EXHIBIT 4.1
FORM OF SERIES G CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated as of July 31, 1998
among
STARBASE CORPORATION
and
THE PURCHASERS LISTED ON EXHIBIT A
SERIES G CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This SERIES G CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the
"Agreement") is dated as of July 31, 1998 by and among StarBase Corporation, a
Delaware corporation (the "Company") and each of the Purchasers of shares of
Series G Convertible Preferred Stock of the Company whose names are set forth on
the Schedule of Purchasers hereto (individually, a "Purchaser" and collectively,
the "Purchasers").
WHEREAS:
A. The Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act");
B. The Company has authorized the following new series of its Preferred
Stock, par value $.01 per share (the "Preferred Stock"): the Company's Series G
Convertible Preferred Stock (the "Preferred Shares"), which shall be convertible
into shares of the Company's Common Stock, par value $.01 per share (the "Common
Stock") (as converted, the "Conversion Shares"), in accordance with the terms of
the Company's Certificate of Designations, Preferences and Rights, in the form
attached hereto as Exhibit A (the " Certificate of Designations");
C. The Purchasers wish to purchase, upon the terms and conditions
stated in this Agreement, initially an aggregate of 3,000 of the Preferred
Shares (the "Initial Preferred Shares") in the respective amounts set forth
opposite each Purchaser's name on the Schedule of Purchasers on the Initial
Closing Date (as defined below).
D. Subject to the terms and conditions set forth in this Agreement, the
Purchasers will have the right to purchase up to an aggregate of an additional
3,000 of the Preferred Shares (the "Additional Preferred Shares") in the
respective amounts set forth opposite each Purchaser's name in the Schedule of
Purchasers on the Additional Closing Date (as defined below) (the Initial
Preferred Shares and the Additional Preferred Shares collectively are referred
to in this Agreement as the "Preferred Shares");
E. Subject to the conditions set forth in Section 1.5, the Purchasers
shall have the right to receive, at any time prior to the conversion of all of
the Preferred Shares, warrants, in substantially the form attached hereto as
Exhibit B (the "Warrants"), to acquire up to 15% of the Conversion Shares
issuable with respect to the Preferred Shares then outstanding (the "Warrant
Shares"); and
F. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form
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attached hereto as Exhibit C (the "Registration Rights Agreement") pursuant to
which the Company has agreed to provide certain registration rights under the
Securities Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW THEREFORE, the Company and the Purchasers hereby agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock
Section 1.1 Purchase and Sale of Stock. Upon the following terms and
conditions, the Company shall issue and sell to the Purchasers and each of the
Purchasers shall purchase from the Company, the Preferred Shares, at a purchase
price of $1,000 per share, set forth with respect to such Purchaser on the
Schedule of Purchasers hereto.
Section 1.2 The Conversion Shares. The Company has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a sufficient number (subject
to Section 3.9) of its authorized but unissued shares of its Common Stock, to
effect the conversion of the Preferred Shares and exercise of the Warrants. The
Preferred Shares, the Conversion Shares and the Warrant Shares collectively are
referred to as the "Shares" and the Shares and the Warrants collectively are
referred to as the "Securities".
Section 1.3 Purchase Price and Closing. The Company agrees to issue and
sell to the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers, severally but not jointly, agree to purchase that number of the
Initial Preferred Shares and shall have the right to purchase the number of
Additional Preferred Shares set forth opposite their respective names on the
Schedule of Purchasers. The closing of the purchase and sale of the Initial
Preferred Shares (the "Initial Closing") to be acquired by the Purchasers from
the Company under this Agreement shall take place at the offices of Xxxxxx
Xxxxxx Flattau & Klimpl, LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx
00000 at 5:00 p.m. E.S.T. on July 31, 1998 or such other time and place or on
such date as the Purchasers and the Company may agree upon (the "Initial Closing
Date"). The closing of the purchase and sale of the Additional Preferred Shares
(the "Additional Closing") which may be acquired by the Purchasers from the
Company under this Agreement shall take place at the offices of Xxxxxx Xxxxxx
Flattau & Klimpl, LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, at
5:00 p.m. E.S.T. on the later of (a) the date which is three months after the
Initial Closing Date and (b) the date which is 15 days after the date on which
the Registration Statement is declared effective by the SEC, or such other time
and place or on such date as the Purchasers and the Company may agree upon (the
"Additional Closing Date"). The Initial Closing Date and the Additional Closing
Date collectively are referred to in this Agreement as the "Closing Dates" and
the Initial Closing and the Additional Closing collectively are referred to in
this Agreement as the "Closings." On each of the Closing Dates,
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the Company shall deliver to each Purchaser certificates for the number and
series of Initial Preferred Shares or Additional Preferred Shares, as the case
may be, to be purchased by such Purchaser at such Closing, registered in such
Purchaser's name (or its nominee) against receipt by the Company of a wire
transfer of funds to the account as shall be designated in writing by the
Company, representing the cash consideration set forth opposite each such
Purchaser's name on the Schedule of Purchasers. In addition, each party shall
deliver all documents, instruments and writings required to be delivered by such
party pursuant to this Agreement at or prior to the respective Closing.
Section 1.4 Additional Closing. On the Additional Closing Date, the
Company shall have the right to sell to each Purchaser, with the consent of such
Purchaser, the number of Additional Preferred Shares set forth on the Schedule
of Purchasers by delivering written notice to each Purchaser at least seven
business days prior to the Additional Closing Date (an "Additional Share
Notice"). If a Purchaser elects to consent to purchase Additional Preferred
Shares, such Purchaser shall deliver written notice of such consent to the
Company on or before the date which is three business days prior to the
Additional Closing Date. Each Additional Share Notice shall set forth the number
of Additional Preferred Shares each such Purchaser would purchase, if consented
to, at the Additional Closing.
Section 1.5 Warrants. After the Initial Closing Date and for so long as
any Preferred Shares remain outstanding, if at any time (the "Warrant Trigger
Date") the closing bid price (as reported by Bloomberg Financial Markets
("Bloomberg")) of the Common Stock is less than 50% of the Fixed Conversion
Price (as defined in the Certificate of Designations) of any Preferred Shares as
of the Closing Date for such Preferred Shares, then within five business days of
the Warrant Trigger Date the Company shall issue Warrants to each holder of such
Preferred Shares to purchase a number of Warrant Shares equal to 15% of the
number of Conversion Shares issuable assuming full conversion of the Preferred
Shares held by such holder as of the Warrant Trigger Date (without regard to any
limitation on the amount or timing of conversions). The exercise price for such
Warrants shall be equal to the closing bid price (as reported by Bloomberg) of
the Common Stock on the Warrant Trigger Date, provided that if the Company has
not delivered the Warrants to each Purchaser on or before the tenth (10th)
business day after written notice from any Purchaser of the occurrence of the
Warrant Trigger Date, then the Warrant Exercise Price shall be the lesser of (a)
the closing bid price (as reported by Bloomberg) for the Common Stock on the
Warrant Trigger Date and (b) the closing bid price (as reported by Bloomberg)
for the Common Stock on the date the Warrants are delivered to the Purchasers.
ARTICLE II
Representations and Warranties
Section 2.1 Representation and Warranties of the Company. The Company
hereby makes the following representations and warranties to each Purchaser:
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(a) Organization, Good Standing and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authorization to own, lease and operate its properties and assets and to conduct
its business as it is now being conducted. The Company does not, directly or
indirectly, own capital stock or hold an equity or similar interest in any
entity. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except for any jurisdiction in which the failure to be so qualified will not
have a Material Adverse Effect (as defined below). As used in this Agreement,
"Material Adverse Effect" means any material adverse effect on the business,
properties, assets, operations, results of operations or financial condition of
the Company and its subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below).
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, the Irrevocable Transfer Agent Instructions (as
defined in Section 3.14) and the Warrants (collectively, the "Transaction
Documents") and to issue and sell the Shares in accordance with the terms
hereof, the Certificate of Designations and the Warrants. The execution,
delivery and performance of the Transaction Documents and the Certificate of
Designations by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required. This Agreement
has been, and the Registration Rights Agreement at the Initial Closing will be,
duly executed and delivered by the Company. Each of the Transaction Documents
constitutes, when executed and delivered, a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation, conservatorship, receivership or
similar laws relating to, or affecting generally the enforcement of, creditor's
rights and remedies or by other equitable principles of general application.
Prior to the Initial Closing, the Certificate of Designations will have been
filed with the Secretary of State of the State of Delaware and will be in full
force and effect, enforceable against the Company in accordance with its terms.
(c) Capitalization. The authorized capital stock of the
Company and the shares thereof issued and outstanding as of June 30, 1998 are
set forth in Schedule 2.1(c) hereto. All of the outstanding shares of the
Company's Common Stock and Series G Convertible Preferred Stock have been duly
and validly authorized. Except as set forth in this Agreement and the
Registration Rights Agreement and as set forth on Schedule 2.1(c) hereto, no
shares of Common Stock or Preferred Stock are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and the Registration
Rights Agreement and as
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set on Schedule 2.1(c), there are no contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of the capital stock of the Company or options, securities or rights
convertible into shares of capital stock of the Company. Except for customary
transfer restrictions contained in agreements entered into by the Company in
order to sell restricted securities or as provided on Schedule 2.1(c) hereto,
the Company is not a party to any agreement granting registration rights to any
person with respect to any of its equity or debt securities. The Company is not
a party to, and it has no knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock of the Company. Except as disclosed
on Schedule 2.1(c), there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Shares or the Warrants as described in this Agreement. The offer and sale of
all capital stock, convertible securities, rights, warrants, or options of the
Company issued prior to the Closing complied with all applicable Federal and
state securities laws, and, to the Company's knowledge, no stockholder has a
right of rescission or damages with respect thereto which would have a Material
Adverse Effect. The Company has furnished or made available to the Purchasers
true and correct copies of the Company's Articles of Incorporation as in effect
on the date hereof (the "Articles"), and the Company's Bylaws as in effect on
the date hereof (the "Bylaws").
(d) Issuance of Shares. The Preferred Shares to be issued at
the Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Preferred
Shares shall be validly issued and outstanding, fully paid and nonassessable and
entitled to the rights and preferences set forth in the Certificate of
Designations. When the Conversion Shares and Warrant Shares are issued in
accordance with the terms of the Preferred Shares as set forth in the
Certificate of Designations and the Warrants, respectively, such shares will be
duly authorized by all necessary corporate action and validly issued and
outstanding, fully paid and nonassessable, and the holders thereof shall be
entitled to all rights accorded to a holder of Common Stock. At least 2,000,000
shares of Common Stock (subject to adjustment as pursuant to the Company's
covenant set forth in Section 3.9 below) have been duly authorized and reserved
for issuance upon conversion of the Preferred Shares and upon exercise of the
Warrants.
(e) No Conflicts. Except as disclosed on Schedule 2.1(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designations and the consummation by the Company of the transactions
contemplated herein and therein do not (i) violate any provision of the
Company's Articles or Bylaws, (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company is a
party, (iii) create or impose a lien, charge or encumbrance on any property of
the Company under any agreement or any commitment to which the Company is a
party or by which the Company is bound or by which any of its respective
properties or assets are bound, or (iv) result in a violation of any federal,
state, local or foreign statute, rule, regulation, order, judgment
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or decree (including Federal and state securities laws and regulations)
applicable to or having jurisdiction over the Company or by which any property
or asset of the Company are bound or affected, except, in all cases described in
clauses (ii), (iii) and (iv) above, for such conflicts, defaults, terminations,
amendments, acceleration, cancellations and violations as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The business of the Company is not being conducted in violation
of any laws, ordinances or regulations of any governmental entity, except for
possible violations which singularly or in the aggregate do not and will not
reasonably be expected to have a Material Adverse Effect. The Company is not
required under Federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under the Transaction Documents or the Certificate of
Designations (including, without limitation, the issuance and sale of the
Preferred Shares, the Conversion Shares and the Warrant Shares in accordance
with the terms hereof or thereof) other than any filings which may be required
to be made by the Company with the SEC, the National Association of Securities
Dealers, Inc. (the "NASD"), or state securities administrators subsequent to the
respective Closing, any registration statement which may be filed pursuant
hereto, and the Certificate of Designations; provided that, for purpose of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Purchasers
herein. The Company is not in violation of the listing requirements of The
Nasdaq Stock Market, Inc. as in effect on the date hereof and on each of the
Closing Dates and is not aware of any facts which would reasonably lead to
delisting of the Common Stock by The Nasdaq Stock Market, Inc. in the near
future.
(f) Commission Documents, Financial Statements. The Common
Stock of the Company is registered pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, except as
disclosed on Schedule 2.1(f) hereto, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the Commission pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act
(all of the foregoing including filings incorporated by reference therein being
referred to herein as the "Commission Documents"). The Company has delivered or
made available to each of the Purchasers true and complete copies of the
Commission Documents filed with the Commission since December 31, 1995. The
Company has not provided to the Purchasers any information which, according to
applicable law, rule or regulation, would be required to be disclosed on a
registration statement filed with the Commission relating to the issuance and
sale by the Company of its Common Stock, but which has not been publicly
disclosed, other than with respect to the terms of the transactions contemplated
by this Agreement. As of their respective dates, the Form 10-KSB for the year
ended March 31, 1998 (the "Form 10-K") and the Form 10-Q for the fiscal quarter
ended December 31, 1997, as restated by the Form 10-K (the "Form 10-Q") complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder and other federal,
state and local laws, rules and regulations applicable to such documents, and,
as of their respective dates, none of the Form 10-K and the Form 10-Q referred
to above contained any untrue statement of a material fact or omitted
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to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
Commission Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary
statements), and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
(g) Intentionally omitted.
(h) No Material Adverse Change. Since March 31, 1998, the date
through which the most recent annual report of the Company on Form 10-K has been
prepared and filed with the Commission, a copy of which is included in the
Commission Documents, the Company has not experienced or suffered any Material
Adverse Effect, except as disclosed on Schedule 2.1(h) hereto.
(i) Intentionally omitted.
(j) No Undisclosed Events or Circumstances. No event or
circumstance has occurred or exists with respect to the Company or its
subsidiaries or their respective businesses, properties, prospects, operations
or financial condition, which would be required to be disclosed by the Company
under applicable securities laws on a registration statement filed with the
Commission relating to the issuance and sale by the Company of its Common Stock,
but which has not been publicly disclosed.
(k) Indebtedness. Schedule 2.1(k) hereto sets forth as of the
date hereof all outstanding secured and unsecured Indebtedness of the Company or
any subsidiary, or for which the Company or any subsidiary has commitments. For
the purposes of this Agreement, "Indebtedness" shall mean (a) any liabilities
for borrowed money or amounts owed in excess of $25,000 (other than trade
accounts payable incurred in the ordinary course of business), (b) all
guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Neither the Company nor any subsidiary is
in default with respect to any Indebtedness.
(l) Intentionally omitted.
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(m) Actions Pending. There is no action, suit, claim,
investigation or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any of its officers or directors which
questions the validity of this Agreement or the transactions contemplated hereby
or any action taken or to be taken pursuant hereto or thereto. Except as
specifically set forth in the Form 10-K, Form 10-Q or on Schedule 2.1(m) hereto,
there is no action, suit, claim, investigation or proceeding pending or, to the
knowledge of the Company, threatened, against or involving the Company, the
Company's properties or assets, the Common Stock or any of the Company's
officers, directors in their capacities as such, wherein an unfavorable
decision, ruling or finding would reasonably be expected to have a Material
Adverse Effect. There are no outstanding orders, judgments, injunctions, awards
or decrees of any court, arbitrator or governmental or regulatory body against
the Company or any of its officers or directors in their capacities as such.
(n) Compliance with Law. The business of the Company and the
subsidiaries has been and is presently being conducted in accordance with all
applicable federal, state and local governmental laws, rules, regulations and
ordinances, except as set forth in the Form 10-K, Form 10-Q or on Schedule
2.1(n) hereto or such that would not reasonably be expected to cause a Material
Adverse Effect. The Company has all franchises, permits, licenses, consents and
other governmental or regulatory authorizations and approvals necessary for the
conduct of its business as now being conducted by it unless the failure to
possess such franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
(o) Taxes. Except as set forth in the Form 10-K, Form 10-Q or
on Schedule 2.1(o) hereto, the Company has accurately prepared and filed all
federal, state and other tax returns required by law to be filed by it, has paid
or made provisions for the payment of all taxes shown to be due and all
additional assessments, and adequate provisions have been and are reflected in
the financial statements of the Company for all current taxes and other charges
to which the Company is subject and which are not currently due and payable.
Except as disclosed on Schedule 2.1(o) hereto, none of the federal income tax
returns of the Company for the years subsequent to December 31, 1995 have been
audited by the Internal Revenue Service. The Company has no knowledge of any
additional assessments, adjustments or contingent tax liability (whether federal
or state) pending or threatened against the Company for any period, nor of any
basis for any such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p)
hereto, no brokers, finders or financial advisory fees or commissions will be
payable by the Company or any subsidiary with respect to the transactions
contemplated by this Agreement.
(q) Disclosure. To the best of the Company's knowledge,
neither this Agreement or the Schedules hereto nor any other documents,
certificates or instruments furnished to the Purchasers by or on behalf of the
Company in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omits to state a material
fact
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necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Intentionally omitted.
(s) Intentionally omitted.
(t) Books and Records. The records and documents of the
Company accurately reflect in all material respects the information relating to
the business of the Company, the location and collection of their assets, and
the nature of all transactions giving rise to the obligations or accounts
receivable of the Company.
(u) Material Agreements. Except as set forth in the Form 10-K,
Form 10-Q or on Schedule 2.1(u) hereto, the Company is not a party to any
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement, a copy of which would be required to be filed with the Commission
as an exhibit to a registration statement filed on the date hereof with the
Commission relating to the issuance and sale by the Company of its Common Stock
(collectively, "Material Agreements"). The Company has in all material respects
performed all the obligations required to be performed by them to date under the
foregoing agreements, have received no notice of default and, to the best of the
Company's knowledge are not in default under any Material Agreement now in
effect, the result of which would be reasonably expected to have a Material
Adverse Effect. No written or oral contract, instrument, agreement, commitment,
obligation, plan or arrangement of the Company limits or shall limit the payment
of dividends on the Company's Preferred Shares, other Preferred Stock, if any,
or its Common Stock.
(v) Transactions with Affiliates. Except as set forth in the
Form 10-K, Form 10-Q or on Schedule 2.1(v) hereto, there are no loans, leases,
agreements, contracts, royalty agreements, management contracts or arrangements
or other continuing transactions exceeding $100,000 between (a) the Company or
any of its customers or suppliers on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the Company or any member of
the immediate family of such officer, employee, consultant, director or
stockholder or any corporation or other entity controlled by such officer,
employee, consultant, director or stockholder, or a member of the immediate
family of such officer, employee, consultant, director or stockholder.
(w) Securities Act of 1933. The Company has complied and will
comply with all applicable Federal and state securities laws in connection with
the offer, issuance and sale of the Preferred Shares hereunder. Neither the
Company nor anyone acting on its behalf, directly or indirectly, has or will
sell, offer to sell or solicit offers to buy the Preferred Shares or similar
securities to, or solicit offers with respect thereto from, or enter into any
preliminary conversations or negotiations relating thereto with, any person, so
as to bring the issuance and sale of the Preferred Shares under the registration
provisions of the Securities Act and applicable state
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securities laws. Neither the Company nor any of its affiliates, nor any person
acting on its or their behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D under the Securities
Act) in connection with the offer or sale of the Preferred Shares.
(x) Governmental Approvals. Except as set forth in the Form
10-K, Form 10-Q or on Schedule 2.1(x) hereto, and except for the filing of any
notice prior or subsequent to the Closing that may be required under applicable
state and/or Federal securities laws (which if required, shall be filed on a
timely basis), including the filing of a registration statement or statements
pursuant to the Registration Rights Agreement, and the filing of the Certificate
of Designations with the Secretary of State for the State of Delaware, no
authorization, consent, approval, license, exemption of, filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the execution or delivery of the Preferred Shares, or for the
performance by the Company of its obligations under the Transaction Documents or
the Certificate of Designations.
(y) Investment Company Act Status. The Company is not, and as
a result of and immediately upon Closing will not be, an "investment company" or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
(z) Intellectual Property Rights. The Company owns or
possesses adequate rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of the
Company's trademarks, trade names, service marks, service xxxx registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate within two years from the date of this Agreement. The Company does not
have any knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patents, patent rights, copyrights, inventions,
licenses, service names, service marks, service xxxx registrations, trade secret
or other similar rights of others, or of any such development of similar or
identical trade secrets or technical information by others and, except as set
forth on Schedule 3(n), there is no claim, action or proceeding being made or
brought against, or to the Company's knowledge, being threatened against, the
Company regarding trademark, trade name, patents, patent rights, invention,
copyright, license, service names, service marks, service xxxx registrations,
trade secret or other infringement; and the Company is unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company has
taken reasonable security measures to protect the secrecy, confidentiality and
value of all of their intellectual properties.
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(aa) Acknowledgment Regarding Purchasers' Purchase of
Preferred Shares. The Company acknowledges and agrees that each of the
Purchasers is acting solely in the capacity of arm's length purchaser with
respect to the Transaction Documents and the transactions contemplated thereby.
The Company further acknowledges that each Purchaser is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated thereby
and any advice given by any of the Purchasers or any of their respective
representatives or agents in connection with the Transaction Documents and the
transactions contemplated thereby is merely incidental to such Purchaser's
purchase of the Shares and the Warrants. The Company further represents to each
Purchaser that the Company's decision to enter into the Transaction Documents
has been based solely on the independent evaluation by the Company and its
representatives.
(ab) No Integrated Offering. To the knowledge of the Company,
neither the Company, nor any of its affiliates, nor any person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would require registration of any of the Shares or the Warrants under the
Securities Act or cause this offering of the Shares or Warrants to be integrated
with prior offerings by the Company for purposes of the Securities Act or any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of The Nasdaq Stock Market, Inc. nor will the Company
or any of its subsidiaries take any action or steps that would require
registration of the Shares or the Warrants under the Securities Act or cause the
offering of the Shares and the Warrants to be integrated with other offerings.
(ac) Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the Preferred
Shares and the Warrant Shares issuable upon exercise of the Warrants will
increase in certain circumstances. The Company further acknowledges that its
obligation to issue Conversion Shares upon conversion of the Preferred Shares in
accordance with this Agreement and the Certificate of Designations and its
obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
(ad) No Other Agreements. The Company has not, directly
or indirectly, made any agreements with any of the Purchasers relating to the
terms and conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents.
Section 2.2 Representations and Warranties of the Purchasers. Each of
the Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the
Purchaser is an entity, such Purchaser is a corporation, partnership, limited
liability company or other entity duly
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incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization.
(b) Authorization and Power. The Purchaser has the requisite
power and authority to enter into and perform this Agreement and to purchase the
Preferred Shares being sold to it hereunder. The execution, delivery and
performance of this Agreement and the Registration Rights Agreement by such
Purchaser and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate, partnership or
entity action (if the Purchaser is an entity), and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders,
partners, or members as the case may be, is required. Each of this Agreement and
the Registration Rights Agreement has been duly authorized, executed and
delivered by such Purchaser.
(c) No Conflicts. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement and the consummation by
such Purchaser of the transactions contemplated hereby and thereby or relating
hereto do not and will not (i) result in a violation of such Purchaser's charter
documents or bylaws or other organizational documents or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument to which such Purchaser is a party (except for such conflicts and
defaults as would not, individually or in the aggregate, have a material adverse
effect on the business, properties, assets, operations, results of operations or
financial condition of such Purchaser).
(d) Acquisition for Investment. Such Purchaser is purchasing
the Preferred Shares and the Conversion Shares solely for its own account for
the purpose of investment and not with a view to or for sale in connection with
distribution thereof, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein and
subject to Section 2.2(f) below, such Purchaser does not agree to hold the
Preferred Shares or the Conversion Shares for any minimum or other specific term
and reserves the right to dispose of the Preferred Shares and the Conversion
Shares at any time in accordance with Federal securities laws applicable to such
disposition. Such Purchaser acknowledges that it is able to bear the financial
risks associated with an investment in the Preferred Shares and the Conversion
Shares and that it has been given full access to such records of the Company and
to the officers of the Company as it has deemed necessary or appropriate to
conduct its due diligence investigation, if any.
(e) Accredited Purchasers. Such Purchaser is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act.
(f) Rule 144. Such Purchaser acknowledges that such person is
familiar with Rule 144 of the rules and regulations of the Commission, as
amended, promulgated pursuant to the Securities Act ("Rule 144"), and that such
person has been advised that Rule 144 permits
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resales only under certain circumstances. Such Purchaser understands that to the
extent that Rule 144 is not available, such person will be unable to sell any
Preferred Shares and Conversion Shares without either registration under the
Securities Act or the existence of another exemption from such registration
requirement.
(g) General. Each Purchaser understands that the Shares are
being offered and sold in reliance on a transactional exemption from the
registration requirement of Federal and state securities laws and the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of such Purchasers set forth
herein in order to determine the applicability of such exemptions and the
suitability of such Purchasers to acquire the Shares.
ARTICLE III
Covenants
The Company covenants with each of the Purchasers as follows, which
covenants are for the benefit of the Purchasers.
Section 3.1 Securities Compliance.
(a) The Company shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Shares and the Warrants to
the Purchasers.
(b) The Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
such Purchasers set forth herein in order to determine the applicability of
Federal and state securities laws exemptions and the suitability of such
Purchasers to acquire the Preferred Shares.
Section 3.2 Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement or the Registration Rights Agreement,
and will not take any action or file any document (whether or not permitted by
the Securities Act or the rules promulgated thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under the Exchange Act or Securities Act, except as permitted
herein. The Company will take all action necessary to continue the listing or
trading of its Common Stock on the Nasdaq Small Cap Market ("NASDAQ"), if
applicable, and will comply in all respects with the Company's reporting, filing
and other obligations under the bylaws or rules of the NASD and NASDAQ.
Section 3.3 Intentionally omitted.
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Section 3.4 Compliance with Laws. The Company shall comply with all
applicable laws, rules, regulations and orders, noncompliance with which would
reasonably be expected to have a Material Adverse Effect.
Section 3.5 Keeping of Records and Books of Account. The Company shall
keep adequate records and books of account, in which complete entries will be
made in accordance with GAAP consistently applied, reflecting all financial
transactions of the Company.
Section 3.6 Intentionally omitted.
Section 3.7 Amendments. So long as any of the Preferred Shares remain
outstanding, the Company shall not amend or waive any provision of the Articles,
Bylaws of the Company, or Registration Rights Agreement in any way that would
adversely affect the liquidation preferences, dividends rights, voting rights or
redemption rights of the holders of the Preferred Shares.
Section 3.8 Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right to perform of the Company under the Transaction Documents or the
Certificate of Designations.
Section 3.9 Reservation of Shares. So long as any of the Preferred
Shares or Warrants remain outstanding, the Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 150% of the number of shares of Common Stock needed to
provide for the issuance of the Conversion Shares and the Warrant Shares.
Section 3.10 Filing of Form 8-K. On or before the fifteenth (15th)
business day following each of the Closing Dates, the Company shall file a Form
8-K with the SEC describing the terms of the transaction contemplated by the
Transaction Documents and consummated at such Closing, in each case in the form
required by the 1934 Act.
Section 3.11 Use of Proceeds. The proceeds from the sale of the
Preferred Shares will be used by the Company for working capital and general
corporate purposes.
Section 3.12 Intentionally omitted.
Section 3.13 Restrictions on Additional Financings. Subject to the
exceptions described below, the Company agrees that it shall not contract with
any party for or issue any securities convertible or exchangeable into or for
equity securities of the Company (including debt securities with an equity
component) in any form ("Convertible Securities") which Convertible Securities
allow for conversions, exchanges or exercises prior to the date which is 120
days after the Initial Closing Date (the limitations referred to in this
sentence are collectively referred to as the "Capital Raising Limitation"). The
Capital Raising Limitation shall not apply to (i) a loan from a commercial bank
which does not have any equity feature, (ii) any transaction involving the
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Company's issuances of securities (A) as consideration in a merger or
consolidation, (B) in connection with any strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital), or (C) as
consideration for the acquisition of a business, product or license or other
assets by the Company, (iii) the issuance of Common Stock in a firm commitment,
underwritten public offering, (iv) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof (v) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan or stock purchase plan for the benefit of the
Company's employees or directors, or (vi) the issuance of Series H Convertible
Preferred Stock by the Company, provided that the terms of such Series H
Convertible Preferred Stock and the terms of its issuance are not more favorable
than the terms of the Preferred Shares set forth in this Agreement, the
Certificate of Designations and the Registration Rights Agreement.
Section 3.14 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Purchaser or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Purchaser to the Company upon
conversion of the Preferred Shares or exercise of the Warrants (the "Irrevocable
Transfer Agent Instructions"). Prior to registration of the Conversion Shares
and the Warrant Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 6.1 of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 3.14 will be given by the Company to
its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section 3.14 shall affect in any way each Purchaser's obligations and
agreements set forth in Section 6.1 to comply with all applicable prospectus
delivery requirements, if any, upon resale of the Securities. If a Purchaser
provides the Company with an opinion of counsel, in a generally acceptable form,
to the effect that a public sale, assignment or transfer of the Securities may
be made without registration under the Securities Act or the Purchaser provides
the Company with reasonable assurances that the Securities can be sold pursuant
to Rule 144 without any restriction as to the number of securities acquired as
of a particular date that can then be immediately sold, the Company shall permit
the transfer, and, in the case of the Conversion Shares and the Warrant Shares,
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by such Purchaser and without any
restrictive legend. The Company acknowledges that a breach by it of its
obligations under this Section 3.14 will cause irreparable harm to the
Purchasers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 3.14 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 3.14, that the Purchasers shall be entitled, in addition to all
other available remedies, to an order and/or injunction restraining any breach
and requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
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Section 3.15 Capital and Surplus; Special Reserves. The amount
to be represented in the capital account for the Preferred Shares at all times
for each outstanding Preferred Share shall be an amount equal to the Redemption
Price (as defined in Section 8(b) of the Certificate of Designations) for such
Preferred Share.
ARTICLE IV
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Shares.
(a) Initial Closing Date. The obligation hereunder of the
Company to issue and sell the Initial Preferred Shares to the Purchasers on the
Initial Closing Date is subject to the satisfaction or waiver, at or before the
Initial Closing, of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Purchaser with prior written notice
thereof.
(i) Accuracy of the Purchasers' Representations and
Warranties. The representations and warranties of the Purchasers shall
be true and correct in all material respects as of the date when made
and as of the Initial Closing as though made at that time, except for
representations and warranties that are expressly made as of a
particular date.
(ii) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all
material covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Purchaser
at or prior to the Initial Closing.
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(b) Additional Closing Date. The obligation hereunder of the
Company to issue and sell the Additional Preferred Shares to the Purchasers on
the Additional Closing Date is subject to the satisfaction or waiver, at or
before the Additional Closing, of each of the conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion by providing each Purchaser with prior
written notice thereof.
(i) Accuracy of the Purchasers' Representations and Warranties.
The representations and warranties of the Purchasers shall be true and
correct in all material
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respects as of the date when made and as of the Additional Closing as
though made at that time, except for representations and warranties
that are expressly made as of a particular date.
(ii) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all
material covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Purchaser
at or prior to the Additional Closing.
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Purchase the Shares.
(a) Initial Closing Date. The obligation hereunder of each
Purchaser to acquire and pay for the Initial Preferred Shares is subject to the
satisfaction or waiver, at or before the Initial Closing, of each of the
conditions set forth below. These conditions are for each Purchaser's sole
benefit and may be waived by such Purchaser at any time in its sole discretion.
(i) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true
and correct as of the date when made and as of the Initial Closing as
though made at that time, except for representations and warranties
that are expressly made as of a particular date.
(ii) Performance by the Company. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Initial
Closing.
(iii) Intentionally omitted.
(iv) No Suspension, Etc. From the date hereof to the Initial
Closing Date, trading in the Company's Common Stock shall not have been
suspended by the Commission or the NASDAQ (except for any suspension of
trading of limited duration agreed to by the Company, which suspension
shall be terminated prior to Initial Closing), and, at any time prior
to the Initial Closing, trading in securities generally as reported by
NASDAQ shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported
by NASDAQ.
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(v) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(vi) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall
have been commenced, and no investigation by any governmental authority
shall have been threatened, against the Company or any subsidiary, or
any of the officers, directors or affiliates of the Company or any
subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with
such transactions.
(vii) Certificate of Designations. The Certificate of
Designations shall have been filed with the Secretary of State of
Delaware, and a copy thereof certified by such Secretary of State shall
have been delivered to such Purchaser.
(viii) Opinion of Counsel. At the Initial Closing, the
Purchasers shall have received an opinion of counsel to the Company,
dated the date of the Initial Closing, in the form of Exhibit D hereto.
(ix) Registration Rights Agreement. At the Closing the Company
shall have executed and delivered the Registration Rights Agreement to
each Purchaser.
(x) Preferred Stock Certificates. The Company shall have
executed and delivered to such Purchaser the Stock Certificates (in
such denominations as such Purchaser shall request) for the Preferred
Shares being purchased by such Purchaser at the Initial Closing.
(xi) Resolutions. The Board of Directors of the Company shall
have adopted resolutions consistent with Section 2.1(b) above and in a
form reasonably acceptable to such Purchaser (the "Resolutions").
(xii) Reservation of Shares. As of the Initial Closing Date,
the Company shall have reserved out of its authorized and unissued
Common Stock, solely for the purpose of effecting the conversion of the
Preferred Shares and the exercise of the Warrants, a number of shares
of Common Stock equal to the sum of (A) at least 150% of the number of
Conversion Shares issuable upon conversion of the Preferred Shares
outstanding on the Initial Closing Date and (B) the number of Warrant
Shares issuable upon exercise of the number of Warrants assuming such
Warrants were granted on the Initial Closing Date (after giving effect
to the Preferred Shares to be issued on the Initial Closing Date and
assuming all such Preferred Shares and Warrants were fully convertible
or exercisable on such date regardless of any limitation on the timing
or amount of such conversions or exercises).
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(xiii) Transfer Agent Instructions. The Irrevocable Transfer
Agent Instructions, in the form of Exhibit E attached hereto, shall
have been delivered to and acknowledged in writing by the Company's
transfer agent.
(xiv) Good Standing Certificate. The Company shall have
delivered to such Purchaser a certificate evidencing the incorporation
and good standing of the Company in the State of Delaware issued by the
Secretary of State of the State of Delaware and the qualification and
good standing of the Company to do business in the State of California
issued by the Secretary of State of the State of California, each as of
a date within 10 days of the Initial Closing.
(xv) Certified Articles of Incorporation. The Company shall
have delivered to such Purchaser a certified copy of its Articles as
certified by the Secretary of State of the State of Delaware within ten
days of the Initial Closing Date.
(xvi) Secretary's Certificate. The Company shall have
delivered to such Purchaser a secretary's certificate, dated as the
Initial Closing Date, as to (i) the Resolutions, (ii) the Articles and
(iii) the Bylaws, each as in effect at the Initial Closing.
(b) Additional Closing Date. The obligation hereunder of each
Purchaser to acquire and pay for the Additional Preferred Shares is subject to
the satisfaction or waiver, at or before the Additional Closing, of each of the
conditions set forth below. These conditions are for each Purchaser's sole
benefit and may be waived by such Purchaser at any time in its sole discretion.
(i) Accuracy of the Company's Representations and Warranties.
Each of the representations and warranties of the Company shall be true
and correct as of the date when made and as of the Additional Closing
as though made at that time, except for representations and warranties
that are expressly made as of a particular date.
(ii) Performance by the Company. The Company shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Additional
Closing.
(iii) No Suspension, Etc. From the date hereof to the
Additional Closing Date, trading in the Company's Common Stock shall
not have been suspended by the Commission or the NASDAQ (except for any
suspension of trading of limited duration agreed to by the Company,
which suspension shall be terminated prior to Additional Closing), and,
at any time prior to the Additional Closing, trading in securities
generally as reported by NASDAQ shall not have been suspended or
limited, or minimum prices shall not have been established on
securities whose trades are reported by NASDAQ.
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(iv) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(v) No Proceedings or Litigation. No action, suit or
proceeding before any arbitrator or any governmental authority shall
have been commenced, and no investigation by any governmental authority
shall have been threatened, against the Company or any subsidiary, or
any of the officers, directors or affiliates of the Company or any
subsidiary seeking to restrain, prevent or change the transactions
contemplated by this Agreement, or seeking damages in connection with
such transactions.
(vi) Opinion of Counsel. At the Additional Closing, the
Purchasers shall have received an opinion of counsel to the Company,
dated the date of the Additional Closing, in the form of Exhibit D
hereto.
(vii) Preferred Stock Certificates. The Company shall have
executed and delivered to such Purchaser the Stock Certificates (in
such denominations as such Purchaser shall request) for the Preferred
Shares being purchased by such Purchaser at the Additional Closing.
(viii) Secretary's Certificate. The Company shall have
delivered to such Purchaser a secretary's certificate, dated as the
Additional Closing Date, as to (A) the Resolutions, (B) the Articles,
(C) the Bylaws and (D) the Certificate of Designations, each as in
effect at the Additional Closing.
ARTICLE V
Registration Rights
At the Initial Closing, the Company and Purchasers shall enter into a
Registration Rights Agreement in the form attached hereto as Exhibit C.
ARTICLE VI
Transfer Restrictions
Section 6.1 Legend. The certificates or other instruments representing
the Preferred Shares and the Warrants until such time as the sale of the
Conversion Shares and the Warrant Shares have been registered under the
Securities Act as contemplated by the Registration Rights Agreement, the stock
certificates representing the Conversion Shares and the Warrant Shares,
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except as set forth below, shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed from the Securities and the Company
shall issue a certificate without such legend to the holder of such Securities,
if, (i) in connection with a sale transaction, such Securities are registered
for sale under the 1933 Act, (ii) in connection with a sale transaction, such
holder provides the Company with an opinion of counsel, in a generally
acceptable form, to the effect that a public sale, assignment or transfer of
such Securities may be made without registration under the Securities Act, or
(iii) such holder provides the Company with reasonable assurances that such
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold. In the case of any proposed transfer under this Section 6.1,
the Company will use reasonable efforts to comply with any such applicable state
securities or "blue sky" laws, but shall in no event be required, in connection
therewith, to qualify to do business in any state where it is not then qualified
or to take any action that would subject it to tax or to the general service of
process in any state where it is not then subject. If the holder has complied
with clause (iii) of this Section 6.1, the Company will cause an opinion of
counsel to be delivered to the transfer agent regarding the removal of the
legend.
Section 6.2 Transfer or Resale. Except as provided in the Registration
Rights Agreement: (i) the Preferred Shares and the Warrants have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Purchaser shall have delivered to
the Company an opinion of counsel, in a generally acceptable form, to the effect
that such securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Purchaser provides the Company with reasonable assurance that such Securities
can be sold, assigned or transferred pursuant to Rule 144; and (ii) any sale of
such securities made in reliance on Rule 144 may be made only in accordance with
the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may
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require compliance with some other exemption under the Securities Act or the
rules and regulations of the Commission thereunder.
ARTICLE VII
Termination
Section 7.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Purchasers.
Section 7.2 Other Termination. This Agreement may be terminated by the
action of the Board of Directors of the Company or by any one or more of the
Purchasers at any time if the Closing shall not have been consummated by the
Closing Date, as long as the failure to so consummate is not the fault of the
terminating party.
Section 7.3 Effect of Termination. In the event of termination by the
Company or any one or more of the Purchasers, written notice thereof shall
forthwith be given to the other party and the transactions contemplated by this
Agreement and the Registration Rights Agreement shall be terminated without
further action by either party. If this Agreement is terminated as provided in
Section 7.1 or 7.2 herein, this Agreement shall become void and of no further
force and effect, except for Sections 9.1 and 9.2, and Article VIII herein.
Nothing in this Section 7.3 shall be deemed to release the Company or any
Purchaser from any liability for any breach under this Agreement or the
Registration Rights Agreement, or to impair the rights of the Company and the
Purchasers to compel specific performance by the other party of its obligations
under this Agreement and the Registration Rights Agreement.
ARTICLE VIII
Indemnification
Section 8.1 General Indemnity. The Company agrees to indemnify and hold
harmless the Purchasers (and their respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorney's fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. Each
Purchaser agrees, severally and not jointly, to indemnify and hold harmless the
Company (and its directors, officers, affiliates, agents, successors and
assigns) from and against any and all losses, liabilities, deficiencies, costs,
damages and expenses (including, without limitation, reasonable attorney's fees,
charges and disbursements) incurred by the Company as a result of any inaccuracy
in or breach of the representations, warranties or covenants made by the Company
herein.
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Section 8.2 Indemnification Procedure. Any party entitled to
indemnification under this Article VIII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VIII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect of such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VIII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VIII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
-23-
ARTICLE IX
Miscellaneous
Section 9.1 Fees and Expenses. Except as otherwise set forth in this
Agreement, the Registration Rights Agreement or the Certificate of Designations,
each party shall pay the fees and expenses of its advisors, counsel, accountants
and other experts, if any, and all other expenses, incurred by such party
incident to the negotiation, preparation, execution, deliver and performance of
this Agreement. The Company shall pay all stamp or other similar taxes and
duties levied in connection with issuance of the Preferred Shares pursuant
hereto.
Section 9.2 Specific Enforcement, Consent to Jurisdiction .
(a) The Company and the Purchasers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the Registration Rights Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
(b) Each of the Company and the Purchasers (i) hereby
irrevocably submits to the jurisdiction of the state and federal courts sitting
in the City of New York, borough of Manhattan for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement or the
Registration Rights Agreement and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Purchasers consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section shall affect or
limit any right to serve process in any other manner permitted by law.
Section 9.3 Entire Agreement; Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein or in the Transaction Documents or
the Certificate of Designations, neither the Company nor any of the Purchasers
makes any representations, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other than
by a written instrument signed by the Company and the holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding, and no provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement is sought. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the
-24-
Preferred Shares then outstanding. No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents or the Certificate of Designations unless the
same consideration also is offered to all of the parties to the Transaction
Documents or holders of Preferred Shares, as the case may be.
Section 9.4 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.
The addresses and facsimile numbers for such communications shall be:
If to the Company: Chief Financial Officer
StarBase Corporation
If to any Purchaser: At the address of such Purchaser
set forth on the Schedule of Purchasers to this
Agreement, with copies to Purchaser's counsel as set
forth on the Schedule of Purchasers or as specified
in writing by such Purchaser
Any party hereto may from time to time change its address for notices
by giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 9.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter.
Section 9.6 Headings. The article, section and subsection headings in
this Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 9.7 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers
-25-
of the Preferred Shares. Except as in compliance with Section 8(c) of the
Certificate of Designations, the Company shall not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the holders
of three-fourths (3/4) of the Preferred Shares then outstanding including by
merger or consolidation. A Purchaser may assign some or all of its rights
hereunder to Affiliates (as defined below) of such Purchaser, without the
consent of the Company, and to others, with the consent of the Company;
provided, however, that any such assignment shall not release such Purchaser
from its obligations hereunder unless such obligations are assumed by such
assignee and the Company has consented to such assignment and assumption.
Notwithstanding anything to the contrary contained in the Transaction Documents,
Purchaser shall be entitled to pledge the Securities in connection with a bona
fide margin account. For purposes of this Section 9.7, "Affiliates" means with
respect to any Purchaser, any person that directly or indirectly, through one or
more intermediaries, controls, is controlled by or is under common control with
such Person.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 9.9 Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws.
Section 9.10 Survival. The representations and warranties of the
Company and the Purchasers contained in Article II shall survive the execution
and delivery hereof and each of the Closings, and the agreements and covenants
set forth in Articles I, III, V, VII, VIII and IX of this Agreement shall
survive the execution and delivery hereof and each of the Closings hereunder;
provided, that Sections 3.2, 3.4, 3.5 and 3.8 shall expire on the earlier of (i)
the date which is one year after the date as of which the Purchasers may sell
all of the Conversion Shares and Warrant Shares without restriction pursuant to
Rule 144(k) promulgated under the Securities Act (or successor thereto), or (ii)
the date on which (A) the Purchasers shall have sold all the Conversion Shares
and Warrant Shares and (B) none of the Preferred Shares or Warrants are
outstanding. Each Purchaser shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
Section 9.11 Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart. In the event any signature is
delivered by facsimile transmission, such facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
-26-
Section 9.12. Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchasers,
unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
Section 9.13 Severability. The provisions of this Agreement, the
Certificate of Designations and the Registration Rights Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement, the Certificate of Designations or the Registration Rights Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement, the Certificate of
Designations or the Registration Rights Agreement shall be reformed and
construed as if such invalid or illegal or unenforceable provision, or part of
such provision, had never been contained herein, so that such provisions would
be valid, legal and enforceable to the maximum extent possible.
Section 9.14 Further Assurances. From and after the date of this
Agreement, upon the request of any Purchaser or the Company, each of the Company
and the Purchasers shall execute and deliver such instrument, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement, the
Preferred Shares, the Conversion Shares, the Warrants, the Warrant Shares, the
Certificate of Designations, and the Registration Rights Agreement.
Section 9.15 Intentionally omitted.
Section 9.16 No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
Section 9.17 Remedies. Each Purchaser shall have all rights and
remedies set forth in the Transaction Documents and the Certificate of
Designations and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
Section 9.18 Payment Set Aside. To the extent that the Company makes a
payment or payments to the Purchasers hereunder or pursuant to the Certificate
of Designations or Warrants or the Purchasers enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or
-27-
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
* * * * * *
-28-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorize officer as of the date first above
written.
STARBASE CORPORATION
By:
Name:
Its:
THE PURCHASERS:
By:
Name:
Its:
SCHEDULE OF PURCHASERS to the
SERIES G CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR STARBASE CORPORATION
Number of
Initial /
Additional
Investor Address Preferred Investor's Representatives'
Investor Name and Facsimile Number A Shares Address and Facsimile Number
------------- -------------------- ---------- ----------------------------
-31-
SCHEDULE OF DEFINED TERMS
Defined Term Section
------------ -------
Additional Closing 1.3
Additional Closing Date 1.3
Additional Preferred Shares Recital D
Additional Share Notice 1.4
Affiliates 9.7
Articles 2.1(c)
Bloomberg 1.5
Bylaws 2.1(c)
Capital Raising Limitation 3.13
Certificate of Designations Recital B
Closing Dates 1.3
Closings 1.3
Commission Documents 2.1(f)
Common Stock Recital B
Conversion Shares Recital B
Convertible Securities 3.13
Exchange Act 2.1(f)
Form 10-K 2.1(f)
Form 10-Q 2.1(f)
GAAP 2.1(f)
Indebtedness 2.1(k)
indemnified party 8.2
Initial Closing 1.3
Initial Closing Date 1.3
Initial Preferred Shares Recital C
Irrevocable Transfer Agent
Instructions 3.14
Material Adverse Effect 2.1(a)
Material Agreements 2.1(u)
NASD 2.1(e)
NASDAQ 3.2
Preferred Shares Recitals B and D
Preferred Stock Recital B
Registration Rights Agreement Recital F
Regulation D Recital A
Resolutions 4.2(a)(xi)
Rule 144 2.2(f)
SEC Recital A
Second Closing 1.3
-32-
Defined Term Section
------------ -------
Securities 1.2
Securities Act Recital A
Shares 1.2
Transaction Documents 2.1(b)
Warrants Recital E
Warrant Shares Recital E
Warrant Trigger Date 1.5
-33-
STARBASE CORPORATION
DISCLOSURE SCHEDULES
RELATING TO THE SERIES G CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT AMONG STARBASE CORPORATION AND
THE PURCHASERS LISTED ON THE SCHEDULE OF PURCHASERS THERETO
ALL SECTION AND SUBSECTION NUMBERS AND LETTERS RELATE AND
COINCIDE TO SUCH NUMBERS AND LETTERS AS SET FORTH IN THE SERIES G CONVERTIBLE
PREFERRED STOCK PURCHASE AGREEMENT (THE "AGREEMENT"). ANY TERMS REQUIRING
DEFINITION HEREIN ARE DEFINED IN THE AGREEMENT.
SCHEDULE 2.1(c)
Authorized Capital Stock as of June 30, 1998
Common
Authorized
Outstanding
Preferred
Authorized
Series A Outstanding
Series B Outstanding
Series C Outstanding
Series D Outstanding
Series E Outstanding
Series F Outstanding
SCHEDULE 2.1(e)
Nothing for this schedule
SCHEDULE 2.1(f)
Nothing for this schedule
SCHEDULE 2.1(h)
Nothing for this schedule
SCHEDULE 2.1(k)
At June 30, 1998, the remaining balance to be paid on the lease of the telephone
system is approximately $45,000.
SCHEDULE 2.1(m)
Nothing for this schedule
SCHEDULE 2.1(n)
Nothing for this schedule
SCHEDULE 2.1(o)
Nothing for this schedule
SCHEDULE 2.1(p)
Nothing for this schedule
SCHEDULE 2.1(r)
Omitted
SCHEDULE 2.1(u)
Nothing for this schedule
SCHEDULE 2.1(v)
Nothing for this schedule
SCHEDULE 2.1(x)
Nothing for this schedule
