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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 13D
INFORMATION TO BE INCLUDED IN STATEMENTS FILED
PURSUANT TO RULE 13D-1(A) AND AMENDMENTS THERETO
FILED PURSUANT TO RULE 13D-2(A)
(AMENDMENT NO. )
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
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(NAME OF ISSUER)
COMMON STOCK, $.01 PAR VALUE SHARE
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(TITLE OF CLASS OF SECURITIES)
459862 30 6
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(CUSIP NUMBER)
Stephen T. Burdumy, Esq.
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
260 South Broad Street
Philadelphia, PA 19102
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(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS)
March 2, 2000
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(DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box
/X/.
NOTE. Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. SEE Rule 13d-7(b) for other
parties to whom copies are to be sent.
(Continued on following page(s))
Page 1 of 7
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CUSIP No. 459862 30 6 Page 2 of 7 Pages
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(1) NAMES OF REPORTING PERSONS.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Capital Ventures International
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(2) CHECK THE APPROPRIATE BOX IF A MEMBER (a) / /
OF A GROUP* (b) / /
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(3) SEC USE ONLY
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(4) SOURCE OF FUNDS*
WC
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(5) CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E) / /
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(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
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NUMBER OF SHARES (7) SOLE VOTING POWER
BENEFICIALLY OWNED 2,500,000
BY EACH REPORTING --------------------------------------------------
PERSON WITH (8) SHARED VOTING POWER
2,500,000**
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(9) SOLE DISPOSITIVE POWER
2,500,000
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(10) SHARED DISPOSITIVE POWER
2,500,000**
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(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,500,000
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(12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* / /
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(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
27.5%***
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(14) TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTION BEFORE FILLING OUT!
** Heights Capital Management, Inc. is the investment advisor to Capital
Ventures International and, as such, may exercise voting and dispositive
power over these shares.
*** Based upon the information contained in the Company's Quarterly Report on
Form 10-Q filed on November 15, 1999 and after giving effect to the shares
of Common Stock issued to CVI on March 2, 2000 pursuant to the Agreement
(as defined below) and the letter agreement of March 2, 2000, the number of
shares of Common Stock outstanding is 9,086,722.
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CUSIP No. 459862 30 6 Page 3 of 7 Pages
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(1) NAMES OF REPORTING PERSONS.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Heights Capital Management, Inc.
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(2) CHECK THE APPROPRIATE BOX IF A MEMBER (a) / /
OF A GROUP* (b) / /
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(3) SEC USE ONLY
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(4) SOURCE OF FUNDS*
N/A
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(5) CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E) / /
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(6) CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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NUMBER OF SHARES (7) SOLE VOTING POWER
BENEFICIALLY OWNED 0
BY EACH REPORTING --------------------------------------------------
PERSON WITH (8) SHARED VOTING POWER
2,500,000**
--------------------------------------------------
(9) SOLE DISPOSITIVE POWER
0
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(10) SHARED DISPOSITIVE POWER
2,500,000**
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(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,500,000
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(12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* / /
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(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
27.5%***
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(14) TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTION BEFORE FILLING OUT!
** Heights Capital Management, Inc. is the investment advisor to Capital
Ventures International and, as such, may exercise voting and dispositive
power over these shares.
*** Based upon the information contained in the Company's Quarterly Report on
Form 10-Q filed on November 15, 1999 and after giving effect to the shares
of Common Stock issued to CVI on March 2, 2000 pursuant to the Agreement,
(as defined below) and the letter agreement of March 2, 2000, the number of
shares of Common Stock outstanding is 9,086,722.
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CUSIP No. 459862 30 6 Page 4 of 7 Pages
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Statement of
Reporting Persons (as defined below)
Pursuant to Section 13(d) of the
Securities Exchange Act of 1934
in respect of
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
This Report is filed by Capital Ventures International ("CVI") and
Heights Capital Management, Inc. ("Heights") on Schedule 13D with respect to the
common stock, $.01 par value per share (the "Common Stock"), of International
Microcomputer Software, Inc. (the "Company").
The descriptions contained in this Report of certain agreements and
documents are qualified in their entirety by reference to the complete text of
such agreements and documents filed as Exhibits hereto or incorporated herein by
reference.
ITEM 1. SECURITY AND ISSUER
The class of equity securities to which this statement relates is the
Common Stock of the Company. The principal executive office of the Company is
located at 75 Rowland Way, Novato, CA 94949.
ITEM 2. IDENTITY AND BACKGROUND
CVI is an unlimited liability company organized under the laws of the
Cayman Islands, with its principal place of business and principal office
located at One Capital Place, P.O. Box 1787GT, Grand Cayman, Cayman Islands,
BWI.
CVI is a company engaged in the purchase of securities for investment.
The entire share capital of CVI is owned by CVI Holdings, LLC , a
Delaware limited liability company, which does not conduct business other than
as a holding company for CVI. CVI Holdings, LLC's principal place of business
and principal office is located at 42 Reads Way, New Castle, DE 19720.
Mu Holdings, Inc., a Delaware corporation, owns 100% of the outstanding
membership interests of CVI Holdings, LLC. Mu Holdings, Inc. does not conduct
business other than as a holding company for direct or indirect subsidiary
operating companies engaged in the securities business. Mu Holdings, Inc.'s
principal place of business and principal office is located at 42 Reads Way, New
Castle, DE 19720. All of the outstanding capital stock of Mu Holdings, Inc. is
owned by Susquehanna International Holdings, Inc., a Delaware corporation which
does not conduct business other than as a holding company for direct and
indirect subsidiary operating companies which engage in the securities business.
Susquehanna International Holdings, Inc.'s principal place of business and
principal office is located at 42 Reads Way, New Castle, DE 19720.
Heights is the investment advisor to CVI and, as such, may exercise
voting and dispositive power over the Common Stock. Heights is a Delaware
corporation with a business address located at 425 California Street, San
Francisco, CA 94104.
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CUSIP No. 459862 30 6 Page 5 of 7 Pages
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CVI's directors are Arthur Dantchik, Joel Greenberg and Ian Wight, a
U.K. citizen and a trust accountant with a business address of RHB Trust
Company, Ltd, 1 Capital Place, Grand Cayman, Cayman Islands, BWI. The executive
officers of CVI are Richard Douglas, a U.K. citizen and a trust accountant, and
Woodbourne Associates (Cayman) Ltd., a Nominee Company located in the Cayman
Islands. Heights' directors are Jeffrey Yass, Eric Brooks, Arthur Dantchik,
Andrew Frost and Joel Greenberg. The executive officers of Heights are Andrew
Frost, President, Brian Sullivan, Treasurer and Michael Spolan, Secretary.
Messrs. Yass, Brooks, Dantchik, Frost and Greenberg are U.S. citizens and are
engaged in the investment business. Messrs. Yass, Brooks, Dantchik and Greenberg
have a business address of 401 City Line Avenue, Suite 220, Bala Cynwyd, PA
19004. Mr. Frost has a business address at 425 California Street, San Francisco,
CA 94104.
During the last five years, neither CVI, Heights, nor to the best of
CVI's and Heights' knowledge, any individual or entity named in this Item 2, has
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or has been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such civil
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to, federal
or state securities laws or finding any violation with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
CVI and the Company are parties to a Securities Purchase Agreement,
dated as of March 3, 1999 (the "Agreement"). At the initial closing under the
Agreement on March 5, 1999, CVI acquired 437,637 shares of Common Stock and a
warrant to acquire 131,291 shares of Common Stock at an exercise price of
$14.8525 per share (the "Warrant") for an aggregate purchase price of
$2,500,000. The Warrant became exercisable on March 5, 2000; however, in no
event may CVI exercise the Warrant to the extent that (a) the number of shares
of Common Stock beneficially owned by CVI and its affiliates and (b) the number
of shares of Common Stock issuable upon exercise of the Warrant (or portion
thereof) with respect to which the determination described herein is being made,
would result in beneficial ownership by CVI and its affiliates of more than 4.9%
of the outstanding shares of Common Stock (the "4.9% Limitation").
In addition, the Agreement granted CVI the right to purchase, on
September 5, 2000, up to 375,117 shares of Common Stock (the "Optional Shares")
at a per share price of $7.9975 per share. The Agreement also provided that the
Company would issue to CVI additional shares of Common Stock (the "Adjustment
Shares") in the event that the price of the Common Stock were to decline prior
to the effectiveness of the Company's registration statement covering the resale
of shares of Common Stock by CVI (the "Registration Statement"). The Company's
obligations to file the Registration Statement are set forth in a Registration
Rights Agreement dated September 5, 1999 (the "Registration Rights Agreement").
CVI utilized its own working capital funds to consummate the purchase
of the Common Stock.
ITEM 4. PURPOSE OF TRANSACTION.
On March 2, 2000, CVI and the Company entered into a letter agreement,
pursuant to which the number of Adjustment Shares and the Company's payment
obligations to CVI, under the Registration Rights Agreement, in respect of the
Company's failure to obtain the effectiveness of the Registration Statement were
determined. Specifically, the letter agreement obligated the Company to issue an
aggregate of 2,062,363 additional shares of Common Stock to CVI to satisfy these
obligations to CVI.
CVI continues to hold the Warrant and will have the right to acquire
the Optional Shares, as discussed above; however, unless the price of the Common
Stock dramatically increases above its current level of less than $1.00 per
share, it is highly unlikely that CVI will exercise the Warrant or acquire any
Optional Shares.
CVI acquired the Common Stock for investment. Other than as noted above
with respect to the possible exercise of the Warrant or the acquisition of the
Optional Shares, CVI does not currently have any plan or intention to acquire
additional securities of the Company. Depending on the market conditions for the
Common Stock, other investment opportunities available to CVI, and based upon
other considerations, the Reporting Persons may dispose of shares of Common
Stock from time to time.
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CUSIP No. 459862 30 6 Page 6 of 7 Pages
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CVI and Heights previously reported beneficial ownership of shares of
Common Stock on Schedule 13G. This statement on Schedule 13D is being filed to
report that the beneficial ownership of CVI and Heights has increased such that
CVI and Heights each beneficially owns in excess of 20% of the outstanding
Common Stock of the Company. Neither CVI, Heights, nor any of the other entities
or persons identified in Item 2 of this Schedule 13D is acting as a "group" (as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended)
among themselves or with any other persons or entities.
To the best knowledge of CVI and Heights, neither CVI nor Heights has
any plans or proposals that relate or would result in any of the transactions
referred to in sub-items (a) through (j) of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
The total of number of shares of Common Stock that CVI and Heights
beneficially owns is 2,500,000 shares or 27.5 % of the outstanding Common Stock.
Such amount does not include any shares of Common Stock issuable upon exercise
of the Warrant because of the 4.9% Limitation.
To the best knowledge of CVI and Heights, other than CVI and Heights,
none of the individuals and entities listed in Item 2 hereof beneficially owns
any Common Stock. To the best knowledge of CVI and Heights, other than CVI and
Heights, none of the individuals listed in Item 2 hereof has effected any
transactions in the Common Stock during the past 60 days.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
Other than as set forth herein and above in Items 3 and 4, there are no
other contracts, arrangements, understandings or relationships between the
Company and the Reporting Persons with respect to securities of the Company.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit A - Securities Purchase Agreement1
Exhibit B - Registration Rights Agreement
Exhibit C - Warrant
Exhibit D - Letter Agreement dated March 2, 2000
Exhibit E - Limited Power of Attorney
Exhibit F - Joint Filing Agreement
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1 Incorporated by Reference from Exhibit No. 4.1 of the Copy's Current Report
on Form 8-K dated March 23, 1999.
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CUSIP No. 459862 30 6 Page 7 of 7 Pages
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Date: March 13, 2000 CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, Inc.,
pursuant to a Limited Power of
Attorney attached hereto as Exhibit E
By: /s/ Michael Spolan
------------------------------------
Michael Spolan, General Counsel and
Secretary
HEIGHTS CAPITAL MANAGEMENT, INC.
By: /s/ Michael Spolan
------------------------------------
Michael Spolan, General Counsel and
Secretary
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of March 5,
1999, by and among INTERNATIONAL MICROCOMPUTER SOFTWARE, INC., a corporation
organized under the laws of the State of California, with executive offices
located at 75 Rowland Way, Novato, California 94949 (the "COMPANY"), and the
undersigned (together with affiliates, the "INITIAL INVESTOR").
WHEREAS:
A. In connection with the Securities Purchase Agreement of even date
herewith by and between the Company and the Initial Investor (the "SECURITIES
PURCHASE AGREEMENT"), the Company has agreed, upon the terms and subject to the
conditions contained therein to issue and sell to the Initial Investor (i) up to
$8,000,000 of the Company's common stock, no par value (the "COMMON STOCK"),
constituting Tranche 1 Shares, Adjustment Shares and Optional Tranche 2 Shares,
and (ii) warrants (the "WARRANTS") to acquire shares of Common Stock.
B. To induce the Initial Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"SECURITIES ACT"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have
the following meanings:
(i) "INVESTORS" means the Initial Investor and any
transferees or assignees who agree to become bound by the
provisions of this Agreement in accordance with Section 9
hereof and are entitled to the rights of this Agreement in
accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," AND "REGISTRATION"
refer to a registration effected by preparing and filing a
Registration Statement or Statements in compliance with the
Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on
a continuous basis ("RULE 415"), and the declaration or
<PAGE>
ordering of effectiveness of such Registration Statement by
the United States Securities and Exchange Commission (the
"SEC").
(iii) "REGISTRABLE SECURITIES" means (a) the Tranche
1 Shares, (b) the Optional Tranche 2 Shares, if any, (c) the
Adjustment Shares, if any, (d) the Warrant Shares and (e) any
shares of capital stock issued or issuable, from time to time
(with any adjustments), as a distribution on or in exchange
for or otherwise with respect to any of the foregoing.
(iv) "REGISTRATION STATEMENT" means the registration
statement on Form S-3 of the Company under the Securities Act
filed with the SEC pursuant to Section 2(a)(i) hereof to
effect a registration of all the Registrable Securities in
connection with the resale of the Registrable Securities.
(v) "REGISTRATION STATEMENTS" means the Registration
Statement and the Uncovered Shares Registration Statement.
(vi) "UNCOVERED SHARES REGISTRATION STATEMENT" means
the registration statement on Form S-3 of the Company under
the Securities Act filed with the SEC pursuant to Section
2(a)(ii) hereof to effect a registration of the Uncovered
Shares in connection with the resale of the Uncovered Shares.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATIONS.
(i) The Company shall prepare and file with the SEC
on or prior to the date which is thirty (30) calendar days
after the Closing Date, the Registration Statement. For
purposes of such filing, the Registration Statement shall
cover 1,131,603 shares of Registerable Securities, such number
being a good faith estimate on the date hereof of the maximum
potential number of Registrable Securities. The Registration
Statement, to the extent allowable under the Securities Act
and the Rules promulgated thereunder (including Rule 416),
shall state that the Registration Statement also covers such
number of additional shares of Common Stock as may become
issuable by reason of (a) stock splits, stock dividends or
similar transactions, (b) reductions in the Tranche 2 Per
Share Price in accordance with the terms of the Securities
Purchase Agreement or (c) increases in the number of Warrant
Shares in accordance with the terms of the Warrant. The
Registrable Securities included in the Registration Statement
shall be allocated to the Investors as set forth in Section 11
(k) hereof. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided to the Initial
Investor and its counsel for review and comment prior to its
filing or other submission. The
2
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Company shall use its best efforts to cause the Registration
Statement to become effective as soon as practicable after the
filing thereof.
(ii) If the Investors reasonably conclude that for
any reason the Registration Statement does not include all of
the Registrable Securities (such shares that are not included,
the "UNCOVERED SHARES"), the Company shall prepare and file
with the SEC on or prior to the date which is three (3)
business days after the Company receives notice from The
Investors of such conclusion, either (a) an amendment (the
"UNCOVERED SHARES AMENDMENT") to the Registration Statement
effecting a registration of the Uncovered Shares or the (b)
Uncovered Shares Registration Statement. The Uncovered Shares
Registration Statement, to the extent allowable under the
Securities Act and the Rules promulgated thereunder (including
Rule 416), shall state that the Uncovered Shares Registration
Statement also covers such number of additional shares of
Common Stock as may become issuable by reason of (x) stock
splits, stock dividends or similar transactions, (y)
reductions in the Tranche 2 Per Share Price in accordance with
the terms of the Securities Purchase Agreement, or (z)
increases in the number of Warrant Shares in accordance with
the terms of the Warrant. The Uncovered Shares included in the
Uncovered Shares Amendment or the Uncovered Shares
Registration Statement shall be allocated to the Investors as
set forth in Section 11(k) hereof. The Uncovered Shares
Amendment or the Uncovered Shares Registration Statement (and
each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided to
the Initial Investor and its counsel for review and comment
prior to its filing or other submission. The Company shall use
its best efforts to cause the Uncovered Shares Amendment or
the Uncovered Shares Registration Statement to become
effective as soon as practicable after the filing thereof.
b. UNDERWRITTEN OFFERING. If the Initial Investor and the
Company mutually agree in writing that one or more of the Registration
Statements will involve an underwritten offering, the Investors who
hold a majority in interest of the Registrable Securities subject to
such under-written offering, with the consent of the Initial Investor,
shall have the right to select one legal counsel to represent the
Investors and an investment banker or bankers and manager or managers;
to administer the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company. In
the event that any Investors elect not to participate in such
underwritten offering, the Registration Statements shall contain
appropriate plans of distribution reasonably satisfactory to the
Investors participating in such underwritten offering and the Investors
electing not to participate in such underwritten offering (including,
without limitation, the ability of nonparticipating Investors to sell
from time to time and at any time during the effectiveness of the
Registration Statements).
c. PAYMENTS BY THE COMPANY.
(i) If (a) the Registration Statement is not declared
effective by the SEC on or before one hundred twenty (120)
calendar days after the Tranche 1 Closing Date, or with
respect to an Uncovered Shares Amendment or Uncovered Shares
Registration Statement, sixty (60) calendar days after receipt
of the notice from the Investors provided for in Section
2(a)(ii), respectively (each, a "REGISTRATION DEADLINE"), or
(b) after the applicable registration statement or
3
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amendment has been declared effective by the SEC, sales of all
applicable Registrable Securities cannot be made pursuant to
such registration statement (by reason of a stop order or the
Company's failure to update such Registration Statement for
any other reason outside the control of the Investors) (each a
"Registration Suspension"), then the Company will make
payments to the Investors in such amounts and at such times as
shall be determined pursuant to this Section 2(c).
(ii) The Company shall pay to each Investor an amount
equal to the product of (a) the Tranche 1 Purchase Price
multiplied by (b) a fraction, the numerator of which is equal
to the number of Registrable Securities held by such Investor
as determined pursuant to Section 11(k) and the denominator of
which is the total number of Registrable Securities determined
in the same manner (the "INVESTOR'S FRACTIONAL INTEREST OF
REGISTRABLE SHARES"), multiplied by (c) one percent (1%) for
the first month or portion thereof, pro rata, after any
Registration Deadline and prior to the date the Registration
Statement, the Uncovered Shares Amendment or the Uncovered
Shares Registration Statement, as applicable, is declared
effective by the SEC, or the first month or portion thereof,
pro rata, and (d) two percent (2%) for each month or portion
thereof, pro rata, thereafter prior to the date the
Registration Statement, the Uncovered Shares Amendment or the
Uncovered Shares Registration Statement is declared effective
by the SEC, or each month or portion thereof, pro rata,
thereafter, that sales of any Registrable Securities cannot be
made pursuant to the Registration Statement or the Uncovered
Shares Registration Statement after a Registration Suspension.
(iii) Notwithstanding the foregoing, a Registration
Suspension effected by the Company pursuant to a Permitted
Blackout (as defined below) shall not give rise to an
obligation to make such payments. For purposes of this
Agreement, "PERMITTED BLACKOUT" shall mean the suspension of
the Registration Statement or uncovered Shares Registration
Statement after the Effective Date for up to fifteen (15)
business days upon the good faith determination by the
Company's Board of Directors that (A) a material financing,
acquisition or other extraordinary corporate transaction is in
the best interest of the Company and the holders of its
outstanding Common Stock, and the disclosure thereof to the
public would have a material adverse effect on the ability of
the Company to consummate such material financing, acquisition
or other extraordinary corporate transaction, or (B) facts
with respect to a material lawsuit or governmental
investigation exist which, if disclosed, would have a material
adverse effect on the Company, provided, however, that no more
than two (2) such Permitted Blackouts may be imposed during
any period of twelve (12) consecutive months.
(iv) Penalties incurred under this Section 2(c) shall
be paid in cash within five (5) days after the end of each
period that gives rise to such obligation or, if earlier,
within five (5) days after the end of each calendar month in
which such obligation accrues. If such payment is not made
within such five (5) day period, the Investor thereafter shall
be entitled to interest on the unpaid amount at a rate equal
of two percent (2%) per month until such amount is paid in
full to the Investor. If the Company is unable to pay all
amounts due and payable with respect to the penalties, the
Company will pay the Investors such amounts pro rata based
upon the total amounts payable to each Investor relative to
the total amounts payable to all Investors.
4
<PAGE>
d. PIGGY-BACK REGISTRATIONS. If at any time prior to the
expiration of the Registration Period, the Company shall file with the
SEC a registration statement relating to an underwritten offering for
its own account or an underwritten offering for the account of others
under the Securities Act of any of its equity securities (other than on
Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of
any entity or business or equity securities issuable in connection with
stock option or other employee benefit plans), the Company shall send
to each Investor written notice of such determination and, if within
fifteen (15) days after the date of such notice, such Investor shall so
request in writing, the Company shaft include in such registration
statement all or any part of the Registrable Securities such Investor
requests to be registered, except that if, in connection with any under
written, public offering for the account of the Company the, managing
underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the registration
statement because, in such underwriter(s)' judgment, marketing or other
factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
registration statement only such limited portion of the Registrable
Securities with respect to which such Investor has requested inclusion
hereunder as the underwriter shall permit. Any exclusion of Registrable
Securities shall be made pro rata among the Investors seeking to
include Registrable Securities and other selling shareholders, if any,
in proportion to the number of Registrable Securities sought to be
included by such Investors; and the number of shares of Common Stock
sought to be included by such other shareholders, if any; PROVIDED,
HOWEVER, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities, the
holders of which are not entitled to inclusion of such securities in
such registration statement or are not entitled to pro rata inclusion
with the Registrable Securities; and PROVIDED, FURTHER, however, that,
after giving effect to the immediately preceding proviso, any exclusion
of Registrable Securities shall be made pro rata with holders of other
securities having the right to include such securities in the
registration statement other than holders of securities entitled to
inclusion of their securities in such registration statement by reason
of demand registration rights (except to the extent any existing
agreements otherwise provide). No right to registration of Registrable
Securities under this Section 2(d) shall be construed to limit any
registration required under Section 2(a) hereof if an offering in
connection with which an Investor is entitled to registration under
this Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such registration statement
shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this
Agreement, on the same terms and conditions as other shares of Common
Stock included in such underwritten offering.
e. ELIGIBILITY FOR FORM S-3. The Company represents and
warrants that it meets the requirements for the use of Form S-3 for
registration of the sale by the Initial Investor and any other Investor
of the Registrable Securities and the Company shall file all reports
required -to be filed by the Company with the SEC in a timely manner
necessary to maintain such eligibility for the use of Form S-3.
f. RULE 416. The Company and the Investors each acknowledge
that a number of Registerable Securities shall be registered pursuant
to Rule 416 under the Securities Act so as to
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include in the Registration Statement any and all Registrable
Securities which may become issuable to prevent dilution by reason of
(i) stock splits, stock dividends or similar transactions, (ii)
reductions in the Tranche 2 Per Share Price in accordance with the
terms of the Securities Purchase Agreement or (iii) increases in the
number of Warrant Shares in accordance with the terms of the Warrant
(collectively, the "RULE 416 SECURITIES"). In this regard, the Company
agrees to take all steps reasonably necessary to ensure that the
maximum number of Registrable Securities which may be registered
pursuant to Rule 416 under the Securities Act are covered by the
Registrations Statement and, absent guidance from the SEC or other
definitive authority to the contrary, the Company shall affirmatively
support and not take any action adverse to the position that the
Registration Statement filed hereunder covers all of the Rule 416
Securities. If the Company determines that the Registration Statement
filed hereunder does not cover all of the Rule 416 Securities, the
Company shall immediately provide to each Investor written notice (a
"RULE 416 NOTICE") setting forth the basis for the Company's position
and the authority therefor.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall have the following obligations:
a. The Company shall keep the Registration Statements
effective pursuant to Rule 415 at all times until such date as is the
earlier of (i) the date on which all of the applicable Registrable
Securities have been sold and (ii) the date on which all of the
Registrable Securities (in the reasonable opinion of counsel to the
Initial Investor) may be immediately sold to the public without
registration or restriction pursuant to Rule 144(k) under the
Securities Act (the "REGISTRATION PERIOD"), which Registration
Statements as amended or supplemented, including the prospectuses
contained therein and all documents incorporated by reference therein,
shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to
make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statements and the prospectuses used in connection with
the Registration Statements as may be necessary to keep such
Registration Statements effective at all times during the applicable
Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the applicable
Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in
such Registration Statement.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statements and
its legal counsel (i) promptly after the same is prepared and publicly
distributed, filed with the SEC, or received by the Company, one copy
of such Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or supplement
thereto, and each letter written by or on behalf of the Company to the
SEC or the staff of the SEC (including, without limitation, any request
to accelerate the effectiveness of such Registration Statement or
amendment thereto), and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration
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<PAGE>
Statements, (ii) on the date of effectiveness of such Registration
Statement or any amendment thereto, a notice stating that such
Registration Statement or amendment has been declared effective, and
(iii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other
documents as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
Investor.
d. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by the Registration
Statements under such other securities or "blue sky" laws of such
jurisdictions in the United States as each Investor who holds
Registrable Securities being offered reasonably requests, (ii) prepare
and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness
thereof during the applicable Registration Period, (iii) take such
other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during such Registration Period,
and (iv) take all other actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions.
e. In the event the Investors who hold a majority in interest
of the Registrable Securities being offered in an offering select
underwriters for the offering pursuant to Section 2(b) hereof, the
Company shah, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations,
with the underwriters of such offering.
f. As promptly as practicable after becoming aware of any
event, the Company shall notify each Investor of the happening of such
event, of which the Company has knowledge, as a result of which the
prospectus included in either of the Registration Statements, as then
in effect, includes an untrue statement of a material fact or omission
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and use its best efforts
promptly to prepare a supplement or amendment to such Registration
Statement to correct such untrue statement or omission but in any event
within ten (10) calendar days, and deliver such number of copies of
such supplement or amendment to each Investor as such Investor may
reasonably request.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of
either of the Registration Statements, and, if such an order is issued,
to obtain the withdrawal of such order at the earliest practicable
moment (including in each case by amending or supplementing such
Registration Statement) and to notify each Investor who holds
Registrable Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance of such order and
the resolution thereof (and if such Registration Statement is
supplemented or amended, deliver such number of copies of such
supplement or amendment to each Investor as such Investor may
reasonably request).
h. The Company shall permit a single firm of counsel designate
by the Initial Investor to review each of the Registration Statements
and all amendments and supplements thereto
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<PAGE>
a reasonable period of time prior to their filing with the SEC, and not
file any document in a form to which such counsel reasonably objects.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after
the close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the Securities Act)
covering a twelve- month period beginning not later than the first day
of the Company's fiscal quarter next following the effective date of
each of the Registration Statements.
j. At the request of any Investor whose Registrable Securities
are included in one of the Registration Statements in an underwritten
offering, the Company shall furnish, on the date of effectiveness of
such Registration Statement dated as of such date, from counsel
representing the Company to the Investors to the effect that such
Registration Statement and the related prospectus comply as to form in
all material respects with the requirements of the Securities Act and
the applicable rules and regulations thereunder and that, to the best
of such counsel's knowledge, such Registration Statement does not
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading (except that no opinion need be expressed with respect to
the financial statements, including the notes and schedules thereto, or
any other financial, statistical or accounting information, or
information relating to the Investors or any underwriters or the method
of distribution of the Registrable Securities by the Investors and any
underwriters included therein).
k. The Company shall make available for inspection by (i) any
Investor whose Registrable Securities are included in the Registration
Statements, (ii) any underwriter participating in any disposition
pursuant to the Registration Statements, (iii) one firm of attorneys
and one firm of accountants or other agents retained by the Investors,
and (iv) one firm of attorneys retained by all such underwriters
(collectively, the "INSPECTORS") all pertinent financial and other
records, and pertinent corporate documents and properties of the
Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its
due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector
may reasonably request for purposes of such due diligence; PROVIDED,
HOWEVER, that each Inspector shall hold in confidence and shall not
make any disclosure (except to an Investor) of any Record or other
information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in any of the Registration
Statements, (b) The release of such Records is ordered pursuant to a
subpoena or other order from a court or government body of competent
jurisdiction or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation
of this or any other agreement. The Company shall not be required to
disclose any confidential information in such Records to any Inspector
until and unless such Inspector shall have entered into confidentiality
agreements (in form and substance satisfactory to the Company) with the
Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure
of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to
the Company and allow the Company, at the
8
<PAGE>
Company's expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein shall be deemed to limit the Investors'
ability to sell Registrable Securities in a manner which is otherwise
consistent with applicable laws and regulations or to effect the
obligations of the Company to comply with applicable securities laws
and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the
Company unless (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) the disclosure of
such information is necessary to avoid or correct a misstatement or
omission in either of the Registration Statements, (iii) the release of
such information is ordered pursuant to a subpoena or other order from
a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than
by disclosure in violation of this or any other agreement, or (v) such
Investor consents to the form and content of any such disclosure. The
Company agrees that it shall, upon learning that disclosure of such
information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor prior to making such disclosure,
and allow the Investor, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, such
information.
m. The Company shall use its best efforts to promptly either
(i) cause all the Registrable Securities covered by the Registration
Statements to be listed on the New York Stock Exchange or the American
Stock Exchange or another national securities exchange and on each
additional national securities exchange on which securities of the same
class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the
rules of such exchange, or (ii) secure the designation and quotation,
of all the Registrable Securities covered by each Registration
Statement on the Nasdaq National Market and, without limiting the
generality of the foregoing, to arrange for or maintain at least two
market makers To register with the National Association of Securities
Dealers ("NASD") as such with respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later
than the effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legends) representing
Registrable Securities to be offered pursuant to the Registration
Statements and enable such certificates to be in such denominations or
amounts, as the case may be, as the managing underwriter or
underwriters, if any, or the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters,
if any, or the Investors may request, and, within three (3) business
days after one of the Registration Statements is ordered effective by
the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the
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<PAGE>
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an opinion of
such counsel sufficient to permit the free transferability of the
Registrable Securities covered by such Registration Statement.
p. At the request of any Investor, the Company shall prepare
and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statements and the
prospectuses used in connection with the Registration Statements as may
be necessary in order to change the plan of distribution set forth in
the Registration Statements.
q. The Company shall comply with all applicable laws related
to the Registration Statements and offering and sale of securities and
all applicable rules and regulations of governmental authorities in
connection therewith (including without limitation the Securities Act
and the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated by the SEC).
r. The Company shall, subject to reasonable business
considerations, take such other actions to expedite or facilitate the
disposition of Registrable Securities as are reasonably requested by
any Investor or the underwriters.
s. From and after the date of this Agreement, the Company
shall not, and shall not agree to, allow the holders of any securities
of the Company to include any of their securities in either of the
Registration Statements or any amendment or supplement thereto without
the consent of the holders of a majority in interest of the Registrable
Securities.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities. At least five (5) business days prior to the first
anticipated filing date of the Registration Statement, the Uncovered Shares
Amendment or the Uncovered Shares Registration Statement, as applicable, the
Company shall notify each Investor of the information the Company requires from
each such Investor.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of each of the
Registration Statements hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from any such Registration Statement.
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<PAGE>
5. EXPENSES OF REGISTRATION. All reasonable expenses incurred by the
Company or the Investors in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3 above, including, without
limitation, all registration, listing and qualifications fees, printers and
accounting fees, the fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel selected by the Investors,
shall become by the Company. In addition, the Company shall pay all of the
Investors' costs and expenses (including legal fees) incurred in connection with
the enforcement of the rights of the Investors hereunder.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor whose Registrable Securities
were included in the Registration Statements and (ii) the directors,
officers, partners, members, employees and agents of such Investor and
each person who controls any Investor within the meaning of Section 15
of the Securities Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), if any, (each, an "INDEMNIFIED
PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self- regulatory
organization, whether commenced or threatened, in respect thereof,
"CLAIMS") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or
alleged untrue statement of a material fact in the Registration
Statements or the omission or alleged omission to state therein a
material fact required to be stated or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if
used prior to the effective date of such registration statement, or
contained in the final prospectus (as amended or supplemented, if the
Company files any amendment thereof or supplement thereto with the SEC)
or the omission or alleged omission to state therein any material fact
necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not
misleading, or (iii) any violation or alleged violation under the
Securities Act, the Exchange Act or any state securities law, or any
rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, "VIOLATIONS"). The Company shall
reimburse the Investors and each other Indemnified Person, promptly as
such expenses are incurred and are due and payable, for reasonable
out-of-pocket expenses incurred by them in connection with
investigating or defending any such Claim, provided that reimbursement
for legal fees shall be subject to the restrictions set forth in
Section 6(c) hereof. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a);
(i) shall not apply to a Claim arising out of or based upon a Violation
which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person
expressly for use in the Registration Statements or any such amendments
thereof or supplements thereto; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the
prior consent of the Company, which consent shall not be unreasonably
withheld; and (iii) with respect to any preliminary prospectus, shall
not inure to the benefit of any Indemnified Person if the untrue
statement or omission of material fact contained in the preliminary
prospectus
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<PAGE>
was corrected on a timely basis in the prospectus, as then amended or
supplemented, if such corrected prospectus was timely made available by
the Company pursuant to Section 3(c) hereof, and the Indemnified Person
was promptly advised in writing not to use the incorrect prospectus
prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used the incorrect prospectus or
failed to deliver the correct prospectus as required by the Securities
Act. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Indemnified Person and
shall survive the, transfer of the Registrable Securities by the
Investors pursuant to Section 9.
b. Each Investor whose Registrable Securities are included in
the Registration Statements agrees severally and not jointly to
indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors,
each of its officers who signs the Registration Statements, its
employees, agents and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, and any other shareholder selling securities pursuant
to the Registration Statements or any of its directors or officers or
any person who controls such shareholder or underwriter within the
meaning of the Securities Act or the Exchange Act (collectively and
together with an Indemnified Person, an "INDEMNIFIED PARTY"), against
any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of
or is based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such
Investor expressly for use in connection with such registration
statement; and subject to Section 6(c) such Investor will reimburse any
legal or other expenses (promptly as such expenses are incurred and are
due and payable) reasonably incurred by them in connection with
investigating or defending any such Claim; PROVIDED, HOWEVER, that the
indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid ill settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall
not be unreasonably withheld; PROVIDED, FURTHER, however, that the
Investor shall be liable under this Agreement (including this Section
6(b) and Section 7) for only that amount as does not exceed the net
proceeds actually received by such Investor as a result of the sale of
Registrable Securities pursuant to such registration statement. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of
any action (including any governmental action), such Indemnified Person
or Indemnified Party shall, if a Claim in respect thereof is to made
against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and
the indemnifying party shall have the right to participate in, and, to
the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel selected by the indemnifying party and reasonably
satisfactory to the Indemnified Person or the Indemnified Party, as the
case may be; PROVIDED, HOWEVER, that if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the
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indemnifying party in conducting the defense of any action
would be inappropriate due to actual or potential conflicts of interest
between such Indemnified Person or Indemnified Party and the
indemnifying party or if the actual or potential defendants in, or
targets of, any such action include both the Indemnified Person or the
Indemnified Party and the indemnifying party and any such Indemnified
Person or Indemnified Party reasonably determines that there may be
legal defenses available to such Indemnified Person or Indemnified
Party which are in conflict with those available to or may not be
asserted by such indemnifying party, then such Indemnified Person or
Indemnified Party shall have the night to retain separate counsel to
assume such legal defenses or defend such action in its entirety on
behalf of such Indemnified Person or Indemnified Party, if appropriate,
with the fees and expenses to be paid by the indemnifying party. The
indemnifying party shall pay for only one separate legal counsel for
the Indemnified Persons or the Indemnified Parties, as applicable, and
such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the
registration statement to which the Claim relates, if the Investors are
entitled to indemnification hereunder, or by the Company, if the
Company or any of its directors, officers or any person who controls
the Company within the meaning of the Securities Act or the Exchange
Act, is entitled to indemnification hereunder, as applicable. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified
Person or Indemnified Party under this Section 6, except to the extent
that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as such expense, loss, damage
or liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (i) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6, (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation, and (iii) contribution (together with any indemnification or
other obligations under this Agreement) by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 under the Securities Act ("RULE 144"),
the Company agrees to:
a. file with the SEC in a timely manner and make and keep
available all reports and other documents required of the Company under
the Securities Act and the Exchange Act so long as the Company remains
subject to such requirements (it being understood that nothing herein
shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing and availability of such
reports and other documents is required for the applicable provisions
of Rule 144; and
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<PAGE>
b. furnish to each Investor so long as such Investor owns
Shares, Warrants or Registrable Securities, promptly upon request, (i)
a written statement by the Company that it has complied with the
reporting requirements of Rule 144, the Securities Act and the Exchange
Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company,
and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144
without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the Investors
hereunder, including the right to have the Company register Registrable
Securities pursuant to this Agreement, shall be automatically assignable by each
Investor to any transferee of at least ten percent (10%) of the Registrable
Securities if: (i) the investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company after such assignment, (ii) the Company is furnished with written notice
of (a) the name and address of such transferee or assignee and (b) the
securities with respect to which such registration rights are being transferred
or assigned, (iii) following such transfer or assignment, the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act and applicable state securities laws and (iv) the transferee
or assignee agrees in writing with the Company to be bound by all of the
provisions contained herein.
10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with
written consent of the Company and Investors, who hold a majority in interest of
the Registrable Securities or in the case of a waiver by the Company, with the
written consent of the Company or in the case of a waiver by the Investors, with
the written consent of Investors who hold a majority in interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons. or
entities with respect to the same Registrable Securities, the Company
shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
b. Any notices 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 personally or by courier or by
confirmed telecopy, and shall be effective five (5) 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:
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<PAGE>
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 an Investor, at such address as such Investor shall have
provided in writing to the Company or such other address as such
Investor furnishes by notice given in accordance with this Section
11(b).
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
d. 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 to be performed in the
State of California. The Company irrevocably consents to the
jurisdiction of the United States federal courts and 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 oi 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 an
Investor's right 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.
e. This Agreement, the Securities Purchase Agreement and the
Warrants (including all schedules and exhibits thereto) constitute the
entire agreement among the parties hereto with respect to the subject
matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, the Securities Purchase Agreement
and the Warrants supersede all prior agreements and
15
<PAGE>
understandings among the parties hereto and thereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall
constitute one and the, same agreement. This Agreement, once executed
by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the
party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
j. All consents, approvals and other determinations to be made
by the Investors or the Initial Investor pursuant to this Agreement
shall be made by the Investors holding a majority in interest of the
Registrable Securities (determined as if all Warrants then outstanding
had been exercised for Registrable Securities and assuming no
Adjustment Shares are outstanding prior to the Adjustment Date) then
held by all Investors or by the Initial Investor, as the case may be.
k. The number of Registrable Securities included on the
Registration Statements and each increase to the number of Registrable
Securities included thereon shall be allocated pro rata among the
Investors based on the number of Registrable Securities held by each
Investor at the time of such establishment or increase, as the case may
be. In the event an Investor shall sell or otherwise transfer any of
such holder's Registrable Securities, each transferee shall be
allocated a pro rata portion of the number of Registrable Securities
included on a registration statement for such transferor. Any shares of
Common Stock included on a registration statement and which remain
allocated to any person or entity which does not hold any Registrable
Securities shall be allocated to the remaining Investors, pro rata
based on the number of shares of Registrable Securities then hold by
such Investors. For the avoidance of doubt, the number of Registrable
Securities held by an Investor shall be determined as if all Warrants
then outstanding and held by an Investor were exercised for Registrable
Securities. In addition, in calculating the number of Registrable
Securities held by an Investor, Adjustment Shares shall constitute
Registrable Securities for this purpose only after the Adjustment Date.
16
<PAGE>
l. For purposes of this Agreement, the term "BUSINESS DAY"
means any day other than a Saturday or Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by
law, regulation or executive order to close.
17
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
By:
------------------------------------
Name:
Title:
INITIAL INVESTOR:
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management,
its authorized agent
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 L. Spolan
with a copy of all notices to:
Gibson, Dunn & Crutcher LLP
One Montgomery Street
Telesis Tower
San Francisco, CA 94104
Telephone: No.: (415) 393-8200
Telecopy No.: (415) 986-5309
Attention: William L. Hudson, Esq.
18
<PAGE>
EXHIBIT C
VOID AFTER 5-00 P.M. SAN FRANCISCO
TIME ON MARCH 5, 2003
THIS WARRANT AND THE SHARES ISSUABLE, UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED UBE "SECURITIES ACT") OR THE SECURITIES LAWS
OF ANY STATE. THE SECURITIES REPRESENTED HEREBY AM THEREBY MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE
SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND
TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
Right to Purchase Common Shares, no par value
Date: March 5, 1999
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
STOCK PURCHASE WARRANT
'THIS CERTIFIES THAT, for value received, CAPITAL VENTURES
INTERNATIONAL, a corporation organized under the laws of the Cayman Islands
("CVI"), or its registered assigns, is entitled to purchase from INTERNATIONAL
MICROCOMPUTER SOFTWARE, INC., a corporation organized under the laws of the
State of California (the "COMPANY"), at any time or from time to time during the
period specified in Section 2 hereof, 131,291. paid and nonassessable shares of
the Company's Common Stock, no par value (the "COMMON STOCK"), at an exercise
price per share (the "EXERCISE PRICE") of $14.8525. The number of shares of
Common Stock purchasable hereunder (the "WARRANT SHARES") and the Exercise.
Price are subject to adjustment as provided in Section 4 hereof The term
"WARRANTS" means this Warrant and the other warrants, if any. of the Company
issued in connection with the Securities Purchase Agreement by and between the
Company and CVI, dated March 3, 1999 (the "SECURITIES PURCHASE AGREEMENT").
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES, PAYMENT FOR SHARES.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part at any time during the Exercise Period, by the
surrender of this Warrant to the Company during normal business hours on any
business day at the Company's principal executive offices (or such other office
or agency of the
<PAGE>
Company as it may designate by notice to the holder hereof), and upon (i)
delivery to the Company of a completed exercise agreement in the form attached
hereto (the "EXERCISE AGREEMENT") not less than seventy-five (75) days in
advance of the exercise date of the Warrant on its first exercise (the "INITIAL
NOTICE PERIOD") and (ii) either (A) payment to the Company in cash, by certified
or official bank check or by wire transfer for the account of the Company, of
the Exercise Price for the Warrant Shares specified in the Exercise Agreement or
(B) delivery to the Company at any time after the Initial Notice Period of a
written notice specifying its election to purchase the Warrant Shares specified
in the Exercise Agreement pursuant to a Net Issuance (as hereinafter defined),
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or such holder's
designee, as the record owner of such shares, as of the close of business on the
date on which this Warrant shall have been surrendered and on the date set forth
by the holder as the "EXERCISE DATE" in the Exercise Agreement. Certificates for
the Warrant Shares so purchased, representing the aggregate n-Limber of shares
specified in the Exercise Agreement less the number of Warrant Shares retained
by the Company to effect a Net Issuance, shall be delivered to the holder hereof
within a reasonable time, not exceeding three (3) business days, after this
Warrant shall have been so exercised. The certificates so delivered shall be in
such denominations as may be requested by the holder hereof and shall be
registered in the name of such holder or such other name as shall be designated
by such holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of such certificates, deliver to the holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
"NET ISSUANCE" shall mean that the holder shall surrender this Warrant
for that number of shares of Common Stock determined by multiplying the number
of Warrant Shares to which it would otherwise be entitled by a fraction, the
numerator of which shall be the difference between the then current Market Price
per share of the Common Stock and the Exercise Price, and the denominator of
which shall be the then current Market Price per share of Common Stock,
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or from
time to time on or after the earlier to occur of (i) the first anniversary from
the date on which this Warrant is issued or (b) the occurrence of a Capital
Transaction (as defined in the Securities Purchase Agreement), and before 5:00
p.m., San Francisco time on the fourth (4th) anniversary of the date of issuance
(the "EXERCISE PERIOD").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly
issued, fully paid, and nonassessable and free from all taxes, liens,
claims and encumbrances.
2
<PAGE>
(b) RESERVATION OF SHARES. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the
purpose of issuance upon exercise of this Warrant, a sufficient number
of shares of Common Stock to provide for the exercise of this Warrant.
(c) LISTING. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon
each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed or become listed
(subject to official notice of issuance upon exercise of this Warrant)
and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all shares of Common Stock from time to
time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise
of this Warrant if and so long as any shares of the same class shall be
listed on such national securities exchange or automated quotation
system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by
amendment of its charter or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or
performed by it hereunder, but will at all times in good faith assist
in the carrying out of all the provisions of this Warrant and in the
talking of all such action as may reasonably be requested by the holder
of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against dilution or other impairment, consistent
with the tenor and purpose of this Warrant- Without limiting the
generality of the foregoing, the Company (i) will not increase the par
value of any shares of Common Stock receivable upon the exercise of
this Warrant above the Exercise Price then in effect and (h) will take
all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant,
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon
any entity succeeding to the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets.
4. ANITIDILUTION PROVISIONS. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment f5rom time
to time as provided -in this Section 4.
In the event that my adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
to the nearest cent
(a) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company
at any time after the Tranche I Closing under the Securities Purchase
Agreement 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
3
<PAGE>
subdivision, the Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time
after the Tranche I Closing under the Securities Purchase Agreement
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 Exercise Price in effect immediately prior to
such combination will be proportionately increased.
(b) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the
number of shares of Common Stock issuable upon exercise of this Warrant
shall be adjusted by multiplying a number equal to the Exercise Price
in effect immediately prior to such adjustment by the number of shares
of Common Stock issuable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price.
(c) CONSOLIDATION, MERGER OR SALE. In case 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 6f any sale or conveyance of all or substantially all of the
assets of the Company other than in connection with a plan of complete
liquidation of the Company at any time after the Tranche I Closing
under the Securities Purchase Agreement, then as a condition of such
consolidation, merger or sale or conveyance, adequate provision will be
made whereby the holder of this Warrant will have the right, at its
sole option, to acquire and receive upon exercise of this Wan-ant in
lieu of the shares of Common Stock immediately theretofore acquirable
upon the exercise of this Warrant; (i) such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange
for the NUMBER of shares of Common Stock immediately theretofore
acquirable and receivable upon exercise of this Warrant had such shares
been issued immediately prior to the consummation of such
consolidation, merger or sale or conveyance, or (ii) an amount equal to
one-half of the sum of (A) the fair value of this Warrant based on the
difference between the Exercise Price and the value of the Warrant
Shares as reflected in the terms of such consolidation, merger or sale
or conveyance, and (B) the fair value of this Warrant based on an
exercise price equal to the market price of the Common Stock
immediately prior to the first public announcement of such
consolidation, merger or sale or conveyance, otherwise disregarding the
existence of such transaction. In any such case, the Company will make
appropriate provision to insure that the provisions of this Section 4
hereof will thereafter be applicable as nearly as may be in relation to
any shares of stock or securities thereafter deliverable upon the
exercise of this Warrant. 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 4 and the obligations to deliver to the holder of this Wan-ant
such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the holder may be entitled to acquire.
(d) DISTRIBUTION OF ASSETS. In case 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
4
<PAGE>
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 under the Securities Purchase
Agreement, then, in each case, the Exercise Price for any unexercised
portion of the Warrant 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 Exercise
Price in effect immediately prior to the close of business on the
record date with respect to such distribution by a fraction the
numerator of which is the average Closing Price (as defined in the
Securities Purchase Agreement) 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.
(e) NOTICE OF ADJUSTMENT . Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each
such case, the Company shall give notice thereof to the holder of this
Warrant, which notice shall state the Exercise Price resulting from
such adjustment and the increase or decrease in the number of Warrant
Shares, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based. Such calculation
shall be certified by the Chief Financial Officer of the Company.
(f) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the
Exercise Price in effect at the time such adjustment is otherwise
required to be made, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments so carried
forward, shall amount to not less than 1% of such Exercise Price.
(g) NO FRACTIONAL SHARES. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company
shall pay a cash adjustment in respect of any fractional share which
would otherwise be issuable in an amount equal to the same fraction of
the Market Price of a share of Common Stock on the date of such
exercise.
(h) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make
any other distribution (other than dividends or distributions
payable in cash out of retained earnings consistent with the
Company's past practices with respect to declaring dividends
and making distributions) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares
of stock of any class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or
consolidation or inner of the Company with or into, or sale of
all or substantially all of its assets to, another corporation
or entity; or
5
<PAGE>
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of
this Warrant (a) notice of the date on. which the books of the
Company shall close or a record shall be taken for determining the
holders of Common Stock entitled to receive any such dividend,
distribution, or subscription rights or for determining the holders
of Common. Stock entitled to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-p and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up, notice of the date (or, if
not then known, a reasonable approximation thereof by the Company)
when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to
receive such dividend, distribution, or subscription rights or to
exchange their Common Stock for stock or other securities or
property deliverable upon such reorganization, reclassification,
consolidation, merger,, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least
15 days prior to the record date or the date on which the Company's
books are closed in respect thereto. Failure to give any such notice
or any defect therein shall not affect the validity of the
proceedings referred to in clauses (i), (ii), (iii) and (iv) above.
(i) CERTAIN EVENTS. If, at any time after the Tranche I
Closing under the Securities Purchase Agreement, any event occurs of
the type contemplated by the adjustment provisions of this Section 4
but not expressly provided for by such provisions, the Company will
give notice of such event as provided in Section 4(e) hereof, and the
Company's Board of Directors will make an appropriate adjustment in the
Exercise Price and the number of shares of Common Stock acquirable upon
exercise of this Warrant so that the rights of the holder shall be
neither enhanced nor diminished by such event.
(j) CERTAIN DEFINITIONS
(i) "Market Price," as of any date, (i) means the
average of the closing bid prices for the shares of COMMON
Stock as reported on the Nasdaq National Market for the five
(5) trading days immediately preceding such date, or (ii) if
the Nasdaq National Market is not the principal trading market
for the shares of Common Stock, the average of the last
reported bid prices on the principal trading market for the
Common Stock during the same period, or, if there is no bid
price for such period, the last reported sales price for such
period, or (iii) if market value cannot be calculated as of
such date on any of the foregoing bases, the Market Price
shall be the average fair market value as reasonably
determined by an investment banking firm selected by the.
Company and reasonably acceptable to the holder, with the
costs of the appraisal to be borne by the Company. The manner
of determining the Market Price of the Common Stock set forth
in the f6regoing definition shall apply with respect to any
other security in respect of which a determination as to
market value must be made hereunder.
6
<PAGE>
(ii) "Common Stock," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of
the Company having no preference as to dividends or
distributions on liquidation, provided that the shares
purchasable pursuant to this Warrant shall include only Common
Stock, no par value, in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or
sale of the character referred to in Section 4(c) hereof, the
stock or other securities or property provided for in such
Section.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of ' the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase the Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFER, EXCHANGE, REDEMPTION AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in put, upon
surrender of this Warrant, together with a properly executed assignment
in the form attached hereto, at the office or agency of the Company
referred to in Section 7(e) below, provided, however, that any transfer
or assignment shall be subject to the conditions set forth in Sections
7(f) and (g) hereof. Until due presentment for registration of transfer
on the books of the Company, the Company may treat the registered
holder hereof as the owner and holder hereof for all purposes, and the
Company shall not be affected by any notice to the contrary.
Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 below are assignable only in
accordance with the provisions of that certain Registration Rights
Agreement, dated as of March 5, 1999 by and among the Company and the
other signatory thereto (the "REGISTRATION RIGHTS AGREEMENT").
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof
' at the office or agency of the Company referred to in Section 7(e)
below, for new Warrants of like tenor of different denominations
representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such
new Warrants to represent the right to purchase such number of shares
as shall be designated by the holder hereof at the time of such
surrender.
7
<PAGE>
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction,
or mutilation of this Warrant and, in the case of any such loss, theft,
or destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company, or, in the case of any
such mutilation, upon surrender and cancellation of this Warrant, the
Company, at its expense, will execute and deliver, in lieu thereof, a
new Warrant of like tenor.
(d) CANCELLATION: PAYMENT OF EXPENSES. Upon the surrender of
this Warrant in connection with any transfer, exchange or replacement
as provided in this Section 7, this Warrant shall be promptly canceled
by the Company. The Company shall pay all taxes (other than securities
transfer taxes) and all other expenses (other than legal or due
diligence expenses, if any, incurred by the Holder or transferees) and
charges payable in connection with the preparation, execution and
delivery of Warrants pursuant to this Sei6tion 7.
(e) WARRANT REGISTER. The Company shall maintain, at its
principal executive offices (or such other office or agency of the
Company as it may designate by notice to -the holder hereof), a
register for this Warrant, in which the Company shall record the name
and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee and each prior owner
of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the time
of the surrender of this Warrant in connection with any exercise,
transfer or exchange of this Warrant, this Warrant (or, in the case of
any exercise, the Warrant Shares issuable hereunder), shall not be
registered under the Securities Act and under applicable state
securities or blue sky laws, the Company may require, as a condition of
allowing such exercise, transfer or exchange, (i) that the holder or
transferee of this Warrant as the case may be, furnish to the Company a
written opinion. of counsel, which counsel shall be 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 such exercise, transfer or exchange may be made
without registration under the Securities Act and under applicable
state securities or blue sky laws, (ii) that the holder or transferee
execute and deliver to the Company an investment letter in form and
substance acceptable to the Company and (1) that the transferee be an
"ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated under the
Securities Act; provided that no such opinion, letter or status as an
"ACCREDITED INVESTOR" shall be required in connection with a transfer
pursuant to Rule 144 under the Securities Act.
(g) ADDITIONAL RESTRICTIONS ON EXERCISE OR TRANSFER.
Notwithstanding anything contained herein to the contrary, in no event
shall the holder hereof exercise Warrants to the extent that (a) the
number of shares of Common Stock beneficially owned by such holder and
its affiliates and (b) the number of shares of Common Stock issuable
upon- exercise of the Warrants (or portion thereof) with respect to
which the determination described herein is being made, would result in
beneficial ownership by such holder and its affiliates of more than
4.9% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall
8
<PAGE>
be determined in accordance with Section 13(d) of the Securities Exchange Act
of 1934, as amended, and Regulation 130-G thereunder, except as otherwise
provided in clause (a) hereof.
8. REGISTRATION RIGHTS. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
9. NOTICES. Any notices required or permitted to be given under the
terms of this Warrant shall be se by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, 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, CA 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.
and if to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 9.
10. GOVERNING LAW; JURISDICTION. This Warrant shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed in the State of California. The Company
irrevocably consents to the jurisdiction of the United States federal courts and
state courts located in San Francisco, California in any suit or proceeding
based on or arising under this Warrant 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 mi any such suit or
proceeding. Nothing herein shall
9
<PAGE>
affect the holder's right 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.
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the
holder hereof.
(b) DESCRIPTIVE READINGS. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference
only, and shall not affect the meaning or construction of any of the
provisions hereof
IN WITNESS WHEREOF, the Company has caused Us Warrant to be signed by
its duly authorized officer.
COMPANY:
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
By:
-------------------------------------
Name:
Title
10
<PAGE>
EXHIBIT D
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
75 ROWLAND WAY
NOVATO, CA 94949
March 1, 2000
Capital Ventures International
c/o Heights Capital Management, Inc.
425 California Street
Suite 1100
San Francisco, CA 94104
RE: ADJUSTMENT SHARES; FAILURE TO OBTAIN EFFECTIVENESS OF REGISTRATION
STATEMENT
Dear Sirs:
As we have agreed, International Microcomputer Software, Inc. (the
"Company") will satisfy (i) its obligation to issue Adjustment Shares to Capital
Ventures International ("CVI") pursuant to Section 1(e) of the Securities
Purchase Agreement, dated as of March 3, 1999, by and between the Company and
CVI (the "Agreement") and (ii) its existing liability to CVI under Section 2(c)
of the Registration Rights Agreement, by issuing an aggregate of 2,062,363
shares of Common Stock to CVI on or before March 3, 2000. For the avoidance of
any potential doubt, the Company confirms that it will use its best efforts to
include said number of shares on the registration statement to be filed or
amended covering resales by CVI. CVI and the Company have agreed that upon the
issuance of such shares, (i) the Company shall have no further obligation to
issue any additional Adjustment Shares to CVI and (ii) the Company shall not be
required to make any further payments to CVI in connection with the Company's
past failure to obtain the effectiveness of the registration statement. In
addition, CVI and the Company agree that, as of the date of this Letter, (i) the
Warrant continues to be exercisable by CVI for 131,291 shares of Common Stock at
an exercise price of $14.8525 per share and (ii) the Tranche 2 Per Share Price
continues to be $7.9975.
All other terms and provisions of the Agreement and the Registration
Rights Agreement shall continue and survive this letter and remain in full force
and effect. All capitalized terms used in this letter but not defined herein
shall have the meanings ascribed to such terms in the Agreement.
Please indicate your acceptance of and agreement with the terms of this
letter by signing below.
Sincerely,
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
By: /s/ GEOFF KOBLICK
----------------------------------
Name: Geoff Koblick
Title: CEO
Agreed to and Accepted:
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, Inc.,
its authorized agent
By: /s/ ANDREW FROST Date: 3/2/00
--------------------------- ----------------------------
Name: Andrew Frost
Title: President
<PAGE>
EXHIBIT E
LIMITED POWER OF ATTORNEY
THIS LIMITED POWER OF ATTORNEY given on the 3rd day of April, 1999 by
CAPITAL VENTURES INTERNATIONAL (hereinafter called "the Company"), whose
Registered Office is situated at Second Floor, One Capital Place, P.O. Box 1787,
Grant Cayman, Cayman Islands, B.W.I.
WHEREAS, by agreement dated March 10, 1997 by and between the Company
and Heights Capital Management, Inc., the Company expressly authorized heights
Capital Management, Inc. to enter into transactions in certain designated areas
as defined in the Agreement attached hereto marked "Appendix 1".
NOW THIS DEED WITNESSETH that Ian A.N. Wight (Director) and Woodbourne
Associates (Cayman) Limited (Secretary) of the Company, hereby appoint on behalf
of the Company the Firm of HEIGHTS CAPITAL MANAGEMENT, INC. which through its
officers, directors and employees is hereby formally granted limited power of
attorney for the purpose of entering into transactions on behalf of and for the
account of the Company and to take any actions on behalf of the Company as may
be necessary to consummate such transactions, including but not limited to
instructing the transfer of funds where necessary and executing required
documentation.
IN WITNESS WHEREOF, the Company has caused its common seal to be
hereunto affixed the day and year above written.
THE COMMON SEAL OF
CAPITAL VENTURES INTERNATIONAL
was hereunto affixed in the presence of:
/s/ IAN A.N. WRIGHT
---------------------------------------
Ian A.N. Wight
(Director)
[SEAL OF CAYMAN ISLANDS APPEARS HERE]
/s/ WOODBOURNE ASSOCIATES (CAYMAN) LIMITED
---------------------------------------
Woodbourne Associates (Cayman) Limited
Secretary
<PAGE>
EXHIBIT F
JOINT FILING AGREEMENT
The undersigned hereby agree that the statement on Schedule 13D with
respect to shares of Common Stock of International Microcomputer Software, Inc.,
dated March 2, 2000, and any amendments thereto signed by each of the
undersigned shall be filed on behalf of each of them pursuant to and in
accordance with the provisions of 13(d)-1(k) under the Securities Exchange Act
of 1934.
Date: March 13, 2000 CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, Inc.,
pursuant to a Limited Power of Attorney
attached hereto as Exhibit E
By: /s/ Michael Spolan
-----------------------------------
Michael Spolan, General Counsel and
Secretary
Date: March 13, 2000 HEIGHTS CAPITAL MANAGEMENT, INC.
By: /s/ Michael Spolan
-----------------------------------
Michael Spolan, General Counsel and
Secretary
