock in the Exchange. Zedcor is not under
any obligation to register under the 1933 Act or otherwise any of its presently
outstanding securities or any securities that may be subsequently issued.
3.4 Subsidiaries.
3.4.1 Organizational Data. Except as otherwise
disclosed, Zedcor has never been a subsidiary of any corporation, partnership,
Limited Liability Company, joint venture or other business entity. EXHIBIT 3.4
sets forth any interest, direct or indirect, in any corporation, partnership,
limited liability company, joint venture or other business entity held by Zedcor
(the "ZEDCOR SUBSIDIARIES".)
3.5 No Violation of Existing Agreements. Neither the execution
and delivery of this Agreement or any Zedcor Ancillary Agreement, nor the
consummation of the Exchange or any of the other transactions contemplated
hereby, nor Zedcor's discussion or negotiation with IMSI of the Exchange or any
other transaction contemplated hereby, will conflict with, or (with or without
notice or lapse of time, or both) result in a termination, breach, impairment or
violation of: (i) any provision of the charter documents of Zedcor as currently
in effect; (ii) any federal, state, local or foreign judgment, writ, decree,
order, statute, rule or regulation applicable to Zedcor or its assets or
properties; or (iii) any material instrument, agreement, contract, letter of
intent or commitment to which Zedcor is a party or by which Zedcor or its assets
or properties are or were bound. The consummation of the Exchange by Zedcor will
not require the consent of any third party other than the approval of the Zedcor
Shareholders and no agreement to which Zedcor is a party requires that any other
party thereto consent to the Exchange, whether as a condition to the assignment
or transfer of such agreement, or otherwise.
3.6 Litigation. There is no action, suit, arbitration,
mediation, proceeding, claim or investigation pending against Zedcor (or against
any officer or director of Zedcor or, to the best of the knowledge of Zedcor and
the Zedcor Shareholders, against any employee or agent of Zedcor, in their
capacity as such or relating to their employment, services or relationship with
Zedcor) before any court, administrative agency or arbitrator that, if
determined adversely to Zedcor (or any
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such officer, director, employee or agent) may reasonably be expected to have a
Material Adverse Effect on Zedcor, nor, to the best of Zedcor's knowledge, has
any such action, suit, proceeding, arbitration, mediation, claim or
investigation been threatened. There is no basis for any person, firm,
corporation or other entity, to assert a claim against Zedcor or IMSI based
upon: (a) Zedcor's entering into this Agreement or consummating the Exchange;
(b) any claims of ownership, rights to ownership, or options, warrants or other
rights to acquire ownership, of any shares of the capital stock of Zedcor; or
(c) any rights as a Zedcor shareholder, including any option, warrant or
preemptive rights or rights to notice or to vote. There is no judgment, decree,
injunction, rule or order of any governmental entity or agency, court or
arbitrator outstanding against Zedcor.
3.7 Taxes. Zedcor has timely filed all federal, state, local and
foreign tax returns required to be filed, has timely paid all taxes required to
be paid in respect of all periods for which returns have been filed, has
established an adequate accrual or reserve for the payment of all taxes payable
in respect of the periods subsequent to the periods covered by the most recent
applicable tax returns, has made all necessary estimated tax payments, and has
no material liability for taxes in excess of the amount so paid or accruals or
reserves so established. Zedcor is not delinquent in the payment of any tax or
in the filing of any tax returns, and no deficiencies for any tax have been
threatened, claimed, proposed or assessed. Zedcor has not received any
notification that any issues have been raised (and are currently pending) by any
taxing authority (including but not limited to any franchise, sales or use tax
authority) regarding Zedcor and no tax return of Zedcor has ever been audited by
any national, state, local or foreign taxing agency or authority. No tax liens
have been filed against any assets of Zedcor. Zedcor is not a "personal holding
company" within the meaning of Section 542 of the Code. Zedcor is not a "U.S.
Real Property Holding Company" as defined in the Code.
For the purposes of this Section, the terms "TAX" and "TAXES"
include all national, state, local and foreign income, alternative or add-on
minimum income, gains, franchise, excise, property, sales, use, employment,
license, payroll (including any taxes or similar payments required to be
withheld from payments of salary or other compensatory payments), ad valorem,
payroll, stamp, occupation, recording, value added or transfer taxes,
governmental charges, fees, customs duties, levies or assessments (whether
payable directly or by withholding), and, with respect to such taxes, any
estimated tax, interest and penalties or additions to tax and interest on such
penalties and additions to tax.
3.8 Zedcor Financial Statements. Zedcor's fiscal year ends on December
31. Zedcor has delivered to IMSI an unaudited draft version of the Zedcor
Financial Statements (as defined below) which is attached as EXHIBIT 3.8 hereto
(the "UNAUDITED ZEDCOR FINANCIALS"). The Unaudited Zedcor Financials will not
vary in any material respect from the Zedcor Financial Statements. Prior to the
Closing, and as promptly as practicable after execution of this Agreement,
Zedcor shall deliver to IMSI (i) Zedcor's audited balance sheet as of August
1998 and audited consolidated statement of operations, audited consolidated
statement of cash flows and audited consolidated statement of shareholders'
equity for the year ended 1997, and (ii) Zedcor's audited consolidated balance
sheet as of August 1998 (the "BALANCE SHEET"), Zedcor's audited consolidated
statement of operations for the six-month period ended August 1998, and Zedcor's
audited consolidated statements of cash flows and audited consolidated statement
of shareholders' equity for the six-month period ended August 1998 (all such
financial statements of Zedcor are hereinafter collectively referred to as the
"ZEDCOR FINANCIAL STATEMENTS"). The Zedcor Financial Statements
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shall (a) be in accordance with the books and records of Zedcor, (b) fairly
present the financial condition of Zedcor at the dates therein indicated and the
results of operations for the periods therein specified and (c) have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis with prior periods. Zedcor has no material debt, liability or
obligation of any nature (whether intercompany or owed to third parties),
whether accrued, absolute, contingent or otherwise, and whether due or to become
due, except for (i) those shown on the unaudited August 1998 balance sheet
included in the Unaudited Zedcor Financials (the "UNAUDITED BALANCE SHEET"), and
(ii) those that may have been incurred after August 31, 1998 (the "BALANCE SHEET
DATE") in the ordinary course of Zedcor's business consistent with past
practice, and that are not material in amount, either individually or
collectively. All reserves established by Zedcor and set forth in the Unaudited
Balance Sheet are reasonably adequate. At the Balance Sheet Date, there were no
material loss contingencies (as such term is used in United States Statement of
Financial Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975) which are not adequately provided for in the
Balance Sheet as required by said Statement No. 5.
3.9 Title to Properties. Zedcor has good and marketable title to
all of its assets (including but not limited to those shown on the Balance
Sheet), free and clear of all liens, mortgages, security interests, claims,
charges, restrictions or encumbrances. All machinery, vehicles, equipment and
other tangible personal property included in such assets and properties are in
good condition and repair, normal wear and tear excepted, and all leases of real
or personal property to which Zedcor is a party are fully effective and afford
Zedcor peaceful and undisturbed possession of the real or personal property that
is the subject of the lease. Zedcor is not in violation of any zoning, building,
safety or environmental ordinance, regulation or requirement or other law or
regulation applicable to the operation of owned or leased properties (the
violation of which would have a Material Adverse Effect on its business), nor
has Zedcor received any notice of violation with which it has not complied.
Zedcor does not own any real property.
3.10 Absence of Certain Changes. Since the Balance Sheet Date,
there has not been with respect to Zedcor any:
(a) material adverse change in the condition (financial
or otherwise), properties, assets, liabilities, businesses, operations, results
of operations or prospects of Zedcor;
(b) amendments or changes in the charter documents of
Zedcor;
(c) (i) incurrence, creation or assumption by Zedcor of
any mortgage, security interest, pledge, lien or other encumbrance on any of the
assets or properties of Zedcor or any material obligation or liability or any
indebtedness for borrowed money; or (ii) issuance or sale of, or change with
respect to the rights of, any debt or equity securities of Zedcor or any options
or other rights to acquire from Zedcor, directly or indirectly, any debt or
equity securities of Zedcor;
(d) payment or discharge of a lien or liability which
lien or liability was not either shown on the Balance Sheet or incurred in the
ordinary course of business after the Balance Sheet Date;
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(e) purchase, license, sale or other disposition, or any
agreement or other arrangement for the purchase, license, sale or other
disposition, of any of the assets, properties or goodwill of Zedcor other than
in the ordinary course of its business consistent with its past practice;
(f) damage, destruction or loss, whether or not covered
by insurance, having (or likely with the passage of time to have) a Material
Adverse Effect on Zedcor;
(g) declaration, setting aside or payment of any
dividend on, or the making of any other distribution in respect of, the capital
stock of Zedcor, any split, combination or recapitalization of the capital stock
of Zedcor or any direct or indirect redemption, purchase or other acquisition of
the capital stock of Zedcor or any change in any rights, preferences, privileges
or restrictions of any outstanding security of Zedcor;
(h) change or increase in the compensation payable or to
become payable to any of the officers, employees, consultants or agents of
Zedcor, or any bonus or pension, insurance or other benefit payment or
arrangement (including without limitation stock awards, stock appreciation
rights or stock option grants) made to or with any of such officers, employees,
consultants or agents except in connection with normal salary or performance
reviews or otherwise in the ordinary course of business consistent with Zedcor's
past practice;
(i) change with respect to the management, supervisory
or other key personnel of Zedcor;
(j) obligation or liability incurred by Zedcor to any of
its officers, directors or shareholders except normal compensation and expense
allowances payable to officers in the ordinary course of business consistent
with Zedcor's past practice;
(k) making of any loan, advance or capital contribution
to, or any investment in, any officer, director or record or beneficial
shareholder of Zedcor;
(l) entering into, amendment of, relinquishment,
termination or non-renewal by Zedcor of any contract, lease, transaction,
commitment or other right or obligation other than in the ordinary course of its
business consistent with its past practice or any written or oral indication or
assertion by the other party thereto of problems with Zedcor's services or
performance under such contract, lease, transaction, commitment or other right
or obligation or such other party's desire to so amend, relinquish, terminate or
not renew any such contract, lease, transaction, commitment or other right or
obligation;
(m) material change in the manner in which Zedcor
extends discounts or credits to customers or otherwise deals with its customers;
(n) entering into by Zedcor of any transaction, contract
or agreement or the conduct of business or operations other than in the ordinary
course of its business consistent with its past practices;
(o) transfer or grant of a right under any Zedcor IP
Rights (as defined in Section 3.13 below), other than those transferred or
granted in the ordinary course of Zedcor's business consistent with Zedcor's
past practice; or
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(p) agreement or arrangement made by Zedcor to take any
action which, if taken prior to the date of this Agreement, would have made any
representation or warranty of Zedcor and the Zedcor Shareholders set forth in
this Agreement untrue or incorrect.
3.11 Contracts and Commitments. EXHIBIT 3.11 sets forth a list
of each of the following written or oral contracts, agreements, commitments or
other instruments to which Zedcor is a party or to which it or any of its assets
or properties is bound, and IMSI shall take on approved trade payables and lease
payments in progress:
(a) consulting or similar agreement under which Zedcor
provides any advice or services to a customer of Zedcor;
(b) continuing contract for the future purchase, sale,
license, provision or manufacture of products, material, supplies, equipment or
services requiring payment to or from Zedcor in an amount in excess of $25,000
per annum which is not terminable on 90 days' or less notice without cost or
other liability to Zedcor or in which Zedcor has granted or received
manufacturing rights, most favored customer pricing provisions or exclusive
marketing rights relating to any product or services, group of products or
services or territory;
(c) contract providing for the acquisition of software
by Zedcor, for the development of software for Zedcor, or the license of
software to Zedcor, which software is used or incorporated in any products
currently distributed by Zedcor or services currently provided by Zedcor or is
contemplated to be used or incorporated in any products to be distributed or
services to be provided by Zedcor (other than software generally available to
the public at a per copy license fee of less than $1,000);
(d) joint venture or partnership contract or agreement
or other agreement which has involved or is reasonably expected to involve a
sharing of profits or losses in excess of $25,000 per annum with any other
party;
(e) contract or commitment for the employment of any
officer, employee or consultant of Zedcor or any other type of contract or
understanding with any officer, employee or consultant of Zedcor which is not
immediately terminable by Zedcor without cost or other liability;
(f) indenture, mortgage, trust deed, promissory note,
loan agreement, guarantee or other agreement or commitment for the borrowing of
money, for a line of credit or for a leasing transaction of a type required to
be capitalized in accordance with United States Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board;
(g) lease or other agreement under which Zedcor is
lessee of or holds or operates any items of tangible personal property or real
property owned by any third party and under which payments to such third party
exceed $5,000 per annum;
(h) agreement or arrangement for the sale of any assets,
properties, services or rights having a value in excess of $10,000, other than
in the ordinary course of business consistent with past practice;
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(i) agreement which restricts Zedcor from engaging in
any aspect of its business or competing in any line of business in any
geographic area;
(j) Zedcor IP Rights Agreement (as defined in Section
3.13 below);
(k) agreement relating to the sale, issuance, grant,
exercise, award, purchase, repurchase or redemption of any shares of capital
stock or other securities of Zedcor or any options, warrants or other rights to
purchase or otherwise acquire any such shares of stock, other securities or
options, warrants or other rights therefor;
(l) contract with or commitment to any labor union; or
(m) other agreement, contract, commitment or instrument
that is material to the business of Zedcor or that involves a commitment by
Zedcor in excess of $25,000.
A copy of each agreement or document required by this Section to
be listed on Exhibit 3.11 (collectively, the "ZEDCOR MATERIAL AGREEMENTS") has
been delivered to IMSI. No consent or approval of any third party is required to
ensure that, following the Closing, any Zedcor Material Agreement shall continue
to be in full force and effect without any breach or violation thereof caused by
virtue of the Exchange or by any other transaction called for by this Agreement.
3.12 No Default. Zedcor is not in breach or default of, and has
not breached or been in default of, any Zedcor Material Agreement. Zedcor is not
a party to any contract, agreement or arrangement, which has had, or could
reasonably be expected to have, a Material Adverse Effect on Zedcor. Zedcor does
not have any material liability for renegotiation of government contracts or
subcontracts, if any.
3.13 Intellectual Property.
3.13.1 Zedcor owns, or has the irrevocable right to use,
sell or license all Intellectual Property Rights (as defined below) necessary or
required for the conduct of its business as presently conducted, including
without limitation the appropriate rights to each and every item of visual
content on its web site or in its inventory, and as presently proposed to be
conducted (such Intellectual Property Rights being hereinafter collectively
referred to as the "ZEDCOR IP RIGHTS"), and such rights to use, sell or license
are sufficient for such conduct of its business. Zedcor is the legal and
beneficial owner or licensee of all rights, including all copyright, trademarks
and worldwide distribution rights, to those certain computer software programs
and visual content, including all object code, source code, configurations,
routines and algorithms contained therein with annotations and related
documentation, known as ArtToday and all visual content, together with all
alterations, modifications and reconfigurations thereof in all forms of
expression, including but not limited to, the source code, object code,
flowcharts, block diagrams, manuals and all other documentation no matter how
stored, transmitted, read or utilized and all copyrights, trade secrets,
patents, inventions (whether patentable or not), proprietary rights and
intellectual property rights associated therewith (collectively the "SOFTWARE").
The term "Zedcor IP Rights" includes, without limitation, the Software and the
visual content. Zedcor, and each Zedcor Shareholder jointly and severally, shall
indemnify and hold harmless IMSI, its successors and assigns of IMSI, its board,
employees, shareholders, for any claim of unauthorized use of the visual content
of Zedcor, exploited by Zedcor, delivered to IMSI at the Closing or as
reasonably used or modified by IMSI in
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good faith, where such use occurred during the three (3) year period following
the Closing Date. ZEDCOR IS SOLELY RESPONSIBLE TO VERIFY THE AUTHORIZED USE OF
ALL VISUAL CONTENT ON ITS WEB SITE OR IN ITS POSSESSION AT THE CLOSING DATE
WITHOUT LIMITATION. IMSI EXPRESSLY DISCLAIMS ANY AUDIT OR DUE DILIGENCE
RESPONSIBILITY RELATED TO THE ZEDCOR VISUAL CONTENT. Any and all rights to the
Software or visual content previously owned or held by third parties, including
(but not limited to) the Zedcor Subsidiaries (including those Zedcor
Subsidiaries named below), have been transferred to Zedcor and are owned
outright, free and clear of any claims, liens, security interest, mortgages,
encumbrances or obligations, by Zedcor.
3.13.2 The execution, delivery and performance of this
Agreement and the consummation of the Exchange and the other transactions
contemplated hereby will not constitute a material breach of or default under
any instrument, contract, license or other agreement governing any Zedcor IP
Right (the "ZEDCOR IP RIGHTS AGREEMENTS") and will not cause the forfeiture or
termination, or give rise to a right of forfeiture or termination, of any Zedcor
IP Right or materially impair the right of Zedcor or IMSI to use, sell, license,
provide or otherwise commercially exploit any Zedcor IP Right or portion thereof
(except where such breach, forfeiture or termination would not have a Material
Adverse Effect on Zedcor ). There are no royalties, honoraria, fees or other
payments payable by Zedcor to any person by reason of the ownership, use,
license, sale, exploitation or disposition of the Zedcor IP Rights.
3.13.3 Neither the manufacture, marketing, license,
sale, furnishing or intended use of any product, service or visual content
currently licensed, utilized, sold, provided, furnished, or possessed by Zedcor
or currently under development by Zedcor has violated or now violates any
license or agreement between Zedcor and any third party or infringes or
misappropriates any Intellectual Property Right of any other party; and there is
no pending or, to the best knowledge of Zedcor and the Zedcor Shareholders,
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any Zedcor IP Right nor, to the best knowledge
of Zedcor and the Zedcor Shareholders, is there any basis for any such claim,
nor has Zedcor received any notice asserting that any Zedcor IP Right or the
proposed use, sale, license or disposition thereof conflicts or will conflict
with the rights of any other party, nor, to the best knowledge of Zedcor and the
Zedcor Shareholders, after through review by Zedcor's counsel, is there any
basis for any such assertion. To the best knowledge of Zedcor and the Zedcor
Shareholders, no employee or agent of or consultant to Zedcor is in violation of
any term of any employment contract, patent disclosure agreement, noncompetition
agreement, non-solicitation agreement or any other contract or agreement, or any
restrictive covenant relating to the right of any such employee, agent or
consultant to be employed thereby, or to use trade secrets or proprietary
information of others, and the employment of such employees or engagement of
such agents and consultants does not subject Zedcor to any liability.
3.13.4 Zedcor has used best efforts to review all its
visual content to verify compliance with intellectual property and other law,
and to protect, preserve and maintain the secrecy and confidentiality of all
material Zedcor IP Rights and all Zedcor's proprietary rights therein. All
officers, employees, agents and consultants of Zedcor having access to
proprietary information have executed and delivered to Zedcor an agreement
regarding the protection of such proprietary information and the assignment of
inventions to Zedcor in the form provided to counsel
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for IMSI and copies of all such agreements, executed by all such persons, have
been delivered to IMSI's counsel.
3.13.5 EXHIBIT 3.13 contains a list of all Zedcor IP
Rights and all worldwide applications, registrations, filings and other formal
actions made or taken pursuant to federal, state and foreign laws by Zedcor to
secure, perfect or protect its interest in Zedcor IP Rights, including, without
limitation, all patents, patent applications, copyrights (whether or not
registered), copyright applications, trademarks, service marks and trade names
(whether or not registered) and trademark, service mark and trade name
applications. Exhibit 3.13 lists, with respect to each item of Zedcor IP Rights,
the entity (Zedcor or one of the Zedcor Subsidiaries) which owns or holds such
IP Rights.
3.13.6 As used herein, the term "INTELLECTUAL PROPERTY
RIGHTS" means, collectively, all worldwide industrial and intellectual property
rights, including, without limitation, patents, patent applications, patent
rights, trademarks, trademark applications, trade dress rights, trade names,
service marks, service mark applications, copyrights, copyright applications,
mask work rights, mask work registrations, franchises, licenses, inventions,
trade secrets, know-how, customer lists, proprietary processes and formulae,
software source and object code, algorithms, architecture, structure, display
screens, layouts, inventions, development tools and all documentation and media
constituting, describing or relating to the above, including, without
limitation, visual content, manuals, memoranda and records.
3.14 Compliance with Laws. Zedcor has complied, and is now and
at the Closing Date will be in compliance, in all material respects, with all
applicable national, state, local or foreign laws, ordinances, regulations, and
rules, and all orders, writs, injunctions, awards, judgments, and decrees
applicable to Zedcor or to Zedcor's assets, properties, and business. Zedcor
holds all permits, licenses and approvals from, and has made all filings with,
third parties, including government agencies and authorities, that are necessary
in connection with Zedcor's present business, except those where failure to do
so would not have a Material Adverse Effect.
3.15 Certain Transactions and Agreements. None of the officers,
directors or shareholders of Zedcor (nor any beneficiaries of any trust that is
a Zedcor Shareholder), nor any member of their immediate families, has any
direct or indirect ownership interest in any firm or corporation that competes
with, or does business with, or has any contractual arrangement with Zedcor.
None of said officers, directors, employees or shareholders or any member of
their immediate families, is directly or indirectly interested in any contract
or informal arrangement with Zedcor, except for normal compensation for services
as an officer, director or employee thereof that have been disclosed to IMSI to
such persons. None of said officers, directors, employees or shareholders or
family members has any interest in any property, real or personal, tangible or
intangible (including but not limited to any Zedcor IP Rights or any other
Intellectual Property Rights) that is used in or that pertains to the business
of Zedcor, except for the normal rights of a shareholder.
3.16 Employees, ERISA and Other Compliance.
3.16.1 Zedcor is in compliance in all material respects
with all applicable laws, agreements and contracts relating to employment,
employment practices, wages, hours, and terms and conditions of employment,
including, but not limited to, employee compensation matters
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in each of the jurisdictions in which it conducts business. A list of all
employees, officers and consultants of Zedcor, their title, date of hire,
employer entity and current compensation is set forth on EXHIBIT 3.16.1, which
has been delivered to IMSI. Zedcor does not have any employment contracts or
consulting agreements currently in effect that are not terminable at will (other
than agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions).
3.16.2 Zedcor (i) has never been and is not now subject
to a union organizing effort, (ii) is not subject to any collective bargaining
agreement with respect to any of its employees, (iii) is not subject to any
other contract, written or oral, with any trade or labor union, employees'
association or similar organization, and (iv) does not have any current labor
disputes. Zedcor has good labor relations, and has no knowledge of any facts
indicating that the consummation of the transactions contemplated hereby will
have a material adverse effect on such labor relations. Neither Zedcor nor any
Zedcor Shareholder has any knowledge that any key employee of Zedcor intends to
leave the employ of Zedcor.
3.16.3 Zedcor will not, at the Closing Date, have any
"employee benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). Zedcor has no pension plan
that constitutes, or has since the enactment of ERISA constituted, a
"multiemployer plan" as defined in Section 3(37) of ERISA. No Zedcor pension
plans are subject to Title IV of ERISA. Zedcor does not have any employee
benefit plans that are subject to statutory regulation under the laws of the
British Virgin Islands, the United Kingdom, Canada or Australia.
3.16.4 Zedcor, prior to the Closing Date, shall fulfill
any and all employment, severance or other similar contract, arrangement or
policy, each "employee benefit plan" as defined in Section 3(3) of ERISA (if
any) and each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers' benefits, vacation
benefits, severance benefits, disability benefits, death benefits,
hospitalization benefits, retirement benefits, deferred compensation,
profit-sharing, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits for employees, consultants or directors
which is entered into, maintained or contributed to by Zedcor and covers any
employee or former employee or consultant or former consultant of Zedcor. Such
contracts, plans and arrangements are hereinafter collectively referred to as
the "ZEDCOR BENEFIT ARRANGEMENTS." Each Zedcor Benefit Arrangement has been
maintained in compliance in all material respects with its terms and with the
requirements prescribed by any and all laws, statutes, orders, rules and
regulations that are applicable to such Zedcor Benefit Arrangement. IMSI shall
have no liability for any Zedcor Benefit Arrangement.
3.16.5 There has been no amendment to, written
interpretation or announcement (whether or not written) by Zedcor relating to,
or change in employee participation or coverage under, any Zedcor Benefit
Arrangement that would increase materially the expense of maintaining such
Zedcor Benefit Arrangement above the level of the expense incurred in respect
thereof for Zedcor's fiscal year ended 12/31/97.
3.16.6 The group health plans (as defined in Section
4980B(g) of the Code) that benefit employees of Zedcor are in compliance, in all
material respects, with the continuation
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coverage requirements of Section 4980B of the Code as such requirements affect
Zedcor and its employees. As of the Closing Date, there will be no material
outstanding, uncorrected violations under the Consolidation Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), with respect to any of the
Zedcor Benefit Arrangements, covered employees, or qualified beneficiaries that
could result in a Material Adverse Effect on Zedcor, or in a material adverse
effect on the business, operations or financial condition of IMSI as its
successor. Zedcor has provided, or shall have provided prior to the Closing, to
individuals entitled thereto, all required notices and coverage pursuant to
Section 4980B of COBRA, with respect to any "qualifying event" (as defined in
Section 4980B(f)(3) of the Code) occurring prior to and including the Closing
Date, and no material amount payable on account of Section 4980B of the Code has
been incurred with respect to any current or former employees of Zedcor (or
their beneficiaries).
3.16.7 No benefit payable or which may become payable by
Zedcor pursuant to any Zedcor Benefit Arrangement or as a result of or arising
under this Agreement shall constitute an "excess parachute payment" (as defined
in Section 280G(b)(1) of the Code) which is subject to the imposition of an
excise tax under Section 4999 of the Code or which would not be deductible by
reason of Section 280G of the Code. Zedcor is not a party to any (a) agreement
(other than as described in (b) below) with any executive officer or other key
employee thereof (i) the benefits of which are contingent, or the terms of which
are materially altered, upon the occurrence of a transaction involving Zedcor in
the nature of any of the transactions contemplated by this Agreement, (ii)
providing any term of employment or compensation guarantee, or (iii) providing
severance benefits or other benefits after the termination of employment of such
employee regardless of the reason for such termination of employment, or (b)
agreement or plan, including, without limitation, any stock option plan, stock
appreciation rights plan or stock purchase plan, any of the benefits of which
will be materially increased, or the vesting of benefits of which will be
materially accelerated, by the occurrence of the Exchange or any of the other
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
3.17 Corporate Documents. Zedcor has delivered to IMSI and its
counsel for examination all documents and information listed in the Zedcor
Disclosure Letter or other Exhibits called for by this Agreement, including,
without limitation, the following: (a) copies of the charter documents as
currently in effect of Zedcor and each of the Zedcor Subsidiaries; (b) the
Minute Book containing all records of all proceedings, consents, actions,
minutes, and meetings of Zedcor and each of the Zedcor Subsidiaries, including
(but not limited to) actions of shareholders, board of directors and any
committees thereof; (c) the stock ledger and journal reflecting all stock
issuances and transfers of Zedcor and each Zedcor Subsidiary; (d) all permits,
orders, and consents issued by any regulatory agency with respect to Zedcor and
each of the Zedcor Subsidiaries, or any securities of Zedcor and each of the
Zedcor Subsidiaries, and all applications for such permits, orders, and
consents; and (e) all agreements required to be listed in Exhibit 3.11.
3.18 No Brokers. Neither Zedcor, any of the Zedcor Shareholders
nor any affiliate of Zedcor is obligated for the payment of any fees or expenses
of any investment banker, broker or finder in connection with the origin,
negotiation or execution of this Agreement or in connection with the Exchange or
any other transaction contemplated hereby.
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3.19 Books and Records. The books, records and accounts of
Zedcor (a) are in all material respects true, complete and correct, (b) have
been maintained in accordance with good business practices on a basis consistent
with prior years, (c) are stated in reasonable detail and accurately and fairly
reflect the transactions and dispositions of the assets of Zedcor, and (d)
accurately and fairly reflect the basis for the Zedcor Financial Statements.
3.20 Insurance. EXHIBIT 3.20 hereto lists all fire and casualty,
general liability, business interruption, product liability, errors and
omissions, and sprinkler and water damage insurance maintained by Zedcor.
3.21 Environmental Matters.
3.21.1 During the period that Zedcor has leased or owned
its respective properties or owned or operated any facilities, there have been
no disposals, releases or threatened releases of Hazardous Materials (as defined
below) on, from or under such properties or facilities that resulted from any
act or omission of Zedcor or any of its employees, agents or invitees. Zedcor
has no knowledge of any presence, disposals, releases or threatened releases of
Hazardous Materials on, from or under any of such properties or facilities,
which may have occurred prior to Zedcor having taken possession of any of such
properties or facilities. For the purposes of this Agreement, the terms
"DISPOSAL," "RELEASE," and "THREATENED RELEASE" shall have the definitions
assigned thereto by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA").
For the purposes of this Agreement "HAZARDOUS MATERIALS" shall mean any
hazardous or toxic substance, material or waste which is or becomes prior to the
Closing regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous materials," "toxic substance" or
"hazardous chemical" under (a) CERCLA; (b) any similar federal, state or local
law; or (c) regulations promulgated under any of the above laws or statutes.
3.21.2 None of the properties or facilities of Zedcor is
in violation of any federal, state or local law, ordinance, regulation or order
relating to industrial hygiene or to the environmental conditions on, under or
about such properties or facilities, including, but not limited to, soil and
ground water condition. During the time that Zedcor has owned or leased its
properties and facilities, neither Zedcor nor, to the best knowledge of Zedcor
and the Zedcor Shareholders, any third party, has used, generated, manufactured
or stored on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials, other than Zedcor's
lawful use of standard office supplies customarily used in office environments
that contain legally permitted amounts of Hazardous Materials that would have no
Material Adverse Effect.
3.21.3 During the time that Zedcor has owned or leased
its properties and facilities, there has been no litigation brought or
threatened against Zedcor, or, to the best knowledge of Zedcor and the Zedcor
Shareholders, against any lessor or owner of real property leased by Zedcor, or
any settlement reached by Zedcor or the Zedcor Shareholders with any party or
parties alleging the presence, disposal, release or threatened release of any
Hazardous Materials on, from or under any of such properties or facilities.
3.22 Disclosure. Neither this Agreement, its exhibits and
schedules, nor any of the certificates or documents to be delivered by Zedcor
and/or the Zedcor Shareholders to IMSI under
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this Agreement, taken together, contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which such
statements were made, not misleading.
3.23 Year 2000. Zedcor represents and warrants that the Software
and all visual content will run without interruption or error between the years
1999 and 2000 and beyond. Additionally, Zedcor has taken reasonable steps to get
assurances from the appropriate third parties that its assets, including but not
limited to, programs, internal systems, external systems and processes will also
run without interruption or error between the years 1999 and 2000 and beyond.
3.24 Commercial Real Property Lease. The Majority Zedcor
Shareholders represents and warrant that the commercial real property lease, a
copy of which is attached hereto as EXHIBIT 3.24, shall be available to IMSI for
renewal upon the terms and conditions in the lease at a rate not to exceed fair
market value. Without limiting the foregoing, nothing herein shall require IMSI
to renew such lease..
4. REPRESENTATIONS AND WARRANTIES OF IMSI
IMSI hereby represents and warrants, that, except as set forth
in the letter from IMSI that may be addressed to Zedcor dated the Agreement Date
and delivered by IMSI to Zedcor concurrently herewith, if any (the "IMSI
DISCLOSURE LETTER"), each of the following representations and statements in
this Section 4 are true and correct:
4.1 Organization and Good Standing. IMSI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, and has the corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted and as proposed to
be conducted.
4.2 Power, Authorization and Validity.
4.2.1 IMSI has the right, power and authority to enter
into, execute and perform its obligations under this Agreement and the IMSI
Ancillary Agreements. The execution, delivery and performance of this Agreement
and the IMSI Ancillary Agreements by IMSI have been, or will be by the Closing
Date, duly and validly approved and authorized by IMSI's Board of Directors.
4.2.2 No filing, authorization, consent, approval or
order, governmental or otherwise, is necessary or required to enable IMSI to
enter into, and to perform its obligations under, this Agreement and the IMSI
Ancillary Agreements, except for (a) any filings with the Securities and
Exchange Commission and other applicable securities authorities contemplated by
the Registration Rights Agreement attached hereto.
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4.2.3 This Agreement and the IMSI Ancillary Agreements
are, or when executed by IMSI will be, valid and binding obligations of IMSI,
enforceable in accordance with their respective terms, except as to the effect,
if any, of (a) applicable bankruptcy and other similar laws affecting the rights
of creditors generally and (b) rules of law governing specific performance,
injunctive relief and other equitable remedies.
4.3 [RESERVED.]
4.4 No Violation of Material Agreements. Neither the execution
and delivery of this Agreement nor any IMSI Ancillary Agreement, nor the
consummation of the transactions contemplated hereby, will conflict with, or
(with or without notice or lapse of time, or both) result in: (a) a termination,
breach, impairment or violation of (i) any provision of the Certificate of
Incorporation or Bylaws of IMSI, as currently in effect or (ii) any federal,
state, local or foreign judgment, writ, decree, order, statute, rule or
regulation to which IMSI or its assets or properties is subject; or (b) a
termination, or a material breach, impairment or violation, of any material
instrument or contract to which IMSI is a party or by which IMSI or its
properties are bound. IMSI is not required to obtain the consent of any third
party to consummate the Exchange, except for Silicon Valley Bank.
4.5 Disclosure. IMSI has made available to Zedcor a disclosure
package consisting of IMSI's most recent Form 10-K for its fiscal year ended
June 30, 1997 all Forms 10-Q filed by IMSI with the SEC after the date of such
Form 10-K and before the Agreement Date, all Forms 8-K and 8-K/A filed by IMSI
with the SEC after the date of its most recent Form 10-Q and the Proxy Statement
for IMSI's annual meeting of stockholders held in December of 1997 (the "IMSI
DISCLOSURE PACKAGE"). As of their respective filing dates, documents filed by
IMSI with the SEC and included in the IMSI Disclosure Package complied in all
material respects with the requirements of the 1933 Act or the 1934 Act, as the
case may be.
4.6 Financial Condition. There has been no material adverse
change in the financial condition or business of IMSI, taken as whole, since the
date of the most recent financial statements included in the IMSI Disclosure
Package, unless otherwise disclosed to Zedcor.
4.7 Validity of Shares. The shares of IMSI Common Stock to be
issued pursuant to the Exchange shall, when issued: (a) be duly authorized,
validly issued, fully paid and nonassessable and free of liens and encumbrances
created by IMSI, and (b) be free and clear of any transfer restrictions, liens
and encumbrances except for restrictions on transfer under applicable United
States securities laws, including Rule 144 promulgated under the 1933 Act, under
Section 16 of the 1934 Act for any Zedcor Shareholder (if any) who is deemed to
be an "insider" of IMSI for purposes of Section 16, under applicable securities
laws (including the laws of Delaware, California and the jurisdiction in which
the Zedcor Shareholder who holds such shares resides) and under IMSI's insider
trading policy for any Zedcor Shareholder (if any) who is deemed to be an
"affiliate" or "access personnel" of IMSI.
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5. COVENANTS OF ZEDCOR AND THE ZEDCOR SHAREHOLDERS
During the period from the Agreement Date until the earlier to
occur of (i) the Closing or (ii) the termination of this Agreement in accordance
with Section 10, Zedcor and each of the Zedcor Shareholders hereby jointly and
severally covenants and agrees with IMSI as follows:
5.1 Advice of Changes. Zedcor or the Zedcor Shareholders, as the
case may be, will promptly advise IMSI in writing (a) of any event occurring
subsequent to the date of this Agreement that would render any representation or
warranty of Zedcor and the Zedcor Shareholders contained in Section 3 of this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect and (b) of any material adverse
change in Zedcor's assets, business, results of operations, financial condition
or prospects. Zedcor shall deliver to IMSI within thirty (30) days after the end
of each quarterly accounting period ending after the Agreement Date and before
the Closing Date, an unaudited balance sheet and statement of operations, which
financial statements shall be prepared in the ordinary course of business
consistent with Zedcor's past practice (except that such financial statements
shall be prepared in accordance with United States generally accepted accounting
principles), in accordance with Zedcor's books and records and United States
generally accepted accounting principles and shall fairly present the financial
position of Zedcor on a consolidated basis as of their respective dates and the
results of Zedcor's operations on a consolidated basis for the periods then
ended.
5.2 Maintenance of Business. Zedcor will carry on and preserve
its business and its relationships with customers, suppliers, employees,
consultants and others in substantially the same manner as it has prior to the
date hereof. If Zedcor becomes aware of a material deterioration in the
relationship with any customer, supplier, key employee, consultant or business
partner, it will promptly bring such information to the attention of IMSI in
writing and, if requested by IMSI, will exert its best efforts to restore the
relationship.
5.3 Conduct of Business. Zedcor will continue to conduct its
business and maintain its business relationships in the ordinary and usual
course and will not, without the prior written consent of the President of IMSI:
(a) borrow or lend any money other than advances to
employees for travel and expenses that are incurred in the ordinary course of
Zedcor's business consistent with Zedcor's past practice;
(b) purchase or sell shares or other equity interest in
any corporation or other business or enter into any transaction or agreement not
in the ordinary course of Zedcor's business consistent with Zedcor's past
practice;
(c) encumber, or permit to be encumbered, any of its
assets;
(d) sell, transfer or dispose of any of its assets
except in the ordinary course of Zedcor's business consistent with Zedcor's past
practice;
(e) enter into any material lease or contract for the
purchase or sale of any property, whether real or personal, tangible or
intangible;
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(f) pay any bonus, increased salary or special
remuneration to any officer, employee or consultant (except for normal salary
increases consistent with past practices not to exceed 5% of such officer's,
employee's or consultant's base annual compensation, except pursuant to existing
arrangements previously disclosed to and approved in writing by IMSI) or enter
into any new employment or consulting agreement with any such person;
(g) change any of its accounting methods (except that
henceforth Zedcor will prepare its financial statements in accordance with
United States generally accepted accounting principles);
(h) declare, set aside or pay any cash or stock dividend
or other distribution in respect of any of its capital stock, redeem, repurchase
or otherwise acquire any of its capital stock or other securities, pay or
distribute any cash or property to any Zedcor shareholder or security holder or
make any other cash payment to any shareholder or security holder of Zedcor that
is unusual, extraordinary, or not made in the ordinary course of Zedcor's
business consistent with Zedcor's past practice;
(i) amend or terminate any contract, agreement or
license to which it is a party except those amended or terminated in the
ordinary course of Zedcor's business, consistent with Zedcor's past practice,
and which are not material in amount or effect;
(j) guarantee or act as a surety for any obligation of
any third party;
(k) waive or release any material right or claim except
in the ordinary course of business, consistent with past practice or agree to
any audit assessment by any tax authority or file any federal or state income or
franchise tax return unless copies of such returns have been delivered to IMSI
for its review prior to filing;
(l) issue, sell, create or authorize any shares of its
capital stock of any class or series or any other of its securities, or issue,
grant or create any warrants, obligations, subscriptions, options, convertible
securities, or other commitments to issue shares of its capital stock or
securities ultimately exchangeable for, or convertible into, shares of its
capital stock;
(m) subdivide or split or combine or reverse split the
outstanding shares of its capital stock of any class or enter into any
recapitalization affecting the number of outstanding shares of its capital stock
of any class or affecting any other of its securities;
(n) merge, consolidate or reorganize with, or acquire,
any entity or enter into any negotiations, discussions or agreement for such
purpose;
(o) amend its charter documents;
(p) license any of its technology or Intellectual
Property Rights except in the ordinary course of business consistent with past
practice;
(q) change any insurance coverage or issue any
certificates of insurance;
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(r) modify or change the exercise or conversion rights
or exercise or purchase prices of any Zedcor Stock or other Zedcor securities,
or accelerate or otherwise modify (i) the right to exercise any right to
purchase any Zedcor stock or other securities or (ii) the vesting or release of
any shares of Zedcor capital stock or other securities of Zedcor from any
repurchase options or rights of refusal held by Zedcor or any other party or any
other restrictions unless such accelerations/modifications are expressly
required and mandated by the terms of a formal written agreement or plan that
has been disclosed in writing to IMSI and was entered into prior to the
execution of this Agreement by IMSI and Zedcor;
(s) purchase or otherwise acquire, or sell or otherwise
dispose of (i) any shares of IMSI Common Stock or other IMSI securities or (ii)
any securities whose value is derived from or determined with reference to, in
whole or in part, the value of IMSI stock or other IMSI securities;
(t) agree to do any of the things described in the
preceding clauses 5.3(a) through 5.3(s).
5.4 Regulatory Approvals. Zedcor and the Zedcor Shareholders
will promptly execute and file, or join in the execution and filing, of any
application or other document that may be necessary in order to obtain the
authorization, approval or consent of any governmental body, federal, state,
local or foreign, which may be reasonably required, or which IMSI may reasonably
request, in connection with the consummation of the transactions contemplated by
this Agreement. Zedcor, its officers, directors and employees and the Zedcor
Shareholders will use their respective best efforts to promptly obtain, and to
cooperate with IMSI to promptly obtain, all such authorizations, approvals and
consents.
5.5 Necessary Consents. Zedcor, its officers, directors and
employees and the Zedcor Shareholders will use their respective best efforts to
promptly obtain such written consents and take such other actions as may be
necessary or appropriate in addition to those set forth in Section 5.4 to allow
the consummation of the transactions contemplated hereby and to allow IMSI to
carry on Zedcor's business after the Closing.
5.6 Litigation. Zedcor will notify IMSI in writing promptly
after learning of any action, suit, arbitration, mediation, proceeding or
investigation by or before any court, arbitrator or arbitration panel, board or
governmental agency, initiated by or against it, or known by it to be threatened
against it or any of its directors, officers, employees or consultant in their
capacity as such.
5.7 No Other Negotiations. From the Agreement Date until the
earlier of termination of this Agreement in accordance with Section 10 or the
consummation of the Exchange, Zedcor, its officers, directors and employees and
the Zedcor Shareholders will not, and will not authorize, encourage or permit,
any officer, director, employee, shareholder or affiliate of Zedcor, or any
other person, on its or their behalf to, directly or indirectly, solicit or
encourage any offer from any party or consider any inquiries or proposals
received from any other party, participate in any negotiations regarding, or
furnish to any person any information with respect to, or otherwise cooperate
with, facilitate or encourage any effort or attempt by any person (other than
IMSI), concerning any agreement or transaction regarding the possible
disposition of all or any substantial
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portion of the business, assets or capital stock of Zedcor or any Zedcor
Subsidiary by merger, consolidation, reorganization, sale of assets, sale of
stock, exchange, tender offer or any other form of business combination
("ALTERNATIVE TRANSACTION"). Zedcor will promptly notify IMSI orally and in
writing of any such inquiries or proposals. In addition, neither Zedcor, nor any
Zedcor Shareholder nor any Zedcor Subsidiary, shall execute, enter into or
become bound by (a) any letter of intent or agreement or commitment between
Zedcor and/or any of the Zedcor Shareholders and/or any Zedcor Subsidiary, on
the one hand, and any third party, on the other hand, that is related to an
Alternative Transaction or (b) any agreement or commitment between Zedcor and/or
any of the Zedcor Shareholders and/or any Zedcor Subsidiary, on the one hand,
and a third party, on the other hand, providing for an Alternative Transaction.
5.8 Access to Information. Until the Closing Date, Zedcor will
allow IMSI and its agents reasonable access to the files, books, records and
offices of Zedcor, including, without limitation, any and all information
relating to Zedcor's taxes, commitments, contracts, leases, licenses, and real,
personal and intangible property and financial condition, subject to the terms
of the Mutual Nondisclosure Agreement between Zedcor and IMSI dated as of
September 9th, 1998 (the "CONFIDENTIALITY AGREEMENT"). Zedcor will cause its
accountants to cooperate with IMSI and its agents in making available all
financial and tax information reasonably requested, including without limitation
the right to examine all working papers pertaining to all financial statements
and tax returns, prepared or audited by such accountants.
5.9 Satisfaction of Conditions Precedent. Zedcor, its and
directors and officers and the Zedcor Shareholders will use their respective
best efforts to satisfy or cause to be satisfied all the conditions precedent
which are set forth in Section 9, and Zedcor, its directors and officers, and
the Zedcor Shareholders will use their respective best efforts to cause the
transactions contemplated by this Agreement to be consummated; and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on
Zedcor's part in order to effect the transactions contemplated hereby. In
particular, Zedcor will use its best efforts to cause the Exchange to become
effective in accordance with this Agreement on or before September 25th, 1998.
5.10 [RESERVED.]
5.11 Securities Laws. Zedcor and the Zedcor Shareholders shall
each use its best efforts to assist IMSI to the extent necessary to comply with
the securities laws of all jurisdictions (U.S. and foreign) which are applicable
in connection with the Exchange.
5.12 [RESERVED.]
5.13 Certain Investments, Agreements. Zedcor and the Zedcor
Shareholders do not own, and shall not directly make any purchase or other
acquisition of, or investment in, any shares of IMSI Common Stock or other
securities of IMSI. Zedcor and the Zedcor Shareholders shall not enter into any
agreement with any holders of IMSI shares calling for either Zedcor or IMSI to
retire or reacquire all or part of the IMSI shares to be issued pursuant to the
Exchange. Zedcor shall not enter into any financial arrangements for the benefit
of any Zedcor shareholder and the Zedcor Shareholders shall not enter into any
agreement which, in effect, would negate the exchange of equity securities
contemplated under this Agreement, including without limitation, any loan or
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other financial arrangement at abnormally low interest rates, or any guarantee
of loans secured by IMSI shares to be issued pursuant to the Exchange.
5.14 Termination of Registration and Voting Rights. All
registration rights agreements and voting agreements applicable to or affecting
any outstanding shares or other securities of Zedcor (if any) shall be duly
terminated and canceled by no later than the Closing Date.
5.15 Invention Assignment and Confidentiality Agreements. Zedcor
shall obtain from each employee, agent and consultant of Zedcor who has had
access to any software, technology or copyrightable, patentable or other
proprietary works or intellectual property owned or developed by Zedcor or other
Intellectual Property Rights, or to any other confidential or proprietary
information of Zedcor or its clients, an invention assignment and
confidentiality agreement in substantially the form of the agreement provided to
counsel to IMSI, duly executed by such employee, agent or consultant and
delivered to Zedcor.
5.16 Non-Competition and Offer Letters. The Zedcor Shareholders
shall also execute and deliver to IMSI the Non-Competition Agreement in the form
of Exhibit 9.9B at the Closing. Zedcor shall use its best efforts to cause
Michael Gariepy and Peter Gariepy to execute and deliver to IMSI at the Closing,
Offer Letters in materially the form attached hereto as Exhibit 9.10 (the "OFFER
LETTERS").
5.17 [RESERVED.]
5.18 Closing of Exchange. Zedcor and the Zedcor Shareholders
shall not refuse to effect the Exchange if, on or before the Closing Date, all
the conditions precedent to their obligations to effect the Exchange under
Section 8 hereof have been satisfied or, in their sole discretion, been waived
by them.
5.19 Consultants to Become Employees. Zedcor and its officers
shall use their best efforts to cause those persons who are designated by IMSI
to Zedcor in writing and who are currently performing services for Zedcor and
the Zedcor Subsidiaries as consultants to become employees of Zedcor and/or the
applicable Zedcor Subsidiary prior to the Closing on terms and conditions
satisfactory to IMSI.
5.20 Delivery of Zedcor Financial Statements. Prior to the
Closing, and as soon as practicable following the execution of this Agreement,
Zedcor shall deliver to IMSI the unaudited Zedcor Financial Statements referred
to in Section 3.8 hereof.
6. IMSI COVENANTS
During the period from the Agreement Date until the earlier to
occur of (i) the Closing or (ii) the termination of this Agreement in accordance
with Section 10, IMSI covenants and agrees as follows:
6.1 Advice of Changes. IMSI will promptly advise Zedcor in
writing (a) of any event occurring subsequent to the date of this Agreement that
would render any representation or warranty of IMSI contained in this Agreement,
if made on or as of the date of such event or the
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Closing Date or Closing Date, untrue or inaccurate in any material respect and
(b) of any material adverse change in IMSI's business, results of operations or
financial condition.
6.2 Regulatory Approvals. IMSI will execute and file, or join in
the execution and filing, of any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, in connection with the consummation of the transactions contemplated
by this Agreement in accordance with the terms of this Agreement. IMSI will use
its best efforts to obtain all such authorizations, approvals and consents.
6.3 Satisfaction of Conditions Precedent. IMSI will use its best
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Section 8, and IMSI will use its best efforts to cause the
transactions contemplated by this Agreement to be consummated in accordance with
the terms of this Agreement, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties that may be
necessary or reasonably required on its part in order to effect the transactions
contemplated hereby.
6.4 Securities Laws. IMSI shall take such steps as may be
necessary to comply with the securities and Blue Sky laws of all jurisdictions
(U.S. or foreign) which are applicable in connection with the Exchange, with the
cooperation and assistance of Zedcor and the Zedcor Shareholders.
6.5 Nasdaq National Market Listing. IMSI shall cause the shares
of IMSI Common Stock issuable to the Zedcor shareholders in the Exchange
(including shares of IMSI Common Stock issuable upon exercise of IMSI Options)
to be authorized for listing on the Nasdaq National Market, subject to official
notice of issuance.
6.6 Employee Benefits. As soon as practicable after the
Agreement Date, IMSI and Zedcor shall confer and work in good faith to agree
upon a plan under which Zedcor employees will be covered either by (a) IMSI's
employee benefits plans or (b) Zedcor's employee benefit plans, with such
decision to be made no later than six (6) months following the Closing, in a
manner that results in minimal disruption to the continuing operations of
Zedcor, and minimal cost to IMSI.
7. CLOSING MATTERS
7.1 The Closing. Subject to termination of this Agreement as
provided in Section 10 below and the conditions to closing set forth in this
section, the closing of the transactions for consummation of the Exchange (the
"CLOSING") will take place at the corporate offices of IMSI, 1895 East Francisco
Blvd., San Rafael, CA 94901 at 4 p.m., Pacific Standard Time on or before
October 1st, 1998 or on such other date on or before the Termination Date (as
defined in Section 10.1.2) as IMSI and Zedcor may mutually agree upon in writing
(the "CLOSING DATE"). As a condition to closing, Zedcor must have received from
Dover Publications a fully executed renewal agreement in materially the same
terms and conditions as the draft attached hereto as Exhibit 7.1. IMSI may, in
its sole discretion and at any time, waive the requirement that Dover
Publications executes a renewal Agreement with Zedcor.
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7.2 Exchanges at the Closing.
7.2.1 At the Closing, (a) the Zedcor Certificates shall
be exchanged for the Exchange Shares as provided in Section 2.1 hereof.
7.2.2 [RESERVED]
7.2.3 [RESERVED]
7.2.4 Each Zedcor Shareholder understands and agrees
that stop transfer instructions will be given to IMSI's transfer agent with
respect to certificates evidencing the Exchange Shares.
7.2.5 After the Closing there will be no further
registration of transfers on the stock transfer books of Zedcor or its transfer
agent of the Zedcor Stock that was outstanding immediately prior to the Closing.
If, after the Closing, Zedcor Certificates are presented for any reason, they
will be canceled.
8. CONDITIONS TO OBLIGATIONS OF ZEDCOR AND THE ZEDCOR SHAREHOLDERS
The obligations of Zedcor and the Zedcor Shareholders to
consummate the Exchange are subject to the fulfillment or satisfaction, on and
as of the Closing, of each of the following conditions (any one or more of which
may be waived by Zedcor and the Zedcor Shareholders in their sole discretion,
but only in a writing signed by Zedcor and the Zedcor Shareholders):
8.1 Accuracy of Representations and Warranties. The
representations and warranties of IMSI set forth in Section 4 (as qualified by
the IMSI Disclosure Letter, if any) shall be true and accurate in every material
respect on and as of the Closing with the same force and effect as if they had
been made at the Closing, and Zedcor shall have received a certificate to such
effect executed by IMSI's President or Chief Financial Officer.
8.2 Covenants. IMSI shall have performed and complied in all
material respects with all of its covenants contained in Section 6 on or before
the Closing.
8.3 Compliance with Law; No Legal Restraints. There shall not be
outstanding or threatened, or enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation,
action, proceeding or any judgment or ruling by any court, arbitrator,
governmental agency, authority or entity, or any other fact or circumstance
(other than any such matter initiated by Zedcor, its officers or directors or
the Zedcor Shareholders), that, directly or indirectly, challenges, threatens,
prohibits, enjoins, restrains, suspends, delays, conditions or renders illegal
or imposes limitations on (or is likely to result in a challenge, threat to, or
a prohibition, injunction, restraint, suspension, delay or illegality of, or to
impose limitations on): (i) the Exchange or any other transaction contemplated
by this Agreement; (ii) IMSI's payment for, or acquisition or purchase of, some
or all of the shares of Zedcor Stock or any material part of the assets of
Zedcor.
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8.4 Government Consents. There shall have been obtained at or
prior to the Closing Date such permits and/or authorizations, and there shall
have been taken such other action by any regulatory authority having
jurisdiction over the parties and the actions herein proposed to be taken, as
may be required to lawfully consummate the Exchange, including but not limited
to requirements under applicable U.S. and foreign securities and corporations
laws.
8.5 [RESERVED]
8.6 Documents. IMSI shall have executed and delivered to Zedcor
and/or the Zedcor Shareholders, as applicable, the IMSI Ancillary Agreements.
Zedcor shall have received all written consents, assignments, waivers,
authorizations or other certificates reasonably deemed necessary by Zedcor's
legal counsel for Zedcor to lawfully consummate the transactions contemplated
hereby.
8.7 No Litigation. No litigation or proceeding (other than any
litigation or proceeding initiated by Zedcor, its Board of Directors,
shareholders or officers or any Zedcor Shareholder) shall be threatened or
pending for the purpose or with the probable effect of enjoining or preventing
the consummation of the Exchange or any of the other transactions contemplated
by this Agreement, or which could be reasonably expected to have a material
adverse effect on the present or future operations or financial condition of
IMSI.
8.8 Instructions to Transfer Agent; Deliveries. IMSI shall have
issued irrevocable instructions to its transfer agent to authorize the issuance
of IMSI Common Stock in the Exchange consistent with Section 2 hereof. IMSI
shall have made the other deliveries contemplated by Section 2 hereof.
8.9 Satisfactory Form of Legal Matters. The form, scope and
substance of all legal and accounting matters contemplated hereby and all
closing documents and other papers delivered hereunder shall be reasonably
acceptable to Zedcor's counsel.
9. CONDITIONS TO OBLIGATIONS OF IMSI
The obligations of IMSI hereunder are subject to the fulfillment
or satisfaction, on and as of the Closing, of each of the following conditions
(any one or more of which may be waived by IMSI in its sole discretion, but only
in a writing signed by IMSI):
9.1 Accuracy of Representations and Warranties. The
representations and warranties of Zedcor and the Zedcor Shareholders set forth
in Section 3 (as qualified by the Zedcor Disclosure Letter) and in the
Investment Representation Letters, and the representations and warranties of the
Zedcor Optionees in the Optionee Agreements, shall each be true and accurate in
every material respect on and as of the Closing with the same force and effect
as if they had been made at the Closing, and IMSI shall have received
certificates to such effect executed by Zedcor's President and by the Zedcor
Shareholders.
9.2 Covenants. Zedcor and the Zedcor Shareholders shall have
performed and complied in all material respects with all of their respective
covenants contained in Section 5 on or before the Closing, and IMSI shall have
received certificates to such effect signed by Zedcor's President and by the
Zedcor Shareholders.
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9.3 Compliance with Law; No Legal Restraints. There shall not be
outstanding or threatened, or enacted or adopted, any order, decree, temporary,
preliminary or permanent injunction, legislative enactment, statute, regulation,
action, proceeding or any judgment or ruling by any court, arbitrator,
governmental agency, authority or entity, or any other fact or circumstance
(other than any such matter initiated by IMSI or its officers or directors),
that, directly or indirectly, challenges, threatens, prohibits, enjoins,
restrains, suspends, delays, conditions, or renders illegal or imposes
limitations on (or is likely to result in a challenge, threat to, or a
prohibition, injunction, restraint, suspension, delay or illegality of, or to
impose limitations on): (i) the Exchange or any other transaction contemplated
by this Agreement; (ii) IMSI's payment for, or acquisition or purchase of, some
or all of the shares of Zedcor Stock; (iii) the ownership or operation by IMSI
or Zedcor of all or any material portion of the business or assets of Zedcor,
including (but not limited to) Zedcor's Intellectual Property Rights; or (iv)
IMSI's ability to exercise full rights of ownership with respect to Zedcor, each
Zedcor Subsidiary, and their respective assets and shares, including but not
limited to restrictions on IMSI's ability to vote all the shares of Zedcor or
(indirectly through ownership of Zedcor) any Zedcor Subsidiary.
9.4 Government Consents. There shall have been obtained at or
prior to the Closing Date such permits or authorizations from, and there shall
have been taken such other action, as may be required to lawfully consummate the
Exchange by, any governmental or regulatory authority having jurisdiction over
any of the parties and/or the actions herein proposed to be taken, including but
not limited to requirements under applicable U.S. and foreign securities and
corporate laws.
9.5 Opinion of Zedcor's Counsel. IMSI shall have received from
counsel to Zedcor, an opinion in substantially the form of EXHIBIT 9.5.
9.6 Documents and Consents. Zedcor and the Zedcor Shareholders
shall have executed and delivered to IMSI all the Zedcor Ancillary Agreements
and all the Shareholder Ancillary Agreements, as applicable. The Zedcor
Shareholders shall have delivered to IMSI Zedcor Certificates representing 100%
of the outstanding shares of Zedcor together with the other deliverables
specified in Section 2.1.1 hereof. IMSI shall have received duly executed copies
of all third-party consents, approvals, assignments, waivers, authorizations or
other certificates contemplated by this Agreement or the Zedcor Disclosure
Letter or reasonably deemed necessary by IMSI's legal counsel to provide for the
continuation in full force and effect of any and all material contracts,
agreements and leases of Zedcor and the preservation of Zedcor's IP Rights and
other assets and properties and for IMSI to consummate the transactions
contemplated hereby, in form and substance reasonably satisfactory to IMSI,
except for such thereof (if any) as IMSI and Zedcor shall have agreed in writing
need not be obtained.
9.7 No Litigation. No litigation or proceeding shall be
threatened or pending for the purpose or with the probable effect of enjoining
or preventing the consummation of the Exchange or any of the other transactions
contemplated by this Agreement, or which could be reasonably expected to have a
material adverse effect on the present or future operations or financial
condition of Zedcor or IMSI or Zedcor's ownership of all shares or which asserts
that Zedcor's or IMSI's or any Zedcor Shareholder's negotiations regarding this
Agreement, IMSI's or Zedcor's or any Zedcor Shareholder's entering into this
Agreement or Zedcor's or IMSI's or any Zedcor Shareholder's consummation of the
Exchange or other transactions contemplated hereby, breaches
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or violates any law, rule, order or judgment, or any agreement or commitment of
Zedcor, any Zedcor Shareholder or constitutes tortuous conduct on the part of
IMSI, Zedcor any Zedcor Shareholder.
9.8 [RESERVED.]
9.9 Non-Competition Agreement. IMSI shall have received from
each employee of Zedcor a fully executed copy of a Non-Competition Agreement in
materially the form of EXHIBIT 9.9(b).
9.10 Offer Letters. IMSI shall have received from both Michael
Gariepy and Peter Gariepy a fully executed copy of an Offer Letter in materially
the form of EXHIBIT 9.10.
9.11 [RESERVED.]
9.12 No IMSI Shareholder Vote. The number of shares of IMSI
Common Stock that IMSI must issue pursuant to this Agreement shall not exceed
the number of shares of IMSI Common Stock that would require IMSI to seek the
approval of the Exchange by its shareholders under applicable law or the
applicable bylaws, rules or regulations of the National Association of
Securities Dealers, the Nasdaq Stock Market or any other stock exchange on which
IMSI Common Stock is traded.
9.13 Appointment of New Directors and officers. The directors
and officers of Zedcor and each of the Zedcor Subsidiaries in office immediately
prior to the Closing of the Exchange shall have resigned effective as of the
Closing.
9.14 No Material Adverse Change. There shall not have been any
material adverse change in the financial condition, properties, assets,
liabilities, business, results of operations, operations or prospects of Zedcor
and the Zedcor Subsidiaries, taken as a whole.
9.15 [RESERVED]
9.16 [RESERVED]
9.17 [RESERVED]
9.18 Delivery of Interim Financials. Zedcor shall have delivered
the Interim Financials to IMSI.
9.19 Satisfactory Form of Legal and Accounting Matters. The
form, scope and substance of all legal and accounting matters contemplated
hereby and all closing documents and other papers delivered hereunder shall be
reasonably acceptable to IMSI's counsel and independent public accountants.
10. TERMINATION OF AGREEMENT
10.1 Prior to or at the Closing or Closing Date.
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10.1.1 This Agreement may be terminated at any time
prior to or at the Closing by the mutual written consent of IMSI and Zedcor,
approved by their respective Boards of Directors.
10.1.2 This Agreement may be terminated by IMSI if the
conditions precedent set forth in Section 9 shall have not been complied with,
waived or performed and such noncompliance or nonperformance shall not have been
cured or eliminated (or by its nature cannot be cured or eliminated) by Zedcor
and/or the Zedcor Shareholders on or before Midnight, Pacific Time on September
30th, 1998.
10.1.3 This Agreement may be terminated by Zedcor and
the Zedcor Shareholders if the conditions precedent set forth in Section 8 shall
have not been complied with, waived or performed and such noncompliance or
nonperformance shall not have been cured or eliminated (or by its nature cannot
be cured or eliminated) by IMSI on or before Midnight, Pacific Time on September
30th, 1998.
10.1.4 IMSI may terminate this Agreement at any time
prior to or at the Closing if any of the representations and warranties of
Zedcor and/or the Zedcor Shareholders in Section 3 of this Agreement were
incorrect, untrue or false in any material respect as of the Agreement Date or
are incorrect, untrue or false in any material respect as of the proposed
Closing Date or Zedcor and/or the Zedcor Shareholders have breached any of their
respective covenants under Section 5 of this Agreement, and Zedcor and/or the
Zedcor Shareholders have not cured such breach prior to the earlier of (i) the
Closing, (ii) thirty (30) days after IMSI has given Zedcor written notice of its
intention to terminate this Agreement pursuant to this subsection or (iii) the
Termination Date.
10.1.5 Zedcor and the Zedcor Shareholders may terminate
this Agreement at any time prior to or at the Closing if any of the
representations and warranties of IMSI in Section 4 of this Agreement were
incorrect, untrue or false in any material respect as of the Agreement Date or
are incorrect, untrue or false in any material respect as of the proposed
Closing Date or IMSI has breached any of its covenants under Section 6 of this
Agreement, and IMSI has not cured such breach prior to the earlier of (i) the
Closing, (ii) thirty (30) days after Zedcor and the Zedcor Shareholders have
given IMSI written notice of their intention to terminate this Agreement
pursuant to this subsection or (iii) the Termination Date.
10.1.6 The Board of Directors for IMSI must approve this
Agreement in writing before it shall become binding on IMSI.
Any termination of this Agreement under this Section 10
will be effective by the delivery of notice of the terminating party to the
other party hereto.
10.2 No Liability for Proper Termination. Except as expressly
provided in Section 10.1.6, any termination of this Agreement in accordance with
this Section 10 will be without further obligation or liability upon any party
in favor of the other party hereto or to its stockholders, directors or
officers, other than the obligations provided in the Confidentiality Agreement;
provided, however, that nothing herein will limit the obligation of Zedcor, the
Zedcor Shareholders and IMSI for any willful breach hereof or failure to use
their best efforts to cause the Exchange to be
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consummated, as set forth in Sections 5.9 and 6.3 hereof, respectively. In the
event of the termination of this Agreement pursuant to this Section 10, this
Agreement shall thereafter become void and have no effect and each party shall
be responsible for its own expenses incurred in connection herewith.
11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES,
CONTINUING COVENANTS
11.1 Survival of Representations. All representations,
warranties and covenants of Zedcor and the Zedcor Shareholders contained in this
Agreement will remain operative and in full force and effect, regardless of any
investigation made by or on behalf of IMSI, until the earlier of (i) the
termination of this Agreement or (ii) thirty six (36) months after the Closing
Date; provided, however, that those representations and warranties respecting
matters addressed by the first audited financial statements of the combined
corporation, together with a report thereon from IMSI's independent auditors,
shall not expire later than upon the date on which such financial statements are
first released to the public.
11.2 Agreement to Indemnify. The Majority Zedcor Shareholders
agree to jointly and severally indemnify and hold harmless IMSI and its
officers, directors, agents, shareholders and employees, and each person, if
any, who controls or may control IMSI within the meaning of the 1933 Act or the
1934 Act (each hereinafter referred to individually as an "INDEMNIFIED PERSON"
and collectively as "INDEMNIFIED PERSONS") from and against any and all claims,
demands, suits, actions, causes of actions, losses, costs, damages, liabilities
and expenses including, without limitation, reasonable attorneys' fees, other
professionals' and experts' reasonable fees and court or arbitration costs
(hereinafter collectively referred to as "DAMAGES") promptly as incurred and
arising out of any inaccuracy, misrepresentation, breach of, or default in, any
of the representations, warranties or covenants given or made by Zedcor and/or
the Majority Zedcor Shareholders in this Agreement or in the Zedcor Disclosure
Letter or in any certificate delivered by or on behalf of Zedcor pursuant hereto
(if such inaccuracy, misrepresentation, breach or default existed at the Closing
Date). Neither party shall settle any such claim or suit for which the Majority
Zedcor Shareholders are obligated to indemnify IMSI under this section without
the prior written consent of the other, which consent shall not be unreasonably
withheld. Any claim of indemnity made by an Indemnified Person under this
Section 11.2 must be asserted in writing and delivered to the Representative.
(a) With respect to any portion of a claim or suit under this
Section 11 that requires IMSI to recall, remaster, or
rereplicate any hard media IMSI software product that includes
Zedcor visual content, Zedcor shall not be responsible for
IMSI's actual cost of such recall, remastering, or
rereplication. Nothing herein shall limit Zedcor's
indemnification responsibility for Damages except as
specifically stated above.
(b) In no event shall Zedcor's indemnification liability exceed
the Purchase Price Balance or Hold Back Funds, plus fifty
percent (50%) of any amounts already paid by IMSI in
satisfaction of the purchase price.
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(c) In the event that any particular piece of visual content
that is alleged to violate the intellectual property rights of
any third party, was properly licensed by both IMSI and Zedcor
at the Closing, Zedcor shall not be responsible for
indemnification under this section for said duplicative image.
Nothing herein shall limit Zedcor's indemnification
responsibility for Damages except as specifically stated above.
11.3 Set Off. Notwithstanding anything herein to the contrary,
in seeking indemnification for Damages under Section 11.2, the Indemnified
Persons shall have the ability to set off (the "SET OFF") the Damages from the
Purchase Price Balance and/or the Hold Back Funds.
11.4 Notice. Promptly after IMSI becomes aware of the existence
of any potential claim by an Indemnified Person for indemnity from the Zedcor
Shareholders under Section 11.2, IMSI will notify the Zedcor Representative of
such potential claim and will, to the extent that it can reasonably do so
without impairing its ability to adequately defend and respond to any such
claim, permit the Zedcor Representative to assist IMSI in the defense of such
claim and will cooperate with the Zedcor Representative in obtaining copies of
any records or other information which is relevant to the defense of such claim.
Failure of IMSI to give such notice shall not affect any rights or remedies of
an Indemnified Party hereunder with respect to indemnification for Damages
except to the extent the Zedcor Shareholders are materially prejudiced thereby.
Prior to the settlement of any claim for which IMSI seeks indemnity from a
Zedcor Shareholder, IMSI will provide the Zedcor Shareholders with the terms of
the proposed settlement and a reasonable opportunity to comment on such terms in
accordance with the Escrow Agreement. Nothing in this Section is intended to
preclude the Representative of the Zedcor Shareholders from reasonably
contesting a claim for indemnification hereunder.
11.5 Title Indemnity. In addition to, and separate from, the
foregoing agreement to indemnify set forth in Section 11.2, each Zedcor
Shareholder agrees, jointly and severally, to defend and indemnify IMSI and each
other Indemnified Person from and against any and all claims, demands, suits,
actions, causes of actions, losses, costs, damages, liabilities and expenses
including, without limitation, reasonable attorneys' fees, other professionals'
and experts' reasonable fees and court or arbitration costs incurred and arising
out of any failure of such Zedcor Shareholder to have good, valid and marketable
title to any issued and outstanding shares of Zedcor Stock held (or asserted to
have been held) by such Zedcor Shareholder, free and clear of all liens, claims
and encumbrances, or to have the full right, capacity and authority to enter
into this Agreement and consummate the Exchange and any other transactions
contemplated by this Agreement, or any failure of Zedcor to have good, valid and
marketable title to all of the outstanding shares of each of the Zedcor
Subsidiaries and any failure of the Zedcor Shareholders collectively to own, of
record and beneficially, 100% of the outstanding shares of Zedcor. A Zedcor
shareholder's liability under the indemnification provided for in this Section
11.5 shall be in addition to any liability of such Zedcor shareholder under
Section 11.2 and shall not be subject to the limitations on such shareholder's
liability set forth in Section 11.3 and shall not be limited to the Hold Back
Funds.
12. MISCELLANEOUS
12.1 Governing Law. The internal laws of the State of
California, U.S.A. (irrespective of its choice of law principles) will govern
the validity of this Agreement, the
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<PAGE> 34
construction of its terms, and the interpretation and enforcement of the rights
and duties of the parties hereto.
12.2 Assignment; Binding Upon Successors and Assigns. Neither
party hereto may assign any of its rights or obligations hereunder without the
prior written consent of the other party hereto, except that IMSI may assign its
respective rights and/or obligations to any wholly-owned subsidiary of IMSI or
the surviving company in any merger or acquisition. This Agreement will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
12.3 Severability. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
12.4 Counterparts. This Agreement may be executed in any number
of counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
both parties reflected hereon as signatories.
12.5 Other Remedies. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy will not preclude the exercise
of any other.
12.6 Amendment and Waivers. IMSI and the Zedcor Shareholders (or
their successors in interest) may amend any term or provision of this Agreement
prior to the Closing by the written consent of IMSI, Zedcor and the Majority
Zedcor Shareholders, and, after the Closing. The observance of any term,
condition or provision of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by a writing
signed by the party to be bound thereby or for whose benefit such condition was
provided. The waiver by a party of any breach hereof or default in the
performance hereof will not be deemed to constitute a waiver of any other
default or any succeeding breach or default. In addition, at any time prior to
the Closing, each of the Zedcor Shareholders and each of Zedcor and IMSI (by
action taken by its respective Board of Directors) may, to the extent legally
allowed: (i) extend the time for the performance of any of the obligations or
other acts of the other; (ii) waive any inaccuracies in the representations and
warranties made to it contained herein or in any document delivered pursuant
hereto; and (iii) waive compliance with any of the agreements or conditions for
its benefit contained herein. No such waiver or extension shall be effective
unless signed in writing by the party against whom such waiver or extension is
asserted. The failure of any party to enforce any of the provisions hereof will
not be construed to be a waiver of the right of such party thereafter to enforce
such provisions or any other provisions.
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<PAGE> 35
12.7 Expenses. Each party will bear its respective expenses and
legal fees incurred with respect to this Agreement, and the transactions
contemplated hereby.
12.8 Attorneys' Fees. Should suit be brought to enforce or
interpret any part of this Agreement, the prevailing party will be entitled to
recover, as an element of the costs of suit and not as damages, reasonable
attorneys' fees to be fixed by the court (including without limitation, costs,
expenses and fees on any appeal). The prevailing party will be entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment.
12.9 Notices. All notices and other communications required or
permitted under this Agreement will be in writing and will be either hand
delivered in person, sent by telecopier, sent by certified or registered first
class mail, postage pre-paid, or sent by nationally recognized express courier
service. Such notices and other communications will be effective upon receipt if
hand delivered or sent by telecopier, five (5) days after mailing if sent by
mail, and one (l) day after dispatch if sent by express courier, to the
following addresses, or to such other addresses or fax number as any party may
notify the other parties in accordance with this Section:
(i) If to IMSI:
IMSI
1895 East Francisco Blvd.
San Rafael, CA 94901
ATTN: Legal Department
with a copy to:
Fenwick & West LLP
Two Palo Alto Square, Suite 800
Palo Alto, CA 94306
Attention: Kevin Kelso, Esq.
Fax Number: (415) 494-1417
(ii) If to Zedcor:
Michael Gariepy
3420 North Dodge Blvd. Suite Z
Tucson, AZ 85716
with a copy to:
Steven L. Bosse'
Gabroy, Rollman & Bosse', P.C.
3507 N. Campbell Ave., Suite 111
Tucson, AZ 85718
12.10 Construction of Agreement. The respective parties have
negotiated this Agreement hereto and their attorneys and the language hereof
will not be construed for or against either party. A reference to a Section or
an exhibit will mean a Section in, or exhibit to, this Agreement unless
otherwise explicitly set forth. The titles and headings herein are for reference
purposes only and will not in any manner limit the construction of this
Agreement which will be considered as a whole.
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<PAGE> 36
12.11 No Joint Venture. Nothing contained in this Agreement will
be deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party will have
the power to control the activities and operations of any other party and their
status is, and at all times will continue to be, that of independent contractors
with respect to each other. No party will have any power or authority to bind or
commit any other. No party will hold itself out as having any authority or
relationship in contravention of this Section.
12.12 Further Assurances. Each party agrees to cooperate fully
with the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and purposes
of this Agreement.
12.13 Absence of Third Party Beneficiary Rights. No provisions
of this Agreement are intended, nor will be interpreted, to provide or create
any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, partner, employee, agent, consultant
or any party hereto or any other person or entity unless specifically provided
otherwise herein, and, except as so provided, all provisions hereof will be
personal solely between the parties to this Agreement.
12.14 Public Announcement. Upon execution of this Agreement,
IMSI and Zedcor will issue a press release approved by such parties announcing
the Exchange. Thereafter, IMSI may issue such press releases, and make such
other disclosures regarding the Exchange, as it determines are required under
applicable securities laws or regulatory rules, but shall first, when
practicable, consult with Zedcor and provide Zedcor with an opportunity to
comment on any such press release. Prior to the publication of the press release
issued upon execution of this Agreement (unless this Agreement has been
terminated), no party hereto shall make any public announcement relating to this
Agreement or the transactions contemplated hereby and Zedcor shall use its best
efforts to prevent any trading in IMSI Common Stock by officers, directors,
shareholders, employees, agents and consultants of Zedcor and/or of any Zedcor
Subsidiaries.
12.15 Confidentiality. Zedcor and IMSI each confirm that they
have entered into the Confidentiality Agreement and that they are each bound by,
and will abide by, the provisions of such Confidentiality Agreement (except that
IMSI will cease to be bound by the Confidentiality Agreement after the Exchange
becomes effective). If this Agreement is terminated, all copies of documents
containing confidential information of a disclosing party shall be returned by
the receiving party to the disclosing party or be destroyed, as provided in the
Confidentiality Agreement.
12.16 Entire Agreement. This Agreement and the exhibits hereto
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto other than the
Confidentiality Agreement. The express terms hereof control and supersede any
course of performance or usage of the trade inconsistent with any of the terms
hereof.
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<PAGE> 37
12.17 U.S. Dollars. Unless otherwise expressly provided herein,
all references to amounts of money or dollars herein refer to United States
dollars.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
INTERNATIONAL MICROCOMPUTER ZEDCOR, INC.
SOFTWARE INC.
By:_______________________________ By:_________________________________
Its: President Its:President
ZEDCOR SHAREHOLDERS
By:_________________________________
Name:_______________________________
Title:______________________________
By:_________________________________
Name:_______________________________
Title:______________________________
By:_________________________________
Name:_______________________________
Title:______________________________
By:_________________________________
Name:_______________________________
Title:______________________________
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<PAGE> 39
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A - Draft of Dover License Agreement
Exhibit B - Note
Exhibit C - Security Agreement
Exhibit 2 - Zedcor Shareholder Names and Beneficial Ownership
Exhibit 2.6(a) - Zedcor Investment Representation Letter
Exhibit 3.4 - List of Zedcor Subsidiaries
Exhibit 3.8 - Unaudited Zedcor Financials
Exhibit 3.9 - Balance Sheet
Exhibit 3.11 - Material Zedcor Agreements
Exhibit 3.13 - Zedcor Intellectual Property Rights
Exhibit 3.16.1 - Zedcor Employee Information
Exhibit 3.20 - Zedcor Insurance Policies
Exhibit 3.24 - Commercial Real Property Lease
Exhibit 9.5 - Opinion of Zedcor's Counsel
Exhibit 9.9(b) - Non-Competition Agreement(s)
Exhibit 9.10 - Offer Letter(s)
</TABLE>
[SIGNATURE PAGE TO EXCHANGE AGREEMENT]
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<PAGE> 1
EXHIBIT 4.4
FEE AGREEMENT
This FEE AGREEMENT (the "Agreement") dated as of January 21, 1999 by and
between The Learning Company, Inc., a Delaware corporation ("TLC"), and
International Microcomputer Software, Inc. a California corporation ("IMSI").
WHEREAS, IMSI currently owes TLC an amount equal to $1,800,000 (the
"Fees") pursuant to a Software License Agreement, dated October 2, 1998, between
TLC and IMSI (the "License Agreement"); and
WHEREAS, TLC and IMSI now desire to set forth certain terms and
provisions with respect to the payment by IMSI of the Fees:
NOW, THEREFORE in consideration of the foregoing and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto hereby agree as follows:
1. Payment of the Fees. Notwithstanding anything to the contrary in the
License Agreement with respect to the form and timing of payment of the Fees,
the obligations to pay the Fees shall the satisfied in full by compliance by
IMSI with the terms and provisions of this Agreement, including without
limitation, Section 2.
2. Issuance of the Shares. On the next business day after the date
hereof, IMSI will issue to TLC 200,000 shares of IMSI's Common Stock (the
"Common Stock"), no par value (collectively, the "Shares").
3. Sale. The Shares may be sold by one or more of the following means of
distribution (subject to the provisions of this Agreement): (a) a block trade in
which the broker-dealer so engaged will attempt to sell Shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account; (c) an over-the-counter distribution in
accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (e) in privately
negotiated transactions.
4. Representations, Warranties and Covenants of IMSI. IMSI represents
and warrants to and covenants with TLC as follows:
a. IMSI is eligible to issue a Registration Statement on Form
S-3 for the resale of the Shares by TLC in accordance with the terms of this
Agreement. In
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addition, a registration statement on Form S-3 with respect to the
Shares, including any amendment or amendments thereto, will (i) be prepared by
IMSI in conformity with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations of the Securities
and Exchange Commission (the "Commission") thereunder (the "Regulations"), and
will (ii) be filed with the Commission under the Securities Act as soon as
possible but in any event no later than February 28, 1999. Such registration
statement, as so amended, including the prospectus, financial statements and
schedules, exhibits and all other documents filed as part thereof, as amended at
the Effective Date, is herein called the "Registration Statement," and the
prospectus, in the form first filed with the Commission pursuant to Rule 424 (b)
of the Regulations or in the form filed as part of the Registration Statement at
the Effective Date, if no Rule 424 (b) filing is required, is herein called the
"Prospectus." Any reference herein to the Registration Statement or the
Prospectus shall be deemed to refer to and include the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 which were filed under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), on or before
the Effective Date or the date of the Prospectus, as the case may be, and any
reference herein to the terms "amend," "amendment" or "supplement" with respect
to the Registration Statement or the Prospectus shall be deemed to refer to and
include (x) the filing of any document under the Exchange Act after the
Effective Date or the date of the Prospectus, as the case may be, which is
incorporated therein by reference and (y) any Such document so filed.
b. IMSI will use best efforts to have the Registration Statement
declared effective as soon thereafter as possible. However, in the event that
IMSI's direct actions result in the Registration Statement not being declared
effective by April 30, 1999, TLC shall have the option to terminate this
agreement and return the Shares to IMSI. In such event, the amounts payable to,
and all rights of, TLC under the License Agreement shall be reinstated and all
amounts due under the License Agreement shall become due to TLC.
c. At the date the Registration Statement becomes effective
under the Securities Act (the "Effective Date") or the time of effectiveness of
any post-effective amendment to the Registration Statement, at the time the
Prospectus is first filed with the Commission pursuant to Rule 424 (b) of the
Regulations (if a Rule 424 (b) filing is required), at the time any supplement
to or amendment of the Prospectus is filed with the Commission and at the time
any document filed under the Exchange Act is filed, the Registration Statement
and the Prospectus and any amendments thereof and supplements thereto complied
or will comply in all material respects with the applicable provisions of the
Securities Act and the Regulations or the Exchange Act and the respective rules
and regulations thereunder and do not or will not contain an untrue statement of
a material fact and do not or will not omit to state any material fact required
to be stated therein or
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necessary in order to make the statements therein (i) in the case of the
Registration Statement, not misleading and (ii) in the case of the Prospectus,
in the light of the circumstances under which they were made, not misleading.
d. The Shares, when issued and delivered in accordance with this
Agreement, will be duly and validly issued and outstanding, fully paid and
non-assessable and will not have been issued in violation of or be subject to
any preemptive rights.
e. If at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act any event shall occur as a
result of which the Prospectus as then amended or supplemented, in the judgment
of TLC or IMSI, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it shall be necessary at any time to amend or
supplement the Prospectus or Registration Statement to comply with the
Securities Act or the Regulations, or to file under the Exchange Act so as to
comply therewith any document incorporated by reference in the Registration
Statement or the Prospectus or in any amendment thereof or supplement thereto,
(i) IMSI will notify TLC promptly and prepare and file with the Commission an
appropriate amendment or supplement (in form and substance satisfactory to TLC)
which will correct such statement or omission or which will effect such
compliance and will use its best efforts to have any amendment to the
Registration Statement docked declared effective by the Commission as soon as
possible and (ii) TLC shall suspend trading in the Shares until (A) such
amendment or supplement to the Prospectus has been filed or (B) any amendment to
the Registration Statement has been declared effective by the Commission.
f. IMSI will provide TLC with conformed copies of the
Registration Statement and copies of the Prospectus.
g. IMSI will pay all fees and expenses with respect to the
preparation and filing of the Registration Statement and the registration of the
Shares.
5. Conditions to TLC's Obligations. The obligations of TLC hereunder are
subject to the accuracy, when made on the date hereof, of the representations
and warranties of IMSI contained herein, to the performance by IMSI of its
obligations hereunder and to the receipt by TLC of an opinion of Geoffrey
Koblick, IMSI General Counsel, addressed to TLC, dated the Effective Date, and
in form and substance satisfactory to TLC, to the effect that:
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<PAGE> 4
a. all of the outstanding shares of Common Stock are duly and
validly authorized and issued, are fully paid and nonassessable and were not
issued in violation of or subject to any preemptive rights;
b. the issuance of the Shares has been duly authorized by
requisite corporate action and, when issued and delivered by IMSI in accordance
with this Agreement, the Shares will be validly issued, fully paid and
nonassessable and will not have been issued in violation of or subject to any
preemptive rights;
c. the Registration Statement, at the Effective Date, and the
Prospectus, at its date, and any amendments thereof or supplements thereto, at
their respective dates (other than financial statements and schedules and other
financial and statistical data included or incorporated by reference therein, as
to which no opinion need be rendered), complied in all material respects to the
requirements of the Securities Act and the Regulations and such counsel has no
reason to believe that the Registration Statement, at the Effective Date,
contained an untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus, at its date, contained an untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and
d. each of the documents filed under the Exchange Act and
incorporated by reference in the Registration Statement, the Prospectus or any
amendment thereof or supplement thereto (other than the financial statements and
schedules and other financial and statistical data included or incorporated by
reference therein, as to which no opinion need be rendered), at the time it was
filed with the Commission, complied in all material respects to the requirements
of the Exchange Act and such counsel has no reason to believe that any of such
documents, when such documents were so filed, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made
when such documents were so filed, not misleading.
6. Indemnification.
a. IMSI agrees to indemnify and hold harmless TLC and each
person (each, a "TLC Controlling Person"), if any, who controls TLC within the
meaning of Section 15 of the Securities Act or Section 20 (a) of the Exchange
Act, against any and all losses, liabilities, claims, damages and expenses
whatsoever as incurred (including but not limited to attorneys' fees and any and
all expenses whatsoever incurred in
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<PAGE> 5
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Securities Act, the Exchange Act or otherwise, insofar
as such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, as
originally filed or any amendment thereof, or the Prospectus, or in any
supplement thereto or amendment thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
PROVIDED, HOWEVER, that IMSI shall not be liable to TLC or any TLC Controlling
Person for any such losses, liabilities, claims, damages or expenses which arise
out of or are based upon an untrue statement or alleged untrue statement or
omission or alleged omission contained or made in the Registration Statement or
the Prospectus or any amendment thereof or Supplement thereto in reliance upon
and in conformity with information furnished to IMSI by TLC. IMSI and TLC hereby
agree that the number of shares held by TLC, and the possible manner of
reselling the Shares, is the only information supplied to IMSI by TLC for use in
connection with the preparation of the Registration Statement and the
Prospectus. This Indemnity Agreement will be in addition to any liability which
IMSI may otherwise have, including under this Agreement.
b. Promptly after receipt by any indemnified party under
subsection a. above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 6). In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying party in connection with the
defense of such action, (ii) the indemnifying party shall not have employed
counsel to have charge of the defense of such action within a reasonable time
after notice of commencement of the action, or (iii) such indemnified party
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to the
indemnifying party (in which case the indemnifying
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<PAGE> 6
party shall not have the right to direct the defense of such action on behalf of
the indemnified party or parties), in any of which events such fees and expenses
shall be borne by the indemnifying party. Anything in this subsection to the
contrary notwithstanding, the indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent:
PROVIDED, HOWEVER, that such consent was not unreasonably withheld.
7. Entire Agreement. This Agreement and the License Agreement (to the
extent not inconsistent herewith) constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all prior
written agreements and negotiations and oral understandings, if any, with
respect thereto. This Agreement may not be amended or supplemented except by an
instrument in writing signed by each of the parties hereto.
8. Notices. All notices, requests and other communications hereunder
shall be in writing and delivered in person or by registered or certified mail
(postage prepaid, return receipt requested), overnight courier or facsimile,
addressed as follows:
if to TLC, to:
The Learning Company, Inc.
One Athenaeum Street
Cambridge, Massachusetts 02142
Telephone: (617) 494-1200
Facsimile: (617) 494-1219
Attn: Neal S. Winneg, Esq.
if to IMSI, to:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, CA 94945
Attn: Joelle Ryssemus-Reilly
Legal Director for IMSI
Telephone: (415) 878-4209
Facsimile: (415) 893-9860
The address of a party, for the purposes of this Section 8, may be changed by
giving written notice to the other party of such change in the manner provided
herein for giving notice. All notices, requests, demands and other
communications hereunder shall be
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deemed to have been duly given: at the time delivered by hand, if personally
delivered; five calendar days mailing, if sent by registered or certified mail;
the next business clay after timely delivery to the courier, if sent by
overnight courier; and when receipt is acknowledged, if sent by facsimile
transmission (except that a notice of change of address shall not be deemed to
have been given until actually received by the addressee).
9. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the Commonwealth of Massachusetts, without regard to
the conflicts of law principles thereof.
10. Investment Representations. TLC represents and warrants that it is
an "accredited investor" as defined by Regulation D: that it is acquiring the
Shares for its own account, for the purpose of investment and not with a view
to, or resale in connection with, any distribution thereof; that TLC has had
access to all information regarding IMSI and its present business, assets,
liabilities and financial condition, that TLC reasonably considers important in
making the decision to acquire the Shares under this Agreement; and that TLC
understands that the Shares are restricted securities and may not be sold except
pursuant to the Form S-3, some other registration statement, or pursuant to an
applicable exemption from federal and state registration requirements.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date first set forth above.
THE LEARNING COMPANY, INC.
By: _________________________
Name: R. Scott Murray
Title: Executive Vice President and
Chief Financial Officer
INTERNATIONAL MICROCOMPUTER
SOFTWARE, INC.
By: ______________________________
Name: Martin Sacks
Title: Chief Executive Officer
-7-
<PAGE> 1
EXHIBIT 4.5
FEE AGREEMENT
This FEE AGREEMENT (the "Agreement") dated as of 18th February 1999 by
and between International Microcomputer Software, Inc. a California corporation
("IMSI"), and Greentree Technologies, Inc. a New York corporation ("Greentree").
WHEREAS, IMSI currently owes Greentree an amount equal to $75,000.00
(the "Fees") pursuant to the Software License Agreement, dated December 2, 1997,
between IMSI and Greentree (the "Licensing Agreement"), and
WHEREAS, IMSI and Greentree now desire to set forth certain terms and
provisions with respect to the payment by IMSI of the Fees:
NOW, THEREFORE in consideration of the foregoing and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto hereby agree as follows:
1. Payment of the Fees. Notwithstanding anything to the contrary in the
License Agreement with respect to the form and timing of payment of the Fees,
the obligations to pay the Fees shall the satisfied in full by compliance by
IMSI with the terms and provisions of this Agreement.
2. Issuance of the Shares. As soon as reasonable practicable after
execution of this Agreement, IMSI will issue to Greentree, one hundred fifty
thousand dollars ($150,000.00) in shares of IMSI's Common Stock (the "Common
Stock"), no par value (collectively, the "Shares"). The number of shares of IMSI
common stock constituting the Shares will be determined on the day that IMSI is
able to grant fully tradable shares to Greentree. The Shares will be included in
the next Registration Statement to be filed by IMSI on or around 28th February
1999. If a Registration Statement is not filed by IMSI before 19th March, 1999,
this Fee Agreement shall be null and void and the fee terms and conditions of
the Licensing Agreement shall be re-instated sua sponte.
3. Sale.
a. Sale. The Shares may be sold by one or more of the following means of
distribution (subject to the provisions of this Agreement): (a) a block trade in
which the broker-dealer so engaged will attempt to sell Shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account; (c) an over-the-counter distribution in
accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (e) in privately
negotiated transactions.
b. Restrictions on Sale. Greentree shall have no restrictions on sale.
<PAGE> 2
4. Representations, Warranties and Covenants of IMSI. IMSI represents
and warrants to and covenants with Greentree as follows:
a. Registration. IMSI shall use its reasonable best efforts to
cause the shares of IMSI Common Stock that are issuable pursuant to this Fee
Agreement to be registered on a registration statement (or to be issued pursuant
to a then-effective registration statement) on Form S-3 (or successor form)
promulgated by the Securities and Exchange Commission ("SEC") under the 1933
Act, as soon as reasonably practicable after the Closing. It is the intent of
IMSI to file a registration statement on or around 28th February 1999. Nothing
herein shall require IMSI to separately register the Shares.
b. At the date the Registration Statement becomes effective
under the Securities Act (the "Effective Date") or the time of effectiveness of
any post-effective amendment to the Registration Statement, at the time the
Prospectus is first filed with the Commission pursuant to Rule 424 (b) of the
Regulations (if a Rule 424 (b) filing is required), at the time any supplement
to or amendment of the Prospectus is filed with the Commission and at the time
any document filed under the Exchange Act is filed, the Registration Statement
and the Prospectus and any amendments thereof and supplements thereto complied
or will comply in all material respects with the applicable provisions of the
Securities Act and the Regulations or the Exchange Act and the respective rules
and regulations thereunder and do not or will not contain an untrue statement of
a material fact and do not or will not omit to state any material fact required
to be stated therein or necessary in order to make the statements therein (i) in
the case of the Registration Statement, not misleading and (ii) in the case of
the Prospectus, in the light of the circumstances under which they were made,
not misleading.
c. The Shares, when issued and delivered in accordance with this
Agreement, will be duly and validly issued and outstanding, fully paid and
non-assessable and will not have been issued in violation of any preemptive
rights.
d. If at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act any event shall occur as a
result of which the Prospectus as then amended or supplemented, in the judgment
of IMSI or Greentree, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if it shall be necessary at any time to amend or
supplement the Prospectus or Registration Statement to comply with the
Securities Act or the Regulations, or to file under the Exchange Act so as to
comply therewith any document incorporated by reference in the Registration
Statement or the Prospectus or in any amendment thereof or supplement thereto,
(i) IMSI will notify Greentree promptly and prepare and file with the Commission
an appropriate amendment or supplement (in form and substance satisfactory to
Greentree) which will correct such statement or omission or which will effect
such compliance and will use its best efforts to
<PAGE> 3
have any amendment to the Registration Statement docked declared effective by
the Commission as soon as possible and (ii) Greentree shall suspend trading in
the Shares until (A) such amendment or supplement to the Prospectus has been
filed or (B) any amendment to the Registration Statement has been declared
effective by the Commission.
e. IMSI will pay all fees and expenses with respect to the
preparation and filing of the Registration Statement and the registration of the
Shares. If however, Greentree requests that the Shares be registered
independently from another IMSI registration ("Accelerated Registration), the
Greentree shall pay all fees and expenses with respect to the preparation and
filing of the Registration Statement and the registration of the Shares that are
a result of such Accelerated Registration.
f. Upon successful completion of the Registration Statement,
Greentree will release and forever discharge payment of the Fees pursuant to the
terms and conditions of the License Agreement.
5. Indemnification.
a. IMSI agrees to indemnify and hold harmless Greentree, against any and all
losses, liabilities, claims, damages and expenses incurred (including but not
limited to attorneys' fees), to which it may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise solely out of any
untrue statement of a material fact contained in the Registration Statement, as
originally filed or any amendment thereof, or the Prospectus, or in any
supplement thereto or amendment thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that IMSI shall not be liable to Greentree for any such
losses, liabilities, claims, damages or expenses which arise out of or are based
upon an untrue statement or alleged untrue statement or omission or alleged
omission contained or made in the Registration Statement or the Prospectus or
any amendment thereof or Supplement thereto in reliance upon and in conformity
with information furnished to IMSI by Greentree.
b. Promptly after receipt by any indemnified party under subsection a.
above of notice of the commencement of any action, such indemnified party shall,
if a claim in respect thereof is to be made against the indemnifying party under
such subsection, notify the party against whom indemnification is to be sought
in writing of the commencement thereof. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof. Notwithstanding the foregoing,
the indemnified party or parties shall have the right to employ its own counsel
in any such
<PAGE> 4
case, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of such counsel
shall have been authorized in writing by the indemnifying party in connection
with the defense of such action, (ii) the indemnifying party shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses
shall be borne by the indemnifying party. Anything in this subsection to the
contrary notwithstanding, the indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent:
provided, however, that such consent was not unreasonably withheld.
6. Entire Agreement. This Agreement and the License Agreement (to the
extent not inconsistent herewith) constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all prior
written agreements and negotiations and oral understandings, if any, with
respect thereto. This Agreement may not be amended or supplemented except by an
instrument in writing signed by each of the parties hereto.
7. Notices. All notices, requests and other communications hereunder
shall be in writing and delivered in person or by registered or certified mail
(postage prepaid, return receipt requested), overnight courier or facsimile,
addressed as follows:
if to Greentree, to:
Harold Lund
GreenTree Technologies
33 Walt Whitman Road
Huntington Station, New York 11746
if to IMSI, to:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, CA 94945
Attn: Legal Department
Telephone: (415) 878-4209
Facsimile: (415) 893-9860
The address of a party, for the purposes of this Section 8, may be changed by
giving written notice to the other party of such change in the manner provided
herein for giving notice. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five calendar days mailing, if sent
by registered or certified mail; the next business day
<PAGE> 5
after timely delivery to the courier, if sent by overnight courier; and when
receipt is acknowledged, if sent by facsimile transmission (except that a notice
of change of address shall not be deemed to have been given until actually
received by the addressee).
8. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of California, without regard to the conflicts of law
principles thereof.
9. Investment Representations. Greentree represents and warrants that it
is an "accredited investor" as defined by Regulation D: that it is acquiring the
Shares for its own account, for the purpose of investment and not with a view
to, or resale in connection with, any distribution thereof; that Greentree has
had access to all information regarding IMSI and its present business, assets,
liabilities and financial condition, that Greentree reasonably considers
important in making the decision to acquire the Shares under this Agreement; and
that Greentree understands that the Shares are restricted securities and may not
be sold except pursuant to the Form S-3, some other registration statement, or
pursuant to an applicable exemption from federal and state registration
requirements.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date first set forth above.
Greentree Technologies INTERNATIONAL MICROCOMPUTER
SOFTWARE, INC.
By: _________________________ By: ______________________________
Name: Harold Lund Name: Geoffrey B. Koblick
Title: President Title: Chief Operating Officer
<PAGE> 1
EXHIBIT 4.6
FEE AGREEMENT
This FEE AGREEMENT (the "Agreement") dated as of 25th February 1999, by
and between International Microcomputer Software, Inc. a California corporation
("IMSI"), and Zedcor, Inc., an Arizona corporation ("ZEDCOR").
WHEREAS, IMSI currently owes ZEDCOR an amount equal to $1,503,207.10
(the "Fees") pursuant to a Exchange Agreement, dated 17th September, 1998,
between IMSI and ZEDCOR (the "Exchange Agreement") plus a Holdback (the
"Holdback Funds" as defined in the Exchange Agreement) in the amount of
$200,000.00, and
WHEREAS, IMSI and ZEDCOR now desire to set forth certain terms and
provisions with respect to the payment by IMSI of the Fees:
NOW, THEREFORE in consideration of the foregoing and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto hereby agree as follows:
1. Payment of the Fees. Notwithstanding anything to the contrary in the
License Agreement with respect to the form and timing of payment of the Fees,
the obligations to pay the Fees shall the satisfied in full by compliance by
IMSI with the terms and provisions of this Agreement.
2. Issuance of the Shares. As soon as reasonably practicable after
execution of this Agreement, IMSI will issue to ZEDCOR 150,321 shares of IMSI's
Common Stock (the "Common Stock"), no par value (collectively, the "Shares").
3. Sale.
a. Sale. The Shares may be sold by one or more of the following
means of distribution (subject to the provisions of this Agreement): (a) a block
trade in which the broker-dealer so engaged will attempt to sell Shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker-dealer as principal and
resale by such broker-dealer for its own account; (c) an over-the-counter
distribution in accordance with the rules of Nasdaq; (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (e)
in privately negotiated transactions.
4. Representations, Warranties and Covenants of IMSI. IMSI represents
and warrants to and covenants with ZEDCOR as follows:
a. Registration. IMSI shall use its reasonable best efforts to
cause the shares of IMSI Common Stock that are issuable pursuant to this Fee
Agreement to be registered on a registration statement (or to be issued pursuant
to a then-effective registration statement) on Form S-3 (or successor form)
promulgated by the Securities
<PAGE> 2
and Exchange Commission ("SEC") under the 1933 Act, as soon as reasonably
practicable after the Closing. IMSI expects to file a Registration Statement on
or about 28th February 1999. Nothing herein shall require IMSI to seperately
register the Shares.
b. At the date the Registration Statement becomes effective
under the Securities Act (the "Effective Date") or the time of effectiveness of
any post-effective amendment to the Registration Statement, at the time the
Prospectus is first filed with the Commission pursuant to Rule 424 (b) of the
Regulations (if a Rule 424 (b) filing is required), at the time any supplement
to or amendment of the Prospectus is filed with the Commission and at the time
any document filed under the Exchange Act is filed, the Registration Statement
and the Prospectus and any amendments thereof and supplements thereto complied
or will comply in all material respects with the applicable provisions of the
Securities Act and the Regulations or the Exchange Act and the respective rules
and regulations thereunder and do not or will not contain an untrue statement of
a material fact and do not or will not omit to state any material fact required
to be stated therein or necessary in order to make the statements therein (i) in
the case of the Registration Statement, not misleading and (ii) in the case of
the Prospectus, in the light of the circumstances under which they were made,
not misleading.
c. The Shares, when issued and delivered in accordance with this
Agreement, will be duly and validly issued and outstanding, fully paid and
non-assessable and will not have been issued in violation of any preemptive
rights.
d. If at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act any event shall occur as a
result of which the Prospectus as then amended or supplemented, in the judgment
of IMSI or ZEDCOR, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it shall be necessary at any time to amend or
supplement the Prospectus or Registration Statement to comply with the
Securities Act or the Regulations, or to file under the Exchange Act so as to
comply therewith any document incorporated by reference in the Registration
Statement or the Prospectus or in any amendment thereof or supplement thereto,
(i) IMSI will notify ZEDCOR promptly and prepare and file with the Commission an
appropriate amendment or supplement (in form and substance satisfactory to
ZEDCOR) which will correct such statement or omission or which will effect such
compliance and will use its best efforts to have any amendment to the
Registration Statement docked declared effective by the Commission as soon as
possible and (ii) ZEDCOR shall suspend trading in the Shares until (A) such
amendment or supplement to the Prospectus has been filed or (B) any amendment to
the Registration Statement has been declared effective by the Commission.
e. IMSI will pay all fees and expenses with respect to the
preparation and filing of the Registration Statement and the registration of the
Shares. If however, ZEDCOR requests that the Shares be registered independently
from another IMSI registration ("Accelerated Registration), then ZEDCOR shall
pay all fees and expenses
<PAGE> 3
with respect to the preparation and filing of the Registration Statement and the
registration of the Shares that are a result of such Accelerated Registration.
f. Upon execution of this Agreement, ZEDCOR releases and forever
discharges payment of the Fees pursuant to the terms and conditions of the
Exchange Agreement. The Hold Back Funds shall remain in tact and subject to the
terms and conditions of the Exchange Agreement and any addendum's thereto.
5. Indemnification.
a. IMSI agrees to indemnify and hold harmless ZEDCOR, against any and all
losses, liabilities, claims, damages and expenses incurred (including but not
limited to attorneys' fees), to which it may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise solely out of any
untrue statement of a material fact contained in the Registration Statement, as
originally filed or any amendment thereof, or the Prospectus, or in any
supplement thereto or amendment thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that IMSI shall not be liable to ZEDCOR for any such losses,
liabilities, claims, damages or expenses which arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission
contained or made in the Registration Statement or the Prospectus or any
amendment thereof or Supplement thereto in reliance upon and in conformity with
information furnished to IMSI by ZEDCOR.
b. Promptly after receipt by any indemnified party under
subsection a. above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the party against whom
indemnification is to be sought in writing of the commencement thereof. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof.
Notwithstanding the foregoing, the indemnified party or parties shall have the
right to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such action, (ii) the
indemnifying party shall not have employed counsel to have charge of the defense
of such action within a reasonable time after notice of commencement of the
action, or (iii) such indemnified party shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties), in any of which events such
<PAGE> 4
fees and expenses shall be borne by the indemnifying party. Anything in this
subsection to the contrary notwithstanding, the indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent: provided, however, that such consent was not unreasonably withheld.
6. Entire Agreement. This Agreement and the License Agreement (to the
extent not inconsistent herewith) constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all prior
written agreements and negotiations and oral understandings, if any, with
respect thereto. This Agreement may not be amended or supplemented except by an
instrument in writing signed by each of the parties hereto.
7. Notices. All notices, requests and other communications hereunder
shall be in writing and delivered in person or by registered or certified mail
(postage prepaid, return receipt requested), overnight courier or facsimile,
addressed as follows:
if to ZEDCOR , to:
Michael Gariepy
Zedcor, Inc.
3420 North Dodge Blvd. Suite Z
Tucson, AZ 85716
With a copy to:
Steven L. Bosse'
Gabroy, Rollman & Bosse', P.C.
3507 N. Campbell Ave., Suite 111
Tucson, AZ 85718
if to IMSI, to:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, CA 94945
Attn: Legal Department
Telephone: (415) 878-4209
Facsimile: (415) 893-9860
The address of a party, for the purposes of this Section 8, may be changed by
giving written notice to the other party of such change in the manner provided
herein for giving notice. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five calendar days mailing, if sent
by registered or certified mail; the next business clay after timely delivery to
the courier, if sent by overnight courier; and when receipt is
<PAGE> 5
acknowledged, if sent by facsimile transmission (except that a notice of change
of address shall not be deemed to have been given until actually received by the
addressee).
8. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of California, without regard to the conflicts of law
principles thereof.
9. Investment Representations. ZEDCOR represents and warrants that it is
an "accredited investor" as defined by Regulation D: that it is acquiring the
Shares for its own account, for the purpose of investment and not with a view
to, or resale in connection with, any distribution thereof; that ZEDCOR has had
access to all information regarding IMSI and its present business, assets,
liabilities and financial condition, that ZEDCOR reasonably considers important
in making the decision to acquire the Shares under this Agreement; and that
ZEDCOR understands that the Shares are restricted securities and may not be sold
except pursuant to the Form S-3, some other registration statement, or pursuant
to an applicable exemption from federal and state registration requirements.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date first set forth above.
Zedcor, Inc. INTERNATIONAL MICROCOMPUTER
SOFTWARE, INC.
By: _________________________ By: ______________________________
Name: Michael Gariepy Name: Geoffrey B. Koblick
Title: Chief Operating Officer
<PAGE> 1
EXHIBIT 4.7
FEE AGREEMENT
This FEE AGREEMENT (the "Agreement") dated as of 11th January 1999, by
and between International Microcomputer Software, Inc. a California corporation
("IMSI"), and Law Offices of Mark Garay, Inc., a law firm ("LAW OFFICES OF MARK
GARAY").
WHEREAS, IMSI currently owes LAW OFFICES OF MARK GARAY an amount to date
equal to $100,000.00 (the "Initial Attorney Fees") pursuant to a Retainer
between IMSI and LAW OFFICES OF MARK GARAY (the "Retainer"), and
WHEREAS, IMSI and LAW OFFICES OF MARK GARAY now desire to set forth
certain terms and provisions with respect to the payment by IMSI of the Initial
Attorney Fees:
NOW, THEREFORE in consideration of the foregoing and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto hereby agree as follows:
1. Payment of the Fees. Notwithstanding anything to the contrary in the Retainer
with respect to the form and timing of payment of the Initial Attorney Fees, the
obligations to pay the Initial Attorney Fees shall the satisfied in full by
compliance by IMSI with the terms and provisions of this Agreement. On the date
that the stock first becomes free to trade on the NASDAQ, or other exchange upon
which it may then be listed ("Valuation Date"). An amount of $100,000 will
become the IMSI account value ("Account Value") at the LAW OFFICES OF MARK
GARAY. The Account Value shall be debited for any fees due and not yet paid to
the LAW OFFICES OF MARK GARAY as of that date. Any surplus in the Account Value,
shall be a credit to be utilized against future fees for work to be performed by
the LAW OFFICES OF MARK GARAY for IMSI. In the event that the fees then due to
the LAW OFFICES OF MARK GARAY total more then the Account Value, IMSI shall
immediately make up the difference between that amount and $100,000 in a lump
sum cash payment to the LAW OFFICES OF MARK GARAY.
2. Issuance of the Shares. As soon as reasonably practicable after
execution of this Agreement, IMSI will issue to LAW OFFICES OF MARK GARAY,
eleven thousand one hundred twelve (11,112) shares of IMSI's Common Stock (the
"Common Stock"), no par value (collectively, the "Shares") based on a trading
price of nine dollars ($9.00) per share.
3. Sale.
a. Sale. The Shares may be sold by one or more of the following means of
distribution (subject to the provisions of this Agreement): (a) a block trade in
which the broker-dealer so engaged will attempt to sell Shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a
1
<PAGE> 2
broker-dealer as principal and resale by such broker-dealer for its own account;
(c) an over-the-counter distribution in accordance with the rules of Nasdaq; (d)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (e) in privately negotiated transactions.
4. Representations, Warranties and Covenants of IMSI. IMSI represents
and warrants to and covenants with LAW OFFICES OF MARK GARAY as follows:
a. Registration. IMSI shall use its reasonable best efforts to
cause the shares of IMSI Common Stock that are issuable pursuant to this Fee
Agreement to be registered on a registration statement (or to be issued pursuant
to a then-effective registration statement) on Form S-3 (or successor form)
promulgated by the Securities and Exchange Commission ("SEC") under the 1933
Act, as soon as reasonably practicable after the Closing. IMSI expects to file a
Registration Statement on or about 28th February 1999. Nothing herein shall
require IMSI to seperately register the Shares.
b. At the date the Registration Statement becomes effective
under the Securities Act (the "Effective Date") or the time of effectiveness of
any post-effective amendment to the Registration Statement, at the time the
Prospectus is first filed with the Commission pursuant to Rule 424 (b) of the
Regulations (if a Rule 424 (b) filing is required), at the time any supplement
to or amendment of the Prospectus is filed with the Commission and at the time
any document filed under the Exchange Act is filed, the Registration Statement
and the Prospectus and any amendments thereof and supplements thereto complied
or will comply in all material respects with the applicable provisions of the
Securities Act and the Regulations or the Exchange Act and the respective rules
and regulations thereunder and do not or will not contain an untrue statement of
a material fact and do not or will not omit to state any material fact required
to be stated therein or necessary in order to make the statements therein (i) in
the case of the Registration Statement, not misleading and (ii) in the case of
the Prospectus, in the light of the circumstances under which they were made,
not misleading.
c. The Shares, when issued and delivered in accordance with this
Agreement, will be duly and validly issued and outstanding, fully paid and
non-assessable and will not have been issued in violation of any preemptive
rights.
d. If at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act any event shall occur as a
result of which the Prospectus as then amended or supplemented, in the judgment
of IMSI or LAW OFFICES OF MARK GARAY, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it shall be necessary at any
time to amend or supplement the Prospectus or Registration Statement to comply
with the Securities Act or the Regulations, or to file under the Exchange Act so
as to comply therewith any document incorporated by reference in the
Registration Statement or the Prospectus or in any amendment thereof or
supplement
2
<PAGE> 3
thereto, (i) IMSI will notify LAW OFFICES OF MARK GARAY promptly and prepare and
file with the Commission an appropriate amendment or supplement (in form and
substance satisfactory to LAW OFFICES OF MARK GARAY) which will correct such
statement or omission or which will effect such compliance and will use its best
efforts to have any amendment to the Registration Statement docked declared
effective by the Commission as soon as possible and (ii) LAW OFFICES OF MARK
GARAY shall suspend trading in the Shares until (A) such amendment or supplement
to the Prospectus has been filed or (B) any amendment to the Registration
Statement has been declared effective by the Commission.
e. IMSI will pay all fees and expenses with respect to the
preparation and filing of the Registration Statement and the registration of the
Shares. If however, LAW OFFICES OF MARK GARAY requests that the Shares be
registered independently from another IMSI registration ("Accelerated
Registration), then LAW OFFICES OF MARK GARAY shall pay all fees and expenses
with respect to the preparation and filing of the Registration Statement and the
registration of the Shares that are a result of such Accelerated Registration.
5. Indemnification.
a. IMSI agrees to indemnify and hold harmless LAW OFFICES OF MARK GARAY, against
any and all losses, liabilities, claims, damages and expenses incurred
(including but not limited to attorneys' fees), to which it may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
solely out of any untrue statement of a material fact contained in the
Registration Statement, as originally filed or any amendment thereof, or the
Prospectus, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that IMSI shall not be liable to LAW OFFICES
OF MARK GARAY for any such losses, liabilities, claims, damages or expenses
which arise out of or are based upon an untrue statement or alleged untrue
statement or omission or alleged omission contained or made in the Registration
Statement or the Prospectus or any amendment thereof or Supplement thereto in
reliance upon and in conformity with information furnished to IMSI by LAW
OFFICES OF MARK GARAY.
b. Promptly after receipt by any indemnified party under
subsection a. above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the party against whom
indemnification is to be sought in writing of the commencement thereof. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof.
Notwithstanding the foregoing, the
3
<PAGE> 4
indemnified party or parties shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the employment of such counsel shall have
been authorized in writing by the indemnifying party in connection with the
defense of such action, (ii) the indemnifying party shall not have employed
counsel to have charge of the defense of such action within a reasonable time
after notice of commencement of the action, or (iii) such indemnified party
shall have reasonably concluded that there may be defenses available to it or
them which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses shall be borne by the
indemnifying party. Anything in this subsection to the contrary notwithstanding,
the indemnifying party shall not be liable for any settlement of any claim or
action effected without its written consent: provided, however, that such
consent was not unreasonably withheld.
6. Entire Agreement. This Agreement and the retainer (to the extent not
inconsistent herewith) constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all prior written
agreements and negotiations and oral understandings, if any, with respect
thereto. This Agreement may not be amended or supplemented except by an
instrument in writing signed by each of the parties hereto.
7. Notices. All notices, requests and other communications hereunder
shall be in writing and delivered in person or by registered or certified mail
(postage prepaid, return receipt requested), overnight courier or facsimile,
addressed as follows:
if to LAW OFFICES OF MARK GARAY , to:
Law Offices of Mark Garay
if to IMSI, to:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, CA 94945
Attn: Legal Department
Telephone: (415) 878-4209
Facsimile: (415) 893-9860
The address of a party, for the purposes of this Section 8, may be changed by
giving written notice to the other party of such change in the manner provided
herein for giving notice. All notices, requests, demands and other
communications hereunder shall be
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<PAGE> 5
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five calendar days mailing, if sent by registered or certified mail;
the next business clay after timely delivery to the courier, if sent by
overnight courier; and when receipt is acknowledged, if sent by facsimile
transmission (except that a notice of change of address shall not be deemed to
have been given until actually received by the addressee).
8. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of California, without regard to the conflicts of law
principles thereof.
9. Investment Representations. LAW OFFICES OF MARK GARAY represents and
warrants that it is an "accredited investor" as defined by Regulation D: that it
is acquiring the Shares for its own account, for the purpose of investment and
not with a view to, or resale in connection with, any distribution thereof; that
LAW OFFICES OF MARK GARAY has had access to all information regarding IMSI and
its present business, assets, liabilities and financial condition, that LAW
OFFICES OF MARK GARAY reasonably considers important in making the decision to
acquire the Shares under this Agreement; and that LAW OFFICES OF MARK GARAY
understands that the Shares are restricted securities and may not be sold except
pursuant to the Form S-3, some other registration statement, or pursuant to an
applicable exemption from federal and state registration requirements.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date first set forth above.
Law Offices of Mark Garay, Inc. INTERNATIONAL MICROCOMPUTER
SOFTWARE, INC.
By: _________________________ By: ______________________________
Name: Mark Garay Name: Geoffrey B. Koblick
Title: Chief Operating Officer
5
<PAGE> 1
EXHIBIT 4.8
WARRANT SUBSCRIPTION AGREEMENT
THIS WARRANT SUBSCRIPTION AGREEMENT (the "AGREEMENT") is entered into as
of November 3, 1998, by and between INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.,
a California corporation (the "COMPANY"), and SILICON VALLEY BANK (the
"PURCHASER").
RECITALS
A. Pursuant to that certain Loan and Security Agreement dated as of the
date hereof (as the same may from time to time be amended, modified,
supplemented or restated, the "LOAN AGREEMENT"), by and between the Company, as
borrower, and Silicon Valley Bank, as lender, has agreed to extend credit to the
Company (the "CREDIT").
B. Silicon Valley Bank, as lender, was induced by the Company to make
the Credit available to the Company by the Company's agreement to sell Silicon
Valley Bank the Warrant (as defined below) pursuant to the terms of this
Agreement.
C. In connection with the foregoing, and as a condition precedent to the
Closing under the Loan Agreement, the Company is selling to the Purchaser a
Common Stock Warrant, substantially in the form of EXHIBIT A attached hereto
(the "WARRANT"), to purchase shares of the Company's common stock (the "COMMON
STOCK") for the applicable prices set forth therein. The shares of Common Stock
purchasable upon exercise of the Warrant are referred to herein collectively as
the "WARRANT SHARES."
D. The Purchaser desires to subscribe for and purchase from the Company,
and the Company desires to sell to the Purchaser, the Warrant.
AGREEMENT
In order to implement the foregoing and in consideration of the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Purchaser and the
Company agree as follows:
1. DEFINITIONS.
The following terms shall have the meanings ascribed to such terms in
the Sections set forth below:
<TABLE>
<CAPTION>
TERM SECTION
<S> <C>
Act 3.1
Agreement Recitals
Closing 2.2
Common Stock Recitals
Company Preamble
Credit Recitals
Loan Agreement Recitals
Exchange Act 4.2
Options 4.1 (e)
Piggyback Rights 5
Purchaser Preamble
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
TERM SECTION
<S> <C>
Registration Rights Agreement 2.4 (b)
Regulated Purchaser 3.6
Rule 144 3.3 (d)
SEC 4.2
Transfer 3.1
Warrant Recitals
Warrant Shares Recitals
</TABLE>
2. SUBSCRIPTION FOR, PURCHASE AND EXERCISE OF WARRANT; ORIGINAL ISSUE
DISCOUNT.
2.1 PURCHASE OF WARRANT. Subject to the terms and conditions
hereinafter set forth, the Purchaser hereby subscribes for and purchases, and
the Company hereby sells to the Purchaser, for good and valuable consideration,
the receipt of which is hereby acknowledged, the Warrant.
2.2 THE TIME AND PLACE OF THE CLOSING. The Closing of the
transactions provided for in this Agreement (the "CLOSING") shall be held at
10:00 a.m., local time, on November 3, 1998 at the offices of Cooley Godward
LLP, Five Palo Alto Square, Palo Alto, California 94306, or at such other time
and place as the Purchaser and the Company shall agree.
2.3 CLOSING OF THE PURCHASE OF THE WARRANT. At the Closing, the
Company will execute and deliver to the Purchaser the Warrant which shall be
issued in the Purchaser's name.
2.4 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER AND THE
COMPANY. The obligations of the Purchaser and the Company hereunder shall be
subject to the following conditions:
(a) The representations and warranties made herein to
the Purchaser or the Company by the other party shall be true and correct in all
material respects at and as of the date of the Closing.
(b) The Purchaser and the Company shall have entered
into the Registration Rights Agreement in the form attached hereto as EXHIBIT B
(the "REGISTRATION RIGHTS AGREEMENT").
2.5 ORIGINAL ISSUE DISCOUNT. The Company and the Purchaser
hereby acknowledge and agree that the Warrant is part of an investment unit
within the meaning of Section 1273 (c) (2) of the Internal Revenue Code of 1986,
as amended, which investment unit includes all Credit Extensions (as defined in
the Loan Agreement) made pursuant to the Loan Agreement up to the maximum amount
of the Term Loan (as defined in the Loan Agreement). The Company and the
Purchaser agree that the fair market value of the Warrant is less than the DE
MINIMIS threshold for reporting income and expense relating thereto on a current
basis. Therefore, the Company and the Purchaser shall prepare their respective
federal income tax returns in a manner consistent with the foregoing agreement
and, pursuant to Treas. Reg. Section 1.1273, the original issue discount on the
Credit Extensions shall be considered to be zero.
3. PURCHASER'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The Purchaser
hereby represents, warrants and covenants to the Company as follows:
3.1 NO RESALES. The Purchaser will acquire the Warrant for
investment solely for its own account and not with a view to, or for resale in
connection with, the distribution or other disposition thereof except in
compliance with the provisions of Rule 144A under the Securities Act of 1933, as
amended (the "ACT"). The Purchaser agrees and acknowledges that it will not,
directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or
otherwise dispose of (referred to hereinafter as a "TRANSFER") its Warrant
<PAGE> 3
Shares unless (i) such Transfer is pursuant to an effective registration
statement under the Act and complies with all applicable state securities laws,
or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable
to the Company) shall have furnished the Company with an opinion, reasonably
satisfactory in form and substance to the Company, to the effect that no such
registration is required because of the availability of an exemption from
registration under the Act and that the Transfer is exempt from all applicable
state securities laws, except that no such opinion shall be required (y) in
connection with a Transfer by the Purchaser to any affiliate of the Purchaser or
(z) in connection with a Transfer where the transferee simultaneously becomes a
lender under the Loan Agreement and makes the representations and warranties
contained in this Section 3. No Transfer of the Warrant or the Warrant Shares in
violation of this Agreement shall be made or recorded on the books of the
Company, and any such Transfer shall be void and of no effect
3.2 LEGENDS. The Warrant shall bear legends in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE: TRANSFERRED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (A) SUCH TRANSFER IS
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR (B) THE COMPANY HAS BEEN FURNISHED
WITH A SATISFACTORY OPINION OF COUNSEL FOR THE PURCHASER THAT SUCH
TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE
SECURITIES LAWS."
The Warrant, and the Warrant Shares issuable in respect thereof, shall bear
legends in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A CERTAIN WARRANT SUBSCRIPTION AGREEMENT (THE "WARRANT
SUBSCRIPTION AGREEMENT") AND REGISTRATION RIGHTS AGREEMENT (THE
"REGISTRATION RIGHTS AGREEMENT"), EACH DATED AS OF OCTOBER [___], 1998,
BY AND BETWEEN THE WARRANT PURCHASER AND THE COMPANY. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
COMPANY."
3.3 WARRANT AND WARRANT SHARES UNREGISTERED. The Purchaser
acknowledges with respect to the Purchaser's Warrant and Warrant Shares that the
Purchaser has been advised that:
(a) the Warrant has not been registered under the Act or
qualified under the applicable securities laws of any state;
(b) except as otherwise provided herein, the Warrant
must be held indefinitely and the Purchaser must continue to bear the economic
risk of the investment in the Warrant and the Warrant Shares unless the sale
thereof is subsequently registered under the Act and qualified under applicable
state securities laws or an exemption from such registration or qualification is
available;
(c) it is not anticipated that there will be any public
market for the Warrant;
<PAGE> 4
(d) Rule 144 promulgated under the Act ("RULE 144") is
not presently available with respect to the sale of the Warrant, and the Company
has made no covenant to make Rule 144 available (except as provided in SECTION
4.2 hereof);
(e) when and if the Warrant or the Warrant Shares may be
disposed of without registration in reliance on Rule 144, such disposition can
be made only in limited amounts in accordance with the terms and conditions of
Rule 144;
(f) if the Rule 144 exemption is not available, public
sale of the Warrant or the Warrant Shares without registration will require
compliance with Regulation A promulgated under the Act or some other exemption
under the Act and compliance with applicable state securities laws;
(g) appropriate restrictive legends in the form
heretofore set forth shall be placed on each of the Warrant and the Warrant
Shares; and
(h) a notation shall be made in the appropriate records
of the Company indicating that the Warrant is subject to restrictions on
transfer and, if the Company should at some time in the future engage the
services of a transfer agent, appropriate transfer restrictions will be issued
to such transfer agent with respect to the Warrant.
3.4 COMPLIANCE WITH RULE 144. If the Warrant or any Warrant
Shares are disposed of in accordance with Rule 144 under the Act, the Purchaser
shall deliver to the Company at or prior to the time of such disposition an
executed copy of Form 144 (if required by Rule 144) and such other documentation
as the Company may reasonably require in connection with such sale.
3.5 ADDITIONAL REPRESENTATIONS. The Purchaser further represents
and warrants to the Company that:
(a) it has been given the opportunity to obtain any
information or documents and to ask questions and receive answers about such
documents, the Company and the business and prospects of the Company which it
deems necessary to evaluate the merits and risks related to its investment in
the Warrant and the Warrant Shares;
(b) its financial condition is such that it can afford
to bear the economic rise of holding its unregistered Warrant and Warrant Shares
for an indefinite period of time and has adequate means of providing for its
current needs and contingencies;
(c) it can afford to suffer a complete loss of its
investment in the Warrant and Warrant Shares;
(d) all information which it has provided to the Company
concerning itself and its financial position is correct and complete as of the
date of this Agreement and, if there should be any material change in such
information prior to the Closing, the Purchaser will immediately furnish such
revised or corrected information to the Company;
(e) it understands and is cognizant of all risk factors
related to the purchase of the Warrant and Warrant Shares;
(f) it is an "ACCREDITED INVESTOR" as that term is
defined in Rule 501(a) of Regulation D promulgated under the Act;
<PAGE> 5
(g) its knowledge and experience in financial and
business matters are sue that it is capable of evaluating the merits and risks
of its purchase of the Warrant and Warrant Shares as contemplated by this
Agreement;
(h) either (i) it has a pre-existing personal or
business relationship with the Company or any of its officers, directors or
controlling persons, or (ii) by reason of its business or financial experience
or the business or financial experience of its professional advisors who are
unaffiliated with, and who are not compensated by, the Company or any affiliate
of the Company, it has the capacity to protect its own interests in connection
with the investment in the Warrant and the Warrant Shares;
(i) it is an "excluded purchaser," as defined in Section
260.102.13 of the Corporate Securities Rules of the California Corporation
Commissioner, for purposes of Section 251 02(f) of the California Corporate
Securities Law of 1968, as amended; and
(j) this Agreement has been executed and delivered by
the Purchaser and is its valid and binding obligation, enforceable against the
Purchaser in accordance with its terms, except for (i) the effect of bankruptcy,
insolvency, fraudulent conveyance; reorganization, moratorium and other similar
laws relating to or affecting the rights of creditors generally, and (ii)
limitations imposed by federal or state law or equitable principles upon the
specific enforceability of any of the remedies, covenants or other provisions of
this Agreement and upon the availability of injunctive relief or other equitable
remedies.
3.6 NO CONTROLLING INFLUENCE. In the event and so long as the
Warrant or the related Warrant Shares are held by the Purchaser or any of its
affiliates or any person or entity to which the Purchaser or any of its
affiliates shall have transferred the Warrant or the related Warrant Shares (any
such person or entity, a "REGULATED PURCHASER"), such Regulated Purchaser will
neither:
(a) Exercise or attempt to exercise, directly or
indirectly, a controlling influence over the management or policies of the
Company; nor
(b) Notwithstanding any other provision of this
Agreement, exercise either of the Warrant to the extent such exercise would
result in such Regulated Purchaser and its affiliates holding, directly or
indirectly, in excess of 4.99% of any class of the outstanding voting stock of
the Company, except in connection with (i) a widely dispersed public offering of
the Warrant Shares, (ii) a sale of the related Warrant Shares into the secondary
market pursuant to the transaction and volume limitations of Rule 144
(irrespective of holding periods), or (iii) a private placement or sale,
including pursuant to Rule 144A under the Act, so long as the transferee and its
affiliates do not collectively acquire from the Purchaser more than 2% of the
voting stock of the Company pursuant to such transfer.
4. THE COMPANY'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
4.1 THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants that:
(a) ORGANIZATION, STANDING AND QUALIFICATION. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of California; has all requisite power and authority
to own or lease and operate its properties and to carry on its business as now
conducted and as proposed to be conducted after the funds are advanced under the
Loan Agreement; and is duly qualified or licensed to do business as a foreign
corporation in good standing in all jurisdictions in which it owns or leases
property or in which the conduct of its business requires it to so qualify or be
licensed, except for such jurisdictions where the failure to so qualify or be
licensed would not have a material adverse effect on the business or financial
condition of the Company.
(b) AUTHORITY. The Company has all requisite power and
authority to enter into and perform all of its obligations under this Agreement,
to issue the Warrant and the Warrant Shares and to carry out the transactions
contemplated hereby.
5
<PAGE> 6
(c) DUE AUTHORIZATION. The Company has taken all
corporate actions necessary to authorize it to enter into and perform its
obligations under this Agreement, to issue the Warrant and the Warrant Shares
and to consummate the transactions contemplated hereby. This Agreement is the
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, except for (i) the effect upon this Agreement of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting the rights of creditors generally and (ii)
limitations imposed by equitable principles or principles of public policy upon
the specific enforceability of any of the remedies, covenants or other
provisions of this Agreement and upon the availability of injunctive relief or
other equitable remedies.
(d) CAPITALIZATION OF COMPANY. The Company's capital
stock is divided into Common Stock and preferred stock ("PREFERRED STOCK"). The
authorized capital stock of the Company consists of 20,000,000 shares of Series
A Preferred Stock, of which, immediately after the date of the Closing, no
shares are issued or outstanding, and 300,000,000 shares of Common Stock, of
which, immediately after the date of the Closing, 6,278,881 shares will be
outstanding on a fully diluted basis, taking into account all outstanding
warrants, options and other rights to purchase the Common Stock). When the
Warrant to be purchased by the Purchaser hereunder at the Closing has been
delivered as provided herein, the Warrant Shares (i) together with all
outstanding shares of Common Stock, Preferred Stock and shares of Common Stock
issuable upon exercise of all outstanding Options (as defined below) of the
Company will not exceed the number of shares that have been authorized by the
Company's Articles of Incorporation, (ii) will have been duly authorized to be
issued by the Company's board of directors, (iii) will, upon payment therefor in
accordance with the terms of the Warrant, be duly and validly issued, fully paid
and nonassessable and (iv) will have been reserved for issuance pursuant to the
terms of the Warrant.
(e) NO ADJUSTMENT OF OTHER SHARES ON ISSUANCE. Neither
the issuance nor the exercise of the Warrant will cause the rate at which any of
the Company's outstanding securities are ultimately convertible into Common
Stock to change, nor will such issuance or exercise invoke any "antidilution"
feature of any of the Company's outstanding securities or rights to purchase
securities.
4.2 RULE 144. The Company agrees that it will perform each of it
obligations under the Registration Rights Agreement as set forth therein and
will use its best efforts to file in a timely manner all reports required to be
filed by it pursuant to the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") and, upon the request of the Purchaser, will furnish the
Purchaser with such reports so that the Purchaser may effect routine sales
pursuant to Rule 144 and Rule 144A (if applicable) under the Act or any similar
rule or regulations hereafter adopted by the Securities and Exchange Commission
(the "SEC").
4.3 PURCHASER'S PERCENTAGE OWNERSHIP. The Company hereby
represents and warrants that the initial 30,000 Warrant Shares in respect of the
Warrant currently represent that number of shares representing approximately a
0.5% interest in the Company's equity capital on a fully diluted basis (after
giving effect to the exercise of all options, warrants, and convertible
securities assuming all antidilution adjustments have been made and all options
authorized for grant, whether or not granted, have been granted).
5. REGISTRATION RIGHTS. The Purchaser shall have registration rights
relating to the Warrant and the applicable Warrant Shares as set forth in the
Registration Rights Agreement.
6
<PAGE> 7
6. MISCELLANEOUS.
6.1 NO CHANGE OF FISCAL YEAR. Until the Warrant has been fully
exercised or has expired in accordance with their terms, the Company shall not
change its fiscal year end without the Purchaser's prior written consent, which
consent shall not unreasonably be withheld.
6.2 FINANCIAL INFORMATION. Until the Warrant has been fully
exercised or has expired in accordance with its terms, the Company shall use all
reasonable efforts to file its annual and quarterly reports as required by the
Exchange Act for publicly reporting companies, within the times specified in the
Exchange Act and the rules and regulations promulgated thereunder and to provide
copies of such reports to Purchaser promptly following such filing and within 30
days prior to the end of each of its fiscal years, shall provide financial
projections covering the period through at least the end of the next fiscal
year; PROVIDED, HOWEVER, that the Company shall not be required to supply any
information to the Purchaser which duplicates information already supplied to
the Purchaser under the Loan Agreement. In addition, the Company shall provide
the Purchaser with all of the information which the Company provides generally
to the holders of Common Stock. The Purchaser shall have standard inspection
rights until the Warrant has been fully exercised or has expired in accordance
with its terms.
6.3 STATE SECURITIES LAWS. The Company hereby agrees to comply
with all state securities or "blue sky" laws which might be applicable to the
sale of the Warrant.
6.4 BINDING EFFECT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Purchaser and the Company and their
respective heirs, legal representatives, successors and assigns and, without
limiting the generality of the foregoing, the Company may assign this Agreement
without the consent of Purchaser to the Company's successor in a merger of the
Company or a sale of all or substantially all of the assets of the Company.
6.5 AMENDMENT. This Agreement may be amended only by a written
instrument, signed by the Purchaser and the Company, which specifically states
that it is amending this Agreement.
6.6 APPLICABLE LAW. The laws of the State of California shall
govern the interpretation, validity and performance of the terms of this
Agreement, regardless of the law that might be implied under principles of
conflicts of law.
6.7 NOTICES. All notices and other communications provided for
herein shall be in writing and shall be deemed to have been duly given if
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid, to the party to whom it is directed:
If to the Company:
75 Rowland Way
Novato, California 94945
Attn: Legal Department
Fax: (415) 893-9860
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attn: Kevin Kelso, Esq.
Fax: 650/494-1417
7
<PAGE> 8
If to the Purchaser:
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95054
Attn: Mezzanine Finance, NC475
Fax: 408/969-6501
with a copy to:
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95054
Attn: Treasury Department,
Fax: 408/496-2407
with a copy to:
Cooley Godward LLP One Maritime Plaza, 20th Floor San Francisco, California
94111 Attn: Joseph A. Scherer, Esq.
6.8 EXPIRATION OF AGREEMENT. Except as otherwise set forth
herein, this Agreement (but not the Warrant) shall terminate and be of no
further force or effect with respect to any Warrant Shares which are sold by the
Purchaser pursuant to an effective registration statement filed by the Company
pursuant to the Registration Rights Agreement or in compliance with Rule 144.
Except as otherwise expressly provided herein and unless extended prior to such
date, this Agreement shall terminate on the earlier of the date the Warrant
shall have been fully exercised and the fifth anniversary of this Agreement.
6.9 RECAPITALIZATIONS, ETC. The provisions of this Agreement
shall apply, to the full extent set forth herein with respect to the Warrant, to
any and all shares of capital stock of the Company or any capital stock, limited
liability company membership interests, partnership units or any other security
evidencing ownership interests in any successor or assign of the Company
(whether by merger, consolidation, sale of assets or otherwise) which may be
issued in respect of, in exchange for, or in substitution of any of the Warrant
Shares by reason of any stock dividend, split, reverse split, combination,
recapitalization, liquidation, reclassification, merger, consolidation or
otherwise and to any Warrant Shares.
6.10 ASSIGNMENT. This Agreement and the rights and obligations
of the parties hereunder shall inure to the benefit of, and be binding upon, the
parties' respective successors, assigns and legal representatives.
Notwithstanding anything herein or in the Warrant to the contrary and without
regard to any limitations set forth herein or therein, the parties acknowledge
that the Purchaser may transfer all or any of its rights hereunder and under the
Warrant to any affiliate of the Purchaser (including, without limitation, the
officers, and employees of the Purchaser, or any partnership comprised thereof
or any corporation owned by any of them, the ancestors, descendants or spouse,
or to trusts for the benefit of such persons) and that for the purpose of
interpreting and enforcing this Agreement, all such assigns shall be considered
as one and the same person.
6.11 INTEGRATION. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement, the Warrant and the Registration Rights Agreement.
8
<PAGE> 9
6.12 PERSONAL JURISDICTION. The Company and the Purchaser hereby
agree that any legal action or proceeding with respect to this Agreement or any
of the agreements, documents or instruments delivered in connection herewith may
be brought in the courts of the State of California or of the United States of
America for the Northern District of California as the Purchaser may elect, and,
by execution and delivery hereof, each of the Company and the Purchaser accepts
and consents to, for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts and agrees that such
jurisdiction shall be exclusive, unless waived by the Purchaser in writing, with
respect to any action or proceeding brought by the Company against the
Purchaser. Nothing herein shall limit the right of the Purchaser to bring
proceedings against the Company in the courts of any other jurisdiction. The
Company waives, to the full extent permitted by law, any right to stay or to
dismiss any action or proceeding brought before said courts on the basis of
FORUM NON conveniens.
6.13 JURY WAIVER. Each of the Company and the Purchaser waives
any right to have a jury participate in resolving any dispute, whether sounding
in contract, tort, or otherwise, between the Company and the Purchaser arising
out of, connected with, related to or incidental to the relationship established
between them in connection with this agreement or any other instrument, document
or agreement executed or delivered in connection herewith or therewith or the
transactions related hereto or thereto.
6.14 CONFIDENTIALITY. In handling any confidential information
of the Company, the Purchaser shall exercise the same degree of care that it
exercises with respect to its own proprietary information of the same types to
maintain the confidentiality of any non-public information thereby received or
received pursuant to this Agreement EXCEPT that disclosure of such information
may be made (i) to the subsidiaries or affiliates of the Purchaser in connection
with their present or prospective business relations with the Company, (ii) to
prospective transferees or purchasers of any interest in the loans, PROVIDED
that they have entered into a comparable confidentiality agreement in favor of
the Company and have delivered a copy to the Company, (iii) as required by law,
regulation, rule or order, subpoena, judicial order or similar order, (iv) as
may be required in connection with the examination, audit or similar
investigation of the Purchaser, and (v) as the Purchaser may deem appropriate in
connection with the exercise of any remedies hereunder. Confidential information
hereunder shall not include information that either (a) is in the public domain
or in the knowledge or possession of the Purchaser when disclosed to Bank, or
becomes part of the public domain after disclosure to Bank through no fault of
Bank; or (b) is disclosed to the Purchaser by a third party, PROVIDED the
Purchaser does not have actual knowledge that such third party is prohibited
from disclosing such information.
IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the date first above written.
THE COMPANY: INTERNATIONAL MICROCOMPUTER
SOFTWARE, INC.
By: (SGD.)
Printed Name: Ken Fineman
Title: Chief Financial Officer
THE PURCHASER: SILICON VALLEY BANK
By: (SGD.)
Printed Name: Laurita J. Hernandez
Title: Vice President
[WARRANT SUBSCRIPTION AGREEMENT]
9
<PAGE> 1
EXHIBIT 4.9
FEE AGREEMENT
This FEE AGREEMENT (the "Agreement") dated as of 11th January 1999, by
and between International Microcomputer Software, Inc. ("IMSI"), and HomeStyles,
Inc., ("HOMESTYLES").
WHEREAS, IMSI currently owes HOMESTYLES an amount to date equal to
$90,000 (the "Current Royalty Fees") pursuant to a Licensing Agreement between
IMSI and HOMESTYLES (the "License Agreement"), and
WHEREAS, IMSI and HOMESTYLES now desire to set forth certain terms and
provisions with respect to the payment by IMSI of the Current Royalty Fees:
NOW, THEREFORE in consideration of the foregoing and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto hereby agree as follows:
1. Payment of the Fees. Notwithstanding anything to the contrary in the
License Agreement with respect to the form and timing of payment of the Current
Royalty Fees, the obligation to pay the Current Royalty Fees shall the satisfied
in full by compliance by IMSI with the terms and provisions of this Agreement.
2. Issuance of the Shares. As soon as reasonably practicable after
execution of this Agreement, IMSI will issue to HOMESTYLES, ten thousand (10,000
shares of IMSI's Common Stock (the "Common Stock"), no par value (collectively,
the "Shares") based on a trading price of nine dollars ($9.00) per share.
3. Sale.
a. Sale. The Shares may be sold by one or more of the following means of
distribution (subject to the provisions of this Agreement): (a) a block trade in
which the brokerdealer so engaged will attempt to sell Shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a brokerdealer as principal and resale by such
broker-dealer for its own account; (c) an overthecounter distribution in
accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (e) in privately
negotiated transactions.
4. Representations, Warranties and Covenants of IMSI. IMSI represents
and warrants to and covenants with HOMESTYLES as follows:
a. Registration. IMSI shall use its reasonable best efforts to
cause the shares of IMSI Common Stock that are issuable pursuant to this Fee
Agreement to be registered on a registration statement (or to be issued pursuant
to a then-effective registration statement) on Form S-3 (or successor form)
promulgated by the Securities
<PAGE> 2
and License Commission ("SEC") under the 1933 Act, as soon as reasonably
practicable after the Closing. IMSI expects to file a Registration Statement on
or about March 15 1999. Nothing herein shall require IMSI to seperately register
the Shares.
b. At the date the Registration Statement becomes effective
under the Securities Act (the "Effective Date") or the time of effectiveness of
any posteffective amendment to the Registration Statement, at the time the
Prospectus is first filed with the Commission pursuant to Rule 424 (b) of the
Regulations (if a Rule 424 (b) filing is required), at the time any supplement
to or amendment of the Prospectus is filed with the Commission and at the time
any document filed under the License Act is filed, the Registration Statement
and the Prospectus and any amendments thereof and supplements thereto complied
or will comply in all material respects with the applicable provisions of the
Securities Act and the Regulations or the License Act and the respective rules
and regulations thereunder and do not or will not contain an untrue statement of
a material fact and do not or will not omit to state any material fact required
to be stated therein or necessary in order to make the statements therein (i) in
the case of the Registration Statement, not misleading and (ii) in the case of
the Prospectus, in the light of the circumstances under which they were made,
not misleading.
c. The Shares, when issued and delivered in accordance with this
Agreement, will be duly and validly issued and outstanding, fully paid and
non-assessable and will not have been issued in violation of any preemptive
rights.
d. If at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act any event shall occur as a
result of which the Prospectus as then amended or supplemented, in the judgment
of IMSI or HOMESTYLES, includes an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if it shall be necessary at any time to amend or
supplement the Prospectus or Registration Statement to comply with the
Securities Act or the Regulations, or to file under the License Act so as to
comply therewith any document incorporated by reference in the Registration
Statement or the Prospectus or in any amendment thereof or supplement thereto,
(i) IMSI will notify HOMESTYLES promptly and prepare and file with the
Commission an appropriate amendment or supplement (in form and substance
satisfactory to HOMESTYLES) which will correct such statement or omission or
which will effect such compliance and will use its best efforts to have any
amendment to the Registration Statement docked declared effective by the
Commission as soon as possible and (ii) HOMESTYLES shall suspend trading in the
Shares until (A) such amendment or supplement to the Prospectus has been filed
or (B) any amendment to the Registration Statement has been declared effective
by the Commission.
e. IMSI will pay all fees and expenses with respect to the
preparation and filing of the Registration Statement and the registration of the
Shares. If however, HOMESTYLES requests that the Shares be registered
independently from another IMSI
<PAGE> 3
registration ("Accelerated Registration"), then HOMESTYLES shall pay all fees
and expenses with respect to the preparation and filing of the Registration
Statement and the registration of the Shares that are a result of such
Accelerated Registration.
f. Upon execution of this Agreement, HOMESTYLES releases and
forever discharges payment of the Current Royalty Fees pursuant to the terms and
conditions of the License Agreement.
5. Indemnification.
a. IMSI agrees to indemnify and hold harmless HOMESTYLES, against any and all
losses, liabilities, claims, damages and expenses incurred (including but not
limited to attorneys' fees), to which it may become subject under the Securities
Act, the License Act or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise solely out of any
untrue statement of a material fact contained in the Registration Statement, as
originally filed or any amendment thereof, or the Prospectus, or in any
supplement thereto or amendment thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that IMSI shall not be liable to HOMESTYLES for any such
losses, liabilities, claims, damages or expenses which arise out of or are based
upon an untrue statement or alleged untrue statement or omission or alleged
omission contained or made in the Registration Statement or the Prospectus or
any amendment thereof or Supplement thereto in reliance upon and in conformity
with information furnished to IMSI by HOMESTYLES.
b. Promptly after receipt by any indemnified party under
subsection a. above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the party against whom
indemnification is to be sought in writing of the commencement thereof. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof.
Notwithstanding the foregoing, the indemnified party or parties shall have the
right to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such action, (ii) the
indemnifying party shall not have employed counsel to have charge of the defense
of such action within a reasonable time after notice of commencement of the
action, or (iii) such indemnified party shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties), in any of which events such
<PAGE> 4
fees and expenses shall be borne by the indemnifying party. Anything in this
subsection to the contrary notwithstanding, the indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent: provided, however, that such consent was not unreasonably withheld.
6. Entire Agreement. This Agreement and the retainer (to the extent not
inconsistent herewith) constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all prior written
agreements and negotiations and oral understandings, if any, with respect
thereto. This Agreement may not be amended or supplemented except by an
instrument in writing signed by each of the parties hereto.
7. Notices. All notices, requests and other communications hereunder
shall be in writing and delivered in person or by registered or certified mail
(postage prepaid, return receipt requested), overnight courier or facsimile,
addressed as follows:
if to HOMESTYLES, to:
Homestyles
if to IMSI, to:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, CA 94945
Attn: Legal Department
Telephone: (415) 878-4209
Facsimile: (415) 893-9860
The address of a party, for the purposes of this Section 8, may be changed by
giving written notice to the other party of such change in the manner provided
herein for giving notice. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five calendar days mailing, if sent
by registered or certified mail; the next business clay after timely delivery to
the courier, if sent by overnight courier; and when receipt is acknowledged, if
sent by facsimile transmission (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
8. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of California, without regard to the conflicts of law
principles thereof.
<PAGE> 5
9. Investment Representations. HOMESTYLES represents and warrants that
it is an "accredited investor" as defined by Regulation D: that it is acquiring
the Shares for its own account, for the purpose of investment and not with a
view to, or resale in connection with, any distribution thereof; that HOMESTYLES
has had access to all information regarding IMSI and its present business,
assets, liabilities and financial condition, that HOMESTYLES reasonably
considers important in making the decision to acquire the Shares under this
Agreement; and that HOMESTYLES understands that the Shares are restricted
securities and may not be sold except pursuant to the Form S-3, some other
registration statement, or pursuant to an applicable exemption from federal and
state registration requirements.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date first set forth above.
Homestyles, Inc. INTERNATIONAL MICROCOMPUTER
SOFTWARE, INC.
By: By:
---------------------------- ------------------------------
Name: Name: Geoffrey B. Koblick
Title: Chief Operating Officer
<PAGE> 1
EXHIBIT 4.10
FEE AGREEMENT
This FEE AGREEMENT (the "Agreement") dated as of 3/1/99, by and between
International Microcomputer Software, Inc. a California corporation ("IMSI"),
and GATEWAY Acceptance, ("GATEWAY").
WHEREAS, IMSI currently owes GATEWAY an amount equal to $72,000.00 (the
"Fees") pursuant to a Manufacturing Agreement (the "Manufacturing Agreement"),
and
WHEREAS, IMSI and GATEWAY now desire to set forth certain terms and
provisions with respect to the payment by IMSI of the Fees:
NOW, THEREFORE in consideration of the foregoing and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto hereby agree as follows:
1. Payment of the Fees. Notwithstanding anything to the contrary in the
Manufacturing Agreement with respect to the form and timing of payment of the
Fees, the obligations to pay the Fees shall the satisfied in full by compliance
by IMSI with the terms and provisions of this Agreement.
2. Issuance of the Shares. As soon as reasonably practicable after
execution of this Agreement, IMSI will issue to GATEWAY eight thousand (8,000)
shares of IMSI's Common Stock (the "Common Stock"), no par value (collectively,
the "Shares") based on a trading price of $9.00 per share.
3. Sale.
a. Sale. The Shares may be sold by one or more of the following means of
distribution (subject to the provisions of this Agreement): (a) a block trade in
which the broker-dealer so engaged will attempt to sell Shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account; (c) an over-the-counter distribution in
accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (e) in privately
negotiated transactions.
4. Representations, Warranties and Covenants of IMSI. IMSI represents
and warrants to and covenants with GATEWAY as follows:
a. Registration. IMSI shall use its reasonable best efforts to
cause the shares of IMSI Common Stock that are issuable pursuant to this Fee
Agreement to be registered on a registration statement (or to be issued pursuant
to a then-effective registration statement) on Form S-3 (or successor form)
promulgated by the Securities
<PAGE> 2
and EGATEWAYchange Commission ("SEC") under the 1933 Act, as soon as reasonably
practicable after the Closing. IMSI expects to file a Registration Statement on
or about 28th February 1999. Nothing herein shall require IMSI to seperately
register the Shares.
b. At the date the Registration Statement becomes effective
under the Securities Act (the "Effective Date") or the time of effectiveness of
any post-effective amendment to the Registration Statement, at the time the
Prospectus is first filed with the Commission pursuant to Rule 424 (b) of the
Regulations (if a Rule 424 (b) filing is required), at the time any supplement
to or amendment of the Prospectus is filed with the Commission and at the time
any document filed under the Manufacturing Act is filed, the Registration
Statement and the Prospectus and any amendments thereof and supplements thereto
complied or will comply in all material respects with the applicable provisions
of the Securities Act and the Regulations or the Manufacturing Act and the
respective rules and regulations thereunder and do not or will not contain an
untrue statement of a material fact and do not or will not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein (i) in the case of the Registration Statement, not misleading
and (ii) in the case of the Prospectus, in the light of the circumstances under
which they were made, not misleading.
c. The Shares, when issued and delivered in accordance with this
Agreement, will be duly and validly issued and outstanding, fully paid and
non-assessable and will not have been issued in violation of any preemptive
rights.
d. If at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act any event shall occur as a
result of which the Prospectus as then amended or supplemented, in the judgment
of IMSI or GATEWAY, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it shall be necessary at any time to amend or
supplement the Prospectus or Registration Statement to comply with the
Securities Act or the Regulations, or to file under the Manufacturing Act so as
to comply therewith any document incorporated by reference in the Registration
Statement or the Prospectus or in any amendment thereof or supplement thereto,
(i) IMSI will notify GATEWAY promptly and prepare and file with the Commission
an appropriate amendment or supplement (in form and substance satisfactory to
GATEWAY) which will correct such statement or omission or which will effect such
compliance and will use its best efforts to have any amendment to the
Registration Statement docked declared effective by the Commission as soon as
possible and (ii) GATEWAY shall suspend trading in the Shares until (A) such
amendment or supplement to the Prospectus has been filed or (B) any amendment to
the Registration Statement has been declared effective by the Commission.
e. IMSI will pay all fees and expenses with respect to the
preparation and filing of the Registration Statement and the registration of the
Shares. If however,
<PAGE> 3
GATEWAY requests that the Shares be registered independently from another IMSI
registration ("Accelerated Registration), then GATEWAY shall pay all fees and
expenses with respect to the preparation and filing of the Registration
Statement and the registration of the Shares that are a result of such
Accelerated Registration.
f. Upon execution of this Agreement, GATEWAY releases and
forever discharges payment of the Fees pursuant to the terms and conditions of
the Manufacturing Agreement. The Hold Back Funds shall remain in tact and
subject to the terms and conditions of the Manufacturing Agreement and any
addendum's thereto.
5. Indemnification.
a. IMSI agrees to indemnify and hold harmless GATEWAY, against any and all
losses, liabilities, claims, damages and expenses incurred (including but not
limited to attorneys' fees), to which it may become subject under the Securities
Act, the Manufacturing Act or otherwise, insofar as such losses, liabilities,
claims, damages or expenses (or actions in respect thereof) arise solely out of
any untrue statement of a material fact contained in the Registration Statement,
as originally filed or any amendment thereof, or the Prospectus, or in any
supplement thereto or amendment thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that IMSI shall not be liable to GATEWAY for any such losses,
liabilities, claims, damages or expenses which arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission
contained or made in the Registration Statement or the Prospectus or any
amendment thereof or Supplement thereto in reliance upon and in conformity with
information furnished to IMSI by GATEWAY.
b. Promptly after receipt by any indemnified party under
subsection a. above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the party against whom
indemnification is to be sought in writing of the commencement thereof. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof.
Notwithstanding the foregoing, the indemnified party or parties shall have the
right to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such action, (ii) the
indemnifying party shall not have employed counsel to have charge of the defense
of such action within a reasonable time after notice of commencement of the
action, or (iii) such indemnified party shall have reasonably concluded that
there may be defenses available to it or them which are different from or
additional to those available to the indemnifying
<PAGE> 4
party (in which case the indemnifying party shall not have the right to direct
the defense of such action on behalf of the indemnified party or parties), in
any of which events such fees and expenses shall be borne by the indemnifying
party. Anything in this subsection to the contrary notwithstanding, the
indemnifying party shall not be liable for any settlement of any claim or action
effected without its written consent: provided, however, that such consent was
not unreasonably withheld.
6. Entire Agreement. This Agreement and the Manufacturing Agreement (to
the extent not inconsistent herewith) constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and supersede all
prior written agreements and negotiations and oral understandings, if any, with
respect thereto. This Agreement may not be amended or supplemented except by an
instrument in writing signed by each of the parties hereto.
7. Notices. All notices, requests and other communications hereunder
shall be in writing and delivered in person or by registered or certified mail
(postage prepaid, return receipt requested), overnight courier or facsimile,
addressed as follows:
if to GATEWAY, to:
Gateway Acceptance Co.
3189 Danville Blvd. Suite 230
P.O. Box 829
Alamo, CA 94507
if to IMSI, to:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, CA 94945
Attn: Legal Department
Telephone: (415) 878-4209
Facsimile: (415) 893-9860
The address of a party, for the purposes of this Section 8, may be changed by
giving written notice to the other party of such change in the manner provided
herein for giving notice. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five calendar days mailing, if sent
by registered or certified mail; the next business clay after timely delivery to
the courier, if sent by overnight courier; and when receipt is acknowledged, if
sent by facsimile transmission (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
8. Governing Law. This Agreement shall be construed in accordance with
<PAGE> 5
and governed by the laws of California, without regard to the conflicts of law
principles thereof.
9. Investment Representations. GATEWAY represents and warrants that it
is an "accredited investor" as defined by Regulation D: that it is acquiring the
Shares for its own account, for the purpose of investment and not with a view
to, or resale in connection with, any distribution thereof; that GATEWAY has had
access to all information regarding IMSI and its present business, assets,
liabilities and financial condition, that GATEWAY reasonably considers important
in making the decision to acquire the Shares under this Agreement; and that
GATEWAY understands that the Shares are restricted securities and may not be
sold except pursuant to the Form S-3, some other registration statement, or
pursuant to an applicable exemption from federal and state registration
requirements.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date first set forth above.
GATEWAY, Inc. INTERNATIONAL MICROCOMPUTER
SOFTWARE, INC.
By: _________________________ By: ______________________________
Name: Michael Gariepy Name: Geoffrey B. Koblick
Title: Chief Operating Officer
<PAGE> 1
EXHIBIT 4.11
FEE AGREEMENT
This FEE AGREEMENT (the "Agreement") dated as of 26 March 1999, by and
between International Microcomputer Software, Inc. ("IMSI"), and Spatial
Technology Inc., ("SPATIAL TECHNOLOGY").
WHEREAS, IMSI currently owes SPATIAL TECHNOLOGY an amount to date equal to
$45,000.00 (the "Fees") pursuant to a Licensing Agreement between IMSI and
SPATIAL TECHNOLOGY (the "License Agreement"), and
WHEREAS, IMSI and SPATIAL TECHNOLOGY now desire to set forth certain terms
and provisions with respect to the payment by IMSI of the Fees:
NOW, THEREFORE in consideration of the foregoing and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto hereby agree as follows:
1. Payment of the Fees. Notwithstanding anything to the contrary in the
License Agreement with respect to the form and timing of payment of the Fees,
the obligation to pay the Fees shall be satisfied in full by compliance by IMSI
with the terms and provisions of this Agreement.
2. Issuance of the Shares. As soon as reasonably practicable after
execution of this Agreement, IMSI will issue to SPATIAL TECHNOLOGY, five
thousand (5,000) shares of IMSI's Common Stock (the "Common Stock"), no par
value (collectively, the "Shares") based on a trading price of nine dollars
($9.00) per share.
3. Sale.
a. Sale. The Shares may be sold by one or more of the following means
of distribution (subject to the provisions of this Agreement): (a) a block
trade in which the brokerdealer so engaged will attempt to sell Shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a brokerdealer as principal and
resale by such broker-dealer for its own account; (c) an over-the-counter
distribution in accordance with the rules of NASDAQ; (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; and (e)
in privately negotiated transactions.
4. Representations, Warranties and Covenants of IMSI. IMSI represents and
warrants to and covenants with SPATIAL TECHNOLOGY as follows:
a. Registration. IMSI shall use its reasonable best efforts to cause
the Shares that are issuable pursuant to this Fee Agreement to be registered on
a registration statement (or to be issued pursuant to a then-effective
registration statement) on Form S-3 (or successor form) promulgated by the
Securities and Exchange Commission ("SEC").
<PAGE> 2
under the 1993 Act ("Securities Act"), as soon as reasonably practicable after
the Closing. IMSI currently expects to file a Form S-3 on or around 5/5/99.
Nothing herein shall require IMSI to separately register the Shares.
b. At the date the Registration Statement becomes effective under
the Securities Act or the time of effectiveness of any posteffective amendment
to the Registration Statement (the "Effective Date"), at the time the Prospectus
is first filed with the SEC pursuant to Rule 424(b) of the regulations
promulgated thereunder (if a Rule 424(b) filing is required), at the time any
supplement to or amendment of the Prospectus is filed with the SEC and at the
time any document filed under the Securities Act is filed, the Registration
Statement and the Prospectus and any amendments thereof and supplements thereto
complied or will comply in all material respects with the applicable provisions
of the Securities Act and the regulations promulgated thereunder or the
Securities Act and the respective rules and regulations thereunder and do not or
will not contain an untrue statement of a material fact and do not or will not
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein (i) in the case of the Registration
Statement, not misleading and (ii) in the case of the Prospectus, in the light
of the circumstances under which they were made, not misleading.
c. The Shares, when issued and delivered in accordance with this
Agreement, will be duly and validly issued and outstanding, fully paid and
non-assessable and will not have been issued in violation of any preemptive
rights and will not be subject to any restrictions, except as may be imposed by
applicable law, except that the share certificate(s) will bear restrictive
legend that the shares are not registered until such time as the shares are
registered.
d. IMSI is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has all necessary
power and authority to conduct its business in the manner in which its business
is currently being conducted and to own and use its assets in the manner in
which its assets are currently owned and used.
e. IMSI has the full legal right, power and authority to enter into
this Agreement. All proceedings required to be taken by IMSI to authorize the
execution, delivery and performance of this Agreement have been properly taken.
This Agreement constitutes the valid and binding obligation of IMSI,
enforceable against it in accordance with their terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies. The execution, delivery or performance of this
Agreement by IMSI will not, with or without the giving of notice or the passage
of time, or both, conflict with, result in a material breach of, or a default,
right to accelerate or loss of rights under, any provision of IMSI's corporate
documents or any agreement to which IMSI is a party.
<PAGE> 3
e. If at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act any event shall occur as a
result of which the Prospectus as then amended or supplemented, in the judgment
of IMSI or SPATIAL TECHNOLOGY, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if it shall be necessary at any time to amend
or supplement the Prospectus or Registration Statement to comply with the
Securities Act or the Regulations, or to file under the Securities Act so as to
comply therewith any document incorporated by reference in the Registration
Statement or the prospectus or in any amendment thereof or supplement thereto,
(i) IMSI will notify SPATIAL TECHNOLOGY promptly and prepare and file with the
SEC an appropriate amendment or supplement (in form and substance satisfactory
to SPATIAL TECHNOLOGY) which will correct such statement or omission or which
will effect such compliance and will use its best efforts to have any amendment
to the Registration Statement docked declared effective by the SEC as soon as
possible and (ii) SPATIAL TECHNOLOGY shall suspend trading in the Shares until
(A) such amendment or supplement to the Prospectus has been filed or (B) any
amendment to the Registration Statement has been declared effective by the SEC.
f. IMSI will pay all fees and expenses with respect to the
preparation and filing of the Registration Statement and the registration of the
Shares. If however, SPATIAL TECHNOLOGY requests that the Shares be registered
independently from another IMSI registration ("Accelerated Registration), then
SPATIAL TECHNOLOGY shall pay all fees and expenses with respect to the
preparation and filing of the Registration Statement and the registration of the
Shares that are a result of such Accelerated Registration.
g. Upon execution of this Agreement, SPATIAL TECHNOLOGY releases
and forever discharges payment of the Fees pursuant to the terms and conditions
of the Retainer.
h. IMSI's filings with the SEC as of the date of such filing and
in the light of the circumstances under which such filings were made (i)
complied in all material respects with the applicable requirements of the
Securities Act or the Securities Exchange Act of 1934 (as the case may be); and
(ii) when read together as a whole and as updated by subsequent reports or
filings made prior to the date of this Agreement, do not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
i. The [consolidated] financial statements contained in the SEC
Documents: (i) complied as to form in all material respects with the published
rules and regulations of the SEC applicable thereto; (ii) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered, except as may be indicated in the notes to
such financial statements and (in the
<PAGE> 4
case of unaudited statements) as permitted by Form 10-Q of the SEC, and except
that unaudited financial statements may not contain footnotes and are subject
to normal and recurring year-end audit adjustments (which will not,
individually or in the aggregate, be IMSI [and its subsidiaries] as of the
respective dates thereof and the consolidated results of operations of IMSI
[and its subsidiaries] for the periods covered thereby.
5. Indemnification.
a. IMSI agrees to indemnify and hold harmless SPATIAL TECHNOLOGY, its
partners, officers, directors, employees and agents (the "Indemnities") against
any and all losses, liabilities, claims, damages and expenses incurred
(including but not limited to attorneys' fees), to which it may become subject
under the Securities Act, the Securities Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise solely out of any untrue statement of a material fact contained
in the Registration Statement, as originally filed or any amendment thereof, or
the Prospectus, or in any supplement thereto or amendment thereof, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that IMSI shall not be liable to
SPATIAL TECHNOLOGY for any such losses, liabilities, claims, damages or
expenses which arise out of or are based upon an untrue statement or alleged
untrue statement or omission or alleged omission contained or made in the
Registration Statement or the Prospectus or any amendment thereof or Supplement
thereto in reliance upon and in conformity with information furnished to IMSI
by SPATIAL TECHNOLOGY.
b. Promptly after receipt by any Indemnities under subsection a. above
of notice of the commencement of any action, such Indemnities shall, if a claim
in respect thereof is to be made against IMSI under such subsection, notify IMSI
in writing of the commencement thereof. In case any such action is brought
against any Indemnities, and it notifies IMSI of the commencement thereof, IMSI
will be entitled to participate therein and, to the extent it may elect by
written notice delivered to the Indemnities promptly after receiving the
aforesaid notice from such Indemnities, to assume the defense thereof.
Notwithstanding the foregoing, the Indemnities shall have the right to employ
its own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such Indemnities unless (i) the employment of such
counsel shall have been authorized in writing by IMSI in connection with the
defense of such action, (ii) IMSI shall not have employed counsel to have charge
of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such Indemnities shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to IMSI (in which case IMSI shall not have
the right to direct the defense of such action on behalf of the Indemnities), in
any of which events such fees and expenses shall be borne by IMSI. Anything in
this paragraph to the contrary notwithstanding, the indemnifying party shall not
be liable for any settlement of any claim or action effected without its written
consent:
<PAGE> 5
provided, however, that such consent was not unreasonably withheld. IMSI shall
not, without the written consent of the Indemnitee, effect the settlement or
consent to the entry of any judgment in respect of which indemnification may be
sought hereunder unless such settlement or judgment includes an unconditional
release of the Indemnitee from all liability arising out of such action and does
include a statement as to admission of fault.
6. Entire Agreement. This Agreement and the retainer (to the extent not
inconsistent herewith) constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all prior written
agreements and negotiations and oral understandings, if any, with respect
thereto. This Agreement may not be amended or supplemented except by an
instrument in writing signed by each of the parties hereto.
7. Notices. All notices, requests and other communications hereunder
shall be in writing and delivered in person or by registered or certified mail
(postage prepaid, return receipt requested), overnight courier or facsimile,
addressed as follows:
if to SPATIAL TECHNOLOGY, to:
Spatial Technology Inc.
2425 55th Street, Suite 100
Boulder, Colorado 80301
Attn: Mr. Todd Londa
Telephone: (303) 544-2950
Facsimile: (303) 544-3003
if to IMSI, to:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, CA 94945
Telephone: (415) 878-4209
Facsimile: (415) 893-9860
The address of a party, for the purposes of this Section 8, may be changed by
giving written notice to the other party of such change in the manner provided
herein for giving notice. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five calendar days mailing, if sent
by registered or certified mail; the next business day after timely delivery to
the courier, if sent by overnight courier; and when receipt is acknowledged, if
sent by facsimile transmission (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
8. Governing Law. This Agreement shall be construed in accordance with
<PAGE> 6
and governed by the laws of California, without regard to the conflicts of law
principles thereof.
9. Investment Representations. SPATIAL TECHNOLOGY represents and
warrants that it is an "accredited investor" as defined by Regulation D: that it
is acquiring the Shares for its own account, for the purpose of investment and
not with a view to, or resale in connection with, any distribution thereof;
that SPATIAL TECHNOLOGY has had access to all information regarding IMSI and its
present business, assets, liabilities and financial condition, that SPATIAL
TECHNOLOGY reasonably considers important in making the decision to acquire the
Shares under this Agreement; and this Agreement; and that SPATIAL TECHNOLOGY
understands that the Shares are restricted securities and may not be sold
except pursuant to the Form S-3, some other registration statement, or pursuant
to an applicable exemption from federal and state registration requirements.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date first set forth above.
Spatial Technology Inc. INTERNATIONAL MICROCOMPUTER
SOFTWARE, INC.
By: By:
-------------------------- -------------------------
Name: Todd Londa Name: Geoffrey B. Koblick
Title: Vice President, Administration Title: Chief Operating Officer
Corporate Controller
<PAGE> 1
EXHIBIT 4.12
FEE AGREEMENT
This FEE AGREEMENT (the "Agreement") dated as of March 26,1999, by and
between International Microcomputer Software, Inc. a California corporation
("IMSI"), and StarBase Corporation, a Delaware corporation ("STARBASE").
WHEREAS, IMSI currently owes STARBASE an amount equal to $121,231 (the
"Fees") pursuant to a License Agreement and Invoices, dated October 22, 1998,
between IMSI and STARBASE (the "License Agreement"), and
WHEREAS, IMSI and STARBASE now desire to set forth certain terms and
provisions with respect to the payment by IMSI of the Fees:
NOW, THEREFORE in consideration of the foregoing and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto hereby agree as follows:
1. Payment of the Fees. Notwithstanding anything to the contrary in the
License Agreement with respect to the form and timing of payment of the Fees,
the obligation to pay the Fees shall be satisfied in full upon compliance by
IMSI with the terms and provisions of this Agreement.
2. Issuance of the Shares. As soon as reasonably practicable after
execution of this Agreement, IMSI will issue to STARBASE ten thousand seven
hundred fifty (10,750) shares of IMSI's Common Stock (the "Common Stock"), no
par value (collectively, the "Shares").
3. Sale.
a. Sale. The Shares may be sold by one or more of the following means of
distribution (subject to the provisions of this Agreement): (a) a block trade in
which the broker-dealer so engaged will attempt to sell Shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account; (c) an over-the-counter distribution in
accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (e) in privately
negotiated transactions.
4. Representations, Warranties and Covenants of IMSI. IMSI represents
and warrants to and covenants with STARBASE as follows:
a. Registration. IMSI shall use its reasonable best efforts to
cause the shares of IMSI Common Stock that are issuable pursuant to this
Agreement to be registered on a registration statement (or to be issued pursuant
to a then-effective registration statement) on Form S-3 (or successor form)
promulgated by the Securities
<PAGE> 2
and Exchange Commission (the "Commission") under the 1933 Act, as soon as
reasonably practicable after the execution of this Agreement. IMSI shall file
the Form S-3 no later than April 15, 1999. In addition, STARBASE acquires piggy
back registration rights. Nothing herein shall require IMSI to separately
register the Shares.
b. At the date the Registration Statement becomes effective (the
"Effective Date") under the Securities Act of 1933, as amended (the "Securities
Act") or the time of effectiveness of any post-effective amendment to the
Registration Statement, at the time the Prospectus is first filed with the
Commission pursuant to Rule 424 (b) of the Regulations (if a Rule 424 (b) filing
is required) promulgated under the Securities Act (the "Regulations"), at the
time any supplement to or amendment of the Prospectus is filed with the
Commission and at the time any document filed under the License Act is filed,
the Registration Statement and the Prospectus and any amendments thereof and
supplements thereto complied or will comply in all material respects with the
applicable provisions of the Securities Act and the Regulations or the License
Act and the respective rules and regulations thereunder and do not or will not
contain an untrue statement of a material fact and do not or will not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein (i) in the case of the Registration Statement, not
misleading and (ii) in the case of the Prospectus, in the light of the
circumstances under which they were made, not misleading.
c. The Shares, when issued and delivered in accordance with this
Agreement, will be duly and validly issued and outstanding, fully paid and
non-assessable, will not have been issued in violation of any preemptive rights
and will be free and clear of any pledge, mortgage, security interest, lien or
other encumbrance of any nature whatsoever, but will bear restrictive legend
regarding the unregistered nature of the shares until such shares are
effectively registered.
d. If at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act any event shall occur as a
result of which the Prospectus as then amended or supplemented, in the judgment
of IMSI or STARBASE, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it shall be necessary at any time to amend or
supplement the Prospectus or Registration Statement to comply with the
Securities Act or the Regulations, or to file under the License Act so as to
comply therewith any document incorporated by reference in the Registration
Statement or the Prospectus or in any amendment thereof or supplement thereto,
(i) IMSI will notify STARBASE promptly and prepare and file with the Commission
an appropriate amendment or supplement (in form and substance satisfactory to
STARBASE) which will correct such statement or omission or which will effect
such compliance and will use its best efforts to have any amendment to the
Registration Statement docked declared effective by the Commission as soon as
possible and (ii) STARBASE shall suspend trading in the Shares until (A) such
amendment or supplement to the Prospectus has been
<PAGE> 3
filed or (B) any amendment to the Registration Statement has been declared
effective by the Commission.
e. IMSI will pay all fees and expenses with respect to the
preparation and filing of the Registration Statement and the registration of the
Shares. If however, STARBASE requests that the Shares be registered
independently from another IMSI registration ("Accelerated Registration), then
STARBASE shall pay all fees and expenses with respect to the preparation and
filing of the Registration Statement and the registration of the Shares that are
a result of such Accelerated Registration.
f. So long as the Form S-3 is effective within 180 days of
filing, STARBASE releases and forever discharges payment of the Fees pursuant to
the terms and conditions of the License Agreement.
5. Indemnification.
a. IMSI agrees to indemnify and hold harmless STARBASE, against any and all
losses, liabilities, claims, damages and expenses incurred (including but not
limited to attorneys' fees), to which it may become subject under the Securities
Act, the License Act or otherwise, insofar as such losses, liabilities, claims,
damages or expenses (or actions in respect thereof) arise solely out of any
untrue statement of a material fact contained in the Registration Statement, as
originally filed or any amendment thereof, or the Prospectus, or in any
supplement thereto or amendment thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that IMSI shall not be liable to STARBASE for any such
losses, liabilities, claims, damages or expenses which arise out of or are based
upon an untrue statement or alleged untrue statement or omission or alleged
omission contained or made in the Registration Statement or the Prospectus or
any amendment thereof or Supplement thereto in reliance upon and in conformity
with information furnished to IMSI by STARBASE.
b. Promptly after receipt by any indemnified party under
subsection a. above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the party against whom
indemnification is to be sought in writing of the commencement thereof. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof.
Notwithstanding the foregoing, the indemnified party or parties shall have the
right to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such
<PAGE> 4
action, (ii) the indemnifying party shall not have employed counsel to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to the indemnifying party
(in which case the indemnifying party shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses shall be borne by the indemnifying party.
Anything in this subsection to the contrary notwithstanding, the indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent;provided, however, that such consent was not
unreasonably withheld.
6. Entire Agreement. This Agreement and the License Agreement (to the
extent not inconsistent herewith) constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all prior
written agreements and negotiations and oral understandings, if any, with
respect thereto. This Agreement may not be amended or supplemented except by an
instrument in writing signed by each of the parties hereto.
7. Notices. All notices, requests and other communications hereunder
shall be in writing and delivered in person or by registered or certified mail
(postage prepaid, return receipt requested), overnight courier or facsimile,
addressed as follows:
if to STARBASE, to:
Director of Finance
4 Hutton Centre Drive
Suite 800
Santa Ana, CA 92707
Telephone: (714) 445-4400
Facsimile: (714) 445-4482
if to IMSI, to:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, CA 94945
Attn: Legal Department
Telephone: (415) 878-4209
Facsimile: (415) 893-9860
The address of a party, for the purposes of this Section 7, may be changed by
giving written notice to the other party of such change in the manner provided
herein for giving notice. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five calendar days mailing, if sent
by registered or certified mail; the next business clay after timely delivery to
the courier, if sent by overnight courier; and when receipt is
<PAGE> 5
acknowledged, if sent by facsimile transmission (except that a notice of change
of address shall not be deemed to have been given until actually received by the
addressee).
8. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of California, without regard to the conflicts of law
principles thereof.
9. Investment Representations. STARBASE represents and warrants that it
is an "accredited investor" as defined by Regulation D; that it is acquiring the
Shares for its own account, for the purpose of investment and not with a view
to, or resale in connection with, any distribution thereof; that STARBASE has
had access to all information regarding IMSI and its present business, assets,
liabilities and financial condition; that STARBASE reasonably considers
important in making the decision to acquire the Shares under this Agreement; and
that STARBASE understands that the Shares are restricted securities and may not
be sold except pursuant to the Form S-3, some other registration statement, or
pursuant to an applicable exemption from federal and state registration
requirements.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date first set forth above.
Starbase INTERNATIONAL MICROCOMPUTER
SOFTWARE, INC.
By: _________________________ By: ______________________________
Name: _______________________ Name: Geoffrey B. Koblick
Title: Title: Chief Operating Officer
<PAGE> 1
EXHIBIT 4.13
FEE AGREEMENT
This FEE AGREEMENT (the "Agreement") dated as of 11th January 1999, by and
between International Microcomputer Software, Inc. ("IMSI"), and Joseph
Minnevich, ("MINNEVICH").
WHEREAS, IMSI currently owes MINNEVICH an amount to date equal to $45,000
(the "Current Royalty Fees") pursuant to a Licensing Agreement between IMSI and
MINNEVICH (the "License Agreement"), and
WHEREAS, IMSI and MINNEVICH now desire to set forth certain terms and
provisions with respect to the payment by IMSI of the Current Royalty Fees:
NOW, THEREFORE in consideration of the foregoing and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto hereby agree as follows:
1. Payment of the Fees. Notwithstanding anything to the contrary in the
License Agreement with respect to the form and timing of payment of the Current
Royalty Fees, the obligation to pay the Current Royalty Fees shall be satisfied
in full by compliance by IMSI with the terms and provisions of this Agreement.
2. Issuance of the Shares. As soon as reasonably practicable after
execution of this Agreement, IMSI will issue to MINNEVICH, five thousand (5,000
shares of IMSI's Common Stock (the "Common Stock"), no par value (collectively,
the "Shares") based on a trading sale price of nine dollars ($9.00) per share.
3. Sale.
a. Sale. The Shares may be sold by one or more of the following means of
distribution (subject to the provisions of this Agreement): (a) a block trade in
which the broker-dealer so engaged will attempt to sell Shares as agent, but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account; (c) an over-the-counter distribution in
accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (e) in privately
negotiated transactions.
4. Representations, Warranties and Covenants of IMSI. IMSI represents
and warrants to and covenants with MINNEVICH as follows:
a. Registration. IMSI shall use its reasonable best efforts to cause
the shares of IMSI Common Stock that are issuable pursuant to this Fee Agreement
to be registered on a registration statement (or to be issued pursuant to a
then-effective registration statement) on Form S-3 (or successor form)
promulgated by the Securities
<PAGE> 2
and License Commission ("SEC") under the 1993 Act, as soon as reasonably
practicable after the Closing. IMSI expects to file a Registration Statement on
or about March 15, 1999. Nothing herein shall require IMSI to separately
register the Shares.
b. At the date the Registration becomes effective under the Securities
Act (the "Effective Date") or the time of effectiveness of any posteffective
amendment to the Registration Statement, at the time the Prospectus is first
filed with the Commission pursuant to Rule 424(b) of the Regulations (if a Rule
424(b) filing is required), at the time any supplement to or amendment of the
Prospectus is filed with the Commission and at the time any document filed
under the License Act is filed, the Registration Statement and the Prospectus
and any amendments thereof and supplements thereto complied or will comply in
all material respects with the applicable provisions of the Securities Act and
the Regulations or the License Act and the respective rules and regulations
thereunder and do not or will not contain an untrue statement of a material
fact and do not or will not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein (i) in the
case of the Registration Statement, not misleading and (ii) in the case of the
Prospectus, in the light of the circumstances under which they were made, not
misleading.
c. The Shares, when issued and delivered in accordance with this
Agreement, will be duly and validly issued and outstanding, fully paid and
non-assessable and will not have been issued in violation of any preemptive
rights.
d. If at any time when a prospectus relating to the Shares is required
to be delivered under the Securities Act any event shall occur as a result of
which the Prospectus as then amended or supplemented, in the judgment of IMSI
or MINNEVICH, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or if it shall be necessary at any time to amend or
supplement the Prospectus or Registration Statement to comply with the
Securities Act or the Regulations, or to file under the License Act so as to
comply therewith any document incorporated by reference in the Registration
Statement or the Prospectus or in any amendment thereof or supplement thereto,
(i) IMSI will notify MINNEVICH promptly and prepare and file with the
Commission an appropriate amendment or supplement (in form and substance
satisfactory to MINNEVICH) which will correct such statement or omission or
which will effect such compliance and will use its best efforts to have any
amendment to the Registration Statement docked declared effective by the
Commission as soon as possible and (ii) MINNEVICH shall suspend trading in the
Shares until (A) such amendment or supplement to the Prospectus has been filed
or (B) any amendment to the Registration Statement has been declared effective
by the Commission.
e. IMSI will pay all fees and expenses with respect to the preparation
and filing of the Registration Statement and the registration of the Shares. If
however, MINNEVICH requests that the Shares be registered independently from
another IMSI
<PAGE> 3
registration ("Accelerated Registration"), then MINNEVICH shall pay all fees and
expenses with respect to the preparation and filing of the Registration
Statement and the registration of the Shares that are a result of such
Accelerated Registration.
f. Upon execution of this Agreement, MINNEVICH releases and forever
discharges payment of the Current Royalty Fees pursuant to the terms and
conditions of the Retainer.
5. Indemnification.
a. IMSI agrees to indemnify and hold harmless MINNEVICH, against any and
all losses, liabilities, claims, damages and expenses incurred (including but
not limited to attorneys' fees), to which it may become subject under the
Securities Act, the License Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
solely out of any untrue statement of a material fact contained in the
Registration Statement, as originally filed or any amendment thereof, or the
Prospectus, or in any supplement thereto or amendment thereof, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that IMSI shall not be liable to MINNEVICH
for any such losses, liabilities, claims, damages or expenses which arise out of
or are based upon an untrue statement or alleged untrue statement or omission or
alleged omission contained or made in the Registration Statement or the
Prospectus or any amendment thereof or Supplement thereto in reliance upon and
in conformity with information furnished to IMSI by MINNEVICH.
b. Promptly after receipt by any indemnified party under subsection
a. above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the party against whom indemnification is to
be sought in writing of the commencement thereof. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof. Notwithstanding the foregoing,
the indemnified party or parties shall have the right to employ its own counsel
in any such case, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of such counsel
shall have been authorized in writing by the indemnifying party in connection
with the defense of such action, (ii) the indemnifying party shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such
<PAGE> 4
fees and expenses shall be borne by the indemnifying party. Anything in this
subsection to the contrary notwithstanding, the indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent; provided, however, that such consent was not unreasonably withheld.
6. Entire Agreement. This Agreement and the retainer (to the extent not
inconsistent herewith) constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all prior written
agreements and negotiations and oral understandings, if any, with respect
thereto. This Agreement may not be amended or supplemented except by an
instrument in writing signed by each of the parties hereto.
7. Notices. All notices, requests and other communications hereunder
shall be in writing and delivered in person or by registered or certified mail
(postage prepaid, return receipt requested), overnight courier or facsimile,
addressed as follows:
if to MINNEVICH, to:
Minnevich
if to IMSI, to:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, CA 94945
Attn: Legal Department
Telephone: (415) 878-4209
Facsimile: (415) 893-9860
The address of a party, for the purposes of this Section 8, may be changed by
giving written notice to the other party of such change in the manner provided
herein for giving notice. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five calendar days mailing, if sent
by registered or certified mail; the next business day after timely delivery to
the courier, if sent by overnight courier; and when receipt is acknowledged, if
sent by facsimile transmission (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
8. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of California, without regard to the conflicts of law
principles thereof.
<PAGE> 5
9. Investment Representations. MINNEVICH represents and warrants that it
is an "accredited investor" as defined by Regulation D: that it is acquiring the
Shares for its own account, for the purpose of investment and not with a view
to, or resale in connection with, any distribution thereof; that MINNEVICH has
had access to all information regarding IMSI and its present business, assets,
liabilities and financial condition, that MINNEVICH reasonably considers
important in making the decision to acquire the Shares under this Agreement; and
that MINNEVICH understands that the Shares are restricted securities and may not
be sold except pursuant to the Form S-3, some other registration statement, or
pursuant to an applicable exemption from federal and state registration
requirements.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of
the date first set forth above.
Joseph Minnevich INTERNATIONAL MICROCOMPUTER
SOFTWARE, INC.
By: By:
------------------------- -----------------------
Name: Joseph Minnevich Name: Geoffrey B. Koblick
Title: Chief Operating Officer
<PAGE> 1
EXHIBIT 4.14
AMENDMENT NO. 2 TO EXCHANGE AGREEMENT
AMENDMENT NO. 1 TO FEE AGREEMENT
AMENDMENT NO. 1 TO SECURITY AGREEMENT
This Amendment No. 2 to Exchange Agreement, Amendment No. 1 to Fee
Agreement and Amendment No. 1 to Security Agreement (this "Agreement") is dated
as of May 10, 1999, and is entered into by and among International Microcomputer
Software, Inc., a California corporation ("IMSI"), Zedcor, Inc., an Arizona
corporation ("Zedcor"), the representative (the "Representative") of the Zedcor
shareholders appointed pursuant to Section 2.4 of that certain Exchange
Agreement dated as of September 17, 1998 by and between IMSI and Zedcor (the
"Exchange Agreement"), and each person whose name is subscribed on the signature
page of this Agreement as a former shareholder of Zedcor (the "Zedcor
Shareholders").
BACKGROUND
IMSI and Zedcor previously entered into the Exchange Agreement. A
portion of the purchase price payable by IMSI to Zedcor pursuant to the Exchange
Agreement was reflected in the Note, which had a principal balance of
$2,229,500.
IMSI, Zedcor, the Zedcor Shareholders and the Representative entered
into a Security Agreement dated as of September 17, 1998 (the "Security
Agreement"), granting the Representative, for the benefit of the Zedcor
Shareholders, a security interest in the Collateral to secure IMSI's payment
obligations under the Note.
IMSI and Zedcor entered into an Amendment No. 1 to Exchange Agreement
dated as of February __, 1999 ("Amendment No. 1 to Exchange Agreement").
Pursuant to Amendment No. 1 to Exchange Agreement, the Hold Back Funds amount
was established at $200,000, and IMSI agreed to release the Hold Back Funds (or
any portion remaining after Set-Off(s), to the Zedcor Shareholders on or about
September 17, 2000. In addition, pursuant to Amendment No. 1 to Exchange
Agreement, the parties agreed that the payments reflected in the Note would be
satisfied by the transactions contemplated by the Fee Agreement, and that in
full satisfaction of any and all remaining monies due under the Exchange
Agreement described in the Note (with the exception of the Hold Back Funds),
IMSI would make four equal payments to Zedcor each in the amount of $98,750 on
March 1, April, May 1 and June 1, 1999.
IMSI and Zedcor entered into a Fee Agreement dated as of February __, 1999 (the
"Fee Agreement"). Under the Fee Agreement, Zedcor agreed that the $1,503,207.10
(the "Fees") still owed by IMSI pursuant to the Exchange Agreement (and
reflected in the Note) would be satisfied by the issuance by IMSI to Zedcor of
150,321 shares (the "Shares") of IMSI Common Stock, no par value ("Common
Stock"). The Exchange Agreement, Amendment No. 1 to Exchange Agreement, Security
Agreement Fee Agreement will sometimes be referred to collectively as the
"Transaction Documents".
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<PAGE> 2
Capitalized terms not defined herein will have the meanings give to them in the
Transaction Documents.
The parties desire to amend the Transaction Documents in certain
respects.
AGREEMENT
1. Payment of Holdback Funds. The Holdback Funds, in an amount equal to
$200,000, shall be paid within two business day after this Agreement has been
executed by and delivered by all parties hereto. Payment shall be by check or by
wire transfer to an account designated in writing by the Zedcor Shareholders to
IMSI.
2. Amendment of "Shares" in Fee Agreement. The term "Shares" as defined
in Section 2 of the Fee Agreement is hereby amended to be 187,901 shares of
Common Stock, which equals the Fees divided by $8.00; and after the date of this
Agreement, the term "Shares" shall refer to such 187,901 shares.
3. Issuance of Additional Shares. In consideration of the agreements of
Zedcor and the Zedcor Shareholders hereunder, within five business days after
the date that this Agreement is executed and delivered by all parties hereto,
IMSI shall issue to Zedcor 10,000 shares (the "Additional Shares") of Common
Stock. Such shares shall be included in the Registration Statement (as described
below).
4. The Registration Statement.
4.1 Filing of the Registration Statement. IMSI will use its
best efforts to file a registration statement on Form S-3 (or other appropriate
form) (the "Registration Statement") on or before September 30, 1999, with the
Securities and Exchange Commission (the "SEC") registering the resale of the
Shares and the Additional Shares. The Registration Statement may also include
shares issued or issuable to other security holders of IMSI.
4.2 Consequences for Late Filing. If the Registration
Statement is not filed with the SEC by September 30, 1999, then upon notice from
the Zedcor Shareholders, IMSI shall redeem 12,500 Shares from the Zedcor
Shareholders (in proportion to their relative ownership of the Shares) each
month until the Registration Statement is filed. The purchase price for such
redeemed shares shall be $8.00 per share. The maximum dollar amount that IMSI
shall be required to pay to redeem Shares under this section (the "Maximum
Redemption Amount") shall be an amount equal to the amount of the Fees (minus
the dollar amount of previous redemptions of Shares from time to time), plus
interest on such amount at an annual rate of 8% per annum until such time as the
Shares may be sold pursuant to SEC Rule 144 (subject to the volume and other
provisions of that rule). IMSI shall have no further obligation to redeem Shares
at such time as the Shares may be sold pursuant to the provisions of SEC Rule
144 (subject to the volume and other provisions of that rule). The initial
redemption shall occur within
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<PAGE> 3
10 business days after delivery of the redemption notice from the Zedcor
Shareholders, and thereafter the redemption (and delivery of the redemption
price) shall occur on each monthly anniversary of the initial redemption date,
until the Registration Statement is filed or until the Maximum Redemption Amount
has been paid. The Zedcor Shareholders shall execute such instruments (including
without limitation delivery of stock certificates representing the Shares to be
redeemed and duly executed stock assignments) as IMSI may reasonably request in
connection with any such redemption.
4.3 Potential Issuance of Additional Shares. If, on the date
which is three business days before the date the Registration Statement is
declared effective by the SEC (the "Measurement Date"), the Average Market Price
is less than $8.00 per share, then IMSI shall issue, within three business days
of the Measurement Date, a number of additional shares of Common Stock (which
shall be deemed to be "Shares") to the Zedcor Shareholders (in proportion to
their relative ownership of Shares), such that the total number of "Shares"
(taking into account the 187,901 Shares described in Section 2 above) equals
$1,503,207.10 divided by the Average Market Price. The "Average Market Price"
shall mean the average of the closing sales prices of the Common Stock (as
quoted on Nasdaq) for the ten trading days before the Measurement Date;
provided, however, that the Average Market Price shall in no event be deemed to
be less than $4.00.
5. Release of Security Interest. Each of the Representative and each
Zedcor Shareholder hereby releases any and all security interests or similar
rights that such person may have in and to the Collateral (as defined in the
Transaction Documents) and hereby releases IMSI from any and all obligations and
liabilities that IMSI otherwise may have in connection with the Collateral. Each
of the Representative and each Zedcor Shareholder acknowledges that no event of
default has occurred with respect to the Collateral under the Transaction
Documents, and that after the date of this Agreement, IMSI may grant and create
a first priority security interest in the Collateral in favor of another person
or entity without any conflict with any right of the Representative or the
Zedcor Shareholders. Each of the Representative and each Zedcor Shareholder
agrees to take such actions and execute such instruments as IMSI may reasonably
request in order to confirm the termination of the security interest and any
similar rights.
6. Release of Claims. Each of Zedcor, the Representative and each
Zedcor Shareholder (individually a "Releasing Party" and collectively, the
"Releasing Parties") hereby releases IMSI and its subsidiaries, successors and
assigns, directors, officers, employees, attorneys and agents (collectively, the
"Released Parties") from and against any and all claims, causes of action,
complaints, charges, demands, liabilities, damages, losses, costs or expenses of
any kind whatsoever (including attorney's fees and costs), arising out of or
relating to any delay by IMSI before the date of this Agreement in filing the
registration statement contemplated by the Transaction Agreements.
7. No Other Changes. Except as set forth in this Agreement, all other
terms and conditions of the Transaction Agreements shall remain in full force
and effect. In the
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<PAGE> 4
event of any conflict between the terms of this Agreement and the terms of any
Transaction Agreement, the terms of this Agreement shall control, and the
Transaction Agreements shall be interpreted so as to be consistent with the
provisions of this Agreement.
8. Miscellaneous.
8.1 Governing Law; Consent to Jurisdiction. The validity,
construction and performance of this Note will be governed by the laws of the
State of California, excluding that body of law pertaining to conflicts of law.
Each party to this Agreement irrevocably submits to the exclusive jurisdiction
and venue of the state and federal courts for Marin County, California, for the
purpose of any suit, action or other proceeding arising out of or based upon
this Agreement. Each party agrees that service of process in any such action may
be made in the manner provided for in this Agreement for delivery of notices.
8.2 Notices. Any notice required or permitted hereunder will
be given in writing and will be deemed effectively given upon personal delivery,
three days after deposit in the U.S. mail by first class mail, one business day
after its deposit with any reputable overnight courier service (prepaid), or one
business day after transmission by telecopier with confirmation of receipt, in
each case addressed to the other party at such party's address (or facsimile
number, in the case of transmission by telecopier) as shown in the Exchange
Agreement, or to such other address as such party may designate in writing from
time to time to the other party.
8.3 Amendments and Waivers. No amendment or modification of
this Agreement may be made or be effective unless and until it is set forth in
writing and signed by IMSI and the Representative. Any such amendment or
modification shall be binding on all Zedcor Shareholders. No waiver of any right
under this Agreement will be effective unless expressly set forth in a writing
signed by IMSI and/or the Representative, as applicable.
8.4 Successor and Assigns. The provisions of this Agreement
will inure to the benefit of, and be binding on, each party's respective heirs,
successors and assigns.
8.5 Severability. If any provision of this Agreement is
determined to be invalid or unenforceable, it shall be enforced to the extent
possible, and the remainder of this Agreement shall be enforced to the maximum
extent possible.
8.6 Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties regarding the subject matter hereof
and supersedes any and all prior understandings and agreements among the parties
with respect to such subject matter.
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<PAGE> 5
8.7 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but which together
will constitute one instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
<TABLE>
<S> <C> <C>
IMSI ZEDCOR REPRESENTATIVE
- --------------------------------- ------------------------------ ------------------------------
Authorized signature Authorized signature Authorized signature
- --------------------------------- ------------------------------ ------------------------------
printed name printed name printed name
- --------------------------------- ------------------------------ ------------------------------
Title Title Title
- --------------------------------- ------------------------------ ------------------------------
Date Date Date
</TABLE>
<TABLE>
<S> <C>
ZEDCOR SHAREHOLDERS
- ------------------------------------------------- ----------------------------------------------
Authorized signature Authorized signature
- ------------------------------------------------- ----------------------------------------------
printed name printed name
- ------------------------------------------------- ----------------------------------------------
Title Title
- ------------------------------------------------- ----------------------------------------------
Date Date
</TABLE>
[COUNTERPART SIGNATURE PAGE TO AMENDMENT NO. 2 TO EXCHANGE AGREEMENT,
AMENDMENT NO. 1 TO FEE AGREEMENT AND AMENDMENT NO. 1 TO SECURITY AGREEMENT]
6
<PAGE> 1
EXHIBIT 5.1
June 7, 1999
International Microcomputer Software, Inc.
75 Rowland Way
Novato, CA 94945
Gentlemen/Ladies:
I have examined the Registration Statement on Form S-3 (the "Registration
Statement") to be filed by you with the Securities and Exchange Commission (the
"Commission") on or about June 7, 1999, in connection with the registration
under the Securities Act of 1933, as amended, of an aggregate of 2,534,823
shares of your Common Stock (the "Stock"), all of which will be sold by the
selling shareholders named in the Prospectus included within the Registration
Statement (the "Selling Shareholders").
In rendering this opinion, I have examined the following:
(1) the Registration statement, together with the Exhibits filed as a
part thereof;
(2) the Prospectus prepared in connection with the Registration Statement;
(3) the minutes of meetings and actions by written consent of the Board
of Directors that are contained in your minute books and that are in our
possession, that relate to the issuance of the Stock and the Warrant;
(4) the stock purchase and other agreements, other than those filed as
exhibits to the Registration Statement, pursuant to which the Selling
Shareholders acquired the Stock and the Warrant as described in the
Registration Statement; and
(5) such other documents as I have deemed appropriate in order to provide
this opinion.
In my examination of documents for purposes of this opinion, I have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to me as
originals, the conformity to originals of all documents submitted to me as
copies, the legal capacity of all natural persons executing the same, the lack
of any undisclosed terminations, modifications, waivers or amendments to any
documents reviewed by me and the due execution and delivery of all documents
where due execution and delivery are prerequisites to the effectiveness
thereof.
As to matters of fact relevant to this opinion, I have relied solely upon
my examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from records included in
the documents referred to above. I have made no independent investigation or
other attempt to verify the accuracy of any of such information or to determine
the existence or non-existence of any other factual matters; however, I am not
aware of any facts that would lead me to believe that the opinion expressed
herein is not accurate.
<PAGE> 2
In rendering any opinion that the shares of Stock are, or will when issued
be, "fully paid," I have assumed that such shares will be issued in accordance
with the terms of the underwriting agreement filed as an exhibit to the
Registration Statement, and that the Company will receive full consideration
for the issuance of such shares provided for in such agreement.
Based upon the foregoing, it is my opinion that the shares of Stock to be
issued by the Company pursuant to the Registration Statement are legally issued
and nonassessable and, to our knowledge, fully paid.
I consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to me, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and is intended solely for the
your use as an exhibit to the Registration Statement for the purpose of the
above sale of the Stock and is not to be relied upon for any other purpose.
Very truly yours,
/s/ GEOFFREY B. KOBLICK, ESQ.
------------------------------
Geoffrey B. Koblick, Esq.
