SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
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PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): JANUARY 8, 1998
STARBASE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 0-25612 33-0567363
(State or Other Jurisdiction of (Commission File (I.R.S. Employer
Incorporation) Number) Identification No.)
18872 MACARTHUR BOULEVARD, SUITE 300
IRVINE, CALIFORNIA 92612
(Address of Principal Executive Offices) (Zip Code)
(714) 442-4400
(Registrant's telephone number, including area code)
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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
On January 8, 1998, the Company closed the first tranche of 600,000
units in a private placement offering of 1,200,000 units of equity securities
of the Company (the "Series D Units"). Each Series D Unit consists of one share
of the Company's Series D Preferred Stock, par value $0.01 per share (the
"Series D Preferred Stock"), with each share of Series D Preferred Stock
convertible into a share or shares of common stock, par value $0.01 per share,
of the Company (the "Common Stock"), and one non-transferable warrant to
purchase a 0.4166 share of Common Stock, exercisable at $1.25 per share through
January 8, 2003. Each Series D Unit was offered at a subscription price of $1.25
per unit.
On January 8, 1998, the Company commenced a private placement
offering of up to 1,600,000 units of equity securities of the Company (the
"Series E Units"). Each Series E Unit consists of one share of the Company's
Series E Preferred Stock, par value $0.01 per share (the "Series E Preferred
Stock"), with each share of Series E Preferred Stock convertible into a share or
shares of Common Stock, and one non-transferable warrant to purchase a 0.5 share
of Common Stock, exercisable at $1.80 per share through the first anniversary of
the issuance date of the warrants and thereafter at $2.00 through the second
anniversary of the issuance date of the warrants. Each Series E Unit will be
offered at a subscription price of $1.25 per unit. As of January 8, 1998,
341,609 Series E Units were issued and sold.
The proceeds of the Series D and Series E private placements will be
used for general corporate purposes, including the launch of the Company's new
product, StarTeam 3.0.
The Series D Units and the Series E Units were offered to the
subscribers 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 and warrants sold 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.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(b) PRO FORMA FINANCIAL INFORMATION.
Pro Forma Balance Sheet (utilizing November 30, 1997 numbers) Page 4
Statement of Operations (utilizing November 30, 1997 numbers) Page 5
(c) Exhibits.
4.1 Form of Subscription Agreement
4.2 Certificate of Designation (Series D Preferred Stock) of
StarBase Corporation, dated January 8,1998
4.3 Form of Registration Rights Agreement (Series D Units)
4.4 Form of Warrant (Series D Units)
4.5 Form of Securities Purchase Agreement (Series E Units)
4.6 Certificate of Designation (Series E Preferred Stock) of
StarBase Corporation, dated January 8, 1998
4.7 Form of Warrant (Series E Units)
4.8 Form of Registration Rights Agreement (Series E Units)
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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 thereunto duly authorized.
STARBASE CORPORATION
(Registrant)
JANUARY 9, 1998 /S/ DONALD R. FARROW
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Date Donald R. Farrow
President and Chief Operating Officer
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STARBASE CORPORATION
(a development stage company)
PRO FORMA BALANCE SHEET
(in thousands, except number of shares and par values)
<TABLE>
<CAPTION>
Pro Forma Adjustments
============================================
Debt
November 30, Conversions Financing
1997 (a) (b) Pro Forma
--------------- ------------- --------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,670 $ - $ 1,059 $ 2,729
Accounts receivable, net of allowances of $56 294 - - 294
Notes and other receivables 169 - - 169
Prepaid expenses and deferred charges 205 - - 205
Inventories 17 - - 17
--------------- -------------- -------------- ---------------
Total current assets 2,355 - 1,059 3,414
Property and equipment, net 632 - - 632
Note receivable from officer 76 - - 76
Other non-current assets 144 - - 144
--------------- -------------- -------------- ---------------
Total assets $ 3,207 $ - $ 1,059 $ 4,266
=============== ============= =============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,103 $ (21)$ - $ 1,082
Current portion of capital lease obligation 9 - - 9
--------------- --------------- ------------- ---------------
Total current liabilities 1,112 (21) - 1,091
Long-term debt:
Capitalized lease obligation, less current
portion 41 - - 41
6% Convertible Debentures, net of discount of
$50 1,495 (1,075) - 420
--------------- --------------- -------------- --------------
Total long-term debt 1,536 (1,075) - 461
Total liabilities 2,648 (1,096) - 1,552
Shareholders' equity:
Preferred Stock, $.01 par value; authorized
10,000,000; issued and outstanding -0-
(November 30, 1997) - - 9 9
Common stock, $.01 par value; authorized
50,000,000; issued and outstanding 165 12 - 177
16,537,897 (November 30, 1997)
Additional paid-in capital 29,139 1,084 1,050 31,273
Deficit accumulated during development stage (28,745) - - (28,745)
--------------- --------------- -------------- ---------------
Total shareholders' equity 559 1,096 1,059 2,714
--------------- --------------- -------------- ---------------
Total liabilities and shareholders' equity $ 3,207 $ - $ 1,059 $ 4,266
=============== =============== ============== ===============
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<FN>
(a) To reflect the receipt of conversion notices from several holders of 6%
Convertible Debentures into 1,220,534 shares of the Company's common stock
during the period of December 1, 1997 through January 9, 1998.
(b) To reflect subcription agreements with three investors to purchase 801,609
shares of the Company's preferred stock at $1.25 per share, including
warrants to purchase 422,304 shares of the Company's common stock at prices
ranging from $1.25-1.80 per share through January 8, 2003, net of estimated
financing costs.
</FN>
</TABLE>
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STARBASE CORPORATION
(a development stage company)
STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Eight
The Month Months
Ended Ended
November 30, November 30,
1997 1997
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<S> <C> <C>
Revenues:
Products 138 874
License and royalty 54 233
Other - -
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Total revenues 192 1107
Cost of Sales:
Consulting services - -
Consulting services-related party - -
Products, licenses and other 13 78
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Total cost of sales 13 78
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Gross margin 179 1,029
Operating Expenses:
Research and development 258 1,511
Selling, general and administrative 555 3,436
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Total operating expenses 813 4,947
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Operating loss (634) (3,918)
Interest income 8 68
Interest expense (233) (914)
Other income and expense (8) (33)
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Total interest and other income and expense (233) (879)
Loss before income taxes (867) (4,797)
Provision for income taxes 0 1
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Net loss $ (867) $ (4,798)
============= =============
</TABLE>
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EXHIBIT INDEX
Exhibit
No.
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4.1 Form of Subscription Agreement
4.2 Certificate of Designation (Series D Preferred Stock) of StarBase
Corporation, dated January 8,1998
4.3 Form of Registration Rights Agreement (Series D Units)
4.4 Form of Warrant (Series D Units)
4.5 Form of Securities Purchase Agreement (Series E Units)
4.6 Certificate of Designation (Series E Preferred Stock) of StarBase
Corporation, dated January 8, 1998
4.7 Form of Warrant (Series E Units)
4.8 Form of Registration Rights Agreement (Series E Units)
STARBASE CORPORATION
UNIT SUBSCRIPTION AGREEMENT
THIS UNIT SUBSCRIPTION AGREEMENT dated as of January 8, 1998
by and between StarBase Corporation, a Delaware corporation (the "COMPANY"), and
________, a __________ who resides in ________________ (the "PURCHASER").
W I T N E S S E T H :
WHEREAS, the Company is offering to sell, upon the terms and
subject to the conditions hereinafter set forth, 1,200,000 units (the "UNITS"),
each Unit consisting of one share of the Company's Series D Preferred Stock, par
value $0.01 per share (the "SERIES D PREFERRED STOCK"), having the terms and
provisions set forth in the certificate of designation to the Certificate of
Incorporation of the Company, attached hereto as Exhibit A (the "Certificate of
Designation"), with each share of Series D Preferred Stock convertible into a
share or shares of common stock, par value $0.01 per share (the "SHARES"), and
one warrant to purchase 0.4166 share of Common Stock, substantially in the form
of Exhibit B hereto (each, a "WARRANT"); and
WHEREAS, the Purchaser desires to purchase, upon such terms
and subject to such conditions, the number of Units set forth on the signature
page hereof;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto hereby agree as
follows:
1. PURCHASE AND SALE OF UNITS
1.1 ISSUANCE AND SALE OF UNITS
Upon the terms and subject to the conditions of this Agreement, the Company
shall sell to the Purchaser, and the Purchaser shall purchase from the Company,
at a purchase price, in lawful money of the United States, of $1.25 per Unit,
1,200,000 Units set forth opposite the Purchaser's name on the signature page
hereof for the aggregate purchase price set forth thereon (the "PURCHASE
PRICE"). The Purchaser shall specify on the signature page hereof the address
for any notices given hereunder. The offer and sale of the Units are being
effected in accordance with and in reliance on the provisions of Regulation D
under the United States Securities Act of 1933, as amended (the "ACT") and
subsections 35(1)5 and 72(1)(d) of the Ontario Securities Act.
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The Units will be sold in two tranches of $750,000 each. The first tranche
will be funded on the Closing Date (as defined below) and the second tranche
will be funded upon the second business day after the date (the "Additional
Closing Date") the registration statement is declared effective (the
"Registration Effective Date"). The second tranche will be subject to the
following conditions, which may be waived by the Purchaser in its sole and
absolute discretion (1) the daily trading value for the previous 20 days ending
on the day prior to the Registration Effective Date is at least $30,000 and (2)
the closing bid price has been at least $0.88 for each of the five previous
trading days ending on the day prior to the Registration Effective Date.
1.2 OFFERING EXPENSES
Of the Purchase Price so payable by the Purchaser, an amount, not in excess
of $35,000, shall be applied to pay brokerage commissions, attorneys' fees and
disbursements and other expenses incurred in connection with the offer and sale
of the Units hereunder. The Purchaser shall pay the legal fees of its counsel,
which fees shall not exceed $5,000 and shall be deducted from the Purchase Price
to be paid on the first tranche.
1.3 CLOSING
Promptly upon the execution and delivery of this Agreement by the Company
and the Purchaser:
a) the Purchaser shall deliver to Parker Chapin Flattau & Klimpl, LLP,
at 1211 Avenue of the Americas, New York, New York 10036-8735, U.S.A.,
Attention: Martin Eric Weisberg, Esq. (the "CLOSING AGENT"), (i) an executed
copy of the Agreement (or a photocopy or other facsimile thereof) and (ii)
payment of the Purchase Price for the first tranche less $5,000 for legal fees
by wire transfer of immediately available funds to the account specified by the
Closing Agent; and
(b) the Company shall deliver to the Closing Agent or to such person as
directed by the Closing Agent (i) certificates in denominations requested by the
Purchaser registered in the name of the Purchaser or, if the Purchaser shall
have designated a nominee, such nominee, representing the number of shares of
Common Stock included within the Units purchased by the Purchaser hereunder (the
"CERTIFICATES"), (ii) Warrants in denominations requested by the Purchaser to
purchase shares of Common Stock, and (iii) the documents set forth in Section
5.5 hereof.
Promptly upon receipt of the funds and documents required so to be delivered
(the date upon which all such funds and documents are actually received by the
Closing Agent being hereinafter referred to as the "CLOSING DATE"), the Closing
Agent shall (a) deliver the Certificates, Warrants and the documents set forth
in Sections 5.4 and 5.5. hereof to the Purchaser (or its nominee, if any), and
(b) pay over, as directed, the Purchase Price to the Company. Subject to the
conditions set forth in Section 1.1, the provisions of this Section 1.3 shall
apply MUTATIS MUTANDIS to the second tranche funded on the Additional Closing
Date.
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1.4 REGISTRATION
The Common Stock issuable upon conversion of the Series D Preferred Stock
and upon the exercise of the Warrants will be registered for resale no later
than 90 days from the closing date pursuant to a registration statement on Form
S-3. The registration statement is to be filed within 30 days of the closing
date and shall be in a form reasonably satisfactory to the Purchaser. If the
registration statement is not effective within 90 days, the Company will pay an
amount equal to 2% of the Purchase Price of the Units on the 91st day and at the
end of each 30-day period thereafter until the registration statement has been
declared effective.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as
follows:
2.1 ORGANIZATION AND GOOD STANDING
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as now conducted.
2.2 CAPITALIZATION
The authorized capital of the Company consisted of 50,000,000 shares of
Common Stock, of which 16,654,428 shares were issued and outstanding as of
December 31, 1997, of which none is treasury stock, and 10,000,000 shares of
preferred stock, par value $.01 per share (the "PREFERRED STOCK"), of which
3,000,000 shares were designated Series A Preferred Stock, of which none is
issued and outstanding as of November 30, 1997; 2,500,000 shares were designated
Series B Preferred Stock, of which none is issued and outstanding as of November
30, 1997; 366,000 shares were designated Series C Preferred Stock, of which none
is issued and outstanding as of November 30, 1997; and 1,200,000 shares were
designated Series D Preferred Stock, which shares may be issued pursuant to this
Agreement. The number of outstanding shares of Common Stock and Preferred Stock
has not materially changed since November 30, 1997. The outstanding shares of
Common Stock and Preferred Stock are all duly and validly authorized and issued,
fully paid and nonassessable.
2.3 AUTHORIZATION
The Company has all requisite corporate power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement by the Company does not, and the
performance of its obligations hereunder will not, violate or conflict with any
provision of the Company's Certificate of Incorporation or By-laws or any
material agreement to which the Company is a party. All corporate action on the
part of the Company required for the authorization, execution and delivery of
this Agreement and the
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performance of its obligations hereunder, including the issuance and delivery of
the Units, has been taken. This Agreement has been duly executed and delivered
by the Company, and assuming due execution and delivery by the Purchaser,
constitutes a valid and legally binding obligation of the Company enforceable in
accordance with its terms, except as limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally and (ii) equitable
principles relating to the availability of specific performance, injunctive
relief and other equitable remedies.
2.4 VALID ISSUANCE OF SERIES D PREFERRED D STOCK
The Series D Preferred Stock which is being purchased by the Purchaser
hereunder is duly authorized and, when issued, sold and delivered in accordance
with the terms hereof, will be duly and validly issued, fully paid and
nonassessable, and, based upon the representations of the Purchaser in this
Agreement, will be issued in compliance with the registration requirements of
all applicable federal and state securities laws. The Common Stock issuable upon
conversion of the Series D Preferred Stock and upon the exercise of the Warrants
is duly authorized and has been duly and validly reserved for issuance and, upon
issuance to the Purchaser in accordance with the terms of the Series D Preferred
Stock and the Warrants, will be duly and validly issued, fully paid and
nonassessable, and issued in compliance with the registration requirements of
all applicable federal and state securities laws or exemptions therefrom, as
presently in effect, of the United States.
2.5 GOVERNMENTAL CONSENTS
Except for the filing of the Certificate of Designation with the Secretary
of State of the State of Delaware and the filing of the Form 20 with the
Securities Commission of Ontario, no consent, approval or authorization of,
or designation, declaration or filing on the part of the Company with, any
United States federal or state governmental authority or Nasdaq SmallCap Market
or, to the best knowledge of the Company, with any foreign governmental
authority, is required in connection with the valid execution and delivery of
this Agreement, or the offer, sale or issuance of the Units or the consummation
of any other transaction contemplated hereby.
2.6 OFFERING
Based upon the Purchaser's representations set forth in Section 3 of this
Agreement, the offer, sale and issuance of the Units as contemplated by this
Agreement are exempt from the registration requirements of the Act, and neither
the Company nor any authorized agent acting on its behalf has taken any action
that would cause the loss of such exemption. The offer and sale of the Units is
not a transaction (or any element of a series of transactions) that is part of
any plan or scheme to evade the registration provisions of the Act.
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2.7 FILINGS UNDER THE ACT AND THE SECURITIES EXCHANGE ACT
The Company has timely filed all reports and other documents required to
be filed by it under the Act and the United States Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT") for a period of at least twelve (12)
months prior to the date hereof, and no such document, at the time it was filed,
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading. There has been no
material change in the Company since its last filing with the Securities and
Exchange Commission.
2.8 REPORTING COMPANY; NASDAQ LISTING
The Company has registered its Common Stock pursuant to Section 12 of the
Exchange Act and the Common Stock is listed and traded on the Nasdaq SmallCap
Market.
2.9 RESERVATION OF COMMON STOCK
The Company has reserved 2,579,835 shares of Common Stock for issuance
upon exercise of all outstanding options and warrants.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as
follows:
3.1 NATURE OF PURCHASER
[Insert]
3.2 AUTHORIZATION
The Purchaser has all requisite power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement has
been duly executed and delivered by the Purchaser, and assuming execution and
delivery by the Company, constitutes a valid and legally binding obligation of
the Purchaser enforceable in accordance with its terms, except as limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) equitable principles relating to the availability of specific performance,
injunctive relief and other equitable remedies.
3.3 ACCREDITED OR SOPHISTICATED PURCHASER
The Purchaser is an investor in securities of companies in the development
stage and is able to fend for herself, can bear the economic risk of her
investment and has such
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knowledge and experience in financial or business matters that she is capable of
evaluating the merits and risks of the investment in the Units.
3.4 ECONOMIC RISK
The Purchaser has carefully reviewed and understands the risks of, and
other considerations relating to, a purchase of the Units and an investment
in the Company. The Purchaser has such experience in business and financial
matters that she is capable of evaluating the risks of her investment and
determining the suitability of her investment. The Purchaser has received and
has carefully read this Agreement. The Purchaser has consulted the Purchaser's
own financial, legal and tax advisors with respect to the economic, legal and
tax consequences of an investment in the Units and has not relied on the
Company, its officers, directors, affiliates or professional advisors for advice
as to such consequences.
3.5 INDEPENDENT INVESTIGATION; ADVERTISEMENTS
The Purchaser, in offering to purchase the Units hereunder, has relied
solely upon an independent investigation made by the Purchaser and her
representatives, if any, and has, prior to the date hereof, been given access to
and the opportunity to examine all books and records of the Company, and all
material contracts and documents of the Company. In making her investment
decision to purchase the Units, the Purchaser is not relying on any oral or
written representations or assurances from the Company or any other person or
any representation of the Company or any other person other than as set forth in
this Agreement, or on any information other than contained in the Company's
public filings required under the Act and the Exchange Act. The Purchaser is not
subscribing for the Units as a result of or subsequent to any advertisement,
article, notice or other communication published in any newspaper, magazine or
similar media, or broadcast over television or radio, or presented at any
seminar.
3.6 INVESTMENT FOR OWN ACCOUNT
Except as otherwise indicated herein, the Purchaser is the sole party in
interest as to his investment in the Company, and he is acquiring the Units
(including, without limitation, the Series D Preferred Stock, the Common Stock
issued upon conversion of the Series D Preferred or the exercise of a Warrant)
for the Purchaser's own account and has no present agreement, understanding or
arrangement to subdivide, sell, assign, transfer or otherwise dispose of all or
any part of the Units (including, without limitation, the Series D Preferred
Stock, the Common Stock issued upon the conversion of the Series D Preferred
Stock or the exercise of a Warrant) subscribed for to any other person. The
Purchaser represents and warrants that he is purchasing the Units for his
Registered Retirement Savings Plan, account number 550 98866 19.
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3.7 NO GOVERNMENT RECOMMENDATION OR APPROVAL
The Purchaser understands that no United States federal or state agency,
or similar agency of any other country, has reviewed, approved, passed upon
or made any recommendation or endorsement of the Company, this transaction or
the purchase of the Units.
3.8 NO REGISTRATION
The Purchaser understands that the Units, the Common Stock and the
Common Stock issued upon exercise of the Warrants have not been registered under
the Act and are being offered and sold pursuant to Regulation D based in part
upon the representations of the Purchaser contained herein.
3.9 NO SALE IN VIOLATION OF THE SECURITIES LAWS
The Purchaser covenants that she will not knowingly make any sale,
transfer or other disposition of the Units in violation of the Act, the
Exchange Act, or the rules and regulations of the Securities and Exchange
Commission promulgated under any of the foregoing.
3.10 NO LEGAL ADVICE FROM COMPANY
The Purchaser acknowledges that she has had the opportunity to review this
Agreement and the transactions contemplated by this Agreement with her own legal
counsel. The Purchaser is relying solely on such counsel and not on any
statements or representations of the Company or any of its agents for legal
advice with respect to the investment or the transactions contemplated by this
Agreement.
4. COMPLIANCE WITH SECURITIES LAWS; COVENANTS
4.1 RESALES SUBJECT TO U.S. SECURITIES LAWS
The Purchaser acknowledges that the Units have not been registered under
the Act, and agrees to resell the Units, the Series D Preferred Stock and the
Warrants included therein and any Common Stock issued upon conversion of the
Series D Preferred Stock or the exercise of the Warrants, only in accordance
with the provisions of Regulation D under the Act, pursuant to registration
under the Act, or pursuant to an available exemption from such registration.
4.2 LEGENDS
Except as set forth in Section 4.5, the Certificates, the Warrants and any
certificate representing shares of Common Stock issued upon conversion of the
Series D Preferred Stock or the exercise of the Warrants before the Registration
Effective Date shall bear in substance
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the following legend, as determined by the Company's counsel, which legend shall
be removed following the Registration Effective Date:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
4.3 FURTHER RESTRICTIONS ON TRANSFER
The Company shall not register any transfer of the Series D Preferred Stock
or any Common Stock issued upon conversion of the Series D Preferred Stock or
the exercise of a Warrant, not made in accordance with the provisions of
Regulation D or other applicable registration or exemption under the Act, and
shall not treat as the owner of such securities, or otherwise accord voting or
dividend rights to, any transferee to whom such securities have been transferred
in contravention of this Agreement; PROVIDED, HOWEVER, that the foregoing
provision shall not apply to the transfer of any Series D Preferred Stock or
Common Stock if the certificates evidencing such securities bear no restrictive
legend.
4.4 STOP TRANSFER INSTRUCTIONS
Subject to Section 4.5, stop transfer instructions have been or will be
provided to the Company's transfer agent to be placed on such transfer agent's
books, records or other documents evidencing the Units so as to restrict the
resale, pledge, hypothecation or other transfer thereof in accordance with the
provisions hereof and the provisions of Regulation D promulgated under the Act.
4.5 TRANSFERABILITY OF COMMON STOCK
At any time after the Registration Effective Date, if the Purchaser
delivers a Notice of Conversion (substantially in the form of Exhibit C hereto)
to the Company, the Company will issue or cause to be issued one or more
certificates representing the shares of Common Stock without a restrictive
legend upon conversion of the Series D Preferred Stock into shares of Common
Stock in accordance with Section 6 of the Certificate of Designation authorizing
the Series D Preferred Stock. The Company warrants that no instructions, other
than those instructions for a stop transfer until the Registration Effective
Date, have been or will be given to the transfer agent. The Company further
warrants that the shares of Common Stock shall be otherwise freely transferable
by the Purchaser to or for the account or benefit of a U.S. Person if such
shares are registered under the Act or an exemption from the registration
requirements of the Act is available.
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4.6 DELIVERY OF STOCK CERTIFICATES UPON CONVERSION
As promptly as practicable on or after receipt of a Notice of Conversion
and in any event within two (2) business days thereafter, the Company at its
expense shall issue to the Purchaser or its nominee a certificate or
certificates for the number of shares of Common Stock issuable upon such
conversion and deliver such certificates forthwith thereafter. If the
certificates are not delivered to the Purchaser or its nominee within five (5)
business days of receipt of the Notice of Conversion, the Company will pay the
Purchaser an amount equal to $500 per day for each delay above the initial two
(2) business days.
4.7 OTHER OFFERS OF CONVERTIBLE SECURITIES
The Company shall be permitted to issue and sell other convertible
securities convertible into Common Stock; PROVIDED, that the purchaser of such
convertible securities shall not be permitted to convert such convertible
securities within the earlier of 120 days of the Closing Date or 30 days after
the Additional Closing Date.
5. CONDITIONS OF PURCHASER'S OBLIGATIONS AT CLOSING AND
ADDITIONAL CLOSING.
The obligations of the Purchaser under Section 1 of this
Agreement are subject to the fulfillment on or before the Closing Date and the
Additional Closing Date of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company contained in Section 2
shall be true in all material respects on and as of the Closing Date and the
Additional Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date and the Additional
Closing Date.
5.2 PERFORMANCE
The Company shall have, in all material respects, performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing
Date and the Additional Closing Date.
5.3 QUALIFICATIONS
All authorizations, approvals or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are
required in connection with the lawful
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issuance and sale of the Units pursuant to this Agreement shall be duly obtained
and effective as of the Closing Date and the Additional Closing Date.
5.4 OPINION OF COUNSEL
The Company shall deliver to the Purchaser at the time of Closing an
opinion letter from counsel to the Company, to the effect that (i) the Company
is incorporated and validly existing under the laws of the State of Delaware;
(ii) the issuance of the Series D Preferred Stock and the issuance of the Common
Stock upon conversion of the Series D Preferred Stock or exercise of the
Warrants have been duly approved by all required corporate action; (iii) the
Series D Preferred Stock, upon payment therefor by Purchaser and delivery in
accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable; (iv) the Common Stock, upon issuance thereof upon conversion of
the Series D Preferred Stock or exercise of the Warrant in accordance with the
terms thereof, shall be validly issued and outstanding, fully paid and
nonassessable; (v) the Common Stock issuable upon conversion of the Series D
Preferred Stock or exercise of the Warrant has been reserved for issuance; (vi)
each of the Agreement, the Registration Rights Agreement and the Warrant is the
legal, valid, and legally binding obligation of the Company, enforceable against
the Company in accordance with their respective terms; and (vii) based in part
upon the representations and warranties of the Company and the Purchaser herein,
the offer and sale of the Series D Preferred Stock and Common Stock underlying
the Series D Preferred Stock and the Warrant to the Purchaser is exempt from the
registration requirements of the Securities Act. With respect to the foregoing
opinions concerning enforcement, counsel may add such qualifications as are
consistent with general practice such as those relating to equitable remedies or
bankruptcy.
5.5 AGREEMENTS
The Company shall deliver to the Purchaser at the time of the closing (a) a
Registration Rights Agreement in the form of the attached hereto Exhibit D,
executed by the Company, (b) an Irrevocable Instructions to Transfer Agent, in
the form attached hereto as Exhibit E, executed by the Company, (c) the
Certificate of Designation certified by the Secretary of State of Delaware, and
(d) an officer's certificate respecting the matters set forth in Sections 5.1
and 5.2.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING AND
ADDITIONAL CLOSING
The obligations of the Company to the Purchaser under this Agreement are
subject to the fulfillment on or before the Closing and Additional Closing of
each of the following conditions:
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6.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Purchaser contained in Section 3
shall be true in all material respects on and as of the Closing with the same
effect as though such representations and warranties had been made on and as of
the Closing Date.
6.2 PAYMENT OF PURCHASE PRICE
The Purchaser shall have delivered the Purchase Price and documents
specified in Section 1 to the Closing Agent.
6.3 QUALIFICATIONS
All authorizations, approvals or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are
required in connection with the lawful issuance and sale of the Units pursuant
to this Agreement shall be duly obtained and effective as of the Closing.
6.4 AGREEMENTS
The Purchaser shall deliver to the Company a certificate respecting the
matters set forth in Section 6.1.
7. INDEMNIFICATIONS
7.1 INDEMNIFICATION OF THE COMPANY
The Purchaser hereby agrees to indemnify the Company and its directors,
officers, employees, agents, representatives and controlling persons (within the
meaning of that term in Section 15 of the Act) for, and to hold each of them
harmless against, all claims, liabilities, damages, costs or expenses
(including, without limitation, reasonable attorney's fees and expenses) arising
out of or in connection with any breach, or any alleged breach, of any
representation or warranty of the Purchaser, or any covenant or agreement of the
Purchaser set forth herein; PROVIDED, HOWEVER, that the Purchaser will not be
liable in any such case for claims, liabilities, damages, costs or expenses that
a court of competent jurisdiction shall have found in a final judgment to have
arisen primarily from the gross negligence or willful misconduct of the Company.
The Company hereby agrees to indemnify the Purchaser for, and to hold the
Purchaser harmless against, all claims, liabilities, damages, costs or expenses
(including, without limitation, reasonable attorney's fees and expenses) arising
out of or in connection with any breach, or any alleged breach, of any
representation or warranty of the Company or any covenant or agreement of the
Company set forth herein; PROVIDED, HOWEVER, that the Company will not be liable
in any such case for claims, liabilities, damages, costs or expenses that a
court of competent jurisdiction shall have found in a final judgment to have
arisen primarily from the gross negligence or willful misconduct of the
Purchaser.
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7.2 INDEMNIFICATION OF THE CLOSING AGENT
The Company agrees to indemnify the Closing Agent, its partners, employees,
agents and representatives for, and to hold each of them harmless against, all
claims, liabilities, damages, costs or expenses (including, without limitation,
reasonable attorney's fees and expenses) arising out of or in connection with
the performance of its obligations pursuant to Section 1.3 hereof.
8. MISCELLANEOUS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of each party herein shall survive the
Closing, notwithstanding any investigation or inquiry made by the other party.
8.2 NOTICES
Any notice hereunder to or upon either party hereto shall be deemed to have
been duly given for all purposes if (a) in writing and sent by (i) messenger or
an overnight courier service against receipt, or (ii) certified or registered
mail, postage paid, return receipt requested, or (b) sent by telegram,
facsimile, telex or similar electronic means, provided that a written copy
thereof is sent on the same day by postage paid first-class mail, to such party
at the following address:
To Purchaser: at its address set forth on the signature page hereof
With a copy to: [Insert]
To the Company at: 18872 MacArthur Boulevard, Suite 300
Irvine, California 92612 U.S.A.
Attn: President
Fax: (714) 442-4404
With a copy to: Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036-8735 U.S.A.
Attn: Martin Eric Weisberg, Esq.
Fax: (212) 704-6288
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this Section.
The date of giving of any such notice shall be, in the case of clause (a)(i) and
the Notice of Conversion, the date of the receipt; in the case of
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<PAGE>
clause (a)(ii), five business days after such notice or demand is sent; and, in
the case of clause (b), the business day next following the date such notice is
sent.
8.3 AMENDMENT
Except as otherwise provided herein, no amendment of this Agreement shall
be valid or effective, unless in writing and signing by or on behalf of the
parties hereto.
8.4 WAIVER
No course of dealing or omission or delay on the part of either party
hereto in asserting or exercising any right hereunder shall constitute or
operate as a waiver of any such right. No waiver of any provision hereof shall
be effective, unless in writing and signed by or on behalf of the party to be
charged therewith. No waiver shall be deemed a continuing waiver or waiver in
respect of any other or subsequent breach or default, unless expressly so stated
in writing.
8.5 GOVERNING LAW
This Agreement shall be governed by, and interpreted and enforced in
accordance with, the laws of the State of New York without regard to principles
of choice or conflict of laws.
8.6 JURISDICTION
Each of the parties hereto hereby irrevocably consents and submits to the
jurisdiction of the Supreme Court of the State of New York and the United States
District Court for the Southern District of New York in connection with any
suit, action or other proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby, waives any objection to venue in the
County of New York, State of New York, or such District and agrees that service
of any summons, complaint, notice or other process relating to such suit, action
or other proceeding may be effected in the manner provided by clause (a)(ii) of
Section 8.2.
8.7 REMEDIES
In the event of any actual or prospective breach or default by either party
hereto, the other party shall be entitled to equitable relief, including
remedies in the nature of rescission, injunction and specific performance. All
remedies hereunder are cumulative and not exclusive, and nothing herein shall be
deemed to prohibit or limit either party from pursuing any other remedy or
relief available at law or in equity for such actual or prospective breach or
default, including the recovery of damages.
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<PAGE>
8.8 SEVERABILITY
The provisions hereof are severable, and in the event that any provision of
this Agreement shall be determined to be invalid or unenforceable in any respect
by a court of competent jurisdiction, the remaining provisions hereof shall not
be affected, but shall, subject to the discretion of such court, remain in full
force and effect, and any invalid or unenforceable provision shall be deemed,
without further action on the part of the parties hereto, amended and limited to
the extent necessary to render the same valid and enforceable.
8.9 COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be
deemed an original and which together shall constitute one and the same
agreement.
8.10 FURTHER ASSURANCES
Each party hereto covenants and agrees promptly to execute, deliver, file
or record such agreements, instruments, certificates and other documents and to
perform such other and further acts as the other party hereto may reasonably
request or as may otherwise be necessary or proper to consummate and perfect the
transactions contemplated hereby.
8.11 ASSIGNMENT
This Agreement, and each right, interest and obligation hereunder, may not
be assigned by either party hereto without the prior written consent of the
other party hereto, and any purported assignment without such consent shall be
void and without effect.
8.12 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Agreement is not intended, and shall not be deemed, to create or confer any
right or interest for the benefit of any person not a party hereto.
8.13 TITLES AND CAPTIONS
The titles and captions of the Articles and Sections of this Agreement are
for convenience of reference only, and do not in any way define or interpret the
intent of the parties or modify or otherwise affect any of the provisions
hereof.
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<PAGE>
8.14 GRAMMATICAL CONVENTIONS
Whenever the context so requires, each pronoun or verb used herein shall be
construed in the singular or the plural sense, and each capitalized term defined
herein and each pronoun used herein shall be construed in the masculine,
feminine or neuter sense.
8.15 NO PRESUMPTIONS
Each party hereto acknowledges that it has participated, with the advice of
counsel, in the preparation of this Agreement. No party hereto is entitled to
any presumption with respect to the interpretation of any provision hereof or
the resolution of any alleged ambiguity herein based on any claim that the other
party hereto drafted or controlled the drafting of this Agreement.
8.16 INCORPORATION BY REFERENCE
The Exhibits hereto are an integral part of this Agreement and are
incorporated in their entirety herein by this reference.
IN WITNESS WHEREOF, the Company and the Purchaser, by their
respective duly authorized officers, have duly executed this Agreement on the
date set forth in the Preamble hereto.
STARBASE CORPORATION
By:_________________________________
Name:
Title:
Number of Units Purchased: ________ PURCHASER:
Purchase Price: $_____________ _____________________________________
[Name]
Address of Purchaser:
Name and address of Nominee (if any):
Address for Notices (if different):
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<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
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<PAGE>
EXHIBIT B
FORM OF WARRANT
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<PAGE>
EXHIBIT C
NOTICE OF CONVERSION
_______________ ___, 19__
StarBase Corporation American Stock Transfer & Trust Company
18872 MacArthur Boulevard, Suite 300 40 Wall Street
Irvine, California 92612 New York, New York 10005
Attn.: Finance Department Attn.: Herbert Lemmer
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attn.: Martin Eric Weisberg, Esq.
The undersigned, ________________ (the "HOLDER") hereby gives notice
that it wishes to convert _____________ shares of Series D Preferred Stock (the
"SHARES") of StarBase Corporation (the "ISSUER") held by it into the number of
shares of Common Stock of the Issuer stated below, which have been reserved for
issuance upon such conversion.
Number of shares of Common Stock to be issued: ________________
In accordance with the Irrevocable Instructions to Transfer Agent dated
January __, 1998, please issue the Shares within two (2) business days of
receipt of this Notice of Conversion as follows:
Name: ___________________
Address: ___________________
Deliver to: ___________________
[Holder]
By: _____________________________
Name:
Title:
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<PAGE>
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
- 19 -
<PAGE>
EXHIBIT E
FORM OF IRREVOCABLE INSTRUCTIONS TO TRANSFER AGENT
- 20 -
<PAGE>
---------------------------------------
CERTIFICATE OF DESIGNATION
OF
STARBASE CORPORATION
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
---------------------------------------
SERIES D PREFERRED STOCK
StarBase Corporation, a Delaware corporation (the "Corporation"),
hereby certifies that the following resolution has been duly adopted by the
Board of Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation (the "Board") by the
provisions of the Restated Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), there hereby is created, out of the 10,000,000
shares of Preferred Stock, par value $0.01 per share, of the Corporation
authorized in Article 4 of the Certificate of Incorporation (the "Preferred
Stock"), a series of the Preferred Stock of the Corporation consisting of
1,200,000 shares, which series shall have the following powers, designations,
preferences and relative, participating, optional and other rights, and the
following qualifications, limitations and restrictions:
1. DESIGNATION AND AMOUNT. This series of Preferred Stock shall be
designated "Series D Preferred Stock" and the authorized number of shares
constituting such series shall be 1,200,000. The par value of the Series D
Preferred Stock shall be $0.01 per share.
2. NO DIVIDEND RIGHTS. The holders of the Series D Preferred Stock
shall not be entitled to receive any dividends.
3. RANKING. The Series D Preferred Stock shall, with respect to rights
on liquidation, winding up and dissolution, (i) rank senior to any of the Common
Stock and any other class or series of stock of the Corporation which by its
terms shall rank junior to the Series D Preferred Stock, and (ii) rank on a
parity with any other class or series of stock of the Corporation which by its
terms shall rank on a parity with the Series D Preferred Stock. No approval of
the holders of Series D Preferred Stock shall be required for the authorization
or issuance of any shares of any class or series of stock of the Corporation,
whether ranking junior to or on a parity with the Series D Preferred Stock.
260790-3
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<PAGE>
4. PREFERENCE ON LIQUIDATION.
(a) In the event of any liquidation, dissolution, or winding
up of the Corporation, either voluntary or involuntary, distributions to the
stockholders of the Corporation shall be made in the following manner:
(i) The holders of Series D Preferred Stock shall be
entitled to receive,prior and in preference to any distribution of any of
the assets or surplus funds of the Corporation to the holders of the Common
Stock or any other class or series of stock of the Corporation by reason of
their ownership of the Common Stock or any stock ranking junior to the Series D
Preferred Stock in respect of liquidation rights, an amount for each share of
Series D Preferred Stock then held by them, equal to $1.25, appropriately
adjusted for any combinations, consolidations or stock distributions with
respect to such shares (hereinafter such amount shall be referred to as the
"Series D Preference Amount"). If upon occurrence of such event of liquidation,
dissolution or winding up, the assets and property legally available to be
distributed among the holders of the Series D Preferred Stock and to holders of
any stock ranking as to liquidation on a parity with the Series D Preferred
Stock shall be insufficient to permit the payment to such holders of the Series
D Preference Amount, then the entire assets and property of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series D Preferred Stock and such parity stock.
(ii) After payment has been made to the holders of the
Series D Preferred Stock of the full amounts to which they shall be
entitled pursuant to Section 4(a)(i) above, all remaining assets available for
distribution, if any, shall be distributed, ratably among the holders of the
Preferred Stock ranking junior to the Series D Preferred Stock and the Common
Stock based upon the number of outstanding shares of Common Stock then held.
(b) For purposes of this paragraph 4, a merger or
consolidation of the Corporation with or into any other corporation or
corporations, or the merger of any other corporation or corporations into the
Corporation, in which consolidation or merger the shareholders of the
Corporation receive distributions in cash or securities of another corporation
or corporations as a result of such consolidation or merger, or a sale of all or
substantially all of the assets of the Corporation, shall be treated as a
liquidation, dissolution or winding up of the Corporation. The valuation of any
securities or other property other than cash received by the Corporation in any
transaction covered by this subparagraph 4(b) shall be computed at the fair
value thereof at the time of receipt as determined in good faith by the Board of
Directors.
(c) The holders of Series D Preferred Stock shall have no
priority or preference with respect to distributions made by the Corporation in
connection with the repurchase of shares of Common Stock issued to or held by
employees, directors or consultants upon termination of their employment or
services pursuant to agreements providing for the right of said repurchase
between the Corporation and such persons.
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<PAGE>
5. VOTING RIGHTS. Except as otherwise provided by law, the holders of
the Series D Preferred Stock shall not be entitled to vote upon any matter
relating to the business or affairs of the Corporation or for any other purpose.
6. CONVERSION RIGHTS.
(a) Each share of Series D Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Series D Preferred Stock or Common Stock, into Common Stock as more
fully described below. The number of shares of fully paid and nonassessable
Common Stock into which each share of Series D Preferred Stock may be converted
shall be determined by dividing the Series D Preference Amount by the Conversion
Price (as hereinafter defined) in effect on the Conversion Date (as hereinafter
defined). No shares of Series D Preferred Stock may be converted prior to the
sixtieth (60th) day after the date of first issuance of Series D Preferred
Stock. At any time after the sixtieth (60th) day after the first issuance date
of Series D Preferred Stock through the ninetieth (90th) day after the first
issuance date of Series D Preferred Stock, the holder may convert, at its option
and on a cumulative basis, one-third (1/3) of the outstanding shares of Series D
Preferred Stock, from the ninety-first (91st) day through the one hundred
twentieth (120th) day after the first issuance date of Series D Preferred Stock
an additional one-third (1/3) of the outstanding shares of Series D Preferred
Stock, and thereafter the balance of the outstanding shares of Series D
Preferred Stock. Notwithstanding the foregoing to the contrary, the Purchaser
may convert shares of Series D Preferred Stock prior to the dates and in excess
of the amounts set forth in this Section 6(a) with the prior written consent of
the Company.
(b) For purposes of this paragraph 6, (i) "Conversion Price"
means the lesser of (A) a price equal to 90% of the average closing bid prices
of the Common Stock as quoted on Nasdaq SmallCap Market for the five-day trading
period ending on the day before the Conversion Date or (B) $1.25; and (ii)
"Conversion Date" means the date upon which the holder delivers the notice of
conversion to the Corporation or any transfer agent for Series D Preferred Stock
or Common Stock or the second anniversary of the issuance of the outstanding
Series D Preferred Stock, whichever is earlier. In the event there is a period
in which the Series D Preferred Stock is not convertible into Common Stock (a
"Blackout Period"), at the time conversion is permissible, clause (A) of the
Conversion Price shall be based on the five (5) lowest closing bid prices
reported during such Blackout Period, if the holder elects to convert on the day
after the Blackout Period.
(c) Each share of Series D Preferred Stock shall automatically
be converted into shares of Common Stock utilizing the then effective Conversion
Price for each such share upon the second anniversary of the issuance date of
the outstanding Series D Preferred Stock.
(d) No fractional shares of Common Stock shall be issued upon
conversion of the Series D Preferred Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the fair market value of the Common Stock
on the Conversion Date, as determined by the Corporation's Board
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<PAGE>
of Directors. Before any holder of Series D Preferred Stock shall be entitled to
convert the same into full shares of Common Stock, the holder shall surrender
the certificate or certificates therefor, duly endorsed, at the office of any
transfer agent for the Series D Preferred Stock or Common Stock, and shall give
written notice, by facsimile or delivery to the Corporation at such office that
the holder elects to convert the same, with a copy by facsimile or delivery to
the transfer agent c/o American Stock Transfer & Trust Company, 40 Wall Street,
New York, New York 10005, Attn.: Herbert Lemmer and the Corporation's counsel
c/o Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York,
NY 10036, Attn: Martin Eric Weisberg, Esq.; PROVIDED, HOWEVER, that in the event
of an automatic conversion pursuant to subparagraph 6(c) the outstanding shares
of all Series D 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 Corporation or its transfer
agent; provided further, however, that the Corporation shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
automatic conversion unless either the certificates evidencing such shares of
Series D Preferred Stock are delivered to the Corporation or its transfer agent
as provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates.
(e) The Corporation shall, within 2 business days after such
delivery, or after such agreement and indemnification, issue at such office to
such holder of Series D Preferred Stock (and deliver forthwith thereafter), a
certificate or certificates for the number of shares of Common Stock to which it
shall be entitled as aforesaid and a check payable to the holder, or order, in
the amount of any cash amounts payable as the result of a conversion into
fractional shares of Common Stock, and a certificate for any shares of Series D
Preferred Stock not so converted. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Series D Preferred Stock to be converted, or in the case of
automatic conversion on the date of the event causing such automatic conversion,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date.
(f) In the event of any taking by this Corporation of a record
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Series D Preferred Stock, at least 10
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such distribution or right,
and the amount and character of such distribution or right.
(g) Upon any conversion of Series D Preferred Stock pursuant
to this Section 6, the shares of Series D Preferred Stock which are converted
shall not be reissued. Upon conversion of all of the then outstanding Series D
Preferred Stock pursuant to this Section 6 and upon the taking of any action
required by law, all matters set forth in this Certificate of
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<PAGE>
Designation shall be eliminated from the Certificate of Incorporation, shares of
Series D Preferred Stock shall not be deemed outstanding for any purpose
whatsoever and all such shares shall revert to the status of authorized and
unissued shares of Preferred Stock.
(h) Any notices required by the provisions of this Section 6
to be given to the holders of shares of Series D Preferred Stock shall be deemed
given if deposited in the United States mail, first class, postage prepaid and
addressed to each holder of record at its address appearing on the books of the
Corporation.
7. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price is subject to
adjustment from time to time as follows:
(a) If at any time, while any shares of Series D Preferred
Stock are outstanding and not converted, there shall be (i) a reorganization
(other than a combination, reclassification exchange or subdivision of shares
otherwise provided for in Section 7(b)), (ii) a merger or consolidation of the
Corporation with or into another corporation in which the Corporation is not the
surviving person, or a reverse triangular merger in which the Corporation is the
surviving person but the shares of the Corporation's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of cash, securities or otherwise, or (iii) a sale
or transfer of the Corporation's properties and assets as, or substantially as,
an entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
holder shall thereafter be entitled to receive upon conversion of any shares of
Series D Preferred Stock, during the period in accordance with this Certificate
of Designation, the number of shares of stock or other securities or property of
the successor corporation resulting from such reorganization, merger,
consolidation, sale or transfer which a holder of the shares deliverable upon
conversion of any shares of Series D Preferred Stock, would have been entitled
to receive in such reorganization, consolidation, merger, sale or transfer if
the shares of Series D Preferred Stock, had been converted immediately before
such reorganization, merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section 7. The foregoing provisions of
this Section 7(a) shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation which are at the time receivable upon the conversion of
any shares of Series D Preferred Stock. If the per share consideration payable
to the holder for shares in connection with any such transaction is in a form
other than cash or marketable securities, then the value of such consideration
shall be determined in good faith by the Corporation's Board of Directors, whose
determination shall be final and binding. In all events, appropriate adjustment
(as determined in good faith by the Corporation's Board of Directors) shall be
made in the application of the provisions of the Series D Preferred Stock with
respect to the rights and interests of the holder after the transaction, to the
end that the rights of a holder of Series D Preferred Stock shall be applicable
after that event, as nearly as reasonably may be, in relation to any shares or
other property deliverable after that event upon conversion of any shares of
Series D Preferred Stock.
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<PAGE>
(b) If the Corporation, at any time while any shares of Series D
Preferred Stock remain outstanding and not converted, shall by reclassification
of securities or otherwise, change any of the securities as to which conversion
rights under the Series D Preferred Stock exist into the same or a different
number of securities of any other class or classes, the Series D Preferred Stock
shall thereafter represent the right to convert into such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities which were subject to the conversion rights under the Series D
Preferred Stock immediately prior to such reclassification or other change and
the Conversion Price therefor shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 7.
(d) If while any shares of the Series D Preferred Stock remain
outstanding and not converted the holders of the securities as to which
conversion rights under the Series D Preferred Stock exist at the time shall
have received, or, on or after the record date fixed for the determination of
eligible stockholders, shall have become entitled to receive, without payment
therefor, other or additional stock or other securities or property (other than
cash) of the Corporation by way of dividend, then and in each case, the Series D
Preferred Stock shall represent the right to acquire, in addition to the number
of shares of the security receivable upon conversion of the Series D Preferred
Stock, the amount of such other or additional stock or other securities or
property (other than cash) of the Corporation which such holder would hold on
the date of such conversion had it been the holder of record of the security
receivable upon conversion of the Series D Preferred Stock on January 8, 1998
and had thereafter, during the period from January 8, 1998 to and including the
date of such exercise, retained such shares and/or all other additional stock
available by it as aforesaid during such period, giving effect to all
adjustments called for during such period by the provisions of this Section 7.
(d) Upon the occurrence of each adjustment or readjustment pursuant to
this Section 7, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series D Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request, at any time, of any holder of Series D Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth: (i) such
adjustments and readjustments; (ii) the Conversion Price at the time in effect;
and (iii) the number of shares and the amount, if any, of other property which
at the time would be received upon the conversion of the Series D Preferred
Stock.
(e) The Corporation will not, by any voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 7 and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holders against impairment.
(f) The Corporation shall at all times reserve and keep
available out of its authorized but unissued Common Stock, solely for the
purpose of effecting the conversion of Series D Preferred Stock, the full number
of shares of Common Stock deliverable upon the
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<PAGE>
conversion of all Series D Preferred Stock from time to time outstanding. The
Corporation shall from time to time (subject to obtaining necessary director and
stockholder authorizations), in accordance with the laws of the State of
Delaware, increase the authorized amount of its Common Stock if at any time the
authorized number of shares of Common Stock remaining unissued shall not be
sufficient to permit the conversion of all of the shares of Series D Preferred
Stock at the time outstanding.
8. CALL AND REDEMPTION
(a) In lieu of converting into Common Stock, the Corporation
will have the option of partially or fully paying cash to the holders of Series
D Preferred Stock so that the holders will realize the "full economic value"
being the cash amount the holder would derive from converting the Series D
Preferred Stock and selling the Common Stock at the closing ask price on the
conversion date (or in the case of (b) below, the redemption date) with no
transaction fees. The Corporation agrees to notify the purchaser, in writing, at
least ten trading days in advance of any time period in which it intends to
exercise this option.
(b) The Corporation may redeem the Series D Preferred Stock
upon 10 days prior written notice at a 10% premium above the full economic value
at the time of notice; PROVIDED, that if the holder has delivered a Notice of
Conversion to the Corporation, the shares of Series D Preferred Stock designated
to be converted may not be redeemed by the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its Chairman, and attested by its Assistant
Secretary, this 8th day of January 1998.
StarBase Corporation
By: /S/ WILLIAM R. STOW, III
--------------------------
William R. Stow, III
Chairman
Attest:
By: /S/ DOUGLAS S. NORMAN
-----------------------
Douglas S. Norman
Assistant Secretary
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") dated as of
January 8, 1998, by and among StarBase Corporation, a Delaware corporation (the
"COMPANY"), and __________ (the "SUBSCRIBER").
W I T N E S S ET H:
WHEREAS, pursuant to The Unit Subscription Agreement (the "SUBSCRIPTION
AGREEMENT"), by and among the Company and Subscriber, the Company has agreed to
sell and the Subscriber has agreed to purchase an aggregate of 1,200,000 units
(the "UNITS") in two (2) tranches of 600,000 Units (each, a "TRANCHE"), each
Unit consisting of one share of the Company's Series D Preferred Stock, par
value $.01 per share (the "SERIES D PREFERRED STOCK"), with each share of the
Company's Series D Preferred Stock convertible into shares of the Company's
common stock, par value $.01 per share (the "SHARES") and one warrant to
purchase a 0.4166 share of Common Stock (each, a "WARRANT"); and
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Subscriber's entering into the Subscription Agreement, the Company has
agreed to provide the Subscriber with certain registration rights with respect
to the Shares;
NOW THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the
Subscription Agreement and this Registration Rights Agreement, the Company and
the Subscriber agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission
or any other Federal agency at the time administering the Securities Act.
"COMMON STOCK" shall mean the Company's Common Stock, par value $.01 per
------------
share.
"REGISTRABLE SHARES" shall mean for each Tranche (i) the
Shares, (ii) any Common Stock of the Company issued or issuable in respect of
the Shares or upon any stock split, stock dividend, recapitalization or similar
event, or (iii) any Common Stock issued upon exercise of the
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Warrants; PROVIDED, HOWEVER, that shares of Common Stock or other securities
shall no longer be treated as Registrable Shares if (a) they have been sold to
or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, (b) they have been sold in a transaction exempt
from the registration and prospectus delivery requirements of the Securities Act
so that all transfer restrictions and restrictive legends with respect thereto
are removed upon consummation of such sale, or (c) the Shares are available for
sale under the Securities Act (including Rule 144) in the opinion of counsel to
the Company, without compliance with the registration and prospectus delivery
requirements of the Securities Act so that no transfer restrictions or
restrictive legends will appear upon the Share certificates following the
consummation of such sale.
The terms "register", "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
"REGISTRATION EXPENSES" shall mean all expense incurred by the
Company in compliance with Section 2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, reasonable fees and
disbursements of one counsel for Subscriber, and the reasonable expenses of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar Federal Statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Shares.
2. REGISTRATION. The Common Stock issuable upon conversion of the
Series D Preferred Stock issued in both Tranches and upon exercise of the
Warrants issued in both Tranches will be registered for resale no later than 90
days from the issuance date of the Units pursuant to a registration statement on
Form S-3. The registration statement is to be filed within 30 days of the
issuance date of the Units for the first Tranche and shall be in a form
reasonably satisfactory to the Subscriber. If the registration statement is not
effective within 90 days of the issuance date for the first Tranche, the Company
will pay an amount equal to 2% of the purchase price of the Units for the first
Tranche on the 91st day and at the end of each 30-day period thereafter until
the registration statement has been declared effective.
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<PAGE>
3. EXPENSES OF REGISTRATION. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification or
compliance of the Registrable Shares pursuant to this Agreement. All Selling
Expenses shall be born by the Subscriber.
4. REGISTRATION PROCEDURES. The Company shall advise the Subscriber of
the initiation of a registration under this Agreement and as to the completion
thereof. At its expense, the Company will:
(a) Use reasonable efforts to keep such registration effective
for a period of five (5) years or until the Subscriber has completed the
distribution described in the registration statement relating thereto, whichever
first occurs.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of securities
covered by such registration statement; and
(c) Furnish such number of prospectuses and other documents
incidental thereto, including any amendment of or supplement to the prospectus,
as the Subscriber from time to time may reasonably request.
5. INDEMNIFICATION.
(a) The Company will indemnify the Subscriber with respect to
which registration has been effected pursuant to this Agreement against all
claims, losses, damages and liabilities (or actions, proceedings or settlements
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus or other
document incident to any such registration, or based on 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, or any violation by the
Company, and will reimburse the Subscriber for any legal and any other expenses
as they are reasonably incurred in connection with the investigating defending
any such claim, loss, damage, liability or action; PROVIDED, HOWEVER, that the
indemnity contained in this Section 5(a) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Company, and PROVIDED FURTHER
that the Company shall not be liable in any such case to the extent that any
such claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission based upon written information unfurnished to the
Company by the Subscriber and stated to be specifically for use in the
registration statement filed pursuant to this Agreement. The foregoing indemnity
agreement is further subject to the condition that insofar as it relates to any
untrue prospectus, such indemnity agreement shall not inure to the benefit of
the foregoing unindemnified parties if copies of a final
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<PAGE>
prospectus correcting the misstatement, or alleged misstatement, omission or
alleged omission upon which such loss, liability, claim or damage is based is
timely delivered to such indemnified party and a copy thereof was not furnished
to the person asserting the loss, liability, claim or damage.
(b) The Subscriber will indemnify the Company, each of its
directors and officers and each person who controls the Company within the
meaning of the Securities Act and the rules and regulations thereunder against
all claims, losses, damages and liabilities (or actions, proceedings, or
settlements in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus or
other document incident to any such registration or based upon 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 or any violation of
the Securities Act or any rule or regulation thereunder applicable to the
Company and will reimburse the Company, and its directors, officers, partners,
persons, underwriters or control persons for any legal or any other expense
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, and only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) relating to such holder is made in such
registration statement, prospectus offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by the Subscriber and stated to be specifically for use therein;
PROVIDED, HOWEVEr, that the obligations of the Subscriber shall be limited to an
amount equal to the proceeds to the Subscriber of Registrable Shares sold under
such registration and provided further that such indemnification obligations
shall not apply if the Company modifies or changes or a material extent the
written information furnished by such Holder.
(c) Each party entitled to indemnification under this Section
5 (an "INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
reasonably be withheld or delayed), and the Indemnified Party may participate in
such defense at such indemnified party's expense, and PROVIDED FURTHER that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement. No
Indemnifying Party, in the defense of any such claim or litigation, shall except
with the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of
release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably request in writing and shall
be reasonably required in connection with defense of such claim and litigation
resulting therefrom.
260793-3
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<PAGE>
6. INFORMATION BY HOLDER OF REGISTRABLE SHARES. The Subscriber shall
furnish to the Company such information regarding the Subscriber and the
distribution proposed by such holder of Registrable Shares as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration referred to in this Agreement.
7. MISCELLANEOUS.
7.1. GOVERNING LAW. This agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to conflict of laws.
7.2. SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
7.3. ENTIRE AGREEMENT. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subject matter hereof.
7.4. NOTICES, ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by
first-class mail, postage prepaid, or delivered by hand or by messenger or
courier delivery service, addressed (a) if to the Subscriber, at 4120 Yonge
Street, Suite 416, Toronto, Ontario M2P1G9, Canada, or at such other address as
the Subscriber shall have furnished to the Company in writing, or (b) if to the
Company, at 18872 MacArthur Boulevard, Suite 300, Irvine, California 92612,
U.S.A., or at such other address as the Company shall have furnished to the
Subscriber in writing.
7.5. DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any holder of any Registrable Shares, upon
any breach or default of the Company under this Agreement, shall impair any such
right, power, or remedy of such holder nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereunder occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
7.6. COUNTERPARTS. This agreement may be executed in any
number of counterparts, each of which shall be enforceable against the parties
actually executing such
260793-3
5
<PAGE>
counterparts, and all of which together shall constitute one instrument.
7.7. SEVERABILITY. In case any provision of this agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.8. AMENDMENTS. The provisions of this Agreement may be
amended at any time and from time to time, and particular provisions of this
Agreement may be waived, with and only with an agreement or consent in writing
signed by the Company and by the subscriber.
IN WITNESS WHEREOF, the undersigned executed the foregoing
Registration Rights Agreement as of the date first above written.
STARBASE CORPORATION
By:___________________________________
Name:
Title:
--------------------------------------
Name:
Title:
260793-3
6
<PAGE>
NONTRANSFERABLE WARRANT
THIS WARRANT AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT")
THIS CERTIFICATE IS NOT TRANSFERABLE AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED.
No. 1998-CMN-XXX Warrant to Purchase XXXX
Shares of Common Stock
(subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
STARBASE CORPORATION
Void after the fifth anniversary of the Issue Date
This certifies that, for value received, [Insert]] (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from StarBase
Corporation, a Delaware corporation (the "Company"), [XXX] shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), as
constituted on the date hereof (the "Warrant Issue Date"), upon surrender
hereof, at the principal office of the Company referred to below, with the
Notice of Exercise attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States, or otherwise as hereinafter
provided, at the exercise price as set forth in Section 2 below. The number of,
and exercise price for, such shares of Common Stock are subject to adjustment as
provided herein.
1. TERM OF WARRANT. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and terminating on or before the fifth
anniversary of the Warrant Issue Date.
2. EXERCISE PRICE. The exercise price shall be U.S. $1.50.
3. EXERCISE OF WARRANT.
(a) This Warrant is exercisable by the Holder, in whole or in
part, but not for less than 1,000 shares of Common Stock at a time (or such
lesser number of shares as may then constitute the maximum number purchasable;
such number being subject to adjustment as provided in Section 14 below), at any
time, or from time to time, during the term hereof as described in Section 1
above, by the surrender of this Warrant and the Notice of Exercise annexed
hereto as Exhibit 1 duly completed and executed on behalf of the Holder, at the
office of
1
260807-3
<PAGE>
the Company (or such other office or agency of the Company as it may designate
by notice in writing to the Holder at the address of the Holder appearing on the
books of the Company), upon payment (i) in cash or by check acceptable to the
Company, (ii) by cancellation by the Holder of indebtedness of the Company to
the Holder, or (iii) by a combination of (i) and (ii), for the purchase price of
the shares to be purchased.
(b) This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date.
Unless exercised in connection with an underwritten public offering, as promptly
as practicable on or after such date and in any event within two (2) business
days thereafter, the Company at its expense shall issue promptly thereafter (and
deliver forthwith or make available for pickup by Holder) to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. If the certificates are not
delivered to the Holder within five (5) business days of receipt by the
Company's transfer agent of the notice of exercise, the Company will pay the
Holder an amount equal to $500 per day for each delay above the initial two (2)
business days. In the event that this Warrant is exercised in part, the Company
at its expense will execute and deliver a new Warrant of like tenor exercisable
for the number of shares for which this Warrant may then be exercised. In the
event of exercise at the time of an underwritten public offering, the Company
will provide instructions as to the exercise of this Warrant into such shares.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the difference between
the market price and the exercise price multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor and amount.
6. REGISTRATION. The shares of Common Stock underlying this Warrant
(the "Registrable Securities") will be included in a registration statement on
Form S-3 filed in accordance with the Unit Subscription Agreement, each between
the Holder and the Company and entered into on January 8, 1998 and the
Registration Rights Agreement.
7. RIGHTS OF STOCKHOLDER. Subject to Sections 11, 12 and 13 of this
Warrant, the Holder shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company that
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the
2
260807-3
<PAGE>
Holder, as such, any of the rights of a stockholder of the Company or any right
to vote for the election of directors or upon any matter submitted to
stockholder at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, consolidation, merger or otherwise) or to receive
notices of meetings, or to receive dividends or subscription rights or otherwise
until the Warrant shall have been exercised and the shares of Common Stock
purchasable upon the exercise hereof shall have been issued, as provided herein.
8. TRANSFERABILITY AND NON-NEGOTIABILITY OF WARRANT. This Warrant may
not be assigned or transferred in whole or in part.
9. COMPLIANCE WITH SECURITIES LAWS.
(a) The Holder of this Warrant, by acceptance hereof,
acknowledges that the shares of Common Stock to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment, and that the Holder will not offer, sell or
otherwise dispose of any shares of Common Stock to be issued upon exercise
hereof, except under circumstances that will not result in a violation of the
United States Securities Act of 1933, as amended (the "Act"), or any foreign or
state securities laws. 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 shares of Common Stock 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.
(b) All shares of Common Stock issued upon exercise hereof may
be stamped or imprinted with one or more of the following legends (in addition
to any legend required by the Act and the securities laws of any state of the
United States) as determined by counsel for the Company:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
10. RESTRICTIONS ON TRANSFER OF UNDERLYING COMMON STOCK. The Holder of
this Warrant by acceptance hereof agrees that the transfer of the shares of
Common Stock issuable upon the exercise of all or any portion of this Warrant
(the "Securities") is subject to the provisions of this Warrant, which include
restrictions on transfer of the Securities.
11. RESERVATION OF COMMON STOCK. The Company covenants that during
the term this
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260807-3
<PAGE>
Warrant is exercisable, the Company will reserve from its authorized and
unissued shares of Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant and, from time to
time, will take all steps necessary to amend its Certificate of Incorporation
(the "Certificate") to provide a sufficient reserve of shares of Common Stock
issuable upon exercise of the Warrant. The Company further covenants that all
shares that may be issued upon the exercise of rights represented by this
Warrant, upon exercise of the rights represented by this Warrant and payment of
the exercise price, all as set forth herein, will be free from all taxes, liens
and charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein). The Company
agrees that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Common Stock upon the
exercise of this Warrant.
12. NOTICES.
(a) Whenever the exercise price or number of shares
purchasable hereunder shall be adjusted pursuant to Section 14 hereof, the
Company shall issue a certificate signed by its Secretary setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the exercise
price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by first
class mail, postage prepaid) to the Holder of this Warrant.
(b) In case the Company shall take a record of the holders of
its Common Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose of:
(i) entitling them to receive any dividend or othe
distribution, or any right to subscribe for or purchase any shares of stock of
any class or any other securities, or to receive any other right, or
(ii) any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any sale, lease or
conveyance of all or substantially all of the assets of the Company to another
person, or
(iii) any voluntary dissolution, liquidation or
winding-up of the Company, or,
(iv) any other matter referenced in Section 14
hereof, then, and in each such case, the Company will mail or cause to be mailed
to the Holder or Holders a notice specifying, as the case may be, (A) the date
on which a record is to be taken for the purpose of such dividend, distribution
or right, and stating the amount and character of such dividend, distribution
or right, or (B) the date on which such reorganization, reclassification,
consolidation,
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260807-3
<PAGE>
merger, conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or such stock or securities at the time receivable upon the exercise of
this Warrant) shall be entitled to exchange their shares of Common Stock (or
such other stock or securities) for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 10
days prior to the date therein specified.
(c) All such notices and communications shall be deemed to
have been received (i) in the case of personal delivery, on the date of such
delivery and (ii) in the case of mailing, on the second business day following
the date of such mailing.
13. AMENDMENTS.
(a) Any term of this Warrant may be amended with the written
consent of the Company and the Holder.
(b) No waivers of or exceptions to any term, condition or
provision of this Warrant, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such term, condition or
provision.
14. ADJUSTMENTS. The exercise prices and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
14.1 MERGER, SALE OF ASSETS, ETC.
If at any time, while this Warrant, or any portion thereof, is
outstanding and unexpired there shall be (i) a reorganization (other than a
combination, reclassification exchange or subdivision of shares otherwise
provided for in Sections 14.2 and 14.3), (ii) a merger or consolidation of the
Company with or into another corporation in which the Company is not the
surviving person, or a reverse triangular merger in which the Company is the
surviving person but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of cash, securities or otherwise, or (iii) a sale
or transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
Holder shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified herein and upon payment of the exercise price then
in effect, the number of shares of stock or other securities or property of the
successor corporation resulting from such reorganization, merger, consolidation,
sale or transfer which a holder of the shares deliverable upon exercise of this
Warrant would have been entitled to receive in such reorganization,
consolidation, merger, sale or transfer if this Warrant had been exercised
immediately before such reorganization, merger, consolidation, sale or transfer,
all subject to further adjustment as provided in this Section 14. The foregoing
provisions of this Section 14.1 shall similarly apply to successive
reorganizations,
5
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<PAGE>
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation which are at the time receivable upon the exercise of this
Warrant. If the per share consideration payable to the Holder for shares in
connection with any such transaction is in a form other than cash or marketable
securities, then the value of such consideration shall be determined in good
faith by the Company's Board of Directors, whose determination shall be final
and binding. In all events, appropriate adjustment (as determined in good faith
by the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as nearly as reasonably may be, in
relation to any shares or other property deliverable after that event upon
exercise of this Warrant.
14.2 RECLASSIFICATION, ETC. If the Company at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the exercise
price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 14.
14.3 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the exercise price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
14.4 ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If while this Warrant, or any portion thereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible stockholder, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company which such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 14.
6
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14.5 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 14, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request, at any time, of any such Holder, furnish or cause to be furnished to
such Holder a like certificate setting forth: (i) such adjustments and
readjustments; (ii) the exercise price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property which at the time
would be received upon the exercise of the Warrant.
14.6 NO IMPAIRMENT. The Company will not, by any 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 14 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holders against impairment.
15. MISCELLANEOUS PROVISIONS.
(i) GOVERNING LAW. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of New York, as such laws
are applied to contracts entered into and performed in such State, without
resort to that State's conflict-of-laws rules.
(ii) ATTORNEY'S FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Warrant, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and disbursements,
in addition to any other relief to which such party may be entitled.
IN WITNESS WHEREOF, STARBASE CORPORATION has caused this
Warrant to be executed by its officers thereunto duly authorized.
Dated as of January __, 1998
STARBASE CORPORATION
By:______________________________________
Name:
Title:
7
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EXHIBIT 1
NOTICE OF EXERCISE
To: STARBASE CORPORATION
18872 MacArthur Boulevard
Suite 300
Irvine, California 92612
Attn: Chief Financial Officer
(1) The undersigned hereby elects to purchase _________ shares of
Common Stock of STARBASE CORPORATION, pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price for such shares.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, and that
the undersigned will not offer, sell or otherwise dispose of any such shares of
Common Stock, except under circumstances that will not result in a violation of
the United States Securities Act of 1933, as amended, or any foreign or state
securities laws.
(3) In accordance with the Irrevocable Instructions to Transfer Agent
dated January __, 1998, please issue within two (2) business days of receipt of
this Notice of Exercise a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or, if the undersigned has
designated a nominee, such nominee as is specified below.
Name:
Address:
Deliver to:
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or, if the undersigned has
designated a nominee, such nominee as is specified below.
- ---------------------------------- ------------------------------------
[Date] Name:
Title:
8
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StarBase Corporation
Unit Subscription Agreement
THIS UNIT SUBSCRIPTION AGREEMENT dated as of January 8, 1998
by and between StarBase Corporation, a Delaware corporation (the "Company"), and
________, a __________ who resides in ________________ (the "Purchaser").
W I T N E S S E T H :
WHEREAS, the Company is offering to sell, upon the terms and
subject to the conditions hereinafter set forth, 1,200,000 units (the "Units"),
each Unit consisting of one share of the Company's Series D Preferred Stock, par
value $0.01 per share (the "Series D Preferred Stock"), having the terms and
provisions set forth in the certificate of designation to the Certificate of
Incorporation of the Company, attached hereto as Exhibit A (the "Certificate of
Designation"), with each share of Series D Preferred Stock convertible into a
share or shares of common stock, par value $0.01 per share (the "Shares"), and
one warrant to purchase 0.4166 share of Common Stock, substantially in the form
of Exhibit B hereto (each, a "Warrant"); and
WHEREAS, the Purchaser desires to purchase, upon such terms
and subject to such conditions, the number of Units set forth on the signature
page hereof;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto hereby agree as
follows:
1. PURCHASE AND SALE OF UNITS
1.1 Issuance and Sale of Units
Upon the terms and subject to the conditions of this Agreement, the Company
shall sell to the Purchaser, and the Purchaser shall purchase from the Company,
at a purchase price, in lawful money of the United States, of $1.25 per Unit,
1,200,000 Units set forth opposite the Purchaser's name on the signature page
hereof for the aggregate purchase price set forth thereon (the "Purchase
Price"). The Purchaser shall specify on the signature page hereof the address
for any notices given hereunder. The offer and sale of the Units are being
effected in accordance with and in reliance on the provisions of Regulation D
under the United States Securities Act of 1933, as amended (the "Act") and
subsections 35(1)5 and 72(1)(d) of the Ontario Securities Act.
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The Units will be sold in two tranches of $750,000 each. The first tranche
will be funded on the Closing Date (as defined below) and the second tranche
will be funded upon the second business day after the date (the "Additional
Closing Date") the registration statement is declared effective (the
"Registration Effective Date"). The second tranche will be subject to the
following conditions, which may be waived by the Purchaser in its sole and
absolute discretion (1) the daily trading value for the previous 20 days ending
on the day prior to the Registration Effective Date is at least $30,000 and (2)
the closing bid price has been at least $0.88 for each of the five previous
trading days ending on the day prior to the Registration Effective Date.
1.2 Offering Expenses
Of the Purchase Price so payable by the Purchaser, an amount, not in excess
of $35,000, shall be applied to pay brokerage commissions, attorneys' fees and
disbursements and other expenses incurred in connection with the offer and sale
of the Units hereunder. The Purchaser shall pay the legal fees of its counsel,
which fees shall not exceed $5,000 and shall be deducted from the Purchase Price
to be paid on the first tranche.
1.3 Closing
Promptly upon the execution and delivery of this Agreement by the Company
and the Purchaser:
(a) the Purchaser shall deliver to Parker Chapin
Flattau & Klimpl, LLP, at 1211 Avenue of the Americas, New York, New York
10036-8735, U.S.A., Attention: Martin Eric Weisberg, Esq. (the "Closing Agent"),
(i) an executed copy of the Agreement (or a photocopy or other facsimile
thereof) and (ii) payment of the Purchase Price for the first tranche less
$5,000 for legal fees by wire transfer of immediately available funds to the
account specified by the Closing Agent; and
(b) the Company shall deliver to the Closing Agent or
to such person as directed by the Closing Agent (i) certificates in
denominations requested by the Purchaser registered in the name of the Purchaser
or, if the Purchaser shall have designated a nominee, such nominee, representing
the number of shares of Common Stock included within the Units purchased by the
Purchaser hereunder (the "Certificates"), (ii) Warrants in denominations
requested by the Purchaser to purchase shares of Common Stock, and (iii) the
documents set forth in Section 5.5 hereof.
Promptly upon receipt of the funds and documents required so to be delivered
(the date upon which all such funds and documents are actually received by the
Closing Agent being hereinafter referred to as the "Closing Date"), the Closing
Agent shall (a) deliver the Certificates, Warrants and the documents set forth
in Sections 5.4 and 5.5. hereof to the Purchaser (or its nominee, if any), and
(b) pay over, as directed, the Purchase Price to the Company. Subject to the
conditions set forth in Section 1.1, the provisions of this Section 1.3 shall
apply mutatis mutandis to the second tranche funded on the Additional Closing
Date.
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1.4 Registration
The Common Stock issuable upon conversion of the Series D Preferred Stock
and upon the exercise of the Warrants will be registered for resale no later
than 90 days from the closing date pursuant to a registration statement on Form
S-3. The registration statement is to be filed within 30 days of the closing
date and shall be in a form reasonably satisfactory to the Purchaser. If the
registration statement is not effective within 90 days, the Company will pay an
amount equal to 2% of the Purchase Price of the Units on the 91st day and at the
end of each 30-day period thereafter until the registration statement has been
declared effective.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows:
2.1 Organization and Good Standing
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as now conducted.
2.2 Capitalization
The authorized capital of the Company consisted of 50,000,000 shares of
Common Stock, of which 16,654,428 shares were issued and outstanding as of
December 31, 1997, of which none is treasury stock, and 10,000,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"), of which
3,000,000 shares were designated Series A Preferred Stock, of which none is
issued and outstanding as of November 30, 1997; 2,500,000 shares were designated
Series B Preferred Stock, of which none is issued and outstanding as of November
30, 1997; 366,000 shares were designated Series C Preferred Stock, of which none
is issued and outstanding as of November 30, 1997; and 1,200,000 shares were
designated Series D Preferred Stock, which shares may be issued pursuant to this
Agreement. The number of outstanding shares of Common Stock and Preferred Stock
has not materially changed since November 30, 1997. The outstanding shares of
Common Stock and Preferred Stock are all duly and validly authorized and issued,
fully paid and nonassessable.
2.3 Authorization
The Company has all requisite corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. The execution
and delivery of this Agreement by the Company does not, and the performance of
its obligations hereunder will not, violate or conflict with any provision of
the Company's Certificate of Incorporation or By-laws or any material agreement
to which the Company is a party. All corporate action on the part of the Company
required for the authorization, execution and delivery of this Agreement and the
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<PAGE>
performance of its obligations hereunder, including the issuance and delivery of
the Units, has been taken. This Agreement has been duly executed and delivered
by the Company, and assuming due execution and delivery by the Purchaser,
constitutes a valid and legally binding obligation of the Company enforceable in
accordance with its terms, except as limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally and (ii) equitable
principles relating to the availability of specific performance, injunctive
relief and other equitable remedies.
2.4 Valid Issuance of Series D Preferred D Stock
The Series D Preferred Stock which is being purchased by the Purchaser
hereunder is duly authorized and, when issued, sold and delivered in accordance
with the terms hereof, will be duly and validly issued, fully paid and
nonassessable, and, based upon the representations of the Purchaser in this
Agreement, will be issued in compliance with the registration requirements of
all applicable federal and state securities laws. The Common Stock issuable upon
conversion of the Series D Preferred Stock and upon the exercise of the Warrants
is duly authorized and has been duly and validly reserved for issuance and, upon
issuance to the Purchaser in accordance with the terms of the Series D Preferred
Stock and the Warrants, will be duly and validly issued, fully paid and
nonassessable, and issued in compliance with the registration requirements of
all applicable federal and state securities laws or exemptions therefrom, as
presently in effect, of the United States.
2.5 Governmental Consents
Except for the filing of the Certificate of Designation with the
Secretary of State of the State of Delaware and the filing of the Form 20 with
the Securities Commission of Ontario, no consent, approval or authorization of,
or designation, declaration or filing on the part of the Company with, any
United States federal or state governmental authority or Nasdaq SmallCap Market
or, to the best knowledge of the Company, with any foreign governmental
authority, is required in connection with the valid execution and delivery of
this Agreement, or the offer, sale or issuance of the Units or the consummation
of any other transaction contemplated hereby.
2.6 Offering
Based upon the Purchaser's representations set forth in Section 3 of this
Agreement, the offer, sale and issuance of the Units as contemplated by this
Agreement are exempt from the registration requirements of the Act, and neither
the Company nor any authorized agent acting on its behalf has taken any action
that would cause the loss of such exemption. The offer and sale of the Units is
not a transaction (or any element of a series of transactions) that is part of
any plan or scheme to evade the registration provisions of the Act.
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<PAGE>
2.7 Filings Under the Act and the Securities Exchange Act
The Company has timely filed all reports and other documents required to be
filed by it under the Act and the United States Securities Exchange Act of 1934,
as amended (the "Exchange Act") for a period of at least twelve (12) months
prior to the date hereof, and no such document, at the time it was filed,
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements contained therein, in the light of the
circumstances under which they were made, not misleading. There has been no
material change in the Company since its last filing with the Securities and
Exchange Commission.
2.8 Reporting Company; Nasdaq Listing
The Company has registered its Common Stock pursuant to Section 12 of the
Exchange Act and the Common Stock is listed and traded on the Nasdaq SmallCap
Market.
2.9 Reservation of Common Stock
The Company has reserved 2,579,835 shares of Common Stock for issuance
upon exercise of all outstanding options and warrants.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
3.1 Nature of Purchaser
[Insert]
3.2 Authorization
Purchaser has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement has been duly
executed and delivered by the Purchaser, and assuming execution and delivery by
the Company, constitutes a valid and legally binding obligation of the Purchaser
enforceable in accordance with its terms, except as limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally and (ii)
equitable principles relating to the availability of specific performance,
injunctive relief and other equitable remedies.
3.3 Accredited or Sophisticated Purchaser
The Purchaser is an investor in securities of companies in the development
stage and is able to fend for herself, can bear the economic risk of her
investment and has such
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knowledge and experience in financial or business matters that she is capable of
evaluating the merits and risks of the investment in the Units.
3.4 Economic Risk
The Purchaser has carefully reviewed and understands the risks of, and
other considerations relating to, a purchase of the Units and an investment in
the Company. The Purchaser has such experience in business and financial matters
that she is capable of evaluating the risks of her investment and determining
the suitability of her investment. The Purchaser has received and has carefully
read this Agreement. The Purchaser has consulted the Purchaser's own financial,
legal and tax advisors with respect to the economic, legal and tax consequences
of an investment in the Units and has not relied on the Company, its officers,
directors, affiliates or professional advisors for advice as to such
consequences.
3.5 Independent Investigation; Advertisements
The Purchaser, in offering to purchase the Units hereunder, has relied
solely upon an independent investigation made by the Purchaser and her
representatives, if any, and has, prior to the date hereof, been given access to
and the opportunity to examine all books and records of the Company, and all
material contracts and documents of the Company. In making her investment
decision to purchase the Units, the Purchaser is not relying on any oral or
written representations or assurances from the Company or any other person or
any representation of the Company or any other person other than as set forth in
this Agreement, or on any information other than contained in the Company's
public filings required under the Act and the Exchange Act. The Purchaser is not
subscribing for the Units as a result of or subsequent to any advertisement,
article, notice or other communication published in any newspaper, magazine or
similar media, or broadcast over television or radio, or presented at any
seminar.
3.6 Investment for Own Account
Except as otherwise indicated herein, the Purchaser is the sole party in
interest as to his investment in the Company, and he is acquiring the Units
(including, without limitation, the Series D Preferred Stock, the Common Stock
issued upon conversion of the Series D Preferred or the exercise of a Warrant)
for the Purchaser's own account and has no present agreement, understanding or
arrangement to subdivide, sell, assign, transfer or otherwise dispose of all or
any part of the Units (including, without limitation, the Series D Preferred
Stock, the Common Stock issued upon the conversion of the Series D Preferred
Stock or the exercise of a Warrant) subscribed for to any other person. The
Purchaser represents and warrants that he is purchasing the Units for his
Registered Retirement Savings Plan, account number 550 98866 19.
3.7 No Government Recommendation or Approval
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The Purchaser understands that no United States federal or state agency, or
similar agency of any other country, has reviewed, approved, passed upon or made
any recommendation or endorsement of the Company, this transaction or the
purchase of the Units.
3.8 No Registration
The Purchaser understands that the Units, the Common Stock and the
Common Stock issued upon exercise of the Warrants have not been registered under
the Act and are being offered and sold pursuant to Regulation D based in part
upon the representations of the Purchaser contained herein.
3.9 No Sale in Violation of the Securities Laws
The Purchaser covenants that she will not knowingly make any sale, transfer
or other disposition of the Units in violation of the Act, the Exchange Act, or
the rules and regulations of the Securities and Exchange Commission promulgated
under any of the foregoing.
3.10 No Legal Advice from Company
The Purchaser acknowledges that she has had the opportunity to review this
Agreement and the transactions contemplated by this Agreement with her own legal
counsel. The Purchaser is relying solely on such counsel and not on any
statements or representations of the Company or any of its agents for legal
advice with respect to the investment or the transactions contemplated by this
Agreement.
4. COMPLIANCE WITH SECURITIES LAWS; COVENANTS
4.1 Resales Subject to U.S. Securities Laws
The Purchaser acknowledges that the Units have not been registered under
the Act, and agrees to resell the Units, the Series D Preferred Stock and the
Warrants included therein and any Common Stock issued upon conversion of the
Series D Preferred Stock or the exercise of the Warrants, only in accordance
with the provisions of Regulation D under the Act, pursuant to registration
under the Act, or pursuant to an available exemption from such registration.
4.2 Legends
Except as set forth in Section 4.5, the Certificates, the Warrants and any
certificate representing shares of Common Stock issued upon conversion of the
Series D Preferred Stock or the exercise of the Warrants before the Registration
Effective Date shall bear in substance
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the following legend, as determined by the Company's counsel, which legend shall
be removed following the Registration Effective Date:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
4.3 Further Restrictions on Transfer
The Company shall not register any transfer of the Series D Preferred Stock
or any Common Stock issued upon conversion of the Series D Preferred Stock or
the exercise of a Warrant, not made in accordance with the provisions of
Regulation D or other applicable registration or exemption under the Act, and
shall not treat as the owner of such securities, or otherwise accord voting or
dividend rights to, any transferee to whom such securities have been transferred
in contravention of this Agreement; provided, however, that the foregoing
provision shall not apply to the transfer of any Series D Preferred Stock or
Common Stock if the certificates evidencing such securities bear no restrictive
legend.
4.4 Stop Transfer Instructions
Subject to Section 4.5, stop transfer instructions have been or will be
provided to the Company's transfer agent to be placed on such transfer agent's
books, records or other documents evidencing the Units so as to restrict the
resale, pledge, hypothecation or other transfer thereof in accordance with the
provisions hereof and the provisions of Regulation D promulgated under the Act.
4.5 Transferability of Common Stock
At any time after the Registration Effective Date, if the Purchaser
delivers a Notice of Conversion (substantially in the form of Exhibit C hereto)
to the Company, the Company will issue or cause to be issued one or more
certificates representing the shares of Common Stock without a restrictive
legend upon conversion of the Series D Preferred Stock into shares of Common
Stock in accordance with Section 6 of the Certificate of Designation authorizing
the Series D Preferred Stock. The Company warrants that no instructions, other
than those instructions for a stop transfer until the Registration Effective
Date, have been or will be given to the transfer agent. The Company further
warrants that the shares of Common Stock shall be otherwise freely transferable
by the Purchaser to or for the account or benefit of a U.S. Person if such
shares are registered under the Act or an exemption from the registration
requirements of the Act is available.
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4.6 Delivery of Stock Certificates Upon Conversion
As promptly as practicable on or after receipt of a Notice of Conversion
and in any event within two (2) business days thereafter, the Company at its
expense shall issue to the Purchaser or its nominee a certificate or
certificates for the number of shares of Common Stock issuable upon such
conversion and deliver such certificates forthwith thereafter. If the
certificates are not delivered to the Purchaser or its nominee within five (5)
business days of receipt of the Notice of Conversion, the Company will pay the
Purchaser an amount equal to $500 per day for each delay above the initial two
(2) business days.
4.7 Other Offers of Convertible Securities
The Company shall be permitted to issue and sell other convertible
securities convertible into Common Stock; provided, that the purchaser of such
convertible securities shall not be permitted to convert such convertible
securities within the earlier of 120 days of the Closing Date or 30 days after
the Additional Closing Date.
5. CONDITIONS OF PURCHASER'S OBLIGATIONS AT CLOSING AND
ADDITIONAL CLOSING.
The obligations of the Purchaser under Section 1 of this
Agreement are subject to the fulfillment on or before the Closing Date and the
Additional Closing Date of each of the following conditions:
5.1 Representations and Warranties
The representations and warranties of the Company contained in Section 2
shall be true in all material respects on and as of the Closing Date and the
Additional Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date and the Additional
Closing Date.
5.2 Performance
The Company shall have, in all material respects, performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing
Date and the Additional Closing Date.
5.3 Qualifications
All authorizations, approvals or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are
required in connection with the lawful
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issuance and sale of the Units pursuant to this Agreement shall be duly obtained
and effective as of the Closing Date and the Additional Closing Date.
5.4 Opinion of Counsel
The Company shall deliver to the Purchaser at the time of Closing an opinion
letter from counsel to the Company, to the effect that (i) the Company is
incorporated and validly existing under the laws of the State of Delaware; (ii)
the issuance of the Series D Preferred Stock and the issuance of the Common
Stock upon conversion of the Series D Preferred Stock or exercise of the
Warrants have been duly approved by all required corporate action; (iii) the
Series D Preferred Stock, upon payment therefor by Purchaser and delivery in
accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable; (iv) the Common Stock, upon issuance thereof upon conversion of
the Series D Preferred Stock or exercise of the Warrant in accordance with the
terms thereof, shall be validly issued and outstanding, fully paid and
nonassessable; (v) the Common Stock issuable upon conversion of the Series D
Preferred Stock or exercise of the Warrant has been reserved for issuance; (vi)
each of the Agreement, the Registration Rights Agreement and the Warrant is the
legal, valid, and legally binding obligation of the Company, enforceable against
the Company in accordance with their respective terms; and (vii) based in part
upon the representations and warranties of the Company and the Purchaser herein,
the offer and sale of the Series D Preferred Stock and Common Stock underlying
the Series D Preferred Stock and the Warrant to the Purchaser is exempt from the
registration requirements of the Securities Act. With respect to the foregoing
opinions concerning enforcement, counsel may add such qualifications as are
consistent with general practice such as those relating to equitable remedies or
bankruptcy.
5.5 Agreements
The Company shall deliver to the Purchaser at the time of the closing (a) a
Registration Rights Agreement in the form of the attached hereto Exhibit D,
executed by the Company, (b) an Irrevocable Instructions to Transfer Agent, in
the form attached hereto as Exhibit E, executed by the Company, (c) the
Certificate of Designation certified by the Secretary of State of Delaware, and
(d) an officer's certificate respecting the matters set forth in Sections 5.1
and 5.2.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING AND
ADDITIONAL CLOSING
The obligations of the Company to the Purchaser under this
Agreement are subject to the fulfillment on or before the Closing and Additional
Closing of each of the following conditions:
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6.1 Representations and Warranties
The representations and warranties of the Purchaser contained in Section 3
shall be true in all material respects on and as of the Closing with the same
effect as though such representations and warranties had been made on and as of
the Closing Date.
6.2 Payment of Purchase Price
The Purchaser shall have delivered the Purchase Price and documents
specified in Section 1 to the Closing Agent.
6.3 Qualifications
All authorizations, approvals or permits, if any, of any governmental
authority or regulatory body of the United States or of any state that are
required in connection with the lawful issuance and sale of the Units pursuant
to this Agreement shall be duly obtained and effective as of the Closing.
6.4 Agreements
The Purchaser shall deliver to the Company a certificate respecting the
matters set forth in Section 6.1.
7. INDEMNIFICATIONS
7.1 Indemnification of the Company
The Purchaser hereby agrees to indemnify the Company and its directors,
officers, employees, agents, representatives and controlling persons (within the
meaning of that term in Section 15 of the Act) for, and to hold each of them
harmless against, all claims, liabilities, damages, costs or expenses
(including, without limitation, reasonable attorney's fees and expenses) arising
out of or in connection with any breach, or any alleged breach, of any
representation or warranty of the Purchaser, or any covenant or agreement of the
Purchaser set forth herein; provided, however, that the Purchaser will not be
liable in any such case for claims, liabilities, damages, costs or expenses that
a court of competent jurisdiction shall have found in a final judgment to have
arisen primarily from the gross negligence or willful misconduct of the Company.
The Company hereby agrees to indemnify the Purchaser for, and to hold the
Purchaser harmless against, all claims, liabilities, damages, costs or expenses
(including, without limitation, reasonable attorney's fees and expenses) arising
out of or in connection with any breach, or any alleged breach, of any
representation or warranty of the Company or any covenant or agreement of the
Company set forth herein; provided, however, that the Company will not be liable
in any such case for claims, liabilities, damages, costs or expenses that a
court of competent jurisdiction shall have found in a final judgment to have
arisen primarily from the gross negligence or willful misconduct of the
Purchaser.
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<PAGE>
7.2 Indemnification of the Closing Agent
The Company agrees to indemnify the Closing Agent, its partners, employees,
agents and representatives for, and to hold each of them harmless against, all
claims, liabilities, damages, costs or expenses (including, without limitation,
reasonable attorney's fees and expenses) arising out of or in connection with
the performance of its obligations pursuant to Section 1.3 hereof.
8. MISCELLANEOUS
8.1 Survival of Representations and Warranties
The representations and warranties of each party herein shall survive the
Closing, notwithstanding any investigation or inquiry made by the other party.
8.2 Notices
Any notice hereunder to or upon either party hereto shall be deemed to have
been duly given for all purposes if (a) in writing and sent by (i) messenger or
an overnight courier service against receipt, or (ii) certified or registered
mail, postage paid, return receipt requested, or (b) sent by telegram,
facsimile, telex or similar electronic means, provided that a written copy
thereof is sent on the same day by postage paid first-class mail, to such party
at the following address:
To Purchaser: at its address set forth on the signature
page hereof
With a copy to: [Insert]
To the Company at: 18872 MacArthur Boulevard, Suite 300
Irvine, California 92612 U.S.A.
Attn: President
Fax: (714) 442-4404
With a copy to: Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036-8735 U.S.A.
Attn: Martin Eric Weisberg, Esq.
Fax: (212) 704-6288
or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this Section.
The date of giving of any such notice shall be, in the case of clause (a)(i) and
the Notice of Conversion, the date of the receipt; in the case of
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<PAGE>
clause (a)(ii), five business days after such notice or demand is sent; and, in
the case of clause (b), the business day next following the date such notice is
sent.
8.3 Amendment
Except as otherwise provided herein, no amendment of this Agreement shall
be valid or effective, unless in writing and signing by or on behalf of the
parties hereto.
8.4 Waiver
No course of dealing or omission or delay on the part of either party
hereto in asserting or exercising any right hereunder shall constitute or
operate as a waiver of any such right. No waiver of any provision hereof shall
be effective, unless in writing and signed by or on behalf of the party to be
charged therewith. No waiver shall be deemed a continuing waiver or waiver in
respect of any other or subsequent breach or default, unless expressly so stated
in writing.
8.5 Governing Law
This Agreement shall be governed by, and interpreted and enforced in
accordance with, the laws of the State of New York without regard to principles
of choice or conflict of laws.
8.6 Jurisdiction
Each of the parties hereto hereby irrevocably consents and submits to the
jurisdiction of the Supreme Court of the State of New York and the United States
District Court for the Southern District of New York in connection with any
suit, action or other proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby, waives any objection to venue in the
County of New York, State of New York, or such District and agrees that service
of any summons, complaint, notice or other process relating to such suit, action
or other proceeding may be effected in the manner provided by clause (a)(ii) of
Section 8.2.
8.7 Remedies
In the event of any actual or prospective breach or default by either party
hereto, the other party shall be entitled to equitable relief, including
remedies in the nature of rescission, injunction and specific performance. All
remedies hereunder are cumulative and not exclusive, and nothing herein shall be
deemed to prohibit or limit either party from pursuing any other remedy or
relief available at law or in equity for such actual or prospective breach or
default, including the recovery of damages.
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<PAGE>
8.8 Severability
The provisions hereof are severable, and in the event that any provision of
this Agreement shall be determined to be invalid or unenforceable in any respect
by a court of competent jurisdiction, the remaining provisions hereof shall not
be affected, but shall, subject to the discretion of such court, remain in full
force and effect, and any invalid or unenforceable provision shall be deemed,
without further action on the part of the parties hereto, amended and limited to
the extent necessary to render the same valid and enforceable.
8.9 Counterparts
This Agreement may be executed in counterparts, each of which shall be
deemed an original and which together shall constitute one and the same
agreement.
8.10 Further Assurances
Each party hereto covenants and agrees promptly to execute, deliver, file
or record such agreements, instruments, certificates and other documents and to
perform such other and further acts as the other party hereto may reasonably
request or as may otherwise be necessary or proper to consummate and perfect the
transactions contemplated hereby.
8.11 Assignment
This Agreement, and each right, interest and obligation hereunder, may not
be assigned by either party hereto without the prior written consent of the
other party hereto, and any purported assignment without such consent shall be
void and without effect.
8.12 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Agreement is not intended, and shall not be deemed, to create or confer any
right or interest for the benefit of any person not a party hereto.
8.13 Titles and Captions
The titles and captions of the Articles and Sections of this Agreement are
for convenience of reference only, and do not in any way define or interpret the
intent of the parties or modify or otherwise affect any of the provisions
hereof.
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<PAGE>
8.14 Grammatical Conventions
Whenever the context so requires, each pronoun or verb used herein shall be
construed in the singular or the plural sense, and each capitalized term defined
herein and each pronoun used herein shall be construed in the masculine,
feminine or neuter sense.
8.15 No Presumptions
Each party hereto acknowledges that it has participated, with the advice of
counsel, in the preparation of this Agreement. No party hereto is entitled to
any presumption with respect to the interpretation of any provision hereof or
the resolution of any alleged ambiguity herein based on any claim that the other
party hereto drafted or controlled the drafting of this Agreement.
8.16 Incorporation by Reference
The Exhibits hereto are an integral part of this Agreement and are
incorporated in their entirety herein by this reference.
IN WITNESS WHEREOF, the Company and the Purchaser, by their
respective duly authorized officers, have duly executed this Agreement on the
date set forth in the Preamble hereto.
STARBASE CORPORATION
By:_________________________________
Name:
Title:
Number of Units Purchased: ________ PURCHASER:
Purchase Price: $_____________ _____________________________________
[Name]
Address of Purchaser:
Name and address of Nominee (if any):
Address for Notices (if different):
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<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
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<PAGE>
EXHIBIT B
FORM OF WARRANT
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<PAGE>
EXHIBIT C
NOTICE OF CONVERSION
_______________ ___, 19__
StarBase Corporation American Stock Transfer & Trust Company
18872 MacArthur Boulevard, Suite 300 40 Wall Street
Irvine, California 92612 New York, New York 10005
Attn.: Finance Department Attn.: Herbert Lemmer
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attn.: Martin Eric Weisberg, Esq.
The undersigned, ________________ (the "Holder") hereby gives notice
that it wishes to convert _____________ shares of Series D Preferred Stock (the
"Shares") of StarBase Corporation (the "Issuer") held by it into the number of
shares of Common Stock of the Issuer stated below, which have been reserved for
issuance upon such conversion.
Number of shares of Common Stock to be issued: ________________
In accordance with the Irrevocable Instructions to Transfer Agent dated
January __, 1998, please issue the Shares within two (2) business days of
receipt of this Notice of Conversion as follows:
Name: ___________________
Address: ___________________
___________________
Deliver to: ___________________
[Holder]
By: _____________________________
Name:
Title:
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<PAGE>
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
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<PAGE>
EXHIBIT E
FORM OF IRREVOCABLE INSTRUCTIONS TO TRANSFER AGENT
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<PAGE>
---------------------------------------
CERTIFICATE OF DESIGNATION
OF
STARBASE CORPORATION
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
---------------------------------------
SERIES E PREFERRED STOCK
StarBase Corporation, a Delaware corporation (the "Corporation"),
hereby certifies that the following resolution has been duly adopted by the
Board of Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation (the "Board") by the
provisions of the Restated Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), there hereby is created, out of the 10,000,000
shares of Preferred Stock, par value $0.01 per share, of the Corporation
authorized in Article 4 of the Certificate of Incorporation (the "Preferred
Stock"), a series of the Preferred Stock of the Corporation consisting of
1,600,000 shares, which series shall have the following powers, designations,
preferences and relative, participating, optional and other rights, and the
following qualifications, limitations and restrictions:
1. DESIGNATION AND AMOUNT. This series of Preferred Stock shall be
designated "Series E Preferred Stock" and the authorized number of shares
constituting such series shall be 1,600,000. The par value of the Series E
Preferred Stock shall be $0.01 per share.
2. DIVIDEND RIGHTS OF SERIES E PREFERRED STOCK. The holders of the
Series E Preferred Stock shall not be entitled to receive any dividends.
3. PREFERENCE ON LIQUIDATION.
(a) In the event of any liquidation, dissolution, or winding
up of the Corporation, either voluntary or involuntary, distributions to the
stockholders of the Corporation shall be made in the following manner:
(i) The holders of Series E Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of
the assets or surplus funds to the holders of the Corporation's common stock,
par value $0.01 per share (the "Common Stock") or any other class or series of
stock of this Corporation by reason of their ownership of such stock, an amount
for each share of Series E Preferred Stock then held by them, equal to $1.25,
appropriately
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adjusted for any combinations, consolidations, stock distributions or stock
dividends with respect to such shares plus all accrued and unpaid dividends
thereon (hereinafter such amount shall be referred to as the "Series E
Preference Amount"). If upon occurrence of such event of liquidation,
dissolution or winding up, the assets and property legally available to be
distributed among the holders of the Series E Preferred Stock shall be
insufficient to permit the payment to such holders of the Series E Preference
Amount, then the entire assets and property of the Corporation legally available
for distribution shall be distributed ratably among the holders of the Series E
Preferred Stock together with the holders of any other series of Preferred Stock
ranking on parity with the Series E Preferred Stock.
(ii) After payment has been made to the holders
of the Series E Preferred Stock of the full amounts to which they shall be
entitled pursuant to paragraph 3(a)(i) above, all remaining assets available for
distribution, if any, shall be distributed, ratably among the holders of the
Common Stock based upon the number of shares of Common Stock then held.
(b) For purposes of this paragraph 3, a merger or
consolidation of the Corporation with or into any other corporation or
corporations, or the merger of any other corporation or corporations into the
Corporation, in which consolidation or merger the shareholders of the
Corporation receive distributions in cash or securities of another corporation
or corporations as a result of such consolidation or merger, or a sale of all or
substantially all of the assets of the Corporation, shall be treated as a
liquidation, dissolution or winding up of the Corporation. The valuation of any
securities or other property other than cash received by the Corporation in any
transaction covered by this subparagraph 3(b) shall be computed at the fair
value thereof at the time of receipt as determined in good faith by the Board of
Directors.
(c) The holders of Series E Preferred Stock shall have no
priority or preference with respect to distributions made by the Corporation in
connection with the repurchase of shares of Common Stock issued to or held by
employees, directors or consultants upon termination of their employment or
services pursuant to agreements providing for the right of said repurchase
between the Corporation and such persons.
4. VOTING RIGHTS. Except as otherwise provided by law, the holders of
the Series E Preferred Stock shall not be entitled to vote upon any matter
relating to the business or affairs of the Corporation or for any other purpose.
5. CONVERSION RIGHTS. The holders of Series E Preferred Stock shall
have conversion rights as follows:
(a) Each share of Series E Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Series E Preferred Stock, into Common Stock as more fully described
below. The number of shares of fully paid and nonassessable Common Stock into
which each share of Series E Preferred Stock may be converted shall be
determined by dividing
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<PAGE>
$1.25 by the Conversion Price (as hereinafter defined) in effect at the time of
conversion. The Series E Conversion Price shall initially be $1.25, subject to
adjustment as provided in Section 6 below (the "Conversion Price").
(b) Each share of Series E Preferred Stock shall automatically
be converted into shares of Common Stock utilizing the then effective Conversion
Price for each such share upon the first to occur of the following events: (i)
the closing of an acquisition of the Company by another entity or the sale of
all or substantially all of the assets of the Company; (ii) the closing of a
public and/or private offering of the Company's securities which results in
gross proceeds to the Company of at least US$5,000,000; (iii) if the closing bid
price of the Company's Common Stock as reported on the Nasdaq SmallCap Market or
such other exchange or automated quotation system on which the trading price of
the Company"s Common Stock is reported on a daily basis averages at least
$US5.00 for a period of 20 consecutive trading days; or (iv) the second
anniversary of the date of issuance.
(c) No fractional shares of Common Stock shall be issued upon
conversion of Series E Preferred Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the fair market value of the Common Stock
on the Conversion Date, as determined by the Corporation's board of directors.
Before any holder of Series E Preferred Stock shall be entitled to convert the
same into full shares of Common Stock, the holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series E Preferred Stock, and shall
give written notice to the Corporation at such office that he elects to convert
the same; provided, however, that in the event of an automatic conversion
pursuant to subparagraph 5(b) the outstanding shares of all Series E 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 Corporation or its transfer agent; provided
further, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such automatic
conversion unless either the certificates evidencing such shares of Series E
Preferred Stock are delivered to the Corporation or its transfer agent as
provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates.
(d) The Corporation shall, as soon as practicable after such
delivery, or after such agreement and indemnification, issue and deliver at such
office to such holder of Series E Preferred Stock, a certificate or certificates
for the number of shares of Common Stock to which he shall be entitled as
aforesaid and a check payable to the holder, or order, in the amount of any cash
amounts payable as the result of a conversion into fractional shares of Common
Stock, and a certificate for any shares of Series E Preferred Stock not so
converted. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of Series E
Preferred Stock to be converted, or in the case of automatic
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<PAGE>
conversion on the date of the event causing such automatic conversion, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(e) In the event of any taking by this Corporation of a record
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, this Corporation shall mail to each
holder of Series E Preferred Stock, at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(f) Upon any conversion of Series E Preferred Stock pursuant
to this paragraph 5, the shares of Series E Preferred Stock which are converted
shall not be reissued. Upon conversion of all of the then outstanding Series E
Preferred Stock pursuant to this paragraph 5 and upon the taking of any action
required by law, all matters set forth in this Certificate of Designation shall
be eliminated from the Certificate of Incorporation, shares of Series E
Preferred Stock shall not be deemed outstanding for any purpose whatsoever and
all such shares shall revert to the status of authorized and unissued shares of
Preferred Stock.
(g) Any notices required by the provisions of this paragraph 5
to be given to the holders of shares of Series E Preferred Stock shall be deemed
given if deposited in the United States mail, first class, postage prepaid and
addressed to each holder of record at its address appearing on the books of the
Corporation.
6. ADJUSTMENTS TO CONVERSION PRICE.
(a) In the event the Corporation at any time or from time to
time effects a subdivision or combination of its outstanding Common Stock into a
greater or lesser number of shares without a proportionate and corresponding
subdivision or combination of its outstanding Series E Preferred Stock, then and
in each such event the Conversion Price shall be decreased or increased
proportionately.
(b) In the event the Corporation at any time or from time to
time shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights (hereinafter
referred to as "Common Stock Equivalents") convertible into or entitling the
holder thereof to receive additional shares of Common Stock without payment of
any consideration by such holder for such Common Stock Equivalents or the
additional shares of Common Stock, then and in each such event the maximum
number of shares (as set forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent adjustment of such number)
of Common Stock issuable in payment of such dividend or
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<PAGE>
distribution or upon conversion or exercise of such Common Stock Equivalents
shall be deemed to be issued and outstanding as of the time of such issuance or,
in the event such a record date shall have been fixed, as of the dose of
business on such record date. In each such event, the Conversion Price shall be
proportionately decreased as of the time of such issuance or, in the event such
a record date shall have been fixed, as of the close of business on such record
date.
(c) In case of any merger (other than a merger in which the
Corporation is not the continuing or surviving entity) or any reclassification
of the Common Stock of the Corporation, each share of the Series E Preferred
Stock shall thereafter be convertible into that number of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock issuable upon conversion of a share of Series E Preferred Stock
immediately prior to such merger or reclassification would have been entitled
upon such merger or reclassification. In any such case, appropriate adjustment
(as determined by the Board in good faith) shall be made in the application of
the provisions herein set forth with respect to the rights and interests
thereafter of the holders of Series E Preferred Stock, such that the provisions
set forth herein shall thereafter be applicable, as nearly as reasonably may be,
in relation to any share of stock or other property thereafter issuable upon
conversion.
(d) The Corporation shall at all times reserve and keep
available out of its authorized but unissued Common Stock, solely for the
purpose of effecting the conversion of Series E Preferred Stock, the full number
of shares of Common Stock deliverable upon the conversion of all Series E
Preferred Stock from time to time outstanding. The Corporation shall from time
to time (subject to obtaining necessary director and stockholder
authorizations), in accordance with the laws of the State of Delaware, increase
the authorized amount of its Common Stock if at any time the authorized number
of shares of Common Stock remaining unissued shall not be sufficient to permit
the conversion of all of the shares of Series E Preferred Stock at the time
outstanding.
7. RANKING. The Series E Preferred Stock shall, with respect to rights
on liquidation, winding up and dissolution, (i) rank senior to any of the Common
Stock and any other class or series of stock of the Corporation which by its
terms shall rank junior to the Series E Preferred Stock, (ii) rank junior to any
other class or series of stock of the Corporation which by its terms shall rank
senior to the Series E Preferred Stock, and (iii) rank on a parity with any
other class or series of stock of the Corporation which by its terms shall rank
on a parity with the Series E Preferred Stock. No approval of the holders of
Series E Preferred Stock shall be required for the authorization or issuance of
any shares of any class or series of stock of the Corporation, whether ranking
senior to, junior to or on a parity with the Series E Preferred Stock.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its Chief Executive Officer, and attested by its
Secretary, this 8th day of January, 1998.
StarBase Corporation
By: /S/ WILLIAM R. STOW, III
-------------------------
William R. Stow, III
Chief Executive Officer
Attest:
By: /S/ DOUGLAS S. NORMAN
----------------------
Douglas S. Norman
Assistant Secretary
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<PAGE>
ANNEX VI
THIS WARRANT AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE OF THIS WARRANT
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND MAY NOT BE TRANSFERRED UNLESS REGISTERED UNDER THE ACT,
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION.
NO. 1998-CMN-XXX
STARBASE CORPORATION
NONTRANSFERABLE COMMON STOCK PURCHASE WARRANT
1. ISSUANCE. In consideration of good and valuable
consideration, the receipt of which is hereby acknowledged by StarBase
Corporation, a Delaware corporation (the "Company") _________________ or
registered assigns (the "Holder") is hereby granted the right to purchase at any
time until 5:00 P.M., New York City time, on January , 2000 (the "Expiration
Date"), _________________ (___________) fully paid and nonassessable shares of
the Company's Common Stock, par value $.01 per share (the "Common Stock") at an
initial exercise price of $1.80 per share through the first anniversary of the
date of issuance, and $2.00 per share thereafter through the Expiration Date
(the "Exercise Price"), subject to further adjustment as set forth in Section 6
hereof.
2. EXERCISE OF WARRANTS. This Warrant is exercisable in whole
or in part at the Exercise Price per share of Common Stock payable hereunder,
payable in cash or by certified or official bank check. Upon surrender of this
Warrant Certificate with the annexed Notice of Exercise Form duly executed,
together with payment of the Exercise Price for the shares of Common Stock
purchased, the Holder shall be entitled to receive a certificate or certificates
for the shares of Common Stock so purchased.
3. RESERVATION OF SHARES. The Company hereby agrees that at
all times during the term of this Warrant there shall be reserved for issuance
upon exercise of this Warrant such number of shares of its Common Stock as shall
be required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. MUTILATION OR LOSS OF WARRANT. Upon receipt by the Company
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
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<PAGE>
5. RIGHTS OF THE HOLDER. The Holder shall not by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
6. PROTECTION AGAINST DILUTION.
(a) ADJUSTMENT MECHANISM. If an adjustment of the Exercise
Price is required pursuant to this Section 6, the Holder shall be entitled to
purchase such number of additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock the Holder is entitled to purchase
pursuant to this Warrant, multiplied by (ii) the adjusted purchase price per
share, to equal (iii) the dollar amount of the total number of shares of Common
Stock the Holder is entitled to purchase before adjustment multiplied by the
total purchase price before adjustment.
(b) CAPITAL ADJUSTMENTS. In case of any stock split or reverse
stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights.
(c) PRICE ADJUSTMENT If the 20 day average close price of the
Common Stock, as reported by Bloomberg, LP, is not at least $2.50 one year after
issuance date, then the Exercise Price will be reduced 50%.
7. TRANSFER TO COMPLY WITH THE SECURITIES ACT; REGISTRATION
RIGHTS.
(a) This Warrant may not be assigned or transferred in whole
or in part. This Warrant has not been registered under the Securities Act of
1933, as amended (the "Act"), and has been issued to the Holder for investment
and not with a view to the distribution of either the Warrant or the Warrant
Shares. Neither the Warrant Shares nor any other security issued or issuable
upon exercise of this Warrant may be sold, transferred, pledged or hypothecated
in the absence of an effective registration statement under the Act relating to
such security or an opinion of counsel satisfactory to the Company and the
registration is not required under the Act. Each certificate for the Warrant,
the Warrant Shares and any other security issued or issuable upon exercise of
this Warrant shall contain the following legend on the face thereof, as
determined by counsel for the Company:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
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SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER
SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
(b) The Company agrees to file a registration statement, which
shall include the Warrant Shares, on Form S-3 (or any successor form to Form
S-3) (the "Registration Statement"), pursuant to the terms of a Registration
Rights Agreement between the Company and the Holder dated January ___, 1998.
8. NOTICES. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:
(i) if to the Company, to:
StarBase Corporation
18872 McArthur Road, Suite 300
Irvine, California 92612
Attn: Chief Financial Officer
(ii) if to the Holder, to:
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. SUPPLEMENTS AND AMENDMENTS; WHOLE AGREEMENT. This Warrant
may be amended or supplemented only by an instrument in writing signed by the
parties hereto. This Warrant of even date herewith contain the full
understanding of the parties hereto with respect to the subject matter hereof
and thereof and there are no representations, warranties, agreements or
understandings other than expressly contained herein and therein.
10. GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York. Each of the
parties consents to the jurisdiction
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of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based ON FORUM NON COVENIENS, to the bringing of any such proceeding in such
jurisdictions.
11. COUNTERPARTS. This Warrant may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
12. DESCRIPTIVE HEADINGS. Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Warrant as of the ___th day of January ____, 1998.
STARBASE CORPORATION
By:
Its
Attest:
Assistant Secretary
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NOTICE OF EXERCISE OF WARRANT
(1) The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of ___________, to purchase ___
shares of the Common Stock, par value $.01 per share, of StarBase Corporation
and tenders herewith payment in accordance with Section 1 of said Common Stock
Purchase Warrant.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer sell or otherwise dispose of
any such shares of Common Stock, except under circumstances that will not result
in a violation of the United States Securities Act of 1933, as amended, or any
foreign otr state securities laws.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or is such other name as is
specified below.
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned.
Dated:
By:
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ANNEX IV
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January __,
1998 (this "Agreement"), is made by and between STARBASE CORPORATION, a Delaware
corporation (the "Company"), and the entity named on the signature page hereto
(the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of January __, 1998, between the Initial
Investor and the Company (the "Securities Purchase Agreement"), the Company has
agreed to issue and sell to the Initial Investor one or more Series E Preferred
Stock of the Company, in an aggregate principal amount not exceeding $
(collectively, the "Preferred Stock"), which Preferred Stock will be convertible
into shares of the common stock, $.01 par value (the "Common Stock"), of the
Company (the "Conversion Shares") upon the terms and subject to the conditions
of the Certificate of Designation (as defined in the Securities Purchase
Agreement), and warrants to purchase up to shares of Common Stock (the
"Warrants"), which Warrants will be exercisable for shares of Common Stock (the
"Warrant Shares"); and
WHEREAS, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agrees as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for
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offering securities on a continuous basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares and
the Warrant Shares.
(iv) "Registration Statement" means a registration statement
of the Company under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
(A) MANDATORY REGISTRATION. The Company shall prepare and file
with the SEC a Registration Statement on Form S-3 registering for resale by the
Investor a sufficient number of shares of Common Stock for the Initial Investors
(or such lesser number as may be required by the SEC, but in no event less than
the number of shares into which the Preferred Stock would be convertible and the
Warrants exercisable at the time of filing of the Form S-3, or an amendment to
any pending Company Registration Statement on Form S-3, and such Registration
Statement or amended Registration Statement shall state that, in accordance with
Rule 416 and 457 under the Securities Act, it also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of the Preferred Stock and the exercise of the Warrants resulting
from adjustment in the Conversion Price, or to prevent dilution resulting from
stock splits, or stock dividends), which Registration Statement shall be
declared effective no later than 120 days after the Closing Date. If at any time
the number of shares of Common Stock into which the Preferred Stock may be
converted exceeds the aggregate number of shares of Common Stock then
registered, the Company shall, within ten (10) business days after receipt of a
written notice from any Investor, either (i) amend the Registration Statement
filed by the Company pursuant to the preceding sentence, if such Registration
Statement has not been declared effective by the SEC at that time, to register
all shares of Common Stock into which the Preferred Stock may be converted, or
(ii) if such Registration Statement has been declared effective by the SEC at
that time, file with the SEC an additional Registration Statement on Form S-3 to
register the shares of Common Stock into which the Preferred Stock may be
converted that exceed the aggregate number of shares of Common Stock already
registered.
(B) PAYMENTS BY THE COMPANY.
If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not effective by one hundred
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twenty (120) days following the initial Closing Date (the "Required Effective
Date") (except as provided by the last sentence of Section 2(a)), then the
Company will make payments to the Initial Investor in such amounts and at such
times as shall be determined pursuant to this Section 2(b). The amount to be
paid by the Company to the Initial Investor shall be determined as of each
Computation Date, and such amount shall be equal to one (1%) percent of the
purchase price paid by the Initial Investor for all Preferred Stock then
purchased and outstanding pursuant to the Securities Purchase Agreement for any
period from the Required Effective Date to the first Computation Date, two (2%)
percent to the next Computation Date and three (3%) percent to each Computation
Date thereafter, until the Registration Statement is declared effective by the
SEC (the "Periodic Amount"). The full Periodic Amount shall be paid by the
Company in immediately available funds within three business days after each
Computation Date. Notwithstanding the foregoing, the amounts payable by the
Company pursuant to this provision shall not be payable to the extent any delay
in the effectiveness of the Registration Statement occurs because of an act of,
or a failure to act or to act timely by the Initial Investor or its counsel or
the SEC, or in the event all of the Registrable Securities may be sold pursuant
to Rule 144 or another available exemption under the Act.
As used in this Section 2(b), the following terms shall have
the following meanings:
"Computation Date" means the date which is thirty (30) days
after the Required Effective Date (except as provided by the last sentence of
Section 2(a)), and, if the Registration Statement required to be filed by the
Company pursuant to Section 2(a) has not theretofore been declared effective by
the SEC, each date which is thirty (30) days after the previous Computation Date
(pro rated for partial periods) until such Registration Statement is so declared
effective.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following.
(a) Prepare promptly and file with the SEC, a Registration
Statement with respect to not less than the number of Registrable Securities
provided in Section 2(a), above, and thereafter use its reasonable best efforts
to cause each Registration Statement relating to Registrable Securities to
become effective one hundred twenty (120) days after the Closing Date, and keep
the Registration Statement effective at all times until the earliest (the
"Registration Period") of (i) the date that is four years after the Closing Date
(ii) the date when the Investors may sell all Registrable Securities under Rule
144 or (iii) the date the Investors no longer own any of the Registrable
Securities, which Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
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(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel
designated by the Initial Investors to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time prior to their
filing with the SEC.
(d) Furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel identified to the
Company, (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one (1) copy of the Registration
Statement, each preliminary prospectus and prospectus, and each amendment or
supplement thereto, and (ii) such number of copies of a prospectus, and all
amendments and supplements thereto and such other documents, as such Investor
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor;
(e) As promptly as practicable after becoming aware of such
event, notify each Investor of the happening of any event of which the Company
has knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of a Notice of Effectiveness or any notice of effectiveness
or any stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(g) Use its reasonable efforts to secure designation of all
the Registrable Securities covered by the Registration Statement as a National
Association of Securities Dealers Automated Quotations System ("NASDAQ") "Small
Capitalization" within the meaning of Rule 11Aa2-1 of the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
quotation of the Registrable Securities on the NASDAQ SmallCap Market; or if,
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despite the Company's reasonable efforts to satisfy the preceding clause, the
Company is unsuccessful in doing so, to secure NASDAQ/OTC Bulletin Board
authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities;
(h) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably request, and, within three (3) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) an appropriate instruction and opinion
of such counsel; and
(j) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least five (5) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. If at least two (2) business
days prior to the filing date the Company has not received the Requested
Information from an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection
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with the preparation and filing of the Registration Statement hereunder, unless
such Investor has notified the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from the Registration
Statement; and
(c) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(e)
or 3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. EXPENSES OF REGISTRATION. All reasonable expenses, other
than underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 3, but including,
without limitation, all registration, listing, and qualifications fees, printers
and accounting fees, the fees and disbursements of counsel for the Company,
shall be borne by the Company.
6. INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person" or
"Indemnified Party"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration Statement, or
any post-effective amendment thereof, or any prospectus included therein: (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements therein
were made, not misleading or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses
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(i) through (iii) being, collectively, "Violations"). Subject to clause (b) of
this Section 6, the Company shall reimburse the Investors, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a) shall not
(I) apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, (II) be available to the extent such
Claim is based on a failure of the Investor to deliver or cause to be delivered
the prospectus made available by the Company; or (III) apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Each
Investor will indemnify the Company and its officers, directors and agents
against any claims arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company, by or on behalf of such Investor, expressly for use in connection with
the preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company to
this Section 6. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9.
(b) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be. In case any such action is brought against any Indemnified Person
or Indemnified Party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such Indemnified Person or
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Person or Indemnified
Party under this Section 6 for any legal or other reasonable out-of-pocket
expenses subsequently incurred by such Indemnified Person or Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action of its
final conclusion. The Indemnified Person or Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and reasonable out-of-pocket expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to
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the Indemnified Person or Indemnified Party. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to
the Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; PROVIDED, HOWEVER, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available
to the Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
(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;
and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any shares of Preferred Stock of the Company which is
convertible into such securities) only if: (a) the Investor agrees in writing
with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to
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the Company within a reasonable time after such assignment, (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights are being
transferred or assigned, (c) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act and applicable state securities laws, and
(d) at or before the time the Company received the written notice contemplated
by clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein. In the event
of any delay in filing or effectiveness of the Registration Statement as a
result of such assignment, the Company shall not be liable for any damages
arising from such delay, or the payments set forth in Section 2(c) hereof.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold an eighty (80%) percent interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission,
receipt confirmed, or other means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage pre-paid (i) if to the
Company, STARBASE CORPORATION, 18872 MacArthur Boulevard, Suite 300, Irvine,
California 92612, ATTN: President, with a copy to Parker Chapin Flattau &
Klimpl, LLP, 1211 Avenue of the Americas, New York, New York 10036, ATTN: Martin
Eric Weisberg, Esq.; (ii) if to the Initial Investor, at the address set forth
under its name in the Securities Purchase Agreement, and (iii) if to any other
Investor, at such address as such Investor shall have provided in writing to the
Company, or at such other address as each such party furnishes by notice given
in accordance with this Section 11(b), and shall be effective, when personally
delivered, upon receipt and, when so sent by certified mail, four (4) calendar
days after deposit with the United States Postal Service.
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(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on FORUM NON COVENIENS, to the bringing of any such
proceeding in such jurisdictions. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
(j) Neither party shall be liable for consequential damages.
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
STARBASE CORPORATION
By:
Name:
Title:
[ ]
By:
Name:
Title:
260116-1 1/8/98
-11-
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