<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
of the Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number: 0-25612
STARBASE CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 33-0567363
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4 Hutton Centre Drive, Suite 800
Santa Ana, California 92707
(Address of principal executive offices) (Zip code)
</TABLE>
(714) 445-4400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Number of shares outstanding as of January 31, 1999: Common Stock: 27,170,589
Preferred Stock: 772,919
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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STARBASE CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
ITEM 1. Financial Statements
Balance Sheets at December 31, 1998 (Unaudited) and March 31, 1998 3
Statements of Operations (Unaudited) for the three and nine month
periods ended December 31, 1998 and 1997 4
Statements of Cash Flows (Unaudited) for the nine month period ended
December 31, 1998 and 1997 5
Notes to Financial Statements (Unaudited) 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II. OTHER INFORMATION
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
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PART I
ITEM 1
FINANCIAL STATEMENTS
STARBASE CORPORATION
BALANCE SHEETS
(in thousands, except number of shares and par values)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ ---------
(unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 62 $ 4,167
Restricted cash 118 0
Accounts receivable, net of allowances of $112
(Dec 31, 1998) and $89 (Mar 31, 1998) 2,133 464
Notes and other receivables 804 45
Prepaid expenses and deferred charges 420 113
Inventories 24 57
-------- -------
Total current assets 3,561 4,846
Property and equipment, net 1,121 747
Note receivable from officer 93 76
Other non-current assets 38 13
-------- -------
Total assets $ 4,813 $ 5,682
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,527 $ 941
Deferred income 540 263
Current portion of capital lease obligation 101 10
-------- -------
Total current liabilities 2,168 1,214
-------- -------
Capitalized lease obligation, less current portion 157 38
-------- -------
Total liabilities 2,325 1,252
Shareholders' equity:
Preferred stock, $.01 par value; $4,922 (December 31, 1998)
and $4,716 (March 31, 1998) liquidation value;
authorized 10,000,000; issued and outstanding 774,468
shares (December 31, 1998) and 3,772,952 (March 31, 1998) 8 38
Common stock, $.01 par value; authorized 50,000,000;
issued and outstanding 23,282,502 (December 31, 1998)
and 18,580,499 (March 31, 1998) 233 186
Additional paid-in capital 51,193 46,287
Accumulated deficit (48,946) (42,081)
-------- -------
Total shareholders' equity 2,488 4,430
-------- -------
Total liabilities and shareholders' equity $ 4,813 $ 5,682
======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements
3
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STARBASE CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
-------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Products $ 1,536 $ 385 $ 3,799 $ 889
Maintenance & training 214 64 553 158
License and royalty 167 208 362 314
------- ------- ------- -------
Total revenues 1,917 657 4,714 1,361
Cost of Sales:
Products, licenses and other 105 14 441 69
------- ------- ------- -------
Gross margin 1,812 643 4,273 1,292
Operating Expenses:
Research and development 1,013 817 3,151 1,922
Selling, general and administrative 2,623 1,372 7,771 3,693
------- ------- ------- -------
Total operating expenses 3,636 2,189 10,922 5,615
------- ------- ------- -------
Operating loss (1,824) (1,546) (6,649) (4,323)
Interest income 4 25 57 74
Interest expense (7) (578) (11) (939)
Other income and expense (2) (25) (5) (39)
------- ------- ------- -------
Total interest and other
income and expense (5) (578) 41 (904)
Loss before income taxes (1,829) (2,124) (6,608) (5,227)
Provision for income taxes -- -- 2 1
------- ------- ------- -------
Net loss (1,829) (2,124) (6,610) (5,228)
Non-cash dividend 57 -- 256 1,660
Net loss applicable to common stock $(1,886) $(2,124) $(6,866) $(6,888)
Per share data:
Basic and diluted loss per common
share $ (0.09) $ (0.15) $ (0.37) $ (0.51)
======= ======= ======= =======
Weighted average number of
common shares outstanding 20,555 14,448 18,810 13,365
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE> 5
STARBASE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
December 31,
---------------------
1998 1997
------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(6,610) $(5,228)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 247 168
Provision for doubtful accounts and sales returns 44 92
Loss on disposition of property, equipment and
capital lease 3 --
Write-down of assets -- --
Recognition of deferred income 277 --
Amortization of financing costs -- 40
Amortization of debt discount -- 882
Other adjustments -- --
Changes in assets and liabilities, excluding the
effect of Non-cash transactions:
Accounts receivable (1,713) (296)
Notes and other receivables (759) (72)
Inventories 33 11
Prepaid expenses and deferred charges (306) 85
Other assets (46) (32)
Accounts payable and accrued liabilities 809 177
------- -------
Net cash used by operations (8,021) (4,173)
Cash Flows from Investing Activities:
Increase in restricted cash (118) --
Capital expenditures (624) (256)
------- -------
Net cash used by investing activities (742) (256)
Cash Flows from Financing Activities:
Proceeds from sale of preferred stock 4,650 --
Proceeds from sale of convertible debentures -- 3,100
Proceeds from issuance of common stock:
From stock purchase plan -- --
From private placements 152 --
From exercise of options 23 12
From exercise of warrants -- --
Payment of financing related costs (131) (331)
Payments on capitalized lease obligations (36) (5)
Loans from officers/directors -- --
Repayment of loans from officers/directors -- --
Repayment of (disbursement of) loan to officer -- --
------- -------
Net cash provided (used) by financing activities 4,658 2,776
------- -------
Net increase (decrease) in cash (4,105) (1,653)
Cash and cash equivalents, beginning of period 4,167 2,722
------- -------
Cash and cash equivalents, end of period $ 62 $ 1,069
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
5
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STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS
StarBase Corporation, a Delaware corporation (the "Company"), is a leading
provider of advanced Internet and intranet based technical collaboration and
software configuration management (SCM) tools. The Company develops, markets and
supports team-oriented development software that targets the evolving needs of
corporate info-structures which support projects requiring technical
collaboration on an enterprise level. The Company's current product line
consists of the recently launched products StarTeam(R) 3.0 and StarTeam(R) 2000,
as well as RoundTable(R) and Versions(R). StarTeam 3.0 has been recognized in
the industry as the only product to effectively integrate the essential
components of SCM tools in one easy-to-use and intuitive interface built on top
of a collaborative framework. The Company has chosen to focus on technical
collaboration and team productivity since the wide usage of the Internet has
created a tremendous potential market for distributed project teams needing
secure, remote access to projects. Additionally, StarTeam 2000 is specifically
designed to address the complex and mission critical issues involved with the
management, asset tracking and reporting issues surrounding Year 2000 compliance
projects. The Company has also practically eliminated the barriers to entry for
current users of other SCM tools by inter-operating with the leading Windows
based SCM products. Furthermore, the Company's products utilize and are tightly
integrated with various Microsoft technologies, a market leader in technology
software.
2. BASIS OF PRESENTATION
The unaudited interim financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have not been presented. The accompanying unaudited financial statements should
be read in conjunction with the financial statements and the notes thereto
included in the StarBase Corporation report to the Securities and Exchange
Commission on Form 10-KSB/A, for the year ended March 31, 1998.
The interim financial statements reflect all normal recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for the
period presented. Certain prior period balances have been reclassified to
conform to current period classifications. The results of operations for the
nine months ended December 31, 1998 are not necessarily indicative of the
operating results for a full year.
BASIC AND DILUTED LOSS PER COMMON SHARE
Earnings per common share is calculated by dividing the net loss by the weighted
average shares of common stock outstanding excluding 1,418,638 outstanding
common shares held in escrow. Common stock equivalents are considered
anti-dilutive and are excluded from this calculation.
In February 1997, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). FAS
128 establishes standards for computing and presenting earnings per share
("EPS"). It replaces the presentation of primary EPS with a presentation of
basic EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. It also requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. Diluted EPS is computed similarly to fully diluted
EPS pursuant to Accounting Principles Board Opinion No. 15. This statement was
adopted by the Company beginning with its quarterly period ended December 31,
1997 and, since the Company is considered a simple capital structure for
reporting EPS, previously reported loss per common share data were not affected.
6
<PAGE> 7
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
RESTRICTED CASH
On September 17, 1998, the Company pledged $118,000 of cash for an irrevocable
letter of credit related to the lease of new office space and was classified as
restricted cash on the balance sheet. The letter of credit will be reduced by
33.33% each year and will expire on July 2, 2001.
3. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
(In thousands) December 31, March 31,
1998 1998
-------------- ------------
<S> <C> <C>
ACCOUNTS RECEIVABLE
Trade accounts receivable $ 2,245 $ 553
Less allowance for doubtful accounts (112) (89)
------- ------
$ 2,133 $ 464
======= ======
PROPERTY AND EQUIPMENT
Computer hardware $ 1,472 $1,110
Furniture and fixtures 303 255
Computer software 282 269
Leasehold improvements 209 40
------- ------
2,266 1,674
Less accumulated depreciation and amortization (1,145) (927)
======= ======
$ 1,121 $ 747
======= ======
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade accounts payable $ 840 $ 390
Accrued professional fees 117 255
Accrued wages and bonuses 496 205
Other accrued expenses 74 91
------- ------
$ 1,527 $ 941
======= ======
</TABLE>
4. RESTATEMENT OF PRIOR PERIOD RESULTS
The Company has restated the results of the first quarter of fiscal 1998 to
recognize a non-cash dividend aggregating $1,660,000 as a result of common stock
issued in exchange for warrants to acquire shares of the Company's common stock.
This dividend represents the excess of the fair value of the Company's common
stock on the offer date over the estimated fair value of the warrants exchanged.
The estimated fair value of the warrants was determined using the Black-Scholes
method. This dividend did not change overall shareholders' equity.
The Company offered the holders of the Company's outstanding warrants the option
to exchange all issued and outstanding warrants for shares of the Company's
common stock. Each warrant holder who accepted the offer by midnight, Pacific
Standard Time, on June 30, 1997, the expiration date of the offer, received one
share of common stock for every three warrants held. The warrants which remained
unexchanged subsequent to the expiration date of the offer continued under the
original terms of each warrant. At June 30, 1997, 4,734,534 warrants were
converted and 1,581,150 common shares had been issued upon conversion of such
warrants.
7
<PAGE> 8
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
There are certain overhead expenses, such as facility and insurance expenses,
that have been reclassified from Selling, general & administrative to Research &
development. For the three month and nine month periods ended December 31, 1997,
the amounts totaled approximately $50,000 and $142,000, respectively.
5. EQUITY TRANSACTIONS
The Company has authorized 50,000,000 shares of common stock and 10,000,000
shares of preferred stock with a par value of $0.01 per share. During the
quarter ending December 31, 1998, 150,000 shares of Series D Preferred Stock,
721,094 shares of Series E Preferred Stock, and 890 shares of Series G Preferred
Stock were converted into 269,480, 721,094 and 1,355,678 shares of common stock,
respectively.
During November 1998, the Company entered into agreements to complete a three
tranche private placement consisting of 3,185 shares of Series H Preferred Stock
for $3,000,000. The first tranche closed in November 1998, the second tranche
closed in December 1998 and the third tranche is scheduled to close in February
1999. As of December 31, 1998, 1,749 shares of Series H Preferred Stock had been
issued for $1,650,000. The Series H Preferred Stock is not redeemable and has a
liquidation preference of $1,000 per share. The holders of Series H Preferred
Stock are not entitled to receive any dividends nor, except as provided by law,
vote upon any matter relating to the business or affairs of the Company or for
any other purpose. Each share of Series H Preferred Stock is convertible, after
the holding period, into the Company's common stock, at a conversion rate which
is determined by dividing $1,000 by the Conversion Price. The Conversion Price
shall be the lesser of (a) 110% of the average of the closing bid prices of the
common stock for the five-day trading period on the trading date immediately
preceding the Closing Date or (b) the average of the two (2) lowest closing bid
prices of the common stock over the thirty (30) trading days immediately
preceding the Conversion. In addition, the Company issued 213,575 warrants
related to the Series H Preferred Stock. One half of the warrants is exercisable
for one share of common stock at $0.95 through November 24, 2003 and one-half of
the warrants is exercisable for one share of common stock at $0.73 through
December 20, 2003, after which the warrants will expire.
As of December 31, 1998, 770,509 shares of Series E Preferred Stock, 2,210
shares of Series G Preferred Stock and 1,749 shares of Series H Preferred Stock
were outstanding.
WARRANTS
Warrant activity for the nine month period ended December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Warrant Price
Shares Per Share
--------- -------------
<S> <C> <C>
Outstanding at March 31, 1998 2,177,722 $1.25 - $1.80
Granted 809,934 $0.73 - $0.95
Exercised (converted) -- -
Expired -- -
---------
Outstanding at December 31, 1998 2,987,655
=========
</TABLE>
8
<PAGE> 9
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine months
Ended December 31,
-------------------
(In thousands) 1998 1997
------ -------
<S> <C> <C>
Interest paid $ 11 $ 6
Income taxes paid 2 1
Non-cash investing and financing transactions:
Non-cash preferred stock and common stock dividends (256) (1,660)
Conversion of preferred stock to common stock (Note 5) 45 2
Common stock issued in 3-for-1 warrant conversion
(Note 4) -- 15
Equipment purchased under capitalized lease 12 54
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
In July 1998, the Company entered into a sub-lease for new office space located
at 4 Hutton Centre Drive, Santa Ana, CA 92707. The new offices consist of 17,000
square feet costing approximately $27,000 per month through February 22, 2000.
Simultaneously, the Company also entered into a lease agreement for 4,100
contiguous square feet beginning February 1999 through September 2003 at a rate
of approximately $8,000 per month. In addition, the Company entered into a lease
agreement for the 17,000 square feet beginning February 23, 2000 through
September 2003 at a rate of approximately $41,000 per month.
8. SUBSEQUENT EVENTS
Effective January 26, 1999, the Company completed a private placement of 37,736
shares of restricted Common Stock for $60,000 to Company executives. In
addition, the Company issued 7,548 warrants with each warrant exercisable for
one share of common stock at $1.59 through January 26, 2000, after which the
warrants will expire.
9
<PAGE> 10
PART I
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenue increased in the three month period ended December 31, 1998 by
$1,260,000 or 192%, to $1,917,000, from $657,000 in the same three month period
of the previous year. This was due to an increase in product, maintenance and
training revenue ($1,302,000), partially offset by a slight decrease in license
and royalty revenue from the Company's Roundtable product ($42,000). Total
revenue for the nine month period ended December 31, 1998, increased to
$4,714,000 from $1,361,000 in the same period of the prior year. The increase in
product revenue has been favorably affected by the February 1998 release of the
StarTeam 3.0 family of products.
Cost of Sales increased to $105,000 from $14,000 in the three month period ended
December 31, 1998 over the same quarter of the previous year and to $441,000
from $69,000 for the nine month period ended December 31, 1998 over the same
period of the previous year due to the increase in product shipments. Cost of
sales consists primarily of manufacturing and related costs such as media,
documentation, product assembly and third party royalties. The Company
out-sources manufacturing for all software products, with the exception of the
Company's Roundtable product.
Operating expenses in the three month period ended December 31, 1998 increased
to $3,636,000 from $2,189,000 in the same quarter of the previous year. For the
nine month period ended December 31, 1998, operating expenses increased to
$10,922,000 from $5,615,000. These increases were primarily due to the building
of the sales & marketing and research & development infrastructures. At December
31, 1998, the Company had 90 full-time employees, which consisted of 29 in sales
& marketing, 46 in research & development and 15 in general & administrative. At
December 31, 1997, the Company had 54 employees, which consisted of 15 in sales
& marketing, 30 in research & development and 9 in general & administrative.
Research and development expenses. Research & development expenses include
personnel and other such direct and overhead expenses incurred in the
development of the Company's products. StarBase continues to make significant
investments in research and development intended to bring its products to market
and to support existing products. In the three month period ended December 31,
1998 overall research and development expenses increased to $1,013,000 compared
to $817,000 for the same period in the prior year and for the nine month period
ended December 31, 1998 increased to $3,151,000 compared to $1,922,000 for the
same period in the prior year primarily as a result of the increase in
development staff.
Selling, general and administrative expenses. Selling, general & administrative
expenses for the three months ended December 31, 1998 increased approximately
$1,251,000 over the same period in the prior year. For the nine month period
ended December 31, 1998 selling, general & administrative expenses increased to
$7,771,000 from $3,693,000 in the corresponding period of the prior year. The
increase was mainly the result of additional sales and marketing personnel
coupled with the advertising and promotion programs to launch the StarTeam 3.0
family of products.
INTEREST INCOME/EXPENSE
Interest income for the three month period ended December 31, 1998 decreased to
$4,000 compared to $25,000 for the same period in the prior year.
Interest expense for the three month period ended December 31, 1998 decreased to
$7,000 compared to $578,000 for the same period in the prior year. Prior
period's interest expense was a result of the non-cash accrued interest and debt
discount amortization on convertible debentures issued in August and September
1997.
10
<PAGE> 11
INCOME TAXES
The Company has not recorded a current or deferred provision for federal income
taxes for any period to date, as a result of losses incurred since its
inception. Any provision for income taxes represents the minimum required for
state taxes.
NON-CASH DIVIDEND
Non-cash dividend for the three month period ended December 31, 1998 was $57,000
due to the beneficial conversion feature of the Series G Preferred Stock and
warrants issued. There was no non-cash dividend for the three month period ended
December 31, 1997.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY EFFECT FUTURE RESULTS
The following discussion contains forward-looking statements within the meaning
of Sections 21E and 27A of the Securities Exchange Act of 1934. These forward-
looking statements are subject to risks and uncertainties. There are several
important factors that could cause actual results to differ materially from
those anticipated by the forward-looking statements contained in the following
discussion. Such factors include, but are not limited to, the growth rates of
certain market segments, the timing of software product introductions, market
acceptance of product introductions, the positioning of the Company's products
in those segments, price pressures and the rapidly changing competitive
environment in the software industry, success in technological advances and
their implementation, business conditions and the general economy, the Company's
ability to manage its business in its evolution from a development stage
company, and the Company's ability to establish strategic alliances. Additional
information on these and other risk factors which could affect the Company's
financial results is included in the Company's Annual Report for the fiscal year
ended March 31, 1998 on Form 10-KSB/A on file with the Securities and Exchange
Commission.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents on hand as of December 31, 1998 totaled $62,000 and
$4,167,000 as of March 31, 1998. At December 31, 1998 the Company had positive
working capital of $1,393,000, compared to $3,632,000 at March 31, 1998.
During the nine months ended December 31, 1998, the Company used $8,021,000 for
operations, an increase of approximately $3,848,000 over the amount used for
operations in the prior year. The increase was primarily due to the building of
the Company's infrastructure. Capital expenditures were approximately $624,000
and $256,000 during the nine months ended December 31,1998 and December 31,
1997, respectively.
The Company warrants products against defects for 90 days and has a policy
permitting the return of products within 30 days. Warranty costs and returns,
which are not significant, have historically been within management's
expectations. The Company has reserved approximately $112,000 at December 31,
1998 compared to $89,000 at March 31, 1998 for future returns and other
collection issues. The increase is due to greater revenue.
11
<PAGE> 12
THE YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. 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 system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company believes that it has no exposure to Year 2000 issues for the
products it has sold, as the products were designed with four digit year
recognition.
The Company has begun its assessment of its internal systems affected by the
Year 2000 Issue and anticipates that it will not be required to modify or
replace significant portions of its software so that its computer systems will
properly utilize dates past December 31, 1999.
The Company has initiated communications with its significant suppliers and
customers to determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 Issue. There can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems, would not have
a material adverse effect on the Company.
NEW ACCOUNTING STANDARDS
In October 1997 and March 1998, the Accounting Standards Executive Committee
("AcSEC") issued Statement of Position ("SOP") 97-2, "Software Revenue
Recognition" and SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition," respectively, which provide guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions and is effective for the Company's transactions entered
into subsequent to March 31, 1998. AcSEC is currently deliberating the potential
permanent deferral of certain provisions of SOP 97-2. The Company does not
believe that implementation of SOP 97-2 and SOP 98-4 will have a material
adverse affect on expected revenues or earnings.
12
<PAGE> 13
PART II
ITEM 5
OTHER INFORMATION
None.
13
<PAGE> 14
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Ref./
Number Description Of Document Page
- ---------- -------------------------------------------------------------------- -----
<S> <C> <C>
10.1 Form of Securities Purchase Agreement
10.2 Certificate of Designation for Series H Preferred Stock
10.3 Form of Registration Rights
10.4 Form of Warrant
27 Financial data schedule
</TABLE>
(b) Reports on Form 8-K
None.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STARBASE CORPORATION
(Registrant)
February 12, 1998 /s/ Douglas S. Norman
----------------------------------------
Date Douglas S. Norman
Director of Finance
Chief Accounting Officer
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Ref./
Number Description Of Document Page
- ---------- -------------------------------------------------------------------- -----
<S> <C> <C>
10.1 Form of Securities Purchase Agreement
10.2 Certificate of Designation for Series H Preferred Stock
10.3 Form of Registration Rights
10.4 Form of Warrant
27 Financial data schedule
</TABLE>
16
<PAGE> 1
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of November 23, 1998 (this
"Agreement"), is entered into by and among STARBASE CORPORATION, a Delaware
corporation (Nasdaq SmallCap Market Symbol "SBAS"), with headquarters located at
4 Hutton Centre Drive, Suite 800, Santa Ana, California 92707 (the "Company"),
and the undersigned entities (the "Buyers").
W I T N E S S E T H:
WHEREAS, the Company and the Buyers 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 Buyers wish to purchase and the Company wishes to sell, upon
the terms and subject to the conditions of this Agreement, shares of Series H
Preferred Stock (the "Preferred Stock"), of the Company which will be
convertible into shares of Common Stock, $.01 par value per share of the Company
(the "Common Stock"), upon the terms and subject to the conditions of the
Certificate of Designation for the Preferred Stock attached hereto as Annex I
(the "Certificate of Designation") and the Nontransferable Common Stock Purchase
Warrant to purchase Common Stock attached hereto as Annex II (the "Warrants")
(the Common Stock, the Preferred Stock and the Warrants sometimes referred to
herein as the "Securities");
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. Each of the undersigned hereby agrees to initially purchase
from the Company its pro rata portion of shares of Preferred Stock and Warrants
for an aggregate purchase price of $1,166,666 and, at the option of the Company
and subject to the conditions set forth in Sections 7, 8 and 9 hereof,
additional shares of Preferred Stock and Warrants in two tranches each with an
aggregate purchase price of $1,166,666, in the amount set forth on the signature
page of this Agreement, for a total offering of $3,500,000 of such Preferred
Stock and Warrants. The purchase price for each share of Preferred Stock shall
be $1,000 and shall be payable in United States Dollars.
<PAGE> 2
b. FORM OF PAYMENT. The Buyers shall pay the purchase price for the
Preferred Stock by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Escrow
Agreement attached hereto as ANNEX II (the "Escrow Agreement") as set forth
below.
C. METHOD OF PAYMENT. Payment into escrow of the purchase price for each
tranche of the Preferred Stock shall be made by wire transfer of funds to:
CITIBANK N.A.
53 East 53rd Street
New York, New York 10043
Account Name: Parker Chapin Flattau & Klimpl, LLP
Attorney Trust Account
Account No.:
Citibank ABA No.:
Not later than 3:00 p.m., New York time, on the date the Company and the Buyers
shall have executed this Agreement and returned a signed counterpart of this
Agreement to the Escrow Agent by facsimile, and thereafter on the Tranche II
Closing Date and the Tranche III Closing Date, the Buyers shall deposit with the
Escrow Agent the aggregate purchase price for the appropriate tranche of the
Preferred Stock, in currently available funds.
2. BUYERS' REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyers represent and warrant to, and covenant and agree with, the
Company as follows:
a. Without limiting Buyers' right to sell the Common Stock pursuant to
the Registration Statement or an exemption from registration, the Buyers are
purchasing the Preferred Stock and the Warrants and will be acquiring the shares
of Common Stock issuable upon conversion of the Preferred Stock and exercise of
the Warrants for their own account for investment only 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. Each of the Buyers 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), and (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;
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<PAGE> 3
c. All subsequent offers and sales of the shares of Common Stock issuable
upon conversion of the Preferred Stock and exercise of the Warrants (the
"Shares" or "Common Stock") by the Buyers shall be made pursuant to registration
of the Shares under the 1933 Act or pursuant to an exemption from registration;
d. The Buyers understand that the shares of Preferred Stock are being
offered and sold, and the Shares are being offered, 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 each of the Buyers' compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyers set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Buyers to acquire the Preferred Stock and to receive an offer
of the Shares;
e. The Buyers and their advisors, if any, have 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 Preferred Stock and the Warrants
and the offer of the Shares which have been requested by the Buyers, including
ANNEX V hereto. The Buyers and their 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 Buyers have also had the opportunity to obtain and to review
the Company's (1) Annual Report on Form 10-K for the fiscal year ended March 31,
1998, (2) Quarterly Report on Form 10-Q for the fiscal quarters ended June 30,
1998, December 31, 1997 and September 30, 1997, (3) Form 8-K dated August 17,
1998, and (4) Form S-3/A dated October 28, 1998 (the "Company's SEC Documents").
f. The Buyers understand that their investment in the Securities involves
a high degree of risk;
g. The Buyers understand 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 Buyers and is a valid and binding agreement of the
Buyers 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;
i. Neither the Buyers, nor any affiliate of the Buyers, has any present
intention of entering into, any put option, short position, or other similar
position with respect to the Preferred Stock or the Shares.
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<PAGE> 4
j. Notwithstanding the provisions hereof or of the Preferred Stock, in no
event (except with respect to an automatic conversion of the Preferred Stock as
provided in the Certificate of Designation) shall a Buyer be entitled to convert
any shares of Preferred Stock to the extent after such conversion, the sum of
(1) the number of shares of Common Stock beneficially owned by the Buyers and
their affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Preferred Stock), and (2) the number of shares of Common Stock issuable upon the
conversion of the Preferred Stock and exercise of the Warrants with respect to
which the determination of this proviso is being made, would result in
beneficial ownership by the Buyers and their affiliates of more than 4.99% of
the outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such proviso.
The preceding shall not interfere with any Buyer's right to convert the
Preferred Stock or exercise the Warrants which in the aggregate total more than
4.99% of the outstanding shares of Common Stock, over time, as long as no single
Buyer owns more than 4.99% of the outstanding Common Stock at any given time.
The foregoing limitations shall not apply in the event of an automatic
conversion as contained in the Certificate of Designation.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyers that:
a. ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority 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 every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, other than those in which the failure so to qualify
would not be expected to have a material adverse effect on the business or
financial condition of the Company, or materially and adversely affect the
ability of the Company to perform its obligations pursuant to this Agreement.
Except as disclosed in Annex V, the Company does not presently own or control,
directly or indirectly, any interest in any other corporation, partnership,
association or other business entity.
b. CONCERNING THE SHARES. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, $.01 par value per share, and
Annex V sets forth the number of shares which are issued and outstanding, and
the number of shares of Preferred Stock, $.01 par value per share, which are
issued and outstanding. All of the outstanding shares of Common Stock and
Preferred Stock of the Company have been duly and validly authorized and issued
and are fully paid and nonassessable. No shares of Common Stock are subject to
preemptive or similar rights. Except as specifically disclosed herein, there are
no outstanding options, warrants, rights to subscribe to, calls or commitments
of any character
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<PAGE> 5
whatsoever relating to, or, except as a result of the purchase and sale of the
Preferred Stock and the Warrants, securities, rights or obligations convertible
into or exchangeable for, or giving any person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any subsidiary is or may become bound to
issue additional shares of Common Stock or securities or rights convertible or
exchangeable into shares of Common Stock.
c. REPORTING COMPANY STATUS. The Company has registered its Common Stock
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the Common Stock is listed and traded on the Nasdaq
SmallCap Market. The Company is in compliance, to the extent applicable, with
all reporting obligations under either Section 12(b), 12(g) or 15(d) of the 1934
Act. The Company has complied in all material respects and to the extent
applicable with all reporting obligations, under either Section 13(a) or 15(d)
of the 1934 Act for a period of at least twelve (12) months immediately
preceding the offer and sale of the Securities. Except as set forth in ANNEX V
hereto, the Company has received no notice, either oral or written, with respect
to the continued eligibility of the Common Stock for such listing on the Nasdaq
Small Cap Market.
d. AUTHORIZED SHARES. The Company has sufficient authorized and unissued
Shares as may be reasonably necessary to effect the conversion of the Preferred
Stock and the exercise of the Warrants. The Shares have been duly authorized
and, when issued upon conversion of the Preferred Stock and upon exercise of the
Warrants, 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.
e. SECURITIES PURCHASE AGREEMENT; ESCROW AGREEMENT; REGISTRATION RIGHTS
AGREEMENT AND STOCK. The Company has the requisite corporate power and authority
to enter into and perform its obligations under this Agreement, and all Annexes
attached hereto, and to issue the Preferred Stock, Warrants, and the shares of
Common Stock underlying the Preferred Stock and the Warrants. This Agreement,
the Escrow Agreement and the Registration Rights Agreement, the form of which is
attached hereto as ANNEX IV (the "Registration Rights Agreement"), and the
transactions contemplated thereby, have been duly and validly authorized by the
Company, this Agreement has been duly executed and delivered by the Company and
this Agreement is, and the Escrow Agreement and the Registration Rights
Agreement, when executed and delivered by 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 creditors' rights generally; and the Preferred Stock and Warrants
will be duly and validly authorized and, when executed and delivered on behalf
of the Company in accordance with this Agreement, will be a valid and binding
obligation of the Company in accordance with its terms, subject to general
principles of equity and to bankruptcy, insolvency, moratorium, or other similar
laws affecting the enforcement of creditors' rights generally.
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<PAGE> 6
f. NON-CONTRAVENTION. The execution and delivery of this Agreement, the
Escrow Agreement and the Registration Rights Agreement by the Company, the
issuance of the Securities, and the consummation by the Company of the other
transactions contemplated by this Agreement, the Escrow Agreement, the
Registration Rights Agreement, 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, (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 or any "lock-up" or similar provision of any underwriting
or similar agreements except as herein set forth, (iii) to its knowledge, any
existing applicable law, rule, or regulation or any applicable decree, judgment,
or (iv) to its knowledge, 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, except such
conflict, breach or default which would not have a material adverse effect on
the transactions contemplated herein.
g. COMPLIANCE WITH LAW. The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations that either singly or in the aggregate
would not be expected to have a material adverse effect on the business or
financial condition of the Company, or materially and adversely affect the
ability of the Company to perform its obligations pursuant to this Agreement.
The Company is not required under federal, state or local law, rule or
regulation to obtain any consent, authorization or order of, or make any filing
or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or issue
and sell the Common Stock, Preferred Stock, or Warrants, in accordance with the
terms hereof.
h. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyers as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
i. SEC FILINGS. None of the SEC Filings with the Securities and Exchange
Commission since (and including) the filing of the Form 10-K SB/A for the fiscal
year ended March 31, 1998 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. Except as set forth on
Annex V hereto, the Company has since June 30, 1998 timely filed all requisite
forms, reports and exhibits thereto with the Securities and Exchange Commission
and such filings comply in all material respects with the requirements of the
1933 Act or the Exchange Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder. The Company has not provided to any of the
Buyers any information that, according to applicable
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<PAGE> 7
law, rule or regulation, should have been disclosed publicly prior to the date
hereof by the Company, but which has not been so disclosed. The financial
statements of the Company included in the documents referred to in Section 2(e)
hereof comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto.
j. ABSENCE OF CERTAIN CHANGES. Since June 30, 1998, there has been no
material adverse change and no material adverse development in the business,
properties, operations, financial condition, or results of operations of the
Company, except as disclosed in Annex V or in the documents referred to in
Section 2(e) hereof.
k. 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 documents referred to in Section 2(e), that has not been disclosed in
writing to the Buyers 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.
l. ABSENCE OF LITIGATION. Except as set forth in ANNEX V hereto, and in
the documents referred to in Section 2(e), which the Buyers have 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 business or financial
condition of the Company or the transactions contemplated by this Agreement or
any of the documents contemplated hereby or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of such other documents.
Except as set forth in Annex V hereto, and in the documents referenced in
Section 2(e), no judgment, order, decree, writ or award has been issued by, or
to the Company's knowledge, requested of any court, arbitrator, or governmental
agency which would have a material adverse effect on the business or financial
condition of the Company or the transactions contemplated by this Agreement or
any of the documents annexed hereto, or which would adversely and materially
affect the Company's ability to perform its obligations under this Agreement or
any document annexed hereto.
m. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in ANNEX V hereto
and Section 3(e), no Event of Default, as defined in the respective agreement 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 (as so defined),
has occurred and is continuing, which would have a material adverse effect on
the Company's financial condition or results of operations.
n. PRIOR ISSUES. Except as set forth in ANNEX V, during the twelve (12)
months preceding the date hereof, the Company has not issued any convertible
securities. The
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<PAGE> 8
presently outstanding unconverted principal amount of each such issuance as at
June 30, 1998 are set forth in ANNEX V.
o. ACKNOWLEDGMENT OF DILUTION. The Company is aware and acknowledges that
issuance of Common Stock upon the conversion of the Preferred Stock and/or
exercise of the Warrants, may result in may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue Common Stock in accordance with the Certificate of Designation and
Warrant is unconditional and absolute regardless of the effect of any such
dilution.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. Each of the Buyers acknowledges that (1) the
shares of Preferred Stock and Warrants have not been and are not being
registered under the provisions of the 1933 Act and, except as provided in the
Registration Rights Agreement, the Shares have not been and are not being
registered under the 1933 Act, and may not be transferred unless (A)
subsequently registered thereunder or (B) an exemption from registration exists
and the Buyers shall have delivered to the Company any information reasonably
necessary for the Company's independent counsel to prepare and deliver an
opinion of counsel, reasonably satisfactory in form, scope and substance to the
Company, to the effect that the Shares to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; (2) any sale of the
Shares 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, any resale of such Shares 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 some other
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 the Shares (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. Each of the Buyers acknowledges and agrees that
the Preferred Stock, and, until such time as the Common Stock has been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold pursuant to an effective registration statement
("Registration Statement") or an exemption from registration, the Shares issued
to the Buyer upon conversion of the Preferred Stock and exercise of the Warrants
shall bear a restrictive legend in substantially the following form:
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), 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
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<PAGE> 9
COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
c. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter into
the Registration Rights Agreement, in substantially the form attached hereto as
ANNEX IV, on or before the Tranche I Closing Date (as defined in Section 7(b)
hereof), and the Company shall cause such Registration Rights Agreement to
remain in full force and effect for so long as the Securities are outstanding,
and the Company shall comply with the terms thereof.
d. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Preferred Stock and the Warrants to
the Buyers under any United States laws and regulations, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Buyers promptly after such filing.
e. REPORTING STATUS. So long as the Buyers beneficially own any of the
Preferred Stock and/or Warrants, 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.
f. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Preferred Stock and the Warrants (excluding amounts paid by the Company for
legal fees and finder's fees in connection with the sale of the Preferred Stock
and the Warrants) for internal working capital purposes, and new product
development and support and shall not, directly or indirectly, use such proceeds
for any loan to or investment in any other corporation, partnership enterprise
or other person.
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 the number of shares of Common Stock issuable upon
conversion and/or exercise as may be required to satisfy the conversion rights
of the Buyers pursuant to the terms and conditions of the Preferred Stock and
the exercise rights of the Buyers pursuant to the terms of the Warrants.
h. WARRANTS. The Company agrees to issue to each of the Buyers on each
Closing Date such Buyers' pro rata share of the Warrants to purchase an
aggregate of one hundred thousand (100,000) shares of Common Stock. Such
Warrants shall bear an exercise price equal to one hundred ten percent (110%) of
the Closing Price (as defined in the Warrant) and shall expire on the fifth
anniversary of the issuance date of the Warrant, in the form annexed hereto as
ANNEX II, together with registration rights granted pursuant to the Registration
Rights Agreement.
i. LISTING OF COMMON STOCK. The Company shall (a) not later than thirty
(30) days following each Conversion Date (as defined in the Certificate of
Designation) prepare
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<PAGE> 10
and file with the Nasdaq Small Cap Market (as well as any other national
securities exchange, market or trading facility on which the Common Stock is
then listed) an additional shares listing application covering the amount of
shares of Common Stock issued upon the conversion of the Series H Preferred
Stock or the exercise of the warrants, (b) take all steps necessary to cause the
such shares to be approved for listing on the Nasdaq Small Cap Market (as well
as on any other national securities exchange, market or trading facility on
which the Common Stock is then listed) as soon as possible thereafter, and (c)
provide to the Buyers evidence of such listing, and the Company shall maintain
the listing of its Common Stock on such exchange or market. The Company will
comply with the listing and trading requirements of its Common Stock on Nasdaq
Small Cap Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Nasdaq Small Cap
Market. In the event the Company receives notification from Nasdaq or any other
controlling entity stating that the Company is not in compliance with the
listing qualifications of the Nasdaq Small Cap Market, the Company will take all
action necessary to bring the Company within compliance with all applicable
listing standards of the Nasdaq Small Cap Market.
j. EXCHANGE ACT REGISTRATION. The Company will maintain the registration
of its Common Stock under Section 12 of the Exchange Act, will comply in all
respects with its reporting and filing obligations under the Exchange Act, and
will not take any action or file any document (whether or not permitted by
Exchange Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said Act.
k. CORPORATE EXISTENCE. The Company will take all steps necessary to
preserve and continue the corporate existence of the Company.
l. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION. The Company will
immediately notify each of the Buyers upon the occurrence of any of the
following events in respect of a registration statement or related prospectus in
respect of an offering of Registrable Securities (as defined in the Registration
Rights Agreement): (i) receipt of any request for additional information by the
SEC or any other federal or state governmental authority during the period of
effectiveness of the Registration Statement for amendments or supplements to the
Registration Statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to
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<PAGE> 11
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the related
prospectus, it will not contain 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 therein, in the light of the circumstances under which they were
made, not misleading; and (v) the Company's reasonable determination that a
post-effective amendment to the Registration Statement would be appropriate. The
Company will promptly make available to the Buyers any such supplement or
amendment to the related prospectus.
m. LEGAL OPINION. The Company's independent counsel shall deliver to the
Buyers upon execution of this Agreement and upon the Closing of each subsequent
tranche (dated as of the applicable closing), an opinion in the form of Annex
VI. The Company will obtain for the Buyers, at the Company's expense, any and
all opinions of counsel which may be reasonably required in order to convert the
Preferred Stock and/or exercise the Warrants, including, but not limited to,
obtaining for the Buyers an opinion of counsel, subject only to receipt of a
notice of conversion, and/or subject only to a receipt of a notice of exercise
in the form annexed to the Warrant, and in connection with the resale of the
Shares by the Buyers directing the transfer agent to remove the legend from the
certificate.
n. RESTRICTIONS ON FUTURE FINANCINGS. 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 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.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the Tranche I Closing Date, the Company will
irrevocably instruct its transfer agent to issue Common Stock from time to time
upon conversion of the Preferred Stock and/or exercise of the Warrants 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 and resale of the Shares,
registered in the name of the Buyers or its nominee and in such denominations to
be specified by the Buyers in connection with each conversion of the Preferred
Stock and/or exercise of the Warrants. 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
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<PAGE> 12
registration and sale of the Shares under the 1933 Act will be given by the
Company to the 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 shall affect in any way the Buyers' obligations and
agreement to comply with all applicable securities laws upon resale of the
Securities. If the Buyers provide the Company with an opinion of counsel
reasonably satisfactory to the Company that registration of a resale by the
Buyers 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 Shares and, in the case of the Shares, 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 Buyers.
b. The Company will permit the Buyers to exercise its right to convert
the Preferred Stock in accordance with the terms of the Certificate of
Designation.
6. DELIVERY INSTRUCTIONS.
The Preferred Stock shall be delivered by the Company to the Escrow Agent
pursuant to Section 1(b) hereof, on a delivery against payment basis on each
Closing Date.
7. CLOSING DATE.
a. The date and time of the issuance and sale of each tranche of the
Preferred Stock (each, a "Closing Date") shall occur no later than 3:00 P.M.,
New York time on the date of the fulfillment or waiver of all of the closing
conditions pursuant to Sections 8 and 9, or such other mutually agreed to time.
The closing shall occur on such date at the offices of the Escrow Agent.
Notwithstanding anything to the contrary contained herein, the Escrow Agent will
be authorized to release the funds representing the Purchase Price for the
Preferred Stock and the Warrants, and the Preferred Stock and the Warrants only
upon satisfaction of each of the conditions set forth in Sections 8 and 9
hereof.
b. Notwithstanding anything to the contrary contained in Section 7(a),
the Closing Date of the first tranche (the "Tranche I Closing Date") shall be
upon the execution by the parties of this Agreement, and the payment of the
Purchase Price and the delivery of the original stock certificates evidencing
the Preferred Stock and the Warrants, the Closing Date of the second tranche
(the "Tranche II Closing Date") shall be December 30, 1998, and the Closing Date
of the third tranche (the "Tranche III Closing Date") shall be 40 calendar days
after the Tranche II Closing Date; provided, that such Closing Date is a
business day, and, if not, then the immediately following business day. In
addition to the conditions contained in Sections 8 and 9 below, the closing of
each tranche shall be subject to the following restrictions:
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<PAGE> 13
i. The Common Stock must have a closing bid price of at least $0.50
per share for the five consecutive trading days prior to the
Closing Date of the applicable tranche.
ii. The average trading volume for the Common Stock over the five
consecutive trading days prior to the Closing Date of the
applicable tranche must be at least 100,000 shares per day if the
Common Stock is trading between $0.50 - $0.75 per share, 95,000
shares per day if the Common Stock is trading between $0.76 -
$1.00 per share, 90,000 shares per day if the Common Stock is
trading between $1.01 - $1.25 per share, 80,000 shares per day if
the Common Stock is trading between $1.26 - $1.50 per share and
at least 75,000 shares per day if the price of the Common Stock
is in excess of $1.50 per share.
iii. If, using the closing bid price of the Common Stock on the
trading date immediately preceding the Closing Date of the
applicable tranche, the number of shares of Common Stock that
would be issued as a result of complete conversion of the
Preferred Stock associated with the tranches previously funded
and the tranche to be funded exceeds 17% of the then issued and
outstanding Common Stock of the Company, the Buyers shall not be
obligated to fund the additional tranche.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
Each of the Buyers understands that the Company's obligation to sell the
Preferred Stock and the Warrants on each Closing Date to the Buyers pursuant to
this Agreement is conditioned upon:
a. The receipt and acceptance by the Company of such Agreement as
evidenced by execution of this Agreement and all agreements annexed hereto by
the Company for at least $1,666,666 principal amount of Preferred Stock (or such
lesser amount as the Company, in its sole discretion, shall determine);
b. Delivery by the Buyers to the Escrow Agent of good funds as payment in
full of an amount equal to the purchase price for the Preferred Stock and the
Warrants in accordance with Section 1(c) hereof;
c. The accuracy in all material respects on each Closing Date of the
representations and warranties of the Buyers contained in this Agreement as if
made on such Closing Date and the performance by the Buyers on or before each
Closing Date of all covenants and agreements of the Buyers required to be
performed on or before such Closing Date;
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<PAGE> 14
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.
9. CONDITIONS TO EACH BUYERS' OBLIGATION TO PURCHASE.
The Company understands that each Buyer's obligation to purchase the
Preferred Stock on each Closing Date is conditioned upon:
a. Acceptance by Buyers of an Agreement for the sale of Preferred Stock
and Warrants, as indicated by execution of this Agreement and all agreements
annexed hereto;
b. Delivery by the Company to the Escrow Agent of the original shares of
Preferred Stock and Warrants in accordance with this Agreement;
c. The accuracy in all material respects on each Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on each Closing Date and the performance by the Company on or before each
Closing Date of all covenants, agreements and conditions of the Company required
by this Agreement, the Registration Rights Agreement, the Escrow Agreement and
the Warrants to be performed on or before each Closing Date; and
d. On each Closing Date, the Buyers having received an opinion of counsel
for the Company, dated the such Closing Date, in form, scope and substance
reasonably satisfactory to the Buyers, to the effect set forth in Annex VI
attached hereto, and the Registration Rights Agreement annexed hereto as Annex
IV.
e. The Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Preferred Stock and
Warrants, or shall have the availability of exemptions therefrom. The sale and
issuance of the Preferred Stock and Warrants shall be legally permitted by all
laws and regulations to which the Company is subject.
f. No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits or
directly and adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced that may have the effect
of prohibiting or adversely affecting any of the transactions contemplated by
this Agreement.
g. Since the Tranche I Closing Date, no event that had or is reasonably
likely to have a material adverse effect on the business or financial condition
of the Company,
-14-
<PAGE> 15
or materially and adversely affect the ability of the Company to perform its
obligations pursuant to this Agreement has occurred.
h. The trading of the Common Stock is not suspended by the SEC or the
Nasdaq Small Cap Market, and the Common Stock shall have been approved for
listing or quotation on and shall not have been delisted from the Nasdaq Small
Cap Market. The issuance of shares of Preferred Stock and Warrants with respect
to the applicable Closing, if any, shall not violate the shareholder approval
requirements of the Nasdaq Small Cap Market.
i. On each Closing Date, the number of shares of Common Stock underlying
the Preferred Stock and Warrants then to be purchased by each Buyer will not
exceed the number of such shares which, when aggregated with all other shares of
Common Stock then owned by such Buyer beneficially or deemed beneficially owned
by such Buyer, would result in any buyer owning more than 4.99% of all of such
Common Stock as would be outstanding on such Closing Date.
j. The parties hereto shall have entered into the Escrow Agreement to
hold the Preferred Stock and Warrants issuable upon each Closing Date and the
Purchase Prices due hereunder, which shall remain in full force and effect as of
each Closing Date.
10. GOVERNING LAW; SPECIFIC PERFORMANCE.
a. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York. Each of the parties consents to the exclusive
jurisdiction of the federal courts whose districts encompass any part of the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. Each party waives its right to a trial by
jury.
b. The Company and the Purchaser acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement or
the Registration Rights Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
11. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given, (i) on the date delivered, (a) by personal delivery, or (b) if advance
copy is given by fax, (ii) seven business days after deposit in the United
States Postal Service by regular or certified mail, or (iii) three business days
mailing by international express courier, with postage and fees prepaid,
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other
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<PAGE> 16
addresses as a party may designate by ten days advance written notice to each of
the other parties hereto.
COMPANY: STARBASE CORPORATION
4 Hutton Centre Drive, Suite 800
Santa Ana, California 92707
Attention: Chief Financial Officer
Telecopier No.: (714) 445-4482
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Martin Eric Weisberg, Esq.
Telecopier No.: (212) 704-6288
BUYER: At the address set forth on Schedule of Buyers attached hereto.
ESCROW AGENT: Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the America
New York, New York 10036
Telecopier No. (212) 704-6288
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Company's representations
and warranties shall survive the execution and delivery hereof of this Agreement
and the delivery of the Preferred Stock.
13. MISCELLANEOUS
a. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
each of the Buyers and each officer, director of the Buyers or person, if any,
who controls the Buyers within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), to which the Buyers may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon the breach of any term of this Agreement. This indemnity agreement will be
in addition to any liability which the Company may otherwise have.
b. ASSIGNMENT. The provisions of this Agreement shall be binding upon and
inure to the benefit of, the parties and their respective successors and
assigns.
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<PAGE> 17
c. COUNTERPARTS; FACSIMILE; AMENDMENTS. This Agreement may be executed in
multiple counterparts, each of which may be executed by less than all of the
parties and shall be deemed to be an original instrument which shall be
enforceable against the parties actually executing such counterparts and all of
which together shall constitute one and the same instrument. Except as otherwise
stated herein, in lieu of the original documents, a facsimile transmission or
copy of the original documents shall be as effective and enforceable as the
original. This Agreement may be amended only by a writing executed by the
Company on the one hand, and all of the Buyers, on the other hand.
d. ENTIRE AGREEMENT. This Agreement, the Exhibits or Annexes, which
include, but are not limited to the Certificate of Designation, the Warrant, the
Escrow Agreement, and the Registration Rights Agreement, set forth the entire
agreement and understanding of the parties relating to the subject matter hereof
and supersedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits and Annexes to
this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as is fully set forth herein.
e. SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party
f. TITLE AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
g. REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given trading day for the purposes of this Agreement and all
Annexes shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Buyers and the Company shall be required to employ any other
reporting entity.
h. REPLACEMENT OF CERTIFICATES. Upon (i) receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of a
certificate representing the Preferred Stock, Warrants, or shares of Common
Stock underlying the Preferred Stock or Warrants, and (ii) in the case of any
such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form and amount to
the Company or (iii) in the case of any such mutilation, on surrender and
cancellation of such certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new certificate of like tenor.
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<PAGE> 18
i. PUBLICITY. The Company and the Buyers shall consult with each other in
issuing any press releases or otherwise making public statements with respect to
the transactions contemplated hereby and no party shall issue any such press
release or otherwise make any such public statement without the prior written
consent of the other parties, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
parties with prior notice of such public statement. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of the Buyers
without the prior written consent of the Buyers, except to the extent required
by law, in which case the Company shall provide the Buyers with prior written
notice of such public disclosure.
[end of page]
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<PAGE> 19
IN WITNESS WHEREOF, this Agreement has been duly executed by the Buyers or
one of their officers thereunto duly authorized as of the date first above
written.
STARBASE CORPORATION
By:
-------------------------------------
Name:
Title:
THE BUYERS:
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<PAGE> 20
SCHEDULE OF BUYERS TO THE
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR STARBASE CORPORATION
<TABLE>
<CAPTION>
NUMBER OF
INITIAL/
ADDITIONAL
INVESTOR ADDRESS PREFERRED INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
- ------------------------ -------------------------------------- ---------- -----------------------------------
<S> <C> <C> <C>
</TABLE>
-20-
<PAGE> 21
ANNEX I CERTIFICATE OF DESIGNATION
ANNEX II FORM OF WARRANT
ANNEX III ESCROW AGREEMENT
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI OPINION OF COUNSEL
-21-
<PAGE> 1
EXHIBIT 10.2
---------------------------------------
CERTIFICATE OF DESIGNATION
OF
STARBASE CORPORATION
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
---------------------------------------
SERIES H PREFERRED STOCK
StarBase Corporation, a Delaware corporation (the "Corporation"), hereby
certifies that the following resolution has been duly adopted by the Board of
Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and vested in
the Board of Directors of the Corporation (the "Board") by the provisions of the
Restated Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation"), there hereby is created, out of the 10,000,000 shares of
Preferred Stock, par value $0.01 per share, of the Corporation authorized in
Article 4 of the Certificate of Incorporation (the "Preferred Stock"), a series
of the Preferred Stock of the Corporation consisting of three thousand five
hundred (3,500) shares, which series shall have the following powers,
designations, preferences and relative, participating, optional and other
rights, and the following qualifications, limitations and restrictions:
1. Designation and Amount. This series of Preferred Stock shall be
designated "Series H Preferred Stock" and the authorized number of shares
constituting such series shall be three thousand five hundred (3,500). The par
value of the Series H Preferred Stock shall be $0.01 per share.
2. Dividend Rights of Series H Preferred Stock. The holders of the Series
H Preferred Stock shall not be entitled to receive any dividends.
3. Preference on Liquidation.
(a) In the event of any liquidation, dissolution, or winding up of
the Corporation, either voluntary or involuntary, distributions to the
stockholders of the Corporation shall be made in the following manner:
(i) The holders of Series H Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds to the holders of the Corporation's common stock, par value $0.01
per share (the "Common Stock") or any other
<PAGE> 2
class or series of stock of this Corporation by reason of their ownership of
such stock, an amount for each share of Series H Preferred Stock then held by
them, equal to $1,000, appropriately adjusted for any combinations,
consolidations, stock distributions or stock dividends with respect to such
shares (hereinafter such amount shall be referred to as the "Series H Preference
Amount"). If upon occurrence of such event of liquidation, dissolution or
winding up, the assets and property legally available to be distributed among
the holders of the Series H Preferred Stock shall be insufficient to permit the
payment to such holders of the Series H Preference Amount, then the entire
assets and property of the Corporation legally available for distribution shall
be distributed ratably among the holders of the Series H Preferred Stock
together with the holders of any other series of Preferred Stock ranking on
parity with the Series H Preferred Stock.
(ii) After payment has been made to the holders of the Series H
Preferred Stock of the full amounts to which they shall be entitled pursuant to
paragraph 3(a)(i) above, all remaining assets available for distribution, if
any, shall be distributed, ratably among the holders of the Common Stock based
upon the number of shares of Common Stock then held.
(b) For purposes of this paragraph 3, a merger or consolidation of
the Corporation with or into any other corporation or corporations, or the
merger of any other corporation or corporations into the Corporation, in which
consolidation or merger the stockholders of the Corporation receive
distributions in cash or securities of another corporation or corporations as a
result of such consolidation or merger, or a sale of all or substantially all of
the assets of the Corporation, shall be treated as a liquidation, dissolution or
winding up of the Corporation. The valuation of any securities or other property
other than cash received by the Corporation in any transaction covered by this
subparagraph 3(b) shall be computed at the fair value thereof at the time of
receipt as determined in good faith by the Board of Directors.
(c) The holders of Series H Preferred Stock shall have no priority or
preference with respect to distributions made by the Corporation in connection
with the repurchase of shares of Common Stock issued to or held by employees,
directors or consultants upon termination of their employment or services
pursuant to agreements providing for the right of said repurchase between the
Corporation and such persons.
4. Voting Rights. Except as otherwise provided by law, the holders of the
Series H Preferred Stock shall not be entitled to vote upon any matter relating
to the business or affairs of the Corporation or for any other purpose.
5. Conversion Rights. The holders of Series H Preferred Stock shall have
conversion rights as follows:
(a) The holders will deliver to the Corporation a notice of
conversion (a "Notice of Conversion") and the original shares of Series H
Preferred Stock to be converted within three business days from the Conversion
Date (as hereinafter defined). A Notice of Conversion may only be served on a
business day between the hours of 7:00 a.m., and 5:00 p.m.,
-2-
<PAGE> 3
Pacific time, and shall be deemed delivered upon facsimile receipt by the
Corporation with such time period or the next business day if served after 5:00
p.m., Pacific time. The Corporation will then deliver to the holders within
three business days of facsimile receipt (provided that the original shares of
Series H Preferred Stock were delivered to the Corporation within three business
days of the Conversion Date) of the holder's Notice of Conversion the
appropriate number of shares of Common Stock. If the Corporation fails to
deliver the Common Stock within five business days of facsimile receipt
(provided that the original shares of Series H Preferred Stock were delivered to
the Corporation within three business days of the Conversion Date) of the
holder's Notice of Conversion, the Corporation will be liable for liquidated
damages, as follows: in the event that the Common Stock issuable upon conversion
of the Series H Preferred Stock is not delivered within five (5) business days
after the Conversion Date, the Corporation shall pay to the holders, in
immediately available funds, upon demand, as liquidated damages for such failure
and not as a penalty, for each $100,000 principal amount of Series H Preferred
Stock sought to be converted, $500 for each of the first ten (10) calendar days
and $1,000 per calendar day thereafter that the shares of Common Stock issuable
upon such conversion are not delivered, which liquidated damages shall run from
the sixth (6th) business day after the Conversion Date up until the time that
either the Notice of Conversion is revoked or the Common Stock has been
delivered, at which time liquidated damages shall cease. Any and all payments
required pursuant to this paragraph shall be payable only in cash immediately.
Payment of the aforementioned liquidated damages shall not relieve the Company
of its obligation to deliver the shares of Common Stock due upon conversion of
the Series H Preferred Stock. For purposes of this Certificate of Designation,
"Conversion Date" shall mean the date on which the holders give notice of
conversion by facsimile to the Corporation.
(b) A holder of Series H Preferred Stock may convert up to one third
of its shares of Series H Preferred Stock into shares of Common Stock at any
time after 120 days from the date of issuance of the first tranche of Series H
Preferred Stock (the "First Conversion Date"). A holder may convert an
additional one third of the shares of Series H Preferred Stock purchased 30 and
60 days after the First Conversion Date. Notwithstanding anything in the
foregoing to the contrary, if at any time after the First Conversion Date, the
Common Stock of the Corporation 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
convert all of its outstanding shares of Series H Preferred Stock without regard
to the restrictions on conversion set forth in this clause (b).
(c) The shares of Series H Preferred Stock may be converted into
shares of Common Stock at a price to the lesser of: (a) 110% of the average of
the closing bid prices of the Common Stock for the five consecutive day trading
period ending on the trading date immediately preceding the issuance date of the
shares of Series H Preferred Stock (the "Closing Price") or (b) 100% of the
"Market Price", where the Market Price is defined as the average of the two (2)
lowest closing bid prices of the Common Stock over the thirty (30) consecutive
trading days immediately preceding the Conversion Date (the "Conversion Price").
-3-
<PAGE> 4
(d) Each share of Series H Preferred Stock shall be convertible, at
the option of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for the Series H
Preferred Stock, into Common Stock as more fully described below. The number of
shares of fully paid and nonassessable Common Stock into which each share of
Series H Preferred Stock may be converted shall be determined by dividing $1000
by the Conversion Price in effect at the time of conversion, subject to
adjustment as provided in Paragraph 6 below.
(e) Each share of Series H Preferred Stock shall automatically be
converted into shares of Common Stock utilizing the then effective Conversion
Price for each such share upon the first to occur of the following events: (i)
at the Corporation's option, if the closing bid price of the Company's Common
Stock, as reported by Bloomberg, L.P., on a daily basis averages at least
$US5.00 for a period of 20 consecutive trading days assuming the registration
statement is effective and all conversion restrictions have lapsed for at least
30 calendar days; or (ii) the second anniversary of the effective date of the
registration of the shares of Common Stock issuable upon conversion of the
Series H Preferred Stock (in such case the second anniversary shall be deemed a
Conversion Date). In the event of clause (i) above, the Corporation must notify
each holder of Series H Preferred Stock in writing within ten (10) business days
after such 20 consecutive trading day period that such stock is to be converted
and the date such holder receives the notice shall be deemed a Conversion Date.
(f) No fractional shares of Common Stock shall be issued upon
conversion of Series H Preferred Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the closing bid price of the Common Stock
on the Conversion Date. In the event of an automatic conversion pursuant to
subparagraph 5(e), the outstanding shares of all Series H Preferred Stock shall
be converted automatically and the original shares of Series H Preferred Stock
and the shares of Common Stock will be delivered in accordance with subparagraph
5(a). In the event that a holder notifies the Corporation that its certificates
evidencing its shares of Series H Preferred Stock have been lost, stolen or
destroyed, the holder shall execute an agreement satisfactory to the Corporation
to indemnify the Corporation from any loss incurred in connection with such
certificates.
(g) The Corporation shall, within three business days after a
Conversion Date issue and deliver at such office to such holder of Series H
Preferred Stock, a certificate or certificates for the number of shares of
Common Stock to which the holder shall be entitled as aforesaid and a check
payable to the holder, or order, in the amount of any cash amounts payable as
the result of a conversion into fractional shares of Common Stock, and a
certificate for any shares of Series H Preferred Stock not so converted. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the Conversion Date, or in the case of automatic conversion under
clause (i) of subparagraph 5(e), the date notice is received by the holders of
the Series H Preferred Stock or under clause (ii) of subparagraph 5(e) on the
date of the event causing such automatic conversion, and the person or persons
entitled to receive the
-4-
<PAGE> 5
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date.
(h) In the event of any taking by this Corporation of a record of the
holders of any class of shares of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, this Corporation shall mail to each
holder of Series H Preferred Stock, at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(i) Upon any conversion of Series H Preferred Stock pursuant to this
paragraph 5, the shares of Series H Preferred Stock which are converted shall
not be reissued. Upon conversion of all of the then outstanding Series H
Preferred Stock pursuant to this paragraph 5 and upon the taking of any action
required by law, all matters set forth in this Certificate of Designation shall
be eliminated from the Certificate of Incorporation, shares of Series H
Preferred Stock shall not be deemed outstanding for any purpose whatsoever and
all such shares shall revert to the status of authorized and unissued shares of
Preferred Stock.
(j) Unless otherwise set forth herein, any notices required by the
provisions of this paragraph 5 to be given to the holders of shares of Series H
Preferred Stock shall be deemed given if deposited in the United States mail,
first class, postage prepaid and addressed to each holder of record at its
address appearing on the books of the Corporation.
(k) The Corporation will notify in writing each of the holders of
Series H Preferred Stock when the number of shares of Common Stock issuable upon
conversion of Series H Preferred Stock equals 17%, 18%, 19% and 20% of the
issued and outstanding shares of the Common Stock. If the Corporation receives a
Notice of Conversion which would result in the number of shares of Common Stock
issuable upon conversion of Series H Preferred Stock in excess of 20%, the
Corporation will notify the holders in writing prior to the end of the trading
day if the Notice of Conversion was received on or before 2:00 p.m., New York
time, or prior to the opening of trading on the next trading day if the Notice
of Conversion was received after 2:00 p.m., New York time. If conversion under
the Notice of Conversion would result in the issuance of more than 20% of the
issued and outstanding shares of the Common Stock, the holders may elect to
rescind that portion of the Notice of Conversion which would result in the
issuance of more that 20% of the issued and outstanding shares of the Common
Stock, while reserving their rights to serve a Notice of Conversion at a later
date.
6. Adjustments to Conversion Price.
(a) In the event the Corporation at any time or from time to time
effects a subdivision or combination of its outstanding Common Stock into a
greater or lesser number of
-5-
<PAGE> 6
shares without a proportionate and corresponding subdivision or combination of
its outstanding Series H Preferred Stock, then and in each such event the
Conversion Price shall be decreased or increased proportionately.
(b) In the event the Corporation at any time or from time to time
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights (hereinafter
referred to as "Common Stock Equivalents") convertible into or entitling the
holder thereof to receive additional shares of Common Stock without payment of
any consideration by such holder for such Common Stock Equivalents or the
additional shares of Common Stock, then and in each such event the maximum
number of shares (as set forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent adjustment of such number)
of Common Stock issuable in payment of such dividend or distribution or upon
conversion or exercise of such Common Stock Equivalents shall be deemed to be
issued and outstanding as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of business on such record
date. In each such event, the Conversion Price shall be proportionately
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date.
(c) In case of any merger (other than a merger in which the
Corporation is not the continuing or surviving entity) or any reclassification
of the Common Stock of the Corporation, each share of the Series H Preferred
Stock shall thereafter be entitled to receive such additional number of shares
of stock or other securities or property to which a holder of the number of
shares of Common Stock issuable upon conversion of a share of Series H Preferred
Stock immediately prior to such merger or reclassification would have been
entitled upon such merger or reclassification. In any such case, appropriate
adjustment (as determined by the Board in good faith) shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holders of Series H Preferred Stock, such that the
provisions set forth herein shall thereafter be applicable, as nearly as
reasonably may be, in relation to any share of stock or other property
thereafter issuable upon conversion.
(d) The Corporation shall at all times reserve and keep available out
of its authorized but unissued Common Stock, solely for the purpose of effecting
the conversion of Series H Preferred Stock, the full number of shares of Common
Stock deliverable upon the conversion of all Series H Preferred Stock from time
to time outstanding. The Corporation shall from time to time (subject to
obtaining necessary director and stockholder authorizations), in accordance with
the laws of the State of Delaware, increase the authorized amount of its Common
Stock if at any time the authorized number of shares of Common Stock remaining
unissued shall not be sufficient to permit the conversion of all of the shares
of Series H Preferred Stock at the time outstanding.
7. Ranking. The Series H Preferred Stock shall, with respect to rights on
liquidation, winding up and dissolution, (i) rank senior to any of the Common
Stock and any other class or
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<PAGE> 7
series of stock of the Corporation which by its terms shall rank junior to the
Series H Preferred Stock, (ii) rank junior to any other class or series of stock
of the Corporation which by its terms shall rank senior to the Series H
Preferred Stock, and (iii) rank on a parity with any other class or series of
stock of the Corporation which by its terms shall rank on a parity with the
Series H Preferred Stock. No approval of the holders of Series H Preferred Stock
shall be required for the authorization or issuance of any shares of any class
or series of stock of the Corporation, whether ranking senior to, junior to or
on a parity with the Series H Preferred Stock.
8. Corporation's Redemption Option. The Corporation may redeem all or a
portion of the Series H Convertible Preferred Stock upon five (5) business days
prior written notice to the holders of the Series H Preferred Stock (the
"Redemption Notice") at a price per share of Series H Preferred Stock (the
"Redemption Price") equal to the greater of (i) 120% of the Series H Preference
Amount; and (ii) the product of (A) the Conversion Price and (B) the closing bid
price of the Common Stock on the trading date immediately preceding the date of
the Redemption Notice; provided, that if a holder has delivered a notice of
conversion to the Corporation or delivers a notice of conversion within two (2)
business days after receipt of the Redemption Notice, the shares of Series H
Convertible Preferred Stock designated to be converted may not be redeemed by
the Corporation. The Corporation shall deliver the Redemption Price in
immediately available funds to the holder(s) within five (5) business days after
the Corporation has delivered the Redemption Notice; provided, that if the
Corporation fails to pay the Redemption Price within such five (5) business-day
period, the Redemption Notice shall be null and void. The Corporation may not
serve a Redemption Notice unless it has immediately available funds specifically
allotted as the Redemption Price as set forth in such notice. The Redemption
Notice may only be served on a business day between the hours of 9:00 a.m. and
5:00 p.m. New York time, and shall be deemed delivered upon facsimile receipt by
the holders of the Series H Preferred Stock within such time period or such
immediately subsequent business day if served after such hours. Redemptions must
be pro rata amongst the holders of Series H Preferred Stock, if fewer than all
of the outstanding shares of Series H Preferred Stock are being redeemed. The
Redemption Notice shall set forth (i) the Redemption Price (including
calculations) and (ii) the number of shares of Series H Preferred Stock being
redeemed. The Redemption Price shall be adjusted proportionately upon any
adjustment to the Conversion Price as provided herein and in the event of any
stock split, stock dividend, combination of shares or similar event. If the
Company fails to comply with the redemption provisions on two separate
occasions, it shall lose its right to serve a Redemption Notice in the future.
9. Limitation on Number of Conversion Shares.
(a) Notwithstanding any other provision herein, the Corporation shall
not be obligated to issue any shares of Common Stock upon conversion of the
Series H 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 Series H Preferred Stock (the "Exchange Cap") 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
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<PAGE> 8
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 Series H 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 Series H
Preferred Stock at the then current Conversion Price up to the Exchange Cap, (y)
such number of shares of Common Stock issuable upon conversion of the remaining
outstanding Series H 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 Series H 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 Series H Preferred Stock pursuant to the
Securities Purchase Agreement shall be issued, upon conversion of shares of
Series H Preferred Stock, shares of Common Stock in an amount greater than the
product of (i) the Exchange Cap amount multiplied by (ii) a fraction, the
numerator of which is the number of shares of Series H Preferred Stock issued to
such holder pursuant to the Securities Purchase Agreement and the denominator of
which is the aggregate amount of all the shares of Series H Preferred Stock
issued to the holders pursuant to the Securities Purchase Agreement (the "Cap
Allocation Amount"). In the event that any holder of Series H Preferred Stock
shall convert all of such holder's shares of Series H Preferred Stock into a
number of shares of Common Stock which, in the aggregate, is less than such
holder's Cap Allocation Amount, then the difference between such holder's Cap
Allocation Amount and the number of shares of Common Stock actually issued to
such holder shall be allocated to the respective Cap Allocation Amounts of the
remaining holders of Series H Preferred Stock on a pro rata basis in proportion
to the number of shares of Series H Preferred Stock then held by each such
holder. Nothing in this subparagraph 9(a) shall limit a holder's right to
convert its shares of Series H Preferred Stock.
(b) On each Conversion Date, the number of shares of Common Stock
underlying the Series H Preferred Stock to be issued to each holder (not
including the outstanding shares of Series H Preferred Stock or the unissued
shares of Common Stock underlying the Series H Preferred Stock) will not exceed
the number of such shares which, when aggregated with all other shares of Common
Stock then owned by such holder beneficially or deemed beneficially owned by
such holder, would result in any holder owning more than 4.99% of all of such
Common Stock as would be outstanding on such Conversion Date. The foregoing
limitation shall not apply in the event of an automatic conversion pursuant to
subparagraph 5(e).
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<PAGE> 9
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its President, and attested by its Secretary, this
24th day of November, 1998.
StarBase Corporation
By: /s/ William R. Stow, III
------------------------------------
William R. Stow, III,
Chief Executive Officer
Attest:
By: /s/ Douglas S. Norman
-----------------------------------
Douglas S. Norman,
Assistant Secretary
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<PAGE> 10
STARBASE CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Designation of StarBase Corporation (the
"CERTIFICATE OF DESIGNATION"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of Series H Convertible Preferred Stock, par value $.01 per share (the
"PREFERRED SHARES"), of StarBase Corporation, a Delaware corporation (the
"COMPANY"), indicated below into shares of Common Stock, par value $.01 per
share (the "COMMON STOCK"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below as
of the date specified below.
Date of Conversion: _______________________________________________________
Number of Preferred Shares to be converted: _______________________________
Stock certificate no(s). of Preferred Shares to be converted: _____________
The Common Stock have been sold pursuant to the Registration Statement (as
defined in the Registration Rights Agreement): YES ____ NO _____
Please confirm the following information:
Conversion Price: _________________________________________________________
Number of shares of Common Stock to be issued: ____________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: _________________________________________________________________
_________________________________________________________________
Facsimile Number: _________________________________________________________
Authorization: ____________________________________________________________
By:_________________________________________________________
Title:______________________________________________________
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<PAGE> 11
Dated: ____________________________________________________________________
Account Number:
(if electronic book entry transfer):______________________________________
Transaction Code Number
(if electronic book entry transfer):______________________________________
PRICES ATTACHED
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<PAGE> 1
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of November 23, 1998 (this
"Agreement"), is made by and between STARBASE CORPORATION, a Delaware
corporation (the "Company"), and the entities named on the signature page hereto
(the "Investors").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement, dated as of November 23, 1998, by and among the Investors
and the Company (the "Securities Purchase Agreement"), the Company has agreed to
issue and sell to the Investors shares of Series H Preferred Stock of the
Company, in an aggregate principal amount not exceeding $3,500,000
(collectively, the "Preferred Stock"), which Preferred Stock will be convertible
into shares of the common stock, $.01 par value (the "Common Stock"), of the
Company (the "Conversion Shares") upon the terms and subject to the conditions
of the Certificate of Designation (as defined in the Securities Purchase
Agreement), and warrants to purchase up to 350,000 shares of Common Stock (the
"Warrants"), which Warrants will be exercisable into shares of Common Stock (the
"Warrant Shares"); and
WHEREAS, to induce the Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investors
hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investors" means the Investors and any permitted transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "Register," "Registered," and "Registration" refer to 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
<PAGE> 2
offering securities on a continuous basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares and the Warrant
Shares.
(iv) "Registration Statement" means a registration statement of the Company
under the Securities Act.
(b) Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare and file with the
SEC a Registration Statement on Form S-3 registering for resale by the Investors
a sufficient number of shares of Common Stock for the Investors (or such lesser
number as may be required by the SEC in writing, but in no event less than the
number of shares into which the Preferred Stock would be convertible and the
Warrants exercisable at the time of filing of the Form S-3, or an amendment to
any pending Company Registration Statement on Form S-3, and such Registration
Statement or amended Registration Statement shall state that, in accordance with
Rule 416 and 457 under the Securities Act, it also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon
conversion of the Preferred Stock and the exercise of the Warrants resulting
from adjustment in the Conversion Price, or to prevent dilution resulting from
stock splits, or stock dividends), and the Company shall use its best efforts to
cause the Registration Statement shall be declared effective no later than 120
days after the closing of the issuance of the first tranche of Series H
Preferred Stock (the "Closing Date"). If at any time after the Registration
Statement has been declared effective the number of shares of Common Stock into
which the Preferred Stock may be converted exceeds the aggregate number of
shares of Common Stock, the Company shall within one (1) business day after
knowledge of such occurrence give written notice to the Buyers and to Goldstein
Law Group, counsel to the Investors, of such occurrence, and, within ten (10)
business days after knowledge of such occurrence, either (i) amend the
Registration Statement filed by the Company pursuant to the preceding sentence,
if such Registration Statement has not been declared effective by the SEC at
that time, to register all shares of Common Stock into which the Preferred Stock
may be converted, or (ii) if such Registration Statement has been declared
effective by the SEC at that time, file with the SEC an additional Registration
Statement on Form S-3 to register the shares of Common Stock into which the
Preferred Stock may be converted that exceed the aggregate number of shares of
Common Stock already registered.
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<PAGE> 3
(b) PAYMENTS BY THE COMPANY.
If the Registration Statement covering the Registrable Securities
required to be filed by the Company pursuant to Section 2(a) hereof has not been
filed within ninety (90) days from the Closing Date and/or has not been declared
effective by one hundred fifty (150) days following the Closing Date (the
"Required Effective Date") (except as provided by the last sentence of Section
2(a) with respect to the registration of additional shares of Common Stock),
then the Company will make payments to the Investors in such amounts and at such
times as shall be determined pursuant to this Section 2(b). The amount to be
paid by the Company to each Investor as liquidated damages for such failure and
not as a penalty shall be equal to two (2%) percent of such Investor's pro rata
share of the purchase price paid by all Investors for all shares of Series H
Preferred Stock purchased and then outstanding pursuant to the Securities
Purchase Agreement for every thirty (30) day period until the Registration
Statement has been filed and/or declared effective, which shall be pro rated for
such periods less than 30 days. The liquidated damages shall be paid by the
Company in immediately available funds upon demand. Notwithstanding the
foregoing, the amounts payable by the Company pursuant to this provision shall
not be payable to the extent any delay in the effectiveness of the Registration
Statement occurs because of an act of, or a failure to act or to act timely by
the Investors or counsel, or in the event all of the Registrable Securities may
be sold pursuant to Rule 144 (without volume limitation) or another available
exemption under the Act. The payment of such liquidated damages shall not
relieve the Company from its obligations to register the Registrable Securities.
If the Company does not pay the liquidated damages in a timely fashion set forth
herein, it will pay to the Investors the reasonable costs of collection,
including attorneys fees, in addition to the liquidated damages.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the
Registrable Securities, the Company shall do each of the following.
(a) Prepare promptly and file with the SEC not later than 90 days after
the first Closing Date, a Registration Statement with respect to not less than
the number of Registrable Securities provided in Section 2(a), above, and
thereafter use its best efforts to cause each Registration Statement relating to
Registrable Securities to become effective one hundred twenty (120) days after
the Closing Date, and keep the Registration Statement effective at all times
until the earliest (the "Registration Period") of (i) the date that is two years
after the last Closing Date (ii) the date when the Investors may sell all
Registrable Securities under Rule 144 (without volume limitation) or (iii) the
date the Investors no longer own any of the Registrable Securities, which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in
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<PAGE> 4
connection with the Registration Statement as may be necessary to keep the
Registration effective at all times during the Registration Period, and, during
the Registration Period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities of the Company covered
by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the Registration
Statement;
(c) The Company shall permit the Investors to review the Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC;
(d) Furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel identified to the Company, (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(e) As promptly as practicable after becoming aware of such event, but in
no event later than one (1) business day thereafter, notify each Investor of the
happening of any event of which the Company has knowledge, as a result of which
the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
promptly (but in no event later than ten (10) business days after knowledge of
such event) prepare and file a supplement or amendment to the Registration
Statement or other appropriate filing with the SEC to correct such untrue
statement or omission, and deliver a number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event, but in
no event later than one (1) business day thereafter, notify each Investor who
holds Registrable Securities being sold (or, in the event of an underwritten
offering, the managing underwriters) of the issuance by the SEC of a Notice of
Effectiveness or any notice of effectiveness or any stop order or other
suspension of the effectiveness of the Registration Statement at the earliest
possible time;
(g) Use its reasonable efforts to secure designation of all the
Registrable Securities covered by the Registration Statement as a National
Association of Securities Dealers Automated Quotations System ("NASDAQ") "Small
Capitalization" within the meaning of Rule 11Aa2-1 of the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
quotation of the Registrable Securities on the NASDAQ SmallCap Market; or if,
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<PAGE> 5
despite the Company's reasonable efforts to satisfy the preceding clause, the
Company is unsuccessful in doing so, to secure NASDAQ/OTC Bulletin Board
authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities;
(h) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the Registration Statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request, and, within three (3) business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel;
(j) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Investors of the Registrable Securities pursuant to the
Registration Statement;
(k) The Company shall register and qualify the securities covered by the
Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Investors shall reasonably request, and do any and all
other acts and things which may be necessary or advisable to enable each
Investor to consummate the public sale or other disposition in such jurisdiction
of the securities owned by such Investor;
(l) As promptly as practicable after becoming aware of such event, but in
no event later than one (1) business day thereafter, the Company shall notify
the Investors in writing of (x) the issuance by the SEC of a stop order
suspending the effectiveness of the Registration Statement, (y) the happening of
any event of which the Company has knowledge as a result of which the prospectus
included in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or (z) the occurrence
or existence of any pending corporate development that, in the reasonable
discretion of the Company, makes it appropriate to suspend the availability of
the Registration Statement, and promptly to prepare and file a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver two (2) copies of such supplement or amendment to each
Investor or such additional copies as such Investor may reasonably request;
provided that, for not more than twenty (20) days (or a total of not more than
forty-five (45) days in any twelve (12) month period, the Company may delay the
disclosure of material non-public information concerning the Company (as well as
prospectus or
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<PAGE> 6
Registration Statement updating) the disclosure of which at the time is not, in
the good faith opinion of the Company, the best interests of the Company and in
the opinion of counsel to the Company (an "Allowed Delay"); provided, further,
that the Company shall promptly (i) notify the Investors in writing of the
existence of material non-public information giving rise to an Allowed Delay and
(ii) advise the Investors in writing to cease all sales under the Registration
Statement until the end of the Allowed Delay. Upon expiration of the Allowed
Delay, the Company shall again be bound by the first sentence of this Section
3(l) with respect to the information giving rise thereto, and shall be obligated
to pay to the Investors any amounts provided for in Section 2(b).
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it, and the intended method of disposition of the Registrable Securities
held by it, as shall be reasonably requested by the Company in writing to effect
the registration of such Registrable Securities and shall execute such documents
in connection with such registration as the Company may reasonably request. At
least seven (7) business days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investors (the "Requested
Information"). If at least two (2) business days prior to the filing date of the
Registration Statement the Company has not received the Requested Information
from an Investor (a "Non-Responsive Investor"), then the Company may file the
Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 3(e), 3(f) or
3(l), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e), 3(f) or 3(l)
and, if so directed by the Company, such Investor shall deliver to the Company
(at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in such Investor's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.
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<PAGE> 7
5. EXPENSES OF REGISTRATION. All reasonable expenses, other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 3, but including,
without limitation, all registration, listing, and qualifications fees, printers
and accounting fees, the fees and disbursements of counsel for the Company,
shall be borne by the Company.
6. INDEMNIFICATION. In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Investor who holds such Registrable Securities, the directors, if
any, of such Investors, the officers and agents, if any, of such Investor, each
person, if any, who controls any Investor within the meaning of the Securities
Act or the Exchange Act (each, an "Indemnified Person" or "Indemnified Party"),
against any losses, claims, damages, liabilities or expenses (joint or several)
incurred (collectively, "Claims") to which any of them may become subject under
the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to clause (b) of this Section 6, the Company shall
reimburse the Investors, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, (II)
be available to the extent such Claim is based on a failure of the Investors to
deliver or cause to be delivered the prospectus made available by the Company;
or (III) apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Each Investor will indemnify the Company and its
officers, directors and agents against any claims arising out of or based upon a
Violation which occurs in reliance
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<PAGE> 8
upon and in conformity with information furnished in writing to the Company, by
or on behalf of such Investor, expressly for use in connection with the
preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company to
this Section 6. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be. In case any
such action is brought against any Indemnified Person or Indemnified Party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such Indemnified Person or Indemnified Party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such Indemnified Person or Indemnified Party under this Section 6 for
any legal or other reasonable out-of-pocket expenses subsequently incurred by
such Indemnified Person or Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action of its final conclusion. The Indemnified
Person or Indemnified Party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
reasonable out-of-pocket expenses of such counsel shall not be at the expense of
the indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the Indemnified Person or
Indemnified Party. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent
-8-
<PAGE> 9
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation; and (c) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the Company and
(iii) such other information as may be reasonably requested to permit the
Investors to sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any shares of Preferred Stock of the Company which is
convertible into such securities) only if: (a) the Investors agree 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) immediately following
such transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, and (d) at or before the time the Company received the
written notice contemplated by clause (b) of this sentence the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein. In the event of any delay in filing or effectiveness of the
Registration Statement as a result of such assignment, the Company shall not be
liable for any damages arising from such delay, or the payments set forth in
Section 2(c) hereof.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular
-9-
<PAGE> 10
instance and either retroactively or prospectively), only with the written
consent of the Company and Investors who hold at least an eighty (80%) percent
interest of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the
Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed effectively given, (i) on the date delivered, (a) by
personal delivery, or (b) if advance copy is given by fax, (ii) seven business
days after deposit in the United States Postal Service by regular or certified
mail, (iii) three business days mailing by international express courier, with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses, or at such other addresses as a party may
designate by ten days advance written notice to each of the other parties
hereto, (iv) if to the Company, STARBASE CORPORATION, 4 Hutton Centre Drive,
Suite 800, Santa Ana, California 92707, ATTN: Chief Financial Officer, with a
copy to Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New
York, New York 10036, ATTN: Martin Eric Weisberg, Esq.; (v) if to the Investors,
at the address set forth under their name in the Securities Purchase Agreement,
and (vi) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b), and shall be
effective, when personally delivered, upon receipt and, when so sent by
certified mail, four (4) calendar days after deposit with the United States
Postal Service.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York. Each of the parties consents to the exclusive
jurisdiction of the federal courts whose districts encompass any part of the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. Each party waives its right to a trial by
jury.
(e) This Agreement and the Purchase Agreement constitute the entire
agreement among the parties hereto with respect to the subject matter hereof.
There are no
-10-
<PAGE> 11
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(j) If any provision of this Agreement for any reason be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof and this Agreement shall be construed as if such invalid or
unenforceable provision had never been contained herein.
-11-
<PAGE> 12
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
STARBASE CORPORATION
By:
-----------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.4
THIS WARRANT AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND MAY NOT BE TRANSFERRED UNLESS REGISTERED UNDER THE ACT, OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM REGISTRATION.
NO. 199__-CMN-XXX
STARBASE CORPORATION
NONTRANSFERABLE COMMON STOCK PURCHASE WARRANT
1. Issuance. In consideration of good and valuable consideration, the
receipt of which is hereby acknowledged by StarBase Corporation, a Delaware
corporation (the "Company") _________________ or registered assigns (the
"Holder") is hereby granted the right to purchase at any time until 5:00 P.M.,
New York City time, on _______ , 2000 (the "Expiration Date"),_________________
(___________) fully paid and nonassessable shares of the Company's Common Stock,
par value $.01 per share (the "Common Stock") at an initial exercise price of
$[110% of closing price] (the "Exercise Price"), subject to further adjustment
as set forth in Section 6 hereof.
2. Exercise of Warrants. This Warrant is exercisable in whole or in part at
the Exercise Price per share of Common Stock payable hereunder, payable in cash
or by certified or official bank check. Upon surrender of this Warrant
Certificate with the annexed Notice of Exercise Form duly executed, together
with payment of the Exercise Price for the shares of Common Stock purchased, the
Holder shall be entitled to receive a certificate or certificates for the shares
of Common Stock so purchased.
3. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) receipt of reasonably
satisfactory indemnification, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
5. Rights of the Holder. The Holder shall not by virtue hereof, be entitled
to any rights of a stockholder in the Company, either at law or equity until
payment of the Exercise Price
<PAGE> 2
as provided herein, and the rights of the Holder are limited to those expressed
in this Warrant and the Securities Purchase Agreement dated as of November 23,
1998 and are not enforceable against the Company except to the extent set forth
herein.
6. Protection Against Dilution.
(a) Adjustment Mechanism. If an adjustment of the Exercise Price is
required pursuant to this Section 6, the Holder shall be entitled to purchase
such number of additional shares of Common Stock as will cause (i) the total
number of shares of Common Stock the Holder is entitled to purchase pursuant to
this Warrant, multiplied by (ii) the adjusted purchase price per share, to equal
(iii) the dollar amount of the total number of shares of Common Stock the Holder
is entitled to purchase before adjustment multiplied by the total purchase price
before adjustment.
(b) Capital Adjustments. In case of any stock split or reverse stock
split, stock dividend, reclassification of the Common Stock, recapitalization,
merger or consolidation, or like capital adjustment affecting the Common Stock
of the Company, the provisions of this Section 6 shall be applied as if such
capital adjustment event had occurred immediately prior to the date of this
Warrant and the original purchase price had been fairly allocated to the stock
resulting from such capital adjustment; and in other respects the provisions of
this Section shall be applied in a fair, equitable and reasonable manner so as
to give effect, as nearly as may be, to the purposes hereof. A rights offering
to stockholders shall be deemed a stock dividend to the extent of the bargain
purchase element of the rights.
7. Transfer to Comply with the Securities Act; Registration Rights.
(a) This Warrant may not be assigned or transferred in whole or in part.
This Warrant has not been registered under the Securities Act of 1933, as
amended (the "Act"), and has been issued to the Holder for investment and not
with a view to the distribution of either the Warrant or the Warrant Shares.
Neither the Warrant Shares nor any other security issued or issuable upon
exercise of this Warrant may be sold, transferred, pledged or hypothecated in
the absence of an effective registration statement under the Act relating to
such security or an opinion of counsel satisfactory to the Company that
registration is not required under the Act. Each certificate for the Warrant,
the Warrant Shares and any other security issued or issuable upon exercise of
this Warrant shall contain the following legend on the face thereof (which
legend shall be removed only upon the resale of the Warrant Shares and if the
Warrant Shares are included in an effective registration statement or an
exemption from registration exists):
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
-2-
<PAGE> 3
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
(b) The Company agrees to file a registration statement, which shall
include the Warrant Shares, on Form S-3 (or any successor form to Form S-3) (the
"Registration Statement"), pursuant to the terms of a Registration Rights
Agreement between the Company and the Holder dated_________ ___, 199_.
8. Notices. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given, (i) on the date delivered, (a) by personal delivery, or (b) if advance
copy is given by fax, (ii) seven business days after deposit in the United
States Postal Service by regular or certified mail, or (iii) three business days
mailing by international express courier, with postage and fees prepaid,
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by ten days
advance written notice to each of the other parties hereto.
(i) if to the Company, to:
StarBase Corporation
4 Hutton Centre Drive Suite 800
Santa Ana, California 92707
Attn: Chief Financial Officer
Telephone: 714-445-4400
Facsimile: 714-445-4482
(ii) if to the Holder, to:
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant may be
amended or supplemented only by an instrument in writing signed by the parties
hereto. This Warrant of even date herewith contain the full understanding of the
parties hereto with respect to the subject matter hereof and thereof and there
are no representations, warranties, agreements or understandings other than
expressly contained herein and therein.
-3-
<PAGE> 4
10. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York. Each of the parties consents
to the exclusive jurisdiction of the federal courts whose districts encompass
any part of the City of New York in connection with any dispute arising under
this Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non coveniens, to the bringing
of any such proceeding in such jurisdictions. Each of the Holder and the Company
waives its right to a trial by jury.
11. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
12. Descriptive Headings. Descriptive headings of the several Sections of
this Warrant are inserted for convenience only and shall not control or affect
the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
___th day of __________ ____, 199_.
STARBASE CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
-4-
<PAGE> 5
NOTICE OF EXERCISE OF WARRANT
(1) The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate dated as of ___________, to purchase ___
shares of the Common Stock, par value $.01 per share, of StarBase Corporation
and tenders herewith payment in accordance with Section 1 of said Common Stock
Purchase Warrant.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer sell or otherwise dispose of
any such shares of Common Stock, except under circumstances that will not result
in a violation of the United States Securities Act of 1933, as amended, or any
foreign or state securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or is such other name as is
specified below.
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned.
Dated:
---------------------------------
By:
------------------------------------
-5-
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 62
<SECURITIES> 0
<RECEIVABLES> 2,245
<ALLOWANCES> 112
<INVENTORY> 24
<CURRENT-ASSETS> 3,561
<PP&E> 2,266
<DEPRECIATION> 1,145
<TOTAL-ASSETS> 4,813
<CURRENT-LIABILITIES> 2,168
<BONDS> 0
0
8
<COMMON> 233
<OTHER-SE> 2,247
<TOTAL-LIABILITY-AND-EQUITY> 4,813
<SALES> 1,536
<TOTAL-REVENUES> 1,917
<CGS> 105
<TOTAL-COSTS> 105
<OTHER-EXPENSES> 3,636
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (1,829)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,829)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,829)
<EPS-PRIMARY> (.09)
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</TABLE>
