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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 1996
Commission File Number: 0-25612
STARBASE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 33-0567363
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
18872 MacArthur Boulevard
Irvine, California 92715
(Address of principal executive offices) (Zip code)
(714) 442-4400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS:
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Common Stock, $0.01 par value
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 31, 1996 was $90,301,000.
Number of shares outstanding
as of May 31, 1996: Common Stock: 12,178,259
Series C Preferred Stock: 250,000
Documents Incorporated by Reference: Proxy Statement for 1996 Annual
Shareholders' Meeting; Part III.
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TABLE OF CONTENTS
Part I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Formation and Acquisition. . . . . . . . . . . . . . . . . . 3
Product History and Company Reorganization . . . . . . . . . . . . . 3
Integrated Team Environment (ITE) Background . . . . . . . . . . . . 5
Platform Opportunities: "The Market Opportunity" . . . . . . . . . . 5
Industry Background. . . . . . . . . . . . . . . . . . . . . . . . . 7
StarBase Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . 8
StarBase ITE Products. . . . . . . . . . . . . . . . . . . . . . . . 9
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Marketing and Sales. . . . . . . . . . . . . . . . . . . . . . . . . 13
Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . 14
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Forward Looking Statements . . . . . . . . . . . . . . . . . . . . . 15
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 16
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . 16
Part II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 5. Market for Registrant's Common Equity. . . . . . . . . . . . . 17
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . 17
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . . . . . . 19
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . 19
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . 20
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . 21
Selected Quarterly Financial Data (Unaudited). . . . . . . . . . . . . 21
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . 21
Part III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 10. Directors and Executive Officers of The Registrant. . . . . . 22
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . 22
Item 12. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 13. Certain Relationships and Related Transactions. . . . . . . . 22
Part IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . 22
(a) (1) Financial Statements . . . . . . . . . . . . . . . . . . . . 22
(a) (2) Financial Statement Schedules. . . . . . . . . . . . . . . . 23
(a) (3) Exhibits With Each Management Contract or
Compensatory Plan or Arrangement Required to be Filed Identified . . 23
(b) Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . 23
(c) Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Report of Independent Accountants. . . . . . . . . . . . . . . . . . 26
Consolidated Balance Sheets. . . . . . . . . . . . . . . . . . . . . 27
Consolidated Statements of Operations. . . . . . . . . . . . . . . . 28
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . 29
Consolidated Statements of Shareholders' Equity. . . . . . . . . . . 30
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 31
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PART I
ITEM 1. BUSINESS
COMPANY FORMATION AND ACQUISITION
StarBase Corporation (the "Company" or "StarBase") was incorporated in
California on September 6, 1991 as NeuroStar Corporation ("NeuroStar"). In
1992, the shareholders of NeuroStar entered into a plan of reorganization and a
share exchange agreement (the "Reorganization") with Pacific National Seafarms
Ltd. ("PNA"), a company incorporated in British Columbia and listed on the
Vancouver Stock Exchange ("VSE"). Subsequently PNA merged into a wholly-owned
subsidiary ("StarBase Delaware") incorporated in the State of Delaware, with
StarBase Delaware surviving the merger under the name StarBase Corporation.
On April 6, 1995, the Company underwent a one-for-three reverse stock split of
its Common Stock (the "Reverse Split"), in which every three of its issued
shares were consolidated into one share of Common Stock. All share numbers
contained in this Annual Report on Form 10-K have been adjusted to reflect the
Reverse Split.
The Company's address is 18872 MacArthur Boulevard, Irvine, California 92715.
The Company's registered office is in the City of Wilmington, County of New
Castle, Delaware. Its telephone number is (714) 442-4400. The Company's
federal tax identification number is 33-0567363.
PRODUCT HISTORY AND COMPANY REORGANIZATION
The StarBase product plan has evolved significantly during the past two years.
Even though the Company is still focused on the basic business need of
increased software development productivity, the Company has shifted its focus
to the team productivity market which management believes is a different and
larger market opportunity. The Company was reorganized in 1995 and 1996 to
reflect this change in product and market focus.
StarBase was founded to solve a critical business problem that has plagued the
software industry for the past two decades, namely the inability of software
development projects to deliver software products on time and within budget.
The industry solution to this problem has been to improve the development tools
for programmers and, most recently, Integrated Development Environments ("IDE")
for programmers. Although, the industry's major software companies have made
significant improvements in IDE product offerings, i.e., Microsoft Visual C++,
Microsoft Visual Basic, Powersoft PowerBuilder, Borland Delphi, etc., the
industry press has continued to report that the majority of software projects
continue to come in late and over budget.
The StarBase business plan was initially based on the proposition that the
software development productivity problem was intrinsic to the architecture of
the industry's IDE product offerings. The solution to this problem and the
Company's operating premise was that proper architecture and additional product
features were required. Thus, the Company started development of a next-
generation, object-oriented IDE that included a database component, a high-
level language, language tools, graphical design tools and a team development
environment. Part of this decision was based on the fact that competitive IDEs
were neither completely object-oriented nor integrated all the components
necessary to build complete applications. By 1993, the Company had made
significant progress toward the creation of the StarBase object-oriented IDE
and had formed a consulting organization that was capable of building proof-of-
concept applications for Fortune 1000 companies.
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During 1993 and 1994, however, the Company concluded, based on market research,
that a next generation IDE would not be a lasting solution to the software
development productivity problem. During 1994, marketing feedback on the
Company's initial products, Versions and TSMS, indicated that the critical
problem was no longer code production by programmers, but rather the team
processes of collaboration, work flow and project management. Even though
neither Versions nor TSMS was a complete team-oriented product, they contained
many critical elements of such a product. In addition, industry work flow
research began to indicate that task completion such as programming represented
only 10-30% of the productivity problem and that process cycle time from team
processes represented approximately 70-90% of the problem. The Company
concluded that the big productivity payoff was no longer in IDE improvement,
but in developing a complementary integrated team environment ("ITE") family of
products. Thus, the Company decided to transition from concentrating on the
less important problem of code production, to focusing on the development of
ITEs that improve collaboration, work flow and project management.
Although the Company believes that an ITE for software projects offers
significantly greater productivity gains than a programmer IDE, the Company
also recognizes that the two product categories operate in an interrelated
fashion to provide the greatest overall productivity gains.
The development of StarBase ITE products was, to a large measure, simplified by
the fact that the partially developed StarBase IDE contained many important
elements of the new ITE concept. The Company also concluded that if the ITE
component was separated from the StarBase IDE, it could not only function as a
stand-alone product, but could be used to complement IDEs offered by many of
the largest software companies. Thus, the technology base under development
during the first two years was refocused entirely on the production of a
complete ITE product line, commencing with the StarTeam 1.0 product. StarTeam
1.0 entered beta testing in June 1995 and commercial shipments began in January
1996.
In addition, management concluded that the StarBase ITE products would find a
much larger customer base if they could be broadened to encompass non-
programming professionals. The Company's long term marketing plan was
therefore redirected toward enterprise product development teams, including
teams involved in the development of architectural drawings, product design,
complex document creation, software programming, etc.
The first new market identified by the Company, beyond traditional software
development, but directly related to it, was Internet web site development.
Management believes that web site development and maintenance has become a
significant problem. Teams of writers, graphic artists and programmers work
together at web sites to develop, maintain and manage web sites, often
containing thousands of web pages. The problems of team communication, version
control, collaboration, work flow and project management are identical to
problems of traditional software development. The ITE product design has been
extended to solve this Internet problem. A new StarBase add-on product,
StarTeam WebConnect, has been designed and developed, and entered beta testing
in June 1996.
Concurrently management realized that ITE addresses a universal software
problem that extends into the much broader market of white collar
professionals. Teams of knowledge workers within an enterprise work together
to develop a broad range of products that are stored in electronic media --
financial reports, policy manuals, advertising, architectural drawings, product
designs, etc. The team product development problems are identical to those
found in software and web site development. At this time, the Company is not
aware of products that adequately address these needs and believes that an
extended ITE product line based on StarTeam may provide a solution. The
Company has not presently begun such development.
During 1995, the Company was restructured to support the new product and
marketing plans for the StarBase ITE product line. The 26 person consulting
organization was no longer required for product proof-of-concept and was
discontinued over several months. Other headcount reductions occurred due to
lay-offs and attrition, resulting in an overall reduction from approximately 90
employees to 26 by the end of 1995. The Company began to recruit new marketing
and sales personnel in early 1996 to implement the market introduction of the
ITE product line.
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INTEGRATED TEAM ENVIRONMENT (ITE) BACKGROUND
Currently, software development teams have difficulty building quality
application software on time and within budget. Management believes that more
than half of the software development projects initiated by large companies
will cost significantly more than estimated, and will be delivered much later
than originally committed. The software industry has thus far addressed this
problem by offering more programmer development tools which are easier to use.
Programmer development tools are used to create software applications and
include programming languages (traditional and 4GL), database management
systems (relational and object-oriented), computer-aided software engineering
("CASE"), artificial intelligence ("AI"), expert systems, and other object-
oriented technologies. Microsoft, PowerSoft, Oracle, Sybase, and IBM are
leading vendors within the current market.
Programmer development tools have evolved from single tools, such as a database
or a programming language, to sets of interrelated tools that are designed to
work together in a single work environment. This advanced programmer
development tool, called an IDE, provides significant programmer productivity
improvement by seamlessly combining several inter-related programming tools
into a single productivity enhancing product. Typically, an IDE will combine a
programming language, with an editor, compiler, debugger, graphical user
interface design tool and database access. IDEs such as Microsoft's Visual C++
and Visual Basic, Borland's Delphi, Borland's C++, Symantec's C++, and
PowerSoft's PowerBuilder are the programmer development tools unit sales
leaders. Despite significant progress in programmer productivity tools in the
industry, the majority of software projects continued to come in late and over
budget. Based on focus group studies and market research conducted by the
Company, management concluded that most delays, cost overruns and required
redesigns are related to inefficiencies in collaboration, work flow and project
management rather than to individual programmer productivity.
Team tools for personal computers such as software configuration management
("SCM") for the management of team programming code, collaboration tools that
provided electronic discussion facilities, project management, work flow and
defect tracking began to appear in the 1980s. It was becoming widely
recognized that team process tools offered significant productivity
improvements. Work flow studies began to show that team productivity is
primarily dependent on the rapid transfer of information and work between team
members. Admittedly, the reduction of task time in a software project through
individual programmer productivity improvements incrementally reduces the
overall process time, but improvements by orders of magnitude can be attained
through team process improvements. Thus, the Company concluded that team-
oriented development tools, and in particular, ITEs that reduce the time to
transfer information and facilitate work flow between team members, are an
important solution to the software development productivity problem.
PLATFORM OPPORTUNITIES: "THE MARKET OPPORTUNITY"
WINDOWS 95, WINDOWS NT AND UNIX. Management believes that there is a
significant backlog of new software application development within the Fortune
1000. As a result, management believes that application development
responsibility is migrating out of the MIS organization and into the operating
divisions of these corporations. In response to this trend, software companies
are offering a new generation of object-oriented, client-side development tools
to satisfy these departmental, desktop application development needs.
Moreover, the movement of application development to corporate operating
divisions, in combination with the tools that enable the rapid development and
deployment of applications, has resulted in smaller, multi-disciplinary teams.
These teams not only include programmers and testers, but individuals from the
operating segment who develop the requirements for an application or, in the
end, are the actual users.
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SCM products address one aspect of team productivity focused on the software
developer, the check-in and check-out of software code and documents and the
maintenance of these in a secure repository. SCM products are used to manage
and to maintain the software code and documents during the development of
software applications. However, neither IDE nor SCM tools were designed to
address critical team productivity issues such as electronic collaboration
between team members to resolve design issues, determine functional
specifications or discuss software defects. Automated work flow between team
members to reduce cycle time is also not addressed by these products. Yet,
these are all critical team productivity issues.
The StarBase ITE products augment and complement existing IDEs and are built on
an SCM foundation. It is expected that StarTeam will be offered as a component
of the leading IDEs, offering programmers ITE capabilities within their IDE
environments (StarTeam for Visual C++, StarTeam for Visual Basic, etc.)
StarTeam will also be offered as a stand-alone ITE product that operates with
all the major IDEs and offers collaboration, work flow and document
configuration management services to non-programming personnel who also
participate in application development projects.
StarBase is seeking to significantly participate in the IDE market through
strategic alliances and OEM license agreements with the major IDE vendors,
offering StarTeam as an integral component of their IDE. StarBase expects the
IDE integrated StarTeam components, offered to such major vendors, to create
market pull-through for the stand-alone StarTeam product. The stand-alone
StarTeam extends SCM and ITE capabilities to other members of the project team
who do not use professional application development tools. While the company
fully intends to pursue these opportunities, there can be no assurances that
the Company will be able to form the strategic alliances or enter into OEM
license agreements with major IDE vendors.
INTERNET DEVELOPMENT. In the latter half of 1996, StarBase plans to introduce
an add-on product, StarTeam WebConnect, that extends StarTeam 2.0 for use with
Internet and intranet servers; intranet is the use of Internet technology
inside a company but not being connected to the Internet. StarTeam WebConnect
builds on all the integrated capabilities of StarTeam and adds a set of
features aimed specifically at web content developers and web site managers.
Through StarTeam WebConnect, web content authors, graphic artists and other
contributors, and web masters can manage their web page development files into
a StarTeam project and easily control the publishing of their web pages. Web
site visitors are able to directly report problems and hold electronic
conversations about each file published.
The growth of the Internet and intranet markets represent a new alternative in
the manner that enterprises develop and disseminate internal and external
information. Currently most changes to a corporate web site must go through a
web master or web administrator. As more companies find themselves
communicating and doing business over the Internet or corporate intranets, the
need for tools to support this unique type of development becomes critical.
With tools such as StarTeam WebConnect, authorized users can access detailed
audit trails of development, check files in and out for editing, and retrieve
past versions of web site files. Using StarTeam WebConnect, these users can
send information directly to a web site, easing the burden for web
administrators. Without a product such as StarTeam WebConnect, it is difficult
to control the configuration of a web site, leading to invalid hyperlinks and
inconsistent information. Additionally, as web pages are constantly undergoing
change and updates, maintaining version control of web page information
prevents potentially costly information errors.
Market size information and consequently revenue potential cannot be determined
at this time as the Company believes that StarTeam and its extensions represent
new market opportunities. Although marketing information for Software
Configuration Management is available, StarTeam integrates tools from other
markets such as defect tracking and collaboration into SCM. Market size
information for web site development and white collar professional development
teams is not available. The Company believes that these new markets are
potentially much larger than the SCM market.
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INDUSTRY BACKGROUND
The software industry is undergoing a shift in product needs. The widespread
availability of faster and more powerful computer hardware and peripherals at
relatively lower prices has created demand for computers as an integral part of
business operations. Moreover, users are demanding more and better access to
information. As a result, computer needs are shifting from a host-oriented
mainframe and minicomputer architecture to a client/server and network
computing architecture. The industry's goal is to quickly and efficiently
deliver information to the point of need, at a lower cost. In a client/server
application environment, corporate data typically resides on dedicated
processors which can be accessed directly by networked personal computers,
known as clients, and manipulated by most users within the organization.
The Company believes that the growing demand for client/server applications has
created a large backlog for new, unique, unwritten applications. Despite the
advent of a variety of new software technologies (CASE, relational database
management systems and 4GL), cost overruns, abandoned projects and ill-
performing systems continue to plague information system managers.
Even though programmers worldwide are estimated to produce twice as much code
today as in 1970, the process of application development has not changed
appreciably for almost three decades. For the most part, applications remain
complex, hand-crafted works built by expert programmers, one line of code after
another. Each program must be tested, debugged and tested again in order to
produce a reliable application. The resulting application is typically too
inflexible to accommodate the inevitable modifications needed to reflect the
changing needs of business, thus requiring the whole cycle to start over again.
Currently, programmer tools are very complex, and require a high degree of
specialized knowledge to use. To build effective software applications,
programmers must work in teams with people from other professional disciplines.
Programmers, technical writers, test engineers, and end-user representatives
are expected to work together to build applications, yet the nature of their
work requires them to work in relative isolation. As a result, software
projects are very time-consuming and error-prone, requiring extensive testing
of applications which is an inherently expensive process. Often, more time is
spent reconciling incompatibilities between pieces of software code written by
different developers than is actually spent in developing the code.
Programmer development tools do not resolve this issue. Current tools lack the
attributes of ITE products that automate communication, allow for programmer
collaboration and optimize the flow of work. StarBase believes object-oriented
ITEs provide an important solution to the problem by providing an integrated
environment that surrounds the currently disparate development tools such as
relational database management systems ("RDBMS"), 4GL, and graphical user
interface ("GUI") builders.
OBJECT-ORIENTED IDES ADDRESS PART OF THE PROBLEM. Object-oriented technology
advances a new, more effective approach to developing software applications.
This technology allows programmers to represent business models in software
applications that closely correspond to real-world business relationships.
Object-oriented programming is based on constructing software in terms of
building blocks called objects. These objects, which may be simple or complex,
can be defined and modified independently, used as-is in new applications or
extended to create new functionality. As a result, object-oriented technology
offers substantial productivity gains for developers.
Many major vendors have initiated research and development efforts in the
object-oriented technology arena, and there has been substantial investment in
start-up companies promising to deliver tools that directly address these
issues. Furthermore, the key to improved application development productivity
lies in the construction of applications from re-usable parts. The Company
believes that application
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development utilizing component construction techniques will yield significant
improvement in the development and maintenance of new applications.
Management believes that applications built on a foundation of both object-
oriented software and team-oriented development tools are generally more
quickly and more reliably developed than their monolithic (non-object oriented)
counterparts. They are generally more flexible and more easily modified than
the non-object oriented counterparts, are more easily distributed throughout a
network to the point of work, and take advantage of the economics of
client/server computer platforms.
ITE PRODUCTS COMPLETE THE SOLUTION. Object-oriented software development
methods have substantially changed the manner in which development teams
operate. Team members now utilize re-usable components rather than develop
code from the ground up. Teams are now typically smaller in size and require
better communication among their members. Teams are often formed on an as-
needed basis to produce applications that directly address the defined business
needs.
Many vendors are delivering object-oriented or hybrid tools that provide
enhanced individual programmer productivity. They are focused on traditional
enabling technologies, such as C++ compilers, debuggers, browsers, RDBMS, 4GL,
and cross-platform development tools, among others. By contrast, the Company
is focused on products that enable multiple programmers to increase
productivity within a team environment. The Company believes that its new
approach to Windows and Internet application development has created a new
product category with a focus on integrating the team into a collaboration,
efficient work flow environment. Furthermore, StarBase's ITE products bind
together many of the individual object oriented and hybrid tools into a
collectively more powerful application development environment.
The most important attribute for an effective team-oriented tool is that it be
unobtrusive. That is, it needs to deliver only the work that needs to be acted
upon. Programmer productivity is significantly reduced when concentration is
interrupted by team administrative tasks or meetings. Yet programmers need to
share information in order to collaborate effectively. At the same time,
managers need to know the status of work-in-process in order to make decisions.
StarBase products are intended to enable uninterrupted programmer productivity
by offering electronic collaboration, automatic work flow routing and on-line
access to project status.
The Company believes that ITEs that integrate into an IDE as a component are
more effective than using non-integrated tools in combination. In particular,
the Company believes users achieve greater functionality and programmer
productivity using an ITE that is fully integrated into the IDE environment
than can be achieved with separate, non-integrated ITE components such as
version control, defect tracking and electronic mail. As evidenced by Visual
Basic, Visual C++, Delphi, PowerBuilder, and others, the software industry is
quickly moving toward IDEs that offer integrated development tools within the
programmers environment. StarTeam complements the industry's direction through
the high level of integration of its ITEs into the leading IDE. StarTeam
components are intended to extend the tool set found within industry leading
IDEs. To date, the Company is not aware of any other vendor that has achieved
this level of integration in its product.
STARBASE STRATEGY
StarBase's strategy is to develop, market, and support a product line of team-
oriented, client/service products that address the evolving needs of a wide
range of computer users. The Company seeks to develop products that are easy
to use, offer increased functionality at attractive prices, feature familiar
user interfaces, and deliver a high degree of integration. In developing its
products, the Company relies on a combination of internal product development
efforts and complementary technologies and products from third parties.
The Company is striving to be first to market with an ITE product line, to
deliver "best-of-breed" products, to establish and maintain significant market
share, to achieve profitability without sacrificing long-term
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growth opportunities and to deliver products that offer significant real value
to the customer by containing the cost of development.
The key elements of the Company's strategy are to:
ACHIEVE EARLY MARKET ACCEPTANCE AND AWARENESS. A key element of the
Company's overall strategy involved achieving both industry and customer
awareness and credibility in 1995, in preparation for the Company's 1996
product launch of its ITE platform, and subsequent introduction of its
Internet and intranet product lines. The introduction of the StarTeam
product line, product recognition awards from the industry, and the
successful expansion of the reseller channel has established a solid
foundation within the team-oriented target market for the next phase of
the Company's strategy.
ESTABLISH A UNIQUE MARKET POSITION WITH THE INTRODUCTION OF STARTEAM. With
the introduction of StarTeam, the Company believes that it has a product
offering improvements over other available products unmatched by any
individual competitor. The Company is not aware of any commercially
available team-oriented product with the capability, integration, and
local and wide area communications represented by the StarTeam 2.0 suite
of products: StarTeam 2.0, StarTeam Server 2.0, and StarTeam WebConnect.
These products represent a new class of software development tools which
should uniquely set the Company apart from its competition.
EXPAND MARKET ACCESS THROUGH THE INTERNET, PARTNERSHIPS AND INDUSTRY
ALLIANCES. The Company is seeking to expand the market for its ITE
products by aggressively pursuing partnerships and alliances with industry
leading vendors. It is intended that StarTeam be integrated as a
component into several IDE products from the leading vendors through OEM
and technology licensing agreements, while the stand-alone product be
offered through joint marketing and distribution agreements. The Company
believes that the integration of StarTeam 2.0's WAN, intranet and Internet
capabilities into various companies' IDEs provides an attractive means of
supporting distributed software development teams. StarBase will
aggressively pursue OEM relationships to provide such integrations, as
well as sell the product on a stand-alone basis.
EXPAND ITEs THROUGHOUT THE ENTERPRISE. The Company believes its team-
oriented technology was initially designed for software development
collaboration, can be adapted to encompass generic, collaborative work
flow throughout the enterprise. StarBase intends to leverage its existing
technology to other functional areas within the enterprise that will
result in new market opportunities for the Company outside the software
development segment. The initial targets are web site development and
white collar professional product development. The Company believes that
the extension of ITE capabilities from software development to web site
and white collar office product development will offer significant market
expansion to the Company.
STARBASE ITE PRODUCTS
StarBase Corporation develops, markets and supports computer software defined
as ITE product development tools that address the evolving needs of a wide
range of personal computer users and are designed for computers running
Windows, Windows NT, Windows 95 and UNIX operating systems within a
client/server environment. The Company's products are used in a variety of
personal computer environments, including desktop, laptop and notebook
computers, as well as local and wide area networks ("LAN" and "WAN"). In the
Spring of 1996, the Company commenced beta testing the Internet ITE products.
Product capabilities for StarTeam, the Company's flagship product, currently
include configuration management, threaded conversations (a specialized form of
collaboration management), defect tracking (providing elements of both
collaboration and work flow), and change control auditing (a component of
project management). Team administration commonly found in configuration
management systems such
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as version control, branching, merging, and archiving is also included. The
first ITE product, StarTeam 1.0, was released in January 1996 and has gained
critical acclaim from the industry press and independent testing laboratories.
Future releases of StarTeam are planned to include team decision management,
work flow management, online work flow analysis and optimization, software
complexity analysis, test coverage analysis, text retrieval, image processing
and extensive project management facilities.
The StarTeam CM component is used as the repository to store and manage the
team's work-in-process and the final work product developed by the team, i.e. a
software application, design documents, set of architectural drawings, etc.
The other major components of StarTeam, collaboration, workflow and project
management, provide views into the CM repository. For example, since
collaborative team discussions are about the work-in-process, StarTeam provides
an automatic connection or view from a particular team discussion to a work-in-
process stored in the repository. Similarly, since the purpose of workflow is
to distribute tasks to team members, assigning a specific work product to them,
StarTeam associates the team member's task with a work product that is stored
in the repository. Additionally, since project management provides a view of
the status or change in status of a team work product, StarTeam automatically
connects project status reports to the work-in-process stored in the
repository.
Although StarTeam is much more than CM, it is also very competitive at the CM
level. Competitive CM products have traditionally been designed specifically
for software engineers and are referred to as SCM. In contrast, StarTeam was
designed for both engineers and non-engineers, providing a broader CM system
with distinct competitive, advantages for teams that include non engineers. To
test the broader user environment for CM products, the Company introduced two
initial products in late 1993, Total Software Management System ("TSMS") for
the high-end of the version control market and VERSIONS for the low-end of the
market. TSMS and Versions provided valuable market information on the
appropriate user interface for version control and configuration management
technology. StarTeam 1.0 was developed from the Versions code base and was
based on marketing feedback from Versions and TSMS users. StarBase products
have received recognition from trade publications and endorsements from other
leading software vendors.
Since neither TSMS nor Versions represent the longer term direction of the
Company, TSMS has been licensed to Progress Software under an OEM agreement,
and sales of Versions have been de-emphasized pending introduction of StarTeam
1.0 which includes all the features of Versions as well as other features
described above. StarBase has since upgraded TSMS for compatibility with
Progress Software's ProVision Version 8 and in November 1995, the first copy of
TSMS was sold through Progress Software.
The StarTeam family of products are targeted toward three distinct market
segments. StarTeam 1.0, introduced in January 1996, is designed for the SCM
market and, like competitive products, operates in a LAN environment. StarTeam
2.0 is a suite of three products: StarTeam 2.0, StarTeam Server 2.0 and
StarTeam WebConnect. These products are designed to substantially improve the
reach, flexibility and productivity of software development teams by extending
StarTeam functionality from LANs to WANs, intranets and the Internet. StarTeam
2.0 and StarTeam Server 2.0 combine to provide enhanced performance and
security using client/server technology, while StarTeam WebConnect allows
customers to "publish" their documents under StarTeam control across any LAN,
WAN, intranet or the Internet to any authorized user who has a standard web
browser. StarTeam WebConnect accomplishes this by dynamically generating the
hypertext markup language ("HTML") text that web browsers expect, from project
data in the StarTeam repository. Because StarTeam WebConnect converts StarTeam
project information to HTML in real time, access to StarTeam documents and data
is now possible for the first time from non-Intel platforms, such as Macintosh
and UNIX systems. The StarTeam 2.0 products are expected to be commercially
released in the third calendar quarter of 1996.
A follow-on product for 1997, code-named OfficeTeam, will be targeted toward
white collar professionals to enable team development across the Internet of
financial reports, architectural drawings, electronic designs, etc. StarTeam
WebConnect and OfficeTeam, like StarTeam, will enable the formation of virtual
teams across the Internet and intranet teams across functional boundaries
within an enterprise.
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The ultimate goal of the Company is to provide a seamless team-oriented
productivity environment by offering a family of ITE products for the
professional programmer, Internet Web site developer and teams of other workers
and professionals within an enterprise engaged in producing business documents.
From its current base of products, the Company intends to introduce a family of
new StarTeam products in 1996 and 1997 that the Company believes will establish
it as a leading provider of ITE software.
COMPETITION
The market for application-development system software products is intensely
competitive. The major developers and competitors of the SCM component of
StarTeam include Intersolv, Inc. and Mortice Kern Systems, Inc. ("MKS"). In
addition, Microsoft recently purchased SourceSafe, a version control product
with increasing market presence. Atria's ClearCase and SofTool's CCC/Harvest
products compete with TSMS at the high end of the configuration management
market. At this time, the Company knows of no company that offers the
comprehensive ITE tools found in StarTeam, nor the Internet management
capabilities that are present in StarTeam WebConnect. Intersolv, Inc., MKS,
Microsoft, Atria and others offer SCM capabilities that are similar to those
offered by StarTeam. MKS and others have introduced configuration management
products for the Web that offer some features that will be included in StarTeam
WebConnect. MKS has entered into an OEM agreement with Netscape for its web
configuration management product.
Most of these companies have established greater market recognition and have
substantially greater financial, technological, production and marketing
resources than the Company. The Company, however, is not currently aware that
any of these companies are developing ITEs such as StarTeam that provide a
comprehensive set of ITE capabilities that go beyond SCM to include defect
tracking, decision management and threaded conversations, as components that
integrate with one another and within the leading IDEs. StarBase believes that
this level of integration is complementary to the industry direction of
providing an increasing number of development tools as integral parts of IDE.
StarTeam accomplishes this by simply extending the number of programmer
development tools available in an IDE to include ITE components. By offering
nonintegrated components the management of StarBase is of the opinion that
offerings from leading SCM companies such as Intersolv, Inc. and Atria are
contrary to the current industry direction.
The market for the Company's products has different competitive characteristics
by category of product and target market:
SOFTWARE CONFIGURATION MANAGEMENT (SCM) -- STARBASE TSMS. StarBase TSMS
is a high-end configuration management system designed specifically for
Progress Software's ADE (ProVision) and utilizes the Progress 4GL as its
implementation language. Intersolv, Inc.'s PVCS, Atria Corporation's
ClearCase and SofTool Corporation's CCC/Harvest, although leading SCM
vendors in the high-end market, are not designed specifically for the
Progress environment. The competitive products offer comprehensive
version control, high performance, efficient workspace management,
accurate and automatic build processes, and scale to the enterprise level.
ITE - STARTEAM. A full service ITE will incorporate a number of software
categories including on-line decision management, project status, software
component analysis, version control, software configuration management,
defect tracking, conversation management and work flow with role
management. The Company plans to integrate these eight functional areas
into a new category or class of product, an ITE. Although StarTeam 1.0
integrates only items 4 through 8, below, at this point in time, the
Company knows of no other vendor attempting to integrate these software
categories into a complete solution. However, several of these categories
have vendors with dominant market positions. A detailed discussion of the
eight functional areas is as follows:
1) DECISION MANAGEMENT. Decision management is an on-line facility for
identifying and tracking management and technical decisions as they
are made on-line, during
11
<PAGE>
collaborative team discussions or through notification by the team
leaders. The Company is unaware of a competitive or planned product
with these features.
2) PROJECT STATUS. There are currently several project management
products, such as Symantec's Timeline and Microsoft's Project, that
provide project status. However, project task information must be
entered manually into these products. The Company's current plans
call for its ITEs to track task information on-line as work is
performed by programmers. The Company knows of no products that
provide on-line project task information that is derived directly
from a programmer's day-to-day work activities.
3) SOFTWARE COMPONENT ANALYSIS. There are currently specialized,
individual tools that analyze such things as test coverage and
software code complexity. The Company's ITEs are planned to include
these as well as more advanced capabilities such as pattern
recognition analysis of software code errors and programmer error
rate forecasting. The Company is currently unaware of a competitive
or planned product offering with these features.
4) VERSION CONTROL. The primary competitors in this category are
Intersolv, Inc. with PVCS, MKS with RCS, and Microsoft with
SourceSafe. All three vendors offer robust administrative
capabilities (multi-user support, project branching, file/project
merging, and multiple directory support), a graphical user interface
for ease-of-use, and report generators. All three vendors integrate
with the leading development platforms including Microsoft's Visual
Basic and Visual C++. The Company believes that the version control
functionality available in StarTeam competes favorably with these
products at both the user interface and feature level.
5) SOFTWARE CONFIGURATION MANAGEMENT. Atria Corporation's ClearCase and
SofTool Corporation's CCC/Harvest are the two leading SCM products on
the market. Both of these products are high-end tools offering
comprehensive version control, high performance, efficient work space
management, accurate and automatic build processes, and scale to the
enterprise level. StarTeam, in its first release, offers competitive
SCM features applicable to small-to-medium size development groups
and will scale to the enterprise level in subsequent releases.
6) DEFECT TRACKING. There is no dominant vendor in the bug database
(defect tracking) segment of the market today. Archimedes Software's
BugBase and Intersolv, Inc.'s Tracker are two of the more popular
products and offer equivalent functionality including bug
identification and disposition, responsibility routing, security and
reporting. Currently, bug database products typically operate in a
stand-alone fashion and do not integrate well with existing version
control and configuration management products. However, both
Intersolv, Inc. and MKS have recently begun offering bug tracking
products, and over time the version control vendors will evolve their
products to include bug tracking. The Company believes that the
StarTeam bug tracking feature compares favorably to existing bug
database products while offering integration within the ITE
environment.
7) CONVERSATION MANAGEMENT. There are a number of products on the
market today that allow software developers to communicate
electronically, including electronic mail systems (e.g., Microsoft
Mail and Lotus cc: Mail), commercial bulletin board services (e.g.,
CompuServe and America Online), and workgroup systems such as Lotus
Notes. All these systems offer an effective mechanism to share
information with others electronically. However, keeping the
conversations on a focused topic over a sustained period of time has
proven to be difficult and time-consuming. These problems have
resulted in a new messaging paradigm referred to as threaded
conversations. Collabra Software Inc.'s Share 1.0, released in
December of 1994, successfully implemented
12
<PAGE>
threaded conversations and was recognized as one of the most
innovative products in 1994 by PC Magazine, receiving the Editor's
Choice Award. StarBase has delivered a threaded conversation
capability in the initial version of StarTeam that is comparable to
the features offered in Share 1.0. However, StarTeam is integrated
into the software development process yielding focused conversations
on defects, project status, code modules as well as links to E-mail
and electronic forums.
8) WORK FLOW SYSTEMS. Work flow concepts are beginning to appear in the
fabric of personal computing. Vendors who provide the electronic
backbone for information sharing (Novell Netware and Microsoft EMS)
are now beginning to incorporate the notion of work flow into their
messaging paradigms and numerous companies are delivering market
specific solutions (such as FileNet's document imaging and Delrina
FormsFlow forms routing). Although there are numerous vendors
addressing work flow, at this time the Company knows of no vendor
designing work flow concepts into a team-oriented software
development tool. StarTeam plans, in future releases, to include a
software development life-cycle feature that allows flexible model
definition (e.g., changes in variables including work flow process,
the definition and assignment of roles, and responsibilities and
their effect on the project development life cycle) for a particular
software development and maintenance process.
The Company believes that StarTeam's integration of on-line decision
management, project status, version control, software configuration management,
defect tracking, threaded conversations, work flow, security, administration,
software component analysis and reporting features into one user-friendly
product is unique within this segment of the industry. StarTeam has won
several major industry awards, including selection as one of PC Week's Products
of the Year for 1995, and that same publication's award for excellence in
design, implementation and addressing the needs of corporate information
technology professionals in 1996.
Management believes there are significant barriers-to-entry into the ITE market
inhibiting an immediate response by competitors. This is due to the high level
of integration and functionality necessary to provide work flow automation and
information sharing. The Company believes that its competitors will need to re-
engineer their software offerings to deliver a truly competitive product. Over
time, as the Company integrates more functionality and performance
enhancements, management believes that this differentiation is likely to
increase.
The Company's current primary competitors are in-house IS departments, systems
integrators and VARs who construct an ITE utilizing a cadre of other products.
The Company believes that its ITE products will be superior to this solution by
offering a higher level of product integration with competitive features, at a
better price than those constructed using a variety of third-party products.
MARKETING AND SALES
The Company is continuing to build its marketing and sales organization.
Staffing for sales and marketing positions is currently underway and expected
to be completed this summer. Several new positions have arisen due to the
Company's restructuring to support the new product and marketing plans for ITE
products.
StarBase primarily markets its products through selected distributors and
resellers, including The Software Developer's Company, Programmer's Paradise,
DistribuPro, MicroWarehouse, Software Spectrum and Vision Source. To more
effectively penetrate the Fortune 2000, StarBase has entered into an agreement
with Sunset Direct, a direct marketing company. Representing companies such as
Borland and Symantec, Sunset Direct provides professional telemarketing and
evaluation fulfillment support, while allowing sales to take place through the
reseller channel. In addition, StarBase plans to expand distribution through
its own telesales program, a small direct sales organization, and through
selected licensing and OEM
13
<PAGE>
agreements. As an example, StarBase has agreements in place with Progress
Software to sell, market and distribute the StarBase TSMS environment to
Progress ProVision customers, and is negotiating with the Crescent Division of
Progress Software to distribute StarBase 1.0 with Progress Software's PowerPak
product.
Intersolv, Inc., whose PVCS product is commonly accepted as the SCM industry
standard for PC networks, has made both an investment in StarBase and entered
into a cross licensing agreement. The cross licensing agreement licenses PVCS
to StarBase for use in its products and provides rights for Intersolv, Inc. to
utilize certain StarBase technology in its products. StarBase and Intersolv,
Inc. are currently negotiating a potential expansion of the existing agreement.
There can be no assurance, however, that Intersolv, Inc. and StarBase will
enter into such an agreement.
The Company's marketing strategy is differentiated by the market segments
addressed by the various StarTeam products. As discussed above, The Company
plans to market through agreements with the leading SCM companies in addition
to direct telesales and sales through traditional channel
distributors/resellers. In addition, the Company will market StarTeam
WebConnect primarily through direct telesales, and OfficeTeam primarily through
retailers and VARs. The Company's products are manufactured by third parties.
Manufacturing consists primarily of duplicating CD-ROMs or computer diskettes
as well as packaging and an operating manual. The Company believes that its
third party manufacturing needs are available from various sources and
suppliers.
PROPRIETARY RIGHTS
The Company's success is heavily dependent upon its proprietary software
technology. The Company does not currently have any patents and relies upon a
combination of copyright, trademark and trade secret laws, as well as license,
proprietary rights, non-disclosure and other contractual agreements, to protect
the proprietary rights to its technology. The Company generally enters into
proprietary information and inventions agreements with its employees. The
Company also routinely limits access to its software, documentation and other
proprietary information. There can be no assurance that the steps taken by the
Company will prevent misappropriation of its technology. In addition, such
protections may not preclude competitors from developing products with features
similar to the Company's products. Although the Company believes its products
will not infringe upon the proprietary rights of third parties, there can be no
assurance that infringement claims will not be brought against the Company in
the future. Any such claims could require the Company, to enter into royalty
arrangements, result in costly litigation or have a material adverse effect on
the Company's business, operating results and financial condition.
EMPLOYEES
As of March 31, 1996, the Company had 31 full-time employees. Of these
employees, 16 were in Research and Development, seven (7) were in
Administration and eight (8) were in Sales and Marketing. The Company's
workforce is not unionized and management believes that the Company's relations
with its employees is good.
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FORWARD LOOKING STATEMENTS
Certain of the information contained in this Annual Report on Form 10-K,
including without limitation statements made under this Part I, Item 1,
"Business" which are not historical facts, may include forward looking
statements. In reviewing such information, it should be kept in mind that the
Company's actual results may differ materially from those set forth in such
forward looking statements. The Company assumes no obligation to update these
forward looking statements to reflect actual results or changes in factors or
assumptions affecting such forward looking statements.
RISK FACTORS
EARLY STAGE OF DEVELOPMENT; HISTORY OF LOSSES. The Company is a development
stage company and is subject to all of the risks inherent in a development
stage company. There can be no assurance that the Company's product
development efforts will result in a commercially viable business or that the
Company will be able to generate significant revenues or operate profitably.
Since its inception, the Company has had a history of losses and as of March
31, 1996, the Company had a consolidated accumulated deficit of approximately
$18,223,000. To date a substantial portion of the Company's revenues was
derived from the activities of its Consulting Division, which was discontinued
in fiscal 1996, and from sales of products that have been de-emphasized. The
Company anticipates incurring additional losses until it can successfully
market and distribute its existing ITE products and successfully develop,
market, and distribute its planned future products. The development of
software products is difficult and time consuming, requiring the coordinated
participation of various technical and marketing personnel and, at times,
independent third-party suppliers. This development process often encounters
unanticipated delays and expenses. The likelihood of the success of the
Company's business must be considered in light of the problems, expenses,
difficulties, complications, and unforeseen delays frequently encountered in
connection with the development of new technologies.
PRODUCT LINES UNDER DEVELOPMENT; DEVELOPING MARKET. At present, the Company
has commercially introduced four products, the marketing of which to date has
been limited. The Company's success will be dependent in large part upon its
ability to market its StarTeam products and to quickly introduce and market
additional products. While the Company is in various stages of developing
additional products, there can be no assurance that such additional products
will be completed or successfully marketed. User preferences for software
products are difficult to predict and, historically, only a limited number of
software products have achieved sustained market acceptance. Demand for
software products is subject to a number of variables, including user
preferences and the size of the installed base of personal computers capable of
running the products. Further, the market for ITE software products is
evolving. There can be no assurance that the products introduced by the
Company will achieve acceptance, or that other software vendors will not
develop and market products which render the Company's products obsolete or
less competitive. Failure to obtain significant customer satisfaction or
market share for the Company's products would have a material adverse effect on
the Company.
ITEM 2. PROPERTIES
The Company's executive offices consist of approximately 12,000 square feet in
an office building leased by the Company, in Irvine, California. The office
lease expires in February 1997. The property and equipment of the Company
consist principally of office furniture, equipment and personal computers.
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ITEM 3. LEGAL PROCEEDINGS
As of March 31, 1996, the Company is a party to the following lawsuits:
On January 5, 1995, the Company obtained a judgment for non-payment on a
promissory note against Dr. James Parker in Los Angeles Superior Court, case
#BC 090 584, entitled StarBase Corporation vs. James Parker, in the amount of
$311,822.88, together with interest of $86.62 per day until the judgment has
been paid. Collection efforts were temporarily halted by a stay order in U.S.
Bankruptcy case #LA 94-1079ER; however, the stay order has now expired and
collection efforts are in process.
An action was filed against the Company on August 18, 1995 in the Superior
Court for the County of Orange, Central District by CISD International, Inc.,
case #751650. The Company was sued for Breach of Contract, Open Book Account,
Account Stated, and Work, Labor, Services and Materials Rendered. CISD
International Inc. is seeking $76,907 with interest in compensatory damages and
costs. The Company entered into a stipulation for judgment with CISD which
required the Company to make payments of $10,000 in November 1995 through
February 1996; $15,000 in March and April 1996 and $6,907 in May of 1996
without any interest or other charges. During May 1996, the Company paid all
amounts due under the stipulation in full.
An action was filed against the Company on August 22, 1995 in the Orange County
Superior Court, case #751766 for Unlawful Detainer by McDonnell Douglas Travel
Co. Additionally, McDonnell Douglas Travel Co. is seeking damages in the
amount of $99,510 for unpaid rent, possession of the premises located at 18872
MacArthur Boulevard, Irvine, California, per diem fair rental value in the
amount of $1,105.67 commencing on September 1, 1995 and costs and attorney's
fees. The Company has entered into a stipulation for judgment with McDonnell
Douglas Travel Co. The Company remains a tenant of McDonnell Douglas Travel
Co. under a revised sub-lease. The Company, under the stipulation has
consolidated its operations to one of the two floors it previously occupied.
The past due lease rent is being paid ratably over a twelve month period ending
November 1996. The Company is current with all payments due under the
stipulation.
An action was filed against the Company in August, 1995, in the Orange County
Superior Court, case #752031 for failure to pay lease rent by McDonnell
Douglas Travel Co., which is seeking damages in the amount of $552,932,
representing lease rent from October 1995 through February 1997 (lease
termination date) and attorney's fees and costs. The Company has entered into
a stipulation for judgment with McDonnell Douglas Travel Co, in which the
parties agreed to an amendment to the lease whereby the Company agreed to pay
the lease arrearages as well as be responsible for potential tenant
improvements. At March 31, 1996, the Company has accrued $74,000 for the
remaining lease rent arrearages.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
The Company's Common Stock is traded on the Vancouver Stock Exchange ("VSE")
under the symbol "SBE." Since January 5, 1996, its Common Stock has also been
trading on NASDAQ's Over The Counter Electronic Bulletin Board, under the
symbol "SBAS." The following table sets out the high and low of the Company's
Common Stock for each quarter within the last two fiscal years and any
subsequent interim period. Quotations are presented in Canadian Dollars as
reflected on the VSE. On March 29, 1996, the exchange rate was approximately
US$0.74 to CDN$1.00.
CDN$ CDN$
DATE HIGH LOW
---- ---- ----
FISCAL YEAR 1996
Quarter Ended March 31, 1996 $6.50 $3.50
Quarter Ended December 31, 1995 4.85 2.75
Quarter Ended September 30, 1995 5.00 2.15
Quarter Ended June 30, 1995 8.38 3.10
FISCAL YEAR 1995
Quarter Ended March 31, 1995 9.90 6.75
Quarter Ended December 31, 1994 10.95 7.20
Quarter Ended September 30, 1994 8.85 6.30
Quarter Ended June 30, 1994 11.25 8.10
As of March 31, 1996, based on information received from the Company's transfer
agent, the estimated number of beneficial shareholders of the Company's Common
Stock was in excess of 500.
The Company has never declared a cash dividend on its Common Stock or Preferred
Stock. The Board of Directors presently intends to retain all earnings for use
in the Company's business and therefore does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. Payment of dividends
on Common Stock, if any, would be subject to the discretion of the Board of
Directors, which may consider factors such as the Company's results of
operations, financial condition, capital needs and acquisition strategy, among
others. In addition, under the corporate law of Delaware, the Company is
prohibited from paying dividends except out of the Company's surplus (retained
earnings) or, if there is no surplus, out of the Company's net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal year.
At March 31, 1996, the Company's balance sheet reflected an accumulated deficit
of approximately $18,223,000.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below for the fiscal years ended March
31, 1992, 1993, 1994, 1995, and 1996 are derived from the audited financial
statements of the Company. This selected financial data should be read in
conjunction with the financial statements, the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The Company's historical financial data
may not be indicative of future results. The historical financial data include
sales of products that have been de-emphasized and revenues associated with the
Company's Consulting Division that has been discontinued.
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<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992 (1)
------ ------ ------ ------ --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenues $ 991 $ 3,535 $ 1,410 $ 393 $ 43
Cost of sales 706 2,848 1,337 423 22
-------- -------- -------- -------- --------
Gross profit 285 687 73 (30) 21
Research & development
expenses 2,466 3,145 1,370 454 -
Selling, general &
administrative expenses 3,759 5,312 2,244 645 28
-------- -------- -------- -------- --------
Operating loss (5,940) (7,770) (3,541) (1,129) (7)
Other income 48 52 62 10 -
-------- -------- -------- -------- --------
Loss before income taxes (5,892) (7,718) (3,479) (1,119) (7)
Provision for income taxes 1 2 2 2 1
-------- -------- -------- -------- --------
Net loss $ (5,893) $ (7,720) $ (3,481) $ (1,121) $ (8)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net loss per common share $ (0.81) $ (1.53) $ (0.81) $ (0.62) $ -
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
<CAPTION>
March 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992 (1)
------ ------ ------ ------ --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 1,252 $ 1,972 $ 2,450 $ 706 $ 194
Working capital (deficit) (536) 91 2,693 749 (30)
Total assets 2,173 4,147 3,922 1,056 274
Total debt (2) 2,105 2,790 696 195 282
Shareholders' equity 68 1,357 3,226 861 (8)
</TABLE>
(1) Results reflect the period September 6, 1991 (inception) through March 31,
1992.
(2) Total debt includes trade payables.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1996 COMPARED TO 1995
Total revenue decreased $2.5 million or 72% to $991,000, due to the decision to
discontinue the Consulting Division and reorganize the Company. Based on focus
group studies and market research, StarBase decided to focus entirely on the
development and marketing of software to increase team productivity, rather
than individual productivity. The Company was reorganized in fiscal 1996,
starting in the spring of 1995, to reflect this change in product and market
focus. The sales of product, primarily Versions, were de-emphasized pending
the anticipated introduction, in January 1996, of the first product in the
"StarTeam" group of products of the Integrated Team Environment ("ITE") product
line. This de-emphasis of Versions sales, combined with an increase of product
returns due to the introduction of a new product, caused net product revenue to
decrease by $468,000, or 49% of the prior year's sales.
Gross profit decreased by approximately $400,000, due to the reduction in sales
volume as well as the high cost of consulting services. The Company's
Consulting Division incurred a negative gross margin during fiscal 1996 as a
result of losses on certain fixed-price contracts, combined with the cost of
discontinuing the division.
1996 1995 1994
------ ------ ------
Cost of services as a percentage of
service revenues 125% 103% 106%
Cost of products as a percentage of
product revenues 17% 19% 32%
Operating expenses were reduced by approximately $2.2 million, due to a
concerted effort by management to stabilize the Company's financial condition
and operations. A significant segment of the operating expenses reduction was
due to headcount reductions. Staffing levels dropped from approximately 90
employees to 26 by December 1995. Since then, however, the Company has began
to recruit new marketing and sales personnel to implement the market
introduction of the ITE product line. At March 31, 1996, the Company had 31
full-time employees. Research and development expenses were reduced by
$679,000, approximately 22%, and other operating expenses were reduced by
$1,553,000, approximately 29%.
YEAR ENDED MARCH 31, 1995 COMPARED TO 1994
Total revenue increased $2.1 million or 151% to $3.5 million. Consulting
services revenue increased in fiscal 1995 over 1994 due to growth in both the
customer base and the size of projects. Product sales began in the fourth
quarter of fiscal 1994 with the introduction of the Company's Versions 1.0
version control software and the acquisition of the Total Software Management
System ("TSMS"), a UNIX environment software configuration management tool.
The increase in product revenue in 1995 was primarily the result of the release
of Versions 1.1, Versions/VB and Versions for Documents version control
software during fiscal 1995, and, to a lesser extent, sales of TSMS.
The increase in cost of services for the year ended March 31, 1995 over 1994
primarily represents higher compensation and related expenses resulting from
increased volume in the Consulting Division. Compensation and related expenses
represented approximately 80% of the total service costs for fiscal 1995. The
Consulting Division incurred a negative gross margin during fiscal 1995 as a
result of losses on certain fixed-price contracts and in fiscal 1994 due to an
increase in staffing required to position the Division toward larger consulting
clients with long term potential.
19
<PAGE>
Cost of products consists primarily of manufacturing and related costs such as
media, documentation, product assembly and third party royalties. The Company
outsources manufacturing for all software products, except TSMS.
In fiscal 1995 StarBase continued to make significant investments in research
and development intended to bring its products to market. The Company invested
in hiring experienced software engineers to develop its technology.
Compensation and related expenses represented over 85% of research and
development costs in each of the last two fiscal years. The Company has not
capitalized any software development costs incurred to date (see Note 1 of the
Notes to Consolidated Financial Statements).
Selling, general and administrative expenses increased during fiscal 1995
primarily from increased marketing efforts associated with the launch of the
Versions product line. The development of the Company's product sales force,
its administrative and operational infrastructure, as well as increased sales
efforts for the Consulting Division also contributed to the increase.
INCOME TAXES
The Company incurred minimal income taxes in the last three fiscal years due to
its cumulative losses. The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") in fiscal 1994.
SFAS 109 requires that deferred taxes be calculated using an asset and
liability approach at currently enacted tax rates. SFAS 109 also requires the
establishment of a valuation allowance to reflect the likelihood of realization
of deferred tax assets. Upon adoption of SFAS 109, the Company did not record
a net benefit from income taxes resulting from net operating loss
carryforwards; a valuation allowance of equal amount was provided for the
deferred tax asset which would have been otherwise recorded.
INFLATION
Management believes that inflation has not had a material impact on the
Company's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents on hand as of year-end totaled $1.3 million in fiscal
1996 and $2.0 million in fiscal 1995. At March 31, 1996 the Company had
negative working capital of $0.5 million, compared to positive working capital
of $0.2 million at March 31, 1995.
Proceeds from the issuance of equity securities represent the primary source of
funds for meeting the Company's requirements for operations. During fiscal
1996, the Company received $3.9 million from the proceeds of private placements
of equity. The Company also received $1.1 million in fiscal 1996 from
promissory notes of which $0.9 million were subsequently converted into equity.
During fiscal 1995, the Company generated a net $6.3 million in cash from
financing activities, including $5.8 million from the sale of additional
equity. The Company completed a private placement of preferred stock for net
proceeds of approximately $2.7 million and two private placements of common
stock for aggregate net proceeds of approximately $2.2 million. In addition,
the Company received proceeds of approximately $0.9 million from the exercise
of warrants to purchase common stock.
For the year ended March 31, 1996, the Company used $4.9 million for
operations, a reduction of approximately $1.2 million from the prior year, when
cash used by operations totaled $6.2 million. Capital expenditures were not
significant in fiscal 1996. Capital expenditures for fiscal 1995 were $0.6
million, representing purchases of computer equipment and furniture.
In December 1994, the Company entered into a line of credit agreement with a
bank to borrow up to $1.0 million to be used for working capital purposes and
to fund anticipated capital expenditures. The line of
20
<PAGE>
credit was to mature in 1995 and included a $500,000 sublimit for purchases of
property and equipment, which portion was to convert at maturity to a three-year
term loan. The line of credit carried an interest rate at the bank's prime rate
plus one and one- half percent and was secured by certain property and accounts
receivable. In addition, the Company provided the bank a warrant to purchase
7,182 shares of its common stock as consideration for the line of credit. As of
March 31, 1995, the Company had borrowed $664,000 under this agreement. Shortly
after year end, the Company failed to meet certain of the financial covenants
under the line. As a result, on July 28, 1995 the bank and the Company entered
into a Forbearance Agreement. Under the Agreement, the Company repaid all
principal and interest due to the bank. At March 31, 1996 there is no existing
balance due and no further loans will be made under this line of credit.
The Company believes that proceeds from the sale of equity securities since
March 31, 1996 will be sufficient to allow the Company to conduct its
operations during the fiscal year that ends March 31, 1997. Continuing
operations thereafter will depend on cash flow from operations or the Company's
ability to raise additional funds through equity, debt, or other financing.
There can be no assurance, however, that such funds will be available.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements together with the report thereon of Price Waterhouse
LLP dated June 20, 1996, of the StarBase Corporation Annual Report to
Shareholders in this Annual Report on Form 10-K, listed in Item 14 (a) (1), are
incorporated herein by reference.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The table below sets forth selected financial information for each quarter of
the last two years:
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
--------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1996
Net Sales $ 510 $ 202 $ 15 $ 264 $ 991
Gross margin (2) 17 11 259 285
Net loss (2,125) (1,439) (1,047) (1,282) (5,893)
Net loss per common share (.38) (.19) (.13) (.16) (.81)
YEAR ENDED MARCH 31, 1995
Net Sales 641 1,009 1,054 831 3,535
Gross margin 201 305 292 (111) 687
Net loss (1,352) (1,380) (1,842) (3,146) (7,720)
Net loss per common share (.28) (.28) (.36) (.59) (1.53)
</TABLE>
Net loss per common share are computed independently for each quarter presented
and therefore may not sum to the totals for the years.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
21
<PAGE>
PART III
The Company has omitted from Part III the information that will appear in the
Company's definitive proxy statement for its annual meeting of shareholders to
be held on August 21, 1996 (the "Proxy Statement"), which will be filed within
120 days after the end of the Company's fiscal year pursuant to Regulation 14A.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
information under the captions "Election of Directors" and "Executive Officers"
in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
information under the caption "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
information under the caption "Principal Shareholders" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
information under the caption "Certain Transactions" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
Consolidated Financial Statements of StarBase Corporation
Report of Independent Accountants 26
Consolidated Balance Sheets at March 31, 1996 and 1995 27
Consolidated Statements of Operations for the years ended
March 31, 1996, 1995, and 1994, and for the period from
September 6, 1991 (inception) to March 31, 1996 28
Consolidated Statements of Cash Flows for the years ended
March 31, 1996, 1995, and 1994, and for the period from
September 6, 1991 (inception) to March 31, 1996 29
Consolidated Statements of Shareholders' Equity for the years
ended March 31, 1996, 1995, 1994, and 1993, and for the
period from September 6, 1991 (inception) to March 31, 1992 30
22
<PAGE>
Notes to Consolidated Financial Statements 31
(a) (2) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because of the absence of conditions under which
they are required or because information is included in the financial
statements or the notes thereto.
(a) (3) EXHIBITS WITH EACH MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR
ARRANGEMENT REQUIRED TO BE FILED IDENTIFIED
See paragraph (c) below.
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K during the last quarter of the fiscal
year ended March 31, 1996.
(c) EXHIBITS
Certain exhibits have been previously filed with the Commission and are
incorporated herein by reference.
Exhibit
Number Description Ref.
- ------- ------------------------------------------------------------ -----
3.1 Amended and Restated Certificate of Incorporation of the
Company, as amended. (B)
3.2 Certificate of Designations, Preferences and Privileges of
Series A Preferred Stock. (B)
3.3 Amended and Restated Bylaws of the Company. (A)
3.4 Certificate of Designations, Preferences and Privileges of
Series B Preferred Stock.
4.1 Investors' Rights Agreement dated September 16, 1994 among
the Company and certain investors. (B)
4.2 Registration Rights Agreement dated December 15, 1994. (B)
4.3 Registration Rights Agreement dated December 1995.
10.1 Form of Indemnity Agreement for Directors. (A)
10.2 Form of Indemnity Agreement for Officers. (A)
10.3 Performance Share Escrow Agreement, as amended, among
the Company, Montreal Trust Company of Canada as
Escrow Agent, and certain of the Company's stockholders. (A)
10.4 Sublease dated December 2, 1993 between McDonnell Douglas
Travel Company and StarBase Corporation, for
the Company's Irvine, California facilities. (B)
10.5 Sublease dated August 24, 1994 between Specialized
Financial Services, Inc. and
23
<PAGE>
StarBase Corporation, for the Company's Dallas,
Texas facilities. (B)
10.6 Incentive Stock Option, Non-Qualified Stock Option
and Restricted Stock Purchase Plan - 1992, as amended. (B)
10.7 Form of Notice of Grant of Incentive Stock Option,
together with exhibits. (A)
10.8 Form of Notice of Grant of Non-statutory Stock Option,
together with exhibits. (A)
10.9 Form of Restricted Stock Issuance Agreement. (A)
10.10 Form of Restricted Stock Purchase Agreement. (A)
10.11 Forms of Common Stock Subscription Agreements and
Warrants used from time to time between the Company and
certain of its stockholders in connection with certain
equity financings, together with a list of equity
investors. (A)
10.12 Forms of Common Stock Subscription Agreement and Warrants
used in November 1994 Private Placement. (B)
10.13 Forms of Common Stock Subscription Agreement and Warrants
used in March 1995 Private Placement. (C)
10.14 Regional Prototype Defined Contribution Plan and Trust
of the Company. (A)
10.15 Fiscal Agency Agreement between the Company and Canaccord
Capital Corporation. (B)
10.16 Form of Agents' Warrant. (B)
10.17 Silicon Valley Bank Warrant dated December 15, 1994. (B)
10.19 Loan and Security Agreement dated December 15, 1994
between the Company and Silicon Valley Bank. (B)
10.24 Promissory Note dated November 8, 1995 payable to
William R. Stow III.
10.25 Promissory Note dated December 11, 1995 payable to
Michael G. Lyons.
10.26 Promissory Note dated December 11, 1995 payable to
John Snedegar.
10.27 Secured Promissory Note dated July 1, 1995 from
William R. Stow, III.
10.28* Agreement dated March 31, 1995 between the Company
and John R. Snedegar.
10.29* Termination Agreement and General Release of Claims
dated June 27, 1996 between the Company and John R.
Snedegar.
10.30 Forms of Preferred Stock Subscription Agreements and
Warrants used in January 1996 Private Placement,
together with a list of equity investors.
10.31 Amendment No. 1 to the Sublease dated December 1, 1994
between McDonnell Douglas Travel Company and
StarBase Corporation, for the Company's Irvine,
California facilities.
10.32 Amendment No. 2 to the Sublease dated September 1, 1995
between McDonnell
24
<PAGE>
Douglas Travel Company and StarBase Corporation, for the
Company's Irvine, California facilities.
10.33 Forms of Common Stock Subscription Agreement and Warrants
used in July 1995 Private Placement, together
with a list of equity investors.
23.1 Written Consent of Price Waterhouse LLP,
Independent Auditors.
27 Financial data schedule.
99.1 Forbearance agreement between the Company and Silicon
Valley Bank. (D)
(A) Incorporated herein by reference to the Company's
Registration Statement on Form SB-2 (file number
33-68228) filed with the Commission on November 2, 1993.
(B) Incorporated herein by reference to the Company's
Registration Statement on Form 10 (file number 0-25612)
filed with the Commission on February 23, 1995.
(C) Incorporated herein by reference to the Company's Form 10-K
(file number 0-25612) filed with the Commission on
July 14, 1995.
(D) Incorporated herein by reference to the Company's
Form 8-K (file number 0-25612) dated July 28, 1995.
* Denotes a management contract.
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and
Shareholders of StarBase Corporation
In our opinion, the consolidated financial statements listed in the index
appearing in Item 14(a)(1) present fairly, in all material respects, the
financial position of StarBase Corporation (a development stage company) and
its subsidiaries at March 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1996 and for the period from September 6, 1991 (inception) to March
31, 1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Costa Mesa, California
June 20, 1996
26
<PAGE>
STARBASE CORPORATION
(a development stage company)
CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and par values)
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,252 $ 1,972
Accounts receivable, net of allowances of $44 (1996) and $104 (1995) 3 725
Other receivable 10 81
Prepaid expenses and deferred charges 137 122
Inventories 14 36
-------- --------
Total current assets 1,416 2,936
Property and equipment, net 660 1,045
Note receivable from officer 76 126
Other non-current assets 21 40
-------- --------
Total assets $ 2,173 $ 4,147
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,375 $ 1,920
Due to director 280 -
Other current liabilities 111 109
Current portion of notes payable and capitalized lease obligations 186 52
Line of credit with bank - 664
-------- --------
Total current liabilities 1,952 2,745
Capitalized lease obligations, less current portion 153 45
-------- --------
Total liabilities 2,105 2,790
-------- --------
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, $.01 par value; $4,456 (1996) and $2,750 (1995) liquidation
value; authorized 10,000,000; issued and outstanding
2,227,946 (1996) and 2,750,000 (1995) 22 2,710
Common stock, $.01 par value; authorized 50,000,000; issued 7,841,812 (1996)
and 5,553,758 (1995); outstanding 7,835,551 (1996) and 5,553,758 (1995) 78 56
Common stock pending authorization 27 -
Additional paid-in capital 18,185 10,921
Treasury stock, 6,261 common shares (1996) and 0 common shares(1995) (21) -
Deficit accumulated during development stage (18,223) (12,330)
-------- --------
Total shareholders' equity 68 1,357
-------- --------
Total liabilities and shareholders' equity $ 2,173 $ 4,147
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
27
<PAGE>
STARBASE CORPORATION
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Sept. 6, 1991
For the year ended March 31, through
--------------------------------------- March 31, 1996
1996 1995 1994 (cumulative)
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Revenues:
Consulting services $ 500 $ 2,576 $ 975 $ 4,430
Consulting services--related party - - 224 281
Products, licenses and other 491 959 211 1,661
--------- --------- --------- ---------
Total revenues 991 3,535 1,410 6,372
Cost of Sales:
Consulting services 624 2,666 1,033 4,716
Consulting services--related party - - 237 289
Products, licenses and other 82 182 67 331
--------- --------- --------- ---------
Total cost of sales 706 2,848 1,337 5,336
--------- --------- --------- ---------
Gross margin 285 687 73 1,036
Operating Expenses:
Research and development 2,466 3,145 1,370 7,435
Selling, general and administrative 3,759 5,312 2,244 11,988
--------- --------- --------- ---------
Total operating expenses 6,225 8,457 3,614 19,423
--------- --------- --------- ---------
Operating loss (5,940) (7,770) (3,541) (18,387)
Other income 48 52 62 172
--------- --------- --------- ---------
Loss before income taxes (5,892) (7,718) (3,479) (18,215)
Provision for income taxes 1 2 2 8
--------- --------- --------- ---------
Net loss $ (5,893) $ (7,720) $ (3,481) $ (18,223)
--------- --------- --------- ---------
--------- --------- --------- ---------
Per share data:
Loss per common share $ (0.81) $ (1.53) $ (0.81)
--------- --------- ---------
--------- --------- ---------
Weighted average number of
common shares outstanding 7,244 5,044 4,274
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
28
<PAGE>
STARBASE CORPORATION
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Sept. 6, 1991
For the year ended March 31, through
-------------------------------------- March 31, 1996
1996 1995 1994 (cumulative)
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (5,893) $ (7,720) $ (3,481) $ (18,223)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 253 208 73 568
Loss on disposition of property, equipment
and capital lease 74 - - 74
Provision for doubtful accounts and sales
returns 130 - - 130
Gain on debt restructuring (138) - - (138)
Recognition of deferred income (235) - - (235)
Write-down of assets 50 - - 50
Other adjustments 75 - - 75
Changes in assets and liabilities, excluding
the effect of non-cash transactions:
Accounts receivable 593 (32) (565) (132)
Accounts and notes receivable-related party - 69 (42) -
Other receivables - (13) (68) (81)
Inventories 22 (35) 3 (14)
Prepaid expenses and deferred charges (15) (52) (61) (151)
Other assets 17 (26) (13) (41)
Accounts payable and accrued liabilities 118 1,422 446 2,105
--------- --------- --------- ---------
Net cash used by operations (4,949) (6,179) (3,708) (16,013)
Cash Flows from Investing Activities:
Proceeds from disposition of property and
equipment 4 - - 4
Capital expenditures (31) (627) (389) (1,245)
--------- --------- --------- ---------
Net cash used by investing activities (27) (627) (389) (1,241)
Cash Flows from Financing Activities:
Proceeds from reverse acquisition - - - 1,402
Proceeds from sale of preferred stock 3,563 2,710 - 6,273
Proceeds from issuance of common stock:
From stock purchase plan - - - 10
From public offering - - 4,063 4,063
From private placements 304 2,237 1,682 4,398
From exercise of options 103 - 28 266
From exercise of warrants - 875 73 1,024
Proceeds from convertible subordinated notes - - - 381
Proceeds from promissory notes 1,083 - - 1,083
Payments on promissory notes (163) - - (163)
Borrowings on line of credit - 664 - 664
Payments on line of credit (664) - - (664)
Payment of financing related costs (302) - - (405)
Payments on capitalized lease obligations (8) (32) - (40)
Loans from officers and directors 365 - - 365
Repayment of loans from officers and
directors (75) - (5) (75)
Repayment of (disbursement of) loan to
officer 50 (126) - (76)
--------- --------- --------- ---------
Net cash provided by financing activities 4,256 6,328 5,841 18,506
--------- --------- --------- ---------
Net increase (decrease) in cash (720) (478) 1,744 1,252
Cash and cash equivalents, beginning of period 1,972 2,450 706 -
--------- --------- --------- ---------
Cash and cash equivalents, end of period $ 1,252 $ 1,972 $ 2,450 $ 1,252
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
29
<PAGE>
STARBASE CORPORATION
(a development stage company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Common Additional
------------------------ -------------------------- Stock Paid-in
Shares Amount Shares Amount Subscribed Capital
--------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
September 6, 1991 (inception) - $ - - $ - $ - $ -
Net loss - - - - - -
------- -------- -------- -------- -------- --------
Balance at March 31, 1992 - - - - - -
------- -------- -------- -------- -------- --------
Common stock issued:
Reverse acquisition transaction - - 2,975 30 - 1,183
For cash - - 323 3 - 7
Conversion of notes payable - - 226 2 - 379
Private placements - - 79 1 - 254
Exercise of stock options - - 76 1 - 134
For non-cash consideration - - 37 - - 1
Exercise of warrants - - 34 - - 76
Net loss - - - - - -
------- -------- -------- -------- -------- --------
Balance at March 31, 1993 - - 3,750 37 - 2,034
------- -------- -------- -------- -------- --------
Common stock issued:
Public offering - - 542 6 - 4,057
Private placements - - 399 4 - 1,597
Exercise of warrants - - 22 - - 73
Exercise of stock options - - 15 - - 28
Net loss - - - - - -
------- -------- -------- -------- -------- --------
Balance at March 31, 1994 - - 4,728 47 - 7,789
------- -------- -------- -------- -------- --------
Preferred stock issued 2,750 2,710 - - - -
Common stock issued:
Private placements - - 464 6 - 2,190
Exercise of warrants - - 236 2 - 873
Exercise of options - - 6 - - -
Finder's Fees - - 120 1 - 69
Net loss - - - - - -
------- -------- -------- -------- -------- --------
Balance at March 31, 1995 2,750 2,710 5,554 56 - 10,921
------- -------- -------- -------- -------- --------
Preferred stock
conversion to common (2,750) (2,710) 2,111 21 - 2,689
Preferred stock issued 2,228 22 - - - 4,131
Common stock pending
authorization - - - - 27 -
Common stock retired - - (6) - - -
Common stock issued:
Private placements - - 136 1 - 303
Exercise of options - - 28 - - 103
Finder's Fees - - 19 - - 39
Purchase of treasury shares - - - - - -
Pay-out of fractional - - - - - (1)
share interest
Net loss - - - - - -
------- -------- -------- -------- -------- --------
Balance at March 31, 1996 2,228 $ 22 7,842 $ 78 $ 27 $ 18,185
------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- --------
<CAPTION>
Stock Total
Accumulated Subscription Treasury Shareholders'
Deficit Receivable Stock Equity
----------- ------------ -------- -------------
<S> <C> <C> <C> <C>
September 6, 1991 (inception) $ - $ - $ - $ -
Net loss (8) - - (8)
------- -------- ------- --------
Balance at March 31, 1992 (8) - - (8)
------- -------- ------- --------
Common stock issued:
Reverse acquisition transaction - - - 1,213
For cash - - - 10
Conversion of notes payable - - - 381
Private placements - (81) - 174
Exercise of stock options - - - 135
For non-cash consideration - - - 1
Exercise of warrants - - - 76
Net loss (1,121) - - (1,121)
------- -------- ------- --------
Balance at March 31, 1993 (1,129) (81) - 861
------- -------- ------- --------
Common stock issued:
Public offering - - - 4,063
Private placements - 81 - 1,682
Exercise of warrants - - - 73
Exercise of stock options - - - 28
Net loss (3,481) - - (3,481)
------- -------- ------- --------
Balance at March 31, 1994 (4,610) - - 3,226
------- -------- ------- --------
Preferred stock issued - - - 2,710
Common stock issued:
Private placements - - - 2,196
Exercise of warrants - - - 875
Exercise of options - - - -
Finder's Fees - - - 70
Net loss (7,720) - - (7,720)
------- -------- ------- --------
Balance at March 31, 1995 (12,330) - - 1,357
------- -------- ------- --------
Preferred stock
conversion to common - - - -
Preferred stock issued - - - 4,153
Common stock pending
authorization - - - 27
Common stock retired - - - -
Common stock issued:
Private placements - - - 304
Exercise of options - - - 103
Finder's Fees - - - 39
Purchase of treasury shares - - (21) (21)
Pay-out of fractional
share interest - - - (1)
Net loss (5,893) - - (5,893)
------- -------- ------- --------
Balance at March 31, 1996 $(18,223) $ - $ (21) $ 68
------- -------- ------- --------
------- -------- ------- --------
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
30
<PAGE>
STARBASE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
StarBase Corporation (the "Company"), a Delaware corporation, develops, markets
and supports team-oriented product development software that addresses the
evolving needs of personal computer users involved in projects requiring
substantial collaboration. StarBase was founded in 1991 to address the
inability of software development projects to deliver software products on time
and within budget, initially through the improvement of individual programmer
productivity tools. During 1993-1994, however, the Company began to believe
that a next generation of individual productivity tools would not be a lasting
solution to the software productivity problem. Based on focus group studies
and market research, StarBase decided to focus entirely on the development and
marketing of software designed to increase team productivity, rather than
individual programmer productivity. The Company was reorganized in fiscal 1996
to reflect this change in product and market focus. In line with the
reorganization, the 26 person Consulting Division was discontinued.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. During fiscal 1996, the
Company closed its remaining subsidiaries, thereby eliminating the need for
consolidation. The Company has retained "Consolidated" in the heading of its
financial statements to reflect activity in prior years.
USE OF ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles, which require management to make estimates and
assumptions that affect the amounts and disclosures reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Major renewals and betterments are capitalized; minor maintenance
and repairs are charged to current operations. Depreciation and amortization
are calculated under the straight-line basis over the shorter of the estimated
useful lives of the respective assets, generally three to seven years, or the
related lease term.
REVENUE RECOGNITION
Consulting revenue is recognized ratably as services are provided based on a
fixed contract price or on negotiated hourly rates. Certain consulting
contracts are terminable by the customer upon thirty days written notice. In
the event contracts are terminated, the customer is only responsible to pay for
services and costs incurred through the termination date. Software revenue is
recognized upon delivery, provided that collection is probable, in compliance
with the provisions of the American Institute of Certified Public Accountants'
Statement of Position 91-1, "Software Revenue Recognition."
<PAGE>
STARBASE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WARRANTIES AND RETURNS
The Company warrants products against defects and has a policy permitting the
return of products under certain circumstances.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company is potentially subject to a concentration of credit risk from its
trade accounts and notes receivable; accounts and notes receivable generally
are not collateralized. The Company performs periodic credit reviews of its
customers and maintains reserves for potential losses for uncollectible
accounts. Such losses have historically been within management's expectations.
In fiscal 1996, a significant receivable write-off was recorded due to the
change in product and market emphasis caused by the reorganization.
Two customers represented 23% and 20% of total revenue for the year ended
March 31, 1996; three customers represented 29%, 16% and 13% of total revenue
for the year ended March 31, 1995; and two customers represented 43% and 16%
of total revenue for the year ended March 31, 1994. Amounts due from
customers, net of allowances, at March 31, 1996 was not material and two
customers at March 31, 1995 comprised 58% of outstanding accounts receivable.
INVENTORIES
Inventories consist of the Company's software products and packaging and are
stated at the lower of cost or market. Cost is determined using the first-in,
first-out method.
RESEARCH AND DEVELOPMENT
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," technological feasibility is typically established when a working
model is completed and its consistency with product design has been confirmed
by testing. As technological feasibility typically is established immediately
prior to first customer shipment, capitalizable research and development costs
are insignificant. Consequently research and development costs related to the
development of the Company's software systems are expensed as incurred.
INCOME TAXES
During fiscal 1994, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements and tax returns.
Deferred tax assets and liabilities are determined based upon the difference
between the financial statement and tax bases of assets and liabilities, using
the enacted tax rates in effect for the year in which the differences are
expected to reverse. Upon adoption of SFAS 109, the Company determined that
the cumulative effect on the financial statements was not material, due
principally to the operating loss carryforwards generated from operations
during the development stage combined with the inherent uncertainty in a
development stage enterprise's ability to ultimately recognize the benefits of
such carryforwards.
EARNINGS PER COMMON SHARE
Earnings per common share are calculated by dividing net income by the weighted
average shares of common stock outstanding. Common stock equivalents are
considered anti-dilutive and are excluded from this calculation. The average
number of common shares outstanding and earnings per common share amounts for
all periods presented have been restated to reflect the 1 for 3 reverse stock
split. (See Note 5 - "Equity transactions").
32
<PAGE>
STARBASE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORTING CURRENCY
The accompanying financial statements are reported in the currency of the
United States of America, except for certain equity transactions in these Notes
to the Consolidated Financial Statements which are denominated in Canadian
dollars and are indicated as CDN$.
2. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
March 31,
---------------------
(In thousands) 1996 1995
-------- --------
<S> <C> <C>
PROPERTY AND EQUIPMENT
Computer hardware $ 869 $ 880
Furniture and fixtures 125 272
Computer software 115 104
Leasehold improvements 41 84
------- -------
1,150 1,340
Less accumulated depreciation and amortization (490) (295)
------- -------
$ 660 $ 1,045
------- -------
------- -------
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade accounts payable $ 910 $ 1,049
Accrued professional fees 135 167
Accrued wages and bonuses 70 443
Other accrued expenses 260 261
------- -------
$ 1,375 $ 1,920
------- -------
------- -------
ACCOUNTS RECEIVABLE
Trade accounts receivable $ 47 $ 641
Unbilled accounts receivable -- 188
------- -------
47 829
Less allowance for doubtful accounts (44) (104)
------- -------
$ 3 $ 725
------- -------
------- -------
</TABLE>
Unbilled accounts receivable represent time and materials incurred on
consulting contracts due to be billed based upon achievement of project
milestones.
3. LINE OF CREDIT WITH BANK
Under a line of credit agreement with the Company's primary bank, the Company
was required to meet financial covenants including certain financial ratios,
working capital balances, and a specified minimum tangible net worth. At March
31, 1995 the Company failed to meet certain of the financial covenants. As a
result, on July 28, 1995 the bank and the Company entered into a Forbearance
Agreement. Under the Agreement, the Company has repaid all principal and
interest due to the bank. At March 31, 1996 there is no balance due and no
further loans have been made under this line of credit.
4. INCOME TAXES
The Company has not recorded a current or deferred provision for federal income
taxes for any period to date, as a result of losses incurred since its
inception. The provision for income taxes represents the
33
<PAGE>
STARBASE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
minimum required for California franchise taxes. At March 31, 1996, the
Company had net operating loss carryforwards of approximately $17.6 million
and $8.8 million for federal and state income tax purposes, respectively,
expiring in varying amounts through the year 2011 which are available to
offset future federal and state taxable income. The ability of the
Company to utilize the federal and state net operating loss carryforwards
may be subject to annual limitations under certain provisions of the
Internal Revenue Code, as a result of the reverse acquisition, private
placements of common stock and issuance of stock options.
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
March 31,
--------------------------
(In thousands) 1996 1995
---------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,082 $ 1,785
Accounts and notes receivable allowances 18 17
Accrued expenses 176 40
Deferred tax asset valuation allowance (2,276) (1,826)
--------- ---------
-- 16
Deferred tax liabilities:
Properties -- (16)
--------- ---------
Net deferred tax assets (liabilities): $ -- $ --
--------- ---------
--------- ---------
</TABLE>
5. EQUITY TRANSACTIONS
The Company has authorized 50,000,000 shares of common stock and 10,000,000
shares of preferred stock with a par value of $0.01 per share. Of the
preferred stock, 2,500,000 shares have been designated as Series B preferred
stock, of which 2,227,946 shares are issued and outstanding at March 31, 1996,
and 366,666 shares have been designated as Series C preferred stock, of which
no shares are outstanding at March 31, 1996. In fiscal 1995, the Company sold
2,750,000 shares of its Series A preferred stock to certain investors in a
private placement at a price of $1.00 per share. On June 30, 1995, the
Company's outstanding Series A preferred stock converted into 2,111,104 shares
of the Company's common stock. The conversion rate was determined on a pre-
negotiated formula based upon the Company's equity position.
On September 8, 1995, a private placement of common stock was completed. In
this private placement, 136,000 Units were issued, each Unit consisting of one
share of common stock and one non-transferable warrant to purchase one share of
common stock. The warrants are exercisable at $2.24 (CDN$3.05) per share
through September 8, 1996 and thereafter exercisable at $2.58 (CDN$3.51) per
share through September 8, 1997, after which date the warrants expire.
On January 31, 1996, the private placement of Series B preferred stock was
completed. In this private placement, 2,227,946 Units were issued, each Unit
consisting of one share of Series B preferred stock and one non-transferable
warrant to purchase one share of common stock. The warrants are exercisable at
$2.00 per share through January 31, 1997 and thereafter exercisable at $2.50
per share through January 31, 1998, after which date the warrants expire. (See
Note 11 - "Subsequent events.")
The preferred stock is not redeemable and has a liquidation preference of $2.00
per share. Dividends are payable on the preferred stock only as declared by
the Board of Directors and are cumulative. The holders of the preferred stock
have voting rights equal to one vote for each share of common stock into which
the preferred stock is convertible and were granted certain registration rights
as a part of the private placement.
34
<PAGE>
STARBASE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REVERSE STOCK SPLIT
In January 1995, the shareholders of the Company approved a 1 for 3 reverse
stock split which was completed on April 6, 1995. In connection with the
reverse stock split 11,107,877 shares of common stock were retired. The stated
par value of $.01 per share was not changed. All references in the financial
statements to average number of common shares outstanding and per common share
amounts have been restated to reflect the 1 for 3 reverse stock split. All
disclosures related to sales of common stock, warrants, employee stock plans,
and other common stock transactions for prior periods presented have also been
restated to reflect the reverse stock split.
PRIVATE PLACEMENTS
In the last three fiscal years, the Company has sold 2,363,946 (1996);
3,213,716 (1995); and 378,103 (1994) Units in private placement transactions.
With the exception of the December 20,1994 private placement, each such Unit
consists of one share of the Company's preferred stock convertible into one
share of common stock, or one share of the Company's common stock and, in
either case, one warrant to purchase an additional share of common stock. Each
Unit sold in the December 20, 1994 private placement consisted of one share of
the Company's preferred stock, which converted into approximately .77 shares of
the Company's common stock on June 30, 1995. The warrants are generally
exercisable within two years of the original grant date. A summary of the
private placement transactions follows:
<TABLE>
<CAPTION>
Finder's
Shares Warrants Fees in
Closing Date Issued Price Per Share Issued Exercise Price Shares
- ----------------- --------- ------------------- ---------- --------------------- ----------
<S> <C> <C> <C> <C> <C>
March 9, 1993 56,632 CDN$3.96 56,632 CDN$3.96 (A) -
March 24, 1993 22,000 CDN$4.56 22,000 CDN$4.56 (A) 1,100
April 26, 1993 160,666 CDN$4.68 160,666 CDN$4.68 (B) 3,333
April 26, 1993 65,666 CDN$4.68 65,666 CDN$4.68 (B) -
May 11, 1993 16,000 CDN$6.24 16,000 CDN$6.24 (A) 1,569
July 8, 1993 40,533 $4.62 (CDN$5.88) 40,533 $4.62 (CDN$5.88) (A) 2,872
August 31, 1993 95,238 $5.25 (CDN$6.91) 100,008 $5.25 (CDN$6.91) (B) 4,770
December 19, 1994 208,716 $4.92 (CDN$6.60) 208,716 $4.92 (CDN$6.60) (A) 8,266
December 20, 1994 2,750,000 $1.00 0 N/A -
March 31, 1995 255,000 CDN$7.35 255,000 CDN$7.35 (A) -
September 8, 1995 136,000 $2.24 (CDN$3.05) 136,000 $2.24 (CDN$3.05) (A) -
January 31, 1996 2,227,946 $2.00 2,227,946 $2.00 (C) 19,445
</TABLE>
(A) Warrant exercise price in second year is equal to 115% of initial warrant
exercise price.
(B) Warrant term is one year.
(C) Warrant exercise price in second year is $2.50.
Finder's fees issued in connection with stock offerings were offset
against the related proceeds.
35
<PAGE>
STARBASE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WARRANTS
Warrant activity for the three years ended March 31, 1996 is as follows:
<TABLE>
<CAPTION>
Shares Warrant price per share
--------- -------------------------
<S> <C> <C>
Outstanding at March 31, 1993 78,632 CDN$3.96 - 5.25
Issued in connection with stock offerings 507,875 CDN$4.68 - 12.45
Issued in connection with fiscal agency agreement 50,000 CDN$7.05 - 8.10
Exercised (22,000) CDN$4.56
----------
Outstanding at March 31, 1994 614,507
Issued in connection with stock offerings 463,716 CDN$6.60 - 7.35
Issued in connection with loan agreement 7,182 CDN$8.22
Exercised (236,082) CDN$4.56 - 6.79
Expired (328,424) CDN$4.56 - 12.45
----------
Outstanding at March 31, 1995 520,899
Issued in connection with stock offerings 2,478,696 US $2.00, CDN$3.05
Exercised --
Expired (50,000) CDN$7.05 - 8.10
----------
Outstanding at March 31, 1996 2,949,595
----------
----------
</TABLE>
The Company entered into a contract with an agency in April 1993 to perform
certain market consultation and corporate finance services. In consideration
for the services to be performed by the agency, the Company granted the agency
a two-year non-transferable warrant to purchase 50,000 shares of common stock
which expired during the year.
CONVERSION OF NOTES PAYABLE
During fiscal 1996, investors converted notes payable with a face value of
$882,000, as well as interest accrued thereon, into Series B preferred stock at
a price of $2.00 per Unit. Each Unit consists of one share of Series B
preferred stock and one warrant to purchase one share of common stock. The
warrants are exercisable at $2.00 per share through January 31, 1997 and
thereafter exercisable at $2.50 per share through January 31, 1998, after which
date the warrants expire. Included in the notes which were converted into
Series B preferred stock were notes for $137,000 from two directors.
COMMON STOCK PENDING AUTHORIZATION
Common stock pending authorization represents common shares to be issued in
payment for consulting fees to an independent consultant.
TREASURY SHARES
In connection with the acquisition of Roundtable, Inc. in 1994, the Company
authorized a loan to the selling principal. On May 31, 1995, the Company
canceled the note receivable in the amount of $60,000 plus accrued interest, in
return for 6,261 shares of the Company's stock pursuant to the original loan
agreement. A portion of the receivable, $44,766, was written-off due to the
difference between the market price of the stock on that date and the stock
redemption price in the note.
36
<PAGE>
STARBASE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. EMPLOYEE BENEFIT PLAN
Effective April 1, 1992, the Company adopted a 401(k) savings plan covering all
employees. Employees who work for the Company are eligible for participation
after three months of service. Company contributions to the savings plan are
made at the discretion of the Company's Board of Directors. The Company
contributed $14,000 in 1994. The Company made no contributions in 1996 and
1995.
7. STOCK OPTION PLANS
The Company has stock option plans that provide for the grant of non-qualified
and incentive stock options to all directors, officers and employees of the
Company. These plans were originally established by the Company's
predecessors, NeuroStar and PNA, and have been adopted by the Company. Options
are granted at exercise prices equal to the fair market value of the common
stock on the date of grant. Generally, twenty-five percent of the options are
available for exercise at the end of one year, while the remainder of the grant
is exercisable ratably over the next thirty-six month period, provided the
optionee remains in service to the Company. A total of 1,333,333 shares of
common stock have been authorized for the grant of stock options (See Note 11 -
"Subsequent events").
Stock option activity is as follows:
<TABLE>
<CAPTION>
Number Option price
of Shares per share
(CDN$)
------------ --------------
<S> <C> <C>
Outstanding at March 31, 1992 --
Issued in connection with the reverse acquisition 93,333 $2.16 - 5.28
Granted 176,650 2.04 - 4.95
Lapsed or canceled (17,000) 2.16 - 5.28
Exercised (76,333) 2.16 - 3.12
-----------
Outstanding at March 31, 1993 176,650 2.04 - 4.95
Granted 777,166 3.00 - 13.44
Lapsed or canceled (111,667) 13.20 - 13.44
Exercised (14,814) 2.04
-----------
Outstanding at March 31, 1994 827,335 3.00 - 13.44
Granted 503,666 3.00 - 8.01
Lapsed or canceled (87,500) 4.95 - 13.44
Exercised (6,666) 4.95 - 6.30
-----------
Outstanding at March 31, 1995 1,236,835 4.95 - 8.22
Granted 1,555,347 3.00 - 7.97
Lapsed or canceled (1,471,560) 3.00 - 8.22
Exercised (28,172) 4.95
Adjustment for 1 for 3 reverse split (55)
-----------
Outstanding at March 31, 1996 1,292,395 3.00 - 13.44
-----------
-----------
Exercisable at March 31, 1996 528,332 $3.00 - 13.44
-----------
-----------
</TABLE>
The exchange rate for the Canadian dollar in effect at March 31, 1996 was
approximately US$0.74 to CDN$1.00.
37
<PAGE>
STARBASE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES
The Company leases its office space as well as certain of its office equipment
under a non-cancelable operating lease expiring in February 1997. Minimum
rental commitments under lease agreements at March 31, 1996 are as follows:
(In thousands) Non-cancelable
Year ending March 31, Operating Leases
----------------
1997 $ 202
1998 7
1999 5
Thereafter --
---------
Total payments $ 214
---------
---------
Rent expense totaled $396,000 (1996); $282,000 (1995); and $127,000 (1994).
During fiscal 1996, accounts payable and accrued expenses increased
substantially due to a severe shortage of cash, which also caused the Company
to not meet its debts as they came due. The non-payment of obligations
resulted in a number of lawsuits filed against the Company. The Company has
entered into settlement agreements with respect to the lawsuits brought against
it and is presently current in all payments made under those settlement
agreements.
9. RELATED PARTIES
The Company borrowed 58,333 unrestricted shares of its common stock from three
directors. Of the total shares borrowed, 33,333 shares were sold in the open
market by the Company and the proceeds were used for general corporate purposes
and 25,000 shares were used as remuneration for a consultant. The three
directors have agreed to accept restricted shares in repayment, which shares
have not been issued as of March 31, 1996.
In fiscal 1995, the Board of Directors authorized the Company to loan William
Stow III, President and CEO of StarBase, the sum of $126,000. At March 31,
1996, the principal and accrued interest amounts were $76,153 and $3,286,
respectively. The loan is evidenced by a promissory note and is secured by a
deed of trust on real property owned by Mr. Stow. The note is payable on
November 4, 1998 and bears interest at a rate of 6.34% per annum, payable at
maturity.
The Company entered into a two year agreement with John Snedegar, a director,
which was terminated through mutual consent by the parties on March 31, 1996,
subject to payment of $280,000 to Mr. Snedegar for services performed by him.
As of March 31, 1996, Mr. Snedegar had received no payment connected with this
agreement. In anticipation of the payment to Mr. Snedegar, the Company has
accrued $280,000 (see Note 11 - "Subsequent events").
38
<PAGE>
STARBASE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------
(In thousands) 1996 1995 1994
- -------------- ------- ------ ------
<S> <C> <C> <C>
Interest paid $ 39 $ 6 $ --
Income taxes paid 1 2 2
Non-cash investing and financing transactions:
Conversion of Series A preferred stock to common stock
(Note 5) 2,170 -- --
Conversion of promissory notes to equity (Note 5) 745 -- --
Conversion of loans from officers to equity (Note 5) 137 -- --
Common stock issued as finder's fees 39 70 --
Acquisition of treasury shares with note receivable (Note 5) 21 -- --
Assets acquired through capital lease -- 69 66
Reduction in assets through termination of capital lease 75 -- --
</TABLE>
11. SUBSEQUENT EVENTS
On May 13, 1996, the Company completed a private placement of approximately
$6,300,000 for 2,099,833 equity Units, each Unit consisting of one share of
common stock and one non-transferable warrant to purchase one share of common
stock. The warrants are exercisable at $2.00 per share through January 31,
1997 and thereafter exercisable at $2.50 per share through January 31, 1998,
after which date the warrants expire.
The May 13, 1996 private placement, which resulted in gross proceeds to the
Company of approximately $6,300,000, caused the shares of Series B preferred
stock to automatically convert into common stock, on a one-for-one basis, in
accordance with the conversion rights and restrictions of that series.
The Company has offered in a private placement of up to 366,666 Units (the
"Regulation S Unit"), at $3.00 per Regulation S Unit, each Regulation S Unit
consisting of one share of Series C Preferred Stock which will be convertible
into one share of common stock and one non-transferable warrant to purchase one
share of common stock, pursuant to Regulation S under the Securities Act of
1933, as amended. Of the total proceeds, $1.1 million, approximately $1.025
million will be for cash and the remainder as an offset against notes payable.
At June 17, 1996, 250,000 Regulation S Units had been issued for which $750,000
has been received.
In connection with the Termination Agreement and General Release of Claims
entered into between the Company and Mr. Snedegar, the Company paid Mr.
Snedegar $75,000 on April 22, 1996, followed by $205,000 on June 6, 1996.
On May 6, 1996, the Board of Directors increased the number of common stock
shares authorized for the grant of stock options from 1,333,333 to 2,833,333
shares, subject to shareholder approval.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 27th day of June,
1996.
STARBASE CORPORATION
By: /s/ ROBERT W. LEIMENA
------------------------------------
Robert W. Leimena
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, in the capacities and dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM R. STOW III Co-Chairman of the Board, President, Chief June 27, 1996
- ----------------------------- Executive Officer, and Director (principal
William R. Stow III executive officer)
/s/ MICHAEL G. LYONS Co-Chairman of the Board and Director June 27, 1996
- -----------------------------
Michael G. Lyons
/s/ ROGER C. FERGUSON Director June 21, 1996
- -----------------------------
Roger C. Ferguson
/s/ ALAN M. DAVIS Chief Operating Officer and Director June 27, 1996
- ----------------------------
Alan M. Davis
/s/ JOHN R. SNEDEGAR Director June 27, 1996
- ----------------------------
John R. Snedegar
/s/ KENNETH A. SEXTON Director June 20, 1996
- ----------------------------
Kenneth A. Sexton
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ GARY E. GRATNY Director June 21, 1996
- ----------------------------
Gary E. Gratny
/s/ PHILLIP E. PEARCE Director June 21, 1996
- ----------------------------
Phillip E. Pearce
/s/ ROBERT W. LEIMENA Chief Financial Officer (principal June 18, 1996
- ---------------------------- financial and accounting officer)
Robert W. Leimena
</TABLE>
41
<PAGE>
Exhibit 3.4
------------------------------------------------
CERTIFICATE OF DESIGNATION
OF
STARBASE CORPORATION
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
------------------------------------------------
SERIES B PREFERRED STOCK
StarBase Corporation, a Delaware corporation (the "Corporation"), hereby
certifies that the following resolution has been duly adopted by the Board of
Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and vested
in the Board of Directors of the Corporation (the "Board") by the provisions of
the Restated Certificate of Incorporation of the Corporation (the "Certificate
of Incorporation"), there hereby is created, out of the 10,000,000 shares of
Preferred Stock, par value $0.01 per share, of the Corporation authorized in
Article 4 of the Certificate of Incorporation (the "Preferred Stock"), a series
of the Preferred Stock of the Corporation consisting of 2,500,000 shares, which
series shall have the following powers, designations, preferences and relative,
participating, optional and other rights, and the following qualifications,
limitations and restrictions:
1. DESIGNATION AND AMOUNT. This series of Preferred Stock shall be
designated "Series B Preferred Stock" and the authorized number of shares
constituting such series shall be 2,500,000. The par value of the Series B
Preferred Stock shall be $0.01 per share.
2. DIVIDEND RIGHTS OF SERIES B PREFERRED STOCK. The holders of the
Series B Preferred Stock shall be entitled to receive, out of funds legally
available therefor, cumulative dividends at the rate of $0.12 per share per
annum on each outstanding share of Series B Preferred Stock, payable in
preference and priority to any payment of any dividend on the Common. Such
dividends shall accrue and become payable on the anniversary date of the
original issuance of each share of Series B Preferred Stock on which such
dividend accrues. No dividends or other distributions shall be made with respect
to the Common, until all dividends on the Series B Preferred Stock have been
paid or set apart.
1
<PAGE>
3. PREFERENCE ON LIQUIDATION.
(a) In the event of any liquidation, dissolution, or winding up of
the Corporation, either voluntary or involuntary, distributions to the
stockholders of the Corporation shall be made in the following manner:
(i) The holders of Series B Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Common or any
other class or series of stock of this corporation by reason of their ownership
of such stock, an amount for each share of Series B Preferred Stock then held by
them, equal to $2.00, appropriately adjusted for any combinations,
consolidations, stock distributions or stock dividends with respect to such
shares plus all accrued and unpaid dividends thereon (hereinafter such amount
shall be referred to as the "Series B Preference Amount"). If upon occurrence of
such event of liquidation, dissolution or winding up, the assets and property
legally available to be distributed among the holders of the Series B Preferred
Stock shall be insufficient to permit the payment to such holders of the Series
B Preference Amount, then the entire assets and property of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Preferred.
(ii) After payment has been made to the holders of the
Preferred of the full amounts to which they shall be entitled pursuant to
Section 3(a)(i) above, all remaining assets available for distribution, if any,
shall be distributed, ratably among the holders of the Common based upon the
number of shares of Common then held.
(b) For purposes of this paragraph 3, a merger or consolidation of
the Corporation with or into any other corporation or corporations, or the
merger of any other corporation or corporations into the Corporation, in which
consolidation or merger the shareholders of the Corporation receive
distributions in cash or securities of another corporation or corporations as a
result of such consolidation or merger, or a sale of all or substantially all of
the assets of the Corporation, shall be treated as a liquidation, dissolution or
winding up of the Corporation. The valuation of any securities or other property
other than cash received by the Corporation in any transaction covered by this
subparagraph 3(b) shall be computed at the fair value thereof at the time of
receipt as determined in good faith by the Board of Directors.
(c) The holders of Preferred shall have no priority or preference
with respect to distributions made by the Corporation in connection with the
repurchase of shares of Common issued to or held by employees, directors or
consultants upon termination of their employment or services pursuant to
agreements providing for the right of said repurchase between the Corporation
and such persons.
4. VOTING RIGHTS. Each share of Series B Preferred Stock issued and
outstanding shall have the number of votes equal to the number of Common shares
into which such share of Preferred could be converted at the record date for
2
<PAGE>
determination of the stockholders entitled to vote on such matters, or, if no
such record date is established, at the date such vote is taken or any written
consent of stockholders is solicited, such votes to be counted together with all
other shares of stock of the Corporation having general voting power and not
separately as a class. The Preferred and the Common shall vote as a single class
on all matters except as otherwise required by law. The holder of each share of
Preferred shall be entitled to notice of any stockholders' meeting in accordance
with the bylaws of the Corporation.
5. CONVERSION RIGHTS. The holders of Series B Preferred Stock shall
have conversion rights as follows:
(a) Each share of Preferred shall be convertible, at the option of
the holder thereof, at any time after the date of issuance of such share, at the
office of the Corporation or any transfer agent for the Preferred, into Common
Stock as more fully described below. The number of shares of fully paid and
nonassessable Common Stock into which each share of Series B Preferred Stock may
be converted shall be determined by dividing $2.00 by the Series B Conversion
Price (as hereinafter defined) in effect at the time of conversion. The Series B
Conversion Price shall initially be $2.00 subject to adjustment as provided in
Section 6 below.
(b) Each share of Preferred shall automatically be converted into
shares of Common utilizing the then effective Conversion Price for each such
share upon the first to occur of the following events: (i) the closing of an
acquisition of the Company by another entity or the sale of all or substantially
all of the assets of the Company; (ii) the closing of a public and/or private
offering of the Company's securities which results in gross proceeds to the
Company of at least US$5,000,000; (iii) if the closing bid price of the
Company's Common Stock as reported on the Vancouver Stock Exchange or such
other exchange or automated quotation system on which the trading price of the
Company's Common Stock is reported on a daily basis averages at least $US5.00
for a period of 20 consecutive trading days; or (iv) January 18, 1999.
(c) No fractional shares of Common shall be issued upon conversion
of Preferred. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the fair market value of the Common on the Conversion Date, as
determined by the corporation's board of directors. Before any holder of
Preferred shall be entitled to convert the same into full shares of Common, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Preferred, and shall
give written notice to the Corporation at such office that he elects to convert
the same; provided, however, that in the event of an automatic conversion
pursuant to subparagraph 5(b) the outstanding shares of all Preferred, shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided further, however, that the
Corporation shall not be obligated to issue certificates evidencing the shares
of
3
<PAGE>
Common issuable upon such automatic conversion unless either the certificates
evidencing such shares of Preferred are delivered to the Corporation or its
transfer agent as provided above, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
(d) The Corporation shall, as soon as practicable after such
delivery, or after such agreement and indemnification, issue and deliver at such
office to such holder of Preferred, a certificate or certificates for the number
of shares of Common to which he shall be entitled as aforesaid and a check
payable to the holder, or order, in the amount of any cash amounts payable as
the result of a conversion into fractional shares of Common, plus any accrued
and unpaid dividends on the converted Preferred, and a certificate for any
shares of Preferred not so converted. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Preferred to be converted, or in the case of
automatic conversion on the date of the event causing such automatic conversion,
and the person or persons entitled to receive the shares of Common issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common on such date.
(e) In the event of any taking by this corporation of a record of
the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, this corporation shall mail to each
holder of Series B Preferred Stock, at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(f) Upon any conversion of Series B Preferred Stock pursuant to
this Section 5, the shares of Series B Preferred Stock which are converted shall
not be reissued. Upon conversion of all of the then outstanding Series B
Preferred Stock pursuant to this Section 5 and upon the taking of any action
required by law, all matters set forth in this Certificate of Designation shall
be eliminated from the Certificate of Incorporation, shares of Series B
Preferred Stock shall not be deemed outstanding for any purpose whatsoever and
all such shares shall revert to the status of authorized and unissuable shares
of Preferred Stock.
(g) Any notices required by the provisions of this Section 5 to be
given to the holders of shares of Series B Preferred Stock shall be deemed given
if deposited in the United States mail, first class, postage prepaid and
addressed to each holder of record at its address appearing on the books of the
Corporation.
4
<PAGE>
6. ADJUSTMENTS TO CONVERSION PRICE.
(a) In the event the Corporation at any time or from time to time
effects a subdivision or combination of its outstanding Common into a greater or
lesser number of shares without a proportionate and corresponding subdivision or
combination of its outstanding Preferred, then and in each such event the
Conversion Price shall be decreased or increased proportionately.
(b) In the event the Corporation at any time or from time to time
shall make or issue, or fix a record date for the determination of holders of
Common entitled to receive, a dividend or other distribution payable in
additional shares of Common or other securities or rights (hereinafter referred
to as "Common Stock Equivalents") convertible into or entitling the holder
thereof to receive additional shares of Common without payment of any
consideration by such holder for such Common Stock Equivalents or the additional
shares of Common, then and in each such event the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common issuable
in payment of such dividend or distribution or upon conversion or exercise of
such Common Stock Equivalents shall be deemed to be issued and outstanding as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date. In each such event, the
Conversion Price shall be proportionately decreased as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date.
(c) In case of any merger (other than a merger in which the
Corporation is not the continuing or surviving entity) or any reclassification
of the Common Stock of the Corporation, each share of the Series B Preferred
Stock shall thereafter be convertible into that number of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock issuable upon conversion of a share of Series B Preferred Stock
immediately prior to such merger or reclassification would have been entitled
upon such merger or reclassification. In any such case, appropriate adjustment
(as determined by the Board in good faith) shall be made in the application of
the provisions herein set forth with respect to the rights and interests
thereafter of the holders of Series B Preferred Stock, such that the provisions
set forth herein shall thereafter be applicable, as nearly as reasonably may be,
in relation to any share of stock or other property thereafter issuable upon
conversion.
(d) The Corporation shall at all times reserve and keep available,
out of its authorized but unissued Common Stock, solely for the purpose of
effecting the conversion of Series B Preferred Stock, the full number of shares
of Common Stock deliverable upon the conversion of all Series B Preferred Stock
from time to time outstanding. The Corporation shall from time to time (subject
to obtaining necessary director and stockholder authorizations), in accordance
with the laws of the State of Delaware, increase the authorized amount of its
Common Stock if at any time the authorized number of shares of Common Stock
remaining unissued shall not be
5
<PAGE>
sufficient to permit the conversion of all of the shares of Series B Preferred
Stock at the time outstanding.
7. PROTECTIVE PROVISIONS. So long as at least 50,000 shares of Series
B Preferred Stock remain outstanding (as adjusted for stock splits or
recombination, recapitalization and the like), the Company shall not, without
first obtaining the written approval of the holders of a majority of the Series
B Preferred Stock:
(a) create any new class or series of shares or reclassify any
existing class or series of shares into a class or series of shares senior to or
on parity with the Series B Preferred Stock with respect to dividends or other
distributions or liquidation or voting;
(b) amend the Company's Certificate of Incorporation materially
and adversely to the Series B Preferred Stock;
(c) effect any dividend or other distribution an the Company's
Common Stock if any dividends on the Series B Preferred Stock have accrued but
not been paid; or
(d) effect the purchase or redemption of the Company's capital
stock (except pursuant to the Company's exercise of its right to repurchase
shares from employees, officers or consultants of the Company pursuant to
agreements, arrangements or plans approved by the Board of Directors).
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its President, and attested by its Secretary, this
17th day of January, 1996.
StarBase Corporation
By: /s/ William R. Stow, III
--------------------------
William R. Stow, III,
President
Attest:
By: /s/ Michael Lyons
-------------------------------
Michael Lyons,
Assistant Secretary
6
<PAGE>
Exhibit 4.3
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as
of December __, 1995, by and among StarBase Corporation, a Delaware corporation
(the "Company"), and the undersigned holders of Units (each comprised of one
share of Series B Preferred Stock and one warrant to purchase one share of
Series B Preferred Stock) and Common Stock of the Company (the "Shareholders").
RECITALS
A. The Company is issuing up to 2,500,000 Units to the purchasers
of Units pursuant to Series B Preferred Stock Subscription Agreements of even
date herewith (collectively, the "Series B Agreement").
B. The undersigned holders of Common Stock are currently party to
a Registration Rights Agreement dated September 16, 1994 (the "Prior Agreement")
which granted them certain registration rights with respect to such shares
acquired upon conversion of the Company's previously outstanding Series A
Preferred Stock.
C. The Company desires to grant certain registration rights to the
Shareholders and to amend, restate and supersede the Prior Agreement.
AGREEMENT
In consideration of the foregoing and of the mutual promises and
covenants contained herein, the parties agree as follows:
1. REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"CONVERSION STOCK" means the Common Stock issued or issuable upon
conversion of the Preferred.
"HOLDER" shall mean any shareholder of the Company holding Registrable
Securities and any person holding Registrable Securities to whom the rights
under this Section 1 have been transferred in accordance with Section 1.9.
"INITIATING HOLDERS" shall mean any Holders or transferees of Holders
under Section 1.9 hereof who in the aggregate are Holders of a total of at least
500,000 shares of Registrable Securities, measured on an as-converted basis, as
adjusted for stock splits and recombinations, recapitalizations and the like.
"PREFERRED" means the shares of Series B Preferred Stock of the Company
issued pursuant to the Series B Agreement and upon exercise of the warrants
contained in the Units.
"REGISTRABLE SECURITIES" means (I) the Conversion Stock, the Common Stock
of the Company issued or issuable in respect of the Conversion Stock or other
securities issued or issuable upon conversion of the Preferred or upon any stock
split, stock dividend, recapitalization, or similar event, or any Common Stock
otherwise issued or issuable with respect to the Preferred or the Conversion
Stock and (ii) shares of Common Stock acquired upon conversion of the Company's
previously outstanding Series A Preferred Stock, and any other securities issued
or issuable with respect to such shares upon any stock split, stock dividend,
recapitalization or similar event, or any Common Stock otherwise issued or
<PAGE>
issuable with respect to such shares of Common Stock; provided, however, that
shares of Common Stock or other securities shall only be treated as Registrable
Securities if and so long as they have not been (a) sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction, or (b) sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Sections 1.2, 1.3 and
1.4 hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company) and the reasonable fees and disbursements of one counsel for all
Holders in the event of each registration provided for in Sections 1.2, 1.3 and
1.4 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth above, all reasonable fees and
disbursements of one special counsel for the selling Holders.
1.2 REQUESTED REGISTRATION.
(a) Request for Registration. If, any time after
August 8, 1996, the Company shall receive from Initiating Holders a
written request that the Company effect any registration with respect to
a number of shares either (x) equal to at least 500,000 shares of the
Registrable Securities, or (y) the reasonably anticipated aggregate price
to the public of which, net of underwriting discounts and commissions,
would exceed Ten Million Dollars ($10,000,000), the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to
effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request
received by the Company within twenty (20) days after receipt of such
written notice from the Company; PROVIDED, HOWEVER, that the Company
shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 1.2:
(A) In any particular jurisdiction in which
the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance
unless the Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act;
<PAGE>
(B) Within one hundred eighty (180) days of
the effective date of any registration statement filed by the Company
pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee
benefit plan);
(C) After the Company has effected two such
registrations pursuant to this Section 1.2(a), and such registrations
have been declared or ordered effective (provided that, if prior to the
effectiveness of a registration statement, the number of Holders
participating or the number of shares of Registrable Securities would not
be sufficient to initiate a registration pursuant to this Section 1.2(a),
the Company may withdraw its registration statement and, unless (1) such
insufficiency resulted from shares of Registrable Securities being
withdrawn as a result of a materially adverse event or circumstance
relating to the Company which was not known to the Initiating Holders at
the time of their request for demand registration or (2) the Holders
shall have reimbursed the Company for its reasonable expenses incurred in
connection with such withdrawn registration statement within one hundred
twenty (120) days after withdrawal, the Company will be deemed to have
satisfied one of its obligations to register Registrable Securities for
purposes of this Section 1.2(a)(ii)(C));
(D) If the Company shall furnish to such
Holders a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors it would be
seriously detrimental to the Company or its shareholders for a
registration statement to be filed in the near future, then the Company's
obligation to use its best efforts to register, qualify or comply under
this Section 1.2 shall be deferred for a period not to exceed
ninety (90) days from the date of receipt of the original written request
from the Initiating Holders; provided, however, that the Company may not
utilize this right more than once in any twelve (12) month period.
Subject to the foregoing clauses (A) through (D), the Company shall file
a registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant
to Section 1.2 is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as part of the
notice given pursuant to Section 1.2(a)(I). In such event, the right of
any Holder to participate in such registration shall be conditioned upon
such Holder's participation in the underwriting arrangements required by
this Section 1.2, and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent requested shall be limited
to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriters selected for such underwriting
by a majority in interest of the Initiating Holders, but subject to the
Company's reasonable approval. Notwithstanding any other provision of this
Section 1.2, if the managing underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the Company shall so advise all participating Holders and
the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all participating Holders
thereof in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders at the time of filing the
registration statement. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities, and/or other securities so withdrawn shall also be
withdrawn from registration, and such securities shall not be transferred in a
public distribution prior to one hundred eighty (180) days after the effective
date of such registration, or such other shorter period of time as the
underwriters may require.
<PAGE>
If the underwriter has not limited the number of Registrable Securities
to be underwritten, the Company may include securities for its own account (or
for the account of other shareholders) in such registration if the underwriter
so agrees and if the number of Registrable Securities that would otherwise have
been included in such registration and underwriting will not thereby be limited.
1.3 Company Registration.
(a) Notice of Registration. If at any time or from
time to time the Company shall determine to register any of its
securities, either for its own account or the account of a security
holder or holders, other than (I) a registration relating solely to
employee benefit plans, (ii) a registration relating solely to a
Commission Rule 145 transaction, or (iii) a registration effected
pursuant to Sections 1.2 or 1.4 hereof, the Company will:
(i) promptly give to each Holder written
notice thereof; and
(ii) include in such registration (and any
related qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made within twenty (20) days
after receipt of such written notice from the Company, by any Holder.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the
written notice given pursuant to Section 1.3(a)(I). In such event the
right of any Holder to registration pursuant to Section 1.3 shall be
conditioned upon such Holder's participation in such underwriting to the
extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company and
the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with
the managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 1.3, if the managing
underwriter determines that marketing factors require limitation of the
number of shares to be underwritten, the managing underwriter may limit
the Registrable Securities to be included in such registration. The
Company shall so advise all Holders and other holders distributing their
securities through such underwriting and the number of shares of
securities that may be included in the registration and underwriting
(other than on behalf of the Company) shall be allocated among all
Holders and such other holders (provided that such other holders have
contractual rights to participate in such registration which are not
subordinate to the Holders) in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities or other securities
requested to be included in such registration by such Holders and such
other holders. To facilitate the allocation of shares in accordance with
the above provisions, the Company may round the number of shares
allocated to any Holder or holder to the nearest 100 shares. If any
Holder or holder disapproves of the terms of any such underwriting, he
may elect to withdraw therefrom by written notice to the Company and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to one hundred
eighty (180) days after the effective date of the registration statement
relating thereto, or such other shorter period of time as the
underwriters may require.
(c) Right to Terminate Registration. The Company
shall have the right to terminate or withdraw any registration initiated
by it under this Section 1.3 prior to the effectiveness of such
registration whether or not any Holder has elected to include securities
in such registration.
1.4 Registration on Form S-3.
(a) If any Holder or Holders request that the
Company file a registration statement on Form S-3 (or any successor form
to Form S-3) for a public offering of shares of the Registrable
Securities the reasonably anticipated aggregate price to the public of
which, net of underwriting discounts and
<PAGE>
commissions, would exceed $500,000, and the Company is a registrant
entitled to use Form S-3 to register the Registrable Securities for
such an offering, then the Company shall use its best efforts to cause
such Registrable Securities to be registered for the offering on such
form and to cause such Registrable Securities to be qualified in such
jurisdictions as the Holder or Holders may reasonably request; provided,
however, that the Company shall not be required to effect more than two
(2) registrations per calendar year pursuant to this Section 1.4. The
substantive provisions of Section 1.2(b) shall be applicable to each
registration initiated under this Section 1.4.
(b) Notwithstanding the foregoing, the Company
shall not be obligated to take any action pursuant to this Section 1.4:
(i) in any particular jurisdiction in which
the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance
unless the Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act;
(ii) if the Company, within ten (10) days of
the receipt of the request of the Holders pursuant to Section 1.4(a),
gives notice of its bona fide intention to effect the filing of a
registration statement with the Commission within ninety (90) days of
receipt of such request and the Company is using good faith efforts to
effect such filing (other than with respect to a registration statement
relating to a Rule 145 transaction, an offering solely to employees or
any other registration which is not appropriate for the registration of
Registrable Securities);
(iii) within one hundred eighty (180) days of
the effective day of any registration referred to in Sections 1.2 and 1.3
above filed by the Company;
(iv) if the Company shall furnish to such
Holder a certificate signed by the President of the Company stating that
in good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for registration
statements to be filed in the near future, then the Company's obligation
to use its best efforts to file a registration statement shall be
deferred for a period not to exceed ninety (90) days from the receipt of
the request to file such registration by such Holder; provided, however,
that the Company may not utilize this right more than once in any twelve
(12) month period; or
(v) with respect to any Holder, if all
remaining Registrable Securities held by such Holder may be sold under
Rule 144 during the three (3) month period after the registration request
pursuant to this section.
1.5 EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with all registrations pursuant to Sections 1.2, 1.3 and
1.4 shall be borne by the Company. Unless otherwise stated, all Selling
Expenses relating to securities registered on behalf of the Holders shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered.
1.6 REGISTRATION PROCEDURES. In the case of each
registration, qualification or compliance effected by the Company pursuant to
this Section 1, the Company will keep each Holder advised in writing as to the
initiation of each registration and as to the completion thereof. At its
expense the Company will:
(a) Prepare and file with the Commission a
registration statement with respect to such securities and use its best
efforts to cause such registration statement to become and remain
effective for at least one hundred eighty (180) days or until the
distribution described in the Registration Statement has been completed;
and
(b) Furnish to the Holders participating in
such registration and to the underwriters of the securities being
registered such reasonable number of copies of the registration
statement, preliminary
<PAGE>
prospectus, final prospectus and such other documents as such underwriters
may reasonably request in order to facilitate the public offering of such
securities.
1.7 INDEMNIFICATION.
(a) The Company will indemnify each Holder,
each of its officers and directors and partners, and each person
controlling such person within the meaning of Section 15 of the
Securities Act, or any other person acting on behalf of such Holder, with
respect to which registration, qualification or compliance has been
effected pursuant to this Section 1, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15
of the Securities Act, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation
by the Company of the Securities Act or any rule or regulation
promulgated under the Securities Act applicable to the Company in
connection with any such registration, qualification or compliance, and
the Company will reimburse each such Holder, each of its officers and
directors, and each person controlling such Holder, each such underwriter
and each person who controls any such underwriter, for any legal and any
other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable to any such person in any
such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission (or
alleged untrue statement or omission), made in reliance upon and in
conformity with written information furnished to the Company by an
instrument duly executed by such Holder, controlling person or
underwriter and stated to be specifically for use therein or the
preparation thereby.
(b) Each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which
such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, any
person acting on behalf of the Company or such underwriter, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the
Securities Act, and any person acting on behalf of such other Holder,
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders, such directors,
officers, persons, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission)
is made in such registration statement, prospectus, offering circular or
other document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by
such Holder and stated to be specifically for use therein or the
preparation thereby. Notwithstanding the foregoing, the liability of
each Holder under this subsection (b) shall be limited to the gross
proceeds from the offering received by such Holder, unless such liability
arises out of or is based on willful conduct by such Holder.
(c) Each party entitled to indemnification
under this Section 1.7 (the "Indemnified Party") shall give notice to the
party required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or
<PAGE>
litigation, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under
this Section 1 unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action and
provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified
Party, which consent shall not be unreasonably withheld, consent to entry
of any judgment or enter into any settlement.
1.8 INFORMATION BY HOLDER. The Holders of securities
included in any registration shall furnish to the Company such information
regarding such Holders, the Registrable Securities held by them and the
distribution proposed by such Holders as the Company may request in writing and
as shall be required in connection with any registration, qualification or
compliance referred to in this Section 1.
1.9 TRANSFER OF REGISTRATION RIGHTS. The rights to cause
the Company to register securities granted Holders under sections 1.2, 1.3 and
1.4 may be assigned to a transferee or assignee in connection with any transfer
or assignment of Registrable Securities by a Holder provided that: (I) such
transfer may otherwise be effected in accordance with applicable securities
laws, (ii) such assignee or transferee (together with its Related Persons, as
defined below) acquires at least 100,000 shares of Registrable Securities
(appropriately adjusted for stock splits, reorganizations, recapitalizations and
the like) and (iii) the transferee or assignee is not, in the reasonable
discretion of the Company, a competitor of the Company.
1.10 STANDOFF AGREEMENT. Each Holder agrees in connection
with the Company's initial public offering of the Company's securities that,
upon request of the Company or the underwriters managing any underwritten
offering of the Company's securities, not to sell, make any short sale of, loan,
grant any option for the purchase of, or otherwise dispose of any Registrable
Securities (other than those included in the registration) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed one hundred eighty (180) days) from the
effective date of such registration as may be requested by the underwriters;
provided, that the officers and directors of the Company who own stock of the
Company also agree to such restrictions.
1.11 TERMINATION. Any registration rights granted pursuant
to this Section 1 shall terminate with respect to all Holders on the fifth
anniversary of the Company's initial registered public offering.
2. MISCELLANEOUS
2.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as applied to transactions
taking place between California residents and wholly within the State of
California.
2.2 SURVIVAL. The representations, warranties, covenants
and agreements made herein shall survive any investigation made by any Holder
and the closing of the transactions contemplated hereby.
2.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
2.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes
the full and entire understanding and agreement between the parties with regard
to the subjects hereof, and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants except as
specifically set
<PAGE>
forth herein. Except as expressly provided herein, neither this Agreement nor
any term hereof may be amended, waived, discharged or terminated other than
by a written instrument signed by the Company and holders representing a
majority of the Registrable Securities to the extent enforcement of any such
amendment, waiver, discharge or termination is sought against the Company or
the Holders.
2.5 EFFECT ON PRIOR AGREEMENT. The provisions of this
Agreement amend and supersede any rights or obligations under the Prior
Agreement.
2.6 NOTICES, ETC. Any notice, request, demand or other
communication given by any party under this Agreement (each a "notice") shall be
in writing, may be given by a party or its legal counsel, and shall be deemed to
be duly given (I) when personally delivered, or (ii) upon delivery by United
States Express Mail or similar overnight courier service which provides evidence
of delivery, or (iii) when five days have elapsed after its transmittal by
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party to whom directed at that party's address as it appears
below or another address of which that party has given notice, or (iv) when
transmitted by telex (or equivalent service), the sender having received the
answer back of the addressee, or (v) when delivered by facsimile transmission,
upon confirmation of receipt. Notices of address change shall be effective only
upon receipt notwithstanding the provisions of the foregoing sentence.
Notice to the Company StarBase Corporation
shall be sufficient if William Stow III, Chief Executive Officer
given to: 18872 MacArthur Boulevard
Irvine, CA 92715
with a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Ave.
Palo Alto, CA 94301
Attn: Timothy J. Moore
Notice to a Holder shall be sufficient if given to such Holder at the
address or telex (or equivalent) number provided by such Holder in writing to
the Company in accordance with this section.
2.7 DELAYS OR OMISSIONS. Except as expressly provided
herein, no delay or omission to exercise any right, power or remedy accruing to
any holder of any Shares, upon any breach or default of the Company under this
Agreement, shall impair any such right, power or remedy of such holder nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
2.8 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
2.9 SEVERABILITY. If any provision of this Agreement, or
the application thereof, shall for any reason and to any extent be invalid or
unenforceable the remainder of this Agreement and application of such provision
to persons or circumstances shall be interpreted so as best to reasonably effect
the intent of the parties hereto, the parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
<PAGE>
2.10 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only are not considered in construing or
interpreting this Agreement.
The foregoing agreement is hereby executed as of the date first above written.
COMPANY
StarBase Corporation, a Delaware corporation
By:
William Stow, President
<PAGE>
COUNTERPART SIGNATURE PAGE
TO STARBASE CORPORATION
REGISTRATION RIGHTS AGREEMENT
DATED AS OF DECEMBER __, 1995
"HOLDER"
If you are an individual, print your
name and sign below.
- -----------------------------
Name (Please Print)
- -----------------------------
Signature
If you are signing on behalf of an
entity, please print the name of
the entity and sign below, indicating
your title.
- -----------------------------
Name of Entity (Please Print)
By: -------------------------
Name of Signatory (Please Print)
- -----------------------------
Signature
- -----------------------------
Title
<PAGE>
Exhibit 10.24
November 8, 1995
Mr. William Stow, III
RE: LOAN OF SHARES
Dear Mr. Stow:
On behalf of StarBase Corporation, a Delaware corporation (the
"Company"), the undersigned duly authorized director of the Company hereby
acknowledges receipt of 33,333 shares of the Common Stock of the Company from
you and further acknowledges the obligation of the Company to deliver 33,333
shares of the Company's Common Stock, including interest at a rate of 7% per
annum, to you on or before June 30, 1997. Delivery of such shares, whether
restricted or not, shall constitute full satisfaction of the Company's
obligations hereunder.
Very Truly Yours,
/s/ Michael G. Lyons
--------------------------------------
Michael G. Lyons
Co-Chairman of the Board and Director
<PAGE>
December 11, 1995
<PAGE>
Exhibit 10.25
December 11, 1995
Mr. Michael Lyons
Potrero Venture Partners
One First Street, Ste. 6
Los Altos, Ca. 94022
RE: LOAN OF SHARES
Dear Mr. Lyons:
On behalf of StarBase Corporation, a Delaware corporation (the
"Company"), the undersigned duly authorized officer of the Company hereby
acknowledges receipt of 13,948 shares of the Common Stock of the Company from
you and further acknowledges the obligation of the Company to deliver 13,948
shares of the Company's Common Stock, including interest at 7% per annum, to you
on or before June 30, 1997. Delivery of such shares, whether restricted or not,
shall constitute full satisfaction of the Company's obligations hereunder.
Very Truly Yours,
/s/ William R. Stow, III
--------------------------------------
William R. Stow, III
President
<PAGE>
Exhibit 10.26
December 11, 1995
Mr. John R. Snedegar
22632 Barlovento
Mission Viejo, Ca. 92692
RE: LOAN OF SHARES
Dear Mr. Snedegar:
On behalf of StarBase Corporation, a Delaware corporation (the
"Company"), the undersigned duly authorized officer of the Company hereby
acknowledges receipt of 11,052 shares of the Common Stock of the Company from
you and further acknowledges the obligation of the Company to deliver 11,052
shares of the Company's Common Stock, including interest at 7% per annum, to you
on or before June 30, 1997. Delivery of such shares, whether restricted or not,
shall constitute full satisfaction of the Company's obligations hereunder.
Very Truly Yours,
/s/ William R. Stow, III
--------------------------------------
William R. Stow, III
President
<PAGE>
Exhibit 10.27
SECURED PROMISSORY NOTE
$76,153.46 July 1, 1995
FOR VALUE RECEIVED, William R Stow, III, an individual, and Naoma J. Stow,
an individual, husband and wife (the "MAKERS") jointly and individually hereby
promise to pay, at the time and in the manner set forth below, to the order of
StarBase Corporation, a Delaware corporation (the "LENDER"), having its
principal place of business at 18872 MacArthur Blvd., Suite 300, Irvine,
California, 92715 the principal amount of Seventy Six Thousand One Hundred Fifty
Three dollars and Forty-Six cents ($76,153.46). Interest shall accrue from the
date of this Secured Note on the unpaid balance of such principal amount at the
rate of Six and Thirty-Four One Hundredths percent (6.34%) per annum, compounded
annually. The principal amount of the Secured Note, together with all accrued
and unpaid interest hereunder, shall be due and payable in full by the Makers on
or before November 4, 1998 in accordance with the payment provisions described
in Section 1 below.
1. PAYMENTS. All payments made in accordance with this Secured Note in
respect of principal or interest are to be made in United States dollars at the
address of the Lender specified above, or at such other location as the Lender
may designate Rom time to time by written notice to the Makers. If any payment
of principal or interest on this Secured Note shall become due on a day which is
not a Business Day (as hereinafter defined), such payment shall be made on the
next succeeding Business Day and such extension of time shall in such case be
included in computing interest in connection with such payment. A "BUSINESS DAY"
shall mean any day other than a Saturday or Sunday or a day on which commercial
banking institutions in the City of Newport Beach, California are authorized by
law to be closed.
2. ACCELERATION. The entire unpaid principal amount of this Secured
Note, together with accrued and unpaid interest thereon, shall become
immediately due and payable if the Makers or either of them shall make an
assignment for the benefit of creditors, or shall give a voluntary petition in
bankruptcy, or shall be adjudicated as bankrupt or insolvent, or shall file any
petition or answer seeking for themselves any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, or shall file any answer admitting
or not contesting the material allegations of a petition filed against Makers in
any such proceeding, or shall seek or consent to or acquiesce in the appointment
of any custodian, trustee, receiver or liquidator for all or any substantial
part of the assets of Makers'.
3. SECURITY INTEREST. As security for the payment and performance of
the obligations of the Makers hereunder, the Makers hereby grant to Lender a
continuing security interest in all of the Makers' right, title and interest in
the Makers' residence
1
<PAGE>
located at 6514 Via Baron, Rancho Palos Verdes, California, 90274 (hereinafter
referred to as the "COLLATERAL"), subject to the terms of that certain Deed of
Trust attached hereto as Exhibit "A," which Residence is also subject to that
certain Deed of Trust dated April 11, 1988, executed by the Makers and recorded
April 29, 1988 as Document No. 88 589179 in the official records of Los Angeles
County, California (the "FIRST DEED OF TRUST"), that certain Deed of Trust dated
May 6, 1988, executed by the Makers and recorded July 15, 1988 as Document No.
88 1111630 in the official records of Los Angeles County, California (the
"SECOND DEED OF TRUST"); and that certain Deed of Trust dated May 6, 1988,
executed by the Makers and recorded July 15, 1988 as Document No. 88 1111631 in
the official records of Los Angeles County, California (the "THIRD DEED OF
TRUST"; the First Deed of Trust, the Second Deed of Trust and the Third Deed of
Trust are collectively referred to herein as the "PRIOR DEEDS OF TRUST"). The
Makers shall remain personally liable for payment of this Note and the assets of
Makers, in addition to the Collateral, may be applied to the satisfaction of
Makers' obligations hereunder. In connection with the grant of the security
interest, the Makers represent, covenant and agree as follows;
(a) The Makers have full right, title and interest in and to the
Collateral, free from any liens, encumbrances or security interest except as set
forth in the Prior Deeds of Trust,
(b) The Makers shall execute, acknowledge and deliver and cause to be
reported or filed in the manner and places require by law any document or
instrument, and shall take all other actions that may be reasonably requested
by Lender to perfect and protect Lender's continuing security interest in the
Collateral, including, but not limited to, executing Deed of Trust attached
hereto as Exhibits "A".
(c) The Makers shall properly maintain and care for the Collateral,
refrain from further encumbering or disposing of any of the Collateral, and take
any and all actions necessary or appropriate to preserve and defend their title
to the Collateral and the validity of the security interests created hereby.
4. DEFAULT. In the event the unpaid principal amount of this Secured
Note and accrued and unpaid interest thereon becomes due and payable pursuant to
the provisions of Sections 1 and/or 2 hereof and the Makers fail to make such
payment on the date such amount becomes due (an "EVENT OF DEFAULT"), Lender
shall be entitled, without notice or demand and without limiting Lender's other
rights and remedies, to all the rights and remedies of a secured party under
California law.
5. COMPUTATION OF INTEREST. Interest on this Secured Note shall be
computed on a rate per annum based on a year of 365 days and for the actual
number of days (including the first but excluding the last day) elapsed.
2
<PAGE>
6. MISCELLANEOUS PROVISIONS.
(a) The Makers shall reimburse the reasonable fees and expenses of
Lender incurred in connection with the negotiation, execution, delivery and
performance of this Secured Note and related documents.
(b) The Makers reserve the right at any time to prepay all or any
portion of the unpaid principal amount of this Secured Note together with
accrued and unpaid interest thereon without penalty. Prepayments shall first be
applied to accrued and unpaid interest and the remainder to unpaid principal.
(c) This Secured Note shall inure to the benefit of and be binding
upon the respective successors and assigns of the Makers and the Lender;
provided, however, this Secured Note may not be assigned without Lender's prior
wririen consent. Nothing in this Secured Note, express or implied, is intended
to confer upon any party other than such parties or their respective successors
and ac-igns any rights, remedies, obligations, or liabilities under or by reason
of this Secured Vote, except as expressly provided in this Secured Note.
(d) This Secured Note shall be a full recourse note. If any action
is instituted to collect or otherwise enforce the provisions of this Secured
Note, the undersigned agrees to pay all costs and expends, including attorneys'
fees, incurred by Lender. The Makers hereby waive demand for payment, notice.
presentment, protest, notice of dishonor and all other notices or demands
relative to this Secured Note.
(e) This Secured Note shall be construed in accordance with the
laws of the State of California. If one or more provisions of this Secured Note
are held to be unenforceable under applicable law, such provision shall be
excluded from this Secured Note and the balance of this Secured Note shall be
interpreted as if such provision were so excluded, and the remainder of this
Secured Not shall be enforceable in accordance with it terms. No right, power or
remedy conferred by this Secured Note upon any holder hereof shall be exclusive
of any other right, power or remedy referred to herein or now or hereafter
available at law, in equity, by statute or otherwise. This Secured Note may only
be amended with the written consent of the parties hereto, and no oral waiver or
amendment shall be effective under any circumstances whatsoever. The failure of
Lender in any instance to exercise its rights hereunder shall not constitute a
waiver of any other rights that may subsequently arise under the provisions of
this Secured Note or any other agreement between the Makers and Lender. No
waiver of any breach or condition of this Secured Note shall be deemed to be a
waiver of any other or subsequent breach or condition, whether of like or
different nature.
(f) Any claim or litigation arising from this Secured Note shall
be instituted in the Superior Court of the State of California for the County of
Orange, and
3
<PAGE>
the parties hereby stipulate and confer venue and jurisdiction over them for the
purpose of resolving any disputes under this Secured Note to that court.
(g) This Secured Note, including Exhibit "A", and the other
documents executed pursuant thereto contain the entire agreement and
understanding between the Makers and Lender relating to the subject matter
hereof and thereof and supersede any prior agreements and understandings
relating to the subject matter hereof and thereof.
(h) This Secured Note is executed to evidence and include certain
existing indebtedness due Lender from the Makers under that certain Promissory
Notes dated July 1, 1994, and November 4, 1994, which notes upon the execution
of this Secured Note shall be canceled and shall no longer be of any force or
effect.
By: /s/ William R. Stow, III
-----------------------------------
William R Stow, III
By: /s/ Naoma J. Stow
-----------------------------------
Naoma J. Stow
4
<PAGE>
JOHN R. SNEDEGAR
22632 BARLOVENTO
MISSION VIEJO, CA 92692
This letter when signed by you on behalf of Starbase Corporation
("Company") and John R. Snedegar ("Employee") will constitute the
employment agreement (the "Agreement") between Company and Employee pursuant
to the following terms and conditions:
1. TERM. Company hires Employee for a period of twenty-four (24) months
commencing the first day of April 1995 and terminating the 31st day of March
1997.
2. COMPENSATION. During the term of employment, Company will pay
Employee a base salary at the annual rate of One Hundred Twenty Thousand
Dollars ($120,000) per year, payable semi-monthly or more frequently as the
parties may agree. Company and Employee may, from time to time during the
term of employment, agree to increase the salary to Employee; however, any
such agreement shall be in writing and shall amend this Agreement. In
addition to the base salary provided for above, Employee shall be entitled to
participate in all employee health benefit plans maintained by Company during
the term of employment for the benefit of senior management personnel of
similar stature (e.g., medical, disability, life insurance). All such benefit
plans will be governed solely by the terms of the underlying plan documents
and applicable law. The Company reserves the right to amend, modify, replace
or terminate any such benefit plans in its sole discretion as provided by law.
The payment of base salary to Employee shall be subject to withholding and
reporting by Company under federal and state laws.
3. SUPPORT ASSISTANCE. During the term of employment, Company agrees to
hire a secretary and administrative assistant to work for Employee (such
person to be mutually acceptable to Employee and Company) at a annual base
salary not to exceed the sum of Twenty-Four Thousand Dollars ($24,000)
payable semi-monthly or more frequently as the parties may agree. Company and
Employee agree that, to the extent if the compensation payable to such
secretary and administrative assistant exceeds the obligation of Company as
above stated, Employee shall pay such additional amounts. In addition to the
base salary provided above, such secretary and administrative assistant shall
be entitled to participate in all employee health benefit plans (e.g.
medical, disability) maintained by the Company for the benefit of
administrative employees of similar stature. The Company reserves the right
to amend, modify, replace or terminate any such benefit plans in its sole
discretion as provided by law.
<PAGE>
March 31, 1995
Page 2
4. NATURE OF EMPLOYMENT. It is agreed that the services that to be
performed by Employee will be those that Employee is directed to perform
solely by each or both of William Stow and Pat Linehan, during the Term; except
that it is expressly agreed that:
a. The employment of Employee is part time and not full time. It is
agree that in any event, the time and effort of Employee calendar month shall
not be required to exceed thirty percent (30%) of Employee's normal
productive time during normal working hours.
b. Employee shall be required to devote only reasonable portions of
his time and effort to perform the services under this Agreement.
c. The compensation and benefits payable to Employee shall be payable
to Employee whether or not, during the term of this Agreement or any portion
thereof, Employee performs any services, in the event that services are not
required to be performed under the provisions of this Agreement.
d. Because of the special nature of Employee's experience,
qualification and expertise, the responsibilities assigned by Company to
Employee shall be related to and with respect to Company executive planning
and implementation of equity funding, including both private source funding,
and as well listed exchange funding respecting the Vancouver, Canada Stock
Exchange and the NASDAQ Stock Exchange, planning, communication and
negotiation by Company and its executive representatives concerning broker
and investor communications and relations and advice, direction and
assistance respecting establishing practices and procedures for implementing
and accomplishing in a consistent and timely manner these activities and
functions of Company.
5. OFFICE FACILITIES. Company shall, at its expense, provide furnished
office space to Employee and to Employee's secretary and administrative
assistant and shall provide, at its expense, telephone, facsimile,
duplication and other services available to executive employees of Company
during the term of employment, except that if Employee, for whatsoever reason
determines during the term that it would be necessary (given the requirements
of Employee's responsibilities) for him to locate his office and services at
a different facility than that of Company, then Company agrees to reimburse
Employee for such expenses not to exceed the sum of Five Hundred Dollars
($500.00) per month, or such greater sum as Company and Employee shall agree
to in writing during the term of employment.
6. EXPENSE REIMBURSEMENT. During the term of employment, Company agrees
to reimburse Employee for reasonable expenses incurred by Employee in
performing responsibilities under this Agreement for the benefit of Company
and in accordance with the general policy of Company, including but not
limited to expense for travel, food and lodging. Company and Employee may
specifically agree with respect to any other agreement or understanding
concerning expenses that may reasonably be necessary to the performance of
responsibilities by Employee under this Agreement; and in any event, Employee
shall not be required to incur such
<PAGE>
March 31, 1995
Page 3
expenses unless Company agrees to reimburse Employee or to otherwise incur
the expense thereof as an expenditure by Company.
7. TERMINATION. This Agreement may not be terminated by either Company or
Employee during its term; except only that Company may terminate this Agreement
during its term solely in the event of Employee committing any material
misconduct or convicted of any felonious offense related to the business
or affairs of Company. At the end of the term of this Agreement, termination
shall occur without the requirement of act or notice by either Company or
Employee. At termination at the end of the term of employment, the provisions
respecting the obligations of each of Company and Employee during the term
shall survive for purposes of determining the rights and obligations of each of
Company and Employee for the term.
8. CONFIDENTIALITY. Employee acknowledges and agrees that he has been and
will continue to be entrusted with trade secrets and proprietary information
regarding the products, processes, methods of manufacture and delivery,
know-how, designs, formula, work in progress, research and development,
computer software and data bases, copyrights, trademarks, patents, marketing
techniques, and future business plans, as well as, customer lists and
information concerning the identity, needs, and desires of actual and
potential customers of the Company and its subsidiaries, joint ventures,
partners, and other affiliated persons and entities ("Confidential
Information"), all of which derive significant economic value from not
being generally known to others outside the Company. During the entire term
of his employment with the Company and for three (3) years thereafter,
Employee shall not disclose or exploit any Confidential Information except
for the sole benefit of the Company or with its express written consent.
Employee acknowledges and agrees that any violation of this Section 8 would
cause immediate irreparable damage to the Company and that it would be
extremely difficult or impossible to determine the amount of damage caused to
the Company. Employee therefore agrees that the Company's remedies at law
are inadequate, and hereby consents to issuance of a temporary restraining
order, preliminary and permanent injunction, and other appropriate relief to
restrain any actual or threatened violation of the Section, without limiting
any remedies the Company may have at law or in equity.
9. INVENTIONS. Any and all patents, copyrights, trademarks, inventions,
discoveries developments, or trade secrets developed or perfected by Employee
during or as the result of his employment with the Company shall constitute the
sole and exclusive property of the Company. Employee shall disclose all such
matters to the Company, assign all right, title, and interest he may have in
them, and cooperate with the Company in obtaining and perfecting any patent,
copy right, trademark, or other legal protection. This Section 9 shall not apply
to any invention which qualifies fully under California Labor Code Section 2870
which includes inventions developed entirely on an employee's own time without
using the Companies equipment, supplies, facilities and trade secret
information, except for those ideas and inventions that either: (a) relate, at
the time of conception or reduction to practice of the invention, to the
Company's business, or actual or demonstrably anticipated research or
development of the Company, or (b) result from any work performed by the
employee for the Company.
<PAGE>
March 31, 1995
Page 4
10. CONFLICT OF INTEREST. During the term of this Agreement, Employee
shall devote his time, ability, and attention to the business of the Company,
and shall not accept other employment which involves actual or potential
competition with the business of the Company, except with the authorization
of the Company's Board of Directors.
11. CHOICE OF LAW. This Agreement is entered into and shall be
interpreted and enforced under the laws of the State of California.
12. COMPLETE AGREEMENT. This is the entire Agreement between Company and
Employee and it may only be amended by further written understanding between
them.
13. DISPUTES. In the event of any dispute concerning the terms of this
Agreement or the performance or enforcement of this Agreement, the sole
remedy available to Company and Employee shall be binding arbitration
conducted by and in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The venue of such arbitration shall be
Irvine, California. The Award may be enforced in accordance with the
provisions of California law respecting arbitration awards.
14. PARTIAL INVALIDITY. If any provision of this Agreement is held by any
court or tribunal, including any arbitration award, to be invalid, void or
unenforceable, the remaining provisions shall, nevertheless, continue in full
force without being impaired or invalidated in any way.
IN WITNESS WHEREOF, Employee and Company have signed this Agreement.
JOHN R. SNEDEGAR
Dated: /s/ John R. Snedegar
--------------------- -----------------------------------
John R. Snedegar
STARBASE CORPORATION
Dated: April 28, 1995 By: /s/ William Stow
--------------------- --------------------------------
William Stow
Title: CEO
-----------------------------
Chairman
Dated: By: /s/ D. Patrick Linehan
--------------------- --------------------------------
D. Patrick Linehan
Title:
-----------------------------
President
<PAGE>
TERMINATION AGREEMENT
AND GENERAL RELEASE OF CLAIMS
1. (a) On or about April 7, 1995, John R. Snedegar ("Snedegar") and
StarBase Corporation (the "Company") entered into a letter agreement dated March
31, 1995 (the "Letter Agreement") pursuant to which Snedegar was to perform
certain services for the Company in exchange for the compensation set forth in
the Letter Agreement.
(b) The Letter Agreement incorrectly identified the relationship
between Snedegar and the Company as an employment relationship as opposed to an
independent contractor relationship. Despite the Letter Agreement, at no time
subsequent to March 31, 1995 was Mr. Snedegar an employee of the Company.
(c) The Company made no payments under the Letter Agreement prior to
March 31, 1996.
(d) Effective on March 31, 1996 (the "Effective Date"), Snedegar and
the Company orally agreed to terminate the Letter Agreement and to settle and
resolve all claims on the basis of the payment by the Company to Snedegar of
$280,000.
(e) On April 22, 1995 and June 6, 1996, the Company paid Snedegar
$75,000 and $205,000, respectively, or a total of $280,000 (collectively, the
"Payment").
2. Snedegar and the Company hereby confirm that, effective on the
Effective Date, the Letter Agreement was terminated and of no further force and
effect, and that neither Snedegar nor the Company had after the Effective Date
or has any further rights or obligations under the Letter Agreement.
3. In exchange for the release of claims confirmed below, Snedegar
acknowledges receipt in full of the Payment. Snedegar acknowledges and agrees
that he is not entitled to any payments or benefits from the Company other than
the payment, and he further acknowledges and agrees that he is not, and has not
been, employed by the Company, and that any services performed by him were
performed as an independent contractor.
4. In exchange for the Payment as to which receipt was acknowledged in
Paragraph 3, Snedegar and his successors and assigns confirm the release as of
the Effective Date of the Company and its shareholders, officers, directors,
employees, agents, attorneys, legal successors and assigns from any and all
claims, actions and causes of action, whether now known or unknown, which
Snedegar now has, or at any other time had, or shall or may have against the
Company based upon or arising out of
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any matter, cause, fact, thing, act or omission whatsoever occurring or existing
at any time to and including the Effective Date.
5. Snedegar acknowledges that he has read section 1542 of the Civil Code
of the State of California which states:
A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him
must have materially affected his settlement with the
debtor.
Snedegar waives any rights that he has or may have under section 1542 to the
full extent that he may lawfully waive such rights with respect to this general
release of claims.
6. The prevailing party shall be entitled to recover from the losing
party its attorneys' fees and costs incurred in any lawsuit or other action
brought to enforce any right arising out of this Agreement.
7. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior negotiations
and agreement, whether written or oral. This Agreement may not be altered or
amended except by a document signed by the Company and Snedegar.
SNEDEGAR UNDERSTANDS THAT HE SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING
THIS AGREEMENT AND THAT HE IS GIVING UP ANY LEGAL CLAIMS HE HAS AGAINST THE
COMPANY BY SIGNING THIS AGREEMENT. SNEDEGAR ACKNOWLEDGES THAT HE ENTERED INTO
THE ORAL AGREEMENT PRIOR HERETO AND THAT HE IS SIGNING THIS AGREEMENT KNOWINGLY,
WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE PAYMENT.
Dated: June 27, 1996 _______________________________
John R. Snedegar
Dated: June 27, 1996 StarBase Corporation
By: ____________________________
Its: ____________________________
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STARBASE CORPORATION
SERIES B PREFERRED STOCK SUBSCRIPTION AGREEMENT
(U.S. Persons)
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Purchase and Sale of Stock. . . . . . . . . . . . . . . . . . . . . . 1
1.1 Sale and Issuance of Units . . . . . . . . . . . . . . . . . . . 1
1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Representations and Warranties of the Company . . . . . . . . . . . . 1
2.1 Organization, Good Standing and Qualification. . . . . . . . . . 1
2.2 Capitalization and Voting Rights . . . . . . . . . . . . . . . . 1
2.3 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.4 Valid Issuance of Preferred Stock. . . . . . . . . . . . . . . . 2
2.5 Governmental Consents. . . . . . . . . . . . . . . . . . . . . . 2
2.6 Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Representations and Warranties of the Investors . . . . . . . . . . . 2
3.1 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.2 Purchase Entirely for Own Account. . . . . . . . . . . . . . . . 2
3.3 Disclosure of Information. . . . . . . . . . . . . . . . . . . . 3
3.4 Investment Experience. . . . . . . . . . . . . . . . . . . . . . 3
3.5 Accredited Investor. . . . . . . . . . . . . . . . . . . . . . . 3
3.6 Restricted Securities. . . . . . . . . . . . . . . . . . . . . . 3
3.7 Further Limitations on Disposition . . . . . . . . . . . . . . . 3
3.8 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. California Commissioner of Corporations . . . . . . . . . . . . . . . 5
4.1 Corporate Securities Law . . . . . . . . . . . . . . . . . . . . 5
5. Conditions of Investor's Obligations at Closing . . . . . . . . . . . 5
5.1 Representations and Warranties . . . . . . . . . . . . . . . . . 5
5.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.3 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. Conditions of the Company's Obligations at Closing. . . . . . . . . . 5
6.1 Representations and Warranties . . . . . . . . . . . . . . . . . 5
6.2 Payment of Purchase Price. . . . . . . . . . . . . . . . . . . . 5
6.3 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . 5
7. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.1 Market Standoff. . . . . . . . . . . . . . . . . . . . . . . . . 6
7.2 Survival of Warranties . . . . . . . . . . . . . . . . . . . . . 6
7.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 6
7.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.6 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . 6
7.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.8 Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.9 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 7
7.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.11 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . 7
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SCHEDULE A - Schedule of Investors
EXHIBIT A - Form of Nontransferable Warrant
ii
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SERIES B PREFERRED STOCK SUBSCRIPTION AGREEMENT
THIS SERIES B PREFERRED STOCK SUBSCRIPTION AGREEMENT (this "Agreement") is
made as of the ___ day of _______________, 1995, by and among StarBase
Corporation, a Delaware corporation (the "Company"), and the investors listed on
Schedule A hereto, each referred to as an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF UNITS. (b) The Company shall sell to the
Investors, and the Investors shall purchase from the Company (by cash, check or
wire transfer), at a purchase price, in lawful United States currency, of $2.00
per "Unit" (as hereinafter defined), that number of Units of the Company as set
forth opposite each Investor's name on the attached SCHEDULE A. Each "Unit"
shall consist of one share of Series B Preferred Stock and one nontransferable
warrant to purchase one share of common stock for a twenty-four (24) month
period from the date of issuance, at a purchase price of $2.00 per share during
the first year and at a price of $2.50 per share during the second year. The
nontransferable warrant shall be in substantially the form set forth on the
attached EXHIBIT A. The Company's agreement with each of the Investors are
separate agreements, and the sale of Units to each of the Investors are separate
sales.
1.2 CLOSING. The purchase and sale of the Units shall take place at
Freshman, Marantz, Orlanski, Cooper & Klein, 9100 Wilshire Boulevard, Beverly
Hills, California, on November 10, 1995, at 10:00 a.m. or at such other time,
date and place as mutually agreed upon by the Company and the Investor (the
"Closing"). As promptly as practical following receipt of the purchase price
from each Investor, the Company shall instruct its transfer agent to issue and
deliver to each Investor a certificate representing the Units that such Investor
is purchasing against payment of the purchase price therefor by cash, check,
wire transfer or any combination thereof.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Investor that:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital of the
Company consists of:
(i) PREFERRED STOCK. Ten million (10,000,000) shares of preferred
stock, $0.01 par value per share, of which three million (3,000,000) shares
have been designated Series A Preferred Stock, none of which are
outstanding, one million two hundred fifty thousand (1,250,000) shares of
which have been designated Series B Preferred Stock (the "Series B
Preferred"), all of which may be sold pursuant to this agreement.
(ii) COMMON STOCK. 50,000,000 shares of common stock ("Common Stock"),
of which 7,829,034 shares are issued and outstanding. The outstanding
shares of Common Stock are all duly and validly authorized and issued,
fully paid and nonassessable.
2.3 AUTHORIZATION. All corporate action on the part of the Company,
its officers and directors necessary for the authorization, execution and
delivery of this Agreement, the performance of all
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moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies.
2.4 VALID ISSUANCE OF PREFERRED STOCK.
(a) The Series B Preferred Stock which is being purchased by
the Investors hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable and, based in part upon the representations
of the Investors in this Agreement, will be issued in compliance with the
registration requirements of all applicable federal and state securities laws.
The Common Stock issuable upon conversion of the Series B Preferred Stock and
issuable upon exercise of the Warrants being purchased under this Agreement has
been duly and validly reserved for issuance and, upon issuance to the Investors
in accordance with the terms of the Certificate of Designations, shall be duly
and validly issued, fully paid and nonassessable, and issued in compliance with
the registration requirements of all applicable securities laws, as presently in
effect, of the United States and the State of California.
(b) The outstanding shares of Common Stock are all duly and
validly issued, fully paid and nonassessable.
2.5 GOVERNMENTAL CONSENTS. No consent, approval or authorization
of, or designation, declaration or filing on the part of the Company with any
foreign or United States or state governmental authority or, to the best
knowledge of the Company, with any local governmental authority, is required in
connection with the valid execution and delivery of this Agreement, or the
offer, sale or issuance of the Units or the consummation of any other
transaction contemplated hereby, except for the filing of (i) such forms which
may be require by the Vancouver Stock Exchange (the "VSE") and the consent of
the VSE, and (ii) such forms as may be required by the Securities Act of British
Columbia and the rules and regulations thereunder, and (iii) such forms as
required by Section 25102(f) of the California Corporate Securities Law of 1968,
as amended, and the rules thereunder, and (iv) the filing with the Securities
and Exchange Commission of Form D, which filing will be effected in accordance
with Regulation D of the Securities Act of 1933, as amended.
2.6 OFFERING. Subject in part to the truth and accuracy of each
Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Units as contemplated by this Agreement are exempt from
the registration requirements of the Act, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
2.7 LITIGATION. There is, to the best of the Company's knowledge
and belief, no suit, action, arbitration, or legal, administrative or other
proceeding or governmental investigation pending or threatened against or
affecting the Company which questions the validity of this Agreement or any
action that is to be taken under or in contemplation of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
hereby represents and warrants that:
3.1 AUTHORIZATION. Such Investor has full power and authority to
enter into this Agreement and such Agreement constitutes its valid and legally
binding obligation, enforceable in accordance with its terms.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Units to be received by such Investor will be acquired
for investment for such Investor's own account, not as a nominee or agent, and
not with a view to the
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<PAGE>
resale or distribution of any part thereof, and that such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, such Investor further
represents that such Investor does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Units.
3.3 DISCLOSURE OF INFORMATION. Such Investor believes it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Units Such Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Units and the business, properties,
prospects and financial condition of the Company.
3.4 INVESTMENT EXPERIENCE. Such Investor is an investor in securities
of companies in the development stage and acknowledges that he is able to fend
for himself, can bear the economic risk of its investment, and has such
knowledge and experience in financial or business matters that he is capable of
evaluating the merits and risks of the investment in the Units.
3.5 ACCREDITED INVESTOR. Such Investor is an "accredited investor"
within the meaning of United States Securities and Exchange Commission ("SEC")
Rule 501 of Regulation D, as presently in effect.
3.6 RESTRICTED SECURITIES. Such Investor understands that the Units
he is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that he is familiar with SEC Rule 144 as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the representations set forth above, such Investor further agrees not to make
any disposition of all or any portion of the Units unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3 provided and to the extent this Section and such agreement are
then applicable, and:
(a) the registration rights granted to holders of the Series B
Preferred will be subject to registration rights held by existing shareholders
of the Company. Pursuant to such existing rights without the prior written
consent of a majority in interest of the outstanding securities subject to
such existing registration rights (A) the "demand" and Form S-3 registration
rights set forth below may not cause a subject registration statement to be
declared effective prior to the earlier of August 8, 1996 or nine (9) months
after the effective date of the first registration statement for an underwritten
public offering of equity securities of the Company in the United States (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or an SEC Rule 145 transaction), and (B) the "piggy back" registration
rights set forth below may not have the effect of reducing the amount of such
existing holders' securities included in such a registration statement.
(1) Demand Rights. Investors may request that the Company effect two
registrations of at least 40% of the Registrable
Securities (defined below) or any lesser
percentage; provided that the anticipated net
proceeds from such offering exceed $250,000 and
provided further that the Company shall be
obligated to effect only two such requested
registrations. The Company shall not be obligated
to effect a requested registration: (a) during the
period 60 days prior of the Company's estimated
date of the filing of any registration statement
pertaining to securities of the Company or (b)
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during any "registration process." If the Company
is eligible to use Form S-3, investor agrees to
request registration under the Form S-3 provisions
below rather than the provisions of this
paragraph.
(2) Company Registration. Investors shall be entitled to "piggyback"
registration rights of all registrations, subject
to the right of the underwriters and the Company
to cut back the number of shares proposed to be
registered in view of market conditions.
(3) Form S-3 Registration Holders of registrable securities may request the
Company to effect a registration on Form S-3,
provided that such registration be limited to one
per twelve-month period and result in net proceeds
of at least $250,000.
(4) Expenses. The Company shall bear all expenses (exclusive of
underwriting fees, discounts or commissions or
fees of counsel for selling stockholders of all
registrations described in (1) - (3) above).
(5) Transfer of Rights. A holder of registration rights may transfer the
rights to any transferee who purchases at least
50,000 shares of the registrable securities.
However, the Company must be given written notice
of the transfer.
(b) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(c) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
3.8 LEGENDS. It is understood that the certificates evidencing the
Units (and any shares of Common Stock issued upon the exercise of the
nontransferable warrants) may bear one or more of the following legends, as
determined by the Company's counsel:
(a) THE SHARES ARE SUBJECT TO A HOLD PERIOD AND MAY NOT BE TRADED IN
BRITISH COLUMBIA UNTIL AFTER __________________________, EXCEPT
AS PERMITTED BY THE SECURITIES ACT OF BRITISH COLUMBIA AND THE
REGULATIONS THEREUNDER.
(b) THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF
SUCH ACT.
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4. CALIFORNIA COMMISSIONER OF CORPORATIONS.
4.1 CORPORATE SECURITIES LAW. THE SALE OF THE UNITS THAT ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH UNITS OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH UNITS PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SUCH UNITS IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION-BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
each Investor under Section 1 of this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions, the waiver of
which may be waived in voting by any Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
5.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of British Columbia, the
VSE, and the United States or of any state that are required in connection with
the lawful issuance and sale of the Units pursuant to this Agreement shall be
duly obtained and effective as of the Closing.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to each investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by that Investor:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
6.2 PAYMENT OF PURCHASE PRICE. The Investor shall have delivered the
purchase price specified in Section 1 to the Company or its designee.
6.3 QUALIFICATIONS. All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of British Columbia, the
VSE, and the United States or of a state that are required in connection with
the lawful issuance and sale of the Units pursuant to this Agreement shall be
duly obtained and effective as of the Closing.
5
<PAGE>
7. MISCELLANEOUS.
7.1 MARKET STANDOFF. Investor hereby agrees that, during the period
specified by the Company and an underwriter or underwriters of the Common Stock
(or other securities) of the Company, following the effective date of a
registration statement of the Company filed under the Act, Investor shall not,
to the extent requested by the Company and such underwriter, directly or
indirectly, sell, offer or contract to sell (including, without limitation, any
short sale), grant any option to purchase or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) any securities of the
company at any time during such period except Common Stock included in such
registration.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to Units held by the Investors until the
end of such period.
7.2 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Units, or the securities comprising such Units). Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
7.4 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
7.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.7 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
7.8 FINDER'S FEE. Each party represents that it neither is nor will
be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses o defending against such liability or
asserted liability) for which the Company or any of its officers, employees or
representatives is responsible.
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7.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
Units issued pursuant to this Agreement. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
7.10 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as
if such provision were so excluded and shall be enforceable in accordance with
its terms.
7.11 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
7
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
STARBASE CORPORATION
By:
-----------------------------------
William R. Stow, III
President
Address: 18872 MacArthur Boulevard
Suite 400
Irvine, California 92715
INVESTORS:
----------------------------------------
[NAME]
Address:
----------------------------------------
----------------------------------------
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SCHEDULE A
Investor United States $ Canadian $ Units
- -------- --------------- ---------- -----
<PAGE>
EXHIBIT A
---------
NONTRANSFERABLE WARRANT
THIS CERTIFICATE IS NOT TRANSFERABLE AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED.
No. 1995-_____ Warrant to Purchase __________ Shares
of Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
STARBASE CORPORATION
Void after_______________,1997
This certifies that, for value received, _________________________(the
"Holder"), is entitled, subject to the term set forth below, to purchase from
StarBase Corporation (the "Company"), a Delaware corporation, ____________shares
of the Common Stock of the Company, as constituted on the date hereof (the
"Warrant Issue Date"), upon surrender hereof, at the principal office of the
Company referred to below, with the Notice of Exercise attached hereto duly
executed, and simultaneous payment therefor in lawful United States currency, or
otherwise as hereinafter provided, at the exercise price as-set forth in Section
2 below. The number, character and exercise price of such shares of Common Stock
are subject to adjustment as provided herein.
1. TERM OF WARRANT. Subject to the terms and conditions set forth herein,
this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and terminating on or before two years from
the issuance date
2. EXERCISE PRICE. The exercise price shall be (U.S.) two Dollars ($2.00)
per share during the first year after issuance, and $2.50 per share during the
second year after issuance.
3. EXERCISE OF WARRANT.
(a) This Warrant is exercisable by the Holder in whole or in part,
but not for less than 1,000 shares of Common Stock at a time (or such lesser
number of shares that may then constitute the maximum number purchasable; such
number being subject to adjustment as provided in Section 13 below), at any
time, or from time to time, during the term hereof as described in section 1
above, by the surrender of this Warrant and the Notice of Exercise annexed
hereto duly completed and executed on behalf of the Holder, at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company), upon payment (i) in cash or by check acceptable to the
Company, (ii) by cancellation by the Holder of indebtedness of the Company to
the Holder, or (iii) by a combination of (i) and (ii), for the purchase price of
the share to be purchased.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. Unless exercised
in connection
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with an underwritten public offering, as promptly as practicable on or after
such date and in any event within ten (10) days thereafter, the Company at its
expense shall issue and deliver to the person or persons entitled to receive the
same a certificate or certificates for the number of shares issuable upon such
exercise. In the event that this Warrant is exercised in part, the Company at
its expense will execute and deliver a new Warrant of like tenor exercisable for
the number of shares for which this Warrant may then be exercised. In the event
of exercise at the time of an underwritten public offering, the Company will
provide instructions as to the exercise of this Warrant into such shares
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the exercise price
multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction, or mutilation of this Warrant
and, in the case of loss, theft, or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and substance to the Company or, in
the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor and amount.
6. RIGHTS OF STOCKHOLDERS. Subject to Sections 10 and 12 of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, consolidation,
merger, or otherwise) or to receive notice of meetings, or to receive dividends
or subscription rights or otherwise until the Warrant shall have been exercised
and the shares of Common Stock purchasable upon the exercise hereof shall have
been issued, as provided herein.
7. TRANSFERABILITY AND NON-NEGOTIABILITY OF WARRANT. This Warrant may not
be transferred or assigned in whole or in part.
8. COMPLIANCE WITH SECURITIES LAWS.
(a) The Holder of this Warrant, by acceptance hereof, acknowledges
that the shares of Common Stock to be issued upon exercise hereof are being
acquired solely for the Holder's own account and not as a nominee for any other
party, and for investment, and that the Holder will not offer, sell, or
otherwise dispose of any shares of Common Stock to be issued upon exercise
hereof except under circumstances that will not result in a violation of the Act
or any foreign or state securities laws. Upon exercise of this Warrant, the
Holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale.
(b) All shares of Common Stock issued upon exercise hereof may be
stamped or imprinted with one or more of the following legends (in addition to
any legend required by the Securities Act of British Columbia (the "B.C. Act"),
the United States Securities Act of 1933, (the "Act") and the securities laws of
any state of the United States) as determined by counsel for the Company:
THE SHARES ARE SUBJECT TO A HOLD PERIOD AND MAY NOT BE TRADED IN BRITISH
COLUMBIA UNTIL AFTER ________, EXCEPT AS PERMITTED BY THE SECURITIES ACT
OF BRITISH COLUMBIA AND THE REGULATION S THEREUNDER.
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THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRAT1ON IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD OR
OFFERED FOR SALE WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS (i) AS PART OF THEIR DISTRIBUTION AT ANY TIME OR
(ii) OTHERWISE UNIT AFTER ______________, EXCEPT IN EITHER CASE IN
ACCORDANCE WITH REGULATION S UNDER THE ACT. TERMS USED IN THIS LEGEND HAVE
THE MEANING GIVEN TO THEM BY REGULATION S.
9. RESTRICTIONS ON TRANSFER OF UNDERLYING COMMON STOCK. The Holder of
this Warrant by acceptance hereof agrees that the transfer of the shares of
Common Stock issuable upon the exercise of all or any portion of this Warrant
(the "Securities") are subject to the provisions of this Warrant, which include
restrictions on transfer of the Securities.
10. RESERVATION OF STOCK. The Company covenants that during the Term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued shares of Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant and, from time to
time, will take all steps necessary to amend its Certificate of Incorporation
(the "Certificate") to provide a sufficient reserve of shares of Common Stock
issuable upon exercise of the Warrant. The Company further covenants that all
shares that may be issued upon the exercise of rights represented by this
Warrant, upon exercise of the rights represented by this Warrant and payment of
the exercise price, all as set forth herein, will be free from all taxes, liens,
and charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein). The Company
agrees that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Common Stock upon the
exercise of this Warrant.
11. NOTICES.
(a) Whenever the exercise price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 13 hereof, the Company shall
issue a certificate signed by its Secretary setting forth, in reasonable detail,
the event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the exercise price and number of shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the Holder of this Warrant.
(b) In case
(i) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
this Warrant) for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for or purchase any shares of stock of
any class or any other securities, or to receive any other right, or
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(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up
of the Company, then, and in each such case, the Company will mail or cause to
be mailed to the Holder or Holders a notice specifying, as the case may be, (A)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (B) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such stock or securities at the time
receivable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 10 days prior to the date therein specified.
(c) All such notices and communications shall be deemed to have been
received (i) in the case of personal delivery, on the date of such delivery and
(ii) in the case of mailing, on the second business day following the date of
such mailing.
12. AMENDMENTS.
(a) Any term of this Warrant may be amended with the written consent
of the Company and the holders of not less than fifty-one percent (51%) of the
shares of Common Stock issuable upon exercise of any and all outstanding
warrants for shares of Common Stock issued by the Company (the "Common Stock
Warrants"), even without the specific consent of the Holder. An amendment
effected in accordance with this Section 12 shall be binding upon each holder of
any of the Common Stock Warrants, each future holder of all such Common Stock
Warrants, and the Company. The Company shall promptly give notice to all holders
of Common Stock Warrants of any amendment effected in accordance with this
Section 12.
(b) No waivers of or exceptions to any term, condition or provision
of this Warrant, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
13. ADJUSTMENTS. The exercise prices and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
13.1 MERGER, SALE OF ASSETS, ETC.
(a) If at any time, while this Warrant, or any portion thereof, is
outstanding and unexpired there shall be (i) a reorganization (other than a
combination, reclassification exchange or subdivision of shares otherwise
provided for herein) (ii) a merger or consolidation of the Company with or
into another corporation in which the Company is not the surviving entity, or a
reverse triangular merger in which the Company is the surviving entity but the
shares of the Company's capital stock outstanding immediately prior to the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash, or otherwise, or (iii) a sale or transfer of the
Company's properties and assets as, or substantially as, an entirety to any
other person, then, as a part of such reorganization, merger, consolidation,
sale or transfer, lawful provision shall be made so that the holder of this
Warrant shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified herein and upon payment of the exercise price then
in effect, the number of shares of stock or other securities or property of the
successor corporation resulting from such reorganization, merger, consolidation,
sale or transfer which a holder of the shares deliverable upon exercise of this
Warrant would have been entitled
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to receive in such reorganization, consolidation, merger, sale or transfer if
this Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 13. The foregoing provisions of this Section 13.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation which are
at the time receivable upon the exercise of this Warrant. If the per share
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors, whose determination shall be final and binding. In all
events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in toe application of the provisions of this
Warrant with respect to the rights and interests of the Holder after the
transaction, to the end that the provisions of this Warrant shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon exercise of this Warrant
(b) NOTICES OF RECORD DATE. In the event that the Company shall
propose at any time to merge with or into any other corporation, or sell, lease
or convey all or substantially all its property or business, or to liquidate,
dissolve or wind up, then the Company shall send to the Holder of this Warrant
at least 10 days' prior written notice of the date on which a racer shall be
taken for determining rights to vote in respect of such event.
13.2 RECLASSIFICATION, ETC. If the Company at any time while this Warrant,
or any portion thereof, remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the exercise
price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 13.
13.3 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the exercise price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
13.4 ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR PROPERTY. If
while this Warrant, or any portion thereof, remains outstanding and unexpired
the holders of the securities as to which purchase rights under this Warrant
exist at the time shall have received, or, on or after the record date fixed for
the determination of eligible stockholders, shall have become entitled to
receive, without payment therefor, other or additional stock or other securities
or property (other than cash) of the Company by way of dividend, then and in
each case, this Warrant shall represent the right to acquire, in addition to the
number of shares of the security receivable upon exercise of this Warrant, and
without payment of any additional consideration therefor, the amount of such
other or additional stock or other securities or property (other than cash) of
the Company which such holder would hold on the date of such exercise had it
been the holder of record of the security receivable upon exercise of this
Warrant on the date hereof and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and/or
all other additional stock available by it as aforesaid during such period,
giving effect to all adjustments called for during such period by the provisions
of this Section 13.
13.5 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment
or readjustment pursuant to this Section 13, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each Holder of this Warrant a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request, at any time, of any such holder,
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<PAGE>
furnish or cause to be furnished to such holder a like certificate setting
forth: (i) such adjustments and readjustments; (ii) the exercise price at the
time in effect; and (iii) the number of shares and the amount, if any, of other
property which at the time would be received upon the exercise of the Warrant.
13.6 NO IMPAIRMENT. The Company will not, by any voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 13 and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holders of this Warrant against impairment.
14. MISCELLANEOUS PROVISIONS.
(a) MARKET STAND-OFF PROVISIONS.
(i) In connection with any public offering by the Company
of its equity securities pursuant to an effective registration statement filed
under the Act, the Holder shall not sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, this Warrant or any Common Stock o other security
received on conversion hereof without the prior written consent of the Company
and the representative of the underwriters. Such limitations shall be in effect
for such period of time from and after the effective date of such registration
statement as may be requested by the Company or such underwriters. The
limitations of this Section 14(a) shall remain in effect for the two-year period
immediately following the effective date of the Company's initial public
offering and shall thereafter terminate and cease to have any force or effect.
(ii) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Company's outstanding Common
Stock effected without receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Common Stock or any
warrant or other security convertible into said Common Stock shall be
immediately subject to the provisions of this Section 14(a), to the same extent
the Common Stock is at such time covered by such provisions.
(iii) In order to enforce the limitations of this Section
14(a), the Company may impose stop-transfer instructions with respect to the
Common Stock or any warrant or other security convertible into said Common Stock
until the end of the applicable market stand-off period.
(b) GOVERNING LAW. This Warrant shall be governed by, and construed
in accordance with, the laws of the State of California, as such laws are
applied to contracts entered into and performed in such State, without resort to
that State's conflict-of-laws rules.
(c) ATTORNEY'S FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to reasonable attorney's fees, costs, and disbursements in addition to
any other relief to which such party may be entitled.
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IN WITNESS WHEREOF, STARBASE CORPORATION has caused this Warrant to be
executed by its officers thereunto duly authorized.
Dated as of ________________________:
STARBASE CORPORATION
By:
-----------------------------------
COUNTERSIGNED this _____day of ___________, by the Transfer Agent for the
Company:
Montreal Trust Company
By:
-----------------------------------
(Title)
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NOTICE OF EXERCISE
To: STARBASE CORPORATION
(1) The undersigned hereby elects to purchase _____________shares of
Common Stock of STARBASE CORPORATION, pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price for such shares.
(2) In exercising his Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell, or otherwise dispose
of an such shares of Common Stock except under circumstances that will not
result in a violation of the United States Securities Act of 1933, as amended,
or any foreign or state securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below.
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
- ----------------------------------- ----------------------------------------
[Date] [NAME]
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STARBASE CORPORATION
SERIES B PREFERRED STOCK SUBSCRIPTION AGREEMENT
(Non-U.S. Persons)
<PAGE>
TABLE OF CONTENTS
1. PURCHASE AND SALE OF UNITS. . . . . . . . . . . . . . . . . . . . . . 1
1.1 Sale and Issuance of Units. . . . . . . . . . . . . . . . . 1
1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . 1
2.1 Organization, Good Standing and Qualification . . . . . . . 2
2.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Valid Issuance of Preferred Stock . . . . . . . . . . . . . 2
2.5 Governmental Consents . . . . . . . . . . . . . . . . . . . 3
2.6 Offering. . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 3
2.8 Offering Memorandum and Financial Statements. . . . . . . . 3
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. . . . . . . . . . . . 3
3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Foreign Investor. . . . . . . . . . . . . . . . . . . . . . 3
3.3 Accredited or Sophisticated Investor. . . . . . . . . . . . 4
3.4 Resales Subject to U.S. Securities Laws . . . . . . . . . . 4
3.5 Offshore Execution. . . . . . . . . . . . . . . . . . . . . 4
3.6 Offshore Transaction. . . . . . . . . . . . . . . . . . . . 4
3.7 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.8 Offering Memorandum . . . . . . . . . . . . . . . . . . . . 5
4. UNITED STATES SECURITIES AND EXCHANGE COMMISSION. . . . . . . . . . . 5
4.1 Securities Law Regulation . . . . . . . . . . . . . . . . . 5
5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING . . . . . . . . . . . 5
5.1 Representations and Warranties. . . . . . . . . . . . . . . 5
5.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . 5
5.3 Qualifications. . . . . . . . . . . . . . . . . . . . . . . 5
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. . . . . . . . . . 5
6.1 Representations and Warranties. . . . . . . . . . . . . . . 5
6.2 Payment of Purchase Price . . . . . . . . . . . . . . . . . 6
6.3 Qualifications. . . . . . . . . . . . . . . . . . . . . . . 6
7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.1 Further Restrictions on Transfer. . . . . . . . . . . . . . 6
7.2 Request for Registration. . . . . . . . . . . . . . . . . . 6
7.3 Survival of Warranties. . . . . . . . . . . . . . . . . . . 7
7.4 Successors and Assigns. . . . . . . . . . . . . . . . . . . 7
7.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 7
7.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 7
7.7 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . 7
7.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.9 Finder's Fee. . . . . . . . . . . . . . . . . . . . . . . . 8
7.10 Agent Liability . . . . . . . . . . . . . . . . . . . . . . 8
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7.11 Amendments and Waivers. . . . . . . . . . . . . . . . . . . 8
7.12 Severability. . . . . . . . . . . . . . . . . . . . . . . . 8
7.13 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . 9
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<PAGE>
Series B Preferred Stock Subscription Agreement
THIS SERIES B PREFERRED STOCK SUBSCRIPTION AGREEMENT (the "Agreement") is made
as of the 21st day of August, 1995 by and among StarBase Corporation, a Delaware
corporation (the "Company"), and the investors listed on Schedule A hereto, each
referred to as an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF UNITS
1.1 Sale and Issuance of Units
Subject to the terms and conditions of this Agreement, the Company shall sell to
the Investor, and the Investor shall purchase from the Company (by cash, check
or wire transfer), at a purchase price, in lawful United States currency, of
$2.00 per "Unit" (as hereafter defined), the number of Units of the Company's
securities set forth opposite each Investor's name on the attached Schedule A.
Each Unit shall consist of one share of series "B convertible preferred stock
(the "Series "B" Preferred Stock") and one non-transferable warrant (the "No:
transferable Warrant") to purchase one additional share of Common Stock for an
24-month period, at purchase price of $2.00 U.S. per share for the 12-month
period following the closing of the private placement and thereafter at $2.50
U.S. per share for the remaining 12-month period. The rights and obligations
attached to the Series "B" Preferred Stock will be the same as those described
in the Offering Memorandum, dated September 25, 1995. The Non-transferable
Warrant shall be in substantially the form set forth in Exhibit A attached to
this Agreement. The Company's agreements with each of the Investors are separate
agreements, and the sale of Units to each of the Investors are separate sales.
The offer and sale of the Units will be dc in accordance with and in reliance of
the provisions of Regulation S under the United States Securities Act of 1933.
1.2 Closing
The purchase and sale of the Units will be effected by the delivery of a check
for the net proceeds against delivery of the required share certificate to
Canaccord Capital Corporation for the Non-U.S. investors within five days of
acceptance by the Vancouver Stock Exchange ("VSE"), but in any event no later
than 30 days from the date of the Offering Memorandum.
1.3 Agent
The Investor was introduced to the Company by Canaccord Capital Corporation
("Canaccord") or by one of its sub-agents under the terms of an Agency Agreement
between Canaccord and the Company dated for reference August 21, 1995.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investor except as set forth
on the Schedule of Exceptions attached hereto (the "Schedule of Exceptions"),
which exceptions shall be deemed to be representations and warranties as if made
hereunder, that:
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2.1 Organization, Good Standing and Qualification
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to carry on its business as now conducted.
2.2 Capitalization
The authorized capital of the Company consisted of 50,000,000 shares of common
stock ("Common Stock"), of which 7,829,034 shares were issued and outstanding as
of August 31, 1995, and 7,250,000 shares of preferred stock ("Preferred Stock")
of which 1,250,000 have been designated Series B Preferred, none of which are
outstanding, all of which may be issued. The outstanding shares of Common Stock
are all duly and validly authorized and issued, fully paid and Non-assessable.
2.3 Authorization
All corporate action on the part of the Company, its officers and directors
necessary for the authorization, execution and delivery of this Agreement, the
performance of all obligations of the Company under this Agreement and for the
issuance and delivery of the Units will be taken as of Closing, and when
executed and delivered by the Company, assuming execution and delivery by the
Investor, this Agreement will constitute a valid and legally binding obligation
of the Company enforceable in accordance with its terms, subject to the
acceptance for filing of this Agreement by the VSE, and except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
2.4 Valid Issuance of Preferred Stock
The Series B Preferred Stock which is being purchased by the Investors
hereunder, when issued, sold and delivered in accordance with the terms hereof
for the consideration expressed herein, will be duly and validly issued, fully
paid and nonassessable and, based in part upon the representations of the
Investors in this Agreement, will be issued in compliance with the registration
requirements of all applicable federal and state securities laws. The Common
Stock issuable upon conversion of the Series B Preferred Stock and issuable upon
exercise of the Warrants being purchased under this Agreement has been duly and
validly reserved for issuance and, upon issuance to the Investors in accordance
with the terms of the Certificate of Designations, shall be duly and validly
issued, fully paid and nonassessable, and issued in compliance with the
registration requirements of all applicable securities laws, as presently in
effect, of the United States and the State of California.
The outstanding shares of Common Stock are all duly and validly issued, fully
paid and nonassessable.
2.5 Governmental Consents
No consent, approval or authorization of, or designation, declaration or filing
on the part of the Company with any foreign or United States or state
governmental authority or, to the best knowledge of the Company, with any local
governmental authority, is required in connection with the valid execution and
delivery of this Agreement, or the offer, sale or issuance of the Units or the
consummation of any other transaction contemplated hereby, except for: (i) the
filing of such forms which may be required by the VSE and the consent of the
VSE, and (ii) the filing of such forms as may be required by the Securities Act
of British Columbia (the "B.C. Act") and the rules and regulations thereunder,
(iii) as required pursuant to Regulation
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S of the United States Securities Act of 1933, as amended (the "Act"); and (iv)
as required under the securities laws of the State of California.
2.6 Offering
Subject in part to the truth and accuracy of the Investor's representations set
forth in Section 3 of this Agreement, the offer, sale and issuance of the Units
as contemplated by this Agreement are exempt from the registration requirements
of the Act, and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.
2.7 Litigation
There is, to the best of the Company's knowledge and belief, no suit, action,
arbitration, or legal, administrative or other proceeding or governmental
investigation pending or threatened against or affecting the Company which
questions the validity of this Agreement or any action that is to be taken under
or in contemplation of this Agreement.
2.8 Offering Memorandum and Financial Statements
The Issuer is the beneficial owner of the properties, business and assets or the
interests in the properties, business and assets referred to in the Offering
Memorandum dated September 25, 1995 used in connection with this private
placement (the "Offering Memorandum"), or in any other disclosure document filed
with the VSE and that any and all agreements pursuant to which the Issuer holds
any such interest in property, business or assets are in good standing according
to their terms, and the properties are in good standing under the applicable
statutes and regulations of the jurisdictions in which they are situated.
The Offering Memorandum is in all material respects accurate and omits no
material facts, the omission of which makes the Offering Memorandum or any
particulars therein misleading or incorrect.
The financial statements contained in the Offering Memorandum accurately reflect
the financial position of the Issuer as at the date thereof and no material
changes in such position have taken place since the date thereof, save in the
ordinary course of the Issuer's business.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
Each Investor hereby represents and warrants that:
3.1 Authorization
Such Investor has full power and authority to enter into this Agreement and such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms.
3.2 Foreign Investor
Such Investor certifies that it is not a U.S. person and that it is not
acquiring the Units for the account or benefit of any U.S. person, as those
terms are defined in Regulation S under the Act.
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3.3 Accredited or Sophisticated Investor
Such Investor is either (a) an "accredited investor" within the meaning of
United States Securities and Exchange Commission ("SEC") Rule 501 of Regulation
D, as presently in effect or (b) is an investor in securities of companies in
the development stage and is able to fend for itself, can bear the economic risk
of its investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Units.
3.4 Resales Subject to U.S. Securities Laws
Such Investor acknowledges that the Units have not been registered under the
Act, and agrees to resell the Units only in accordance with the provisions of
Regulation S under the Act, pursuant to registration under the Act, or pursuant
to an available exemption from such registration.
3.5 Offshore Execution
The document effecting this purchase and transfer will be executed by the
Investor outside the United States.
3.6 Offshore Transaction
Such Investor is acquiring the Units in an "offshore transaction," within the
meaning of Regulation S under the Act.
3.7 Legends
It is understood that the certificates evidencing the Units (and any shares of
Common Stock issued upon the conversion of the Non-transferable Warrants or the
Series "B" Preferred Stock) may bear one or more of the following legends, as
determined by the Company's counsel:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY
NOT BE SOLD OR OFFERED FOR SALE WITHIN THE UNITED STATES OR TO,
OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (i) AS PART OF
THEIR DISTRIBUTION AT ANY TIME OR (ii) OTHERWISE UNTIL [40 days
from closing], 1995, EXCEPT IN EITHER CASE IN ACCORDANCE WITH
REGULATION S UNDER THE ACT. TERMS USED IN THIS LEGEND HAVE THE
MEANING GIVEN TO THEM BY REGULATION S."
(b) THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
HOLD PERIOD AND MAY NOT BE TRADED IN BRITISH COLUMBIA UNTIL THE
EXPIRY OF [twelve months from Closing], 1996, EXCEPT AS
PERMITTED BY THE SECURITIES ACT (BRITISH COLUMBIA) AND THE
REGULATIONS THERETO.
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3.8 Offering Memorandum
Such Investor acknowledges having received a copy of the Offering Memorandum.
4. UNITED STATES SECURITIES AND EXCHANGE COMMISSION
4.1 Securities Law Regulation
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN
REGISTERED UNDER THE ACT AND MAY NOT BE OFFERED OR SOLD IN THE U.S. OR TO U.S.
PERSONS (AS SUCH TERM IS DEFINED UNDER REGULATION S OF THE ACT) UNLESS THE
SECURITIES ARE REGISTERED UNDER THE ACT, OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE.
5. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING
The obligations of each Investor under Section 1 of this Agreement are subject
to the fulfillment on or before the Closing of each of the following conditions,
which may be waived in writing by any Investor:
5.1 Representations and Warranties
The representations and warranties of the Company contained in Section 2 shall
be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
5.2 Performance
The Company shall have performed and complied with all agreements, obligations
and conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing.
5.3 Qualifications
All authorizations, approvals, or permits, if any, of any governmental authority
or regulatory body of British Columbia, the VSE, and the United States or of any
state that are required in connection with the lawful issuance and sale of the
Units pursuant to this Agreement shall be duly obtained and effective as of the
Closing.
6. CONDITIONS OF THE COMPASS OBLIGATIONS AT CLOSING
The obligations of the Company to the Investor under this Agreement are subject
to the fulfillment on or before the CLOSING of the following conditions by the
Investor.
6.1 Representations and Warranties
The representations and warranties of the Investor contained in Section 3 shall
be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing.
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6.2 Payment of Purchase Price
Each Investor shall have delivered the purchase price specified in Section 1 to
the Company or its designee.
6.3 Qualifications
All authorizations, approvals, or permits, if any, of any governmental authority
or regulatory body of British Columbia, the VSE, and the United States or of any
state that are required in connection with the lawful issuance and sale of the
Units pursuant to this Agreement shall be duly obtained and effective as of the
Closing.
7. MISCELLANEOUS
7.1 Further Restrictions on Transfer
The Company shall not register any transfer of the Units (or Common Stock issued
upon the conversion of the Series "B" Preferred Stock or the exercise of a Non-
transferable Warrant) not made in accordance with the provisions of Regulation S
or other applicable registration or exemption under the Act and shall not treat
as the owner of such securities, or otherwise accord voting or dividend rights
to, any transferee to whom such securities have been transferred in
contravention of this Agreement.
7.2 Request for Registration
The registration rights granted to holders of the Series B Preferred will be
subject to registration rights held by existing shareholders of the Company.
Pursuant to such existing rights without the prior written consent of a majority
in interest of the outstanding securities subject to such existing registration
rights (A) the "demand" and Form S-3 registration rights set forth below may not
cause a subject registration statement to be declared effective prior to the
earlier of August 8, 1996 or nine (9) months after the effective date of the
first registration statement for an underwritten public offering of equity
securities of the Company in the United States (other than a registration
statement relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction), and (B) the "piggy back" registration rights set forth below may
not have the effect of reducing the amount of such existing holders' securities
included in such a registration statement.
(1) Demand Rights. Investors may request that the Company effect two
registrations of at least 40% of the Registrable
Securities (defined below) or any lesser percentage;
provided that the anticipated net proceeds from such
offering exceed $250,000 and provided further that the
Company shall be obligated to effect only two such
requested registrations. The Company shall not be
obligated to effect a requested registration: (a)
during the period 60 days prior of the Company's
estimated date of the filing of any registration
statement pertaining to securities of the Company or
(b) during any "registration process" If the Company is
eligible to use Form S-3, investor agrees to request
registration under the Form S-3 provisions below rather
than the provisions of this paragraph.
(2) Company Registration. Investors shall be entitled to "piggyback"
registration rights of all registrations,
subject to the right of the underwriters and
the
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Company to cut back the number of shares
proposed to be registered in view of market
conditions.
(3) Form S-3 Registration Holders of registrable securities may request
the Company to effect a registration on Form
S-3, provided that such registration be
limited to one per twelve-month period and
result in net proceeds of at least $250,000.
(4) Expenses. The Company shall bear all expenses (exclusive of
underwriting fees, discounts or commissions or
fees of counsel for selling stockholders of all
registrations described in (1) - (3) above)
(5) Transfer of Rights. A holder of registration rights may transfer the
rights to any transferee who purchases at least
50,000 shares of the registrable securities.
However, the Company must be given written notice
of the transfer.
7.3 Survival of Warranties
The warranties, representations and covenants of the Company and Investor
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing and shall in no way be affected by
any investigation of the subject matter thereof made by or on behalf of the
Investor or the Company.
7.4 Successors and Assigns
Except as otherwise provided herein, the terms and conditions of this Agreement
shall enure to the benefit of and be binding upon the respective successors and
assigns of the parties (including transferees of any Units or the securities
comprising such Units). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.5 Governing Law
Notwithstanding the fact that this purchase and sale is an off-shore transaction
as defined in Regulation S of the Act, this Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
7.6 Counterparts
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument
7.7 Titles and Subtitles
The titles and subtitles used in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this Agreement.
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7.8 Notices
Unless otherwise provided, any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or upon deposit with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the signature
page hereof, or at such other address as such party may designate by 10 days'
advance written notice to the other parties.
7.9 Finder's Fee
Each party represents that it neither is nor will be obligated for any finders'
fee or commission in connection with this transaction, except that Canaccord is
entitled to a commission payable in shares of common stock of the Issuer equal
to 10' of the value of the aggregate proceeds to the Company of Units placed by
Canaccord. Each Investor agrees to indemnify and to hold the Company harmless
from any liability for any other commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible. Other than the finder's fee
identified above, the Company agrees to indemnify and hold harmless each
Investor from any liability for any commission or compensation in the nature of
a finders' fee (and the costs and expenses of defending against such liability
or asserted liability) for which the Company or any of its officers, employees
or representatives is responsible.
7.10 Agent Liability
Both the Company and the Investor acknowledge that Canaccord is acting as an
agent in this transaction and the Investor hereby acknowledges that all
warranties, conditions, representations or stipulations, whether expressed or
implied and whether arising hereunder or under prior agreement or statement or
by statute or at common law are expressly those of the Company. The Investor
acknowledges that no information or representation concerning the Company has
been provided to the Investor by the Company other than those contained in this
Agreement prepared by the Company and that the Investor is relying entirely upon
information or documents made publicly available by the Company and on file at
the VSE or the British Columbia Securities Commission. Any information given by
the Company or statement made by the Company is given or made without liability
or responsibility howsoever arising on the part of Canaccord. No person in the
employment of, or acting as agent of, Canaccord has any authority to make or
give any representations or warranty whatsoever in relation to the Company or
the Units.
7.11 Amendments and Waivers
Any term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and a majority of the Investors. Any amendment or waiver effected in accordance
with this paragraph shall be binding upon each holder of any securities
purchased under this Agreement at the time outstanding including securities into
which such securities are convertible), each future holder of all such
securities, and the Company.
7.12 Severability
If one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
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7.13 Entire Agreement
This Agreement and the documents referred to herein constitute the entire
agreement among the parties and no party shall be liable or bound to any other
party in any manner by any warranties, representations, or covenants except as
specifically set forth herein or therein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
STARBASE CORPORATION
By:
-----------------------------------
William R. Stow, III, President
18872 MacArthur Boulevard
Irvine, California
U.S.A. 92714
-----------------------------------
(Signature)
-----------------------------------
(Print Name)
-----------------------------------
(Address)
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EXHIBIT A
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NONTRANSFERABLE WARRANT
THIS CERTIFICATE IS NOT TRANSFERABLE AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED.
No. 1995-____ Warrant to Purchase Shares
of Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
STARBASE CORPORATION
Void after _______________, 1997
This certifies that, for value received, __________________ (the "Holder"),
is entitled, subject to the term set forth below, to purchase from StarBase
Corporation (the "Company"), a Delaware corporation, __________ shares of the
Common Stock of the Company, as constituted on the date hereof (the "Warrant
Issue Date"), upon surrender hereof, at the-principal office of the Company
referred to below, with the Notice of Exercise attached hereto duly executed,
and simultaneous payment therefor in lawful United States currency, or otherwise
as hereinafter provided, at the exercise price as-set forth in Section 2 below.
The number, character and exercise price of such shares of Common Stock are
subject to adjustment as provided herein.
1. TERM OF WARRANT. Subject to the terms and conditions set forth herein,
this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and terminating on or before two years from
the issuance date.
2. EXERCISE PRICE. The exercise price shall be (U.S.) two Dollars ($2.00)
per share during the first year after issuance, and $2.50 per share during the
second year after issuance.
3. EXERCISE OF WARRANT.
(a) This Warrant is exercisable by the Holder in whole or in part,
but not for less than 1,000 shares of Common Stock at a time (or such lesser
number of shares that may then constitute the maximum number purchasable; such
number being subject to adjustment as provided in Section 13 below), at any
time, or from time to time, during the term hereof as described in section 1
above, by the surrender of this Warrant and the Notice of Exercise annexed
hereto duly completed and executed on behalf of the Holder, at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company), upon payment (i) in cash or by check acceptable to the
Company, (ii) by cancellation by the Holder of indebtedness of the Company to
the Holder, or (iii) by a combination of (i) and (ii), for the purchase price of
the share to be purchased.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. Unless exercised
in connection
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with an underwritten public offering, as promptly as practicable on or after
such date and in any event within ten (10) days thereafter. the Company at its
expense shall issue and deliver to the person or persons entitled to receive the
same a certificate or certificates for the number of shares issuable upon such
exercise. In the event that this Warrant is exercised in part, the Company at
its expense will execute and deliver a new Warrant of like tenor exercisable for
the number of shares for which this Warrant may then be exercised. In the event
of exercise at the time of an underwritten public offering, the Company will
provide instructions as to the exercise of this Warrant into such shares
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the exercise price
multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction, or mutilation of this Warrant
and, in the case of loss, theft, or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and substance to the Company or, in
the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor and amount.
6. RIGHTS OF STOCKHOLDERS. Subject to Sections 10 and 12 of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, consolidation,
merger, or otherwise) or to receive notice of meetings, or to receive dividends
or subscription rights or otherwise until the Warrant shall have been exercised
and the shares of Common Stock purchasable upon the exercise hereof shall have
been issued as provided herein.
7. TRANSFERABILITY AND NON-NEGOTIABILITY OF WARRANT. This Warrant may not
be transferred or assigned in whole or in part
8. COMPLIANCE WITH SECURITIES LAWS.
(a) The Holder of this Warrant, by acceptance hereof, acknowledges
that the shares of Common Stock to be issued upon exercise hereof are being
acquired solely for the Holder's own account and not as a nominee for any other
party, and for investment, and that the Holder will not offer, sell, or
otherwise dispose of any shares of Common Stock to be issued upon exercise
hereof except under circumstances that will not result in a violation of the Act
or any foreign or state securities laws. Upon exercise of this Warrant, the
Holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of Common Stock so purchased are
being acquired solely for the Holder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale.
(b) All shares of Common Stock issued upon exercise hereof may be
stamped or imprinted with one or more of the following legends (in addition to
any legend required by the Securities Act of British Columbia (the "B.C. Act"),
the United States Securities Act of 1933, (the "Act") and the securities laws of
any state of the United States) as determined by counsel for the Company:
THE SHARES ARE SUBJECT TO A HOLD PERIOD AND MAY NOT BE TRADED IN BRITISH
COLUMBIA UNTIL AFTER _______________________________, EXCEPT AS PERMITTED
BY THE SECURITIES ACT OF BRITISH COLUMBIA AND THE REGULATION S THEREUNDER.
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THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD OR OFFERED FOR
SALE WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U S.
PERSONS (i) AS PART OF THEIR DISTRIBUTION AT ANY TIME OR (ii) OTHERWISE
UNTIL AFTER _________________________, EXCEPT IN EITHER CASE IN ACCORDANCE
WITH REGULATION S UNDER THE ACT. TERMS USED IN THIS LEGEND HAVE THE MEANING
GIVEN TO THEM BY REGULATION S.
9. RESTRICTIONS ON TRANSFER OF UNDERLYING COMMON STOCK. The Holder of
this Warrant by acceptance hereof agrees that the transfer of the shares of
Common Stock issuable upon the exercise of all or any portion of this Warrant
(the "Securities") are subject to the provisions of this Warrant, which include
restrictions on transfer of the Securities.
10. RESERVATION OF STOCK. The Company covenants that during the Term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued shares of Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant and, from time to
time, will take all steps necessary to amend its Certificate of Incorporation
(the "Certificate") to provide a sufficient reserve of shares of Common Stock
issuable upon exercise of the Warrant. The Company further covenants that all
shares that may be issued upon the exercise of rights represented by this
Warrant, upon exercise of the rights represented by this Warrant and payment of
the exercise price, all as set forth herein, will be free from all taxes, liens,
and charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein). The Company
agrees that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Common Stock upon the
exercise of this Warrant.
11. NOTICES.
(a) Whenever the exercise price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 13 hereof, the Company shall
issue a certificate signed by its Secretary setting forth, in reasonable detail,
the event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the exercise price and number of shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the Holder of this Warrant.
(b) In case
(i) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
this Warrant) for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe: for or purchase any shares of stock of
any class or any other securities, or to receive any other right, or
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(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up
of the Company, then, and in each such case, the Company will mail or cause to
be mailed to the Holder or Holders a notice specifying, as the case may be, (A)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (B) the date on which such reorganization,
reclassificatioa, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such stock or securities at the time
receivable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 10 days prior to the date therein specified.
(c) All such notices and communications shall be deemed to have been
received (i) in the case of personal delivery, on the date of such delivery and
(ii) in the case of mailing, on the second business day following the date of
such mailing.
12. AMENDMENTS.
(a) Any term of this Warrant may be amended with the written consent
of the Company and the holders of not less than fifty-one percent (51%) of the
shares of Common Stock issuable upon exercise of any and all outstanding
warrants for shares of Common Stock issued by the Company (the "Common Stock
Warrants"), even without the specific consent of the Holder An amendment
effected in accordance with this Section 12 shall be binding upon each holder of
any of the Common Stock Warrants, each future holder of all such Common Stock
Warrants, and the Company. The Company shall promptly give notice to all holders
of Common Stock Warrants of any amendment effected in accordance with this
Section 12.
(b) No waivers of or exceptions to any term, condition or provision
of this Warrant, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
13. ADJUSTMENTS. The exercise prices and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
13.1 MERGER, SALE OF ASSETS, ETC.
(a) If at any time, while this Warrant, or any portion thereof, is
outstanding and unexpired there shall be (i) a reorganization (other than a
combination, reclassification exchange or subdivision of shares otherwise
provided for herein) (ii) a merger or consolidation of the Company with or into
another corporation in which the Company is not the surviving entity, or a
reverse triangular merger in which the Company is the surviving entity but the
shares of the Company's capital stock outstanding immediately prior to the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash, or otherwise, or (iii) a sale or transfer of the
Company's properties and assets as, or substantially as, an entirety to any
other person, then, as a part of such reorganization, merger, consolidation,
sale or transfer, lawful provision shall be made so that the holder of this
Warrant shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified herein and upon payment of the exercise price thea
in effect, the number of shares of stock or other securities or property of the
successor corporation resulting from such reorganization, merger, consolidation,
sale or transfer which a holder of the shares deliverable upon exercise of this
Warrant would have been entitled
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to receive in such reorganization, consolidation, merger, sale or transfer if
this Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 13 The foregoing provisions of this Section 13.1 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation which are at
the time receivable upon the exercise of this Warrant. If the per share
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors, whose determination shall be final and binding In all
events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Warrant with respect to the rights and interests of the Holder after the
transaction, to the end that the provisions of this Warrant shall be applicable
after that event, as near as reasonably may be, in relation to any shares or
other property deliverable after that event upon exercise of this Warrant.
(b) NOTICES OF RECORD DATE. In the event that the Company shall
propose at any time to merge with or into any other corporation, or sell, lease
or convey all or substantially all its property or business, or to liquidate,
dissolve or wind up, then the Company shall send to the Holder of this Warrant
at least 10 days' prior written notice of the date on which a racer shall be
taken for determining rights to vote in respect of such event.
13.2 RECLASSIFICATION, ETC If the Company at any time while this Warrant,
or any portion thereof, remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the exercise
price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 13.
13.3 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the exercise price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
13.4 ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR PROPERTY. If
while this Warrant, or any portion thereof, remains outstanding and unexpired
the holders of the securities as to which purchase rights under this Warrant
exist at the time shall have received, or, on or after the record date fixed for
the determination of eligible stockholders, shall have become entitled to
receive, without payment therefor, other or additional stock or other securities
or property (other than cash) of the Company by way of dividend, then and in
each case, this Warrant shall represent the right to acquire, in addition to the
number of shares of the security receivable upon exercise of this Warrant, and
without payment of any additional consideration therefor, the amount of such
other or additional stock or other securities or property (other than cash) of
the Company which such holder would hold on the date of such exercise had it
been the holder of record of the security receivable upon exercise of this
Warrant on the date hereof and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and/or
all other additional stock available by it as aforesaid during such period,
giving effect to all adjustments called for during such period by the provisions
of this Section 13.
13.5 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment
or readjustment pursuant to this Section 13, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each Holder of this Warrant a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based The Company shall, upon the written request,
at any time, of any such holder,
5
<PAGE>
furnish or cause to be furnished to such holder a like certificate setting
forth: (i) such adjustments and readjustments; (ii) the exercise price at the
time in effect; and (iii) the number of shares and the amount, if any, of other
property which at the time would be received upon the exercise of the Warrant
13.6 NO IMPAIRMENT. The Company will not, by any voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 13 and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holders of this Warrant against impairment.
14. MISCELLANEOUS PROVISIONS.
(a) MARKET STAND-OFF PROVISIONS.
(i) In connection with any public offering by the Company
of its equity securities pursuant to an effective registration statement filed
under the Act, the Holder shall not sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, this Warrant or any Common Stock other security
received on conversion hereof without the prior written consent of the Company
and the representative of the underwriters. Such limitations shall be in effect
for such period of time from and after the effective date of such registration
statement as may be requested by the Company or such underwriters. The
limitations of this Section 14(a) shall remain in effect for the two-year period
immediately following the effective date of the Company's initial public
offering and shall thereafter terminate and cease to have any force or effect.
(ii) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Company's outstanding Common
Stock effected without receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Common Stock or any
warrant or other security convertible into said Common Stock shall be
immediately subject to the provisions of this Section 14(a), to the same extent
the Common Stock is at such time covered by such provisions.
(iii) In order to enforce the limitations of this Section
14(a), the Company may impose stop-transfer instructions with respect to the
Common Stock or any warrant or other security convertible into said Common Stock
until the end of the applicable market stand-off period.
(b) GOVERNING LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of California, as such laws are applied
to contracts entered into and performed in such State, without resort to that
State's conflict-of-laws rules.
(c) ATTORNEY'S FEES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to reasonable attorney's fees, costs, and disbursements in addition to
any other relief to which such party may be entitled.
6
<PAGE>
IN WITNESS WHEREOF, STARBASE CORPORATION has caused this Warrant to be
executed by its officers thereunto duly authorized.
Dated as of ________________________
STARBASE CORPORATION
By:
--------------------------------
COUNTERSIGNED this ____ day of____________ by Transfer Agent for the Company:
Montreal Trust Company
By:
-------------------------------------
(Title)
7
<PAGE>
NOTICE OF EXERCISE
To: STARBASE CORPORATION
(1) The undersigned hereby elects to purchase _____shares of Common Stock
of STARBASE CORPORATION, pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price for such shares.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell, or otherwise dispose
of an such shares of Common Stock except under circumstances that will not
result in a violation of the United States Securities Act of 1933, as amended,
or any foreign or state securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
- ----------------------------------- ----------------------------------------
[Date] [NAME]
8
<PAGE>
PRIVATE PLACEMENT #12 INVESTOR LIST
US /
NON-US UNITS
---------------------
D. Patrick Linehan US 24,118
Michael G. Lyons. US 46,451
Jade Port Ltd. Non-US 63,722
Aaron Miller US 50,391
Harold O. Miller & Marjorie E. Miller TTEES of the
Harold O. Miller and Marjorie E. Miller Family
Living Trust of 1993 US 12,672
Quentin Rink US 66,375
First Trust Corp. Custodian FBO Quentin H. Rink US 20,000
Frutella Trading Ltd. Non-US 12,571
Etsuko Kato Benson, TTE, Benson Family Trust,
U/A 10-30-91 US 50,078
Amerindo Technology Growth Fund II Non-US 125,291
Eric Ufer US 2,777
Steven L. Basta US 12,500
William F. Bell & Margaret Bell TTEES Bell Family
Trust DTD 2-3-84 US 12,500
Robert McCullough, Jr. US 20,000
Robert F. McCullough US 150,000
Gruber & McBaine International US 25,000
Jon D. Gruber US 25,000
Lagunitas Partners, L.P. US 200,000
The Kemajo Family LP US 37,500
Whelan & Gratny Capital Management US 12,500
The Meier Group US 10,000
Deborah Whelan US 5,000
Jon-Cin & Son L.P. US 15,000
Recovery Fund L.P. US 25,000
Harold Wrobel US 25,000
<PAGE>
JDN Partners, L.P. US 75,000
Storie Partners, L.P. US 375,000
Joseph Musto US 5,000
John Troubh US 25,000
Stephen W. Leahy US 32,500
Seth Sholes US 10,000
Lawrence Gibson & Victor Nostas Tenants in Common US 36,000
Steven Antebi US 25,000
Intersolv, Inc. US 250,000
Banque Genovoise de Gestion Non-US 150,000
William L. Kostelecky & Beatrice B. Kostelecky TR.
UA 7-20-88 FBO Kostelecky Trust US 25,000
A.Tod Hindin and Marion L. Hindin US 10,000
Philip Mabry US 10,000
Salina Investments Ltd. Non-US 12,500
Pyramid Securities Ltd. Non-US 12,500
Mindful Partners, L.P. US 100,000
Sunnyfair Ltd. Non-US 25,000
--------------------
Total 2,227,946
--------------------
--------------------
<PAGE>
AMENDMENT NO. 1 TO SUBLEASE
This Amendment No. 1 to Sublease (this "Amendment") is entered into as of
December 1, 1994 (the "Effective Date"), between MCDONNELL DOUGLAS TRAVEL
COMPANY, a Maryland corporation ("Sublessor") and STARBASE CORPORATION, a
Delaware corporation ("Sublessee").
RECITALS
A. Sublessor is the lessee under that certain Douglas Plaza Office Lease
dated December 9, 1991, as amended by Amendment No. 1 to Office Lease dated as
of November 11, 1992 and Amendment No. 2 to Office Lease dated as of November
9, 1993 (said lease and amendments are herein collectively referred to as the
"Master Lease"), wherein McDonnell Douglas Realty Company, a California
corporation ("Master Lessor"), as successor in interest to The Douglas
Development Company - Irvine Partnership in Commendam, leased to Sublessor the
Third and Fourth Floors within the building (the "Building") commonly known as
18872 MacArthur Boulevard, City of Irvine, County of Orange, California, as
more particularly described in the Master Lease (the "Master Premises").
B. Sublessor is the sublessor and Sublessee is the sublessee pursuant to
a certain written Sublease dated December 2, 1993 (the "Sublease") covering the
entire Fourth Floor of the Master Premises, as more fully described in the
Sublease (the "Original Premises").
C. Pursuant to Paragraph 27 of the Sublease, Sublessee has exercised its
right to expand the Original Premises by adding the entire Third Floor of the
Master Premises, as depicted on EXHIBIT A attached hereto, consisting of
approximately 12,276 rentable square feet (the "Additional Premises").
Sublessor and Sublessee are entering into this Amendment to confirm the terms
upon which the Sublessee shall hold and occupy the Additional Premises.
AGREEMENT
1. LEASING OF ADDITIONAL PREMISES. Sublessor hereby subleases to
Sublessee, and Sublessee hereby leases from Sublessor, the Additional Premises.
Such leasing shall be upon the terms and conditions set forth in this
Amendment. All references herein and in the Sublease to the "Premises" shall
hereafter mean, unless the context clearly indicates to the contrary, the
Original Premises and the Additional Premises; and all references herein and in
the Sublease to the "Sublease" shall mean, unless the context clearly indicates
to the contrary, the Sublease as amended by this Amendment.
<PAGE>
2. TERM.
(a) COMMENCEMENT DATE. Subject to the later provisions hereof, the
term of the Sublease with respect to the Additional Premises (the "Additional
Premises Term") shall commence (the "Additional Premises Commencement Date")
on the earlier of (i) the date Sublessor or Sublessor's architect or general
contractor notifies Sublessee that the Additional Premises Improvements (as
hereinafter defined) are substantially completed (I.E., fully completed except
for punch-list items) in accordance with the approved plans and specifications,
or (ii) the date Sublessee commences occupancy of the Additional Premises.
Sublessor and Sublessee anticipate that the Additional Premises Term will
commence on or before December 1, 1994, but such anticipated Additional
Premises Commencement Date shall in no event affect the actual Additional
Premises Commencement Date, which shall be determined as set forth in this
Section. Unless sooner terminated in accordance with the provisions of the
Sublease, the Additional Premises Term shall end on February 13, 1997, unless
the Master Lease is earlier terminated for any reason whatsoever, in which
event the Sublease shall terminate on such earlier date. Upon termination of
the Sublease, Sublessor and Sublessee shall be released from all liabilities
and obligations hereunder except as otherwise expressly provided herein.
Sublessor shall not be liable to Sublessee if Sublessor does not deliver
possession of the Additional Premises to Sublessee on the anticipated
Additional Premises Commencement Date. Sublessor's non-delivery of the
Additional Premises to Sublessee on that date shall not affect the Sublease or
the obligations of Sublessee under the Sublease except that the Additional
Premises Commencement Date shall be delayed until Sublessor delivers possession
of the Additional Premises to Sublessee with the Additional Premises
Improvements substantially completed, unless such failure to deliver is due to
Sublessee Delay (as hereinafter defined), in which case the Additional Premises
Commencement Date shall be the date that Sublessor would have delivered
possession of the Additional Premises to Sublessee with the Additional Premises
Improvements substantially completed but for Sublessee Delay. If Sublessor
does not deliver possession of the Additional Premises to Sublessee within
sixty (60) days after the anticipated Additional Premises Commencement Date,
plus periods attributable to Sublessee Delay and force majeure (as hereinafter
defined), Sublessee may elect to cancel this Amendment No. 1 by giving written
notice to Sublessor within twenty (20) days after the sixty (60)-day period
ends (unless Sublessor delivers possession with the Additional Premises
Improvements substantially completed prior to receiving such written notice).
If Sublessee gives such notice, this Sublease shall be cancelled and neither
Sublessor nor Sublessee shall have any further obligations to the other
hereunder. If Sublessee does not give such notice, Sublessee's right to cancel
this Sublease shall expire and the Additional Premises Term shall
2
<PAGE>
commence upon the delivery of possession of the Additional Premises to
Sublessee with the Additional Premises Improvements substantially completed.
(b) EARLY ENTRY. Sublessee and its authorized agents, contractors,
subcontractors and employees shall be granted a license by Sublessor to enter
upon the Additional Premises, at Sublessee's sole risk and expense, during
ordinary business hours at least five (5) days prior to the Additional Premises
Commencement Date, for the sole purpose of installing Sublessee's trade
fixtures and equipment in the Additional Premises; provided, however, that (i)
the provisions of the Sublease, other than with respect to the payment of rent,
shall apply during such early entry, including, but not limited to, the
provisions of relating to Sublessee's indemnification of Sublessor, (ii) prior
to any such entry, Sublessee shall pay for and provide evidence of the
insurance to be provided by Sublessee pursuant to the provisions of this Lease,
(iii) Sublessee shall not unreasonably interfere, delay or hinder Sublessor,
its agents, contractors or subcontractors in the construction of the Additional
Premises Improvements in accordance with the provisions of the Sublease, and
(v) Sublessee shall not commence the operation of business during the period of
such early entry. Upon Sublessee's breach of any of the foregoing conditions,
Sublessor may, in addition to exercising any of its other rights and remedies
set forth herein, revoke such license upon notice to Sublessee. Early entry by
Sublessee in accordance with this Section shall not constitute occupancy of the
Additional Premises for purposes of establishing the Additional Premises
Commencement Date.
(c) SUBLESSEE DELAY: FORCE MAJEURE. The provisions of the Sublease
regarding Sublessee Delay and Force Majeure shall apply to the Additional
Premises Commencement Date.
3. CONDITION OF ADDITIONAL PREMISES.
(a) CONDITION OF ADDITIONAL PREMISES. Sublessor's sole construction
obligations, if any, regarding improvements for the Additional Premises are set
forth in this Amendment. The taking of possession or use of the Additional
Premises by Sublessee for any purpose (other than early entry as provided
above) shall conclusively establish that Sublessee has inspected the Additional
Premises and accepts them as being in good and sanitary order, condition and
repair and that the Additional Premises Improvements have been constructed in
accordance with the plans and specifications; provided, however, that after the
Additional Premises Improvements are substantially completed, and following
three (3) business days advance notice from Sublessor to Sublessee (unless the
parties agree to an earlier date), Sublessor shall cause its contractor to
inspect the Additional Premises with a representative of Sublessee and prepare
a punch-list of unfinished items or defects (the punch-list shall be
3
<PAGE>
limited to items required to be accomplished by Sublessor under this Sublease)
and, except as hereafter provided, Sublessor will complete at its expense all
items referenced in such punchlist within fifteen (15) days after receipt of
such notice, or as soon thereafter as Sublessor, acting in good faith, can
repair, replace or complete the same. Subject to the foregoing and Sublessor's
completion of the punch-list, Sublessee acknowledges that Sublessor has made no
representation and has given no warranty to Sublessee regarding the fitness of
the Additional Premises for Sublessee's intended use. Sublessee shall accept
and occupy the Additional Premises in its "AS IS" condition and "WITH ALL
FAULTS"; provided, however, that Sublessor agrees to assign to Sublessee any
warranties applicable to the Additional Premises Improvements that may be
provided to Sublessor by contractors, manufacturers or suppliers, to the extent
such warranties are assignable to Sublessee without the consent of third
parties.
(b) TENANT IMPROVEMENTS. Sublessor agrees to complete certain tenant
improvements shown or listed in EXHIBIT B attached hereto (the "Additional
Premises Improvements") in a manner substantially equivalent in quality to the
existing tenant improvements located within the Original Premises. Sublessor
will use diligent efforts to complete the Additional Premises Improvements by
the anticipated Additional Premises Commencement Date. Plans and
specifications, sufficient in detail to permit actual construction, shall be
prepared aud approved by Sublessor and delivered to Sublessee at least twenty-
five (25) days prior to the anticipated Additional Premises Commencement Date.
The proposed plans and specifications shall be reviewed and approved (with any
objection described in reasonable detail in writing) by Sublessee within three
(3) business days after Sublessee's receipt. If Sublessee objects to the plans
and specifications proposed by Sublessor (which objection must be accompanied
by specific reasons and acceptable alternatives thereto), Sublessor shall
modify and resubmit them to Sublessee, in which event Sublessee shall approve
(or reasonably disapprove) the revised plans and specifications within two (2)
business days after Sublessee's receipt. No changes in the final plans and
specifications shall be made unless written change orders are signed by both
parties. Sublessor shall construct the Additional Premises Improvements in a
workmanlike manner in conformity with all applicable laws, codes and
regulations of governmental authorities having jurisdiction over the Building
and Premises and all valid building permits and other authorizations from
appropriate governmental agencies when required, and will be fully responsible
for making all alteration or repairs (at no cost to Sublessee) resulting from
or necessitated by Sublessor's failure to comply with any such applicable laws,
codes and regulations. In the event any changes are made by Sublessee to the
final plans and specifications, and such changes result in delays in the
completion of the Additional Premises Improvements,
4
<PAGE>
neither the Commencement Date nor any obligation of Sublessee hereunder, shall
be modified or deferred in any way. In the event Sublessor is not able to
substantially complete the Additional Premises Improvements by the Commencement
Date due to Sublessor's delay, the Commencement Date shall be modified by the
number of days required to substantially complete the Additional Premises
Improvements. In connection with Sublessee's approval of the final plans and
specifications for the Additional Premises Improvements, Sublessee shall also
approve a budget for the completion of the Additional Premises Improvements
prepared by Sublessor. Sublessor shall be responsible for and shall contribute
("Sublessor's Contribution") the lesser of (i) fifty percent (50%) of the
entire construction cost of the Additional Premises Improvements as shown on
the budget, which shall include both hard costs of construction (contractor
fees, labor, materials, etc.) and soft costs (architectural and space planning,
overhead and supervision fees, etc.) (collectively, "Construction Cost"), or
(ii) $20,000. In other words, if the total Construction Cost is $40,000 or
more, Sublessor's Contribution would be $20,000; if the total Construction Cost
is less than $40,000, Sublessor's Contribution would be fifty percent (50%)
thereof. Sublessee shall be responsible for, and shall pay directly to
Sublessor within ten (10) days of Sublessor's statement or invoice therefor
(which statement or invoice shall be based on the approved budget) all
Construction Cost of the Additional Premises Improvements to the extent such
Construction Cost exceeds Sublessor's Contribution. During construction of the
Additional Premises Improvements, Sublessee shall not use or otherwise
interfere with the use of any portion of the Additional Premises, except as
specifically permitted by Sublessor and the appropriate governmental
authorities or as otherwise provided herein. Sublessor and Sublessee hereby
approve the budget for the Additional Premises Improvements attached hereto as
EXHIBIT C.
4. INCREASED MINIMUM SUBRENT: INCREASED OPERATING EXPENSES. Sublessee
shall pay to Sublessor throughout the Additional Premises Term, as rent for the
entire Premises [I.E., for the Original Premises and the Additional Premises),
without notice or demand and without abatement, deduction or offset, in lawful
money of the United States, in advance on or before the first day of each
month, the following sums ("Rent" or "rent"):
(a) MONTHLY RENT. Monthly rent ("Monthly Rent") in the amount of
Twenty-Six Thousand Twenty-Three Dollars ($26,023)(I.E., $13,011 for each
of the Original Premises and the Additional Premises). Monthly Rent and all
other amounts and charges due Sublessor under this Sublease, shall be
paid at:
5
<PAGE>
McDonnell Douglas Travel Company 18872 MacArthur
Boulevard, Suite 300 Irvine, California 92715
Attention: Wendell Moen
or such other place or to such other party as Sublessor may designate from time
to time by written notice to Sublessee. Until the Additional Premises
Commencement Date, Sublessee shall continue to pay rent as set forth in the
Sublease.
(b) OPERATING EXPENSES. The Master Lease requires Sublessor to pay
to Master Lessor its proportionate share of increases in the expenses of
operating the building and project of which the Premises are a part over a
base year, including, but not limited to, real property taxes, utilities and
insurance. Such expenses are referred to herein and in the Master Lease as
"Operating Expenses." Throughout the Additional Premises Term, Sublessee
shall pay to Sublessor as additional rent one hundred percent (100%) of all
Operating Expenses payable by Sublessor under the Master Lease during the Term,
calculated in accordance with Section 4 of the Master Lease, except that the
term "Base Year," for purposes of Sublessee's payment of Operating Expenses,
shall mean the full calendar year beginning January 1, 1993 (except for utility
payments, for which the term "Base Year" shall mean the full calendar year
beginning January 1, 1992). Such additional rent shall be payable as and when
Operating Expenses are payable by Sublessor to Master Lessor under the Master
Lease. In that regard, Sublessee acknowledges that the Master Lease may
provide for the monthly payment by Sublessor of Operating Expenses on the basis
of Master Lessor's estimate thereof, and agrees that Sublessee likewise shall
pay such additional rent to Sublessor on the basis of any such estimate.
Notwithstanding anything herein to the contrary, Sublessee shall pay all excess
or after-hours electricity costs and other utility costs and related amounts,
as described in Section 16 and elsewhere in the Master Lease, reasonably
determined by Sublessor or Master Lessor to be attributable to the Premises or
Sublessee's use thereof, directly to Master Lessor or the appropriate supplier.
Until the Additional Premises Commencement Date, Sublessee shall continue to
pay Operating Expenses as set forth in the Sublease.
5. OTHER TERMS AS TO ADDITIONAL PREMISES. From and after the Additional
Premises Commencement Date, Sublessee shall hold, occupy and surrender the
Additional Premises upon all the terms of the Sublease and this Amendment,
except that (i) Sublessee shall have no further expansion rights under the
Sublease or this Amendment, and (ii) those provisions of the Sublease which are
superseded by or inconsistent with the provisions of this Amendment shall have
no application to the Additional Premises.
6
<PAGE>
6. SIGNAGE. Subject to the terms of the Master Lease, Sublessee shall
be entitled to a proportionate share of building standard directory and door
signage for the Additional Premises, if any such signage rights are allocated
to Sublessor under the Master Lease, but Sublessor shall have approval rights
regarding the size, location, design and content of such signs. Sublessor
shall remove its existing signage at the Additional Premises prior to the
Additional Premises Commencement Date and repair any damage caused thereby.
7. NO ORAL AGREEMENTS. The Sublease and this Amendment contain all of
the agreements of the parties with respect to the matters set forth herein,
except for those terms and conditions incorporated herein by references. There
are no oral agreements or understandings between the parties hereto affecting
the Sublease or this Amendment. Neither the Sublease nor this Amendment can be
changed or terminated orally but only by an agreement in writing signed by the
party against whom enforcement or any waiver, change, modification or discharge
is sought.
8. INCORPORATION OF EXHIBITS. The Exhibits attached hereto are
incorporated herein by this reference.
9. SECURITY DEPOSIT. Upon the execution of the Sublease, Sublessee
shall increase the Security Deposit deposited with Sublessor under the Sublease
by delivering to Sublessor, in cash, the sum of Thirteen Thousand Eleven and
50/100 Dollars ($13,011.50). Said sum shall be added to the original Security
Deposit and governed by the provisions in the Sublease with respect to Security
Deposit.
10. BROKER PARTICIPATION. As part of the consideration for the granting
of this Lease, Sublessor and Sublessee represent and warrant to each other,
that, to their knowledge, no broker, agent or finder negotiated or was
instrumental in negotiating or consummating this Lease on behalf of Sublessor
or Sublessee, and that Sublessor and Sublessee know of no broker, agent or
finder who is or might be entitled to a commission or compensation in
connection with the Sublease or this Amendment. Each party shall hold the
other harmless from all damages and indemnify the other for all damages paid or
incurred by the other resulting from any claims that may be asserted by any
broker, agent or finder based on any statements or representations by Sublessee
or Sublessor, as the case may be.
11. PARKING. Subject to Master Lessor's continuing to make such parking
spaces available, Sublessee shall be entitled to the non-exclusive use of all
89 surface parking spaces in the adjacent surface parking area, including any
reserved stalls, allotted to Sublessor under the Master Lease, free of charge,
coterminous with the Term. Any additional spaces required and available shall
be at Master Lessor's current market rates and
7
<PAGE>
shall, if available, be located across Douglas Street at a parking area
designated by Master Lessor for additional Douglas Plaza parking.
12. ADDITIONAL RENTAL PAYMENTS. Paragraph 30 of the Sublease is
hereby amended and restated in its entirety to provide as follows:
"30. ADDITIONAL RENTAL PAYMENTS. In addition to the minimum monthly
rent, operating expenses and other charges required to be paid by
Sublessee hereunder, from and after December 1, 1994 Sublessee agrees to
pay to Sublessor, as additional rent for use of the phone system existing
in the Premises and described in attached EXHIBIT E, at Sublessor's
notice address set forth herein, monthly installments as follows on the
first day of each and every calendar month, together with Sublessee's
payment of fixed minimum rent, through the Term of the Sublease: $2,500
per month until December 1, 1995; $3,000 per month thereafter. This
rental agreement for the phone system may be terminated by Sublessee upon
ninety (90) days prior written notice given not prior to December 1, 1995.
Such phone system is being provided by Sublessor in an "AS IS", "WHERE IS"
and "WITH ALL FAULTS" condition, without warranty or representation of any
kind; provided, however, that Sublessee shall maintain such phone system
and shall return the phone system to Sublessor at the end of the Term (or
earlier termination of the phone system rental agreement as provided
above) in good working order and repair, ordinary wear and tear excepted.
Sublessee acknowledges and agrees that as part of Sublessee's maintenance
and repair of the phone system that Sublessee shall obtain Sublessor's
written approval, which shall not be unreasonably withheld, prior to
Sublessee undertaking any such maintenance and repair, which for purposes
hereof also shall include any additions, purchases, alterations or other
services relating to the phone system. All software enhancements to
maintain phone system will be retained by Sublessor provided, however,
that if requested by Sublessee, Sublessor will use reasonable efforts to
obtain available software enhancements for Sublessee's use, the cost of
which will be borne entirely by Sublessee. In addition to the foregoing
rental payments, effective December 1, 1994 Sublessee also agrees to pay
to Sublessor rent for the use of the furniture, equipment and inventory
listed on attached EXHIBIT E, at Sublessor's notice address set forth
herein, monthly installments of $4,647 on the first day of each and every
calendar month throughout the entire Term of the Sublease. Such
furniture, equipment and
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inventory is being provided by Sublessor in an "AS IS", "WHERE IS", and
"WITH ALL FAULTS" condition, without warranty or representation of any
kind and without regard to the present or future condition of such
furniture, equipment and inventory; provided, however, that any such
furniture, equipment and inventory may be purchased by Sublessee at the
expiration of the Term for $1.00, provided Sublessee is not then in
default hereunder with all applicable notice and cure periods expired, in
which event such furniture, equipment and inventory shall belong to, and
shall be removed by, Sublessee at the expiration of the Term. In the
event the Master Lease terminates for any reason, Sublessor shall continue
to permit Sublessee to use the phone system, furniture, equipment and
inventory described pursuant to the provisions of this Paragraph 30 until
the expiration or earlier termination of this Sublease (or any direct
lease with Master Lessor), with Master Lessor having the right to receive
all payments required of Sublessee under this Paragraph 30 after any such
termination of the Master Lease. In addition, if the Master Lease
terminates due to a default by Sublessor, Sublessor shall forfeit all
right, title, and interest in the phone system, furniture, equipment and
inventory described above in this Paragraph 30, all of which shall vest
immediately in Master Lessor, and in such event, the payments for phone
system, furniture, equipment or inventory shall be made by Sublessee
directly to Master Lessor provided that the Master Lessor honors
Sublessors obligations hereunder. Nothing contained herein shall entitle
Sublessee to any reimbursement of amounts paid prior to December 1, 1994
with respect to the phone system, furniture, equipment or inventory under
the Sublease or otherwise."
13. EXHIBIT E. Exhibit E of the Sublease shall be amended and restated
to provide as set forth on Exhibit D hereto.
14. LEASE IN EFFECT. Sublessor and Sublessee acknowledge and agree that
the Sublease, as hereby amended and supplemented, remains in full force and
effect in accordance with its terms.
9
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Amendment as
of the day and year first written above.
SUBLESSOR: MCDONNELL DOUGLAS TRAVEL COMPANY,
a Maryland corporation
By: /s/ WENDELL MOEN
-----------------------------------
Its: VP Western Region
------------------------------
SUBLESSEE: STARBASE CORPORATION,
a Delaware corporation
By: /s/ ANDREW D. WALL
-----------------------------------
Its: CEO
------------------------------
10
<PAGE>
AMENDMENT NO. 2 TO SUBLEASE
This Amendment No. 2 to Sublease (this "Second Amendment") is entered
into as of September 1, 1995 (the "Effective Date"), between McDONNELL DOUGLAS
TRAVEL COMPANY, a Delaware corporation ("MDTC") and STARBASE CORPORATION, a
Delaware corporation (" Starbase").
RECITALS
A. MDTC is the lessee under that certain Douglas Plaza Office Lease
dated December 9, 1991, as amended by Amendment No. 1 to Office Lease dated as
of November 11, 1992 and Amendment No. 2 to Office Lease dated as of November
9, 1993 (said lease and amendments are herein collectively referred to as the
"Master Lease"), wherein McDonnell Douglas Realty Company, a California
corporation ("Master Lessor"), as successor in interest to The Douglas
Development Company - Irvine Partnership in Commendam, leased to MDTC the Third
and Fourth Floors within the building (the "Building") commonly known as 18872
MacArthur Boulevard, City of Irvine, County of Orange, California, as more
particularly described in the Master Lease (the "Master Premises").
B. MDTC is the sublessor and Starbase is the sublessee pursuant to a
certain written Sublease dated December 2, 1993 (the "Sublease"), as amended by
Amendment No. 1 to Sublease dated as of December 1, 1994 (the "Sublease
Amendment"), covering the entire Third and Fourth Floor of the Master Premises
(the "Subleased Premises"), as more fully described in the Sublease. All
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Sublease.
C. Pursuant to that certain Stipulation Re: Entry of Judgment for
Case No. 751766 in the Superior Court of the State of California for the County
of Orange unlawful detainer proceeding, and the Stipulation Re: Entry of
Judgment for Case No. 752031 in the Superior Court of the State of California
for the County of Orange civil action (collectively, the "Stipulation"), each
of which is incorporated fully herein by this reference, Starbase has, among
other things, stipulated to judgment for possession in favor of MDTC for the
Fourth Floor of the Subleased Premises, and the parties have agreed to further
amend the Sublease to reflect the Stipulation and to modify certain other
provisions of the Sublease and Sublease Amendment. All references herein to the
"Sublease" shall hereinafter mean, unless the context clearly indicates to the
contrary, the Sublease and Sublease Amendment, as amended by this Second
Amendment.
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NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, MDTC and Starbase hereby agree as
follows:
AGREEMENT
1. SURRENDER OF FOURTH FLOOR PREMISES. Starbase shall vacate and
voluntarily surrender the entire Fourth Floor of the Subleased Premises (the
"Surrender Portion") to MDTC on or before October 7, 1995 (the "Surrender
Date"). Such vacation and surrender shall be performed in accordance with all
of the provisions of the Master Lease and Sublease regarding surrender. From
and after the Surrender Date, all references in the Sublease to the "Premises"
and all references in this Second Amendment to the "Subleased Premises" shall
mean, unless the context clearly indicates to the contrary, the Third Floor of
the Subleased Premises only (I.E., the entire Subleased Premises less the
Surrender Portion).
2. TERM. The parties hereby acknowledge that the Term of the
Sublease, as amended hereby, shall expire at 5:00 p.m. on February 14, 1997.
3. MONTHLY RENT. From and after the Effective Date, Monthly Rent for
the Subleased Premises shall be an amount equal to Eighteen Thousand Dollars
($18,000) per month, payable on the first day of each calendar month in advance
as set forth in the Sublease.
4. OPERATING EXPENSES. From and after the Effective Date, so long as
Starbase is not in default beyond applicable notice and cure periods under the
Sublease, as amended hereby, the provisions of Section 6(b) of the Sublease
(regarding the payment of Operating Expenses by Starbase) shall not apply with
respect to the Subleased Premises; provided, however, that notwithstanding
anything herein to the contrary, (i) the provisions of Section 6(b) of the
Sublease shall be automatically reinstated, retroactive to the Effective Date,
upon a default by Starbase beyond applicable notice and cure periods under the
Sublease, as amended hereby; (ii) Starbase shall continue to be responsible for
and shall pay all excess or after-hours electricity costs and other utility
costs and related amounts, as described in Section 16 and elsewhere in the
Master Lease, directly to Master Lessor or the appropriate supplier; and (iii)
the provisions of Section 6(b) of the Sublease shall apply in determining the
Operating Expenses component of MDTC's prospective rent damages incurred under
the Sublease for the Surrender Portion for the period September 1, 1995 through
February 14, 1997.
5. SURRENDER OF FURNITURE AND TELEPHONE EQUIPMENT. Concurrently with
Starbase's surrender of the Surrender Portion, Starbase also shall surrender
all furniture, equipment and inventory and telephone equipment belonging to
MDTC and described in Exhibit "E" and Paragraph 30 of the Sublease, except the
furniture, equipment and inventory and telephone equipment listed in the "MDTC
Equipment Inventory at Starbase", denominated and appended as Exhibit "1" of
this Second Amendment, in good condition, order and repair, reasonable wear and
tear excepted. So long as Starbase is not in default beyond applicable notice
and cure periods under the Sublease, as amended hereby, Starbase shall have a
license
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<PAGE>
to use the remaining furniture, equipment, inventory and telephone equipment
owned by MDTC and described in Exhibit "1" of this Second Amendment for the
remainder of the Term at Starbase's sole cost, risk and expense, provided,
however, that (i) all such remaining items shall be surrendered by Starbase to
MDTC upon expiration of the Term of this Sublease in good condition, order and
repair, reasonable wear and tear excepted; and (ii) such license is subject to
immediate revocation by MDTC upon a default by Starbase beyond applicable
notice and cure periods under the Sublease, as amended by this Second
Amendment. Starbase hereby waives and relinquishes any and all right it may
have formerly possessed under the Sublease, as amended by the Sublease
Amendment, to purchase any of the furniture, equipment and inventory and
telephone equipment under the Sublease and Sublease Amendment. This Paragraph
shall supersede, supplant and replace Paragraph 30 of the Sublease (relating to
Starbase's rental of and right to purchase such furniture, fixtures, equipment,
inventory and telephone equipment) in its entirety.
6. STARBASE'S DEFAULT: NOTICE. The phrase "ten (10) working days
after written notice" set forth in Section 30(a) of the Master Lease and
incorporated by reference into the Sublease is hereby replaced with the phrase
"three (3) days after written notice". Any default by Starbase in the payment
of any sums due or performance required under the Stipulation shall be
considered a default under the Sublease. In addition, notwithstanding any
additional or contrary address for notice set forth in the Sublease, notices to
Starbase shall be sufficient if personally delivered or mailed by first class
mail, postage prepaid, to the following address:
Starbase Corporation
18872 MacArthur Boulevard
Suite 300
Irvine, California 92715
7. SECURITY DEPOSIT. Starbase acknowledges that all sums heretofore
deposited by Starbase to MDTC representing Starbase's Security Deposit have
been retained by MDTC and have or shall be applied as set forth in the
Stipulation.
8. MDTC'S EARLY TERMINATION RIGHT. MDTC, at MDTC's sole option and
discretion and without liability to MDTC, shall have the right at any time
during the remaining Term of the Sublease to terminate the Sublease for Suite
300 of the Subleased Premises by written notice to Starbase (the "Early
Termination Notice"), which notice shall specify the date for such termination
(the "Early Termination Date"). The Early Termination Date shall be not less
than sixty (60) days after the date of the Early Termination Notice. From and
after the Early Termination Notice, the expiration of the Term of the Sublease
shall be deemed to be the Early Termination Date. To the extent that MDTC
exercises its Early Termination Right under this paragraph, Starbase shall be
released as of the Early Termination Date for any further rental liability to
MDTC for Suite 300 of the Subleased Premises.
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<PAGE>
9. PARKING. Section 28 of the Sublease is hereby deleted and replaced
with the following:
"28. PARKING. Subject to Master Lessor's continuing to make
such parking spaces available, Starbase shall be entitled to
the non-exclusive use of 44 unreserved parking spaces in the
adjacent surface parking area allotted to MDTC under the Master
Lease, free of charge, coterminous with the Term of the
Sublease. Any additional spaces required shall, if available,
be at Master Lessor's then current rates, payable in advance."
10. CONDITION OF SUBLEASED PREMISES. Starbase acknowledges that
Starbase currently occupies the Subleased Premises and that every part thereof
is in good and sanitary order, condition and repair, and that Starbase has
accepted and is occupying the Subleased Premises and all improvements therein
in "AS IS" condition and "WITH ALL FAULTS." Without limitation on the
foregoing, Starbase agrees that MDTC has no responsibility to install,
construct or complete any improvements in or to the Subleased Premises, the
Building, the Project or any portion thereof.
11. MDTC'S SIGNAGE TERMINATION RIGHT. MDTC shall have the right at
any time during the remaining Term of the Sublease to terminate Starbase's
signage rights with respect to the Building and to remove or cause the removal
of Starbase's then existing signage at the Building by written notice to
Starbase (the "Signage Termination Notice"), which notice shall specify the
date for such termination (the "Signage Termination Date"); the Signage
Termination Date shall be not less than thirty (30) days after the date of the
Signage Termination Notice. To the extent MDTC elects to exercise its signage
termination rights under this Paragraph, any such removal of the existing
signage shall be performed by MDTC at MDTC's cost and expense, but without any
other liability to MDTC. So long as Starbase is not in default beyond
applicable notice and cure periods under the Sublease, as amended hereby, MDTC
shall exercise its termination of Starbase's signage rights under this
Paragraph only if MDTC or Master Lessor determines in its sole but good faith
discretion that removal of the Starbase signage is necessary or desirable in
connection with other proposed or actual leases in the Project.
12. REPLACEMENT OF TELEPHONE SYSTEM. MDTC, at MDTC's sole option and
discretion and without liability to MDTC except as provided in this Paragraph,
shall have the right at any time during the remaining Term of the Sublease to
terminate Starbase's use of the telephone system described in Exhibit "1" of
this Second Amendment in Suite 300 of the Subleased Premises by written notice
to Starbase (the "Telephone System Termination Notice"), which notice shall
specify the date for such termination (the "Telephone Termination Date"); the
Telephone Termination Date shall be not less than thirty (30) days after the
date of the Telephone System Termination Notice. To the extent MDTC elects to
exercise its telephone system termination rights under this Paragraph, any such
removal of the existing telephone system (described in Exhibit "1" of this
Second Amendment) shall be performed by MDTC at MDTC's cost and expense and may
be exercised only if MDTC, at MDTC's sole cost and
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<PAGE>
expense (excluding any portion of Starbase's Monthly Rent attributable to the
telephone system, but without any other liability to MDTC), provides Starbase
with a telephone system that possesses comparable features (including, but not
limited to, voice mail), except that the replacement telephone system need only
possess sufficient stations to service Starbase's employees and any additional
number of employees Starbase anticipates it will hire during the remainder of
the Term after the Telephone Termination Date. To the extent that MDTC elects
to exercise its telephone system termination rights under this Paragraph, (a)
all right, title and interest in the replacement telephone system will be
vested in MDTC and (b) Starbase will return forthwith the replacement telephone
system to MDTC upon the expiration of the Term of this Sublease.
13. STARBASE NOT RELEASED. As more fully set forth in the
Stipulation, and notwithstanding anything contained in this Second Amendment to
the contrary, MDTC's acceptance of Starbase's surrender of the Surrender
Portion shall not in any way release Starbase from its obligations under the
Sublease with respect to the Surrender Portion.
14. LEASE IN EFFECT. MDTC and Starbase acknowledge and agree that the
Sublease, as amended and supplemented by this Second Amendment and the
Stipulation, remains in full force and effect in accordance with its terms.
15. ATTORNEYS' FEES. In the event any action is instituted by a party
to enforce any of the terms and provisions contained in this Second Amendment,
the prevailing party in such action shall be entitled to reimbursement of its
attorneys' fees, costs and expenses by the non-prevailing party.
16. COUNTERPARTS. This Second Amendment may be executed in any number
of counterparts, each of which shall be deemed an original and all of which
shall constitute one and the same agreement.
17. NO ORAL AGREEMENTS. The Sublease as amended hereby contains all
of the agreements of the parties with respect to the matters set forth herein,
except for those terms and conditions incorporated herein by reference. There
are no oral agreements or understandings between the parties hereto affecting
the Sublease or this Second Amendment. Neither the Sublease nor this Second
Amendment can be changed or terminated orally but only by an agreement in
writing signed by the party against whom enforcement or any waiver, change,
modification or discharge is sought.
18. OTHER TERMS. From and after the Effective Date, Starbase shall
hold, occupy and surrender the Subleased Premises upon all the terms of the
Sublease and this Second Amendment, except that (i) Starbase shall have no
expansion or extension rights under the Sublease or this Second Amendment, and
(ii) those provisions of the Sublease which are specifically superseded by or
clearly inconsistent with the provisions of this Second Amendment shall have no
further application to the extent of any such inconsistency.
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<PAGE>
19. AUTHORITY. The persons executing this Second Amendment on behalf
of Starbase and MDTC represent and warrant that they are duly authorized to
execute and deliver this Second Amendment and that this Second Amendment will
be binding upon the respective party, on whose behalf he has signed the Second
Amendment, in accordance with the terms of the Second Amendment.
20. ADVICE OF COUNSEL. Each party represents and warrants that it has
had the advice of counsel of its own choosing in the negotiations for and
preparation of this Second Amendment; that it has read this Second Amendment
and that it is fully aware of the content and of the practical and legal effect
of this Second Amendment.
IN WITNESS WHEREOF, the parties have entered into this Second
Amendment as of the day and year first written above.
McDONNELL DOUGLAS TRAVEL COMPANY,
a Delaware corporation
By: /s/ WENDELL MOEN
-------------------------------
Wendell Moen
Vice President
STARBASE CORPORATION,
a Delaware corporation
By: /s/ STEPHEN W. BELL
------------------------------
Stephen W. Bell
Chief Financial Officer
6
<PAGE>
MDTC EQUIPMENT INVENTORY AT STARBASE
FURNITURE INVENTORY
President's Furniture
1 Wood Desk
1 Corner Credenza
1 Conference Table
1 Book Case
2 Round Conference Tables (Wood)
All Steelecase Furniture on the entire third floor.
TELEPHONE INVENTORY
AT&T System 75 TELEPHONE SWITCH (2 CABINETS)
Computer, Printer and Software
CIRCUIT PACKS
Analog Line Cards (7)
Announcement Card
Auxiliary Trunk Card
CO Trunk Cards (4)
Digital Line Cards (l5)
DID Trunk Cards (3)
DSI Tie-Trunk Card
Memory 1
Network Control
Processor
Tape Drive
Tie Trunk Cards (2)
Tone/Clock Card
Tone Detector Cards (2)
TELEPHONE INSTRUMENTS
18 Display Phones
90 Standard Phones
2 Console Phone
60 Speaker Boxes
1 Conference Roam Quorum Phone
AT&T SYSTEM VOICE AUDIX (Voice Mail)
Computer, Printer and Software
<PAGE>
STARBASE CORPORATION
COMMON STOCK SUBSCRIPTION AGREEMENT
Dated as of July 14, 1995
----------
(Non-U.S. Persons)
<PAGE>
1. PURCHASE AND SALE OF UNITS . . . . . . . . . . . . . . . . . . . 1
1.1 Sale and Issuance of Units. . . . . . . . . . . . . . . . . 1
1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . 2
2.1 Organization, Good Standing and Qualification . . . . . . . 2
2.2 Capitalization. . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Valid Issuance of Common Stock. . . . . . . . . . . . . . . 3
2.5 Governmental Consents . . . . . . . . . . . . . . . . . . . 3
2.6 Offering. . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.7 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . 3
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR . . . . . . . . . 3
3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Foreign Investor. . . . . . . . . . . . . . . . . . . . . . 4
3.3 Accredited or Sophisticated Investor. . . . . . . . . . . . 4
3.4 Resales Subject to U.S. Securities Laws . . . . . . . . . . 4
3.5 Offshore Execution. . . . . . . . . . . . . . . . . . . . . 4
3.6 Offshore Transaction. . . . . . . . . . . . . . . . . . . . 4
3.7 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. UNITED STATES SECURITIES AND EXCHANGE COMMISSION . . . . . . . . 6
4.1 Securities Law Regulation . . . . . . . . . . . . . . . . . 6
5. CONDITIONS OF INVESTORS OBLIGATIONS AT CLOSING . . . . . . . . . 6
5.1 Representations and Warranties. . . . . . . . . . . . . . . 6
5.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . 6
5.3 Qualifications. . . . . . . . . . . . . . . . . . . . . . . 6
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING . . . . . . . 6
6.1 Representations and Warranties. . . . . . . . . . . . . . . 7
6.2 Payment of Purchase Price . . . . . . . . . . . . . . . . . 7
6.3 Qualifications. . . . . . . . . . . . . . . . . . . . . . . 7
7. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.1 Further Restrictions on Transfer. . . . . . . . . . . . . . 7
7.2 Request for Registration. . . . . . . . . . . . . . . . . . 7
7.3 Survival of Warranties. . . . . . . . . . . . . . . . . . . 8
<PAGE>
7.4 Successors and Assigns. . . . . . . . . . . . . . . . . . . 8
7.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 8
7.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 8
7.7 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . 8
7.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.9 Finder's Fee. . . . . . . . . . . . . . . . . . . . . . . . 9
7.10 Amendments and Waivers. . . . . . . . . . . . . . . . . . . 9
7.11 Severability. . . . . . . . . . . . . . . . . . . . . . . . 9
7.12 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
COMMON STOCK SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
THIS AGREEMENT is made as of the________of ________,1995 by and among StarBase
Corporation, a Delaware corporation (the "Company"), and the investors listed on
Schedule A hereto, each referred to as an "investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF UNITS
1.1 Sale and Issuance of Units
Subject to the terms and conditions of this Agreement, the Company
shall sell to the Investor, and the Investor shall purchase from the Company (by
cash, check or wire transfer), at a purchase price, in lawful Canadian currency,
of $3.05 per "Unit" (as hereafter defined), the number of Units of the Company's
securities set forth opposite each Investor's name on the attached Schedule A.
Each Unit shall consist of one share of Common Stock and one non-transferable
warrant (the "Non-transferable Warrant") to purchase one additional share of
Common Stock for a two-year period, at a purchase price of $3.05 Cdn. per share
for the 12-month period following the closing of the private placement and
thereafter at $3.51 Cdn. per share for the remaining twelve-month period. The
Non-transferable Warrant shall be in substantially the form set forth on the
attached Exhibit A. The Company's agreements with each of the Investors are
separate agreements, and the sale of Units to each of the Investors are separate
sales. The offer and sale of the Units will be done in accordance with and in
reliance of the provisions of Regulation S under the United States SECURITIES
ACT OF 1933.
1.2 Closing
The purchase and sale of the Units shall take place at the offices of
StarBase Corporation, 18872 MacArthur Boulevard, Suite 400, Irvine, CA, within
five business days of receipt of
1
<PAGE>
approval by the Vancouver Stock Exchange (the "VSE") for this transaction, or at
such other time, date and place as mutually agreed upon by the Company and the
Investor (the "Closing"). At the Closing, the Company shall deliver to each
Investor the share certificates and Non-transferable Warrants that comprise the
Units such Investor is purchasing, registered in the name of the Investor or its
nominee, against payment of the purchase price therefor by cash, check, wire
transfer or any combination thereof.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investor except as
set forth on the Schedule of Exceptions attached hereto (the "Schedule of
Exceptions"), which exceptions shall be deemed to be representations and
warranties as if made hereunder, that:
2.1 Organization, Good Standing and Qualification
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to carry on its business as now conducted.
2.2 Capitalization
The authorized capital of the Company consisted of 50,000,000 shares
of common stock ("Common Stock"), of which 5,568,910 shares were issued and
outstanding as of June 21, 1995, and 10,000,000 shares of preferred stock
("Preferred Stock") of which 3,000,000 have been designated Series A Preferred
Stock (the "Series A Preferred Stock"), 2,750,000 shares of which were issued
and outstanding as of June 29, 1995. The outstanding shares of Common Stock and
Series A Preferred Stock are all duly and validly authorized and issued, fully
paid and Non-assessable.
2.3 Authorization
All corporate action on the part of the Company, its officers and
directors necessary for the authorization, execution
2
<PAGE>
and delivery of this Agreement, the performance of all obligations of the
Company under this Agreement and for the issuance and delivery of the Units will
be taken as of Closing, and when executed and delivered by the Company, assuming
execution and delivery by the Investor, this Agreement will constitute a valid
and legally binding obligation of the Company enforceable in accordance with its
terms, subject to the acceptance for filing of this Agreement by the VSE, and
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies.
2.4 Valid Issuance of Common Stock
The shares of Common Stock (including those shares issued or issuable
upon conversion of the Non-transferable Warrants) comprising the Units that are
being purchased by the Investors hereunder, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and Non-assessable.
2.5 Governmental Consents
No consent, approval or authorization of, or designation, declaration
or filing on the part of the Company with any foreign or United States or state
governmental authority or, to the best knowledge of the Company, with any local
governmental authority, is required in connection with the valid execution and
delivery of this Agreement, or the offer, sale or issuance of the Units or the
consummation of any other transaction contemplated hereby, except for: (i) the
filing of such forms which may be required by the VSE and the consent of the
VSE, and (ii) the filing of such forms as may be required by the Securities Act
of British Columbia (the "B.C. Act") and the rules and regulations thereunder,
(iii) as required pursuant to Regulation S of the United States SECURITIES ACT
OF 1933, as amended (the "Act"); and (iv) as required under the securities laws
of the State of California.
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2.6 Offering
Subject in part to the truth and accuracy of the Investor's
representations set forth in Section 3 of this Agreement, the offer, sale and
issuance of the Units as contemplated by this Agreement are exempt from the
registration requirements of the Act, and neither the Company nor any authorized
agent acting on its behalf will take any action hereafter that would cause the
loss of such exemption.
2.7 Litigation
There is, to the best of the Company's knowledge and belief, no suit,
action, arbitration, or legal, administrative or other proceeding or
governmental investigation pending or threatened against or affecting the
Company which questions the validity of this Agreement or any action that is to
be taken under or in contemplation of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
Each Investor hereby represents and warrants that:
3.1 Authorization
Such Investor has full power and authority to enter into this
Agreement and such Agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms.
3.2 Foreign Investor
Such Investor certifies that it is not a U.S. person and that it is
not acquiring the Units for the account or benefit of any U.S. person, as those
terms are defined in Regulation S under the Act.
3.3 Accredited or Sophisticated Investor
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Such Investor is either (a) an "accredited investor" within the
meaning of United States Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect or (b) is an investor in securities of
companies in the development stage and is able to fend for itself, can bear the
economic risk of its investment and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Units.
3.4 Resales Subject to U.S. Securities Laws
Such Investor acknowledges that the Units have not been registered
under the Act, and agrees to resell the Units only in accordance with the
provisions of Regulation S under the Act, pursuant to registration under the
Act, or pursuant to an available exemption from such registration.
3.5 Offshore Execution
The document effecting this purchase and transfer will be executed by
the Investor outside the United States.
3.6 Offshore Transaction
Such Investor is acquiring the Units in an "offshore transaction,"
within the meaning of Regulation S under the Act.
3.7 Legends
It is understood that the certificates evidencing the Units (and any
shares of Common Stock issued upon the exercise of the Non-transferable
Warrants) may bear one or more of the following legends, as determined by the
Company's counsel:
(a) THESE SHARES ARE NOT TRANSFERABLE WITHOUT THE PRIOR CONSENT OF
THE VANCOUVER STOCK EXCHANGE UNTIL AFTER__________ 1996.
(b) THE SHARES ARE SUBJECT TO A HOLD PERIOD AND MAY NOT BE TRADED IN
BRITISH COLUMBIA UNTIL AFTER
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<PAGE>
1996, EXCEPT AS PERMITTED BY THE SECURITIES ACT OF BRITISH
COLUMBIA AND THE REGULATIONS THEREUNDER,
(c) THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE
EXPIRATION OF THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE
COMMON STOCK EVIDENCED HEREBY, (1) IT WILL NOT RESELL OR
OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A)
TO STARBASE CORPORATION OR ANY SUBSIDIARY THEREOF, (B) OUTSIDE
THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (C) PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, INCLUDING THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE) OR (D) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT; (2) PRIOR TO ANY SUCH TRANSFER, IT WILL FURNISH TO THE
TRANSFER AGENT OF STARBASE CORPORATION, SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS STARBASE CORPORATION OR
ITS COUNSEL MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER
IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT; AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON
STOCK EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED AFTER THE
EXPIRATION OF THREE YEARS FROM THE ORIGINAL ISSUANCE OF THE
COMMON STOCK EVIDENCED HEREBY OR UPON THE EARLIER SATISFACTION OF
STARBASE CORPORATION THAT THE COMMON STOCK HAS BEEN OR IS BEING
OFFERED AND SOLD IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT. AS USED HEREIN, THE TERMS "UNITED STATES" AND
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"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
UNDER THE SECURITIES ACT.
4. UNITED STATES SECURITIES AND EXCHANGE COMMISSION
4.1 Securities Law Regulation
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS
NOT BEEN REGISTERED UNDER THE ACT AND MAY NOT BE OFFERED OR SOLD IN THE U.S. OR
TO U.S. PERSONS (AS SUCH TERM IS DEFINED UNDER REGULATION S OF THE ACT) UNLESS
THE SECURITIES ARE REGISTERED UNDER THE ACT, OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE.
5. CONDITIONS OF INVESTORIS OBLIGATIONS AT CLOSING
The obligations of each Investor under Section 1 of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions, which may be waived in writing by any Investor:
5.1 Representations and Warranties
The representations and warranties of the Company contained in Section
2 shall be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
5.2 Performance
The Company shall have performed and complied with all agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the Closing.
5.3 Qualifications
All authorizations, approvals, or permits, if any, of any governmental
authority or regulatory body of British Columbia, the VSE, and the United States
or of any state that are required in connection with the lawful issuance and
sale of the
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Units pursuant to this Agreement shall be duly obtained and effective as of the
Closing.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company to the Investor under this Agreement
are subject to the fulfillment on or before the CLOSING of the following
conditions by the Investor:
6.1 Representations and Warranties
The representations and warranties of the Investor contained in
Section 3 shall be true on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price
Each Investor shall have delivered the purchase price specified in
Section 1 to the Company or its designee.
6.3 Qualifications
All authorizations, approvals, or permits, if any, of any governmental
authority or regulatory body of British Columbia, the VSE, and the United States
or of any state that are required in connection with the lawful issuance and
sale of the Units pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
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7. MISCELLANEOUS
7.1 Further Restrictions on Transfer
The Company shall not register any transfer of the Units (or Common
Stock issued upon the exercise of a Non-transferable Warrant) not made in
accordance with the provisions of Regulation S or other applicable registration
or exemption under the Act and shall not treat as the owner of such securities,
or otherwise accord voting or dividend rights to, any transferee to whom such
securities have been transferred in contravention of this Agreement.
7.2 Request for Registration
If, at any time after____________1996, the Company
shall receive a written request from the holders of at least a majority of the
Common Stock (including those shares issued upon conversion of the Non-
transferable Warrants) sold in this offering that the Company file a shelf
registration statement under the Act covering the registration in the United
States of at least a majority of the Common Stock (including those shares issued
upon conversion of the Non-transferable Warrants) sold in this offering (the
"Shelf Registration"), then the Company shall use its best efforts to effect the
Shelf Registration of all of the Common Stock (including those shares issued
upon conversion of the Non-transferable Warrants) sold in this offering as
promptly as possible thereafter. The Company shall have no obligation to
maintain the effectiveness of such Shelf Registration after such time as the
shares of Common Stock (including those shares issued upon conversion of the
Non-transferable Warrants) sold in this offering may be sold pursuant to Rule
144 of the Act. In addition, the Company may suspend the effectiveness of any
such Shelf Registration in the event, and for such period of time as, such a
suspension is required by the rules and regulations of the Securities and
Exchange Commission. The Company shall be entitled to elect to use whatever
form of registration statement is then available to it to effect such Shelf
Registration.
7.3 Survival of Warranties
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The warranties, representations and covenants of the Company and
Investor contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Investor or the Company.
7.4 Successors and Assigns
Except as otherwise provided herein, the terms and conditions of this
Agreement shall enure to the benefit of and be binding upon the respective
successors and assigns of the parties (including transferees of any Units or the
securities comprising such Units). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.5 Governing Law
Notwithstanding the fact that this purchase and sale is an off-shore
transaction as defined in Regulation S of the Act, this Agreement shall be
governed by and construed under the laws of the State of California as applied
to agreements among California residents entered into and to be performed
entirely within California.
7.6 Counterparts
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument
7.7 Titles and Subtitles
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
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<PAGE>
7.8 Notices
Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery to the party to be notified or upon deposit with the United
States Post Office, by registered or certified mail, postage prepaid and
addressed to the party to be notified at the address indicated for such party on
the signature page hereof, or at such other address as such party may designate
by 10 days' advance written notice to the other parties.
7.9 Finder's Fee
Each party represents that it neither is nor will be obligated for any
finders' fee or commission in connection with this transaction. Each Investor
agrees to indemnify and to hold the Company harmless from any liability for any
other commission or compensation in the nature of a finders' fee (and the costs
and expenses of defending against such liability or asserted liability) for
which such Investor or any of its officers, partners, employees, or
representatives is responsible. The Company agrees to indemnify and hold
harmless each Investor from any liability for any commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
7.10 Amendments and Waivers
Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and a majority of the Investors. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any securities purchased under this Agreement at the time outstanding including
securities into which such securities are convertible, each future holder of all
such securities, and the Company.
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<PAGE>
7.11 Severability
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7.12 Entire Agreement
This Agreement and the documents referred to herein constitute the
entire agreement among the parties and no party shall be liable or bound to any
other party in any manner by any warranties, representations, or covenants
except as specifically set forth herein or therein.
[Signatures on following page]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
STARBASE CORPORATION
By:
/S/ William R. Stow, III
----------------------------------------
Address: 18872 MacArthur Boulevard
Suite 400
Irvine, California 92715
U.S.A. 92715
----------------------------------------
(Investor Signature)
----------------------------------------
(Print Name)
----------------------------------------
(Address)
----------------------------------------
----------------------------------------
----------------------------------------
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SCHEDULE A
----------
Investor No. of Units
-------- ------------
Andrew Edenbaum 30,000
Raj Bhatia 10,000
Deluth International Ltd. 96,000
Murdoch & Co. 32,000
Welcome North Resources, Inc. 32,000
<PAGE>
NONTRANSFERABLE WARRANT
(Non-U.S. Persons)
THIS CERTIFICATE IS NOT TRANSFERABLE AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED.
No. 1995-6 Warrant to Purchase _____ shares
of Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
STARBASE CORPORATION
Void after September 8, 1997
THE WARRANT EVIDENCED HEREBY AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE
WARRANT (THE "UNDERLYING SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT
UNTIL THE EXPIRATION OF THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE WARRANT
EVIDENCED HEREBY, (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE WARRANT
EVIDENCED HEREBY EXCEPT (A) TO STARBASE CORPORATION OR ANY SUBSIDIARY THEREOF,
(B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (C) PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, INCLUDING THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT (IF AVAILABLE) OR (D) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; (2) PRIOR
TO ANY SUCH TRANSFER, IT WILL FURNISH TO THE TRANSFER AGENT OF STARBASE
CORPORATION, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS
STARBASE CORPORATION OR ITS COUNSEL MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL
DELIVER TO EACH PERSON TO WHOM THE WARRANT EVIDENCED HEREBY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED
AFTER THE EXPIRATION OF THREE YEARS FROM THE ORIGINAL ISSUANCE OF THE WARRANT
EVIDENCED HEREBY OR UPON THE EARLIER SATISFACTION OF STARBASE CORPORATION THAT
THE WARRANT HAVE BEEN OR IS BEING OFFERED AND SOLD IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES
ACT.
This certifies that, for value received, _____________(the "Holder"),
is entitled, subject to the terms set forth below, to purchase from StarBase
Corporation (the "Company"), a Delaware corporation, ________ shares of the
Common
<PAGE>
Stock of the Company, as constituted on the date hereof (the "Warrant Issue
Date"), upon surrender hereof, at the principal office of the Company, referred
to below, with the Notice of Exercise attached hereto duly executed, and
simultaneous payment therefor in lawful United States currency, or otherwise as
hereinafter provided, at the exercise price as set forth in Section 2 below.
The number, character and exercise price of such shares of Common Stock are
subject to adjustment as provided herein.
1. TERM OF WARRANT. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and terminating on or before the earlier of
(i) 5:00 p.m., Pacific Standard Time, on September 8, 1997,
or
(ii) the closing of the sale and issuance of
shares of Common Stock of the Company in a firmly
underwritten public offering, pursuant to an effective
registration statement under the United States
Securities Act of 1933, as amended (the "Act"), in
which the gross proceeds to the Company equals or
exceeds $7,500,000.
2. EXERCISE PRICE. The exercise price shall be (Cdn.) Three and
05/100 Dollars ($3.05) per share for shares purchased upon exercise or partial
exercise of this Warrant on or before September 8, 1996 and (Cdn.)Three and
51/100 Dollars ($3.51) per share for shares purchased upon exercise or partial
exercise of this Warrant after September 8, 1996 until the termination hereof.
3. EXERCISE OF WARRANT.
(a) This Warrant is exercisable by the Holder in whole or in
part, but not for less than 1,000 shares of Common Stock at a time (or such
lesser number of shares that may then constitute the maximum number purchasable;
such number being subject to adjustment as provided in Section 13 below), at any
time, or from time to time, during the term hereof as described in Section 1
above, by the surrender of this Warrant, delivery of
a written opinion of counsel that the issuance of Common Stock upon exercise of
the Warrant is exempt from registration under the Act, and delivery of the
Notice of Exercise annexed hereto duly completed and executed on behalf of the
Holder, at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company),
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<PAGE>
upon payment (i) in cash or by check acceptable to the Company, (ii) by
cancellation by the Holder of indebtedness of the Company to the Holder, or
(iii) by a combination 0f (i) and (ii), for the purchase price of the shares to
be purchased.
(b) This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date.
Unless exercised in connection with an underwritten public offering, as promptly
as practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Warrant is
exercised in part, the Company at its expense will execute and deliver a new
Warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised. In the event of exercise at the time of an
underwritten public offering, the Company will provide instructions as to the
exercise of this Warrant into such shares.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the exercise price
multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant including, in the case of loss, theft, or destruction, on delivery
of an indemnity agreement reasonably satisfactory in form and substance to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor and amount.
6. RIGHTS AS STOCKHOLDERS. Subject to Sections 10 and 13 of this
Warrant, the Holder shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company that
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or
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<PAGE>
withhold consent to any corporate action (whether upon any recapitalization,
issuance of stock, reclassification of stock, consolidation, merger, or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until the Warrant shall have been exercised and
the shares of Common Stock purchasable upon the exercise hereof shall have been
issued, as provided herein.
7. TRANSFERABILITY AND NON-NEGOTIABILITY OF WARRANT. This Warrant
may not be transferred or assigned in whole or in part.
8. COMPLIANCE WITH SECURITIES LAWS.
(a) The Holder of this Warrant, by acceptance hereof,
acknowledges that the shares of Common Stock to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment, and that the Holder will not offer, sell,
or otherwise dispose of any shares of Common Stock to be issued upon exercise
hereof except under circumstances that will not result in a violation of the
United States Securities Act of 1933, as amended (the "Act") or any foreign or
state securities laws. Upon exercise of this Warrant, the Holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of Common Stock so purchased are being
acquired solely for the Holder's own account and not as a nominee for any other
party, for investment, and not with a view toward distribution or resale.
(b) All shares of Common Stock issued upon
exercise hereof may be stamped or imprinted with one or more of the following
legends (in addition to any legend required by the Vancouver Stock Exchange, the
Securities Act of British Columbia(the "B.C. Act"), the Act and the securities
laws of any state of the United States) as determined by counsel for the
Company:
THESE SHARES ARE NOT TRANSFERABLE WITHOUT THE PRIOR CONSENT OF THE
VANCOUVER STOCK EXCHANGE UNTIL AFTER SEPTEMBER 8, 1996.
THE SHARES ARE SUBJECT TO A HOLD PERIOD AND MAY NOT BE TRADED IN
BRITISH COLUMBIA UNTIL AFTER SEPTEMBER 8, 1996, EXCEPT AS PERMITTED BY
THE SECURITIES ACT OF BRITISH COLUMBIA AND THE REGULATIONS THEREUNDER.
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET
4
<PAGE>
FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE
EXPIRATION OF THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE COMMON STOCK
EVIDENCED HEREBY, (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON
STOCK EVIDENCED HEREBY EXCEPT (A) TO STARBASE CORPORATION OR ANY SUBSIDIARY
THEREOF, (B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER
THE SECURITIES ACT, (C) PURSUANT TQ AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, INCLUDING THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE)
OR (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT; (2) PRIOR TO ANY SUCH TRANSFER, IT WILL
FURNISH TO THE TRANSFER AGENT OF STARBASE CORPORATION, SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS STARBASE CORPORATION OR ITS COUNSEL
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH PERSON
TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED
AFTER THE EXPIRATION OF THREE YEARS FROM THE ORIGINAL ISSUANCE OF THE
COMMON STOCK EVIDENCED HEREBY OR UPON THE EARLIER SATISFACTION OF STARBASE
CORPORATION THAT THE COMMON STOCK HAS BEEN OR IS BEING OFFERED AND SOLD IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT. AS USED HEREIN, THE
TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT.
9. RESTRICTIONS ON TRANSFER OF UNDERLYING COMMON STOCK. The Holder
of this Warrant by acceptance hereof agrees that the transfer of the shares of
Common Stock issuable upon the exercise of all or any portion of this Warrant
(the "Securities") are subject to the provisions of this Warrant, which include
restrictions on transfer of the Securities.
10. RESERVATION OF STOCK. The Company covenants that during the Term
this Warrant is exercisable, the Company will reserve from its authorized and
unissued shares of Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant and, from time to
time, will take all steps necessary to amend its Restated Certificate of
Incorporation, as amended (the "Certificate") to provide a sufficient reserve of
shares of Common Stock issuable upon exercise of the Warrant. The Company
further covenants that all shares that may be issued upon the exercise of rights
represented by this Warrant, upon exercise of the rights represented by this
Warrant and payment of the exercise price, all as set forth herein, will be free
from all taxes, liens, and charges in
5
<PAGE>
respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously or otherwise specified herein). The Company agrees
that its issuance of this Warrant shall constitute full authority to its
officers who are Charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Common Stock upon the
exercise of this Warrant.
11. NOTICES.
(a) In case
(i) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up
of the Company, then, and in each such case, the Company will mail or cause to
be mailed to the Holder or Holders a notice specifying, as the case may be, (A)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (B) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such stock or securities at the time
receivable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 10 days prior to the date therein specified.
(b) All such notices and communications shall be deemed to have been
received (i) in the case of personal delivery, on the date of such delivery and
(ii) in the case of
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<PAGE>
mailing, on the second business day following the date of such mailing.
12. AMENDMENTS.
(a) Any term of this Warrant may be amended with the written
consent of the Company and the holders of not less than fifty-one percent (51%)
of the shares of Common Stock issuable upon exercise of any and all outstanding
warrants for shares of Common Stock whenever issued by the Company (the "Common
Stock Warrants"), even without the specific consent of the Holder. Any
amendment effected in accordance with this Section 12 shall be binding upon each
holder of any of the Common Stock Warrants, each future holder of all such
Common Stock Warrants, and the Company. The Company shall promptly give notice
to all holders of Common Stock Warrants of any amendment effected in accordance
with this Section 12.
(b) No waivers of or exceptions to any term, condition or
provision of this Warrant, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such term, condition or
provision.
13. ADJUSTMENTS. The exercise prices and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
13.1 MERGER, SALE OF ASSETS, ETC. If at any time, while this Warrant,
or any portion thereof, is outstanding and unexpired there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash, or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the exercise price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer which a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation,
7
<PAGE>
merger, sale or transfer if this Warrant had been exercised immediately before
such reorganization, merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section 13. The foregoing provisions of
this Section 13.1 shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation which are at the time receivable upon the exercise of this
Warrant. If the per share consideration payable to the holder hereof for shares
in connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be determined
in good faith by the Company's Board of Directors, whose determination shall be
final and binding. In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
13.2 RECLASSIFICATION, ETC. If the Company at any. time while
this Warrant, or any portion thereof, remains outstanding and unexpired shall,
by reclassification of securities or otherwise, change any of the securities as
to which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the exercise
price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 13.
13.3 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the exercise price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
13.4 ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If while this Warrant, or any portion thereof, remains outstanding
and unexpired the holders of the securities as to which purchase rights under
this Warrant exist at the time shall have received, or, on or after the record
date
8
<PAGE>
fixed for the determination of eligible stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company which such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 13.
13.5 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 13, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon
the written request, at any time, of any such holder, furnish or cause to be
furnished to such holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the exercise price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property which at the time
would be received upon the exercise of the Warrant.
13.6 NO IMPAIRMENT. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 13 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of this Warrant against impairment.
9
<PAGE>
14. MISCELLANEOUS PROVISIONS.
(a) MARKET STAND-OFF PROVISIONS.
(i) In connection with any public offering by the Company
of its equity securities pursuant to an effective registration statement filed
under the Act, including the Company's initial public offering, the Holder shall
not sell, make any short sale of, loan, hypothecate, pledge, grant any option
for the purchase of, or otherwise dispose or transfer for value or otherwise
agree to engage in any of the foregoing transactions with respect to, this
Warrant or any Common Stock or other security received on conversion hereof
without the prior written consent of the Company and the representative of the
underwriters. Such limitations shall be in effect for such period of time from
and after the effective date of such registration statement as may be requested
by the Company or such underwriters. The limitations of this Section 14(a)
shall remain in effect for the two-year period immediately following the
effective date of the Company's initial public offering and shall thereafter
terminate and cease to have any force or effect.
(ii) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Company's outstanding Common
Stock effected without receipt of consideration, then any new, substituted or
additional securities distributed with respect to the Common Stock or any
warrant or other security convertible into said Common Stock shall be
immediately subject to the provisions of this Section 14(a), to the same extent
the Common Stock is at such time covered by such provisions.
(iii) In order to enforce the limitations of this Section
14(a), the Company may impose stop-transfer instructions with respect to the
Common Stock or any warrant or other security convertible into said Common Stock
until the end of the applicable market stand-off period.
(b) Governing Law. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of California, as such laws
are applied to contracts entered into and performed in such State, without
resort to that State's conflict-of-laws rules.
(c) ATTORNEY'S FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Warrant, the prevailing
party shall be entitled to reasonable attorney's fees, costs, and disbursements
in addition to any other relief to which such party may be entitled.
10
<PAGE>
IN WITNESS WHEREOF, STARBASE CORPORATION has caused this Warrant to be
executed by its officers thereunto duly authorized.
Dated as of July 29, 1995
---------------------------------
STARBASE CORPORATION
By /s/ William R. Stow
-------------------------------------
COUNTERSIGNED this_____ day of _______, 199__, by the Transfer Agent for the
Company:
Montreal Trust Company
By
--------------------------------------
(Title)
11
<PAGE>
NOTICE OF EXERCISE
------------------
To: STARBASE CORPORATION
(1) The undersigned hereby elects to purchase _____ shares of Common
Stock of STARBASE CORPORATION, pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price for such shares.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell, or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the United States Securities Act of 1933, as amended,
or any foreign or state securities laws.
(3) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that it is not a U.S. person and that it is not acquiring the
Common Stock for the account or benefit of any U.S. person, as those terms are
defined in Regulation S under the Act.
(4) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
- ----------------------------------- ----------------------------------------
Date
12
<PAGE>
STARBASE CORPORATION
COMMON STOCK SUBSCRIPTION AGREEMENT
dated as of
July 14, 1995
--------
(U.S. Persons)
<PAGE>
TABLE OF CONTENTS
Page
1. Purchase and Sale of Stock. . . . . . . . . . . . . . . . . . . . . . 1
1.1 Sale and Issuance of Units . . . . . . . . . . . . . . . . . . . 1
1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Representations and Warranties of the Company . . . . . . . . . . . . 1
2.1 Organization, Good Standing and Qualification. . . . . . . . . . 2
2.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Valid Issuance of Common Stock . . . . . . . . . . . . . . . . . 2
2.5 Governmental Consents. . . . . . . . . . . . . . . . . . . . . . 2
2.6 Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Representations and Warranties of the Investor. . . . . . . . . . . . 3
3.1 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Accredited Investor. . . . . . . . . . . . . . . . . . . . . . . 3
3.3 Purchase Entirely for Own Account. . . . . . . . . . . . . . . . 3
3.4 Disclosure of Information. . . . . . . . . . . . . . . . . . . . 3
3.5 Investment Experience. . . . . . . . . . . . . . . . . . . . . . 4
3.6 Restricted Securities. . . . . . . . . . . . . . . . . . . . . . 4
3.7 Further Limitations on Disposition . . . . . . . . . . . . . . . 4
3.8 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4. Conditions of Investor's Obligations at Closing . . . . . . . . . . . 5
4.1 Representations and Warranties . . . . . . . . . . . . . . . . . 5
4.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.3 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. Conditions of the Company's Obligations at Closing. . . . . . . . . . 6
5.1 Representations and Warranties . . . . . . . . . . . . . . . . . 6
5.2 Payment of Purchase Price. . . . . . . . . . . . . . . . . . . . 6
5.3 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . 6
6. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 Market Standoff. . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 Request for Registration . . . . . . . . . . . . . . . . . . . . 7
6.3 Survival of Warranties . . . . . . . . . . . . . . . . . . . . . 7
6.4 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 7
i.
<PAGE>
6.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.7 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . 8
6.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.9 Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.10 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . 8
6.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 9
SCHEDULE A - Schedule of Investors
EXHIBIT A - Form of Nontransferable Warrant
ii.
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 21st day of June, 1995, by and among
StarBase Corporation, a Delaware corporation (the "COMPANY"), and the investors
listed on SCHEDULE A hereto, each referred to as an "INVESTOR."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1 SALE AND ISSUANCE OF UNITS. Subject to the terms and conditions
of this Agreement, the Company shall sell to the Investor, and the Investor
shall purchase from the Company (by cash, check or wire transfer), at a purchase
price, in lawful United States currency, of $2.24 U.S. per "Unit" (as hereafter
defined), the number of Units of the Company's securities set forth opposite
each Investor's name on the attached SCHEDULE A. Each Unit shall consist of one
share of Common Stock and one nontransferable warrant (the "NONTRANSFERABLE
WARRANT") to purchase one additional share of Common Stock for an two-year
period, at a purchase price of $2.24 U.S. per share for the twelve (12) month
period following the closing of the private placement and thereafter at $2.58
U.S. per share for the remaining twelve (12) month period. The Nontransferable
Warrant shall be in substantially the form set forth on the attached EXHIBIT A
The Company's agreements with each of the Investors are separate agreements, and
the sale of Units to each of the Investors are separate sales.
2 CLOSING. The purchase and sale of the Units shall take place at
the offices of StarBase Coporation, 18872 MacArthur Boulevard, Suite 400,
Irvine, CA, within five (5) business days of receipt of approval by the
Vancouver Stock Exchange (the "VSE"), for this transaction, or at such other
time, date and place as mutually agreed upon by the Company and the Investor
(the "CLOSING"). At the Closing, the Company shall deliver to each Investor the
share certificates and Nontransferable Warrants that comprise the Units such
Investor is purchasing, registered in the name of the Investor or its
iii.
<PAGE>
nominee, against payment of the purchase price therefor by cash, check, wire
transfer or any combination thereof.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Investor, except as set forth on the
Schedule of Exceptions attached hereto (the "SCHEDULE OF EXCEPTIONS"), which
exceptions shall be deemed to be representations and warranties as if made
hereunder, that:
1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted.
2 CAPITALIZATION. As of June 21, 1995, the authorized capital of
the Company consisted of 50,000,000 shares of common stock ("COMMON STOCK"), of
which 5,568,910 shares were issued and outstanding and 10,000,000 shares of
preferred stock ("Preferred Stock") of which three million shares have been
designated Series A Preferred Stock (the "SERIES A PREFERRED STOCK"), 2,750,000
shares of which were issued and outstanding. The outstanding shares of Common
Stock and Series A Preferred Stock are all duly and validly authorized and
issued, fully paid and nonassessable.
3 AUTHORIZATION. All corporate action on the part of the Company,
its officers and directors necessary for the authorization, execution and
delivery of this Agreement, the performance of all obligations of the Company
under this Agreement and for the issuance and delivery of the Units will be
taken as of Closing, and when executed and delivered by the Company, assuming
execution and delivery by the Investor, this Agreement will constitute a valid
and legally binding obligation of the Company enforceable in accordance with its
terms, subject to the acceptance for filing of this Agreement by the VSE, and
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies.
2.
<PAGE>
4 VALID ISSUANCE OF COMMON STOCK. The shares of Common Stock
(including those shares issued or issuable upon conversion of the
Nontransferable Warrants) comprising the Units that are being purchased by the
Investors hereunder, when issued, sold and delivered in accordance with the
terms of this Agreement for the consideration expressed herein, will be duly and
validly issued, fully paid, and nonassessable.
5 GOVERNMENTAL CONSENTS. No consent, approval or authorization
of, or designation, declaration or filing on the part of the Company with any
foreign or United States or state governmental authority or, to the best
knowledge of the Company, with any local governmental authority, is required in
connection with the valid execution and delivery of this Agreement, or the
offer, sale or issuance of the Units or the consummation of any other
transaction contemplated hereby, except for: (i) the filing of such forms which
may be required by the VSE and the consent of the VSE, and (ii) the filing of
such forms as may be required by the Securities Act of British Columbia and the
rules and regulations thereunder, and (iii) as required under the securities
laws of the State of California.
6 OFFERING. Subject in part to the truth and accuracy of the
Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Units as contemplated by this Agreement are exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Act"), and neither the Company nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.
7 LITIGATION. There is, to the best of the Company's knowledge and
belief, no suit, action, arbitration, or legal, administrative or other
proceeding or governmental investigation pending or threatened against or
affecting the Company which questions the validity of this Agreement or any
action that is to be taken under or in contemplation of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. Each Investor
hereby represents and warrants that:
3.
<PAGE>
1 AUTHORIZATION. Such Investor has full power and authority to
enter into this Agreement and such Agreement constitutes its valid and legally
binding obligation, enforceable in accordance with its terms.
2 ACCREDITED INVESTOR. Such Investor is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Act.
3 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with
such Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Units (including the shares of Common Stock issuable upon
exercise of the Nontransferable Warrants) to be received by such Investor will
be acquired for investment for such Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, such Investor further represents that such Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Units.
4 DISCLOSURE OF INFORMATION. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Units. Such Investor further represents that it has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Units and the business,
properties, prospects and financial condition of the Company.
5 INVESTMENT EXPERIENCE. Such Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Units.
4.
<PAGE>
6 RESTRICTED SECURITIES. Such Investor understands that the Units
it is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144 under the Act, as
presently in effect, and understands the resale limitations imposed thereby and
by the Act.
7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Units unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 3 provided and to the extent this Section and such agreement are
then applicable, and:
(a) There is then in effect a Registration Statement under the
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and
(ii) if reasonably requested by the Company, such Investor shall have
furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company that such disposition will not require registration of such
shares under the Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in
unusual circumstances.
8 LEGENDS. It is understood that the certificates evidencing
the Units (and any shares of Common Stock issued upon the exercise of the
Nontransferable Warrants) may bear one or more of the following legends, as
determined by the Company's counsel:
5.
<PAGE>
(a) THESE SHARES ARE NOT TRANSFERABLE WITHOUT THE PRIOR CONSENT
OF THE VANCOUVER STOCK EXCHANGE UNTIL AFTER SEPTEMBER 8, 1996.
(b) THE SHARES ARE SUBJECT TO A HOLD PERIOD AND MAY NOT BE TRADED IN
BRITISH COLUMBIA UNTIL AFTER Septmeber 8, 1996, EXCEPT AS PERMITTED BY THE
SECURITIES ACT OF BRITISH COLUMBIA AND THE REGULATIONS THEREUNDER.
(c) THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
(d) Any other legend required by the securities or blue sky laws of
any state where the Investor resides.
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligations
of each Investor under Section 1 of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, which
may be waived in writing by any Investor:
1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
2 PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
3 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of British Columbia,
the VSE, and the United States or of any state that are required in connection
with the
6.
<PAGE>
lawful issuance and sale of the Units pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to the Investor under this Agreement are subject to
the fulfillment on or before the Closing of each of the following conditions by
the Investor:
1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
2 PAYMENT OF PURCHASE PRICE. Each Investor shall have
delivered the purchase price specified in Section 1 to the Company or its
designee.
3 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of British Columbia,
the VSE, and the United States or of any state that are required in connection
with the lawful issuance and sale of the Units pursuant to this Agreement shall
be duly obtained and effective as of the Closing.
6. MISCELLANEOUS.
1 MARKET STANDOFF.
(a) In connection with any public offering by the Company
of its equity securities pursuant to an effective registration statement
filed under the Act, including the Company's initial public offering, the
Investor shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose or transfer for
value or otherwise agree to engage in any of the foregoing transactions
with respect to any securities of the Company without the prior written
consent of the Company and the representative of the underwriters. Such
limitations shall be in effect for such period of time from and after the
effective date of such registration statement as may be requested by the
Company or such underwriters. The limitations of this Section 6.1
7.
<PAGE>
shall remain in effect for the two-year period immediately following the
effective date of the Company's initial public offering and shall
thereafter terminate and cease to have any force or effect.
(b) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Company's outstanding Common
Stock effected without receipt of consideration, then any new, substituted
or additional securities distributed with respect to the Common Stock or
any warrant or other security convertible into said Common Stock shall be
immediately subject to the provisions of this Section 6.1, to the same
extent the Common Stock is at such time covered by such provisions.
(c) In order to enforce the limitations of this Section 6.1, the
Company may impose stop-transfer instructions with respect to the Common
Stock or any warrant or other security convertible into said Common Stock
until the end of the applicable market stand-off period.
2 REQUEST FOR REGISTRATION. If, at any time after July 14, 1996,
the Company shall receive a written request from the holders of at least a
majority of the Common Stock (including those shares issued upon conversion of
the Nontransferable Warrants) sold in this offering that the Company file a
shelf registration statement under the Act covering the registration in the
United States of at least a majority of the Common Stock (including those shares
issued upon conversion of the Nontransferable Warrants) sold in this offering
(the "Shelf Registration"), then the Company shall use its best efforts to
effect the Shelf Registration of all of the Common Stock (including those shares
issued upon conversion of the Nontransferable Warrants) sold in this offering as
promptly as possible thereafter.
The Company shall have no obligation to maintain the effectiveness of
such Shelf Registration after such time as the shares of Common Stock (including
those shares issued upon conversion of the Nontransferable Warrants) sold in
this offering may be sold pursuant to Rule 144 of the Act. In addition, the
Company may suspend the effectiveness of any such Shelf Registration in the
event, and for such period of time as, such a
8.
<PAGE>
suspension is required by the rules and regulations of the Securities and
Exchange Commission The Company shall be entitled to elect to use whatever
form of registration statement is then available to it to effect such Shelf
Registration.
3 SURVIVAL OF WARRANTIES. The representations and warranties
of the Company and Investor contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the Investor or the Company.
4 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties
(including transferees of any Units, or the securities comprising such Units).
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
5 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
6 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7 TITLES AND SUBTITLES. The titles and
subtitles used in this Agreement are used for convenience only and are not to
be considered in construing or interpreting this Agreement.
8 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
9.
<PAGE>
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
9 FINDER'S FEE. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold the Company harmless
from any liability for any other commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible. The Company agrees to indemnify
and hold harmless each Investor from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and a majority of
the Investors. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the
Company.
11 SEVERABILITY. If one or more provisions of this Agreement
of are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
12 ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any
10.
<PAGE>
other party in any manner by any warranties, representations, or covenants
except as specifically set forth herein or therein.
11.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
STARBASE CORPORATION
By:/s/ WILLIAM R. STOW, III
-------------------------------------
Address: 18872 MacArthur Boulevard
Suite 400
Irvine, California 92715
INVESTOR:
----------------------------------------
Address:
----------------------------------------
----------------------------------------
12.
<PAGE>
SCHEDULE A
----------
Investor No. of Units
-------- ------------
Andrew Edenbaum 30,000
Raj Bhatia 10,000
Duluth International Ltd. 96,000
Murdoch & Co. 32,000
Welcome North Resources, Inc. 32,000
<PAGE>
NONTRANSFERABLE WARRANT
(U.S. PERSONS)
THIS CERTIFICATE IS NOT TRANSFERABLE AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED.
No. 1995-4 Warrant to Purchase 30,000 shares
of Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
STARBASE CORPORATION
Void after September 8, 1997
THE WARRANT EVIDENCED HEREBY AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF
THE WARRANT (THE "UNDERLYING SECURITIES") HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE WARRANT OR THE UNDERLYING SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
This certifies that, for value received, Andrew Edenbaum (the
"Holder"), is entitled, subject to the terms set forth below, to purchase
from StarBase Corporation (the "Company"), a Delaware corporation, 30,000
shares of the Common Stock of the Company, as constituted on the date hereof
(the "Warrant Issue Date"), upon surrender hereof, at the principal office
of the Company referred to below, with the Notice of Exercise attached hereto
duly executed, and simultaneous payment therefor in lawful United States
currency, or otherwise as hereinafter provided, at the exercise price as set
forth in Section 2 below. The number, character and exercise price of such
shares of Common Stock are subject to adjustment as provided herein.
1. TERM OF WARRANT. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the
term commencing on the Warrant Issue Date and terminating on or before the
earlier of
(i) 5:00 p.m., Pacific Standard Time, on September 8, 1997, or
(ii) the closing of the sale and issuance of shares of Common Stock
of the Company in a firmly underwritten public offering, pursuant to an
effective registration statement under the United States Securities Act
of 1933, as amended (the "Act"), in
<PAGE>
which the gross proceeds to the Company equals or exceeds $7,500,000.
2. EXERCISE PRICE. The exercise price shall be (Cdn.) Three and
05/100 Dollars ($3.05) per share for shares purchased upon exercise or
partial exercise of this Warrant on or before September 8, 1996 and (Cdn.)
Three and 51/100 Dollars ($3.51) per share for shares purchased upon
exercise or partial exercise of this Warrant after September 8, 1996 until
the termination hereof.
3. EXERCISE OF WARRANT.
(a) This Warrant is exercisable by the Holder in whole or in part,
but not for less than 1,000 shares of Common Stock at a time (or such lesser
number of shares that may then constitute the maximum number purchasable;
such number being subject to adjustment as provided in Section 13 below), at
any time, or from time to time, during the term hereof as described in
Section 1 above, by the surrender of this Warrant, delivery of a written
opinion of counsel that the issuance of Common Stock upon exercise of the
Warrant is exempt from registration under the Act, and delivery of the Notice
of Exercise annexed hereto duly completed and executed on behalf of the
Holder, at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address
of the Holder appearing on the books of the Company), upon payment (i) in
cash or by check acceptable to the Company, (ii) by cancellation by the
Holder of indebtedness of the Company to the Holder, or (iii) by a
combination of (i) and (ii), for the purchase price of the shares to be
purchased.
(b) This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such
date. Unless exercised in connection with an underwritten public offering,
as promptly as practicable on or after such date and in any event within ten
(10) days thereafter, the Company at its expense shall issue and deliver to
the person or persons entitled to receive the same a certificate or
certificates for the number of shares issuable upon such exercise. In the
event that this Warrant is exercised in part, the Company at its expense
will execute and deliver a new Warrant of like tenor exercisable for the
number of shares for which this Warrant may then be exercised. In the event
of exercise at the time of an underwritten public offering, the Company will
provide instructions as to the exercise of this Warrant into such shares.
2
<PAGE>
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise
be entitled, the Company shall make a cash payment equal to the exercise
price multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation
of this Warrant including, in the case of loss, theft, or destruction, on
delivery of an indemnity agreement reasonably satisfactory in form and
substance to the Company or, in the case of mutilation, on surrender and
cancellation of this Warrant, the Company at its expense shall execute and
deliver, in lieu of this Warrant, a new warrant of like tenor and amount.
6. RIGHTS OF STOCKHOLDERS. Subject to Sections 10 and 13 of this
Warrant, the Holder shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company
that may at any time be issuable on the exercise hereof for any purpose, nor
shall anything contained herein be construed to confer upon the Holder, as
such, any of the rights of a stockholder of the Company or any right to vote
for the election of directors upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issuance of stock, reclassification of
stock, consolidation, merger, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until
the Warrant shall have been exercised and the shares of Common Stock
purchasable upon the exercise hereof shall have been issued, as provided
herein.
7. TRANSFERABILITY AND NON-NEGOTIABILITY OF WARRANT. This Warrant
may not be transferred or assigned in whole or in part.
8. COMPLIANCE WITH SECURITIES LAWS.
(a) The Holder of this Warrant, by acceptance hereof,
acknowledges that the shares of Common Stock to be issued upon exercise
hereof are being acquired solely for the Holder's own account and not as a
nominee for any other party, and for investment, and that the Holder will not
offer, sell, or otherwise dispose of any shares of Common Stock to be issued
upon exercise hereof except under circumstances that will not result in a
violation of the United States Securities Act of 1933, as amended (the
"Act") or any foreign or state securities laws.
<PAGE>
Upon exercise of this Warrant, the Holder shall, if requested by the Company,
confirm in writing, in a form satisfactory to the Company, that the shares of
Common Stock so purchased are being acquired solely for the Holder's own account
and not as a nominee for any other party, for investment, and not with a view
toward distribution or resale.
(B) All shares of Common Stock issued upon exercise hereof may be
stamped or imprinted with one or more of the following legends (in addition to
any legend required by the Vancouver Stock Exchange, the Securities Act of
British Columbia (the "B.C. Act"), the Act and the securities laws of any state
of the United States) as determined by counsel for the Company:
THESE SHARES ARE NOT TRANSFERABLE WITHOUT THE PRIOR CONSENT OF THE
VANCOUVER STOCK EXCHANGE UNTIL AFTER SEPTEMBER 8, 1996.
THE SHARES ARE SUBJECT TO A HOLD PERIOD AND MAY NOT BE TRADED IN BRITISH
COLUMBIA UNTIL AFTER SEPTEMBER 8, 1996, EXCEPT AS PERMITTED BY THE
SECURITIES ACT OF BRITISH COLUMBIA AND THE REGULATIONS THEREUNDER.
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
9. RESTRICTIONS ON TRANSFER OF UNDERLYING COMMON STOCK. The Holder
of the Warrant by acceptance hereof agrees that the transfer of the shares of
Common Stock issuable upon the exercise of all or any portion of this Warrant
(the "Securities") are subject to the provisions of this Warrant, which include
restrictions on transfer of the Securities.
10. RESERVATION OF STOCK. The Company covenants that during the Term
of this Warrant is exercisable, the Company will reserve from its authorized and
unissued shares of Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant and , from time to
time, will take all steps necessary to amend its Restated Certificate of
Incorporation, as amended (the "Certificate") to provide a sufficient reserve of
shares of Common Stock issuable upon exercise of the Warrant. The Company
further covenants that all shares that may be issued upon the exercise of rights
represented by this Warrant, upon exercise of the rights represented by this
4
<PAGE>
Warrant and payment of the exercise price, all as set forth herein, will be free
from all taxes, liens, and charges in respect of the issue thereof (other than
taxes in respect of any transfer occurring contemporaneously or otherwise
specified herein). The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the exercise of this Warrant.
11. NOTICES
(a) In case
(i) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up
of the Company,
then, and in each such case, the Company will mail or cause to be mailed to
the Holder or Holders a notice specifying, as the case may be, (A) the date
on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (B) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation
or winding-up is to take place, and the time, if any is to be fixed, as of
which the holders of record of Common Stock (or such stock or securities at
the time receivable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation
or winding-up. Such notice shall be mailed at least 10 days prior to the
date therein specified.
(B) All such notices and communications shall be deemed to have been
received (i) in the case of personal
5
<PAGE>
delivery, on the date of such delivery and (ii) in the case of mailing, on the
second business day following the date of such mailing.
12. AMENDMENTS.
(a) Any term of this Warrant may be amended with the written
consent of the Company and the holders of not less than fifty-one percent (51%)
of the shares of Common Stock issuable upon exercise of any and all outstanding
warrants for shares of Common Stock whenever issued by the Company (the "Common
Stock Warrants"), even without the specific consent of the Holder. Any
amendment effected in accordance with this Section 12 shall be binding upon each
holder of any of the Common Stock Warrants, each future holder of all such
Common Stock Warrants, and the Company. The Company shall promptly give notice
to all holders of Common Stock Warrants of any amendment effected in accordance
with this Section 12.
(b) No waivers of or exceptions to any term, condition or
provision of this Warrant, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such term, condition or
provision.
13. ADJUSTMENTS. The exercise prices and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
13.1 MERGER, SALE OF ASSETS, ETC. If at any time, while this Warrant,
or any portion thereof, is outstanding and unexpired there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash, or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the exercise price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer which a holder of the
shares deliverable upon exercise of this Warrant would have been
6
<PAGE>
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Warrant had been exercised immediately before such
reorganization, merger, consolidation, sale or transfer, all subject to further
adjustment as provided in this Section 13. The foregoing provisions of this
Section 13.1 shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation which are at the time receivable upon the exercise of this
Warrant. If the per share consideration payable to the holder hereof for shares
in connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be determined
in good faith by the Company's Board of Directors, whose determination shall be
final and binding. In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
13.2 RECLASSIFICATION, ETC. If the Company at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the exercise
price therefor shall be proportionately adjusted, all subject to further
adjustment as provided in this Section 13.
13.3 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the exercise price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
13.4 ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If while this Warrant, or any portion thereof, remains outstanding
and unexpired the holders of the securities as to which purchase rights under
this Warrant exist
7
<PAGE>
at the time shall have received, or, on or after the record date fixed for
the determination of eligible stockholders, shall have become entitled to
receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend,
then and in each case, this Warrant shall represent the right to acquire, in
addition to the number of shares of the security receivable upon exercise of
this Warrant, and without payment of any additional consideration therefor,
the amount of such other or additional stock or other securities or property
(other than cash) of the Company which such holder would hold on the date of
such exercise had it been the holder of record of the security receivable
upon exercise of this Warrant on the date hereof and had thereafter, during
the period from the date hereof to and including the date of such exercise,
retained such shares and/or all other additional stock available by it as
aforesaid during such period, giving effect to all adjustments called for
during such period by the provisions of this Section 13.
13.5 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 13, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of the Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon
the written request, at any time, of any such holder, furnish or cause to be
furnished to such holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the exercise price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property which at the time
would be received upon the exercise of the Warrant.
13.6 NO IMPAIRMENT. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 13 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of this Warrant against impairment.
8
<PAGE>
14. MISCELLANEOUS PROVISIONS.
(a) MARKET STAND-OFF PROVISIONS.
(i) In connection with any public offering by the Company
of its equity securities pursuant to an effective registration statement
filed under the Act, including the Company's initial public offering, the
Holder shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose or transfer for
value or otherwise agree to engage in any of the foregoing transactions with
respect to, this Warrant or any Common Stock or other security received on
conversion hereof without the prior written consent of the Company and the
representative of the underwriters. Such limitations shall be in effect
for such period of time from and after the effective date of such
registration statement as may be requested by the Company or such
underwriters. The limitations of this Section 14(a) shall remain in effect
for the two-year period immediately following the effective date of the
Company's initial public offering and shall thereafter terminate and
cease to have any force or effect.
(ii) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Company's outstanding Common
Stock effected without receipt of consideration, then any new, substituted
or additional securities distributed with respect to the Common Stock or
any warrant or other security convertible into said Common Stock shall be
immediately subject to the provisions of this Section 14(a), to the same
extent the Common Stock is at such time covered by such provisions.
(iii) In order to enforce the limitations of this
Section 14(a), the Company may impose stop-transfer instructions with
respect to the Common Stock or any warrant or other security convertible
into said Common Stock until the end of the applicable market stand-off
period.
(b) GOVERNING LAW. This Warrant shall be governed by,
and construed in accordance with, the laws of the State of California, as
such laws are applied to contracts entered into and performed in such State,
without respect to that State's conflict-of-laws rules.
(c) ATTORNEY'S FEES. If any action at law or in equity
is necessary to enforce or interpret the terms of this Warrant, the
prevailing party shall be entitled to reasonable attorney's fees, costs,
and disbursements in addition to any other relief to which such party may
be entitled.
9
<PAGE>
IN WITNESS WHEREOF, STARBASE CORPORATION has caused this Warrant
to be executed by its officers thereunto duly authorized.
Dated as of September 29, 1995
STARBASE CORPORATION
By /s/ [ILLEGIBLE]
--------------------------------------
COUNTERSIGNED this ____ day of ____________, 199_, by the Transfer Agent
for the Company:
Montreal Trust Company
By
------------------------------------
(Title)
10
<PAGE>
NOTICE OF EXERCISE
To: STARBASE CORPORATION
(1) The undersigned hereby elects to purchase ____________ shares of
Common Stock of STARBASE CORPORATION, pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price for such shares.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for
the account of the undersigned and not as a nominee for any other party, and
for investment, and that the undersigned will not offer, sell, or otherwise
dispose of any such shares of Common Stock except under circumstances that
will not result in a violation of the United States Securities Act of 1933,
as amended, or any foreign or state securities laws.
(3) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that it is not a U.S. person and that it is not acquiring the
Common Stock for the account or benefit of any U.S. person, as those terms
are defined in Regulation S under the Act.
(4) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
- ---------------------------------- ---------------------------------------
Date
11
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of StarBase Corporation
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-8 of StarBase Corporation of our report dated June 20, 1996,
which appears on page 26 of the March 31, 1996 Annual Report to Shareholders of
StarBase Corporation, which is incorporated by reference in StarBase
Corporation's Annual Report on Form 10-K for the year ended March 31, 1996.
PRICE WATERHOUSE LLP
Cosa Mesa, CA
June 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STARBASE
CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS AT AND FOR THE YEAR ENDED MARCH
31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1252
<SECURITIES> 0
<RECEIVABLES> 47
<ALLOWANCES> 44
<INVENTORY> 14
<CURRENT-ASSETS> 1416
<PP&E> 1150
<DEPRECIATION> 490
<TOTAL-ASSETS> 2173
<CURRENT-LIABILITIES> 1952
<BONDS> 0
0
22
<COMMON> 105
<OTHER-SE> (59)
<TOTAL-LIABILITY-AND-EQUITY> 2173
<SALES> 224
<TOTAL-REVENUES> 991
<CGS> 68
<TOTAL-COSTS> 706
<OTHER-EXPENSES> 6225
<LOSS-PROVISION> 61
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> (5892)
<INCOME-TAX> 1
<INCOME-CONTINUING> (5893)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5893)
<EPS-PRIMARY> (.81)
<EPS-DILUTED> (.81)
</TABLE>
