Exhibit 4.1
CONVERTIBLE DEBENTURE
AND WARRANT
PURCHASE AGREEMENT
Dated as of November 20, 2001
among
STARBASE CORPORATION
and
THE PURCHASERS LISTED ON EXHIBIT A
CONVERTIBLE DEBENTURE AND WARRANT PURCHASE AGREEMENT
This CONVERTIBLE DEBENTURE AND WARRANT PURCHASE AGREEMENT (the
"Agreement") is dated as of November 20, 2001, by and among Starbase
Corporation, a Delaware corporation (the "Company") and each of the Purchasers
whose names are set forth on Exhibit A, attached hereto (individually, a
"Purchaser" and collectively, the "Purchasers").
WHEREAS:
A. The Company and the Purchasers are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded by Section 4(2) of the Securities Act of 1933, as amended
and the rules and regulations promulgated thereunder (the "Securities Act"),
including Regulation D ("Regulation D"), and/or such other exemption from the
registration requirements of the Securities Act as may be available with respect
to any or all of the investments to be made hereunder;
B. The Company has authorized the issuance of up to a maximum aggregate
principal amount of $3,000,000 (the "Debentures"), 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 Debenture, in the form attached hereto as Exhibit B;
C. The Purchasers wish to purchase, upon the terms and conditions stated
in this Agreement and the Debentures, a minimum aggregate principal amount of
$2,000,000 in Debentures and up to a maximum aggregate principal amount of
$3,000,000 in the Debentures, in the respective amounts set forth opposite each
Purchaser's name on Exhibit A on the Closing Date (as defined below);
D. The Company has authorized the issuance of warrants (the "Warrants")
in substantially the form attached hereto as Exhibit C, which shall be
exercisable for shares of Common Stock (as exercised the "Warrant Shares") to
each of the Purchasers on the Closing Date to acquire such number of shares of
Common stock as set forth opposite each Purchaser's name on Exhibit A; and
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit D (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to register the Common
Stock underlying the Debentures and the Warrants for resale 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 DEBENTURES AND WARRANTS
Section 1.1 Purchase and Sale of Debentures and Warrants. 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, separate
Debentures in the aggregate minimum principal amount of at least $2,000,000 and
up to an aggregate maximum principal amount of $3,000,000 (the "Purchase
Price"), bearing interest at the rate of seven percent (7%) per annum, due
November 20, 2004, and Warrants to purchase shares of the Company's Common
Stock.
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, no less than 200% (subject to
Section 3.9) of its authorized but unissued shares of its Common Stock, to
effect the conversion of the Debentures and the exercise of the Warrants. The
Conversion Shares and the Warrant Shares collectively are referred to as the
"Shares" and the Debentures 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
amount of Debentures and the number of Warrants set forth opposite their
respective names on Exhibit A. Each tranche of the purchase and sale of
Debentures and Warrants (each, a "Closing" and the first such Closing, the
"Tranche I Closing") shall take place at the offices of Jenkens & Xxxxxxxxx
Xxxxxx Xxxxxx LLP The Chrysler Building, 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx
Xxxx 00000 at 10:00 a.m. New York time (i) on the date on which the last to be
fulfilled or waived of the conditions set forth in Article IV hereof and
applicable to such Closing shall be fulfilled or waived in accordance herewith
or (ii) at such other time and place or on such date as the Purchasers and the
Company may agree upon (each, a "Closing Date" and the first such Closing Date,
the "Tranche I Closing Date"). The Tranche I Closing shall occur no later than
November 21, 2001, and the Closing with respect to the funding of the remainder
of the Purchase Price (the "Tranche II Closing") shall occur no later than
December 12, 2001, or on such other date as the Purchasers and the Company may
agree upon (the "Tranche II Closing Date"); provided, however, that the failure
of the Tranche II Closing to occur shall not affect the Company's obligations to
the Purchasers under this Agreement, the Registration Rights Agreement, the
Debenture and the Warrants. Notwithstanding anything to the contrary herein, the
maximum aggregate principal amount of the Debentures to be sold by the Company
and purchased by the Purchasers hereunder shall not exceed $3,000,000.
Section 1.4 Escrow. On or before each Closing Date, the Company
shall deliver to the escrow agent (the "Escrow Agent") identified in the Escrow
Agreement attached hereto as Exhibit E (the "Escrow Agreement") the certificates
for the amount of the Debentures and Warrants set forth opposite each
Purchaser's name on Exhibit A hereto, registered in such Purchaser's name (or
its nominee) and prior to each Closing Date each Purchaser shall pay by
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wire transfer of funds into escrow the Purchase Price set forth opposite each
such Purchaser's name on Exhibit A. 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 Closing.
Section 1.5 Warrants. At the Closing, the Company shall have issued
to the Purchasers that number of Warrants to purchase shares of Common Stock as
set forth opposite each Purchaser's name on Exhibit A. Each of the Warrants
shall be exercisable for a period of five (5) years from the Closing Date and
shall have an exercise price equal to the Warrant Price (as defined in the
Warrant).
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The
Company hereby makes the following representations and warranties to each
Purchaser, as of the date of this Agreement, that except as set forth in the
disclosure schedule of even date hereof delivered to the Purchasers by the
Company (the "Disclosure Schedule"), which exceptions shall be deemed to be a
part of and to qualify the representations and warranties to which they refer as
if made hereunder:
(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. Except as set forth on Schedule
2.1(a), 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 its obligations under
this Agreement, the Registration Rights Agreement, the Debentures, the Warrants
and the Irrevocable Transfer Agent Instructions (as defined in Section 3.13)
(collectively, the "Transaction Documents") and to issue and sell the Debentures
and the Warrants in accordance with the terms hereof, and the terms and
conditions set forth in the Debentures and the Warrants. The execution, delivery
and performance of the Transaction Documents by the Company and the consummation
by the
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Company 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. The Transaction Documents at the 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.
(c) Capitalization. The authorized capital stock of the Company and
the shares thereof issued and outstanding as of September 30, 2001 are set forth
in Schedule 2.1(c) hereto. All of the outstanding shares of the Company's Common
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 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 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
Certificate of Incorporation as in effect on the date hereof (the
"Certificate"), and the Company's Bylaws as in effect on the date hereof (the
"Bylaws").
(d) Issuance of Securities. The Debentures and Warrants 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 Debentures and
the Warrants shall be validly issued and outstanding, fully paid and
nonassessable free and clear of all liens, encumbrances and rights of first
refusal of any kind. When the Conversion Shares and Warrant Shares are issued in
accordance with the terms of this Agreement and as set forth in the Debentures
and Warrants, as
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applicable, such shares will be duly authorized by all necessary corporate
action and validly issued and outstanding, fully paid and nonassessable, free
and clear of all liens, encumbrances and rights of first refusal of any kind and
the holders thereof shall be entitled to all rights accorded to a holder of
Common Stock.
(e) No Conflicts. Except as disclosed on Schedule 2.1(e), the
execution, delivery and performance by the Company of its obligations under the
Transaction Documents, and the consummation by the Company of the transactions
contemplated herein and therein do not (i) violate any provision of the
Company's Certificate 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 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 (including, without limitation, the
issuance and sale of 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 Securities and Exchange Commission (the
"Commission"), 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; 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. Except as disclosed on Schedule 2.1(e), 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 the Closing Date, 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
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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, 2000. 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-K for the year ended March 31, 2001 (the "Form 10-K") and the Form 10-Q
for the fiscal quarter ended June 30, 2001 (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, neither the Form 10-K or the Form 10-Q referred to above
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The 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) Subsidiaries. Schedule 2.1(g) hereto sets forth each Subsidiary
of the Company, showing the jurisdiction of its incorporation or organization
and showing the percentage of each person's ownership of the outstanding stock
or other interests of such Subsidiary. For the purposes of this Agreement,
"Subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries. All of the
outstanding shares of capital stock of each Subsidiary have been duly authorized
and validly issued, and are fully paid and nonassessable. There are no
outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon any Subsidiary for the purchase
or acquisition of any shares of capital stock of any Subsidiary or any other
securities convertible into, exchangeable for or evidencing the rights to
subscribe for any shares of such capital stock. Neither the Company nor any
Subsidiary is subject to any obligation (contingent or otherwise) to repurchase
or otherwise
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acquire or retire any shares of the capital stock of any Subsidiary or any
convertible securities, rights, warrants or options of the type described in the
preceding sentence except as set forth on Schedule 2.1(g) hereto. Neither the
Company nor any Subsidiary is party to, nor has any knowledge of, any agreement
restricting the voting or transfer of any shares of the capital stock of any
Subsidiary.
(h) No Material Adverse Change. Since March 31, 2001, 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) No Undisclosed Liabilities. Except as disclosed on Schedule
2.1(i) hereto, neither the Company nor any of its Subsidiaries has any
liabilities, obligations, claims or losses (whether liquidated or unliquidated,
secured or unsecured, absolute, accrued, contingent or otherwise) other than
those incurred in the ordinary course of the Company's or its Subsidiaries
respective businesses since June 30, 2001 and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect on the Company or
its Subsidiaries.
(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 $250,000 (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 $50,000 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) Title to Assets. Each of the Company and the Subsidiaries has
good and marketable title to all of its real and personal property, free and
clear of any mortgages, pledges, charges, liens, security interests or other
encumbrances of any nature whatsoever, except for those indicated on Schedule
2.1(l) hereto or such that, individually or in the aggregate, do not have a
Material Adverse Effect. All said leases of the Company and each of its
Subsidiaries are valid and subsisting and in full force and effect.
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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, 1996 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
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a material fact 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) Operation of Business. The Company and each of the Subsidiaries
owns or possesses all patents, trademarks, domain names (whether or not
registered) and any patentable improvements or copyrightable derivative works
thereof, websites and intellectual property rights relating thereto, service
marks, trade names, copyrights, licenses and authorizations, including, but not
limited to, those listed on Schedule 2.1(r) hereto, and all rights with respect
to the foregoing, which are necessary for the conduct of its business as now
conducted without any conflict with the rights of others.
(s) Environmental Compliance. Except as disclosed on Schedule 2.1(s)
hereto, the Company and each of its Subsidiaries have obtained all material
approvals, authorization, certificates, consents, licenses, orders and permits
or other similar authorizations of all governmental authorities, or from any
other person, that are required under any Environmental Laws. Schedule 2.1(s)
hereto sets forth all material permits, licenses and other authorizations issued
under any Environmental Laws to the Company or its Subsidiaries. "Environmental
Laws" shall mean all applicable laws relating to the protection of the
environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except as set
forth on Schedule 2.1(s) hereto, the Company has all necessary governmental
approvals required under all Environmental Laws and used in its business or in
the business of any of its Subsidiaries. The Company and each of its
Subsidiaries are also in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws. Except for such instances as would not
individually or in the aggregate have a Material Adverse Effect, there are no
past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or may violate any Environmental Law after the Closing or that may
give rise to any environmental liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without limitation
underground storage tanks), disposal, transport or handling, or the emission,
discharge, release or threatened release of any hazardous substance.
"Environmental Liabilities" means all liabilities of a person (whether such
liabilities are owed by such person to governmental authorities, third parties
or otherwise) whether currently in existence or arising hereafter which arise
under or relate to any Environmental Law.
(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
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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 Stock, if any, or its Common Stock.
(v) Transactions with Affiliates. Except as set forth in the Form
10-K or Form 10-Q 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, as amended. 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 Securities 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 Securities 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 Securities under the registration
provisions of the Securities Act and applicable state 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 Securities.
(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, no authorization, consent, approval,
license, exemption of, filing or registration with any court or governmental
department,
-11-
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
Debentures and the Warrants, or for the performance by the Company of its
obligations under the Transaction Documents.
(y) Employees. Neither the Company nor any Subsidiary has any
collective bargaining arrangements or agreements covering any of its employees.
Except as set forth on Schedule 2.1(y) hereto, neither the Company nor any
Subsidiary has any employment contract, agreement regarding proprietary
information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such Subsidiary. Since October 1, 2001, no
officer, consultant or key employee of the Company or any Subsidiary whose
termination, either individually or in the aggregate, could have a Material
Adverse Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the
Company or any Subsidiary.
(z) Absence of Certain Developments. Except as set forth on Schedule
2.1(z) hereto, since June 30, 2001, neither the Company nor any Subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred
in the ordinary course of business which are comparable in nature and
amount to the current liabilities incurred in the ordinary course of
business during the comparable portion of its prior fiscal year, as
adjusted to reflect the current nature and volume of the Company's or
such Subsidiary's business;
(iii) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased
or redeemed, or made any agreements so to purchase or redeem, any shares
of its capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights,
trademarks, trade names, copyrights, trade secrets or other intangible
assets or intellectual property rights,
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or disclosed any proprietary confidential information to any person
except to customers in the ordinary course of business or to the
Purchaser or its representatives;
(vii) 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 prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that
aggregate in excess of $150,000;
(x) entered into any other transaction other than in the
ordinary course of business, or entered into any other material
transaction, whether or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of
$50,000;
(xii) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(xiii) experienced any material problems with labor or
management in connection with the terms and conditions of their
employment;
(xiv) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or its
Subsidiaries; or
(xv) entered into an agreement, written or otherwise, to take
any of the foregoing actions.
(aa) Acknowledgment Regarding Purchasers' Purchase of the Debentures
and Warrants. 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
Debentures 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.
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(bb) 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 Debentures or the Warrants under the
Securities Act or cause this offering of the Debentures 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 Debentures or the Warrants under the Securities Act
or cause the offering of the Debentures and the Warrants to be integrated with
other offerings.
(cc) Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Debenture 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 Debenture in accordance with this
Agreement and the Debenture 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.
(dd) 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 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
Debentures and Warrants 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.
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(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
Securities and 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 Securities and
Shares for any minimum or other specific term and reserves the right to dispose
of the 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 Securities and the 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 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 the Securities and 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 Securities and 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 Securities and the Shares.
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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 Securities and the Shares 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 Securities and the 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 National 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,
except as disclosed on Schedule 2.1(e).
Section 3.3 Inspection Rights. The Company shall permit, during
normal business hours and upon reasonable request and reasonable notice, the
Purchasers or any employees, agents or representatives thereof, so long as the
Purchasers shall be obligated hereunder to purchase the Debentures or shall
beneficially own any Debentures, or shall own Conversion Shares and/or Warrant
Shares which, in the aggregate, represent more than 2% of the total combined
voting power of all voting securities then outstanding, to examine and make
reasonable copies of and extracts from the records and books of account of, and
visit and inspect the properties, assets, operations and business of the Company
and any Subsidiary, and to discuss the affairs, finances and accounts of the
Company and any Subsidiary with any of its officers, consultants, directors, and
key employees.
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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 Reporting Requirements. The Company shall furnish the
following to the Purchasers so long as the Purchasers shall be obligated
hereunder to purchase the Debentures or shall beneficially own any Debentures or
Warrants, or shall own Conversion Shares or Warrant Shares which, in the
aggregate, represent more than 2% of the total combined voting power of all
voting securities then outstanding, provided, however, that the Company shall
not be obligated to furnish the following, if the following reports have been
filed by the Company with the Commission pursuant to the Commission's
"electronic data gathering and retrieval" (XXXXX) service:
(a) Quarterly Reports filed with the Commission on Form 10-Q as soon
as available, and in any event within forty-five (45) days after the end of each
of the first three (3) fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-K as soon as
available, and in any event within ninety (90) days after the end of each fiscal
year of the Company; and
(c) Copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to holders of shares of Common Stock, contemporaneously with the
delivery of such notices or information to such holders of Common Stock.
Section 3.7 Amendments. So long as any of the Securities and Shares
remain outstanding, the Company shall not amend or waive any provision of its
Certificate or Bylaws, or the Registration Rights Agreement in any way that
would adversely affect the conversion rights, exercise rights, voting rights,
prepayment rights or redemption rights of the holders of the Debentures or the
Warrants.
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 Debentures, the Warrants or the
Transaction Documents.
Section 3.9 Reservation of Shares. So long as any of the Debentures
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 200% of its authorized but
-17-
unissued shares of Common Stock, needed to provide for the issuance of the
Conversion Shares and the Warrant Shares.
Section 3.10 Use of Proceeds. The proceeds from the sale of the
Debentures will be used by the Company solely for working capital and general
corporate purposes; except such fees as the Company is otherwise permitted to
pay as set forth in Schedule 2.1(p).
Section 3.11 Right of First Refusal; Future Financings.
(a) The Company covenants and agrees that during the period from the
Closing Date through the 60th day immediately following the Effectiveness Date
(as defined in the Registration Statement) of the Registration Statement, the
Company will not, without the prior written consent of the Purchasers, enter
into any subsequent offer or sale to, or exchange with (or other type of
distribution to), any third party (a "Subsequent Financing"), of Common Stock or
any securities convertible or exchangeable into Common Stock, including debt
securities, which shall rank senior or equal to the Debentures (collectively,
the "Financing Securities") other than a Permitted Financing (as defined
hereinafter). For purposes of this Agreement, "Permitted Financing" shall mean
any transaction involving the Company's (i) issuance of any Financing Securities
(other than for cash) in connection with a merger and/or acquisition,
consolidation, sale or disposition of all or substantially all of the Company's
assets, (iii) the exchange of capital stock for assets, (iv) issuance of any
Financing Securities in connection with a public firm commitment underwritten
offering at market, (v) issuance of Common Stock or the issuance of options to
purchase Common Stock as such is related to any employee stock ownership plan or
employment agreement, (vi) the issuance of shares of Common Stock pursuant to
fee arrangements with XX Xxxxx & Co. and UBS Warburg, LLP, so long as the
registration statement registering those shares is not declared effective within
thirty (30) days of the Effectiveness Date of the Registration Statement to be
filed pursuant to the Registration Rights Agreement, (vii) the sale of shares of
Common Stock, the proceeds of which are used to exercise the Company's
redemption rights as set forth in Section 3.9 of the Debenture, and (viii) the
issuance of up to 250,000 shares of Common Stock into an escrow account to
satisfy certain potential indemnification claims.
(b) For a period of one (1) year immediately following the
Effectiveness Date of the Registration Statement, the Company covenants and
agrees to promptly notify (in no event later than five (5) days after making or
receiving an applicable offer) in writing (a "Rights Notice") the Purchasers of
the terms and conditions of any proposed Subsequent Financing. The Rights Notice
shall describe, in reasonable detail, the proposed Subsequent Financing, the
proposed closing date of the Subsequent Financing, which shall be within thirty
(30) calendar days from the date of the Rights Notice, including, without
limitation, all of the terms and conditions thereof. The Rights Notice shall
provide the Purchaser an option (the "Rights Option") during the fifteen (15)
calendar day period following delivery of the Rights Notice (the "Option
Period") to purchase such amount as the Company and the Purchasers may agree to,
of the securities being offered in such Subsequent Financing on the same,
absolute terms and conditions as contemplated by such Subsequent Financing (the
"First Refusal Rights"). Delivery
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of any Rights Notice constitutes a representation and warranty by the Company
that there are no other material terms and conditions, arrangements, agreements
or otherwise except for those disclosed in the Rights Notice, to provide
additional compensation to any party participating in any proposed Subsequent
Financing, including, but not limited to, additional compensation based on
changes in the Purchase Price or any type of reset or adjustment of a purchase
or conversion price or to issue additional securities at any time after the
closing date of a Subsequent Financing. If the Company does not receive notice
of exercise of the Rights Option from the Purchaser within the Option Period,
the Company shall have the right to close the Subsequent Financing on the
scheduled closing date with a third party; provided that all of the terms and
conditions of such closing are the same as those provided to the Purchaser in
the Rights Notice. If the closing of the proposed Subsequent Financing does not
occur on that date, any closing of the contemplated Subsequent Financing or any
other Subsequent Financing shall be subject to all of the provisions of this
Section 3.11, including, without limitation, the delivery of a new Rights
Notice.
Section 3.12 Regulation S. The Company covenants and agrees that if
the Company fails to register the Conversion Shares and the Warrant Shares
within 90 days from the Closing Date under the terms and conditions of the
Registration Rights Agreement attached hereto as Exhibit D, then for so long as
such registration statement is not effective and for so long as any of the
Conversion Shares and Warrant Shares remain outstanding and continue to be
"restricted securities" within the meaning of Rule 144 under the Securities Act,
the Company shall, in order to permit resales of any of the Shares pursuant to
Regulation S under the Securities Act, (a) continue to file all materials
required to be filed pursuant to Section 13(a) or 15(d) of the Exchange Act, and
(b) not knowingly engage in directed selling efforts in connection with the
resale of securities by any Purchaser under Regulation S.
Section 3.13 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 Debentures or exercise of the Warrants (the "Irrevocable
Transfer Agent Instructions"). Prior to registration of the Conversion Shares
and the Warrant Shares under the Securities 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 3.13 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 3.13 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
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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 3.13 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 3.13 will be inadequate
and agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Section 3.13, 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.
Section 3.14 Board Membership. The Company shall take all actions
necessary under its Certificate and Bylaws to permit Intercoastal Financial
Services Corp. ("Intercoastal") to nominate two (2) directors to serve on the
Company's Board of Directors. The Board of Directors of the Company must appoint
at least one (1) of the persons nominated by Intercoastal to be named as a
nominee in the election of directors in the Schedule 14A for the Company's
annual stockholders meeting to be filed with the Commission. In the event that a
vacancy or vacancies occur on the Board of Directors prior to the filing of the
Schedule 14A, Intercoastal shall be entitled to appoint such directors to fill
up to two (2) vacant seats on the Board of Directors.
ARTICLE IV
CONDITIONS
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Debentures and Warrants.
(a) Closing Date. The obligation hereunder of the Company to issue
and sell the Debentures and Warrants to the Purchasers on the Closing Date is
subject to the satisfaction or waiver, at or before the 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
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,
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agreements and conditions required by this Agreement to be performed,
satisfied or complied with by such Purchaser at or prior to the 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 Debentures and Warrants.
(a) Closing Date. The obligation hereunder of each Purchaser to
acquire and pay for the Debentures and Warrants is subject to the satisfaction
or waiver, at or before the 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 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 Closing.
(iii) No Suspension, Etc. From the date hereof to the Closing
Date, trading in the Company's Common Stock shall not have been
suspended by the Commission (except for any suspension of trading of
limited duration agreed to by the Company, which suspension shall be
terminated prior to the Closing), and, at any time prior to such Closing
Date, trading in securities generally as reported by Bloomberg Financial
Markets ("Bloomberg") shall not have been suspended or limited, or
minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, nor
shall a banking moratorium have been declared either by the United
States or New York State authorities, nor shall there have occurred any
material outbreak or escalation of hostilities or other national or
international calamity or crisis of such magnitude in its effect on, or
any material adverse change in any financial market which, in each case,
in the judgment of the Purchasers, makes it impracticable or inadvisable
to purchase the Debentures.
(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.
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(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 Closing, the Purchasers shall
have received an opinion of counsel to the Company, dated the date of
the Closing, in the form of Exhibit F hereto.
(vii) Registration Rights Agreement. At the Closing the Company
shall have executed and delivered the Registration Rights Agreement to
each Purchaser.
(viii) Certificates. At the Closing, the Company shall have
delivered to the Purchasers originally executed Debentures and Warrants
being acquired by the Purchasers at the Closing.
(ix) Resolutions. Prior to the Closing Date, 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 the
Purchasers (the "Resolutions").
(x) Reservation of Shares. As of the 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 Debentures and
the exercise of the Warrants, no less than 200% of its authorized but
unissued shares of Common Stock to effect the issuance of Conversion
Shares issuable upon conversion of the Debentures outstanding on the
Closing Date and the Warrant Shares issuable upon exercise of the
Warrants outstanding on the Closing Date (assuming all such Debentures
and Warrants were fully convertible or exercisable on such date
regardless of any limitation on the timing or amount of such conversions
or exercises).
(xi) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit G attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer
agent.
(xii) Secretary's Certificate. The Company shall have delivered
to the Purchasers a secretary's certificate, dated as of the Closing
Date, as to (i) the Resolutions, (ii) the Certificate, as in effect at
the Closing Date, (iii) the Bylaws, as in effect at the Closing, and
(iv) the authority and incumbency of the officers of the Company
executing the Transaction Documents and any other documents required to
be executed or delivered in connection therewith.
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ARTICLE V
REGISTRATION RIGHTS
At the Closing, the Company and Purchasers shall enter into a
Registration Rights Agreement in the form attached hereto as Exhibit D.
ARTICLE VI
TRANSFER RESTRICTIONS
Section 6.1 Legend. The certificates or other instruments
representing the Debentures 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, 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 Securities 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
-23-
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 Debentures, Warrants, Conversion Shares
and Warrant Shares 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 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.
-24-
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
Purchasers herein, in an amount up to each Purchaser's pro rata share of the
Purchase Price paid for the Debentures and Warrants.
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
-25-
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.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses. Except as otherwise set forth in this
Agreement, the Registration Rights Agreement, the Debentures or the Warrants,
and on Schedule 2.1(p) attached hereto, 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, delivery and performance of this Agreement. The Company
shall pay all stamp or other similar taxes and duties levied in connection with
issuance of the Securities and 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, the Registration Rights Agreement, the Debentures and the Warrants
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, the Registration Rights Agreement, the Debentures and the Warrants
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 exclusive jurisdiction of the state and federal courts sitting in
the State of New York, New York County for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement, Registration Rights
Agreement, the Debentures and the Warrants and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is not
-26-
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.
(c) Each of the Company and the Purchasers hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
this Agreement, Registration Rights Agreement, the Debentures and the Warrants,
shall be entitled to reimbursement for reasonable legal fees from the
non-prevailing party.
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 Debentures, Warrants and
the Transaction Documents, 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 a majority of the
Debentures 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 Debentures 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 Debentures, Warrants or Transaction Documents unless
the same consideration also is offered to all of the parties to the Transaction
Documents or holders of the Debentures and Warrants, 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
0 Xxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxx Xxx, XX 00000
-27-
Telephone Number: (000) 000-0000
Facsimile Number: (000) 000-0000
If to any Purchaser: At the address of such Purchaser set forth on Exhibit A to
this Agreement, with copies to Purchaser's counsel as set
forth on Exhibit A 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. After the Closing, the assignment by a Party to this Agreement of any
rights hereunder shall not affect the obligations of such party under this
Agreement. The Purchaser may assign the Debentures, the Warrants and their
rights under this Agreement, the Registration Rights Agreement, and the other
Transaction Documents and any other rights hereto and thereto without the
consent of the Company.
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 giving
effect to the choice of law provisions.
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, 3.6 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
-28-
all the Conversion Shares and Warrant Shares and (B) none of the Debentures 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.
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 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 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 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
Registration Rights Agreement, the Debentures, the Warrants, the Conversion
Shares and the Warrant Shares.
* * * * * *
-29-
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:
Title:
THE PURCHASERS:
XXXXXXXXXXX LIMITED PARTNERSHIP
By:
---------------------------------
Name:
Title:
ALPHA CAPITAL AKTIENGESELLSCHAFT
By:
---------------------------------
Name:
Title:
NILES HOLDINGS LIMITED
By:
---------------------------------
Name:
Title:
BRISTOL INVESTMENT FUND, LTD.
By:
---------------------------------
Name:
Title:
-30-
SDS MERCHANT FUND
By:
---------------------------------
Name:
Title:
MANCHESTER ASSET MANAGEMENT
By:
---------------------------------
Name:
Title:
XXXXX ENTERPRISES, INC.
By:
---------------------------------
Name:
Title:
EXHIBIT A
SCHEDULE OF PURCHASERS to the
CONVERTIBLE DEBENTURE AND WARRANT PURCHASE AGREEMENT
FOR STARBASE CORPORATION
INVESTOR ADDRESS AMOUNT OF DEBENTURES/
INVESTOR NAME AND FACSIMILE NUMBER NUMBER OF WARRANTS PURCHASED
------------------------- --------------------------------- -------------------------------
Xxxxxxxxxxx Limited c/o Canacord Capital $500,000/420,875
Partnership 000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx X0X 0X0
Xxxxxx
Alpha Capital Pradafant 7 $725,000/610,269
Aktiengesellschaft Furstentums 9490
Vaduz, Liechtenstein
Niles Holdings Limited 00 Xxxx Xxxxxx $500,000/420,875
X.X. Xxx 00
Grand Turks
Turks & Caicos, BWI
Bristol Investment Caledonian House $625,000/526,094
Fund, Ltd. Xxxxxxx Xxxxxx
Xxxxxx Xxxx
Xxxxx Xxxxxx, Xxxxxx Xxxxxxx
SDS Merchant Fund c/o SDS Capital Partners, LLC $250,000/210,438
0 Xxxxx Xxxxx Xxxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
Manchester Asset Charlotte House $250,000/210,438
Management Charlotte Street
Nassau, Bahamas
Xxxxx Enterprises, Inc. 00 Xxxxxxxx Xx. $150,000/126,263
London, England
STARBASE CORPORATION
DISCLOSURE SCHEDULES
RELATING TO THE CONVERTIBLE DEBENTURE AND WARRANT
PURCHASE AGREEMENT AMONG STARBASE CORPORATION AND
THE PURCHASERS LISTED ON EXHIBIT A THERETO
Pursuant to Section 2.1 of the Convertible Debenture and Warrant
Purchase Agreement dated as of November 16, 2001 (the "Purchase Agreement")
entered into by and among Starbase Corporation (the "Company"), Xxxxxxxxxxx
Limited Partnership, Alpha Capital Aktiengesellschaft, Niles Holdings Limited,
Bristol Investment Fund, Ltd., SDS Merchant Fund, Manchester Asset Management
and Xxxxx Enterprises, Inc. (the "Purchasers"), the disclosures in this
Disclosure Schedule constitute exceptions to the representations and warranties
made by the Company in Section 2.1 of the Purchase Agreement or disclosure
otherwise required by the Purchase Agreement. The section numbers in the
Disclosure Schedule correspond to the section numbers in the Purchase Agreement.
Any information specifically disclosed under any section of this Disclosure
Schedule is deemed to be disclosed and incorporated in any other section of this
Disclosure Schedule where such disclosure would be appropriate. Capitalized
terms used in this Disclosure Schedule, unless otherwise specified, have the
same meanings given them in the Purchase Agreement.
SCHEDULE 2.1(c)
Authorized Capital Stock as of September 30, 2001
Common
Authorized 150,000,000
Outstanding 69,905,580
Preferred
Authorized 10,000,000
Outstanding 0
There are registration rights regarding common stock issued to XX Xxxxx and UBS
Warburg in connection with their work on the acquisitions of Technology Builders
Inc and Xxxxxxxx.xxx. Such shares will be registered no earlier than 30 days
after the registration of the Debentures and Warrant Shares.
SCHEDULE 2.1(e)
Since September 17, 2001, the Company's stock has traded below $1.00.
SCHEDULE 2.1(f)
None
SCHEDULE 2.1(g)
Subsidiaries
Genitor Acquisition Corp -- Inactive Delaware
Objectshare Corporation -- Inactive Delaware
Technology Builders, Inc. -- Inactive Delaware
Xxxxxxxx.xxx Inc. -- Inactive Delaware
Xxxxxxxx.xxx Ltd -- Inactive UK
Technology Builders Ltd. -- active only for payroll in UK UK
Starbase Canada Limited -- active only for payroll in Canada Canada
100% of each subsidiary is owned by the Company.
SCHEDULE 2.1(h)
Other than the operating losses that have been publicly disclosed, there has
been no other change.
SCHEDULE 2.1(i)
None
SCHEDULE 2.1(k)
There is a line of credit with Silicon Valley Bank that has a balance of
$1,500,000.
SCHEDULE 2.1 (l)
Silicon Valley Bank, as part of the line of credit, has a lien on all assets of
the Company
SCHEDULE 2.1(m)
Starbase received a letter dated March 19, 2001 from Credit Suisse First
Boston Corporation ("CSFB") (the "CSFB Letter"). The CFSB Letter demands payment
from Starbase of $4,000,000 in respect of fees and $19,099 of expenses claimed
to be payable as a result of the merger between Starbase and worldweb, based
upon worldweb's purported obligations under a certain letter agreement by and
between Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corporation ("DLJ"), a
predecessor of CSFB, and worldweb dated April 24, 2000, as amended by letter
dated July 14, 2000 (as amended, the "Letter Agreement"). Starbase has made a
formal written claim for indemnification of $4,019,099, plus any other damages
resulting from the Letter Agreement, in accordance with that certain Indemnity
Escrow Agreement (the "Indemnity Escrow Agreement") dated February 20, 2001
among Starbase, World Web Investors, LLC (the "LLC") and Greater Bay Trust
Company, as escrow agent. The claim is currently being negotiated for settlement
with CSFB, the LLC and Starbase out of proceeds from the Indemnity Escrow Fund
for the amount of $75,000. If the settlement is completed, it is anticipated
Starbase will issue an additional number of shares of its common stock in the
name of the LLC to be held in the Indemnity Escrow Fund.
Starbase was named as a defendant in a summons and complaint captioned
Xxxx Dryer et. al. v. Xxxxx Xxxxxx-Xxxxxxxxxx, et. al., Case No. 1:01cv01294-A,
filed in the United States District for the Eastern District Court of Virginia
(the "Action"). The Action contains allegations against the former directors and
officers of xxxxxxxx.xxx, Inc. in connection with its merger with Starbase.
Starbase is currently named as a defendant in the Action as an alleged successor
in interest to worldweb. The Action seeks a constructive trust on the Indemnity
Escrow Fund and actual, treble and punitive damages against worldweb or its
officers or directors in an amount in excess of $65 million, plus any other
damages. In an order by the United States District Judge dated November 2, 2001,
Counts I and II of the Action alleging violations of federal securities law were
dismissed with prejudice and Counts III through X of the Complaint alleging
various state law claims were dismissed without prejudice as to the merits for
lack of diversity jurisdiction. Starbase has made a formal written claim for
indemnification for any liability resulting from the Claim in accordance with
the Indemnity Escrow Agreement.
SCHEDULE 2.1(n)
None.
SCHEDULE 2.1(o)
None
SCHEDULE 2.1(p)
Upon the Closing, the Company shall pay to Intercoastal Financial
Services Corp. ("Intercoastal") a finder's fee in an amount equal to $300,000,
of which $150,000 shall be payable in cash and $150,000 shall be payable in
convertible debentures to be issued to Intercoastal upon the same terms and
conditions as the Debentures issued to the Purchasers. In addition, Intercoastal
shall receive warrants equal to $150,000 worth of shares of Common Stock,
calculated and exercisable on the same terms and conditions as the Warrants
issued to the Purchasers.
The Company shall pay such fees and expenses of Purchasers' counsel
incurred in the due diligence, document preparation and review of the
Registration Statement, in connection with the transactions contemplated by the
Purchase Agreement, up to a maximum of $40,000.
SCHEDULE 2.1(r)
COUNTRY REFERENCE# FILED APPL# REGDT REG# STATUS SSES
XXXXX
UNITED STATES 61335/38951 10/14/94 74/585,777 ABANDONED 009
XXXXX (COPYRIGHT)
UNITED STATES 61335/38951C1 12/27/94 TX3,925,535 12/27/94 TX3,925,535 REGISTERED NAS
CUSTOMLOGIC
UNITED STATES 61335/38951H 12/9/92 74/338,298 3/15/94 1,826,173 TOBE ABNDD 41
042
ROUNDTABLE
UNITED STATES 61335/38951G 1/6/97 75/221,550 5/25/99 2,246,979 REGISTERED 009
STARBASE
ARGENTINA 61335/38951AR1 5/18/99 2219761 ABANDONED 009
BRAZIL 61335/38951BR1 6/11/99 821723090 PENDING 000
XXXXX 61335/38951CL1 ABANDONED 009
EUROPEAN UNION 61335/38951EU 3/26/98 781435 11/18/99 781435 REGISTERED 000
XXXXXX XXXXXX 61335/38951E 8/22/94 74/563,907 9/16/97 2,096,269 REGISTERED 009
STARBASE & DESIGN
ARGENTINA 61335/38951AR2 6/2/99 2222194 ABANDONED 009
BRAZIL 61335/38951BR2 6/11/99 821723103 PENDING 000
XXXXX 61335/38951CL2 ABANDONED 009
STARBASE (& DESIGN)
EUROPEAN UNION 61335/38951EU1 3/26/98 781443 9/15/99 781443 REGISTERED 000
XXXXXX XXXXXX 61335/38951F 8/22/94 74/563,905 9/16/97 2,096,268 REGISTERED 009
STARPOWERED
UNITED STATES 61335/38951J PROPOSED
COUNTRY REFERENCE# FILED APPL# REGDT REG# STATUS SSES
STARTEAM
ARGENTINA 61335/38951AR 5/21/99 2220518 ABANDONED 009
BRAZIL 61335/38951BR 6/11/99 821723065 XXXXXXX 000
XXXXXX 61335/38951CA 4/15/99 1.012.170 PENDING N/A
CHILE 61335/38951CL ABANDONED 009
EUROPEAN UNION 61335/38951EU2 3/26/98 781294 PENDING 009
UNITED STATES 61335/38951A 9/6/94 74/569,997 10/1/96 2,004,890 REGISTERED 000
XXXXXXXX XXXXXX
XXXXXX XXXXXX 61335/38951C 3/20/98 75/454,211 11/30/99 2,295,252 REGISTERED 009
STARTEAM WEB CONNECT
UNITED STATES 61335/38951B 8/29/96 75/157,644 10/28/97 2,108,741 REGISTERED 009
XXXXXXXX.XXX
UNITED STATES 61335/38951I N/A NOT PURSUE
VERSIONS
UNITED STATES 61335/38951D 8/22/94 74/563,906 2/6/96 1,954,390 REGISTERED ,016
PATENT REPORT BY INVENTION 3/28/00
--------------------------
COUNTRY REFERENCE# TYPE FILED SERIAL# ISSUED PATENT# STATUS
INSTALLABLE FILE SYSTEM USING A BASIC FILE SYSTEM DRIVER
UNITED STATES 61335/90200 NEW 2/22/99 09/255,831 PENDING
UNITED STATES 61335/91317A CIP 3/23/99 09/274,214 PENDING
SCHEDULE 2.1(s)
None.
SCHEDULE 2.1(u)
None.
SCHEDULE 2.1(x)
None.
SCHEDULE 2.1(y)
All employees must sign a Proprietary Information and Inventions Agreement that
states, among other items, the following:
1. That any work produced by an employee utilizing the Company's resources is
property of the Company.
2. That Proprietary Information must be held in strict confidence, even after
employment has been terminated.
SCHEDULE 2.1(z)
(i) The only common stock that has been issued was related to the exercise of
stock options. As disclosed, the Company has entered into agreements with
XX Xxxxx and UBS Warburg in connection with their work on the acquisitions
of Technology Builders Inc and Xxxxxxxx.xxx.
(ix) During the quarter ended September 30, 2001, the Company added $466,000 of
capital assets.
