================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K
CURRENT REPORT
--------------------
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): July 31, 1998
STARBASE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-25612 33-0567363
(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation) Identification No.)
4 Hutton Centre Dr., Suite 800
Santa Ana, California 92707
(Address of Principal Executive Offices) (Zip Code)
(714) 445-4400
(Registrant's telephone number, including area code)
================================================================================
<PAGE>
This Current Report on Form 8-K is filed by StarBase Corporation, a
Delaware corporation (the "Company"), in connection with the matters described
herein.
Item 5. Other Events
As of July 31, 1998, the Company completed a $3,000,000 private
placement of an aggregate of 3,000 shares of the Company's Series G Convertible
Preferred Stock, par value $0.01 per share (the "Series G Preferred Stock").
Each share of Series G Preferred Stock was offered at a subscription price of
$1,000 per share to institutional investors (the "Purchasers"). Each share of
Series G Preferred Stock is convertible into a share or shares of common stock,
par value $0.01 per share, of the Company (the "Common Stock"). The Series G
Preferred Stock also provides the Company with a redemption option and allows
for periodic conversions of portions of the outstanding Series G Preferred Stock
commencing 121 days after the issuance date of the Series G Preferred Stock. Any
shares of Series G Preferred Stock outstanding on the second anniversary of the
issuance date must be converted into Common Stock. Upon the Company's request,
the Purchasers may purchase in the aggregate up to an additional 3,000 shares of
Series G Preferred Stock. The proceeds of the offering will be used for general
working capital purposes.
In connection with the issuance of the Series G Preferred Stock, the
Company agreed to issue warrants to the Purchasers if at any time the closing
bid price of the Common Stock is less than 50% of the conversion price as at the
issuance date. The exercise price for the warrants shall be equal to the closing
bid price of the Common Stock on the date the closing bid price was less than
50% of the conversion price as at the issuance date.
The Series G Preferred Stock were offered to the Purchasers in
compliance with Section 4(2) of the Securities Act of 1933, as amended (the
"Act"), who are "accredited investors" (as such term is defined in Regulation D
of the Act). The shares of Common Stock issuable upon the conversion of the
Series G Preferred Stock have not been registered under the Act and may not be
offered or sold in the United States absent registration or an exemption from
the registration requirements of the Act.
-2-
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
4.1 Form of Stock Purchase Agreement
4.2 Certificate of Designation
4.3 Form of Registration Rights Agreement
4.4 Form of Warrant
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 17, 1998
STARBASE CORPORATION
By: /s/ Douglas S. Norman
----------------------------
Douglas S. Norman
Director of Finance
Chief Accounting Officer
-4-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
4.1 Form of Stock Purchase Agreement
4.2 Certificate of Designation
4.3 Form of Registration Rights Agreement
4.4 Form of Warrant
-5-
EXHIBIT 4.1
FORM OF SERIES G CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated as of July 31, 1998
among
STARBASE CORPORATION
and
THE PURCHASERS LISTED ON EXHIBIT A
<PAGE>
SERIES G CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This SERIES G CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of July 31, 1998 by and among StarBase Corporation, a
Delaware corporation (the "Company") and each of the Purchasers of shares of
Series G Convertible Preferred Stock of the Company whose names are set forth on
the Schedule of Purchasers hereto (individually, a "Purchaser" and collectively,
the "Purchasers").
WHEREAS:
A. The Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act");
B. The Company has authorized the following new series of its Preferred
Stock, par value $.01 per share (the "Preferred Stock"): the Company's Series G
Convertible Preferred Stock (the "Preferred Shares"), which shall be convertible
into shares of the Company's Common Stock, par value $.01 per share (the "Common
Stock") (as converted, the "Conversion Shares"), in accordance with the terms of
the Company's Certificate of Designations, Preferences and Rights, in the form
attached hereto as Exhibit A (the " Certificate of Designations");
C. The Purchasers wish to purchase, upon the terms and conditions
stated in this Agreement, initially an aggregate of 3,000 of the Preferred
Shares (the "Initial Preferred Shares") in the respective amounts set forth
opposite each Purchaser's name on the Schedule of Purchasers on the Initial
Closing Date (as defined below).
D. Subject to the terms and conditions set forth in this Agreement, the
Purchasers will have the right to purchase up to an aggregate of an additional
3,000 of the Preferred Shares (the "Additional Preferred Shares") in the
respective amounts set forth opposite each Purchaser's name in the Schedule of
Purchasers on the Additional Closing Date (as defined below) (the Initial
Preferred Shares and the Additional Preferred Shares collectively are referred
to in this Agreement as the "Preferred Shares");
E. Subject to the conditions set forth in Section 1.5, the Purchasers
shall have the right to receive, at any time prior to the conversion of all of
the Preferred Shares, warrants, in substantially the form attached hereto as
Exhibit B (the "Warrants"), to acquire up to 15% of the Conversion Shares
issuable with respect to the Preferred Shares then outstanding (the "Warrant
Shares"); and
F. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form
-1-
<PAGE>
attached hereto as Exhibit C (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 Purchasers hereby agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock
Section 1.1 Purchase and Sale of Stock. Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, the Preferred Shares, at a purchase
price of $1,000 per share, set forth with respect to such Purchaser on the
Schedule of Purchasers hereto.
Section 1.2 The Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a sufficient number (subject
to Section 3.9) of its authorized but unissued shares of its Common Stock, to
effect the conversion of the Preferred Shares and exercise of the Warrants. The
Preferred Shares, the Conversion Shares and the Warrant Shares collectively are
referred to as the "Shares" and the Shares and the Warrants collectively are
referred to as the "Securities".
Section 1.3 Purchase Price and Closing. The Company agrees to issue and
sell to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase that number of the
Initial Preferred Shares and shall have the right to purchase the number of
Additional Preferred Shares set forth opposite their respective names on the
Schedule of Purchasers. The closing of the purchase and sale of the Initial
Preferred Shares (the "Initial Closing") to be acquired by the Purchasers from
the Company under this Agreement shall take place at the offices of Parker
Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York, New York
10036 at 5:00 p.m. E.S.T. on July 31, 1998 or such other time and place or on
such date as the Purchasers and the Company may agree upon (the "Initial Closing
Date"). The closing of the purchase and sale of the Additional Preferred Shares
(the "Additional Closing") which may be acquired by the Purchasers from the
Company under this Agreement shall take place at the offices of Parker Chapin
Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York, New York 10036, at
5:00 p.m. E.S.T. on the later of (a) the date which is three months after the
Initial Closing Date and (b) the date which is 15 days after the date on which
the Registration Statement is declared effective by the SEC, or such other time
and place or on such date as the Purchasers and the Company may agree upon (the
"Additional Closing Date"). The Initial Closing Date and the Additional Closing
Date collectively are referred to in this Agreement as the "Closing Dates" and
the Initial Closing and the Additional Closing collectively are referred to in
this Agreement as the "Closings." On each of the Closing Dates,
-2-
<PAGE>
the Company shall deliver to each Purchaser certificates for the number and
series of Initial Preferred Shares or Additional Preferred Shares, as the case
may be, to be purchased by such Purchaser at such Closing, registered in such
Purchaser's name (or its nominee) against receipt by the Company of a wire
transfer of funds to the account as shall be designated in writing by the
Company, representing the cash consideration set forth opposite each such
Purchaser's name on the Schedule of Purchasers. In addition, each party shall
deliver all documents, instruments and writings required to be delivered by such
party pursuant to this Agreement at or prior to the respective Closing.
Section 1.4 Additional Closing. On the Additional Closing Date, the
Company shall have the right to sell to each Purchaser, with the consent of such
Purchaser, the number of Additional Preferred Shares set forth on the Schedule
of Purchasers by delivering written notice to each Purchaser at least seven
business days prior to the Additional Closing Date (an "Additional Share
Notice"). If a Purchaser elects to consent to purchase Additional Preferred
Shares, such Purchaser shall deliver written notice of such consent to the
Company on or before the date which is three business days prior to the
Additional Closing Date. Each Additional Share Notice shall set forth the number
of Additional Preferred Shares each such Purchaser would purchase, if consented
to, at the Additional Closing.
Section 1.5 Warrants. After the Initial Closing Date and for so long as
any Preferred Shares remain outstanding, if at any time (the "Warrant Trigger
Date") the closing bid price (as reported by Bloomberg Financial Markets
("Bloomberg")) of the Common Stock is less than 50% of the Fixed Conversion
Price (as defined in the Certificate of Designations) of any Preferred Shares as
of the Closing Date for such Preferred Shares, then within five business days of
the Warrant Trigger Date the Company shall issue Warrants to each holder of such
Preferred Shares to purchase a number of Warrant Shares equal to 15% of the
number of Conversion Shares issuable assuming full conversion of the Preferred
Shares held by such holder as of the Warrant Trigger Date (without regard to any
limitation on the amount or timing of conversions). The exercise price for such
Warrants shall be equal to the closing bid price (as reported by Bloomberg) of
the Common Stock on the Warrant Trigger Date, provided that if the Company has
not delivered the Warrants to each Purchaser on or before the tenth (10th)
business day after written notice from any Purchaser of the occurrence of the
Warrant Trigger Date, then the Warrant Exercise Price shall be the lesser of (a)
the closing bid price (as reported by Bloomberg) for the Common Stock on the
Warrant Trigger Date and (b) the closing bid price (as reported by Bloomberg)
for the Common Stock on the date the Warrants are delivered to the Purchasers.
ARTICLE II
Representations and Warranties
Section 2.1 Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to each Purchaser:
-3-
<PAGE>
(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authorization to own, lease and operate its properties and assets and to conduct
its business as it is now being conducted. The Company does not, directly or
indirectly, own capital stock or hold an equity or similar interest in any
entity. The Company 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 or property owned by it makes such qualification necessary,
except for any jurisdiction in which the failure to be so qualified will not
have a Material Adverse Effect (as defined below). As used in this Agreement,
"Material Adverse Effect" means any material adverse effect on the business,
properties, assets, operations, results of operations or financial condition of
the Company and its subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below).
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as
defined in Section 3.14) and the Warrants (collectively, the "Transaction
Documents") and to issue and sell the Shares in accordance with the terms
hereof, the Certificate of Designations and the Warrants. The execution,
delivery and performance of the Transaction Documents and the Certificate of
Designations by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required. This Agreement
has been, and the Registration Rights Agreement at the Initial Closing will be,
duly executed and delivered by the Company. Each of the Transaction Documents
constitutes, when executed and delivered, a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
Prior to the Initial Closing, the Certificate of Designations will have been
filed with the Secretary of State of the State of Delaware and will be in full
force and effect, enforceable against the Company in accordance with its terms.
(c) Capitalization. The authorized capital stock of the
Company and the shares thereof issued and outstanding as of June 30, 1998 are
set forth in Schedule 2.1(c) hereto. All of the outstanding shares of the
Company's Common Stock and Series G Convertible Preferred Stock have been duly
and validly authorized. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth on Schedule 2.1(c) hereto, no
shares of Common Stock or Preferred Stock are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and the Registration
Rights Agreement and as
-4-
<PAGE>
set on Schedule 2.1(c), there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as provided on Schedule 2.1(c) hereto,
the Company is not a party to any agreement granting registration rights to any
person with respect to any of its equity or debt securities. The Company is not
a party to, and it has no knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of the Company. Except as disclosed
on Schedule 2.1(c), there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Shares or the Warrants as described in this Agreement. The offer and sale of
all capital stock, convertible securities, rights, warrants, or options of the
Company issued prior to the Closing complied with all applicable Federal and
state securities laws, and, to the Company's knowledge, no stockholder has a
right of rescission or damages with respect thereto which would have a Material
Adverse Effect. The Company has furnished or made available to the Purchasers
true and correct copies of the Company's Articles of Incorporation as in effect
on the date hereof (the "Articles"), and the Company's Bylaws as in effect on
the date hereof (the "Bylaws").
(d) Issuance of Shares. The Preferred Shares to be issued at
the Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Preferred
Shares shall be validly issued and outstanding, fully paid and nonassessable and
entitled to the rights and preferences set forth in the Certificate of
Designations. When the Conversion Shares and Warrant Shares are issued in
accordance with the terms of the Preferred Shares as set forth in the
Certificate of Designations and the Warrants, respectively, such shares will be
duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders thereof shall be
entitled to all rights accorded to a holder of Common Stock. At least 2,000,000
shares of Common Stock (subject to adjustment as pursuant to the Company's
covenant set forth in Section 3.9 below) have been duly authorized and reserved
for issuance upon conversion of the Preferred Shares and upon exercise of the
Warrants.
(e) No Conflicts. Except as disclosed on Schedule 2.1(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designations and the consummation by the Company of the transactions
contemplated herein and therein do not (i) violate any provision of the
Company's Articles or Bylaws, (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, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is a
party, (iii) create or impose a lien, charge or encumbrance on any property of
the Company under any agreement or any commitment to which the Company is a
party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (iv) result in a violation of any federal,
state, local or foreign statute, rule, regulation, order, judgment
-5-
<PAGE>
or decree (including Federal and state securities laws and regulations)
applicable to or having jurisdiction over the Company or by which any property
or asset of the Company are bound or affected, except, in all cases described in
clauses (ii), (iii) and (iv) above, for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The business of the Company is not being conducted in violation
of any laws, ordinances or regulations of any governmental entity, except for
possible violations which singularly or in the aggregate do not and will not
reasonably be expected to have a Material Adverse Effect. The Company is not
required under Federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Transaction Documents or the Certificate of
Designations (including, without limitation, the issuance and sale of the
Preferred Shares, the Conversion Shares and the Warrant Shares in accordance
with the terms hereof or thereof) other than any filings which may be required
to be made by the Company with the SEC, the National Association of Securities
Dealers, Inc. (the "NASD"), or state securities administrators subsequent to the
respective Closing, any registration statement which may be filed pursuant
hereto, and the Certificate of Designations; provided that, for purpose of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Purchasers
herein. The Company is not in violation of the listing requirements of The
Nasdaq Stock Market, Inc. as in effect on the date hereof and on each of the
Closing Dates and is not aware of any facts which would reasonably lead to
delisting of the Common Stock by The Nasdaq Stock Market, Inc. in the near
future.
(f) Commission Documents, Financial Statements. The Common
Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, except as
disclosed on Schedule 2.1(f) hereto, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the Commission pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the "Commission Documents"). The Company has delivered or
made available to each of the Purchasers true and complete copies of the
Commission Documents filed with the Commission since December 31, 1995. The
Company has not provided to the Purchasers any information which, according to
applicable law, rule or regulation, would be required to be disclosed on a
registration statement filed with the Commission relating to the issuance and
sale by the Company of its Common Stock, but which has not been publicly
disclosed, other than with respect to the terms of the transactions contemplated
by this Agreement. As of their respective dates, the Form 10-KSB for the year
ended March 31, 1998 (the "Form 10-K") and the Form 10-Q for the fiscal quarter
ended December 31, 1997, as restated by the Form 10-K (the "Form 10-Q") complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such documents, and,
as of their respective dates, none of the Form 10-K and the Form 10-Q referred
to above contained any untrue statement of a material fact or omitted
-6-
<PAGE>
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. The financial statements of the Company included in the
Commission Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis 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 financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
(g) Intentionally omitted.
(h) No Material Adverse Change. Since March 31, 1998, the date
through which the most recent annual report of the Company on Form 10-K has been
prepared and filed with the Commission, a copy of which is included in the
Commission Documents, the Company has not experienced or suffered any Material
Adverse Effect, except as disclosed on Schedule 2.1(h) hereto.
(i) Intentionally omitted.
(j) No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which would be required to be disclosed by the Company
under applicable securities laws on a registration statement filed with the
Commission relating to the issuance and sale by the Company of its Common Stock,
but which has not been publicly disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the
date hereof all outstanding secured and unsecured Indebtedness of the Company or
any subsidiary, or for which the Company or any subsidiary has commitments. For
the purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities
for borrowed money or amounts owed in excess of $25,000 (other than trade
accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
(l) Intentionally omitted.
-7-
<PAGE>
(m) Actions Pending. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any of its officers or directors which
questions the validity of this Agreement or the transactions contemplated hereby
or any action taken or to be taken pursuant hereto or thereto. Except as
specifically set forth in the Form 10-K, Form 10-Q or on Schedule 2.1(m) hereto,
there is no action, suit, claim, investigation or proceeding pending or, to the
knowledge of the Company, threatened, against or involving the Company, the
Company's properties or assets, the Common Stock or any of the Company's
officers, directors in their capacities as such, wherein an unfavorable
decision, ruling or finding would reasonably be expected to have a Material
Adverse Effect. There are no outstanding orders, judgments, injunctions, awards
or decrees of any court, arbitrator or governmental or regulatory body against
the Company or any of its officers or directors in their capacities as such.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 10-K, Form 10-Q or on Schedule
2.1(n) hereto or such that would not reasonably be expected to cause a Material
Adverse Effect. The Company has all franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. Except as set forth in the Form 10-K, Form 10-Q or
on Schedule 2.1(o) hereto, the Company has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company for all current taxes and other charges
to which the Company is subject and which are not currently due and payable.
Except as disclosed on Schedule 2.1(o) hereto, none of the federal income tax
returns of the Company for the years subsequent to December 31, 1995 have been
audited by the Internal Revenue Service. The Company has no knowledge of any
additional assessments, adjustments or contingent tax liability (whether federal
or state) pending or threatened against the Company for any period, nor of any
basis for any such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p)
hereto, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary with respect to the transactions
contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge,
neither this Agreement or the Schedules hereto nor any other documents,
certificates or instruments furnished to the Purchasers by or on behalf of the
Company in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omits to state a material
fact
-8-
<PAGE>
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Intentionally omitted.
(s) Intentionally omitted.
(t) Books and Records. The records and documents of the
Company accurately reflect in all material respects the information relating to
the business of the Company, the location and collection of their assets, and
the nature of all transactions giving rise to the obligations or accounts
receivable of the Company.
(u) Material Agreements. Except as set forth in the Form 10-K,
Form 10-Q or on Schedule 2.1(u) hereto, the Company is not a party to any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the Commission
as an exhibit to a registration statement filed on the date hereof with the
Commission relating to the issuance and sale by the Company of its Common Stock
(collectively, "Material Agreements"). The Company has in all material respects
performed all the obligations required to be performed by them to date under the
foregoing agreements, have received no notice of default and, to the best of the
Company's knowledge are not in default under any Material Agreement now in
effect, the result of which would be reasonably expected to have a Material
Adverse Effect. No written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company limits or shall limit the payment
of dividends on the Company's Preferred Shares, other Preferred Stock, if any,
or its Common Stock.
(v) Transactions with Affiliates. Except as set forth in the
Form 10-K, Form 10-Q or on Schedule 2.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions exceeding $100,000 between (a) the Company or
any of its customers or suppliers on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the Company or any member of
the immediate family of such officer, employee, consultant, director or
stockholder or any corporation or other entity controlled by such officer,
employee, consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or stockholder.
(w) Securities Act of 1933. The Company has complied and will
comply with all applicable Federal and state securities laws in connection with
the offer, issuance and sale of the Preferred Shares hereunder. Neither the
Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy the Preferred Shares or similar
securities to, or solicit offers with respect thereto from, or enter into any
preliminary conversations or negotiations relating thereto with, any person, so
as to bring the issuance and sale of the Preferred Shares under the registration
provisions of the Securities Act and applicable state
-9-
<PAGE>
securities laws. Neither the Company nor any of its affiliates, nor any person
acting on its or their behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D under the Securities
Act) in connection with the offer or sale of the Preferred Shares.
(x) Governmental Approvals. Except as set forth in the Form
10-K, Form 10-Q or on Schedule 2.1(x) hereto, and except for the filing of any
notice prior or subsequent to the Closing that may be required under applicable
state and/or Federal securities laws (which if required, shall be filed on a
timely basis), including the filing of a registration statement or statements
pursuant to the Registration Rights Agreement, and the filing of the Certificate
of Designations with the Secretary of State for the State of Delaware, no
authorization, consent, approval, license, exemption of, filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Preferred Shares, or for the
performance by the Company of its obligations under the Transaction Documents or
the Certificate of Designations.
(y) Investment Company Act Status. The Company is not, and as
a result of and immediately upon Closing will not be, an "investment company" or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
(z) Intellectual Property Rights. The Company owns or
possesses adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate within two years from the date of this Agreement. The Company does not
have any knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service mark registrations, trade secret
or other similar rights of others, or of any such development of similar or
identical trade secrets or technical information by others and, except as set
forth on Schedule 3(n), there is no claim, action or proceeding being made or
brought against, or to the Company's knowledge, being threatened against, the
Company regarding trademark, trade name, patents, patent rights, invention,
copyright, license, service names, service marks, service mark registrations,
trade secret or other infringement; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company has
taken reasonable security measures to protect the secrecy, confidentiality and
value of all of their intellectual properties.
-10-
<PAGE>
(aa) Acknowledgment Regarding Purchasers' Purchase of
Preferred Shares. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the capacity of arm's length purchaser with
respect to the Transaction Documents and the transactions contemplated thereby.
The Company further acknowledges that each Purchaser is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated thereby
and any advice given by any of the Purchasers or any of their respective
representatives or agents in connection with the Transaction Documents and the
transactions contemplated thereby is merely incidental to such Purchaser's
purchase of the Shares and the Warrants. The Company further represents to each
Purchaser that the Company's decision to enter into the Transaction Documents
has been based solely on the independent evaluation by the Company and its
representatives.
(ab) No Integrated Offering. To the knowledge of the Company,
neither the Company, nor any of its affiliates, nor any person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would require registration of any of the Shares or the Warrants under the
Securities Act or cause this offering of the Shares or Warrants to be integrated
with prior offerings by the Company for purposes of the Securities Act or any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of The Nasdaq Stock Market, Inc. nor will the Company
or any of its subsidiaries take any action or steps that would require
registration of the Shares or the Warrants under the Securities Act or cause the
offering of the Shares and the Warrants to be integrated with other offerings.
(ac) Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the Warrant Shares issuable upon exercise of the Warrants will
increase in certain circumstances. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares in
accordance with this Agreement and the Certificate of Designations and its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
(ad) No Other Agreements. The Company has not, directly
or indirectly, made any agreements with any of the Purchasers relating to the
terms and conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents.
Section 2.2 Representations and Warranties of the Purchasers. Each of
the Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the
Purchaser is an entity, such Purchaser is a corporation, partnership, limited
liability company or other entity duly
-11-
<PAGE>
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. The Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Preferred Shares being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by such
Purchaser and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate, partnership or
entity action (if the Purchaser is an entity), and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders,
partners, or members as the case may be, is required. Each of this Agreement and
the Registration Rights Agreement has been duly authorized, executed and
delivered by such Purchaser.
(c) No Conflicts. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the consummation by
such Purchaser of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or other organizational documents 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 such Purchaser is a party (except for such conflicts and
defaults as would not, individually or in the aggregate, have a material adverse
effect on the business, properties, assets, operations, results of operations or
financial condition of such Purchaser).
(d) Acquisition for Investment. Such Purchaser is purchasing
the Preferred Shares and the Conversion Shares solely for its own account for
the purpose of investment and not with a view to or for sale in connection with
distribution thereof, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein and
subject to Section 2.2(f) below, such Purchaser does not agree to hold the
Preferred Shares or the Conversion Shares for any minimum or other specific term
and reserves the right to dispose of the Preferred Shares and the Conversion
Shares at any time in accordance with Federal securities laws applicable to such
disposition. Such Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Preferred Shares and the Conversion
Shares and that it has been given full access to such records of the Company and
to the officers of the Company as it has deemed necessary or appropriate to
conduct its due diligence investigation, if any.
(e) Accredited Purchasers. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
(f) Rule 144. Such Purchaser acknowledges that such person is
familiar with Rule 144 of the rules and regulations of the Commission, as
amended, promulgated pursuant to the Securities Act ("Rule 144"), and that such
person has been advised that Rule 144 permits
-12-
<PAGE>
resales only under certain circumstances. Such Purchaser understands that to the
extent that Rule 144 is not available, such person will be unable to sell any
Preferred Shares and Conversion Shares without either registration under the
Securities Act or the existence of another exemption from such registration
requirement.
(g) General. Each Purchaser understands that the Shares are
being offered and sold in reliance on a transactional exemption from the
registration requirement of Federal and state securities laws and the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchasers set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchasers to acquire the Shares.
ARTICLE III
Covenants
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers.
Section 3.1 Securities Compliance.
(a) The Company shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Shares and the Warrants to
the Purchasers.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Purchasers set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of such
Purchasers to acquire the Preferred Shares.
Section 3.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement,
and will not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the Nasdaq Small Cap Market ("NASDAQ"), if
applicable, and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the NASD and NASDAQ.
Section 3.3 Intentionally omitted.
-13-
<PAGE>
Section 3.4 Compliance with Laws. The Company shall comply with all
applicable laws, rules, regulations and orders, noncompliance with which would
reasonably be expected to have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
keep adequate records and books of account, in which complete entries will be
made in accordance with GAAP consistently applied, reflecting all financial
transactions of the Company.
Section 3.6 Intentionally omitted.
Section 3.7 Amendments. So long as any of the Preferred Shares remain
outstanding, the Company shall not amend or waive any provision of the Articles,
Bylaws of the Company, or Registration Rights Agreement in any way that would
adversely affect the liquidation preferences, dividends rights, voting rights or
redemption rights of the holders of the Preferred Shares.
Section 3.8 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right to perform of the Company under the Transaction Documents or the
Certificate of Designations.
Section 3.9 Reservation of Shares. So long as any of the Preferred
Shares or Warrants remain outstanding, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 150% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares and the Warrant Shares.
Section 3.10 Filing of Form 8-K. On or before the fifteenth (15th)
business day following each of the Closing Dates, the Company shall file a Form
8-K with the SEC describing the terms of the transaction contemplated by the
Transaction Documents and consummated at such Closing, in each case in the form
required by the 1934 Act.
Section 3.11 Use of Proceeds. The proceeds from the sale of the
Preferred Shares will be used by the Company for working capital and general
corporate purposes.
Section 3.12 Intentionally omitted.
Section 3.13 Restrictions on Additional Financings. Subject to the
exceptions described below, the Company agrees that it shall not contract with
any party for or issue any securities convertible or exchangeable into or for
equity securities of the Company (including debt securities with an equity
component) in any form ("Convertible Securities") which Convertible Securities
allow for conversions, exchanges or exercises prior to the date which is 120
days after the Initial Closing Date (the limitations referred to in this
sentence are collectively referred to as the "Capital Raising Limitation"). The
Capital Raising Limitation shall not apply to (i) a loan from a commercial bank
which does not have any equity feature, (ii) any transaction involving the
-14-
<PAGE>
Company's issuances of securities (A) as consideration in a merger or
consolidation, (B) in connection with any strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital), or (C) as
consideration for the acquisition of a business, product or license or other
assets by the Company, (iii) the issuance of Common Stock in a firm commitment,
underwritten public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof (v) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan or stock purchase plan for the benefit of the
Company's employees or directors, or (vi) the issuance of Series H Convertible
Preferred Stock by the Company, provided that the terms of such Series H
Convertible Preferred Stock and the terms of its issuance are not more favorable
than the terms of the Preferred Shares set forth in this Agreement, the
Certificate of Designations and the Registration Rights Agreement.
Section 3.14 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Preferred Shares or exercise of the Warrants (the "Irrevocable
Transfer Agent Instructions"). Prior to registration of the Conversion Shares
and the Warrant Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 6.1 of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 3.14 will be given by the Company to
its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 3.14 shall affect in any way each Purchaser's obligations and
agreements set forth in Section 6.1 to comply with all applicable prospectus
delivery requirements, if any, upon resale of the Securities. If a Purchaser
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that a public sale, assignment or transfer of the Securities may
be made without registration under the Securities Act or the Purchaser provides
the Company with reasonable assurances that the Securities can be sold pursuant
to Rule 144 without any restriction as to the number of securities acquired as
of a particular date that can then be immediately sold, the Company shall permit
the transfer, and, in the case of the Conversion Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Purchaser and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations under this Section 3.14 will cause irreparable harm to the
Purchasers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 3.14 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 3.14, that the Purchasers shall be entitled, in addition to all
other available remedies, to an order and/or 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.
-15-
<PAGE>
Section 3.15 Capital and Surplus; Special Reserves. The amount
to be represented in the capital account for the Preferred Shares at all times
for each outstanding Preferred Share shall be an amount equal to the Redemption
Price (as defined in Section 8(b) of the Certificate of Designations) for such
Preferred Share.
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares.
(a) Initial Closing Date. The obligation hereunder of the
Company to issue and sell the Initial Preferred Shares to the Purchasers on the
Initial Closing Date is subject to the satisfaction or waiver, at or before the
Initial Closing, of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Purchaser with prior written notice
thereof.
(i) Accuracy of the Purchasers' Representations and
Warranties. The representations and warranties of the Purchasers shall
be true and correct in all material respects as of the date when made
and as of the Initial Closing as though made at that time, except for
representations and warranties that are expressly made as of a
particular date.
(ii) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all
material covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Purchaser
at or prior to the Initial Closing.
(iii) No Injunction. 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 which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(b) Additional Closing Date. The obligation hereunder of the
Company to issue and sell the Additional Preferred Shares to the Purchasers on
the Additional Closing Date is subject to the satisfaction or waiver, at or
before the Additional Closing, of each of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Purchaser with prior
written notice thereof.
(i) Accuracy of the Purchasers' Representations and Warranties.
The representations and warranties of the Purchasers shall be true and
correct in all material
-16-
<PAGE>
respects as of the date when made and as of the Additional Closing as
though made at that time, except for representations and warranties
that are expressly made as of a particular date.
(ii) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all
material covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Purchaser
at or prior to the Additional Closing.
(iii) No Injunction. 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 which prohibits the consummation of any of the
transactions contemplated by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Purchase the Shares.
(a) Initial Closing Date. The obligation hereunder of each
Purchaser to acquire and pay for the Initial Preferred Shares is subject to the
satisfaction or waiver, at or before the Initial Closing, of each of the
conditions set forth below. These conditions are for each Purchaser's sole
benefit and may be waived by such Purchaser at any time in its sole discretion.
(i) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true
and correct as of the date when made and as of the Initial Closing as
though made at that time, except for representations and warranties
that are expressly made as of a particular date.
(ii) Performance by the Company. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Initial
Closing.
(iii) Intentionally omitted.
(iv) No Suspension, Etc. From the date hereof to the Initial
Closing Date, trading in the Company's Common Stock shall not have been
suspended by the Commission or the NASDAQ (except for any suspension of
trading of limited duration agreed to by the Company, which suspension
shall be terminated prior to Initial Closing), and, at any time prior
to the Initial Closing, trading in securities generally as reported by
NASDAQ shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported
by NASDAQ.
-17-
<PAGE>
(v) No Injunction. 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 which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(vi) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall
have been commenced, and no investigation by any governmental authority
shall have been threatened, against the Company or any subsidiary, or
any of the officers, directors or affiliates of the Company or any
subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with
such transactions.
(vii) Certificate of Designations. The Certificate of
Designations shall have been filed with the Secretary of State of
Delaware, and a copy thereof certified by such Secretary of State shall
have been delivered to such Purchaser.
(viii) Opinion of Counsel. At the Initial Closing, the
Purchasers shall have received an opinion of counsel to the Company,
dated the date of the Initial Closing, in the form of Exhibit D hereto.
(ix) Registration Rights Agreement. At the Closing the Company
shall have executed and delivered the Registration Rights Agreement to
each Purchaser.
(x) Preferred Stock Certificates. The Company shall have
executed and delivered to such Purchaser the Stock Certificates (in
such denominations as such Purchaser shall request) for the Preferred
Shares being purchased by such Purchaser at the Initial Closing.
(xi) Resolutions. The Board of Directors of the Company shall
have adopted resolutions consistent with Section 2.1(b) above and in a
form reasonably acceptable to such Purchaser (the "Resolutions").
(xii) Reservation of Shares. As of the Initial Closing Date,
the Company shall have reserved out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the
Preferred Shares and the exercise of the Warrants, a number of shares
of Common Stock equal to the sum of (A) at least 150% of the number of
Conversion Shares issuable upon conversion of the Preferred Shares
outstanding on the Initial Closing Date and (B) the number of Warrant
Shares issuable upon exercise of the number of Warrants assuming such
Warrants were granted on the Initial Closing Date (after giving effect
to the Preferred Shares to be issued on the Initial Closing Date and
assuming all such Preferred Shares and Warrants were fully convertible
or exercisable on such date regardless of any limitation on the timing
or amount of such conversions or exercises).
-18-
<PAGE>
(xiii) Transfer Agent Instructions. The Irrevocable Transfer
Agent Instructions, in the form of Exhibit E attached hereto, shall
have been delivered to and acknowledged in writing by the Company's
transfer agent.
(xiv) Good Standing Certificate. The Company shall have
delivered to such Purchaser a certificate evidencing the incorporation
and good standing of the Company in the State of Delaware issued by the
Secretary of State of the State of Delaware and the qualification and
good standing of the Company to do business in the State of California
issued by the Secretary of State of the State of California, each as of
a date within 10 days of the Initial Closing.
(xv) Certified Articles of Incorporation. The Company shall
have delivered to such Purchaser a certified copy of its Articles as
certified by the Secretary of State of the State of Delaware within ten
days of the Initial Closing Date.
(xvi) Secretary's Certificate. The Company shall have
delivered to such Purchaser a secretary's certificate, dated as the
Initial Closing Date, as to (i) the Resolutions, (ii) the Articles and
(iii) the Bylaws, each as in effect at the Initial Closing.
(b) Additional Closing Date. The obligation hereunder of each
Purchaser to acquire and pay for the Additional Preferred Shares is subject to
the satisfaction or waiver, at or before the Additional Closing, of each of the
conditions set forth below. These conditions are for each Purchaser's sole
benefit and may be waived by such Purchaser at any time in its sole discretion.
(i) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true
and correct as of the date when made and as of the Additional Closing
as though made at that time, except for representations and warranties
that are expressly made as of a particular date.
(ii) Performance by the Company. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Additional
Closing.
(iii) No Suspension, Etc. From the date hereof to the
Additional Closing Date, trading in the Company's Common Stock shall
not have been suspended by the Commission or the NASDAQ (except for any
suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to Additional Closing), and,
at any time prior to the Additional Closing, trading in securities
generally as reported by NASDAQ shall not have been suspended or
limited, or minimum prices shall not have been established on
securities whose trades are reported by NASDAQ.
-19-
<PAGE>
(iv) No Injunction. 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 which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(v) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall
have been commenced, and no investigation by any governmental authority
shall have been threatened, against the Company or any subsidiary, or
any of the officers, directors or affiliates of the Company or any
subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with
such transactions.
(vi) Opinion of Counsel. At the Additional Closing, the
Purchasers shall have received an opinion of counsel to the Company,
dated the date of the Additional Closing, in the form of Exhibit D
hereto.
(vii) Preferred Stock Certificates. The Company shall have
executed and delivered to such Purchaser the Stock Certificates (in
such denominations as such Purchaser shall request) for the Preferred
Shares being purchased by such Purchaser at the Additional Closing.
(viii) Secretary's Certificate. The Company shall have
delivered to such Purchaser a secretary's certificate, dated as the
Additional Closing Date, as to (A) the Resolutions, (B) the Articles,
(C) the Bylaws and (D) the Certificate of Designations, each as in
effect at the Additional Closing.
ARTICLE V
Registration Rights
At the Initial Closing, the Company and Purchasers shall enter into a
Registration Rights Agreement in the form attached hereto as Exhibit C.
ARTICLE VI
Transfer Restrictions
Section 6.1 Legend. The certificates or other instruments representing
the Preferred Shares and the Warrants until such time as the sale of the
Conversion Shares and the Warrant Shares have been registered under the
Securities Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Conversion Shares and the Warrant Shares,
-20-
<PAGE>
except as set forth below, shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed from the Securities and the Company
shall issue a certificate without such legend to the holder of such Securities,
if, (i) in connection with a sale transaction, such Securities are registered
for sale under the 1933 Act, (ii) in connection with a sale transaction, such
holder provides the Company with an opinion of counsel, in a generally
acceptable form, to the effect that a public sale, assignment or transfer of
such Securities may be made without registration under the Securities Act, or
(iii) such holder provides the Company with reasonable assurances that such
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold. In the case of any proposed transfer under this Section 6.1,
the Company will use reasonable efforts to comply with any such applicable state
securities or "blue sky" laws, but shall in no event be required, in connection
therewith, to qualify to do business in any state where it is not then qualified
or to take any action that would subject it to tax or to the general service of
process in any state where it is not then subject. If the holder has complied
with clause (iii) of this Section 6.1, the Company will cause an opinion of
counsel to be delivered to the transfer agent regarding the removal of the
legend.
Section 6.2 Transfer or Resale. Except as provided in the Registration
Rights Agreement: (i) the Preferred Shares and the Warrants have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Purchaser shall have delivered to
the Company an opinion of counsel, in a generally acceptable form, to the effect
that such securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Purchaser provides the Company with reasonable assurance that such Securities
can be sold, assigned or transferred pursuant to Rule 144; and (ii) any sale of
such securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may
-21-
<PAGE>
require compliance with some other exemption under the Securities Act or the
rules and regulations of the Commission thereunder.
ARTICLE VII
Termination
Section 7.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Purchasers.
Section 7.2 Other Termination. This Agreement may be terminated by the
action of the Board of Directors of the Company or by any one or more of the
Purchasers at any time if the Closing shall not have been consummated by the
Closing Date, as long as the failure to so consummate is not the fault of the
terminating party.
Section 7.3 Effect of Termination. In the event of termination by the
Company or any one or more of the Purchasers, written notice thereof shall
forthwith be given to the other party and the transactions contemplated by this
Agreement and the Registration Rights Agreement shall be terminated without
further action by either party. If this Agreement is terminated as provided in
Section 7.1 or 7.2 herein, this Agreement shall become void and of no further
force and effect, except for Sections 9.1 and 9.2, and Article VIII herein.
Nothing in this Section 7.3 shall be deemed to release the Company or any
Purchaser from any liability for any breach under this Agreement or the
Registration Rights Agreement, or to impair the rights of the Company and the
Purchasers to compel specific performance by the other party of its obligations
under this Agreement and the Registration Rights Agreement.
ARTICLE VIII
Indemnification
Section 8.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorney's fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser agrees, severally and not jointly, to indemnify and hold harmless the
Company (and its directors, officers, affiliates, agents, successors and
assigns) from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorney's fees,
charges and disbursements) incurred by the Company as a result of any inaccuracy
in or breach of the representations, warranties or covenants made by the Company
herein.
-22-
<PAGE>
Section 8.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VIII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VIII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
-23-
<PAGE>
ARTICLE IX
Miscellaneous
Section 9.1 Fees and Expenses. Except as otherwise set forth in this
Agreement, the Registration Rights Agreement or the Certificate of Designations,
each party shall pay the fees and expenses of its advisors, counsel, accountants
and other experts, if any, and all other expenses, incurred by such party
incident to the negotiation, preparation, execution, deliver and performance of
this Agreement. The Company shall pay all stamp or other similar taxes and
duties levied in connection with issuance of the Preferred Shares pursuant
hereto.
Section 9.2 Specific Enforcement, Consent to Jurisdiction .
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the Registration Rights Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby
irrevocably submits to the jurisdiction of the state and federal courts sitting
in the City of New York, borough of Manhattan for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Purchasers consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section shall affect or
limit any right to serve process in any other manner permitted by law.
Section 9.3 Entire Agreement; Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein or in the Transaction Documents or
the Certificate of Designations, neither the Company nor any of the Purchasers
makes any representations, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other than
by a written instrument signed by the Company and the holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding, and no provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the
-24-
<PAGE>
Preferred Shares then outstanding. No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents or the Certificate of Designations unless the
same consideration also is offered to all of the parties to the Transaction
Documents or holders of Preferred Shares, as the case may be.
Section 9.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.
The addresses and facsimile numbers for such communications shall be:
If to the Company: Chief Financial Officer
StarBase Corporation
If to any Purchaser: At the address of such Purchaser
set forth on the Schedule of Purchasers to this
Agreement, with copies to Purchaser's counsel as set
forth on the Schedule of Purchasers or as specified
in writing by such Purchaser
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 9.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 9.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers
-25-
<PAGE>
of the Preferred Shares. Except as in compliance with Section 8(c) of the
Certificate of Designations, the Company shall not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the holders
of three-fourths (3/4) of the Preferred Shares then outstanding including by
merger or consolidation. A Purchaser may assign some or all of its rights
hereunder to Affiliates (as defined below) of such Purchaser, without the
consent of the Company, and to others, with the consent of the Company;
provided, however, that any such assignment shall not release such Purchaser
from its obligations hereunder unless such obligations are assumed by such
assignee and the Company has consented to such assignment and assumption.
Notwithstanding anything to the contrary contained in the Transaction Documents,
Purchaser shall be entitled to pledge the Securities in connection with a bona
fide margin account. For purposes of this Section 9.7, "Affiliates" means with
respect to any Purchaser, any person that directly or indirectly, through one or
more intermediaries, controls, is controlled by or is under common control with
such Person.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 9.9 Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws.
Section 9.10 Survival. The representations and warranties of the
Company and the Purchasers contained in Article II shall survive the execution
and delivery hereof and each of the Closings, and the agreements and covenants
set forth in Articles I, III, V, VII, VIII and IX of this Agreement shall
survive the execution and delivery hereof and each of the Closings hereunder;
provided, that Sections 3.2, 3.4, 3.5 and 3.8 shall expire on the earlier of (i)
the date which is one year after the date as of which the Purchasers may sell
all of the Conversion Shares and Warrant Shares without restriction pursuant to
Rule 144(k) promulgated under the Securities Act (or successor thereto), or (ii)
the date on which (A) the Purchasers shall have sold all the Conversion Shares
and Warrant Shares and (B) none of the Preferred Shares or Warrants are
outstanding. Each Purchaser shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
Section 9.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, such facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
-26-
<PAGE>
Section 9.12. Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchasers,
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section 9.13 Severability. The provisions of this Agreement, the
Certificate of Designations and the Registration Rights Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement, the Certificate of Designations or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Certificate of
Designations or the Registration Rights Agreement shall be reformed and
construed as if such invalid or illegal or unenforceable provision, or part of
such provision, had never been contained herein, so that such provisions would
be valid, legal and enforceable to the maximum extent possible.
Section 9.14 Further Assurances. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate of Designations, and the Registration Rights Agreement.
Section 9.15 Intentionally omitted.
Section 9.16 No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
Section 9.17 Remedies. Each Purchaser shall have all rights and
remedies set forth in the Transaction Documents and the Certificate of
Designations and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
Section 9.18 Payment Set Aside. To the extent that the Company makes a
payment or payments to the Purchasers hereunder or pursuant to the Certificate
of Designations or Warrants or the Purchasers enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or
-27-
<PAGE>
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
* * * * * *
-28-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of the date first above
written.
STARBASE CORPORATION
By:
Name:
Its:
THE PURCHASERS:
By:
Name:
Its:
<PAGE>
SCHEDULE OF PURCHASERS to the
SERIES G CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR STARBASE CORPORATION
Number of
Initial /
Additional
Investor Address Preferred Investor's Representatives'
Investor Name and Facsimile Number A Shares Address and Facsimile Number
- ------------- -------------------- ---------- ----------------------------
-31-
<PAGE>
SCHEDULE OF DEFINED TERMS
Defined Term Section
- ------------ -------
Additional Closing 1.3
Additional Closing Date 1.3
Additional Preferred Shares Recital D
Additional Share Notice 1.4
Affiliates 9.7
Articles 2.1(c)
Bloomberg 1.5
Bylaws 2.1(c)
Capital Raising Limitation 3.13
Certificate of Designations Recital B
Closing Dates 1.3
Closings 1.3
Commission Documents 2.1(f)
Common Stock Recital B
Conversion Shares Recital B
Convertible Securities 3.13
Exchange Act 2.1(f)
Form 10-K 2.1(f)
Form 10-Q 2.1(f)
GAAP 2.1(f)
Indebtedness 2.1(k)
indemnified party 8.2
Initial Closing 1.3
Initial Closing Date 1.3
Initial Preferred Shares Recital C
Irrevocable Transfer Agent
Instructions 3.14
Material Adverse Effect 2.1(a)
Material Agreements 2.1(u)
NASD 2.1(e)
NASDAQ 3.2
Preferred Shares Recitals B and D
Preferred Stock Recital B
Registration Rights Agreement Recital F
Regulation D Recital A
Resolutions 4.2(a)(xi)
Rule 144 2.2(f)
SEC Recital A
Second Closing 1.3
-32-
<PAGE>
Defined Term Section
- ------------ -------
Securities 1.2
Securities Act Recital A
Shares 1.2
Transaction Documents 2.1(b)
Warrants Recital E
Warrant Shares Recital E
Warrant Trigger Date 1.5
-33-
<PAGE>
STARBASE CORPORATION
DISCLOSURE SCHEDULES
RELATING TO THE SERIES G CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT AMONG STARBASE CORPORATION AND
THE PURCHASERS LISTED ON THE SCHEDULE OF PURCHASERS THERETO
ALL SECTION AND SUBSECTION NUMBERS AND LETTERS RELATE AND
COINCIDE TO SUCH NUMBERS AND LETTERS AS SET FORTH IN THE SERIES G CONVERTIBLE
PREFERRED STOCK PURCHASE AGREEMENT (THE "AGREEMENT"). ANY TERMS REQUIRING
DEFINITION HEREIN ARE DEFINED IN THE AGREEMENT.
<PAGE>
SCHEDULE 2.1(c)
Authorized Capital Stock as of June 30, 1998
Common
Authorized
Outstanding
Preferred
Authorized
Series A Outstanding
Series B Outstanding
Series C Outstanding
Series D Outstanding
Series E Outstanding
Series F Outstanding
<PAGE>
SCHEDULE 2.1(e)
Nothing for this schedule
<PAGE>
SCHEDULE 2.1(f)
Nothing for this schedule
<PAGE>
SCHEDULE 2.1(h)
Nothing for this schedule
<PAGE>
SCHEDULE 2.1(k)
At June 30, 1998, the remaining balance to be paid on the lease of the telephone
system is approximately $45,000.
<PAGE>
SCHEDULE 2.1(m)
Nothing for this schedule
<PAGE>
SCHEDULE 2.1(n)
Nothing for this schedule
<PAGE>
SCHEDULE 2.1(o)
Nothing for this schedule
<PAGE>
SCHEDULE 2.1(p)
Nothing for this schedule
<PAGE>
SCHEDULE 2.1(r)
Omitted
<PAGE>
SCHEDULE 2.1(u)
Nothing for this schedule
<PAGE>
SCHEDULE 2.1(v)
Nothing for this schedule
<PAGE>
SCHEDULE 2.1(x)
Nothing for this schedule
EXHIBIT 4.2
CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES
OF THE
SERIES G CONVERTIBLE PREFERRED STOCK
(Par Value $.01 Per Share)
OF
STARBASE CORPORATION
The undersigned, the Chief Executive Officer of StarBase Corporation, a
Delaware corporation (the "Company"), in accordance with the provisions of the
Delaware General Corporation Law, does hereby certify that, pursuant to the
authority conferred upon the Board of Directors by the Articles of Incorporation
of the Company, the following resolution creating a series of Series G
Convertible Preferred Stock, was duly adopted on July 27, 1998:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Company by provisions of the Restated
Certificate of Incorporation of the Company (the "Certificate of
Incorporation"), there hereby is created out of the 10,000,000 shares of
Preferred Stock, par value $.01 per share, of the Company authorized in Article
4 of the Certificate of Incorporation (the "Preferred Stock,"), a series of
Preferred Stock of the Company, to be named "Series G Convertible Preferred
Stock," consisting of Six Thousand Two Hundred (6,200) shares, which series
shall have the following designations, powers, preferences and relative and
other special rights and the following qualifications, limitations and
restrictions:
1. Designation and Rank. The designation of such series of the
Preferred Stock shall be the Series G Convertible Preferred Stock, par value
$.01 per share (the "Series G Convertible Preferred Stock"). The maximum number
of shares of Series G Convertible Preferred Stock shall be 6,200 Shares. The
Series G Convertible Preferred Stock shall have a liquidation preference of
$1,000 per share. The Series G Convertible Preferred Stock shall rank (i) prior
to the common stock, par value $.01 per share (the "Common Stock"), and to all
other classes and series of equity securities of the Company which by its terms
does not rank senior to the Series G Preferred Stock ("Junior Stock") and (ii)
on parity with the currently issued and outstanding Series D, Series E and
Series F Preferred Stock and any other class and series of equity securities
which by its terms shall rank on parity with the Series G Preferred Stock. The
Series G Convertible Preferred Stock shall be subordinate to and rank junior to
all indebtedness of the Company now or hereafter outstanding.
2. No Cumulative Dividends.
(a) Payment of Dividends. The holders of record of shares of
Series G Convertible Preferred Stock are not entitled to any dividends.
<PAGE>
3. Voting Rights.
(a) Class Voting Rights. The Series G Convertible Preferred
Stock shall have the following class voting rights (in addition to the voting
rights set forth in Section 3(b) hereof). So long as any shares of the Series G
Convertible Preferred Stock remain outstanding, the Company shall not, without
the affirmative vote or consent of the holders of at least three-quarters (3/4)
of the shares of the Series G Convertible Preferred Stock outstanding at the
time, given in person or by proxy, either in writing or at a meeting, in which
the holders of the Series G Convertible Preferred Stock vote separately as
class: (i) authorize, create, issue or increase the authorized or issued amount
of any class or series of stock, including but not limited to the issuance of
any more shares of previously authorized Common Stock or Preferred Stock,
ranking prior to the Series G Convertible Preferred Stock, with respect to the
distribution of assets on liquidation, dissolution or winding up; (ii) amend,
alter or repeal the provisions of the Series G Convertible Preferred Stock,
whether by merger, consolidation or otherwise, so as to adversely affect any
right, preference, privilege or voting power of the Series G Convertible
Preferred Stock; provided, however, that any creation and issuance of another
series of Junior Stock shall not be deemed to adversely affect such rights,
preferences, privileges or voting powers; (iii) repurchase, redeem or pay
dividends on, shares of the Company's Junior Stock; (iv) amend the Certificate
of Incorporation or By-Laws of the Company so as to affect materially and
adversely any right, preference, privilege or voting power of the Series G
Convertible Preferred Stock; provided, however, that any creation and issuance
of another series of Junior Stock or any other class or series of equity
securities which by its terms shall rank on parity with the Series G Convertible
Preferred Stock shall not be deemed to materially and adversely affect such
rights, preferences privileges or voting powers; (v) effect any distribution
with respect to Junior Stock; or (vi) reclassify the Company's outstanding
securities.
(b) General Voting Rights. Except with respect
to transactions upon which the Series G Convertible Preferred Stock shall be
entitled to vote separately as a class pursuant to Section 3(a) above and except
as otherwise required by Delaware law, the Series G Convertible Preferred Stock
shall have no voting rights. The Common Stock into which the Series G
Convertible Preferred Stock is convertible shall, upon issuance, have all of the
same voting rights as other issued and outstanding Common Stock of the Company.
4. Liquidation Preference.
(a) In the event of the liquidation, dissolution or winding up
of the affairs of the Company, whether voluntary or involuntary, after payment
or provision for payment of the debts and other liabilities of the Company, the
holders of shares of the Series G Convertible Preferred Stock then outstanding
shall be entitled to receive, out of the assets of the Company whether such
assets are capital or surplus of any nature, an amount (the "Liquidation
Preference Amount") per share equal to $1,000 per share of the Series G
Convertible Preferred Stock before any payment shall be made or any assets
distributed to the holders of the Common Stock or any other Junior Stock. If the
assets of the Company are not sufficient to pay in full the Liquidation
-2-
<PAGE>
Preference Amount payable to the holders of outstanding shares of the Series G
Convertible Preferred Stock and any series of preferred stock or any other class
of stock on a parity, as to rights on liquidation, dissolution or winding up,
with the Series G Convertible Preferred Stock, then all of said assets will be
distributed among the holders of the Series G Convertible Preferred Stock and
the other classes of stock on a parity with the Series G Convertible Preferred
Stock, if any, ratably in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in full. The
liquidation payment with respect to each outstanding fractional share of Series
G Convertible Preferred Stock shall be equal to a ratably proportionate amount
of the liquidation payment with respect to each outstanding share of Series G
Convertible Preferred Stock. All payments for which this Section 4(a) provides
shall be in cash, property (valued at its fair market value as determined by the
Company's independent, outside accountant) or a combination thereof; provided,
however, that no cash shall be paid to holders of Junior Stock unless each
holder of the outstanding shares of Series G Convertible Preferred Stock has
been paid in cash the full the Liquidation Preference Amount to which such
holder is entitled as provided herein. After payment of the full Liquidation
Preference Amount to which each holder is entitled, such holders of shares of
Series G Convertible Preferred Stock will not be entitled to any further
participation as such in any distribution of the assets of the Company.
(b) A consolidation or merger of the Company with or into any
other corporation or corporations , or a sale of all or substantially all of the
assets of the Company, or the effectuation by the Company of a transaction or
series of transaction in which more than 50% of the voting shares of the Company
is disposed of or conveyed, shall not be deemed to be a liquidation,
dissolution, or winding up within the meaning of this Section 4. In the event of
the merger or consolidation of the Company with or into another corporation, the
Series G Convertible Preferred Stock shall maintain its relative powers,
designations and preferences provided for herein and no merger shall result
inconsistent therewith.
(c) Written notice of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, stating a
payment date and the place where the distributable amounts shall be payable,
shall be given by mail, postage prepaid, no less than 45 days prior to the
payment date stated therein, to the holders of record of the Series G
Convertible Preferred Stock at their respective addresses as the same shall
appear on the books of the Company.
5. Conversion. The holder of Series G Convertible Preferred Stock shall
have the following conversion rights (the "Conversion Rights"):
(a) Right to Convert. At any time or from time to time after
the date of issuance of shares of Series G Convertible Preferred Stock (the
"Issuance Date"), the holder of any such shares of Series G Convertible
Preferred Stock may, at such holder's option, subject to the limitations set
forth in Section 7 herein, elect to convert (a "Voluntary Conversion") all or
any portion of the shares of Series G Convertible Preferred Stock held by such
person into a
-3-
<PAGE>
number of fully paid and nonassessable shares of Common Stock (the "Conversion
Rate") equal to the quotient of (i) the Liquidation Preference Amount of the
shares of Series G Convertible Preferred Stock being converted divided by (ii)
the Conversion Price (as defined in Section 5(d) below) then in effect as of the
date of the delivery by such holder of its notice of election to convert.
(b) Mechanics of Voluntary Conversion. The Voluntary
Conversion of Series G Convertible Preferred Stock shall be conducted in the
following manner:
(i) Holder's Delivery Requirements. To convert Series
G Convertible Preferred Stock into full shares of Common Stock on any
date (the "Voluntary Conversion Date"), the holder thereof shall (A)
transmit by facsimile (or otherwise deliver), for receipt on or prior
to 5:00 p.m., Pacific Time on such date, a copy of a fully executed
notice of conversion in the form attached hereto as Exhibit I (the
"Conversion Notice"), to the Company, and (B) surrender to a common
carrier for delivery to the Company as soon as practicable following
such date, the original certificates representing the shares of Series
G Convertible Preferred Stock being converted (or an indemnification
undertaking with respect to such shares in the case of their loss,
theft or destruction) (the "Preferred Stock Certificates") and the
originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by the Company
of a facsimile copy of a Conversion Notice, the Company shall
immediately send, via facsimile, a confirmation of receipt of such
Conversion Notice to such holder. Upon receipt by the Company of the
Preferred Stock Certificates to be converted pursuant to a Conversion
Notice, together with the originally executed Conversion Notice, the
Company or its designated transfer agent (the "Transfer Agent") (as
applicable) shall, on the next business day following the date of
receipt by the Company of both (or the second business day following
the date of receipt by the Company of both if received after 11:00 a.m.
Pacific Time), (A) issue and surrender to a common carrier for
overnight delivery to the address as specified in the Conversion
Notice, a certificate, registered in the name of the holder or its
designee, for the number of shares of Common Stock to which the holder
shall be entitled, or (B) credit such aggregate number of shares of
Common Stock to which the holder shall be entitled to the holder's or
its designee's balance account with The Depository Trust Company. If
the number of Preferred Shares represented by the Preferred Stock
Certificate(s) submitted for conversion is greater than the number of
shares of Series G Convertible Preferred Stock being converted, then
the Company shall, as soon as practicable and in no event later than
two business days after receipt of the Preferred Stock Certificate(s)
and at its own expense, issue and deliver to the holder a new Preferred
Stock Certificate representing the number of shares of Series G
Convertible Preferred Stock not converted.
(iii) Dispute Resolution. In the case of a dispute as
to the determination of the Average Share Price (as defined in Section
5(d) below) or the Conversion Price or
-4-
<PAGE>
the arithmetic calculation of the number of shares of Common Stock to
be issued upon conversion, the Company shall promptly issue to the
holder the number of shares of Common Stock that is not disputed and
shall submit the disputed determinations or arithmetic calculations to
the holder via facsimile as soon as possible, but in no event later
than two (2) business days after receipt of such holder's Conversion
Notice. If such holder and the Company are unable to agree upon the
determination of the Average Share Price or the Conversion Price or
arithmetic calculation of the number of shares of Common Stock to
issued upon such conversion within one (1) business day of such
disputed determination or arithmetic calculation being submitted to the
holder, then the Company shall within one (1) business day submit via
facsimile (A) the disputed determination of the Average Share Price or
the Conversion Price to an independent, reputable investment bank or
(B) the disputed arithmetic calculation of the number of shares of
Common Stock to be issued upon such conversion to its independent,
outside accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results no
later than seventy-two (72) hours from the time it receives the
disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be
binding upon all parties absent manifest error. The reasonable expenses
of such investment bank or accountant in making such determination
shall be paid by the Company, in the event the holder's calculation or
determination was correct, or by the holder, in the event the Company's
calculation or determination was correct, or equally by the Company and
the holder in the event that neither the Company's or the holder's
calculation or determination was correct. The period of time in which
the Company is required to effect conversions or redemptions under this
Certificate of Designations shall be tolled with respect to the subject
conversion or redemption pending resolution of any dispute by the
Company made in good faith and in accordance with this Section
5(b)(iii).
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of the
Series G Convertible Preferred Stock shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on the
Conversion Date.
(v) Company's Failure to Timely Convert. If within
five (5) business days of the Company's receipt of the Preferred Stock
Certificates to be converted and the Conversion Notice (the "Share
Delivery Period") the Company shall fail to issue a certificate to a
holder or credit the holder's balance account with The Depository Trust
Company for the number of shares of Common Stock to which such holder
is entitled upon such holder's conversion of the Series G Convertible
Preferred Stock or to issue a new Preferred Stock Certificate
representing the number of shares of Series G Convertible Preferred
Stock to which such holder is entitled pursuant to Section 5(b)(ii) (a
"Conversion Failure"), in addition to all other available remedies
which such holder may pursue hereunder and under the Securities
Purchase Agreement between the Company and the initial holders of the
Series G Convertible Preferred Stock (the "Securities Purchase
-5-
<PAGE>
Agreement") (including indemnification pursuant to Article VIII
thereof), the Company shall pay additional damages to such holder on
each date after such fifth (5th) business day that such conversion is
not timely effected in an amount equal 0.5% of the product of (A) the
sum of the number of shares of Common Stock not issued to the holder on
a timely basis pursuant to Section 5(b)(ii) and to which such holder is
entitled and, in the event the Company has failed to deliver a
Preferred Stock Certificate to the holder on a timely basis pursuant to
Section 5(b)(ii), the number of shares of Common Stock issuable upon
conversion of the shares of Series G Convertible Preferred Stock
represented by such Preferred Stock Certificate, as of the last
possible date which the Company could have issued such Preferred Stock
Certificate to such holder without violating Section 5(b)(ii) and (B)
the Closing Bid Price of the Common Stock on the last possible date
which the Company could have issued such Common Stock and such
Preferred Stock Certificate, as the case may be, to such holder without
violating Section 5(b)(ii). If the Company fails to pay the additional
damages set forth in this Section 5(b)(v) within five business days of
the date incurred, then such payment shall bear interest at the rate of
2% per month (pro rated for partial months) until such payments are
made.
(c) Mandatory Conversion.
(i) Each share of Series G Convertible Preferred
Stock outstanding on the Mandatory Conversion Date (as defined below) shall,
automatically and without any action on the part of the holder thereof, convert
into a number of fully paid and nonassessable shares of Common Stock equal to
the quotient of (i) the Liquidation Preference Amount of the shares of Series G
Convertible Preferred Stock outstanding on the Mandatory Conversion Date divided
by (ii) the Conversion Price (as defined below) in effect on the Mandatory
Conversion Date.
(ii) As used herein, a "Mandatory Conversion Date"
shall be the date which is two years after the Issuance Date of the applicable
Preferred Shares, provided that the Mandatory Conversion Date shall be extended
for any shares of Series G Convertible Preferred Stock for (x) as long as (A)
the conversion of such Preferred Shares would violate any of the provisions of
Section 7, (B) a Triggering Event (as defined in Section 8(d)) shall have
occurred or (C) any event shall have occurred and be continuing which with the
passage of time and the failure to cure would result in a Triggering Event and
(y) pursuant to Section 2.2(d) of the Registration Rights Agreement between the
Company and the initial holders of the Series G Convertible Preferred Stock (the
"Registration Rights Agreement"), which extension shall be one day for each days
in any Blackout Period (as defined in Section 2.2(d) of the Registration Rights
Agreement). The Mandatory Conversion Date and the Voluntary Conversion Date
collectively are referred to in this Certificate of Designations as the
"Conversion Date."
(iii) On the Mandatory Conversion Date, the
outstanding shares of Series G Convertible Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Company or its transfer agent; provided, however, that the Company shall not be
obligated
-6-
<PAGE>
to issue certificates evidencing the shares of Common Stock issuable upon
conversion of any shares of Series G Convertible Preferred Stock unless
certificates evidencing such shares of Series G Convertible Preferred Stock are
either delivered to the Company or the holder notifies the Company that such
certificates have been lost, stolen, or destroyed, and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. Upon the occurrence of the automatic conversion of
the Series G Convertible Preferred Stock pursuant to this Section 5, the holders
of the Series G Convertible Preferred Stock shall surrender the Preferred Stock
Certificates representing the Series G Convertible Preferred Stock for which the
Mandatory Conversion Date has occurred to the Company and the Company shall
deliver the shares of Common Stock issuable upon such conversion (in the same
manner set forth in Section 5(b)(ii)) to the holder within three business days
of the holder's delivery of the applicable Preferred Stock Certificates.
(d) Conversion Price.
(i) The term "Average Share Price" shall mean the
average of the three (3) lowest closing bid prices of the Company's shares of
Common Stock (as reported by Bloomberg Financial Markets ("Bloomberg")) on The
Nasdaq SmallCap Market ("NASDAQ") (or on such other United States stock exchange
or public trading market ("Alternative Exchange") on which the shares of the
Company trade if, at the time of the conversion, they are not trading on the
NASDAQ), during the twenty-two (22) consecutive trading days immediately
preceding the date of determination.
(ii) The term "Conversion Price" shall mean, with
respect to any conversion of Series G Convertible Preferred Stock, the lesser of
(I) 105% of the average of the Closing Bid Prices (as defined below) of the
Company's Common Stock during the five (5) consecutive trading days immediately
preceding the Issuance Date (the "Fixed Conversion Price") of the applicable
Series G Convertible Preferred Stock, or (II) 95% of the Average Share Price on
the Voluntary Conversion Date or Mandatory Conversion Date for such conversion,
as applicable (the "Floating Conversion Price").
(iii) the term "Closing Bid Price" shall mean, for
any security as of any date, the last closing bid price for such security on the
Nasdaq SmallCap Market (as reported by Bloomberg), or, if the Nasdaq SmallCap
Market is not the principal trading market for such security, the last closing
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price is reported for such security
by Bloomberg, the last closing trade price of such security as reported by
Bloomberg, or, if no last closing trade price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Bid Price of such security on such
-7-
<PAGE>
date shall be the fair market value as mutually determined by the Company and
the holders of a majority of the outstanding shares of Series G Convertible
Preferred Stock. If the Company and the holders of Series G Convertible
Preferred Stock are unable to agree upon the fair market value of the Common
Stock, then such dispute shall be resolved pursuant to Section 5(b)(iii) above
with the term "Closing Bid Price" being substituted for the term "Average Share
Price." (All such determinations to be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such period).
(e) Adjustments of Conversion Price.
(i) Adjustments for Stock Splits and Combinations.
If the Company shall at any time or from time to time after the Issuance Date,
effect a stock split of the outstanding Common Stock, the applicable Fixed
Conversion Price in effect immediately prior to the stock split shall be
proportionately decreased. If the Company shall at any time or from time to time
after the Issuance Date, combine the outstanding shares of Common Stock, the
applicable Fixed Conversion Price in effect immediately prior to the combination
shall be proportionately increased. Any adjustments under this Section 5(e)(i)
shall be effective at the close of business on the date the stock split or
combination occurs.
(ii) Adjustments for Certain Dividends and
Distributions. If the Company shall at any time or from time to time after the
Issuance Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in shares of Common Stock, then, and in each event, the applicable Fixed
Conversion Price in effect immediately prior to such event shall be decreased as
of the time of such issuance or, in the event such record date shall have been
fixed, as of the close of business on such record date, by multiplying, as
applicable, the applicable Fixed Conversion Price then in effect by a fraction:
(A) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date; and
(B) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date plus
the number of shares of Common Stock issuable in payment of such dividend or
distribution.
(iii) Adjustment for Other Dividends and
Distributions. If the Company shall at any time or from time to time after the
Issuance Date, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in other than shares of Common Stock, then, and in each event, an
appropriate revision to the applicable Fixed Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the holders of Series G
-8-
<PAGE>
Convertible Preferred Stock shall receive upon conversions thereof, in addition
to the number of shares of Common Stock receivable thereon, the number of
securities of the Company which they would have received had their Series G
Convertible Preferred Stock been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 5(e)(iii) with
respect to the rights of the holders of the Series G Convertible Preferred
Stock.
(iv) Adjustments for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon conversion of the Series G
Convertible Preferred Stock at any time or from time to time after the Issuance
Date shall be changed to the same or different number of shares of any class or
classes of stock, whether by reclassification, exchange, substitution or
otherwise (other than by way of a stock split or combination of shares or stock
dividends provided for in Sections 5(e)(i), (ii) and (iii), or a reorganization,
merger, consolidation, or sale of assets provided for in Section 5(e)(v)), then,
and in each event, an appropriate revision to the Fixed Conversion Price shall
be made and provisions shall be made (by adjustments of the Conversion Price or
otherwise) so that the holder of each share of Series G Convertible Preferred
Stock shall have the right thereafter to convert such share of Series G
Convertible Preferred Stock into the kind and amount of shares of stock and
other securities receivable upon reclassification, exchange, substitution or
other change, by holders of the number of shares of Common Stock into which such
share of Series G Convertible Preferred Stock might have been converted
immediately prior to such reclassification, exchange, substitution or other
change, all subject to further adjustment as provided herein.
(v) Adjustments for Reorganization, Merger,
Consolidation or Sales of Assets. If at any time or from time to time after the
Issuance Date there shall be a capital reorganization of the Company (other than
by way of a stock split or combination of shares or stock dividends or
distributions provided for in Section 5(e)(i), (ii) and (iii), or a
reclassification, exchange or substitution of shares provided for in Section
5(e)(iv)), or a merger or consolidation of the Company with or into another
corporation, or the sale of all or substantially all of the Company's properties
or assets to any other person (an "Organic Change"), then as a part of such
Organic Change an appropriate revision to the Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the holder of each share of Series G Convertible Preferred Stock shall have
the right thereafter to convert such share of Series G Convertible Preferred
Stock into the kind and amount of shares of stock and other securities or
property of the Company or any successor corporation resulting from Organic
Change. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5(e)(v) with respect to the rights
of the holders of the Series G Convertible Preferred Stock after the Organic
Change to the end that the provisions of this Section 5(e)(v) (including any
adjustment in the applicable Conversion Price then in effect and the number of
shares of stock or other securities deliverable upon conversion of the Series G
Convertible
-9-
<PAGE>
Preferred Stock) shall be applied after that event in as nearly an equivalent
manner as may be practicable.
(vi) Consideration for Stock. In case any shares of
Common Stock or any securities convertible into or exchangeable for, directly or
indirectly, Common Stock ("Convertible Securities"), other than the Series G
Convertible Preferred Stock, or any rights or warrants or options to purchase
any such Common Stock or Convertible Securities, shall be issued or sold:
(A) in connection with any
merger or consolidation in which the Company is the surviving corporation (other
than any consolidation or merger in which the previously outstanding shares of
Common Stock of the Company shall be changed to or exchanged for the stock or
other securities of another corporation), the amount of consideration therefore
shall be deemed to be the fair value, as determined reasonably and in good faith
by the Board of Directors of the Company, of such portion of the assets and
business of the nonsurviving corporation as such Board may determine to be
attributable to such shares of Common Stock, Convertible Securities, rights or
warrants or options, as the case may be; or
(B) in the event of any
consolidation or merger of the Company in which the Company is not the surviving
corporation or in which the previously outstanding shares of Common Stock of the
Company shall be changed into or exchanged for the stock or other securities of
another corporation, or in the event of any sale of all or substantially all of
the assets of the Company for stock or other securities of any corporation, the
Company shall be deemed to have issued a number of shares of its Common Stock
for stock or securities or other property of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was predicated,
and for a consideration equal to the fair market value on the date of such
transaction of all such stock or securities or other property of the other
corporation. If any such calculation results in adjustment of the applicable
Fixed Conversion Price, or the number of shares of Common Stock issuable upon
conversion of the Series G Convertible Preferred Stock, the determination of the
applicable Fixed Conversion Price or the number of shares of Common Stock
issuable upon conversion of the Series G Convertible Preferred Stock immediately
prior to such merger, consolidation or sale, shall be made after giving effect
to such adjustment of the number of shares of Common Stock issuable upon
conversion of the Series G Convertible Preferred Stock.
(vii) Record Date. In case the Company shall take
record of the holders of its Common Stock or any other Preferred Stock for the
purpose of entitling them to subscribe for or purchase Common Stock or
Convertible Securities, then the date of the issue or sale of the shares of
Common Stock shall be deemed to be such record date.
(viii) Certain Issues Excepted. Anything herein to
the contrary notwithstanding, the Company shall not be required to make any
adjustment of the number of shares of Common Stock issuable upon conversion of
the Series G Convertible Preferred Stock
-10-
<PAGE>
upon the grant after the Issuance Date of, or the exercise after the Issuance
Date of, options or warrants or rights to purchase stock under the Company's
stock option plan.
(f) No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series G Convertible Preferred Stock against impairment.
(g) Certificates as to Adjustments. Upon occurrence of each
adjustment or readjustment of the Fixed Conversion Price or number of shares of
Common Stock issuable upon conversion of the Series G Convertible Preferred
Stock pursuant to this Section 5, the Company at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of such Series G Convertible Preferred Stock a
certificate setting forth such adjustment and readjustment, showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon written request of the holder of such affected Series G Convertible
Preferred Stock, at any time, furnish or cause to be furnished to such holder a
like certificate setting forth such adjustments and readjustments, the
applicable Fixed Conversion Price in effect at the time, and the number of
shares of Common Stock and the amount, if any, of other securities or property
which at the time would be received upon the conversion of a share of such
Series G Convertible Preferred Stock. Notwithstanding the foregoing, the Company
shall not be obligated to deliver a certificate unless such certificate would
reflect an increase or decrease of at least one percent of such adjusted amount.
(h) Issue Taxes. The Company shall pay any and all issue and
other taxes, excluding federal, state or local income taxes, that may be payable
in respect of any issue or delivery of shares of Common Stock on conversion of
shares of Series G Convertible Preferred Stock pursuant thereto; provided,
however, that the Company shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
conversion.
(i) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
facsimile or three business days following being mailed by certified or
registered mail, postage prepaid, return-receipt requested, addressed to the
holder of record at its address appearing on the books of the Company. The
Company will give written notice to each holder of Series G Convertible
Preferred Stock at least twenty (20) days prior to the date on which the Company
closes its books or takes a record (I) with respect to any dividend or
distribution upon the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or (III) for determining rights to
vote with respect to any Organic Change, dissolution, liquidation or winding-up
and in no event shall such notice be provided to such holder prior to such
information being made known to the public. The
-11-
<PAGE>
Company will also give written notice to each holder of Series G Convertible
Preferred Stock at least twenty (20) days prior to the date on which any Organic
Change, dissolution, liquidation or winding-up will take place and in no event
shall such notice be provided to such holder prior to such information being
made known to the public.
(j) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the Series G Convertible Preferred Stock. In
lieu of any fractional shares to which the holder would otherwise be entitled,
the Company shall pay cash equal to the product of such fraction multiplied by
the average of the Closing Bid Prices of the Common Stock for the five
consecutive trading days immediately preceding on the Voluntary Conversion Date
or Mandatory Conversion Date, as applicable.
(k) Reservation of Common Stock. The Company shall, so long as
any of shares of Series G Convertible Preferred Stock are outstanding, reserve
and keep available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Series G Convertible Preferred
Stock, such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all of the Series G Convertible Preferred
Stock then outstanding; provided that the number of shares of Common Stock so
reserved shall at no time be less than 150% of the number of shares of Common
Stock for which the shares of Series G Convertible Preferred Stock are at any
time convertible. The initial number of shares of Common Stock reserved for
conversions of the Series G Convertible Preferred Stock and each increase in the
number of shares so reserved shall be allocated pro rata among the holders of
the Series G Convertible Preferred Stock based on the number of shares of Series
G Convertible Preferred Stock held by each holder at the time of issuance of the
Series G Convertible Preferred Stock or increase in the number of reserved
shares, as the case may be. In the event a holder shall sell or otherwise
transfer any of such holder's shares of Series G Convertible Preferred Stock,
each transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and which remain allocated to any person or entity which does not hold
any shares of Series G Convertible Preferred Stock shall be allocated to the
remaining holders of Series G Convertible Preferred Stock, pro rata based on the
number of shares of Series G Convertible Preferred Stock then held by such
holder. The Company shall, from time to time in accordance with the Delaware
General Corporations Law, as amended, increase the authorized number of shares
of Common Stock if at any time the unissued number of authorized shares shall
not be sufficient to satisfy the Company's obligations under this Section 5(k).
(l) Retirement of Series G Convertible Preferred Stock.
Conversion of Series G Convertible Preferred Stock shall be deemed to have been
effected on the applicable Voluntary Conversion Date or Mandatory Conversion
Date, and such date is referred to herein as the "Conversion Date". Upon
conversion of only a portion of the number of shares of Series G Convertible
Preferred Stock represented by a certificate surrendered for conversion, the
Company shall issue and deliver to such holder at the expense of the Company, a
new certificate covering
-12-
<PAGE>
the number of shares of Series G Convertible Preferred Stock representing the
unconverted portion of the certificate so surrendered as required by Section
5(b)(ii).
(m) Regulatory Compliance. If any shares of Common Stock to be
reserved for the purpose of conversion of Series G Convertible Preferred Stock
require registration or listing with or approval of any governmental authority,
stock exchange or other regulatory body under any federal or state law or
regulation or otherwise before such shares may be validly issued or delivered
upon conversion, the Company shall, at its sole cost and expense, in good faith
and as expeditiously as possible, endeavor to secure such registration, listing
or approval, as the case may be.
6. No Preemptive Rights. Except as provided in Section 5 hereof and in
the Securities Purchase Agreement, no holder of the Series G Convertible
Preferred Stock shall be entitled to rights to subscribe for, purchase or
receive any part of any new or additional shares of any class, whether now or
hereinafter authorized, or of bonds or debentures, or other evidences of
indebtedness convertible into or exchangeable for shares of any class, but all
such new or additional shares of any class, or any bond, debentures or other
evidences of indebtedness convertible into or exchangeable for shares, may be
issued and disposed of by the Board of Directors on such terms and for such
consideration (to the extent permitted by law), and to such person or persons as
the Board of Directors in their absolute discretion may deem advisable.
7. Conversion Restrictions. (a) The right of a holder of Series G
Convertible Preferred Stock to convert its Series G Convertible Preferred Stock
pursuant to Section 5 shall be limited as set forth below. Without the prior
consent of the Company, a holder of Preferred Shares (i) shall not be entitled
to convert any shares of Series G Convertible Preferred Stock prior to the date
which is 121 days after the Issuance Date of such shares of Series G Convertible
Preferred Stock and (ii) shall not be entitled convert an aggregate number of
shares of Series G Convertible Preferred Stock from the Issuance Date of such
shares of Series G Convertible Preferred Stock through the date of this
determination in excess of the number of shares of Series G Convertible
Preferred Stock which when divided by the number of shares of Series G
Convertible Preferred Stock purchased by such holder on such Issuance Date would
exceed (a) 0.25 for the period beginning on the date which is 121 days after the
Issuance Date and ending on and including the date which is 150 days after the
Issuance Date, (b) 0.50 for the period beginning on and including the date which
is 151 days after the Issuance Date and ending on and including the date which
is 180 days after the Issuance Date, (c) 0.75 for the period beginning on the
date which is 181 days after the Issuance Date and ending on and including the
date which is 210 days after the Issuance Date and (d) 1.00 for the period
beginning on the date which is 211 days after the Issuance Date and ending on
and including the date which is 240 days after the Issuance Date and ending on
and including the Mandatory Conversion Date. Notwithstanding the foregoing, the
conversion restriction set forth in this Section 7(a) shall not apply (x) if, at
any time after the first Issuance Date of any shares of Series G Convertible
Preferred Stock, the Company issues any shares of Common Stock or any
Convertible Securities (collectively, "Additional Issuances") and the holders of
the securities issued in such Additional Issuance have the right to
-13-
<PAGE>
sell the Common Stock or the Convertible Securities or convert, exercise or
exchange the Convertible Securities at any time prior to the time that the
holders of Series G Convertible Preferred Stock have the right to convert all of
the shares of Series G Convertible Preferred Stock into Common Stock at the
Floating Conversion Price, (y) if, at any time after the applicable Issuance
Date, the sale price of the Common Stock (as reported by Bloomberg) is less than
$1.00 per share or greater than or equal to $4.00 per (in each case, subject to
appropriate adjustment for any stock dividend, stock split or other similar
transaction) or (z) if an event constituting a Major Transaction (as defined in
Section 8(c) below) or a Triggering Event (as defined in Section 8(d) below)
shall have occurred or been publicly announced.
(b) Notwithstanding anything to the contrary set forth in
Section 5 of this Certificate of Designations, in no event shall any holder be
entitled to convert Preferred Stock in excess of that number of shares of Series
G Convertible Preferred Stock which, upon giving effect to such conversion,
would cause the aggregate number of shares of Common Stock beneficially owned by
the holder and its affiliates to exceed 4.99% of the outstanding shares of the
Common Stock following such conversion. For purposes of the foregoing proviso,
the aggregate number of shares of Common Stock beneficially owned by the holder
and its affiliates shall include the number of shares of Common Stock issuable
upon conversion of the shares of Series G Convertible Preferred Stock with
respect to which the determination of such proviso is being made, but shall
exclude the number of shares of Common Stock which would be issuable upon (i)
conversion of the remaining, nonconverted shares of Series G Convertible
Preferred Stock beneficially owned by the holder and its affiliates, and (ii)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, any warrants) subject
to a limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the holder and its affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 2(a), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. The holder may waive the foregoing limitations
by written notice to the Company upon not less than 61 days prior notice (with
such waiver taking effect only upon the expiration of such 61 day notice
period).
8. Redemption.
a. Redemption Option Upon Major Transaction.
In addition to all other rights of the holders of Series G Convertible Preferred
Stock contained herein, simultaneous with the occurrence of a Major Transaction
(as defined below), each holder of Series G Convertible Preferred Stock shall
have the right, at such holder's option, to require the Company to redeem all or
a portion of such holder's shares of Series G Convertible Preferred Stock at a
price per share of Series G Convertible Preferred Stock equal to the greater of
(i) 125% of the Liquidation Preference and (ii) the product of (A) the
Conversion rate (as defined in Section 5(a)) and (B) the Closing Bid Price of
the Common Stock on the trading date immediately preceding such date ("Major
Transaction Redemption Price").
-14-
<PAGE>
b. Redemption Option Upon Triggering Event. In
addition to all other rights of the holders of Series G Convertible Preferred
Stock contained herein, after a Triggering Event (as defined below), each holder
of Series G Convertible Preferred Stock shall have the right, at such holder's
option, to require the Company to redeem all or a portion of such holder's
shares of Series G Convertible Preferred Stock at a price per share of Series G
Convertible Preferred Stock equal to the greater of (i) 125% of the Liquidation
Preference and (ii) the product of (A) the Conversion Rate (as defined in
Section 5(a)) at such time and (B) the Closing Bid Price calculated as of the
date immediately preceding such Triggering Event on which the exchange or market
on which the Common Stock is traded is open ("Triggering Event Redemption Price"
and, collectively with "Major Transaction Redemption Price," the "Redemption
Price").
c. "Major Transaction". A "Major Transaction"
shall be deemed to have occurred at such time as any of the following events:
(i) the consolidation, merger or other
business combination of the Company with or into another Person (other
than (A) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company or (B) a
consolidation, merger or other business combination in which holders of
the Company's voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, the
voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent
if other than a corporation) of such entity or entities).
(ii) the sale or transfer of all or
substantially all of the Company's assets; or
(iii) consummation of a purchase, tender or
exchange offer made to the holders of more than 30% of the outstanding
shares of Common Stock.
d. "Triggering Event". A "Triggering Event"
shall be deemed to have occurred at such time as any of the following events:
(i) the failure of the Registration
Statement to be declared effective by the SEC on or prior the date
which is 180 days after the first Issuance Date;
(ii) while the Registration Statement is
required to be maintained effective pursuant to the terms of the
Registration Rights Agreement, the effectiveness of the Registration
Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the holder of the Series
G Convertible Preferred Stock for sale of the Registrable Securities
(as defined in the Registration Rights Agreement) in accordance with
the terms of the Registration Rights Agreement, and such lapse or
unavailability continues for a period of ten consecutive trading days
(excluding any days during an Allowable Blackout Period (as defined in
Section 2.2(d) of the
-15-
<PAGE>
Registration Rights Agreement)), provided that the cause of such lapse
or unavailability is not due to factors solely within the control of
such holder of Series G Convertible Preferred Stock;
(iii) the suspension from listing or the
failure of the Common Stock to be listed on the Nasdaq SmallCap Market,
the Nasdaq National Market, The New York Stock Exchange, Inc. or The
American Stock Exchange, Inc. for a period of five consecutive days;
(iv) the Company's notice to any holder of
Series G Convertible Preferred Stock, including by way of public
announcement, at any time, of its inability to comply (including for
any of the reasons described in Section 9) or its intention not to
comply with proper requests for conversion of any Series G Convertible
Preferred Stock into shares of Common Stock;
(v) the Company's failure to comply with a
Conversion Notice tendered in accordance with the provisions of this
Certificate of Designations within 10 business days after the receipt
by the Company of the Conversion Notice and the Preferred Stock
Certificates; or
(vi) the Company breaches any
representation, warranty, covenant or other term or condition of the
Securities Purchase Agreement, the Registration Rights Agreement, this
Certificate of Designations or any other agreement, document,
certificate or other instrument delivered in connection with the
transactions contemplated thereby or hereby, except to the extent that
such breach would not have a Material Adverse Effect (as defined in
Section 2.1(a) of the Securities Purchase Agreement) and except, in the
case of a breach of a covenant which is curable, only if such breach
continues for a period of a least ten days.
e. Mechanics of Redemption at Option of Buyer
Upon Major Transaction. No sooner than 15 days nor later than 10 days prior to
the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written notice
thereof via facsimile and overnight courier ("Notice of Major Transaction") to
each holder of Series G Convertible Preferred Stock. At any time after receipt
of a Notice of Major Transaction (or, in the event a Notice of Major Transaction
is not delivered at least 10 days prior to a Major Transaction, at any time
within 10 days prior to a Major Transaction), any holder of Series G Convertible
Preferred Stock then outstanding may require the Company to redeem, effective
immediately prior to the consummation of such Major Transaction, all of the
holder's Series G Convertible Preferred Stock then outstanding by delivering
written notice thereof via facsimile and overnight courier ("Notice of
Redemption at Option of Buyer Upon Major Transaction") to the Company, which
Notice of Redemption at Option of Buyer Upon Major Transaction shall indicate
(i) the number of shares of Series G
-16-
<PAGE>
Convertible Preferred Stock that such holder is electing to redeem and (ii) the
applicable Major Transaction Redemption Price, as calculated pursuant to Section
8(a) above.
f. Mechanics of Redemption at Option of Buyer
Upon Triggering Event. Within one (1) day after the occurrence of a Triggering
Event, the Company shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Triggering Event") to each holder of Series G
Convertible Preferred Stock. At any time after the earlier of a holder's receipt
of a Notice of Triggering Event and such holder becoming aware of a Triggering
Event, any holder of Series G Convertible Preferred Stock then outstanding may
require the Company to redeem all of the Series G Convertible Preferred Stock by
delivering written notice thereof via facsimile and overnight courier ("Notice
of Redemption at Option of Buyer Upon Triggering Event") to the Company, which
Notice of Redemption at Option of Buyer Upon Triggering Event shall indicate (i)
the number of shares of Series G Convertible Preferred Stock that such holder is
electing to redeem and (ii) the applicable Triggering Event Redemption Price, as
calculated pursuant to Section 8(b) above.
g. Payment of Redemption Price. Upon the
Company's receipt of a Notice(s) of Redemption at Option of Buyer Upon
Triggering Event or a Notice(s) of Redemption at Option of Buyer Upon Major
Transaction from any holder of Series G Convertible Preferred Stock, the Company
shall immediately notify each holder of Series G Convertible Preferred Stock by
facsimile of the Company's receipt of such Notice(s) of Redemption at Option of
Buyer Upon Triggering Event or Notice(s) of Redemption at Option of Buyer Upon
Major Transaction and each holder which has sent such a notice shall promptly
submit to the Company such holder's Preferred Stock Certificates which such
holder has elected to have redeemed. The Company shall deliver the applicable
Triggering Event Redemption Price, in the case of a redemption pursuant to
Section 8(f), to such holder within five (5) business days after the Company's
receipt of a Notice of Redemption at Option of Buyer Upon Triggering Event and,
in the case of a redemption pursuant to Section 8(e), the Company shall deliver
the applicable Major Transaction Redemption Price immediately prior to the
consummation of the Major Transaction; provided that a holder's Preferred Stock
Certificates shall have been so delivered to the Company; provided further that
if the Company is unable to redeem all of the Series G Convertible Preferred
Stock to be redeemed, the Company shall redeem an amount from each holder of
Series G Convertible Preferred Stock being redeemed equal to such holder's
pro-rata amount (based on the number of shares of Series G Convertible Preferred
Stock held by such holder relative to the number of shares of Series G
Convertible Preferred Stock outstanding) of all Series G Convertible Preferred
Stock being redeemed. If the Company shall fail to redeem all of the Series G
Convertible Preferred Stock submitted for redemption (other than pursuant to a
dispute as to the arithmetic calculation of the Redemption Price), in addition
to any remedy such holder of Series G Convertible Preferred Stock may have under
this Certificate of Designations and the Securities Purchase Agreement, the
applicable Redemption Price payable in respect of such unredeemed Series G
Convertible Preferred Stock shall bear interest at the rate of 2.0% per month
(prorated for partial months) until paid in full. Until the Company pays such
unpaid applicable Redemption Price in full to a holder of shares of Series G
Convertible Preferred Stock submitted for
-17-
<PAGE>
redemption, such holder shall have the option (the "Void Optional Redemption
Option") to, in lieu of redemption, require the Company to promptly return to
such holder(s) all of the shares of Series G Convertible Preferred Stock that
were submitted for redemption by such holder(s) under this Section 8 and for
which the applicable Redemption Price has not been paid, by sending written
notice thereof to the Company via facsimile (the "Void Optional Redemption
Notice"). Upon the Company's receipt of such Void Optional Redemption Notice(s)
and prior to payment of the full applicable Redemption Price to such holder, (i)
the Notice(s) of Redemption at Option of Buyer Upon Triggering Event or the
Notice(s) of Redemption at Option of Buyer Upon Major Transaction, as the case
may be, shall be null and void with respect to those shares of Series G
Convertible Preferred Stock submitted for redemption and for which the
applicable Redemption Price has not been paid, (ii) the Company shall
immediately return any Series G Convertible Preferred Stock submitted to the
Company by each holder for redemption under this Section 8(g) and for which the
applicable Redemption Price has not been paid and (iii) the Fixed Conversion
Price of such returned shares of Series G Convertible Preferred Stock shall be
adjusted to the lesser of (A) the Fixed Conversion Price as in effect on the
date on which the Void Optional Redemption Notice(s) is delivered to the Company
and (B) the lowest Closing Bid Price during the period beginning on the date on
which the Notice(s) of Redemption of Option of Buyer Upon Major Transaction or
the Notice(s) of Redemption at Option of Buyer Upon Triggering event, as the
case may be, is delivered to the Company and ending on the date on which the
Void Optional Redemption Notice(s) is delivered to the Company; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Fixed Conversion Price then in effect. Notwithstanding the foregoing, in the
event of a dispute as to the determination of the Closing Bid Price or the
arithmetic calculation of the Redemption Price, such dispute shall be resolved
pursuant to Section 5(b)(iii) above with the term "Closing Bid Price" being
substituted for the term "Average Share Price" and the term "Redemption Price"
being substituted for the term "Conversion Price". A holder's delivery of a Void
Optional Redemption Notice and exercise of its rights following such notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice. Payments provided for in this Section
8 shall have priority to payments to other stockholders in connection with a
Major Transaction.
h. Company's Redemption Option. The Company
may redeem all or a portion of the Series G Convertible Preferred Stock upon 3
days prior written notice (the "Company's Redemption Notice") at a price per
share of Series G Convertible Preferred Stock equal to the greater of (i) 125%
of the Liquidation Preference and (ii) the product of (A) the Conversion Rate
(as defined in Section 5(a)) and (B) the Closing Bid Price of the Common Stock
on the trading date immediately preceding the date of the Company's Redemption
Notice; provided, that if a holder has delivered a Conversion Notice to the
Company or delivers a Conversion Notice within 2 days of receipt of the
Company's Redemption Notice, the shares of Series G Convertible Preferred Stock
designated to be converted may not be redeemed by the Company. The Company shall
deliver the redemption price to the holder(s) within five (5) business days
after the Company has delivered the Company's Redemption Notice.
-18-
<PAGE>
9. Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully
Convert. If, upon the Company's receipt of a Conversion Notice or on the
Mandatory Conversion Date, the Company can not issue shares of Common Stock
registered for resale under the Registration Statement for any reason,
including, without limitation, because the Company (x) does not have a
sufficient number of shares of Common Stock authorized and available, (y) is
otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its Securities, including
without limitation the Exchange Cap, from issuing all of the Common Stock which
is to be issued to a holder of Series G Convertible Preferred Stock pursuant to
a Conversion Notice or (z) fails to have a sufficient number of shares of Common
Stock registered for resale under the Registration Statement, then the Company
shall issue as many shares of Common Stock as it is able to issue in accordance
with such holder's Conversion Notice and pursuant to Section 5(b)(ii) above and,
with respect to the unconverted Series G Convertible Preferred Stock, the
holder, solely at such holder's option, can elect to:
(i) require the Company to redeem from such
holder those Series G Convertible Preferred Stock for which the Company
is unable to issue Common Stock in accordance with such holder's
Conversion Notice ("Mandatory Redemption") at a price per Preferred
Share (the "Mandatory Redemption Price") equal to the Triggering Event
Redemption Price as of such Conversion Date;
(ii) if the Company's inability to fully
convert Series G Convertible Preferred Stock is pursuant to Section
9(a)(z) above, require the Company to issue restricted shares of Common
Stock in accordance with such holder's Conversion Notice and pursuant
to Section 5(b)(ii) above;
(iii) void its Conversion Notice and retain
or have returned, as the case may be, the Series G Convertible
Preferred Stock that were to be converted pursuant to such holder's
Conversion Notice (provided that a holder's voiding its Conversion
Notice shall not effect the Company's obligations to make any payments
which have accrued prior to the date of such notice).
(b) Mechanics of Fulfilling Holder's Election.
The Company shall immediately send via facsimile to a holder of Series G
Convertible Preferred Stock, upon receipt of a facsimile copy of a Conversion
Notice from such holder which cannot be fully satisfied as described in Section
9(a) above, a notice of the Company's inability to fully satisfy such holder's
Conversion Notice (the "Inability to Fully Convert Notice"). Such Inability to
Fully Convert Notice shall indicate (i) the reason why the Company is unable to
fully satisfy such holder's Conversion Notice, (ii) the number of Series G
Convertible Preferred Stock which cannot be converted and (iii) the applicable
Mandatory Redemption Price. Such holder shall notify the
-19-
<PAGE>
Company of its election pursuant to Section 9(a) above by delivering written
notice via facsimile to the Company ("Notice in Response to Inability to
Convert").
(c) Payment of Redemption Price. If such holder
shall elect to have its shares redeemed pursuant to Section 9(a)(i) above, the
Company shall pay the Mandatory Redemption Price in cash to such holder within
thirty (30) days of the Company's receipt of the holder's Notice in Response to
Inability to Convert, provided that prior to the Company's receipt of the
holder's Notice in Response to Inability to Convert the Company has not
delivered a notice to such holder stating, to the satisfaction of the holder,
that the event or condition resulting in the Mandatory Redemption has been cured
and all Conversion Shares issuable to such holder can and will be delivered to
the holder in accordance with the terms of Section 2(g). If the Company shall
fail to pay the applicable Mandatory Redemption Price to such holder on a timely
basis as described in this Section 9(c) (other than pursuant to a dispute as to
the determination of the arithmetic calculation of the Redemption Price), in
addition to any remedy such holder of Series G Convertible Preferred Stock may
have under these Articles of Amendment and the Securities Purchase Agreement,
such unpaid amount shall bear interest at the rate of 2.0% per month (prorated
for partial months) until paid in full. Until the full Mandatory Redemption
Price is paid in full to such holder, such holder may void the Mandatory
Redemption with respect to those Series G Convertible Preferred Stock for which
the full Mandatory Redemption Price has not been paid and (i) receive back such
Series G Convertible Preferred Stock, (ii) the Fixed Conversion Price of such
returned Series G Convertible Preferred Stock shall be adjusted to the lesser of
(A) the Fixed Conversion Price as in effect on the date on which the holder
voided the Mandatory Redemption and (B) the lowest Closing Bid Price during the
period beginning on the Conversion Date and ending on the date the holder voided
the Mandatory Redemption. Notwithstanding the foregoing, if the Company fails to
pay the applicable Mandatory Redemption Price within such thirty (30) days time
period due to a dispute as to the determination of the arithmetic calculation of
the Redemption Rate, such dispute shall be resolved pursuant to Section
5(b)(iii) above with the term "Redemption Price" being substituted for the term
"Conversion Price".
(d) Pro-rata Conversion and Redemption. In the
event the Company receives a Conversion Notice from more than one holder of
Series G Convertible Preferred Stock on the same day and the Company can convert
and redeem some, but not all, of the Series G Convertible Preferred Stock
pursuant to this Section 9, the Company shall convert and redeem from each
holder of Series G Convertible Preferred Stock electing to have Series G
Convertible Preferred Stock converted and redeemed at such time an amount equal
to such holder's pro-rata amount (based on the number of Series G Convertible
Preferred Stock held by such holder relative to the number of Series G
Convertible Preferred Stock outstanding) of all Series G Convertible Preferred
Stock being converted and redeemed at such time.
10. Limitation on Number of Conversion Shares. Notwithstanding
any other provision herein, the Company shall not be obligated to issue any
shares of Common Stock upon conversion of the Series G Convertible Preferred
Stock if the issuance of such shares of Common Stock would exceed that number of
shares of Common Stock which the Company may issue upon
-20-
<PAGE>
conversion of the Series G Convertible Preferred Stock (the "Exchange Cap")
without breaching the Company's obligations under the rules or regulations of
The Nasdaq Stock Market, Inc., except that such limitation shall not apply in
the event that the Company (a) obtains the approval of its stockholders as
required by applicable rules of The Nasdaq Stock Market, Inc. for issuances of
Common Stock in excess of such amount or (b) obtains a written opinion from
outside counsel to the Company that such approval is not required, which opinion
shall be reasonably satisfactory to the holders of a majority of the shares of
Series G Convertible Preferred Stock then outstanding; provided, however, that
notwithstanding anything herein to the contrary, the Company, upon written
request from any Purchaser, will issue (x) such number of shares of Common Stock
issuable upon conversion of the Series G Convertible Preferred Stock at the then
current conversion price up to the Exchange Cap, (y) such number of shares of
Common Stock issuable upon conversion of the remaining outstanding Series G
Convertible Preferred Stock at the then current market price, and (z) warrants
to purchase such number of shares of Common Stock based on a ratio of 200,000
shares for each $1,000,000 of Series G Convertible Preferred Stock which cannot
be converted at the then current conversion price, which warrants shall have an
exercise price equal to the then current market price and an exercise period of
eighteen months from the date of issuance. Until such approval or written
opinion is obtained, no purchaser of shares of Series G Convertible Preferred
Stock pursuant to the Securities Purchase Agreement (the "Purchasers") shall be
issued, upon conversion of shares of Series G Convertible Preferred Stock,
shares of Common Stock in an amount greater than the product of (i) the Exchange
Cap amount multiplied by (ii) a fraction, the numerator of which is the number
of shares of Series G Convertible Preferred Stock issued to such Purchaser
pursuant to the Securities Purchase Agreement and the denominator of which is
the aggregate amount of all the shares of Series G Convertible Preferred Stock
issued to the Purchasers pursuant to the Securities Purchase Agreement (the "Cap
Allocation Amount"). In the event that any Purchaser shall sell or otherwise
transfer any of such Purchaser's shares of Series G Convertible Preferred Stock,
the transferee shall be allocated a pro rata portion of such Purchaser's Cap
Allocation Amount. In the event that any holder of Series G Convertible
Preferred Stock shall convert all of such holder's shares of Series G
Convertible Preferred Stock into a number of shares of Common Stock which, in
the aggregate, is less than such holder's Cap Allocation Amount, then the
difference between such holder's Cap Allocation Amount and the number of shares
of Common Stock actually issued to such holder shall be allocated to the
respective Cap Allocation Amounts of the remaining holders of Series G
Convertible Preferred Stock on a pro rata basis in proportion to the number of
shares of Series G Convertible Preferred Stock then held by each such holder.
11. Vote to Change the Terms of or Issue Preferred Stock. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than three-fourths (3/4)
of the then outstanding Series G Convertible Preferred Stock, shall be required
(a) for any change to this Certificate of Designations or the Company's
Certificate of Incorporation which would amend, alter, change or repeal any of
the powers, designations, preferences and rights of the Series G Convertible
Preferred Stock or (b) for the issuance of shares of Series G Convertible
Preferred Stock other than pursuant to the Securities Purchase Agreement.
-21-
<PAGE>
12. Lost or Stolen Certificates. Upon receipt by the Company
of evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the shares of Series
G Convertible Preferred Stock, and, in the case of loss, theft or destruction,
of any indemnification undertaking by the holder to the Company and, in the case
of mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such shares of Series G
Convertible Preferred Stock into Common Stock.
13. Remedies, Characterizations, Other Obligations, Breaches
and Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by the holder thereof and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holders of the Series G Convertible
Preferred Stock and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Series G Convertible Preferred Stock
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
14. Specific Shall Not Limit General; Construction. No
specific provision contained in this Certificate of Designations shall limit or
modify any more general provision contained herein. This Certificate of
Designations shall be deemed to be jointly drafted by the Company and all
initial purchasers of the Series G Convertible Preferred Stock and shall not be
construed against any person as the drafter hereof.
15. Failure or Indulgence Not Waiver. No failure or delay on
the part of a holder of Series G Convertible Preferred Stock in the exercise of
any power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege.
-22-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and
subscribed this Certificate and does affirm the foregoing as true this 31st day
of July, 1998.
STARBASE CORPORATION
By:/s/ William R. Stow, III
------------------------------
Name: William R. Stow, III
Title: Chief Executive Officer
-23-
<PAGE>
EXHIBIT I
STARBASE CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
StarBase Corporation (the "Certificate of Designations"). In accordance with and
pursuant to the Certificate of Designations, the undersigned hereby elects to
convert the number of shares of Series G Convertible Preferred Stock, par value
$.01 per share (the "Preferred Shares"), of StarBase Corporation, a Delaware
corporation (the "Company"), indicated below into shares of Common Stock, par
value $.01 per share (the "Common Stock"), of the Company, by tendering the
stock certificate(s) representing the share(s) of Preferred Shares specified
below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
The Common Stock have been sold pursuant to the Registration Statement
(as defined in the Registration Rights Agreement): YES ____ NO _____
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
Account Number:
(if electronic book entry transfer):
Transaction Code Number (if electronic book entry transfer):
PRICES ATTACHED
-24-
EXHIBIT 4.3
FORM OF REGISTRATION RIGHTS AGREEMENT
dated as of
July 31, 1998
among
STARBASE CORPORATION
and
THE PURCHASERS LISTED ON THE SCHEDULE OF PURCHASERS HERETO
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is dated as of
July 31, 1998 between StarBase Corporation, Inc., a Delaware corporation (the
"Company"), and each of the Purchasers of shares of Series G Convertible
Preferred Stock (the "Preferred Stock") of even date herewith (the "Securities
Purchase Agreement"), whose names are set forth on the Schedule of Purchasers
hereto (individually, a "Purchaser" and collectively, the "Purchasers").
RECITALS
WHEREAS, it is a condition precedent to the obligations of each
Purchaser under the Securities Purchase Agreement that the Company grant
registration rights for the Company's common stock, par value $.01 per share
(the "Common Stock") issuable upon conversion of the Series G Convertible
Preferred Stock and exercise of the common stock warrants which may be issued
pursuant to Section 1.5 of the Securities Purchase Agreement (the "Warrants"),
and
WHEREAS, in connection with resales by the Purchasers of the Common
Stock upon or after conversion of the Preferred Stock or exercise of the
Warrants, the Company and the Purchasers now desire to enter into this Agreement
in order to facilitate such resales.
AGREEMENT
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the
following meanings.
"Board" means the Board of Directors of the Company.
"Business Day" means any day except a Saturday, Sunday or
other day on which banks in New York City, New York are
authorized by law to close.
"Certificate of Designations" means the certificate of powers,
designations, preferences and relative, participating,
optional or other rights of the Company's Series G Convertible
Preferred Stock and the qualifications, limitations and
restrictions thereof, as amended from time to time.
<PAGE>
"Initial Closing Date" shall mean the date of the closing of
the initial issuance of the Preferred Stock to the Purchasers
pursuant to the Securities Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $.01 per
share, of the Company.
"Company" means StarBase Corporation, a Delaware corporation.
"Effective Time" means the date of effectiveness of any
Registration Statement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holders" has the meaning given to it in Section 2.1(b)
hereof.
"NASD" means the National Association of Securities Dealers,
Inc.
"Person" means an individual, corporation, partnership,
limited liability company, association, trust or other entity
or organization, including a governmental or political
subdivision or an agency or instrumentality thereof.
"Preferred Stock" means the Series G Convertible Preferred
Stock, par value $.01 per share, of the Company, issued to the
Purchasers pursuant to the Securities Purchase Agreement.
"Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus
supplement and by all other amendments thereto, including
post-effective amendments, and all materials incorporated by
reference into such Prospectus.
"Registration Statement" means the Shelf Registration
Statement.
"Restricted Securities" means any Securities until (i) a
registration statement covering such Securities has been
declared effective by the Commission and such Securities have
been disposed of pursuant to such effective registration
statement, (ii) such Securities are sold under circumstances
in which all the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are
met, or such Securities may be sold pursuant to Rule 144(k)
(or any similar provision then in force) under the Securities
Act, and are freely tradable after such sale by the
transferee, (iii) such Securities are otherwise transferred,
the
2
<PAGE>
Company has delivered a new certificate or other evidence of
ownership for such Securities not bearing a legend restricting
further transfer and such Securities may be resold without
registration under the Securities Act, or (iv) such Securities
shall have ceased to be outstanding.
"Securities" means the Company's Common Stock issued or
issuable upon conversion of the Preferred Stock (the
"Conversion Shares") and exercise of the Warrants (the
"Warrant Shares"), and any shares of capital stock issued or
issuable with respect to the Conversion Shares, the Warrant
Shares, the Preferred Stock or the Warrants as a result of any
stock split, stock dividend, recapitalization, exchange or
similar event or otherwise, without regard to any limitation
on the conversion of Preferred Stock or the exercise of the
Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the registration
statement of the Company relating to the shelf registration
for resale of Restricted Securities contemplated by Section
2.2 herein, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective
amendments) and all exhibits and materials incorporated by
reference therein.
"Securities Purchase Agreement" has the meaning given to it in
the recitals to this Agreement.
"Warrants" means the common stock warrants issued to the
holders of the Preferred Stock pursuant to Section 1.5 of the
Securities Purchase Agreement.
As used in this Agreement, words in the singular include the
plural, and in the plural include the singular.
ARTICLE 2
REGISTRATION RIGHTS
2.1 Securities Subject to this Agreement.
(a) The Securities entitled to the benefits of this Agreement
are the Restricted Securities, but only for so long as they remain Restricted
Securities.
(b) A Person is deemed to be a holder of Restricted Securities
(each, a "Holder") whenever such Person is the registered holder of such
Restricted Securities on the Company's books and records.
3
<PAGE>
2.2 Shelf Registration.
(a) The Company shall:
(i) as expeditiously as practicable, but no
later than 45 days from the Initial Closing Date, cause to be filed a Shelf
Registration Statement on Form S-3, as applicable, pursuant to Rule 415 under
the Securities Act, which Shelf Registration Statement shall provide for resales
of all Restricted Securities the Holders of which shall have provided to the
Company the information required pursuant to Section 2.2(c) herein; and
(ii) cause such Shelf Registration Statement to
be declared effective by the Commission as expeditiously as practicable, but not
later than 120 days from the Initial Closing Date.
(b) In connection with the Shelf Registration Statement, the
Company shall comply with all the provisions of Section 2.4 below and shall use
its best efforts to effect such registration to permit the sale of the
Restricted Securities being sold in accordance with the intended method or
methods of distribution thereof (as indicated in the information furnished to
the Company pursuant to Section 2.2(c)). Subject to Section 2.2(d), the Company
shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Section 2.2(d) to the extent necessary to ensure that it is available for
resales of Restricted Securities by the Holders of Restricted Securities, and to
ensure that it conforms with the requirements of this Agreement, the Securities
Act and the policies, rules and regulations of the Commission as announced from
time to time, until the earlier of (i) the date as of which the Holders may sell
all of the Restricted Securities without restriction pursuant to Rule 144(k)
promulgated under the Securities Act (or successor thereto) or (ii) the date on
which (A) the Holders shall have sold all the Securities and (B) none of the
shares of Preferred Stock or Warrants is outstanding (the "Registration
Period"). Upon the occurrence of any event that would cause any Shelf
Registration Statement or the Prospectus contained therein (i) to contain a
material misstatement or omission or (ii) not to be effective and usable for the
sale or resale of Restricted Securities during the period required by this
Agreement, the Company shall file promptly an appropriate amendment to such
Shelf Registration Statement or the related Prospectus or any document
incorporated therein by reference, in the case of clause (i), correcting any
such misstatement or omission, and, in the case of either clause (i) or (ii),
use its best efforts to cause such amendment to be declared effective and such
Registration Statement and the related Prospectus to become usable for its
intended purpose(s) as soon as practicable thereafter.
(c) No Holder of Restricted Securities may include any of its
Restricted Securities in the Shelf Registration Statement pursuant to this
Agreement unless and until such Holder furnishes to the Company in writing,
within 10 Business Days after receipt of a written request therefor, such
information specified in Item 507 of Regulation S-K under the Securities Act (or
any similar provision then in force) or such other information as the Company
may reasonably request for use in connection with the Shelf Registration
Statement or Prospectus or
4
<PAGE>
preliminary Prospectus included therein. Each Holder as to which the Shelf
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
(d) Notwithstanding anything to the contrary in this Section
2.2, at any time after the Registration Statement has been declared effective,
the Company may delay the disclosure of material non-public information
concerning the Company the disclosure of which at the time is not, in the good
faith opinion of the Board of Directors of the Company and its counsel, in the
best interest of the Company and, in the opinion of counsel to the Company,
otherwise required (a "Blackout Period"); provided, that the Company shall
promptly (i) notify the Holders in writing of the existence of material
non-public information giving rise to a Blackout Period and the date on which
the Blackout Period will begin, and (ii) notify the Holders in writing of the
date on which the Blackout Period ends; and, provided further, that (x) a
Blackout Period shall not exceed 30 days, (y) during any consecutive 365 day
period, the aggregate number days during all Blackout Periods during such time
shall not exceed 60 days and (z) no Blackout Period shall begin less than 60
days after the end of a prior Blackout Period (an "Allowable Blackout Period").
For purposes of determining the length of a Blackout Period above, the Blackout
Period shall begin on and include the date the Holders receive the notice
referred to in clause (i) and shall end on and include the date the Holders
receive the notice referred to in clause (ii). Upon expiration of the Blackout
Period, the Company shall again be bound by the first sentence of this Section
2.2(e) with respect to the information giving rise thereto. In the event of any
Blackout Period, the Mandatory Conversion Date (as defined in the Certificate of
Designations) shall be delayed one day for each day in the Blackout Period as
provided in Section 5(c)(ii) of the Certificate of Designations.
(e) The initial Registration Statement prepared pursuant
hereto shall register for resale at least that number of shares of Common Stock
equal to the product of (x) 1.5 and (y) the number of Securities as of the date
immediately preceding the date the Registration Statement is initially filed
with the Commission. In the event the number of shares available under a
Registration Statement filed pursuant to this Agreement is insufficient to cover
all of the Securities or a Holder's allocated portion of the Securities pursuant
to Section 2.2(f), the Company shall amend the Registration Statement, or file a
new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover at least 150% of such Securities (based on
the market price of the Common Stock), in each case, as soon as practicable, but
in any event within fifteen (15) days after the necessity therefor arises. The
Company shall use it best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient to cover
all of the Securities" if at any time the number of Securities issued or
issuable upon conversion of the Preferred Stock and exercise of the Warrants is
greater than the quotient determined by dividing (i) the number of shares of
Common Stock available for resale under such Registration Statement by (ii) 1.5.
For purposes of the calculation set forth in the
5
<PAGE>
foregoing sentence, any restrictions on the convertibility of the Preferred
Stock or exerciseability of the Warrants shall be disregarded and such
calculation shall assume that the Preferred Stock and the Warrants are then
convertible and exercisable, respectively, into shares of Common Stock at the
then prevailing Conversion Rate (as defined in the Company's Certificate of
Designations) and Warrant Exercise Price (as defined in the Warrant),
respectively, if applicable.
(f) The initial number of Securities included in any
Registration Statement and each increase in the number of Securities included
therein shall be allocated pro rata among the Holders based on the number of
Securities held by each Holder at the time the Registration Statement covering
such initial number of Securities or increase thereof is declared effective by
the Commission. In the event that a Holder sells or otherwise transfers any of
such Person's Securities, each transferee shall be allocated a pro rata portion
of the then remaining number of Securities included in such Registration
Statement for such transferor. Any shares of Common Stock included in a
Registration Statement and which remain allocated to any Person which ceases to
hold any Securities shall be allocated to the remaining Holders, pro rata based
on the number of Securities then held by such Holders.
(g) Subject to Section 2.6 hereof, the Purchasers holding a
majority of the Securities shall have the right to select one legal counsel to
review and oversee any offering pursuant to this Section 2.2 ("Legal Counsel"),
which shall be designated by the holders of a majority of Securities. The
Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations under this Agreement.
(h) In the event that Form S-3 is not available for any
registration of Securities hereunder, the Company shall (i) register the sale of
the Securities on another appropriate form and (ii) undertake to register the
Securities on Form S-3 as soon as such form is available, provided that the
Company shall maintain the effectiveness of the Registration Statement then in
effect until such time as a Registration Statement on Form S-3 covering
Securities has been declared effective by the Commission.
(i) The Company and the Purchasers each acknowledge that each
Registration Statement prepared in accordance hereunder shall include an
indeterminate number of Securities pursuant to Rule 416 under the Securities Act
so as to cover any and all Securities which may become issuable (i) to prevent
dilution resulting from stock splits, stock dividends or similar transactions
and (ii) if permitted by law, by reason of certain antidilution provisions or
reductions in the Conversion Price (as defined in the Certificate of
Designations) of the Preferred Stock in accordance with the terms thereof,
including, without limitation, the terms which cause the Floating Conversion
Price (as defined in the Certificate of Designations) to decrease as the bid
price of the Common Stock decreases (collectively, the "Rule 416 Securities").
In this regard, the Company agrees to use all reasonable efforts to ensure that
the maximum number of Securities which may be registered pursuant to Rule 416
under the Securities Act are covered by each Registration Statement and, absent
guidance from the Commission or other definitive authority to the contrary, the
Company shall use all reasonable efforts to affirmatively support and to not
take
6
<PAGE>
any position adverse to the position that each Registration Statement filed
hereunder covers all of the Rule 416 Securities. If the Company determines that
the Registration Statement filed hereunder does not cover all of the Rule 416
Securities, the Company shall immediately (i) provide to each Holder written
evidence setting forth the basis for the Company's position and the authority
therefor and (ii) prepare and file an amendment to such Registration Statement
or a new Registration Statement in accordance with Section 2.2(e).
2.3 Registration Procedures. In connection with any Registration
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Restricted Securities, the Company shall:
(a) prepare and file with the Commission such amendments and
post-effective amendments to such Registration Statement as may be necessary to
keep such Registration Statement effective for the applicable period set forth
in Section 2.2(b) herein; cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant to
Rule 424 under the Securities Act, and to comply fully with the applicable
provision of Rules 424 and 430A, as applicable, under the Securities Act in a
timely manner; and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or methods
of distribution by the sellers thereof set forth in such Registration Statement
or supplement or the Prospectus;
(b) advise the Holders covered by such Registration Statement
in writing, (i) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and when the same has become effective
(provided that in the case of effectiveness, the Company shall deliver such
advice by facsimile on the same day that the Company is advised by the
Commission of such effectiveness), (ii) of any request by the Commission for
post-effective amendments to such Registration Statement or post-effective
amendments or supplements to the Prospectus or for additional information
relating thereof, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of any such Registration Statement under the
Securities Act or of the suspension by any state securities commission of the
qualification of the Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the preceding
purposes, and (iv) of the existence of any fact or the happening of any event
that makes any statement of a material fact made in any such Registration
Statement, the related Prospectus, any amendment or supplement thereto, or any
document incorporated by reference therein untrue, or that requires the making
of any additions to or changes in any such Registration Statement or the related
Prospectus in order to make the statements therein not misleading. If at any
time the Commission shall issue any stop order suspending the effectiveness of
such Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Restricted Securities under state securities
or Blue Sky laws, the Company shall use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
7
<PAGE>
(c) promptly furnish to each Holder of Restricted Securities
and Legal Counsel covered by any Registration Statement if any, without charge,
at least one conformed copy of any Registration Statement, as first filed with
the Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference) and such other documents as such Holder may
reasonably request and deliver to Legal Counsel one copy of each such document;
(d) deliver to each Holder covered by any Registration
Statement, and each underwriter, if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such person reasonably may request;
(e) take all such reasonable action in connection therewith
(including those reasonably requested by the selling Holders or the
underwriter(s), if any) required in order to expedite or facilitate the
disposition of such Restricted Securities pursuant to such Registration
Statement, including, but not limited to, provide for the indemnification
provisions and procedures of Section 2.5 hereof with respect to selling Holders.
(f) cooperate with the selling Holders and the Legal Counsel
in connection with the registration and qualification of the Restricted
Securities under the securities or Blue Sky laws of such U.S. jurisdictions as
the selling Holders may reasonably request in writing by the time any
Registration Statement is declared effective by the Commission, and do any and
all other acts or filings necessary or advisable to enable disposition in such
U.S. jurisdictions of the Restricted Securities covered by any Registration
Statement and to file such consents to service of process or other documents as
may be necessary in order to effect such registration or qualification;
provided, however, that the Company shall not be required to register or qualify
as a foreign corporation in any jurisdiction where it is not then so qualified
or as a dealer in securities in any jurisdiction where it would not otherwise be
required to register or qualify but for this Section 2.3, or to take any action
that would subject it to taxation or require it to file a general consent to
service of process, in any jurisdiction where it is not then so subject or
required;
(g) in connection with any sale of Restricted Securities that
will result in such securities no longer being Restricted Securities, cooperate
with the selling Holders to facilitate the timely preparation and delivery of
certificates representing Restricted Securities to be sold and not bearing any
restrictive legends; and enable such Restricted Securities to be in such
denominations and registered in such names as the Holders may request at least
two (2) Business Days prior to any sale of Restricted Securities;
(h) use its reasonable efforts to cause the disposition of the
Restricted Securities covered by any Registration Statement to be registered
with or approved by such other U.S. governmental agencies or authorities as may
be necessary to enable the seller or sellers thereof to consummate the
disposition of such Restricted Securities, subject to the proviso contained in
Section 2.2(f);
8
<PAGE>
(i) if any fact or event contemplated by Section 2.3(b) shall
exist or have occurred, prepare and file with the Commission as promptly as
practicable a supplement or post-effective amendment to any Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of Restricted Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact necessary
to make the statement therein not misleading;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally available
to its security holders with regard to such Registration Statement, as soon as
practicable, a consolidated earnings statement meeting the requirements of Rule
158 (which need not be audited) for the twelve-month period beginning with the
first month of the Company's first fiscal quarter commencing after the effective
date of any Registration Statement;
(k) if applicable, use its best efforts to list, not later
than the effective date of such Registration Statement, all Restricted
Securities covered by such Registration Statement on any trading market on which
any Common Stock of the Company is then admitted for trading; and
(l) provide promptly to each Holder covered by any
Registration Statement upon request each document filed with the Commission
pursuant to the requirements of Section 12 and Section 14 of the Exchange Act.
(m) The Company shall hold in confidence and not make any
disclosure of information concerning a Holder provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning a Holder is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt written
notice to such Holder and allow such Holder, at the Holder's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information.
(n) If requested by a Holder, the Company shall (i)
immediately incorporate in a prospectus supplement or post-effective amendment
such information as the Holder agrees should be included therein relating to
information relating to such Holder or the sale and distribution of the
Securities; (ii) make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment.
9
<PAGE>
(o) The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission in connection with
any registration hereunder.
(p) Within two (2) business days after the Registration
Statement which includes the Securities is ordered effective by the Commission,
the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Securities (with copies to the Holders
whose Securities are included in such Registration Statement) confirmation that
the Registration Statement has been declared effective by the Commission in the
form attached hereto as Exhibit A.
Each Holder agrees by acquisition of a Restricted Security that, upon
receipt of any notice from the Company of the existence of any fact of the kind
described in Section 2.3(b)(iv) or the commencement of an Allowable Blackout
Period, such Holder will forthwith discontinue disposition of Restricted
Securities pursuant to any Registration Statement until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
2.3(i), or until it is advised in writing, in accordance with the notice
provisions of Section 2.2(d) or Section 5.3 herein (the "Advice"), by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings that are incorporated by reference in
the Prospectus. If so directed by the Company, each Holder will deliver to the
Company all copies, other than permanent file copies, then in such Holder's
possession, of the Prospectus covering such Restricted Securities that was
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the time period regarding the effectiveness of the Shelf
Registration Statement set forth in Section 2.2(b) shall be extended by the
number of days during the period from and including the date of the giving of
such notice pursuant to Section 2.3(b)(iv) or the commencement of a Blackout
Period to and including the date when each selling Holder covered by such
Registration Statement shall have received the copies of the supplemented or
amended Prospectus contemplated by Section 2.3(i) or shall have received (in
accordance with the notice provisions of Section 5.3) the Advice.
2.4 Preparation; Reasonable Investigation. In connection with
preparation and filing of each Registration Statement under the Securities Act,
the Company will give the Holders of Restricted Securities registered under such
Registration Statement and their respective counsel and accountants, the
opportunity to review such Registration Statement, each prospectus included
therein or filed with the Commission, and each amendment thereof or supplement
thereto a reasonable period of time, but in no event less than five (5) business
days, prior to filing each such Registration Statement, amendment or supplement
with the Commission, and, if warranted, will give each of them the financial
statements, contracts and other corporate records as requested, and such
opportunities to discuss the business, finances and accountants of the Company
and its subsidiaries with its officers, directors and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such Holders and such Holders' respective counsel, to conduct
a reasonable investigation within the meaning of the Securities Act. If any such
information is reasonably deemed to be confidential, then the Holders receiving
such
10
<PAGE>
confidential information shall execute a confidentiality agreement with the
Company in a form reasonably acceptable to the Company.
2.5 Certain Rights of Holders. Unless required by applicable law, the
Company will not file any registration statement under the Securities Act which
refers to any Holder of Restricted Securities by name or otherwise without the
prior written approval of such Holder, which may not be unreasonably withheld.
2.6 Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses; (ii) all
reasonable fees and expenses of compliance with federal securities and state
Blue Sky or securities laws; (iii) all expenses of printing, messenger and
delivery services and telephone calls; (iv) all fees and disbursements of
counsel for the Company; and (v) all fees and disbursements of independent
certified public accountants of the Company.
2.7 Indemnification; Contribution.
(a) The Company agrees to indemnify, hold harmless and defend
(i) each Holder covered by any Registration Statement, (ii) each person, if any,
who controls (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) any such Holder or underwriter (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
person") and (iii) the respective officers, directors, partners, employees,
representatives and agents of any such Holder or underwriter or any controlling
person (any person referred to in clause (i), (ii) or (iii) may hereinafter be
referred to as an "indemnified person"), to the fullest extent lawful, from and
against any and all losses, claims, damages, liabilities, judgments, fines,
amounts paid in settlement, costs or expenses, joint or several, (collectively,
"Claims") incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the foregoing by
or before any court or governmental, administrative or other regulatory agency,
body of the Commission, whether pending or threatened, whether or not an
indemnified party is or may be a party thereto ("Indemnified Damages"), to which
any indemnified person may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon, or are caused by: (i) any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement (or any
amendment or supplement thereto filed with the Commission) or in any filing made
in connection with the qualification of the offering under the securities or
other "blue sky" laws of any jurisdiction in which Securities are offered ("Blue
Sky Filings"), or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary Prospectus if used prior to the
effective date of such Registration Statement, or contained in any
11
<PAGE>
final Prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the Commission) or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary, in light of the circumstances under which the statements therein were
made, not misleading or (iii) a violation by the Company of the Securities Act,
the Exchange Act or any state securities law, or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state securities
law, or any other law applicable to the Company relating to any such
registration or qualification (the matters in the foregoing clauses (i) through
(iii) being, collectively, "Violations"); except insofar as such Claims or an
indemnified person: (x) are caused by any such untrue statement or omission or
alleged untrue statement or omission that is based upon and in conformity with
information relating to such indemnified person furnished in writing to the
Company by or on behalf of any of such indemnified person expressly for use
therein; or (y) with respect to any preliminary Prospectus, result from the fact
that such person sold Securities to a person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the
Prospectus, as amended or supplemented, if the Company shall have previously
furnished copies thereof to such person in accordance with this Agreement and
said Prospectus, as amended or supplemented, would have corrected such untrue
statement or omission. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of any indemnified person
and shall survive the transfer of such securities by such Holder.
In case any Claim shall be brought or asserted against any of
the indemnified persons with respect to which indemnity may be sought against
the Company, such indemnified person shall promptly notify the Company and the
Company shall assume the defense thereof. Such indemnified person shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified person unless (i) the employment of such counsel
shall have been specifically authorized in writing by the Company, (ii) the
Company shall have failed to assume the defense and employ counsel or (iii) the
named parties to any such action (including any implied parties) include both
the indemnified person and the Company and the indemnified person shall have
been advised in writing by its counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to the Company (in which case the Company shall not have the right to
assume the defense of such action on behalf of the indemnified person), it being
understood, however, that the Company shall not, in connection with such action
or similar or related actions or proceedings arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) at
any time for all the indemnified persons, which firm shall be (x) designated by
such indemnified persons holding a majority in interest of the Securities
included in the Registration Statement to which the Claim relates and (y)
reasonably satisfactory to the Company. The Company shall not be liable for any
settlement of any such action or proceeding effected without the Company's prior
written consent, which consent shall not be withheld unreasonably, and the
Company agrees to indemnify and hold harmless any indemnified person from and
against any loss, claim, damage, liability, judgment or expense by reason of any
settlement of any action effected with the written consent of the
12
<PAGE>
Company. The Company shall not, without the prior written consent of each
indemnified person, settle or compromise or consent to the entry of judgment on
or otherwise seek to terminate any pending or threatened action, claim,
litigation or proceeding in respect of which indemnification or contribution may
be sought hereunder (whether or not any indemnified person is a party thereto),
unless such settlement, compromise, consent or termination includes an
unconditional release of each indemnified person from all liability arising out
of such action, claim, litigation or proceeding. The failure by an indemnified
person to promptly notify the Company with respect to any Claim brought or
asserted against an indemnified person with respect to which indemnity is sought
shall not relieve the Company of any liability to the indemnified person under
this Section 2.7, except to the extent that the Company is prejudiced in its
ability to defend such action. The indemnification required by this Section 2.2
shall be made by periodic payments of the amounts thereof during the course of
the investigation or defense, as and when bills are received or Indemnified
Damages are incurred.
(b) Each Holder of Restricted Securities covered by any
Registration Statement agrees, severally and jointly, to indemnify and hold
harmless the Company and its directors, officers and any person controlling
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) the Company, and the respective officers, directors, partners,
employees, representatives and agents of each person, to the same extent as the
foregoing indemnity from the Company to each of the indemnified persons, but
only with respect to actions based on and in conformity with information
relating to such Holder furnished in writing by or on behalf of such Holder
expressly for use in any Registration Statement or Prospectus. In case any
action or proceeding shall be brought against the Company or its directors or
officers or any such controlling person in respect of which indemnity may be
sought against a Holder of Restricted Securities covered by any Registration
Statement, such Holder shall have the rights and duties given the Company in the
second paragraph of Section 2.7(a) (except that the Holder may but shall not be
required to assume the defense thereof), and the Company or its directors or
officers or such controlling person shall have the rights and duties given to
each Holder by the second paragraph of Section 2.7(a). Notwithstanding the
foregoing, the Holder shall be liable under this Section 2.7(b) only for that
amount of a Claim or Indemnified Damages as does not exceed the proceeds to such
Holder as a result of the sale of Securities pursuant to such Registration
Statement.
(c) If the indemnification provided for in this Section 2.7 is
unavailable to an indemnified party under Section 2.7(a) or (b) (other than by
reason of exceptions provided in those Sections) in respect of any Claims or
Indemnified Damages referred to therein, then each applicable indemnifying party
(in the case of the Holders severally and not jointly), in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Claims or Indemnified Damages in such
proportion as is appropriate to reflect the relative fault of the Company and
such Holder in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities, judgments or expenses, as well as any
other relevant equitable considerations. The relative fault of the Company on
the one hand and of such Holder on the other shall be determined by reference
to,
13
<PAGE>
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by such Holder. The amount paid to a
party as a result of the Claims or Indemnified Damages referred to above shall
be deemed to include, subject to the limitations set forth in the second
paragraph of Section 2.7(a), any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim.
The Company and each Holder of Restricted Securities covered
by any Registration Statement agree that it would not be just and equitable if
contribution pursuant to this Section 2.7(c) were determined by pro rata
allocation (even if the Holders were treated as one entity for such purpose) or
by any other method of allocation which does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 2.7(c), no Holder (and none of
its related indemnified persons) shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the dollar amount of
proceeds received by such Holder upon the sale of the Restricted Securities
pursuant to such Registration Statement exceeds the amount of any damages which
such Holder has otherwise been required to pay by reason of such untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution provisions contained in this
Section 2.7 are in addition to any liability which the indemnifying person may
otherwise have to the indemnified persons referred in this Section 2.7.
ARTICLE 3
DAMAGES
If the Registration Statement covering the resale of all of the
Securities is not (i) declared effective by the Commission on or before 120 days
after the Initial Closing Date (the "Scheduled Effective Date"); or (ii) if
after the Registration Statement has been declared effective by the Commission,
sales of all such Securities cannot be made pursuant to the Registration
Statement (whether because of a failure to keep the Registration Statement
effective, to disclose such information as is necessary for sales to be made
pursuant to the Registration Statement, to register sufficient shares of Common
Stock or otherwise), then, as partial relief for the damages to any Holder by
reason of any such delay in or reduction of its ability to sell the Securities
(which remedy shall not be exclusive of any other remedies available at law or
in equity), the Company shall pay to each Holder an amount in cash equal to the
product of (i) $1,000 multiplied by (ii) the sum of (A) the number of shares of
Preferred Stock held by such Holder plus (B) the number of Conversion Shares
held by such Holder divided by the Conversion Rate at which such shares were
issued, multiplied by (iii) the quotient of .02 divided by 30, multiplied by
(iv) the sum of (x) if
14
<PAGE>
applicable, the number of days (with respect to which Registration Delay
Payments have not previously been made) after the Scheduled Effective Date that
the relevant Registration Statement has not been declared effective by the
Commission, and (y) if applicable, the number of days (with respect to which
Registration Delay Payments have not previously been made and excluding days
during an Allowable Blackout Period) that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective. The payments to which a Holder shall be entitled pursuant to this
Article 3 are referred to herein as "Registration Delay Payments." Registration
Delay Payments shall be paid within five business days of the earlier of (A) the
first day of the month following the occurrence of the event resulting in the
requirement to make Registration Delay Payments, or (B) the date on which the
event resulting in the requirement to make Registration Delay Payments is cured.
In the event the Company fails to make Registration Delay Payments in a timely
manner, such Registration Delay Payments shall bear interest at the rate of 2.0%
per month (prorated for partial months) until paid in full.
ARTICLE 4
RULE 144
With a view to making available to the Holders the benefits of
Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Holders to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
so long as the Company remains subject to such requirements and the filing of
such reports and other documents is required for the applicable provisions of
Rule 144;
c. furnish to each Holder so long as such Holder owns
Restricted Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration; and
d. upon compliance by the Holders with clause (iii) of Section
6.1 of the Securities Purchase Agreement, cause an opinion of counsel to be
delivered to the transfer agent regarding the availability of Rule 144 for the
sale of securities of the Company by the Holders.
15
<PAGE>
ARTICLE 5
MISCELLANEOUS
5.1 Entire Agreement. This Agreement, together with the Securities
Purchase Agreement and the Certificate of Designations, constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both oral and written,
between the parties with respect to the subject matter hereof.
5.2 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent holders of Preferred Stock, Warrants or Restricted Securities;
provided, however, that this Agreement shall not inure to the benefit of or be
binding upon a successor or assign of a Holder unless and to the extent such
successor or assign acquired Preferred Stock, Warrants or Restricted Securities
from such Holder at a time when such Holder could not transfer such Restricted
Securities pursuant to pursuant to Rule 144(k) under the Securities Act as
contemplated by clause (ii) of the definition of Restricted Securities.
5.3 Notices. Any notice, demand, request, waiver or other communication
required or permitted to be given hereunder shall be in writing and shall be
effective (a) upon hand delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the
16
<PAGE>
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses and facsimile numbers for
such communications shall be:
If to the Company: Chief Financial Officer
StarBase Corporation
If to any Purchaser: At the address of such Purchaser
set forth on the Schedule of Purchasers to this
Agreement, with copies to Purchaser's counsel as set
forth on the Schedule of Purchasers or as specified
in writing by such Purchaser
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.
5.4 Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
5.5 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, such facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
5.6 Applicable Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York without regard to the
principles of conflict of laws.
5.7 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof or
17
<PAGE>
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby
irrevocably submits to the jurisdiction of the state and federal courts sitting
in the City of New York, borough of Manhattan for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Purchasers consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section shall affect or
limit any right to serve process in any other manner permitted by law.
5.8 Amendment and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the Restricted Securities. No
provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least two-thirds (2/3) of
the Restricted Securities and no provision hereof may be waived other than by an
instrument in writing signed by the party against whom enforcement is sought. No
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Restricted Securities then outstanding. No consideration
shall be offered or paid to any person to amend or consent to a waiver or
modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.
5.9 Severability. The provisions of this Agreement are severable and,
in the event that any court of competent jurisdiction shall determine that any
one or more of the provisions or part of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision or part of a provision of this Agreement shall be reformed
and construed as if such invalid or illegal or unenforceable provision, or part
of such provision, had never been contained herein, so that such provisions
would be valid, legal and enforceable to the maximum extent possible.
5.10 No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
5.11 Remedies. Each Purchaser shall have all rights and remedies
set forth in this Agreement and all rights and remedies which such holders have
been granted at any time under any other agreement or contract and all of the
rights which such holders have under any law. Any
18
<PAGE>
person having any rights under any provision of this Agreement shall be entitled
to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement
and to exercise all other rights granted by law.
5.12 Payment Set Aside. To the extent that the Company makes a payment
or payments to the Purchasers hereunder or the Purchasers enforce or exercise
their rights hereunder or thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
[The remainder of this page is intentionally left blank]
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
STARBASE CORPORATION
By:
Name:
Its:
THE PURCHASERS
By:
Name:
Its:
20
<PAGE>
SCHEDULE OF PURCHASERS
Number of
Initial /
Additional
Investor Address Preferred Investor's Representatives'
Investor Name and Facsimile Number A Shares Address and Facsimile Number
- ------------- -------------------- ---------- -----------------------------
22
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
Attn:
Re: StarBase Corporation
Ladies and Gentlemen:
We are counsel to StarBase Corporation, a Delaware corporation (the
"Company"), and have represented the Company in connection with that certain
Securities Purchase Agreement (the "Purchase Agreement") entered into by and
among the Company and the buyers named therein (collectively, the "Holders")
pursuant to which the Company issued to the Holders shares of its Series G
Convertible Preferred Stock, par value $.01 per share, (the "Preferred Stock")
convertible into shares of the Company's common stock, par value $.01 per share
(the "Common Stock"), and, pursuant to Section 1.5 of the Purchase Agreement,
may issue warrants to purchase shares of the Common Stock (the "Warrants").
Pursuant to the Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Holders (the "Registration Rights
Agreement") pursuant to which the Company agreed, among other things, to
register the Securities (as defined in the Registration Rights Agreement),
including the shares of Common Stock issuable upon conversion of the Preferred
Stock and exercise of the Warrants, under the Securities Act of 1933, as amended
(the "1933 Act"). In connection with the Company's obligations under the
Registration Rights Agreement, on _________ ___, 1998, the Company filed a
Registration Statement on Form S-3 (File No. 333-_____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Securities which names each of the Holders as a selling
stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Securities are
available for resale under the 1933 Act pursuant to the Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
cc: [LIST NAMES OF HOLDERS]
23
EXHIBIT 4.4
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO
COMPLY WITH THE APPLICABLE STATE SECURITIES LAWS.
STARBASE CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: ------------------------------- Number of Shares: ----------
Date of Issuance: ---------------- --, ----
StarBase Corporation, a Delaware corporation (the "Company"), hereby certifies
that, for Ten United States Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
____________________, the registered holder hereof or its permitted assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this Warrant, at any time or times on or after the date
hereof, but not after 11:59 P.M. Pacific Time on the Expiration Date (as defined
herein)________________________________ (__________________) ( ) [INSERT 15% OF
# OF CONVERSION SHARES ISSUABLE ON WARRANT TRIGGER DATE] fully paid
nonassessable shares of Common Stock (as defined herein) of the Company (the
"Warrant Shares") at the purchase price per share provided in Section 1(b)
below; provided, however, that in no event shall the holder be entitled to
exercise this Warrant for a number of Warrant Shares in excess of that number of
Warrant Shares which, upon giving effect to such exercise, would cause the
aggregate number of shares of Common Stock beneficially owned by the holder and
its affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such exercise. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates
<PAGE>
shall include the number of shares of Common Stock issuable upon exercise of
this Warrant with respect to which the determination of such proviso is being
made, but shall exclude shares of Common Stock which would be issuable upon (i)
exercise of the remaining, unexercised Warrants beneficially owned by the holder
and its affiliates and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company beneficially owned by
the holder and its affiliates (including, without limitation, any convertible
notes or preferred stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. The holder may waive the foregoing limitation by written
notice to the Company upon not less than 61 days prior written notice (with such
waiver taking effect only upon the expiration of such 61 day notice period).
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
Warrants (the "Preferred Share Warrants") issued pursuant to the terms of that
certain Securities Purchase Agreement dated as of July ___, 1998, among the
Company and the Buyers referred to therein (the "Securities Purchase
Agreement").
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
"Closing Bid Price" means, for any security as of any
date, the last closing bid price for such security on The Nasdaq SmallCap
Market, Inc. as reported by Bloomberg Financial Markets ("Bloomberg"), or, if
The Nasdaq SmallCap Market, Inc. is not the principal trading market for such
security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price for such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of the Preferred Shares. If the Company and the
holders of the Preferred Shares are unable to agree upon the fair market value
of the Common Stock, then such dispute shall be resolved pursuant to Section
2(a) of this Warrant. (All such determinations to be appropriately adjusted for
any stock dividend, stock split or other similar transaction during such
period.)
"Approved Stock Plan" shall mean any employee benefit
plan which has been approved by the Board of Directors of the Company, pursuant
to which the Company's
-2-
<PAGE>
securities may be issued to any employee, officer, director, consultant or other
service provider for services provided to the Company.
"Certificate of Designations" means the Company's
Certificate of Designations, Preferences and Rights of the Preferred Shares.
"Common Stock" means (i) the Company's common stock,
par value $.01 per share, and (ii) any capital stock into which such Common
Stock shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
"Convertible Securities" means any stock or
securities (other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
"Common Stock Deemed Outstanding" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as
defined below) or Convertible Securities (as defined below) are actually
exercisable or convertible at such time, but excluding any shares of Common
Stock owned or held by or for the account of the Company or issuable upon
exercise of the Preferred Share Warrants.
"Expiration Date" means the date two (2) years from
the date of this Warrant or, if such date falls on a Saturday, Sunday or other
day on which banks are required or authorized to be closed in the City of New
York or the State of New York or on which trading does not take place on the
principal exchange or automated quotation system on which the Common Stock is
traded (a "Holiday"), the next preceding date that is not a Holiday.
"Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
"Other Securities" means (i) those warrants of the
Company issued prior to, and outstanding on, the date of issuance of this
Warrant, (ii) the Preferred Shares and (iii) the shares of Common Stock issued
upon conversion of the Preferred Shares.
"Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
"Preferred Shares" means the shares of the Company's
Series G Convertible Preferred Stock, par value $.01 per share, issued pursuant
to the Securities Purchase Agreement.
"Securities Act" means the Securities Act of 1933, as
amended.
-3-
<PAGE>
"Warrant" means this Warrant and all Warrants issued
in exchange, transfer or replacement of any thereof.
"Warrant Exercise Price" shall be equal to $_______
[SEE SECTION 1.6 OF SECURITIES PURCHASE AGREEMENT], subject to adjustment as
hereinafter provided.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant
may be exercised by the holder hereof then registered on the books of the
Company, in whole or in part, at any time on any business day on or after the
opening of business on the date hereof and prior to 5:00 P.M. Pacific Time on
the Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which the Warrant is being exercised (plus any applicable issue or
transfer taxes) (the "Aggregate Exercise Price") in cash or by check or wire
transfer, and (iii) the surrender to a common carrier for delivery to the
Company as soon as practicable following such date, this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction); provided, that if such Warrant Shares are to be
issued in any name other than that of the registered holder of this Warrant,
such issuance shall be deemed a transfer and the provisions of Section 7 shall
be applicable. In the event of any exercise of the rights represented by this
Warrant in compliance with this Section 2(a), a certificate or certificates for
the Warrant Shares so purchased, in such denominations as may be requested by
the holder hereof and registered in the name of, or as directed by, the holder,
shall be delivered at the Company's expense to, or as directed by, such holder
as soon as practicable, and in no event later than two business days, after the
Company's receipt of the Exercise Notice, the Aggregate Exercise Price and this
Warrant (or an indemnification undertaking with respect to this Warrant in the
case of its loss, theft or destruction). Upon exercise, in whole or in part, of
this Warrant, the holder thereof shall be deemed for all corporate purposes to
have become the holder of record of the Warrant Shares, with respect to which
the Warrant has been exercised, immediately prior to the close of business on
the date on which the Warrant is surrendered and payment of the amount due in
respect of such exercise is made, irrespective of the date of delivery of
certificates evidencing such Warrant Shares. In the case of a dispute as to the
determination of the Warrant Exercise Price, the last reported sale price (as
reported by Bloomberg) or the Closing Bid Price of a security or the arithmetic
calculation of the Warrant Shares, the Company shall promptly issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile within one business day of receipt of the holder's subscription
notice. If the holder and the Company are unable to agree upon the determination
of the Warrant Exercise Price, the last reported sale price (as reported by
Bloomberg) or the Closing Bid Price or arithmetic calculation of the Warrant
Shares within one day of such disputed determination or arithmetic calculation
being submitted to the holder, then the Company shall immediately submit via
facsimile (i) the disputed determination of the Warrant Exercise Price, the last
reported sale price (as reported by Bloomberg) or the Closing Bid Price to an
independent, reputable investment banking firm or (ii)
-4-
<PAGE>
the disputed arithmetic calculation of the Warrant Shares to its independent,
outside accountant. The Company shall cause the investment banking firm or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the holder of the results no later than forty-eight
(48) hours from the time it receives the disputed determinations or
calculations. Such investment banking firm's or accountant's determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five business days after any exercise and
at its own expense, issue a new Warrant identical in all respects to the Warrant
exercised except it shall represent rights to purchase the number of Warrant
Shares purchasable immediately prior to such exercise under the Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised.
(c) No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock
issued upon exercise of this Warrant shall be rounded up or down to the nearest
whole number.
(d) If within five (5) business days of the Company's receipt
of the Exercise Notice, the Aggregate Exercise Price and this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction), the Company shall fail for any reason or for no
reason to issue to the holder, a certificate for the number of shares of Common
Stock to which the holder is entitled upon the holder's exercise of this Warrant
or a new Warrant for the number of shares of Common Stock to which such holder
is entitled pursuant to Section 2(b) hereof, the Company shall, in addition to
any other remedies under this Warrant or the Securities Purchase Agreement or
otherwise available to such holder, including any indemnification under Article
VIII of the Securities Purchase Agreement, pay as additional damages in cash to
such holder on each date after such fifth (5th) business day that the issuance
of such Common Stock certificate or new Warrant, as the case may be, is not
timely effected an amount equal to 0.5% of the product of (A) the sum of the
number of shares of Common Stock not issued to the holder on a timely basis and
to which the holder is entitled and/or, the number of shares represented by the
portion of this Warrant which is not being converted, as the case may be, and
(B) the average of the Closing Bid Price of the Common Stock for the three
consecutive trading days immediately preceding the last possible date which the
Company could have issued such Common Stock or Warrant, as the case may be, to
the holder without violating this Section 2.
(e) Notwithstanding anything contained herein to the contrary,
the holder of this Warrant may, at its election exercised in its sole
discretion, exercise this Warrant in whole or in
-5-
<PAGE>
part and, in lieu of making the cash payment otherwise contemplated to be made
to the Company upon such exercise in payment of the Aggregate Exercise Price,
elect instead to receive upon such exercise the "Net Number" of shares of Common
Stock determined according to the following formula:
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A= the total number shares with respect to which this
Warrant is then being exercised.
B= the last reported sale price (as reported by
Bloomberg) of the Common Stock on the date
immediately preceding the date of the subscription
notice.
C= the Warrant Exercise Price then in effect at the
time of such exercise.
Section 3. Covenants as to Common Stock. The Company hereby
covenants and agrees as follows:
(a) This Warrant is, and any Preferred Share Warrants issued
in substitution for or replacement of this Warrant will upon issuance be, duly
authorized and validly issued.
(b) All Warrant Shares which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof.
(c) During the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
-6-
<PAGE>
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. No impairment of the designations, preferences and rights of the
Preferred Shares contained in the Company's Certificate of Designations or any
waiver thereof which has an adverse effect on the rights granted hereunder shall
be given effect until the Company has taken appropriate action (satisfactory to
the holders of Preferred Share Warrants representing a majority of the shares of
Common Stock issuable upon the exercise of such Preferred Share Warrants then
outstanding) to avoid such adverse effect with respect to this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Warrant Exercise Price then in effect, and (ii) will take all
such actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to
the Company by merger, consolidation or acquisition of all or substantially all
of the Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by
the acceptance hereof, represents that it is acquiring this Warrant and the
Warrant Shares for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution of
this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted
-7-
<PAGE>
under the Securities Act; provided, however, that by making the representations
herein, the holder does not agree to hold this Warrant or any of the Warrant
Shares for any minimum or other specific term and reserves the right to dispose
of this Warrant and the Warrant Shares at any time in accordance with or
pursuant to a registration statement or an exemption under the Securities Act.
The holder of this Warrant further represents, by acceptance hereof, that, as of
this date, such holder is an "accredited investor" as such term is defined in
Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act (an "Accredited Investor"). Upon exercise of
this Warrant, the holder shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the Warrant Shares so purchased are
being acquired solely for the holder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale
and that such holder is an Accredited Investor. If such holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder's exercise of the Warrant that the Company receive such
other representations as the Company considers reasonably necessary to assure
the Company that the issuance of its securities upon exercise of the Warrant
shall not violate any United States or state securities laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
(b) This Warrant and the rights granted to the holder hereof
are transferable, in whole or in part, upon surrender of this Warrant, together
with a properly executed warrant power in the form of Exhibit B attached hereto;
provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 7(c) below. Notwithstanding the foregoing, this
Warrant and the rights granted to the holder hereof are transferable without the
consent of the Company only to Affiliates (as defined below) of the holder
hereof or otherwise only with the consent of the Company. For purposes of this
Section 7(b), "Affiliates" means (a) with respect to the holder of this Warrant,
any person that directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with the holder of this
Warrant or (b) any person that has the same principal investment adviser as the
holder of this Warrant.
(c) The holder of this Warrant understands that this Warrant
has not been and is not expected to be, registered under the Securities Act or
any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (a) subsequently registered thereunder, or (b) such holder
shall have delivered to the Company an opinion of counsel, in generally
acceptable form, to the effect that the securities to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration; provided that (i) any sale of such
-8-
<PAGE>
securities made in reliance on Rule 144 promulgated under the Securities Act may
be made only in accordance with the terms of said Rule and further, if said Rule
is not applicable, any resale of such securities under circumstances in which
the seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the Securities and Exchange Commission thereunder; and (ii)
neither the Company nor any other person is under any obligation to register the
Preferred Share Warrants under the Securities Act or any state securities laws
or to comply with the terms and conditions of any exemption thereunder.
(d) The Warrant Shares have been registered Company for resale
under the Securities Act pursuant to the Registration Rights Agreement dated
July ___, 1998 by and between the Company and the Buyers listed on the signature
page thereto (the "Registration Rights Agreement") and the initial holder of
this Warrant (and certain assignees thereof) is entitled to the registration
rights in respect of the Warrant Shares as set forth in the Registration Rights
Agreement.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares.
The Warrant Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustments for Stock Splits and Combinations. If the
Company shall at any time or from time to time after the date of issuance of
this Warrant, effect a stock split of the outstanding Common Stock, the
applicable Warrant Exercise Price in effect immediately prior to the stock split
shall be proportionately decreased and the number of shares of Common Stock
obtainable upon exercise of this Warrant will be proportionately increased. If
the Company shall at any time or from time to time after the Issuance Date,
combine the outstanding shares of Common Stock, the applicable Warrant Exercise
Price in effect immediately prior to the combination shall be proportionately
increased and the number of shares of Common Stock obtainable upon exercise of
this Warrant will be proportionately decreased. Any adjustments under this
Section 8(a) shall be effective at the close of business on the date the stock
split or combination occurs.
(b) Adjustments for Certain Dividends and Distributions. If
the Company shall at any time or from time to time after the date of issuance of
this Warrant, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in shares of Common Stock, then , and in each event, the applicable
Warrant Exercise Price in effect immediately prior to such event shall be
decreased as of the time of such issuance or, in the event such record date
shall have been fixed, as of the close of business on such record date, by
multiplying, as applicable, the applicable Warrant Exercise Price then in effect
by a fraction:
(i) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date; and
-9-
<PAGE>
(ii) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date plus
the number of shares of Common Stock issuable in payment of such dividend or
distribution;
and the number of shares of Common Stock obtainable upon exercise of this
Warrant will be proportionately increased.
(c) Adjustment for Other Dividends and Distributions. If the
Company shall at any time or from time to time after the date of issuance of
this Warrant, make or issue or set a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in other than shares of Common Stock, then, and in each event, an
appropriate revision to the applicable Warrant Exercise Price and the number of
shares of Common Stock obtainable upon exercise of this Warrant shall be made
and provision shall be made (by adjustments of the Conversion Price or
otherwise) so that the holder of this Warrant shall receive upon exercise
hereof, in addition to the number of shares of Common Stock receivable thereon,
the number of securities of the Company which they would have received had this
Warrant been exercised into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities (together with any distributions
payable thereon during such period), giving application to all adjustments
called for during such period under this Section 8(c) with respect to the rights
of the holder of this Warrant.
(d) Adjustments for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon exercise of this Warrant at any
time or from time to time after the date of issuance of this Warrant be changed
to the same or different number of shares of any class or classes of stock,
whether by reclassification, exchange, substitution or otherwise (other than by
way of a stock split or combination of shares or stock dividends provided for in
Sections 8(a), (b) and (c), or a reorganization, merger, consolidation, or sale
of assets provided for in Section 8(e)), then, and in each event, an appropriate
revision to the Warrant Exercise Price and the number of shares of Common Stock
obtainable upon exercise of this Warrant shall be made and provisions shall be
made (by adjustments of the Warrant Exercise Price or otherwise) so that the
holder of this Warrant shall have the right thereafter to exercise this Warrant
for the kind and amount of shares of stock and other securities receivable upon
reclassification, exchange, substitution or other change, by holders of the
number of shares of Common Stock into which this Warrant is exercisable might
have been exercised immediately prior to such reclassification, exchange,
substitution or other change, all subject to further adjustment as provided
herein.
(e) Adjustments for Reorganization, Merger, Consolidation or
Sales of Assets. If at any time or from time to time after the date of issuance
of this Warrant there shall be a capital reorganization of the Company (other
than by way of a stock split or combination of shares or stock dividends or
distributions provided for in Section 8(a), (b) and (c), or a reclassification,
exchange or substitution of shares provided for in Section 8(d)), or a merger or
consolidation of the Company with or into another corporation, or the sale of
all or substantially all of the Company's properties or assets to any other
person (an "Organic Change"), then as a part of such
-10-
<PAGE>
Organic Change an appropriate revision to the Warrant Exercise Price and the
number of shares of Common Stock obtainable upon exercise of this Warrant shall
be made and provision shall be made (by adjustments of the Warrant Exercise
Price or otherwise) so that the holder of this Warrant shall have the right
thereafter to exercise such this Warrant for the kind and amount of shares of
stock and other securities or property of the Company or any successor
corporation resulting from Organic Change. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
8(e) with respect to the rights of the holders of this Warrant after the Organic
Change to the end that the provisions of this Section 8(e) (including any
adjustment in the Warrant Exercise Price then in effect and the number of shares
of stock or other securities deliverable upon exercise of this Warrant) shall be
applied after that event in as nearly an equivalent manner as may be
practicable.
(f) Consideration for Stock. In case any shares of Common
Stock or Convertible Securities, other than the Preferred Shares, or any rights
or warrants or options to purchase any such Common Stock or Convertible
Securities, shall be issued or sold:
(i) in connection with any merger or
consolidation in which the Company is the surviving corporation (other than any
consolidation or merger in which the previously outstanding shares of Common
Stock of the Company shall be changed to or exchanged for the stock or other
securities of another corporation), the amount of consideration therefore shall
be deemed to be the fair value, as determined reasonably and in good faith by
the Board of Directors of the Company, of such portion of the assets and
business of the nonsurviving corporation as such Board may determine to be
attributable to such shares of Common Stock, Convertible Securities, rights or
warrants or options, as the case may be; or
(ii) in the event of any consolida-
tion or merger of the Company in which the Company is not the surviving
corporation or in which the previously outstanding shares of Common Stock of the
Company shall be changed into or exchanged for the stock or other securities of
another corporation, or in the event of any sale of all or substantially all of
the assets of the Company for stock or other securities of any corporation, the
Company shall be deemed to have issued a number of shares of its Common Stock
for stock or securities or other property of the other corporation computed on
the basis of the actual exchange ratio on which the transaction was predicated,
and for a consideration equal to the fair market value on the date of such
transaction of all such stock or securities or other property of the other
corporation. If any such calculation results in adjustment of the applicable
Warrant Exercise Price, or the number of shares of Common Stock obtainable upon
exercise of this Warrant, the determination of the applicable Warrant Exercise
Price or the number of shares of Common Stock obtainable upon exercise of this
Warrant immediately prior to such merger, consolidation or sale, shall be made
after giving effect to such adjustment of the number of shares of Common Stock
obtainable upon exercise of this Warrant.
(g) Record Date. In case the Company shall take record of the
holders of its Common Stock or any shares of the Company's preferred stock for
the purpose of entitling them to subscribe for or purchase Common Stock or
Convertible Securities, then the date of the issue or sale of the shares of
Common Stock shall be deemed to be such record date.
-11-
<PAGE>
(h) Certificates as to Adjustments. Upon occurrence of each
adjustment or readjustment of the Warrant Exercise Price or number of shares of
Common Stock obtainable upon exercise of this Warrant pursuant to this Section
8, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to the holder of
this Warrant a certificate setting forth such adjustment and readjustment,
showing in detail the facts upon which such adjustment or readjustment is based.
The Company shall, upon written request of the holder of this Warrant, at any
time, furnish or cause to be furnished to such holder a like certificate setting
forth such adjustments and readjustments, the applicable Warrant Exercise Price
in effect at the time, and the number of shares of Common Stock and the amount,
if any, of other securities or property which at the time would be received upon
the exercise of this Warrant. Notwithstanding the foregoing, the Company shall
not be obligated to deliver a certificate unless such certificate would reflect
an increase or decrease of at least one percent of such adjusted amount.
Section 9. Notice of Certain Events.
(i) The Company will give written notice to the
holder of this Warrant at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
(ii) The Company will also give written notice to the
holder of this Warrant at least twenty (20) days prior to the date on which any
Organic Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall, on receipt
of an indemnification undertaking, issue a new Warrant of like denomination and
tenor as the Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notice, demand, request, waiver or other
communication required or permitted to be given under the terms of this Warrant
shall be in writing and shall be effective (a) upon hand delivery by telex (with
correct answer back received), telecopy or facsimile at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses and facsimile number for such communications shall be:
-12-
<PAGE>
If to the Company: Chief Financial Officer
StarBase Corporation
18872 MacArthur Boulevard
Suite 300
Irvine, California 92612
Telephone Number: (714) 442-4482
Facsimile Number: (714) 442-4404
If to a holder of this Warrant:
At the address of such holder set forth on the Schedule of
Purchasers to the Securities Purchase Agreement, with copies
to holder's counsel as set forth on the Schedule of
Purchasers or as specified in writing by such holder.
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 12. Governing Law; Miscellaneous. This Warrant and any term
hereof may be changed, waived, discharged, or terminated only by an instrument
in writing signed by the party or holder hereof against which enforcement of
such change, waiver, discharge or termination is sought. The headings in this
Warrant are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. This Warrant shall be governed by and interpreted
under the laws of the State of New York without regard to the principles of
conflict of laws.
Section 13. Limitation on Number of Warrant Shares. The Company shall
not be obligated to issue any Warrant Shares upon exercise of this Warrant if
the issuance of such shares of Common Stock would cause the Company to exceed
that number of shares of Common Stock which the Company may issue upon exercise
of this Warrant (the "Exchange Cap") without breaching the Company's obligations
under the rules or regulations of The Nasdaq Stock Market, Inc., except that
such limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by The Nasdaq Stock Market, Inc. for
issuances of Common Stock in excess of such amount or (b) obtains a written
opinion from outside counsel to the Company that such approval is not required,
which opinion shall be reasonably satisfactory to the holders of Warrants
representing a majority of the Warrant Shares then issuable upon exercise of
outstanding Warrants. Until such approval or written opinion is obtained, the
holder of this Warrant shall not be issued, upon exercise of this Warrant,
Warrant Shares in an amount greater than such holder's Cap Allocation Amount (as
defined in the Certificate of Designations). In the event the Company is
prohibited from issuing Warrant Shares as a result of the operation of this
Section 13, the Company shall redeem for cash those Warrant Shares which can not
be issued, at a price equal to the difference between the last reported sale
price (as reported by Bloomberg) of the Common Stock and the Exercise Price of
such Warrant Shares as of the date of the attempted exercise.
Section 14. Date. The date of this Warrant is __________, 199__. This
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date,
-13-
<PAGE>
except that notwithstanding any other provisions hereof, the provisions of
Section 7 shall continue in full force and effect after such date as to any
Warrant Shares or other securities issued upon the exercise of this Warrant.
Section 15. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Preferred Share Warrants may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of Preferred Share Warrants representing a majority of
the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding; provided that no such action may increase the Warrant
Exercise Price of the Preferred Share Warrants or decrease the number of shares
or class of stock obtainable upon exercise of any Preferred Share Warrants
without the written consent of the holder of such Preferred Share Warrant.
STARBASE CORPORATION
By:
Name:
Title:
<PAGE>
EXHIBIT A TO WARRANT
--------------------
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
STARBASE CORPORATION
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of StarBase
Corporation, a Delaware corporation (the "Company"), evidenced by the attached
Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of
the Warrant Exercise Price shall be made as:
____________ a "Cash Exercise" with respect to
_______________________ Warrant Shares; and
/or
____________ a "Cashless Exercise" with respect to
___________________ Warrant Shares ( to the
extent permitted by the terms of the
Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
___________________________________
Name of Registered Holder
By:
Name:
Title:
<PAGE>
EXHIBIT B TO WARRANT
--------------------
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of StarBase Corporation, a Delaware
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated: _________, ______
-----------------------------------
By: _____________________________
Its: _____________________________
