EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of March 16, 1999, is
entered into by and between STARBASE CORPORATION, a Delaware corporation, with
headquarters located at 0 Xxxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxx Xxx, Xxxxxxxxxx
00000 (the "Company") and the undersigned entity (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, inter alia, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, Series I Exchangeable Units (each a "Unit").
Each Unit consisting of (i) one share of Exchangeable Preferred Stock, par value
$.01 per share (the "Preferred Stock"), each share of Preferred Stock will be
exchangeable into shares of Common Stock, $.01 par value per share, of the
Company (the "Common Stock," "Exchange Shares," or "Shares"), upon the terms and
subject to the conditions of such Preferred Stock, and (ii) a warrant to
purchase 200 shares of Common Stock (the "Warrant"), and subject to acceptance
of this Agreement by the Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
A. PURCHASE; CERTAIN DEFINITIONS.
(i) Buyer hereby agrees to purchase from the Company 1,000
Units, consisting of shares of Preferred Stock and Warrants for an aggregate
purchase price of $1,000,000. The purchase price for each Unit shall be
$1,000.00 (the "Purchase Price") and shall be payable in United States Dollars.
(ii) The name, address and employer identification number of
the Buyer are set forth in Schedule A to this Agreement.
(iii) As used herein, the term "Securities" means the
Preferred Stock and the Common Stock issuable upon exchange of the Preferred
Stock, as well as the Warrants and Common Stock issuable upon exchange of the
Warrants.
B. FORM OF PAYMENT. Buyer shall pay the Purchase Price for each Unit by
delivering immediately available good funds to the escrow agent (the "Escrow
Agent") identified in the Joint Escrow Instructions attached hereto as Annex II
(the "Joint Escrow Instructions"). No later than the Closing Date (as defined
below), the Company shall deliver one or more certificates representing the
Preferred Stock along with one or more certificates representing the Warrants
duly executed on behalf of the Company (collectively, the "Certificates") to the
Escrow Agent. By signing this Agreement, Buyer and the Company each agree to all
of the terms and conditions of, and becomes a party to, the Joint Escrow
Instructions, all of the provisions of which are incorporated herein by this
reference as if set forth in full.
C. METHOD OF PAYMENT. Payment into escrow of the Purchase Price for the
Unit shall be made by Buyer by wire transfer of funds to:
Bank One, Louisiana, N.A.
000 Xx. Xxxxxxx Xxx.
Xxx Xxxxxxx, XX 00000
ABA# 000000000
A/C: Jones, Walker, Waechter, Poitevent, Carrere &
Xxxxxxx Client Trust Fund Account
A/C# 552-2000497878
Not later than 1:00 p.m., Central Standard Time, on the date which is one New
York Stock Exchange trading day after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Escrow
Agent by facsimile, Buyer shall deposit with the Escrow Agent the aggregate
Purchase Price for the Units.
D. LEGAL AND ACCOUNTING FEES. Talisman Capital Opportunity Fund Inc.
shall withhold $25,000 to cover all legal and accounting fees associated with
this transaction.
E. ESCROW PROPERTY. The aggregate Purchase Price and the
Certificate(s) delivered to the Escrow Agent are hereinafter referred to as the
"Escrow Property."
2. COMPANY REPRESENTATIONS, ETC.
----------------------------
The Company represents and warrants to the Buyer that:
A. CONCERNING THE SECURITIES. The Preferred Stock and Warrants have
been duly authorized and, when issued, will be duly and validly issued, fully
paid and non-assessable and will not subject the holder thereof to personal
liability by reason of being such holder. There are no preemptive rights of any
shareholder of the Company, as such, to acquire the Preferred Stock or the
Common Stock issuable upon exchange of the Preferred Stock or upon exercise of
the Warrant, except for such antidilution rights as may exist under outstanding
options and warrants.
B. COMPANY STATUS. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power
2
to own its properties and to carry on its business as now being conducted. The
Company is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business or operations or condition (financial or
otherwise) of the Company and its subsidiaries, taken as a whole. The Company
has registered its Common Stock pursuant to Section 12 of the 1934 Act, and the
Common Stock is listed and traded on the Nasdaq Small Cap Market. Except as set
forth in Annex V, the Company has received no notice, either oral or written,
with respect to the continued eligibility of the Common Stock for such listing,
and the Company has maintained all requirements for the continuation of such
listing.
C. AUTHORIZED SHARES. The Company has at March 11, 1999, 28,011,362
shares of Common Stock outstanding, and has sufficient authorized and unissued
Common Stock as may be reasonably necessary to effect the exchange of the
Preferred Stock in accordance with the Certificate of Designation and exercise
of the Warrants on the Closing Date or the Effective Date of the Registration
Statement. The Common Stock has been duly authorized and, when issued upon
exchange of the Preferred Stock in accordance with its terms, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder.
D. REGISTRATION RIGHTS AGREEMENT AND STOCK. This Agreement, the
Registration Rights Agreement and all other documents relating to this
transaction, the form of which is attached hereto, and the transactions
contemplated hereby and thereby, have been duly and validly authorized by the
Company, when executed and delivered by or on behalf of the Company, will be,
valid and binding agreements of the Company enforceable in accordance with their
respective terms, subject, as to enforceability, to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditor's rights generally.
E. NON-CONTRAVENTION. The execution and delivery of this Agreement and
the Registration Rights Agreement by the Company, the issuance of the
Securities, and, except as disclosed in Annex V, the consummation by the Company
of the other transactions contemplated by this Agreement, the Registration
Rights Agreement and all other documents associated with this transaction, and
the Preferred Stock do not and will not conflict with or result in a breach by
the Company of any of the terms or provisions of, or constitute a default under
(i) the articles of incorporation or by-laws of the Company, each as currently
in effect, (ii) any indenture, mortgage, deed of trust, or other material
agreement or instrument to which the Company is a party or by which it or any of
its properties or assets are bound, including any listing agreement for the
Common Stock (except as herein set forth), (iii) to its knowledge, any existing
applicable law, rule, or regulation or any applicable decree, judgment, or order
of any court, United States federal or state regulatory body, administrative
agency, or other governmental body having jurisdiction over the Company or any
of its properties or assets, or (iv) any listing agreement for its Common Stock,
except such conflict, breach or default which would not have a material adverse
effect on the transactions contemplated herein.
3
F. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the shareholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
G. SEC FILINGS. None of the Company's SEC Reports, as amended,
contained, at the time they were filed, any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements made therein in light of the circumstances under which they
were made, not misleading.
H. ABSENCE OF CERTAIN CHANGES. Since December 31, 1998, except as
disclosed in ANNEX V or in the Company's SEC Reports, there has been no material
adverse change and no material adverse development in the business, properties,
operations, condition (financial or otherwise), or results of operations of the
Company and its subsidiaries, taken as a whole, and the Company has not (i)
incurred or become subject to any material liabilities (absolute or contingent)
except liabilities incurred in the ordinary course of business consistent with
past practices; (ii) discharged or satisfied any material lien or encumbrance or
paid any material obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business consistent with past
practices; (iii) declared or made any payment or distribution of cash or other
property to shareholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business
consistent with past practices; (v) suffered any substantial losses or waived
any rights of material value, whether or not in the ordinary course of business,
or suffered the loss of any material amount of existing business; (vi) made any
changes in employee compensation, except in the ordinary course of business
consistent with past practices; or (vii) experienced any material problems with
labor or management in connection with the terms and conditions of their
employment.
I. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic conditions known to the public generally or as disclosed in the
Company's SEC Reports), that has not been disclosed in writing to the Buyer that
(i) would reasonably be expected to have a material adverse effect on the
business or financial condition of the Company or (ii) would reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement or any of the agreements
contemplated hereby (collectively, including this Agreement, the "Transaction
Agreements").
J. ABSENCE OF LITIGATION. Except as set forth in Annex V hereto, or the
Company's SEC Reports, which the Buyer has reviewed, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of the Company, threatened against or
affecting the Company, wherein an unfavorable decision, ruling or finding would
have a material adverse effect on the properties, business or financial
condition, results of operation or prospects of the Company and its subsidiaries
taken as a whole or the transactions contemplated by any of the Transaction
Agreements or which would adversely affect
4
the validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, any of the Transaction Agreements.
K. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in Annex V hereto
and Section 3(e) hereof, no Event of Default (or its equivalent term), as
defined in the respective agreements to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become an Event of Default (or its equivalent term) (as so defined in such
agreements), has occurred and is continuing, which would have a material adverse
effect on the Company's financial condition or results of operations.
L. PRIOR ISSUES. During the twelve (12) months preceding the date
hereof, the Company has not issued any Common Stock, convertible or exchangeable
securities in capital transactions which have not been fully disclosed in the
SEC Reports. Except as set forth in Annex V, such issuances have been fully
exchanged into shares of Common Stock, or there are no outstanding convertible
or exchangeable securities from those transactions.
M. NO UNDISCLOSED LIABILITIES OR EVENTS. The Company has no liabilities
or obligations, other than those disclosed in the Company's SEC Reports or those
incurred in the ordinary course of the Company's business since December 31,
1998, which, individually or in the aggregate, do or would not have a material
adverse effect on the properties, business, condition (financial or otherwise),
or results of operations of the Company and its subsidiaries, taken as a whole.
Except as set forth in Annex V, no event or circumstance has occurred or exists
with respect to the Company or its properties, business, condition (financial or
otherwise), or results of operations, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed. The
Buyer is relying on all representations, both verbal and written, made by the
Company in connection with this transaction.
N. NO DEFAULT. Except as set forth in Annex V or the Company's SEC
Reports, the Company is not in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust or other material instrument or agreement to
which it is a party or by which it or its property is bound.
O. NO INTEGRATED OFFERING. To the best of its knowledge, neither the
Company nor any of its affiliates nor any person acting on its or their behalf
has, directly or indirectly, at any time since June 30, 1998, made any offer or
sale of any security or solicited any offers to buy any security under
circumstances that would make unavailable the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
P. DILUTION. The number of Shares issuable upon exchange of the
Preferred Stock may increase substantially in certain circumstances, including,
but not necessarily limited to, the circumstance wherein the trading price of
the Common Stock declines prior to the exchange of the the Preferred Stock. The
Company's executive officers and directors have studied and fully understand the
nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business
5
judgment, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
exchange of the Preferred Stock is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interest of
other shareholders of the Company.
3. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT
INVESTIGATION.
The Buyer represents and warrants to, covenants and agrees with, the
Company as follows:
A. Without limiting Buyer's right to sell the Common Stock pursuant to
the Registration Statement (as that term is defined in the Registration Rights
Agreement defined below), Buyer represents that it is purchasing the Units and
will be acquiring the shares of Common Stock issuable upon exchange of the
Preferred Stock (the "Exchange Shares") and upon the exercise of Warrants for
its own account for investment and not with a view towards the public sale or
distribution thereof and not with a view to or for sale in connection with any
distribution thereof.
B. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and (iv) able to afford the entire loss of its investment in the
Securities.
C. All subsequent offers and sales of Common Stock issuable upon
exchange of the Preferred Stock shall be made pursuant to registration of the
Shares under the 1933 Act or pursuant to an exemption from registration.
D. The Buyer understands that the Units are being offered and sold to
it in reliance on specific exemptions from the registration requirements of
United States federal and state securities laws and that the Company is relying
upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of the Buyer to acquire the Units.
E. The Buyer represents and acknowledges that Buyer has been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Units which have
been reasonably requested by the Buyer, including Annex V hereto and is relying
on the Company's representations. The Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries. Without limiting the
generality of the foregoing, the Buyer has also had the opportunity to obtain
and to review the Company's (i) annual report on Form 10-K for the year ending
Xxxxx 00, 0000, (xx) the Company's quarterly report on Form 10-Q for the
quarterly period ending December 31, 1998, September 30, 1998 and June 30, 1998
(iii) Form 8-K dated August 17, 1998, and (iv) Form S-3/A dated October 28, 1998
(the Company's SEC Documents").
F. The Buyer understands that its investment in the Company is
speculative and that there can be no assurance that the Preferred Stock and/or
the Warrants can be sold, or if exchanged, that the Common Stock issued upon
exchange can be sold, at or above the aggregate Purchase Price or the exchange
price.
G. The Buyer understands that no United States federal or state agency
or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
H. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors rights generally.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) neither the
Preferred Stock or Warrants, nor the Common Stock issuable upon the exchange of
Preferred Stock or exercise of Warrants, thereof has been, registered under the
1933 Act and, except as provided in the Registration Rights Agreement, and may
not be sold, transferred or otherwise disposed of unless (A) registered
thereunder or (B) Buyer shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form, scope and substance to the Company, to
the effect that such securities may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of such securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, that any resale of such securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
another exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (3) neither the Company nor any other person is under any
obligation to register such securities (other than pursuant to the Registration
Rights Agreement) under the 1933 Act or to comply with the terms and conditions
of any exemption thereunder.
B. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that, until
such time as the Common Stock issuable upon the exchange of Preferred Stock or
the exercise of Warrants has been registered for resale under the 1933 Act as
contemplated by the Registration Rights Agreement, certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
7
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION, OR OTHER EVIDENCE ACCEPTABLE TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
The Certificates and other instruments representing any of the
Securities shall bear such other legends as may be required under state
securities laws.
C. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement on or before the Closing Date.
D. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Units to the Buyer under any United
States laws and regulations, or by any domestic securities exchange or trading
market, and to provide a copy thereof to the Buyer promptly after such filing.
E. REPORTING STATUS. So long as the Buyer beneficially owns any of the
Unit, the Company shall file all reports required to be filed with the SEC
pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination; provided, however, that the Company shall not be obligated to
continue filing such reports after the second anniversary of this Agreement, or
earlier if the Company has liquidated or effected a going-private transaction.
F. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Units (excluding amounts paid by the Company for legal fees, commissions or
expenses in connection with the sale of the Units) for general purposes and
acquisitions, but shall not, directly or indirectly, use such proceeds for
investment in any other affiliate or to repay debt to affiliates.
G. AVAILABLE SHARES. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield two hundred percent (200%) of the number of shares of Common
Stock issuable upon the exchange of Preferred Stock and one hundred percent
(100%) upon the exercise of Warrants.
H. WARRANTS. The Company agrees to issue to Buyer at the Closing,
Warrants in the form of Annex VI entitling the holder thereof to purchase up to
200,000 shares of Common Stock (the "Warrant Shares"). The Warrant shall bear an
exercise price per share of Common Stock of $1.50 and shall be exercisable
immediately upon issuance, and for a period of five (5) years thereafter. The
Warrant Shares shall be entitled to the registration rights under the
Registration Rights Agreement.
8
I. LIMITATION ON ISSUANCE OF SHARES. Notwithstanding any other
provision herein, the Corporation shall not be obligated to issue any shares of
Common Stock upon conversion of the Preferred Stock if the issuance of such
shares of Common Stock would exceed that number of shares of Common Stock which
the Corporation may issue upon conversion of the Preferred Stock (the "Cap
Amount") without breaching the Corporation's obligations under the rules or
regulations of The Nasdaq Stock Market, Inc., except that such limitation shall
not apply in the event that the Corporation (a) obtains the approval of its
stockholders as required by applicable rules of The Nasdaq Stock Market, Inc.
for issuances of Common Stock in excess of such amount or (b) obtains a written
opinion from outside counsel to the Corporation that such approval is not
required, which opinion shall be reasonably satisfactory to the holders of a
majority of the shares of Preferred Stock then outstanding; provided, however,
that notwithstanding anything herein to the contrary, the Corporation, will
issue (x) such number of shares of Common Stock issuable upon conversion of the
Preferred Stock at the then current Conversion Price up to the Cap Amount, (y)
such number of shares of Common Stock issuable upon conversion of the remaining
outstanding Preferred Stock at the closing bid price as reported by Bloomberg,
L.P. on the date preceding the applicable Conversion Date, and (z) warrants to
purchase such number of shares of Common Stock based on a ratio of 200,000
shares for each $1,000,000 of Preferred Stock which cannot be converted at the
then current Conversion Price, which warrants shall have an exercise price equal
to the then current market price and an exercise period of eighteen months from
the date of issuance. Until such approval or written opinion is obtained, no
holder of Preferred Stock pursuant to this Agreement shall be issued, upon
conversion of shares of Preferred Stock, shares of Common Stock in an amount
greater than the product of (i) the Cap Amount amount multiplied by (ii) a
fraction, the numerator of which is the number of shares of Preferred Stock
issued to such holder pursuant to this Agreement and the denominator of which is
the aggregate amount of all the shares of Preferred Stock issued to the holders
pursuant to this Agreement (the "Cap Allocation Amount"). In the event that any
holder of Preferred Stock shall convert all of such holder's shares of Preferred
Stock into a number of shares of Common Stock which, in the aggregate, is less
than such holder's Cap Allocation Amount, then the difference between such
holder's Cap Allocation Amount and the number of shares of Common Stock actually
issued to such holder shall be allocated to the respective Cap Allocation
Amounts of the remaining holders of Preferred Stock on a pro rata basis in
proportion to the number of shares of Preferred Stock then held by each such
holder.
5. TRANSFER AGENT INSTRUCTIONS
A. Promptly following the delivery by the Buyer of the aggregate
purchase price for the Units in accordance with Section 1(c) hereof, the Company
will irrevocably instruct its transfer agent to issue Common Stock from time to
time upon exchange of the Preferred Stock and exercise of the Warrant in such
amounts as specified from time to time by the Company to the transfer agent,
bearing the restrictive legend specified in Section 4(b) of this Agreement prior
to registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer in
connection with each exchange of the Preferred Stock and exercise of the
Warrant. The Company warrants that no instruction other than such instructions
referred to in this Section 5 and stop transfer instructions to give effect to
Section 4(a) hereof prior to registration and sale of the Shares under the 1933
Act will be given by the Company to the
9
transfer agent and that the Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement and applicable law. Nothing in this
Section 5 shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities. If the
Buyer provides the Company with an opinion of counsel reasonably satisfactory to
the Company that registration of a resale by the Buyer of any of the Securities
in accordance with clause (1)(B) of Section 4(a) of this Agreement is not
required under the 1933 Act, the Company shall (except as provided in clause (2)
of Section 4(a) of this Agreement) permit the transfer of the Securities and, in
the case of the exchanged shares under Rule 144, promptly instruct the Company's
transfer agent to issue one or more certificates for Common Stock without legend
in such name and in such denominations as specified by the Buyer.
B. (i) The Company will permit the Buyer to exercise its right to
exchange the Preferred Stock by telecopying prior to 5:00 p.m. (Central Standard
Time) an executed and completed Exchange Notice to the Company and delivering
within three (3) business days thereafter, the original Notice of Exchange by
express courier, together with the stock certificate evidencing the Preferred
Stock duly endorsed for transfer.
(ii) The term "Exchange Date" shall mean the date specified as
such in the Certificate of Designation.
(iii) The Company shall, at its expense, take all actions and
use all means necessary to cause its transfer agent to transmit certificates
representing the exchanged shares issued upon exchange of any Preferred Stock
(together with Preferred Stock not being so exchanged) to the Buyer via express
courier, by electronic transfer or otherwise, within three (3) business days
after (i) receipt by the Company of the original Exchange Notice and (ii) the
delivery to the Company of the Preferred Stock(the Delivery Date).
C. The Company understands that a delay in the issuance of the Shares
of Common Stock beyond the Delivery Date could result in economic loss to the
Buyer. As compensation to the Buyer for such loss, the Company agrees to pay as
liquidated damages late payments to the Buyer in the event that delay is due
entirely to the Company's failure to issue and deliver the Shares upon exchange
in accordance with the following schedule (where No. Business Days Late is
defined as the number of business days beyond five (5) business days from
Delivery Date):
10
Late Payment for Each $10,000
of Unit Liquidation
No. Business Days Late Amount Being Exchanged
--------------------------------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500 + $200 for each Business
Day Late beyond 5 days from
The Delivery Date
The Company shall pay any payments incurred under this Section 5 in immediately
available funds upon demand. Nothing herein shall preclude Buyer from obtaining
equitable relief against the Company if the Company fails to issue and deliver,
or fails to cause its transfer agent to issue and deliver, the Common Stock to
Buyer upon exchange of the Preferred Stock. Furthermore, in addition to any
other remedies which may be available to the Buyer, in the event that the
Company fails to deliver such shares of Common Stock within five (5) business
days after the Delivery Date, the Buyer will be entitled to revoke the relevant
Notice of Exchange by delivering a notice to such effect to the Company
whereupon the Company and the Buyer shall each be restored to their respective
positions immediately prior to delivery of such Notice of Exchange.
D. Subject to the completeness and accuracy of the Buyer's
representations and warranties herein, upon the exchange of any Preferred Stock
by a person who is a non-U.S. Person, and following the expiration of any
applicable Restricted Period (as those terms are defined in Regulation S), the
Company, shall, at its expense, take all necessary action (including the
issuance of an opinion of counsel) to assure that the Company's transfer agent
shall issue stock certificates without restrictive legend or stop orders in the
name of Buyer (or its nominee (being a non-U.S. Person) or such non-U.S. Person
as may be designated by Buyer) and in such denominations to be specified at
exchange representing the number of shares of Common Stock issuable upon such
exchange, as applicable. Nothing in this Section 5, however, shall affect in any
way Buyer's or such nominee's obligations and agreement to comply with all
applicable securities laws upon resale of the Securities. The remedies set forth
in Sections 5(c) and (d) shall be cumulative.
E. In lieu of delivering physical certificates representing the
securities issuable upon exchange, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Buyer and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon , the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon exchange to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
6. DELIVERY INSTRUCTIONS.
11
The Preferred Stock and Warrants shall be delivered by the Company to
the Escrow Agent pursuant to Section 1(b) hereof, on a delivery against payment
basis, no later than on the Closing Date.
7. CLOSING DATE.
(i) The closing of the issuance and sale of the Units shall occur on
the date (the "Closing Date") which is the first trading day after the
fulfillment or waiver of all closing conditions pursuant to Sections 8 and 9
hereof or such other date and time as is mutually agreed upon by the Company and
the Buyer. The date of an alternate Closing Date shall be the date specified by
either party upon at least five (5) business days advance notice to the other
party; provided, however, that it shall be a condition of an alternate Closing
Date that (i) the conditions of Section 4(g) be satisfied, and (ii) each of the
conditions contemplated by Sections 8 and 9 hereof shall have been satisfied or
waived on or before such date.
(ii) The purchase and issuance of Units shall occur on the Closing Date
at the offices of the Escrow Agent or at such other place as Company shall
specify in writing, no later than 12:00 Noon, Central Standard Time, on such
day, or at such other time as is mutually agreed upon by the Company and the
Buyer.
(iii) Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Property only upon
satisfaction of the conditions set forth in Sections 8 and 9 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Units
on the Closing Date to the Buyer pursuant to this Agreement is conditioned upon:
A. Acceptance by the Buyer of this Agreement, as indicated by execution
of this Agreement;
B. Delivery by the Buyer to the Escrow Agent of good funds as payment
in full of the aggregate Purchase Price for the Units and the delivery thereof
to the Company;
C. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date, and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date; and
D. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
12
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Units on the Closing Date is conditioned upon:
A. Acceptance by the Company of this Agreement, as indicated by
execution of this Agreement;
B. Delivery by the Company to the Escrow Agent of the certificates for
the Preferred Stock and the Warrants in accordance with this Agreement;
C. The accuracy in all material respects on the Closing Date of the
representations, covenants and warranties of the Company contained in this
Agreement as if made on the Closing Date, and the performance by the Company on
or before the Closing Date of all covenants and agreements of the Company
required to be performed on or before the Closing Date;
D. On the Closing Date, the Buyer has received an opinion of counsel
for the Company, dated the Closing Date in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in Annex III attached hereto,
and the execution and delivery of the Registration Rights Agreement annexed
hereto as Annex IV and the Warrant annexed hereto as Annex VI;
E. No statute, rule, regulation, executive order, decree, ruling or
injunction shall be enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits or adversely
effects any of the transactions contemplated by this Agreement, and no
proceeding or investigation shall have been commenced or threatened which may
have the effect of prohibiting or adversely effecting any of the transactions
contemplated by this Agreement; and
10. GOVERNING LAW: MISCELLANEOUS.
A. This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws.
B. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
C. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original.
D. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
13
E. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
F. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
G. This Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof.
H. Except as otherwise set forth herein, all costs and expenses,
including reasonable attorney's fees, incurred in the enforcement of this
Agreement shall be paid to the prevailing party by the non-prevailing party,
upon demand.
11. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of:
A. the date delivered, if delivered by personal delivery as against
written receipt therefor or by confirmed facsimile transmission,
B. the fourth business day after deposit, postage prepaid, in the
United States Postal Service by registered or certified mail, or
C. the third business day after mailing by international express
courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
advance written notice similarly given to each of the other parties hereto):
COMPANY: STARBASE CORPORATON
0 Xxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxx Xxx, Xxxxxxxxxx 00000
Attn: CFO
Fax: 000.000.0000
With a copy to:
Xxxxxx X. Xxxxxxxx, Esq.
Xxxxxx Xxxxxx Flattau & Klimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Fax: 000.000.0000
BUYER: At the address(es) set forth on Schedule A
14
ESCROW AGENT:
Bank One Louisiana, N.A.
000 Xx. Xxxxxxx Xxx.
Xxx Xxxxxxx, XX 00000
Bank ABA# 000000000
Account Name: Jones, Walker, Waechter, Poitevent,
Carrere & Xxxxxxx
Client Trust Fund Account
Acct # 552-2000497878
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
representations and warranties herein shall survive the execution and
delivery of this Agreement and the delivery of the Units and the
aggregate Purchase Price, and shall inure to the benefit of the Buyer
and its successors and assigns.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
as of the date first above written.
BUYER
Talisman Capital Opportunity Fund, Ltd.
--------------------------------------------------
Printed Name of Buyer
00000 XxXxxxxx Xxxxx, Xxxxx 000 Xxxxxx Xxxx, XX
00000
--------------------------------------------------
Address
By: ---------------------------------------------
(Signature of Authorized Person)
Telecopier No. 501.821.6888
-----------------------------------
Xxxxx Xxxxx, Vice President
--------------------------------------------------
Printed Name and Title
British Virgin Islands
--------------------------------------------------
Jurisdiction of Incorporation or Organization
STARBASE CORPORATION
By: --------------------------------------------
Title: -----------------------------------------
Date: ------------------------------------------
SCHEDULE A
----------
------------------------- ------------------------------ ------------------
Employer
Identification/Social Security Number of Shares
Name and Address of Buyer Number Purchased
Talisman Capital 00-0000000 1,000
Opportunity Fund Ltd.
SCHEDULE A BUYERS
ANNEX I CERTIFICATE OF DESIGNATION
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE SCHEDULE
ANNEX VI COMMON STOCK PURCHASE WARRANT
ANNEX II
JOINT ESCROW INSTRUCTIONS
Dated as of the date of the
Securities Purchase Agreement to
Which These Joint Escrow
Instructions Are Attached
Xxxx Xxxxxxx
000 Xx. Xxxxxxx Xxx.
Xxx Xxxxxxx, XX 00000-0000
Ladies and Gentlemen:
As escrow agent for both Starbase Corporation, a Delaware corporation
(the "Company"), and Talisman Capital Opportunity Fund Ltd. (the "Buyer") of
Series I Exchangeable Unit (the "Unit") of the Company, who are named in the
Securities Purchase Agreement between the Company and the Buyer to which a copy
of these Joint Escrow Instructions is attached as Annex II (the "Agreement"),
you (hereafter, the "Escrow Agent") are hereby authorized and directed to hold
the documents and funds (together with any interest thereon, the "Escrow Funds")
delivered to the Escrow Agent pursuant to the terms of the Agreement in
accordance with the following instructions:
1. The Escrow Agent shall, as promptly as feasible, notify the Company
of receipt of the purchase price for the Unit and from, or on behalf of, the
Buyer (the "Purchase Price"), and notify the Buyer (or such agent as the Buyer
may designate in writing) of receipt of the certificates representing the Unit
(the "Certificates"). As promptly as feasible upon receipt of notice (whether
oral or in written form) from the Company and the Buyer that the respective
conditions precedent to the purchase and sale have been satisfied (which notice
shall not be unreasonably withheld), the Escrow Agent shall, after reduction by
the amounts referred to in the next succeeding sentence of this paragraph,
release the Escrow Funds to or upon the order of the Company, and shall release
the Certificates to the Buyer. If the Certificates are not deposited with the
Escrow Agent within ten (10) days after receipt by the Company of notice of
receipt by the Escrow Agent of the Purchase Price funds from the Buyer, the
Escrow Agent shall notify the Buyer and the Buyer shall be entitled to cancel
the purchase and demand repayment of the funds. If such funds are not deposited
with the Escrow Agent within ten (10) days after receipt by the Buyer of notice
of receipt by the Escrow Agent of the Certificates from the Company, the Escrow
Agent shall notify the Company and the Company shall be entitled to cancel the
purchase and demand return of such Certificates. If the Company or the Buyer
notifies the Escrow Agent that on the Closing Date (as defined in the Agreement)
the conditions precedent to the obligations of the Company or the Buyer, as the
case may be, under the Agreement were not satisfied or waived, then the Escrow
Agent shall return the Escrow Funds to the Buyer and shall return the
Certificates to the Company. Prior to return of the
Escrow Funds to the Buyer, the Buyer shall furnish such tax reporting or other
information as shall be appropriate for the Escrow Agent to comply with
applicable United States laws. The Escrow Agent shall deposit all funds received
hereunder in the Escrow Agent's attorney escrow account at Bank One in New
Orleans, LA.
2. The Escrow Agent's duties hereunder may be altered, amended,
modified or revoked only by a writing signed by the Company, the Buyer and the
Escrow Agent.
3. The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
the Escrow Agent to be genuine and to have been signed or presented by the
property party or parties. The Escrow Agent shall not be personally liable for
any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent
while acting in good faith, and any act done or omitted by the Escrow Agent
pursuant to the advice of the Escrow Agent's attorneys-at-law shall be
conclusive evidence of such good faith.
4. The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
5. The Escrow Agent shall not be liable in any respect on account of
the identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
6. The Escrow Agent shall be entitled to employ such legal counsel and
other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefor. The Escrow Agent has acted as legal counsel for the
Buyer, and may continue to act as legal counsel for the Buyer, from time to
time, notwithstanding its duties as the Escrow Agent hereunder. The Company
consents to the Escrow Agent acting in such capacity as legal counsel for the
Buyer and waives any claim that such representation represents a conflict of
interest on the part of the Escrow Agent. The Company understands that the Buyer
and the Escrow Agent are relying explicitly on the foregoing provision in
entering into these Joint Escrow Instructions.
7. The Escrow Agent's responsibilities as escrow agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Buyer. In the event of any such resignation, the Buyer and the Company shall
appoint a successor Escrow Agent.
8. If the Escrow Agent reasonably requires other or further instruments
in connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
9. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the documents
or the Escrow Funds held by the Escrow Agent hereunder, the Escrow Agent is
authorized and directed in the Escrow Agent's sole discretion (1) to retain in
the Escrow Agent's possession without liability to anyone all or any part of
said documents or the Escrow Funds until such disputes shall have been settled
either by mutual written agreement of the parties concerned or by a final order,
decree or judgment of a court of competent jurisdiction after the time for
appeal has expired and no appeal has been perfected, but the Escrow Agent shall
be under no duty whatsoever to institute or defend any such proceedings or (2)
to deliver the Escrow Funds and any other property and documents held by the
Escrow Agent hereunder to a state or federal court having competent subject
matter jurisdiction and located in the State and City of New York in accordance
with the applicable procedure therefor.
10. The Company and the Buyer agree jointly and severally to indemnify
and hold harmless the Escrow Agent from any and all claims, liabilities, costs
or expenses in any way arising from or relating to the duties or performance of
the Escrow Agent hereunder other than any such claim, liability, cost or expense
to the extent the same shall (a) have been tax obligations in connection with
Escrow Agent's fee hereunder, or (b) have been determined by final, unappealable
judgment of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the Escrow Agent, or (c) be a liability, or
arise from liability, to either the Company or the Buyer.
11. Any notice required or permitted hereunder shall be given in manner
provided in the Section headed NOTICES in the Agreement, the terms of which are
incorporated herein by reference.
12. By signing these Joint Escrow Instructions, the Escrow Agent
becomes a party hereto only for the purpose of these Joint Escrow Instructions;
the Escrow Agent does not become a party to the Agreement. The Company and the
Buyer have become parties hereto by their execution and delivery of the
Agreement, as provided therein.
13. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns and
shall be governed by the laws of the State of New York without giving effect to
principles governing the conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be legal and binding on all
parties hereto.
14. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Agreement.
15. The rights and obligations of any party hereto are not assignable
without the written consent of the other parties hereto. These Joint Escrow
Instructions constitute the entire agreement amongst the parties with respect to
the subject matter hereof.
ACCEPTED BY ESCROW AGENT:
By: ________________________________
Date: ______________________________
STARBASE CORPORATION
By: ________________________________
BUYER:
TALISMAN CAPITAL OPPORTUNITY FUND LTD.
By: _______________________________
Title: ______________________________
ANNEX III
March __, 1999
Talisman Capital Opportunity Fund, Ltd.
00000 XxXxxxxx Xxxxx
Xxxxx 000
Xxxxxx Xxxx XX 00000
RE: STARBASE CORPORATION
--------------------
Dear Sir/Madam:
We have acted as counsel to StarBase Corporation, a Delaware
corporation (the "Company"), in connection with (i) the issuance and sale by the
Company of 1,000 Units, each Unit consisting of one share of Series I
Exchangeable Preferred Stock (the "Series I Preferred Stock"), each share of
Securities Series I Preferred Stock convertible into shares of common stock,
$0.01 par value per share of the Company (the "Common Stock") and a warrant to
purchase 200 shares of Common Stock (the "Warrant"), to Talisman Capital
Opportunity Fund, Ltd. (the "Purchaser"), an Accredited Investor (as defined in
Rule 501 of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Act")) pursuant to a Securities Purchase Agreement dated as of
March 16, 1999 (the "Purchase Agreement"), and (ii) the preparation of the
Purchase Agreement, the Certificate of Designation, the Registration Rights
Agreement and the Warrant. The Purchase Agreement, the Registration Rights
Agreement and the Warrant are sometimes referred to herein collectively as the
"Transaction Agreements." Capitalized terms used herein, but not otherwise
defined herein, shall have the meanings ascribed to those terms in the Purchase
Agreement.
This opinion is rendered solely for the information of the
addressees in connection with the transactions contemplated by the Transaction
Agreements and only the addressees are entitled to rely hereon. This opinion may
not be used or relied on by the addressees for any other purpose, or by any
other person, firm, corporation or entity for any purpose, without our prior
written consent.
In connection with rendering this opinion, we have examined
copies of the Transaction Agreements in the form submitted to the various
parties thereto for execution, the Company's certificate of incorporation, the
Company's amended and restated bylaws and resolutions of the Board of Directors
of the Company approving the transactions contemplated by the Transaction
Agreements.
Talisman Capital Opportunity Fund Ltd.
March __, 1999
Page 2
We have also made such examination of law and have examined
originals or copies of such corporate records and documents of the Company, such
agreements, certificates of officers or representatives of the Company, and such
other records, certificates, including certificates of public officials, and
documents as we have deemed relevant and necessary as a basis for the opinions
hereinafter expressed. In such examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals
and the conformity with authentic original documents of all documents submitted
to us as copies. As to any facts relevant to the opinions expressed below, we
have relied upon certificates and written and/or oral representations of
officers of the Company (including, without limitation, the representations of
the Company set forth in the Transaction Agreements) and public officials. We
have also assumed that the representations and warranties of the Purchasers set
forth in the Transaction Agreements are true and correct as of the date hereof.
All references herein to contracts, instruments or other documents of the
Company are limited to such documents as have been provided to us by the Company
or of which we have actual knowledge, after due inquiry of the Company and its
officers. We have not examined or reviewed any communication, instrument,
agreement, document or other item or conducted any independent inquiry or
investigation of any matter except as otherwise expressly set forth above. We
have also assumed that the Transaction Agreements which are to be executed by
the Purchasers have been duly authorized, executed and delivered by, and
constitute legal, valid and binding obligations of, the Purchasers.
The opinions expressed below with respect to the Company's
compliance with certain statutes, rules and regulations are based upon a review
of those statutes, rules and regulations that, in our experience, are applicable
to transactions of the type contemplated by the Transaction Agreements. Our
opinion as to the good standing of the Company in Delaware set forth in the
first sentence of paragraph 1 below is based solely upon our examination of a
certificate of good standing dated March 15, 1999 provided by the Secretary of
State of Delaware, and such opinion is given solely as of such date.
In connection with our opinion with respect to pending
litigation set forth in paragraph 6 below we have not undertaken searches of the
dockets of any court of any jurisdiction, nor conducted a judgment, lien,
litigation or similar search and have relied solely upon certificates and
written or oral representations of officers of the Company.
We express no opinion respecting the enforceable nature of any
of the Transaction Agreements or any document or instrument executed pursuant
thereto or in connection therewith, insofar as the enforceable nature thereof,
or any right, power, privilege, remedy or interest intended to be created
thereunder, may be limited (i) by applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization or other laws or judicial decisions
affecting any rights, powers, privileges, remedies or interests of creditors
generally, (ii) by rules or principles of equity affecting the enforcement of
obligations generally, whether at law, in equity or otherwise, (iii) by the
exercise
Talisman Capital Opportunity Fund Ltd.
March __, 1999
Page 3
of the discretionary powers of any court or other authority before which may be
brought any proceeding seeking equitable or other remedies, including, without
limitation, specific performance, injunctive relief and indemnification or (iv)
insofar as rights to indemnity and/or contribution are concerned, by federal or
state securities laws or the public policy underlying such laws.
Our opinion is limited to the date hereof and we do not in any
event undertake to advise you of any facts or circumstances occurring or coming
to our attention subsequent to the date hereof.
Where reference is made in this opinion to matters within or
to our knowledge, to the best of our knowledge, or to facts or circumstances
known to us or which have come to our attention, such reference means the actual
knowledge of those attorneys in our firm who have given substantive attention to
the preparation of the Transaction Agreements, without, however, independent
investigation of any matter unless expressly set forth herein.
We call your attention to the fact that we are counsel
admitted to practice in the State of New York, and we do not express any opinion
with respect to the applicable laws, or the effect or applicability of the laws,
of any jurisdiction other than those of the State of New York, the General
Corporation Law of the State of Delaware and the securities laws of the United
States of America. In particular, but without limitation, we do not express any
opinion with respect to the blue sky laws of any State or securities laws of any
State or other jurisdiction (other than the federal securities laws of the
United States of America).
Based upon and subject to the foregoing, we are of the opinion
that:
1. The Company is a corporation organized, validly existing
and in good standing under the laws of the State of Delaware. The Company has
the requisite corporate power to own and operate its properties and assets, and
to carry on its business as presently conducted.
2. The Company has the requisite legal and corporate power to
execute and deliver the Transaction Agreements, to sell and issue the Series I
Preferred Stock (upon confirmation that the Certificate of Designation has been
filed with the Secretary of State of Delaware) and the Warrant and to issue the
Common Stock which are issuable upon conversion of the Series I Preferred Stock
or upon exercise of the Warrant, and to perform its obligations under the
Transaction Agreements.
3. The shares of Common Stock issuable upon conversion of the
Series I Preferred Stock and/or the exercise of the Warrant, have been duly
authorized and validly issued and, when delivered against payment in full as
provided in the Series I Preferred Stock and the Warrant, as applicable, will be
fully paid and nonassessable.
Talisman Capital Opportunity Fund Ltd.
March __, 1999
Page 4
4. The Company has taken all necessary corporate action for
the authorization, execution and delivery of the Transaction Agreements on the
part of the Company; each of the Transaction Agreements has been duly executed
and delivered by and on behalf of the Company, and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with their terms.
5. The execution, delivery and performance of and compliance
with the terms of the Transaction Agreements and the issuance of the Series I
Preferred Stock (i) do not violate any provision of the Company's certificate of
incorporation or bylaws, (ii) do not constitute a material default and will not
result in the creation of any mortgage, pledge, lien, encumbrance or charge upon
the properties or assets of the Company under the provisions of any material
agreement known to us to which the Company is a party or by which it is bound,
and (iii) do not violate or contravene (a) any applicable governmental statute,
rule or regulation known to us pertaining to the Company or (b) any applicable
order, writ, judgment, injunction, decree, determination or award which has been
entered against the Company and known to us, by any court or governmental body
having jurisdiction over the Company or any of its property, the violation or
contravention of which would materially and adversely affect the Company, its
assets, financial condition or operations.
6. To our knowledge, and except as disclosed in Annex V of the
Purchase Agreement, there are no actions, suits, proceedings or investigations
pending against the Company or its properties before any court or governmental
agency (nor, to our knowledge, has the Company received any written threat
thereof), which, if adversely determined, would result in a material adverse
change in the business or financial condition of the Company, or which questions
the validity of the Transaction Agreements, or any action taken or to be taken
by the Company in connection therewith.
7. No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the Company
is required in connection with the valid execution and delivery of the
Transaction Agreements, or the offer, sale or issuance of the Series I Preferred
Stock or the consummation of any other transaction contemplated by the
Transaction Agreements.
Very truly yours,
XXXXXX XXXXXX FLATTAU & KLIMPL, LLP
ANNEX V
Company Disclosure Schedule
2.b. Company Status.
--------------
The Company received a notice that it had until March 9, 1999 to comply
with certain NASD maintenance requirements. As of March 9, 1999 the
Company has complied with the compliance request.
e. Non-contravention
-----------------
None.
h. Absence of Certain Changes.
--------------------------
None.
j. Absence of Litigation.
---------------------
None.
k. Absence of Events of Default.
----------------------------
None
l. Prior Issues. - Outstanding Convertible Stock as of March 13, 1999
------------------------------------------------------------------
Series E - 584,808
Series F - None
Series G - None
Series H - 3,186
m. No Undisclosed Liabilities or Events.
------------------------------------
None.
n. No Default.
----------
None.
