-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J8/Hddt/zZCjbqxvw0vO+PIVWBCjFxMr54hM+gFBr6a5tmHBkAMeGqL8VdPVEL2O t97qP9XY+gPXFwAaEzjIiw== 0000950149-99-001075.txt : 19990610 0000950149-99-001075.hdr.sgml : 19990610 ACCESSION NUMBER: 0000950149-99-001075 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19990608 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL MICROCOMPUTER SOFTWARE INC /CA/ CENTRAL INDEX KEY: 0000814929 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942862863 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-80235 FILM NUMBER: 99642469 BUSINESS ADDRESS: STREET 1: 75 ROWLAND WAY CITY: NOVATO STATE: CA ZIP: 94945 BUSINESS PHONE: 4154543000 MAIL ADDRESS: STREET 1: 1895 EAST FRANCISCO BLVD CITY: SAN RAFAEL STATE: CA ZIP: 94901 S-3 1 FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 8, 1999 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------------- INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. (Exact name of the Registrant as specified in its charter) CALIFORNIA 94-2862863 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 75 ROWLAND WAY NOVATO, CALIFORNIA 94945 (415) 257-3000 (Address and telephone number of the Registrant's principal executive offices) ---------------------- COSTA JOHN CHIEF EXECUTIVE OFFICER INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. 75 ROWLAND WAY, NOVATO, CA 94945 (415) 257-3000 (Name, address and telephone number of the Registrant's agent for service) ---------------------- Copies to: KEVIN KELSO FENWICK & WEST LLP TWO PALO ALTO SQUARE, SUITE 800 PALO ALTO, CALIFORNIA 94306 (650) 494-0600 ---------------------- Approximate date of commencement of proposed sale to the public: From time to time after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE =============================================================================================================== PROPOSED MAXIMUM PROPOSED TITLE OF EACH CLASS OF SHARES OF AMOUNTS TO OFFERING PRICE MAXIMUM AMOUNT OF COMMON STOCK BE PER SHARE(1) AGGREGATE REGISTRATION TO BE REGISTERED REGISTERED(1) OFFERING PRICE(1) FEE - --------------------------------------------------------------------------------------------------------------- common stock no par value 2,524,823 $6.25 $15,780,144 $4,390 ===============================================================================================================
(1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based on the average of the high and low prices of the common stock on the Nasdaq Stock Market on June 3, 1999. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE. 2 SUBJECT TO COMPLETION, DATED JUNE 8, 1999 - -------------------------------------------------------------------------------- PROSPECTUS - -------------------------------------------------------------------------------- INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. 2,524,823 SHARES OF COMMON STOCK International Microcomputer Software's common stock currently trades on the Nasdaq Stock Market. Last reported sale price on June 3, 1999: $6.25 per share. Trading Symbol: IMSI ------------------------------------------- THE OFFERING The selling stockholders named on page 13 of this prospectus are selling all of the shares of Common stock offered in this prospectus. International Microcomputer Software, Inc., or "IMSI", will not receive any of the proceeds from the sale of these shares. These shares are being offered on a continuous basis under Rule 415 of the Securities Act of 1933 and will be sold from time to time as described under "Plan of Distribution." IMSI will pay approximately $50,000 in registration expenses. IMSI will not be required to pay any discounts, commissions or selling expenses in connection with this registration. The selling stockholders, and broker-dealers who may participate in sale of the shares covered by this prospectus, may use this prospectus. The shares covered by this prospectus may, if qualified, also be sold pursuant to Rule 144 of the Securities Act or any other applicable exemption. ------------------------------------------- THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. PLEASE CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 2 OF THIS PROSPECTUS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is _____, 1999 ================================================================================ THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. ================================================================================ 1 3 IN CONNECTION WITH THIS OFFERING, NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF SUCH INFORMATION IS GIVEN OR REPRESENTATIONS MADE, YOU MAY NOT RELY ON SUCH INFORMATION OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE REGISTERED HEREBY, NOR IS IT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. YOU MAY NOT IMPLY FROM THE DELIVERY OF THIS PROSPECTUS, NOR FROM ANY SALE MADE UNDER THIS PROSPECTUS, THAT OUR AFFAIRS ARE UNCHANGED SINCE THE DATE OF THIS PROSPECTUS OR THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME AFTER THE DATE OF THIS PROSPECTUS. -------------------------- TABLE OF CONTENTS -------------------------- Risk Factors......................................................2 Use of Proceeds..................................................13 Selling Stockholders.............................................13 Plan of Distribution.............................................16 Where You Can Find More Information..............................18 Documents Incorporated by Reference..............................19 Legal Matters....................................................18 Unless the context otherwise requires, the terms "we," "our," "us" and "IMSI" refer to International Microcomputer Software, Inc., a California corporation. IMSI We are a provider of productivity software for growing businesses. We distribute our products in more than 60 countries and in 13 languages via retail, direct, and on-line channels. Since our founding in 1982, we have sold more than ten million units worldwide. We offer a broad spectrum of award-winning solutions for growing businesses in the computer-aided design ("CAD"), business applications, visual content and utilities categories. Our headquarters are located in California and we have offices in Canada, France, Germany, Australia, South Africa, Sweden, Japan and the United Kingdom. RISK FACTORS Please carefully consider the specific factors set forth below as well as the other information contained in, or incorporated by reference into, this prospectus before purchasing shares of our common stock. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below. WE EXPECT A LARGE LOSS IN THE FISCAL YEAR ENDED JUNE 30, 1999. We anticipate that IMSI will have a net loss for its fourth fiscal quarter ending June 30, 1999 and will have a net loss for the entire fiscal year. Results for Fiscal 2000 will be affected by, among other factors, the timing and the number of new product releases or upgraded versions of existing products, as well as marketing and promotional expenditures in connection with the product releases and the timing of product announcements or introductions by our competitors. WE ARE IN NEGOTIATIONS REGARDING OUR BANK LINE OF CREDIT UNDER WHICH CERTAIN EVENTS OF DEFAULT HAVE OCCURRED. IMSI has a line of credit agreement with Union Bank under which it can borrow the lesser of $13,500,000 or 80% of eligible accounts receivable, at Union Bank's reference rate plus 1/2 % or LIBOR plus 2%, at IMSI's option. The line of credit agreement requires IMSI to comply with certain financial covenants including maintenance of net worth and working capital requirements. Under the terms of the agreement, all assets not subject to liens of other financial institutions have been pledged as collateral against the line of credit. The credit line expires October 31, 1999. 2 4 As a result of covenant violations, certain events of default have occurred that, among other things, entitle Union Bank to declare all loans and other obligations of IMSI under the line of credit to be immediately due and payable and to commence immediate enforcement and collection actions, except for the agreements described in the next paragraph. On March 5, 1999, IMSI and Union Bank executed a forbearance agreement, whereby IMSI agreed to pay down the amount by which IMSI's obligations to Union Bank exceeded the sum permitted to be borrowed in accordance with the agreement such that the remaining over-advance did not exceed $2,250,000. IMSI accordingly paid approximately $1,773,000 of the balance outstanding on the line of credit in March 1999. Union Bank agreed to forbear taking any enforcement actions until April 5, 1999. IMSI and Union Bank recently entered into agreements amending the credit agreement and related instruments. Subject to IMSI's compliance with the amendment agreements, Union Bank waived IMSI's compliance with certain of the covenants contained in the credit agreements with respect to our third and fourth quarters of fiscal 1999, subject to certain conditions including payments by us to reduce our outstanding balance under the credit facility by at least $1,800,000. We used a portion of the proceeds that we received from the BayStar financing described in the next paragraph below to make this payment. If we breach the provisions of the credit agreements as amended or violate one or more of the covenants in the amended agreements, Union Bank could declare all loans and the obligations under the agreements to be immediately due and payable and could commence immediate enforcement and collection actions, which could have a material adverse effect on IMSI's business, operating results and financial condition. WE NEED TO RAISE ADDITIONAL FUNDS. On May 26, 1999, we announced that we completed a private placement transaction (the "BayStar Financing") in which we received $5,000,000 from BayStar Capital and we issued to BayStar a three-year $5,000,000 principal amount 9% subordinated convertible note, and a warrant to acquire 250,000 shares of common stock at an initial exercise price of $7.59 per share. The note is convertible into shares of common stock at an initial conversion price of $7.59 per share. The note and warrant contain various anti-dilution and other provisions which could, depending upon the occurrence of certain events including the market price of the common stock at future dates and the terms of certain kinds of future equity financing transactions, result in additional shares being issuable upon conversion of the note or exercise of the warrant. Even with the proceeds from the BayStar Financing, we currently anticipate that the available funds and cash flows generated from operations will not be sufficient to meet our anticipated needs for working capital and capital expenditures for the next 12 months. Therefore, we will need to raise additional funds i the near future. As a result of our need for funds and our substantial losses during fiscal 1999 to date, during fiscal 1999 we instituted measures to improve operations and cash flows, including substantial personnel reductions and the initiation of certain cost cutting programs, and we may take further measures, including further personnel reductions, during fiscal 1999 and thereafter. We will need to raise significant new working capital through additional debt or equity financing in order to sustain our operations and fund our operating plans, and to fund business expansion, develop new or enhanced products, respond to competitive pressures or acquire complementary products, businesses or technologies. If we successfully raise additional funds, it is likely that they will be raised through the issuance of equity or convertible debt securities, and thus the percentage of ownership of the stockholders will be reduced, stockholders will experience additional dilution and such securities may have rights, preferences or privileges senior to those of the holders of our common stock. We cannot provide any assurance that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to fund expansion, take advantage of unanticipated acquisition opportunities, develop or enhance services or products or respond to competitive pressures. In addition, such inability could have a material adverse effect on our business, operating results and financial condition. Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The losses discussed above, and other factors such as our liquidity, raise questions concerning our ability to continue as a going concern. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our continuation as a going concern is dependent upon our ability to obtain additional financing or refinancing, to generate sufficient cash flow to meet our obligations on a timely basis, and ultimately to attain successful operations. OUR PREVIOUS AUDIT FIRM RESIGNED. As we reported in a Form 8-K filed on April 26, 1999, Deloitte & Touche, LLP resigned in April 1999 as our independent auditor. As reported in the Form 8-K filed by IMSI on May 12, 1999, IMSI retained Grant Thornton, LLP as our new independent auditor. 3 5 WE EXPERIENCE FLUCTUATIONS IN OUR OPERATING RESULTS. We have experienced, and expect to continue to experience, significant fluctuations in operating results due to a variety of factors. We experienced growth during fiscal 1998, 1997, and 1996. However, during fiscal year 1999, we suffered a significant decline in revenue from $45.6 million in the nine months ended March 31, 1998 to $30.9 million in the nine months ended March 31, 1999. This decline in revenue has resulted in our reporting net losses for the first three quarters of fiscal 1999 with a net loss of $5.4 million in the nine months ended March 31, 1999, compared with a net loss of $1.9 million in the six months ended December 31, 1997. Factors that may cause fluctuations in operating results in the future include, but are not limited to, - market acceptance of our products or those of our competitors; - the timing of introductions of new products and new versions of existing products; - expenses relating to the development and promotion of such new products and new version introductions; - product returns and reserves; changes in pricing policies by us or our competitors; - projected and actual changes in platforms and technologies; - the accuracy of forecasts of, and fluctuations in, consumer demand; - the extent of third party royalty payments; - the rate of growth of the consumer software market; - fluctuations in foreign exchange rates; - the timing of orders or order cancellation from major customers; - changes or disruptions in the consumer software distribution channels; - the successful acquisition and integration of new businesses, products and technologies; - the timing of any write-offs in connection with such acquisitions; and - economic conditions, both generally and within our industry. We may also be required to pay fees in advance or to guarantee royalties, which may be substantial, or to obtain software licenses from third parties. As a result of these and other factors, our operating results in any given period are inherently difficult to predict. Any significant shortfall in revenues and earnings from the levels expected by securities analysts and stockholders could result in a substantial decline in the trading price of our common stock. While our business has not generally been materially affected by seasonal trends, the seasonality of the European, Asia/Pacific and other international markets could impact our operating results and financial condition in a particular quarter given the significant portion of net revenues contributed by international operations. The markets for our products are also characterized by significant price competition, which may cause our operating results to fluctuate. WE ANTICIPATE A SIGNIFICANT RESTRUCTURING CHARGE DURING THE FOURTH QUARTER OF FISCAL 1999. IMSI is in the process of implementing a company-wide restructuring in response to its fiscal 1999 decline in revenues and net losses. In this regard, we are attempting to reduce the costs associated with our retail 4 6 operations, to focus on our strongest product franchises, and to discontinue investment in non-strategic products. We plan to move to a more variable cost model and reduce fixed infrastructure. We expect to incur a significant restructuring charge in the current fourth quarter of fiscal year 1999. This charge may include write-downs of inventories and other intangible assets relating to non-strategic products, as well as costs associated with personnel reductions and facilities closures. WE MAY NOT BE PROFITABLE IN THE FACE OF RAPIDLY CHANGING TECHNOLOGY. The markets for our products are characterized by rapidly changing technology, frequent new product introductions and uncertainty due to new and emerging technologies, as well as changes in customer requirements and preferences. Changes in technologies and customer requirements and preferences, product obsolescence and advances in computer software and hardware will require us to develop or acquire new products and to enhance our products in a timely manner at improved price/performance levels in order to remain competitive. The pace of change has recently accelerated due to the Internet, corporate intranets, the introduction of 32-bit operating systems such as Windows 95, Windows 98 and Windows NT 4.0, and new programming languages, such as Java. PC hardware, in particular, is steadily advancing in power and function, facilitating expansion of the market for increasingly complex and flexible software products. This, in turn, has resulted in escalating development costs, longer periods necessary for development of new products and a greater degree of unpredictability in the time necessary to develop products. Due to potential difficulties in the development process, we cannot provide assurance that future products and upgrades will be released in a timely manner or that they will receive market acceptance, if and when released. Despite significant testing by us and by current and potential customers, errors or "bugs" may still be found in new products or upgrades after commencement of commercial shipments, especially when first introduced. Delays in the commencement of commercial shipments of new products or upgrades, as well as the discovery of errors or "bugs" after release, may result in adverse publicity, customer dissatisfaction and delay or loss of product revenues. In addition, such errors or "bugs" could require significant design modification or corrective releases and could result in an increase in product returns. Furthermore, from time to time we and others may announce new products, capabilities or technologies that have the potential to replace or shorten the life cycles of our existing products. We cannot assure that announcement of currently planned or other new products by us or by our competitors will not cause customers to defer purchasing our products existing or cause distributors to return products to us. In addition, rapid changes in the market and increasing numbers of new products available to consumers have increased the degree of consumer acceptance risk with respect to any specific title that we may publish. We expect that this trend will continue and may become more pronounced in the future. Consumer preferences are difficult to predict, and few consumer products achieve sustained market acceptance. We cannot provide assurance that we will be successful in our product development efforts or that we will have the resources required to respond to technological changes or to compete successfully in the future. Delays or difficulties associated with new product introductions or upgrades could have a material adverse effect on our business, operating results and financial condition. In addition, because we expect that the cost of developing and introducing new products will continue to increase, the financial risks associated with new product development will increase as will the risks associated with material delays in the introduction of such new products. If we are unable to develop or acquire new products in a timely manner as revenues decrease from products reaching the end of their natural life cycles, our operating results will be adversely affected. Because of our small size and capital resources relative to some of our competitors, our ability to avoid technological obsolescence through acquisition or development of new products or upgrades of existing products may be more limited than companies with greater funds. WE FACE RISKS IN INITIATING AND EXECUTING OUR INTERNET STRATEGY. Our marketplace has recently experienced a higher emphasis on online and Internet-related services and content tailored for this new delivery vehicle. We have taken and will continue to take steps, at significant cost, to take advantage of opportunities created by the Internet and online networks, and we expect to continue incurring significant additional costs in connection with our Internet infrastructure. These changes include material and costly additions to our existing hardware, substantial increase in personnel for experienced web designers, acquisitions and cross licenses to drive traffic to our web sites and a transition to an Internet sales and marketing strategy. We cannot provide any assurance that our Internet strategy will be successful, or that the costs and investments in this area will 5 7 provide adequate, or any, results. Delivery of software using online services or the Internet will necessitate certain changes in our business and operations including addressing operational challenges such as improving download time for pictures, images and programs, ensuring proper regulation of content quality and developing sophisticated security for transmitting payments. Our failure to adapt to and utilize such technologies and media successfully and in a timely manner could materially and adversely affect our competitive position and our financial results. IMSI depends to some extent and is increasing its dependence on relationships with other online companies. These relationships include, but are not limited to, agreements for anchor tenancy, promotional placements, sponsorships and banner advertisements. Generally, these agreements have terms for up to a year, are not exclusive and do not provide for guaranteed renewal. The risks included in this dependence include: (i) the possibility that a competitor will purchase exclusive rights to attractive space on one or more key sites; (ii) the uncertainty that significant spending on these relationships will increase IMSI's revenues substantially or at all; (iii) the possibility that potential revenue increases resulting from such spending will not occur within the time periods that IMSI is expecting; (iv) the possibility that space on web sites may increase in price or cease to be available on reasonable terms or at all; (v) the possibility that such online companies will be unable to deliver a sufficient number of customer visits or impressions; and (vi) the possibility that such online companies will compete with IMSI for limited online revenues. Any termination of our arrangements with other online companies could have a material adverse effect on IMSI's business, results of operations and financial condition. A key element of our Internet strategy is to generate a high volume of traffic to, and use of, our Website. IMSI's revenues will depend primarily on the number of customers who use our Website to purchase merchandise. Accordingly, the satisfactory performance, reliability and availability of our Website, transaction-processing systems, network infrastructure and delivery and shipping systems are critical to IMSI's operating results, as well as to our reputation and our ability to attract and retain customers and maintain adequate customer service levels. IMSI periodically has experienced minor systems interruptions, including Internet disruptions, which it believes may continue to occur from time to time. Any systems interruptions, including Internet disruptions, that result in the unavailability of our Website or reduced order fulfillment performance would reduce the volume of goods sold, which could have a material adverse effect on IMSI's business, results of operations and financial condition. IMSI is continually enhancing and expanding its transaction-processing systems, network infrastructure, delivery and shipping systems and other technologies to accommodate a substantial increase in the volume of traffic on IMSI's Website. There can be no assurance that IMSI will be successful in these efforts or that IMSI will be able to accurately project the rate or timing of increases, if any, in the use of our Website or timely expand and upgrade our systems and infrastructure to accommodate such increases. There can be no assurance that IMSI's or our suppliers' network will be able to timely achieve or maintain a sufficiently high capacity of data transmission, especially if the customer usage of our Website increases. IMSI's failure to achieve or maintain high capacity data transmission could significantly reduce consumer demand for our services and have a material adverse effect on our business, results of operations and financial condition. WE MAY HAVE DIFFICULTIES SUCCESSFULLY INCORPORATING NEWLY ACQUIRED PRODUCTS AND TECHNOLOGIES INTO OUR BUSINESS. We have acquired businesses, technologies, services, product lines and/or content databases that are complementary to our business in order to broaden our product lines and geographic sales channels. For example, during the first quarter of fiscal 1998, we acquired a number of products in the CAD, diagramming and consumer categories from Corel Corporation; entered into a technology licensing agreement with Dragon Systems, a developer of speech recognition products; acquired from Quarterdeck 6 8 Corporation exclusive worldwide licensing rights to the HiJaak graphics utility products; acquired certain assets of MediaPaq, Inc., including our browser technology; and acquired certain assets of MapLinx, Inc., including a mapping software program. We believe that our future growth will depend, in part, upon the success of our recent and possible future acquisitions. We cannot provide assurances that the anticipated benefits of recently concluded business combinations and product acquisitions will be realized, or that we will be successful in identifying suitable acquisition opportunities in the future. We may face increased competition for future acquisition opportunities, which may inhibit our ability to consummate suitable acquisitions and increase the costs of completing such acquisitions. Further, we cannot provide assurances that we will be able successfully to integrate acquired technologies, services, product lines or businesses. Acquisitions entail a number of risks, including managing a larger and more geographically disparate business; diversion of management attention; development of and marketing acquired products to markets with which we may not be familiar; integrating the acquired products into our product lines; coordinating diverse operating structures, policies and practices; and integrating the employees of the acquired companies into our organization and culture. Our failure to integrate and manage acquired businesses successfully, to retain our employees and to successfully address new markets associated with such acquired businesses would have a material adverse effect on our business, operating results and financial condition. Certain of our acquisitions have involved issuances of equity securities and resulted in various charges and expenses that have adversely affected, and will continue to adversely affect, our operating results and financial condition. Future acquisitions may also result in potential charges that may adversely affect our earnings and may involve the issuance of shares of our stock to owners of acquired businesses, resulting in dilution in the percentage of our stock owned by other stockholders. OUR SUCCESS DEPENDS ON KEY PERSONNEL. We have recently experienced changes in our board of directors and management. As previously reported in a press release and in our quarterly Report on Form 10-Q for the period ended March 31, 1999, IMSI announced the appointment of Costa John, our Chief Financial Officer, as our Chief Executive Officer. Mr. John remains the Chief Financial Officer. Martin Sacks, formerly Chief Executive Officer and President of IMSI, resigned as CEO and President but remains a director and was elected Chairman of the Board. As part of the restructuring of the management team and the Board, Geoffrey Koblick, formerly Chief Operating Officer and Chairman, has retired from both positions and as a director, but continues to be available as an advisor to IMSI. In addition, Robert Mayer, who continues as executive Vice President of Worldwide Sales and Marketing, has resigned as a director. Our success depends to a significant extent on the performance and continued service of our senior management and certain key employees. We maintain no key person insurance and do not have employment agreements or non-competition agreements with all of our key employees. Competition for highly skilled employees with technical, Internet, management, marketing, sales, product development and other specialized training is intense, and the supply is limited. In particular, we have historically experienced difficulty in attracting highly qualified programmers and software engineers in the U.S. We cannot provide any assurance that we will be successful in attracting, motivating and retaining such personnel. In addition, we cannot provide any assurance that one or more key employees will not leave us or compete against us. Our failure to attract qualified employees or to retain the services of key personnel could materially adversely affect our business, operating results and financial condition. COMPETITION WITHIN DISTRIBUTION CHANNELS MAY ADVERSELY AFFECT OUR BUSINESS. The distribution channels through which consumer software products are sold have been characterized by intense competition and continuing uncertainties, including consolidations and financial difficulties of certain distributors and resellers, the emergence of new resellers such as general mass merchandisers and superstores, the development of new channels such as the Internet and the desire of large customers such as retail chains and corporate users to purchase directly from software developers. Competition for access to distribution channels and for retail shelf space is intense. We have no long-term distribution agreements with any reseller. We cannot provide any assurance that our distributors and retailers will continue to purchase our products or provide our products with adequate levels of shelf space and promotional support or that we will be able to distribute our products effectively through new distribution channels. Our distributors and retailers carry competing product lines, and there is substantial pressure from distributors and retailers to obtain marketing and promotional funds, price discounts and favorable return policies in connection with access to shelf space, in-store promotions and sales of products, which has an adverse impact on our net revenues and profitability. In addition, consolidation among the 7 9 companies within our distribution channels has reduced the number of available distributors, which has increased the competition for shelf-space. We cannot provide any assurance that these pressures will not continue or increase. We allow distributors to return products in exchange for new products or for credit towards future purchases as part of stock balancing programs. In addition, we provide price protection to our distributors when we reduce the price of our products. End users may return products through dealers and distributors within a reasonable period from the date of purchase for a full refund, and retailers may return older versions of products. Various distributors and resellers may have different return policies. Substantial product returns occur when we introduce upgrades and new versions of products or when distributors or resellers overestimate demand. We anticipate that product returns in future periods will continue to be adversely affected by product update cycles, new product releases and software quality. We establish allowances based on estimated future returns of products after considering various factors, and accordingly, if the level of actual returns exceeds our estimates, it could have a material adverse impact on our operating results and financial condition. While we attempt to monitor channel inventories and provide appropriate reserves, actual product returns may differ from our reserve estimates, and such differences could be material to our operating results and financial condition. We manufacture our products based upon estimated future sales, and accordingly, if the level of actual orders of products falls short of management's estimates, inventory levels could be excessive, which could add to inventory write-offs and have an adverse impact on our business, operating results and financial condition. WE DEPEND ON A LIMITED NUMBER OF DISTRIBUTORS AND RETAILERS FOR A SUBSTANTIAL AMOUNT OF REVENUES. Sales to a limited number of distributors and retailers have constituted and are expected to continue to constitute a substantial amount of our revenues. Sales to our two largest distributors during the nine months ending on March 31, 1999 accounted for approximately 36% of net revenues for that period. Sales to our two largest distributors during fiscal 1998 accounted for an aggregate of 35% and 25% of our revenues during fiscal 1997, respectively. Arrangements with our distributors and retailers may generally be terminated at any time by the distributor or retailer. While we are currently attempting to negotiate direct sales relationships with the major retailers, there is no guarantee we will be able to reduce our reliance on distributors either quickly or at all. The loss of a significant reduction in sales due to the inability to collect receivables from, or any other adverse change in our relationship with, any of our principal distributors or retailers, or principal accounts sold through such distributors, could materially adversely affect our operating results and financial condition. In addition, sales of our products are typically made on credit with terms that vary depending upon the customer and the nature of the product. Our distributors and retailers compete in a volatile industry and are subject to the risk of bankruptcy or other business failure, and certain distributors and retailers have experienced difficulties. Although we maintain a reserve for uncollectible receivables, we cannot provide any assurance that our reserve will prove to be sufficient or that the difficulties for these or additional distributors and retailers will not continue, which could have an adverse effect on our business, operating results and financial condition. OUR SUCCESS DEPENDS ON THE SUCCESS OF A FEW PRODUCT LINES. During the nine months ended March 31, 1999, 52% of our net revenues were derived from sales of our business applications, 12% of our net revenues were derived from sales of our utilities, and 42% of our net revenues were derived from sales of our visual content products. During fiscal 1998, 43% of our net revenues were derived from sales of our business applications, 19% of our net revenues were derived from sales of our utilities, and 29% of our net revenues were derived from sales of our visual content products. During fiscal 1997, 34% of our net revenues were derived from sales of our business applications, 11% of our net revenues were derived from sales of our utilities, and 46% of our net revenues were derived from sales of our visual content products. Within the business applications category, the products within the business drawing category (primarily the TurboCAD product line) accounted for approximately 20% of our net revenues during the nine months ended March 31, 1999, 22% of our net revenues during fiscal 1998, and 20% of our net revenues during fiscal 1997. Within the visual content category, the MasterClips product family accounted for approximately 46% of our net revenues during the nine months ended March 31, 1999, 29% of our net revenues during fiscal 1998, and 46% of our net revenues during fiscal 1997. These were the leading products in their respective categories and, although we publish a broad range of products, these product lines are expected to continue to account for a material percentage of net revenues in fiscal 1999 and thereafter. Accordingly, our future operating results will depend, in part, on continued and expanded market acceptance of these product lines, as well as our ability to continue to enhance these product lines 8 10 and to introduce new products. We cannot provide any assurance that sales levels of any of these families of products will increase or be sustained, especially in light of increased competition in the marketplace. Any circumstances adversely affecting sales of these families of products, including such factors as product life cycles, market acceptance, product performance and reliability, reputation, price competition and the availability of third-party applications, could have a material adverse effect on our business, operating results and financial condition. The failure of new products in these families to achieve market acceptance could also have a material adverse effect on our business, operating results and financial condition. OUR INTELLECTUAL PROPERTY MAY BE VULNERABLE. As the number of software products in the industry increases and the functionality of these products further overlaps, software developers and publishers may increasingly become subject to infringement claims. From time to time, we have received, and may receive in the future, notice of claims of infringement of other parties' proprietary rights. Although we investigate claims and respond as we deem appropriate, we cannot provide any assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against us. Irrespective of the validity or the successful assertion of such claims, we would incur significant costs and diversion of resources with respect to the defense of such claims, which could have a material adverse effect on our business, operating results and financial condition. If any valid claims or actions were asserted against us, we might seek to obtain a license under a third-party's intellectual property rights. We cannot provide any assurance, however, that under such circumstances a license would be available on commercially reasonable terms, or at all. We provide our products to end users under non-exclusive licenses, which generally are non-transferable and have a perpetual term. We make source code available for certain of our products. The provision of source code may increase the likelihood of misappropriation or other misuse of our intellectual property. We license all of our products pursuant to shrink-wrap licenses that are not signed by licensees and therefore may be unenforceable under the laws of certain jurisdictions. OUR MARKETPLACE IS INTENSELY COMPETITIVE AND RAPIDLY CHANGING AND WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN THE FUTURE. The PC productivity software industry is highly competitive and is characterized by rapid changes in technology and customer requirements. Important factors in the market include product features and functionality, quality and performance, reliability, brand recognition, ease of understanding and operation, advertising and dealer merchandising, access to distribution channels and retail shelf space, marketing, pricing and availability and quality of support services. We face competition from a large number of sources. There has been a consolidation among competitors in the market for our products, and many of our current and potential competitors have larger technical staffs, more established and larger marketing and sales organizations, significantly greater financial resources and greater name recognition and better access to consumers than we do. Our relatively small size could adversely affect our ability to compete with larger companies for sales to dealers, distributors and retail outlets, to obtain shelf space for our products in retail outlets and to acquire products from third parties, who may desire to have their products sold or published by larger entities. The rapid pace of technological change constantly creates new opportunities for existing and new competitors and can quickly render existing technologies less valuable. It also requires us to enhance our existing products and to offer new products on a timely basis. We have limited resources and therefore must restrict our product development efforts to a relatively small number of projects. We compete with other software companies in our efforts to acquire products or companies and to publish software developed by third parties. The competition to publish software developed by third parties is primarily on the basis of brand-name reputation, the terms offered to software developers and the ability to market new products. Each of our major products competes with one or more products from one or more major independent software vendors. For example: - TurboCAD competes with AutoCAD from Autodesk Inc. and IntelliCAD from Visio Corporation. - WinDelete competes with Uninstaller from CyberMedia Inc., CleanSweep and Norton Uninstaller from Symantec Corporation. 9 11 - MasterClips competes with ClickArt from Broderbund Software Inc., MegaGallery from Corel Corporation, Holy Cow! from Macmillan Digital Publishing USA and Art Explosion from Nova Development. - VoiceDirect competes with various speech recognition products from IBM, Dragon Systems, Inc., Kurzweil and Lernout & Hauspie. - Net Accelerator competes with SurfExpress from Connectix, Speed Surfer from Kissco and Net.jet from Peak Technologies. - FloorPlan competes with Home Architect from Cendant Corporation, Home Design Suite from Autodesk, Dream Home Designer from Alpha Software Corporation and Home Design 3D from Expert Software, Inc. - TurboProject competes with Microsoft Project. Our strategy has been to develop productivity and utility applications that do not compete directly with applications or features included in operating systems and applications suites offered by major software vendors such as Microsoft, Lotus Development Corp. and Corel. However, such software vendors may in the future choose to expand the scope and functionality of their products to support some or all of the features currently offered by certain of our products, which could adversely affect demand for our products. In particular, Microsoft has periodically added utility features (e.g. disk compression utilities and desk-top facing features) to its Windows operating systems that were previously only supported by third-party vendors and that materially reduced demand for third-party utility products. In addition, Microsoft's Windows 98 contains features for the automatic updating of Windows 98 (including third party device drivers) and many Microsoft applications via the Internet, which could adversely impact sales of our Update Now! product. Windows 98 also contains the latest version of Microsoft's Internet Explorer which handles the caching of Web pages more efficiently. This feature may adversely impact sales of our Net Accelerator product family. The software industry has limited barriers to entry, and the availability of personal computers with continuously expanding capabilities, at progressively lower prices, contributes to the ease of market entry. We believe that competition in the industry will continue to intensify as a number of software companies extend their product lines into additional product categories and as additional competitors enter the market. In addition, widespread use of the Internet has reduced barriers to entry in the software market by allowing software developers to distribute their products online without relying on access to traditional distribution networks. As a result of the proliferation of competing software developers, an increasingly large number of products are competing for limited shelf space. There can be no assurance that our products will achieve and/or sustain market acceptance and generate significant levels of revenues in subsequent quarters or that we will have the resources required to compete successfully in the future. OUR DEPENDENCE ON THIRD PARTY DEVELOPERS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. Our business strategy has historically depended in part on our relationships with third-party developers, who provide products that expand the functionality of our software. Many of these licenses require payment of royalties based on the number of products sold. In other cases, we may be required to pay substantial up-front royalties and development fees to software developers before the commercial viability of their products has been tested. Failure of such products to achieve commercial success could result in substantial charges against our earnings. Licenses from third parties for several of our products have limited terms and are non-exclusive. We cannot provide any assurance that these third-party software licenses for current products or for new products will continue to be available on commercially reasonable terms, or that the software will be appropriately supported, maintained or enhanced by the licensors. The loss of licenses to, or the inability to support, maintain and enhance, any such software, could result in increased costs, or in delays or reductions in product shipments until equivalent software could be developed, identified, licensed and integrated, which would have a material adverse effect on our business, operating results and financial condition. In addition, because talented development personnel are in high demand, we cannot provide any assurance that independent developers, including those who have developed products for us in the past, will be able to provide development support to us in the future. If sales of software 10 12 utilizing third-party technology increase disproportionately, operating income as a percent of revenue may be below historical levels due to third-party royalty obligations. THERE ARE RISKS ASSOCIATED WITH OUR USE OF DEVELOPMENT TEAMS OUTSIDE THE UNITED STATES. Most program coding and quality testing of our products are performed using contract programmers in development centers in various locations in Russia, Ukraine, India, and several other countries. Although the cost of programmers outside of the United States is significantly lower than the cost of programmers available to us domestically, our reliance on such programmers presents a number of risks. Due to the geographic distance between our engineering management personnel in California and the contract programmers overseas, it is more difficult for us to manage, oversee and control the programming process. In addition, cultural and language differences make coordination of our United States management and overseas programming efforts more difficult. While our agreement with the entity through which we compensate these programmers provides that we own the code developed by the programmers, the location of the source code outside the United States may make it more difficult for us to ensure that access to our source code is adequately restricted. Given our reliance on programmers outside the United States, our business, operating results and financial condition would be materially adversely affected if we were to lose the services of these programmers. Although we would likely be able to locate alternative programmers within the United States or in other countries to the extent that the overseas programmers were no longer available, the costs associated with such alternative programmers could significantly increase our operating expenses. WE FACE DIFFICULTIES IN MANAGING CHANGE. In recent years, we have experienced changes in our operations that have placed significant demands on our administrative, operational and financial resources. The growth in our Internet customer base and expansion of our Internet product families, together with our acquisition of other businesses and their employees, have challenged and are expected to continue to challenge our management and operations, including our sales, marketing, customer support, research and development and finance and administrative operations. In order to address certain of these challenges, we need to upgrade elements of our information systems. We cannot provide any assurance that we will successfully overcome difficulties with such upgrades in a timely manner, which could adversely affect our ability to continue to manage the growth of our operations. Our future performance will depend in part on our ability to manage change successfully, in both our domestic and our international operations, and to adapt our operational and financial control systems, if necessary, to respond to changes in our business and to facilitate the integration of acquired businesses with our operations. The failure of our management to effectively respond to and manage growth could have a material adverse effect on our business, operating results and financial condition. WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS. For the nine months ended March 31, 1999, net revenues from international sales were $9,392,000 or 30% of net revenues. International sales represented 33% of revenues for the nine months ended March 31, 1999, 30% of our revenues during fiscal 1998, 41% of our revenues during fiscal 1997. We expect that international sales will account for an increasing portion of our revenues in the future. Most of our international revenues are denominated in foreign currencies. Consequently, a decrease in the value of a relevant foreign currency in relation to the U.S. dollar can adversely affect our net revenues. Further, a decrease in the value of a relevant foreign currency in relation to the U.S. dollar occurring after prices and before receipt of payment by us would have an adverse effect on our results of operations. Additionally, we may be materially and adversely affected by increases in duty rates, exchange or price controls, changes in tariffs, difficulties managing accounts receivable, longer collection cycles, repatriation restrictions or other restrictions on foreign currencies. Our international operations are subject to certain other risks common to international operations, including without limitation, difficulties managing foreign operations, the timely and successful launch of foreign products, government regulations, import and export restrictions, changes in international tax laws, political instability and, in certain jurisdictions, reduced protection for our intellectual property rights. We have committed and continue to commit significant time and development resources to customizing certain of our products for selected international markets and to developing international sales and support channels. We cannot provide any assurance that our efforts to develop products for targeted international markets or to develop additional international sales and support channels will be successful. The failure of such efforts, which can entail considerable expense, could have a material adverse effect on our business, operating results and financial condition. 11 13 Although IMSI believes that the risks associated with transactions in foreign currencies are mitigated by diversified exposure to multiple currencies, IMSI's operating results may be affected by the risks customarily associated with international operations, including a devaluation of the U.S. dollar, increases in duty rates, exchange or price controls, longer collection cycles, government regulations, political instability, and changes in international tax laws. WE HAVE EXPERIENCED SIGNIFICANT DILUTION. We have issued common stock in connection with strategic acquisitions and other transactions. As a result, we have experienced common stock dilution. On June 30, 1998, IMSI had 5.7 million shares issued and outstanding. On March 31, 1999, IMSI had approximately 6.8 million shares issued and outstanding. This prospectus covers 2,524,823 shares of common stock, of which 1,100,857 shares are outstanding and 1,423,966 shares may be issuable in the future upon the occurrence of certain events. IMSI may issue additional shares of common stock during Fiscal 1999 and thereafter. DIRECTORS AND OFFICERS BENEFICIALLY OWN A SIGNIFICANT PERCENTAGE OF OUR SHARES. As of the date of this prospectus, the present directors and executive officers of IMSI and their respective affiliates, in the aggregate, beneficially owned approximately 16% of our outstanding common stock. As a result, these stockholders will possess significant influence over us. Such influence may have the effect of delaying or preventing a change in control, impeding a merger, consolidation, takeover or other business combination involving IMSI or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. OUR RELIANCE ON OUTSOURCING COULD MATERIALLY ADVERSELY AFFECT OUR OPERATING RESULTS. We outsource most of the production of our products, which primarily involves duplication of various media and the printing of user manuals and packaging materials. So long as it remains economically advantageous to do so, we intend to continue, and possibly to increase, outsourcing in the future. Although we believe that we have adequate alternative suppliers of such services, the loss of a supplier or our inability to perform contract services could materially adversely affect our operating results. OUR COMMON STOCK PRICE IS HIGHLY VOLATILE AND IS SUBJECT TO WIDE FLUCTUATIONS. The market price of our common stock is highly volatile and could be subject to wide fluctuations in response to factors such as actual or anticipated variations in our operating results, announcements of technological innovations, new products or services introduced by us or our competitors, changes in financial estimates by securities analysts, conditions and trends in the software market, general market conditions and other factors. Historically, the trading volume of the common stock has been very small and the market for the common stock has been materially less liquid than that of most other publicly traded companies. Significant sales of common stock could have an adverse effect on the market price of the common stock. Further, the stock markets, and in particular the Nasdaq Stock Market, have experienced extreme price and volume fluctuations that have particularly affected the market prices of equity securities of many technology companies and that often have been unrelated or disproportionate to the operating performance of such companies. The trading prices of many technology companies' stocks are at or near historical highs and reflect price to earnings ratios substantially above historical levels. We cannot provide any assurance that these trading prices and price to earnings ratios will be sustained. These broad market factors may adversely affect the market price of our common stock. These market fluctuations, as well as general economic, political and market conditions such as recessions, interest rates or international currency fluctuations, may adversely affect the market price of the common stock. YEAR 2000 ISSUES COULD AFFECT OUR BUSINESS. We recognize the need to ensure that our operations will not be adversely impacted by Year 2000 software failures. Software failures due to processing errors potentially arising from calculations using the Year 2000 date are a known risk. We have established procedures for evaluating and managing the risks and costs associated with 12 14 this problem, and, as part of the general upgrade of our information systems, we are putting in place systems which will be Year 2000 compliant. IMSI has initiated a Year 2000 Compliance Plan that addresses three types of systems that must be Year 2000 compliant. PRODUCTS: IMSI's software products have been undergoing Year 2000 Compliance testing since January 1998. Approximately 85% of our currently supported products have been verified as Year 2000 Compliant; the remaining products are expected to be verified as compliant by June 1999. IT SYSTEMS: We have identified all internal data processing and networking systems that we believe are at risk from the Year 2000 problem and we are currently reviewing the manufacturer's Year 2000 Compliance statement for each system. Any systems that are determined to be non-compliant will be upgraded or replaced. Internal testing will be initiated for any missing critical system for which the manufacturer's Year 2000 Compliance statement is not adequate to ensure the reliability of the system. All IT systems will be verified as Year 2000 Compliant by July 1999. In addition, no new IT systems will be implemented without first ensuring that they are Year 2000 Compliant. NON-IT-SYSTEMS: We have identified a wide range of general computing and facilities systems that must be verified as Year 2000 Compliant. The majority of these systems will be upgraded or replaced as necessary during normal maintenance if they are not compliant. The manufacturer's Year 2000 Compliance statements are currently under review for the remaining systems and will be upgraded or replaced if necessary. Because new systems are continually being integrated into IMSI, the effort to ensure Year 2000 Compliance for these systems is an ongoing effort. We have communicated with others with whom we do significant business to determine their Year 2000 compliance readiness and the extent to which IMSI is vulnerable to any third party Year 2000 issues. However, there can be no guarantee that the systems of other companies on which our systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with our systems, would not have a material adverse effect on IMSI, results of operations and our financial condition. USE OF PROCEEDS Except in the event that warrants are exercised for cash (in which case we would receive proceeds from the exercise) rather than being net exercised, for the exercise of warrants we will not receive any proceeds from the sale of the common stock by the selling stockholders. SELLING STOCKHOLDERS We are registering the shares of common stock pursuant to the following agreements: (1) an Exchange Agreement among Zedcor, Inc., certain Zedcor, Inc. stockholders and IMSI dated September 17, 1998 (the "Exchange Agreement"); (2) a Warrant Subscription Agreement between Silicon Valley Bank and IMSI dated November 3, 1998 (the "Warrant Agreement"); (3) an Asset Purchase Agreement between clipartconnection.com and IMSI dated December 24, 1998 (the "Asset Purchase Agreement"); (4) a Fee Agreement between IMSI and the Law Offices of Mark Garay, Inc., dated January 11, 1999 (the "Garay Fee Agreement") (5) a Fee Agreement between IMSI and The Learning Company ("TLC") dated January 21, 1999 (the "TLC Fee Agreement"); 13 15 (6) a Fee Agreement between IMSI and Green Tree Technologies, Inc. dated February 18, 1999 (the "Green Tree Fee Agreement"); (7) a Fee Agreement between IMSI and Zedcor, Inc., dated February 25, 1999 (the "Zedcor Fee Agreement"); (8) an agreement between IMSI and Capital Ventures International dated March 3, 1999 (the "Capital Ventures International Agreement"); (9) a Fee Agreement between IMSI and HomeStyles, Inc., dated January 11, 1999 (the "HomeStyles Agreement"); (10) a Fee Agreement between IMSI and Joseph Minnevich, dated January 11, 1999 (the "Minnevich Agreement"); (11) a Fee Agreement between IMSI and Gateway Acceptance, dated March 1, 1999 (the "Gateway Agreement"); (12) a Fee Agreement between IMSI and Spatial Technologies, dated March 25, 1999 (the "Spatial Agreement") and (13) a Fee Agreement between IMSI and StarBase Corp., dated March 26, 1999 (the "StarBase Agreement.") (14) an Amendment dated as of May 10, 1999, between IMSI, Zedcor and its former shareholders, amending the Exchange Agreement and Zedcor Fee Agreement, among other agreements. Zedcor Agreements. In October 1998, IMSI acquired all the outstanding common stock of Zedcor, Inc. ("Zedcor"), an Internet provider of art and animations, pursuant to the Exchange Agreement. The total purchase price consisted of cash, a promissory note for $2,229,500, and 176,455 shares of common stock. Pursuant to the terms of the Exchange Agreement, we are registering the shares of common stock that the Zedcor stockholders listed below received in this transaction. On February 25, 1999, IMSI entered into a fee agreement with Zedcor. Under the terms of the Zedcor Fee Agreement, IMSI issued 190,797 shares of common stock (as amended in May 1999) and in satisfaction of a debt owed Zedcor under the terms of the Exchange Agreement described above. The shares were priced at $8.00 and on the closing date the closing price of the common stock was $11.438. In May 1999, IMSI entered into an agreement with Zedcor and its former shareholders pursuant to which IMSI agreed, among other things, to issue approximately 10,000 shares of common stock in consideration of the release of a security interest in favor of the former Zedcor shareholders and certain other agreements by those shareholders. IMSI agreed to register the above shares for resale. The Warrant Agreement. On November 3, 1998, we borrowed funds under a three-year subordinated loan facility with Silicon Valley Bank. As part of the loan facility, IMSI issued warrants, which have a five-year term, to purchase 30,000 shares of common stock with an exercise price of $7.00 per share. As part of the original loan agreement dated November 3, 1998, IMSI was required to register shares by February 1, 1999. On January 26, 1999, Silicon Valley Bank and IMSI agreed to extend this deadline until May 5, 1999. Additional warrants are required to be granted as follows:
If not paid in full prior to: Additional warrants to be issued Exercise price per share - ----------------------------- -------------------------------- ------------------------ October 31, 1999 5,000 $7.00 January 31, 2000 25,000 7.00 April 30, 2001 65,000 6.00 October 31, 2001 125,000 5.00
IMSI is registering 30,000 of the shares issuable upon exercise of these warrants, under the terms of IMSI's agreements with the bank. If it is necessary to register the remaining shares, IMSI will do so at a later date. 14 16 Asset Purchase Agreement. On December 24, 1998, IMSI purchased certain assets of clipartconnection.com, an Internet provider of art and animation, for a purchase price of 18,053 shares of common stock. The share price used for calculation and the closing price on the Closing were commensurate. IMSI agreed to register those shares for resale. Garay Fee Agreement. On January 11, 1999, IMSI entered into a fee agreement with the Law Offices of Mark Garay, Inc. ("Garay") Under the terms of the Garay Fee Agreement, IMSI issued 11,112 shares of our common stock in satisfaction of a debt owed to Garay. The shares were priced at $9.00 and on the closing date the closing price of the common stock was IMSI common stock was trading at $10.25. IMSI agreed to register those shares for resale. TLC Fee Agreement. On October 2, 1998, The Learning Company, Inc. ("TLC") and IMSI entered into a software license agreement whereby TLC sold Org Plus to us in exchange for current and future cash payments. In January 1999, IMSI and TLC agreed to amend the terms of the Org Plus agreement to allow IMSI to settle the portion of the purchase price not paid at the closing by the issuance of 200,000 shares of common stock. The shares were priced at $9.00, and on the closing date the closing price of the common stock was $12.00. IMSI agreed to register those shares for resale. In addition, IMSI has agreed that if TLC sells any shares pursuant to this prospectus within 30 days of the effective date of the registration statement to which this registration statement relates, at a sale price of less than the price per share of the common stock as of April 30, 1999, IMSI will pay TLC the difference between the price TLC receives per share and the price per share as of April 30, 1999 in cash, or IMSI may make up the shortfall by issuing additional shares equal to the difference in the selling price multiplied by the weighted average of the shares during the thirty day protection period. Green Tree Fee Agreement. On February 18, 1999, IMSI entered into a fee agreement with Green Tree Technologies, Inc. ("Green Tree")to satisfy a debt we owed Green Tree under the terms of a software license agreement between IMSI and Green Tree. In settlement of this debt, we issued to Green Tree 18,053 shares. The shares were priced at $8.31 and on the closing date the closing price of the common stock was $11.00. IMSI agreed to register those shares for resale. Capital Ventures International Agreement. On March 3, 1999, IMSI entered into a stock purchase agreement and related agreements with Capital Ventures International ("CVI"). Under the terms of the agreement, CVI paid us $5,000,000 and we issued 437,637 shares of our common stock. We may be required to issue additional shares depending on the occurrence of certain events, including the market price of the common stock on certain future dates. In particular, if the average of the closing prices of our common stock for the five trading days before the date that the registration statement of which this prospectus is a part is declared effective by the SEC is less than $11.42, then we are obligated to issue additional shares to CVI so that CVI's per share purchase price equals that average market price, but in all events no lower than approximately $7.99. This floor price can be reduced if we complete a "Financing Transaction," as defined in the agreements with CVI, at certain prices within certain periods of time after the closing of the CVI transaction. The shares were priced at $11.42 and on the closing date the closing price of the common stock was $11.563. Additionally, pursuant to the CVI agreement, CVI can purchase up to $3,000,000 worth of additional shares of common stock, up to a maximum of 375,117 shares. CVI also acquired a warrant to purchase 131,291 shares of common stock. IMSI agreed to register the shares issued or issuable pursuant to these agreements. Under the agreements with CVI, if the registration statement is not declared effective before July 3, 1999, then we are obligated to pay to CVI certain amounts, which could be material depending on several factors including the length of time before this registrations statement is declared effective. Following the closing of the BayStar Financing, CVI notified IMSI that CVI believes that as a result of the BayStar Financing, the floor price under the CVI agreements relating to possible issuance of additional shares to CVI depending on the average market price of our common stock on the date this registration statement is declared effective should be reduced from $7.99 to a significantly lower number, possibly approximately $4.25. IMSI disagrees with CVI's assertions concerning the extent of any reduction to this share limit price. To our knowledge, CVI has not yet filed any lawsuits against us, but CVI may in the future file an action against us asserting the above claims and possibly other claims, seeking damages and other relief including issuance of additional shares of common stock to CVI, depending on the market price of our common stock when this registration statement is declared effective. If CVI were ultimately to prevail in any such action, we might be required to pay damages and/or issue additional shares of common stock to CVI. We currently believe that the maximum number of additional shares we would be required to issue if CVI were to prevail would be approximately 738,834 shares, but we cannot provide any assurances concerning the outcome of any such action, if brought. This prospectus includes an additional 700,000 shares of common stock which may, depending on various circumstances described above, become issuable to CVI. HomeStyles Agreement. On January 11, 1999, IMSI entered into a fee agreement with HomeStyles, Inc. ("HomeStyles") to satisfy a $90,000 debt we owed HomeStyles under the terms of various software license agreement between IMSI and HomeStyles. In settlement of this debt, we issued to HomeStyles 10,000 shares of common stock. The shares were priced at $9.00 and on the closing date the closing price of the common stock was $10.25. IMSI agreed to register those shares for resale. Minnevich Agreement. On January 11, 1999, IMSI entered into a fee agreement with Joseph Minnevich ("Minnevich") to satisfy a $45,000 debt we owed Minnevich under the terms of various software license agreement between IMSI and Minnevich. In settlement of this debt, we issued to Minnevich 5,000 shares of common stock. The shares were priced at $9.00 and on the closing date the closing price of the common stock was $10.25. IMSI agreed to register those shares for resale. Gateway Agreement. On March 1, 1999, IMSI entered into a fee agreement with Gateway Acceptance Co. ("Gateway") to satisfy a $72,000 debt we owed Gateway under the terms of various manufacturing agreements between IMSI and Gateway. In settlement of this debt, we issued to Gateway 8,000 shares of common stock. The shares were priced at $9.00 and on the closing date the closing price of the common stock was $11.438. IMSI agreed to register those shares for resale. 15 17 Spatial Agreement. On March 25, 1999, IMSI entered into a fee agreement with Spatial Technology, Inc. ("Spatial") to satisfy a $45,000 debt we owed Spatial under the terms of various software license agreements between IMSI and Spatial. In settlement of this debt, we issued to Spatial 5,000 shares of common stock. The shares were priced at $9.00 and on the closing date the closing price of the common stock was $11.25. IMSI agreed to register those shares for resale. StarBase Agreement. On March 26, 1999, IMSI entered into a fee agreement with StarBase Corporation ("StarBase") to satisfy a debt we owed StarBase under the terms of various software license agreements between IMSI and StarBase. In settlement of this debt, we issued to StarBase 10,750 shares of common stock. The share price used for calculation and the closing price on the closing were commensurate. IMSI agreed to register those shares for resale. The following table sets forth information with respect to the selling stockholders and the shares of the common stock that may be offered pursuant to this prospectus (the "shares"). Except as provided below, none of the selling stockholders has, or within the past three years has had, any position, office or other material relationship with us or any of our predecessors or affiliates. The selling stockholders may from time to time offer and sell any or all of their shares pursuant to this prospectus. Because the selling stockholders are not obligated to sell shares of common stock, and because selling stockholders may also acquire publicly traded shares of our common stock, we cannot estimate how many shares of common stock each selling stockholder will beneficially own after this offering
Shares of Common Stock Beneficially Owned (1) Prior to the Offering and Being Offered Name Number Percent - ---- ------ ------- Michael A. Gariepy and Marcella A. Gariepy Living Trust(2) 301,802 4.36% Peter M. Gariepy(2) 75,450 1.09% Silicon Valley Bank 30,000 less than 1% Clipartconnection.com 18,053 less than 1% Law Offices of Mark Garay, Inc. 11,112 less than 1% The Learning Company, Inc. 200,000 2.89% Green Tree Technologies, Inc. 18,053 less than 1% Capital Ventures International(3) 1,131,603 16.36% HomeStyles, Inc. 10,000 less than 1% Joseph Minnevich 5,000 less than 1% Gateway Acceptance Co. 8,000 less than 1% Spatial Technology, Inc. 5,000 less than 1% StarBase Corp. 10,750 less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Unless otherwise indicated below, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. (2) These shares are being offered pursuant to the Zedcor Exchange Agreement and the Zedcor Fee Agreement. (3) These shares include the 437,637 shares initially issued, and up to 693,966 additional shares that may be issued to CVI under the Capital Ventures International Agreement. Does not include any additional shares that may become issuable to CVI by virtue of certain provisions in the agreements with CVI providing for issuance of additional shares depending on the market price of the common stock on the date the registration statement is declared effective. PLAN OF DISTRIBUTION We have filed a Registration Statement of which this prospectus forms a part pursuant to registration rights we granted to the selling stockholders pursuant to (1) the Exchange Agreement; (2) the Warrant Agreement; (3) the Asset Purchase Agreement; (4) the Garay Fee Agreement; (5) the TLC Fee Agreement; (6) the Greentree Fee Agreement; (7) the Zedcor Fee Agreement; and (8) the Capital Ventures International agreements. 16 18 To IMSI's knowledge, no selling stockholder has entered into any agreement, arrangement or understanding with any particular broker or market maker with respect to the shares of common stock offered hereby, nor does IMSI know the identity of the brokers or market makers that will participate in the sale of the shares. As used in this prospectus, the term "selling stockholders" includes donees and pledgees selling shares received from a named selling stockholder after the date of this prospectus. Who May Sell; How Much; Applicable Restrictions. The selling stockholders may from time to time offer the shares of common stock through brokers, dealers or agents who may receive compensation in the form of discounts, concessions or commissions from the selling stockholders and/or the purchasers of the shares of common stock for whom they may act as agent. In effecting sales, broker-dealers that are engaged by the selling stockholders may arrange for other broker-dealers to participate. The selling stockholders and any such brokers, dealers or agents who participate in the distribution of the shares of common stock may be deemed to be "underwriters," and any profits on the sale of the shares of common stock by them and any discounts, commissions or concessions received by any such brokers, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. To the extent the selling stockholders may be deemed to be underwriters, the selling stockholders may be subject to certain statutory liabilities of, including but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. To our knowledge, there are currently no plans, arrangements or understandings between any selling stockholders and any broker, dealer, agent or underwriter regarding the sale of the shares of common stock by the selling stockholders. Manner of Sales and Applicable Restrictions. The selling stockholders will act independently of IMSI in making decisions with respect to the timing, manner and size of each sale. Such sales may be made over the Nasdaq Stock Market or otherwise, at then prevailing market prices, at prices related to prevailing market prices or at negotiated prices. The shares of common stock may be sold according to one or more of the following methods: (a) a block trade in which the broker or dealer so engaged will attempt to sell the shares of common stock as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus; (c) an over-the-counter distribution in accordance with the Nasdaq rules; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers; (e) privately negotiated transactions. Certain persons participating in this offering may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock, including the entry of stabilizing bids or syndicate covering transactions or the imposition of penalty bids. The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder including, without limitation, Regulation M (which regulation may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders and any other such person). The anti-manipulation rules under the Exchange Act may apply to sales of shares of common stock in the market and to the activities of the selling stockholders and their affiliates. Furthermore, Regulation M of the Exchange Act may restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the particular shares of common stock being distributed for a period of up to five business days prior to the commencement of such distribution. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock. Under the terms of its asset purchase agreement, clipartconnection.com agreed to limit to ten percent of the total number of shares, the number of shares it holds that are covered by this prospectus it will sell in any one month period during the twelve months following the date its shares become tradable unless we consent otherwise. Clipartconnection.com also agreed to give us ten business days advance notice of any proposed sale of common stock. IMSI has a perpetual right of first refusal to either purchase such shares or to arrange for a third party to purchase the shares. 17 19 Rules 101 and 102 of Regulation M under the Exchange Act, among other things, generally prohibit certain participants in a distribution from bidding for or purchasing for an account in which the participant has a beneficial interest, any of the securities that are the subject of the distribution. Rule 104 of Regulation M governs bids and purchases made to stabilize the price of a security in connection with a distribution of the security. Hedging and Other Certain Transactions with Broker-Dealers. In connection with distributions of the shares of common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers. In connection with such transactions, broker-dealers may engage in short sales of the shares of common stock registered hereunder in the course of hedging the positions they assume with selling stockholders. The selling stockholders may also sell shares of common stock short and redeliver the shares of common stock to close out such short positions. The selling stockholders may also enter into option or other transactions with broker-dealers which require the delivery to the broker-dealer of the shares of common stock registered hereunder, which the broker-dealer may resell or otherwise transfer pursuant to this prospectus. Selling stockholders may also loan or pledge the shares of common stock registered hereunder to a broker-dealer and the broker-dealer may sell the shares of common stock so loaned or, upon a default, the broker-dealer may effect sales of the pledged shares of common stock pursuant to this prospectus. Expenses Associated With Registration. We have agreed to pay the expenses of registering the shares of common stock under the Securities Act, including registration and filing fees, printing expenses, administrative expenses and certain legal and accounting fees. Each of the selling stockholders will bear its pro rata share of all discounts, commissions or other amounts payable to underwriters, dealers or agents as well as fees and disbursements for legal counsel retained by any such selling stockholder. Indemnification. Under the terms of the Garay Fee Agreement, the TLC Fee Agreement, the Capital Ventures International Agreement, the Greentree Fee Agreement, and the Zedcor Fee Agreement, we have agreed to indemnify each of the parties to the agreements and certain other persons against certain liabilities in connection with the offering of the shares of common stock, including liabilities arising under the Securities Act. Prospectus Updates; Suspension of this Offering. At any time a particular offer of the shares of common stock is made, a revised prospectus or prospectus supplement, if required, will be distributed. Such prospectus supplement or post-effective amendment will be filed with the SEC to reflect the disclosure of required additional information with respect to the distribution of the shares of common stock. Under the terms of the Garay Fee Agreement, the TLC Fee Agreement, the Greentree Fee Agreement, and the Zedcor Fee Agreement, upon the occurrence of any event known to our executive officers as a result of which this prospectus is known by our executive officers to include an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, the parties have each agreed not to trade shares of common stock from the time the selling stockholder receives notice from IMSI of such an event until such party receives a prospectus supplement or amendment. Upon the occurrence of such an event, a prospectus supplement or post-effective amendment, if required, will be distributed to the parties. WHERE YOU CAN FIND MORE INFORMATION We are subject to the informational requirements of the Securities Exchange Act of 1934 and, in accordance therewith, we file reports and other information with the Securities and Exchange Commission. Reports, registration statements, proxy and information statements, and other information that we have filed can be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the regional offices of the SEC located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York 10048. You may obtain copies of such material from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at rates prescribed by the SEC. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a World Wide Web site that contains reports, proxy and information statements, and other information that is filed electronically with the SEC. This Web site can be accessed at http://www.sec.gov. Our common stock is listed on the Nasdaq Stock Market and reports, proxy statements and other information concerning IMSI may be inspected at 18 20 the offices of the National Association of Securities Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850. We have filed with the SEC a registration statement on Form S-3 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act with respect to the common stock offered hereby. This prospectus does not contain all of the information set forth in the Registration Statement and its exhibits and schedules, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information with respect to us and our common stock, please refer to the Registration Statement and its exhibits and schedules. Statements contained in this prospectus as to the contents of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement. Each such statement is qualified in all respects by such reference. Copies of the Registration Statement, including exhibits thereto, may be inspected without charge at the SEC's principal office in Washington, D.C., and you may obtain copies from this office upon payment of the fees prescribed by the SEC. We will furnish without charge to each person, including any beneficial owner, to whom a copy of this prospectus is delivered, upon such person's written or oral request, a copy of any and all of the information that has been incorporated by reference into this prospectus (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference herein as well). Requests for such copies should be directed to Susan Wisor at (415) 878-4244. DOCUMENTS INCORPORATED BY REFERENCE The following documents that we have filed with the SEC are incorporated by reference into this prospectus: (a) the Registration Statement and the exhibits and schedules filed therewith; (b) our annual report on Form 10-K for the fiscal year ended June 30, 1998, as amended; provided, however, that the financial statements and the report of our independent auditor that is included in the Form 10-K will not be incorporated by reference until an appropriate consent of our independent auditor is filed by amendment as part of the Registration Statement of which this prospectus is a part; (c) all other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act since June 30, 1998, including: (1) our quarterly reports on Form 10-Q for the fiscal quarters ended September 30, 1998, December 31, 1998, and March 31, 1999; and (2) our Proxy Statement on Form DEF 14A filed on December 29, 1998, as revised on Form DEFR 14 A filed on December 30, 1998; (d) all other information that we file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this prospectus and prior to the termination of this offering; (e) our Report on Form 8-K filed on April 26, 1999; and (f) our Report on Form 8-K filed on May 12, 1999. Any statement incorporated herein shall be deemed to be modified or superseded for the purposes of this prospectus and the Registration Statement to the extent that a statement contained herein or in any other subsequently filed document that is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus and the Registration Statement. LEGAL MATTERS The validity of the issuance of the shares of common stock offered hereby will be passed upon for us by our in-house counsel, Geoffrey B. Koblick. 19 21 ================================================================================ INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. 2,524,823 Shares of Common Stock -------------------- PROSPECTUS -------------------- ================================================================================ 22 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses to be paid by the Registrant in connection with this offering are as follows: Securities and Exchange Commission registration fee $ 4,390 Accounting fees and expenses $25,000 Legal fees and expenses $15,000 Miscellaneous $ 5,000 ------- Total $49,390 =======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 317 of the California Corporations Code provides that a corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a judgment in its favor) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in the best interests of the corporation or that the person had reasonable cause to believe that the person's conduct was unlawful. Section 5 of Article II of IMSI's By-laws, provides as follows: Section 5. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. (a) Authorization. The corporation may indemnify any director, officer, agent or employee as to those liabilities and on those terms and conditions as are specified in Section 317 of the General Corporation Law. In any event, the corporation shall have the right to purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person again the liability insured against. (b) Indemnification. To the fullest extent permissible under Section 317 of the General Corporation Law, the corporation shall indemnify its directors and officers against all expenses, judgments, fines, settlements and other amounts actually and reasonably incurred by them in connection with any proceeding, including an action by or in the right of the corporation, by reason of the fact that such person is or was a director, officer employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, officer, trustee, employee or agent of another corporation, at the request of the corporation as a director, officer, trustee, employee or agent of another corporation, or of a partnership, joining venture, trust or other enterprise (including service with respect to employee benefit plans), or was a director, officer, employee or agent of a foreign or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor corporation. To the fullest extent permissible under Section 317 of the General Corporation Law, expenses incurred by a director or officer seeking indemnification under this By-law in defending any proceeding shall be advanced by the corporation as they are incurred upon receipt by the corporation of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that the director or officer is not entitled to be indemnified by the corporation for those expenses. The rights granted by this By-law are contractual in nature and, as such, may not be altered with respects to any present or former director or officer without the written consent of that person. (c) Procedure. Upon written request to the Board of Directors by a person seeking indemnification under this By-law, the Board shall promptly determine in accordance with 20 23 Section 317(e) of the General Corporation Law whether the applicable standard of conduct has been met and, if so, the Board shall authorize indemnification. If the Board cannot authorize indemnification because the number of directors who are parties to the proceeding with respect to which indemnification is sought prevents the formation of a quorum of directors who are not parties to the proceeding, then, upon written request by the person seeking indemnification, independent legal counsel (by means of a written opinion obtained at the corporation's expense) or the corporation's stockholders shall determine whether the applicable standard of conduct has been met and, if so, shall authorize indemnification. (d) Definitions. The term "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative. The term "expenses" includes, without limitation, attorneys' fees and any expenses of establishing a right to indemnification. ITEM 16. EXHIBITS. The following exhibits are filed herewith or incorporated by reference herein: 4.1 -- An agreement between IMSI and Capital Ventures International dated March 3, 1999 4.2 -- Asset Purchase Agreement between clipartconnection.com and IMSI dated December 24, 1998 4.3 -- Exchange Agreement among Zedcor, Inc., certain Zedcor, Inc. stockholders and IMSI dated September 17, 1998 4.4 -- Fee Agreement by and between IMSI and The Learning Company dated as of January 21, 1999 4.5 -- Fee Agreement between IMSI and Greentree Technologies, Inc. dated February 18, 1999 4.6 -- Fee Agreement between IMSI and Zedcor, Inc. dated February 25, 1999 4.7 -- Fee Agreement between IMSI and the Law Offices of Mark Garay, Inc. dated January 11, 1999 4.8 -- Warrant Subscription Agreement between Silicon Valley Bank and IMSI dated November 3, 1998 4.9 -- Fee Agreement between IMSI and HomeStyles, Inc. dated January 11, 1999 4.10 -- Fee Agreement between IMSI and Gateway Acceptance Co. dated March 1, 1999 4.11 -- Fee Agreement between IMSI and Spatial Technology Inc. dated March 26, 1999 4.12 -- Fee Agreement between IMSI and StarBase Corporation dated March 26, 1999 4.13 -- Fee Agreement between IMSI and Joseph Minnevich dated January 11, 1999 4.14 -- Agreement between IMSI, Zedcor and the former shareholders of Zedcor dated as of May 10, 1999. 5.1 -- Opinion of Counsel regarding the legality of common stock. 23.1 -- Independent Auditors' Consent.* 23.2 -- Consent of Counsel (included in Exhibit 5.1). 24.1 -- Power of Attorney (see page II-5). - ------------- * To be filed by amendment. ITEM 17. UNDERTAKINGS. 22 24 Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 15 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the "Securities Act"); (ii) to reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information in the Registration Statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that (i) and (ii) do not apply if the information required to be included in a post-effective amendment thereby is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in this Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 23 25 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all for the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Novato, State of California, on the ___ day of June, 1999. INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. By: ______________________________________ Costa John, CEO POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Costa John and Martin Sacks, and each of them, his attorneys-in-fact, and agents, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- PRINCIPAL EXECUTIVE OFFICER: - -------------------------------- Costa John Chief Executive Officer June __, 1999 DIRECTORS: - -------------------------------- Martin Sacks Chairman of the Board June __, 1999 - -------------------------------- Charles Federman Director June __, 1999 - -------------------------------- Abe Ostrovsky Director June __, 1999 - -------------------------------- William H. Lane III Director June __, 1999
24 26 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT TITLE - -------- ------------- 4.1 An agreement between IMSI and Capital Ventures International dated March 3, 1999. 4.2 Asset Purchase Agreement between clipartconnection.com and IMSI dated December 24, 1998 4.3 Exchange Agreement among Zedcor, Inc., certain Zedcor, Inc. stockholders and IMSI dated September 17, 1998 4.4 Fee Agreement by and between IMSI and The Learning Company dated as of January 21, 1999 4.5 Fee Agreement between IMSI and Greentree Technologies, Inc. dated February 18, 1999 4.6 Fee Agreement between IMSI and Zedcor, Inc., dated February 25, 1999 4.7 Fee Agreement between IMSI and the Law Offices of Mark Garay, Inc., dated January 11, 1999 4.8 Warrant Subscription Agreement between Silicon Valley Bank and IMSI dated November 3, 1998 4.9 Fee Agreement between IMSI and HomeStyles, Inc. dated January 11, 1999 4.10 Fee Agreement between IMSI and Gateway Acceptance Co. dated March 1, 1999 4.11 Fee Agreement between IMSI and Spatial Technology Inc. dated March 26, 1999 4.12 Fee Agreement between IMSI and StarBase Corporation dated March 26, 1999 4.13 Fee Agreement between IMSI and Joseph Minnevich dated January 11, 1999 4.14 Agreement dated as of May 10, 1999 between IMSI, Zedcor and the former shareholders of Zedcor. 5.1 Opinion of Counsel regarding the legality of common stock 23.1 Independent Auditors' Consent* 23.2 Consent of Counsel (included in Exhibit 5.1) 24.1 Power of Attorney (see page II-5)
* To be filed by amendment. EX-4.1 2 AGREEMENT BETWEEN IMSI AND CAPITAL VENTURES 1 EXHIBIT 4.1 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of March 3, 1999, by and among INTERNATIONAL MICROCOMPUTER SOFTWARE, INC., a corporation organized under the laws of the State of California (the "COMPANY"), with executive offices located at 75 Rowland Way, Novato, California 94949, and the purchaser (the "PURCHASER") set forth on the execution page hereof (the "EXECUTION PAGE"). WHEREAS: A. The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D ("REGULATION D"), as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "SECURITIES ACT"). B. The Purchaser desires to purchase, subject to the terms and conditions stated in this Agreement, (i) up to $8,000,000 of the Company's common stock, no par value (the "COMMON STOCK"), constituting Tranche 1 Shares, as defined in Section 1(c) below, and Optional Tranche 2 Shares, as defined in Section 1(d) below, and (ii) warrants in the form attached hereto as Exhibit A (the "WARRANTS"), to acquire shares of Common Stock. The Tranche 1 Shares, Optional Tranche 2 Shares, if any, and the Adjustment Shares, as defined in Section 1(e) below, if any, are collectively referred to herein as the "SHARES" and the shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrants are referred to herein as the "WARRANT SHARES." The Shares, the Warrants and the Warrant Shares are collectively referred to herein as the "SECURITIES." C. Contemporaneous with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement in the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to which the Company has agreed to provide certain registration rights under the Securities Act and the rules and regulations promulgated thereunder, and applicable state securities laws. NOW, THEREFORE, the Company and the Purchaser hereby agree as follows: 1. PURCHASE AND SALE OF SHARES AND WARRANTS. a. Certain Definitions. For purposes of Agreement, the following terms shall have the meanings ascribed to them as provided below: "ADJUSTMENT DATE" shall mean the date the registration statement filed by the Company pursuant to Section 2(a)(i) of the Registration Rights Agreement is declared effective by the SEC; or, in the event such registration statement is not declared effective by the SEC within 180 days following the Tranche 1 Closing Date, the earlier of any date selected by the Purchaser 2 following such 180 day period or the 365th day following the Tranche 1 Closing Date (proposed mandatory adjustment on first year anniversary under consideration). "ADJUSTMENT DATE MARKET PRICE" shall mean the average Closing Price during the five (5) Trading Days, as defined below, immediately preceding the Adjustment Date, appropriately adjusted to reflect any pending stock dividend, stock split or similar transaction. "BUSINESS DAY" shall mean any day on which the principal United States securities exchange or trading market where the Common Stock is listed or traded as reported by Bloomberg, as defined below, is open for trading. "CAPITAL TRANSACTION" shall mean any transaction or series of transactions in which: (a) the Company or any of its material subsidiaries sells, conveys or disposes of all or substantially all of its assets; (b) the Company or any of its material subsidiaries merges, consolidates or engages in any other business combination with any other entity other than a merger in which the Company is the surviving or continuing entity and its capital stock is unchanged; (c) the Company has fifty percent (50%) or more of the voting power of its capital stock owned beneficially by one person, entity or "group" (as such term is used under Section 13(d) of the Securities Exchange Act of 1934, as amended); (d) the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise (including any dividend or distribution to the Company's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off); (e) there is a recapitalization, reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination) or (f) there is any share exchange pursuant to which all of the outstanding shares of Common Stock are converted into other securities or property. "CLOSING DATE" shall mean the Tranche 1 Closing Date with respect to the Tranche 1 Shares and Warrants and the Tranche 2 Closing Date with respect to the Optional Tranche 2 Shares. "CLOSING PRICE" shall mean for the Common Stock as of any date, the closing bid price of such security on the principal United States securities exchange or trading market where such security is listed or traded as reported by Bloomberg Financial Markets (or a comparable reporting service of national reputation selected by the Purchaser and reasonably acceptable to the Company if Bloomberg Financial Markets is not then reporting closing bid prices of such security) (collectively, "BLOOMBERG"), or if the foregoing does not apply, the last reported sale price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no sale price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc., in each case for such date or, if such date was not a Trading Day (as defined below) for such security, on the next preceding day which was a Trading Day. If the Closing Price cannot be calculated for a share of Common Stock as of either of such dates on any of the foregoing bases, the Closing Price of such security 2 3 on such date shall be the fair market value as reasonably determined by an investment banking firm selected by the Purchaser and reasonably acceptable to the Company, with the costs of such appraisal to be borne by the Company. "FINANCING TRANSACTION" shall mean any financing transaction pursuant to Regulation D and/or any other private placement exemption of equity securities of the Company, or securities or rights convertible into or exercisable or exchangeable for such securities, involving (i) an amount in excess of $500,000 and (ii) securities which, based on the purchase price paid, reflect a valuation of the Company which, when expressed on the basis of a share of Common Stock is less than seventy percent (70%) of the Market Price on the Tranche I Closing Date; provided that the definition of Financing Transaction shall not include mergers and other strategic transactions the primary purpose of which is not to raise capital or transactions presently under consideration by the Company and disclosed in writing by the Company to the Purchaser on the Tranche 1 Closing Date. "MARKET PRICE" shall mean with respect to any date of determination (i) the average Closing Price during the five (5) Trading Days, as defined below, preceding such date of determination or (ii) the Closing Price on the Trading Day immediately preceding such date of determination, whichever price is lower, and in each case appropriately adjusted to reflect any pending stock dividend, stock split or similar transaction. "MATERIAL ADVERSE EFFECT" shall mean any material adverse effect on (i) the ability of the Company to perform its obligations hereunder (including the issuance of the Shares and the Warrants) and under the Warrants (including the issuance of the Warrant Shares) or the Registration Rights Agreement or (ii) the business, operations, properties or financial condition of the Company and its subsidiaries, taken as a whole. "ROFO FINANCING TRANSACTION" shall mean any financing transaction involving the issuance of equity or equity-linked securities of the Company, or securities or rights convertible into or exercisable or exchangeable for such securities; provided that the definition of ROFO Financing Transaction shall not include mergers and other strategic transactions the primary purpose of which is not to raise capital or transactions presently under consideration by the Company and disclosed in writing by the Company to the Purchaser on the Tranche 1 Closing Date. "SEC" means the United States Securities and Exchange Commission. "SHARE LIMIT" shall mean a number equal to the quotient of (x) Five Million Dollars ($5,000,000) and (y) the product of (1) the Market Price on the Tranche 1 Closing Date and (2) .70. From the Tranche 1 Closing Date through and including the Adjustment Date, if the Company conducts a Financing Transaction, then the Share Limit shall be adjusted ("SHARE LIMIT ADJUSTMENT") to the quotient of (A) Five Million Dollars ($5,000,000) and (B) the valuation per share of the securities to be sold by the Company in such Financing Transaction. 3 4 "TRADING DAY" shall mean a Business Day on which the Common Stock trades on the principal United States securities exchange or trading market where such security is listed or traded as reported by Bloomberg. b. Generally. Except as otherwise provided in this Section 1 and subject to the satisfaction (or waiver) of the conditions set forth in Section 5 and Section 6 below, the Purchaser shall purchase the Warrants and the number of Shares determined as provided in this Section 1, and the Company shall issue and sell such Warrants and Shares to the Purchaser for the purchase price(s) as provided below. c. Tranche 1 Purchase Price; Number of Tranche 1 Shares and Warrants; Form of Payment; Tranche 1 Closing Date. i. On the Tranche 1 Closing Date, the Company shall sell and the Purchaser shall buy (A) the number of whole shares of Common Stock as is equal to the quotient of (I) Five Million Dollars ($5,000,000) divided by (II) an amount (the "TRANCHE 1 PER SHARE PRICE") equal to $11.425, and (B) Warrants to acquire the number of Warrant Shares equal to thirty percent (30%) of the number of Tranche 1 Shares. The shares of Common Stock acquired on the Tranche 1 Closing Date are referred to herein as the "TRANCHE 1 SHARES." On the Tranche 1 Closing Date, the Purchaser shall pay the Company an amount (the "TRANCHE 1 PURCHASE PRICE") equal to the product of (i) the number of Tranche 1 Shares to be acquired on the Tranche 1 Closing Date in accordance with the terms of this Section 1 and (ii) the Tranche 1 Per Share Price which amount shall constitute the total purchase price for the Tranche 1 Shares and the Warrants. ii. On the Tranche 1 Closing Date, the Purchaser shall pay the Tranche 1 Purchase Price by wire transfer to the Company, in accordance with the Company's written wiring instructions against delivery of certificates representing the Tranche 1 Shares and duly executed Warrants and the Company shall deliver the Tranche 1 Shares and the Warrants against delivery of the Tranche 1 Purchase Price. iii. Subject to the satisfaction (or waiver) of the conditions thereto set forth in Section 5 and Section 6 below, the date and time of the sale of the Tranche 1 Shares and the Warrants pursuant to this Agreement (the "TRANCHE 1 CLOSING") shall be 5:00 p.m. San Francisco Time on March 5, 1999 or such other date as the parties may mutually agree ("TRANCHE 1 CLOSING DATE"). The Tranche 1 Closing shall occur at the offices of Gibson, Dunn & Crutcher LLP, One Montgomery Street, Telesis Tower, San Francisco, California 94104, or at such other place as the parties may otherwise agree. d. Tranche 2 Purchase Price; Number of Optional Tranche 2 Shares; Form of Payment; Tranche 2 Closing Date. i. Upon both (A) the expiration of 18 months following the Tranche 1 Closing Date (the "TRANCHE 2 TRIGGER DATE"), and, if earlier, (B) the announcement of a transaction which, if consummated, would be a Capital Transaction and during the period from such announcement through and including the date on which the Capital 4 5 Transaction is consummated but in all events no later than the Tranche 2 Trigger Date (the "CAPITAL TRANSACTION PERIOD"), the Purchaser shall have the right, but not the obligation, to buy, and the Company shall have the obligation to sell to the Purchaser, on the Tranche 2 Closing Date (as hereafter defined), a maximum number of whole shares of Common Stock as is equal to the quotient of (I) Three Million Dollars ($3,000,000) divided by (II) an amount (the "TRANCHE 2 PER SHARE PRICE") equal to the lesser of (x) $14.28 , or (y) the Market Price on September 6, 1999, but not less than $7.9975. For avoidance of doubt, clause (y) of the preceding sentence shall be applicable only in connection with Optional Tranche 2 Shares issued on or after September 6, 1999. The shares of Common Stock acquired on the Tranche 2 Closing Date are referred to herein as the "OPTIONAL TRANCHE 2 SHARES." On the Tranche 2 Closing Date, the Purchaser shall pay the Company an amount (the "TRANCHE 2 PURCHASE PRICE") equal to the product of (i) the number of Optional Tranche 2 Shares to be acquired on the Tranche 2 Closing Date in accordance with the terms of this Section 1(d) and (ii) the Tranche 2 Per Share Price which amount shall constitute the total purchase price for the Optional Tranche 2 Shares. The Purchaser shall notify the Company in writing (the "TRANCHE 2 PURCHASE NOTICE") no later than 11:00 a.m. San Francisco Time on the third Business Day preceding the Tranche 2 Trigger Date, or, during the Capital Transaction Period, at any time beginning on the commencement of the Capital Transaction Period and ending on the third Business Day preceding the proposed consummation of the Capital Transaction, but in all events no later than the third Business Day preceding the Tranche 2 Trigger Date, whether the Purchaser desires to purchase the Optional Tranche 2 Shares, setting forth the number of shares the Purchaser desires to purchase; provided, however, that the Tranche 2 Purchase Notice may condition the Purchaser's election to close such purchase upon the consummation of the Capital Transaction. ii. The Tranche 2 Per Share Price or the Optional Tranche 2 Shares shall be subject to adjustment from time to time as follows: (A) If the Company at any time after the Tranche 1 Closing Date, but before the Tranche 2 Closing Date, subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a greater number of shares, then, after the date of record for effecting such subdivision, the Tranche 2 Per Share Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time after the Tranche 1 Closing combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a smaller number of shares, then, after the date of record for effecting such combination, the Tranche 2 Per Share Price in effect immediately prior to such combination will be proportionately increased. (B) In case, after the Tranche 1 Closing Date but before the Tranche 2 Closing Date of any consolidation of the Company with, or merger of the Company into any other entity in which the Company is not the surviving entity, or in case of any sale or conveyance of all or substantially all of the assets of the 5 6 Company other than in connection with a plan of complete liquidation of the Company at any time after the Tranche 1 Closing, then as a condition of such consolidation, merger or sale or conveyance, adequate provision will be made whereby the Purchaser will have the right, at its sole option, to acquire and receive in lieu of the Optional Tranche 2 Shares such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the Optional Tranche 2 Shares acquirable hereunder had such Optional Tranche 2 Shares been issued immediately prior to the consummation of such consolidation, merger or sale or conveyance. In any such case, the Company will make appropriate provision to insure that the provisions of this Section 1.d.ii (B) hereof will thereafter be applicable as nearly as may be in relation to any shares of stock or securities thereafter deliverable in lieu of the Optional Tranche 2 Shares. The Company will not effect any consolidation, merger or sale or conveyance unless prior to the consummation thereof, the successor corporation (if other than the Company) assumes by written instrument the obligations under this Section 1.d.ii and the obligations to deliver to the Purchaser such shares of stock, securities or assets as, in accordance with the foregoing provisions, the Purchaser may be entitled to acquire. (C) In case after the Tranche 1 Closing Date, but before the Tranche 2 Closing Date, the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a partial liquidating dividend, by way of return of capital or otherwise (including any dividend or distribution to the Company's shareholders of cash or shares (or rights to acquire shares) of capital stock of a subsidiary) (a "DISTRIBUTION") at any time after the Tranche 1 Closing, then, in each case, the Tranche 2 Purchase Price shall be reduced as of the seventh business day after the record date with respect to such distribution so that the same shall be equal to the price determined by multiplying the Tranche 2 Purchase Price in effect immediately prior to the close of business on such record date by a fraction the numerator of which is the average Closing Price for the five trading days immediately after such record date, and the denominator shall be the average Closing Price for the five trading days immediately prior to such record date, such reduction to become effective immediately prior to the opening of business on the day following the record date. iii. On the Tranche 2 Closing Date, the Purchaser shall pay the Tranche 2 Purchase Price by wire transfer to the Company, in accordance with the Company's written wiring instructions against delivery of certificates representing the Optional Tranche 2 Shares against delivery of the Tranche 2 Purchase Price. iv. Subject to the satisfaction (or waiver) of the conditions thereto set forth in Section 5 and Section 6 below, the date and time of the sale of the Optional Tranche 2 Shares pursuant to this Agreement (the "TRANCHE 2 CLOSING") shall be 5:00 p.m. San Francisco Time on the fifth Business Day following the date of the Tranche 2 Purchase Notice or such later date if mutually agreed by the parties hereto (the "TRANCHE 2 CLOSING 6 7 DATE"). The Tranche 2 Closing shall occur at the offices of Gibson, Dunn & Crutcher LLP, One Montgomery Street, Telesis Tower, San Francisco, California 94104 or at such other place as the parties may otherwise agree. v. If the Company fails for any reason to issue the Optional Tranche 2 Shares on the Tranche 2 Closing Date, then in addition to all other rights and remedies that the Purchaser may have under this Agreement or at law or equity, the Company shall pay to the Purchaser as liquidated damages ("TRANCHE 2 LIQUIDATED DAMAGES") an amount equal to (I) Thirty Thousand Dollars ($30,000) for the first month following the Tranche 2 Closing Date and (II) Sixty Thousand Dollars ($60,000) for each month thereafter that the Company fails to issue the Optional Tranche 2 Shares. In addition, the Purchaser shall have the option to demand at any time beginning five Business Days after the Tranche 2 Closing Date, that the Company pay to it an amount (the "OPTIONAL TRANCHE 2 DAMAGES") in cash equal to (x) the difference between the Tranche 2 Per Share Price and the Closing Price on the Tranche 2 Closing Date, multiplied by (y) the number of Optional Tranche 2 Shares the Company was to have delivered to the Purchaser on the Tranche 2 Closing Date. If the Company fails to pay the Purchaser the Optional Tranche 2 Damages within one Business Day (the "OPTIONAL DAMAGES PAYMENT DATE") of the date the Purchaser makes such demand, then the Company shall pay to the Purchaser an amount equal to (A) one percent (1%) of the amount of the Optional Tranche 2 Damages for the first month following the Optional Damages Payment Date and (B) two percent (2%) of the amount of the Optional Tranche 2 Damages for each month thereafter that the Company fails to pay the Optional Tranche 2 Damages. e. Adjustment Shares; Share Limit. If the Market Price on the Adjustment Date is lower than the Tranche 1 Per Share Price paid by the Purchaser on the Tranche 1 Closing Date, then, within three Business Days of the Adjustment Date, the Company shall cause to be issued to the Purchaser a number of additional whole shares of Common Stock (the "ADJUSTMENT SHARES") equal to (I) the quotient of (x) Five Million Dollars ($5,000,000) divided by (y) an amount equal to the Market Price on the Adjustment Date; minus (II) the number of Tranche 1 Shares purchased by the Purchaser on the Tranche 1 Closing Date; provided, however, that the Company shall not be required to issue to the Purchaser a number of shares which, when aggregated with the Tranche 1 Shares, would exceed the Share Limit. The Adjustment Shares shall deemed to be outstanding as of the Adjustment Date. 2. PURCHASER'S REPRESENTATIONS AND WARRANTIES. The Purchaser represents and warrants to the Company as follows: a. Purchase for Own Account. The Purchaser is purchasing the Securities for the Purchaser's own account and not with a present view towards the distribution thereof. Notwithstanding anything in this Section 2(a) to the contrary, by making the foregoing representation, the Purchaser does not agree to hold the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or 7 8 pursuant to a registration statement or an exemption from registration under the Securities Act and any applicable state securities laws. b. Information. The Purchaser has been furnished all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Purchaser. The Purchaser has been afforded the opportunity to ask questions of the Company and have received what the Purchaser believes to be satisfactory answers to any such inquiries. Neither such inquiries nor any other due diligence investigation conducted by the Purchaser or its counsel or any of its representatives shall modify, amend or affect the Purchaser's right to rely on the Company's representations and warranties contained in Section 3 below. c. Governmental Review. The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities. d. Authorization; Enforcement. The Purchaser has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and to purchase the Shares and the Warrants in accordance with the terms thereof. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Purchaser and is a valid and binding agreement of the Purchaser enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). e. Transfer or Resale. The Purchaser understands that (i) except as provided in the Registration Rights Agreement, the Securities have not been and are not being registered under the Securities Act or any state securities laws, and may not be transferred unless (a) subsequently registered thereunder, or (b) the Purchaser shall have delivered to the Company an opinion of counsel reasonably acceptable to the Company (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the Securities to be sold or transferred may be sold or transferred under an exemption from such registration, or (c) sold under Rule 144 promulgated under the Securities Act (or a successor rule), or (d) sold or transferred to an affiliate of the Purchaser pursuant to an exemption under the Securities Act; and (ii) neither the Company nor any other person is under any obligation to register such Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder, in each case, other than pursuant to the Registration Rights Agreement. f. Legends. The Purchaser understands that the Tranche 1 Shares, the Adjustment Shares and the Optional Tranche 2 Shares, if any, and the Warrants and Warrant Shares and, until such time as the Tranche 1 Shares, the Adjustment Shares, the Tranche 2 Shares and Warrant Shares, , respectively, have been registered under the Securities Act (including registration pursuant to Rule 416 thereunder) as contemplated by the Registration Rights Agreement or otherwise may be sold by the Purchaser under Rule 144 (k), the certificates for the Tranche 1 8 9 Shares, the Adjustment Shares, the Tranche 2 Shares, the Warrants and the Warrant Shares, respectively, may bear a restrictive legend in substantially the following form: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state of the United States. The securities represented hereby may not be offered or sold in the absence of an effective registration statement for the securities under applicable securities laws unless offered, sold or transferred under an available exemption from the registration requirements of those laws. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by state securities laws, (a) the sale of such Security is registered under the Securities Act (including registration pursuant to Rule 416 thereunder), or (b) such holder provides the Company with an opinion of counsel reasonably acceptable to the Company, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the Securities Act or (c) such holder provides the Company with reasonable assurances that such Security can be sold under Rule 144(k). The Purchaser agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, pursuant to an effective registration statement or under an exemption from the registration requirements of the Securities Act. Such legend shall be removed when such Security may be sold pursuant to an effective registration statement or sold under Rule 144(k). 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Purchaser that, except as set forth in the Company's Disclosure Letter delivered to the Purchaser at the Closing Date, as follows: a. Organization and Qualification. The Company and each of its subsidiaries is a corporation duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated, and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company and each of its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary and where the failure so to qualify would have a Material Adverse Effect. b. Authorization; Enforcement. (i) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Warrants and the Registration Rights Agreement, to issue and sell the Shares and the Warrants in accordance with the terms hereof and to issue the Warrant Shares upon exercise of the Warrants in accordance with the terms thereof; (ii) the execution, delivery and performance of this Agreement, the Warrants and the Registration Rights Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby (including, without limitation, the reservation for issuance and issuance of the Shares and the issuance of the Warrants, and the reservation for issuance and issuance of the Warrant Shares) have been duly 9 10 authorized by the Company's Board of Directors and no further consent or authorization of the Company, its Board of Directors or its shareholders is required; (iii) this Agreement has been duly executed and delivered by the Company; and (iv) this Agreement constitutes, and, upon execution and delivery by the Company of the Registration Rights Agreement and the Warrants, such agreements will constitute, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). c. Capitalization. The capitalization of the Company as of the date hereof including the authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Company's stock option plans, the number of shares issuable and reserved for issuance pursuant to securities exercisable for, or convertible into or exchangeable for any shares of capital stock, the number of Shares to be issued pursuant to the terms hereof and the Warrant Shares to be issued upon the exercise of the Warrants is set forth on Schedule 3(c). All of such outstanding shares of capital stock have been, or upon issuance will be, validly issued, fully paid and nonassessable. Except as set forth on Schedule 3(c), no shares of capital stock of the Company (including the Shares and the Warrant Shares) are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances. Except for the Securities and as disclosed in Schedule 3(c), as of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its subsidiaries, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, and (ii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of its or their securities under the Securities Act (except the Registration Rights Agreement). Except as set forth on Schedule 3(c), there are no securities or instruments containing antidilution or similar provisions that may be triggered by the issuance of the Securities in accordance with the terms of this Agreement or the Warrants and the holders of the securities and instruments listed on such Schedule 3(c) have waived any rights they may have under such antidilution or similar provisions in connection with the issuance of the Securities in accordance with the terms of this Agreement or the Warrants. The Company has made available to the Purchaser true and correct copies of the Company's Articles of Incorporation as in effect on the date hereof ("ARTICLES OF INCORPORATION"), the Company's By-laws as in effect on the date hereof (the "BY-LAWS") and all other instruments and agreements governing securities convertible into or exercisable or exchangeable for capital stock of the Company, except for stock options granted under any employee benefit plan or director stock option plan of the Company. d. Issuance of Shares. The Shares are duly authorized and when issued and paid for in accordance with the terms hereof will be validly issued, fully paid and non-assessable, freely transferable and free from all taxes, liens, claims and encumbrances and will not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose 10 11 personal liability upon the holder thereof. The Warrant Shares are duly authorized and reserved for issuance, and, upon exercise of the Warrants in accordance with the terms thereof, will be validly issued, fully paid and non-assessable, freely transferable and free from all taxes, liens, claims and encumbrances and will not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof. e. No Conflicts. The execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Warrants by the Company, and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the reservation for issuance and issuance of the Shares and the Warrant Shares and the issuance of the Warrants) will not (i) conflict with or result in a violation of the Articles of Incorporation or By-laws or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws and regulations) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected (except, with respect to clause (ii), for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect). Neither the Company nor any of its subsidiaries is in violation of its Articles of Incorporation, By-laws or other organizational documents and neither the Company nor any of its subsidiaries is in default (and no event has occurred which, with notice or lapse of time or both, would put the Company or any of its subsidiaries in default) under, nor has there occurred any event giving others (with notice or lapse of time or both) any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, except for actual or possible violations, defaults or rights as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its subsidiaries are not being conducted in violation of any law, ordinance or regulation of any governmental entity, except for actual or possible violations, if any, the sanctions for which either singly or in the aggregate would not have a Material Adverse Effect. Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required to obtain any consent, approval, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self regulatory agency in order for it to execute, deliver or perform any of its obligations under this Agreement (including, without limitation the issuance and sale of the Shares and Warrant as provided hereby), or the Warrants (including the issuance of the Warrant Shares), in each case in accordance with the terms hereof or thereof. The Company is not in violation of the listing requirements of the Nasdaq National Market ("NASDAQ") and does not reasonably anticipate that the Common Stock will be delisted by NASDAQ in the foreseeable future. f. SEC Documents Financial Statements. Since January 1, 1996, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), 11 12 and, since January 1, 1998, has timely filed all such reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the Exchange Act, and has filed all registration statements and other documents required to be filed by it with the SEC pursuant to the Securities Act (all of the foregoing filed after January 1, 1996 and prior to the date hereof, and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to herein as the "SEC DOCUMENTS"). The Company has made available to the Purchaser true and complete copies of the SEC Documents, except for the exhibits and schedules thereto and the documents incorporated therein. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act or the Securities Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Any statements made in any such SEC Documents that are or were required to be updated or amended under applicable law has been or have been so updated or amended. As of their respective dates, the financial statements of the Company included in the SEC Documents complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC applicable with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments). Except as set forth in the SEC Documents filed prior to the date hereof, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to the date of such SEC Documents and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such SEC Documents, which liabilities and obligations referred to in clauses (i) and (ii), individually or in the aggregate would not have a Material Adverse Effect. g. Absence of Certain Changes. Except as disclosed in the SEC Documents, since December 31, 1998, there has been no change or development which individually or in the aggregate has had or would have a Material Adverse Effect. h. Absence of Litigation. Except as disclosed in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or threatened against or affecting the Company, any of its subsidiaries, or any of their respective directors or officers in their capacities as such which would have a Material Adverse Effect or which would adversely affect the validity, enforceability of, or the authority or ability of the Company to perform its obligations under this Agreement (including the issuance of the Shares and the Warrants), the 12 13 Registration Rights Agreement, the Warrants (including the issuance of the Warrant Shares) or any other agreement or document delivered pursuant hereto or thereto. i. Intellectual Property. Each of the Company and its subsidiaries owns or is licensed to use all patents, patent applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, permits, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other similar rights and proprietary knowledge (collectively, "INTANGIBLES") necessary for the conduct of its business as now being conducted. Neither the Company nor any subsidiary of the Company infringes or is in conflict with any other person with respect to any Intangibles which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received written notice that it is infringing upon third party Intangibles. Neither the Company nor any of its subsidiaries has entered into any consent, indemnification, forbearance to sue or settlement agreements with respect to the validity of the Company's or its subsidiaries' ownership or right to use its Intangibles and there is no reasonable basis for any such claim to be successful. The Intangibles are valid and enforceable and no registration relating thereto has lapsed, expired or been abandoned or canceled or is the subject of cancellation or other adversarial proceedings, and all applications therefor are pending and in good standing. The Company and its subsidiaries have complied, in all material respects, with their respective contractual obligations relating to the protection of the Intangibles used pursuant to licenses. To the Company's knowledge, person is infringing on or violating the Intangibles owned or used by the Company or its subsidiaries. j. Foreign Corrupt Practices. Neither the Company, nor any of its subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the United States Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. k. Environment. Except as disclosed in the SEC Documents (i) there is no material environmental liability, nor factors likely to give rise to any environmental liability, affecting any of the material properties of the Company or any of its subsidiaries that, individually or in the aggregate, would have a Material Adverse Effect and (ii) neither the Company nor any of its subsidiaries has violated or infringed any environmental law now in effect nor has any such entity violated or infringed any then current environmental law as applied at that time, other than such violations or infringements that, individually or in the aggregate, have not had and will not have a Material Adverse Effect. l. Title. The Company and its subsidiaries have good title in fee simple to all real property and good title to all personal property owned by them which is material to the business 13 14 of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances and defects except for such defects in title that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions which have not had and will not have a Material Adverse Effect. m. Insurance. Each of the Company and each of its subsidiaries has its assets insured against loss or damage as is appropriate to its business and assets, in such amounts and against such risks as are customarily carried and insured against by owners of comparable businesses and assets, and such insurance coverages will be continued in full force and effect to and including each Closing Date other than those insurance coverages in respect of which the failure to continue in full force and effect could not reasonably be expected to have a Material Adverse Effect. n. Disclosure. All information relating to or concerning the Company set forth in this Agreement or provided to the Purchaser pursuant to Section 2(b) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or its subsidiaries or their respective businesses, properties, operations, prospects or financial conditions, which has not been publicly disclosed but, under applicable law, rule or regulation, would be required to be disclosed by the Company in a registration statement filed on the date hereof by the Company under the Securities Act with respect to a primary issuance of the Company's securities. The Company has not provided, and without the Purchaser's consent thereto, will not hereafter provide to the Purchaser, any information which, according to applicable law, rule or regulation, should have been disclosed publicly by the Company but which has not been disclosed. o. Acknowledgment Regarding the Purchaser's Purchase of the Securities. The Company acknowledges and agrees that the Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement or the transactions contemplated hereby, and the relationship between the Company and the Purchaser is "arms length" and that any statement made by the Purchaser or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Purchaser's purchase of Securities and has not been relied upon by the Company, its officers or directors in any way. The Company further represents to the Purchaser that the Company's decision to enter into this Agreement has been based solely on an independent evaluation by the Company and its representatives. p. No Brokers to be Paid by Purchaser. The Company has not engaged any person to which or to whom brokerage commissions, finder's fees, financial advisory fees or similar payments are or will become due in connection with this Agreement or the transactions contemplated hereby. 14 15 q. Tax Status. The Company and each of its subsidiaries has made or filed all federal, state and local income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction. The Company has not executed a waiver with respect to any statute of limitations relating to the assessment or collection of any federal, state or local tax. Except as set forth in Schedule 3(q), none of the Company's tax returns has been or is being audited by any taxing authority. 15 16 4. COVENANTS. a. Best Efforts. The parties shall use their best efforts timely to satisfy each of the conditions described in Section 5 and Section 6 of this Agreement. b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Purchaser promptly after such filing. The Company shall, on or before each of the Tranche 1 Closing Date and Tranche 2 Closing Date, as applicable, take such action as is the Company shall reasonably determine is necessary to qualify the Securities for sale to the Purchaser pursuant to this Agreement under applicable securities or "blue sky" laws of the states of the United States or obtain exemption therefrom, and shall provide evidence of any such action so taken to the Purchaser on or prior to the Tranche 1 Closing Date and Tranche 2 Closing Date, as applicable. c. Reporting Status. So long as the Purchaser beneficially owns any Securities or has the right to acquire any Securities pursuant to this Agreement or the Warrants, the Company shall timely file all reports required to be filed with the SEC pursuant to the Exchange Act, and shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. d. Use of Proceeds. The Company shall use the net proceeds from the sale of the Shares and the Warrants for working capital and general corporate purposes, but in no event shall the Company use such net proceeds to repurchase any outstanding securities of the Company without the Purchaser's prior written consent. e. Expenses. The Company shall reimburse the Purchaser at each Closing for the out-of-pocket expenses reasonably incurred by the Purchaser and its affiliates and advisors in connection with the negotiation, preparation, execution and delivery of this Agreement, the Registration Rights Agreement, the Warrants and the other agreements to be executed in connection herewith, including, without limitation, in conducting such Purchaser's and its affiliates' and advisors' reasonable due diligence and such Purchaser's and its affiliates reasonable attorneys' fees and expenses up to a maximum of $15,000 (the "EXPENSES"). In addition, from time to time, after any Closing, upon the Purchaser's written request, the Company shall reimburse the Purchaser for such Expenses, if any, not covered by the payment made to the Purchaser at any prior Closing (up to the $15,000 maximum). Notwithstanding the foregoing, the Company shall not be obligated to reimburse the Purchaser for more than $15,000 pursuant to this Section 4(e). f. Financial Information. For a period of two (2) years following the last Closing, the Company agrees to send the following reports to the Purchaser: (i) within ten (10) days after the filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy and information statements and any Current Reports on Form 8-K; and (ii) within three (3) days after release, copies of all earnings and similar financial press releases issued by the Company or its subsidiaries, if any. 16 17 g. Reservation of Shares. The Company has and shall at all times have authorized and reserved for the purpose of issuance a sufficient number of shares of Common Stock to provide for the issuance of the maximum number of Shares as provided in Section 1 hereof and the full exercise of the Warrants and the issuance of the Warrant Shares in connection therewith and as otherwise required hereby and by the Warrants. The Company shall not reduce the number of shares reserved for issuance hereunder or upon the full exercise of the Warrants (except as a result of any such conversion or exercise) without the consent of the Purchaser. h. Listing. On each Closing Date, the Company shall have secured the listing of the Shares and Warrant Shares, in each case, upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed or quoted (subject to official notice of issuance) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Shares from time to time issuable hereunder and all Warrant Shares from time to time issuable upon exercise of the Warrants. The Company will use its best efforts to continue the listing and trading of its Common Stock on NASDAQ, the New York Stock Exchange ("NYSE") or the American Stock Exchange and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the NYSE or any other exchanges, as applicable, and the National Association of Securities Dealers ("NASD"). i. Corporate Existence. So long as the Purchaser beneficially owns any Securities or the right to acquire any Securities pursuant to this Agreement or the Warrants, the Company shall maintain its corporate existence, except in the event of a merger, consolidation or sale of all or substantially all of the Company's assets, as long as the surviving or successor entity in such transaction assumes the Company's obligations hereunder and under the Warrants and under the agreements and instruments entered into in connection herewith. j. Right of First Offer. For a period of 360 days following the Tranche 1 Closing Date, prior to engaging in a ROFO Financing Transaction, the Company shall first offer the Purchaser the right ("RIGHT OF FIRST OFFER") to fund fifty percent (50%), up to a maximum amount of Two Million Five Hundred Thousand Dollars ($2,500,000), of a ROFO Financing Transaction before offering to any third party the opportunity to participate in such ROFO Financing Transaction. If the Company desires to enter into a ROFO Financing Transaction, the Company shall deliver to the Purchaser a written statement ("OFFER NOTICE") notifying the Purchaser of the proposed terms of the ROFO Financing Transaction, including the material terms of the proposed ROFO Financing Transaction, and offering the Purchaser the opportunity to participate in such ROFO Financing Transaction on terms consistent with this Section 4(j). The Purchaser shall have no more than five (5) days (the "OFFER PERIOD") from the date of receipt of the Offer Notice to exercise its Right of First Offer by delivering written notice to the Company that it intends to exercise its Right of First Offer. If (a) the Purchaser fails to exercise its Right of First Offer during the Offer Period, (b) the Purchaser notifies the Company in writing that it does not intend to exercise its Right of First Offer, (c) the Purchaser exercises its Right of First Offer, but the parties are unable to consummate the ROFO Financing Transaction within the time period 17 18 specified for such consummation in the definitive documentation with respect to such ROFO Financing Transaction, unless such inability to consummate is due to no fault of the Purchaser, or (d) the Purchaser does not make its required funds available on request or otherwise fulfill its obligations to the transaction agreement with respect to the ROFO Financing Transaction at the time the ROFO Financing Transaction is scheduled to be consummated, then the Company shall be immediately free to deal with third parties with respect to such ROFO Financing Transaction on the same terms as were set forth in the Offer Notice; provided, however, that if the Company fails to consummate the ROFO Financing Transaction within two (2) months of the delivery of the Offer Notice, such ROFO Financing Transaction shall then become the subject of a new Right of First Offer, which the Purchaser may choose to exercise in accordance with this Section 4(j). 5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue and sell the Shares and the Warrants to the Purchaser hereunder is subject to the satisfaction, at or before each Closing Date, of each of the following conditions thereto. a. The Purchaser shall have executed the signature page to this Agreement and the Registration Rights Agreement, and delivered the same to the Company. b. The Purchaser shall have delivered (i) the Tranche 1 Purchase Price in accordance with Section 1(c) above at the Tranche 1 Closing and (ii) the Tranche 2 Purchase Price in accordance with Section 1(d) above at the Tranche 2 Closing. c. The representations and warranties of the Purchaser shall be true and correct as of the date when made and as of each Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date), and the Purchaser shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Purchaser at or prior to each Closing Date. d. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement. 6. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE THE SHARES AND THE WARRANTS. The obligation of the Purchaser hereunder to purchase the Shares and the Warrants hereunder is subject to the satisfaction, at or before each Closing Date (except as otherwise specifically referred to in this Section 6), of each of the following conditions, provided that these 18 19 conditions are for the Purchaser's sole benefit and may be waived by the Purchaser at any time in the Purchaser's sole discretion: a. The Company shall have executed the signature page to this Agreement and the Registration Rights Agreement, and delivered the same to the Purchaser. b. The Company shall have delivered to the Purchaser (i) at the Tranche 1 Closing, certificates representing the number of Tranche 1 Shares determined as provided in Section 1(c) above and duly executed Warrants in accordance with Section 1(c) above; (ii) at the Tranche 2 Closing, certificates representing the number of Optional Tranche 2 Shares determined as provided in Section 1(d) above. c. The Shares shall be authorized for quotation on NASDAQ and trading in the Common Stock (or NASDAQ generally) shall not have been suspended or be under threat of suspension by the SEC or NASDAQ. d. The representations and warranties of the Company shall be true and correct as of the date when made and as of each Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which representations and warranties shall be true and correct as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to each Closing Date. The Purchaser shall have received a certificate, executed on behalf of the Company by its Chief Financial Officer, dated as of each Closing Date, to the foregoing effect. e. No statute, rule, regulation, executive order, decree, ruling, injunction, action, proceeding or interpretation shall have been enacted, entered, promulgated, endorsed or adopted by any court or governmental authority of competent jurisdiction or any self-regulatory organization, or the staff of any thereof, having authority over the matters contemplated hereby which questions the validity of, or challenges or prohibits the consummation of, any of the transactions contemplated by this Agreement. f. The Purchaser shall have received an opinion of the Company's counsel, dated as of each Closing Date, in substantially the form of Exhibit C attached hereto. g. Subsequent to the date of this Agreement, there shall not have occurred any Material Adverse Effect. With respect to the Tranche 2 Closing, the conditions in paragraphs d., f. and g. of this Section 6 shall not apply. 7. GOVERNING LAW MISCELLANEOUS. a. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and 19 20 to be performed in the State of California. The Company irrevocably consents to the jurisdiction of the United States federal courts and the state courts located in San Francisco, California in any suit or proceeding based on or arising under this Agreement and irrevocably agrees that all claims in respect of such suit or proceeding may be determined in such courts. The Company irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding. The Company further agrees that service of process upon the Company mailed by first class mail shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. Nothing herein shall affect the right of the Purchaser to serve process in any other manner permitted by law. The Company agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. b. Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other parties hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement. In the event any signature is delivered by facsimile transmission, the party using such means of delivery shall cause the manually executed Execution Page(s) hereof to be physically delivered to the other party within five (5) days of the execution hereof. c. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. e. Entire Agreement, Amendments; Waiver. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchaser make any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived other than by an instrument in writing signed by the party to be charged with enforcement and no provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Purchaser. Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision of or any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. f. Notices. Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered 20 21 personally or by courier or by confirmed telecopy, and shall be effective five days after being placed in the mail, if mailed, or upon receipt or refusal of receipt, if delivered personally or by courier or confirmed telecopy, in each case addressed to a party. The addresses for such communications shall be: If to the Company: International Microcomputer Software, Inc. 75 Rowland Way Novato, California 94949 Telephone No.: (415) 257-3000 Telecopy No.: (415) 257-3565 Attention: Ken Fineman with a copy to: Fenwick & West LLP Two Palo Alto Square Palo Alto, California 94306 Telephone No.: (650) 858-7600 Telecopy No.: (650) 494-1417 Attention: C. Kevin Kelso, Esq. If to the Purchaser, to the address set forth under the Purchaser's name on the signature page hereto executed by the Purchaser. Each party shall provide notice to the other parties of any change in address. g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser; provided that, for purposes of this Section 7.g., a merger or consolidation in which the Company is not the surviving entity or sale of all or substantially all of the Company's assets shall not be deemed an assignment, as long as the surviving or successor entity in such transaction assumes the Company's obligations hereunder and under the Warrants and the agreements and instruments entered into in connection herewith. h. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by any other person. i. Survival. The representations and warranties of the Company and the agreements and covenants set forth in Sections 3, 4 and 7 shall survive each of the Closings hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Purchaser. Moreover, none of the representations and warranties made by the Company herein shall act as a waiver of any rights or remedies the Purchaser may have under applicable federal or state 21 22 securities laws. The Company agrees to indemnify and hold harmless the Purchaser and each of the Purchaser's officers, directors, employees, partners, members, agents and affiliates for loss or damage relating to the Securities purchased hereunder arising as a result of or related to any breach by the Company of any of its representations or covenants set forth herein, including advancement of expenses as they are incurred. j. Publicity. The Company and the Purchaser shall have the right to review and comment upon, before issuance any press releases, SEC, NASDAQ or NASD filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Purchaser, to make any press release or SEC, NASDAQ or NASD filings with respect to such transactions as is required by applicable law and/or exchange regulations (although the Purchaser shall be entitled to review and comment upon any such press release prior to its release). k. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. l. Termination. In the event that the Tranche 1 Closing Date shall not have occurred on or before March 10, 1999, unless the parties agree otherwise, this Agreement shall terminate at the close of business on such date. Notwithstanding any termination of this Agreement, any party not in breach of this Agreement shall preserve all rights and remedies it may have against another party hereto for a breach of this Agreement prior to or relating to the termination hereof. m. Joint Participation in Drafting. Each party to this Agreement has participated in the negotiation and drafting of this Agreement, the Registration Rights Agreement and the Warrants. As such, the language used herein and therein shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party to this Agreement, the Registration Rights Agreement or the Warrants. n. Equitable Relief. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchaser by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations hereunder will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that the Purchaser shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 22 23 IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this Agreement to be duly executed as of the date first above written. COMPANY: INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. By:__________________________________________ Name: Title: PURCHASER: CAPITAL VENTURES INTERNATIONAL By:__________________________________________ Name: Title: Residence: Cayman Islands Address: c/o Heights Capital Management 425 California, Suite 1100 San Francisco, CA 94104 Telephone No.: (415) 403-6500 Telecopy No.: (415) 403-6525 Attention: Michael Spolan, Esq. with copies of all notices to: Gibson, Dunn & Crutcher LLP One Montgomery Street Telesis Tower San Francisco, CA 94104 Telephone No.: (415) 383-8200 Telecopy No.: (415) 986-5309 Attention: William L. Hudson, Esq. 23 EX-4.2 3 ASSET PURCHSE AGREEMENT BETWEEN CLIPART & IMSI 1 EXHIBIT 4.2 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (this "AGREEMENT") is made and entered into effective as of 24th December, 1998, between clipartconnection.com, a _______ [corporation/individual] with offices located at _________________________________, (the "SELLER") and IMSI, a California corporation with offices located at 75 Rowland Way, Novato, CA 94945, ("IMSI"). PRELIMINARY STATEMENT The IMSI desires to purchase, and the Seller desires to sell, certain of the assets of the Seller, for the consideration set forth below, subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereby agree as follows: 1. SALE AND DELIVERY OF THE ASSETS 1.1 Assets to be Purchased (a) Subject to and upon the terms and conditions of this Agreement at the closing of the transactions contemplated by this Agreement (the "CLOSING"), the Seller shall sell, transfer, convey, assign, deliver and where applicable, license to the IMSI, and the IMSI shall purchase from the Seller, the following properties, assets and other rights and interests of the Seller including: (i) all web site materials including, without limitation, all website content, web links, databases, agreements, records and object and source code relating to the URL known as "clipart.com" (collectively, the "SITE"); (ii) all books, records and accounts, correspondence, production records, technical, accounting, customer lists, customer registration files and databases, and any confidential information which has been reduced to writing relating to the Site; (iii) all of the Seller's right, title and interest i and to, including the right to enforce, all intangible property rights, including but not limited to inventions, discoveries, trade secrets, United States and foreign patents and applications, the domain name "clipartconnection.com" and any derivation thereof, trademark registrations, applications for trademark registrations, logos, copyrights, copyright registrations, owned or where not owned used by the Seller in its business as it relates to the Site (collectively, the "INTANGIBLE Property");and (b) The Site, Intangible Property and other properties, assets and business of the Seller described in paragraph (a) above shall be referred to collectively as the "ASSETS." 1.2 Further Assurances. At any time and from time to time after the Closing, at the IMSI's request and without further consideration, the Seller promptly shall execute and deliver such instruments of sale, transfer, conveyance, assignment and conformation, and take such other action, as the IMSI may reasonably request to more effectively transfer, convey and assign to the IMSI, and to confirm the IMSI's title to, all of the Assets, to put the IMSI in actual possession and operating control thereof, to assist the IMSI in exercising all rights with respect thereto and to carry out the purpose and intent of this Agreement. Seller agrees to effectuate the transfer of the Domain Name registration in a timely manner. Specifically, Seller agrees to prepare and transmit the necessary InterNIC (or any successor domain name registration organization) registration templates and/or to correspond with InterNIC to authorize transfer of the Domain Name and pay any fees associated therewith. 1 2 1.3. Purchase Price. (a) The purchase price for the Assets shall be equal to the sum of three hundred ten thousand dollars (U.S. $310,000.00), one hundred sixty thousand dollars (U.S. $160,000.00) in cash and one hundred fifty thousand dollars (U.S. $150,000.00) in common stock of IMSI, payable as follows: - One hundred sixty thousand dollars (U.S. $160,000.00) shall be paid pursuant to the terms of the IMSI Note. - Within thirty (30) days of the Closing, IMSI shall deliver to the Seller the number of shares of IMSI Common Stock equal to the average of the closing prices per share of IMSI Common Stock (in U.S. dollars) as quoted on the Nasdaq National Market (or such other exchange or quotation system on which IMSI Common Stock is then traded or quoted) and reported in The Wall Street Journal for the ten (10) trading days ending on, and inclusive of, the date as of which such determination is being made for a total value of one hundred fifty thousand dollars (U.S. $150,000.00.) 1. Fractional Shares. No fractional shares of IMSI Common Stock shall be issued in connection with the Exchange. 2. Registration Rights. Effective upon the Closing, the Seller shall be granted registration rights under the Securities Act of 1933, as amended (the "1933 ACT".) IMSI shall endeavor to register the Seller's shares of IMSI Common the next time IMSI does a stock registration filing with the SEC on a form suitable for registration of such shares (i.e., not a form relating to employee benefit plans, a merger or similar transaction.) Nothing herein shall require IMSI to separately register the Seller's shares of IMSI Common Stock. 3. Limitations on Sale, Transfer of IMSI Common Stock. The Seller shall not sell, transfer, gift or encumber in excess of ten percent (10%) of the total number of shares of IMSI Common Stock provided to the Seller pursuant to this Agreement, in any one calendar month during the twelve (12) month period following the date the IMSI Common Stock becomes tradable without the prior written consent of IMSI. Additionally, the Seller shall give IMSI advance written notice of any proposed sale of IMSI Common Stock pursuant to this Agreement, at least ten (10) business days in advance of the proposed sale. IMSI shall have a perpetual right of first refusal to either purchase such proposed sale shares or to arrange for a third party to purchase such shares. 1.4 No Liabilities. IMSI shall assume no liabilities, obligations or agreements of the Seller whatsoever and the Seller shall remain solely responsible for, and shall indemnify the IMSI against, all such liabilities, obligations and agreements. 2. REPRESENTATIONS AND WARRANTIES OF THE SELLER The Seller represents and warrants to the IMSI as follows: 2.1 Authorization. The execution, delivery and performance by the Seller of this Agreement and the agreements provided for herein, and the consummation by the Seller of the transactions contemplated hereby and thereby, will not, with or without the giving of notice or the passage of time or both, (a) violate the provisions of any law, rule or regulation applicable to the Seller; or (b) violate any judgment, decree, order or award of any court, governmental body or arbitrator. 2.3 Ownership of the Assets. Seller is the exclusive owner of all right, title and interest in and to the assets. 2.4 Litigation and Claims. The Seller is not a party to, or threatened with, and none of the Assets are subject to, any litigation, suit, action, investigation, proceeding or controversy before any court, administrative agency or other governmental authority relating to or affecting the Assets. 2 3 2.6 No Infringement. The Site and the Intangible property do not infringe on any patent, trademark, trade name, copyright or other proprietary right of any third party. 2.7 Regulatory Approvals. All consents, approvals, authorizations and other requirements prescribed by any law, rule or regulation which must be obtained or satisfied by the Seller and which are necessary for the execution and delivery by the Seller of this Agreement and the documents to be executed and delivered by the Seller in connection herewith have been obtained and satisfied. 2.8 Disclosure. No representation or warranty by the Seller in this Agreement contains any untrue statement of a material fact. 3. REPRESENTATIONS AND WARRANTIES OF THE IMSI The IMSI represents and warrants to the Seller as follows: Authorization. The execution, delivery and performance of this Agreement and the agreements provided for herein, and the consummation by the IMSI of the transactions contemplated hereby and thereby, will not, with or without the giving of notice or the passage of time or both, (a) violate the provisions of any law, rule or regulation applicable to such party; (b) violate the provisions of the Certificate of Incorporation; or By-laws of the IMSI (c) violate any judgment, decree, order or aware of any court, governmental body or arbitrator. 4. INDEMNIFICATION 4.1 The Seller hereby indemnifies and holds harmless the IMSI against all claims, damages, losses, liabilities, costs and expenses (including, without limitation, settlement costs and any legal, accounting or other expenses for investigating or defending any actions or threatened actions) incurred by the IMSI in connection with each and all of the following: (a) Any breach by the Seller of any representation or warranty in this Agreement; (b) Any intellectual property or other proprietary claim relating to Site or anything on the Site; and (c) Any tax liabilities or obligations of the Seller. 4.2 Claims for Indemnification. Whenever any claim shall arise for indemnification hereunder the IMSI (the "INDEMNIFIED PARTY") shall promptly notify the Seller (the "INDEMNIFYING PARTY") of the claim and, when known, the facts constituting the basis for such claim. In the event of any such claim for indemnification hereunder resulting from or in connection with any claim or legal proceedings by a third party. The Indemnified Party shall not settle or compromise any claim by a third party for which it is entitled to indemnification hereunder without the prior written consent of the Indemnifying Party, which shall not be unreasonable withheld, unless suit shall have been instituted against it and the Indemnifying Party shall not have taken control of such suit after notification thereof as provided in Section 4.1 of this Agreement. 4.3 Payment of Indemnification Obligation. The Seller hereby agrees that any claim for indemnification by the IMSI under this Section 4 or under any other provision of this Agreement may, at IMSI's option, be set off against any of the IMSI's obligations to make payments to the Seller under this Agreement, if any. 5. CONFIDENTIALITY 5.1 All documentation and information provided to in anticipation of this agreement, both written and oral, by the party disclosing the information ("the Disclosing Party") is proprietary or confidential, including without limitation the terms of this or any other agreement between the parties, financial documents, copies of third party agreements in whole or in part, drawings, computer program listings, techniques, algorithms and processes and technical and marketing information ("Confidential Information.") All information supplied by the Disclosing Party in connection with this Agreement shall be treated confidentially by the recipient of the confidential information ("Recipient") and its employees, and shall 3 4 not be disclosed by the Recipient without the Disclosing Party's prior written consent. 5.2 The parties agree that, in the event of Recipient's breach or threatened breach of the confidentiality provision hereof, an action at law for damages would not be adequate to protect the rights of the Disclosing Party. Therefore, Recipient agrees that in the event of a breach or threatened breach, the disclosing party shall be entitled to injunctive and/or other equitable relief to prevent a breach thereof and to secure their enforcement, which shall be in addition to any other rights of the disclosing party. Recipient acknowledges and agrees that the Disclosing party shall be entitled to punitive damages in the event that the confidentiality provision is breached. 6. MISCELLANEOUS 6.1 Notices Any notices or other communications required or permitted hereunder shall be sufficiently given if delivered personally or sent by telex, federal express, registered or certified mail, postage prepaid, addressed as follows or to such other address of which the parties may have given notice: If to IMSI; If to Seller: IMSI ______________________ 75 Rowland Way Attention: ___________ Novato, CA 94945 ______________________ Telephone: ___________ Telephone (415) 257-3000 Facsmile: ___________ Facsimile: (415) 897-7360 Copy to: Legal Department FAX: #415/893-9860 Unless otherwise specified herein, such notices or other communications shall be deemed received (a) on the date delivered, if delivered personally; or (b) three business days after being sent, if sent by registered or certified mail. 6.2 Successors and Assigns. Neither party may assign its respective obligations hereunder without the prior written consent of the other party. Any assignment in contravention of this provision shall be void. 6.3 Entire Agreement. This Agreement represents the entire understanding between the parties hereto with respect to the subject matter hereof and supersede all prior oral and written and all contemporaneous oral negotiations, commitments and understandings between such parties. 6.4 Expenses. Except as otherwise expressly provided herein, the IMSI and the Seller shall each pay their own expenses in connection with this Agreement and the transactions contemplated hereby. 6.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of California, notwithstanding any conflict of laws. 6.6 Section Headings. The section headings are for the convenience of the parties and in no way alter, modify, amend, limit, or restrict the contractual obligations of the parties. 6.7 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement IN WITNESS WHEREOF the parties hereto have caused this Agreement to be signed under seal as of the date first set forth above. ____________________ IMSI By: By: Name: Name: Title: Title: 4 5 SCHEDULE A LIST OF SITE ADVERTISING AGREEMENTS AND MONTHLY REVENUE 5 6 SCHEDULE B SITE TRAFFIC STATISTICS 6 7 SCHEDULE C SECURED PROMISSORY NOTE IN THE AMOUNT OF International Microcomputer Software Inc. US$160,000.00 December 24th, 1998 1. OBLIGATION. In partial consideration for the exchange (the terms and conditions set forth in the Asset Purchase Agreement (the "Asset Purchase Agreement") between the parties and incorporated herein by reference) by _______., (Seller) an ________ corporation, International Microcomputer Software Inc., (IMSI) a California corporation, promises to pay to Seller at Seller's then current address, the unpaid principal amount due under this Secured Promissory Note ("Note.") Full payment of this Note by IMSI is contingent upon the successful unencumbered transfer of the Assets to IMSI as described in the Asset Purchase Agreement. 2. REPAYMENT. This Note will be repaid by IMSI to Seller in full on 15th March 1999. This Note, or any portion thereof, can be paid in advance by IMSI at any time without penalty. 3. EVENTS OF DEFAULT BY PURCHASER. If any of the following events should occur (each herein individually referred to as an "Event of Default"), Seller may declare the entire unpaid principal on this Note, immediately due and payable, by notice in writing to IMSI, without any other presentment, demand, protest or other notice of any kind of character, all of which are hereby expressly waived, anything herein to the contrary notwithstanding: 3.1 FAILURE TO MAKE PAYMENT. Default in the payment of this Note when due and payable pursuant to the provisions of Section 2 if such default is not cured by IMSI within thirty (30) days after Seller notifies IMSI of such payment's past due status in writing. 3.2 INSTITUTION OF BANKRUPTCY. The institution by IMSI of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to institution of bankruptcy or insolvency proceedings against it or the filing by it of a petition or answer or consent seeking reorganization or release under the Federal Bankruptcy code, or any other similar federal or state law, or the consent by it to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee, or other similar official, of IMSI, or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due or the taking of corporate action by IMSI in furtherance of any such action or comparable proceedings in IMSI's non-U.S. jurisdiction; or 3.3 NONDISMISSAL OF BANKRUPTCY PROCEEDINGS. If, within thirty (30) days after the commencement of an action against IMSI seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such action will not have been dismissed or all orders or proceedings thereunder affecting the operations or the business of IMSI stayed, or if the stay of any such order or proceeding will thereafter be set aside, or if, within thirty (30) days after the appointment without the consent or acquiescence of IMSI of any trustee, receiver or liquidator of IMSI or of all of any substantial part of the properties of IMSI, such appointment will not have been vacated or comparable proceedings in IMSI's non-U.S. jurisdiction. 4. EVENT OF DEFAULT BY SELLER. If the Seller has failed to comply with any term or condition of the Asset Purchase Agreement, this Note will not mature until such failure of Seller is either remedied or excused by IMSI in writing. 5. PAYMENT OF EXPENSES AND ATTORNEYS' FEES. In case of default in the payment of this Note by IMSI or an Event of Default by Seller, the defaulting party will pay to the non-defaulting party such amount as will be sufficient to cover the cost and expenses of collection, including, without limitation, reasonable attorney's fees, expenses, and disbursements. No course of dealing and no delay on the part of the non-defaulting party in exercising any right will operate as a waiver thereof or otherwise prejudice it's right, 7 8 powers, or remedies. No right, power, or remedy conferred by this Note upon the non-defaulting party will be exclusive of any other rights, power, or remedy referred to in this Note, or now or hereafter available at law, in equity, by statute, or otherwise. 6. GOVERNING LAW. The validity, construction and performance of this Note will be governed by the laws of the State of California, excluding that body of law pertaining to conflicts of law. IN WITNESS WHEREOF, IMSI has caused this Note to be executed as of the date and year first above written. International Microcomputer Software Inc. By: Name: Kenneth R. Fineman Title: Chief Financial Officer 8 EX-4.3 4 EXCHANGE AGREEMENT AMONG ZEDCOR AND IMSI 1 EXHIBIT 4.3 EXCHANGE AGREEMENT THIS EXCHANGE AGREEMENT (this "AGREEMENT") is made and entered into as of September 17th, 1998 (the "AGREEMENT DATE") by and among INTERNATIONAL MICROCOMPUTER SOFTWARE, INC., a California corporation ("IMSI"), and ZEDCOR, INC. an Arizona corporation ("Zedcor") and the persons who execute this Agreement as Shareholders of Zedcor (each individually a "ZEDCOR SHAREHOLDER" and collectively the "ZEDCOR SHAREHOLDERS"). RECITALS A. The parties intend that, subject to the terms and conditions of this Agreement, IMSI will acquire 100% of the outstanding share capital of Zedcor from the Zedcor Shareholders pursuant to the terms and conditions set forth herein in exchange for cash and shares of IMSI Common Stock. B. Upon the effectiveness of the Exchange (as defined below), all the outstanding shares of Zedcor will be transferred to IMSI in exchange for cash and shares of IMSI Common Stock. C. The representations and warranties of Zedcor and the Zedcor Shareholders herein are a material inducement to IMSI to enter into this Agreement. D. To the extent possible, the parties intend that the Exchange qualify as a reorganization under Section 368 of the U.S. Internal Revenue Code of 1986, as amended (the "CODE"). AGREEMENT NOW, THEREFORE, the parties hereby agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms will have the meanings set forth below: 1.1 "IMSI ANCILLARY AGREEMENTS" means, collectively, each agreement, certificate or document (other than this Agreement) which IMSI is to enter into as a party thereto, or is to otherwise execute and deliver, pursuant to or in connection with this Agreement. 1.2 "IMSI AVERAGE PRICE PER SHARE" means six dollars and forty seven cents ($6.47.) 1.3 "IMSI COMMON STOCK" means the Common Stock, of IMSI. 1.4 "IMSI NOTE" shall mean the promissory note of IMSI representing the balance of the purchase price described in Section 2.1(d) below, and as attached hereto as Exhibit B. 2 1.4 "ZEDCOR ANCILLARY AGREEMENTS" means, collectively, each agreement, certificate or document (other than this Agreement) which Zedcor is to enter into as a party thereto, or is to otherwise execute and deliver, pursuant to or in connection with this Agreement. 1.5 "ZEDCOR CERTIFICATES" means the share certificates representing the entire Zedcor Shareholders' shares of Zedcor Stock. 1.6 "ZEDCOR STOCK" means the common stock of Zedcor, one cent ($0.01) par value per share, comprising the authorized capital of Zedcor, as constituted immediately prior to the Closing. 1.7 "ZEDCOR DERIVATIVE SECURITIES" means, collectively: (a) any warrant, right or other security that entitles the holder thereof to purchase or otherwise acquire any shares of the capital stock of Zedcor (collectively, "ZEDCOR STOCK RIGHTS"); (b) any note, evidence of indebtedness, stock or other security of Zedcor that is convertible into or exchangeable for any shares of the capital stock of Zedcor or any Zedcor Stock Rights ("ZEDCOR CONVERTIBLE SECURITY"); and (c) any warrant, option, right, note, evidence of indebtedness, stock or other security that entitles the holder thereof to purchase or otherwise acquire any Zedcor Stock Rights or any Zedcor Convertible Security; provided, however, that the term "Zedcor Derivative Securities" does not include any Zedcor Options (as defined below). 1.8 "ZEDCOR FULLY DILUTED NUMBER" means that number that is equal to the sum of: (a) the total number of shares of Zedcor Stock that are issued and outstanding immediately prior to the Closing; plus (b) the total number of shares of Zedcor Stock that are issuable by Zedcor upon the exercise of all Zedcor Options that are issued and outstanding immediately prior to the Closing; plus (c) the total number of shares of Zedcor Stock that, immediately prior to the Closing, are directly or indirectly ultimately issuable by Zedcor upon the exercise, conversion or exchange of all Zedcor Derivative Securities (if any) that are issued and outstanding immediately prior to the Closing. 1.9 "ZEDCOR OPTIONEES" means those individuals with outstanding options to purchase shares of Zedcor Stock. 1.10 "ZEDCOR OPTIONS" means those options to purchase shares of Zedcor Stock granted by Zedcor to the Zedcor Optionees. 1.11 "ZEDCOR SHAREHOLDERS" means those persons who, immediately prior to the Closing, hold the shares of Zedcor Stock that are outstanding immediately prior to the Closing, who will consist solely of those persons and entities listed on EXHIBIT A hereto. 1.12 "CLOSING" is defined in Section 7.1. 1.13 "CLOSING DATE" is defined in Section 7.1. 1.14 "EXCHANGE" means, collectively, the exchange of all of the outstanding Zedcor Stock for cash and the Exchange Shares. 2 3 1.15 "EXCHANGE NUMBER" means the quotient obtained by dividing (i) the Transaction Shares (as defined below) by (ii) the Zedcor Fully Diluted Number. 1.16 "EXCHANGE SHARES" means the total number of shares of IMSI Common Stock, as presently constituted, that will be issued under this Agreement in exchange for all of the shares of Zedcor Stock that are issued and outstanding immediately prior to the Closing and is equal to the product obtained by multiplying (i) the total number of shares of Zedcor Stock that are issued and outstanding immediately prior to the Closing by (ii) the Exchange Number. 1.17 "MAJORITY ZEDCOR SHAREHOLDERS" means Michael Gariepy and Peter Gariepy. 1.18 "SHAREHOLDER ANCILLARY AGREEMENTS" means (if applicable), collectively the Investment Representation Letter, the Stock Power, Form W-8 and each other agreement, certificate or document (other than this Agreement) to which a Zedcor Shareholder is to enter into as a party thereto, or is to otherwise execute and deliver pursuant to or in connection with this Agreement. 1.19 "TRANSACTION SHARES" means 150,000 shares of IMSI Common Stock. 1.20 "PURCHASE PRICE" means $3.5 US million dollars to be fulfilled by the Transaction Shares and cash. 1.21 "PURCHASE PRICE BALANCE" means the difference between the Purchase Price and the amount paid by IMSI to Zedcor on the Closing Date, using the calculations contained herein. The Purchase Price Balance shall be due upon the sooner of the following; (a) thirty six (36) months from the Closing Date, (b) any increase in the capital of IMSI via a new stock offering in excess of twenty percent (20%) of the then outstanding shares of common stock (a secondary offering), (c) the sale of all or substantially all of the assets of IMSI, or (d) the merger of IMSI with any other entity in which IMSI is not the surviving corporation, i.e., the shareholders of IMSI, immediately before the transaction, hold less than fifty percent (50%) of the acquiring company immediately after the transaction. Other capitalized terms defined elsewhere in this Agreement and not defined in this Section 1 shall have the meanings assigned to such terms in this Agreement. 2. THE EXCHANGE Subject to the terms and conditions of this Agreement, at the Closing: (a) each of the Zedcor Shareholders shall irrevocably assign and transfer to IMSI all of their shares of Zedcor Stock, the amounts of which are set forth beside their respective names on Exhibit 2, and in exchange therefor IMSI shall issue to the Zedcor Shareholders the aggregate number of shares of IMSI Common Stock determined in accordance with Section 2.1 below; (b) in addition, on or before November 1, 1998, IMSI shall pay the Zedcor Shareholders the sum of U.S. $300,000 and any other payment that may be due pursuant to the Note; 3 4 (c) all Zedcor Options and other Zedcor employee benefits shall be fulfilled or terminated by Zedcor prior to the Closing; (d) Zedcor shall have until October 31, 1998, to negotiate Zedcor long term and short term debts as described in Section 2.2 below; and (e) The balance of the purchase price shall be $3.5 million minus (i) the Transaction Shares multiplied by the IMSI Average Price per Share, minus (ii) $300,000. Such balance shall be paid pursuant to the terms of the IMSI Note. 2.1 Exchange of Shares. 2.1.1 Exchange of Zedcor Stock. At the Closing, each share of Zedcor Stock that is issued and outstanding immediately prior to the Closing will be exchanged for a number of shares of IMSI Common Stock equal to the Exchange Number, subject to the provisions of Section 2.1.2 regarding the elimination of fractional shares. Subject to surrender and delivery to IMSI by each Zedcor Shareholder of the applicable Zedcor Certificates at the Closing and an accompanying Stock Power (in a form approved by counsel to IMSI and IMSI's transfer agent) and Form W-8, each Zedcor Shareholder shall receive a stock certificate for its Exchange Shares within twenty (20) business days after the Closing Date. 2.1.2 Fractional Shares. No fractional shares of IMSI Common Stock shall be issued in connection with the Exchange. 2.1.3 Registration Rights. Effective upon the Closing, each Zedcor Shareholder who receives shares of IMSI Common Stock in the Exchange shall be granted registration rights under the Securities Act of 1933, as amended (the "1933 ACT".) IMSI shall endeavor to register the Zedcor shares of IMSI Common Stock in the Exchange the next time IMSI does a stock registration filing with the SEC on a form suitable for registration of such shares (i.e., not a form relating to employee benefit plans, a merger or similar transaction.) Nothing herein shall require IMSI to separately register the Zedcor shares of IMSI Common Stock in the Exchange. 2.1.4 Limitations on Sale, Transfer of IMSI Common Stock. Zedcor and the Zedcor shareholders respectively, shall not sell, transfer, gift or encumber in excess of thirty three and one third percent (33.3%) of the total number of shares of IMSI Common Stock provided to such Zedcor shareholder pursuant to this Agreement, in any one calendar month during the three (3) month period following the date the IMSI Common Stock becomes tradable without the prior written consent of IMSI. Additionally, the Zedcor shareholders shall give IMSI advance written notice of any proposed sale of IMSI Common Stock pursuant to this Agreement, at least five (5) business days in advance of the proposed sale. IMSI shall have a perpetual right of first refusal to either purchase such proposed sale shares or to arrange for a third party to purchase such shares. 2.2 Settlement Account. Zedcor shall have until October 31, 1998, to negotiate Zedcor long term and short term debts and Zedcor shall have limited access to cash on the balance sheet after the Agreement Date to effect such negotiations. Except for cash in Zedcor's operating account immediately prior to the Agreement, Zedcor shall not dispose of, transfer title or otherwise encumber the Zedcor assets without the prior written approval of IMSI. On or before October 31, 1998, Zedcor shall use best efforts to deliver to IMSI a zero balance sheet including all accruals for 4 5 all expenses (including taxes) incurred up to and including October 31, 1998, prepared in accordance with generally accepted accounting principals and subject to final review and approval by IMSI. However IMSI shall accept residual long or short term debt in an amount not to exceed fifty thousand dollars ($50,000.00.) Residual long or short term debt in an amount not to exceed fifty thousand dollars ($50,000.00) will not constitute a material breach of this Agreement. Any residual long or short term debt in excess of fifty thousand dollars ($50,000.00) shall be deducted from the initial payment. IMSI shall be entitled to make payments on such residual long or short term debt according to IMSI's internal accounting procedures, and Zedcor shall not bind IMSI to any payment schedule without the prior written consent of IMSI. 2.3 Adjustments for Capital Changes. Notwithstanding the provisions of Section 2.1, if at any time after the Agreement Date and prior to the Closing, IMSI or Zedcor recapitalizes, either through a subdivision (or stock split) of any of its outstanding shares into a greater number of shares, or a combination (or reverse stock split) of any of its outstanding shares into a lesser number of shares, or reorganizes, reclassifies or otherwise changes its outstanding shares into the same or a different number of shares of other classes (other than through a subdivision or combination of shares provided for in the previous clause), or declares a dividend on its outstanding shares payable in shares or securities convertible into shares of IMSI Common Stock (a "CAPITAL CHANGE"), then the number of shares of IMSI Common Stock for which shares of Zedcor Stock are to be exchanged in the Exchange, shall be appropriately, equitably and proportionately adjusted (as agreed to by IMSI and Zedcor if the adjustment for such Capital Change involves something other than a mathematical adjustment) so as to maintain the proportionate interests of the shareholders of Zedcor and the shareholders of IMSI contemplated hereby so as to maintain the proportional interests of the holders of Zedcor Stock and contemplated by this Agreement. The provisions of this Section shall not apply to any transaction not permitted to be undertaken by Zedcor under the provisions of this Agreement. In the event that a Capital Change affecting IMSI Common Stock occurs prior to the Closing, then all prices per share and numbers of shares used to compute the Exchange Number shall be deemed to have been equitably adjusted to reflect such Capital Change as necessary to effect the purposes and intent of this Section. 2.4 Hold Back. After the Closing and prior to or in conjunction with any accelerated payment by IMSI of the Purchase Price Balance, IMSI may, in its sole discretion, withhold four hundred thousand dollars ($400,000.00) of the Purchase Price Balance to be paid to the Zedcor Shareholders in accordance with Section 2, (the "HOLD BACK FUNDS") as security for the Zedcor Shareholders' indemnification obligations under Section 11. The Hold Back Funds will be held by IMSI for thirty months after the Closing Date. Upon the thirtieth month after the Closing Date, IMSI shall release one hundred thousand dollars ($100,000.00) of the Hold Back Funds assuming any monies are remaining, to the Zedcor shareholders. Upon the thirty sixth month following the Closing Date, IMSI shall release to the Zedcor Shareholders the remaining Hold Back Funds. The Zedcor Shareholders hereby consent to, approve and agree to be personally bound by the indemnification provisions of Section 11 of this Agreement and the appointment of Michael Gariepy as the representative of the Zedcor Shareholders and as the attorney-in-fact and agent for and on behalf of each Zedcor Shareholder, and the taking by the Representative of any and all actions and the making of any and all decisions required or permitted to be taken by the Representative under this Agreement (including, without limitation, the exercise by the Representative of the power to: (i) authorize the use of the Hold Back Funds in satisfaction of the Set Off claims by IMSI or any other Indemnified Person (as defined herein); (ii) agree to, negotiate 5 6 and enter into settlements and compromises of such claims, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims; (iii) arbitrate, resolve, settle or compromise any claim for indemnity made pursuant to Section 11; and (iv) take all actions necessary in the judgment of the Representative for the accomplishment of the foregoing). The Representative will have unlimited authority and power to act on behalf of each Zedcor Shareholder with respect to the Hold Back Funds and the disposition, settlement or other handling of all claims governed by this Agreement, and all rights or obligations arising under this Agreement so long as all Zedcor Shareholders are treated in the same manner. The Zedcor Shareholders will be bound by all actions taken by the Representative, and IMSI will be entitled to rely on any action or decision of the Representative. In performing the functions specified in this Agreement, the Representative will not be liable to the Zedcor Shareholders in the absence of gross negligence or willful misconduct on the part of the Representative. Any out-of-pocket costs and expenses reasonably incurred by the Representative in connection with actions taken pursuant to this Agreement will be paid by the Zedcor Shareholders to the Representative in proportion to their respective percentage interest. 2.5 Further Assurances. If, at any time after the Closing, IMSI considers or is advised that any further instruments, deeds, assignments or assurances are reasonably necessary or desirable to consummate the Exchange or to carry out the purposes of this Agreement at or after the Closing, then IMSI, Zedcor and their respective officers and directors may, and each Zedcor Shareholder shall, execute and deliver all such proper deeds, assignments, instruments and assurances and do all other things necessary or desirable to consummate the Exchange and to carry out the purposes and intent of this Agreement, in the name of Zedcor or otherwise. 2.6 Securities Laws Issues. IMSI shall issue the Exchange Shares and the IMSI Options pursuant to an exemption from registration under Section 4(2) and/or Regulation D promulgated under the 1933 Act. Concurrently with execution of this Agreement, each Zedcor Shareholder will execute and deliver to IMSI an Investment Representation Letter in the form of EXHIBIT 2.6-A hereto (the "INVESTMENT REPRESENTATION LETTER"). 3. REPRESENTATIONS AND WARRANTIES OF ZEDCOR AND THE ZEDCOR SHAREHOLDERS Zedcor and each of the Zedcor Shareholders hereby jointly and severally represent and warrant to IMSI that, except as set forth in a letter addressed to IMSI from Zedcor dated the Agreement Date and delivered by Zedcor to IMSI concurrently herewith (the "ZEDCOR DISCLOSURE LETTER"), each of the following representations and statements in this Section 3 are true and correct. 3.1 Organization and Good Standing. Zedcor is a corporation duly organized, validly existing and in good standing under the laws of Arizona. Zedcor has the corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted and as proposed to be conducted, and is duly qualified to transact business as a foreign corporation in each jurisdiction in which its failure to be so qualified would have a Material Adverse Effect. As used in this Agreement, the term "MATERIAL ADVERSE EFFECT" when used with reference to Zedcor (either alone or collectively with all Zedcor Subsidiaries, as defined below), means any event, change or effect that is (or will with the passage of time be) materially adverse to Zedcor's condition (financial or otherwise), properties, assets, liabilities, business, operations, results of operations or prospects. 6 7 3.2 Power, Authorization and Validity. 3.2.1 Zedcor has the right, power, legal capacity and authority to enter into, execute, deliver and perform its obligations under this Agreement and all Zedcor Ancillary Agreements and Zedcor has all requisite corporate power and authority to consummate the Exchange. The execution, delivery and performance of this Agreement and each of the Zedcor Ancillary Agreements by Zedcor have been duly and validly approved and authorized by all necessary corporate action on the part of Zedcor's Board of Directors. Each of the Zedcor Shareholders has the right, power, legal capacity and authority to enter into, execute, deliver and perform such Zedcor Shareholder's obligations under this Agreement and all Shareholder Ancillary Agreements and has the requisite power and authority to consummate the Exchange. The execution, delivery and performance of this Agreement and each of the Shareholder Ancillary Agreements by such Zedcor Shareholder have been duly and validly approved and authorized by all necessary action specified in its governing instruments or agreement and on the part of such Zedcor Shareholder's trustor(s), trustee(s) and beneficiaries, as applicable. Any Zedcor Options shall have been bought out from Zedcor funds on or before the Closing Date. 3.2.2 No filing, authorization, consent, approval or order, governmental or otherwise, is necessary or required to be made or obtained by Zedcor or any Zedcor Shareholder or Zedcor Optionee to enable Zedcor and the Zedcor Shareholders or Zedcor Optionees to lawfully enter into, and to perform their respective obligations under, this Agreement, the Zedcor Ancillary Agreements and/or the Shareholder Ancillary Agreements. 3.2.3 This Agreement is, or when executed by Zedcor will be, valid and binding obligations of Zedcor enforceable in accordance with their respective terms, except as to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally and (b) rules of law governing specific performance, injunctive relief and other equitable remedies. This Agreement and the Shareholder Ancillary Agreements are, or when executed by such Zedcor Shareholder will be, valid and binding obligations of such Zedcor Shareholder enforceable in accordance with their respective terms, except as to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally and (b) rules of law governing specific performance, injunctive relief and other equitable remedies. 3.2.4 All representations, warranties and other statements made by each Zedcor Shareholder in the Investment Representation Letter executed and delivered to IMSI by such Zedcor Shareholder pursuant hereto (a) is now, and at the Closing shall be true and correct, and (b) shall be deemed to be representations and warranties made pursuant to this Section 3 for all purposes of this Agreement (including but not limited to Section 11 hereof.) 3.3 Capitalization of Zedcor. 3.3.1 Outstanding Stock. The authorized capital stock of Zedcor consists entirely of one million shares of Common Stock, $0.01 U.S. par value per share, of which a total of 226,878 shares are issued and outstanding, all of which are now owned and held (and all of which at the Closing will be owned and held) only by the Zedcor Shareholders in the respective amounts shown in Exhibit A. No other shares of the capital stock of Zedcor are (or will at Closing be) authorized, issued or outstanding. No fractional shares of Zedcor Stock are (or will at Closing be) 7 8 issued or outstanding. All issued and outstanding shares of Zedcor Stock have been duly authorized and validly issued, are fully paid and nonassessable, are not subject to any claim, lien, preemptive right, or right of rescission, and have been offered, issued, sold and delivered by Zedcor (and, if applicable, transferred) in compliance with all registration or qualification requirements (or applicable exemptions therefrom) of all applicable securities laws, Zedcor's Articles of Incorporation and other charter documents and all agreements to which Zedcor or any Zedcor Shareholder is a party. A list of all holders of Zedcor Stock, and the number of shares of Zedcor Stock owned by each such holder has been delivered by Zedcor to IMSI herewith as Exhibit A. There are not, or will not be at the Closing, any Zedcor Options or Zedcor Optionees. 3.3.2 No Options, Warrants or Rights. There are no Zedcor Options, warrants or rights. 3.3.3 No Voting Arrangements or Registration Rights. There are no voting agreements, voting trusts, rights of first refusal or other restrictions (other than normal restrictions on transfer under applicable securities laws) applicable to any of Zedcor's outstanding securities or to the conversion of any shares of Zedcor Stock in the Exchange. Zedcor is not under any obligation to register under the 1933 Act or otherwise any of its presently outstanding securities or any securities that may be subsequently issued. 3.4 Subsidiaries. 3.4.1 Organizational Data. Except as otherwise disclosed, Zedcor has never been a subsidiary of any corporation, partnership, Limited Liability Company, joint venture or other business entity. EXHIBIT 3.4 sets forth any interest, direct or indirect, in any corporation, partnership, limited liability company, joint venture or other business entity held by Zedcor (the "ZEDCOR SUBSIDIARIES".) 3.5 No Violation of Existing Agreements. Neither the execution and delivery of this Agreement or any Zedcor Ancillary Agreement, nor the consummation of the Exchange or any of the other transactions contemplated hereby, nor Zedcor's discussion or negotiation with IMSI of the Exchange or any other transaction contemplated hereby, will conflict with, or (with or without notice or lapse of time, or both) result in a termination, breach, impairment or violation of: (i) any provision of the charter documents of Zedcor as currently in effect; (ii) any federal, state, local or foreign judgment, writ, decree, order, statute, rule or regulation applicable to Zedcor or its assets or properties; or (iii) any material instrument, agreement, contract, letter of intent or commitment to which Zedcor is a party or by which Zedcor or its assets or properties are or were bound. The consummation of the Exchange by Zedcor will not require the consent of any third party other than the approval of the Zedcor Shareholders and no agreement to which Zedcor is a party requires that any other party thereto consent to the Exchange, whether as a condition to the assignment or transfer of such agreement, or otherwise. 3.6 Litigation. There is no action, suit, arbitration, mediation, proceeding, claim or investigation pending against Zedcor (or against any officer or director of Zedcor or, to the best of the knowledge of Zedcor and the Zedcor Shareholders, against any employee or agent of Zedcor, in their capacity as such or relating to their employment, services or relationship with Zedcor) before any court, administrative agency or arbitrator that, if determined adversely to Zedcor (or any 8 9 such officer, director, employee or agent) may reasonably be expected to have a Material Adverse Effect on Zedcor, nor, to the best of Zedcor's knowledge, has any such action, suit, proceeding, arbitration, mediation, claim or investigation been threatened. There is no basis for any person, firm, corporation or other entity, to assert a claim against Zedcor or IMSI based upon: (a) Zedcor's entering into this Agreement or consummating the Exchange; (b) any claims of ownership, rights to ownership, or options, warrants or other rights to acquire ownership, of any shares of the capital stock of Zedcor; or (c) any rights as a Zedcor shareholder, including any option, warrant or preemptive rights or rights to notice or to vote. There is no judgment, decree, injunction, rule or order of any governmental entity or agency, court or arbitrator outstanding against Zedcor. 3.7 Taxes. Zedcor has timely filed all federal, state, local and foreign tax returns required to be filed, has timely paid all taxes required to be paid in respect of all periods for which returns have been filed, has established an adequate accrual or reserve for the payment of all taxes payable in respect of the periods subsequent to the periods covered by the most recent applicable tax returns, has made all necessary estimated tax payments, and has no material liability for taxes in excess of the amount so paid or accruals or reserves so established. Zedcor is not delinquent in the payment of any tax or in the filing of any tax returns, and no deficiencies for any tax have been threatened, claimed, proposed or assessed. Zedcor has not received any notification that any issues have been raised (and are currently pending) by any taxing authority (including but not limited to any franchise, sales or use tax authority) regarding Zedcor and no tax return of Zedcor has ever been audited by any national, state, local or foreign taxing agency or authority. No tax liens have been filed against any assets of Zedcor. Zedcor is not a "personal holding company" within the meaning of Section 542 of the Code. Zedcor is not a "U.S. Real Property Holding Company" as defined in the Code. For the purposes of this Section, the terms "TAX" and "TAXES" include all national, state, local and foreign income, alternative or add-on minimum income, gains, franchise, excise, property, sales, use, employment, license, payroll (including any taxes or similar payments required to be withheld from payments of salary or other compensatory payments), ad valorem, payroll, stamp, occupation, recording, value added or transfer taxes, governmental charges, fees, customs duties, levies or assessments (whether payable directly or by withholding), and, with respect to such taxes, any estimated tax, interest and penalties or additions to tax and interest on such penalties and additions to tax. 3.8 Zedcor Financial Statements. Zedcor's fiscal year ends on December 31. Zedcor has delivered to IMSI an unaudited draft version of the Zedcor Financial Statements (as defined below) which is attached as EXHIBIT 3.8 hereto (the "UNAUDITED ZEDCOR FINANCIALS"). The Unaudited Zedcor Financials will not vary in any material respect from the Zedcor Financial Statements. Prior to the Closing, and as promptly as practicable after execution of this Agreement, Zedcor shall deliver to IMSI (i) Zedcor's audited balance sheet as of August 1998 and audited consolidated statement of operations, audited consolidated statement of cash flows and audited consolidated statement of shareholders' equity for the year ended 1997, and (ii) Zedcor's audited consolidated balance sheet as of August 1998 (the "BALANCE SHEET"), Zedcor's audited consolidated statement of operations for the six-month period ended August 1998, and Zedcor's audited consolidated statements of cash flows and audited consolidated statement of shareholders' equity for the six-month period ended August 1998 (all such financial statements of Zedcor are hereinafter collectively referred to as the "ZEDCOR FINANCIAL STATEMENTS"). The Zedcor Financial Statements 9 10 shall (a) be in accordance with the books and records of Zedcor, (b) fairly present the financial condition of Zedcor at the dates therein indicated and the results of operations for the periods therein specified and (c) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis with prior periods. Zedcor has no material debt, liability or obligation of any nature (whether intercompany or owed to third parties), whether accrued, absolute, contingent or otherwise, and whether due or to become due, except for (i) those shown on the unaudited August 1998 balance sheet included in the Unaudited Zedcor Financials (the "UNAUDITED BALANCE SHEET"), and (ii) those that may have been incurred after August 31, 1998 (the "BALANCE SHEET DATE") in the ordinary course of Zedcor's business consistent with past practice, and that are not material in amount, either individually or collectively. All reserves established by Zedcor and set forth in the Unaudited Balance Sheet are reasonably adequate. At the Balance Sheet Date, there were no material loss contingencies (as such term is used in United States Statement of Financial Accounting Standards No. 5 issued by the Financial Accounting Standards Board in March 1975) which are not adequately provided for in the Balance Sheet as required by said Statement No. 5. 3.9 Title to Properties. Zedcor has good and marketable title to all of its assets (including but not limited to those shown on the Balance Sheet), free and clear of all liens, mortgages, security interests, claims, charges, restrictions or encumbrances. All machinery, vehicles, equipment and other tangible personal property included in such assets and properties are in good condition and repair, normal wear and tear excepted, and all leases of real or personal property to which Zedcor is a party are fully effective and afford Zedcor peaceful and undisturbed possession of the real or personal property that is the subject of the lease. Zedcor is not in violation of any zoning, building, safety or environmental ordinance, regulation or requirement or other law or regulation applicable to the operation of owned or leased properties (the violation of which would have a Material Adverse Effect on its business), nor has Zedcor received any notice of violation with which it has not complied. Zedcor does not own any real property. 3.10 Absence of Certain Changes. Since the Balance Sheet Date, there has not been with respect to Zedcor any: (a) material adverse change in the condition (financial or otherwise), properties, assets, liabilities, businesses, operations, results of operations or prospects of Zedcor; (b) amendments or changes in the charter documents of Zedcor; (c) (i) incurrence, creation or assumption by Zedcor of any mortgage, security interest, pledge, lien or other encumbrance on any of the assets or properties of Zedcor or any material obligation or liability or any indebtedness for borrowed money; or (ii) issuance or sale of, or change with respect to the rights of, any debt or equity securities of Zedcor or any options or other rights to acquire from Zedcor, directly or indirectly, any debt or equity securities of Zedcor; (d) payment or discharge of a lien or liability which lien or liability was not either shown on the Balance Sheet or incurred in the ordinary course of business after the Balance Sheet Date; 10 11 (e) purchase, license, sale or other disposition, or any agreement or other arrangement for the purchase, license, sale or other disposition, of any of the assets, properties or goodwill of Zedcor other than in the ordinary course of its business consistent with its past practice; (f) damage, destruction or loss, whether or not covered by insurance, having (or likely with the passage of time to have) a Material Adverse Effect on Zedcor; (g) declaration, setting aside or payment of any dividend on, or the making of any other distribution in respect of, the capital stock of Zedcor, any split, combination or recapitalization of the capital stock of Zedcor or any direct or indirect redemption, purchase or other acquisition of the capital stock of Zedcor or any change in any rights, preferences, privileges or restrictions of any outstanding security of Zedcor; (h) change or increase in the compensation payable or to become payable to any of the officers, employees, consultants or agents of Zedcor, or any bonus or pension, insurance or other benefit payment or arrangement (including without limitation stock awards, stock appreciation rights or stock option grants) made to or with any of such officers, employees, consultants or agents except in connection with normal salary or performance reviews or otherwise in the ordinary course of business consistent with Zedcor's past practice; (i) change with respect to the management, supervisory or other key personnel of Zedcor; (j) obligation or liability incurred by Zedcor to any of its officers, directors or shareholders except normal compensation and expense allowances payable to officers in the ordinary course of business consistent with Zedcor's past practice; (k) making of any loan, advance or capital contribution to, or any investment in, any officer, director or record or beneficial shareholder of Zedcor; (l) entering into, amendment of, relinquishment, termination or non-renewal by Zedcor of any contract, lease, transaction, commitment or other right or obligation other than in the ordinary course of its business consistent with its past practice or any written or oral indication or assertion by the other party thereto of problems with Zedcor's services or performance under such contract, lease, transaction, commitment or other right or obligation or such other party's desire to so amend, relinquish, terminate or not renew any such contract, lease, transaction, commitment or other right or obligation; (m) material change in the manner in which Zedcor extends discounts or credits to customers or otherwise deals with its customers; (n) entering into by Zedcor of any transaction, contract or agreement or the conduct of business or operations other than in the ordinary course of its business consistent with its past practices; (o) transfer or grant of a right under any Zedcor IP Rights (as defined in Section 3.13 below), other than those transferred or granted in the ordinary course of Zedcor's business consistent with Zedcor's past practice; or 11 12 (p) agreement or arrangement made by Zedcor to take any action which, if taken prior to the date of this Agreement, would have made any representation or warranty of Zedcor and the Zedcor Shareholders set forth in this Agreement untrue or incorrect. 3.11 Contracts and Commitments. EXHIBIT 3.11 sets forth a list of each of the following written or oral contracts, agreements, commitments or other instruments to which Zedcor is a party or to which it or any of its assets or properties is bound, and IMSI shall take on approved trade payables and lease payments in progress: (a) consulting or similar agreement under which Zedcor provides any advice or services to a customer of Zedcor; (b) continuing contract for the future purchase, sale, license, provision or manufacture of products, material, supplies, equipment or services requiring payment to or from Zedcor in an amount in excess of $25,000 per annum which is not terminable on 90 days' or less notice without cost or other liability to Zedcor or in which Zedcor has granted or received manufacturing rights, most favored customer pricing provisions or exclusive marketing rights relating to any product or services, group of products or services or territory; (c) contract providing for the acquisition of software by Zedcor, for the development of software for Zedcor, or the license of software to Zedcor, which software is used or incorporated in any products currently distributed by Zedcor or services currently provided by Zedcor or is contemplated to be used or incorporated in any products to be distributed or services to be provided by Zedcor (other than software generally available to the public at a per copy license fee of less than $1,000); (d) joint venture or partnership contract or agreement or other agreement which has involved or is reasonably expected to involve a sharing of profits or losses in excess of $25,000 per annum with any other party; (e) contract or commitment for the employment of any officer, employee or consultant of Zedcor or any other type of contract or understanding with any officer, employee or consultant of Zedcor which is not immediately terminable by Zedcor without cost or other liability; (f) indenture, mortgage, trust deed, promissory note, loan agreement, guarantee or other agreement or commitment for the borrowing of money, for a line of credit or for a leasing transaction of a type required to be capitalized in accordance with United States Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board; (g) lease or other agreement under which Zedcor is lessee of or holds or operates any items of tangible personal property or real property owned by any third party and under which payments to such third party exceed $5,000 per annum; (h) agreement or arrangement for the sale of any assets, properties, services or rights having a value in excess of $10,000, other than in the ordinary course of business consistent with past practice; 12 13 (i) agreement which restricts Zedcor from engaging in any aspect of its business or competing in any line of business in any geographic area; (j) Zedcor IP Rights Agreement (as defined in Section 3.13 below); (k) agreement relating to the sale, issuance, grant, exercise, award, purchase, repurchase or redemption of any shares of capital stock or other securities of Zedcor or any options, warrants or other rights to purchase or otherwise acquire any such shares of stock, other securities or options, warrants or other rights therefor; (l) contract with or commitment to any labor union; or (m) other agreement, contract, commitment or instrument that is material to the business of Zedcor or that involves a commitment by Zedcor in excess of $25,000. A copy of each agreement or document required by this Section to be listed on Exhibit 3.11 (collectively, the "ZEDCOR MATERIAL AGREEMENTS") has been delivered to IMSI. No consent or approval of any third party is required to ensure that, following the Closing, any Zedcor Material Agreement shall continue to be in full force and effect without any breach or violation thereof caused by virtue of the Exchange or by any other transaction called for by this Agreement. 3.12 No Default. Zedcor is not in breach or default of, and has not breached or been in default of, any Zedcor Material Agreement. Zedcor is not a party to any contract, agreement or arrangement, which has had, or could reasonably be expected to have, a Material Adverse Effect on Zedcor. Zedcor does not have any material liability for renegotiation of government contracts or subcontracts, if any. 3.13 Intellectual Property. 3.13.1 Zedcor owns, or has the irrevocable right to use, sell or license all Intellectual Property Rights (as defined below) necessary or required for the conduct of its business as presently conducted, including without limitation the appropriate rights to each and every item of visual content on its web site or in its inventory, and as presently proposed to be conducted (such Intellectual Property Rights being hereinafter collectively referred to as the "ZEDCOR IP RIGHTS"), and such rights to use, sell or license are sufficient for such conduct of its business. Zedcor is the legal and beneficial owner or licensee of all rights, including all copyright, trademarks and worldwide distribution rights, to those certain computer software programs and visual content, including all object code, source code, configurations, routines and algorithms contained therein with annotations and related documentation, known as ArtToday and all visual content, together with all alterations, modifications and reconfigurations thereof in all forms of expression, including but not limited to, the source code, object code, flowcharts, block diagrams, manuals and all other documentation no matter how stored, transmitted, read or utilized and all copyrights, trade secrets, patents, inventions (whether patentable or not), proprietary rights and intellectual property rights associated therewith (collectively the "SOFTWARE"). The term "Zedcor IP Rights" includes, without limitation, the Software and the visual content. Zedcor, and each Zedcor Shareholder jointly and severally, shall indemnify and hold harmless IMSI, its successors and assigns of IMSI, its board, employees, shareholders, for any claim of unauthorized use of the visual content of Zedcor, exploited by Zedcor, delivered to IMSI at the Closing or as reasonably used or modified by IMSI in 13 14 good faith, where such use occurred during the three (3) year period following the Closing Date. ZEDCOR IS SOLELY RESPONSIBLE TO VERIFY THE AUTHORIZED USE OF ALL VISUAL CONTENT ON ITS WEB SITE OR IN ITS POSSESSION AT THE CLOSING DATE WITHOUT LIMITATION. IMSI EXPRESSLY DISCLAIMS ANY AUDIT OR DUE DILIGENCE RESPONSIBILITY RELATED TO THE ZEDCOR VISUAL CONTENT. Any and all rights to the Software or visual content previously owned or held by third parties, including (but not limited to) the Zedcor Subsidiaries (including those Zedcor Subsidiaries named below), have been transferred to Zedcor and are owned outright, free and clear of any claims, liens, security interest, mortgages, encumbrances or obligations, by Zedcor. 3.13.2 The execution, delivery and performance of this Agreement and the consummation of the Exchange and the other transactions contemplated hereby will not constitute a material breach of or default under any instrument, contract, license or other agreement governing any Zedcor IP Right (the "ZEDCOR IP RIGHTS AGREEMENTS") and will not cause the forfeiture or termination, or give rise to a right of forfeiture or termination, of any Zedcor IP Right or materially impair the right of Zedcor or IMSI to use, sell, license, provide or otherwise commercially exploit any Zedcor IP Right or portion thereof (except where such breach, forfeiture or termination would not have a Material Adverse Effect on Zedcor ). There are no royalties, honoraria, fees or other payments payable by Zedcor to any person by reason of the ownership, use, license, sale, exploitation or disposition of the Zedcor IP Rights. 3.13.3 Neither the manufacture, marketing, license, sale, furnishing or intended use of any product, service or visual content currently licensed, utilized, sold, provided, furnished, or possessed by Zedcor or currently under development by Zedcor has violated or now violates any license or agreement between Zedcor and any third party or infringes or misappropriates any Intellectual Property Right of any other party; and there is no pending or, to the best knowledge of Zedcor and the Zedcor Shareholders, threatened claim or litigation contesting the validity, ownership or right to use, sell, license or dispose of any Zedcor IP Right nor, to the best knowledge of Zedcor and the Zedcor Shareholders, is there any basis for any such claim, nor has Zedcor received any notice asserting that any Zedcor IP Right or the proposed use, sale, license or disposition thereof conflicts or will conflict with the rights of any other party, nor, to the best knowledge of Zedcor and the Zedcor Shareholders, after through review by Zedcor's counsel, is there any basis for any such assertion. To the best knowledge of Zedcor and the Zedcor Shareholders, no employee or agent of or consultant to Zedcor is in violation of any term of any employment contract, patent disclosure agreement, noncompetition agreement, non-solicitation agreement or any other contract or agreement, or any restrictive covenant relating to the right of any such employee, agent or consultant to be employed thereby, or to use trade secrets or proprietary information of others, and the employment of such employees or engagement of such agents and consultants does not subject Zedcor to any liability. 3.13.4 Zedcor has used best efforts to review all its visual content to verify compliance with intellectual property and other law, and to protect, preserve and maintain the secrecy and confidentiality of all material Zedcor IP Rights and all Zedcor's proprietary rights therein. All officers, employees, agents and consultants of Zedcor having access to proprietary information have executed and delivered to Zedcor an agreement regarding the protection of such proprietary information and the assignment of inventions to Zedcor in the form provided to counsel 14 15 for IMSI and copies of all such agreements, executed by all such persons, have been delivered to IMSI's counsel. 3.13.5 EXHIBIT 3.13 contains a list of all Zedcor IP Rights and all worldwide applications, registrations, filings and other formal actions made or taken pursuant to federal, state and foreign laws by Zedcor to secure, perfect or protect its interest in Zedcor IP Rights, including, without limitation, all patents, patent applications, copyrights (whether or not registered), copyright applications, trademarks, service marks and trade names (whether or not registered) and trademark, service mark and trade name applications. Exhibit 3.13 lists, with respect to each item of Zedcor IP Rights, the entity (Zedcor or one of the Zedcor Subsidiaries) which owns or holds such IP Rights. 3.13.6 As used herein, the term "INTELLECTUAL PROPERTY RIGHTS" means, collectively, all worldwide industrial and intellectual property rights, including, without limitation, patents, patent applications, patent rights, trademarks, trademark applications, trade dress rights, trade names, service marks, service mark applications, copyrights, copyright applications, mask work rights, mask work registrations, franchises, licenses, inventions, trade secrets, know-how, customer lists, proprietary processes and formulae, software source and object code, algorithms, architecture, structure, display screens, layouts, inventions, development tools and all documentation and media constituting, describing or relating to the above, including, without limitation, visual content, manuals, memoranda and records. 3.14 Compliance with Laws. Zedcor has complied, and is now and at the Closing Date will be in compliance, in all material respects, with all applicable national, state, local or foreign laws, ordinances, regulations, and rules, and all orders, writs, injunctions, awards, judgments, and decrees applicable to Zedcor or to Zedcor's assets, properties, and business. Zedcor holds all permits, licenses and approvals from, and has made all filings with, third parties, including government agencies and authorities, that are necessary in connection with Zedcor's present business, except those where failure to do so would not have a Material Adverse Effect. 3.15 Certain Transactions and Agreements. None of the officers, directors or shareholders of Zedcor (nor any beneficiaries of any trust that is a Zedcor Shareholder), nor any member of their immediate families, has any direct or indirect ownership interest in any firm or corporation that competes with, or does business with, or has any contractual arrangement with Zedcor. None of said officers, directors, employees or shareholders or any member of their immediate families, is directly or indirectly interested in any contract or informal arrangement with Zedcor, except for normal compensation for services as an officer, director or employee thereof that have been disclosed to IMSI to such persons. None of said officers, directors, employees or shareholders or family members has any interest in any property, real or personal, tangible or intangible (including but not limited to any Zedcor IP Rights or any other Intellectual Property Rights) that is used in or that pertains to the business of Zedcor, except for the normal rights of a shareholder. 3.16 Employees, ERISA and Other Compliance. 3.16.1 Zedcor is in compliance in all material respects with all applicable laws, agreements and contracts relating to employment, employment practices, wages, hours, and terms and conditions of employment, including, but not limited to, employee compensation matters 15 16 in each of the jurisdictions in which it conducts business. A list of all employees, officers and consultants of Zedcor, their title, date of hire, employer entity and current compensation is set forth on EXHIBIT 3.16.1, which has been delivered to IMSI. Zedcor does not have any employment contracts or consulting agreements currently in effect that are not terminable at will (other than agreements with the sole purpose of providing for the confidentiality of proprietary information or assignment of inventions). 3.16.2 Zedcor (i) has never been and is not now subject to a union organizing effort, (ii) is not subject to any collective bargaining agreement with respect to any of its employees, (iii) is not subject to any other contract, written or oral, with any trade or labor union, employees' association or similar organization, and (iv) does not have any current labor disputes. Zedcor has good labor relations, and has no knowledge of any facts indicating that the consummation of the transactions contemplated hereby will have a material adverse effect on such labor relations. Neither Zedcor nor any Zedcor Shareholder has any knowledge that any key employee of Zedcor intends to leave the employ of Zedcor. 3.16.3 Zedcor will not, at the Closing Date, have any "employee benefit plan," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Zedcor has no pension plan that constitutes, or has since the enactment of ERISA constituted, a "multiemployer plan" as defined in Section 3(37) of ERISA. No Zedcor pension plans are subject to Title IV of ERISA. Zedcor does not have any employee benefit plans that are subject to statutory regulation under the laws of the British Virgin Islands, the United Kingdom, Canada or Australia. 3.16.4 Zedcor, prior to the Closing Date, shall fulfill any and all employment, severance or other similar contract, arrangement or policy, each "employee benefit plan" as defined in Section 3(3) of ERISA (if any) and each plan or arrangement (written or oral) providing for insurance coverage (including any self-insured arrangements), workers' benefits, vacation benefits, severance benefits, disability benefits, death benefits, hospitalization benefits, retirement benefits, deferred compensation, profit-sharing, bonuses, stock options, stock purchase, phantom stock, stock appreciation or other forms of incentive compensation or post-retirement insurance, compensation or benefits for employees, consultants or directors which is entered into, maintained or contributed to by Zedcor and covers any employee or former employee or consultant or former consultant of Zedcor. Such contracts, plans and arrangements are hereinafter collectively referred to as the "ZEDCOR BENEFIT ARRANGEMENTS." Each Zedcor Benefit Arrangement has been maintained in compliance in all material respects with its terms and with the requirements prescribed by any and all laws, statutes, orders, rules and regulations that are applicable to such Zedcor Benefit Arrangement. IMSI shall have no liability for any Zedcor Benefit Arrangement. 3.16.5 There has been no amendment to, written interpretation or announcement (whether or not written) by Zedcor relating to, or change in employee participation or coverage under, any Zedcor Benefit Arrangement that would increase materially the expense of maintaining such Zedcor Benefit Arrangement above the level of the expense incurred in respect thereof for Zedcor's fiscal year ended 12/31/97. 3.16.6 The group health plans (as defined in Section 4980B(g) of the Code) that benefit employees of Zedcor are in compliance, in all material respects, with the continuation 16 17 coverage requirements of Section 4980B of the Code as such requirements affect Zedcor and its employees. As of the Closing Date, there will be no material outstanding, uncorrected violations under the Consolidation Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), with respect to any of the Zedcor Benefit Arrangements, covered employees, or qualified beneficiaries that could result in a Material Adverse Effect on Zedcor, or in a material adverse effect on the business, operations or financial condition of IMSI as its successor. Zedcor has provided, or shall have provided prior to the Closing, to individuals entitled thereto, all required notices and coverage pursuant to Section 4980B of COBRA, with respect to any "qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring prior to and including the Closing Date, and no material amount payable on account of Section 4980B of the Code has been incurred with respect to any current or former employees of Zedcor (or their beneficiaries). 3.16.7 No benefit payable or which may become payable by Zedcor pursuant to any Zedcor Benefit Arrangement or as a result of or arising under this Agreement shall constitute an "excess parachute payment" (as defined in Section 280G(b)(1) of the Code) which is subject to the imposition of an excise tax under Section 4999 of the Code or which would not be deductible by reason of Section 280G of the Code. Zedcor is not a party to any (a) agreement (other than as described in (b) below) with any executive officer or other key employee thereof (i) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving Zedcor in the nature of any of the transactions contemplated by this Agreement, (ii) providing any term of employment or compensation guarantee, or (iii) providing severance benefits or other benefits after the termination of employment of such employee regardless of the reason for such termination of employment, or (b) agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be materially increased, or the vesting of benefits of which will be materially accelerated, by the occurrence of the Exchange or any of the other transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. 3.17 Corporate Documents. Zedcor has delivered to IMSI and its counsel for examination all documents and information listed in the Zedcor Disclosure Letter or other Exhibits called for by this Agreement, including, without limitation, the following: (a) copies of the charter documents as currently in effect of Zedcor and each of the Zedcor Subsidiaries; (b) the Minute Book containing all records of all proceedings, consents, actions, minutes, and meetings of Zedcor and each of the Zedcor Subsidiaries, including (but not limited to) actions of shareholders, board of directors and any committees thereof; (c) the stock ledger and journal reflecting all stock issuances and transfers of Zedcor and each Zedcor Subsidiary; (d) all permits, orders, and consents issued by any regulatory agency with respect to Zedcor and each of the Zedcor Subsidiaries, or any securities of Zedcor and each of the Zedcor Subsidiaries, and all applications for such permits, orders, and consents; and (e) all agreements required to be listed in Exhibit 3.11. 3.18 No Brokers. Neither Zedcor, any of the Zedcor Shareholders nor any affiliate of Zedcor is obligated for the payment of any fees or expenses of any investment banker, broker or finder in connection with the origin, negotiation or execution of this Agreement or in connection with the Exchange or any other transaction contemplated hereby. 17 18 3.19 Books and Records. The books, records and accounts of Zedcor (a) are in all material respects true, complete and correct, (b) have been maintained in accordance with good business practices on a basis consistent with prior years, (c) are stated in reasonable detail and accurately and fairly reflect the transactions and dispositions of the assets of Zedcor, and (d) accurately and fairly reflect the basis for the Zedcor Financial Statements. 3.20 Insurance. EXHIBIT 3.20 hereto lists all fire and casualty, general liability, business interruption, product liability, errors and omissions, and sprinkler and water damage insurance maintained by Zedcor. 3.21 Environmental Matters. 3.21.1 During the period that Zedcor has leased or owned its respective properties or owned or operated any facilities, there have been no disposals, releases or threatened releases of Hazardous Materials (as defined below) on, from or under such properties or facilities that resulted from any act or omission of Zedcor or any of its employees, agents or invitees. Zedcor has no knowledge of any presence, disposals, releases or threatened releases of Hazardous Materials on, from or under any of such properties or facilities, which may have occurred prior to Zedcor having taken possession of any of such properties or facilities. For the purposes of this Agreement, the terms "DISPOSAL," "RELEASE," and "THREATENED RELEASE" shall have the definitions assigned thereto by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA"). For the purposes of this Agreement "HAZARDOUS MATERIALS" shall mean any hazardous or toxic substance, material or waste which is or becomes prior to the Closing regulated under, or defined as a "hazardous substance," "pollutant," "contaminant," "toxic chemical," "hazardous materials," "toxic substance" or "hazardous chemical" under (a) CERCLA; (b) any similar federal, state or local law; or (c) regulations promulgated under any of the above laws or statutes. 3.21.2 None of the properties or facilities of Zedcor is in violation of any federal, state or local law, ordinance, regulation or order relating to industrial hygiene or to the environmental conditions on, under or about such properties or facilities, including, but not limited to, soil and ground water condition. During the time that Zedcor has owned or leased its properties and facilities, neither Zedcor nor, to the best knowledge of Zedcor and the Zedcor Shareholders, any third party, has used, generated, manufactured or stored on, under or about such properties or facilities or transported to or from such properties or facilities any Hazardous Materials, other than Zedcor's lawful use of standard office supplies customarily used in office environments that contain legally permitted amounts of Hazardous Materials that would have no Material Adverse Effect. 3.21.3 During the time that Zedcor has owned or leased its properties and facilities, there has been no litigation brought or threatened against Zedcor, or, to the best knowledge of Zedcor and the Zedcor Shareholders, against any lessor or owner of real property leased by Zedcor, or any settlement reached by Zedcor or the Zedcor Shareholders with any party or parties alleging the presence, disposal, release or threatened release of any Hazardous Materials on, from or under any of such properties or facilities. 3.22 Disclosure. Neither this Agreement, its exhibits and schedules, nor any of the certificates or documents to be delivered by Zedcor and/or the Zedcor Shareholders to IMSI under 18 19 this Agreement, taken together, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which such statements were made, not misleading. 3.23 Year 2000. Zedcor represents and warrants that the Software and all visual content will run without interruption or error between the years 1999 and 2000 and beyond. Additionally, Zedcor has taken reasonable steps to get assurances from the appropriate third parties that its assets, including but not limited to, programs, internal systems, external systems and processes will also run without interruption or error between the years 1999 and 2000 and beyond. 3.24 Commercial Real Property Lease. The Majority Zedcor Shareholders represents and warrant that the commercial real property lease, a copy of which is attached hereto as EXHIBIT 3.24, shall be available to IMSI for renewal upon the terms and conditions in the lease at a rate not to exceed fair market value. Without limiting the foregoing, nothing herein shall require IMSI to renew such lease.. 4. REPRESENTATIONS AND WARRANTIES OF IMSI IMSI hereby represents and warrants, that, except as set forth in the letter from IMSI that may be addressed to Zedcor dated the Agreement Date and delivered by IMSI to Zedcor concurrently herewith, if any (the "IMSI DISCLOSURE LETTER"), each of the following representations and statements in this Section 4 are true and correct: 4.1 Organization and Good Standing. IMSI is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has the corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted and as proposed to be conducted. 4.2 Power, Authorization and Validity. 4.2.1 IMSI has the right, power and authority to enter into, execute and perform its obligations under this Agreement and the IMSI Ancillary Agreements. The execution, delivery and performance of this Agreement and the IMSI Ancillary Agreements by IMSI have been, or will be by the Closing Date, duly and validly approved and authorized by IMSI's Board of Directors. 4.2.2 No filing, authorization, consent, approval or order, governmental or otherwise, is necessary or required to enable IMSI to enter into, and to perform its obligations under, this Agreement and the IMSI Ancillary Agreements, except for (a) any filings with the Securities and Exchange Commission and other applicable securities authorities contemplated by the Registration Rights Agreement attached hereto. 19 20 4.2.3 This Agreement and the IMSI Ancillary Agreements are, or when executed by IMSI will be, valid and binding obligations of IMSI, enforceable in accordance with their respective terms, except as to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally and (b) rules of law governing specific performance, injunctive relief and other equitable remedies. 4.3 [RESERVED.] 4.4 No Violation of Material Agreements. Neither the execution and delivery of this Agreement nor any IMSI Ancillary Agreement, nor the consummation of the transactions contemplated hereby, will conflict with, or (with or without notice or lapse of time, or both) result in: (a) a termination, breach, impairment or violation of (i) any provision of the Certificate of Incorporation or Bylaws of IMSI, as currently in effect or (ii) any federal, state, local or foreign judgment, writ, decree, order, statute, rule or regulation to which IMSI or its assets or properties is subject; or (b) a termination, or a material breach, impairment or violation, of any material instrument or contract to which IMSI is a party or by which IMSI or its properties are bound. IMSI is not required to obtain the consent of any third party to consummate the Exchange, except for Silicon Valley Bank. 4.5 Disclosure. IMSI has made available to Zedcor a disclosure package consisting of IMSI's most recent Form 10-K for its fiscal year ended June 30, 1997 all Forms 10-Q filed by IMSI with the SEC after the date of such Form 10-K and before the Agreement Date, all Forms 8-K and 8-K/A filed by IMSI with the SEC after the date of its most recent Form 10-Q and the Proxy Statement for IMSI's annual meeting of stockholders held in December of 1997 (the "IMSI DISCLOSURE PACKAGE"). As of their respective filing dates, documents filed by IMSI with the SEC and included in the IMSI Disclosure Package complied in all material respects with the requirements of the 1933 Act or the 1934 Act, as the case may be. 4.6 Financial Condition. There has been no material adverse change in the financial condition or business of IMSI, taken as whole, since the date of the most recent financial statements included in the IMSI Disclosure Package, unless otherwise disclosed to Zedcor. 4.7 Validity of Shares. The shares of IMSI Common Stock to be issued pursuant to the Exchange shall, when issued: (a) be duly authorized, validly issued, fully paid and nonassessable and free of liens and encumbrances created by IMSI, and (b) be free and clear of any transfer restrictions, liens and encumbrances except for restrictions on transfer under applicable United States securities laws, including Rule 144 promulgated under the 1933 Act, under Section 16 of the 1934 Act for any Zedcor Shareholder (if any) who is deemed to be an "insider" of IMSI for purposes of Section 16, under applicable securities laws (including the laws of Delaware, California and the jurisdiction in which the Zedcor Shareholder who holds such shares resides) and under IMSI's insider trading policy for any Zedcor Shareholder (if any) who is deemed to be an "affiliate" or "access personnel" of IMSI. 20 21 5. COVENANTS OF ZEDCOR AND THE ZEDCOR SHAREHOLDERS During the period from the Agreement Date until the earlier to occur of (i) the Closing or (ii) the termination of this Agreement in accordance with Section 10, Zedcor and each of the Zedcor Shareholders hereby jointly and severally covenants and agrees with IMSI as follows: 5.1 Advice of Changes. Zedcor or the Zedcor Shareholders, as the case may be, will promptly advise IMSI in writing (a) of any event occurring subsequent to the date of this Agreement that would render any representation or warranty of Zedcor and the Zedcor Shareholders contained in Section 3 of this Agreement, if made on or as of the date of such event or the Closing Date, untrue or inaccurate in any material respect and (b) of any material adverse change in Zedcor's assets, business, results of operations, financial condition or prospects. Zedcor shall deliver to IMSI within thirty (30) days after the end of each quarterly accounting period ending after the Agreement Date and before the Closing Date, an unaudited balance sheet and statement of operations, which financial statements shall be prepared in the ordinary course of business consistent with Zedcor's past practice (except that such financial statements shall be prepared in accordance with United States generally accepted accounting principles), in accordance with Zedcor's books and records and United States generally accepted accounting principles and shall fairly present the financial position of Zedcor on a consolidated basis as of their respective dates and the results of Zedcor's operations on a consolidated basis for the periods then ended. 5.2 Maintenance of Business. Zedcor will carry on and preserve its business and its relationships with customers, suppliers, employees, consultants and others in substantially the same manner as it has prior to the date hereof. If Zedcor becomes aware of a material deterioration in the relationship with any customer, supplier, key employee, consultant or business partner, it will promptly bring such information to the attention of IMSI in writing and, if requested by IMSI, will exert its best efforts to restore the relationship. 5.3 Conduct of Business. Zedcor will continue to conduct its business and maintain its business relationships in the ordinary and usual course and will not, without the prior written consent of the President of IMSI: (a) borrow or lend any money other than advances to employees for travel and expenses that are incurred in the ordinary course of Zedcor's business consistent with Zedcor's past practice; (b) purchase or sell shares or other equity interest in any corporation or other business or enter into any transaction or agreement not in the ordinary course of Zedcor's business consistent with Zedcor's past practice; (c) encumber, or permit to be encumbered, any of its assets; (d) sell, transfer or dispose of any of its assets except in the ordinary course of Zedcor's business consistent with Zedcor's past practice; (e) enter into any material lease or contract for the purchase or sale of any property, whether real or personal, tangible or intangible; 21 22 (f) pay any bonus, increased salary or special remuneration to any officer, employee or consultant (except for normal salary increases consistent with past practices not to exceed 5% of such officer's, employee's or consultant's base annual compensation, except pursuant to existing arrangements previously disclosed to and approved in writing by IMSI) or enter into any new employment or consulting agreement with any such person; (g) change any of its accounting methods (except that henceforth Zedcor will prepare its financial statements in accordance with United States generally accepted accounting principles); (h) declare, set aside or pay any cash or stock dividend or other distribution in respect of any of its capital stock, redeem, repurchase or otherwise acquire any of its capital stock or other securities, pay or distribute any cash or property to any Zedcor shareholder or security holder or make any other cash payment to any shareholder or security holder of Zedcor that is unusual, extraordinary, or not made in the ordinary course of Zedcor's business consistent with Zedcor's past practice; (i) amend or terminate any contract, agreement or license to which it is a party except those amended or terminated in the ordinary course of Zedcor's business, consistent with Zedcor's past practice, and which are not material in amount or effect; (j) guarantee or act as a surety for any obligation of any third party; (k) waive or release any material right or claim except in the ordinary course of business, consistent with past practice or agree to any audit assessment by any tax authority or file any federal or state income or franchise tax return unless copies of such returns have been delivered to IMSI for its review prior to filing; (l) issue, sell, create or authorize any shares of its capital stock of any class or series or any other of its securities, or issue, grant or create any warrants, obligations, subscriptions, options, convertible securities, or other commitments to issue shares of its capital stock or securities ultimately exchangeable for, or convertible into, shares of its capital stock; (m) subdivide or split or combine or reverse split the outstanding shares of its capital stock of any class or enter into any recapitalization affecting the number of outstanding shares of its capital stock of any class or affecting any other of its securities; (n) merge, consolidate or reorganize with, or acquire, any entity or enter into any negotiations, discussions or agreement for such purpose; (o) amend its charter documents; (p) license any of its technology or Intellectual Property Rights except in the ordinary course of business consistent with past practice; (q) change any insurance coverage or issue any certificates of insurance; 22 23 (r) modify or change the exercise or conversion rights or exercise or purchase prices of any Zedcor Stock or other Zedcor securities, or accelerate or otherwise modify (i) the right to exercise any right to purchase any Zedcor stock or other securities or (ii) the vesting or release of any shares of Zedcor capital stock or other securities of Zedcor from any repurchase options or rights of refusal held by Zedcor or any other party or any other restrictions unless such accelerations/modifications are expressly required and mandated by the terms of a formal written agreement or plan that has been disclosed in writing to IMSI and was entered into prior to the execution of this Agreement by IMSI and Zedcor; (s) purchase or otherwise acquire, or sell or otherwise dispose of (i) any shares of IMSI Common Stock or other IMSI securities or (ii) any securities whose value is derived from or determined with reference to, in whole or in part, the value of IMSI stock or other IMSI securities; (t) agree to do any of the things described in the preceding clauses 5.3(a) through 5.3(s). 5.4 Regulatory Approvals. Zedcor and the Zedcor Shareholders will promptly execute and file, or join in the execution and filing, of any application or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental body, federal, state, local or foreign, which may be reasonably required, or which IMSI may reasonably request, in connection with the consummation of the transactions contemplated by this Agreement. Zedcor, its officers, directors and employees and the Zedcor Shareholders will use their respective best efforts to promptly obtain, and to cooperate with IMSI to promptly obtain, all such authorizations, approvals and consents. 5.5 Necessary Consents. Zedcor, its officers, directors and employees and the Zedcor Shareholders will use their respective best efforts to promptly obtain such written consents and take such other actions as may be necessary or appropriate in addition to those set forth in Section 5.4 to allow the consummation of the transactions contemplated hereby and to allow IMSI to carry on Zedcor's business after the Closing. 5.6 Litigation. Zedcor will notify IMSI in writing promptly after learning of any action, suit, arbitration, mediation, proceeding or investigation by or before any court, arbitrator or arbitration panel, board or governmental agency, initiated by or against it, or known by it to be threatened against it or any of its directors, officers, employees or consultant in their capacity as such. 5.7 No Other Negotiations. From the Agreement Date until the earlier of termination of this Agreement in accordance with Section 10 or the consummation of the Exchange, Zedcor, its officers, directors and employees and the Zedcor Shareholders will not, and will not authorize, encourage or permit, any officer, director, employee, shareholder or affiliate of Zedcor, or any other person, on its or their behalf to, directly or indirectly, solicit or encourage any offer from any party or consider any inquiries or proposals received from any other party, participate in any negotiations regarding, or furnish to any person any information with respect to, or otherwise cooperate with, facilitate or encourage any effort or attempt by any person (other than IMSI), concerning any agreement or transaction regarding the possible disposition of all or any substantial 23 24 portion of the business, assets or capital stock of Zedcor or any Zedcor Subsidiary by merger, consolidation, reorganization, sale of assets, sale of stock, exchange, tender offer or any other form of business combination ("ALTERNATIVE TRANSACTION"). Zedcor will promptly notify IMSI orally and in writing of any such inquiries or proposals. In addition, neither Zedcor, nor any Zedcor Shareholder nor any Zedcor Subsidiary, shall execute, enter into or become bound by (a) any letter of intent or agreement or commitment between Zedcor and/or any of the Zedcor Shareholders and/or any Zedcor Subsidiary, on the one hand, and any third party, on the other hand, that is related to an Alternative Transaction or (b) any agreement or commitment between Zedcor and/or any of the Zedcor Shareholders and/or any Zedcor Subsidiary, on the one hand, and a third party, on the other hand, providing for an Alternative Transaction. 5.8 Access to Information. Until the Closing Date, Zedcor will allow IMSI and its agents reasonable access to the files, books, records and offices of Zedcor, including, without limitation, any and all information relating to Zedcor's taxes, commitments, contracts, leases, licenses, and real, personal and intangible property and financial condition, subject to the terms of the Mutual Nondisclosure Agreement between Zedcor and IMSI dated as of September 9th, 1998 (the "CONFIDENTIALITY AGREEMENT"). Zedcor will cause its accountants to cooperate with IMSI and its agents in making available all financial and tax information reasonably requested, including without limitation the right to examine all working papers pertaining to all financial statements and tax returns, prepared or audited by such accountants. 5.9 Satisfaction of Conditions Precedent. Zedcor, its and directors and officers and the Zedcor Shareholders will use their respective best efforts to satisfy or cause to be satisfied all the conditions precedent which are set forth in Section 9, and Zedcor, its directors and officers, and the Zedcor Shareholders will use their respective best efforts to cause the transactions contemplated by this Agreement to be consummated; and, without limiting the generality of the foregoing, to obtain all consents and authorizations of third parties and to make all filings with, and give all notices to, third parties that may be necessary or reasonably required on Zedcor's part in order to effect the transactions contemplated hereby. In particular, Zedcor will use its best efforts to cause the Exchange to become effective in accordance with this Agreement on or before September 25th, 1998. 5.10 [RESERVED.] 5.11 Securities Laws. Zedcor and the Zedcor Shareholders shall each use its best efforts to assist IMSI to the extent necessary to comply with the securities laws of all jurisdictions (U.S. and foreign) which are applicable in connection with the Exchange. 5.12 [RESERVED.] 5.13 Certain Investments, Agreements. Zedcor and the Zedcor Shareholders do not own, and shall not directly make any purchase or other acquisition of, or investment in, any shares of IMSI Common Stock or other securities of IMSI. Zedcor and the Zedcor Shareholders shall not enter into any agreement with any holders of IMSI shares calling for either Zedcor or IMSI to retire or reacquire all or part of the IMSI shares to be issued pursuant to the Exchange. Zedcor shall not enter into any financial arrangements for the benefit of any Zedcor shareholder and the Zedcor Shareholders shall not enter into any agreement which, in effect, would negate the exchange of equity securities contemplated under this Agreement, including without limitation, any loan or 24 25 other financial arrangement at abnormally low interest rates, or any guarantee of loans secured by IMSI shares to be issued pursuant to the Exchange. 5.14 Termination of Registration and Voting Rights. All registration rights agreements and voting agreements applicable to or affecting any outstanding shares or other securities of Zedcor (if any) shall be duly terminated and canceled by no later than the Closing Date. 5.15 Invention Assignment and Confidentiality Agreements. Zedcor shall obtain from each employee, agent and consultant of Zedcor who has had access to any software, technology or copyrightable, patentable or other proprietary works or intellectual property owned or developed by Zedcor or other Intellectual Property Rights, or to any other confidential or proprietary information of Zedcor or its clients, an invention assignment and confidentiality agreement in substantially the form of the agreement provided to counsel to IMSI, duly executed by such employee, agent or consultant and delivered to Zedcor. 5.16 Non-Competition and Offer Letters. The Zedcor Shareholders shall also execute and deliver to IMSI the Non-Competition Agreement in the form of Exhibit 9.9B at the Closing. Zedcor shall use its best efforts to cause Michael Gariepy and Peter Gariepy to execute and deliver to IMSI at the Closing, Offer Letters in materially the form attached hereto as Exhibit 9.10 (the "OFFER LETTERS"). 5.17 [RESERVED.] 5.18 Closing of Exchange. Zedcor and the Zedcor Shareholders shall not refuse to effect the Exchange if, on or before the Closing Date, all the conditions precedent to their obligations to effect the Exchange under Section 8 hereof have been satisfied or, in their sole discretion, been waived by them. 5.19 Consultants to Become Employees. Zedcor and its officers shall use their best efforts to cause those persons who are designated by IMSI to Zedcor in writing and who are currently performing services for Zedcor and the Zedcor Subsidiaries as consultants to become employees of Zedcor and/or the applicable Zedcor Subsidiary prior to the Closing on terms and conditions satisfactory to IMSI. 5.20 Delivery of Zedcor Financial Statements. Prior to the Closing, and as soon as practicable following the execution of this Agreement, Zedcor shall deliver to IMSI the unaudited Zedcor Financial Statements referred to in Section 3.8 hereof. 6. IMSI COVENANTS During the period from the Agreement Date until the earlier to occur of (i) the Closing or (ii) the termination of this Agreement in accordance with Section 10, IMSI covenants and agrees as follows: 6.1 Advice of Changes. IMSI will promptly advise Zedcor in writing (a) of any event occurring subsequent to the date of this Agreement that would render any representation or warranty of IMSI contained in this Agreement, if made on or as of the date of such event or the 25 26 Closing Date or Closing Date, untrue or inaccurate in any material respect and (b) of any material adverse change in IMSI's business, results of operations or financial condition. 6.2 Regulatory Approvals. IMSI will execute and file, or join in the execution and filing, of any application or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental body, federal, state, local or foreign, which may be reasonably required, in connection with the consummation of the transactions contemplated by this Agreement in accordance with the terms of this Agreement. IMSI will use its best efforts to obtain all such authorizations, approvals and consents. 6.3 Satisfaction of Conditions Precedent. IMSI will use its best efforts to satisfy or cause to be satisfied all the conditions precedent which are set forth in Section 8, and IMSI will use its best efforts to cause the transactions contemplated by this Agreement to be consummated in accordance with the terms of this Agreement, and, without limiting the generality of the foregoing, to obtain all consents and authorizations of third parties and to make all filings with, and give all notices to, third parties that may be necessary or reasonably required on its part in order to effect the transactions contemplated hereby. 6.4 Securities Laws. IMSI shall take such steps as may be necessary to comply with the securities and Blue Sky laws of all jurisdictions (U.S. or foreign) which are applicable in connection with the Exchange, with the cooperation and assistance of Zedcor and the Zedcor Shareholders. 6.5 Nasdaq National Market Listing. IMSI shall cause the shares of IMSI Common Stock issuable to the Zedcor shareholders in the Exchange (including shares of IMSI Common Stock issuable upon exercise of IMSI Options) to be authorized for listing on the Nasdaq National Market, subject to official notice of issuance. 6.6 Employee Benefits. As soon as practicable after the Agreement Date, IMSI and Zedcor shall confer and work in good faith to agree upon a plan under which Zedcor employees will be covered either by (a) IMSI's employee benefits plans or (b) Zedcor's employee benefit plans, with such decision to be made no later than six (6) months following the Closing, in a manner that results in minimal disruption to the continuing operations of Zedcor, and minimal cost to IMSI. 7. CLOSING MATTERS 7.1 The Closing. Subject to termination of this Agreement as provided in Section 10 below and the conditions to closing set forth in this section, the closing of the transactions for consummation of the Exchange (the "CLOSING") will take place at the corporate offices of IMSI, 1895 East Francisco Blvd., San Rafael, CA 94901 at 4 p.m., Pacific Standard Time on or before October 1st, 1998 or on such other date on or before the Termination Date (as defined in Section 10.1.2) as IMSI and Zedcor may mutually agree upon in writing (the "CLOSING DATE"). As a condition to closing, Zedcor must have received from Dover Publications a fully executed renewal agreement in materially the same terms and conditions as the draft attached hereto as Exhibit 7.1. IMSI may, in its sole discretion and at any time, waive the requirement that Dover Publications executes a renewal Agreement with Zedcor. 26 27 7.2 Exchanges at the Closing. 7.2.1 At the Closing, (a) the Zedcor Certificates shall be exchanged for the Exchange Shares as provided in Section 2.1 hereof. 7.2.2 [RESERVED] 7.2.3 [RESERVED] 7.2.4 Each Zedcor Shareholder understands and agrees that stop transfer instructions will be given to IMSI's transfer agent with respect to certificates evidencing the Exchange Shares. 7.2.5 After the Closing there will be no further registration of transfers on the stock transfer books of Zedcor or its transfer agent of the Zedcor Stock that was outstanding immediately prior to the Closing. If, after the Closing, Zedcor Certificates are presented for any reason, they will be canceled. 8. CONDITIONS TO OBLIGATIONS OF ZEDCOR AND THE ZEDCOR SHAREHOLDERS The obligations of Zedcor and the Zedcor Shareholders to consummate the Exchange are subject to the fulfillment or satisfaction, on and as of the Closing, of each of the following conditions (any one or more of which may be waived by Zedcor and the Zedcor Shareholders in their sole discretion, but only in a writing signed by Zedcor and the Zedcor Shareholders): 8.1 Accuracy of Representations and Warranties. The representations and warranties of IMSI set forth in Section 4 (as qualified by the IMSI Disclosure Letter, if any) shall be true and accurate in every material respect on and as of the Closing with the same force and effect as if they had been made at the Closing, and Zedcor shall have received a certificate to such effect executed by IMSI's President or Chief Financial Officer. 8.2 Covenants. IMSI shall have performed and complied in all material respects with all of its covenants contained in Section 6 on or before the Closing. 8.3 Compliance with Law; No Legal Restraints. There shall not be outstanding or threatened, or enacted or adopted, any order, decree, temporary, preliminary or permanent injunction, legislative enactment, statute, regulation, action, proceeding or any judgment or ruling by any court, arbitrator, governmental agency, authority or entity, or any other fact or circumstance (other than any such matter initiated by Zedcor, its officers or directors or the Zedcor Shareholders), that, directly or indirectly, challenges, threatens, prohibits, enjoins, restrains, suspends, delays, conditions or renders illegal or imposes limitations on (or is likely to result in a challenge, threat to, or a prohibition, injunction, restraint, suspension, delay or illegality of, or to impose limitations on): (i) the Exchange or any other transaction contemplated by this Agreement; (ii) IMSI's payment for, or acquisition or purchase of, some or all of the shares of Zedcor Stock or any material part of the assets of Zedcor. 27 28 8.4 Government Consents. There shall have been obtained at or prior to the Closing Date such permits and/or authorizations, and there shall have been taken such other action by any regulatory authority having jurisdiction over the parties and the actions herein proposed to be taken, as may be required to lawfully consummate the Exchange, including but not limited to requirements under applicable U.S. and foreign securities and corporations laws. 8.5 [RESERVED] 8.6 Documents. IMSI shall have executed and delivered to Zedcor and/or the Zedcor Shareholders, as applicable, the IMSI Ancillary Agreements. Zedcor shall have received all written consents, assignments, waivers, authorizations or other certificates reasonably deemed necessary by Zedcor's legal counsel for Zedcor to lawfully consummate the transactions contemplated hereby. 8.7 No Litigation. No litigation or proceeding (other than any litigation or proceeding initiated by Zedcor, its Board of Directors, shareholders or officers or any Zedcor Shareholder) shall be threatened or pending for the purpose or with the probable effect of enjoining or preventing the consummation of the Exchange or any of the other transactions contemplated by this Agreement, or which could be reasonably expected to have a material adverse effect on the present or future operations or financial condition of IMSI. 8.8 Instructions to Transfer Agent; Deliveries. IMSI shall have issued irrevocable instructions to its transfer agent to authorize the issuance of IMSI Common Stock in the Exchange consistent with Section 2 hereof. IMSI shall have made the other deliveries contemplated by Section 2 hereof. 8.9 Satisfactory Form of Legal Matters. The form, scope and substance of all legal and accounting matters contemplated hereby and all closing documents and other papers delivered hereunder shall be reasonably acceptable to Zedcor's counsel. 9. CONDITIONS TO OBLIGATIONS OF IMSI The obligations of IMSI hereunder are subject to the fulfillment or satisfaction, on and as of the Closing, of each of the following conditions (any one or more of which may be waived by IMSI in its sole discretion, but only in a writing signed by IMSI): 9.1 Accuracy of Representations and Warranties. The representations and warranties of Zedcor and the Zedcor Shareholders set forth in Section 3 (as qualified by the Zedcor Disclosure Letter) and in the Investment Representation Letters, and the representations and warranties of the Zedcor Optionees in the Optionee Agreements, shall each be true and accurate in every material respect on and as of the Closing with the same force and effect as if they had been made at the Closing, and IMSI shall have received certificates to such effect executed by Zedcor's President and by the Zedcor Shareholders. 9.2 Covenants. Zedcor and the Zedcor Shareholders shall have performed and complied in all material respects with all of their respective covenants contained in Section 5 on or before the Closing, and IMSI shall have received certificates to such effect signed by Zedcor's President and by the Zedcor Shareholders. 28 29 9.3 Compliance with Law; No Legal Restraints. There shall not be outstanding or threatened, or enacted or adopted, any order, decree, temporary, preliminary or permanent injunction, legislative enactment, statute, regulation, action, proceeding or any judgment or ruling by any court, arbitrator, governmental agency, authority or entity, or any other fact or circumstance (other than any such matter initiated by IMSI or its officers or directors), that, directly or indirectly, challenges, threatens, prohibits, enjoins, restrains, suspends, delays, conditions, or renders illegal or imposes limitations on (or is likely to result in a challenge, threat to, or a prohibition, injunction, restraint, suspension, delay or illegality of, or to impose limitations on): (i) the Exchange or any other transaction contemplated by this Agreement; (ii) IMSI's payment for, or acquisition or purchase of, some or all of the shares of Zedcor Stock; (iii) the ownership or operation by IMSI or Zedcor of all or any material portion of the business or assets of Zedcor, including (but not limited to) Zedcor's Intellectual Property Rights; or (iv) IMSI's ability to exercise full rights of ownership with respect to Zedcor, each Zedcor Subsidiary, and their respective assets and shares, including but not limited to restrictions on IMSI's ability to vote all the shares of Zedcor or (indirectly through ownership of Zedcor) any Zedcor Subsidiary. 9.4 Government Consents. There shall have been obtained at or prior to the Closing Date such permits or authorizations from, and there shall have been taken such other action, as may be required to lawfully consummate the Exchange by, any governmental or regulatory authority having jurisdiction over any of the parties and/or the actions herein proposed to be taken, including but not limited to requirements under applicable U.S. and foreign securities and corporate laws. 9.5 Opinion of Zedcor's Counsel. IMSI shall have received from counsel to Zedcor, an opinion in substantially the form of EXHIBIT 9.5. 9.6 Documents and Consents. Zedcor and the Zedcor Shareholders shall have executed and delivered to IMSI all the Zedcor Ancillary Agreements and all the Shareholder Ancillary Agreements, as applicable. The Zedcor Shareholders shall have delivered to IMSI Zedcor Certificates representing 100% of the outstanding shares of Zedcor together with the other deliverables specified in Section 2.1.1 hereof. IMSI shall have received duly executed copies of all third-party consents, approvals, assignments, waivers, authorizations or other certificates contemplated by this Agreement or the Zedcor Disclosure Letter or reasonably deemed necessary by IMSI's legal counsel to provide for the continuation in full force and effect of any and all material contracts, agreements and leases of Zedcor and the preservation of Zedcor's IP Rights and other assets and properties and for IMSI to consummate the transactions contemplated hereby, in form and substance reasonably satisfactory to IMSI, except for such thereof (if any) as IMSI and Zedcor shall have agreed in writing need not be obtained. 9.7 No Litigation. No litigation or proceeding shall be threatened or pending for the purpose or with the probable effect of enjoining or preventing the consummation of the Exchange or any of the other transactions contemplated by this Agreement, or which could be reasonably expected to have a material adverse effect on the present or future operations or financial condition of Zedcor or IMSI or Zedcor's ownership of all shares or which asserts that Zedcor's or IMSI's or any Zedcor Shareholder's negotiations regarding this Agreement, IMSI's or Zedcor's or any Zedcor Shareholder's entering into this Agreement or Zedcor's or IMSI's or any Zedcor Shareholder's consummation of the Exchange or other transactions contemplated hereby, breaches 29 30 or violates any law, rule, order or judgment, or any agreement or commitment of Zedcor, any Zedcor Shareholder or constitutes tortuous conduct on the part of IMSI, Zedcor any Zedcor Shareholder. 9.8 [RESERVED.] 9.9 Non-Competition Agreement. IMSI shall have received from each employee of Zedcor a fully executed copy of a Non-Competition Agreement in materially the form of EXHIBIT 9.9(b). 9.10 Offer Letters. IMSI shall have received from both Michael Gariepy and Peter Gariepy a fully executed copy of an Offer Letter in materially the form of EXHIBIT 9.10. 9.11 [RESERVED.] 9.12 No IMSI Shareholder Vote. The number of shares of IMSI Common Stock that IMSI must issue pursuant to this Agreement shall not exceed the number of shares of IMSI Common Stock that would require IMSI to seek the approval of the Exchange by its shareholders under applicable law or the applicable bylaws, rules or regulations of the National Association of Securities Dealers, the Nasdaq Stock Market or any other stock exchange on which IMSI Common Stock is traded. 9.13 Appointment of New Directors and officers. The directors and officers of Zedcor and each of the Zedcor Subsidiaries in office immediately prior to the Closing of the Exchange shall have resigned effective as of the Closing. 9.14 No Material Adverse Change. There shall not have been any material adverse change in the financial condition, properties, assets, liabilities, business, results of operations, operations or prospects of Zedcor and the Zedcor Subsidiaries, taken as a whole. 9.15 [RESERVED] 9.16 [RESERVED] 9.17 [RESERVED] 9.18 Delivery of Interim Financials. Zedcor shall have delivered the Interim Financials to IMSI. 9.19 Satisfactory Form of Legal and Accounting Matters. The form, scope and substance of all legal and accounting matters contemplated hereby and all closing documents and other papers delivered hereunder shall be reasonably acceptable to IMSI's counsel and independent public accountants. 10. TERMINATION OF AGREEMENT 10.1 Prior to or at the Closing or Closing Date. 30 31 10.1.1 This Agreement may be terminated at any time prior to or at the Closing by the mutual written consent of IMSI and Zedcor, approved by their respective Boards of Directors. 10.1.2 This Agreement may be terminated by IMSI if the conditions precedent set forth in Section 9 shall have not been complied with, waived or performed and such noncompliance or nonperformance shall not have been cured or eliminated (or by its nature cannot be cured or eliminated) by Zedcor and/or the Zedcor Shareholders on or before Midnight, Pacific Time on September 30th, 1998. 10.1.3 This Agreement may be terminated by Zedcor and the Zedcor Shareholders if the conditions precedent set forth in Section 8 shall have not been complied with, waived or performed and such noncompliance or nonperformance shall not have been cured or eliminated (or by its nature cannot be cured or eliminated) by IMSI on or before Midnight, Pacific Time on September 30th, 1998. 10.1.4 IMSI may terminate this Agreement at any time prior to or at the Closing if any of the representations and warranties of Zedcor and/or the Zedcor Shareholders in Section 3 of this Agreement were incorrect, untrue or false in any material respect as of the Agreement Date or are incorrect, untrue or false in any material respect as of the proposed Closing Date or Zedcor and/or the Zedcor Shareholders have breached any of their respective covenants under Section 5 of this Agreement, and Zedcor and/or the Zedcor Shareholders have not cured such breach prior to the earlier of (i) the Closing, (ii) thirty (30) days after IMSI has given Zedcor written notice of its intention to terminate this Agreement pursuant to this subsection or (iii) the Termination Date. 10.1.5 Zedcor and the Zedcor Shareholders may terminate this Agreement at any time prior to or at the Closing if any of the representations and warranties of IMSI in Section 4 of this Agreement were incorrect, untrue or false in any material respect as of the Agreement Date or are incorrect, untrue or false in any material respect as of the proposed Closing Date or IMSI has breached any of its covenants under Section 6 of this Agreement, and IMSI has not cured such breach prior to the earlier of (i) the Closing, (ii) thirty (30) days after Zedcor and the Zedcor Shareholders have given IMSI written notice of their intention to terminate this Agreement pursuant to this subsection or (iii) the Termination Date. 10.1.6 The Board of Directors for IMSI must approve this Agreement in writing before it shall become binding on IMSI. Any termination of this Agreement under this Section 10 will be effective by the delivery of notice of the terminating party to the other party hereto. 10.2 No Liability for Proper Termination. Except as expressly provided in Section 10.1.6, any termination of this Agreement in accordance with this Section 10 will be without further obligation or liability upon any party in favor of the other party hereto or to its stockholders, directors or officers, other than the obligations provided in the Confidentiality Agreement; provided, however, that nothing herein will limit the obligation of Zedcor, the Zedcor Shareholders and IMSI for any willful breach hereof or failure to use their best efforts to cause the Exchange to be 31 32 consummated, as set forth in Sections 5.9 and 6.3 hereof, respectively. In the event of the termination of this Agreement pursuant to this Section 10, this Agreement shall thereafter become void and have no effect and each party shall be responsible for its own expenses incurred in connection herewith. 11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING COVENANTS 11.1 Survival of Representations. All representations, warranties and covenants of Zedcor and the Zedcor Shareholders contained in this Agreement will remain operative and in full force and effect, regardless of any investigation made by or on behalf of IMSI, until the earlier of (i) the termination of this Agreement or (ii) thirty six (36) months after the Closing Date; provided, however, that those representations and warranties respecting matters addressed by the first audited financial statements of the combined corporation, together with a report thereon from IMSI's independent auditors, shall not expire later than upon the date on which such financial statements are first released to the public. 11.2 Agreement to Indemnify. The Majority Zedcor Shareholders agree to jointly and severally indemnify and hold harmless IMSI and its officers, directors, agents, shareholders and employees, and each person, if any, who controls or may control IMSI within the meaning of the 1933 Act or the 1934 Act (each hereinafter referred to individually as an "INDEMNIFIED PERSON" and collectively as "INDEMNIFIED PERSONS") from and against any and all claims, demands, suits, actions, causes of actions, losses, costs, damages, liabilities and expenses including, without limitation, reasonable attorneys' fees, other professionals' and experts' reasonable fees and court or arbitration costs (hereinafter collectively referred to as "DAMAGES") promptly as incurred and arising out of any inaccuracy, misrepresentation, breach of, or default in, any of the representations, warranties or covenants given or made by Zedcor and/or the Majority Zedcor Shareholders in this Agreement or in the Zedcor Disclosure Letter or in any certificate delivered by or on behalf of Zedcor pursuant hereto (if such inaccuracy, misrepresentation, breach or default existed at the Closing Date). Neither party shall settle any such claim or suit for which the Majority Zedcor Shareholders are obligated to indemnify IMSI under this section without the prior written consent of the other, which consent shall not be unreasonably withheld. Any claim of indemnity made by an Indemnified Person under this Section 11.2 must be asserted in writing and delivered to the Representative. (a) With respect to any portion of a claim or suit under this Section 11 that requires IMSI to recall, remaster, or rereplicate any hard media IMSI software product that includes Zedcor visual content, Zedcor shall not be responsible for IMSI's actual cost of such recall, remastering, or rereplication. Nothing herein shall limit Zedcor's indemnification responsibility for Damages except as specifically stated above. (b) In no event shall Zedcor's indemnification liability exceed the Purchase Price Balance or Hold Back Funds, plus fifty percent (50%) of any amounts already paid by IMSI in satisfaction of the purchase price. 32 33 (c) In the event that any particular piece of visual content that is alleged to violate the intellectual property rights of any third party, was properly licensed by both IMSI and Zedcor at the Closing, Zedcor shall not be responsible for indemnification under this section for said duplicative image. Nothing herein shall limit Zedcor's indemnification responsibility for Damages except as specifically stated above. 11.3 Set Off. Notwithstanding anything herein to the contrary, in seeking indemnification for Damages under Section 11.2, the Indemnified Persons shall have the ability to set off (the "SET OFF") the Damages from the Purchase Price Balance and/or the Hold Back Funds. 11.4 Notice. Promptly after IMSI becomes aware of the existence of any potential claim by an Indemnified Person for indemnity from the Zedcor Shareholders under Section 11.2, IMSI will notify the Zedcor Representative of such potential claim and will, to the extent that it can reasonably do so without impairing its ability to adequately defend and respond to any such claim, permit the Zedcor Representative to assist IMSI in the defense of such claim and will cooperate with the Zedcor Representative in obtaining copies of any records or other information which is relevant to the defense of such claim. Failure of IMSI to give such notice shall not affect any rights or remedies of an Indemnified Party hereunder with respect to indemnification for Damages except to the extent the Zedcor Shareholders are materially prejudiced thereby. Prior to the settlement of any claim for which IMSI seeks indemnity from a Zedcor Shareholder, IMSI will provide the Zedcor Shareholders with the terms of the proposed settlement and a reasonable opportunity to comment on such terms in accordance with the Escrow Agreement. Nothing in this Section is intended to preclude the Representative of the Zedcor Shareholders from reasonably contesting a claim for indemnification hereunder. 11.5 Title Indemnity. In addition to, and separate from, the foregoing agreement to indemnify set forth in Section 11.2, each Zedcor Shareholder agrees, jointly and severally, to defend and indemnify IMSI and each other Indemnified Person from and against any and all claims, demands, suits, actions, causes of actions, losses, costs, damages, liabilities and expenses including, without limitation, reasonable attorneys' fees, other professionals' and experts' reasonable fees and court or arbitration costs incurred and arising out of any failure of such Zedcor Shareholder to have good, valid and marketable title to any issued and outstanding shares of Zedcor Stock held (or asserted to have been held) by such Zedcor Shareholder, free and clear of all liens, claims and encumbrances, or to have the full right, capacity and authority to enter into this Agreement and consummate the Exchange and any other transactions contemplated by this Agreement, or any failure of Zedcor to have good, valid and marketable title to all of the outstanding shares of each of the Zedcor Subsidiaries and any failure of the Zedcor Shareholders collectively to own, of record and beneficially, 100% of the outstanding shares of Zedcor. A Zedcor shareholder's liability under the indemnification provided for in this Section 11.5 shall be in addition to any liability of such Zedcor shareholder under Section 11.2 and shall not be subject to the limitations on such shareholder's liability set forth in Section 11.3 and shall not be limited to the Hold Back Funds. 12. MISCELLANEOUS 12.1 Governing Law. The internal laws of the State of California, U.S.A. (irrespective of its choice of law principles) will govern the validity of this Agreement, the 33 34 construction of its terms, and the interpretation and enforcement of the rights and duties of the parties hereto. 12.2 Assignment; Binding Upon Successors and Assigns. Neither party hereto may assign any of its rights or obligations hereunder without the prior written consent of the other party hereto, except that IMSI may assign its respective rights and/or obligations to any wholly-owned subsidiary of IMSI or the surviving company in any merger or acquisition. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.3 Severability. If any provision of this Agreement, or the application thereof, will for any reason and to any extent be invalid or unenforceable, the remainder of this Agreement and application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provision. 12.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be an original as regards any party whose signature appears thereon and all of which together will constitute one and the same instrument. This Agreement will become binding when one or more counterparts hereof, individually or taken together, will bear the signatures of both parties reflected hereon as signatories. 12.5 Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law on such party, and the exercise of any one remedy will not preclude the exercise of any other. 12.6 Amendment and Waivers. IMSI and the Zedcor Shareholders (or their successors in interest) may amend any term or provision of this Agreement prior to the Closing by the written consent of IMSI, Zedcor and the Majority Zedcor Shareholders, and, after the Closing. The observance of any term, condition or provision of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a writing signed by the party to be bound thereby or for whose benefit such condition was provided. The waiver by a party of any breach hereof or default in the performance hereof will not be deemed to constitute a waiver of any other default or any succeeding breach or default. In addition, at any time prior to the Closing, each of the Zedcor Shareholders and each of Zedcor and IMSI (by action taken by its respective Board of Directors) may, to the extent legally allowed: (i) extend the time for the performance of any of the obligations or other acts of the other; (ii) waive any inaccuracies in the representations and warranties made to it contained herein or in any document delivered pursuant hereto; and (iii) waive compliance with any of the agreements or conditions for its benefit contained herein. No such waiver or extension shall be effective unless signed in writing by the party against whom such waiver or extension is asserted. The failure of any party to enforce any of the provisions hereof will not be construed to be a waiver of the right of such party thereafter to enforce such provisions or any other provisions. 34 35 12.7 Expenses. Each party will bear its respective expenses and legal fees incurred with respect to this Agreement, and the transactions contemplated hereby. 12.8 Attorneys' Fees. Should suit be brought to enforce or interpret any part of this Agreement, the prevailing party will be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys' fees to be fixed by the court (including without limitation, costs, expenses and fees on any appeal). The prevailing party will be entitled to recover its costs of suit, regardless of whether such suit proceeds to final judgment. 12.9 Notices. All notices and other communications required or permitted under this Agreement will be in writing and will be either hand delivered in person, sent by telecopier, sent by certified or registered first class mail, postage pre-paid, or sent by nationally recognized express courier service. Such notices and other communications will be effective upon receipt if hand delivered or sent by telecopier, five (5) days after mailing if sent by mail, and one (l) day after dispatch if sent by express courier, to the following addresses, or to such other addresses or fax number as any party may notify the other parties in accordance with this Section: (i) If to IMSI: IMSI 1895 East Francisco Blvd. San Rafael, CA 94901 ATTN: Legal Department with a copy to: Fenwick & West LLP Two Palo Alto Square, Suite 800 Palo Alto, CA 94306 Attention: Kevin Kelso, Esq. Fax Number: (415) 494-1417 (ii) If to Zedcor: Michael Gariepy 3420 North Dodge Blvd. Suite Z Tucson, AZ 85716 with a copy to: Steven L. Bosse' Gabroy, Rollman & Bosse', P.C. 3507 N. Campbell Ave., Suite 111 Tucson, AZ 85718 12.10 Construction of Agreement. The respective parties have negotiated this Agreement hereto and their attorneys and the language hereof will not be construed for or against either party. A reference to a Section or an exhibit will mean a Section in, or exhibit to, this Agreement unless otherwise explicitly set forth. The titles and headings herein are for reference purposes only and will not in any manner limit the construction of this Agreement which will be considered as a whole. 35 36 12.11 No Joint Venture. Nothing contained in this Agreement will be deemed or construed as creating a joint venture or partnership between any of the parties hereto. No party is by virtue of this Agreement authorized as an agent, employee or legal representative of any other party. No party will have the power to control the activities and operations of any other party and their status is, and at all times will continue to be, that of independent contractors with respect to each other. No party will have any power or authority to bind or commit any other. No party will hold itself out as having any authority or relationship in contravention of this Section. 12.12 Further Assurances. Each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by any other party to evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement. 12.13 Absence of Third Party Beneficiary Rights. No provisions of this Agreement are intended, nor will be interpreted, to provide or create any third party beneficiary rights or any other rights of any kind in any client, customer, affiliate, shareholder, partner, employee, agent, consultant or any party hereto or any other person or entity unless specifically provided otherwise herein, and, except as so provided, all provisions hereof will be personal solely between the parties to this Agreement. 12.14 Public Announcement. Upon execution of this Agreement, IMSI and Zedcor will issue a press release approved by such parties announcing the Exchange. Thereafter, IMSI may issue such press releases, and make such other disclosures regarding the Exchange, as it determines are required under applicable securities laws or regulatory rules, but shall first, when practicable, consult with Zedcor and provide Zedcor with an opportunity to comment on any such press release. Prior to the publication of the press release issued upon execution of this Agreement (unless this Agreement has been terminated), no party hereto shall make any public announcement relating to this Agreement or the transactions contemplated hereby and Zedcor shall use its best efforts to prevent any trading in IMSI Common Stock by officers, directors, shareholders, employees, agents and consultants of Zedcor and/or of any Zedcor Subsidiaries. 12.15 Confidentiality. Zedcor and IMSI each confirm that they have entered into the Confidentiality Agreement and that they are each bound by, and will abide by, the provisions of such Confidentiality Agreement (except that IMSI will cease to be bound by the Confidentiality Agreement after the Exchange becomes effective). If this Agreement is terminated, all copies of documents containing confidential information of a disclosing party shall be returned by the receiving party to the disclosing party or be destroyed, as provided in the Confidentiality Agreement. 12.16 Entire Agreement. This Agreement and the exhibits hereto constitute the entire understanding and agreement of the parties hereto with respect to the subject matter hereof and supersede all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, between the parties with respect hereto other than the Confidentiality Agreement. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. 36 37 12.17 U.S. Dollars. Unless otherwise expressly provided herein, all references to amounts of money or dollars herein refer to United States dollars. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 37 38 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. INTERNATIONAL MICROCOMPUTER ZEDCOR, INC. SOFTWARE INC. By:_______________________________ By:_________________________________ Its: President Its:President ZEDCOR SHAREHOLDERS By:_________________________________ Name:_______________________________ Title:______________________________ By:_________________________________ Name:_______________________________ Title:______________________________ By:_________________________________ Name:_______________________________ Title:______________________________ By:_________________________________ Name:_______________________________ Title:______________________________ 38 39 EXHIBITS Exhibit A - Draft of Dover License Agreement Exhibit B - Note Exhibit C - Security Agreement Exhibit 2 - Zedcor Shareholder Names and Beneficial Ownership Exhibit 2.6(a) - Zedcor Investment Representation Letter Exhibit 3.4 - List of Zedcor Subsidiaries Exhibit 3.8 - Unaudited Zedcor Financials Exhibit 3.9 - Balance Sheet Exhibit 3.11 - Material Zedcor Agreements Exhibit 3.13 - Zedcor Intellectual Property Rights Exhibit 3.16.1 - Zedcor Employee Information Exhibit 3.20 - Zedcor Insurance Policies Exhibit 3.24 - Commercial Real Property Lease Exhibit 9.5 - Opinion of Zedcor's Counsel Exhibit 9.9(b) - Non-Competition Agreement(s) Exhibit 9.10 - Offer Letter(s)
[SIGNATURE PAGE TO EXCHANGE AGREEMENT] 39 EX-4.4 5 FEE AGREEMENT BETWEEN IMSI & THE LEARNING CO. 1 EXHIBIT 4.4 FEE AGREEMENT This FEE AGREEMENT (the "Agreement") dated as of January 21, 1999 by and between The Learning Company, Inc., a Delaware corporation ("TLC"), and International Microcomputer Software, Inc. a California corporation ("IMSI"). WHEREAS, IMSI currently owes TLC an amount equal to $1,800,000 (the "Fees") pursuant to a Software License Agreement, dated October 2, 1998, between TLC and IMSI (the "License Agreement"); and WHEREAS, TLC and IMSI now desire to set forth certain terms and provisions with respect to the payment by IMSI of the Fees: NOW, THEREFORE in consideration of the foregoing and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto hereby agree as follows: 1. Payment of the Fees. Notwithstanding anything to the contrary in the License Agreement with respect to the form and timing of payment of the Fees, the obligations to pay the Fees shall the satisfied in full by compliance by IMSI with the terms and provisions of this Agreement, including without limitation, Section 2. 2. Issuance of the Shares. On the next business day after the date hereof, IMSI will issue to TLC 200,000 shares of IMSI's Common Stock (the "Common Stock"), no par value (collectively, the "Shares"). 3. Sale. The Shares may be sold by one or more of the following means of distribution (subject to the provisions of this Agreement): (a) a block trade in which the broker-dealer so engaged will attempt to sell Shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker-dealer as principal and resale by such broker-dealer for its own account; (c) an over-the-counter distribution in accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (e) in privately negotiated transactions. 4. Representations, Warranties and Covenants of IMSI. IMSI represents and warrants to and covenants with TLC as follows: a. IMSI is eligible to issue a Registration Statement on Form S-3 for the resale of the Shares by TLC in accordance with the terms of this Agreement. In -1- 2 addition, a registration statement on Form S-3 with respect to the Shares, including any amendment or amendments thereto, will (i) be prepared by IMSI in conformity with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations of the Securities and Exchange Commission (the "Commission") thereunder (the "Regulations"), and will (ii) be filed with the Commission under the Securities Act as soon as possible but in any event no later than February 28, 1999. Such registration statement, as so amended, including the prospectus, financial statements and schedules, exhibits and all other documents filed as part thereof, as amended at the Effective Date, is herein called the "Registration Statement," and the prospectus, in the form first filed with the Commission pursuant to Rule 424 (b) of the Regulations or in the form filed as part of the Registration Statement at the Effective Date, if no Rule 424 (b) filing is required, is herein called the "Prospectus." Any reference herein to the Registration Statement or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 which were filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on or before the Effective Date or the date of the Prospectus, as the case may be, and any reference herein to the terms "amend," "amendment" or "supplement" with respect to the Registration Statement or the Prospectus shall be deemed to refer to and include (x) the filing of any document under the Exchange Act after the Effective Date or the date of the Prospectus, as the case may be, which is incorporated therein by reference and (y) any Such document so filed. b. IMSI will use best efforts to have the Registration Statement declared effective as soon thereafter as possible. However, in the event that IMSI's direct actions result in the Registration Statement not being declared effective by April 30, 1999, TLC shall have the option to terminate this agreement and return the Shares to IMSI. In such event, the amounts payable to, and all rights of, TLC under the License Agreement shall be reinstated and all amounts due under the License Agreement shall become due to TLC. c. At the date the Registration Statement becomes effective under the Securities Act (the "Effective Date") or the time of effectiveness of any post-effective amendment to the Registration Statement, at the time the Prospectus is first filed with the Commission pursuant to Rule 424 (b) of the Regulations (if a Rule 424 (b) filing is required), at the time any supplement to or amendment of the Prospectus is filed with the Commission and at the time any document filed under the Exchange Act is filed, the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Securities Act and the Regulations or the Exchange Act and the respective rules and regulations thereunder and do not or will not contain an untrue statement of a material fact and do not or will not omit to state any material fact required to be stated therein or -2- 3 necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in the light of the circumstances under which they were made, not misleading. d. The Shares, when issued and delivered in accordance with this Agreement, will be duly and validly issued and outstanding, fully paid and non-assessable and will not have been issued in violation of or be subject to any preemptive rights. e. If at any time when a prospectus relating to the Shares is required to be delivered under the Securities Act any event shall occur as a result of which the Prospectus as then amended or supplemented, in the judgment of TLC or IMSI, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Securities Act or the Regulations, or to file under the Exchange Act so as to comply therewith any document incorporated by reference in the Registration Statement or the Prospectus or in any amendment thereof or supplement thereto, (i) IMSI will notify TLC promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to TLC) which will correct such statement or omission or which will effect such compliance and will use its best efforts to have any amendment to the Registration Statement docked declared effective by the Commission as soon as possible and (ii) TLC shall suspend trading in the Shares until (A) such amendment or supplement to the Prospectus has been filed or (B) any amendment to the Registration Statement has been declared effective by the Commission. f. IMSI will provide TLC with conformed copies of the Registration Statement and copies of the Prospectus. g. IMSI will pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares. 5. Conditions to TLC's Obligations. The obligations of TLC hereunder are subject to the accuracy, when made on the date hereof, of the representations and warranties of IMSI contained herein, to the performance by IMSI of its obligations hereunder and to the receipt by TLC of an opinion of Geoffrey Koblick, IMSI General Counsel, addressed to TLC, dated the Effective Date, and in form and substance satisfactory to TLC, to the effect that: -3- 4 a. all of the outstanding shares of Common Stock are duly and validly authorized and issued, are fully paid and nonassessable and were not issued in violation of or subject to any preemptive rights; b. the issuance of the Shares has been duly authorized by requisite corporate action and, when issued and delivered by IMSI in accordance with this Agreement, the Shares will be validly issued, fully paid and nonassessable and will not have been issued in violation of or subject to any preemptive rights; c. the Registration Statement, at the Effective Date, and the Prospectus, at its date, and any amendments thereof or supplements thereto, at their respective dates (other than financial statements and schedules and other financial and statistical data included or incorporated by reference therein, as to which no opinion need be rendered), complied in all material respects to the requirements of the Securities Act and the Regulations and such counsel has no reason to believe that the Registration Statement, at the Effective Date, contained an untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, at its date, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and d. each of the documents filed under the Exchange Act and incorporated by reference in the Registration Statement, the Prospectus or any amendment thereof or supplement thereto (other than the financial statements and schedules and other financial and statistical data included or incorporated by reference therein, as to which no opinion need be rendered), at the time it was filed with the Commission, complied in all material respects to the requirements of the Exchange Act and such counsel has no reason to believe that any of such documents, when such documents were so filed, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading. 6. Indemnification. a. IMSI agrees to indemnify and hold harmless TLC and each person (each, a "TLC Controlling Person"), if any, who controls TLC within the meaning of Section 15 of the Securities Act or Section 20 (a) of the Exchange Act, against any and all losses, liabilities, claims, damages and expenses whatsoever as incurred (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in -4- 5 investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they or any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, as originally filed or any amendment thereof, or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that IMSI shall not be liable to TLC or any TLC Controlling Person for any such losses, liabilities, claims, damages or expenses which arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission contained or made in the Registration Statement or the Prospectus or any amendment thereof or Supplement thereto in reliance upon and in conformity with information furnished to IMSI by TLC. IMSI and TLC hereby agree that the number of shares held by TLC, and the possible manner of reselling the Shares, is the only information supplied to IMSI by TLC for use in connection with the preparation of the Registration Statement and the Prospectus. This Indemnity Agreement will be in addition to any liability which IMSI may otherwise have, including under this Agreement. b. Promptly after receipt by any indemnified party under subsection a. above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this Section 6). In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action, (ii) the indemnifying party shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the indemnifying party (in which case the indemnifying -5- 6 party shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying party. Anything in this subsection to the contrary notwithstanding, the indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent: PROVIDED, HOWEVER, that such consent was not unreasonably withheld. 7. Entire Agreement. This Agreement and the License Agreement (to the extent not inconsistent herewith) constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior written agreements and negotiations and oral understandings, if any, with respect thereto. This Agreement may not be amended or supplemented except by an instrument in writing signed by each of the parties hereto. 8. Notices. All notices, requests and other communications hereunder shall be in writing and delivered in person or by registered or certified mail (postage prepaid, return receipt requested), overnight courier or facsimile, addressed as follows: if to TLC, to: The Learning Company, Inc. One Athenaeum Street Cambridge, Massachusetts 02142 Telephone: (617) 494-1200 Facsimile: (617) 494-1219 Attn: Neal S. Winneg, Esq. if to IMSI, to: International Microcomputer Software, Inc. 75 Rowland Way Novato, CA 94945 Attn: Joelle Ryssemus-Reilly Legal Director for IMSI Telephone: (415) 878-4209 Facsimile: (415) 893-9860 The address of a party, for the purposes of this Section 8, may be changed by giving written notice to the other party of such change in the manner provided herein for giving notice. All notices, requests, demands and other communications hereunder shall be -6- 7 deemed to have been duly given: at the time delivered by hand, if personally delivered; five calendar days mailing, if sent by registered or certified mail; the next business clay after timely delivery to the courier, if sent by overnight courier; and when receipt is acknowledged, if sent by facsimile transmission (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). 9. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts, without regard to the conflicts of law principles thereof. 10. Investment Representations. TLC represents and warrants that it is an "accredited investor" as defined by Regulation D: that it is acquiring the Shares for its own account, for the purpose of investment and not with a view to, or resale in connection with, any distribution thereof; that TLC has had access to all information regarding IMSI and its present business, assets, liabilities and financial condition, that TLC reasonably considers important in making the decision to acquire the Shares under this Agreement; and that TLC understands that the Shares are restricted securities and may not be sold except pursuant to the Form S-3, some other registration statement, or pursuant to an applicable exemption from federal and state registration requirements. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first set forth above. THE LEARNING COMPANY, INC. By: _________________________ Name: R. Scott Murray Title: Executive Vice President and Chief Financial Officer INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. By: ______________________________ Name: Martin Sacks Title: Chief Executive Officer -7- EX-4.5 6 FEE AGREEMENT BETWEEN IMSI & GREENTREE TECH. 1 EXHIBIT 4.5 FEE AGREEMENT This FEE AGREEMENT (the "Agreement") dated as of 18th February 1999 by and between International Microcomputer Software, Inc. a California corporation ("IMSI"), and Greentree Technologies, Inc. a New York corporation ("Greentree"). WHEREAS, IMSI currently owes Greentree an amount equal to $75,000.00 (the "Fees") pursuant to the Software License Agreement, dated December 2, 1997, between IMSI and Greentree (the "Licensing Agreement"), and WHEREAS, IMSI and Greentree now desire to set forth certain terms and provisions with respect to the payment by IMSI of the Fees: NOW, THEREFORE in consideration of the foregoing and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto hereby agree as follows: 1. Payment of the Fees. Notwithstanding anything to the contrary in the License Agreement with respect to the form and timing of payment of the Fees, the obligations to pay the Fees shall the satisfied in full by compliance by IMSI with the terms and provisions of this Agreement. 2. Issuance of the Shares. As soon as reasonable practicable after execution of this Agreement, IMSI will issue to Greentree, one hundred fifty thousand dollars ($150,000.00) in shares of IMSI's Common Stock (the "Common Stock"), no par value (collectively, the "Shares"). The number of shares of IMSI common stock constituting the Shares will be determined on the day that IMSI is able to grant fully tradable shares to Greentree. The Shares will be included in the next Registration Statement to be filed by IMSI on or around 28th February 1999. If a Registration Statement is not filed by IMSI before 19th March, 1999, this Fee Agreement shall be null and void and the fee terms and conditions of the Licensing Agreement shall be re-instated sua sponte. 3. Sale. a. Sale. The Shares may be sold by one or more of the following means of distribution (subject to the provisions of this Agreement): (a) a block trade in which the broker-dealer so engaged will attempt to sell Shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker-dealer as principal and resale by such broker-dealer for its own account; (c) an over-the-counter distribution in accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (e) in privately negotiated transactions. b. Restrictions on Sale. Greentree shall have no restrictions on sale. 2 4. Representations, Warranties and Covenants of IMSI. IMSI represents and warrants to and covenants with Greentree as follows: a. Registration. IMSI shall use its reasonable best efforts to cause the shares of IMSI Common Stock that are issuable pursuant to this Fee Agreement to be registered on a registration statement (or to be issued pursuant to a then-effective registration statement) on Form S-3 (or successor form) promulgated by the Securities and Exchange Commission ("SEC") under the 1933 Act, as soon as reasonably practicable after the Closing. It is the intent of IMSI to file a registration statement on or around 28th February 1999. Nothing herein shall require IMSI to separately register the Shares. b. At the date the Registration Statement becomes effective under the Securities Act (the "Effective Date") or the time of effectiveness of any post-effective amendment to the Registration Statement, at the time the Prospectus is first filed with the Commission pursuant to Rule 424 (b) of the Regulations (if a Rule 424 (b) filing is required), at the time any supplement to or amendment of the Prospectus is filed with the Commission and at the time any document filed under the Exchange Act is filed, the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Securities Act and the Regulations or the Exchange Act and the respective rules and regulations thereunder and do not or will not contain an untrue statement of a material fact and do not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in the light of the circumstances under which they were made, not misleading. c. The Shares, when issued and delivered in accordance with this Agreement, will be duly and validly issued and outstanding, fully paid and non-assessable and will not have been issued in violation of any preemptive rights. d. If at any time when a prospectus relating to the Shares is required to be delivered under the Securities Act any event shall occur as a result of which the Prospectus as then amended or supplemented, in the judgment of IMSI or Greentree, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Securities Act or the Regulations, or to file under the Exchange Act so as to comply therewith any document incorporated by reference in the Registration Statement or the Prospectus or in any amendment thereof or supplement thereto, (i) IMSI will notify Greentree promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to Greentree) which will correct such statement or omission or which will effect such compliance and will use its best efforts to 3 have any amendment to the Registration Statement docked declared effective by the Commission as soon as possible and (ii) Greentree shall suspend trading in the Shares until (A) such amendment or supplement to the Prospectus has been filed or (B) any amendment to the Registration Statement has been declared effective by the Commission. e. IMSI will pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares. If however, Greentree requests that the Shares be registered independently from another IMSI registration ("Accelerated Registration), the Greentree shall pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares that are a result of such Accelerated Registration. f. Upon successful completion of the Registration Statement, Greentree will release and forever discharge payment of the Fees pursuant to the terms and conditions of the License Agreement. 5. Indemnification. a. IMSI agrees to indemnify and hold harmless Greentree, against any and all losses, liabilities, claims, damages and expenses incurred (including but not limited to attorneys' fees), to which it may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise solely out of any untrue statement of a material fact contained in the Registration Statement, as originally filed or any amendment thereof, or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that IMSI shall not be liable to Greentree for any such losses, liabilities, claims, damages or expenses which arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission contained or made in the Registration Statement or the Prospectus or any amendment thereof or Supplement thereto in reliance upon and in conformity with information furnished to IMSI by Greentree. b. Promptly after receipt by any indemnified party under subsection a. above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the party against whom indemnification is to be sought in writing of the commencement thereof. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its own counsel in any such 4 case, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action, (ii) the indemnifying party shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying party. Anything in this subsection to the contrary notwithstanding, the indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent: provided, however, that such consent was not unreasonably withheld. 6. Entire Agreement. This Agreement and the License Agreement (to the extent not inconsistent herewith) constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior written agreements and negotiations and oral understandings, if any, with respect thereto. This Agreement may not be amended or supplemented except by an instrument in writing signed by each of the parties hereto. 7. Notices. All notices, requests and other communications hereunder shall be in writing and delivered in person or by registered or certified mail (postage prepaid, return receipt requested), overnight courier or facsimile, addressed as follows: if to Greentree, to: Harold Lund GreenTree Technologies 33 Walt Whitman Road Huntington Station, New York 11746 if to IMSI, to: International Microcomputer Software, Inc. 75 Rowland Way Novato, CA 94945 Attn: Legal Department Telephone: (415) 878-4209 Facsimile: (415) 893-9860 The address of a party, for the purposes of this Section 8, may be changed by giving written notice to the other party of such change in the manner provided herein for giving notice. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five calendar days mailing, if sent by registered or certified mail; the next business day 5 after timely delivery to the courier, if sent by overnight courier; and when receipt is acknowledged, if sent by facsimile transmission (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). 8. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of California, without regard to the conflicts of law principles thereof. 9. Investment Representations. Greentree represents and warrants that it is an "accredited investor" as defined by Regulation D: that it is acquiring the Shares for its own account, for the purpose of investment and not with a view to, or resale in connection with, any distribution thereof; that Greentree has had access to all information regarding IMSI and its present business, assets, liabilities and financial condition, that Greentree reasonably considers important in making the decision to acquire the Shares under this Agreement; and that Greentree understands that the Shares are restricted securities and may not be sold except pursuant to the Form S-3, some other registration statement, or pursuant to an applicable exemption from federal and state registration requirements. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first set forth above. Greentree Technologies INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. By: _________________________ By: ______________________________ Name: Harold Lund Name: Geoffrey B. Koblick Title: President Title: Chief Operating Officer EX-4.6 7 FEE AGREEMENT BETWEEN IMSI & ZEDCOR 1 EXHIBIT 4.6 FEE AGREEMENT This FEE AGREEMENT (the "Agreement") dated as of 25th February 1999, by and between International Microcomputer Software, Inc. a California corporation ("IMSI"), and Zedcor, Inc., an Arizona corporation ("ZEDCOR"). WHEREAS, IMSI currently owes ZEDCOR an amount equal to $1,503,207.10 (the "Fees") pursuant to a Exchange Agreement, dated 17th September, 1998, between IMSI and ZEDCOR (the "Exchange Agreement") plus a Holdback (the "Holdback Funds" as defined in the Exchange Agreement) in the amount of $200,000.00, and WHEREAS, IMSI and ZEDCOR now desire to set forth certain terms and provisions with respect to the payment by IMSI of the Fees: NOW, THEREFORE in consideration of the foregoing and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto hereby agree as follows: 1. Payment of the Fees. Notwithstanding anything to the contrary in the License Agreement with respect to the form and timing of payment of the Fees, the obligations to pay the Fees shall the satisfied in full by compliance by IMSI with the terms and provisions of this Agreement. 2. Issuance of the Shares. As soon as reasonably practicable after execution of this Agreement, IMSI will issue to ZEDCOR 150,321 shares of IMSI's Common Stock (the "Common Stock"), no par value (collectively, the "Shares"). 3. Sale. a. Sale. The Shares may be sold by one or more of the following means of distribution (subject to the provisions of this Agreement): (a) a block trade in which the broker-dealer so engaged will attempt to sell Shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker-dealer as principal and resale by such broker-dealer for its own account; (c) an over-the-counter distribution in accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (e) in privately negotiated transactions. 4. Representations, Warranties and Covenants of IMSI. IMSI represents and warrants to and covenants with ZEDCOR as follows: a. Registration. IMSI shall use its reasonable best efforts to cause the shares of IMSI Common Stock that are issuable pursuant to this Fee Agreement to be registered on a registration statement (or to be issued pursuant to a then-effective registration statement) on Form S-3 (or successor form) promulgated by the Securities 2 and Exchange Commission ("SEC") under the 1933 Act, as soon as reasonably practicable after the Closing. IMSI expects to file a Registration Statement on or about 28th February 1999. Nothing herein shall require IMSI to seperately register the Shares. b. At the date the Registration Statement becomes effective under the Securities Act (the "Effective Date") or the time of effectiveness of any post-effective amendment to the Registration Statement, at the time the Prospectus is first filed with the Commission pursuant to Rule 424 (b) of the Regulations (if a Rule 424 (b) filing is required), at the time any supplement to or amendment of the Prospectus is filed with the Commission and at the time any document filed under the Exchange Act is filed, the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Securities Act and the Regulations or the Exchange Act and the respective rules and regulations thereunder and do not or will not contain an untrue statement of a material fact and do not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in the light of the circumstances under which they were made, not misleading. c. The Shares, when issued and delivered in accordance with this Agreement, will be duly and validly issued and outstanding, fully paid and non-assessable and will not have been issued in violation of any preemptive rights. d. If at any time when a prospectus relating to the Shares is required to be delivered under the Securities Act any event shall occur as a result of which the Prospectus as then amended or supplemented, in the judgment of IMSI or ZEDCOR, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Securities Act or the Regulations, or to file under the Exchange Act so as to comply therewith any document incorporated by reference in the Registration Statement or the Prospectus or in any amendment thereof or supplement thereto, (i) IMSI will notify ZEDCOR promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to ZEDCOR) which will correct such statement or omission or which will effect such compliance and will use its best efforts to have any amendment to the Registration Statement docked declared effective by the Commission as soon as possible and (ii) ZEDCOR shall suspend trading in the Shares until (A) such amendment or supplement to the Prospectus has been filed or (B) any amendment to the Registration Statement has been declared effective by the Commission. e. IMSI will pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares. If however, ZEDCOR requests that the Shares be registered independently from another IMSI registration ("Accelerated Registration), then ZEDCOR shall pay all fees and expenses 3 with respect to the preparation and filing of the Registration Statement and the registration of the Shares that are a result of such Accelerated Registration. f. Upon execution of this Agreement, ZEDCOR releases and forever discharges payment of the Fees pursuant to the terms and conditions of the Exchange Agreement. The Hold Back Funds shall remain in tact and subject to the terms and conditions of the Exchange Agreement and any addendum's thereto. 5. Indemnification. a. IMSI agrees to indemnify and hold harmless ZEDCOR, against any and all losses, liabilities, claims, damages and expenses incurred (including but not limited to attorneys' fees), to which it may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise solely out of any untrue statement of a material fact contained in the Registration Statement, as originally filed or any amendment thereof, or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that IMSI shall not be liable to ZEDCOR for any such losses, liabilities, claims, damages or expenses which arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission contained or made in the Registration Statement or the Prospectus or any amendment thereof or Supplement thereto in reliance upon and in conformity with information furnished to IMSI by ZEDCOR. b. Promptly after receipt by any indemnified party under subsection a. above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the party against whom indemnification is to be sought in writing of the commencement thereof. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action, (ii) the indemnifying party shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such 4 fees and expenses shall be borne by the indemnifying party. Anything in this subsection to the contrary notwithstanding, the indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent: provided, however, that such consent was not unreasonably withheld. 6. Entire Agreement. This Agreement and the License Agreement (to the extent not inconsistent herewith) constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior written agreements and negotiations and oral understandings, if any, with respect thereto. This Agreement may not be amended or supplemented except by an instrument in writing signed by each of the parties hereto. 7. Notices. All notices, requests and other communications hereunder shall be in writing and delivered in person or by registered or certified mail (postage prepaid, return receipt requested), overnight courier or facsimile, addressed as follows: if to ZEDCOR , to: Michael Gariepy Zedcor, Inc. 3420 North Dodge Blvd. Suite Z Tucson, AZ 85716 With a copy to: Steven L. Bosse' Gabroy, Rollman & Bosse', P.C. 3507 N. Campbell Ave., Suite 111 Tucson, AZ 85718 if to IMSI, to: International Microcomputer Software, Inc. 75 Rowland Way Novato, CA 94945 Attn: Legal Department Telephone: (415) 878-4209 Facsimile: (415) 893-9860 The address of a party, for the purposes of this Section 8, may be changed by giving written notice to the other party of such change in the manner provided herein for giving notice. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five calendar days mailing, if sent by registered or certified mail; the next business clay after timely delivery to the courier, if sent by overnight courier; and when receipt is 5 acknowledged, if sent by facsimile transmission (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). 8. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of California, without regard to the conflicts of law principles thereof. 9. Investment Representations. ZEDCOR represents and warrants that it is an "accredited investor" as defined by Regulation D: that it is acquiring the Shares for its own account, for the purpose of investment and not with a view to, or resale in connection with, any distribution thereof; that ZEDCOR has had access to all information regarding IMSI and its present business, assets, liabilities and financial condition, that ZEDCOR reasonably considers important in making the decision to acquire the Shares under this Agreement; and that ZEDCOR understands that the Shares are restricted securities and may not be sold except pursuant to the Form S-3, some other registration statement, or pursuant to an applicable exemption from federal and state registration requirements. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first set forth above. Zedcor, Inc. INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. By: _________________________ By: ______________________________ Name: Michael Gariepy Name: Geoffrey B. Koblick Title: Chief Operating Officer EX-4.7 8 FEE AGREEMENT BETWEEN IMSI & MARK GARAY 1 EXHIBIT 4.7 FEE AGREEMENT This FEE AGREEMENT (the "Agreement") dated as of 11th January 1999, by and between International Microcomputer Software, Inc. a California corporation ("IMSI"), and Law Offices of Mark Garay, Inc., a law firm ("LAW OFFICES OF MARK GARAY"). WHEREAS, IMSI currently owes LAW OFFICES OF MARK GARAY an amount to date equal to $100,000.00 (the "Initial Attorney Fees") pursuant to a Retainer between IMSI and LAW OFFICES OF MARK GARAY (the "Retainer"), and WHEREAS, IMSI and LAW OFFICES OF MARK GARAY now desire to set forth certain terms and provisions with respect to the payment by IMSI of the Initial Attorney Fees: NOW, THEREFORE in consideration of the foregoing and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto hereby agree as follows: 1. Payment of the Fees. Notwithstanding anything to the contrary in the Retainer with respect to the form and timing of payment of the Initial Attorney Fees, the obligations to pay the Initial Attorney Fees shall the satisfied in full by compliance by IMSI with the terms and provisions of this Agreement. On the date that the stock first becomes free to trade on the NASDAQ, or other exchange upon which it may then be listed ("Valuation Date"). An amount of $100,000 will become the IMSI account value ("Account Value") at the LAW OFFICES OF MARK GARAY. The Account Value shall be debited for any fees due and not yet paid to the LAW OFFICES OF MARK GARAY as of that date. Any surplus in the Account Value, shall be a credit to be utilized against future fees for work to be performed by the LAW OFFICES OF MARK GARAY for IMSI. In the event that the fees then due to the LAW OFFICES OF MARK GARAY total more then the Account Value, IMSI shall immediately make up the difference between that amount and $100,000 in a lump sum cash payment to the LAW OFFICES OF MARK GARAY. 2. Issuance of the Shares. As soon as reasonably practicable after execution of this Agreement, IMSI will issue to LAW OFFICES OF MARK GARAY, eleven thousand one hundred twelve (11,112) shares of IMSI's Common Stock (the "Common Stock"), no par value (collectively, the "Shares") based on a trading price of nine dollars ($9.00) per share. 3. Sale. a. Sale. The Shares may be sold by one or more of the following means of distribution (subject to the provisions of this Agreement): (a) a block trade in which the broker-dealer so engaged will attempt to sell Shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a 1 2 broker-dealer as principal and resale by such broker-dealer for its own account; (c) an over-the-counter distribution in accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (e) in privately negotiated transactions. 4. Representations, Warranties and Covenants of IMSI. IMSI represents and warrants to and covenants with LAW OFFICES OF MARK GARAY as follows: a. Registration. IMSI shall use its reasonable best efforts to cause the shares of IMSI Common Stock that are issuable pursuant to this Fee Agreement to be registered on a registration statement (or to be issued pursuant to a then-effective registration statement) on Form S-3 (or successor form) promulgated by the Securities and Exchange Commission ("SEC") under the 1933 Act, as soon as reasonably practicable after the Closing. IMSI expects to file a Registration Statement on or about 28th February 1999. Nothing herein shall require IMSI to seperately register the Shares. b. At the date the Registration Statement becomes effective under the Securities Act (the "Effective Date") or the time of effectiveness of any post-effective amendment to the Registration Statement, at the time the Prospectus is first filed with the Commission pursuant to Rule 424 (b) of the Regulations (if a Rule 424 (b) filing is required), at the time any supplement to or amendment of the Prospectus is filed with the Commission and at the time any document filed under the Exchange Act is filed, the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Securities Act and the Regulations or the Exchange Act and the respective rules and regulations thereunder and do not or will not contain an untrue statement of a material fact and do not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in the light of the circumstances under which they were made, not misleading. c. The Shares, when issued and delivered in accordance with this Agreement, will be duly and validly issued and outstanding, fully paid and non-assessable and will not have been issued in violation of any preemptive rights. d. If at any time when a prospectus relating to the Shares is required to be delivered under the Securities Act any event shall occur as a result of which the Prospectus as then amended or supplemented, in the judgment of IMSI or LAW OFFICES OF MARK GARAY, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Securities Act or the Regulations, or to file under the Exchange Act so as to comply therewith any document incorporated by reference in the Registration Statement or the Prospectus or in any amendment thereof or supplement 2 3 thereto, (i) IMSI will notify LAW OFFICES OF MARK GARAY promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to LAW OFFICES OF MARK GARAY) which will correct such statement or omission or which will effect such compliance and will use its best efforts to have any amendment to the Registration Statement docked declared effective by the Commission as soon as possible and (ii) LAW OFFICES OF MARK GARAY shall suspend trading in the Shares until (A) such amendment or supplement to the Prospectus has been filed or (B) any amendment to the Registration Statement has been declared effective by the Commission. e. IMSI will pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares. If however, LAW OFFICES OF MARK GARAY requests that the Shares be registered independently from another IMSI registration ("Accelerated Registration), then LAW OFFICES OF MARK GARAY shall pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares that are a result of such Accelerated Registration. 5. Indemnification. a. IMSI agrees to indemnify and hold harmless LAW OFFICES OF MARK GARAY, against any and all losses, liabilities, claims, damages and expenses incurred (including but not limited to attorneys' fees), to which it may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise solely out of any untrue statement of a material fact contained in the Registration Statement, as originally filed or any amendment thereof, or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that IMSI shall not be liable to LAW OFFICES OF MARK GARAY for any such losses, liabilities, claims, damages or expenses which arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission contained or made in the Registration Statement or the Prospectus or any amendment thereof or Supplement thereto in reliance upon and in conformity with information furnished to IMSI by LAW OFFICES OF MARK GARAY. b. Promptly after receipt by any indemnified party under subsection a. above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the party against whom indemnification is to be sought in writing of the commencement thereof. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof. Notwithstanding the foregoing, the 3 4 indemnified party or parties shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action, (ii) the indemnifying party shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying party. Anything in this subsection to the contrary notwithstanding, the indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent: provided, however, that such consent was not unreasonably withheld. 6. Entire Agreement. This Agreement and the retainer (to the extent not inconsistent herewith) constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior written agreements and negotiations and oral understandings, if any, with respect thereto. This Agreement may not be amended or supplemented except by an instrument in writing signed by each of the parties hereto. 7. Notices. All notices, requests and other communications hereunder shall be in writing and delivered in person or by registered or certified mail (postage prepaid, return receipt requested), overnight courier or facsimile, addressed as follows: if to LAW OFFICES OF MARK GARAY , to: Law Offices of Mark Garay if to IMSI, to: International Microcomputer Software, Inc. 75 Rowland Way Novato, CA 94945 Attn: Legal Department Telephone: (415) 878-4209 Facsimile: (415) 893-9860 The address of a party, for the purposes of this Section 8, may be changed by giving written notice to the other party of such change in the manner provided herein for giving notice. All notices, requests, demands and other communications hereunder shall be 4 5 deemed to have been duly given: at the time delivered by hand, if personally delivered; five calendar days mailing, if sent by registered or certified mail; the next business clay after timely delivery to the courier, if sent by overnight courier; and when receipt is acknowledged, if sent by facsimile transmission (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). 8. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of California, without regard to the conflicts of law principles thereof. 9. Investment Representations. LAW OFFICES OF MARK GARAY represents and warrants that it is an "accredited investor" as defined by Regulation D: that it is acquiring the Shares for its own account, for the purpose of investment and not with a view to, or resale in connection with, any distribution thereof; that LAW OFFICES OF MARK GARAY has had access to all information regarding IMSI and its present business, assets, liabilities and financial condition, that LAW OFFICES OF MARK GARAY reasonably considers important in making the decision to acquire the Shares under this Agreement; and that LAW OFFICES OF MARK GARAY understands that the Shares are restricted securities and may not be sold except pursuant to the Form S-3, some other registration statement, or pursuant to an applicable exemption from federal and state registration requirements. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first set forth above. Law Offices of Mark Garay, Inc. INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. By: _________________________ By: ______________________________ Name: Mark Garay Name: Geoffrey B. Koblick Title: Chief Operating Officer 5 EX-4.8 9 WARRANT SUBS. AGREE. BETWEEN IMSI & SILICON BANK 1 EXHIBIT 4.8 WARRANT SUBSCRIPTION AGREEMENT THIS WARRANT SUBSCRIPTION AGREEMENT (the "AGREEMENT") is entered into as of November 3, 1998, by and between INTERNATIONAL MICROCOMPUTER SOFTWARE, INC., a California corporation (the "COMPANY"), and SILICON VALLEY BANK (the "PURCHASER"). RECITALS A. Pursuant to that certain Loan and Security Agreement dated as of the date hereof (as the same may from time to time be amended, modified, supplemented or restated, the "LOAN AGREEMENT"), by and between the Company, as borrower, and Silicon Valley Bank, as lender, has agreed to extend credit to the Company (the "CREDIT"). B. Silicon Valley Bank, as lender, was induced by the Company to make the Credit available to the Company by the Company's agreement to sell Silicon Valley Bank the Warrant (as defined below) pursuant to the terms of this Agreement. C. In connection with the foregoing, and as a condition precedent to the Closing under the Loan Agreement, the Company is selling to the Purchaser a Common Stock Warrant, substantially in the form of EXHIBIT A attached hereto (the "WARRANT"), to purchase shares of the Company's common stock (the "COMMON STOCK") for the applicable prices set forth therein. The shares of Common Stock purchasable upon exercise of the Warrant are referred to herein collectively as the "WARRANT SHARES." D. The Purchaser desires to subscribe for and purchase from the Company, and the Company desires to sell to the Purchaser, the Warrant. AGREEMENT In order to implement the foregoing and in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Purchaser and the Company agree as follows: 1. DEFINITIONS. The following terms shall have the meanings ascribed to such terms in the Sections set forth below:
TERM SECTION Act 3.1 Agreement Recitals Closing 2.2 Common Stock Recitals Company Preamble Credit Recitals Loan Agreement Recitals Exchange Act 4.2 Options 4.1 (e) Piggyback Rights 5 Purchaser Preamble
2
TERM SECTION Registration Rights Agreement 2.4 (b) Regulated Purchaser 3.6 Rule 144 3.3 (d) SEC 4.2 Transfer 3.1 Warrant Recitals Warrant Shares Recitals
2. SUBSCRIPTION FOR, PURCHASE AND EXERCISE OF WARRANT; ORIGINAL ISSUE DISCOUNT. 2.1 PURCHASE OF WARRANT. Subject to the terms and conditions hereinafter set forth, the Purchaser hereby subscribes for and purchases, and the Company hereby sells to the Purchaser, for good and valuable consideration, the receipt of which is hereby acknowledged, the Warrant. 2.2 THE TIME AND PLACE OF THE CLOSING. The Closing of the transactions provided for in this Agreement (the "CLOSING") shall be held at 10:00 a.m., local time, on November 3, 1998 at the offices of Cooley Godward LLP, Five Palo Alto Square, Palo Alto, California 94306, or at such other time and place as the Purchaser and the Company shall agree. 2.3 CLOSING OF THE PURCHASE OF THE WARRANT. At the Closing, the Company will execute and deliver to the Purchaser the Warrant which shall be issued in the Purchaser's name. 2.4 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER AND THE COMPANY. The obligations of the Purchaser and the Company hereunder shall be subject to the following conditions: (a) The representations and warranties made herein to the Purchaser or the Company by the other party shall be true and correct in all material respects at and as of the date of the Closing. (b) The Purchaser and the Company shall have entered into the Registration Rights Agreement in the form attached hereto as EXHIBIT B (the "REGISTRATION RIGHTS AGREEMENT"). 2.5 ORIGINAL ISSUE DISCOUNT. The Company and the Purchaser hereby acknowledge and agree that the Warrant is part of an investment unit within the meaning of Section 1273 (c) (2) of the Internal Revenue Code of 1986, as amended, which investment unit includes all Credit Extensions (as defined in the Loan Agreement) made pursuant to the Loan Agreement up to the maximum amount of the Term Loan (as defined in the Loan Agreement). The Company and the Purchaser agree that the fair market value of the Warrant is less than the DE MINIMIS threshold for reporting income and expense relating thereto on a current basis. Therefore, the Company and the Purchaser shall prepare their respective federal income tax returns in a manner consistent with the foregoing agreement and, pursuant to Treas. Reg. Section 1.1273, the original issue discount on the Credit Extensions shall be considered to be zero. 3. PURCHASER'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The Purchaser hereby represents, warrants and covenants to the Company as follows: 3.1 NO RESALES. The Purchaser will acquire the Warrant for investment solely for its own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof except in compliance with the provisions of Rule 144A under the Securities Act of 1933, as amended (the "ACT"). The Purchaser agrees and acknowledges that it will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (referred to hereinafter as a "TRANSFER") its Warrant 3 Shares unless (i) such Transfer is pursuant to an effective registration statement under the Act and complies with all applicable state securities laws, or (ii) counsel for the Purchaser (which counsel shall be reasonably acceptable to the Company) shall have furnished the Company with an opinion, reasonably satisfactory in form and substance to the Company, to the effect that no such registration is required because of the availability of an exemption from registration under the Act and that the Transfer is exempt from all applicable state securities laws, except that no such opinion shall be required (y) in connection with a Transfer by the Purchaser to any affiliate of the Purchaser or (z) in connection with a Transfer where the transferee simultaneously becomes a lender under the Loan Agreement and makes the representations and warranties contained in this Section 3. No Transfer of the Warrant or the Warrant Shares in violation of this Agreement shall be made or recorded on the books of the Company, and any such Transfer shall be void and of no effect 3.2 LEGENDS. The Warrant shall bear legends in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE: TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE PURCHASER THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES LAWS." The Warrant, and the Warrant Shares issuable in respect thereof, shall bear legends in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN WARRANT SUBSCRIPTION AGREEMENT (THE "WARRANT SUBSCRIPTION AGREEMENT") AND REGISTRATION RIGHTS AGREEMENT (THE "REGISTRATION RIGHTS AGREEMENT"), EACH DATED AS OF OCTOBER [___], 1998, BY AND BETWEEN THE WARRANT PURCHASER AND THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY." 3.3 WARRANT AND WARRANT SHARES UNREGISTERED. The Purchaser acknowledges with respect to the Purchaser's Warrant and Warrant Shares that the Purchaser has been advised that: (a) the Warrant has not been registered under the Act or qualified under the applicable securities laws of any state; (b) except as otherwise provided herein, the Warrant must be held indefinitely and the Purchaser must continue to bear the economic risk of the investment in the Warrant and the Warrant Shares unless the sale thereof is subsequently registered under the Act and qualified under applicable state securities laws or an exemption from such registration or qualification is available; (c) it is not anticipated that there will be any public market for the Warrant; 4 (d) Rule 144 promulgated under the Act ("RULE 144") is not presently available with respect to the sale of the Warrant, and the Company has made no covenant to make Rule 144 available (except as provided in SECTION 4.2 hereof); (e) when and if the Warrant or the Warrant Shares may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of Rule 144; (f) if the Rule 144 exemption is not available, public sale of the Warrant or the Warrant Shares without registration will require compliance with Regulation A promulgated under the Act or some other exemption under the Act and compliance with applicable state securities laws; (g) appropriate restrictive legends in the form heretofore set forth shall be placed on each of the Warrant and the Warrant Shares; and (h) a notation shall be made in the appropriate records of the Company indicating that the Warrant is subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a transfer agent, appropriate transfer restrictions will be issued to such transfer agent with respect to the Warrant. 3.4 COMPLIANCE WITH RULE 144. If the Warrant or any Warrant Shares are disposed of in accordance with Rule 144 under the Act, the Purchaser shall deliver to the Company at or prior to the time of such disposition an executed copy of Form 144 (if required by Rule 144) and such other documentation as the Company may reasonably require in connection with such sale. 3.5 ADDITIONAL REPRESENTATIONS. The Purchaser further represents and warrants to the Company that: (a) it has been given the opportunity to obtain any information or documents and to ask questions and receive answers about such documents, the Company and the business and prospects of the Company which it deems necessary to evaluate the merits and risks related to its investment in the Warrant and the Warrant Shares; (b) its financial condition is such that it can afford to bear the economic rise of holding its unregistered Warrant and Warrant Shares for an indefinite period of time and has adequate means of providing for its current needs and contingencies; (c) it can afford to suffer a complete loss of its investment in the Warrant and Warrant Shares; (d) all information which it has provided to the Company concerning itself and its financial position is correct and complete as of the date of this Agreement and, if there should be any material change in such information prior to the Closing, the Purchaser will immediately furnish such revised or corrected information to the Company; (e) it understands and is cognizant of all risk factors related to the purchase of the Warrant and Warrant Shares; (f) it is an "ACCREDITED INVESTOR" as that term is defined in Rule 501(a) of Regulation D promulgated under the Act; 5 (g) its knowledge and experience in financial and business matters are sue that it is capable of evaluating the merits and risks of its purchase of the Warrant and Warrant Shares as contemplated by this Agreement; (h) either (i) it has a pre-existing personal or business relationship with the Company or any of its officers, directors or controlling persons, or (ii) by reason of its business or financial experience or the business or financial experience of its professional advisors who are unaffiliated with, and who are not compensated by, the Company or any affiliate of the Company, it has the capacity to protect its own interests in connection with the investment in the Warrant and the Warrant Shares; (i) it is an "excluded purchaser," as defined in Section 260.102.13 of the Corporate Securities Rules of the California Corporation Commissioner, for purposes of Section 251 02(f) of the California Corporate Securities Law of 1968, as amended; and (j) this Agreement has been executed and delivered by the Purchaser and is its valid and binding obligation, enforceable against the Purchaser in accordance with its terms, except for (i) the effect of bankruptcy, insolvency, fraudulent conveyance; reorganization, moratorium and other similar laws relating to or affecting the rights of creditors generally, and (ii) limitations imposed by federal or state law or equitable principles upon the specific enforceability of any of the remedies, covenants or other provisions of this Agreement and upon the availability of injunctive relief or other equitable remedies. 3.6 NO CONTROLLING INFLUENCE. In the event and so long as the Warrant or the related Warrant Shares are held by the Purchaser or any of its affiliates or any person or entity to which the Purchaser or any of its affiliates shall have transferred the Warrant or the related Warrant Shares (any such person or entity, a "REGULATED PURCHASER"), such Regulated Purchaser will neither: (a) Exercise or attempt to exercise, directly or indirectly, a controlling influence over the management or policies of the Company; nor (b) Notwithstanding any other provision of this Agreement, exercise either of the Warrant to the extent such exercise would result in such Regulated Purchaser and its affiliates holding, directly or indirectly, in excess of 4.99% of any class of the outstanding voting stock of the Company, except in connection with (i) a widely dispersed public offering of the Warrant Shares, (ii) a sale of the related Warrant Shares into the secondary market pursuant to the transaction and volume limitations of Rule 144 (irrespective of holding periods), or (iii) a private placement or sale, including pursuant to Rule 144A under the Act, so long as the transferee and its affiliates do not collectively acquire from the Purchaser more than 2% of the voting stock of the Company pursuant to such transfer. 4. THE COMPANY'S REPRESENTATIONS, WARRANTIES AND AGREEMENTS. 4.1 THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The Company represents and warrants that: (a) ORGANIZATION, STANDING AND QUALIFICATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California; has all requisite power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted after the funds are advanced under the Loan Agreement; and is duly qualified or licensed to do business as a foreign corporation in good standing in all jurisdictions in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed, except for such jurisdictions where the failure to so qualify or be licensed would not have a material adverse effect on the business or financial condition of the Company. (b) AUTHORITY. The Company has all requisite power and authority to enter into and perform all of its obligations under this Agreement, to issue the Warrant and the Warrant Shares and to carry out the transactions contemplated hereby. 5 6 (c) DUE AUTHORIZATION. The Company has taken all corporate actions necessary to authorize it to enter into and perform its obligations under this Agreement, to issue the Warrant and the Warrant Shares and to consummate the transactions contemplated hereby. This Agreement is the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, except for (i) the effect upon this Agreement of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the rights of creditors generally and (ii) limitations imposed by equitable principles or principles of public policy upon the specific enforceability of any of the remedies, covenants or other provisions of this Agreement and upon the availability of injunctive relief or other equitable remedies. (d) CAPITALIZATION OF COMPANY. The Company's capital stock is divided into Common Stock and preferred stock ("PREFERRED STOCK"). The authorized capital stock of the Company consists of 20,000,000 shares of Series A Preferred Stock, of which, immediately after the date of the Closing, no shares are issued or outstanding, and 300,000,000 shares of Common Stock, of which, immediately after the date of the Closing, 6,278,881 shares will be outstanding on a fully diluted basis, taking into account all outstanding warrants, options and other rights to purchase the Common Stock). When the Warrant to be purchased by the Purchaser hereunder at the Closing has been delivered as provided herein, the Warrant Shares (i) together with all outstanding shares of Common Stock, Preferred Stock and shares of Common Stock issuable upon exercise of all outstanding Options (as defined below) of the Company will not exceed the number of shares that have been authorized by the Company's Articles of Incorporation, (ii) will have been duly authorized to be issued by the Company's board of directors, (iii) will, upon payment therefor in accordance with the terms of the Warrant, be duly and validly issued, fully paid and nonassessable and (iv) will have been reserved for issuance pursuant to the terms of the Warrant. (e) NO ADJUSTMENT OF OTHER SHARES ON ISSUANCE. Neither the issuance nor the exercise of the Warrant will cause the rate at which any of the Company's outstanding securities are ultimately convertible into Common Stock to change, nor will such issuance or exercise invoke any "antidilution" feature of any of the Company's outstanding securities or rights to purchase securities. 4.2 RULE 144. The Company agrees that it will perform each of it obligations under the Registration Rights Agreement as set forth therein and will use its best efforts to file in a timely manner all reports required to be filed by it pursuant to the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") and, upon the request of the Purchaser, will furnish the Purchaser with such reports so that the Purchaser may effect routine sales pursuant to Rule 144 and Rule 144A (if applicable) under the Act or any similar rule or regulations hereafter adopted by the Securities and Exchange Commission (the "SEC"). 4.3 PURCHASER'S PERCENTAGE OWNERSHIP. The Company hereby represents and warrants that the initial 30,000 Warrant Shares in respect of the Warrant currently represent that number of shares representing approximately a 0.5% interest in the Company's equity capital on a fully diluted basis (after giving effect to the exercise of all options, warrants, and convertible securities assuming all antidilution adjustments have been made and all options authorized for grant, whether or not granted, have been granted). 5. REGISTRATION RIGHTS. The Purchaser shall have registration rights relating to the Warrant and the applicable Warrant Shares as set forth in the Registration Rights Agreement. 6 7 6. MISCELLANEOUS. 6.1 NO CHANGE OF FISCAL YEAR. Until the Warrant has been fully exercised or has expired in accordance with their terms, the Company shall not change its fiscal year end without the Purchaser's prior written consent, which consent shall not unreasonably be withheld. 6.2 FINANCIAL INFORMATION. Until the Warrant has been fully exercised or has expired in accordance with its terms, the Company shall use all reasonable efforts to file its annual and quarterly reports as required by the Exchange Act for publicly reporting companies, within the times specified in the Exchange Act and the rules and regulations promulgated thereunder and to provide copies of such reports to Purchaser promptly following such filing and within 30 days prior to the end of each of its fiscal years, shall provide financial projections covering the period through at least the end of the next fiscal year; PROVIDED, HOWEVER, that the Company shall not be required to supply any information to the Purchaser which duplicates information already supplied to the Purchaser under the Loan Agreement. In addition, the Company shall provide the Purchaser with all of the information which the Company provides generally to the holders of Common Stock. The Purchaser shall have standard inspection rights until the Warrant has been fully exercised or has expired in accordance with its terms. 6.3 STATE SECURITIES LAWS. The Company hereby agrees to comply with all state securities or "blue sky" laws which might be applicable to the sale of the Warrant. 6.4 BINDING EFFECT. The provisions of this Agreement shall be binding upon and inure to the benefit of the Purchaser and the Company and their respective heirs, legal representatives, successors and assigns and, without limiting the generality of the foregoing, the Company may assign this Agreement without the consent of Purchaser to the Company's successor in a merger of the Company or a sale of all or substantially all of the assets of the Company. 6.5 AMENDMENT. This Agreement may be amended only by a written instrument, signed by the Purchaser and the Company, which specifically states that it is amending this Agreement. 6.6 APPLICABLE LAW. The laws of the State of California shall govern the interpretation, validity and performance of the terms of this Agreement, regardless of the law that might be implied under principles of conflicts of law. 6.7 NOTICES. All notices and other communications provided for herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the party to whom it is directed: If to the Company: 75 Rowland Way Novato, California 94945 Attn: Legal Department Fax: (415) 893-9860 with a copy to: Fenwick & West LLP Two Palo Alto Square Palo Alto, CA 94306 Attn: Kevin Kelso, Esq. Fax: 650/494-1417 7 8 If to the Purchaser: Silicon Valley Bank 3003 Tasman Drive Santa Clara, California 95054 Attn: Mezzanine Finance, NC475 Fax: 408/969-6501 with a copy to: Silicon Valley Bank 3003 Tasman Drive Santa Clara, California 95054 Attn: Treasury Department, Fax: 408/496-2407 with a copy to: Cooley Godward LLP One Maritime Plaza, 20th Floor San Francisco, California 94111 Attn: Joseph A. Scherer, Esq. 6.8 EXPIRATION OF AGREEMENT. Except as otherwise set forth herein, this Agreement (but not the Warrant) shall terminate and be of no further force or effect with respect to any Warrant Shares which are sold by the Purchaser pursuant to an effective registration statement filed by the Company pursuant to the Registration Rights Agreement or in compliance with Rule 144. Except as otherwise expressly provided herein and unless extended prior to such date, this Agreement shall terminate on the earlier of the date the Warrant shall have been fully exercised and the fifth anniversary of this Agreement. 6.9 RECAPITALIZATIONS, ETC. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Warrant, to any and all shares of capital stock of the Company or any capital stock, limited liability company membership interests, partnership units or any other security evidencing ownership interests in any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution of any of the Warrant Shares by reason of any stock dividend, split, reverse split, combination, recapitalization, liquidation, reclassification, merger, consolidation or otherwise and to any Warrant Shares. 6.10 ASSIGNMENT. This Agreement and the rights and obligations of the parties hereunder shall inure to the benefit of, and be binding upon, the parties' respective successors, assigns and legal representatives. Notwithstanding anything herein or in the Warrant to the contrary and without regard to any limitations set forth herein or therein, the parties acknowledge that the Purchaser may transfer all or any of its rights hereunder and under the Warrant to any affiliate of the Purchaser (including, without limitation, the officers, and employees of the Purchaser, or any partnership comprised thereof or any corporation owned by any of them, the ancestors, descendants or spouse, or to trusts for the benefit of such persons) and that for the purpose of interpreting and enforcing this Agreement, all such assigns shall be considered as one and the same person. 6.11 INTEGRATION. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement, if any, are merged into this Agreement, the Warrant and the Registration Rights Agreement. 8 9 6.12 PERSONAL JURISDICTION. The Company and the Purchaser hereby agree that any legal action or proceeding with respect to this Agreement or any of the agreements, documents or instruments delivered in connection herewith may be brought in the courts of the State of California or of the United States of America for the Northern District of California as the Purchaser may elect, and, by execution and delivery hereof, each of the Company and the Purchaser accepts and consents to, for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts and agrees that such jurisdiction shall be exclusive, unless waived by the Purchaser in writing, with respect to any action or proceeding brought by the Company against the Purchaser. Nothing herein shall limit the right of the Purchaser to bring proceedings against the Company in the courts of any other jurisdiction. The Company waives, to the full extent permitted by law, any right to stay or to dismiss any action or proceeding brought before said courts on the basis of FORUM NON conveniens. 6.13 JURY WAIVER. Each of the Company and the Purchaser waives any right to have a jury participate in resolving any dispute, whether sounding in contract, tort, or otherwise, between the Company and the Purchaser arising out of, connected with, related to or incidental to the relationship established between them in connection with this agreement or any other instrument, document or agreement executed or delivered in connection herewith or therewith or the transactions related hereto or thereto. 6.14 CONFIDENTIALITY. In handling any confidential information of the Company, the Purchaser shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement EXCEPT that disclosure of such information may be made (i) to the subsidiaries or affiliates of the Purchaser in connection with their present or prospective business relations with the Company, (ii) to prospective transferees or purchasers of any interest in the loans, PROVIDED that they have entered into a comparable confidentiality agreement in favor of the Company and have delivered a copy to the Company, (iii) as required by law, regulation, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of the Purchaser, and (v) as the Purchaser may deem appropriate in connection with the exercise of any remedies hereunder. Confidential information hereunder shall not include information that either (a) is in the public domain or in the knowledge or possession of the Purchaser when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to the Purchaser by a third party, PROVIDED the Purchaser does not have actual knowledge that such third party is prohibited from disclosing such information. IN WITNESS WHEREOF, the Company and the Purchaser have executed this Agreement as of the date first above written. THE COMPANY: INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. By: (SGD.) Printed Name: Ken Fineman Title: Chief Financial Officer THE PURCHASER: SILICON VALLEY BANK By: (SGD.) Printed Name: Laurita J. Hernandez Title: Vice President [WARRANT SUBSCRIPTION AGREEMENT] 9 EX-4.9 10 FEE AGREEMENT BETWEEN IMSI AND HOMESTYLES 1 EXHIBIT 4.9 FEE AGREEMENT This FEE AGREEMENT (the "Agreement") dated as of 11th January 1999, by and between International Microcomputer Software, Inc. ("IMSI"), and HomeStyles, Inc., ("HOMESTYLES"). WHEREAS, IMSI currently owes HOMESTYLES an amount to date equal to $90,000 (the "Current Royalty Fees") pursuant to a Licensing Agreement between IMSI and HOMESTYLES (the "License Agreement"), and WHEREAS, IMSI and HOMESTYLES now desire to set forth certain terms and provisions with respect to the payment by IMSI of the Current Royalty Fees: NOW, THEREFORE in consideration of the foregoing and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto hereby agree as follows: 1. Payment of the Fees. Notwithstanding anything to the contrary in the License Agreement with respect to the form and timing of payment of the Current Royalty Fees, the obligation to pay the Current Royalty Fees shall the satisfied in full by compliance by IMSI with the terms and provisions of this Agreement. 2. Issuance of the Shares. As soon as reasonably practicable after execution of this Agreement, IMSI will issue to HOMESTYLES, ten thousand (10,000 shares of IMSI's Common Stock (the "Common Stock"), no par value (collectively, the "Shares") based on a trading price of nine dollars ($9.00) per share. 3. Sale. a. Sale. The Shares may be sold by one or more of the following means of distribution (subject to the provisions of this Agreement): (a) a block trade in which the brokerdealer so engaged will attempt to sell Shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a brokerdealer as principal and resale by such broker-dealer for its own account; (c) an overthecounter distribution in accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (e) in privately negotiated transactions. 4. Representations, Warranties and Covenants of IMSI. IMSI represents and warrants to and covenants with HOMESTYLES as follows: a. Registration. IMSI shall use its reasonable best efforts to cause the shares of IMSI Common Stock that are issuable pursuant to this Fee Agreement to be registered on a registration statement (or to be issued pursuant to a then-effective registration statement) on Form S-3 (or successor form) promulgated by the Securities 2 and License Commission ("SEC") under the 1933 Act, as soon as reasonably practicable after the Closing. IMSI expects to file a Registration Statement on or about March 15 1999. Nothing herein shall require IMSI to seperately register the Shares. b. At the date the Registration Statement becomes effective under the Securities Act (the "Effective Date") or the time of effectiveness of any posteffective amendment to the Registration Statement, at the time the Prospectus is first filed with the Commission pursuant to Rule 424 (b) of the Regulations (if a Rule 424 (b) filing is required), at the time any supplement to or amendment of the Prospectus is filed with the Commission and at the time any document filed under the License Act is filed, the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Securities Act and the Regulations or the License Act and the respective rules and regulations thereunder and do not or will not contain an untrue statement of a material fact and do not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in the light of the circumstances under which they were made, not misleading. c. The Shares, when issued and delivered in accordance with this Agreement, will be duly and validly issued and outstanding, fully paid and non-assessable and will not have been issued in violation of any preemptive rights. d. If at any time when a prospectus relating to the Shares is required to be delivered under the Securities Act any event shall occur as a result of which the Prospectus as then amended or supplemented, in the judgment of IMSI or HOMESTYLES, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Securities Act or the Regulations, or to file under the License Act so as to comply therewith any document incorporated by reference in the Registration Statement or the Prospectus or in any amendment thereof or supplement thereto, (i) IMSI will notify HOMESTYLES promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to HOMESTYLES) which will correct such statement or omission or which will effect such compliance and will use its best efforts to have any amendment to the Registration Statement docked declared effective by the Commission as soon as possible and (ii) HOMESTYLES shall suspend trading in the Shares until (A) such amendment or supplement to the Prospectus has been filed or (B) any amendment to the Registration Statement has been declared effective by the Commission. e. IMSI will pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares. If however, HOMESTYLES requests that the Shares be registered independently from another IMSI 3 registration ("Accelerated Registration"), then HOMESTYLES shall pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares that are a result of such Accelerated Registration. f. Upon execution of this Agreement, HOMESTYLES releases and forever discharges payment of the Current Royalty Fees pursuant to the terms and conditions of the License Agreement. 5. Indemnification. a. IMSI agrees to indemnify and hold harmless HOMESTYLES, against any and all losses, liabilities, claims, damages and expenses incurred (including but not limited to attorneys' fees), to which it may become subject under the Securities Act, the License Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise solely out of any untrue statement of a material fact contained in the Registration Statement, as originally filed or any amendment thereof, or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that IMSI shall not be liable to HOMESTYLES for any such losses, liabilities, claims, damages or expenses which arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission contained or made in the Registration Statement or the Prospectus or any amendment thereof or Supplement thereto in reliance upon and in conformity with information furnished to IMSI by HOMESTYLES. b. Promptly after receipt by any indemnified party under subsection a. above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the party against whom indemnification is to be sought in writing of the commencement thereof. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action, (ii) the indemnifying party shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such 4 fees and expenses shall be borne by the indemnifying party. Anything in this subsection to the contrary notwithstanding, the indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent: provided, however, that such consent was not unreasonably withheld. 6. Entire Agreement. This Agreement and the retainer (to the extent not inconsistent herewith) constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior written agreements and negotiations and oral understandings, if any, with respect thereto. This Agreement may not be amended or supplemented except by an instrument in writing signed by each of the parties hereto. 7. Notices. All notices, requests and other communications hereunder shall be in writing and delivered in person or by registered or certified mail (postage prepaid, return receipt requested), overnight courier or facsimile, addressed as follows: if to HOMESTYLES, to: Homestyles if to IMSI, to: International Microcomputer Software, Inc. 75 Rowland Way Novato, CA 94945 Attn: Legal Department Telephone: (415) 878-4209 Facsimile: (415) 893-9860 The address of a party, for the purposes of this Section 8, may be changed by giving written notice to the other party of such change in the manner provided herein for giving notice. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five calendar days mailing, if sent by registered or certified mail; the next business clay after timely delivery to the courier, if sent by overnight courier; and when receipt is acknowledged, if sent by facsimile transmission (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). 8. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of California, without regard to the conflicts of law principles thereof. 5 9. Investment Representations. HOMESTYLES represents and warrants that it is an "accredited investor" as defined by Regulation D: that it is acquiring the Shares for its own account, for the purpose of investment and not with a view to, or resale in connection with, any distribution thereof; that HOMESTYLES has had access to all information regarding IMSI and its present business, assets, liabilities and financial condition, that HOMESTYLES reasonably considers important in making the decision to acquire the Shares under this Agreement; and that HOMESTYLES understands that the Shares are restricted securities and may not be sold except pursuant to the Form S-3, some other registration statement, or pursuant to an applicable exemption from federal and state registration requirements. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first set forth above. Homestyles, Inc. INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. By: By: ---------------------------- ------------------------------ Name: Name: Geoffrey B. Koblick Title: Chief Operating Officer EX-4.10 11 FEE AGREEMENT BETWEEN IMSI & GATEWAY ACCEPTANCE 1 EXHIBIT 4.10 FEE AGREEMENT This FEE AGREEMENT (the "Agreement") dated as of 3/1/99, by and between International Microcomputer Software, Inc. a California corporation ("IMSI"), and GATEWAY Acceptance, ("GATEWAY"). WHEREAS, IMSI currently owes GATEWAY an amount equal to $72,000.00 (the "Fees") pursuant to a Manufacturing Agreement (the "Manufacturing Agreement"), and WHEREAS, IMSI and GATEWAY now desire to set forth certain terms and provisions with respect to the payment by IMSI of the Fees: NOW, THEREFORE in consideration of the foregoing and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto hereby agree as follows: 1. Payment of the Fees. Notwithstanding anything to the contrary in the Manufacturing Agreement with respect to the form and timing of payment of the Fees, the obligations to pay the Fees shall the satisfied in full by compliance by IMSI with the terms and provisions of this Agreement. 2. Issuance of the Shares. As soon as reasonably practicable after execution of this Agreement, IMSI will issue to GATEWAY eight thousand (8,000) shares of IMSI's Common Stock (the "Common Stock"), no par value (collectively, the "Shares") based on a trading price of $9.00 per share. 3. Sale. a. Sale. The Shares may be sold by one or more of the following means of distribution (subject to the provisions of this Agreement): (a) a block trade in which the broker-dealer so engaged will attempt to sell Shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker-dealer as principal and resale by such broker-dealer for its own account; (c) an over-the-counter distribution in accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (e) in privately negotiated transactions. 4. Representations, Warranties and Covenants of IMSI. IMSI represents and warrants to and covenants with GATEWAY as follows: a. Registration. IMSI shall use its reasonable best efforts to cause the shares of IMSI Common Stock that are issuable pursuant to this Fee Agreement to be registered on a registration statement (or to be issued pursuant to a then-effective registration statement) on Form S-3 (or successor form) promulgated by the Securities 2 and EGATEWAYchange Commission ("SEC") under the 1933 Act, as soon as reasonably practicable after the Closing. IMSI expects to file a Registration Statement on or about 28th February 1999. Nothing herein shall require IMSI to seperately register the Shares. b. At the date the Registration Statement becomes effective under the Securities Act (the "Effective Date") or the time of effectiveness of any post-effective amendment to the Registration Statement, at the time the Prospectus is first filed with the Commission pursuant to Rule 424 (b) of the Regulations (if a Rule 424 (b) filing is required), at the time any supplement to or amendment of the Prospectus is filed with the Commission and at the time any document filed under the Manufacturing Act is filed, the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Securities Act and the Regulations or the Manufacturing Act and the respective rules and regulations thereunder and do not or will not contain an untrue statement of a material fact and do not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in the light of the circumstances under which they were made, not misleading. c. The Shares, when issued and delivered in accordance with this Agreement, will be duly and validly issued and outstanding, fully paid and non-assessable and will not have been issued in violation of any preemptive rights. d. If at any time when a prospectus relating to the Shares is required to be delivered under the Securities Act any event shall occur as a result of which the Prospectus as then amended or supplemented, in the judgment of IMSI or GATEWAY, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Securities Act or the Regulations, or to file under the Manufacturing Act so as to comply therewith any document incorporated by reference in the Registration Statement or the Prospectus or in any amendment thereof or supplement thereto, (i) IMSI will notify GATEWAY promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to GATEWAY) which will correct such statement or omission or which will effect such compliance and will use its best efforts to have any amendment to the Registration Statement docked declared effective by the Commission as soon as possible and (ii) GATEWAY shall suspend trading in the Shares until (A) such amendment or supplement to the Prospectus has been filed or (B) any amendment to the Registration Statement has been declared effective by the Commission. e. IMSI will pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares. If however, 3 GATEWAY requests that the Shares be registered independently from another IMSI registration ("Accelerated Registration), then GATEWAY shall pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares that are a result of such Accelerated Registration. f. Upon execution of this Agreement, GATEWAY releases and forever discharges payment of the Fees pursuant to the terms and conditions of the Manufacturing Agreement. The Hold Back Funds shall remain in tact and subject to the terms and conditions of the Manufacturing Agreement and any addendum's thereto. 5. Indemnification. a. IMSI agrees to indemnify and hold harmless GATEWAY, against any and all losses, liabilities, claims, damages and expenses incurred (including but not limited to attorneys' fees), to which it may become subject under the Securities Act, the Manufacturing Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise solely out of any untrue statement of a material fact contained in the Registration Statement, as originally filed or any amendment thereof, or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that IMSI shall not be liable to GATEWAY for any such losses, liabilities, claims, damages or expenses which arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission contained or made in the Registration Statement or the Prospectus or any amendment thereof or Supplement thereto in reliance upon and in conformity with information furnished to IMSI by GATEWAY. b. Promptly after receipt by any indemnified party under subsection a. above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the party against whom indemnification is to be sought in writing of the commencement thereof. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action, (ii) the indemnifying party shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the indemnifying 4 party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying party. Anything in this subsection to the contrary notwithstanding, the indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent: provided, however, that such consent was not unreasonably withheld. 6. Entire Agreement. This Agreement and the Manufacturing Agreement (to the extent not inconsistent herewith) constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior written agreements and negotiations and oral understandings, if any, with respect thereto. This Agreement may not be amended or supplemented except by an instrument in writing signed by each of the parties hereto. 7. Notices. All notices, requests and other communications hereunder shall be in writing and delivered in person or by registered or certified mail (postage prepaid, return receipt requested), overnight courier or facsimile, addressed as follows: if to GATEWAY, to: Gateway Acceptance Co. 3189 Danville Blvd. Suite 230 P.O. Box 829 Alamo, CA 94507 if to IMSI, to: International Microcomputer Software, Inc. 75 Rowland Way Novato, CA 94945 Attn: Legal Department Telephone: (415) 878-4209 Facsimile: (415) 893-9860 The address of a party, for the purposes of this Section 8, may be changed by giving written notice to the other party of such change in the manner provided herein for giving notice. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five calendar days mailing, if sent by registered or certified mail; the next business clay after timely delivery to the courier, if sent by overnight courier; and when receipt is acknowledged, if sent by facsimile transmission (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). 8. Governing Law. This Agreement shall be construed in accordance with 5 and governed by the laws of California, without regard to the conflicts of law principles thereof. 9. Investment Representations. GATEWAY represents and warrants that it is an "accredited investor" as defined by Regulation D: that it is acquiring the Shares for its own account, for the purpose of investment and not with a view to, or resale in connection with, any distribution thereof; that GATEWAY has had access to all information regarding IMSI and its present business, assets, liabilities and financial condition, that GATEWAY reasonably considers important in making the decision to acquire the Shares under this Agreement; and that GATEWAY understands that the Shares are restricted securities and may not be sold except pursuant to the Form S-3, some other registration statement, or pursuant to an applicable exemption from federal and state registration requirements. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first set forth above. GATEWAY, Inc. INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. By: _________________________ By: ______________________________ Name: Michael Gariepy Name: Geoffrey B. Koblick Title: Chief Operating Officer EX-4.11 12 FEE AGREEMENT BETWEEN IMSI & SPATIAL TECHNOLOGY 1 EXHIBIT 4.11 FEE AGREEMENT This FEE AGREEMENT (the "Agreement") dated as of 26 March 1999, by and between International Microcomputer Software, Inc. ("IMSI"), and Spatial Technology Inc., ("SPATIAL TECHNOLOGY"). WHEREAS, IMSI currently owes SPATIAL TECHNOLOGY an amount to date equal to $45,000.00 (the "Fees") pursuant to a Licensing Agreement between IMSI and SPATIAL TECHNOLOGY (the "License Agreement"), and WHEREAS, IMSI and SPATIAL TECHNOLOGY now desire to set forth certain terms and provisions with respect to the payment by IMSI of the Fees: NOW, THEREFORE in consideration of the foregoing and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto hereby agree as follows: 1. Payment of the Fees. Notwithstanding anything to the contrary in the License Agreement with respect to the form and timing of payment of the Fees, the obligation to pay the Fees shall be satisfied in full by compliance by IMSI with the terms and provisions of this Agreement. 2. Issuance of the Shares. As soon as reasonably practicable after execution of this Agreement, IMSI will issue to SPATIAL TECHNOLOGY, five thousand (5,000) shares of IMSI's Common Stock (the "Common Stock"), no par value (collectively, the "Shares") based on a trading price of nine dollars ($9.00) per share. 3. Sale. a. Sale. The Shares may be sold by one or more of the following means of distribution (subject to the provisions of this Agreement): (a) a block trade in which the brokerdealer so engaged will attempt to sell Shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a brokerdealer as principal and resale by such broker-dealer for its own account; (c) an over-the-counter distribution in accordance with the rules of NASDAQ; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (e) in privately negotiated transactions. 4. Representations, Warranties and Covenants of IMSI. IMSI represents and warrants to and covenants with SPATIAL TECHNOLOGY as follows: a. Registration. IMSI shall use its reasonable best efforts to cause the Shares that are issuable pursuant to this Fee Agreement to be registered on a registration statement (or to be issued pursuant to a then-effective registration statement) on Form S-3 (or successor form) promulgated by the Securities and Exchange Commission ("SEC"). 2 under the 1993 Act ("Securities Act"), as soon as reasonably practicable after the Closing. IMSI currently expects to file a Form S-3 on or around 5/5/99. Nothing herein shall require IMSI to separately register the Shares. b. At the date the Registration Statement becomes effective under the Securities Act or the time of effectiveness of any posteffective amendment to the Registration Statement (the "Effective Date"), at the time the Prospectus is first filed with the SEC pursuant to Rule 424(b) of the regulations promulgated thereunder (if a Rule 424(b) filing is required), at the time any supplement to or amendment of the Prospectus is filed with the SEC and at the time any document filed under the Securities Act is filed, the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Securities Act and the regulations promulgated thereunder or the Securities Act and the respective rules and regulations thereunder and do not or will not contain an untrue statement of a material fact and do not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in the light of the circumstances under which they were made, not misleading. c. The Shares, when issued and delivered in accordance with this Agreement, will be duly and validly issued and outstanding, fully paid and non-assessable and will not have been issued in violation of any preemptive rights and will not be subject to any restrictions, except as may be imposed by applicable law, except that the share certificate(s) will bear restrictive legend that the shares are not registered until such time as the shares are registered. d. IMSI is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all necessary power and authority to conduct its business in the manner in which its business is currently being conducted and to own and use its assets in the manner in which its assets are currently owned and used. e. IMSI has the full legal right, power and authority to enter into this Agreement. All proceedings required to be taken by IMSI to authorize the execution, delivery and performance of this Agreement have been properly taken. This Agreement constitutes the valid and binding obligation of IMSI, enforceable against it in accordance with their terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. The execution, delivery or performance of this Agreement by IMSI will not, with or without the giving of notice or the passage of time, or both, conflict with, result in a material breach of, or a default, right to accelerate or loss of rights under, any provision of IMSI's corporate documents or any agreement to which IMSI is a party. 3 e. If at any time when a prospectus relating to the Shares is required to be delivered under the Securities Act any event shall occur as a result of which the Prospectus as then amended or supplemented, in the judgment of IMSI or SPATIAL TECHNOLOGY, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Securities Act or the Regulations, or to file under the Securities Act so as to comply therewith any document incorporated by reference in the Registration Statement or the prospectus or in any amendment thereof or supplement thereto, (i) IMSI will notify SPATIAL TECHNOLOGY promptly and prepare and file with the SEC an appropriate amendment or supplement (in form and substance satisfactory to SPATIAL TECHNOLOGY) which will correct such statement or omission or which will effect such compliance and will use its best efforts to have any amendment to the Registration Statement docked declared effective by the SEC as soon as possible and (ii) SPATIAL TECHNOLOGY shall suspend trading in the Shares until (A) such amendment or supplement to the Prospectus has been filed or (B) any amendment to the Registration Statement has been declared effective by the SEC. f. IMSI will pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares. If however, SPATIAL TECHNOLOGY requests that the Shares be registered independently from another IMSI registration ("Accelerated Registration), then SPATIAL TECHNOLOGY shall pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares that are a result of such Accelerated Registration. g. Upon execution of this Agreement, SPATIAL TECHNOLOGY releases and forever discharges payment of the Fees pursuant to the terms and conditions of the Retainer. h. IMSI's filings with the SEC as of the date of such filing and in the light of the circumstances under which such filings were made (i) complied in all material respects with the applicable requirements of the Securities Act or the Securities Exchange Act of 1934 (as the case may be); and (ii) when read together as a whole and as updated by subsequent reports or filings made prior to the date of this Agreement, do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. i. The [consolidated] financial statements contained in the SEC Documents: (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods covered, except as may be indicated in the notes to such financial statements and (in the 4 case of unaudited statements) as permitted by Form 10-Q of the SEC, and except that unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end audit adjustments (which will not, individually or in the aggregate, be IMSI [and its subsidiaries] as of the respective dates thereof and the consolidated results of operations of IMSI [and its subsidiaries] for the periods covered thereby. 5. Indemnification. a. IMSI agrees to indemnify and hold harmless SPATIAL TECHNOLOGY, its partners, officers, directors, employees and agents (the "Indemnities") against any and all losses, liabilities, claims, damages and expenses incurred (including but not limited to attorneys' fees), to which it may become subject under the Securities Act, the Securities Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise solely out of any untrue statement of a material fact contained in the Registration Statement, as originally filed or any amendment thereof, or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that IMSI shall not be liable to SPATIAL TECHNOLOGY for any such losses, liabilities, claims, damages or expenses which arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission contained or made in the Registration Statement or the Prospectus or any amendment thereof or Supplement thereto in reliance upon and in conformity with information furnished to IMSI by SPATIAL TECHNOLOGY. b. Promptly after receipt by any Indemnities under subsection a. above of notice of the commencement of any action, such Indemnities shall, if a claim in respect thereof is to be made against IMSI under such subsection, notify IMSI in writing of the commencement thereof. In case any such action is brought against any Indemnities, and it notifies IMSI of the commencement thereof, IMSI will be entitled to participate therein and, to the extent it may elect by written notice delivered to the Indemnities promptly after receiving the aforesaid notice from such Indemnities, to assume the defense thereof. Notwithstanding the foregoing, the Indemnities shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Indemnities unless (i) the employment of such counsel shall have been authorized in writing by IMSI in connection with the defense of such action, (ii) IMSI shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such Indemnities shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to IMSI (in which case IMSI shall not have the right to direct the defense of such action on behalf of the Indemnities), in any of which events such fees and expenses shall be borne by IMSI. Anything in this paragraph to the contrary notwithstanding, the indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent: 5 provided, however, that such consent was not unreasonably withheld. IMSI shall not, without the written consent of the Indemnitee, effect the settlement or consent to the entry of any judgment in respect of which indemnification may be sought hereunder unless such settlement or judgment includes an unconditional release of the Indemnitee from all liability arising out of such action and does include a statement as to admission of fault. 6. Entire Agreement. This Agreement and the retainer (to the extent not inconsistent herewith) constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior written agreements and negotiations and oral understandings, if any, with respect thereto. This Agreement may not be amended or supplemented except by an instrument in writing signed by each of the parties hereto. 7. Notices. All notices, requests and other communications hereunder shall be in writing and delivered in person or by registered or certified mail (postage prepaid, return receipt requested), overnight courier or facsimile, addressed as follows: if to SPATIAL TECHNOLOGY, to: Spatial Technology Inc. 2425 55th Street, Suite 100 Boulder, Colorado 80301 Attn: Mr. Todd Londa Telephone: (303) 544-2950 Facsimile: (303) 544-3003 if to IMSI, to: International Microcomputer Software, Inc. 75 Rowland Way Novato, CA 94945 Telephone: (415) 878-4209 Facsimile: (415) 893-9860 The address of a party, for the purposes of this Section 8, may be changed by giving written notice to the other party of such change in the manner provided herein for giving notice. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five calendar days mailing, if sent by registered or certified mail; the next business day after timely delivery to the courier, if sent by overnight courier; and when receipt is acknowledged, if sent by facsimile transmission (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). 8. Governing Law. This Agreement shall be construed in accordance with 6 and governed by the laws of California, without regard to the conflicts of law principles thereof. 9. Investment Representations. SPATIAL TECHNOLOGY represents and warrants that it is an "accredited investor" as defined by Regulation D: that it is acquiring the Shares for its own account, for the purpose of investment and not with a view to, or resale in connection with, any distribution thereof; that SPATIAL TECHNOLOGY has had access to all information regarding IMSI and its present business, assets, liabilities and financial condition, that SPATIAL TECHNOLOGY reasonably considers important in making the decision to acquire the Shares under this Agreement; and this Agreement; and that SPATIAL TECHNOLOGY understands that the Shares are restricted securities and may not be sold except pursuant to the Form S-3, some other registration statement, or pursuant to an applicable exemption from federal and state registration requirements. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first set forth above. Spatial Technology Inc. INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. By: By: -------------------------- ------------------------- Name: Todd Londa Name: Geoffrey B. Koblick Title: Vice President, Administration Title: Chief Operating Officer Corporate Controller EX-4.12 13 FEE AGREEMENT BETWEEN IMSI & STARBASE CORP. 1 EXHIBIT 4.12 FEE AGREEMENT This FEE AGREEMENT (the "Agreement") dated as of March 26,1999, by and between International Microcomputer Software, Inc. a California corporation ("IMSI"), and StarBase Corporation, a Delaware corporation ("STARBASE"). WHEREAS, IMSI currently owes STARBASE an amount equal to $121,231 (the "Fees") pursuant to a License Agreement and Invoices, dated October 22, 1998, between IMSI and STARBASE (the "License Agreement"), and WHEREAS, IMSI and STARBASE now desire to set forth certain terms and provisions with respect to the payment by IMSI of the Fees: NOW, THEREFORE in consideration of the foregoing and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto hereby agree as follows: 1. Payment of the Fees. Notwithstanding anything to the contrary in the License Agreement with respect to the form and timing of payment of the Fees, the obligation to pay the Fees shall be satisfied in full upon compliance by IMSI with the terms and provisions of this Agreement. 2. Issuance of the Shares. As soon as reasonably practicable after execution of this Agreement, IMSI will issue to STARBASE ten thousand seven hundred fifty (10,750) shares of IMSI's Common Stock (the "Common Stock"), no par value (collectively, the "Shares"). 3. Sale. a. Sale. The Shares may be sold by one or more of the following means of distribution (subject to the provisions of this Agreement): (a) a block trade in which the broker-dealer so engaged will attempt to sell Shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker-dealer as principal and resale by such broker-dealer for its own account; (c) an over-the-counter distribution in accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (e) in privately negotiated transactions. 4. Representations, Warranties and Covenants of IMSI. IMSI represents and warrants to and covenants with STARBASE as follows: a. Registration. IMSI shall use its reasonable best efforts to cause the shares of IMSI Common Stock that are issuable pursuant to this Agreement to be registered on a registration statement (or to be issued pursuant to a then-effective registration statement) on Form S-3 (or successor form) promulgated by the Securities 2 and Exchange Commission (the "Commission") under the 1933 Act, as soon as reasonably practicable after the execution of this Agreement. IMSI shall file the Form S-3 no later than April 15, 1999. In addition, STARBASE acquires piggy back registration rights. Nothing herein shall require IMSI to separately register the Shares. b. At the date the Registration Statement becomes effective (the "Effective Date") under the Securities Act of 1933, as amended (the "Securities Act") or the time of effectiveness of any post-effective amendment to the Registration Statement, at the time the Prospectus is first filed with the Commission pursuant to Rule 424 (b) of the Regulations (if a Rule 424 (b) filing is required) promulgated under the Securities Act (the "Regulations"), at the time any supplement to or amendment of the Prospectus is filed with the Commission and at the time any document filed under the License Act is filed, the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Securities Act and the Regulations or the License Act and the respective rules and regulations thereunder and do not or will not contain an untrue statement of a material fact and do not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in the light of the circumstances under which they were made, not misleading. c. The Shares, when issued and delivered in accordance with this Agreement, will be duly and validly issued and outstanding, fully paid and non-assessable, will not have been issued in violation of any preemptive rights and will be free and clear of any pledge, mortgage, security interest, lien or other encumbrance of any nature whatsoever, but will bear restrictive legend regarding the unregistered nature of the shares until such shares are effectively registered. d. If at any time when a prospectus relating to the Shares is required to be delivered under the Securities Act any event shall occur as a result of which the Prospectus as then amended or supplemented, in the judgment of IMSI or STARBASE, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Securities Act or the Regulations, or to file under the License Act so as to comply therewith any document incorporated by reference in the Registration Statement or the Prospectus or in any amendment thereof or supplement thereto, (i) IMSI will notify STARBASE promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to STARBASE) which will correct such statement or omission or which will effect such compliance and will use its best efforts to have any amendment to the Registration Statement docked declared effective by the Commission as soon as possible and (ii) STARBASE shall suspend trading in the Shares until (A) such amendment or supplement to the Prospectus has been 3 filed or (B) any amendment to the Registration Statement has been declared effective by the Commission. e. IMSI will pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares. If however, STARBASE requests that the Shares be registered independently from another IMSI registration ("Accelerated Registration), then STARBASE shall pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares that are a result of such Accelerated Registration. f. So long as the Form S-3 is effective within 180 days of filing, STARBASE releases and forever discharges payment of the Fees pursuant to the terms and conditions of the License Agreement. 5. Indemnification. a. IMSI agrees to indemnify and hold harmless STARBASE, against any and all losses, liabilities, claims, damages and expenses incurred (including but not limited to attorneys' fees), to which it may become subject under the Securities Act, the License Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise solely out of any untrue statement of a material fact contained in the Registration Statement, as originally filed or any amendment thereof, or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that IMSI shall not be liable to STARBASE for any such losses, liabilities, claims, damages or expenses which arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission contained or made in the Registration Statement or the Prospectus or any amendment thereof or Supplement thereto in reliance upon and in conformity with information furnished to IMSI by STARBASE. b. Promptly after receipt by any indemnified party under subsection a. above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the party against whom indemnification is to be sought in writing of the commencement thereof. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such 4 action, (ii) the indemnifying party shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the indemnifying party. Anything in this subsection to the contrary notwithstanding, the indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent;provided, however, that such consent was not unreasonably withheld. 6. Entire Agreement. This Agreement and the License Agreement (to the extent not inconsistent herewith) constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior written agreements and negotiations and oral understandings, if any, with respect thereto. This Agreement may not be amended or supplemented except by an instrument in writing signed by each of the parties hereto. 7. Notices. All notices, requests and other communications hereunder shall be in writing and delivered in person or by registered or certified mail (postage prepaid, return receipt requested), overnight courier or facsimile, addressed as follows: if to STARBASE, to: Director of Finance 4 Hutton Centre Drive Suite 800 Santa Ana, CA 92707 Telephone: (714) 445-4400 Facsimile: (714) 445-4482 if to IMSI, to: International Microcomputer Software, Inc. 75 Rowland Way Novato, CA 94945 Attn: Legal Department Telephone: (415) 878-4209 Facsimile: (415) 893-9860 The address of a party, for the purposes of this Section 7, may be changed by giving written notice to the other party of such change in the manner provided herein for giving notice. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five calendar days mailing, if sent by registered or certified mail; the next business clay after timely delivery to the courier, if sent by overnight courier; and when receipt is 5 acknowledged, if sent by facsimile transmission (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). 8. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of California, without regard to the conflicts of law principles thereof. 9. Investment Representations. STARBASE represents and warrants that it is an "accredited investor" as defined by Regulation D; that it is acquiring the Shares for its own account, for the purpose of investment and not with a view to, or resale in connection with, any distribution thereof; that STARBASE has had access to all information regarding IMSI and its present business, assets, liabilities and financial condition; that STARBASE reasonably considers important in making the decision to acquire the Shares under this Agreement; and that STARBASE understands that the Shares are restricted securities and may not be sold except pursuant to the Form S-3, some other registration statement, or pursuant to an applicable exemption from federal and state registration requirements. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first set forth above. Starbase INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. By: _________________________ By: ______________________________ Name: _______________________ Name: Geoffrey B. Koblick Title: Title: Chief Operating Officer EX-4.13 14 FEE AGREEMENT BETWEEN IMSI & JOSEPH MINNEVICH 1 EXHIBIT 4.13 FEE AGREEMENT This FEE AGREEMENT (the "Agreement") dated as of 11th January 1999, by and between International Microcomputer Software, Inc. ("IMSI"), and Joseph Minnevich, ("MINNEVICH"). WHEREAS, IMSI currently owes MINNEVICH an amount to date equal to $45,000 (the "Current Royalty Fees") pursuant to a Licensing Agreement between IMSI and MINNEVICH (the "License Agreement"), and WHEREAS, IMSI and MINNEVICH now desire to set forth certain terms and provisions with respect to the payment by IMSI of the Current Royalty Fees: NOW, THEREFORE in consideration of the foregoing and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto hereby agree as follows: 1. Payment of the Fees. Notwithstanding anything to the contrary in the License Agreement with respect to the form and timing of payment of the Current Royalty Fees, the obligation to pay the Current Royalty Fees shall be satisfied in full by compliance by IMSI with the terms and provisions of this Agreement. 2. Issuance of the Shares. As soon as reasonably practicable after execution of this Agreement, IMSI will issue to MINNEVICH, five thousand (5,000 shares of IMSI's Common Stock (the "Common Stock"), no par value (collectively, the "Shares") based on a trading sale price of nine dollars ($9.00) per share. 3. Sale. a. Sale. The Shares may be sold by one or more of the following means of distribution (subject to the provisions of this Agreement): (a) a block trade in which the broker-dealer so engaged will attempt to sell Shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker-dealer as principal and resale by such broker-dealer for its own account; (c) an over-the-counter distribution in accordance with the rules of Nasdaq; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (e) in privately negotiated transactions. 4. Representations, Warranties and Covenants of IMSI. IMSI represents and warrants to and covenants with MINNEVICH as follows: a. Registration. IMSI shall use its reasonable best efforts to cause the shares of IMSI Common Stock that are issuable pursuant to this Fee Agreement to be registered on a registration statement (or to be issued pursuant to a then-effective registration statement) on Form S-3 (or successor form) promulgated by the Securities 2 and License Commission ("SEC") under the 1993 Act, as soon as reasonably practicable after the Closing. IMSI expects to file a Registration Statement on or about March 15, 1999. Nothing herein shall require IMSI to separately register the Shares. b. At the date the Registration becomes effective under the Securities Act (the "Effective Date") or the time of effectiveness of any posteffective amendment to the Registration Statement, at the time the Prospectus is first filed with the Commission pursuant to Rule 424(b) of the Regulations (if a Rule 424(b) filing is required), at the time any supplement to or amendment of the Prospectus is filed with the Commission and at the time any document filed under the License Act is filed, the Registration Statement and the Prospectus and any amendments thereof and supplements thereto complied or will comply in all material respects with the applicable provisions of the Securities Act and the Regulations or the License Act and the respective rules and regulations thereunder and do not or will not contain an untrue statement of a material fact and do not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (i) in the case of the Registration Statement, not misleading and (ii) in the case of the Prospectus, in the light of the circumstances under which they were made, not misleading. c. The Shares, when issued and delivered in accordance with this Agreement, will be duly and validly issued and outstanding, fully paid and non-assessable and will not have been issued in violation of any preemptive rights. d. If at any time when a prospectus relating to the Shares is required to be delivered under the Securities Act any event shall occur as a result of which the Prospectus as then amended or supplemented, in the judgment of IMSI or MINNEVICH, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Securities Act or the Regulations, or to file under the License Act so as to comply therewith any document incorporated by reference in the Registration Statement or the Prospectus or in any amendment thereof or supplement thereto, (i) IMSI will notify MINNEVICH promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to MINNEVICH) which will correct such statement or omission or which will effect such compliance and will use its best efforts to have any amendment to the Registration Statement docked declared effective by the Commission as soon as possible and (ii) MINNEVICH shall suspend trading in the Shares until (A) such amendment or supplement to the Prospectus has been filed or (B) any amendment to the Registration Statement has been declared effective by the Commission. e. IMSI will pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares. If however, MINNEVICH requests that the Shares be registered independently from another IMSI 3 registration ("Accelerated Registration"), then MINNEVICH shall pay all fees and expenses with respect to the preparation and filing of the Registration Statement and the registration of the Shares that are a result of such Accelerated Registration. f. Upon execution of this Agreement, MINNEVICH releases and forever discharges payment of the Current Royalty Fees pursuant to the terms and conditions of the Retainer. 5. Indemnification. a. IMSI agrees to indemnify and hold harmless MINNEVICH, against any and all losses, liabilities, claims, damages and expenses incurred (including but not limited to attorneys' fees), to which it may become subject under the Securities Act, the License Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise solely out of any untrue statement of a material fact contained in the Registration Statement, as originally filed or any amendment thereof, or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that IMSI shall not be liable to MINNEVICH for any such losses, liabilities, claims, damages or expenses which arise out of or are based upon an untrue statement or alleged untrue statement or omission or alleged omission contained or made in the Registration Statement or the Prospectus or any amendment thereof or Supplement thereto in reliance upon and in conformity with information furnished to IMSI by MINNEVICH. b. Promptly after receipt by any indemnified party under subsection a. above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the party against whom indemnification is to be sought in writing of the commencement thereof. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of such counsel shall have been authorized in writing by the indemnifying party in connection with the defense of such action, (ii) the indemnifying party shall not have employed counsel to have charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) such indemnified party shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such 4 fees and expenses shall be borne by the indemnifying party. Anything in this subsection to the contrary notwithstanding, the indemnifying party shall not be liable for any settlement of any claim or action effected without its written consent; provided, however, that such consent was not unreasonably withheld. 6. Entire Agreement. This Agreement and the retainer (to the extent not inconsistent herewith) constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior written agreements and negotiations and oral understandings, if any, with respect thereto. This Agreement may not be amended or supplemented except by an instrument in writing signed by each of the parties hereto. 7. Notices. All notices, requests and other communications hereunder shall be in writing and delivered in person or by registered or certified mail (postage prepaid, return receipt requested), overnight courier or facsimile, addressed as follows: if to MINNEVICH, to: Minnevich if to IMSI, to: International Microcomputer Software, Inc. 75 Rowland Way Novato, CA 94945 Attn: Legal Department Telephone: (415) 878-4209 Facsimile: (415) 893-9860 The address of a party, for the purposes of this Section 8, may be changed by giving written notice to the other party of such change in the manner provided herein for giving notice. All notices, requests, demands and other communications hereunder shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five calendar days mailing, if sent by registered or certified mail; the next business day after timely delivery to the courier, if sent by overnight courier; and when receipt is acknowledged, if sent by facsimile transmission (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). 8. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of California, without regard to the conflicts of law principles thereof. 5 9. Investment Representations. MINNEVICH represents and warrants that it is an "accredited investor" as defined by Regulation D: that it is acquiring the Shares for its own account, for the purpose of investment and not with a view to, or resale in connection with, any distribution thereof; that MINNEVICH has had access to all information regarding IMSI and its present business, assets, liabilities and financial condition, that MINNEVICH reasonably considers important in making the decision to acquire the Shares under this Agreement; and that MINNEVICH understands that the Shares are restricted securities and may not be sold except pursuant to the Form S-3, some other registration statement, or pursuant to an applicable exemption from federal and state registration requirements. IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the date first set forth above. Joseph Minnevich INTERNATIONAL MICROCOMPUTER SOFTWARE, INC. By: By: ------------------------- ----------------------- Name: Joseph Minnevich Name: Geoffrey B. Koblick Title: Chief Operating Officer EX-4.14 15 AGREE. DATED 5-10-99 BETWEEN IMSI & ZEDCOR 1 EXHIBIT 4.14 AMENDMENT NO. 2 TO EXCHANGE AGREEMENT AMENDMENT NO. 1 TO FEE AGREEMENT AMENDMENT NO. 1 TO SECURITY AGREEMENT This Amendment No. 2 to Exchange Agreement, Amendment No. 1 to Fee Agreement and Amendment No. 1 to Security Agreement (this "Agreement") is dated as of May 10, 1999, and is entered into by and among International Microcomputer Software, Inc., a California corporation ("IMSI"), Zedcor, Inc., an Arizona corporation ("Zedcor"), the representative (the "Representative") of the Zedcor shareholders appointed pursuant to Section 2.4 of that certain Exchange Agreement dated as of September 17, 1998 by and between IMSI and Zedcor (the "Exchange Agreement"), and each person whose name is subscribed on the signature page of this Agreement as a former shareholder of Zedcor (the "Zedcor Shareholders"). BACKGROUND IMSI and Zedcor previously entered into the Exchange Agreement. A portion of the purchase price payable by IMSI to Zedcor pursuant to the Exchange Agreement was reflected in the Note, which had a principal balance of $2,229,500. IMSI, Zedcor, the Zedcor Shareholders and the Representative entered into a Security Agreement dated as of September 17, 1998 (the "Security Agreement"), granting the Representative, for the benefit of the Zedcor Shareholders, a security interest in the Collateral to secure IMSI's payment obligations under the Note. IMSI and Zedcor entered into an Amendment No. 1 to Exchange Agreement dated as of February __, 1999 ("Amendment No. 1 to Exchange Agreement"). Pursuant to Amendment No. 1 to Exchange Agreement, the Hold Back Funds amount was established at $200,000, and IMSI agreed to release the Hold Back Funds (or any portion remaining after Set-Off(s), to the Zedcor Shareholders on or about September 17, 2000. In addition, pursuant to Amendment No. 1 to Exchange Agreement, the parties agreed that the payments reflected in the Note would be satisfied by the transactions contemplated by the Fee Agreement, and that in full satisfaction of any and all remaining monies due under the Exchange Agreement described in the Note (with the exception of the Hold Back Funds), IMSI would make four equal payments to Zedcor each in the amount of $98,750 on March 1, April, May 1 and June 1, 1999. IMSI and Zedcor entered into a Fee Agreement dated as of February __, 1999 (the "Fee Agreement"). Under the Fee Agreement, Zedcor agreed that the $1,503,207.10 (the "Fees") still owed by IMSI pursuant to the Exchange Agreement (and reflected in the Note) would be satisfied by the issuance by IMSI to Zedcor of 150,321 shares (the "Shares") of IMSI Common Stock, no par value ("Common Stock"). The Exchange Agreement, Amendment No. 1 to Exchange Agreement, Security Agreement Fee Agreement will sometimes be referred to collectively as the "Transaction Documents". 1 2 Capitalized terms not defined herein will have the meanings give to them in the Transaction Documents. The parties desire to amend the Transaction Documents in certain respects. AGREEMENT 1. Payment of Holdback Funds. The Holdback Funds, in an amount equal to $200,000, shall be paid within two business day after this Agreement has been executed by and delivered by all parties hereto. Payment shall be by check or by wire transfer to an account designated in writing by the Zedcor Shareholders to IMSI. 2. Amendment of "Shares" in Fee Agreement. The term "Shares" as defined in Section 2 of the Fee Agreement is hereby amended to be 187,901 shares of Common Stock, which equals the Fees divided by $8.00; and after the date of this Agreement, the term "Shares" shall refer to such 187,901 shares. 3. Issuance of Additional Shares. In consideration of the agreements of Zedcor and the Zedcor Shareholders hereunder, within five business days after the date that this Agreement is executed and delivered by all parties hereto, IMSI shall issue to Zedcor 10,000 shares (the "Additional Shares") of Common Stock. Such shares shall be included in the Registration Statement (as described below). 4. The Registration Statement. 4.1 Filing of the Registration Statement. IMSI will use its best efforts to file a registration statement on Form S-3 (or other appropriate form) (the "Registration Statement") on or before September 30, 1999, with the Securities and Exchange Commission (the "SEC") registering the resale of the Shares and the Additional Shares. The Registration Statement may also include shares issued or issuable to other security holders of IMSI. 4.2 Consequences for Late Filing. If the Registration Statement is not filed with the SEC by September 30, 1999, then upon notice from the Zedcor Shareholders, IMSI shall redeem 12,500 Shares from the Zedcor Shareholders (in proportion to their relative ownership of the Shares) each month until the Registration Statement is filed. The purchase price for such redeemed shares shall be $8.00 per share. The maximum dollar amount that IMSI shall be required to pay to redeem Shares under this section (the "Maximum Redemption Amount") shall be an amount equal to the amount of the Fees (minus the dollar amount of previous redemptions of Shares from time to time), plus interest on such amount at an annual rate of 8% per annum until such time as the Shares may be sold pursuant to SEC Rule 144 (subject to the volume and other provisions of that rule). IMSI shall have no further obligation to redeem Shares at such time as the Shares may be sold pursuant to the provisions of SEC Rule 144 (subject to the volume and other provisions of that rule). The initial redemption shall occur within 2 3 10 business days after delivery of the redemption notice from the Zedcor Shareholders, and thereafter the redemption (and delivery of the redemption price) shall occur on each monthly anniversary of the initial redemption date, until the Registration Statement is filed or until the Maximum Redemption Amount has been paid. The Zedcor Shareholders shall execute such instruments (including without limitation delivery of stock certificates representing the Shares to be redeemed and duly executed stock assignments) as IMSI may reasonably request in connection with any such redemption. 4.3 Potential Issuance of Additional Shares. If, on the date which is three business days before the date the Registration Statement is declared effective by the SEC (the "Measurement Date"), the Average Market Price is less than $8.00 per share, then IMSI shall issue, within three business days of the Measurement Date, a number of additional shares of Common Stock (which shall be deemed to be "Shares") to the Zedcor Shareholders (in proportion to their relative ownership of Shares), such that the total number of "Shares" (taking into account the 187,901 Shares described in Section 2 above) equals $1,503,207.10 divided by the Average Market Price. The "Average Market Price" shall mean the average of the closing sales prices of the Common Stock (as quoted on Nasdaq) for the ten trading days before the Measurement Date; provided, however, that the Average Market Price shall in no event be deemed to be less than $4.00. 5. Release of Security Interest. Each of the Representative and each Zedcor Shareholder hereby releases any and all security interests or similar rights that such person may have in and to the Collateral (as defined in the Transaction Documents) and hereby releases IMSI from any and all obligations and liabilities that IMSI otherwise may have in connection with the Collateral. Each of the Representative and each Zedcor Shareholder acknowledges that no event of default has occurred with respect to the Collateral under the Transaction Documents, and that after the date of this Agreement, IMSI may grant and create a first priority security interest in the Collateral in favor of another person or entity without any conflict with any right of the Representative or the Zedcor Shareholders. Each of the Representative and each Zedcor Shareholder agrees to take such actions and execute such instruments as IMSI may reasonably request in order to confirm the termination of the security interest and any similar rights. 6. Release of Claims. Each of Zedcor, the Representative and each Zedcor Shareholder (individually a "Releasing Party" and collectively, the "Releasing Parties") hereby releases IMSI and its subsidiaries, successors and assigns, directors, officers, employees, attorneys and agents (collectively, the "Released Parties") from and against any and all claims, causes of action, complaints, charges, demands, liabilities, damages, losses, costs or expenses of any kind whatsoever (including attorney's fees and costs), arising out of or relating to any delay by IMSI before the date of this Agreement in filing the registration statement contemplated by the Transaction Agreements. 7. No Other Changes. Except as set forth in this Agreement, all other terms and conditions of the Transaction Agreements shall remain in full force and effect. In the 3 4 event of any conflict between the terms of this Agreement and the terms of any Transaction Agreement, the terms of this Agreement shall control, and the Transaction Agreements shall be interpreted so as to be consistent with the provisions of this Agreement. 8. Miscellaneous. 8.1 Governing Law; Consent to Jurisdiction. The validity, construction and performance of this Note will be governed by the laws of the State of California, excluding that body of law pertaining to conflicts of law. Each party to this Agreement irrevocably submits to the exclusive jurisdiction and venue of the state and federal courts for Marin County, California, for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement. Each party agrees that service of process in any such action may be made in the manner provided for in this Agreement for delivery of notices. 8.2 Notices. Any notice required or permitted hereunder will be given in writing and will be deemed effectively given upon personal delivery, three days after deposit in the U.S. mail by first class mail, one business day after its deposit with any reputable overnight courier service (prepaid), or one business day after transmission by telecopier with confirmation of receipt, in each case addressed to the other party at such party's address (or facsimile number, in the case of transmission by telecopier) as shown in the Exchange Agreement, or to such other address as such party may designate in writing from time to time to the other party. 8.3 Amendments and Waivers. No amendment or modification of this Agreement may be made or be effective unless and until it is set forth in writing and signed by IMSI and the Representative. Any such amendment or modification shall be binding on all Zedcor Shareholders. No waiver of any right under this Agreement will be effective unless expressly set forth in a writing signed by IMSI and/or the Representative, as applicable. 8.4 Successor and Assigns. The provisions of this Agreement will inure to the benefit of, and be binding on, each party's respective heirs, successors and assigns. 8.5 Severability. If any provision of this Agreement is determined to be invalid or unenforceable, it shall be enforced to the extent possible, and the remainder of this Agreement shall be enforced to the maximum extent possible. 8.6 Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties regarding the subject matter hereof and supersedes any and all prior understandings and agreements among the parties with respect to such subject matter. 4 5 8.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but which together will constitute one instrument. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 5 6 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. IMSI ZEDCOR REPRESENTATIVE - --------------------------------- ------------------------------ ------------------------------ Authorized signature Authorized signature Authorized signature - --------------------------------- ------------------------------ ------------------------------ printed name printed name printed name - --------------------------------- ------------------------------ ------------------------------ Title Title Title - --------------------------------- ------------------------------ ------------------------------ Date Date Date
ZEDCOR SHAREHOLDERS - ------------------------------------------------- ---------------------------------------------- Authorized signature Authorized signature - ------------------------------------------------- ---------------------------------------------- printed name printed name - ------------------------------------------------- ---------------------------------------------- Title Title - ------------------------------------------------- ---------------------------------------------- Date Date
[COUNTERPART SIGNATURE PAGE TO AMENDMENT NO. 2 TO EXCHANGE AGREEMENT, AMENDMENT NO. 1 TO FEE AGREEMENT AND AMENDMENT NO. 1 TO SECURITY AGREEMENT] 6 EX-5.1 16 OPINION OF COUNSEL RE LEGALITY OF COMMON STOCK 1 EXHIBIT 5.1 June 7, 1999 International Microcomputer Software, Inc. 75 Rowland Way Novato, CA 94945 Gentlemen/Ladies: I have examined the Registration Statement on Form S-3 (the "Registration Statement") to be filed by you with the Securities and Exchange Commission (the "Commission") on or about June 7, 1999, in connection with the registration under the Securities Act of 1933, as amended, of an aggregate of 2,534,823 shares of your Common Stock (the "Stock"), all of which will be sold by the selling shareholders named in the Prospectus included within the Registration Statement (the "Selling Shareholders"). In rendering this opinion, I have examined the following: (1) the Registration statement, together with the Exhibits filed as a part thereof; (2) the Prospectus prepared in connection with the Registration Statement; (3) the minutes of meetings and actions by written consent of the Board of Directors that are contained in your minute books and that are in our possession, that relate to the issuance of the Stock and the Warrant; (4) the stock purchase and other agreements, other than those filed as exhibits to the Registration Statement, pursuant to which the Selling Shareholders acquired the Stock and the Warrant as described in the Registration Statement; and (5) such other documents as I have deemed appropriate in order to provide this opinion. In my examination of documents for purposes of this opinion, I have assumed, and express no opinion as to, the genuineness of all signatures on original documents, the authenticity of all documents submitted to me as originals, the conformity to originals of all documents submitted to me as copies, the legal capacity of all natural persons executing the same, the lack of any undisclosed terminations, modifications, waivers or amendments to any documents reviewed by me and the due execution and delivery of all documents where due execution and delivery are prerequisites to the effectiveness thereof. As to matters of fact relevant to this opinion, I have relied solely upon my examination of the documents referred to above and have assumed the current accuracy and completeness of the information obtained from records included in the documents referred to above. I have made no independent investigation or other attempt to verify the accuracy of any of such information or to determine the existence or non-existence of any other factual matters; however, I am not aware of any facts that would lead me to believe that the opinion expressed herein is not accurate. 2 In rendering any opinion that the shares of Stock are, or will when issued be, "fully paid," I have assumed that such shares will be issued in accordance with the terms of the underwriting agreement filed as an exhibit to the Registration Statement, and that the Company will receive full consideration for the issuance of such shares provided for in such agreement. Based upon the foregoing, it is my opinion that the shares of Stock to be issued by the Company pursuant to the Registration Statement are legally issued and nonassessable and, to our knowledge, fully paid. I consent to the use of this opinion as an exhibit to the Registration Statement and further consent to all references to me, if any, in the Registration Statement, the Prospectus constituting a part thereof and any amendments thereto. This opinion speaks only as of its date and is intended solely for the your use as an exhibit to the Registration Statement for the purpose of the above sale of the Stock and is not to be relied upon for any other purpose. Very truly yours, /s/ GEOFFREY B. KOBLICK, ESQ. ------------------------------ Geoffrey B. Koblick, Esq. -----END PRIVACY-ENHANCED MESSAGE-----