As filed with the Securities and Exchange Commission on June 14, 1999
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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STARBASE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0567363
(State or other jurisdiction (IRS employer
of incorporation or organization) Identification number)
4 HUTTON CENTRE DRIVE, SUITE 800
SANTA ANA, CA 92707-8713
(714) 445-4400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DOUGLAS S. NORMAN
4 HUTTON CENTRE DRIVE, SUITE 800
SANTA ANA, CA 92707-8713
(714) 445-4400
(Name, address, including zip code, telephone number, including area code,
of agent for service)
COPY TO:
Martin Eric Weisberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036-8735
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(212) 704-6050
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(b) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Proposed
Amount Maximum
To Be Aggregate Proposed Maximum
Title of each class of Registered Price Per Aggregate Offering Amount of
Securities to be registered (1) Share (4) Price Registration Fee
- ------------------------------- -------------- ------------- ---------------------- --------------------
Common Stock, par value $0.01
per share 625,000 2.25 1,406,250.00 390.94
Common Stock, par value $0.01
per share 1,333,334 (2) 2.25 3,000,001.50 834.00
Common Stock, par value $0.01
per share 676,866 (3) 2.25 1,522,948.50 423.38
- -------------------------------------------------------------------------------------------------------------------------
Total 2,635,200 5,929,200.00 1,648.32
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</TABLE>
(1) Represents the shares of common stock being registered for resale by the
selling stockholders.
(2) The shares of common stock offered hereby is our good faith estimate of the
number of shares of common stock to be issued by us upon the conversion of
the series I preferred stock issued in connection with a private placement
with the selling stockholders. Our estimate represents 200% of the number of
shares that would be issuable upon conversion of the preferred stock based
on the price of the common stock on June 8, 1999. Such number is subject to
adjustment and could be materially greater or less than the amount of shares
being registered hereby depending upon the future price of the common stock.
Pursuant to Rule 416, the shares of common stock covered hereby include such
indeterminate number of shares that may be issued as a result of
anti-dilution provisions included in the securities purchase agreement,
including, among others, stock splits, stock dividends and similar
transactions. This presentation is not intended to constitute a prediction
of the future market price of the common stock or the number of shares of
common stock issuable upon conversion of the series I preferred stock.
(3) Represents shares of common stock issuable upon exercise of warrants
evidencing the right to purchase shares of common stock. Includes our good
faith estimate of 200% of the number of shares issuable upon exercise of
warrants issued with series I preferred stock. Pursuant to Rule 416, the
shares of common stock offered hereby also include such presently
indeterminate number of shares of common stock that may be issued as a
result of anti-dilution provisions included in the warrant agreements,
including, among others, stock splits, stock dividends and similar
transactions.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (g) of the Securities Act of 1933, as amended,
based on the average ($2.25) of the bid ($2.22) and asked ($2.28) price of
the common stock on the Nasdaq SmallCap Market on June 8, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
An Exhibit Index appears on page E-1
------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not seeking an offer to buy these securities in
any state where the offer or sale is not permitted.
PROSPECTUS
STARBASE CORPORATION
2,635,200 SHARES OF COMMON STOCK
o The shares of common stock offered by this prospectus are being sold by
the selling stockholders.
o We will not receive any proceeds from the exercise of these shares. We
will receive proceeds from the exercise of warrants and those proceeds
will be used for our general corporate purposes.
o Our common stock is traded on the Nasdaq SmallCap Market under the
symbol "SBAS."
o On June 8, 1999, the closing bid price of our common stock on the
Nasdaq SmallCap Market was $2.22.
THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE HEADING "RISK
FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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_____________, 1999
<PAGE>
TABLE OF CONTENTS
Risk Factors...................................................................3
Forward-Looking Statements.....................................................7
Use of Proceeds................................................................7
Selling Stockholders...........................................................7
Description of Securities.....................................................10
Plan of Distribution..........................................................12
Where You Can Find More Information...........................................13
Indemnification of Directors and Officers.....................................14
Legal Matters.................................................................14
Experts.......................................................................14
2
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK, INCLUDING THOSE
RISKS DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER THESE RISK FACTORS,
TOGETHER WITH ALL OF THE OTHER INFORMATION IN THIS PROSPECTUS, BEFORE DECIDING
TO INVEST IN SHARES OF OUR COMMON STOCK.
RISKS ASSOCIATED WITH OUR PAST FINANCIAL RESULTS
WE COULD BE REQUIRED TO CUT BACK OR STOP OPERATIONS IF WE ARE UNABLE TO RAISE OR
OBTAIN NEEDED FUNDING
Our ability to continue operations will depend on our positive
cash flow, if any, from future operations or our ability to raise additional
funds through equity or debt financing. We do not know if we can raise
additional funding or that such funding will be available on favorable terms. We
could be required to cut back or stop operations if we are unable to raise or
obtain needed funding.
Our cash requirements to run our business have been and will
continue to be significant. Since 1995, our negative cash flow from operations
is as follows:
------------------------------ -------------------------
Fiscal year ended: Negative Cash Flow
------------------------------ -------------------------
o March 31, 1995 $6,179,000
o March 31, 1996 $4,949,000
o March 31, 1997 $6,506,000
o March 31, 1998 $5,662,000
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Nine Months ended: Negative Cash Flow
------------------------------ -------------------------
o December 31, 1998 $8,021,000
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WE HAVE A HISTORY OF LOSSES AND IF WE DO NOT ACHIEVE PROFITABILITY WE MAY NOT BE
ABLE TO CONTINUE OUR BUSINESS IN THE FUTURE
As of December 31, 1998 we accumulated losses of approximately
$49,000,000. We anticipate incurring additional losses until we can successfully
market and distribute our products and develop new technologies and commercially
viable products. If we are unable to do so, we will continue to have losses and
might not be able to continue our operations.
THE "GOING CONCERN" QUALIFICATION ON THE REPORT OF OUR INDEPENDENT ACCOUNTANTS
MAY HURT OUR ABILITY TO RAISE ADDITIONAL FINANCING
The report of our independent accountants on our March 31,
1998 consolidated financial statements contains an explanatory paragraph
regarding our ability to continue as an ongoing business. Our independent
accountants cite recurring losses that raise substantial doubt as to our ability
to continue as an ongoing business. This "going concern" qualification may
reduce our ability to obtain necessary financing in the future to run our
business.
3
<PAGE>
RISKS ASSOCIATED WITH OUR BUSINESS
OUR SOFTWARE PRODUCTS MAY NOT BE SUCCESSFULLY COMPLETED OR ACCEPTED BY THE
PUBLIC WHICH COULD RESULT IN LOWER REVENUES
While we are in various stages of developing additional
products, we cannot assure you that such additional products will be completed
in a timely manner or successfully marketed. In the past we have experienced
some product release delays which resulted in lower revenues. Further, the
market for our team collaboration and software configuration management tools is
evolving. This causes the sales cycle to be longer due to the time it takes to
educate potential customers on the benefits of our products. We cannot assure
you that the products we introduce will achieve acceptance, or that other
software vendors will not develop and market products which render our products
obsolete or less competitive. Failure to obtain significant customer
satisfaction or market share for our products would significantly and negatively
affect our revenues.
WE MAY HAVE TO LOWER PRICES OR SPEND MORE MONEY TO EFFECTIVELY COMPETE AGAINST
COMPANIES WITH GREATER RESOURCES THAN US WHICH COULD RESULT IN LOWER REVENUES
AND/OR PROFITS
The success of our products in the marketplace depends on many
factors, including product performance, price, ease of use, support of industry
standards, and customer support and service. Given these factors we cannot
assure you that we will be able to compete successfully. For example, if our
competitors offer lower prices, we could be forced to lower prices which would
result in reduced margins and a decrease in revenues. If we do not lower prices
we could lose sales and market share. In either case, if we are unable to
compete against companies who can afford to cut prices, we would not be able to
generate sufficient revenues to grow the company or reverse our history of
losses.
In addition, we may have to spend more money to effectively
compete for market share, including funds to expand our infrastructure, which is
a capital and time extensive process. Further, if other companies want to
aggressively compete against us, we may have to spend more money on advertising,
promotion, trade shows, product development, marketing and overhead expenses,
hiring and retaining personnel, and developing new technologies. These higher
expenses would hurt our net income and profits.
OUR COMPUTER SYSTEMS MAY NOT RECOGNIZE THE YEAR 2000 WHICH MAY DISRUPT OUR
BUSINESS
The concerns about the upcoming year 2000 have arisen because
older computer programs that used two digits rather than four to define the
applicable year could malfunction. As a result, any computer programs that have
date-sensitive software may recognize a date using 00 as the calendar year 1900
rather than the year 2000. This could result in a computer system failure or in
miscalculations causing disruptions of operations, including a temporary
inability to process transactions, or engage in normal business activities.
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<PAGE>
RISKS ASSOCIATED WITH OUR SECURITIES
YOUR PERCENTAGE OF OWNERSHIP, VOTING POWER AND PRICE OF STARBASE COMMON STOCK
MAY DECREASE BECAUSE WE HAVE ISSUED, AND MAY CONTINUE TO ISSUE, A SUBSTANTIAL
NUMBER OF SECURITIES CONVERTIBLE OR EXERCISABLE INTO OUR COMMON STOCK
As of June 8, 1999, we had the following capital structure:
--------------------------------------------- -------------------
Common stock outstanding: 29,646,430
--------------------------------------------- -------------------
Common stock issuable upon:
Conversion of series E preferred stock: 501,208
Conversion of series H preferred stock: 2,810,857
Conversion of series I preferred stock: 666,667
Exercise of warrants: 2,734,907
Exercise of options: 6,276,033
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Total: 42,636,102
--------------------------------------------- -------------------
The number of shares of our common stock outstanding includes
1,418,638 shares held in escrow under a performance escrow agreement. Each share
of series E preferred stock converts into one share of common stock. The series
H preferred stock and series I preferred stock are estimates based on the number
of shares that would be issuable upon conversion of the preferred stock as of
June 8, 1999. The common stock issuable upon exercise of options must vest and
is generally issuable over a four year period. As of June 8, 1999, only
2,052,826 shares could be issued upon the exercise of options. We may conduct
additional future offerings of our common stock or other securities with rights
to convert the securities into shares of our common stock.
The series H preferred stock and series I preferred stock
convert into common stock at a discount to the market price of the common stock
at the time of conversion. In this regard, the highest the conversion price can
be for the three equal installments of series H preferred stock is $0.95, $0.73
and $1.93, and the highest the conversion price can be for the series I
preferred stock is $1.50. Once the market price of the common stock goes below
these highest conversion prices, the conversion price then varies with and, in
the case of the series I preferred stock, is at a fixed discount to the market
price of the common stock. Therefore, although there is a limit to the number of
shares that can be issued at a discount to the market price without stockholder
approval under Nasdaq rules, there is no limit to how low the conversion price
can be.
The following table sets forth the number of shares of common
stock that would be issued assuming full conversion of our outstanding preferred
stock based upon the market price of the common stock as of June 8, 1999 ($2.22)
and, assuming a market price of the common stock at $1.00 per share and at $3.00
per share. The last row of the table shows the percentage of outstanding common
stock represented by the shares issuable upon conversion at the market prices
shown.
MARKET PRICE OF COMMON STOCK: $1.00 $2.22 $3.00
CONVERSION PRICE FOR SERIES H: $1.00 $1.93 $1.93
CONVERSION PRICE FOR SERIES I: $0.90 $1.50 $1.50
SERIES H PREFERRED STOCK: 3,033,479 2,810,857 2,810,857
SERIES I PREFERRED STOCK: 1,111,111 666,667 666,667
PERCENTAGE OF OUTSTANDING
COMMON STOCK: 14% 12% 12%
5
<PAGE>
Conversion or exercise of our outstanding convertible
securities, options and warrants into common stock would result in a significant
number of additional shares of common stock in the market. This may
significantly and negatively affect the prevailing market price for the common
stock and will decrease your percentage of ownership and voting power.
THE CONVERSION OF OUTSTANDING PREFERRED STOCK MAY HAVE A SIGNIFICANT NEGATIVE
EFFECT ON THE PRICE OF THE COMMON STOCK AND CAUSE THE SELLING STOCKHOLDERS TO
RECEIVE A GREATER NUMBER OF SHARES UPON SUBSEQUENT CONVERSIONS OF THE PREFERRED
STOCK
The series H preferred stock and series I preferred stock are
convertible at a floating rate that may be below the market price of the common
stock. As a result, the lower the stock price at the time the holder converts,
the more common stock the holder will get upon conversion. To the extent the
selling stockholders convert and then sell their common stock, the common stock
price may decrease due to the additional shares in the market. This could allow
the selling stockholders to convert their convertible preferred stock into
greater amounts of common stock, the sales of which could further depress the
stock price. The significant downward pressure on the price of the common stock
as the selling stockholders convert and sell material amounts of common stock
could encourage short sales by the selling stockholders and others in which the
short-sellers borrow common stock at the current market price in hope to buy it
in the future at a lower price. This could place further downward pressure on
the price of the common stock.
In addition, the conversion of the convertible preferred stock
may result in substantial dilution to the interests of other holders of common
stock since each holder of convertible preferred stock may ultimately convert
and sell the full amount issuable on conversion. Although each selling
stockholder may not convert their preferred stock if, as a result, they would
own more than 4.99% of the then outstanding common stock, this restriction does
not prevent a selling stockholder from converting and selling some of its
holdings and then converting the rest of its holdings. In this way, an
individual selling stockholder could sell more than 4.99% of the outstanding
common stock while never holding more than 4.99% at one time.
YOUR INTEREST IN STARBASE MAY BE DILUTED BY THE ISSUANCE OF PREFERRED STOCK WITH
GREATER RIGHTS THAN THE COMMON STOCK WHICH WE CAN SELL OR ISSUE AT ANY TIME
The sale or issuance of any shares of preferred stock having
rights superior to those of the common stock may result in a decrease in the
value or market price of the common stock. The issuance of preferred stock could
have the effect of delaying, deferring or preventing a change of ownership
without further vote or action by the stockholders and may adversely affect the
voting and other rights of the holders of common stock.
Our board of directors is authorized to issue up to 10,000,000
shares of preferred stock. The board has the power to establish the dividend
rates, preferential payments on our liquidation, voting rights, redemption and
conversion terms and privileges for any series of preferred stock.
IF WE CANNOT MEET THE NASDAQ SMALLCAP MARKET MAINTENANCE REQUIREMENTS AND NASDAQ
RULES, NASDAQ MAY DELIST THE COMMON STOCK WHICH COULD NEGATIVELY AFFECT THE
PRICE OF THE COMMON STOCK AND YOUR ABILITY TO SELL THE COMMON STOCK
In the future, we may not be able to meet the listing
maintenance requirements of the Nasdaq SmallCap Market and Nasdaq rules, which
require, among other things, minimum net tangible assets of $2 million, a
minimum bid price for our common stock of $1.00, and shareholder approval prior
to the issuance of securities in connection with a transaction
6
<PAGE>
involving the sale or issuance of common stock equal to 20 percent or more of a
company's outstanding common stock before the issuance for less than the greater
of book or market value of the stock. Although we currently comply with Nasdaq's
listing maintenance requirements, in the past there have been times when we have
not been in compliance and it is possible we may not meet the requirements in
the future. For example, the dilution resulting from the issuance of the
convertible preferred stock discussed above and the subsequent conversion and
sale of common stock could have a substantial depressive effect on the common
stock bid price, causing it to decrease below $1.00. If we were no longer in
compliance with Nasdaq rules and were unable to receive a waiver of the rules or
achieve compliance, and if our common stock were to be delisted from the
SmallCap market, an investor in our company may find it more difficult to sell
our common stock. This lack of liquidity also may make it more difficult for us
to raise capital in the future.
FORWARD - LOOKING STATEMENTS
In this prospectus, we make statements about our future
financial condition, results of operations and business. These are based on
estimates and assumptions made from information currently available to us.
Although we believe these estimates and assumptions are reasonable, they are
uncertain. These forward-looking statements can generally be identified because
the context of the statement includes words such as may, will, except,
anticipate, intend, estimate, continue, believe or other similar words.
Similarly, statements that describe our future expectations, objectives and
goals or contain projections of our future results of operations or financial
condition are also forward-looking statements. Our future results, performance
or achievements could differ materially from those expressed or implied in these
forward-looking statements, including those listed under the heading "Risk
Factors" and other cautionary statements in this prospectus.
USE OF PROCEEDS
The selling stockholders are selling all of the shares covered
by this prospectus for their own accounts. Accordingly, we will not receive any
proceeds from the resale of the shares. We will receive proceeds from the
exercise of the warrants. If all the warrants were exercised, we would receive
approximately $495,000. We will use the net proceeds for general corporate
purposes. We will bear all expenses relating to this registration except for
brokerage or underwriting commissions and expenses, if any, which the selling
stockholders will pay.
SELLING STOCKHOLDERS
This prospectus covers the resale by the selling stockholders
of up to 1,333,334 shares of our common stock to be issued upon the conversion
of the series I preferred stock, which amount of shares is an estimate and is
not a prediction of the actual number of shares of common stock we will issue
upon conversion of the series I preferred stock. This prospectus also covers the
resale by the selling stockholders of up to 676,866 shares of our common stock
issuable upon exercise of warrants issued in connection with two private
placements. This prospectus also covers the resale by the selling stockholders
of 625,000 shares of our common stock issued to acquire assets from SITE
Technologies, Inc.
7
<PAGE>
SERIES I PREFERRED STOCK
The holders of the series I preferred stock and warrants
issued in connection with the private placement have the material rights and
obligations discussed below and under the section entitled "Description of
Securities". The agreements relating to these rights and obligations have been
previously filed by us with the SEC and you are urged to read them in their
entirety.
SECURITIES PURCHASE AGREEMENT
The investor listed in the table below agreed to buy 1,000
shares of our series I preferred on March 16, 1999. The price for each share was
$1,000 for an aggregate purchase price of $1,000,000.
REGISTRATION RIGHTS AGREEMENT
In connection with our sale of series I preferred stock, we
agreed to file a registration statement covering the resale of the common stock
issuable upon conversion of the series I preferred stock and exercise of the
warrants by June 14, 1999 and cause the registration statement to be declared
effective by the SEC by August 13, 1999. If the registration statement is not
effective by August 13, 1999, we will have to pay to the holders liquidated
damages equal to 2% of the value of outstanding series I preferred stock for the
first two months and 3% for each 30 day period after that until the registration
statement has been declared effective.
WARRANTS
The holders of series I preferred stock also received 253,333
warrants to purchase 253,333 shares of common stock. The warrants are
exercisable at $1.50 and expire on March 16, 2004. All of the warrants have
adjustment provisions for standard dilution events including stock splits, stock
dividends and similar transactions.
SERIES G PREFERRED STOCK WARRANTS
This prospectus also covers the resale by the selling stockholders of
170,200 shares of common stock issuable upon exercise of warrants issued to the
holders of series G preferred stock.
ASSET PURCHASE AGREEMENT
This prospectus also covers the resale of 625,000 shares of
common stock issued to SITE Technologies, Inc. in connection with our
purchase of assets, including software products, source code, trademarks and
copyrights. This transaction was completed on March 17, 1999.
We are registering the shares of common stock offered in this
prospectus with the SEC to permit public secondary trading. As a result, the
selling stockholders may offer all or part of the shares for resale to the
public from time to time.
The table below lists information regarding the selling
stockholders' ownership of shares of our common stock, assuming the conversion
of preferred stock at the then conversion ratio as of June 8, 1999, and as
adjusted to reflect the sale of the shares and the exercise of warrants on June
8, 1999. Information concerning the selling stockholders may change from time to
time. To the extent that the selling stockholders or any of its representatives
advise us of such changes and if required, we will report those changes in a
supplement to this document. Except as set forth in this prospectus, to our
knowledge, no selling stockholder has held any position or office, or has had
any material relationship, with us or any parties related to us within the past
three years.
8
<PAGE>
The number of shares of common stock indicated in the Amount
Beneficially Owned Prior to Offering column is an estimate and includes 200% of
the number of shares that would be issuable upon conversion of 1,000 shares of
the series I preferred stock based on the price of the common stock on June 8,
1999 plus 200% of the number of shares issuable upon exercise of series I
warrants evidencing the right to purchase shares of common stock and is subject
to adjustment. The actual amount could be materially more or less than such
estimated amount depending upon factors that we cannot predict at this time.
The Amount Offered column assumes no sales are effected by the
selling stockholders during the offering period other than under the
registration statement.
<TABLE>
<CAPTION>
Amount Percentage
Amount Percentage Beneficially Beneficially
Beneficially Beneficially Owned Owned
Owned Prior Owned Prior Amount Following Following
Name to Offering to Offering Offered Offering Offering
------------------------------------- ------------- -------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Talisman Capital Opportunity Fund
Ltd. (1) 1,733,334 5 % 1,733,334 0 0
First Security Van Kasper (2) 64,000 * 64,000 0 0
D. Jonathan Merriman (3) 100,566 * 12,666 87,900 *
Wes L. Golby (4) 15,000 * 15,000 0 0
Ronald F. Richards (5) 15,000 * 15,000 0 0
Gundyco in Trust for
RRSP 550-98866-19 (6) 1,087,111 3 % 20,000 1,067,111 3
Amro International S.A. (7) 355,534 1 % 15,200 340,334 1
Austost Anstalt Schaan (8) 910,836 3 % 60,000 850,836 2
Balmore Fund S.A. (9) 910,836 3 % 60,000 850,836 2
Manchester Asset Management (10) 609,072 2 % 15,000 594,072 2
SITE Technologies, Inc. (11) 625,000 2 % 625,000 0 0
- ------------------------
* Represents less than one percent.
</TABLE>
(1) The number of shares issuable pursuant to conversion of series I
preferred stock is 1,333,334. Includes 400,000 shares of common stock
issuable upon the exercise of warrants. The natural person who
exercises control over these shares is Mr. Brian Ladin.
(2) Represents shares issuable upon the exercise of warrants for placement
agent fees. The natural person who exercises control over these shares
is Mr. D. Jonathan Merriman.
(3) Includes 87,900 shares of common stock. Includes 12,666 shares issuable
upon the exercise of warrants for placement agent fees.
(4) Represents shares issuable upon the exercise of warrants for placement
agent fees.
(5) Represents shares issuable upon the exercise of warrants for placement
agent fees.
(6) Includes 514,611 shares issuable pursuant to conversion of series H
preferred stock. Includes 572,500 shares of common stock issuable upon
the exercise of warrants owned prior to offering of which 20,000 are
offered in this prospectus. The natural person who exercises control
over these shares is Mr. Mark Shoom.
(7) Includes 68,085 shares of common stock. Includes 242,249 shares of
common stock issuable pursuant to conversion of series H preferred
stock. Includes 45,200 shares of common stock issuable upon the
exercise of warrants owned prior to offering of which
9
<PAGE>
15,200 are offered in this prospectus. The natural person who exercises
control over these shares is Mr. H.V. Bachofen.
(8) Includes 170,212 shares of common stock. Includes 605,624 shares of
common stock issuable pursuant to conversion of series H preferred
stock. Includes 135,000 shares of common stock issuable upon the
exercise of warrants owned prior to the offering of which 60,000 are
offered in this prospectus. The natural person who exercises control
over these shares is Mr. Thomas Hackl.
(9) Includes 170,212 shares of common stock. Includes 605,624 shares of
common stock issuable pursuant to conversion of series H preferred
stock. Includes 135,000 shares of common stock issuable upon the
exercise of warrants owned prior to the offering of which 60,000 are
offered in this prospectus. The natural person who exercises control
over these shares is Mr. Francois Morax.
(10) Includes 483,993 shares of common stock issuable pursuant to
conversion of series H preferred stock. Includes 125,079 shares of
common stock issuable upon exercise of warrants owned prior to the
offering of which 15,000 are offered in this prospectus. The natural
person who exercises control over these shares is Mr. Anthony L.M.
Inder Rieden.
(11) Represents shares of common stock. The natural person who exercises
control over these shares is Mr. Jeff Ait.
DESCRIPTION OF SECURITIES
SERIES I PREFERRED STOCK
In March 1999, we entered into a securities purchase agreement
to sell 1,000 shares of series I preferred stock. Each share of preferred stock
has a stated value, or "liquidation preference", of up to $1,000, which means
that, in the event of a liquidation, dissolution or winding up of our company,
for example, if we go bankrupt and all of our assets are sold, the holders of
each share would be entitled to a preferential payment of up to $1,000 before
holders of our common stock would receive any of the proceeds from the sale. A
certificate of designation filed with the secretary of state of Delaware governs
the terms and conditions of the preferred stock. The following is a brief
description of key terms of the preferred stock.
DIVIDENDS
The holders of the preferred stock are not entitled to receive
any dividends, unless so declared by the Board of Directors.
CONVERSION RIGHTS
The holders of preferred stock shall have the right to convert
their shares into common stock as follows:
(1) prior to July 14, 1999, a holder may not convert preferred
stock;
(2) beginning July 14, 1999, holders may convert one-third of
the preferred stock;
(3) beginning August 13, 1999, holders may convert an
additional one-third of the
10
<PAGE>
preferred stock; and
(4) beginning September 12, 1999, holders may convert the
final one-third of the preferred stock.
The number of shares of common stock into which each share of
the preferred stock may be converted shall be determined by dividing the
liquidation preference, or $1,000, by an amount equal to the lesser of:
(a) the "fixed conversion price", which is $1.50; or
(b) the "market price", which means 90% of the average of the two
lowest closing bid prices of the common stock over the thirty
trading days immediately preceding the date of conversion.
For example, if on June 8, 1999 an investor who purchased
shares of series I preferred converted one share of preferred stock, it would
receive 667 shares of common stock, calculated by dividing $1,000 by $1.50,
since $1.50 is less than the market price. The conversion price shall be
adjusted for subdivisions or combinations of common stock, dividends or
distributions payable in additional shares of common stock or other securities
or rights convertible into or entitling the holder to receive common stock
without payment of consideration, mergers or any reclassification of the common
stock. We shall not be obligated to issue any shares of common stock upon
conversion of the preferred stock if that issuance would exceed the number of
shares allowed to be issued by Nasdaq at the conversion ratio unless we obtain
stockholder approval for such issuances or a written legal opinion. However, if
shares cannot be converted at the conversion ratio under Nasdaq rules, we will
issue shares of common stock upon conversion of the preferred stock at the
closing bid price of the common stock together with warrants to purchase common
stock exercisable at the market price of the common stock. The number of
warrants issued shall be 200,000 shares per $1,000,000 principal amount of
preferred stock which cannot be converted under the Nasdaq rules.
The preferred stock is convertible through March 16, 2002, at
which time all remaining shares of preferred stock must be converted. If we do
not convert preferred shares into common shares within five days of receipt of a
notice of conversion, then the holders will be entitled to penalties in the
amount of 1/2% per day of the value of the preferred stock being converted for
the first 5 calendar days without conversion and 1% per day thereafter until the
conversion is completed.
We will reserve and keep available a sufficient number of
authorized shares of common stock to enable the conversion of all outstanding
shares of the preferred stock.
NO VOTING RIGHTS
Except as otherwise provided by law, preferred stockholders
shall not be entitled to vote upon any matter relating to our business affairs
or for any other purpose.
11
<PAGE>
PLAN OF DISTRIBUTION
The selling stockholders may offer their shares of common
stock at various times in one or more of the following transactions:
o On any U.S. securities exchange on which our common stock may be listed
at the time of such sale;
o In the over-the-counter market;
o In transactions other than on such exchanges or in the over-the-counter
market;
o In connection with short sales; or
o In a combination of any of the above transactions.
The selling stockholders may offer their shares of common
stock at prevailing market prices, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices.
The selling stockholders may use broker-dealers to sell their
shares of common stock. If this occurs, broker-dealers will either receive
discounts or commission from the selling stockholder, or they will receive
commissions from the purchasers of shares of common stock for whom they acted as
agents. Such brokers may act as dealers by purchasing any and all of the shares
covered by this prospectus either as agents for others or as principals for
their own accounts and reselling such securities under the prospectus.
The selling stockholders and any broker-dealers or other
persons acting on the behalf of parties that participate in the distribution of
the shares may be considered underwriters under the Securities Act. As such, any
commissions or profits they receive on the resale of the shares may be
considered underwriting discounts and commissions under the Securities Act.
As of the date of this prospectus, we are not aware of any
agreement, arrangement or understanding between any broker or dealer and the
selling stockholders with respect to the offer to sale of the shares under this
prospectus. If we become aware of any agreement, arrangement or understanding,
to the extent required under the Securities Act, we will file a supplemental
prospectus to disclose:
(1) the name of any such broker-dealers;
(2) the number of shares involved;
(3) the price at which such shares are to be sold;
(4) the commissions paid or discounts or concessions
allowed to such broker-dealers, where applicable;
(5) that such broker-dealers did not conduct any
investigation to verify the information set out in
this prospectus, as supplemented; and
(6) other facts material to the transaction.
The stock purchase agreements have reciprocal indemnification
provisions between us and each selling stockholder to indemnify each other
against liabilities under the Securities Act, which may be based upon, among
other things, any untrue statement or alleged untrue statement
12
<PAGE>
of a material fact or any omission or alleged omission of a material fact. We
have agreed to bear customary expenses incident to the registration of the
shares for the benefit of the selling stockholders in accordance with such
agreements, other than underwriting discounts and commissions directly
attributable to the sale of such securities by or on behalf of the investor.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document we file at the SEC's public reference rooms in Washington, DC, New
York, NY, and Chicago, IL. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available to
the public from the SEC's website at http://www.sec.gov.
We have filed a registration statement on Form S-3 with the
SEC to register shares of our common stock. This prospectus is part of that
registration statement and, as permitted by the SEC's rules, does not contain
all of the information included in the registration statement. For further
information about us and this offering, you may refer to the registration
statement and its exhibits. You can review and copy the registration statement
and its exhibits at the public reference facilities maintained by the SEC or on
the SEC's website described above.
This prospectus may contain summaries of contracts or other
documents. Because they are summaries, they will not contain all of the
information that may be important to you. If you would like complete information
about a contract or other document, you should read the copy filed as an exhibit
to the registration statement.
The SEC allows us to "incorporate by reference" the
information we file with them, which means that we can disclose important
information to you by referring you to those documents. The information we
incorporate by reference is considered to be a part of this prospectus, and
information that we file with the SEC at a later date will automatically update
or supersede this information. We incorporate by reference the following
documents as well as any future filing we will make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934:
1. Annual Report on Form 10-KSB/A for the fiscal year ended
March 31, 1998;
2. Quarterly Reports on Form 10-QSB for the periods ended June
30, 1998, September 30, 1998 and December 31, 1998;
3. Current Reports on Form 8-K filed on August 17, 1998 and March
23, 1999; and
4. Registration Statement on Form 10, as amended, containing the
description of our common stock, dated April 27, 1995.
You may request a copy of these filings, at no cost, by
writing to us at 4 Hutton Centre Drive, Suite 800, Santa Ana, CA 92707-8713,
Attention: Investor Relations.
13
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows
companies to indemnify their directors and officers against expenses, judgments,
fines and amounts paid in settlement under the conditions and limitations
described in the law.
Our certificate of incorporation provides that a director is
not personally liable for monetary damages to us or our stockholders for breach
of his or her fiduciary duties as a director. A director will be held liable for
a breach of his or her duty of loyalty to us or our stockholders, his or her
intentional misconduct or willful violation of law, actions or inactions not in
good faith, an unlawful stock purchase or payment of a dividend under Delaware
law, or transactions from which the director derives an improper personal
benefit. This limitation of liability does not affect the availability of
equitable remedies against the director including injunctive relief or
rescission. Our certificate of incorporation authorizes us to indemnify our
officers, directors and other agent to the fullest extent permitted under
Delaware law.
We have entered into an indemnification agreement with each of
our directors and officers. In some cases, the provisions of the indemnification
agreement may be broader than the specific indemnification provisions contained
in our certificate of incorporation or otherwise permitted under Delaware law.
Each indemnification agreement may require us to indemnify an officer or
director against liabilities that may arise by reason of his status or service
as an officer or director, or against liabilities arising from the director's
willful misconduct of a culpable nature. The indemnification agreement may also
require us to obtain directors' and officers' liability insurance, if available
on reasonable terms. We maintain a directors and officers liability policy with
Lloyds of London and General Star Indemnity Corporation that contains an
aggregate limit of liability of $5,000,000 through 2001.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to our directors, officers and
controlling persons pursuant to these provisions, or otherwise, we have been
advised that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
LEGAL MATTERS
Parker Chapin Flattau & Klimpl, LLP, New York, New York will
pass upon the validity of the securities offered hereby. Martin Eric Weisberg,
Esq., a member of the firm, is our Secretary.
EXPERTS
The financial statements for the year ended March 31, 1998
incorporated by reference in this prospectus have been so incorporated in
reliance on the report (which contains an explanatory paragraph relating to the
ability of StarBase to continue as a going concern, as described in Note 2 to
the financial statements, and an explanatory paragraph relating to our restated
loss per common share calculation, as described in Note 3 to the financial
statements) of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
14
<PAGE>
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR ANY OTHER PERSON TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL
OR BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN
THIS PROSPECTUS IS CURRENT AS OF _____________.
----------------
TABLE OF CONTENTS PAGE
- --------------------------------------------------------- ---------
Risk Factors 3
Forward-Looking Statements 7
Use of Proceeds 7
Selling Stockholders 7
Description of Securities 10
Plan of Distribution 12
Where You Can Find More Information 13
Indemnification of Directors and Officers 14
Legal Matters 14
Experts 14
- --------------------------------------------------------------------------------
2,635,200 SHARES OF COMMON STOCK
STARBASE CORPORATION
-------------
PROSPECTUS
-------------
_______________ , 1999
15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses which will
be paid by StarBase in connection with the issuance and distribution of the
securities being registered on this registration statement. The selling
stockholders will not incur any of the expenses set forth below. All amounts
shown are estimates.
SEC Registration Fee $ 1,648.32
Legal Fees and Expenses 6,000.00
Accounting Fees and Expenses 10,000.00
Miscellaneous Expenses 1,000.00
----------------
Total $ 18,648.32
================
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of
Delaware (the "DGCL") provides, in general, that a corporation incorporated
under the laws of the State of Delaware, such as the registrant, may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than a
derivative action by or in the right of the corporation) by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and ,with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. In the case of a
derivative action, a Delaware corporation may indemnify any such person against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or any other court in which such action was brought determines such
person is fairly and reasonable entitled to indemnity for such expenses.
The Certificate of Incorporation of StarBase provides that
directors shall not be personally liable for monetary damages to StarBase or its
stockholders for breach of fiduciary duty as a director, except for liability
resulting from a breach of the director's duty of loyalty to StarBase or its
stockholders, intentional misconduct or willful violation of law, actions or in
actions not in good faith, an unlawful stock purchase or payment of a dividend
under Delaware law, or transactions from which the director derives improper
personal benefit. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission. The Certificate
of Incorporation of StarBase also authorizes StarBase to indemnify its officers,
directors and other agents, by bylaws, agreements or otherwise, to the fullest
extent permitted under Delaware law. StarBase has entered into an
Indemnification Agreement (the "Indemnification Agreement") with each of its
directors and officers which may, in some cases,
II-1
<PAGE>
be broader than the specific indemnification provisions contained in the
Certificate of Incorporation of StarBase or as otherwise permitted under
Delaware law. Each Indemnification Agreement may require StarBase, among other
things, to indemnify officers and directors against liabilities that may arise
by reason of their status or service as a director or officer, against
liabilities arising from willful misconduct of a culpable nature, and to obtain
directors' and officers' liability insurance if available on reasonable terms.
StarBase maintains a directors and officers liability policy
with Lloyds of London and General Star Indemnity Corporation that contains an
aggregate limit of liability of $5,000,000 through 2001.
ITEM 16. EXHIBITS.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ------------ -------------------------------------------------------------------
4.1 Form of Securities Purchase Agreement (Series I Preferred Stock).
4.2 Certificate of Designation (Series I Preferred Stock).
4.3 Form of Registration Rights Agreement (Series I Preferred Stock).
4.4 Form of Warrant (Series I Preferred Stock).
4.5 Form of Warrant (Series G Preferred Stock).
4.6 Asset Purchase and Sale Agreement (between StarBase Corporation and
Site Technologies, Inc.)
4.7 First Amendment to Asset Purchase and Sale Agreement.
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP.
23.1 Consent of Parker Chapin Flattau & Klimpl, LLP. Included in
Exhibit 5.1.
23.2* Consent of PricewaterhouseCoopers, LLP.
23.3* Consent of Deloitte & Touche, LLP.
24.1 Powers of Attorney of certain directors and officers of Starbase.
Incuded as part of the signature page on page II-5 of this filing.
- -----------------------
* To be filed by amendment
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10
(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in the volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from the
low or high and of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424 (b) if, in the
aggregate the changes in volume and price represent no more than 20 percent
change in the
II-2
<PAGE>
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer of controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1923 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1923) that is incorporated by reference statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bonafide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Santa Ana, State of
California, on June 14, 1999.
STARBASE CORPORATION
By: /s/ Douglas S. Norman
---------------------------------
Douglas S. Norman
Director of Finance and
Chief Accounting Officer
II-4
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints William R. Stow III and Douglas S. Norman, each acting
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or either of them or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ William R. Stow III President, Chief Executive Officer June 14, 1999
- ---------------------------------------- and Chairman of the Board
William R. Stow III
/s/ Donald R. Farrow Vice Chairman June 14, 1999
- ---------------------------------------- and Director
Donald R. Farrow
/s/ Frank R. Caccamo Director June 14, 1999
- ----------------------------------------
Frank R. Caccamo
/s/ John R. Snedegar Director June 14, 1999
- ----------------------------------------
John R. Snedegar
/s/ Phillip E. Pearce Director June 14, 1999
- ----------------------------------------
Phillip E. Pearce
/s/ Daniel P. Ginns Director June 14, 1999
- ----------------------------------------
Daniel P. Ginns
/s/ Barry W. Sullivan Director June 14, 1999
- ----------------------------------------
Barry W. Sullivan
/s/ Anders B. Vinberg Director June 14, 1999
- ----------------------------------------
Anders B. Vinberg
/s/ Douglas S. Norman Director of Finance and June 14, 1999
- ---------------------------------------- Chief Accounting Officer
Douglas S. Norman
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------------------------------------------------
4.1 Form of Securities Purchase Agreement (Series I Preferred Stock).
4.2 Certificate of Designation (Series I Preferred Stock).
4.3 Form of Registration Rights Agreement (Series I Preferred Stock).
4.4 Form of Warrant (Series I Preferred Stock).
4.5 Form of Warrant (Series G Preferred Stock). Incorporated by
reference to the Company's Form 8-K (file number 0-25612) filed
with the Commission on August 17, 1998.
4.6 Asset Purchase and Sale Agreement (between StarBase Corporation
and Site Technologies, Inc.)
4.7 First Amendment to Asset Purchase and Sale Agreement
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP.
23.1 Consent of Parker Chapin Flattau & Klimpl, LLP. Included in
Exhibit 5.1.
23.2* Consent of PricewaterhouseCoopers, LLP
23.3* Consent of Deloitte & Touche, LLP
24.1 Powers of Attorney of certain directors and officers of StarBase.
Included as part of the signature page on page II-5 of this filing.
- -------------------------
* To be filed by amendment.
E-1
EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of March 16, 1999, is
entered into by and between STARBASE CORPORATION, a Delaware corporation, with
headquarters located at 4 Hutton Centre Drive, Suite 800, Santa Ana, California
92707 (the "Company") and the undersigned entity (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, Series I Exchangeable Units (each a "Unit").
Each Unit consisting of (i) one share of Exchangeable Preferred Stock, par value
$.01 per share (the "Preferred Stock"), each share of Preferred Stock will be
exchangeable into shares of Common Stock, $.01 par value per share, of the
Company (the "Common Stock," "Exchange Shares," or "Shares"), upon the terms and
subject to the conditions of such Preferred Stock, and (ii) a warrant to
purchase 200 shares of Common Stock (the "Warrant"), and subject to acceptance
of this Agreement by the Company;
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 parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
A. PURCHASE; CERTAIN DEFINITIONS.
(i) Buyer hereby agrees to purchase from the Company 1,000
Units, consisting of shares of Preferred Stock and Warrants for an aggregate
purchase price of $1,000,000. The purchase price for each Unit shall be
$1,000.00 (the "Purchase Price") and shall be payable in United States Dollars.
(ii) The name, address and employer identification number of
the Buyer are set forth in Schedule A to this Agreement.
(iii) As used herein, the term "Securities" means the
Preferred Stock and the Common Stock issuable upon exchange of the Preferred
Stock, as well as the Warrants and Common Stock issuable upon exchange of the
Warrants.
<PAGE>
B. FORM OF PAYMENT. Buyer shall pay the Purchase Price for each Unit by
delivering immediately available good funds to the escrow agent (the "Escrow
Agent") identified in the Joint Escrow Instructions attached hereto as Annex II
(the "Joint Escrow Instructions"). No later than the Closing Date (as defined
below), the Company shall deliver one or more certificates representing the
Preferred Stock along with one or more certificates representing the Warrants
duly executed on behalf of the Company (collectively, the "Certificates") to the
Escrow Agent. By signing this Agreement, Buyer and the Company each agree to all
of the terms and conditions of, and becomes a party to, the Joint Escrow
Instructions, all of the provisions of which are incorporated herein by this
reference as if set forth in full.
C. METHOD OF PAYMENT. Payment into escrow of the Purchase Price for the
Unit shall be made by Buyer by wire transfer of funds to:
Bank One, Louisiana, N.A.
201 St. Charles Ave.
New Orleans, LA 70170
ABA# 065400137
A/C: Jones, Walker, Waechter, Poitevent, Carrere &
Denegre Client Trust Fund Account
A/C# 552-2000497878
Not later than 1:00 p.m., Central Standard Time, on the date which is one New
York Stock Exchange trading day after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Escrow
Agent by facsimile, Buyer shall deposit with the Escrow Agent the aggregate
Purchase Price for the Units.
D. LEGAL AND ACCOUNTING FEES. Talisman Capital Opportunity Fund Inc.
shall withhold $25,000 to cover all legal and accounting fees associated with
this transaction.
E. ESCROW PROPERTY. The aggregate Purchase Price and the
Certificate(s) delivered to the Escrow Agent are hereinafter referred to as the
"Escrow Property."
2. COMPANY REPRESENTATIONS, ETC.
----------------------------
The Company represents and warrants to the Buyer that:
A. CONCERNING THE SECURITIES. The Preferred Stock and Warrants have
been duly authorized and, when issued, will be duly and validly issued, fully
paid and non-assessable and will not subject the holder thereof to personal
liability by reason of being such holder. There are no preemptive rights of any
shareholder of the Company, as such, to acquire the Preferred Stock or the
Common Stock issuable upon exchange of the Preferred Stock or upon exercise of
the Warrant, except for such antidilution rights as may exist under outstanding
options and warrants.
B. COMPANY STATUS. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power
2
<PAGE>
to own its properties and to carry on its business as now being conducted. The
Company is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business or operations or condition (financial or
otherwise) of the Company and its subsidiaries, taken as a whole. The Company
has registered its Common Stock pursuant to Section 12 of the 1934 Act, and the
Common Stock is listed and traded on the Nasdaq Small Cap Market. Except as set
forth in Annex V, the Company has received no notice, either oral or written,
with respect to the continued eligibility of the Common Stock for such listing,
and the Company has maintained all requirements for the continuation of such
listing.
C. AUTHORIZED SHARES. The Company has at March 11, 1999, 28,011,362
shares of Common Stock outstanding, and has sufficient authorized and unissued
Common Stock as may be reasonably necessary to effect the exchange of the
Preferred Stock in accordance with the Certificate of Designation and exercise
of the Warrants on the Closing Date or the Effective Date of the Registration
Statement. The Common Stock has been duly authorized and, when issued upon
exchange of the Preferred Stock in accordance with its terms, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder.
D. REGISTRATION RIGHTS AGREEMENT AND STOCK. This Agreement, the
Registration Rights Agreement and all other documents relating to this
transaction, the form of which is attached hereto, and the transactions
contemplated hereby and thereby, have been duly and validly authorized by the
Company, when executed and delivered by or on behalf of the Company, will be,
valid and binding agreements of the Company enforceable in accordance with their
respective terms, subject, as to enforceability, to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditor's rights generally.
E. NON-CONTRAVENTION. The execution and delivery of this Agreement and
the Registration Rights Agreement by the Company, the issuance of the
Securities, and, except as disclosed in Annex V, the consummation by the Company
of the other transactions contemplated by this Agreement, the Registration
Rights Agreement and all other documents associated with this transaction, and
the Preferred Stock do not and will not conflict with or result in a breach by
the Company of any of the terms or provisions of, or constitute a default under
(i) the articles of incorporation or by-laws of the Company, each as currently
in effect, (ii) any indenture, mortgage, deed of trust, or other material
agreement or instrument to which the Company is a party or by which it or any of
its properties or assets are bound, including any listing agreement for the
Common Stock (except as herein set forth), (iii) to its knowledge, any existing
applicable law, rule, or regulation or any applicable decree, judgment, or order
of any court, United States federal or state regulatory body, administrative
agency, or other governmental body having jurisdiction over the Company or any
of its properties or assets, or (iv) any listing agreement for its Common Stock,
except such conflict, breach or default which would not have a material adverse
effect on the transactions contemplated herein.
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F. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the shareholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
G. SEC FILINGS. None of the Company's SEC Reports, as amended,
contained, at the time they were filed, any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements made therein in light of the circumstances under which they
were made, not misleading.
H. ABSENCE OF CERTAIN CHANGES. Since December 31, 1998, except as
disclosed in ANNEX V or in the Company's SEC Reports, there has been no material
adverse change and no material adverse development in the business, properties,
operations, condition (financial or otherwise), or results of operations of the
Company and its subsidiaries, taken as a whole, and the Company has not (i)
incurred or become subject to any material liabilities (absolute or contingent)
except liabilities incurred in the ordinary course of business consistent with
past practices; (ii) discharged or satisfied any material lien or encumbrance or
paid any material obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business consistent with past
practices; (iii) declared or made any payment or distribution of cash or other
property to shareholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business
consistent with past practices; (v) suffered any substantial losses or waived
any rights of material value, whether or not in the ordinary course of business,
or suffered the loss of any material amount of existing business; (vi) made any
changes in employee compensation, except in the ordinary course of business
consistent with past practices; or (vii) experienced any material problems with
labor or management in connection with the terms and conditions of their
employment.
I. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in the
Company's SEC Reports), that has not been disclosed in writing to the Buyer that
(i) would reasonably be expected to have a material adverse effect on the
business or financial condition of the Company or (ii) would reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement or any of the agreements
contemplated hereby (collectively, including this Agreement, the "Transaction
Agreements").
J. ABSENCE OF LITIGATION. Except as set forth in Annex V hereto, or the
Company's SEC Reports, which the Buyer has reviewed, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of the Company, threatened against or
affecting the Company, wherein an unfavorable decision, ruling or finding would
have a material adverse effect on the properties, business or financial
condition, results of operation or prospects of the Company and its subsidiaries
taken as a whole or the transactions contemplated by any of the Transaction
Agreements or which would adversely affect
4
<PAGE>
the validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, any of the Transaction Agreements.
K. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in Annex V hereto
and Section 3(e) hereof, no Event of Default (or its equivalent term), as
defined in the respective agreements to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (or its equivalent term) (as so defined in such
agreements), has occurred and is continuing, which would have a material adverse
effect on the Company's financial condition or results of operations.
L. PRIOR ISSUES. During the twelve (12) months preceding the date
hereof, the Company has not issued any Common Stock, convertible or exchangeable
securities in capital transactions which have not been fully disclosed in the
SEC Reports. Except as set forth in Annex V, such issuances have been fully
exchanged into shares of Common Stock, or there are no outstanding convertible
or exchangeable securities from those transactions.
M. NO UNDISCLOSED LIABILITIES OR EVENTS. The Company has no liabilities
or obligations, other than those disclosed in the Company's SEC Reports or those
incurred in the ordinary course of the Company's business since December 31,
1998, which, individually or in the aggregate, do or would not have a material
adverse effect on the properties, business, condition (financial or otherwise),
or results of operations of the Company and its subsidiaries, taken as a whole.
Except as set forth in Annex V, no event or circumstance has occurred or exists
with respect to the Company or its properties, business, condition (financial or
otherwise), or results of operations, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed. The
Buyer is relying on all representations, both verbal and written, made by the
Company in connection with this transaction.
N. NO DEFAULT. Except as set forth in Annex V or the Company's SEC
Reports, the Company is not in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust or other material instrument or agreement to
which it is a party or by which it or its property is bound.
O. NO INTEGRATED OFFERING. To the best of its knowledge, neither the
Company nor any of its affiliates nor any person acting on its or their behalf
has, directly or indirectly, at any time since June 30, 1998, made any offer or
sale of any security or solicited any offers to buy any security under
circumstances that would make unavailable the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
P. DILUTION. The number of Shares issuable upon exchange of the
Preferred Stock may increase substantially in certain circumstances, including,
but not necessarily limited to, the circumstance wherein the trading price of
the Common Stock declines prior to the exchange of the the Preferred Stock. The
Company's executive officers and directors have studied and fully understand the
nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business
5
<PAGE>
judgment, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
exchange of the Preferred Stock is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interest of
other shareholders of the Company.
3. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
The Buyer represents and warrants to, covenants and agrees with, the
Company as follows:
A. Without limiting Buyer's right to sell the Common Stock pursuant to
the Registration Statement (as that term is defined in the Registration Rights
Agreement defined below), Buyer represents that it is purchasing the Units and
will be acquiring the shares of Common Stock issuable upon exchange of the
Preferred Stock (the "Exchange Shares") and upon the exercise of Warrants for
its own account for investment and not with a view towards the public sale or
distribution thereof and not with a view to or for sale in connection with any
distribution thereof.
B. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Securities.
C. All subsequent offers and sales of Common Stock issuable upon
exchange of the Preferred Stock shall be made pursuant to registration of the
Shares under the 1933 Act or pursuant to an exemption from registration.
D. The Buyer understands that the Units are being offered and sold to
it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Units.
E. The Buyer represents and acknowledges that Buyer has been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Units which have
been reasonably requested by the Buyer, including Annex V hereto and is relying
on the Company's representations. The Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries. Without limiting the
generality of the foregoing, the Buyer has also had the opportunity to obtain
and to review the Company's (i) annual report on Form 10-K for the year ending
March 31, 1998, (ii) the Company's quarterly report on Form 10-Q for the
<PAGE>
quarterly period ending December 31, 1998, September 30, 1998 and June 30, 1998
(iii) Form 8-K dated August 17, 1998, and (iv) Form S-3/A dated October 28, 1998
(the Company's SEC Documents").
F. The Buyer understands that its investment in the Company is
speculative and that there can be no assurance that the Preferred Stock and/or
the Warrants can be sold, or if exchanged, that the Common Stock issued upon
exchange can be sold, at or above the aggregate Purchase Price or the exchange
price.
G. The Buyer understands that no United States federal or state agency
or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
H. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors rights generally.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) neither the
Preferred Stock or Warrants, nor the Common Stock issuable upon the exchange of
Preferred Stock or exercise of Warrants, thereof has been, registered under the
1933 Act and, except as provided in the Registration Rights Agreement, and may
not be sold, transferred or otherwise disposed of unless (A) registered
thereunder or (B) Buyer shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form, scope and substance to the Company, to
the effect that such securities may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of such securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, that any resale of such securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
another exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register such securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
B. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that, until
such time as the Common Stock issuable upon the exchange of Preferred Stock or
the exercise of Warrants has been registered for resale under the 1933 Act as
contemplated by the Registration Rights Agreement, certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
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<PAGE>
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION, OR OTHER EVIDENCE ACCEPTABLE TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
The Certificates and other instruments representing any of the
Securities shall bear such other legends as may be required under state
securities laws.
C. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement on or before the Closing Date.
D. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Units to the Buyer under any United
States laws and regulations, or by any domestic securities exchange or trading
market, and to provide a copy thereof to the Buyer promptly after such filing.
E. REPORTING STATUS. So long as the Buyer beneficially owns any of the
Unit, the Company shall file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination; provided, however, that the Company shall not be obligated to
continue filing such reports after the second anniversary of this Agreement, or
earlier if the Company has liquidated or effected a going-private transaction.
F. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Units (excluding amounts paid by the Company for legal fees, commissions or
expenses in connection with the sale of the Units) for general purposes and
acquisitions, but shall not, directly or indirectly, use such proceeds for
investment in any other affiliate or to repay debt to affiliates.
G. AVAILABLE SHARES. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield two hundred percent (200%) of the number of shares of Common
Stock issuable upon the exchange of Preferred Stock and one hundred percent
(100%) upon the exercise of Warrants.
H. WARRANTS. The Company agrees to issue to Buyer at the Closing,
Warrants in the form of Annex VI entitling the holder thereof to purchase up to
200,000 shares of Common Stock (the "Warrant Shares"). The Warrant shall bear an
exercise price per share of Common Stock of $1.50 and shall be exercisable
immediately upon issuance, and for a period of five (5) years thereafter. The
Warrant Shares shall be entitled to the registration rights under the
Registration Rights Agreement.
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<PAGE>
I. LIMITATION ON ISSUANCE OF SHARES. Notwithstanding any other
provision herein, the Corporation shall not be obligated to issue any shares of
Common Stock upon conversion of the Preferred Stock if the issuance of such
shares of Common Stock would exceed that number of shares of Common Stock which
the Corporation may issue upon conversion of the Preferred Stock (the "Cap
Amount") without breaching the Corporation's obligations under the rules or
regulations of The Nasdaq Stock Market, Inc., except that such limitation shall
not apply in the event that the Corporation (a) obtains the approval of its
stockholders as required by applicable rules of The Nasdaq Stock Market, Inc.
for issuances of Common Stock in excess of such amount or (b) obtains a written
opinion from outside counsel to the Corporation that such approval is not
required, which opinion shall be reasonably satisfactory to the holders of a
majority of the shares of Preferred Stock then outstanding; provided, however,
that notwithstanding anything herein to the contrary, the Corporation, will
issue (x) such number of shares of Common Stock issuable upon conversion of the
Preferred Stock at the then current Conversion Price up to the Cap Amount, (y)
such number of shares of Common Stock issuable upon conversion of the remaining
outstanding Preferred Stock at the closing bid price as reported by Bloomberg,
L.P. on the date preceding the applicable Conversion Date, and (z) warrants to
purchase such number of shares of Common Stock based on a ratio of 200,000
shares for each $1,000,000 of Preferred Stock which cannot be converted at the
then current Conversion Price, which warrants shall have an exercise price equal
to the then current market price and an exercise period of eighteen months from
the date of issuance. Until such approval or written opinion is obtained, no
holder of Preferred Stock pursuant to this Agreement shall be issued, upon
conversion of shares of Preferred Stock, shares of Common Stock in an amount
greater than the product of (i) the Cap Amount amount multiplied by (ii) a
fraction, the numerator of which is the number of shares of Preferred Stock
issued to such holder pursuant to this Agreement and the denominator of which is
the aggregate amount of all the shares of Preferred Stock issued to the holders
pursuant to this Agreement (the "Cap Allocation Amount"). In the event that any
holder of Preferred Stock shall convert all of such holder's shares of Preferred
Stock into a number of shares of Common Stock which, in the aggregate, is less
than such holder's Cap Allocation Amount, then the difference between such
holder's Cap Allocation Amount and the number of shares of Common Stock actually
issued to such holder shall be allocated to the respective Cap Allocation
Amounts of the remaining holders of Preferred Stock on a pro rata basis in
proportion to the number of shares of Preferred Stock then held by each such
holder.
5. TRANSFER AGENT INSTRUCTIONS
A. Promptly following the delivery by the Buyer of the aggregate
purchase price for the Units in accordance with Section 1(c) hereof, the Company
will irrevocably instruct its transfer agent to issue Common Stock from time to
time upon exchange of the Preferred Stock and exercise of the Warrant in such
amounts as specified from time to time by the Company to the transfer agent,
bearing the restrictive legend specified in Section 4(b) of this Agreement prior
to registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer in
connection with each exchange of the Preferred Stock and exercise of the
Warrant. The Company warrants that no instruction other than such instructions
referred to in this Section 5 and stop transfer instructions to give effect to
Section 4(a) hereof prior to registration and sale of the Shares under the 1933
Act will be given by the Company to the
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<PAGE>
transfer agent and that the Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement and applicable law. Nothing in this
Section 5 shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities. If the
Buyer provides the Company with an opinion of counsel reasonably satisfactory to
the Company that registration of a resale by the Buyer of any of the Securities
in accordance with clause (1)(B) of Section 4(a) of this Agreement is not
required under the 1933 Act, the Company shall (except as provided in clause (2)
of Section 4(a) of this Agreement) permit the transfer of the Securities and, in
the case of the exchanged shares under Rule 144, promptly instruct the Company's
transfer agent to issue one or more certificates for Common Stock without legend
in such name and in such denominations as specified by the Buyer.
B. (i) The Company will permit the Buyer to exercise its right to
exchange the Preferred Stock by telecopying prior to 5:00 p.m. (Central Standard
Time) an executed and completed Exchange Notice to the Company and delivering
within three (3) business days thereafter, the original Notice of Exchange by
express courier, together with the stock certificate evidencing the Preferred
Stock duly endorsed for transfer.
(ii) The term "Exchange Date" shall mean the date specified as
such in the Certificate of Designation.
(iii) The Company shall, at its expense, take all actions and
use all means necessary to cause its transfer agent to transmit certificates
representing the exchanged shares issued upon exchange of any Preferred Stock
(together with Preferred Stock not being so exchanged) to the Buyer via express
courier, by electronic transfer or otherwise, within three (3) business days
after (i) receipt by the Company of the original Exchange Notice and (ii) the
delivery to the Company of the Preferred Stock(the Delivery Date).
C. The Company understands that a delay in the issuance of the Shares
of Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay as
liquidated damages late payments to the Buyer in the event that delay is due
entirely to the Company's failure to issue and deliver the Shares upon exchange
in accordance with the following schedule (where No. Business Days Late is
defined as the number of business days beyond five (5) business days from
Delivery Date):
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<PAGE>
Late Payment for Each $10,000
of Unit Liquidation
No. Business Days Late Amount Being Exchanged
--------------------------------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500 + $200 for each Business
Day Late beyond 5 days from
The Delivery Date
The Company shall pay any payments incurred under this Section 5 in immediately
available funds upon demand. Nothing herein shall preclude Buyer from obtaining
equitable relief against the Company if the Company fails to issue and deliver,
or fails to cause its transfer agent to issue and deliver, the Common Stock to
Buyer upon exchange of the Preferred Stock. Furthermore, in addition to any
other remedies which may be available to the Buyer, in the event that the
Company fails to deliver such shares of Common Stock within five (5) business
days after the Delivery Date, the Buyer will be entitled to revoke the relevant
Notice of Exchange by delivering a notice to such effect to the Company
whereupon the Company and the Buyer shall each be restored to their respective
positions immediately prior to delivery of such Notice of Exchange.
D. Subject to the completeness and accuracy of the Buyer's
representations and warranties herein, upon the exchange of any Preferred Stock
by a person who is a non-U.S. Person, and following the expiration of any
applicable Restricted Period (as those terms are defined in Regulation S), the
Company, shall, at its expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue stock certificates without restrictive legend or stop orders in the
name of Buyer (or its nominee (being a non-U.S. Person) or such non-U.S. Person
as may be designated by Buyer) and in such denominations to be specified at
exchange representing the number of shares of Common Stock issuable upon such
exchange, as applicable. Nothing in this Section 5, however, shall affect in any
way Buyer's or such nominee's obligations and agreement to comply with all
applicable securities laws upon resale of the Securities. The remedies set forth
in Sections 5(c) and (d) shall be cumulative.
E. In lieu of delivering physical certificates representing the
securities issuable upon exchange, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Buyer and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon , the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon exchange to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
6. DELIVERY INSTRUCTIONS.
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The Preferred Stock and Warrants shall be delivered by the Company to
the Escrow Agent pursuant to Section 1(b) hereof, on a delivery against payment
basis, no later than on the Closing Date.
7. CLOSING DATE.
(i) The closing of the issuance and sale of the Units shall occur on
the date (the "Closing Date") which is the first trading day after the
fulfillment or waiver of all closing conditions pursuant to Sections 8 and 9
hereof or such other date and time as is mutually agreed upon by the Company and
the Buyer. The date of an alternate Closing Date shall be the date specified by
either party upon at least five (5) business days advance notice to the other
party; provided, however, that it shall be a condition of an alternate Closing
Date that (i) the conditions of Section 4(g) be satisfied, and (ii) each of the
conditions contemplated by Sections 8 and 9 hereof shall have been satisfied or
waived on or before such date.
(ii) The purchase and issuance of Units shall occur on the Closing Date
at the offices of the Escrow Agent or at such other place as Company shall
specify in writing, no later than 12:00 Noon, Central Standard Time, on such
day, or at such other time as is mutually agreed upon by the Company and the
Buyer.
(iii) Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Property only upon
satisfaction of the conditions set forth in Sections 8 and 9 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Units
on the Closing Date to the Buyer pursuant to this Agreement is conditioned upon:
A. Acceptance by the Buyer of this Agreement, as indicated by execution
of this Agreement;
B. Delivery by the Buyer to the Escrow Agent of good funds as payment
in full of the aggregate Purchase Price for the Units and the delivery thereof
to the Company;
C. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date, and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date; and
D. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
12
<PAGE>
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Units on the Closing Date is conditioned upon:
A. Acceptance by the Company of this Agreement, as indicated by
execution of this Agreement;
B. Delivery by the Company to the Escrow Agent of the certificates for
the Preferred Stock and the Warrants in accordance with this Agreement;
C. The accuracy in all material respects on the Closing Date of the
representations, covenants and warranties of the Company contained in this
Agreement as if made on the Closing Date, and the performance by the Company on
or before the Closing Date of all covenants and agreements of the Company
required to be performed on or before the Closing Date;
D. On the Closing Date, the Buyer has received an opinion of counsel
for the Company, dated the Closing Date in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in Annex III attached hereto,
and the execution and delivery of the Registration Rights Agreement annexed
hereto as Annex IV and the Warrant annexed hereto as Annex VI;
E. No statute, rule, regulation, executive order, decree, ruling or
injunction shall be enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits or adversely
effects any of the transactions contemplated by this Agreement, and no
proceeding or investigation shall have been commenced or threatened which may
have the effect of prohibiting or adversely effecting any of the transactions
contemplated by this Agreement; and
10. GOVERNING LAW: MISCELLANEOUS.
A. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws.
B. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
C. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.
D. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
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<PAGE>
E. 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.
F. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
G. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
H. Except as otherwise set forth herein, all costs and expenses,
including reasonable attorney's fees, incurred in the enforcement of this
Agreement shall be paid to the prevailing party by the non-prevailing party,
upon demand.
11. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of:
A. the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile transmission,
B. the fourth business day after deposit, postage prepaid, in the
United States Postal Service by registered or certified mail, or
C. the third business day after mailing by international express
courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
advance written notice similarly given to each of the other parties hereto):
COMPANY: STARBASE CORPORATON
4 Hutton Centre Drive, Suite 800
Santa Ana, California 92707
Attn: CFO
Fax: 714.445.4482
With a copy to:
Martin E. Weisberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
Fax: 212.704.6288
BUYER: At the address(es) set forth on Schedule A
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ESCROW AGENT:
Bank One Louisiana, N.A.
201 St. Charles Ave.
New Orleans, LA 70170
Bank ABA# 065400137
Account Name: Jones, Walker, Waechter, Poitevent,
Carrere & Denegre
Client Trust Fund Account
Acct # 552-2000497878
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Units and the
aggregate Purchase Price, and shall inure to the benefit of the Buyer
and its successors and assigns.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
as of the date first above written.
BUYER
Talisman Capital Opportunity Fund, Ltd.
--------------------------------------------------
Printed Name of Buyer
16101 LaGrande Drive, Suite 100 Little Rock, AR
72223
--------------------------------------------------
Address
By: ---------------------------------------------
(Signature of Authorized Person)
Telecopier No. 501.821.6888
-----------------------------------
Brian Ladin, Vice President
--------------------------------------------------
Printed Name and Title
British Virgin Islands
--------------------------------------------------
Jurisdiction of Incorporation or Organization
STARBASE CORPORATION
By: --------------------------------------------
Title: -----------------------------------------
Date: ------------------------------------------
<PAGE>
SCHEDULE A
----------
- ------------------------- ------------------------------ ------------------
Employer
Identification/Social Security Number of Shares
Name and Address of Buyer Number Purchased
Talisman Capital 98-0176121 1,000
Opportunity Fund Ltd.
<PAGE>
SCHEDULE A BUYERS
ANNEX I CERTIFICATE OF DESIGNATION
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE SCHEDULE
ANNEX VI COMMON STOCK PURCHASE WARRANT
<PAGE>
ANNEX II
JOINT ESCROW INSTRUCTIONS
Dated as of the date of the
Securities Purchase Agreement to
Which These Joint Escrow
Instructions Are Attached
Bill Masters
201 St. Charles Ave.
New Orleans, LA 70170-5100
Ladies and Gentlemen:
As escrow agent for both Starbase Corporation, a Delaware corporation
(the "Company"), and Talisman Capital Opportunity Fund Ltd. (the "Buyer") of
Series I Exchangeable Unit (the "Unit") of the Company, who are named in the
Securities Purchase Agreement between the Company and the Buyer to which a copy
of these Joint Escrow Instructions is attached as Annex II (the "Agreement"),
you (hereafter, the "Escrow Agent") are hereby authorized and directed to hold
the documents and funds (together with any interest thereon, the "Escrow Funds")
delivered to the Escrow Agent pursuant to the terms of the Agreement in
accordance with the following instructions:
1. The Escrow Agent shall, as promptly as feasible, notify the Company
of receipt of the purchase price for the Unit and from, or on behalf of, the
Buyer (the "Purchase Price"), and notify the Buyer (or such agent as the Buyer
may designate in writing) of receipt of the certificates representing the Unit
(the "Certificates"). As promptly as feasible upon receipt of notice (whether
oral or in written form) from the Company and the Buyer that the respective
conditions precedent to the purchase and sale have been satisfied (which notice
shall not be unreasonably withheld), the Escrow Agent shall, after reduction by
the amounts referred to in the next succeeding sentence of this paragraph,
release the Escrow Funds to or upon the order of the Company, and shall release
the Certificates to the Buyer. If the Certificates are not deposited with the
Escrow Agent within ten (10) days after receipt by the Company of notice of
receipt by the Escrow Agent of the Purchase Price funds from the Buyer, the
Escrow Agent shall notify the Buyer and the Buyer shall be entitled to cancel
the purchase and demand repayment of the funds. If such funds are not deposited
with the Escrow Agent within ten (10) days after receipt by the Buyer of notice
of receipt by the Escrow Agent of the Certificates from the Company, the Escrow
Agent shall notify the Company and the Company shall be entitled to cancel the
purchase and demand return of such Certificates. If the Company or the Buyer
notifies the Escrow Agent that on the Closing Date (as defined in the Agreement)
the conditions precedent to the obligations of the Company or the Buyer, as the
case may be, under the Agreement were not satisfied or waived, then the Escrow
Agent shall return the Escrow Funds to the Buyer and shall return the
Certificates to the Company. Prior to return of the
<PAGE>
Escrow Funds to the Buyer, the Buyer shall furnish such tax reporting or other
information as shall be appropriate for the Escrow Agent to comply with
applicable United States laws. The Escrow Agent shall deposit all funds received
hereunder in the Escrow Agent's attorney escrow account at Bank One in New
Orleans, LA.
2. The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, the Buyer and the
Escrow Agent.
3. The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
property party or parties. The Escrow Agent shall not be personally liable for
any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent
while acting in good faith, and any act done or omitted by the Escrow Agent
pursuant to the advice of the Escrow Agent's attorneys-at-law shall be
conclusive evidence of such good faith.
4. The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
5. The Escrow Agent shall not be liable in any respect on account of
the identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
6. The Escrow Agent shall be entitled to employ such legal counsel and
other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for the
Buyer, and may continue to act as legal counsel for the Buyer, from time to
time, notwithstanding its duties as the Escrow Agent hereunder. The Company
consents to the Escrow Agent acting in such capacity as legal counsel for the
Buyer and waives any claim that such representation represents a conflict of
interest on the part of the Escrow Agent. The Company understands that the Buyer
and the Escrow Agent are relying explicitly on the foregoing provision in
entering into these Joint Escrow Instructions.
7. The Escrow Agent's responsibilities as escrow agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Buyer. In the event of any such resignation, the Buyer and the Company shall
appoint a successor Escrow Agent.
<PAGE>
8. If the Escrow Agent reasonably requires other or further instruments
in connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
9. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the documents
or the Escrow Funds held by the Escrow Agent hereunder, the Escrow Agent is
authorized and directed in the Escrow Agent's sole discretion (1) to retain in
the Escrow Agent's possession without liability to anyone all or any part of
said documents or the Escrow Funds until such disputes shall have been settled
either by mutual written agreement of the parties concerned or by a final order,
decree or judgment of a court of competent jurisdiction after the time for
appeal has expired and no appeal has been perfected, but the Escrow Agent shall
be under no duty whatsoever to institute or defend any such proceedings or (2)
to deliver the Escrow Funds and any other property and documents held by the
Escrow Agent hereunder to a state or federal court having competent subject
matter jurisdiction and located in the State and City of New York in accordance
with the applicable procedure therefor.
10. The Company and the Buyer agree jointly and severally to indemnify
and hold harmless the Escrow Agent from any and all claims, liabilities, costs
or expenses in any way arising from or relating to the duties or performance of
the Escrow Agent hereunder other than any such claim, liability, cost or expense
to the extent the same shall (a) have been tax obligations in connection with
Escrow Agent's fee hereunder, or (b) have been determined by final, unappealable
judgment of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the Escrow Agent, or (c) be a liability, or
arise from liability, to either the Company or the Buyer.
11. Any notice required or permitted hereunder shall be given in manner
provided in the Section headed NOTICES in the Agreement, the terms of which are
incorporated herein by reference.
12. By signing these Joint Escrow Instructions, the Escrow Agent
becomes a party hereto only for the purpose of these Joint Escrow Instructions;
the Escrow Agent does not become a party to the Agreement. The Company and the
Buyer have become parties hereto by their execution and delivery of the
Agreement, as provided therein.
13. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns and
shall be governed by the laws of the State of New York without giving effect to
principles governing the conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be legal and binding on all
parties hereto.
14. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Agreement.
<PAGE>
15. The rights and obligations of any party hereto are not assignable
without the written consent of the other parties hereto. These Joint Escrow
Instructions constitute the entire agreement amongst the parties with respect to
the subject matter hereof.
ACCEPTED BY ESCROW AGENT:
By: ________________________________
Date: ______________________________
STARBASE CORPORATION
By: ________________________________
BUYER:
TALISMAN CAPITAL OPPORTUNITY FUND LTD.
By: _______________________________
Title: ______________________________
<PAGE>
ANNEX III
March __, 1999
Talisman Capital Opportunity Fund, Ltd.
16101 LaGrande Drive
Suite 100
Little Rock AR 72223
RE: STARBASE CORPORATION
--------------------
Dear Sir/Madam:
We have acted as counsel to StarBase Corporation, a Delaware
corporation (the "Company"), in connection with (i) the issuance and sale by the
Company of 1,000 Units, each Unit consisting of one share of Series I
Exchangeable Preferred Stock (the "Series I Preferred Stock"), each share of
Securities Series I Preferred Stock convertible into shares of common stock,
$0.01 par value per share of the Company (the "Common Stock") and a warrant to
purchase 200 shares of Common Stock (the "Warrant"), to Talisman Capital
Opportunity Fund, Ltd. (the "Purchaser"), an Accredited Investor (as defined in
Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Act")) pursuant to a Securities Purchase Agreement dated as of
March 16, 1999 (the "Purchase Agreement"), and (ii) the preparation of the
Purchase Agreement, the Certificate of Designation, the Registration Rights
Agreement and the Warrant. The Purchase Agreement, the Registration Rights
Agreement and the Warrant are sometimes referred to herein collectively as the
"Transaction Agreements." Capitalized terms used herein, but not otherwise
defined herein, shall have the meanings ascribed to those terms in the Purchase
Agreement.
This opinion is rendered solely for the information of the
addressees in connection with the transactions contemplated by the Transaction
Agreements and only the addressees are entitled to rely hereon. This opinion may
not be used or relied on by the addressees for any other purpose, or by any
other person, firm, corporation or entity for any purpose, without our prior
written consent.
In connection with rendering this opinion, we have examined
copies of the Transaction Agreements in the form submitted to the various
parties thereto for execution, the Company's certificate of incorporation, the
Company's amended and restated bylaws and resolutions of the Board of Directors
of the Company approving the transactions contemplated by the Transaction
Agreements.
<PAGE>
Talisman Capital Opportunity Fund Ltd.
March __, 1999
Page 2
We have also made such examination of law and have examined
originals or copies of such corporate records and documents of the Company, such
agreements, certificates of officers or representatives of the Company, and such
other records, certificates, including certificates of public officials, and
documents as we have deemed relevant and necessary as a basis for the opinions
hereinafter expressed. In such examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals
and the conformity with authentic original documents of all documents submitted
to us as copies. As to any facts relevant to the opinions expressed below, we
have relied upon certificates and written and/or oral representations of
officers of the Company (including, without limitation, the representations of
the Company set forth in the Transaction Agreements) and public officials. We
have also assumed that the representations and warranties of the Purchasers set
forth in the Transaction Agreements are true and correct as of the date hereof.
All references herein to contracts, instruments or other documents of the
Company are limited to such documents as have been provided to us by the Company
or of which we have actual knowledge, after due inquiry of the Company and its
officers. We have not examined or reviewed any communication, instrument,
agreement, document or other item or conducted any independent inquiry or
investigation of any matter except as otherwise expressly set forth above. We
have also assumed that the Transaction Agreements which are to be executed by
the Purchasers have been duly authorized, executed and delivered by, and
constitute legal, valid and binding obligations of, the Purchasers.
The opinions expressed below with respect to the Company's
compliance with certain statutes, rules and regulations are based upon a review
of those statutes, rules and regulations that, in our experience, are applicable
to transactions of the type contemplated by the Transaction Agreements. Our
opinion as to the good standing of the Company in Delaware set forth in the
first sentence of paragraph 1 below is based solely upon our examination of a
certificate of good standing dated March 15, 1999 provided by the Secretary of
State of Delaware, and such opinion is given solely as of such date.
In connection with our opinion with respect to pending
litigation set forth in paragraph 6 below we have not undertaken searches of the
dockets of any court of any jurisdiction, nor conducted a judgment, lien,
litigation or similar search and have relied solely upon certificates and
written or oral representations of officers of the Company.
We express no opinion respecting the enforceable nature of any
of the Transaction Agreements or any document or instrument executed pursuant
thereto or in connection therewith, insofar as the enforceable nature thereof,
or any right, power, privilege, remedy or interest intended to be created
thereunder, may be limited (i) by applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization or other laws or judicial decisions
affecting any rights, powers, privileges, remedies or interests of creditors
generally, (ii) by rules or principles of equity affecting the enforcement of
obligations generally, whether at law, in equity or otherwise, (iii) by the
exercise
<PAGE>
Talisman Capital Opportunity Fund Ltd.
March __, 1999
Page 3
of the discretionary powers of any court or other authority before which may be
brought any proceeding seeking equitable or other remedies, including, without
limitation, specific performance, injunctive relief and indemnification or (iv)
insofar as rights to indemnity and/or contribution are concerned, by federal or
state securities laws or the public policy underlying such laws.
Our opinion is limited to the date hereof and we do not in any
event undertake to advise you of any facts or circumstances occurring or coming
to our attention subsequent to the date hereof.
Where reference is made in this opinion to matters within or
to our knowledge, to the best of our knowledge, or to facts or circumstances
known to us or which have come to our attention, such reference means the actual
knowledge of those attorneys in our firm who have given substantive attention to
the preparation of the Transaction Agreements, without, however, independent
investigation of any matter unless expressly set forth herein.
We call your attention to the fact that we are counsel
admitted to practice in the State of New York, and we do not express any opinion
with respect to the applicable laws, or the effect or applicability of the laws,
of any jurisdiction other than those of the State of New York, the General
Corporation Law of the State of Delaware and the securities laws of the United
States of America. In particular, but without limitation, we do not express any
opinion with respect to the blue sky laws of any State or securities laws of any
State or other jurisdiction (other than the federal securities laws of the
United States of America).
Based upon and subject to the foregoing, we are of the opinion
that:
1. The Company is a corporation organized, validly existing
and in good standing under the laws of the State of Delaware. The Company has
the requisite corporate power to own and operate its properties and assets, and
to carry on its business as presently conducted.
2. The Company has the requisite legal and corporate power to
execute and deliver the Transaction Agreements, to sell and issue the Series I
Preferred Stock (upon confirmation that the Certificate of Designation has been
filed with the Secretary of State of Delaware) and the Warrant and to issue the
Common Stock which are issuable upon conversion of the Series I Preferred Stock
or upon exercise of the Warrant, and to perform its obligations under the
Transaction Agreements.
3. The shares of Common Stock issuable upon conversion of the
Series I Preferred Stock and/or the exercise of the Warrant, have been duly
authorized and validly issued and, when delivered against payment in full as
provided in the Series I Preferred Stock and the Warrant, as applicable, will be
fully paid and nonassessable.
<PAGE>
Talisman Capital Opportunity Fund Ltd.
March __, 1999
Page 4
4. The Company has taken all necessary corporate action for
the authorization, execution and delivery of the Transaction Agreements on the
part of the Company; each of the Transaction Agreements has been duly executed
and delivered by and on behalf of the Company, and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with their terms.
5. The execution, delivery and performance of and compliance
with the terms of the Transaction Agreements and the issuance of the Series I
Preferred Stock (i) do not violate any provision of the Company's certificate of
incorporation or bylaws, (ii) do not constitute a material default and will not
result in the creation of any mortgage, pledge, lien, encumbrance or charge upon
the properties or assets of the Company under the provisions of any material
agreement known to us to which the Company is a party or by which it is bound,
and (iii) do not violate or contravene (a) any applicable governmental statute,
rule or regulation known to us pertaining to the Company or (b) any applicable
order, writ, judgment, injunction, decree, determination or award which has been
entered against the Company and known to us, by any court or governmental body
having jurisdiction over the Company or any of its property, the violation or
contravention of which would materially and adversely affect the Company, its
assets, financial condition or operations.
6. To our knowledge, and except as disclosed in Annex V of the
Purchase Agreement, there are no actions, suits, proceedings or investigations
pending against the Company or its properties before any court or governmental
agency (nor, to our knowledge, has the Company received any written threat
thereof), which, if adversely determined, would result in a material adverse
change in the business or financial condition of the Company, or which questions
the validity of the Transaction Agreements, or any action taken or to be taken
by the Company in connection therewith.
7. No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the Company
is required in connection with the valid execution and delivery of the
Transaction Agreements, or the offer, sale or issuance of the Series I Preferred
Stock or the consummation of any other transaction contemplated by the
Transaction Agreements.
Very truly yours,
PARKER CHAPIN FLATTAU & KLIMPL, LLP
<PAGE>
ANNEX V
Company Disclosure Schedule
2.b. Company Status.
--------------
The Company received a notice that it had until March 9, 1999 to comply
with certain NASD maintenance requirements. As of March 9, 1999 the
Company has complied with the compliance request.
e. Non-contravention
-----------------
None.
h. Absence of Certain Changes.
--------------------------
None.
j. Absence of Litigation.
---------------------
None.
k. Absence of Events of Default.
----------------------------
None
l. Prior Issues. - Outstanding Convertible Stock as of March 13, 1999
------------------------------------------------------------------
Series E - 584,808
Series F - None
Series G - None
Series H - 3,186
m. No Undisclosed Liabilities or Events.
------------------------------------
None.
n. No Default.
----------
None.
EXHIBIT 4.2
ANNEX I
DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES I EXCHANGEABLE PREFERRED STOCK
OF
STARBASE CORPORATION
I. DESIGNATION AND AMOUNT
----------------------
The designation (this "Certificate of Designation") of this series,
which consists of ONE THOUSAND (1,000) shares of Series I Exchangeable Preferred
Stock of STARBASE CORPORATION, a Delaware corporation (the "Company"), is the
Series I Exchangeable Preferred Stock, par value $.01 per share (the "Preferred
Stock") and the stated value shall be One Thousand Dollars ($1,000.00) per share
(the "Liquidation Preference").
II. CERTAIN DEFINITIONS
-------------------
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A. "Below Market Items" means any Common Stock or exchangeable
securities or rights to purchase stock, warrants, securities or other property
below the then current market price.
B. "Cap Amount" means 20% of the Common Stock outstanding on the
Closing Date.
C. "Closing Bid Price" means the closing bid price of the Company's
common stock on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg Financial Markets or a
comparable reporting service of national reputation selected by the Company and
reasonably acceptable to holders of the Preferred Stock (each, a "Holder") then
holding a majority of the then outstanding shares of Preferred Stock ("Majority
Holders") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively, "Bloomberg"), or if the foregoing does
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the Majority Holders, with
the costs of such appraisal to be borne by the Company.
<PAGE>
D. "Exchange" means, for any Optional Exchange, the date specified in
the notice of exchange (the "Notice of Exchange"), so long as the copy of the
Notice of Exchange is faxed (or delivered by other means) to the Company before
6:00 p.m., Central Standard Time, on the Exchange Date indicated in the Notice
of Exchange. If the Notice of Exchange is not so faxed or otherwise delivered
before such time, then the Exchange Date shall be the business day following the
date on which the Notice of Exchange is faxed (or delivered by other means). The
Exchange Date for the Required Exchange at Maturity shall be the Maturity Date
(as such terms are defined herein). The Notices of Exchange delivered to the
Company shall be delivered to STARBASE CORPORATION, 4 Hutton Centre Drive, Suite
800, Santa Ana, California 92707.
E. "Exchange Price" means, with respect to any Exchange Date, the
Holder's choice of the Fixed Exchange Price or the Variable Exchange Price, each
defined herein, subject to adjustment as provided herein.
F. "Fixed Exchange Price" means $1.50 (subject to equitable adjustment
for any stock splits, stock dividends, reclassifications or similar events
during such period).
G. "Variable Exchange Price" means, as of any Exchange Date, 90% of the
average of the two lowest Closing Bid Prices of the Common Stock for the thirty
(30) trading days immediately preceding the Exchange Date, subject to adjustment
as provided herein.
H. "NASDAQ Trigger Date" means the fifth (5th) day of any five
consecutive trading days during which the number of shares of Common Stock
issuable upon exchange of all shares of Preferred Stock and upon the issuance of
the Warrant Shares (as defined in the Securities Purchase Agreement (as defined
below)) exceeds sixty-six and two-thirds percent (66 2/3%) of the Cap Amount (as
herein defined).
I. "Optional Exchange" shall have the meaning ascribed thereto in
Section III.A.
J. "Dividends" mean the amount of cash or stock paid to the Holders of
the Preferred Stock by the Company, if and when declared at its sole discretion.
K. "Closing Date" shall be March 16, 1999.
[The remainder of this page is intentionally blank.]
-2-
<PAGE>
III. EXCHANGE
--------
A. Exchange at the Option of the Holder. Each Holder, at the Holder's
option (the "Optional Exchange") of the Fixed Exchange Price or Variable
Exchange Price, may at any time and from time to time beginning on the 120th day
following the Closing Date, exchange up to one-third (1/3) of its shares of
Preferred Stock into shares of Common Stock ("First Exchange Date"). A Holder
may subsequently exchange an additional one-third (1/3) of the shares of
Preferred Stock on the 150th day following the Closing Date, and an additional
one-third (1/3) of the shares of Preferred Stock on the 180th day following the
Closing Date, so that 180 days from the Closing Date 100% of the Preferred Stock
will be eligible for exchange. Notwithstanding anything in the foregoing to the
contrary, if at any time after the First Exchange Date, the Common Stock of the
Company has traded for five (5) consecutive trading days at a Closing Bid Price
that is greater than or equal to $3.00, then a Holder may exchange all of its
outstanding shares of Preferred Stock without regard to the restrictions on
exchange set forth in this clause (a). The number of the Company's Common Stock
to be issued upon exchange of the Preferred Stock will be determined by the
following formula:
(Liquidation Preference + all accrued but unpaid Dividends + all accrued and
unpaid Penalties)
- --------------------------------------------------------------------------------
Exchange Price
B. Acceleration. Notwithstanding the foregoing, each Holder may
exchange one hundred percent (100%) of its Preferred Stock into a number of
fully paid and non-assessable shares of Common Stock determined, for each share
of Preferred Stock so to be exchanged, in accordance with the formula set forth
in Section III.A above, upon the occurrence of any of the following events
("Acceleration Events"):
(i) the Common Stock (or any portion thereof) is suspended
from trading on any of, or is not listed (and authorized) for trading on any of,
the Nasdaq National Market System, the Nasdaq SmallCap Market, the American
Stock Exchange, or the New York Stock Exchange for an aggregate of ten (10)
trading days in any nine (9) month period;
(ii) the Company breaches any material covenant or other
material term of this Certificate of Designation, the Securities Purchase
Agreement, the Warrants or the Registration Rights Agreement and such breach
continues for a period of ten (10) business days after written notice thereof to
the Company and no remedy is otherwise available under this Section III;
(iii) any representation or warranty of the Company made in
any agreement, statement or certificate given in writing in connection with the
issuance of the Preferred Stock (including, without limitation, the Warrants,
the Securities Purchase Agreement or the Registration Rights Agreement), shall
be false or misleading in any material respect when made and the breach of which
has had or could reasonably be expected to have a material adverse effect on the
Company or on the Holder with respect to its investment in shares of Preferred
Stock or Warrants or shares of Common Stock issuable upon exchange of the
Preferred Stock or upon exercise of the Warrants;
-3-
<PAGE>
(iv) the Registration Statement required to be filed by the
Corporation pursuant to the Registration Rights Agreement, has not been filed
within ninety (90) days of the Closing Date or has not been declared effective
by the one hundred and fiftieth (150th) day following the Closing Date or such
Registration Statement, after being declared effective, cannot be utilized by
the Holders of Preferred Stock and the Warrants for the resale of all of their
Registrable Securities (as defined in the Registration Rights Agreement) for a
period of eight (8) consecutive business days or for an aggregate of more than
twenty (20) days in any twelve month period;
(v) the occurrence of a "Bankruptcy Event," defined as any one
or more of the following: (i) the commencement of any voluntary proceeding by
the Company seeking entry of an order for relief under Title 11 of the United
States Code or seeking any similar or equivalent relief under any other
applicable federal or state law concerning bankruptcy, insolvency, creditors'
rights or any similar law; (ii) the making by the Company of a general
assignment for the benefit of its creditors; (iii) the commencement of any
involuntary proceeding respecting the Company seeking entry of an order for
relief against the Company in a case under Title 11 of the United States Code or
seeking any similar or equivalent relief under any other applicable federal or
state law concerning bankruptcy, insolvency, creditors' rights or any similar
law, which proceeding is not dismissed within sixty (60) days after its
commencement; (iv) entry of a decree or order respecting the Company by a court
having competent jurisdiction, which decree or order (a) results in the
appointment of a receiver, liquidator, assignee, examiner, custodian, trustee,
sequestrator (or other similar official) for the Company or for any substantial
part of its property or (b) orders the winding up, liquidation, dissolution,
reorganization, arrangement, adjustment, or composition of the Company or any of
its debts; (vii) the voluntary appointment by the Company of a receiver,
liquidator, assignee, examiner, custodian, trustee, sequestrator (or other
similar official) for the Company or for any substantial part of its property;
(viii) the bringing of an involuntary action for the appointment of a receiver,
liquidator, assignee, examiner, custodian, trustee, sequestrator (or other
similar official) for the Company or for any substantial part of its property
which is not dismissed within sixty (60) days or which results in an
adjudication or appointment or an order for relief; (ix) the failure by the
Company to pay, or its admission in writing of its inability to pay, its debts
generally as they become due; (x) the exercise by any creditor of any right in
connection with an interest of such creditor in any substantial and material
part of the Company's property, including, without limitation, foreclosure upon
all or any such part of the Company's property, or the exercise of any rights or
remedies provided under the Uniform Commercial Code with regard thereto; (xi)
the calling by the Company of a general meeting of its creditors or any portion
of them; (xii) the failure by the Company to file an answer or other pleading
denying the material allegations of any proceeding described herein that is
filed against it; and (xiii) the consent by the Company to any of the actions,
appointments, or proceedings described herein or the failure of the Company to
contest in good faith any such actions, appointments, or proceedings.
C. Mechanics of Exchange. In order to effect an Optional Exchange, a
Holder shall fax (or otherwise deliver) during normal business hours (received
before 5:00 p.m. Pacific Standard Time) a copy of the fully executed Notice of
Exchange in the form attached hereto as Schedule 1 to
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the Company. No later than one (1) business day after delivery of such Notice of
Exchange the Holder shall surrender or cause to be surrendered to a reputable
overnight courier for next business day delivery (two (2) business day delivery
if from outside the United States) to the Company, the certificates representing
the Preferred Stock being exchanged (the "Preferred Stock Certificates")
accompanied by duly executed stock powers and the original Notice of Exchange.
D. Delivery of Common Stock Upon Exchange. Upon the delivery of a
Notice of Exchange, the Company shall, no later than the later of (a) the fifth
(5th) business day following the Exchange Date or (b) the day that is the third
(3rd) business day (four (4) business days following delivery if from outside
the United States) following the date of delivery of the Preferred Stock
Certificates by the Holder in accordance herewith (the "Delivery Period"),
deliver to the Holder (or at its direction) (x) that number of shares of Common
Stock issuable upon exchange of such shares of Preferred Stock being exchanged
and (y) a certificate representing the number of shares of Preferred Stock not
being exchanged, if any. The person or persons entitled to receive shares of
Common Stock issuable upon such exchange shall be treated for all purposes as
the record holder of such shares at the close of business on the Exchange Date
and such shares shall be issued and outstanding as of such date. In lieu of
delivering physical certificates representing the Common Stock issuable upon
exchange provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program (the
"FAST Program"), upon request of the Holder, the Company shall use its
reasonable efforts to cause its transfer agent to electronically transmit the
Common Stock issuable upon exchange to the Holder by crediting the account of
Holder's prime broker with DTC through its Deposit Withdrawal Agent Commission
("DWAC") system. The Company shall use its reasonable efforts to participate in
the FAST Program.
E. Taxes. The Company shall pay any and all taxes (other than transfer
taxes) which may be imposed with respect to the issuance and delivery of the
shares of Common Stock pursuant to exchange of the Preferred Stock.
F. No Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exchange of Preferred Stock, but the Company shall instead round
to the nearest whole number the number of shares of Common Stock to be issued
upon such exchange.
G. Exchange Disputes. In the case of any dispute with respect to a
exchange, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with Sections III.A and III.D hereof. If such
dispute involves the calculation of the Exchange Price, the Company shall submit
the disputed calculations to an independent accounting firm of national
standing, reasonably acceptable to Holder and to the Company, via facsimile
within three (3) business days of receipt of the Notice of Exchange. The
accounting firm shall audit the calculations and notify the Company and the
Holder of the results no later than five (5) business days from the date it
receives the disputed calculations. The accounting firm's calculation shall be
deemed conclusive, absent manifest error. The Company shall not be liable with
respect to penalties or premiums which have accrued or are payable with respect
to such shares of Preferred Stock or Common Stock: (a) for the first occurrence
in which Company is the non-prevailing party in such a dispute if the Company
has a reasonable, good faith basis for such dispute, and (b) in all cases, to
the extent that the Holder is the non-prevailing party with respect to specific
shares of Preferred Stock or
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Common Stock which are the subject of such dispute. The Company shall then issue
the appropriate number of shares of Common Stock in accordance with Sections
III.A and III.D hereof.
H. Limitation on Exchange. The exchange of shares of Preferred Stock
shall be subject to the following limitation:
(i) Five Percent Holdings. Notwithstanding anything to the
contrary contained herein, the Preferred Stock shall not be exchanged by a
Holder to the extent (but only to the extent) that, if exchanged by such Holder,
such Holder, or any of its affiliates (as defined under Rule 12b-2 of the
Securities Exchange Act of 1934, as amended), would beneficially own in excess
of 4.9% of the shares of Common Stock. To the extent the foregoing limitation
applies, the determination of whether Preferred Stock shall be exchangeable
(vis-a-vis other securities owned by such Holder) and of which Preferred Stock
shall be exchangeable (as among shares of Preferred Stock) shall be in the sole
discretion of the Holder and submission of the Preferred Stock for exchange
shall be deemed to be the Holder's determination of whether such Preferred Stock
is exchangeable (vis-a-vis other securities owned by such Holder) and of which
shares of Preferred Stock are exchangeable (as among shares of Preferred Stock),
subject to such aggregate percentage limitation. No prior inability to exchange
Preferred Stock pursuant to this Section shall have any effect on the
applicability of the provisions of this Section with respect to any subsequent
determination of exchangeability. For the purposes of this Section, beneficial
ownership and all determinations and calculations, including without limitation,
with respect to calculations of percentage ownership, shall be made in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D and G thereunder. The provisions of this Section may
be implemented in a manner otherwise than in strict conformity with the terms of
this Section with the approval of the Board of Directors of the Company and a
Holder: (i) with respect to any matter to cure any ambiguity herein, to correct
this subsection (or any portion thereof) which may be defective or inconsistent
with the intended 4.9% beneficial ownership limitation herein contained or to
make changes or supplements necessary or desirable to properly give effect to
such 4.9% limitation; and (ii) with respect to any other matter, with the
further consent of the holders of majority of the then outstanding shares of
Common Stock. The provisions of this Section may be waived by any Holder at its
election upon not less than sixty-one (61) days prior written notice from such
Holder to the Company, including, without limitation, a limited waiver to
increase the 4.9% limit herein contained to any other percentage specified by
such Holder. The limitations contained in this Section shall apply to a
successor Holder of Preferred Stock if, and to the extent, elected by such
successor Holder concurrently with its acquisition of such Preferred Stock, such
election to be promptly confirmed in writing to the Company (provided no
transfer or series of transfers to a successor Holder or Holders shall be used
by a Holder to evade the limitations contained herein).
(ii) Limitation on Issuance of Shares. The Company
acknowledges that the number of shares of Common Stock it may issue could result
in the issuance of more than 20% of
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the Company's outstanding Common Stock in accordance with Nasdaq Rule
4310(c)(25)(H)(i)(d)(2)(Cap Regulations). Without limiting the other provisions
thereof, the Company will take all steps reasonably necessary to be in a
position to issue shares of Common Stock on exchange of the Preferred Stock and
exercise of Warrants without violating the Cap Regulations. The Company shall
not issue shares of Common Stock below the then applicable Closing Bid Price
upon exchange of Preferred Stock if such issuance together with the prior
issuances of shares of Common Stock below the Closing Bid Price upon exchange of
Preferred Stock would exceed the Cap Amount.
I. Required Exchange at Maturity. Subject to the limitations set forth
in Section III H. and provided all shares of Common Stock issuable upon exchange
of all outstanding shares of Preferred Stock (in each case, without giving
effect to any limitation on exchange) are then (i) authorized and reserved for
issuance, (ii) registered under the Securities Act of 1933, as amended, and the
rules and regulations thereunder, or any similar successor statute (collectively
the "Securities Act") for resale by all holders of such shares of Preferred
Stock, (iii) eligible to be traded on either the Nasdaq National Market System,
the Nasdaq SmallCap Market, the New York Stock Exchange or the American Stock
Exchange; or (iv) an exemption from registration exists, each share of Preferred
Stock outstanding on the third (3rd) anniversary of the Closing Date (the
"Maturity Date") (and any accrued and unpaid Exchange Default Payments),
automatically shall be exchanged into shares of Common Stock on such date in
accordance with the exchange formula set forth in Section III.A (the "Required
Exchange at Maturity"), except as to any Holder who elects otherwise in the
event that an Acceleration Event has occurred prior to the Maturity Date and
shall be continuing as of the Maturity Date; provided, however, that the
Maturity Date will be extended for up to ninety (90) days after the second
anniversary of the Closing Date (the "Extension Period") and the shares of
Preferred Stock shall be exchanged as provided herein at any time during the
Extension Period if any failure to satisfy clauses (ii) and (iii) of this
sentence are satisfied for a continuous period of at least five (5) trading days
during the Extension Period and no Acceleration Event exists at any time during
such period. If a Required Exchange at Maturity occurs, the Company and the
Holders shall follow the applicable exchange procedures set forth in this
Article III; provided, however, that a Notice of Exchange shall be deemed to be
delivered to the Company on the Maturity Date.
IV. RESERVATION OF AUTHORIZED SHARES OF COMMON STOCK
------------------------------------------------
A. Reserved Amount. The Company shall have authorized and reserved and
keep available for issuance not less than 200% of the shares of Common Stock
issuable upon the exchange of the Preferred Stock (subject to equitable
adjustment for any stock splits, stock dividends, reclassification or similar
events) (the "Reserved Amount") solely for the purpose of effecting the exchange
of the Preferred Stock. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock a sufficient
number of shares of Common Stock to provide for the full exchange of all
outstanding Preferred Stock and issuance of the shares of Common Stock in
connection therewith. Notwithstanding anything to the contrary set forth in this
Agreement and Section III.B of this Certificate of Designation, to the extent
the
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Company has authorized and unissued shares of Common Stock which are not
reserved for another purpose, such shares shall be used to satisfy exchanges of
Preferred Stock and issuance of shares of Common Stock in connection therewith.
In addition, during any period in which the Reserved Amount is less than one
hundred percent (100%) of the number of shares of Common Stock issuable on five
consecutive trading days upon exchange of the outstanding Preferred Stock (in
each case without giving effect to any limitation on exchange or exercise
thereof), the Company shall not reserve shares of Common Stock for any purposes
other than the exchange of the Preferred Stock.
B. Increases to Reserved Amount. Without limiting any other provision
of this Article IV, if the Reserved Amount for any five (5) consecutive trading
days (the last of such five (5) trading days being the "Authorization Trigger
Date") is less than one hundred percent (100%) of the number of shares of Common
Stock issuable on such trading days upon exchange of the outstanding Preferred
Stock (in each case without giving effect to any limitation on exchange or
exercise thereof) then the Company shall immediately notify the Holders of such
occurrence and shall immediately take all necessary action to increase the
Reserved Amount to one hundred and fifty percent (150%) of the number of shares
of Common Stock issuable upon exchange of the outstanding Preferred Stock (in
each case, without giving effect to any limitation on exchange or exercise
thereof) (the "Reset Reserved Amount"); provided, however, that following the
date on which the Company has authorized and reserved and made available for
issuance the Reset Reserved Amount, the provisions of this Article IV shall be
reset and any subsequent Authorization Trigger Date shall occur only if the
Reset Reserved Amount for any five (5) consecutive trading days is less than one
hundred percent (100%) of the number of shares of Common Stock issuable on such
trading days upon exchange of the outstanding Preferred Stock (in each case
without giving effect to any limitation or exchange or exercise thereof).
V. FAILURE TO SATISFY EXCHANGE
---------------------------
Exchange Default Payments. If, at any time, (x) a Holder submits a Notice of
Exchange and the Company fails for any reason to deliver, on or prior to the
expiration of the Delivery Period for such exchange, such number of shares of
Common Stock to which such Holder is entitled upon such exchange, or (y) the
Company provides notice (including by way of public announcement) to any Holder
at any time of its intention not to issue shares of Common Stock upon exercise
by any Holder of its exchange rights in accordance with the terms of this
Certificate of Designation (each of (x) and (y) being a "Exchange Default"),
then the Company shall pay to the affected Holder, in the case of a Exchange
Default described in clause (x) above, and to all Holders, in the case of a
Exchange Default described in clause (y) above, an amount equal to one-half of
one percent (.005%) of the sum of the Liquidation Preference plus any accrued
Dividends (which amount shall be deemed to be the aggregate Liquidation
Preference plus accrued Dividends of all outstanding Preferred Stock in the case
of a Exchange Default described in clause (y) above) for each day such Exchange
Default exists until the fifth (5th) business day following the receipt by
facsimile by the Company of the Notice of Exchange. If, following the fifth
(5th) business day following receipt by facsimile by the Company of the Notice
of Exchange, the Company continues to fail for any reason to deliver such shares
of Common Stock to which such Holder is entitled upon such exchange, then the
Company
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shall pay to the affected Holder, in the case of a Exchange Default
described in clause (x) above, and to all Holders, in the case of a Exchange
Default described in clause (y) above, an amount equal to one percent (1%) of
the sum of the Liquidation Preference plus accrued Dividends (which amount shall
be deemed to be the aggregate Liquidation Preference plus accrued Dividends of
all outstanding Preferred Stock in the case of a Exchange Default described in
clause (y) above) for each day such Exchange Default exists.
(i) The payments to which a Holder shall be entitled pursuant to this
Section VI.A are referred to herein as "Exchange Default Payments." Exchange
Default Payments shall be made the fifth (5th) business day following written
demand by a Holder for payment. "Cure Date" means (i) with respect to an
Exchange Default described in clause (x) of its definition, the date the Company
effects the exchange of the portion of the Preferred Stock submitted for
exchange and (ii) with respect to an Exchange Default described in clause (y) of
its definition, the date the Company undertakes in writing to issue Common Stock
in satisfaction of all exchanges of Preferred Stock in accordance with the terms
of this Certificate of Designation (provided the Company in fact thereafter so
satisfies such exchange).
(ii) The Company shall, at its sole discretion, in lieu of making
Exchange Default Payments in cash to the affected Holder, in the case of a
Exchange Default described in clause (x) above, and to all Holders, in the case
of a Exchange Default described in clause (y) above, grant to such Holder or
Holders an unsecured promissory note or notes each in a principal amount equal
to the amount of the Exchange Default Payment due and payable to such Holder or
Holders, each such promissory note bearing interest at a rate of ten percent
(10%) per annum.
(iii) In no case shall the Company rely on any type of state usury
limitations to avoid either Exchange Default Payments or any payment, fee or
remedy which is due to the Holder as a result of the Company's failure to comply
with any agreement or covenant entered into under this transaction, including,
but not limited to, the Securities Purchase Agreement, Registration Rights
Agreement and the Warrant, all dated as of the Closing Date.
VI. LIQUIDATION EVENTS AND LIQUIDATED DAMAGES
-----------------------------------------
A. Liquidation Events. "Liquidation Event" means the Registration
Statement required to be filed by the Corporation pursuant to the Registration
Rights Agreement, has not been filed within ninety (90) days of the Closing Date
or has not been declared effective by the one hundred and fiftieth (150th) day
following the Closing Date or such Registration Statement, after being declared
effective, cannot be utilized by the Holders of Preferred Stock and the Warrants
for the resale of all of their Registrable Securities (as defined in the
Registration Rights Agreement) for a period of eight (8) consecutive business
days or for an aggregate of more than twenty (20) days in any twelve month
period;
B. Liquidated Damages. Upon the occurrence of a Liquidation Event, the
Company will pay to each Holder, by wire transfer, as liquidated damages and not
as a penalty, an amount of cash
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equal to two percent (2%) per month of the aggregate Liquidation Preference of
those shares of Preferred Stock then eligible for exchange, for the first two
(2) months after the occurrence of a Liquidation Event, and three percent (3%)
per month for each month thereafter. Similar liquidated damages shall be paid
with respect to any shares of Preferred Stock not initially eligible for
exchange when the Liquidation Event first occurred but which subsequently become
eligible for exchange, commencing in the first month that such shares of
Preferred Stock become eligible for such exchange. Such liquidated damages shall
continue to accrue and shall be payable until the Liquidation Event has been
cured (and, if unpaid, shall bear interest at a rate of two percent (2%) per
month), and, at the Holder's election, may be paid in cash or may be added to
the principal of the shares of Preferred Stock for subsequent exchange purposes.
The Company shall, at its sole discretion, in lieu of making payments
in cash to each Holder in the case of a Liquidation Event described above, grant
to such Holder an unsecured promissory note or notes each in a principal amount
equal to the amount of the payments due and payable to such Holder pursuant to
this Section VII.B, each such promissory note bearing interest at a rate of ten
percent (10%) per annum.
VII. RANK; PARTICIPATION
-------------------
(a) Rank. All shares of the Preferred Stock shall rank (i) prior to the
Common Stock; (ii) pari passu with all shares of the Company's Preferred Stock;
(iii) pari passu with any class or series of capital stock of the Company
hereafter created specifically ranking, by its terms, on parity with the
Preferred Stock (the "Pari Passu Securities"); and (iv) junior to any class or
series of capital stock of the Company hereafter created (with the consent of
the Holders provided that no such consent shall be required from and after the
date on which less than fifteen percent (15%) of the originally issued Preferred
Stock remains outstanding) specifically ranking, by its terms, senior to the
Preferred Stock (the "Senior Securities"), in each case as to distribution of
assets upon liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, subject to and in accordance with applicable law.
VIII. LIQUIDATION PREFERENCE
----------------------
(a) Liquidation of the Company. If a Bankruptcy Event shall occur and,
on account of any such event, the Company shall liquidate, dissolve or wind up,
or if the Company shall otherwise liquidate, dissolve or wind up (a "Liquidation
Preference Event"), no distribution shall be made to the Holders of any shares
of capital stock of the Company (other than Senior Securities) upon liquidation,
dissolution or winding up unless prior thereto the Holders shall have received
the Liquidation Amount (as herein defined) with respect to each share. If, upon
the occurrence of a Liquidation Preference Event, the assets and funds available
for distribution among the Holders and holders of Pari Passu Securities shall be
insufficient to permit the payment to such Holders of the preferential amounts
payable thereon, then the entire assets and funds of the Company legally
available for distribution to the Preferred Stock and the Pari Passu Securities
shall be distributed
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ratably among such shares in proportion to the ratio that the Liquidation Amount
payable on each such share bears to the aggregate Liquidation Amount payable on
all such shares.
(b) Certain Acts Not a Liquidation. The purchase or redemption by the
Company of stock of any class, in any manner permitted by law, shall not, for
the purposes hereof, be regarded as a liquidation, dissolution or winding up of
the Company. Neither the consolidation or merger of the Company with or into any
other entity nor the sale or transfer by the Company of less than substantially
all of its assets shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company.
(c) Definition of Liquidation Amount. The "Liquidation Amount" with
respect to a share of Preferred Stock means an amount equal to the Liquidation
Preference thereof plus accrued but unpaid Dividends plus any other amounts that
may be due from the Company with respect thereto through the date of final
distribution. The Liquidation Amount with respect to any Pari Passu Securities
shall be as set forth in the charter of the Company.
IX. ADJUSTMENTS TO THE EXCHANGE PRICE; CERTAIN PROTECTIONS
------------------------------------------------------
The Exchange Price shall be subject to adjustment from time to time as
follows:
(a) Stock Splits, Stock Dividends, Etc. If at any time on or after the
Closing Date, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Exchange Price shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares, or other similar event, the
Fixed Exchange Price shall be proportionately increased.
(b) Certain Public Announcements. In the event that (i) the Company
makes a public announcement that it intends to consolidate or merge with any
other entity (other than a merger in which the Company is the surviving or
continuing entity and its capital stock is unchanged and there is no
distribution thereof) or to sell or transfer all or substantially all of the
assets of the Company or (ii) any person, group or entity (including the
Company) publicly announces a tender offer in connection with which such person,
group or entity seeks to purchase 50% or more of the Common Stock (the date of
the announcement referred to in clause (i) or (ii) of this paragraph is
hereinafter referred to as the "Announcement Date"), and in either such event
only if twenty percent (20%) or more of the originally issued Preferred Stock is
then outstanding, then the Exchange Price shall, effective upon the Announcement
Date and continuing through the consummation of the proposed tender offer or
transaction or the Abandonment Date (as defined below), be equal to the Exchange
Price calculated as provided in Article III. From and after the Abandonment
Date, as the case may be, the Exchange Price shall be determined as set forth in
Article III. The "Abandonment Date" means with respect to any proposed
transaction or tender offer for which a public announcement as contemplated by
this paragraph has been made, the date which is seven (7) trading days after the
date upon which the Company (in the case of clause (i) above) or the person,
group or entity (in the case
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of clause (ii) above) publicly announces the termination or abandonment of the
proposed transaction or tender offer which causes this paragraph to become
operative.
(c) Major Transactions. If the Company shall consolidate with or merge
into any corporation as to which (a) the common stock or other securities to be
issued to the Company's holders of Common Stock (the "Exchange Securities") are
not publicly traded, (b) the average daily trading volume of the Exchange
Securities reported by Bloomberg during the ninety (90) day period ending on the
date on which such transaction is publicly disclosed is less than five hundred
thousand dollars ($500,000) per day, or (c) the historical one hundred day
volatility of the Exchange Securities reported by Bloomberg during the period
ending on the date on which such transaction is publicly disclosed is less than
sixty percent (60%) (a "Major Transaction"), then each Holder shall thereafter
be entitled to receive consideration, in exchange for each share of Preferred
Stock held by it, equal to the number of shares of stock or securities or
property of the Company, or of the entity resulting from such Major Transaction
(the "Major Transaction Consideration"), to which a Holder of the number of
shares of Common Stock delivered upon exchange of such shares of Preferred Stock
would have been entitled upon such Major Transaction had the Holder exercised
its right of exchange (without regard to any limitations on exchange herein or
elsewhere contained) on the trading date immediately preceding the public
announcement of the transaction resulting in such Major Transaction and had such
Common Stock been issued and outstanding and had such Holder been the holder of
record of such Common Stock at the time of the consummation of such Major
Transaction. No sooner than ten (10) business days nor later than five (5)
business days prior to the consummation of the Major Transaction, but not prior
to the public announcement of such Major Transaction, the Company shall deliver
written notice ("Notice of Major Transaction") to each Holder, which Notice of
Major Transaction shall be deemed to have been delivered one (1) business day
after the Company's sending such notice by fax (provided that the Company sends
a confirming copy of such notice on the same day by overnight courier) of such
Notice of Major Transaction. Such Notice of Major Transaction shall indicate the
amount and type of the Major Transaction Consideration which such Holder would
receive under clause (i) of this Section IX.C.
(d) Purchase Rights. If, during the period commencing on the six (6)
month anniversary of the Closing Date and ending on the one (1) year anniversary
of the Closing Date, subject to the limitations contained herein, the Company
issues any Below Market Items (unless documents in such subsequent offerings
lock up trading in such securities for twenty-four (24) months or more), then
the Holders will be entitled to acquire such Below Market Items, upon the terms
applicable to such Below Market Items; provided that the Company shall give
written notice to Holders of such terms and the Holders shall have five (5) days
to elect to purchase such securities. If the Holders do not elect in writing to
purchase such securities, the Company may sell such securities free of such
rights of first refusal of the Holders.
(e) The Company may enter into a subsequent or further offer or sale of
Common Stock, or any securities or other instruments convertible into shares of
Common Stock, with any party that is not a party to this Agreement; provided,
that the investor in such future financing shall not be permitted to convert its
securities into Common Stock or to have the right to receive freely tradeable
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shares of Common Stock until the Buyers shall have freely tradeable shares of
Common Stock. The Company must disclose the terms of any proposed financing to
the Buyers prior to closing on such financing and the Buyers shall have the
benefit of any terms in such financing that are more beneficial to the terms of
this Agreement. Notwithstanding the foregoing, the Company may issue shares of
its Common Stock in connection with: (a) the issuance of securities (other than
for cash) in connection with a merger, consolidation, sale of assets, or other
disposition, (b) the exchange of capital shares for assets, stock, or joint
venture interest, (c) an offering of any of the Company's securities at then
current market prices with no repricing or reset provisions, or (d) any employee
benefit plan.
(f) Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment pursuant to this Article IX, the Company, at its expense, shall
promptly compute such adjustment or readjustment and prepare 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 Holder, furnish to
such Holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Exchange Price at the time in effect and (iii) the number
of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon exchange of a share of
Preferred Stock.
X. VOTING RIGHTS
-------------
The Company shall provide each Holder with prior notification of any
meeting of the stockholders (and copies of proxy materials and all other
information sent to stockholders). If the Company takes a record of its
stockholders for the purpose of determining stockholders entitled to (a) receive
payment of any dividend or other distribution, any right to subscribe for,
purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the Company, or
any proposed merger, consolidation, liquidation, dissolution or winding up of
the Company, the Company shall mail a notice to each Holder, at least twenty
(20) days prior to the record date specified therein (or thirty (30) days prior
to the consummation of the transaction or event, whichever is earlier, but in no
event earlier than public announcement of such proposed transaction), of the
date on which any such record is to be taken for the purpose of such vote,
dividend, distribution, right or other event, and a brief statement regarding
the amount and character of such vote, dividend, distribution, right or other
event to the extent known at such time.
To the extent that under applicable law the vote of the Holders of the
Preferred Stock, voting separately as a class or series, as applicable, is
required to authorize a given action of the Company, the affirmative vote or
consent of the Holders of at least a majority of the shares of the Preferred
Stock represented at a duly held meeting at which a quorum is present or by
written consent of the Majority Holders (except as otherwise may be required by
applicable law) shall constitute the approval of such action by the class. To
the extent that under applicable law Holders are entitled to
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vote on a matter with holders of Common Stock, voting together as one class,
each share of Preferred Stock shall be entitled to a number of votes equal to
the number of shares of Common Stock into which it is then exchanged at the
lower of the Fixed Exchange Price or the Variable Exchange Price then in effect
(without giving effect to any limitation on exchange with respect thereto) using
the record date for the taking of such vote of stockholders as the date as of
which the Exchange Price is calculated.
In the event of default or of an Acceleration Event as specified in
Section III.B, the Holders of the Preferred Stock shall be entitled to vote the
total number of shares which would be exchangeable by the Holder on the trading
day prior to an event of default or an Acceleration Event as calculated by using
the Optional Exchange formula.
XI. PROTECTION PROVISIONS
---------------------
Subject to Section VII, the Company shall not, without first obtaining
the approval of the Majority Holders and, to the extent their interests may be
adversely affected, each Holder of Preferred Stock: (a) alter or change the
rights, preferences or privileges of the Preferred Stock; (b) alter or change
the rights, preferences or privileges of any capital stock of the Company so as
to affect adversely the Preferred Stock; (c) create any Senior Securities; (d)
increase the authorized number of shares of Preferred Stock; (e) redeem (other
than shares of Common Stock, or options or rights to acquire Common Stock,
purchased from employees or directors of the Company pursuant to any stock
option or other equity incentive plan adopted by the Company prior to the date
of the Closing Date or adopted by the Company in the good faith business
judgment of the Board of Directors after the Closing Date), or declare or pay
any cash dividend or distribution on, any Junior Securities; or (g) do any act
or thing not authorized or contemplated by this Certificate of Designations
which would result in any taxation with respect to the Preferred Stock under
Section 305 of the Internal Revenue Code of 1986, as amended, or any comparable
provision of the Internal Revenue Code as hereafter from time to time amended
(or otherwise suffer to exist any such taxation as a result thereof).
XII. MISCELLANEOUS
-------------
(a). Cancellation of Preferred Stock. If any shares of Preferred Stock
are exchanged pursuant to Article III, the shares so exchanged shall be
canceled, shall return to the status of authorized but unissued preferred stock
of no designated series, and shall not be issuable by the Company as Preferred
Stock.
(b). Lost or Stolen Certificates. Upon receipt by the Company of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity (or bond, in cases in which the Holder actually received the original
or replacement certificate for such Preferred Stock from the Company) reasonably
satisfactory to the Company, or (z) in the case of mutilation, upon surrender
and cancellation of the
-14-
<PAGE>
Preferred Stock Certificate(s), the Company shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date. However, the Company
shall not be obligated to reissue such lost or stolen Preferred Stock
Certificate(s) if the Holder contemporaneously requests the Company to exchange
such Preferred Stock.
(c). Payment of Cash; Defaults. Whenever the Company is required to
make any cash payment to a Holder under this Certificate of Designation (as a
Exchange Default Payment, or otherwise), such cash payment shall be made to the
Holder by the method (by certified or cashier's check or wire transfer of
immediately available funds) elected by such Holder. If such payment is not
delivered when due (any such amount not paid when due being a "Default Amount")
such Holder shall thereafter be entitled to interest on the unpaid amount at a
per annum rate equal to the lower of ten percent (10%) or the highest interest
rate permitted by applicable law until such amount is paid in full to the
Holder. In addition, and notwithstanding anything to the contrary contained in
this Certificate, a Holder may elect in writing to exchange all or any portion
of accrued Default Amounts, at any time and from time to time, into Common Stock
at the lowest Exchange Price in effect during the period beginning on the date
of the default with respect thereto through the cure date for such default. In
the event that a Holder elects to exchange all or any portion of the Default
Amounts into Common Stock, the Holder shall so notify the Company on a Notice of
Exchange of such portion of the Default Amounts which such Holder elects to so
exchange and such exchange shall otherwise be effected in accordance with the
provisions of, and subject to limitations contained in, Article III.
(d). Status as Stockholder. Upon submission of a Notice of Exchange by
a Holder of Preferred Stock, the shares covered thereby shall be deemed
exchanged into shares of Common Stock and the Holder's rights as a Holder of
such exchange shares of Preferred Stock shall cease and terminate, excepting
only the right to receive certificates for such shares of Common Stock and to
any remedies provided herein or otherwise available at law or in equity to such
Holder because of a failure by the Company to comply with the terms of this
Certificate of Designation.
(e). Construction. This Certificate of Designation shall be deemed to
be jointly drafted by the Company and all Holders and shall not be construed
against any person as the drafter hereof.
(f). Failure or Indulgence Not Waiver. Except as otherwise explicitly
set forth in this Certificate of Designation, no failure or delay on the part of
a Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
(g). Tranferability. The Preferred Stock and the Warrants can only be
transferred to funds majority owned by Talisman Capital.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
STARBASE CORPORATION
By: ________________________________
Its: _______________________________
-16-
<PAGE>
Schedule 1
----------
NOTICE OF EXCHANGE
To: Starbase Corporation
4 Hutton Centre Drive, Suite 800
Santa Ana, California 92707
Attn: Chief Financial Officer
The undersigned hereby irrevocably elects to exchange shares of Series I
Preferred Stock (the "Exchange"), represented by stock certificate Nos(s). (the
"Preferred Stock Certificates") into shares of common stock ("Common Stock") of
Starbase Corporation (the "Company") according to the terms and conditions of
the Certificate of Designations, Preferences and Rights of Series I Preferred
Stock (the "Certificate of Designation"), as of the date written below. If
securities are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto. No fee
will be charged to the holder for any exchange, except for transfer taxes, if
any. A copy of each Preferred Stock Certificate is attached hereto (or evidence
of loss, theft or destruction thereof).
The following paragraphs are only effective if the applicable box is checked:
__ The undersigned hereby requests that the Company electronically
transmit the Common Stock issuable pursuant to this Notice of Exchange
to the account of the undersigned's Prime Broker (which is Paine
Webber) with DTC through its Deposit Withdrawal Agent Commission
System.
__ The undersigned hereby requests foreign delivery of the Common Stock to
the address indicated below.
__ The Common Stock to be issued upon the exchange of the Preferred Stock
or upon the exercise of the Warrants have already been sold pursuant to
an effective registration statement.
Date of Exchange: __________________________
Applicable Exchange Price: _________________
Amount of Accrued and Unpaid
Dividends on the Preferred Stock to
Be exchanged, if any: _______________________
-17-
<PAGE>
Amount of Exchange Default ________________
Payments to be exchanged, if any: _________
Number of Shares of
Common Stock to be Issued: ________________
Signature: _______________________________
Name: ________________________________
Address: _________________________________
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EXHIBIT 4.3
ANNEX IV
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made as of
March 16, 1999, by and among STARBASE CORPORATION, a Delaware corporation (the
"Company"), with headquarters located at 4 Hutton Centre Drive, Suite 800, Santa
Ana, California 92707 (the "Company"), and the undersigned (the "Purchaser").
RECITALS
A. In connection with the Securities Purchase Agreement dated of even
date herewith by and between the Company and the Purchaser (the "Securities
Purchase Agreement"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Purchaser (i) shares of
Series I Preferred Stock of the Company (the "Preferred Stock") that is
exchangeable into shares (the "Exchange Shares") of the Company's common stock,
par value $.01 per share (the "Common Stock") and (ii) Warrants (the "Warrants")
entitling the holder thereof to purchase the number of shares of Common Stock
pursuant to the limitations and conditions set forth in the Certificate of
Designations, Preferences and Rights with respect to such Preferred Stock (the
"Certificate of Designation"), in the form attached as Exhibit A to the
Securities Purchase Agreement.
B. To induce the Purchaser to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws.
AGREEMENTS
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
Purchaser hereby agree as follows:
I. DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Purchasers" means the Purchaser.
<PAGE>
(b) "register," "registered," and "registration"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").
(c) "Registrable Securities" means the Exchange
Shares (including any Exchange Shares issuable with respect to exchange default
payments under the Certificate of Designation) issued or issuable with respect
to the Preferred Stock, and the Warrant Shares issued or issuable with respect
to the Warrants (without regard to any limitations on exchange or exercise), and
any shares of capital stock issued or issuable, from time to time (with any
adjustments), on or in exchange for or otherwise with respect to the Common
Stock or any other Registrable Securities. For purposes of this Agreement, each
security described above shall cease to be a Registrable Security when such
security (i) has been effectively registered under the Securities Act, and has
been disposed of pursuant to an effective registration statement covering such
security, (ii) is distributed to the public pursuant to Rule 144 (or any similar
provisions then in force) under the Act, or (iii) may be sold or transferred
pursuant to Rule 144(k) (or any similar provision then in force) under the Act.
(d) "Registration Statement" means a registration
statement of the Company under the Securities Act.
1.2 Capitalized Terms. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings
set forth in the Securities Purchase Agreement.
II. REGISTRATION
------------
2.1 Mandatory Registration. The Company shall prepare, and, on or prior
to ninety (90) days after the date of the Closing (the "Filing Date"), file with
the SEC a Registration Statement on Form S-3 or, if Form S-3 is not then
available, on such form of Registration Statement as is then available to effect
a registration of all of the Registrable Securities covering the resale of all
of the Registrable Securities, which Registration Statement, to the extent
allowable under the Securities Act and the Rules promulgated thereunder
(including Rule 416), shall state that such Registration Statement also covers
such indeterminate number of additional shares of Common Stock as may become
issuable upon exchange of the Preferred Stock and the exercise of the Warrants
(i) to prevent dilution resulting from stock splits, stock dividends or similar
transactions or (ii) by reason of changes in the Exchange Price of the Preferred
Stock or the Exercise Price of the Warrants in accordance with the terms
thereof, as the case may be. The Registrable Securities included in the
Registration Statement shall be allocated among the Purchasers as set forth in
Section 11.11 hereof. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to (and subject to the approval of (which
2
<PAGE>
approval shall not be unreasonably withheld or denied)) the Purchaser and a
single counsel for the Purchaser prior to its filing or other submission.
2.2 Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2.1 hereof involves an underwritten offering, the
Purchasers who hold a majority in interest of the Registrable Securities subject
to such underwritten offering, shall have the right to select a total of one
legal counsel to represent the Purchasers and an investment banker or bankers
and manager or managers to administer the offering, which investment banker or
bankers or manager or managers shall be reasonably satisfactory to the Company.
2.3 Payments by the Company. The Company shall use its best efforts to
cause the registration statement to become effective as soon as practicable, but
in no event later than the one hundred and fiftieth (150th) day following the
date of the Closing (the "Registration Deadline"). If (i) the registration
statement(s) covering the Registrable Securities required to be filed by the
Company pursuant to Section 2.1 hereof is not declared effective by the SEC on
or before the Registration Deadline, or (ii) after the registration statement
has been declared effective by the SEC, sales of all the Registrable Securities
(including any Registrable Securities required to be registered pursuant to
Section 3.2 hereof) cannot be made pursuant to the registration statement (by
reason of a stop order or the Company's failure to update the registration
statement or any other reason outside the control of the Purchaser), then the
Company will make payments to the Purchasers in such amounts and at such times
as shall be determined pursuant to this Section 2.3 as relief for the damages to
the Purchasers by reason of any such delay in or reduction of their ability to
sell the Registrable Securities (which remedy shall not be exclusive of any
other remedies available at law or in equity). In such event, the Company shall
pay to each Purchaser an amount equal to (A) .02 times (B) the aggregate
purchase price of the Preferred Stock held by such Purchaser (including, without
limitation, shares of Preferred Stock that have been exchanged into Exchange
Shares) for each thirty (30) day period (pro rated based on the number of days
if less than 30) following the Registration Deadline for the first two (2)
thirty day periods, and then .03 times the aggregate purchase price of the
Preferred Stock held by such purchaser for each thirty (30) day period
thereafter prior to the date the Registration Statement filed pursuant to
Section 2.1 is declared effective by the SEC (the "Effective Date"). Such
amounts shall be paid in cash or, at each Purchaser's option, may be
exchangeable into Common Stock at the Exchange Price (as defined in the
Certificate of Designation). If the Purchaser desires to exchange or exercise
the amounts due hereunder into Registrable Securities it shall so notify the
Company in writing within two (2) days prior to the date on which such amounts
are first payable in cash and such amounts shall be so exchangeable (pursuant to
the terms of the Certificate of Designation), beginning on the last day upon
which the cash amount would otherwise be due in accordance with the following
sentence. Payments of cash pursuant hereto shall be made within five (5) days
after the end of each period that gives rise to such obligation, provided that,
if any such period extends for more than thirty (30) days, payments shall be
made for each such thirty (30) day period within five (5) days after the end of
such thirty (30) day period.
3
<PAGE>
2.4 Piggy-Back Registrations. If at any time prior to the expiration of
the Registration Period (as hereinafter defined) the Registration Statement
required to be filed and/or amended pursuant to this Agreement is not effective,
and during such period of ineffectiveness, the Company shall file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities
(other than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans), then the Company shall send to each Purchaser who
has a right to have Registrable Securities covered by a Registration Statement
pursuant to this Agreement written notice of such determination and, if within
ten (10) days after the date of such notice, such Purchaser shall so request in
writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities such Purchaser requests to be registered,
except that if, in connection with any underwritten public offering for the
account of the Company the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' judgment, marketing or
other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which such Purchaser has requested inclusion hereunder as the
underwriter shall permit. Any exclusion of Registrable Securities shall be made
pro rata among the Purchasers seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such
Purchasers; provided, however, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not entitled to inclusion of such
securities in such Registration Statement or are not entitled to pro rata
inclusion with the Registrable Securities; and provided, further, however, that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the Registration Statement. No
right to registration of Registrable Securities under this Section 2.4 shall be
construed to limit any registration required under Section 2.1 or 3.2 hereof. If
an offering in connection with which a Purchaser is entitled to registration
under this Section 2.4 is an underwritten offering, then each Purchaser whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
2.5 Eligibility for Form S-3. The Company represents and warrants that
it meets the current requirements for the use of Form S-3 for registration of
the sale by the Purchaser of the Registrable Securities and the Company shall
file all reports required to be filed by the Company with the SEC in a timely
manner so as to maintain such eligibility for the use of Form S-3.
4
<PAGE>
III. OBLIGATIONS OF THE COMPANY
--------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
3.1 The Company shall prepare promptly and file with the SEC the
Registration Statement required by Section 2.1, and use its best efforts to
cause such Registration Statement relating to Registrable Securities to become
effective, and keep the Registration Statement effective pursuant to Rule 415 at
all times until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold (and no further Registrable Securities may
be issued in the future) and (ii) the date on which all of the Registrable
Securities (in the reasonable opinion of counsel to the Purchaser) may be
immediately sold to the public without registration and without restriction as
to the number of Registrable Securities to be sold, whether pursuant to Rule 144
or otherwise (the "Registration Period"). The Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein and all
documents incorporated by reference therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein not misleading,
except for any such untrue statement or omission provided to the Company by any
Purchaser which is provided in writing by Purchaser expressly for use therein.
3.2 The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until the termination of the Registration Period or, if earlier, 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. In the event the number of shares available under a
Registration Statement filed pursuant to this Agreement is, for any five (5)
consecutive trading days (the last of such five (5) trading days being the
"Registration Trigger Date"), insufficient to cover one hundred twenty-five
percent (125%) of the Registrable Securities issued or issuable upon exchange of
the Preferred Stock held by any Purchaser, the Company shall amend, if
permissible, the Registration Statement, or file a new Registration Statement
(on the short form available therefor, if applicable), or both, so as to cover
one hundred twenty-five percent (125%) of the Registrable Securities issued or
issuable to such Purchaser, in each case, as soon as practicable, but in any
event within five (5) business days in the case of an amendment and ten (10)
business days in the case of a Registration Statement after the Registration
Trigger Date (based on the market price of the Common Stock and other relevant
factors on which the Company reasonably elects to rely). The Company shall use
its best efforts to cause such amendment and/or new Registration Statement to
become effective as soon as practicable following the filing thereof.
5
<PAGE>
3.3 The Company shall furnish to each Purchaser whose Registrable
Securities are included in the Registration Statement and its legal counsel (a)
promptly after the same is prepared and publicly distributed or filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2.1, each letter written by or on behalf of the Company to the SEC
or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion, if any, thereof which contains information for which the
Company has sought confidential treatment), and (b) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Purchaser may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned (or to be owned) by such Purchaser.
3.4 The Company shall use reasonable efforts to (a) register and
qualify the Registrable Securities covered by the Registration Statement under
securities laws of such jurisdictions in the United States as each Purchaser who
holds (or has the right to hold) Registrable Securities being offered reasonably
requests, (b) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (c) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (d) take all other actions which the Company reasonably
deems necessary or advisable to qualify the Registrable Securities for sale in
such jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (i) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3.4, (ii) subject itself to taxation in any such jurisdiction,
(iii) file a general consent to service of process in any such jurisdiction, or
(iv) provide any undertakings that cause the Company material expense or burden.
3.5 As soon as practicable after becoming aware of such event, the
Company shall notify (by telephone and also by facsimile and, if telephone
contact is not made, by reputable overnight courier) each Purchaser 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 omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and use its best efforts promptly (but in any event within ten
(10) days) to prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver such number of copies of
such supplement or amendment to each Purchaser as such Purchaser may reasonably
request.
3.6 The Company shall use its reasonable best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable time and to notify (by
telephone and also by facsimile and reputable overnight carrier) each Purchaser
who holds Registrable Securities
6
<PAGE>
being sold (or, in the event of an underwritten offering, the managing
underwriters) of the issuance of such order and the resolution thereof.
3.7 The Company shall permit a single firm of counsel designated by the
Purchaser to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to their filing with the
SEC, and not file any document in a form to which such counsel reasonably
objects.
3.8 The Company shall make generally available to its security holders
as soon as practical, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Section 11(a) of the Securities Act and Rule 158 under the
Securities Act) covering a twelve-month period beginning not later than the
first day of the Company's fiscal quarter next following the effective date of
the Registration Statement.
3.9 At the request of any Purchaser, the Company shall furnish, on the
date of effectiveness of the Registration Statement and thereafter from time to
time on such dates as a Purchaser may reasonably request written confirmation by
the Company that the Registration Statement is effective.
3.10 The Company shall make available at reasonable times for
inspection by (i) any Purchaser and (ii) one firm of attorneys and one firm of
accountants retained by the Purchasers (collectively, the "Inspectors") all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the "Records"), to enable each
Inspector to exercise its due diligence responsibility, if any, and cause the
Company's officers, directors and employees to supply all information which any
Inspector may reasonably request for purposes of such due diligence; provided,
however, that Records which the Company determines, in good faith, to be
confidential and which the Company notifies the Inspectors are confidential
shall not be disclosed by the Inspectors for any reason unless the release of
such Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction. Each Purchaser agrees that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction, give
notice to the Company and allow the Company, at the Company's expense, to
undertake appropriate action to prevent disclosure of the Records deemed
confidential by the Company. The Company shall not be required to disclose any
confidential information in such Records to any Inspector until and unless such
Inspector shall have entered into confidentiality agreements (in form and
reasonable substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3.11.
3.11 The Company shall hold in confidence and not make any disclosure
of information concerning a Purchaser provided to the Company unless (a)
disclosure of such information is necessary to comply with federal or state
securities laws, (b) the disclosure of such information is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (c) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction or is otherwise
required by applicable law or legal
7
<PAGE>
process, (d) such information has been made generally available to the public
other than by disclosure in violation of this or any other agreement (to the
knowledge of the Company), or (e) such Purchaser consents to the form and
content of any such disclosure. The Company agrees that it shall, upon learning
that disclosure of such information concerning a Purchaser is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to such Purchaser prior to making such disclosure, and allow
the Purchaser, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, such information.
3.12 The Company shall cause the listing and the continuation of
listing of all the Registrable Securities covered by the Registration Statement
on the Nasdaq National Market System, the Nasdaq SmallCap Market, the New York
Stock Exchange or the American Stock Exchange, and cause the Registrable
Securities to be quoted or listed on each additional national securities
exchange or quotation system upon which the Common Stock is then listed or
quoted.
3.13 The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
3.14 At the reasonable request of any Purchaser, the Company shall
promptly prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used
in connection with the Registration Statement as may be necessary in order to
change the plan of distribution set forth in such Registration Statement.
3.15 The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the
Commission).
3.16 The Company shall take all such other actions as any Purchaser or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities.
IV. OBLIGATIONS OF THE PURCHASERS
-----------------------------
In connection with the registration of the Registrable Securities, the
Purchasers shall have the following obligations:
4.1 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 Purchaser that such Purchaser 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
8
<PAGE>
shall execute such documents in connection with such registration as the Company
may reasonably request. At least ten (10) business days prior to the first
anticipated filing date of the Registration Statement, the Company shall notify
each Purchaser of the information the Company requires from each such Purchaser.
4.2 Each Purchaser, by such Purchaser's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statements and any amendments and supplements thereto hereunder, unless such
Purchaser has notified the Company in writing of such Purchaser's election to
exclude all of such Purchaser's Registrable Securities from the Registration
Statement.
4.3 Each Purchaser whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such Registration Statement, and each such Purchaser shall comply with the
applicable prospectus delivery requirements of the Securities Act in connection
with any such sale.
4.4 Each Purchaser agrees that, upon receipt of written notice from the
Company of the happening of any event of the kind described in Section 3.6, such
Purchaser will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Purchaser's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3.6 and, if so directed by the Company, such
Purchaser 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 Purchaser's possession (other than a limited number of permanent file
copies), of the prospectus covering such Registrable Securities current at the
time of receipt of such notice.
4.5 Without limiting a Purchaser's rights under Section 2.1 or 3.2
hereof, no Purchaser may participate in any underwritten distribution hereunder
unless such Purchaser (a) agrees to sell such Purchaser's Registrable Securities
on the basis provided in any underwriting arrangements in usual and customary
form entered into by the Company, (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements, and (c)
agrees to pay its pro rata share of all underwriting discounts and commissions
and any expenses in excess of those payable by the Company pursuant to Article
V.
V. EXPENSES OF REGISTRATION
------------------------
All expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Articles II and III, including, without limitation, all registration, listing
and qualification fees, printers and accounting fees, the fees and disbursements
of counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Purchasers pursuant to Section 2.2, hereof shall be
borne by the Company.
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VI. INDEMNIFICATION
---------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
6.1 To the extent permitted by law, the Company will indemnify, hold
harmless and defend (a) each Purchaser who holds such Registrable Securities,
(b) each underwriter of Registrable Securities and (c) the directors, officers,
partners, members, employees, agents and persons who control any Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), if any, (each,
an "Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6.3 with respect to the number of legal
counsel, the Company shall reimburse the Purchasers, each such underwriter and
controlling person, and each such other Indemnified Person, promptly as such
expenses are incurred and are due and payable, for any reasonable 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 6.1: (x) shall
not apply to an Indemnified Person with respect to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by such Indemnified Person
expressly for use in the Registration Statement or any such amendment thereof or
supplement thereto; (y) shall not 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; and (z) with respect
to any preliminary prospectus, shall not inure to the benefit of any Indemnified
Person if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, if such corrected prospectus was timely made
available by the Company pursuant to Section 3.3 hereof, and the Indemnified
Person was promptly advised in writing not to use the incorrect prospectus prior
to the use giving rise to a Violation and such Indemnified Person,
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notwithstanding such advice, used it. 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 Purchasers pursuant to Article IX.
6.2 In connection with any Registration Statement in which a Purchaser
is participating, each such Purchaser agrees to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in Section 6.1, the
Company, each of its directors, each of its officers, its employees, agents and
persons, if any, who control the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement, together with its
directors, officers and members, and any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act (each
an "Indemnified Party"), against any Claim to which any of them may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim arises out of or is based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such
Purchaser expressly for use in connection with such Registration Statement; and
subject to Section 6.3 such Purchaser will reimburse any legal or other expenses
(promptly as such expenses are incurred and are due and payable) reasonably
incurred by them in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this Section 6.2
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Purchaser, which consent
shall not be unreasonably withheld; provided, further, however, that a Purchaser
shall be liable under this Agreement (including this Section 6.2 and Article
VII) for only that amount as does not exceed the net proceeds actually received
by such Purchaser as a result of the sale of Registrable Securities pursuant to
such Registration Statement. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Purchasers pursuant to Article IX. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6.2
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented, and the Indemnified Party failed to utilize
such corrected prospectus.
6.3 Promptly after receipt by an Indemnified Person or Indemnified
Party under this Article VI of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to made against any indemnifying
party under this Article VI, 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; provided,
however, that such indemnifying party shall diligently pursue such defense and
that such indemnifying party shall not be entitled to assume such defense and an
Indemnified Person or Indemnified Party shall have
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<PAGE>
the right to retain its own counsel with the fees and expenses to be paid by the
indemnifying party, if the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential conflicts of interest between such Indemnified Person
or Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and any such
Indemnified Person or Indemnified Party reasonably determines that there may be
legal defenses available to such Indemnified Person or Indemnified Party which
are different from or in addition to those available to such indemnifying party.
The indemnifying party shall pay for only one separate legal counsel for the
Indemnified Persons or the Indemnified Parties, as applicable, and such legal
counsel shall be selected by Purchasers holding a majority-in-interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates (with the approval of the Purchaser if they hold Registrable Securities
included in such Registration Statement), if the Purchasers are entitled to
indemnification hereunder, or by the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Article VI, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Article VI 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.
VII. 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 Article VI to the fullest extent permitted by law; provided, however, that
(i) no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who is a holder of Registrable Securities who was not guilty of such
fraudulent misrepresentation, and (ii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
VIII. REPORTS UNDER THE EXCHANGE ACT
------------------------------
With a view to making available to the Purchasers 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 Purchasers to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
8.1 File with the SEC in a timely manner and make and keep available
all reports and other documents required of the Company under the Securities Act
and the Exchange Act so long
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as the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4.3 of the
Securities Purchase Agreement) and the filing and availability of such reports
and other documents is required for the applicable provisions of Rule 144; and
8.2 Furnish to each Purchaser so long as such Purchaser holds Preferred
Stock, Warrants or Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested to permit the Purchasers to sell such securities pursuant
to Rule 144 without registration.
IX. ASSIGNMENT OF REGISTRATION RIGHTS
---------------------------------
The rights of the Purchasers hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assigned by each Purchaser to any entity majority-owned by
Talisman Capital if: (a) the Purchaser agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to 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) following such transfer or assignment, the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act or applicable state securities laws, (d) at or before the
time the Company receives the written notice contemplated by clause (ii) of this
sentence, the transferee or assignee agrees in writing for the benefit of the
Company to be bound by all of the provisions contained herein, and (e) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement and applicable laws. No such assignment shall
cause the Company to amend a registration statement.
X. AMENDMENT OF REGISTRATION RIGHTS
- ------------------------------------
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company and
Purchasers who hold a majority interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Article X shall be binding
upon each Purchaser and the Company. Notwithstanding the foregoing, no amendment
or waiver shall retroactively affect any Purchaser without its consent or
prospectively adversely affect any Purchaser who no longer owns any Preferred
Stock, Warrants or Registrable Securities without its consent. Neither Article
VI nor Article VII hereof may be amended or waived in a manner adverse to a
Purchaser without its consent.
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XI. MISCELLANEOUS
-------------
11.1 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.
11.2 Any notices herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier or by confirmed
facsimile, and shall be deemed delivered at the time and date of receipt (which
shall include telephone line facsimile transmission). The addresses for such
communications shall be:
If to the Company:
Starbase Corporation
4 Hutton Centre Drive, Suite 800
Santa Ana, CA 92707
Attention: Chief Financial Officer
If to Purchaser:
Talisman Capital Opportunity Fund Ltd.
16101 LaGrande Drive, Suite 100
Little Rock, AR 72223
Attn: Brian Ladin
and if to any other Purchaser, at such address as such Purchaser, 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 11.2.
11.3 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.
11.4 This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed in the State of New York. The Company irrevocably consents to the
jurisdiction of the federal courts located in the State of New York and the
state courts of the State of New York located in the County of New York in the
State of New York in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding may be determined in such
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<PAGE>
courts. Each party irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The parties hereto further agree
that service of process upon the parties hereto mailed by first class mail shall
be deemed in every respect effective service of process upon each such party in
any such suit or proceeding. Nothing herein shall affect either party's right to
serve process in any other manner permitted by law. The parties hereto agree
that a final non-appealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such judgment
or in any other lawful manner.
11.5 This Agreement, the Preferred Stock, Warrants and the Securities
Purchase Agreement (including all schedules and exhibits thereto and all
certificates and opinions required thereby) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the Preferred
Stock, the Warrants and the Securities Purchase Agreement supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
11.6 Subject to the requirements of Article IX hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto. Notwithstanding anything to the contrary contained
herein, including, without limitation, Article IX, the rights of a Holder
hereunder shall be assignable to and exercisable by a bona fide pledgee of the
Registrable Securities in connection with a Holder's margin or brokerage
accounts.
11.7 The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
11.8 This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto, by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
11.9 Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
11.10 All consents and other determinations to be made by the
Purchasers or the Purchaser pursuant to this Agreement shall be made by the
Purchasers or the Purchaser holding a majority of the Registrable Securities
(determined as if all Preferred Stock then outstanding had been exchanged into
Registrable Securities) held by all Purchasers or Purchaser, as the case may be.
11.11 The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata
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<PAGE>
among the Purchasers based on the number of Registrable Securities held by each
Purchaser at the time of such establishment or increase, as the case may be. In
the event a Purchaser shall sell or otherwise transfer any of such holder's
Registrable Securities, each transferee shall be allocated a pro rata portion of
the number of Registrable Securities included on a Registration Statement for
such transferor. Any shares of Common Stock included on a Registration Statement
and which remain allocated to any person or entity which does not hold any
Registrable Securities shall be allocated to the remaining Purchasers, pro rata
based on the number of shares of Registrable Securities then held by such
Purchasers. For purposes of making the pro rata allocations set forth in this
paragraph, all Preferred Stock then outstanding shall be deemed to have been
exchanged into Registrable Securities.
11.12 If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement.
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
STARBASE CORPORATION
By: ______________________________________
Its: ___________________________________
17
EXHIBIT 4.4
1999-CMN-015
ANNEX VI
VOID AFTER 5:00 P.M. CST
TIME ON MARCH 16, 2002
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 200,000 Shares of
Common Stock, par value $.01 per share
Date: March 16, 1999
STARBASE CORPORATION
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, the undersigned or its
registered assigns (each a "Holder"), is entitled to purchase from Starbase
Corporation, a Delaware corporation (the "Company"), at any time or from time to
time during the period specified in Section 2 hereof, 200,000 fully paid and
nonassessable shares of the Company's common stock, par value $.01 per share
(the "Common Stock"), at an exercise price per share (the "Exercise Price") of
$1.50. This Warrant is being issued pursuant to that certain Securities Purchase
Agreement dated as of March 16, 1999 between the Company and the signatories
thereto (the "Securities Purchase Agreement"). The number of shares of Common
Stock purchasable hereunder (the "Warrant Shares") and the Exercise Price are
subject to adjustment as provided in Section 4 hereof. The term "Warrants" means
this Warrant and the other warrants of the Company issued pursuant to the terms
of the Securities Purchase Agreement.
The term "Closing Bid Price" means, for any security as of any date,
the closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to Holder if Bloomberg
Financial Markets is not then reporting closing bid prices of such security
(collectively, "Bloomberg"), or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter
<PAGE>
market or the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the Holder with the costs
of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 8(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder, in
whole or in part, by the surrender of this Warrant (or evidence of loss, theft,
destruction or mutilation thereof in accordance with Section 8(c) hereof),
together with a completed exercise agreement in the Form of Exercise Agreement
attached hereto as Exhibit 1 (the "Exercise Agreement"), to the Company at the
Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Holder), and upon payment to the
Company in cash, by certified or official bank check or by wire transfer for the
account of the Company, of the Exercise Price for the Warrant Shares specified
in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be
issued to the Holder or Holder's designees, as the record owner of such shares,
as of the date on which this Warrant shall have been surrendered, the completed
Exercise Agreement shall have been delivered, and payment shall have been made
for such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates for
the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the Holder within a
reasonable time, not exceeding four (4) business days, after this Warrant shall
have been so exercised (the "Delivery Period"). The certificates so delivered
shall be in such denominations as may be requested by the Holder and shall be
registered in the name of Holder or such other name as shall be designated by
such Holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of such certificates, deliver to the Holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the Company shall submit the disputed
calculations to an independent accounting firm of national standing, reasonably
acceptable to the Holder and the Company via facsimile within three (3) business
days of receipt of the Exercise Agreement. The accounting firm shall audit the
calculations and notify the Company and the converting Holder of the results no
later than two (2) business days from the date it receives the disputed
calculations. The accounting firm's calculation shall be
2
<PAGE>
deemed conclusive, absent manifest error. The Company shall then issue the
appropriate number of shares of Common Stock in accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock; provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the one hundred eightieth (180th) day following the
date hereof and before 5:00 P.M., New York, New York time on the third (3rd)
anniversary of the date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and non-assessable and free from all taxes, liens, claims and
encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon the
Nasdaq National Market System, the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange as required by Section 4(d) of the
Securities Purchase Agreement and upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed or become listed and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of any other shares of capital
stock of the Company issuable upon the exercise of this Warrant so long as any
shares of the same class shall be listed on such national securities exchange or
automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such actions as may reasonably be requested by the Holder
of this Warrant in order to protect the
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<PAGE>
exercise privilege of the Holder of this Warrant, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
4. Antidilution Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up or down to the nearest cent.
(a) Subdivision or Combination of Common Stock. If the
Company, at any time after the issuance of this Warrant, subdivides (by any
stock split, stock dividend, recapitalization, reorganization, reclassification
or otherwise) its shares of Common Stock into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced. If
the Company, at any time after the initial issuance of this Warrant, combines
(by reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionately increased.
(b) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(c) Notices of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the Holder, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(d) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
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<PAGE>
(e) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common
Stock any additional shares of stock of any class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company; then, in each such case,
the Company shall give to the Holder (a) notice of the date on which the books
of the Company shall close or a record shall be taken for determining the
holders of Common Stock entitled to receive any such dividend, distribution, or
subscription rights or for determining the holders of Common Stock entitled to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take place.
Such notice shall also specify the date on which the holders of Common Stock
shall be entitled to receive such dividend, distribution, or subscription rights
or to exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding-up, as the case may be. Such notice
shall be given at least 30 days prior to the record date or the date on which
the Company's books are closed in respect thereto, but in no event earlier than
public announcement of such proposed transaction or event. Failure to give any
such notice or any defect therein shall not affect the validity of the
proceedings referred to in clauses (i), (ii), (iii) and (iv) above.
(f) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the
number of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in case of any
adjustment required by Section 4(a) resulting from the issuance of any Options,
the maximum total number of shares of Common Stock issuable upon the exercise of
the Options for which the adjustment is required (including any Common Stock
issuable upon the conversion of Convertible Securities issuable upon the
exercise of such Options), and (y) in the case of any adjustment required by
Section 4(a) resulting from the issuance of any Convertible Securities, the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the adjustment is
required, as of the date of issuance of such Convertible Securities, if any.
5
<PAGE>
(ii) "Market Price," as of any date, (i) means the
Closing Bid Price for the shares of Common Stock as reported to Nasdaq Small-Cap
National Market System for the trading day immediately preceding such date, or
(ii) if the Nasdaq Small-Cap National Market System is not the principal trading
market for the Common Stock, the average of the last reported bid prices on the
principal trading market for the Common Stock during the same period, or, if
there is no bid price for such period, the last reported sales price for such
period, or (iii) if market value cannot be calculated as of such date on any of
the foregoing bases, the Market Price shall be the average fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holders of a majority in interest of the Warrants,
with the costs of the appraisal to be borne by the Company. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made under this Section 4.
(iii) "Common Stock," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5. Cap Amount. Prior to Stockholder Approval (as defined in the
Certificate of Designation, Preferences and Rights attached as Exhibit A to the
Securities Purchase Agreement), in the event that Nasdaq Rule 4460(i) (or any
successor rule) applies to the Company, unless otherwise permitted by the Nasdaq
SmallCap Market or the Nasdaq National Market System if the Common Stock of the
Company trades on such market, in no event shall the Company be required to
issue more shares of Common Stock upon the exercise of the Warrant than the
maximum number of shares of Common Stock that the Company can without
stockholder approval so issue pursuant to such rule or rules, which, as of the
date of initial issuance of the shares of Preferred Stock and Warrants, shall be
the amount indicated to be the Cap Amount in the officer's certificate delivered
pursuant to the Securities Purchase Agreement. The Cap Amount shall be allocated
pro-rata to the Holders. A Holder's allocable portion of the Cap Amount shall be
applicable to both shares of Preferred Stock and Warrants held by it and shall
be applied to such Preferred Stock and Warrants on the basis of the time of
conversion or exercise, as the case may be, thereof.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder of such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
7. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company. No provision of this Warrant,
6
<PAGE>
in the absence of affirmative action by the Holder to purchase Warrant Shares,
and no mere enumeration herein of the rights or privileges of the Holder, shall
give rise to any liability of the Holder for the Exercise Price or as a
shareholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights
granted to the Holder are transferable, in whole or in part, only to Talisman
Capital upon surrender of this Warrant, together with a properly executed
assignment in the Form of Assignment attached hereto as Exhibit 2, at the office
or agency of the Company referred to in Section 8(e) below, provided, however,
that any transfer or assignment shall be subject to the provisions of Section
5.1 and 5.2 of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the rights described in Section 9
hereof are assignable only in accordance with the provisions of that certain
Registration Rights Agreement, dated as of March 15, 1999, by and among the
Company and the other signatories thereto (the "Registration Rights Agreement").
b. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable in increments of 10,000 or more of Warrant Shares, upon
the surrender hereof by the Holder at the office or agency of the Company
referred to in Section 8(e) below, for new Warrants, in the form hereof, of
different denominations representing in the aggregate the right to purchase the
number of shares of Common Stock which may be purchased hereunder, each of such
new Warrants to represent the right to purchase such number of shares as shall
be designated by the Holder at the time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement (or bond, in cases in which the Holder
actually received the original or replacement certificate for such Warrant from
the Company) reasonably satisfactory in form and amount to the Company, or, in
the case of any such mutilation, upon surrender and cancellation of this
Warrant, the Company, at its expense, will execute and deliver, in lieu thereof,
a new Warrant, in the form hereof, in such denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 8, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 8.
7
<PAGE>
e. Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer.
Notwithstanding anything to the contrary contained herein, the Warrants shall
not be exercisable by the Holder to the extent (but only to the extent) that, if
exercisable by Holder, Holder or any of its affiliates (as defined under Rule
12b-2 of the Securities Exchange Act of 1934, as amended) would beneficially own
in excess of 4.9% of the shares of Common Stock. To the extent the above
limitation applies, the determination of whether the Warrants shall be
exercisable (vis-a-vis other securities owned by Holder) and of which Warrants
shall be exercisable (as among Warrants) shall be in the sole discretion of the
Holder and submission of the Warrants for exercise shall be deemed to be the
Holder's determination of whether such Warrants are exercisable (vis-a-vis other
securities owned by Holder) and of which warrants are exercisable (among
Warrants) subject to such aggregate percentage limitation. No prior inability to
exercise Warrants pursuant to this paragraph shall have any effect on the
applicability of the provisions of this paragraph with respect to any subsequent
determination of exercisability. For the purposes of this paragraph, beneficial
ownership and all determinations and calculations, including without limitation,
with respect to calculations of percentage ownership, shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D and G thereunder. The provisions of this paragraph
may be implemented in a manner otherwise than in strict conformity with the
terms this paragraph with the approval of the Board of Directors of the Company
and the Holder: (i) with respect to any matter to cure any ambiguity herein, to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended 4.9% beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such 4.9% limitation; and (ii) with respect to any other matter,
with the further consent of the holders of a majority of the then outstanding
shares of Common Stock. The provisions of this paragraph may be waived by Holder
at its election upon not less than sixty-one (61) days prior written notice from
Holder to the Company, including, without limitation, a limited waiver to
increase the 4.9% limit herein contained to any other percentage specified by
such Holder. The limitations contained in this paragraph shall apply to a
successor Holder of Warrants if, and to the extent, elected by such successor
Holder concurrently with its acquisition of such Warrants, such election to be
promptly confirmed in writing to the Company (provided no transfer or series of
transfers to a successor Holder or Holders shall be used by a Holder to evade
the limitations contained in this paragraph).
9. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
8
<PAGE>
10. Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier and shall be
deemed delivered at the time and date of receipt. The addresses for such
communications shall be:
If to the Company:
Starbase Corporation
4 Hutton Centre Drive, Suite 800
Santa Ana, CA 92707
Fax: 714.445.4482
Attention: Chief Financial Officer
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 9.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company and
each Holder irrevocably consent to the jurisdiction of the United States federal
courts located in the County of New York in the State of New York in any suit or
proceeding based on or arising under this Warrant and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
The Company and each Holder irrevocably waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding. The Company and each Holder
further agrees that service of process upon any other party to this Warrant
mailed by the first class mail shall be deemed in every respect effective
service of process upon such party in any suit or proceeding arising hereunder.
Nothing herein shall affect the right of the Company or any Holder to serve
process in any other manner permitted by law. The Company and each Holder agree
that a final nonappealable judgment in any such suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on such judgment
or in any other lawful manner.
12. Miscellaneous.
a. Amendments. This Warrant and any provision hereof may be
amended or waived by an instrument in writing signed by the Company and the
Holder to be affected by such amendment or waiver.
b. Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
c. Assignability. This Warrant shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of Holder
or any other entity majority-owned by Talisman Capital. The Holder shall notify
the Company upon the assignment of this Warrant.
* * *
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Starbase Corporation
By: __________________________
Name: __________________________
Title: _________________________
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of Starbase Corporation (the
"Company"), evidenced by the attached Warrant, and herewith makes payment of the
Exercise Price with respect to such shares in full, all in accordance with the
conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except in
compliance with the Warrant and otherwise under circumstances that will not
result in a violation of the Securities Act of 1933, as amended, or any state
securities laws.
(ii) The undersigned requests that stock certificates for such shares
be issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date: _______________________
Signature of Holder ____________________
________________________________________
Name of Holder (Print)
Address:
________________________________________
________________________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all rights of the undersigned under the within Warrant, with respect
to the number of shares of Common Stock covered thereby set forth herein below,
to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
Name: _________________________________________________
Signature: ____________________________________________
Title of Signing Officer or Agent (if any):
____________________________________________
Address: ____________________________________
____________________________________
Note: The above signature should correspond
exactly with the name on the
face of the within Warrant.
EXHIBIT 4.6
ASSET PURCHASE AND SALE AGREEMENT
---------------------------------
THIS ASSET PURCHASE AND SALE AGREEMENT, dated December , 1998
between SITE TECHNOLOGIES, INC., a California corporation having an address at
380 El Pueblo Road, Scotts Valley, California 95066 (the "Seller"), and STARBASE
CORPORATION, a Delaware corporation having an address at 4 Hutton Centre Drive,
Suite 800, Santa Ana, California 92707(the "Purchaser").
RECITALS
The Seller is in the business of designing, developing,
licensing and selling software products and related materials for various Web
site applications. The Seller has decided to sell certain of its assets and
properties. The Seller has agreed to sell such assets and properties to the
Purchaser, and the Purchaser has agreed to buy such assets and properties, all
upon the terms and provisions and subject to the conditions hereinafter set
forth.
AGREEMENT
In consideration of the foregoing and the mutual covenants and
agreements hereinafter set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Defined Terms. As used in this Agreement, the
following capitalized terms and non-capitalized words and phrases shall have the
meanings respectively assigned to them below, which meanings shall be applicable
equally to the singular and plural forms of the terms so defined:
"Agreement" shall mean this Asset Purchase and Sale Agreement,
together with all schedules and exhibits hereto, as the same may be
supplemented, modified, amended or restated from time to time in the manner
provided herein.
"Affiliate" of a referenced person shall mean (a) another
person controlling, controlled by or under common control with such referenced
person, (b) any other person beneficially owning or controlling ten percent
(10%) or more of the outstanding voting securities or rights or of the interest
in the capital, distributions or profits of the referenced person or (c) any
officer or director of or partner in the referenced person, or any person
controlled by any such individual. The terms "control", "controlling",
"controlled" and the like shall mean the direct or indirect possession of the
<PAGE>
power to direct or cause the direction of the management or policies of a person
or the disposition of its assets or properties, whether through ownership, by
contract, arrangement or understanding, or otherwise.
"Asset" and "Assets" shall have the meanings respectively
assigned to them in Section 2.01 hereof.
"Assumed Obligation" and "Assumed Obligations" shall have the
meanings respectively assigned to them in Section 2.03 hereof.
"Business Day" shall mean any day other than any Saturday,
Sunday or other applicable U.S. federal holiday.
"Closing" shall mean the consummation of the sale and purchase
of the Assets by the Seller and the Purchaser as contemplated by this Agreement.
"Closing Date" shall have the meaning assigned to it in
Section 2.09 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Confidential Information" shall mean, with respect to the
Assets only, and the information contained therein, any and all Documents and
other information pertaining to the assets, bids, business, code, costs,
creditors, customers and customer identities and contacts, data, Developments
(as hereinafter defined), financial condition or affairs, formulae, know-how,
methods, operations, personnel, prices, procedures, products, proposals,
prospects, reports, services, software, strategies, suppliers, systems,
technologies and other trade secrets of the Seller, whether existing prior
hereto, acquired hereunder or developed or otherwise acquired by the Purchaser
during the Restricted Period or at any other time; provided, however, that
Confidential Information shall exclude any information that (i) is or becomes
publicly available other than through any direct or indirect disclosure by the
Seller or any of its Representatives (ii) was known to Seller or its
Representatives, without confidentiality restriction, at the time of disclosure
as shown by the files of Seller or its Representatives in existence at the time
of disclosure; (iii) is disclosed with the prior written approval of Purchaser;
(iv) was independently developed by Seller or its Representatives without any
use of the Confidential Information and by employees or other agents of (or
independent contractors hired by) Seller or its Representatives who have not bee
exposed to the Confidential Information; (v) becomes known to Seller or its
Representatives, without confidentiality restriction, form a source other than
Purchaser without breach of this Agreement by Seller or its Representatives and
otherwise not in violation of Purchaser's rights; (vi) is disclosed to third
parties by Purchaser without restrictions similar to those contained in this
Agreement; or (vii) is disclosed pursuant to the order or requirement of a
court, administrative agency, or other governmental body, provided, however,
that Seller or its Representatives shall provide prompt written notice thereof
to enable Purchaser to seek a protective order or otherwise prevent such
disclosure.
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<PAGE>
"Conveyance Instruments" shall mean the bills of sale,
assignments and other documents required by Section 2.07 hereof.
"Corporate Document" shall mean any of the following: (a) the
Certificate of Incorporation and By-laws of the Seller; (b) any resolution with
continuing effect adopted by the Board of Directors of the Seller; or (c) any
term or provision of any agreement or trust respecting the securities issued by
the Seller or any related rights; in each case whether now or hereafter
existing, and irrespective of whether reduced to writing, and as each has been
and hereafter may be supplemented, modified, amended or restated from time to
time.
"Developments" shall mean, collectively, any and all
developments, enhancements, refinements, upgrades and documentation of Software,
Source Code, ideas, inventions, products, services, know-how, programs,
procedures, strategies, and other trade secrets and works of authorship for use
in or related to the Assets.
"Documents" shall mean, with respect to the Assets only, any
and all documents and other tangible items containing information, including
(without limitation) any and all agreements, books, correspondence, discs,
drawings and pictures, instructions, lists and other collections of information,
manuals, memoranda, notes, programs, software and codes, proposals and
presentations, whether in hard copy or electronic storage.
"Event" shall include (without limitation) any event,
occurrence, circumstance, condition or state of facts.
"Excluded Asset" and "Excluded Assets" shall have the meanings
respectively assigned to them in Section 2.02 hereof.
"Excluded Liability" and "Excluded Liabilities" shall have the
meanings respectively assigned to them in Section 2.04 hereof.
"GAAP" shall mean United States generally accepted accounting
principles applied on a basis consistent with the preparation of the
consolidated financial statements referred to in Section 4.05 hereof.
"hereunder" , "herein", "hereof" and other words and phrases
of like import shall refer to each and every term and provision of this
Agreement.
"Indemnification Limit" shall have the meaning assigned to it
in Section 5.02(a) hereof.
"Interim License and Consulting Agreement" shall mean that
certain agreement between the Seller and the Purchaser, dated as of the date
hereof and attached hereto as Exhibit A.
.
"Liability Threshold" shall have the meaning assigned to it in
Section 5.02(a) hereof.
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<PAGE>
"Lien" and "Liens" shall respectively refer to any one or more
of the following with respect to the Assets: (a) any assignment, pledge,
mortgage, hypothecation or security interest (irrespective of whether the Seller
is personally obligated with respect to any obligation thereby secured); (b) any
consignment, finance lease, conditional sale contract or other title retention
agreement; (c) any assignment, pledge or other transfer, restriction or
encumbrance of any right to receive any income or other distributions or
proceeds; (d) any lien for Taxes or other assessments or any mechanics' or other
statutory lien; (e) any restrictive covenant, lease, license, right of use,
possession or first refusal, infringement, community property or other joint
ownership interest, limitation or restriction on use or transfer, exception to
title, or other limitation or restriction on the extent, exercise or enforcement
of any right or interest respecting any asset or property; (f) any covenant or
agreement with any other person to a "Negative Pledge" (i.e., that the Seller
will not do any one or more of the things specified in the preceding clauses);
or (g) any other lien, encumbrance or adverse right or claim of any nature in,
to or against any Asset.
"Loss" shall mean any loss, damage, injury, harm, detriment,
decline in value, liability, claim, demand, action, suit, investigation,
proceeding, settlement, judgment, award, fine, penalty, Tax, fee, charge, cost
or expense (including any reasonable out-of-pocket disbursement, expense or fee
or other reasonable amount paid to any attorney or other professional advisor
and any reasonable costs of investigation).
"Material Adverse Effect" shall mean (i) with respect to
Seller, any material and adverse effect, whether individually or in the
aggregate, upon (a) the Assets, or (b) the ability of the Seller to perform as
and when due of all or any part of its obligations under this Agreement or any
other Purchase Document and (ii) with respect to Purchaser, any change, event or
effect that is or reasonably likely could be materially adverse, whether
individually or in the aggregate, (a) to the current or continuing business,
assets (including intangible assets), financial condition or results of
operations of Purchaser and its subsidiaries taken as a whole, or (b) upon the
ability of Purchaser to perform as and when due of all or any part of its
obligations under this Agreement or any other Purchase Document.
"Material Contract" and "Material Contracts" shall
respectively mean any one or more of each material agreement, contract,
instrument, document, arrangement or other obligation or understanding primarily
with respect to the Assets: (a) to which the Seller is or may be a party; or (b)
by which the Seller or any of the Assets is or may be bound or subject; in each
case, whether now or hereafter existing, and irrespective of whether reduced to
writing, and as each has been supplemented, modified, amended or restated to the
date hereof; provided, however, that Material Contract shall not include any
such item pertaining to any Excluded Asset or Excluded Liability.
"Material Document" shall mean, with respect to the Assets
only, any material instrument, agreement, contract, document, arrangement or
other obligation or understanding relating to the Assets: (a) to which the
Seller is or may be a party; or (b) by which the Seller or any of the Assets is
or may be bound or subject; in each case, whether now or hereafter existing, and
irrespective of whether reduced to writing, and as each has been and hereafter
may be supplemented, modified, amended or restated from time to time.
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<PAGE>
"Product Liability" shall mean any liability or other
obligation (whether alleged or otherwise) of the Seller or any agent or
affiliate of the Seller respecting any express or implied representation,
warranty, guaranty, agreement, arrangement or understanding made (or claimed to
have been made), or imposed (or claimed to have been imposed) by operation of
applicable law, in respect of the Assets.
"Prospective Employees" shall mean Bill French, Ron Sauers,
Bob Crawford, Chris Holt and James Lambers.
"Purchase Document" and "Purchase Documents" shall
respectively mean any one or more of this Agreement, the Conveyance Instruments,
the various other assignments, instruments and other documents creating or
evidencing the sale, assignment or other transfer or delivery of any Asset or
assumption of any Assumed Obligation, and all other agreements and documents and
all waivers, consents, reports, statements, certificates and schedules executed
by the requisite person(s) pursuant to or in connection with any of the
foregoing.
"Purchase Price shall have the meaning assigned to it in
Section 2.05 hereof.
"Purchaser" shall have the meaning assigned to it in the
Introduction.
"Representative" and "Representatives" of a referenced person
shall respectively mean any one or more of the affiliates of the referenced
person and the respective shareholders, directors, officers, employees,
consultants, agents and other representatives of the referenced person and its
affiliates.
"Restricted Period" shall have the meaning set forth in
Section 5.05 hereof.
"Securities" of any person shall mean equity securities and
debt securities, general or limited partnership interests, investment contracts
and any other instrument or interest commonly understood to be a security issued
by that person.
"Seller" shall have the meaning assigned to it in the
Introduction.
"Software" shall mean all computer software contained or used
in the Software Products, including without limitation, all Source Code thereto,
all related and all updated printed material and documentation with respect
thereto.
"Software Products" shall mean SiteMaster, SiteSweeper,
QuickSite, Webtools and SiteMarks.
"Source Code" shall mean computer software code in human
readable, high-level language form which, when compiled or assembled, becomes
the executable object code of a software program, and shall include all
developer comments concerning the relevant code.
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<PAGE>
"Tax" shall mean any federal, state, local or foreign tax
(including, without limitation, any income tax, franchise tax, capital gains
tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem tax,
transfer tax, stamp tax, sales tax, use tax, property tax, inventory tax,
occupancy tax, withholding tax, payroll tax, gift tax, estate tax, inheritance
tax, employment tax, unemployment tax, social security tax, services tax, value
added tax, privilege tax, license tax, profits tax, capital stock tax, severance
tax, minimum tax, environmental tax, occupancy tax or occupation tax), levy,
assessment, tariff, impost, imposition, toll, duty (including without
limitation, any customs duty), deficiency or fee, and any related charge or
amount (including any fine, penalty or interest), imposed, assessed or collected
by or for any governmental authority, including, without limitation, any
liability therefor as a transferee (including, without limitation, under Section
6901 of the Code or any comparable applicable law), as a result of Treasury
Regulation ss. 1.1502-6 or any comparable applicable law, or pursuant to any
tax-sharing agreement or any other agreement, arrangement or understanding
relating to the sharing or payment of any such tax, levy, assessment, tariff,
impost, imposition, toll, duty, deficiency or fee.
"Tax Return" shall mean any return, declaration, report,
estimate, claim for refund or credit, or information return or statement, and
any amendment, supplement or modification thereto, together with any supporting
information and schedules, which is filed or required to be filed under
applicable law in connection with the determination, assessment, collection or
administration of any Tax or ERISA, whether on a consolidated, combined, unitary
or separate basis or otherwise.
ARTICLE II
PURCHASE OF ASSETS; PAYMENT
2.01 Assets to be Transferred. Upon the terms and subject to
the conditions set forth in this Agreement, and subject to the satisfaction of
the conditions precedent set forth in Section 2.08 (or the waiver thereof by the
Seller or the Purchaser, as applicable), at the Closing, the Seller shall sell,
assign, transfer, convey and deliver to the Purchaser, and the Purchaser shall
purchase and accept from the Seller, all right, title and interest of the Seller
or any subsidiary of the Seller, as the case may be, in and to all of the
following assets of Seller, together with all books and records of the Seller
pertaining primarily thereto (individually, an "Asset", and collectively, the
"Assets"):
(a) the Software and the Software Products, files
specifications, design documents, user documentation,
change requests and defects lists, each as listed on
Schedule 2.01(a) hereto;
(b) all marketing collateral materials, including, but
not limited to, brochures, data sheets, ad and
editorial reprints, web site content, and materials
for the Software and the Software Products, each as
listed on Schedule 2.01(b) hereto;
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(c) all reseller, consultant, customer and prospect
lists, sales contact management system database,
Software and licenses, customer support system
database and forecasts related to the Software and
the Software Products, each as listed on Schedule
2.01(c) hereto;
(d) Seller's file server relating to Source Code
repository and workstation and all configurations
thereto (including the hardware, Software and
licenses), and all peripheral equipment in primary
use for the development of the Software Products, all
Software Product content for the "sitetech.com" Web
site and all applicable Software, each as listed on
Schedule 2.01(d) hereto;
(e) any and all Material Contracts, as listed in Schedule
3.08(a) hereto;
(f) any and all trade names, trademarks, copyrights,
trade secrets and other intellectual and intangible
properties (whether or not registered) relating to
the Assets described in subsection (a) through (e)
above, including, without limitation, the
"sitetech.com" Web site URL ("www.sitetech.com") and
telephone and facsimile numbers for the Seller's
sales and support departments, each as listed on
Schedule 2.01(f) hereto; and
(g) any and all registration, licenses and permits (if
transferrable) related to the Assets described in
subsection (a) through (e) above, Developments,
Confidential Information and other general
intangibles and Documents of the Seller related
thereto, and any and all products and proceeds of and
payments and other distributions, accruing subsequent
to the date of this Agreement with respect to any and
all of the foregoing items as they relate to
registrations, licenses and permits, each as listed
on Schedule 2.01(g) hereto.
2.02 Excluded Assets. There shall be excluded from the Assets
transferred to the Purchaser hereunder all other assets of the Seller and
subsidiaries of the Seller not specifically listed as an Asset in Section 2.01
hereof (individually, an "Excluded Asset", and collectively, the "Excluded
Assets") including, but not limited to:
(a) any and all leases and other interests of the Seller
in real estate, including all immovable fixtures
affixed thereto, and any and all other leases of
equipment or other assets;
(b) the rights of the Seller under this Agreement,
including the right to receive the Purchase Price;
(c) all of the accounts receivable of the Seller for the
Software Products unpaid as of the Closing Date, and
all accounts, notes and trade receivables and other
instruments and chattel paper of the Seller;
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(d) any and all of the Seller's minute books, tax
returns, accountants' work papers, and insurance
policies not expressly included in the Assets; and
(e) the assets and properties of Seller listed on
Schedule 2.02(e) hereto.
2.03 Assumed Obligations. At the Closing, the Purchaser shall
assume only those commitments of the Seller pertaining to the Assets as of the
Closing Date which are listed on Schedule 3.08(a) hereof (the "Assumed
Obligations"), which shall thereafter be performed by the Purchaser when due in
accordance with the terms thereof. Furthermore, Purchaser shall be responsible
for all liabilities arising form the operation of the Assets and the related
business from and after the Closing Date. Seller shall use its commercially
reasonable efforts to obtain the consents, waivers and approvals under any of
the Material Contracts as may be required in connection with this Agreement and
the transactions contemplated hereby (all of such consents and approvals are set
forth in Schedule 2.03) so as to preserve all rights of, and benefits to Seller
thereunder, provided, however, that in no event shall Seller be required to make
any payment to obtain such consent.
2.04 Liabilities Not Assumed by the Purchaser. Except as
otherwise expressly provided herein, the Purchaser has not, and shall not be
deemed or construed to have, in any way assumed or received the Assets subject
to, or in any way become liable or responsible for, any of the liabilities or
other obligations of the Seller or any affiliate of the Seller (each, an
"Excluded Liability", and collectively, the "Excluded Liabilities"), including,
without limitation, the following:
(a) any liability or other obligation respecting the
Seller's lease, ownership, operation or use of any
real estate;
(b) any liability or other obligation respecting any
Product Liability;
(c) any liability or other obligation for (i) any
incomplete, incorrect, expired or missing license,
registration or other permit required under any
Environmental Law or other applicable law, or (ii)
any violation of any applicable law, in each case
respecting any act, omission, condition, circumstance
or other event occurring or existing on, before or
after the Closing Date and relating in any way to (A)
any of the Assets, (B) any of the other assets or
properties of the Seller or any of its affiliates,
(C) the import, procurement, storage, manufacture,
use, shipment, sale or disposal of any product or
substance, or (D) any conduct of the Seller, any
affiliate of the Seller or any of their respective
Representatives;
(d) any liability or other obligation for any action,
suit, investigation or proceeding at law, in equity,
in arbitration or by or before any governmental
authority threatened, pending, decided or settled on,
before or after the Closing Date involving or
affecting the Seller or any Asset, whether or not
disclosed;
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(e) any liability or other obligation of the Seller under
any employment agreement or in respect of any Plan;
(f) any liability or other obligation for any Tax for
which the Seller is or may be liable subject to
Section 7.05(b);
(g) any liability or other obligation to make any
severance or other payment to any employee who
declines any offer of employment from the Purchaser;
(h) any liability or other obligations of the Seller to
shareholders, officers, employees or other
Representatives of the Seller or any affiliate of the
Seller; or
(i) any liability or other obligation of the Seller with
respect to the Excluded Assets.
2.05 Purchase Price and Payment.
(a) The aggregate purchase price for the Assets (the "Purchase
Price") shall be 750,000 newly issued and initially unregistered shares (the
"Shares") of common stock of Purchaser, each having a par value of $0.01 per
share (the "Common Stock"), as adjusted between the date hereof and the Closing
Date in case the Purchaser shall (i) declare or pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock. If the product (the "Aggregate
Consideration") of (i) 750,000 (as adjusted) and (ii) the average of the daily
closing bid and ask price of the Common Stock on the NASDAQ Small Cap Market for
the five (5) days immediately preceding the two (2) Business Days preceding the
Closing Date (the "Average Share Price") is less than $500,000 (the "Minimum
Threshold") or greater than $1,500,000 (the "Maximum Threshold"), the Purchase
Price shall be adjusted by adding such number of Shares, if the Aggregate
Consideration is less than the Minimum Threshold, or subtracting such number of
Shares, if the Aggregate Consideration is greater than the Maximum Threshold,
equal to (x) the difference between the Minimum Threshold and the Aggregate
Consideration or the difference between the Aggregate Consideration and the
Maximum Threshold, as the case may be, divided by (y) the Average Share Price.
(b) The Purchase Price, as adjusted, shall be paid by the
delivery at the Closing (or as promptly as practical thereafter, but in any
event within five (5) Business Days) of stock certificates issued in the name of
the Seller and evidencing the Shares.
2.06 INTENTIONALLY OMITTED.
2.07 Instruments of Conveyance. In order to effectuate the
transfer of the Assets contemplated by Section 2.01, upon request, the Seller
will execute and deliver, all such bills of sale,
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assignments and other documents or instruments of assignment, transfer or
conveyance as the Purchaser shall reasonably deem necessary or appropriate to
vest in or confirm to the Purchaser good and marketable title to those Assets
owned by the Seller, in each case free and clear of all Liens, each in form and
substance reasonably satisfactory to the Purchaser.
2.08 Conditions Precedent.
(a) Conditions to the Obligations of Seller. The obligations
of Seller to consummate the transactions contemplated by this Agreement are
subject to the fulfillment or waiver by Seller, on or before the Closing, of the
following conditions:
(i) Consents. Purchaser shall have obtained
those consents of third parties listed on
Schedule 2.08(a)(i) hereto.
(ii) Interim License and Consulting Agreement.
The Interim License and Consulting Agreement
shall have remained in full force and effect
up to and including the Closing Date unless
terminated as a result of a breach by
Seller.
(iii) Approval by Shareholders of Seller. The
shareholders of Seller shall have approved
this Agreement and the transactions
contemplated hereby in accordance with the
voting requirements of Seller's Articles of
Incorporation, By-laws and Chapters 12 and
13 of the California Corporations Code.
(iv) Representations and Warranties True. All of
the representations and warranties of
Purchaser contained in this Agreement or in
any certificate, document or instrument
delivered pursuant hereto or in connection
with the transactions contemplated hereby
shall be complete and correct in all
material respects on and as of the date
hereof and on and as of the Closing Date as
if made on and as of such date, except with
respect to those representations and
warranties specifically made as of an
earlier date in which case such
representations and warranties shall be true
and correct in all material respects as of
such earlier date.
(v) Covenants and Agreements Performed.
Purchaser shall have performed or complied
in all material respects with or delivered
in all material respects all covenants,
agreements, conditions or documents required
by this Agreement to be performed, complied
with or delivered by Purchaser prior to or
at the Closing.
(vi) Opinion of Counsel to Purchaser. Purchaser
shall have delivered to Seller the opinion
of Parker Chapin Flattau & Klimpl, LLP,
counsel
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to Purchaser, dated as of the date hereto,
in the form attached hereto as Exhibit A.
(vii) Other Documents. Purchaser shall have
delivered all such certified resolutions,
certificates, documents and instruments with
respect to Purchaser (including instruments
of assumption) as Seller and its counsel may
reasonably request prior to the Closing to
carry out the intent and purpose of this
Agreement.
(viii) No Actions, Suits or Proceedings. No action,
suit or proceeding shall be pending before
any court, governmental body or other
authority to restrain or prohibit this
Agreement or the consummation of the
transactions contemplated hereby.
(ix) Officers' Certificate. Seller shall have
been furnished with a certificate executed
on behalf of Purchaser by its President or a
Vice President, and a Secretary or an
Assistant Secretary, dated the date hereof,
certifying, in such detail as Seller may
reasonably request, that (a) the conditions
set forth in Section 2 of this Agreement
have been fulfilled at or prior to the date
hereof (including as of the Closing Date
Section 2.08(a)(iv) hereof.
(x) Assumption of Contracts and Other Assumed
Obligations. Purchaser shall have executed
and delivered to Seller such instruments of
assumption as Seller and its counsel may
reasonably request in order to assume the
Assumed Obligations.
(b) Conditions to the Obligations of Purchaser. The
obligations of Purchaser to consummate the transactions contemplated by this
Agreement are subject to the fulfillment or waiver by Purchaser, on or before
the Closing, of the following conditions:
(i) Consents. Seller shall have obtained those
consents of third parties listed on Schedule
2.08 (b)(i) hereto.
(ii) Interim License and Consulting Agreement.
The Interim License and Consulting Agreement
shall have remained in full force and effect
up to and including the Closing Date unless
terminated as result of a material breach by
Purchaser.
(iii) Representations and Warranties True. All of
the representations and warranties of Seller
contained in this Agreement or in any
certificate, document or instrument
delivered pursuant hereto or in connection
with the transactions contemplated hereby
shall be complete and correct in all
material respects on and as of the date
hereof as if made
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on and as of the date hereof, except with
respect to those representations and
warranties specifically made as of an
earlier date, in which case such
representations and warranties shall be
complete and correct in all material
respects as of such earlier date.
(iv) Covenants and Agreements Performed. Seller
shall have performed in all material
respects or complied in all material
respects with or delivered all covenants,
agreements, conditions or documents required
by this Agreement to be performed, complied
with or delivered by Seller prior to or at
the Closing.
(v) Opinion of Counsel to Seller. Seller shall
have delivered to Purchaser the opinion of
Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel for
Seller, dated the Closing Date, in the form
attached hereto as Exhibit B.
(vi) Other Documents. Seller shall have delivered
all such certified resolutions,
certificates, documents or instruments with
respect to Seller as Purchaser may
reasonably request prior to the Closing to
carry out the intent and purpose of this
Agreement.
(vii) No Actions, Suits or Proceedings. No action,
suit or proceeding shall be pending before
any court, governmental body or other
authority to restrain or prohibit this
Agreement or the consummation of the
transactions contemplated hereby.
(viii) Instrument of Conveyance. Seller shall have
executed and delivered to Purchaser such
instruments of conveyance as Purchaser may
reasonably request to transfer and vest in
Purchaser good and valid title to the
Assets.
(ix) No Changes. During the period from the date
hereof to the Closing Date, there shall not
have been any material adverse change in the
Assets (except due to Purchaser's action or
failure to act) where such change would have
a Material Adverse Effect.
(x) Officers' Certificate. Purchaser shall have
been furnished with a certificate executed
on behalf of Seller by its President or a
Vice President, and Secretary or Assistant
Secretary, dated the Closing Date,
certifying, in such detail as Purchaser may
reasonably request, that the conditions set
forth in Section 2 of this Agreement have
been fulfilled at or prior to the date
hereof, (including as of the Closing Date,
Section 2.08(b)(iii))
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2.09 Closing. Subject to Section 7.02(b), the closing of the
purchase and sale of the Assets shall take place at the offices of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo
Alto, California, within five (5) days after Seller's shareholders approve this
Agreement and the transactions contemplated hereby, or at such other time as the
parties may mutually agree in writing (such time and date being referred to
herein as the "Closing Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The disclosures contained in the Schedules hereto for any
paragraph shall qualify each other paragraph contained in this Article III as it
relates to the subject matter of each such other paragraph. Any reference in
this Article III to an agreement being "enforceable" shall be deemed to be
qualified to the extent such enforceability is subject to (i) laws of general
application relating to bankruptcy, insolvency, moratorium and the relief of
debtors, and (ii) the availability of specific performance, injunctive relief
and other equitable remedies. To induce the Purchaser to enter into this
Agreement and the other Purchase Documents to which it is a party and to
purchase the Assets, the Seller hereby represents and warrants to the Purchaser,
as the date hereof and as of the Closing Date (except as otherwise expressly
provided below or on the Schedules attached hereto and corresponding to the
Section numbers contained in this Article III), that:
3.01 Organization, Powers, Etc. The Seller: (a) is duly
organized, validly existing and in good standing under the laws of the State of
California, its state of organization; (b) has the power and authority to carry
on its business as now conducted and to own or hold under lease the assets and
properties it purports to own or hold under lease; (c) is duly qualified,
licensed or registered to transact its business and in good standing in every
jurisdiction in which failure to be so qualified, licensed or registered would
have a Material Adverse Effect; (d) has the power and authority to execute and
deliver this Agreement and each of the other Purchase Documents to which it is
or will be a party and to perform all of its obligations hereunder and
thereunder; and (e) currently conducts its business exclusively under the name
set forth in the Introduction at its chief executive office and principal place
of business located in Scotts Valley, California.
3.02 Authorization, Conflicts and Validity. The execution and
delivery by the Seller of this Agreement and each of the other Purchase
Documents to which it is or will be a party and the performance by the Seller of
all of its obligations hereunder and thereunder: (a) have been duly authorized
by all requisite corporate action; (b) will not violate or be in conflict with
any term or provision of (i) any applicable law, (ii) any judgment, order, writ,
injunction, decree or consent of any court or other judicial authority, or (iii)
any Corporate Document; (c) will not violate, be in conflict with, result in a
breach of or constitute a default (with or without the giving of notice or the
passage of time or both) under any term or provision of any Material Document;
and (d) will not result in the creation or imposition of any material Lien of
any nature upon any of the Assets, except in each case (other than (b)(iii))
that would not individually or in the aggregate have a Material Adverse Effect.
This Agreement is, and the other Purchase Documents to which the Seller is or
will be a party when
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<PAGE>
executed and delivered will be, legal, valid and binding obligations of the
Seller, enforceable in accordance with their respective terms and provisions.
3.03 Consents, Etc. Except as set forth on Schedule 3.03
hereto, no material consent, approval or authorization of, or registration,
declaration or filing with, or notice to, any governmental authority, creditor
or other person that has not been duly and timely obtained or made (including,
without limitation, the consent of the shareholders of the Seller, but not
including any filings and notices under applicable bulk sales laws, which under
applicable law is the responsibility of the Purchaser) is required as a
condition precedent, concurrent or subsequent to or in connection with the due
and valid execution, delivery and performance by the Seller of this Agreement or
any other Purchase Document to which the Seller is or will be a party or the
legality, validity, binding effect or enforceability of any of their respective
representations, warranties, covenants and other terms and provisions.
3.04 Litigation. Except as set forth on Schedule 3.04 hereto,
there are no actions, suits, investigations or proceedings (whether or not
purportedly on behalf of the Seller) pending or to the knowledge of Seller,
threatened at law, in equity, in arbitration or by or before any other
governmental authority involving or affecting: (a) the Seller; (b) any Corporate
Document; (c) any part of the Assets, including, without limitation, any
proprietary Software and its underlying Source Code; (d) any of the Assumed
Obligations; or (e) any of the transactions contemplated in this Agreement and
the other Purchase Documents that, if adversely determined, would have a
Material Adverse Effect. The Seller is not in default with respect to any
judgment, order, writ, injunction, decree or consent of any court or other
judicial authority, which default would have or has had a Material Adverse
Effect.
3.05 Compliance with Applicable Laws. The Seller is in
material compliance with and conforms to all material applicable laws. The
procurement, storage, containment, presence, manufacture, distribution, removal
and disposition of all inventory and substances and the use and operation of all
assets and properties (including, without limitation, machinery, equipment, real
estate and improvements), as now or previously existing, as now or previously
conducted by or for the Seller, or as contemplated, are in full compliance with
and conform to all applicable laws except as would not have a Material Adverse
Effect.
3.06 Payment of Debts and Taxes. Except as set forth on
Schedule 3.06 hereto, and to the extent to which the failure to do so would have
a Material Adverse Effect, the Seller: (a) has duly and timely filed all
required Tax Returns with the appropriate taxing authorities, which Tax Returns
are true, correct and complete in all material respects; (b) has duly and timely
paid or caused to be paid all Taxes for which the Seller is or may be liable as
shown on those Tax Returns; (c) has made full provision for the payment of all
Taxes that have accrued but which were not due and payable on or before the
Closing Date; and (d) has duly and timely withheld or collected and paid over to
the appropriate taxing authorities all Taxes required to have been withheld or
collected and paid over by it. To the extent to which the failure to do so would
have a Material Adverse Effect, no adjustment relating to any such Tax Return
has been proposed formally or informally by any taxing authority or any
representative thereof, and there is no request for information currently
outstanding
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that could affect any Tax for which the Seller is or may be liable or to which
any of the Assets or the Business may be subject. To the Seller's knowledge,
there is no pending audit, examination, investigation, action or other
proceeding relating to the assessment or allocation of any Tax for which any of
the Assets may be subject and to the Seller's knowledge, no such audit,
examination, investigation, action, proceeding, adjustment or request has been
threatened. There is no outstanding waiver or agreement that extends the statute
of limitations for any period with respect to the assessment or collection of
any Tax for which the Seller is or may be liable relating to any of the Assets.
There is no Tax Lien on any of the Assets. The Seller is current in its payment
of debts and performance of obligations with respect to the Assets (other than
Taxes), except to the extent payment or performance is not or would not yet be
required under applicable law and except to the extent failure to so pay or
perform would not have a Material Adverse Effect.
3.07 Title to Assets, Encumbrances, Etc. The Seller or its
subsidiaries owns and has good valid title to all of the Assets, and no part of
the Assets is subject to any Lien of any kind whatsoever except Permitted Liens
(as defined below). There are no claims of third parties that would prevent any
assignee or purchaser of all or any portion of the Assets from receiving any
payments, distributions and proceeds with respect thereto, if any, without any
defense, counterclaim, set-off, right of recoupment, abatement or other claim or
determination whatsoever, except (i) the lien of current taxes not yet due and
payable, (ii) such imperfections of title, liens and easements as do not and
will not materially detract from or interfere with the use of the Assets, or
otherwise materially impair the Assets and (iii) liens securing debt or royalty
payment obligations that are disclosed to Purchaser ("Permitted Liens").
3.08 Material Contracts and Other Agreements.
(a) Schedule 3.08(a) hereto contains a complete and accurate
list of each Material Contract.
(b) The Seller has made available to the Purchaser true,
complete and correct copies (and, on the Closing Date, will deliver to the
Purchaser all originals in its possession) of all current and proposed Material
Contracts, including all supplements, modifications, amendments and restatements
respecting each made to date or proposed. There are no renegotiations of, or
attempts to renegotiate, or outstanding rights to renegotiate, any material
amounts paid or payable to the Seller under current or completed contracts,
agreements, or commitments with any person having the contractual or statutory
right to demand or require such renegotiation. To Seller's knowledge, no such
person has made written demand for such renegotiation.
(c) Except as set forth in Schedule 3.08(c) hereto, each
Material Contract fully reflects all agreements and understandings with the
signer with respect thereto, and is assignable to the Purchaser in accordance
with the terms and provisions hereof and thereof. No condition exists or event
has occurred that, with notice or lapse of time or both, would constitute a
default by Seller or to Seller's knowledge, the other party thereto, under any
of the foregoing.
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3.09 Employees. Schedule 3.09 hereto contains a complete and
accurate current list of each Prospective Employee, specifying for each: (a)
name; (b) job title; (c) existence and date of any employment or other
agreement; (d) current compensation paid or payable and showing any change in
compensation since January 1, 1998; (e) vacation accrued; (f) all benefits and
other entitlements; and (g) ownership interest in the Seller.
3.10 Intellectual Property.
(a) Except as set forth on Schedule 3.10, Seller is the sole
and exclusive owner, with all right, title and interest in and to (free and
clear of any liens or encumbrances), or has a right to use (and is not
contractually obligated to pay any compensation to any third party in respect
thereof), the patents, trademarks, trade names, service marks, copyrights, and
any applications, therefor listed in Schedule 3.10, and net lists, schematics,
technology, know-how, computer Software programs or applications (in both source
code and object code form), and tangible or intangible proprietary information
or material that are, in each case, used with respect to the Assets by the
Seller as currently conducted (the "Site Intellectual Property Rights").
(b) Schedule 3.10 sets forth a complete list of all patents,
registered and material unregistered trademarks, registered copyrights, trade
names and service marks, and any applications therefor, included in the Site
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such Site Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
filed, including the respective registration or application numbers and the
names of all registered owners.
(c) Except as set forth in Schedule 3.10, no claims with
respect to Site Intellectual Property Rights have been asserted or are
threatened by any person, (i) to the effect that the manufacture, sale,
licensing or use of any products relating to the Assets infringes on any
copyright, patent, trade mark, service mark, trade secret or other proprietary
right of others, (ii) against the use by Site of any trademarks, service marks,
trade names, trade secrets, copyrights, maskworks, patents, technology, know-how
or computer Software programs and applications relating to the Assets, or (iii)
challenging the ownership by Site or the validity or effectiveness of any of
Site Intellectual Property Rights. To Seller's knowledge, except as set forth in
the Schedule 3.10, Seller has not infringed as it relates to the Assets any
copyright, patent, trademark, service mark, trade secret or other proprietary
right of any third party. To Seller's knowledge, except as set forth in the
Schedule 3.10, there is no material unauthorized use, infringement or
misappropriation of any of Site Intellectual Property Rights by any third party,
including any employee or former employee of Seller relating to the Assets. No
Site Intellectual Property Right or product of Seller is subject to any
outstanding decree, order, judgment, or stipulation restricting in any manner
the licensing thereof by Seller.
(d) Seller has taken reasonable efforts to ensure that each
employee, consultant or contractor of Seller given access to proprietary and
confidential information of Seller as it relates to the Assets has executed a
proprietary information and confidentiality agreement substantially in Seller's
standard forms and Seller is not aware of any person who has not executed such
an
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agreement. All Software Products included in the Site Intellectual Property
Rights are either commercially available Software subject to shrinkwrap license
or original with Seller and has been either created by employees of Seller on a
work-for-hire basis or by consultants or contractors who have created such
Software themselves and have assigned all rights they may have had in such
Software to Seller.
3.11 Absence of Certain Events. Except as set forth on
Schedule 3.11, from the date hereof to the Closing Date, Seller has not in
connection with the Assets:
(a) mortgaged, pledged or subjected to any Lien any of the
Assets;
(b) other than the transactions contemplated by this Agreement
and the other Purchase Documents, disposed of any Assets, or entered into any
agreement or other arrangement for any such disposition;
(c) other than the transactions contemplated by this Agreement
and the other Purchase Documents, granted any rights or licenses under any of
its Intellectual Properties included in the Assets or entered into any licensing
or distributorship arrangements with respect thereto; or
(d) entered into any agreement or committed to take any action
set forth in subsections (a) through (c) of this Section 3.11.
3.12 Suppliers and Customers. Schedule 3.12 hereto sets forth
a complete and correct list of the ten (10) largest suppliers and/or vendors and
ten (10) largest customers of Seller with respect to the Software Products
(other than customers of distributors).
3.13 Insurance. Schedule 3.13 sets forth a brief description
(showing the policy number, name of carrier, coverage, deductible amounts, term,
expiration date and annual premium) of all policies of fire, casualty, liability
and other forms of insurance owned by or for the benefit of the Seller and
relating to the Assets, and all self-insurance programs maintained for the
Assets. All such policies are in full force and effect, all premiums due thereon
have been paid in full, and are adequate in amount, scope and coverage to
protect the Seller against any Loss (less the deductible set forth on Schedule
3.13 with respect to such policy) in connection with the Assets.
3.14 Brokers. Except as payable to Alliant Partners, Seller
has not paid or become obligated to pay any fee or commission to any broker,
finder, investment banker or other intermediary in connection with this
Agreement or the transactions contemplated hereby.
3.15 No Misrepresentation by the Seller, Disclosure, Etc. No
representation or warranty of the Seller made or contained in this Agreement or
any other Purchase Document, and no report, statement, certificate, schedule or
other document or information furnished or to be furnished by or on behalf of
the Seller in connection with the transactions contemplated by this Agreement
and the other Purchase Documents, contains or will contain a misstatement of a
material fact or omits or will omit to state a material fact required to be
stated therein in order to make it, in
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the light of the circumstances under which made, not misleading. Except as
specifically disclosed in this Agreement or in Seller's public disclosure
documents filed with the Securities and Exchange Commission, there is no fact
known to the Seller with specific application to the Assets or the Assumed
Obligations (other than general economic or industry conditions) that will or,
so far as the Seller can reasonably foresee, would have a Material Adverse
Effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
To induce the Seller to enter into this Agreement and the
other Purchase Documents to which it is a party and to sell the Assets, the
Purchaser hereby represents and warrants to the Seller, as of the date hereof
and as of the Closing Date (express as otherwise expressly provided below) that:
4.01 Organization, Powers, Etc. The Purchaser: (a) is duly
organized, validly existing and in good standing under the laws of the State of
Delaware, its state of incorporation; (b) has the power and authority to carry
on its business as now conducted and to own or hold under lease the assets and
properties it purports to own or hold under lease; (c) is duly qualified,
licensed or registered to transact its business and in good standing in every
jurisdiction in which failure to be so qualified, licensed or registered would
have a Material Adverse Effect; (d) has the power and authority to execute and
deliver this Agreement and each of the other Purchase Documents to which it is
or will be a party and to perform all of its obligations hereunder and
thereunder; and (e) conducts its business exclusively under the name and at the
executive office and principal place of business at the address set forth in the
Introduction and has done so since the date of its incorporation.
4.02 Authorization, Conflicts and Validity. The execution and
delivery by the Purchaser of this Agreement and each of the other Purchase
Documents to which it is or will be a party and the performance by the Purchaser
of all of its obligations hereunder and thereunder: (a) have been duly
authorized by all requisite corporate action; and (b) will not violate or be in
conflict with any term or provision of (i) any applicable law, (ii) any
judgment, order, writ, injunction, decree or consent of any court or other
judicial authority, or (iii) any of its charter or by-laws. This Agreement is,
and the other Purchase Documents to which the Purchaser is or will be a party
when executed and delivered will be, legal, valid and binding obligations of the
Purchaser, enforceable in accordance with their respective terms and provisions.
4.03 Shares. Each of the Shares is duly authorized, validly
issued, fully paid, non-assessable, will not be subject to any preemptive or
other statutory right of stockholders, will be issued in compliance with
applicable U.S. Federal and state securities laws and will be free of any liens
or encumbrances other than any liens or encumbrances created by or imposed upon
the holders hereof.
4.04 Litigation. There are no actions, suits, investigations
or proceedings (whether or not purportedly on behalf of the Purchaser) pending
or, to the knowledge of Purchaser, threatened
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or contemplated at law, in equity, in arbitration or by or before any other
governmental authority involving of affecting the Purchaser that, if adversely
determined, would have a Material Adverse Effect, nor, to the knowledge of
Purchaser, is there any basis for the institution of any such action, suit,
investigation or proceeding. The Purchaser is not in default with respect to any
judgment, order, writ, injunction, decree or consent of any court or other
judicial authority, which default would have a Material Adverse Effect.
4.05 SEC Filings. The Purchaser has filed with the Securities
and Exchange Commission all reports, schedules, forms, statements and other
documents required by the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, to be filed by the Purchaser since January 1,
1995 (collectively, and in each case including all exhibits and schedules
thereto and documents incorporated by reference therein, the "Purchaser SEC
Documents"). As of their respective dates, except to the extent revised or
superseded by a subsequent filing with the Securities and Exchange Commission on
or before the date of this Agreement, the Purchaser SEC Documents filed by the
Purchaser complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and none of the
Purchaser SEC Documents (including any and all financial statements included
therein) filed by the Purchaser as of such dates contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Purchaser and its consolidated Subsidiaries included
in the Purchaser SEC Documents, including any amendments thereto, are complete,
accurate and fairly present the Purchaser's financial condition as of the date
thereof and the results of its operations for the periods covered thereby comply
as to form in all material respects with applicable accounting requirements
(including GAAP consistently applied during such periods) and the published
rules and regulations of the Securities and Exchange Commission with respect
thereto. The Purchaser has filed with the Securities and Exchange Commission as
exhibits to the Purchaser SEC Documents all agreements, contracts and other
documents or instruments required to be so filed, and such exhibits are true and
complete copies of such agreements, contracts and other documents or
instruments, as the case may be.
4.06 Tax Returns and Audits. Purchaser and each of its
subsidiaries have timely filed all Tax Returns required to be filed by Purchaser
and each of its subsidiaries with any Tax authority since January 1, 1995,
except such Tax Returns which are not material to Purchaser, and have paid all
Taxes shown to be due on such Tax Returns on a timely basis. There is no Tax
deficiency outstanding, proposed in writing (or otherwise to Purchaser's
knowledge proposed) or assessed against Purchaser or any of its subsidiaries,
nor has Purchaser or any of its subsidiaries executed any unexpired waiver of
any statute of limitations on or extending the period for the assessment or
collection of any Tax. No audit or other examination of any Tax Return of
Purchaser or any of its subsidiaries by any Tax authority is presently in
progress, nor has Purchaser or any of its subsidiaries been notified in writing
(or otherwise to Purchaser's knowledge notified) of any request for such an
audit or other examination. No adjustment relating to any Tax Returns filed by
Purchaser or any of its subsidiaries has been proposed in writing by any Tax
authority to Purchaser or any of its subsidiaries. Neither Purchaser nor any of
its subsidiaries has any liability for unpaid Taxes which has not been accrued
for or reserved in accordance with GAAP on Purchaser's financial
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statements (or in any Purchaser SEC Report filed prior to the date hereof, or
for liabilities accruing following the date hereof, in any Purchaser SEC Report
filed prior to the date of the Closing), whether asserted or unasserted,
contingent or otherwise, which is material to Purchaser, other than any
liability for unpaid Taxes that may have accrued since January 1, 1995 in
connection with the operation of the business of Purchaser and its subsidiaries
in the ordinary course. Neither Purchaser nor any of its subsidiaries is party
to, or has any obligation under, or will have any obligation as a result of the
transactions contemplated hereby under, any tax-sharing, tax indemnity or tax
allocation agreement or arrangement. Neither Purchaser nor any of its
subsidiaries is a party to (A) any foreign Tax holidays, (B) any intercompany
transfer pricing agreements, or other arrangement that have been established by
Purchaser or any of its subsidiaries with any Tax authority and (C) any
expatriate programs or policies affecting Purchaser or any of its subsidiaries.
4.07 Consents, Etc. No consent, approval or authorization of,
or registration, declaration or filing with, or notice to, any governmental
authority, creditor or other person that has not been duly and timely obtained
or made (including, without limitation, any filings and notices under applicable
laws, including bulk sales laws) is required as a condition precedent,
concurrent or subsequent to or in connection with the due and valid execution,
delivery and performance by the Purchaser, of this Agreement or any other
Purchase Document to which the Purchaser is or will be a party or the legality,
validity, binding effect or enforceability of any of their respective
representations, warranties, covenants and other terms and provisions.
4.08 Absence of Change. Since June 30, 1998, except as
disclosed in Purchaser's SEC Documents prior to the date hereof, there has not
occurred a Material Adverse Effect on Purchaser.
ARTICLE V
INDEMNIFICATION AND CERTAIN OTHER CONTINUING OBLIGATIONS
5.01 Indemnification by the Seller.
(a) During the one (1) year period following the Closing Date,
the Purchaser and each of its affiliates, and their respective accountants,
attorneys and other Representatives (individually, a "Purchaser's Indemnified
Person", and collectively, the "Purchaser's Indemnified Persons") are each
hereby indemnified, and shall be reimbursed and held harmless on demand, by the
Seller, upon demand in accordance with this Article V (with indemnity made first
from the Escrow Fund), and (at the request of the Purchaser) defended at the
reasonable expense of the Seller, with one counsel reasonably selected by the
Purchaser, from and against any and all Losses (excluding, however, the
disbursements, expenses and fees of their respective attorneys) imposed upon,
incurred by or asserted against any of the Purchaser's Indemnified Persons
resulting from, arising out of or directly or indirectly related to: (i) any
Excluded Liability; (ii) any inaccuracy in or omission from any representation,
warranty or other information contained in this Agreement or any other Purchase
Document or contained in any certificate, report, statement, schedule or other
document or information furnished in connection therewith; (iii) any default
(whether in whole or in part) in the due or timely observance, performance or
satisfaction of any covenant or other term or provision of
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this Agreement or any other Purchase Document by the Seller and (iv) any third
party copyright, trademark or patent infringement action with respect to the
Software Products and Software related to periods or actions prior to the
Closing Date.
(b) Indemnification by the Purchaser. During the one (1) year
period following the Closing Date, the Seller and each of its affiliates, and
their respective accountants, attorneys and other Representatives (individually,
a "Seller's Indemnified Person", and collectively, the "Seller's Indemnified
Persons") are each hereby indemnified, and shall be reimbursed and held harmless
on demand, by the Purchaser, upon demand, and (at the request of the Seller)
defended at the reasonable expense of the Purchaser, with one counsel reasonably
selected by the Seller, from and against any and all claims, liabilities,
expenses (excluding, however, the disbursements, expenses and fees of their
respective attorneys) and other Losses that may be imposed upon, incurred by or
asserted against any of the Seller's Indemnified Persons resulting from, arising
out of or directly or indirectly related to: (i) any inaccuracy in or omission
from any representation, warranty or other information contained in this
Agreement or any other Purchase Document or contained in any certificate,
report, statement, schedule or other document or information furnished in
connection therewith; (ii) any default (whether in whole or in part) in the due
or timely observance, performance or satisfaction of any covenant or other term
or provision of this Agreement or any other Purchase Document by the Purchaser;
and (iii) any Assumed Liability.
5.02 Limitations on Amount.
(a) The Seller shall have no liability for indemnification
with respect to any Loss based upon Section 5.01 hereof until the aggregate of
all Losses exceeds $100,000 (the "Liability Threshold"). Then if the Liability
Threshold is exceeded, the Seller shall be responsible for all Losses from the
first dollar of Loss, without regard to the Liability Threshold. Notwithstanding
anything to the contrary in this Agreement, the Seller shall have no liability
for indemnification to the extent that the aggregate amount of all Losses with
respect to such matters exceeds an amount equal to fifty percent (50%) of the
product of (i) the Purchase Price, as adjusted pursuant to Section 2.05(a)
hereof, and (ii) the Average Share Price (as defined in Section 2.05(a), (the
"Indemnification Limit"). At Seller's sole discretion, any and all claims for
Losses by Purchaser's Indemnified Persons shall be satisfied by (i) the delivery
of that number of Indemnification Shares (as defined in Section 5.03(a)) equal
to (a) the amount of Loss divided by (b) the Average Share Price, (ii) a cash
payment equal to the amount of Loss, or (iii) a combination of (i) and (ii)
above.
(b) Notwithstanding anything to the contrary set forth in
Section 5.02(a) hereof, the limitations set forth in Section 5.02(a) shall not
apply to any claim by the Purchaser or other Purchaser's Indemnified Person with
respect to a claim for indemnification with respect to (i) the representations
or warranties set forth in Section 3.02; or (ii) any claim for indemnification
based upon fraud.
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5.03 Indemnification Holdback.
(a) 250,000 Shares (prior to any adjustment pursuant to
Section 2.05(a)) shall be placed in an escrow account (the "Escrow Fund") with
Greater Bay Trust Company (the "Escrow Agent") following the Closing to be
available for indemnification claims pursuant to Section 5.01, if any (the
"Indemnification Shares") for a period not to exceed three hundred sixty (360)
days following the Closing (the "Escrow Period"), except as otherwise provided
below. One hundred eighty (180) days after the Closing, 125,000 Shares (less the
number of any Shares paid or claimed to be payable in connection with any claim
pursuant to Section 5.01) shall be released from escrow, and three hundred sixty
(360) days after the Closing, the remaining Shares shall be released from
escrow. Notwithstanding the foregoing, to the extent insufficient shares remain
in escrow, Seller shall meet its responsibilities pursuant to Sections 5.01 and
5.02 to indemnify the Purchaser's Indemnified Person's with timely cash payments
in any amount or amounts up to and including the Indemnification Limit.
Furthermore, existence of the Escrow Fund shall be extended in an amount equal
to that portion of the Escrow Fund which, in the reasonable judgement of
Purchaser, subject to the objection of Seller and the subsequent arbitration of
the matter in the manner provided in Section 5.03(d) hereof, is necessary to
satisfy any unsatisfied claims specified in any Officer's Certificate (as
defined below) theretofore delivered to the Escrow Agent prior to the end of the
Escrow Period (which amount shall remain in the Escrow Fund until such claims
have been resolved). As soon as all such claims have been resolved, the Escrow
Agent shall deliver to Seller the remaining portion of the Escrow Fund not
required to satisfy such claims.
(b) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of Purchaser and shall
hold and dispose of the Escrow Fund only in accordance with the terms hereof.
(c) Upon receipt by the Escrow Agent at any time on or before
the last day of the Escrow Period of a certificate signed by any officer of
Purchaser (an "Officer's Certificate"): (A) stating that Purchaser has incurred
and paid or properly accrued Losses, or reasonably anticipates that it may have
to pay or accrue Losses, and (B) specifying in reasonable detail the individual
items of Losses included in the amount so stated, the date each such item was
incurred and paid or properly accrued, or the basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty or claim
to which such item is related, the Escrow Agent shall, subject to the provisions
of Sections 5.01 and 5.02 hereof and this Section 5.03, deliver to Purchaser out
of the Escrow Fund, as promptly as practicable, such amounts held in the Escrow
Fund equal to such Losses. Purchaser shall submit an Officer's Certificate only
in good faith.
(d) At the time of delivery of any Officer's Certificate to
the Escrow Agent, a duplicate copy of such certificate shall be delivered to
Seller, and for a period of thirty (30) days after such delivery the Escrow
Agent shall make no delivery to Purchaser of any Escrow Amount specified in such
Officer's Certificate unless the Escrow Agent shall have received written
authorization from the Seller to make such delivery. After the expiration of
such thirty (30) day period, the Escrow Agent shall make delivery of an amount
from the Escrow Fund in accordance with such Officer's
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Certificate and Section 5.03(c) hereof, provided, that, no such payment or
delivery may be made if Seller shall object in a written statement to the claim
made in the Officer's Certificate, and such statement shall have been delivered
to the Escrow Agent prior to the expiration of such thirty (30) day period.
Seller shall only submit an objection in good faith.
(e) (i) In case Seller shall so object in writing to any claim
or claims made in any Officer's Certificate, Seller and Purchaser shall attempt
in good faith to agree upon the rights of the respective parties with respect to
each of such claims. If Seller and Purchaser should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties and
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum signed by Purchaser and Seller and distribute
amounts from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good
faith negotiation, either Purchaser or Seller may demand arbitration of the
matter unless the amount of the damage or loss is at issue in pending litigation
with a third party, in which event arbitration shall not be commenced until such
amount is ascertained or both parties agree to arbitration; and in either such
event the matter shall be settled by arbitration conducted by one arbitrator.
Purchaser and Seller shall each select one arbitrator, and the two arbitrators
so selected shall select a third arbitrator (who shall be affiliated with a Big
Six accounting firm or a successor thereto) (the "Arbitrator"). The Arbitrator
shall, within ten (10) business days after the last day of any hearings on any
motion, issue a definitive ruling on such motion. The Arbitrator shall also,
within twenty (20) business days from the last day of any hearings regarding the
issuance of any awards, issue a definitive ruling on the issuance of any such
award in such arbitration. The Arbitrator shall also establish procedures
designed to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the Arbitrator, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The Arbitrator shall also rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys
fees and costs, to the extent as a court of competent law or equity, should the
Arbitrator determine that discovery was sought without substantial justification
or that discovery was refused or objected to without substantial justification.
The decision of the Arbitrator as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement, and notwithstanding anything in Section 5.03(f) hereof, the
Escrow Agent shall be entitled to act in accordance with such decision and make
or withhold payments out of the Escrow Fund in accordance therewith. Such
decision shall be written and shall be supported by written findings of fact and
conclusions which shall set forth the award, judgment, decree or order awarded
by the Arbitrator.
(iii) In no event may punitive or exemplary damages
be awarded in any arbitration, and arbitration between the parties shall be
final and binding. Judgment upon any award rendered by the Arbitrator may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa Clara County, California under the Commercial Rules then in effect of the
American Arbitration Association. Each party to any arbitration pursuant to this
Section 5.03(e) shall pay its own expenses; the fees of each arbitrator and the
administrative fee of the American Arbitration Association shall be borne
equally by Purchaser, on the one hand, and Seller, on the other.
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(f) For any third party claim which Purchaser believes may
result in a demand against the Escrow Fund, Purchaser shall promptly notify
Seller of such claim, and Seller shall be entitled, at Seller's expense, to
participate in any defense of such claim, and to the extent Seller wishes, to
assume the defense of such claim with counsel satisfactory to Purchaser and,
after notice from Seller to Purchaser of Seller's election to assume the defense
of such claim, the Seller will not, as long as it diligently conducts such
defense, be liable to Purchaser for any fees or other counsel or any other
expenses with respect to the defense of such claim.
(g) The Escrow Agent's duties shall be as follows:
(i) The Escrow Agent shall be obligated only for
the performance of such duties as are
specifically set forth herein, and as set
forth in any additional written escrow
instructions which the Escrow Agent may
receive after the date of this Agreement
which are signed by an officer of Purchaser
and Seller, and may rely and shall be
protected in relying or refraining from
acting on any instrument reasonably believed
to be genuine and to have been signed or
presented by the proper party or parties.
The Escrow Agent shall not be liable for any
act done or omitted hereunder as Escrow
Agent while acting in good faith and in the
exercise of reasonable judgment, and any act
done or omitted pursuant to the written
advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly
authorized to disregard any and all warnings
given by any of the parties hereto or by any
other person, excepting only orders or
process or courts of law, and is hereby
expressly authorized to comply with and obey
orders, judgments or decrees of any court.
In case the Escrow Agent obeys or complies
with any such order, judgment or decree of
any court, the Escrow Agent shall not be
liable to any of the parties hereto or to
any other person by reason of such
compliance, notwithstanding any such order,
judgment or decree being subsequently
reversed, modified, annulled, set aside,
vacated or found to have been entered
without jurisdiction.
(iii) The Escrow Agent shall not be liable in any
respect on account of the identity,
authority or rights of the parties executing
or delivering or purporting to execute or
deliver this Agreement or any documents or
papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statue of
limitations with respect to this Agreement
or any documents deposited with the Escrow
Agent.
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(v) The Escrow Agent may resign at any time upon
giving at least thirty (30) days written
notice to Purchaser and Seller; provided,
however, that no such resignation shall
become effective until the appointment of a
successor escrow agent which shall be
accompanied as follows: Purchaser and Seller
shall use their best efforts to mutually
agree upon a successor escrow agent within
thirty (30) days after receiving such
notice. If the parties fail to agree upon a
successor escrow agent within such time,
Purchaser shall have the right to appoint a
successor escrow agent (which, in such case,
shall be a financial institution with assets
of at least $1 billion). The successor
escrow agent selected in the preceding
manner shall execute and deliver an
instrument accepting such appointment and it
shall thereupon be deemed the Escrow Agent
hereunder and it shall without further acts
be vested with all the estates, properties,
rights, powers, and duties of the
predecessor Escrow Agent as if originally
named as Escrow Agent. Thereafter, the
predecessor Escrow Agent shall be discharged
for any further duties and liabilities under
this Agreement.
(vi) During the Escrow Period, the Escrow Agent
shall invest any cash portion of the Escrow
Fund solely in direct obligations of the
United States government, the principal and
interest of which are fully guaranteed by
the United States government, any daily or
weekly withdrawal money market fund
investing solely in such obligations or
interest-bearing or time deposits fully
insured by the Federal Deposit Insurance
Corporation, and short-term bankers'
acceptances in any bank which is rated in
one of the two highest ratings categories by
Moody's Investor Service, Inc. or Standard &
Poor's Corporation (collectively, the
"Permitted Investments"), or any combination
of the foregoing. For purposes of this
Agreement, any and all interest earned on
the Escrow Fund during the Escrow Period as
a result of any Permitted Investment shall
be reported by Seller for tax purposes and
distributed to Seller upon termination of
the Escrow Fund.
(vii) All fees of the Escrow Agent for performance
of its duties hereunder shall be paid by
Purchaser. It is understood that the fees
and usual charges agreed upon for services
of the Escrow Agent shall be considered
compensation for ordinary services.
5.04 "No Shop" and Liquidated Damages Covenant. In recognition
of the time and expense expended by Purchaser with respect to the purchase of
the Assets, the Seller hereby covenants and agrees that prior to the Closing
Date or the termination of this Agreement, it will not offer, or accept any
offer for, any of the Assets to or from any third party. The Seller further
covenants and agrees, that if any termination of this Agreement pursuant to
Section 7.02(c) shall be
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followed by a sale of substantially all the Assets within one hundred eighty
(180) days following any such termination, Seller shall pay to Purchaser the
amount of $140,000, as liquidated damages.
5.05 Lock-Up and First Refusal of Shares.
(a) None of the Shares may be sold for a period of one hundred
eighty (180) days after the Closing. One-half of the Shares, which are not
subject to the indemnification holdback pursuant to Section 5.02, may be sold
after the First Lock-Up Period and the remaining Shares may be sold after the
Second Lock-Up Period.
(b) Purchaser will have a right of first refusal with respect
to any proposed sale of the Shares for a period of five hundred forty (540) days
after the Closing (the "Rights Period"). In the event Seller proposes to sell
any of the Shares during the Rights Period, Seller shall give Purchaser written
notice of its intention, with copies to each of Don Farrow and Doug Norman or
their replacements (each, a "Principal"), describing the price and general terms
upon which Seller proposes to sell the same. Purchaser shall have forty eight
(48) hours after telephonic confirmation of the receipt of such notice is given
to Seller by either of the Principals to agree to purchase such Shares for the
price and upon the terms specified in the notice by giving written notice to the
Seller and stating therein the quantity of Shares to be purchased by Purchaser.
5.06 The Seller's Noncompetition Covenant. In order to prevent
the value of the Assets, properties, and Confidential Information being acquired
under this Agreement from being diminished by the activities of the Seller, in
recognition of the competitive and confidential nature of such information and
business, in order to further induce the Purchaser to make that acquisition, and
in consideration of the Purchase Price, the Seller hereby covenants and agrees
that, for a period of three (3) years after the Closing (the "Restricted
Period"), neither of the Seller, nor any of its subsidiaries will directly or
indirectly, under any circumstance other than through, or at the direction and
for the benefit of, the Purchaser, offer employment to any of the Prospective
Employees.
5.07 The Seller's Confidentiality Covenant.
(a) In order to prevent the value of the Assets and
Confidential Information being acquired under this Agreement from being
diminished by the activities of the Seller or any of its Representatives, in
recognition of the competitive and confidential nature of such information, in
order to further induce the Purchaser to make that acquisition, and in
consideration of a portion of the Purchase Price, the Seller hereby covenants
and agrees that, the Seller, will hold all Confidential Information in strict
confidence for the use and benefit of the Purchaser, and the Seller will not, or
permit or cause any of their respective Representatives to, directly or
indirectly, under any circumstance during the 18-month period following the
Closing Date: (a) disclose, publish or otherwise reveal, impart or deliver in
any way any Confidential Information to any other person other than (i) to
authorized Representatives of the Purchaser, (ii) to such other persons as the
Purchaser may direct in writing; and (iii) to such third persons as reasonably
necessary for such third persons to conduct due diligence on Seller's business
and operations relating to any proposed merger with Seller, any sale of all or
substantially all of Seller's assets, or any purchase of such third person's
assets
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by Seller; (b) fail to use reasonable precautions to assure that all
Confidential Information is properly protected and kept from all unauthorized
persons; (c) act or fail to act so as to otherwise impair the confidential or
proprietary nature of any Confidential Information; (d) with respect to the
Assets, use any customer list or information, price or cost information, product
presentation or strategy, know-how or other Confidential Information other than
at the direction and for the benefit of the Purchaser; or (e) offer or agree to,
or cause or assist in the inception or continuation of, any such disclosure,
impairment or use.
(b) In the event of a breach or threatened breach by the
Seller of any of the provisions of this Section 5.07, the Purchaser shall be
entitled to an injunction to be issued by any court or tribunal of competent
jurisdiction to restrain the Seller from committing or continuing any such
violation. In any proceeding for an injunction, the Seller agrees that its
ability to answer in damages shall not be a bar or be interposed as a defense to
the granting of a temporary or permanent injunction against Seller. The Seller
acknowledges that the Purchaser will not have an adequate remedy at law in the
event of any breach by him as aforesaid and that the Purchaser may suffer
irreparable damage and injury in the event of such a breach by Seller. Nothing
contained herein shall be construed as prohibiting the Purchaser from pursuing
any other remedy or remedies available to the Purchaser in respect of such
breach or threatened breach. In addition, if any term or provision of this
Section 5 shall be held invalid or unenforceable because of its duration,
geographic scope, or for any other reason, the Purchaser and the Seller agree
that the court making such determination shall have the power to modify such
provision, whether by limiting the geographic scope, reducing the duration, or
otherwise, to the minimum extent necessary to make such term or provision valid
and enforceable, and such term or provision shall be enforceable in such
modified form.
5.08 Delivery of Protected Documents. With respect to the
Assets, at the Closing, the Seller shall deliver to the Purchaser (or destroy,
if and to the extent reasonably requested by the Purchaser) any and all
Documents (a) copyrighted by the Seller, or (b) constituting or containing any
Confidential Information (collectively, "Protected Documents"). In any event,
the Seller shall not at any time after the Closing Date use or reproduce any of
the Protected Documents or distribute, give or otherwise make available any of
the Protected Documents to any person other than the Purchaser or its
Representatives.
5.09 Sublease. Seller shall arrange to provide office space to
house three Software developers on mutually satisfactory terms.
5.10 Proxy Materials. Seller shall permit Purchaser to review
and approve, in its reasonable discretion, proxy materials relating to the
approval of this Agreement and the transactions contemplated hereby but not with
respect to any other transaction or subject matter contained therein, to be
submitted to the shareholders of the Seller, prior to the filing of any such
materials with the Securities and Exchange Commission.
5.11 Registration Rights. Purchaser will use its reasonable
efforts to register the Shares with the Securities and Exchange Commission
within six (6) months of the date hereof by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules
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and regulations thereunder, with such registration statement declared or ordered
effective by the Securities and Exchange Commission. All Registration Expenses
(as defined below) incurred in connection with any registration, qualification
or compliance pursuant to this Section 5.11 shall be borne by Purchaser.
"Registration Expenses" shall mean all expenses incurred in effecting any
registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for Purchaser and Seller, blue skys fees and
expenses, expenses of any regular or special audits incident to or required by
any such registration and compensation of regular employees of Purchaser.
5.12 Access to the Seller's Retained Books and Records. From
and after the Closing Date, at all reasonable times and as often as the
Purchaser reasonably may request, the Seller shall, and shall cause each of its
affiliates to, permit the Purchaser (and its accountants, attorneys and other
Representatives), to have complete and unrestricted access to all personnel and
all books, records and other factual information retained by the Seller relating
to the Assets as the Purchaser may reasonably require, and to make copies and
excerpts from them and to discuss with them the Seller's officers, directors,
employees, accountants and agents, in connection with (a) the preparation,
filing, audit or any contest of or with respect to any federal, state, local or
foreign income or other tax returns of the Purchaser or any affiliate of the
Purchaser, or with respect to any dispute, refund, claim or litigation relating
to those returns and the Taxes due pursuant to those returns, (b) the
initiation, prosecution or defense of any other litigation by the Purchaser or
any affiliate of the Purchaser, (c) compliance by the Purchaser or any of its
affiliates with any legal or regulatory obligation of those entities, (d) any
Asset or (e) the release or defense of any Excluded Liability or any Lien. The
Seller shall maintain all retained books, records and information for at least
six (6) years following the Closing, except that the Seller from time to time at
its own cost and expense may deliver all or portions thereof to the Purchaser.
5.13 Allocation of Purchase Price. Seller and Purchaser agree
that the Purchase Price shall be allocated among the Assets no later than five
(5) days prior to the Closing (the "Allocation"). For all purposes (including,
without limitation, Section 1060 of the Code), the Seller and the Purchaser
agree to report the allocation of the Purchase Price in accordance with such
Allocation and agree to act in accordance therewith in the preparation and
filing of all relevant Tax Returns.
5.14 Publicity. Seller and Purchaser agree that no publicity,
release or announcement concerning the transactions contemplated hereby shall be
issued without the advance approval, which approval shall not be unreasonably
withheld, of the form and substance thereof by other party hereto, except any
release or announcement required by law or legal process, including the rules of
the Securities and Exchange Commission or any stock exchange, and will inform
the other party in advance of such required publicity release and/or
announcement if reasonably possible.
5.15 Other Transactions. Notwithstanding anything to the
contrary in this Agreement, nothing in this Agreement or the transaction
contemplated hereby shall prohibit or otherwise impair any transaction
constituting a change of control of Seller to any third party
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(including providing Confidential Information to third persons as part of a due
diligence inquiry related thereto).
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ARTICLE VI
OTHER REMEDIES, ETC.
6.01 Equitable Relief, Attorneys Fees, Etc. The Seller
acknowledges and agrees that, in addition to any and all other rights, powers,
privileges and remedies that the Purchaser may have under this Agreement or
applicable law, the Purchaser shall be entitled to injunctive relief, specific
performance or such other equitable relief as it may request to exercise or
otherwise enforce any of the terms and provisions of this Agreement or any other
Purchase Document and to enjoin or otherwise restrain any act prohibited by this
Agreement or any other Purchase Document, and the Seller will not raise and
hereby waives any objection or defense that there is an adequate remedy
available at law.
6.02 Enforcement, Etc. The Purchaser, in its sole discretion,
may proceed to exercise or enforce any right, power, privilege, remedy or
interest that it or they may have under this Agreement, any other Purchase
Document or applicable law: (a) at law, in equity or in any other forum
available under applicable law; (b) without notice except as otherwise expressly
provided herein; (c) without pursuing, exhausting or otherwise exercising or
enforcing any other right, power, privilege, remedy or interest that it may have
against or in respect of the Seller or any other person or thing; and (d)
without regard to any act or omission of the Purchaser or any other person. The
Purchaser may institute one or more proceedings (which may be separate
proceedings) with respect to this Agreement or any other Purchase Document in
such order and at such times as the Purchaser may elect in its sole and absolute
discretion.
6.03 Governing Law; Consent to Jurisdiction and Venue; Waiver
of Personal Service; Waiver of Jury Trial; Etc. THIS AGREEMENT AND EACH OF THE
OTHER PURCHASE DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE APPLICABLE LAWS PERTAINING IN THE STATE OF CALIFORNIA, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The Purchaser, the Seller
hereby consents and agrees that the state and federal courts located in Santa
Clara County, California shall have personal jurisdiction and proper venue with
respect to any action or proceeding brought by one party against another
relating to this Agreement. In any such action or proceeding brought in Santa
Clara County, California, neither the Purchaser or the Seller will raise, and
each hereby expressly waives, any objection or defense to any such jurisdiction
or venue as an inconvenient forum. IN ANY ACTION, SUIT OR PROCEEDING IN ANY
JURISDICTION BROUGHT AGAINST THE SELLER BY THE PURCHASER, OR VICE VERSA, THE
SELLER AND THE PURCHASER EACH WAIVE TRIAL BY JURY.
ARTICLE VII
MISCELLANEOUS
7.01 Notice. Except as otherwise expressly provided, any
notice, request, demand or other communication permitted or required to be given
under this Agreement or any other
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Purchase Document shall be in writing, shall be sent by one of the following
means to the addressee at the address set forth above or at such other address
as shall be designated hereunder by notice to the other parties and persons
receiving copies, effective upon actual receipt (with a copy thereof, in the
case of the Purchaser, to Martin E. Weisberg, Esq., Parker Chapin Flattau &
Klimpl, LLP, 1211 Avenue of the Americas, New York, New York 10036, and, in the
case of the Seller, to Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road,
Palo Alto, California 94304, Attn: Jeffrey D. Saper and Kurt Berney), and shall
be deemed conclusively to have been given: (i) on the first Business Day
following the day timely deposited with Federal Express (or other equivalent
national overnight courier) or United States Express Mail, specifying overnight
delivery, with the cost of delivery prepaid or for the account of the sender;
(ii) on the fifth Business Day following the day duly sent by certified or
registered United States mail, postage prepaid and return receipt requested; or
(iii) when otherwise actually received by the addressee on a Business Day,
whether in writing or by facsimile transmission (or on the next Business Day if
received after the close of normal business hours or on any non-Business Day).
7.02 Termination. Except as provided in Section 7.03 below,
this Agreement may be terminated at any time prior to the Closing:
(a) by mutual consent of Purchaser and Seller;
(b) by Purchaser or Seller if the Closing has not
occurred by June 30, 1999; or
(c) by Purchaser or Seller if the Seller shareholder
approval required as a condition to the Closing shall
not have been approved at such Seller shareholder
meeting or any postponement thereof.
Where action is taken to terminate this Agreement pursuant to
this Section 7.02, it shall be sufficient for such action to be authorized by
the Board of Directors (as applicable) of the party taking such action.
Notwithstanding anything in this Section 7.02, neither Purchaser nor Seller may
terminate this Agreement if such party is in material breach of its obligations
hereunder and such breach caused, directly or indirectly, the Closing not to
occur.
7.03 Effect of Termination. In the event of termination of
this Agreement as provided in Section 7.02, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of
Purchaser or Seller, or their respective officers, directors or stockholders,
provided that each party shall remain liable for any breaches of this Agreement
prior to its termination; and provided further that, the provisions of Sections
5.04, 5.12 and this Article VII of this Agreement shall remain in full force and
effect and survive any termination of this Agreement.
7.04 Further Assurances. (a) The Seller agrees to do such
further acts and things and to execute and deliver such statements, assignments,
agreements, instruments and other documents as the Purchaser from time to time
reasonably may request (a) in order to evidence or confirm the transfer of any
Asset, or (ii) the release of any Excluded Liability or any Lien, or (b) in
connection with the administration, enforcement or adjudication of this
Agreement and the other
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Purchase Documents, in order to effectuate the purpose and the terms and
provisions of this Agreement and the other Purchase Documents, each in such form
and substance as may be acceptable to the Purchaser.
(a) The Purchaser agrees to do such further acts and things
and to execute and deliver such statements, assignments, agreements, instruments
and other documents as Seller from time to time reasonably may request (a) in
order to evidence or confirm (i) the transfer of any Asset, or (ii) the release
of any Excluded Liability or any Lien, or (b) in connection with the
administration, enforcement or adjudication of this Agreement and the other
Purchase Documents, in order to effectuate the purpose and the terms and
provisions of this Agreement and the other Purchase Documents, each in such form
and substance as may be acceptable to the Seller.
7.05 Expenses.
(a) Each party shall bear its own expenses in connection with
the negotiations and execution of this Agreement and the transactions
contemplated hereby.
(b) All sales, use and other transfer Taxes and all filing,
recording and registration fees payable in connection with the transactions
contemplated hereby shall be paid equally by Purchaser and Seller and evidence
of any such payment by the Seller shall be promptly delivered to the Purchaser.
The Parties agree to cooperate with each other to minimize taxes payable as a
result of the transactions contemplated by this Agreement.
7.06 Interpretation, Headings, Severability, Etc. The parties
acknowledge and agree that the terms and provisions of this Agreement and the
other Purchase Documents have been negotiated, shall be construed fairly as to
all parties hereto, and shall not be construed in favor of or against any party,
including, without limitation, by reason of such party having caused this
Agreement or any of the Purchase Documents to be drafted. The section headings
contained in this Agreement and the other Purchase Documents are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement or any other Purchase Document. In the event that any term or
provision of this Agreement or any other Purchase Document shall be finally
determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by a governmental authority having jurisdiction and
venue, that determination shall not impair or otherwise affect the validity,
legality or enforceability (a) by or before that authority of the remaining
terms and provisions of this Agreement and the other Purchase Documents, which
shall be enforced as if the unenforceable term or provision were deleted or
reduced pursuant to the next sentence, as applicable, or (b) by or before any
other authority of any of the terms and provisions of this Agreement and the
other Purchase Documents. If any term or provision of this Agreement or any
other Purchase Document is held to be unenforceable because of the scope or
duration of any such provision, the parties agree that any court making such
determination shall have the power, and is hereby requested, to reduce the scope
or duration of such term or provision to the maximum permissible under
applicable law so that said term or provision shall be enforceable in such
reduced form.
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7.07 Successors and Assigns; Assignment; Intended
Beneficiaries. Whenever in this Agreement or any other Purchase Document
reference is made to any person, such reference shall be deemed to include the
successors, assigns, heirs and legal representatives of such person, and,
without limiting the generality of the foregoing, all representations,
warranties, covenants and other agreements made by or on behalf of the Seller in
this Agreement and the other Purchase Documents shall inure to the benefit of
the successors and assigns of the Purchaser; provided, however, that nothing
herein shall be deemed to authorize or permit the Seller to assign any of the
Seller's rights or obligations under this Agreement to any other person (other
than an affiliate of the Seller), and the Seller covenants and agree that the
Seller shall not make any such assignment. The representations, warranties and
other terms and provisions of this Agreement and the other Purchase Documents
are for the exclusive benefit of the parties hereto and, except as otherwise
expressly provided herein, no other person, including creditors of any party
hereto, shall have any right or claim against any party by reason of any of
those terms and provisions or be entitled to enforce any of those terms and
provisions against any party.
7.08 Survival of Representations, Etc. Notwithstanding any
right of Purchaser fully to investigate the affairs of Seller and
notwithstanding any knowledge of the facts determined or determinable by
Purchaser pursuant to such investigation or right of investigation, each party
hereto has the right to rely fully upon representations, warranties, covenants
and agreements of the other party contained in this Agreement and Purchase
Documents as modified by the Disclosure Schedules. All such representations,
warranties, covenants and agreements of Seller and Purchaser made in this
Agreement and the Purchase Documents or in any certificate delivered pursuant
hereto shall survive the execution and delivery hereof and for one (1) year
following the Closing.
7.09 No Waiver by Action, Etc. Any waiver or consent
respecting any representation, warranty, covenant or other term or provision of
this Agreement or any other Purchase Document shall be effective only in the
specific instance and for the specific purpose for which given and shall not be
deemed, regardless of frequency given, to be a further or continuing waiver or
consent. The failure or delay of a party at any time or times to require
performance of, or to exercise its rights with respect to, any representation,
warranty, covenant or other term or provision of this Agreement or other
Purchase Document in no manner (except as otherwise expressly provided herein)
shall affect its right at a later time to enforce any such provision. No notice
to or demand on either party hereto in any case shall entitle such party to any
other or further notice or demand in the same, similar or other circumstances.
The acceptance by the Purchaser of (a) any partial or late payment shall not
constitute a satisfaction or waiver of the full amount then due or the resulting
default, or (b) any payment during the continuance of any default shall not
constitute a waiver or cure thereof; and the Purchaser may accept or reject any
such payment without affecting any of its rights, powers, privileges, remedies
and other interests under this Agreement, the other Purchase Documents and
applicable law. All rights, powers, privileges, remedies and other interests of
the Purchaser hereunder are cumulative and not alternatives, and they are in
addition to and shall not limit (except as otherwise expressly provided herein)
any other right, power, privilege, remedy or other interest of the Purchaser
under this Agreement, any other Purchase Document or applicable law.
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7.10 Counterparts; Amendments; Entire Agreement. This
Agreement shall be effective as of the date first written above when executed by
the Seller and delivered to the Purchaser; and unless otherwise provided each
other Purchase Document shall be effective as of the date first written therein
when executed by the Seller or other party and delivered to the Purchaser. This
Agreement may have been executed in two or more counterpart copies of the entire
document or of signature pages to the document, each of which may be executed by
one or more of the parties hereto or thereto, but all of which, when taken
together, shall constitute a single agreement binding upon all of the parties
hereto or thereto, as applicable. Each and every modification and amendment of
this Agreement or any other Purchase Document shall be in writing and signed by
all of the parties hereto or thereto, as applicable, and each and every waiver
of, or consent to any departure from, any representation, warranty, covenant or
other term or provision of this Agreement or any other Purchase Document shall
be in writing and signed by each affected party hereto or thereto, as
applicable. This Agreement and the other Purchase Documents contain the entire
agreement of the parties and supersede all prior and other representations,
agreements and understandings, oral or otherwise, between the parties with
respect to the matters contained herein or therein.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement on the date first written above.
SITE TECHNOLOGIES, INC.
By: /s/ Jeffrey F. Ait
----------------------------------------
Jeffrey F. Ait, Chief Executive Officer
STARBASE CORPORATION
By: /s/ Donald R. Farrow
----------------------------------------
Donald R. Farrow, Vice Chairman
GREATER BAY TRUST COMPANY (WITH RESPECT TO
SECTIONS 5.01, 5.02 AND 5.03 ONLY)
By: ----------------------------------------
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LIST OF SCHEDULES
TO THE ASSET PURCHASE AND SALE AGREEMENT
----------------------------------------
Schedule 2.01 Assets
Schedule 2.02(e) Excluded Assets
Schedule 2.03 Assumed Obligations
Schedule 2.08(a)(1) Purchaser's Consents
Schedule 2.08(b)(1) Seller's Consents
Schedule 3.03 Consents, etc.
Schedule 3.04 Litigation
Schedule 3.06 Tax Returns
Schedule 3.08(a) Material Contracts
Schedule 3.08(c) Certain Conditions and Obligations
Schedule 3.09 Employees
Schedule 3.10 Intellectual Properties
Schedule 3.11 Absence of Certain Events
Schedule 3.12 Suppliers and Customers
Schedule 3.13 Insurance
EXHIBIT 4.7
FIRST AMENDMENT
TO
ASSET PURCHASE AND SALE AGREEMENT
INTRODUCTION
THIS AGREEMENT, dated as of February 9, 1999 (this
"Amendment"), is by and between SITE TECHNOLOGIES, INC., a California
corporation having an address at 380 El Pueblo Road, Scotts Valley, California
95066 (the "Seller"), and STARBASE CORPORATION, a Delaware corporation having an
address at 4 Hutton Centre Drive, Suite 800, Santa Ana, California 92707 (the
"Purchaser").
RECITALS
Purchaser and Seller entered in an Asset Purchase and Sale
Agreement dated December 18, 1998 (the "Existing Purchase Agreement"). Pursuant
to the Original Purchase Agreement, the Purchaser is purchasing certain Assets
of the Seller. Capitalized terms used and not otherwise defined or amended in
this Amendment shall have the meanings respectively assigned to them in the
Existing Purchase Agreement.
On February 2, 1999, the Seller filed a voluntary petition for
relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy
Code") Case No. 99-50736-JRG-11 in the United States Bankruptcy Court for the
Northern District of California, San Jose division (the "Bankruptcy Court") and
is presently operating its business as a debtor-in-possession pursuant to the
provisions of 11 U.S.C. ss.ss. 1107 and 1108.
The parties have entered into this Amendment in order to amend
the Existing Purchase Agreement, all upon the terms and provisions and subject
to the conditions hereinafter set forth.
AGREEMENT
In consideration of the foregoing, the mutual covenants and
agreement hereinafter set forth and other good and valuable consideration (the
receipt and adequacy of which are hereby acknowledged by the Seller), the
parties hereto hereby agree as follows:
Section 1. Amendment to Existing Purchase Agreement. The
Existing Purchase Agreement is hereby amended as follows, effective as of the
date first written above:
(A) In Section 2.05(a) of the Existing Purchase Agreement, the
number "750,000" in the first sentence is hereby replaced by the number
"625,000" and the number
<PAGE>
"750,000" in the second sentence is hereby replaced by the number "625,000"
without the deletion or modification of any other material.
(B) In Section 2.08(a) of the Existing Purchase Agreement,
item (iii) "Approval by Shareholders of Seller" is hereby deleted in its
entirety.
(C) In Section 2.08(a) of the Existing Purchase Agreement,
item (viii) "No Actions, Suits or Proceedings" is hereby deleted in its
entirety.
(D) In Section 2.08(b) of the Existing Purchase Agreement,
item (v) "Opinion of Counsel to Seller" is hereby deleted in its entirety, and
the following is hereby inserted in its respective place:
Approval of Seller's Motions by Bankruptcy Court. The Seller
shall have filed each of a (i) NOTICE OF MOTION AND MOTION FOR ORDER
ESTABLISHING BIDDING PROCEDURES AND AUTHORIZING BREAKUP FEE AND FIRST
AMENDMENT TO LICENSE AGREEMENT; (ii) NOTICE OF MOTION AND MOTION TO
SELL ASSETS OUT OF THE ORDINARY COURSE OF BUSINESS (11U.S.C. ss.
363(b)) AND FREE AND CLEAR OF ALL LIENS, CLAIMS, ENCUMBRANCES AND
INTERESTS (11 U.S.C. ss. 363 (f)); and (iii) NOTICE OF MOTION AND
MOTION TO ASSUME AND ASSIGN EXECUTORY CONTRACTS (11 U.S.C. ss.ss.365
(a), (f)) substantially in the form previously provided to the
Purchaser (collectively, the "Motions"), each Motion shall be
reasonably acceptable to Purchaser in form and substance and an order
of the Bankruptcy Court in form acceptable to the Purchaser shall have
been issued with respect to each of the Motions which orders shall not
be subject to a stay or appeal (collectively, the "Final Order") no
later than March 31, 1999.
(E) In Section 2.09 of the Existing Purchase Agreement, the
text is hereby deleted in its entirety, and the following text is hereby
inserted in its respective place:
Subject to Section 7.02(b), the closing of the purchase and
sale of the Assets shall take place at the offices of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo
Alto, California within five (5) days after the issuance of the Final
Order, or at such other time as the parties may mutually agree in
writing (such time and date being referred to herein as the "Closing
Date").
(F) In Section 3.03 of the Existing Purchase Agreement, the
parenthetical is hereby deleted in its entirety and the following new
parenthetical is hereby inserted in its respective place:
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(including, without limitation, the Final Order, but not
including any filings and notices under applicable bulk sales laws,
which under applicable law is the responsibility of the Purchaser)
(G) In Section 4.07 of the Existing Purchase Agreement, the
following is hereby inserted at the beginning of the sentence, without the
deletion or modification of any other material:
Except as otherwise provided on Schedules 3.03 or 3.04,
(H) In Section 5.01(a) of the Existing Purchase Agreement, the
words "one (1) year" are hereby replaced by the words "six (6) months", without
the deletion or modification of any other material.
(I) In Section 5.01(b) of the Existing Purchase Agreement, the
words "one (1) year" are hereby replaced by the words "six (6) months", without
the deletion or modification of any other material.
(J) In Section 5.03(a) of the Existing Purchase Agreement, the
first and second sentences are hereby deleted in their entirety and the
following are hereby inserted in their respective places:
125,000 Shares (prior to any adjustment pursuant to Section
2.05(a)) shall be placed in an escrow account (the "Escrow Fund") with
Greater Bay Trust Company (the "Escrow Agent") following the Closing to
be available for indemnification claims pursuant to Section 5.01, if
any (the "Indemnification Shares") for a period not to exceed one
hundred eighty (180) days following the Closing (the "Escrow Period"),
except as otherwise provided below. At the expiration of the Escrow
Period, all Shares (less the number of any Shares paid or claimed to be
payable in connection with any claim pursuant to Section 5.01) shall be
released from the Escrow Fund.
(K) In Section 5.04 of the Existing Purchase Agreement, the
heading and the text are hereby deleted in their entirety and the following are
hereby inserted in their respective places:
5.04 Notice and Breakup Fee
In recognition of the time and expense expended by Purchaser
with respect to the purchase of the Assets, the Seller hereby covenants
and agrees that prior to the Closing Date or the termination of this
Agreement, it will notify Purchaser of any and all inquiries which it
receives pursuant to the bankrupty proceeding of the Seller in the
Bankruptcy Court, regarding the purchase of some or all of the Assets
pursuant to the proposed competing bid procedure set forth in the
MOTION FOR ORDER ESTABLISHING
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BIDDING PROCEDURES AND AUTHORIZING BREAKUP FEE AND FIRST AMENDMENT TO
LICENSE AGREEMENT. The Seller further covenants and agrees, that if any
termination of this Agreement pursuant to Section 7.02(c) shall be
followed by a sale of substantially all the Assets to one or more
purchasers, Seller shall pay to Purchaser a breakup fee equal to the
Purchaser's reasonable costs and expenses not to exceed five percent
(5%) of the purchase price paid by the competing bidder.
(L) In Section 5.05(a) of the Existing Purchase Agreement, the
following is hereby inserted following the word "Closing" and prior to the
period at the end of the first sentence:
(the "Lock-Up Period")
(M) In Section 5.05(a) of the Existing Purchase Agreement, the
second sentence is hereby deleted in its entirety, and the following is hereby
inserted in its respective place:
Subsequent to the Lockup Period, no more than five percent
(5%) of the prior business day's trading volume in the Shares may be
sold on any given day.
(N) In Section 5.09 of the Existing Purchase Agreement, the
text is hereby deleted in its entirety, and the following is hereby inserted in
its respective place:
[Deleted]
(O) In Section 5.10 of the Existing Purchase Agreement, the
text is hereby deleted in its entirety, and the following is hereby inserted in
its respective place:
[Deleted]
(P) In Section 5.11 of the Existing Purchase Agreement, the
first sentence is hereby deleted and is hereby replaced in its entirety by the
following:
Purchaser will use its reasonable efforts to register the
Shares with the Securities and Exchange Commission within six (6)
months after the receipt of the Final Order by preparing and filing a
registration statement in compliance with the Securities Act and
applicable rules and regulations thereunder, with such registration
statement declared or ordered effective by the Securities and Exchange
Commission.
(Q) In Section 7.02(c) of the Existing Purchase Agreement, the
text is hereby deleted in its entirety, and the following is hereby inserted in
its respective place:
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by Purchaser or Seller if the Bankruptcy Court does not
approve the transactions contemplated hereby in its Final Order.
Section 2. Bringdown of Representations, Etc. As of the date
of this Amendment, both before and after giving effect to the terms and
provisions of this Amendment: (a) the representations and warranties of each of
the Purchaser and the Seller set forth in the Existing Purchase Agreement are
true and correct in all material respects with the same effect as though those
representations and warranties had been made on and as of the date hereof; and
(b) except for the Chapter 11 bankruptcy proceeding in the Bankruptcy Court,
there are no actions, suits or proceedings pending or, to the best knowledge of
the undersigned, threatened or contemplated by any person for the liquidation or
dissolution of the Seller or otherwise threatening its existence or challenging
or calling into question the power or authority of the Seller to execute or
deliver any Purchase Document to which it is or will be a party or to perform
any of its obligations thereunder.
Section 3. Counterparts. This Amendment may be signed in two
or more counterpart copies of the entire document or of signature pages to the
document, each of which may be executed by one or more of the parties hereto,
but all of which, when taken together, shall constitute a single agreement
binding upon all of the parties hereto.
Section 4. Governing Law, Etc. This Amendment shall be
governed by and construed in accordance with the applicable terms and provisions
of Sections 1 through 7 (as well as any applicable definitions or provisions
appearing elsewhere) of the Existing Purchase Agreement as amended hereby, which
terms and provisions are incorporated herein by reference.
Section 5. Agreement to Continue as Amended. The Existing
Purchase Agreement and the other Purchase Documents, as supplemented, modified
and amended by this Amendment, shall remain and continue in full force and
effect after the date hereof.
Section 6. Entire Agreement. This Amendment contains the
entire agreement of the parties and supersedes all other representations,
warranties, agreements and understandings, oral or otherwise, among the parties
with respect to the matters contained herein.
[intentionally left blank]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date first written above.
STARBASE CORPORATION
By: -----------------------------------
Name:
Title:
SITE TECHNOLOGIES, INC.
By: -----------------------------------
Name:
Title:
-5-
EXHIBIT 5.1
PARKER CHAPIN FLATTAU & KLIMPL, LLP
1211 Avenue of the Americas
New York, NY 10036
(212) 704-6000
June 14, 1999
StarBase Corporation
4 Hutton Centre Drive, Suite 800
Santa Ana, CA 92707-8713
Ladies and Gentlemen:
We have acted as counsel to StarBase Corporation (the "Company") in
connection with a Registration Statement on Form S-3 filed by the Company with
the Securities and Exchange Commission (the "Registration Statement") relating
to up to 2,635,200 shares (the "Shares") of the Company's common stock, par
value $0.01 per share (the "Common Stock"). Of such Shares, 1,333,334 may be
issued upon conversion of the Series I Preferred Stock, 676,866 may be issued
upon the exercise of warrants issuable to the holders of the Shares (the
"Warrants") and 625,000 shares of common stock have been issued by the Company
(the "Other Shares").
In connection with the foregoing, we have examined, among other things,
the Registration Statement, the Warrants and originals or copies, satisfactory
to us, of all such corporate records and of all such agreements, certificates
and other documents as we have deemed relevant and necessary as a basis for the
opinion hereinafter expressed. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity with the original documents submitted to us as
copies. As to any facts material to such opinion, we have, to the extent that
relevant facts were not independently established by us, relied on certificates
of public officials and certificates, oaths and declarations of officers or
other representatives of the Company.
Based upon the foregoing, we are of the opinion that (i) the Shares
issuable upon conversion of the Series I Preferred Stock (when such shares are
paid for and issued in accordance with the terms of the Series I Preferred
Stock) will be legally issued, fully paid and non-assessable; (ii) the Shares
issuable upon the exercise of the Warrants (when such Shares are paid for and
issued in accordance with the terms of the Warrants) will be legally issued,
fully paid and non-assessable; and (iii) the Other Shares are legally issued,
fully paid and non-assessable.
We hereby consent to the use of our name under the caption "Legal
Matters" in the Prospectus constituting a part of the Registration Statement and
to the filing of a copy of this opinion as an exhibit.
Very truly yours,
/s/ PARKER CHAPIN FLATTAU & KLIMPL, LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP
