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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
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PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): MAY 15, 1996
STARBASE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 0-25612 33-0567363
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(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation) Identification No.)
18872 MACARTHUR BOULEVARD,
IRVINE, CALIFORNIA 92715
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(Address of Principal Executive Offices) (Zip Code)
(714) 442-4400
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(Registrant's telephone number, including area code)
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This Current Report on Form 8-K is filed by StarBase Corporation, a
Delaware corporation (the "Company"), in connection with the matters described
herein.
ITEM 5. OTHER EVENTS
On April 24, 1996, the Company commenced a private placement offering
of 2,100,000 units of equity securities. Each unit consists of one share of
common stock, par value $0.01 per share, of the Company (the "Common Stock"),
and one non-transferable warrant to purchase one share of Common Stock,
exercisable at $2.00 per share through January 31, 1997 and thereafter
exercisable at $2.50 per share through January 31, 1998, after which the warrant
expires. Each unit was offered at a subscription price of $3.00 per unit.
The offering terminated at 5:00 p.m., Los Angeles time, and closed on
May 13, 1996. The maximum offering of 2,100,000 units was completed.
Dabney/Resnick, Inc., the placement agent, placed units for $5,500,000 and the
Company sold on a direct basis units for $800,000. The proceeds of the offering
will be used for debt reduction and general corporate purposes including
implementing the Company's new product marketing and promotion plan.
The units were offered to U. S. subscribers in compliance with
Section 4(2) of the Securities Act of 1933, as amended (the "Act"), who are
"accredited investors" (as such term is defined in Regulation D of the Act), and
to non-U.S. subscribers in compliance with Regulation S promulgated under the
Act. The shares of Common Stock and warrants sold have not been registered under
the Act and may not be offered or sold in the United States absent registration
or an exemption from the registration requirements of the Act.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) EXHIBITS.
4.1 Form of Warrant:
- for U.S. subscribers
- for non-U.S. subscribers
4.2 Form of Subscription Agreement:
- for U.S. subscribers
- for non-U.S. subscribers
4.3 Form of Registration Rights Agreement
99.2 Confidential Private Placement Memorandum dated April 19, 1996
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 15, 1996
STARBASE CORPORATION
By: /s/ Robert W. Leimena
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Robert W. Leimena,
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No.page
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4.1 Form of Warrant:
- for U.S. subscribers
- for non-U.S. subscribers
4.2 Form of Subscription Agreement:
- for U.S. subscribers
- for non-U.S. subscribers
4.3 Form of Registration Rights Agreement
99.2 Confidential Private Placement Memorandum dated April 19, 1996
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U.S. Subscribers
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EXHIBIT A
U.S. PURCHASERS
NONTRANSFERABLE WARRANT
THIS CERTIFICATE IS NOT TRANSFERABLE AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED.
No. 1996-CMN-XX Warrant to Purchase _______ Shares
of Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
STARBASE CORPORATION
Void after January 31, 1998
This certifies that, for value received, ____________________ (the
"Holder"), is entitled, subject to the terms set forth below, to purchase from
StarBase Corporation, a Delaware corporation (the "Company"), _________ shares
of the Company's common stock, par value $.01 per share (the "Common Stock"), 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 money of the United States, or otherwise as hereinafter
provided, at the exercise price as set forth in Section 2 below. The number of,
and exercise price for, 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 January 31,
1998.
2. EXERCISE PRICE. The exercise price shall be U.S. $2.00 per
share through January 31, 1997, and U.S. $2.50 per share thereafter.
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 as 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
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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 the shares of Common Stock which are issuable upon exercise of this
Warrant are to be offered for sale in 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 and the issuance of certificates.
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 notices 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.
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7. TRANSFERABILITY AND NON-NEGOTIABILITY OF WARRANT. This Warrant
may not be assigned, transferred, sold, pledged or hypothecated, in whole or in
part, nor may the Holder dispose of any interest in this Warrant.
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 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:
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.
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.
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") is 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
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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
(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 sale, lease or
conveyance of all or substantially all of the assets of the Company to another
person, 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
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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.
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 person, or a
reverse triangular merger in which the Company is the surviving person 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 cash, securities 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 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
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shares deliverable upon exercise of this Warrant would have been 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 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 nearly 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
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
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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 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 against impairment.
14. MISCELLANEOUS PROVISIONS.
(a) MARKET STAND-OFF PROVISIONS.
(i) Except pursuant to registration rights granted
to the Holder by the Company, 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 or other security
received on exercise hereof without the prior written consent of the Company and
the representative of the underwriters. Such limitations shall be in effect for
such reasonable period of time from and after the effective date of such
registration statement as may be requested by the Company or such underwriters.
(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.
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(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 such 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 attorneys' fees, costs and disbursements,
in addition to any other relief to which such party may be entitled.
IN WITNESS WHEREOF, STARBASE CORPORATION has caused this
Warrant to be executed by its officers thereunto duly authorized.
Dated as of _________________________
STARBASE CORPORATION
By:______________________________________
Name:
Title:
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NOTICE OF EXERCISE
To: STARBASE CORPORATION
18872 MacArthur Boulevard
Suite 300
Irvine, California 92715
Attn: Chief Financial Officer
(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) 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:
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[Date] [NAME]
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Non-U.S. Subscribers
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EXHIBIT A
NON-U.S. PURCHASERS
NONTRANSFERABLE WARRANT
THIS WARRANT AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND THIS WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY "U.S.
PERSON" (AS DEFINED IN REGULATION S PROMULGATED UNDER THE ACT) UNLESS REGISTERED
UNDER THE ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION.
THIS CERTIFICATE IS NOT TRANSFERABLE AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED.
No. 1996-CMN-XX Warrant to Purchase _______ Shares
of Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
STARBASE CORPORATION
Void after January 31, 1998
This certifies that, for value received, ____________________ (the
"Holder"), is entitled, subject to the terms set forth below, to purchase from
StarBase Corporation, a Delaware corporation (the "Company"), _________ shares
of the Company's common stock, par value $.01 per share (the "Common Stock"), 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 and the Officers Certificate attached hereto duly executed,
and simultaneous payment therefor in lawful money of the United States, or
otherwise as hereinafter provided, at the exercise price as set forth in Section
2 below. The number of, and exercise price for, 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 January 31,
1998.
2. EXERCISE PRICE. The exercise price shall be U.S. $2.00 per
share through January 31, 1997, and U.S. $2.50 per share thereafter.
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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 as 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, the Notice of Exercise annexed hereto
as Exhibit 1, and the Officer's Certificate annexed hereto as Exhibit 2 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 the shares of Common Stock which are issuable upon exercise of this
Warrant are to be offered for sale in 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 and the issuance of certificates.
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
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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
notices 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 assigned, transferred, sold, pledged or hypothecated, in whole or in
part, nor may the Holder dispose of any interest in this Warrant.
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 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:
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.
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.
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<PAGE>
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 A U.S. PERSON UNLESS THESE SHARES ARE REGISTERED UNDER THE
ACT, OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS
AVAILABLE. TERMS USED IN THIS LEGEND HAVE THE MEANING GIVEN TO THEM BY
REGULATION S PROMULGATED UNDER THE 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") is 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
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<PAGE>
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 sale, lease or
conveyance of all or substantially all of the assets of the Company to another
person, 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.
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<PAGE>
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 person, or a
reverse triangular merger in which the Company is the surviving person 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 cash, securities 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 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,
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 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 nearly 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.
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<PAGE>
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 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 against impairment.
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<PAGE>
14. MISCELLANEOUS PROVISIONS.
(a) MARKET STAND-OFF PROVISIONS.
(i) Except pursuant to registration rights granted
to the Holder by the Company, 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 or other security
received on exercise hereof without the prior written consent of the Company and
the representative of the underwriters. Such limitations shall be in effect for
such reasonable period of time from and after the effective date of such
registration statement as may be requested by the Company or such underwriters.
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 such 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.
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<PAGE>
(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 attorneys' fees, costs and disbursements,
in addition to any other relief to which such party may be entitled.
IN WITNESS WHEREOF, STARBASE CORPORATION has caused this
Warrant to be executed by its officers thereunto duly authorized.
Dated as of _________________________
STARBASE CORPORATION
By:______________________________________
Name:
Title:
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<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
To: STARBASE CORPORATION
18872 MacArthur Boulevard
Suite 300
Irvine, California 92715
Attn: Chief Financial Officer
(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) 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]
<PAGE>
EXHIBIT 2
OFFICER'S CERTIFICATE
The undersigned, [an individual] [being the duly elected
President of ___________________, a corporation organized under the laws of the
____________________ ] (the "Purchaser"), hereby certifies to STARBASE
CORPORATION (the "Company") and to its counsel, that:
1. The Purchaser acquired _______ Units (the "Units"), each
Unit consisting of one share of common stock, $.01 par value per share, of the
Company ("Common Stock"), and one warrant to purchase a share of Common Stock
(each, a "Warrant") in accordance with Regulation S ("Regulation S") promulgated
under the Securities Act of 1933, as amended (the "Act").
2. From the date of the acquisition of the Units to the date
hereof (the "Period"), the Purchaser has been the sole beneficial and record
owner of the Units and did not take any short position in the Company's Common
Stock.
3. Each of the representations and warranties set forth in the
Subscription Agreement, dated as of May _, 1996, entered into by the Company and
the Purchaser were true and accurate when made and continue to be true and
accurate as of the date hereof.
4. The Purchaser has held the Units for more than forty days
and has paid the full purchase price with respect to the Units to the Company
and it was not at the time of the purchase of the Units, during the Period nor
is it currently a "U.S. Person" as such term is defined in Regulation S.
5. The Purchaser is not an "underwriter" or a "dealer" (as
those terms are defined in sections 2(11) and 2(12) of the Act) and is not
receiving or will not receive a selling commission, fee or other remuneration in
respect of the Units being converted or in respect of the sale or potential sale
of the Common Stock issuable upon exercise of the Warrants.
6. The Purchaser is not the issuer or distributor of the
shares of Common Stock issuable upon exercise of the Warrant, or an affiliate of
the Company, and is not acting on behalf of any of the foregoing.
<PAGE>
The Purchaser understands that this certificate is being
delivered to provide the Company and its counsel with certain information
necessary to make a determination of the applicability of the registration
requirements of the Act. The Purchaser agrees that the Company and its counsel
may rely upon the statements contained herein with regard to issuing an opinion
of counsel with regard to such requirements.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this ___ day of ____________, 19__.
By:
---------------------------
Name:
Title:
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<PAGE>
U.S. Subscribers
<PAGE>
U.S. PURCHASERS
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "Agreement") is entered into by and between
StarBase Corporation, a Delaware corporation (the "Company"), and the
undersigned (the "Purchaser").
RECITALS
A. Pursuant to that certain Confidential Private Placement Memorandum dated
April 19, 1996 (the "Private Placement Memorandum"), the Company is
offering up to 2,100,000 units of the Company's securities (the "Units") to
prospective investors (the "Offering"), each Unit consisting of one share
of common stock, $.01 par value, of the Company (the "Common Stock") and
one non-transferable warrant to purchase one share of the Common Stock (the
"Warrant"), exercisable at $2.00 per share through January 31, 1997 and
thereafter at $2.50 per share through January 31, 1998, after which date
the Warrant expires. The Warrant shall be substantially in the form
attached hereto as Exhibit A.
B. Each investor shall be granted registration rights set forth in the
Registration Rights Agreement substantially in the form attached hereto as
Exhibit B.
C. Prospective investors wishing to apply to subscribe for Units are required
to (i) execute the signatures pages, and (ii) return this Agreement and the
executed Registration Rights Agreement with payment in accordance with
Section 1 hereof.
AGREEMENT
SECTION 1. ISSUANCE AND SALE OF UNITS. On the basis of the representations,
warranties, covenants, acknowledgments and understandings contained herein, the
Company and the Purchaser agree that on the Closing Date (as hereinafter
defined), the Company will issue and sell to the Purchaser and the Purchaser
will purchase from the Company, at a purchase price, in lawful money of the
United States and in immediately available funds, of $3.00 per Unit, the number,
not less than 10,000 Units, set forth opposite the Purchaser's name on the
signature page hereof for the aggregate purchase price set forth thereon (the
"Purchase Price"). Upon execution of the signature page of this Agreement by the
Purchaser, unless otherwise instructed by the Company, the Purchaser shall
deliver to the Company the Purchase Price in the form of a cashier's check or
other evidence of immediately available funds equal to the amount set forth on
the signature page hereto, which shall be in payment for the Units purchased
hereunder.
SECTION 2. ACKNOWLEDGMENTS OF THE PURCHASER. The Purchaser has been furnished
with and has carefully read the Private Placement Memorandum and the documents
attached thereto. The Purchaser is aware that:
a. The Purchaser must bear the economic risk of investment in the Units
for an
<PAGE>
indefinite period of time, since the Units and the Common Stock and
Warrants comprising the Units have not been registered under the
Securities Act of 1933, as amended (the "Act"), and no federal or
state agency (including, without limitation, the Securities and
Exchange Commission or any state securities authority) has passed upon
or made any finding or determination as to the fairness of this
investment nor has made any recommendation or endorsement regarding
the purchase of the Units;
b. The Purchaser is aware that the Units are being offered and sold under
the exemptions provided by Section 4(2) of the Act and Regulation D
promulgated thereunder for non-public offerings, and under exemptions
from registration under various state securities laws;
c. There will not be any public market for the Units and the Common Stock
and Warrants comprising the Units to be held by the Purchaser, and the
Purchaser must bear the economic risk of such investment for an
indefinite period of time and will not necessarily be able to
liquidate an investment in the Company. Transfer of the Units and the
Common Stock and Warrants comprising the Units is severely restricted
by applicable securities laws (including, without limitation, the
Act);
d. The Purchaser is aware that an investment in the Units is speculative
in nature and involves a high degree of risk, including the risk of
total loss of the amount invested;
e. The Purchaser is aware that 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,
that the Company's marketing plans will be successful or that the
Company will be able to generate significant revenues or operate on a
profitable basis;
f. The Purchaser is aware that, since its inception, the Company has had
a history of losses and as of December 31, 1995, the Company had a
consolidated accumulated deficit of approximately $16,942,000;
g. The Purchaser is aware that without the proceeds from the Offering or
an alternative source of capital, the Company will not be able to meet
its debts as they become due;
h. The Certificate of Incorporation of the Company contains provisions
that eliminate the personal liability of the directors of the Company
(the "Directors") and indemnify the Directors for certain damages
relating to the Company or any Director in connection with the
good-faith management and operation of the
2
<PAGE>
Company by the Directors;
i. The Purchaser understands that the Company will be relying on the
Purchaser's acknowledgments, representations, warranties, covenants
and agreements set forth herein in agreeing to sell the Units to the
Purchaser. If there is any material change in the information relating
to the Purchaser provided to the Company or otherwise relevant to the
Purchaser's investment in the Units prior to the Closing Date (as
hereinafter defined), the Purchaser shall immediately provide the
Company with information regarding such change;
j. The following restrictions and limitations are applicable to the
purchase and any resale or other transfer the Purchaser may make of
the Units (including the Common Stock and Warrants comprising the
Units or issuable pursuant to the exercise of the Warrants):
(i) The Units shall not be sold or otherwise transferred unless the
applicable provisions of this Agreement are satisfied.
(ii) The certificates representing the Common Stock will contain the
following legend: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE
TRANSFERRED OR DISPOSED OF UNLESS (1) A REGISTRATION STATEMENT
UNDER THE ACT IS THEN IN EFFECT WITH RESPECT THERETO AND SUCH
SALE IS MADE PURSUANT TO SUCH REGISTRATION STATEMENT OR (2) A
WRITTEN OPINION FROM COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY IS OBTAINED TO THE EFFECT THAT SUCH TRANSFER OR
DISPOSITION WILL NOT VIOLATE THE ACT AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER.
(iii)Stop transfer instructions will be placed on the Units and
Common Stock and Warrants issuable or issued thereunder so as to
restrict resale, or other transfer thereof, subject to the
further items hereof, including, without limitation, the
provisions of the legend set forth in subparagraph (ii) above.
(iv) The legend and stop transfer instructions described in
subparagraphs (ii) and (iii) above will be placed on any new
certificate(s) or other document(s) issued upon presentment by
the Purchaser of certificate(s) or other document(s) for
transfer, and on any certificate(s) issued pursuant to the
exercise of the Warrants;
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<PAGE>
k. The Purchaser will have no control over the operations of the Company;
l. The Purchaser has consulted its own financial, legal and tax advisors
with respect to the economic legal and tax consequences of an
investment in the Units and has not relied on the Private Placement
Memorandum or the Company, its officers, directors, affiliates or
professional advisors for advice as to such consequences;
m. Dabney/Resnick, Inc. is not in control of the Directors or the Company
and is not financially or otherwise liable for or guaranteeing any
actions, indebtedness or other liabilities of the Directors or the
Company, and the Purchaser has no recourse of any kind or nature to
Dabney/Resnick, Inc.; and
n. The Company reserves the unrestricted right to reject any
subscription, in whole or in part, and no subscription will be binding
unless and until accepted by the Company.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER. The
Purchaser represents, warrants and covenants to the Company, with the intent
that the same shall be relied upon in determining the suitability of the
Purchaser in purchasing the Units, that:
a. The Purchaser is aware and understands that this Offering is subject
to all of the potential risks which can be expected in private
offerings for development stage companies, including such matters as
significant business risks associated with product development,
operations, competition, market acceptance, product pricing, reliance
on distributors, financing requirements and dependence on key
personnel. See "Risk Factors" in the Private Placement Memorandum for
a summary of some of the possible risks. THE PURCHASER REPRESENTS AND
WARRANTS THAT IT HAS SUFFICIENT FAMILIARITY WITH PRIVATE PLACEMENT
TRANSACTIONS AND GENERAL MARKET ISSUES THAT IT IS FULLY CAPABLE OF
RECOGNIZING AND EVALUATING THE SUBSTANTIAL RISKS PRESENTED BY THIS
TRANSACTION, AN INVESTMENT IN THE UNITS AND THE INFORMATION DISCLOSED
IN THE PRIVATE PLACEMENT MEMORANDUM.
b. The Purchaser has carefully reviewed the Private Placement Memorandum
and related documents and understands the substantial risks and other
considerations surrounding the purchase of the Units;
c. The Purchaser is acquiring the Units for its own account, as
principal, for investment purposes only, and not with a view toward
resale, assignment or distribution thereof. No other person or entity
besides the Purchaser will have a direct or indirect beneficial
interest in the Units;
d. The Purchaser has the requisite knowledge and experience in financial
and other business matters and prior investment experience to assess
the relative merits and
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<PAGE>
risks of investment in the Units and to protect its interests in
connection with the purchase of the Units;
e. If an individual, the Purchaser has adequate means of providing for
his or her current needs and personal contingencies, has no need for
liquidity in this investment, and can afford a complete loss of this
investment. The Purchaser's overall commitment to investments
(including this one) that are not readily marketable is not
disproportionate to the Purchaser's net worth, and an investment in
the Units will not cause the Purchaser's commitment to such
investments to become excessive;
f. The Purchaser hereby certifies under penalty of perjury, that: (1)
unless the Purchaser has otherwise advised the Company in writing, the
Purchaser is a United States citizen or a domestic corporation,
partnership, trust or estate for federal income tax purposes; (2) the
Social Security number or Taxpayer Identification number set forth
below is correct; (3) the Purchaser is a resident of the state noted
in its address set forth below and does not currently intend to change
residence to another state; (4) the Purchaser hereby agrees to notify
the Company within sixty (60) days of the date thereof, should the
Purchaser become a nonresident alien or foreign person; and (5) the
Purchaser is not subject to backup withholding.
g. The Purchaser, if a corporation, partnership, trust, estate or other
form of business entity, is duly organized, in good standing and
authorized and otherwise duly qualified to purchase and hold the
Units, and such entity has not been formed for the specific purpose of
acquiring the Units;
h. The Purchaser represents that it is an "accredited investor" as such
term is defined in Regulation D promulgated under the Act; and
i. The Purchaser has not distributed the Private Placement Memorandum to
anyone other than its purchaser representative, if any, and no one
except such purchaser representative, if any, has used the Private
Placement Memorandum and the Purchaser has not made any copies
thereof.
SECTION 4. CLOSING. The Offering is expected to close on May 10, 1996, or on
such later date or dates as the Company shall determine in its sole discretion,
and may be further extended in the Company's sole discretion (the "Closing
Date").
SECTION 5. SUCCESSORS; ASSIGNMENTS; FURTHER ASSURANCES. The representations and
warranties herein contained will be binding upon the Purchaser and the
Purchaser's heirs, executors, administrators, successors and assigns. The
Purchaser agrees not to transfer or assign this Agreement, or any of the
interests of the Purchaser herein, and further agrees that the transfer or
assignment of the Units acquired pursuant hereto shall be made only in
accordance with all
5
<PAGE>
applicable laws. The Purchaser agrees to execute, acknowledge and deliver all
documents and take or forebear from taking all actions as may be reasonably
requested by the Company to carry out the purposes of or to evidence or secure
compliance with this Agreement.
SECTION 6. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company hereunder are subject to the accuracy of and compliance with the
Purchaser's representations, understandings, acknowledgments, covenants and
warranties hereunder, to the performance by the Purchaser of its obligations
hereunder, to the terms and conditions described in the Private Placement
Memorandum under "Section IX. Terms of the Offering" (including receipt of
subscriptions for a minimum of 1,000,000 Units), and to the following further
conditions:
a. The Company, after making reasonable inquiry, shall have reasonable
grounds to believe and shall believe either that:
(i) The Purchaser has such knowledge and experience in financial and
business matters, including knowledge of private placement
transactions, that the Purchaser is capable of evaluating the
merits and risks of an investment in the Units; or
(ii) The Purchaser and the purchaser's representative, if any,
together have such knowledge and experience in financial and
business matters that they are capable of evaluating the merits
and risks of an investment in the Units, and that the Purchaser
is able to bear the economic risk of the investment; and
b. The Company, after making reasonable inquiry, shall have reasonable
grounds to believe and shall believe that the Purchaser is an
"accredited investor" as such term is defined in Regulation D
promulgated under the Act.
SECTION 7. BENEFICIARIES; GOVERNING LAW. This Agreement is only for the benefit
of the Company and its successors and assigns and will be construed in
accordance with and governed by the laws of the State of California without
giving effect to the conflicts of law provisions thereof.
SECTION 8. STATE SECURITIES LAWS. The Purchaser acknowledges reading and agrees
to the statements set forth below in this Section under the applicable State of
residence of the Purchaser, in compliance with the securities laws of such
State. By executing this Subscription Agreement, the Purchaser represents and
warrants to the Company that the Purchaser has read the following applicable
statements and is aware of and understands their contents.
6
<PAGE>
California Residents:
- - ---------------------
THE SALE OF THE SECURITIES WHICH IS THE SUBJECT OF THE PRIVATE PLACEMENT
MEMORANDUM HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR A
RECEIPT OF ANY PART OF THE CONSIDERATION THEREOF PRIOR TO SUCH QUALIFICATION IS
UNLAWFUL, UNLESS THE SALE OF SUCH SECURITIES IS EXEMPT FROM QUALIFICATION BY
SECTIONS 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATION CODE. THE RIGHTS OF
ALL PARTIES TO SUBSCRIBE FOR THE SECURITIES WHICH ARE THE SUBJECT OF THE PRIVATE
PLACEMENT MEMORANDUM ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT.
Connecticut Residents:
- - ----------------------
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM, INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
Florida Residents:
- - ------------------
THE FLORIDA DEPARTMENT OF BANKING AND FINANCE HAS NOT REVIEWED THIS OFFERING OR
THE PRIVATE PLACEMENT MEMORANDUM AND THE SECURITIES OFFERED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT. UNLESS THE
SECURITIES OFFERED HEREBY ARE REGISTERED, THEY MAY NOT BE RESOLD OR TRANSFERRED
EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER THE ACT.
PURSUANT TO SECTION 517.061(11)(a) OF THE FLORIDA SECURITIES AND INVESTOR
PROTECTION ACT, WHERE SALES ARE MADE TO FIVE OR MORE PERSONS IN FLORIDA, FLORIDA
INVESTORS HAVE A THREE-DAY RIGHT OF WITHDRAWAL OF ACCEPTANCE. IF YOU HAVE
EXECUTED A SUBSCRIPTION AGREEMENT (THE "AGREEMENT"), YOU MAY ELECT, THREE
BUSINESS DAYS AFTER THE DELIVERY BY YOU OF ANY CONSIDERATION FOR YOUR
SECURITIES, OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS
COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER, TO WITHDRAW FROM YOUR
AGREEMENT. YOUR WITHDRAWAL WILL BE WITHOUT ANY FURTHER LIABILITY TO YOU. TO
ACCOMPLISH SUCH WITHDRAWAL, YOU NEED ONLY TELEPHONE OR SEND A TELEGRAM WITHIN
SUCH TIME PERIOD TO THE COMPANY AT ITS ADDRESS SET FORTH BELOW.
7
<PAGE>
SHOULD YOU MAKE THIS REQUEST ORALLY, YOU SHOULD ASK FOR WRITTEN CONFIRMATION
THAT YOUR REQUEST HAS BEEN RECEIVED.
Massachusetts Residents:
- - ------------------------
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
Ohio Residents:
- - ---------------
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
New York Residents:
- - -------------------
THE PRIVATE PLACEMENT MEMORANDUM HAS NOT BEEN FILED WITH OR REVIEWED BY THE
ATTORNEY GENERAL OF THE STATE OF NEW YORK PRIOR TO ITS ISSUANCE AND USE. THE
ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATIONS TO THE CONTRARY ARE UNLAWFUL.
Texas Residents:
- - ----------------
THE PRIVATE PLACEMENT MEMORANDUM HAS NOT BEEN FILED WITH OR REVIEWED BY THE
STATE SECURITIES BOARD OF THE STATE OF TEXAS PRIOR TO ITS ISSUANCE AND USE. THE
SECURITIES COMMISSIONER OF THE STATE OF TEXAS HAS NOT PASSED UPON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATIONS TO THE CONTRARY ARE UNLAWFUL.
Washington Residents:
- - ---------------------
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE
8
<PAGE>
THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
9
<PAGE>
SECTION 9. NATURE OF INVESTOR; FORM OF OWNERSHIP.
A. THE PURCHASER IS (CHECK AND INITIAL ALL APPLICABLE ANSWERS, SIGN
IN THE SPACE PROVIDED BELOW IN THIS SECTION 9.A. AND SIGN WHERE
INDICATED AT THE END OF THIS AGREEMENT):
INITIAL CHECK
------- -----
________1. [ ] A natural person whose net worth (or
joint net worth with my spouse) is in
excess of $1,000,000 as of the date
hereof.
________2. [ ] A natural person whose income in
1994 and 1995 was, and whose income in
1996 is expected to be, in excess of
$200,000, or whose income with a spouse
in 1994 and 1995 was, and whose income
with a spouse in 1996 is expected to be,
in excess of $300,000.
________3. [ ] A trust with total assets in excess
of $5,000,000, not formed for the
specific purpose of investing in the
Company, whose purchase is directed by a
"sophisticated person" as described in
Rule 506(b)(2)(ii) of the Act.
________4. [ ] A "bank," "savings and loan association"
or "insurance company," as defined in
the Act.
________5. [ ] An "employee benefit plan" as defined in
the Employee Retirement Income Security
Act of 1974 (a "Plan") which has total
assets in excess of $5,000,000.
________6. [ ] A Plan whose investment decisions,
including the decision to subscribe for
the limited partnership interests, are
made solely by (i) a "plan fiduciary" as
defined in the Employee Retirement
Income Security Act of 1974, which
includes a bank, a savings and loan
association, and insurance company or a
registered investment adviser, or (ii)
an "accredited investor" as defined
under Rule 501(a) of the Act, for a
self-directed plan.
________7. [ ] A broker/dealer registered pursuant to
Section 15 of the Securities Exchange
Act of 1934, as amended.
________8. [ ] A "private business development company"
as defined in the Investment Advisers
Act of 1940, as amended.
________9. [ ] An investment company registered under,
or a "business development company" as
defined in, the Investment Company Act
of 1940, as amended.
________10. [ ] A Small Business Investment Company
licensed by the U.S. Small Business
Administration under the Small Business
Investment Act of 1958.
10
<PAGE>
________11. [ ] A plan established and maintained by a
state, its political subdivisions, or
any agency or instrumentality of a state
or its political subdivisions, for the
benefit of its employees and having
total assets in excess of $5,000,000.
________12. [ ] Any organization described in Section
501(c)(3) of the Internal Revenue Code,
corporation, Massachusetts or similar
business Trust, or partnership, not
formed for the specific purpose of
investing in the limited partnership
interests and having total assets in
excess of $5,000,000.
________13. [ ] Any entity in which all of the equity
owners are "accredited investors."
You may rely on the forgoing representation. ---------------------
DATE
- - ----------------------------- ---------------------
PRINT NAME PRINT NAME
- - ----------------------------- ---------------------
SIGNATURE SIGNATURE
11
<PAGE>
B. THE PURCHASER IS/ARE (CHECK AND INITIAL ALL APPLICABLE ANSWERS):
________1. [ ] Individual (one signature required)
________2. [ ] Joint Tenants with right of survivorship (both
parties must sign)
________3. [ ] Tenants in Common (both parties must sign)
________4. [ ] Community Property (one signature required if
Units are held in one name, i.e., managing spouse;
two signatures required if Units are held in both
names or if purchaser is a resident of California)
________5. [ ] Corporation (signature of authorized party or
parties)
________6. [ ] Partnership (signature of general partner and
additional signatures if required by partnership
agreement)
________7. [ ] Trust (Trust must sign as follows: as trustee
for , dated .)
________8. [ ] Other Entities (As required by applicable
papers)
12
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
set forth on the signature page for StarBase Corporation below. If applicable,
this letter will also authorize Dabney/Resnick, Inc. to transfer funds to an
escrow holding account ___________________ from your account, Account Number
_____________________, for this transaction.
INDIVIDUAL INVESTOR
- - -------------------
I have checked the appropriate boxes in SECTION 9. NATURE OF INVESTOR; FORM OF
OWNERSHIP, and I qualify as an "Accredited Investor."
- - ------------------------------- -------------------------------
Print name of Prospective Investor Signature of Prospective Investor
- - ------------------------------- -------------------------------
Print name of Spouse Signature of Spouse
(if funds are to be invested in joint (if funds are to be invested in
name or are community property) joint name or are community
property)
$
-----------------------------
(amount of immediately available
funds to be transferred herewith)
- - -------------------------------------------------------------------
Please PRINT the exact name(s) (registration) investor(s) desire(s) for the
Interest(s)
( ) -
- - ------------------------------- ----- --------------------
Occupation Tel. No.
- - -------------------------
Social Security or Tax I.D. No.
- - ---------------------------------------------------------------
Street Address
- - ---------------------------------------------------------------
City State Zip
13
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
set forth on the signature page for StarBase Corporation below. If applicable,
this letter will also authorize Dabney/Resnick, Inc. to transfer funds to an
escrow holding account _____________ from your account, Account Number
____________________, for this transaction.
ENTITY INVESTOR
- - ---------------
I have checked the appropriate boxes in SECTION 9. NATURE OF INVESTOR; FORM OF
OWNERSHIP as a qualifying entity.
- - ------------------------------- -------------------------------
Print name of partnership, Signature of authorized representative
corporation or trust
By:
- - ------------------------------- -------------------------------
Signature of authorized representative Capacity of authorized representative
$
- - ------------------------------
(amount of immediately available
funds to be transferred herewith)
- - -------------------------------------------------------------------
Please PRINT the exact name(s) (registration) investor(s) desire(s) for the
Interest(s)
( ) -
- - ------------------------------- ----- --------------------
Occupation Tel. No.
- - -------------------------
Tax I.D. No.
- - ---------------------------------------------------------------
Street Address
- - ---------------------------------------------------------------
City State Zip
14
<PAGE>
SUBSCRIPTION ACCEPTED: STARBASE CORPORATION
Date: ____________, 1996 By: ______________________________
Its:_______________________________
15
<PAGE>
non-U.S. Subscribers
<PAGE>
NON-U.S. PURCHASERS
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "Agreement") is entered into by and between
StarBase Corporation, a Delaware corporation (the "Company"), and the
undersigned (the "Purchaser").
RECITALS
A. Pursuant to that certain Confidential Private Placement Memorandum dated
April 19, 1996 (the "Private Placement Memorandum"), the Company is
offering up to 2,100,000 units of the Company's securities (the "Units") to
prospective investors (the "Offering"), each Unit consisting of one share
of common stock, $.01 par value, of the Company (the "Common Stock") and
one non-transferable warrant to purchase one share of the Common Stock (the
"Warrant"), exercisable at $2.00 per share through January 31, 1997 and
thereafter at $2.50 per share through January 31, 1998, after which date
the Warrant expires. The Warrant shall be substantially in the form
attached hereto as Exhibit A.
B. Each investor shall be granted registration rights set forth in the
Registration Rights Agreement substantially in the form attached hereto as
Exhibit B.
C. Prospective investors wishing to apply to subscribe for Units are required
to (i) execute the signatures pages, and (ii) return this Agreement and the
executed Registration Rights Agreement with payment in accordance with
Section 1 hereof.
AGREEMENT
SECTION 1. ISSUANCE AND SALE OF UNITS. On the basis of the representations,
warranties, covenants, acknowledgments and understandings contained herein, the
Company and the Purchaser agree that on the Closing Date (as hereinafter
defined), the Company will issue and sell to the Purchaser and the Purchaser
will purchase from the Company, at a purchase price, in lawful money of the
United States and in immediately available funds, of $3.00 per Unit, the number,
not less than 10,000 Units, set forth opposite the Purchaser's name on the
signature page hereof for the aggregate purchase price set forth thereon (the
"Purchase Price"). Upon execution of the signature page of this Agreement by the
Purchaser, unless otherwise instructed by the Company, the Purchaser shall
deliver to the Company the Purchase Price in the form of a cashier's check or
other evidence of immediately available funds equal to the amount set forth on
the signature page hereto, which shall be in payment for the Units purchased
hereunder.
SECTION 2. ACKNOWLEDGMENTS OF THE PURCHASER. The Purchaser has been furnished
with and has carefully read the Private Placement Memorandum and the documents
attached thereto. The Purchaser is aware that:
a. The Purchaser must bear the economic risk of investment in the Units
for an
<PAGE>
indefinite period of time, since the Units and the Common Stock and
Warrants comprising the Units have not been registered under the
Securities Act of 1933, as amended (the "Act"), and no federal or
state agency (including, without limitation, the Securities and
Exchange Commission and any state securities authority) has passed
upon or made any finding or determination as to the fairness of this
investment nor has made any recommendation or endorsement regarding
the purchase of the Units;
b. The Purchaser is aware that the Units are being offered and sold
pursuant to an exemption contained in Regulation S promulgated under
the Act relating to transactions not involving U.S. Persons (as such
term is defined under Regulation S).
c. There will not be any public market in the United States for the Units
or the Common Stock and Warrants comprising the Units to be held by
the Purchaser, and the Purchaser must bear the economic risk of such
investment for an indefinite period of time and will not necessarily
be able to liquidate an investment in the Company. Transfer of the
Units and the Common Stock and Warrants comprising the Units is
severely restricted by applicable United States securities laws
(including, without limitation, the Act);
d. The Purchaser is aware that an investment in the Units is speculative
in nature and involves a high degree of risk, including the risk of
total loss of the amount invested;
e. The Purchaser is aware that 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,
that the Company's marketing plans will be successful or that the
Company will be able to generate significant revenues or operate on a
profitable basis;
f. The Purchaser is aware that, since its inception, the Company has had
a history of losses and as of December 31, 1995, the Company had a
consolidated accumulated deficit of approximately $16,942,000;
g. The Purchaser is aware that without the proceeds from the Offering or
an alternative source of capital, the Company will not be able to meet
its debts as they become due;
h. The Certificate of Incorporation of the Company contains provisions
that eliminate the personal liability of the directors of the Company
(the "Directors") and indemnify the Directors for certain damages
relating to the Company or any
2
<PAGE>
Director in connection with the good-faith management and operation of
the Company by the Directors; i. The Purchaser understands that the
Company will be relying on the Purchaser's acknowledgments,
representations, warranties, covenants and agreements set forth herein
in agreeing to sell the Units to the Purchaser. If there is any
material change in the information relating to the Purchaser, provided
to the Company or otherwise relevant to the Purchaser's investment in
the Units prior to the Closing Date (as hereinafter defined), the
Purchaser shall immediately provide the Company with information
regarding such change;
j. The following restrictions and limitations are applicable to the
purchase and any resale or other transfer the Purchaser may make of
the Units (including the Common Stock and Warrants comprising the
Units or issuable pursuant to the exercise of the Warrants):
(i) The Units shall not be sold or otherwise transferred unless the
applicable provisions of this Agreement are satisfied.
(ii) The certificates representing the Common Stock will contain the
following legend: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND HAVE BEEN OFFERED AND SOLD PURSUANT TO
AN EXEMPTION CONTAINED IN REGULATION S PROMULGATED UNDER THE ACT
RELATING TO TRANSACTIONS NOT INVOLVING U.S. PERSONS (AS SUCH TERM
IS DEFINED UNDER REGULATION S). THE SECURITIES REPRESENTED HEREBY
MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO OR FOR THE
ACCOUNT OR BENEFIT OF A U.S. PERSON UNLESS SUCH SECURITIES ARE
REGISTERED UNDER THE ACT, OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE.
(iii)Stop transfer instructions will be placed on the Units and
Common Stock and Warrants issuable or issued thereunder so as to
restrict resale, or other transfer thereof, subject to the
further items hereof, including, without limitation, the
provisions of the legend set forth in subparagraph (ii) above.
(iv) The legend and stop transfer instructions described in
subparagraphs (ii) and (iii) above will be placed on any new
certificate(s) or other document(s) issued upon presentment by
the Purchaser of certificate(s) or other document(s) for
transfer, and on any certificate(s) issued pursuant to the
exercise of the Warrants;
3
<PAGE>
(v) A certificate may be submitted for removal of the Regulation S
legend after the expiration of the restricted period described
herein, provided the Purchaser shall have delivered a certificate
to the Company to the following effect:
The undersigned acknowledges that (i) the securities to
which this declaration relates have not been registered
under the Securities Act of 1933, as amended (the "Act") and
that resales of such securities must be made in compliance
with Regulation S promulgated under the Act, pursuant to an
effective and current registration statement under the Act
or pursuant to an available exemption from registration, and
(ii) the undersigned, after consultation with its counsel,
certifies that the undersigned has not made, nor will the
undersigned make or cause to be made, any offer, sale
transfer or other disposition of such securities, in
violation of the Act (including Regulation S), the
Securities Exchange Act of 1934, as amended, or other rules
and regulations of the Securities and Exchange Commission.
k. The Purchaser will have no control over the operations of the Company;
l. The Purchaser has consulted its own financial, legal and tax advisors
with respect to the economic legal and tax consequences of an
investment in the Units and has not relied on the Private Placement
Memorandum or the Company, its officers, directors, affiliates or
professional advisors for advice as to such consequences;
m. Dabney/Resnick, Inc. is not in control of the Directors or the Company
and is not financially or otherwise liable for or guaranteeing any
actions, indebtedness or other liabilities of the Directors of the
Company, and the Purchaser has no recourse of any kind or nature to
Dabney/Resnick, Inc.; and
n. The Company reserves the unrestricted right to reject any
subscription, in whole or in part, and no subscription will be binding
unless and until accepted by the Company.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER. The
Purchaser represents, warrants and covenants to the Company, with the intent
that the same shall be relied upon in determining the suitability of the
Purchaser in purchasing the Units, that:
4
<PAGE>
a. The Purchaser is aware and understands that this Offering is subject
to all of the potential risks which can be expected in private
offerings for development stage companies, including such matters as
significant business risks associated with product development,
operations, competition, market acceptance, product pricing, reliance
on distributors, financing requirements and dependence on key
personnel. See "Risk Factors" in the Private Placement Memorandum for
a summary of some of the possible risks. THE PURCHASER REPRESENTS AND
WARRANTS THAT IT HAS SUFFICIENT FAMILIARITY WITH PRIVATE PLACEMENT
TRANSACTIONS AND GENERAL MARKET ISSUES THAT IT IS FULLY CAPABLE OF
RECOGNIZING AND EVALUATING THE SUBSTANTIAL RISKS PRESENTED BY THIS
TRANSACTION, AN INVESTMENT IN THE UNITS AND THE INFORMATION DISCLOSED
IN THE PRIVATE PLACEMENT MEMORANDUM.
b. The Purchaser has carefully reviewed the Private Placement Memorandum
and related documents and understands the substantial risks and other
considerations surrounding the purchase of the Units;
c. The Purchaser is acquiring the Units for its own account, as
principal, for investment purposes only, and not with a view toward
resale, assignment or distribution thereof. No other person or entity
besides the Purchaser will have a direct or indirect beneficial
interest in the Units;
d. The Purchaser has the requisite knowledge and experience in financial
and other business matters and prior investment experience to assess
the relative merits and risks of investment in the Units and to
protect its interests in connection with the purchase of the Units;
e. If an individual, the Purchaser has adequate means of providing for
his or her current needs and personal contingencies, has no need for
liquidity in this investment, and can afford a complete loss of this
investment. The Purchaser's overall commitment to investments
(including this one) that are not readily marketable is not
disproportionate to the Purchaser's net worth, and an investment in
the Units will not cause the Purchaser's commitment to such
investments to become excessive;
f. The Purchaser, if a corporation, partnership, trust, estate or other
form of business entity, is duly organized, in good standing and
authorized and otherwise duly qualified to purchase and hold the
Units, and such entity has not been formed for the specific purpose of
acquiring the Units;
g. The Purchaser is a resident of _______________________ [please fill in
country and province or state].
5
<PAGE>
h. The Purchaser certifies that (i) it is not a "U.S. Person" as such
term is defined for purposes of Regulation S; (ii) it is not acquiring
the Units for the account or benefit of any U.S. Person; and (iii) no
offer to buy the Units was made to the Purchaser in the United States,
nor has this Agreement been signed or delivered to the Purchaser in
the United States;
i. The Purchaser agrees to resell the Units and the Common Stock and
Warrants comprising the Units only in accordance with Regulation S,
pursuant to registration under the Act or pursuant to an available
exemption from such registration;
j. Except pursuant to an effective registration statement, the Purchaser
agrees that it will not transfer the Units held by it, or the Common
Stock or Warrants comprising such Units, into the United States or to
or for the account or benefit of a U.S. Person until the date that is
forty (40) days following the issuance of the Units (or, in the case
of Common Stock issuable upon exercise of the Warrants, forty (40)
days following the exercise of such Warrants). The Purchaser
understands that each transferee of the Units or the Common Stock or
Warrants comprising the Units will be required to acknowledge and
agree to this restriction in writing;
k. The Purchaser understands and acknowledges that the Units have not
been registered under the Act and have been offered and sold pursuant
to an exemption contained in Regulation S promulgated under the Act
relating to transactions not involving U.S. Persons. The Units may not
be offered or sold in the United States or to or for the account or
benefit of a U.S. Person unless such securities are registered under
the Act or an exemption from the registration requirements of the Act
is available. No Units may be transferred to or for the account or
benefit of a U.S. Person (i) other than in accordance with the
provisions of Regulation S, unless registered under the Act or
pursuant to another exemption from registration, or (ii) except
pursuant to an effective registration statement, until the date that
is forty (40) days following the issuance of the Units or, in the case
of Common Stock issuable pursuant to the exercise of the Warrants,
forty (40) days following the distribution thereof; and
l. The Purchaser has not distributed the Private Placement Memorandum to
anyone other than its purchaser representative, if any, and no one
except such purchaser representative, if any, has used the Private
Placement Memorandum and the Purchaser has not made any copies
thereof.
SECTION 4. CLOSING. The Offering is expected to close on May 10, 1996, or on
such later date or dates as the Company shall determine in its sole discretion,
and may be further extended in the Company's sole discretion (the "Closing
Date").
6
<PAGE>
SECTION 5. SUCCESSORS; ASSIGNMENTS; FURTHER ASSURANCES. The representations and
warranties herein contained will be binding upon the Purchaser and the
Purchaser's heirs, executors, administrators, successors and assigns. The
Purchaser agrees not to transfer or assign this Agreement, or any of the
interests of the Purchaser herein, and further agrees that the transfer or
assignment of the Units acquired pursuant hereto shall be made only in
accordance with all applicable laws. The Purchaser agrees to execute,
acknowledge and deliver all documents and take or forebear from taking all
actions as may be reasonably requested by the Company to carry out the purposes
of or to evidence or secure compliance with this Agreement.
SECTION 6. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company hereunder are subject to the accuracy of and compliance with the
Purchaser's representations, understandings, acknowledgments, covenants and
warranties hereunder, to the performance by the Purchaser of its obligations
hereunder, to the terms and conditions described in the Private Placement
Memorandum under "Section IX. Terms of the Offering" (including receipt of
subscriptions for a minimum of 1,000,000 Units), and to the following further
conditions:
a. The Company, after making reasonable inquiry, shall have reasonable
grounds to believe and shall believe either that:
(i) The Purchaser has such knowledge and experience in financial and
business matters, including knowledge of private placement
transactions, that the Purchaser is capable of evaluating the
merits and risks of an investment in the Units; or
(ii) The Purchaser and the Purchaser's representative, if any,
together have such knowledge and experience in financial and
business matters that they are capable of evaluating the merits
and risks of an investment in the Units, and that the Purchaser
is able to bear the economic risk of the investment; and
b. The Company, after making reasonable inquiry, shall have reasonable
grounds to believe and shall believe that the Purchaser is not a "U.S.
Person" as such term is defined for purposes of Regulation S
promulgated under the Act.
SECTION 7. BENEFICIARIES; GOVERNING LAW. This Agreement is only for the benefit
of the Company and will be construed in accordance with and governed by the laws
of the State of California without giving effect to the conflicts of law
provisions thereof.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
set forth on the signature page for StarBase Corporation below. If applicable,
this letter will also authorize Dabney/Resnick, Inc. to transfer funds to an
escrow holding account ___________________ from your account, Account Number
_____________________, for this transaction.
INDIVIDUAL INVESTOR
- - -------------------
- - ------------------------------- -------------------------------
Print name of Prospective Investor Signature of Prospective Investor
- - ------------------------------- -------------------------------
Print name of Spouse Signature of Spouse
(if funds are to be invested in joint (if funds are to be invested in
name or are community property) joint name or are community
property)
$
-----------------------------
(amount of immediately available
funds to be transferred herewith)
- - -------------------------------------------------------------------
Please PRINT the exact name(s) (registration) investor(s) desire(s) for the
Interest(s)
( ) -
- - ------------------------------- ----- --------------------
Occupation Tel. No.
- - -------------------------
Social Security or Tax I.D. No.
- - ---------------------------------------------------------------
Street Address
- - ---------------------------------------------------------------
City Province Postal Code
8
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
set forth on the signature page for StarBase Corporation below. If applicable,
this letter will also authorize Dabney/Resnick, Inc. to transfer funds to an
escrow holding account _____________ from your account, Account Number
____________________, for this transaction.
ENTITY INVESTOR
- - ---------------
- - ------------------------------- -------------------------------
Print name of partnership, Signature of authorized representative
corporation or trust
By:
- - ------------------------------- -------------------------------
Signature of authorized representative Capacity of authorized representative
$
- - ------------------------------
(amount of immediately available
funds to be transferred herewith)
- - -------------------------------------------------------------------
Please PRINT the exact name(s) (registration) investor(s) desire(s) for the
Interest(s)
( ) -
- - ------------------------------- ----- --------------------
Occupation Tel. No.
- - -------------------------
Tax I.D. No.
- - ---------------------------------------------------------------
Street Address
- - ---------------------------------------------------------------
City Province Postal Code
9
<PAGE>
SUBSCRIPTION ACCEPTED: STARBASE CORPORATION
Date: ____________, 1996 By: ______________________________
Its:_______________________________
10
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
as of May __, 1996, by and between StarBase Corporation, a Delaware corporation
(the "Company"), and the undersigned purchaser (the "Purchaser").
RECITALS
A. Pursuant to a Confidential Private Placement Memorandum dated
April 19, 1996, the Company is issuing up to 2,100,000 units (the "Units"), each
Unit comprised of one share of common stock, par value $0.01 per share, of the
Company (the "Common Stock") and one non-transferable warrant to purchase one
share of Common Stock (the "Warrant"), at a price of $3.00 per Unit.
B. Pursuant to the Subscription Agreement between the Company and
the Purchaser (the "Subscription Agreement"), the Purchaser has agreed to
purchase certain of the Units.
C. Pursuant to the terms of, and in partial consideration for, the
Purchaser entering into the Subscription Agreement, the Company has agreed to
provide the Purchaser with certain registration rights with respect to the
Common Stock.
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.
"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 a least
500,000 shares of Registrable Securities,
<PAGE>
measured on an as-converted basis, as adjusted for stock splits and
recombinations, recapitalization and the like.
"Registrable Securities" means (i) the Common Stock of the Company
issued as part of the Units or issued or issuable upon exercise of the Warrant
or upon any stock split, stock dividend, recapitalization, or similar event;
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 agreement.
"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 expense, 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) REQUESTED 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 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:
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<PAGE>
(i) promptly give written notice of the
proposed registration to all other Holders;
(ii) as soon as practicable, use its best
efforts to effect such registration, and any necessary 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;
(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
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<PAGE>
Holders; provided, however, that the Company may not utilize this right more
than once in any twelve (12) month period; and
(iii) if the Company is eligible to use a
registration statement on Form S-3, the Holders agree to request registration in
accordance with Section 1.4 of this Agreement.
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
participating 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 eight (180) days after the effective
date of such registration, or such other shorter period of time as the
underwriters may require.
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.
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<PAGE>
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 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, such Holder 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
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<PAGE>
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 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
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<PAGE>
(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
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 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
-7-
<PAGE>
such claim, loss, damage, liability or action, provided that the Company will
not be liable to any such person in any 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 1.5 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 therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or 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
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<PAGE>
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
a public offering of the Company's securities in which the Holder does not
participate pursuant to Sectons 1.2, 1.3 and 1.4 hereunder 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 next 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.
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<PAGE>
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 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 NOTICES, ETC. Any notice, request, demand or other
communications 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 and
answerback 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 Robert Leimena, Chief Financial Officer
given to: 18872 MacArthur Boulevard
Irvine, CA 92715
with a copy to: Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attn: Martin Eric Weisberg, Esq.
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.
2.6 DELAYS OR OMISSIONS. Except as expressly provided herein,
no delay or omission to exercise any right, power or remedy accruing to any
Holder, 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
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of or in any similar breach or default thereafter occurring, nor shall any
waiver of any single breach of 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.
2.7 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.
2.8 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 provisions
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
provisions which will achieve to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
2.9 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and 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
By:
---------------------------------------
Name:
Title:
PURCHASER
-------------------------------------------
By:
----------------------------------------
Name:
Title:
-11-
Memorandum No. ______________
STARBASE CORPORATION
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
Dated April 19, 1996
Minimum Offering 1,000,000 Units
Maximum Offering 2,100,000 Units
This confidential private placement memorandum (including the exhibits attached
hereto which constitute a part hereof, this "Memorandum") is furnished on a
confidential basis and relates to this private placement offering (the
"Offering") of a minimum of 1,000,000 and a maximum of 2,100,000 units (the
"Units") of StarBase Corporation, a Delaware corporation ("StarBase" or the
"Company"). Each Unit consists of one share of common stock, par value $0.01 per
share, of the Company (the "Common Stock"), and one non-transferable Warrant to
purchase one share of Common Stock (the "Warrant"), 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 Warrant expires. Offers and sales
of the Units will be made only to "Accredited Investors" (as such term is
defined in Rule 501 of Regulation D promulgated under the Securities Act of
1933, as amended (the "Act")) within the United States and to qualified
investors outside the United States pursuant to Regulation S promulgated under
the Act. The Units will be sold at a subscription price of $3.00 per Unit upon
the terms and conditions described below. The Offering is scheduled to terminate
at 5:00 p.m., Los Angeles time, on May 13, 1996 or at such earlier time as the
maximum offering is completed. The Company reserves the right to reject any
subscription in whole or in part in its sole discretion. See "Terms of the
Offering."
The Common Stock of the Company is traded on the NASDAQ Over The Counter
Electronic Bulletin Board under the symbol SBAS. On April 19, 1996, the high bid
and low asked prices of the Common Stock as reported on the NASDAQ Over The
Counter Electronic Bulletin Board were $3.63 and $4.00 per share, respectively.
See "Risk Factors - Limited Public Market; Fluctuations in the Company's Stock
Price."
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS MEMORANDUM.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVESTMENT IN THE SECURITIES
INVOLVES A HIGH DEGREE OF RISK. INVESTORS MUST BE PREPARED TO BEAR THE ECONOMIC
RISK OF THE INVESTMENT FOR AN INDEFINITE PERIOD AND BE ABLE TO WITHSTAND A TOTAL
LOSS OF THEIR INVESTMENT. SEE "RISK FACTORS" AT SECTION III OF THIS MEMORANDUM.
================================================================================
Placement Agent Proceeds to the
Offering Price Fees (1)(3) Company (2)(3)
- - --------------------------------------------------------------------------------
Per Unit $3.00 $0.30 $2.70
Minimum Offering $3,000,000 $300,000 $2,700,000
Maximum Offering $6,300,000 $550,000 $5,750,000
================================================================================
(1) Does not include offering expenses payable by the Company and warrants
issued by the Company to purchase up to 120,000 shares of Common Stock. See
"Terms of the Offering - Placement Agent."
(2) Before deducting offering expenses payable by the Company estimated at
$345,000, including finders' fees, and the Placement Agent's reimbursable
offering expenses. See "Use of Proceeds."
(3) The Company has engaged Dabney/Resnick, Inc. ("Dabney") as the Placement
Agent for Units of up to $5,500,000 in the Offering on a "best efforts"
basis. The Company on a direct basis may sell Units of up to $800,000 in
the Offering.
DABNEY/RESNICK, INC.
<PAGE>
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN, AND WILL NOT BE REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER THE SECURITIES ACT
OF ANY STATE. THE SECURITIES DESCRIBED HEREIN ARE BEING OFFERED PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT, AND THE SECURITIES LAWS
OF CERTAIN STATES.
***
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION
NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
***
THIS OFFERING IS MADE TO "U.S. PERSONS" (AS DEFINED IN REGULATION S PROMULGATED
UNDER THE ACT ("REGULATION S") PURSUANT TO EXEMPTION FROM REGISTRATION UNDER THE
ACT UNDER REGULATION D THEREOF, AND TO ALL OTHER PERSONS PURSUANT TO EXEMPTION
FROM REGISTRATION UNDER REGULATION S OF THE ACT, AND IS SUBJECT TO THE RULES AND
RESTRICTIONS PERTAINING TO SUCH EXEMPTIONS.
***
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE ACT. THEY MAY BE OFFERED TO
NON-U.S. PERSONS PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S,
AND IF SO OFFERED, 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 (AS DEFINED BELOW)
(i) AS PART OF THEIR DISTRIBUTION AT ANY TIME OR (ii) OTHERWISE UNTIL 40 DAYS
FROM CLOSING, EXCEPT IN EITHER CASE IN ACCORDANCE WITH REGULATION S UNDER THE
ACT.
***
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT, AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THERE
FROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL
RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
***
THE RESALE OF SECURITIES OFFERED TO "U.S. PERSONS" (AS DEFINED IN REGULATION S)
WILL BE RESTRICTED UNDER REGULATION D AND RESALES OF SECURITIES OFFERED TO ALL
INVESTORS WILL BE RESTRICTED UNDER STATE SECURITIES LAWS.
***
THESE SECURITIES MAY BE OFFERED ONLY IN THOSE STATES IN WHICH THE SECURITIES ARE
REGISTERED OR EXEMPT FROM REGISTRATION UNDER APPROPRIATE STATE SECURITIES
LAWS.
***
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. EXCEPT AS
OTHERWISE INDICATED, THIS MEMORANDUM SPEAKS AS OF THE DATE HEREOF. NEITHER THE
DELIVERY OF THIS MEMORANDUM NOR ANY SALE OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY AFTER THE DATE HEREOF.
***
THIS OFFERING IS SUBJECT TO WITHDRAWAL, CANCELLATION OR MODIFICATION BY THE
COMPANY WITHOUT NOTICE. THE COMPANY RESERVES THE RIGHT, IN ITS SOLE DISCRETION,
TO MODIFY THIS OFFERING, TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART FOR ANY
-i-
<PAGE>
REASON OR TO ALLOT TO ANY SUBSCRIBER LESS THAN THE AMOUNT OF SECURITIES
SUBSCRIBED FOR OR TO WAIVE CONDITIONS TO THE PURCHASE OF THE SECURITIES.
***
IT IS THE RESPONSIBILITY OF ANY INVESTOR PURCHASING SECURITIES TO SATISFY ITSELF
AS TO FULL OBSERVANCE OF THE LAWS OF ANY RELEVANT TERRITORY OUTSIDE THE U.S. IN
CONNECTION WITH ANY SUCH PURCHASE, INCLUDING OBTAINING ANY REQUIRED GOVERNMENTAL
OR OTHER CONSENTS OR OBSERVING ANY OTHER APPLICABLE REQUIREMENTS.
***
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OTHER THAN THAT CONTAINED
IN THIS MEMORANDUM, OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE PLACEMENT AGENT. THE COMPANY AND THE PLACEMENT AGENT DISCLAIM ANY AND ALL
LIABILITIES FOR REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED, CONTAINED
IN, OR OMISSIONS FROM, THIS MEMORANDUM OR ANY OTHER WRITTEN OR ORAL
COMMUNICATION TRANSMITTED OR MADE AVAILABLE TO THE RECIPIENT. EACH INVESTOR WILL
BE ENTITLED TO RELY SOLELY ON THOSE REPRESENTATIONS AND WARRANTIES THAT MAY BE
MADE TO IT IN ANY FINAL SUBSCRIPTION AGREEMENT RELATING TO THE SECURITIES.
***
THIS MEMORANDUM DOES NOT PURPORT TO BE ALL INCLUSIVE OR TO CONTAIN ALL THE IN
FORMATION THAT A PROSPECTIVE INVESTOR MAY DESIRE IN INVESTIGATING THE COMPANY.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE PRIVATE
PLACEMENT, INCLUDING THE MERITS AND RISKS INVOLVED. SEE "RISK FACTORS."
***
THIS MEMORANDUM CONTAINS INFORMATION CONCERNING THE COMPANY'S FUTURE PLANS AND
PERFORMANCE. THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL BE ABLE TO
SUCCESSFULLY IMPLEMENT ANY OF ITS BUSINESS PLANS OR THAT ASSUMPTIONS OR
EXPECTATIONS REGARDING ITS FUTURE PLANS AND PERFORMANCE WILL NOT BE MATERIALLY
DIFFERENT FROM THE COMPANY'S PRESENT EXPECTATIONS.
***
THIS MEMORANDUM CONTAINS REFERENCES TO OR SUMMARIES OF CERTAIN PROVISIONS OF
AGREEMENTS AND DOCUMENTS REFERRED TO HEREIN, BUT REFERENCE IS MADE TO SUCH
UNDERLYING AGREEMENTS AND DOCUMENTS, COPIES OF WHICH ARE AVAILABLE FOR
EXAMINATION, SOLELY FOR INFORMATION CONCERNING THE RIGHTS AND OBLIGATIONS OF THE
PARTIES THERETO. THE AGREEMENTS, RATHER THAN THE SUMMARIES CONTAINED HEREIN, ARE
CONTROLLING AS TO THE RIGHTS AND DUTIES OF THE PARTIES.
***
THE CONTENTS OF THIS MEMORANDUM SHOULD NOT BE CONSTRUED BY INVESTORS AS LEGAL OR
TAX ADVICE, AND NO REPRESENTATIONS OR WARRANTIES OF ANY KIND ARE INTENDED OR
SHOULD BE INFERRED REGARDING THE ECONOMIC RETURN OR THE TAX CONSEQUENCES TO
INVESTORS THAT ACQUIRE THE INTERESTS. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR
OWN ATTORNEYS, ACCOUNTANTS AND FINANCIAL ADVISORS ABOUT THE LEGAL AND TAX
CONSEQUENCES AND THE FINANCIAL RISKS AND MERITS OF AN INVESTMENT IN THE
SECURITIES.
***
MARKET DATA AND INDUSTRY INFORMATION REFERRED TO IN THIS MEMORANDUM ARE DERIVED
FROM VARIOUS TRADE PUBLICATIONS, INDUSTRY SOURCES AND ESTIMATES BY THE COMPANY.
THOUGH THE COMPANY BELIEVES THAT SUCH ESTIMATES ARE BY THEIR NATURE INHERENTLY
INEXACT, IT NONETHELESS BELIEVES THAT THE FIGURES CONTAINED HEREIN ARE
INDICATIVE OF THE EXPECTATIONS OF THE INDUSTRY.
***
-ii-
<PAGE>
EACH INVESTOR IS HEREBY GIVEN AN OPPORTUNITY TO ASK QUESTIONS OF AND RECEIVE
ANSWERS FROM THE OFFICERS AND DIRECTORS OF THE COMPANY OR ANY PERSON ACTING ON
ITS BEHALF CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING AND TO OBTAIN
ANY ADDITIONAL INFORMATION TO THE EXTENT THE COMPANY POSSESSES SUCH INFORMATION
(OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT AND EXPENSE) NECESSARY TO VERIFY
THE ACCURACY OF THE INFORMATION CONTAINED IN THIS MEMORANDUM. FURTHERMORE, THE
COMPANY HAS OR WILL HAVE VARIOUS DOCUMENTS CONNECTED WITH THE BUSINESS OF THE
COMPANY. ALL SUCH DOCUMENTS ARE AVAILABLE TO ANY PROSPECTIVE INVESTOR. IF YOU
HAVE ANY QUESTIONS WHATSOEVER REGARDING THIS OFFERING, OR DESIRE ANY ADDITIONAL
INFORMATION OR DOCUMENTS TO VERIFY OR SUPPLEMENT THE INFORMATION CONTAINED IN
THIS MEMORANDUM, PLEASE WRITE OR CALL THE COMPANY, AT THE ADDRESS AND TELEPHONE
NUMBER SHOWN BELOW.
***
THE INFORMATION CONTAINED IN THIS MEMORANDUM IS CONFIDENTIAL AND PROPRIETARY TO
THE COMPANY AND IS BEING SUBMITTED TO PROSPECTIVE INVESTORS IN THE COMPANY
SOLELY FOR SUCH INVESTORS' CONFIDENTIAL USE IN CONNECTION WITH THIS OFFERING,
WITH THE EXPRESS UNDERSTANDING THAT, WITHOUT THE PRIOR WRITTEN PERMISSION OF THE
COMPANY, SUCH PERSONS WILL NOT RELEASE THIS DOCUMENT OR DISCUSS THE INFORMATION
CONTAINED HEREIN OR MAKE REPRODUCTIONS OF OR USE THIS MEMORANDUM FOR ANY PURPOSE
OTHER THAN EVALUATING A POTENTIAL INVESTMENT IN THE SECURITIES.
***
EACH PROSPECTIVE INVESTOR, BY ACCEPTING DELIVERY OF THIS MEMORANDUM, AGREES TO
PROMPTLY RETURN THIS MEMORANDUM, AND ANY OTHER DOCUMENTS OR INFORMATION RELATING
TO THIS OFFERING, TO THE COMPANY IF THE PROSPECTIVE INVESTOR DOES NOT PURCHASE
ANY OF THE UNITS OFFERED HEREBY OR IF THE OFFERING IS TERMINATED BY THE COMPANY.
***
California Residents:
- - ---------------------
THE SALE OF THE SECURITIES WHICH IS THE SUBJECT OF THIS MEMORANDUM HAS NOT BEEN
QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND
THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR A RECEIPT OF ANY PART OF THE
CONSIDERATION THEREOF PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SUCH SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTIONS 25100, 25102 OR
25105 OF THE CALIFORNIA CORPORATION CODE. THE RIGHTS OF ALL PARTIES TO SUBSCRIBE
FOR THE SECURITIES WHICH ARE THE SUBJECT OF THIS MEMORANDUM ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
Connecticut Residents:
- - ----------------------
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
-iii-
<PAGE>
Florida Residents:
- - ------------------
THE FLORIDA DEPARTMENT OF BANKING AND FINANCE HAS NOT REVIEWED THIS OFFERING OR
THIS MEMORANDUM AND THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT. UNLESS THE SECURITIES
OFFERED HEREBY ARE REGISTERED, THEY MAY NOT BE RESOLD OR TRANSFERRED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER THE ACT.
PURSUANT TO SECTION 517.061(11)(a) OF THE FLORIDA SECURITIES AND INVESTOR
PROTECTION ACT, WHERE SALES ARE MADE TO FIVE OR MORE PERSONS IN FLORIDA, FLORIDA
INVESTORS HAVE A THREE-DAY RIGHT OF WITHDRAWAL OF ACCEPTANCE. IF YOU HAVE
EXECUTED A SUBSCRIPTION AGREEMENT (THE "AGREEMENT"), YOU MAY ELECT, THREE
BUSINESS DAYS AFTER THE DELIVERY BY YOU OF ANY CONSIDERATION FOR YOUR
SECURITIES, OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS
COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER, TO WITHDRAW FROM YOUR
AGREEMENT. YOUR WITHDRAWAL WILL BE WITHOUT ANY FURTHER LIABILITY TO YOU. TO
ACCOMPLISH SUCH WITHDRAWAL, YOU NEED ONLY TELEPHONE OR SEND A TELEGRAM WITHIN
SUCH TIME PERIOD TO THE COMPANY AT ITS ADDRESS SET FORTH BELOW.
SHOULD YOU MAKE THIS REQUEST ORALLY, YOU SHOULD ASK FOR WRITTEN CONFIRMATION
THAT YOUR REQUEST HAS BEEN RECEIVED.
Massachusetts Residents:
- - ------------------------
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
Ohio Residents:
- - ---------------
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
New York Residents:
- - -------------------
THIS MEMORANDUM HAS NOT BEEN FILED WITH OR REVIEWED BY THE ATTORNEY GENERAL OF
THE STATE OF NEW YORK PRIOR TO ITS ISSUANCE AND USE. THE ATTORNEY GENERAL OF THE
STATE OF NEW YORK HAS NOT PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATIONS TO THE CONTRARY ARE UNLAWFUL.
Texas Residents:
- - ----------------
THIS MEMORANDUM HAS NOT BEEN FILED WITH OR REVIEWED BY THE STATE SECURITIES
BOARD OF THE STATE OF TEXAS PRIOR TO ITS ISSUANCE AND USE. THE SECURITIES
COMMISSIONER OF THE STATE OF TEXAS HAS NOT PASSED UPON OR ENDORSED THE MERITS OF
THIS OFFERING. ANY REPRESENTATIONS TO THE CONTRARY ARE UNLAWFUL.
-iv-
<PAGE>
Washington Residents:
- - ---------------------
THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
ALL COMMUNICATIONS OR INQUIRIES RELATING TO THIS MEMORANDUM SHOULD BE DIRECTED
TO ONE OF THE FOLLOWING:
Placement Agent Company
Dabney/Resnick, Inc. William R. Stow III
150 South Rodeo Drive Chief Executive Officer
Suite 100 18872 MacArthur Boulevard
Beverly Hills, CA 90212 Irvine, California 92715
Attn.: Mr. Peter Marcil Tel: 714-442-4400
Tel: 310-246-3700 Fax: 714-442-4404
Fax: 310-246-3672
-v-
<PAGE>
TABLE OF CONTENTS
I. EXECUTIVE SUMMARY.....................................................1
II. OFFERING SUMMARY......................................................3
III. RISK FACTORS..........................................................5
IV. THE BUSINESS.........................................................13
V. SELECTED FINANCIAL DATA..............................................29
VI. USE OF PROCEEDS......................................................31
VII. SHARE AND LOAN CAPITALIZATION........................................31
VIII. DESCRIPTION OF SECURITIES............................................33
IX. TERMS OF THE OFFERING................................................40
X. DIRECTORS, OFFICERS AND CONTROL PERSONS .............................42
XI. SECURITIES OWNERSHIP.................................................48
XII. FINANCIAL STATEMENTS ................................................51
XIII. ADDITIONAL INFORMATION...............................................51
XIV. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ......................51
XV. CONTRACTUAL RIGHTS OF ACTION.........................................52
XVI. INVESTOR SUITABILITY STANDARDS.......................................52
XVII. INDEMNIFICATION OF DIRECTORS AND OFFICERS ...........................54
XVIII. EXHIBITS.............................................................56
XIX. ATTACHMENTS..........................................................58
Attachment A Form 10-K March 31, 1995
Attachment B Form 10-Q December 31, 1995
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<PAGE>
I. EXECUTIVE SUMMARY
StarBase Corporation, a Delaware corporation ("StarBase" or the "Company")
(OTCEBB:SBAS), 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.
Despite significant progress in programmer productivity tools in the industry,
however, the majority of software projects continued to come in late and over
budget. According to a study by Standish, Inc., only 16% of all software
projects are completed on time and within budget. Based on focus group studies
and market research, the Company came to the conclusion that most cost overruns,
delays and required redesigns are related to inefficiencies in collaboration,
work flow and project management rather than to individual programmer
productivity. As a result, StarBase decided to focus entirely on the development
and marketing of software designed to increase team productivity, rather than
individual programmer productivity.
The Company believes that the combination of programmer development tools with
tools designed to improve the productivity of software development teams will
facilitate the delivery of software products on time and within budget. The most
advanced programmer development tool, called an Integrated Development
Environment ("IDE"), provides significant programmer productivity improvement by
combining several interrelated programming tools into a single work environment.
The Company's goal is to complement programmer IDEs with a family of Integrated
Team Environment ("ITE") products that combine several interrelated team tools
into a single work environment.
-------------------- -------------------
| Integrated | | Integrated |
| Development | | Team |
| Environment | | Environment |
| (IDE) | | (ITE) |
-------------------- -------------------
| |
| |
| |
-----------------------------------------
|
|
--------------------------
| Improved |
| Software Development |
| Productivity |
--------------------------
Figure 1. Complementary IDE and ITE products are needed to
facilitate software development.
The StarBase ITEs are designed to automate critical team processes such as
collaboration, work flow and project management. The Company's ITE product helps
users work efficiently in teams while protecting their individual work. ITEs
enable users in an organization to have more effective and visible decision
making, move work more efficiently between team members, and allow managers to
monitor and analyze work flow unobtrusively.
The Company's first ITE software product, StarTeam 1.0, entered beta testing in
June 1995 and commercial shipments began in January 1996. The Company believes
that StarTeam 1.0 is the first industry ITE. StarTeam 2.0, which is expected to
begin commercial shipments in the Summer of 1996, includes the ability to
communicate across wide area networks, including the Internet, and utilizes a
client/server structure. Although competitive products currently exist which
perform portions of what the Company's products do, management believes that no
other competitive product combines all of the capabilities into one
tightly-integrated ITE package. Features included in StarTeam are as follows:
-1-
<PAGE>
* Version Control - StarTeam creates an environment from which
team members can track and store each new version of software
modules during development. In addition, the product allows
members to easily annotate who made changes, what these
changes were, and why they were made.
* Defect Tracking - The defect tracking function is integrated
with the project files, thereby allowing a list of all defects
associated with a project (or portion of a project) to be
viewed by any team member. These defects can be sorted in a
variety of ways, including priority, severity, status and
responsibility. Improved tracking enables team managers to
monitor the status of the project, the number of defects, the
type of defects, and the productivity of each programmer.
* Threaded Conversations - StarTeam integrates the ability to
have focused conversations on issues, project status, and
software code modules. A user can easily enter a comment or
request for help which will be attached to the portion of the
project currently being modified.
* Auditing and Reporting - The auditing and reporting features
allow project managers to better estimate completion time as
well as monitor team members' productivity.
Although the Company's initial products are focused on software development, the
Company believes that the market for team-oriented software extends beyond
software programming. Planned future products are code- named as follows:
* StarTeam WebConnect, a functional add-on to StarTeam 2.0, is expected
to enter beta testing in the Spring of 1996. This product allows
authorized users to access StarTeam-based projects through the
Internet using common web browsers. StarTeam WebConnect, thus,
enables a team to collaborate on a project with members in diverse
geographical locations. In addition, StarTeam WebConnect is
specifically designed for web content authors, graphic artists, and
other contributors to manage their web page development and easily
control the publishing of their web pages.
* OfficeTeam, which will begin development in 1996 and is expected to
be introduced in 1997, will be targeted toward white collar
professionals to enable team development of projects such as
financial reports, architectural drawings, electronic designs and
other projects.
The Company will tailor its marketing to each of the products that it offers.
StarTeam, for example, will be marketed through traditional
distributors/resellers as well as through direct telesales. StarTeam will also
be marketed through agreements with the leading Software Configuration
Management ("SCM") companies. SCM systems provide a repository for the secure
storage of software modules and for managing the process of software change.
Intersolv, Inc., the SCM market leader for PC networks with over 250,000
installed seats, entered into a cross licensing agreement and made an investment
in the Company. This agreement allows each company to integrate portions of the
others' products into their own products. The Company plans to market StarTeam
WebConnect primarily through direct telesales and interactively through the
Internet, and OfficeTeam primarily through retailers and value added resellers
("VAR"). The Company also expects to market its products through traditional
resellers and distributors such as Merisel Inc., Ingram Micro Inc., Software
Developers Co., Inc., Programmer's Paradise, DistribuPro, Inc., Software
Spectrum Inc. and Vision Source.
-2-
<PAGE>
II. OFFERING SUMMARY
Company: StarBase is a reporting issuer in the United States of America
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and in British Columbia, Canada under the
Securities Act, S.B.C. 1985, c. 83. The common stock, par value
$0.01 per share, of the Company (the "Common Stock") is listed
and posted for trading on the NASDAQ Over The Counter Electronic
Bulletin Board ("OTCEBB") and the Vancouver Stock Exchange
("VSE"). The Company intends to delist from the VSE, and subject
to completing a maximum Offering, the Company intends to apply
for listing on the NASDAQ Small Cap Market, although, there can
be no assurance that the Company will be able to list on the
NASDAQ Small Cap Market. See "Risk Factors - Limited Public
Market."
Offering: Up to a maximum of $6,300,000 by the issuance of 2,100,000 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
Company reserves the right to reduce or increase the number of
Units offered without notice. See "Description of Securities."
Placement
Agent: The Company has engaged Dabney as its placement agent for the
Offering. Up to $5,500,000 may be sold by Dabney on a "best
efforts" basis and an additional $800,000 may be sold by the
Company itself. The Company will pay Dabney a commission equal to
10% of the total Units sold by them. The Company will also issue
Warrants to Dabney to purchase a number of shares equal to
120,000 times a fraction the numerator of which shall be the
total dollar amount of Units sold by Dabney and the denominator
of which shall be $5,500,000. In addition, the Company will
reimburse Dabney for its reasonable expenses incurred in
connection with the Offering, and has agreed to indemnify Dabney
and its advisors against certain liabilities.
Minimum
Subscription: Unless otherwise agreed to by the Company in writing, the minimum
subscription will be 10,000 Units.
Shares
Outstanding: As of March 31, 1996, the Company had 7,848,479 shares of Common
Stock issued and outstanding, of which 6,261 shares of Common
Stock are held as treasury shares (excluding outstanding options
for 1,368,506 shares of Common Stock and warrants to acquire
2,949,594 shares of Common Stock) and 2,227,946 shares of Series
B Preferred Stock outstanding. The Company is offering in a
private placement of up to 300,000 units (the "Regulation S
Units"), 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-
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transferable warrant to purchase one share of Common Stock,
pursuant to Regulation S under the Act (the "Regulation S
Offering"). The Company anticipates closing the Regulation S
Offering before the closing of this Offering.
Shares
Outstanding
After the
Offering: Assuming the sale of 2,100,000 Units, 12,176,425 shares of Common
Stock (including 6,261 shares of treasury stock but excluding
outstanding options for 1,368,506 shares of Common Stock and
warrants to acquire 5,049,594 shares of Common Stock) will be
outstanding. If this Offering results in gross proceeds in excess
of $5,000,000, the 2,227,946 shares of Series B Preferred Stock
outstanding will be automatically converted into 2,227,946 shares
of Common Stock. In addition, it is anticipated that there will
be outstanding approximately 300,000 shares of Series C Preferred
Stock which will be convertible into 300,000 shares of Common
Stock and warrants to purchase approximately 300,000 shares of
Common Stock should the Regulation S Offering close.
Offering
Price: $3.00 per Unit.
Symbols: NASDAQ Over The Counter
Electronic Bulletin Board.................SBAS
Vancouver Stock Exchange...................SBE
The symbols listed above are for the Company's Common Stock only.
The Company's Preferred Stock and Warrants are not listed.
Use of
Proceeds: The net proceeds to the Company of the Offering will be
$5,750,000 if the maximum number of Units is subscribed for,
before the deduction of Offering expenses. The Company intends to
use the proceeds of the Offering for general corporate purposes
and debt reduction. See "Use of Proceeds."
Finders'Fees: The Company will pay finders' fees to a third party of 2% on the
amount of Units placed by Dabney. See "Terms of the Offering -
Finders' Fees."
Risk Factors: To date a substantial portion of the Company's revenues was
derived from the activities of its Professional Services
division, which was discontinued in 1995, and sales of products
that have been de-emphasized. The Units are speculative
investments, and there are significant business risks associated
with the Company's product development, operations, competition,
market acceptance, product pricing, reliance on distributors,
financing requirements, and management. See "Risk Factors."
Resale
Restrictions: The shares of Common Stock are "restricted securities" under the
Act and applicable state securities laws and are otherwise
subject to certain restrictions on transfer. The Units may not be
resold or otherwise disposed of in the United States for a period
of at least twenty-four
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months for purchasers acquiring the Units pursuant to Regulation
D. Accordingly, an investor participating in this Offering must
be prepared to make a long-term investment in the Company. See
"Risk Factors - Restricted Securities."
Registration: The holders of the shares of Common Stock will be granted
"demand" registration rights to effect two registrations, and
"piggy back" registration rights, subject to customary
limitations. See "Description of Securities - Registration
Rights."
Subscription
Period: The Offering is scheduled to terminate at 5:00 p.m., Los Angeles
time, on May 13, 1996 or at such earlier time as the maximum
offering is completed. When the total subscriptions have been
received by the Company, a closing will be held in respect of
those subscriptions (the "Closing"). The Company may reject any
subscription for any reason in its sole discretion. If this
Offering is oversubscribed, the Company will determine which
subscriptions will be accepted.
Financial
Information: See the Consolidated Audited Financial Statements of the Company
dated March 31, 1995, and the Consolidated Unaudited Quarterly
Financial Statements of the Company dated December 31, 1995
appended hereto in the annexed Form 10-K and Form 10-Q,
respectively.
III. RISK FACTORS
In addition to the other information in this Memorandum, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the Units offered by this Memorandum. An investment
in the Units offered hereby is speculative in nature and involves a high degree
of risk.
* POSSIBLE DILUTION DUE TO ISSUANCE OF ADDITIONAL COMMON STOCK; MARKET OVERHANG
As of March 31, 1996, the Company had issued 7,848,479 shares of Common Stock.
As of such date, (i) 2,227,946 shares of Common Stock were issuable upon the
conversion of Series B Preferred Stock, (ii) 2,949,594 shares of Common Stock
were issuable upon the exercise of outstanding warrants issued by the Company,
and (iii) 1,368,506 shares of Common Stock were issuable upon the exercise of
outstanding options issued by the Company. In addition, the Company is in the
process of completing the Regulation S Offering. Furthermore, the Company will
in all likelihood conduct additional offerings of its Common Stock or securities
convertible into Common Stock.
As a result of the above transactions, the voting power of each holder of Common
Stock may be diluted by the issuance of additional shares of Common Stock. Also,
the book value per share of Common Stock may be reduced upon the exercise of
outstanding options or warrants and the conversion of outstanding convertible
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preferred stock, depending upon the exercise price of the options or warrants
and the conversion of the preferred stock, and the book value per share of
Common Stock, at the time of such exercise or conversion.
Furthermore, the prevailing market price for the Common Stock may be materially
and adversely affected by the addition of a substantial number of shares of
Common Stock, including the shares offered hereby, into the market or by the
registration under the Act, of such additional shares. See "Description of
Securities." In addition, the prospect of future sales of shares of Common Stock
issuable upon the exercise of outstanding warrants and options may have a
depressive effect upon the market price of the Common Stock, as such warrants
and options would be more likely to be exercised at a time when the price of the
Common Stock is in excess of the applicable exercise price. Also, at such time,
the Company would likely otherwise be able to raise equity capital on more
favorable terms.
* IMMEDIATE DILUTION IN BOOK VALUE
Purchase of the Units offered hereby involves immediate dilution of the
purchaser's investment as it relates to net tangible book value per share of the
Common Stock as of December 31, 1995. Assuming that no value per Unit is
attributed to the Warrants, 1,000,000 Units are sold in the Offering, and no
Warrants are exercised, such dilution amounts to a high of $2.59 per Unit,
resulting in a pro forma net tangible book value of $0.41 per share of Common
Stock. Assuming 2,100,000 Units are sold in the Offering, Series B Preferred
Stock automatically converts and Warrants in this Offering, and Warrants
associated with Series B Preferred Stock, are exercised at $2.50 per share, such
dilution amount to a low of $1.95 per Unit, resulting in a pro forma net
tangible book value of $1.05 per share of Common Stock.
* IMMEDIATE NEED FOR THE PROCEEDS OF THIS OFFERING; FUTURE CAPITAL NEEDS
Without the proceeds from the Offering or an alternative source of capital, the
Company will not be able to meet its debts as they become due. The Company
entered into a number of settlement agreements with respect to certain lawsuits
brought against the Company and is presently current in all payments to be made
under such settlement agreements. The Company failed to meet certain financial
covenants with its bank, and accordingly, entered into a Forbearance Agreement
under which all principal and interest due to the bank has been repaid. The
Company has a substantial and immediate need for working capital. During the
nine months ended December 31, 1995, the Company experienced a severe shortage
of cash, which caused it to reduce its operations significantly. During that
period, accounts payable and accrued expenses increased by $620,000. At February
29, 1996, the Company had negative working capital of approximately $213,000.
The Company intends to use the proceeds from this Offering for general corporate
purposes, including working capital requirements, product marketing, repayment
of outstanding obligations, and debt reduction.
The Company's future capital requirements will depend on many factors, including
the speed at which it commercially introduces new products, market acceptance
and demand for such products, and the availability of additional financing.
Without the proceeds of this Offering, the Company will have insufficient funds
to finance its current and anticipated level of and mode of operations. In
addition, should substantially less than the maximum proceeds be obtained
pursuant to this Offering, the Company will experience a shortage of working
capital which will impact current marketing and operational plans.
A decrease in the level of operations may cause the Company to be unable to
introduce new products, possibly causing a loss of sales and customers. There
can be no assurance that the Company will be able to reacquire any customers so
lost. The loss of customers would have a material adverse effect on the
Company's operations.
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Although management believes the proceeds of this Offering (assuming the maximum
Offering) will be sufficient to allow the Company to conduct its operations
during the fiscal year that ends March 31, 1997, its continued operations
thereafter will depend on its cash flow, if any, from operations or its ability
to raise additional funds through equity, debt or other financing. There can be
no assurance that the Company will be able to obtain additional funding when
needed, or that such funding, if available, will be obtainable on terms
favorable to the Company. If the Company cannot obtain needed funds, it may be
forced to cut back or curtail its activities, in which case the business
prospects of the Company would be materially and adversely affected.
* 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 December 31, 1995 the Company had a consolidated accumulated deficit
of approximately $16,942,000. To date the majority of the Company's revenues was
derived from the activities of its Professional Services Division, which was
discontinued in 1995, and 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, and unanticipated changes in features and functionality extend
projected time schedules and increase estimated 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. Even
assuming the maximum number of Units are sold, there can be no assurance that
the Company will ever achieve profitability as a result of the receipt of
proceeds from this Offering.
* 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 ITE 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 of market share for the
Company's products would have a material adverse effect on the Company.
* FLUCTUATIONS IN QUARTERLY RESULTS
The Company's results of operations have historically varied substantially from
quarter to quarter and the Company expects they will continue to do so. In the
past, the operating results varied significantly as a result of a number of
factors, including the size and timing of customer orders or consulting
agreements, product mix,
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seasonality, the timing of the introduction and customer acceptance of new
products or product enhancements by the Company's competitors, new products or
version releases by the Company, changes in pricing policies by the Company or
its competitors, marketing and promotional expenditures, research and
development expenditures, and changes in general economic conditions.
The Company's operating expenses are relatively fixed in the short term. For
example, the Company intends to make significant expenditures to enhance its
sales and marketing and research and development activities. Once such
expenditures are implemented, the Company may be unable to reduce them quickly
if revenue is less than expected. As a result, fluctuations in revenues can
cause significant variations in quarterly results of operations. The Company
does not operate with a significant order backlog and a substantial portion of
its revenue in any quarter is derived from orders booked in that quarter, which
are difficult to forecast and which are typically concentrated toward the end of
the quarter. Accordingly, the Company's sales expectations are based almost
entirely on its internal estimates of future demand and not on firm customer
orders. Due to the foregoing factors, the Company believes that quarter to
quarter comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance. In addition,
there can be no assurance that the Company will be profitable on a quarter to
quarter or any other basis in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's Form
10-K and Form 10-Q, annexed hereto as Attachment A and B, respectively.
* INTENSE COMPETITION
The software industry is highly competitive, and user demand for particular
software may be adversely affected by the number of competitive products from
which to choose. The Company's competitors include a broad range of companies
that develop and market tools for software application development. Many of the
Company's current and prospective competitors have significantly greater
financial, technical, manufacturing, sales, and marketing resources than the
Company. There can also be no assurance that the Company's competitors have not
or will be unable to develop products comparable or superior to those developed
by the Company or to adapt more quickly than the Company to new technologies,
evolving industry trends or customer requirements.
The Company believes that its ability to compete depends on factors both within
and outside its control, including the timing and success of new products
developed by it and its competitors, product performance and price, ease of use,
support of industry standards, and customer support and service. There can be no
assurance that the Company will be able to compete successfully with respect to
these factors. In particular, competitive pressures from existing and new
competitors who offer lower prices could result in loss of sales, cause the
Company to institute price reductions, or result in reduced margins and loss of
market share, all of which would adversely affect the Company's results of
operations. See "The Business - Competition."
* DEPENDENCE ON AND INTENSE COMPETITION FOR KEY PERSONNEL
The Company's success depends in large part on the continued service and
performance of certain key technical, marketing, sales and management personnel.
A number of key management employees are relatively new to the Company, and the
Company's success will depend in part on successful assimilation of new
management personnel. None of the Company's management is covered by an
employment contract or key person life insurance. The Company has no assurance
regarding the continued employment of any member of its senior management. In
addition, competition for such personnel in the software industry is intense and
the process of locating highly qualified technical and management personnel with
the combination of skills and attributes required to execute the Company's
strategy is often lengthy. There can be no assurance that the Company will be
successful in hiring or retaining qualified personnel. Loss of key personnel or
the inability to hire and retain
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qualified personnel could have a material adverse effect upon the Company's
business, results of operations and research and development efforts.
* LACK OF MARKETING EFFORTS
To date the Company's marketing programs have been curtailed due to a lack of
working capital. The proceeds from the Offering will be utilized to undertake
more substantial marketing activities in the future. No assurance can be given,
however, that sales of the Company's current products or products under
development will result from such marketing activities.
The Company is in the process of building its marketing and sales organization.
The current plan includes the addition of a number of marketing and sales
positions and recruitment efforts are currently underway. There can be no
assurances that these recruitment efforts will yield successful results.
* SUBSTANTIAL RELIANCE ON DISTRIBUTION CHANNELS
Sales through distributors, systems integrators, VARs, and retailers
(collectively, the "Distribution Channel") are anticipated to constitute a
substantial portion of the Company's software product revenues in the
foreseeable future. The Company is dependent upon the continued viability and
financial stability of the Distribution Channel. Since the Company's products
are used by highly skilled professional engineers, the Distribution Channel must
possess sufficient technical, marketing, and sales resources and must devote
these resources to a lengthy sales cycle, customer training, and product service
and support. Only a limited number of companies in the Distribution Channel
possess these resources. In addition, the Distribution Channel generally offers
products from several different companies, including in some cases, products
that could be competitive with the Company's products. There can be no assurance
that the Distribution Channel will be able to continue to market or service and
support the Company's products effectively, that economic conditions or industry
demand will not adversely affect the Distribution Channel, that any company that
licenses StarBase's products will choose to continue to license such products,
or that the Distribution Channel will not devote greater resources to licensing
products of other companies.
The Distribution Channel through which the Company's software products are sold
has been characterized by rapid change, including consolidation, financial
difficulties of certain distributors and retailers, and the emergence of new
retailers such as mass merchandisers. In addition, the number of companies
competing for access to these channels has increased dramatically over the last
few years.
* DEPENDENCE ON NEW PRODUCTS AND ADAPTATION TO TECHNOLOGICAL CHANGE
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards, changes in customer needs, and frequent
new product introductions. The Company's future success will depend on its
ability to enhance its current products, to develop new products on a timely and
cost-effective basis to meet changing customer needs and to respond to emerging
industry standards and other technological changes. Any failure by the Company
to anticipate or respond adequately to changes in technology and customer
preferences, or any significant delays in product development or introduction,
could have a material adverse effect on the Company's results of operations.
Software products as complex as those offered by the Company may contain
undetected errors when first introduced or as new versions are released. There
can be no assurance that, despite extensive testing by the Company and by
current and potential customers, errors will not be found in new products after
commencement
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of commercial shipments, resulting in loss of or delay in market acceptance. See
"The Business - Platform Opportunities: The Market Opportunity."
* RELIANCE ON MICROSOFT CORPORATION
Microsoft Windows has gained widespread market acceptance as the dominant
computer operating system. Accordingly, the Company has developed and is
developing software products that function in the Microsoft Windows, Windows 95
or Windows NT environments, and anticipates future products will also be
designed for use in these Microsoft environments. Because the Company expects
that its Microsoft-based applications will account for a significant portion of
new revenue for the foreseeable future, sales of the Company's new products
would be materially and adversely affected by market developments adverse to
Microsoft Windows, Windows 95 and Windows NT. The Company's ability to develop
products using the Microsoft Windows, Windows 95 and Windows NT environments is
substantially dependent on its ability to gain timely access to, and to develop
expertise in, current and future developments by Microsoft, of which there can
be no assurance. Moreover, the abandonment by Microsoft of its current operating
system, product line or strategy, or the decision by Microsoft to develop and
market products that directly or indirectly compete with the Company's products
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "The Business - StarBase Strategy" and
"The Business - Competition."
* PRODUCT RETURNS AND PRICE PROTECTION
Consistent with industry practice, the Company allows distributors, retailers
and end users to return products for credits towards the purchase of additional
products. In addition, the Company's promotional activities, including free
trial and satisfaction guaranteed offers, and competitors' promotional or other
activities could cause returns to increase sharply at any time. The Company
expects that the rate of product returns may increase as it introduces new
versions of its existing products and records additional reserves accordingly.
Product returns that exceed the Company's reserves could have a material adverse
effect on the Company's business, financial conditions and results of
operations.
In addition, in the event the Company reduces its prices, the Company credits
its distributors for the difference between the purchase price of products
remaining in their inventory and the Company's reduced price for such product
("Price Protection"). Price Protection may have a material adverse effect on
future operating results, since the Company seeks to continually introduce new
and enhanced products and is likely to face increasing price competition.
* PROTECTION OF PROPRIETARY RIGHTS
The Company's success depends heavily upon its proprietary technology. It relies
on a combination of copyright, trademark and trade secret laws, confidentiality,
procedures, and licensing arrangements to establish and protect its proprietary
rights. As part of its confidentiality procedures, the Company generally enters
into non-disclosure agreements with its employees and distributors, and limits
access to and distribution of its software, documentation, and other proprietary
information. Despite these precautions, it may be possible for a third party to
copy or otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. In addition,
effective protection of intellectual property rights may fluctuate depending on
judicial interpretation of applicable law and may be unavailable or limited in
certain foreign countries.
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StarBase provides its products to end-users primarily under "shrink-wrap"
license agreements included within the packaged software. These agreements are
not negotiated with or signed by the licensee, and thus these agreements may not
be enforceable in certain jurisdictions where enforcement is either expensive or
limited for other reasons. Protection of intellectual property is extremely
expensive.
The Company is not aware of any instances where any of its products infringe on
the rights of third parties. There can be no assurance, however, that third
parties will not claim such infringement by the Company with respect to current
or future products or that management of the Company is aware of all potential
claims of infringements. Any such claims, with or without merit, could result in
costly litigation or might require the Company to enter into royalty or
licensing agreements.
* CONCENTRATION OF SHARE OWNERSHIP
Upon completion of this Offering, based upon the shares outstanding as of March
31, 1996, the Company's President and Chief Executive Officer, the estate of a
former officer of the Company, and the Company's officers, directors and their
affiliates as a group, will beneficially own approximately 4.8%, 5.8% and 14.6%,
respectively, of the Company's outstanding Common Stock, either directly or
indirectly. These percentages include the conversion of the Series B Preferred
Stock as well as the exercise of their warrants and stock options. As a result,
these stockholders will be able to exercise significant influence over matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions.
* RESTRICTED SECURITIES
The Units offered hereby are restricted securities under the Act. No transfers
of the Units may be made without compliance with the applicable federal and
state securities laws. For these and other reasons, there may be no trading in
the Units, and an investor of the Units offered hereby may be required to hold
the Units for an indefinite period of time and never be able to liquidate its
investment. In addition, the Common Stock underlying the Warrants may not be
resold, unless, at the time of such sale, the Company has in effect with the
Commission a current registration statement and prospectus with respect to such
resale and such transactions are registered, qualified or exempt under the
securities laws of the state of residence of the exercising or reselling holder,
as applicable.
* RISK OF EXPANSION STRATEGY
The expansion of the Company's product line has extended its resources, and is
expected to continue to extend the Company's management and operations,
including its sales, marketing, customer support, research and development and
finance and administrative operations. The Company's future performance will
depend in part on its ability to manage growth, should that occur, and to adapt
its operational and financial control systems, if necessary to respond to
changes resulting from such growth. The failure of the Company's management to
respond to and manage growth effectively could have a material adverse effect on
the Company's business, financial condition and results of operations.
* NO DIVIDENDS
The Company has not paid any dividends on its Common Stock or Preferred Stock
since inception. 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 December
31, 1995, the Company's balance sheet
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reflected an accumulated deficit of approximately $16,942,000 which prevents it
from paying dividends in the foreseeable future.
* FUTURE SALES BY PRESENT SHAREHOLDERS
Of the Common Stock issued as of March 31, 1996, 6,293,841 shares were freely
tradable, or tradable subject to the volume limitations and other requirements
of Rule 144 under the Act or under the resale provisions of Regulation S under
the Act. The remaining issued and outstanding shares are not tradable until the
expiration of applicable holding periods or are subject to the terms of the
Performance Share Escrow Agreement. See "The Business - Company Formation and
Acquisition."
* LIMITED PUBLIC MARKET; FLUCTUATIONS IN THE COMPANY'S STOCK PRICE
The Company's Common Stock is currently traded on the OTCEBB and the VSE, where
the market is extremely limited. The trading price of the Company's Common Stock
has historically been subject to wide fluctuation in response to variations in
the actual or anticipated quarterly operating results of the Company,
announcements of new products or technological innovations by the Company or its
competitors, and general conditions in the industry. In addition, stock markets
have experienced extreme price and volume trading volatility in recent years.
This volatility has had a substantial effect on the market prices of securities
of many high-technology companies for reasons frequently unrelated to the
operating performance of the specific companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock. Upon
completion of this Offering, if the maximum number of Units is sold, the Company
intends to voluntarily delist from the VSE and apply to be listed for trading on
the NASDAQ Small Cap Market. There can be no assurance, however, that the
Company will be able to be listed on the NASDAQ Small Cap Market.
The Company's Common Stock trades on the Vancouver Stock Exchange under the
symbol "SBE." 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. On
March 29, 1996, the exchange rate was approximately US $.74 to $1.00 Canadian:
$CDN $CDN
Date High Low
Fiscal Year 1996
Quarter Ended March 31, 1996 $6.50 $4.65
Quarter Ended December 31, 1995 4.85 2.75
Quarter Ended September 30, 1995 5.00 2.15
Quarter Ended June 30, 1995 8.40 3.10
Fiscal Year 1995
Quarter Ended March 31, 1995 9.90 6.75
Quarter Ended December 31, 1994 10.95 7.20
Quarter Ended September 30, 1994 8.85 6.30
Quarter Ended June 30, 1994 11.25 8.10
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$CDN $CDN
Fiscal Year 1994
Quarter Ended March 31, 1994 13.05 8.10
Quarter Ended December 31, 1993 14.85 11.40
Quarter Ended September 30, 1993 18.39 8.85
Quarter Ended June 30, 1993 $10.80 $6.60
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 at least 500.
IV. THE BUSINESS
COMPANY FORMATION AND ACQUISITION
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 VSE. Later that year NeuroStar changed its name to
StarBase Corporation ("StarBase California"). On October 2, 1992, PNA
incorporated in the USA by filing Articles of Continuance with the Secretary of
State of Wyoming, which allowed the Canadian corporation to continue as a
Wyoming corporation as if it had been established under the Business Corporation
Act of Wyoming. Subsequently PNA merged into a Delaware corporation, and as a
result of the merger became a Delaware corporation and continued as StarBase
Corporation ("StarBase Delaware"). Ultimately StarBase California ceased
operations after it merged into StarBase Delaware when the shareholders of the
former exchanged all of their shares of StarBase California for common stock of
StarBase Delaware.
Pursuant to the Reorganization, PNA acquired all of the issued and outstanding
shares of NeuroStar in exchange for 1,483,361 common stock shares. Of these
shares, 174,098 shares were issued as trading shares, subject only to the
applicable holding periods under the governing securities laws, and the balance
of 1,309,263 shares were placed in escrow in accordance with the rules of the
VSE. In addition, prior to the Reorganization, PNA held 109,375 shares of Common
Stock in escrow which was subsequently carried over to the combined entity as
additional escrow shares. The shares in escrow are subject to the terms of a
Performance Share Escrow Agreement and may be earned out and released from
escrow on the basis of one share for every CDN $0.57 of cumulative cash flow,
not previously applied towards the release.
For its services rendered in connection with the Reorganization, the Company
issued to Access Financial, Ltd., a California limited partnership, 83,333
shares of Common Stock (as adjusted for the reverse stock split) as a finder's
fee. The finder's shares will be delivered pro-rata on the same percentage base
as the release of the performance shares from escrow.
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 Memorandum have been adjusted to reflect the Reverse Split.
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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
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.
During 1993 and 1994, however, based on the Company's market research, the
Company began to believe 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 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
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fashion to provide the greatest overall productivity gains. The needs of the
individual would have to be balanced and complemented by the needs of the team,
as illustrated in Figure 2, below.
---------------------------- ---------------------
| Integrated Development | | Integrated Team |
| Environment (IDE) |-----------------| Environment (ITE) |
| Provides Advanced | | Provides Advanced |
| Programmer Productivity | | Team Productivity |
---------------------------- ---------------------
| |
| |
--------------------------------------------
|
|
---------------------
| Highest Overall |
| Productivity Gain |
---------------------
Figure 2. Balanced and complementary IDE and ITE provide the
highest productivity gain.
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 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 will enter beta testing in the
Summer of 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.
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During 1995, the Company 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.
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 more 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 Visual C++,
Visual Basic, Borland Delphi, Borland C++, Symantec 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
came to the conclusion 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 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 more 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. Reducing task time in a software
project through individual programmer productivity improvements will
incrementally reduce the overall process time, but improvements by orders of
magnitude could be attained through team process improvements. 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.
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------------------------
| Software Development |
| Productivity Issues |
------------------------
|
|
-----------------------------------
| |
----------------- -----------------
1970- | Programmer | | | 1980-
| Development | | Team |
| Tools | | Tools |
----------------- ------------------
| |
| |
----------------- -------------------
| Integrated | | Integrated |
1990- | Development | | Team | 1996-
| Environments | | Environments |
| (IDE) | | (ITE) |
----------------- --------------------
Figure 3. The evolution of software development
productivity tools.
Figure 3 describes the evolution of software development tools through two
parallel paths: 1) programmer productivity tools and 2) team productivity tools.
The most advanced tools are provided by integrated environments that combine
several critically related tools. IDEs are the most advanced and most popular
programmer productivity tool. The Company believes that its recent introduction
of StarTeam marks the first ITE, the most recent advance in productivity tools
for software development. The Company believes that significant productivity
increases will result from the use of ITE products.
PLATFORM OPPORTUNITIES: "THE MARKET OPPORTUNITY"
* WINDOWS 95, WINDOWS NT AND UNIX
Management believes that there is a significant backlog of new software
application developments 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.
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. Ovum Ltd., a high-tech research firm, has forecast the software
configuration market at
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approximately $1 billion by 1997. 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 expects 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. However, there can be
no assurances that the Company will be able to form 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 (the use of Internet technology inside a company but not being
connected to the Internet) servers. 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 way 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. According to a study
by Ovum, Ltd., team tools such as SCM have been growing and are projected to
continue to grow at approximately 50% per year, and reaching $1 billion by 1997.
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 systems managers. Studies
have shown that more than one-half of all projects come in over budget and
nearly one-third fail.
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.
Various authorities in the software industry have asserted that between $50-$70
billion per year is spent on software maintenance, consuming an estimated
50%-70% of total information technology budgets. In addition to the costs
associated with the purchase of per-user licenses for programmer tools,
traditional systems require extensive maintenance and customization to adapt the
application to the changing enterprise.
Currently, programmer tools are very complex, difficult to use, not well
integrated and require a high degree of specialized knowledge to use. The
problems associated with earlier-generation, rigid application development
systems continue to restrict the tools that are used today. Present day
programmers, technical writers and test engineers 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 unless they are initially built to be team-oriented. 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
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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 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.
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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 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 AND DEFENSIBLE 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 expanding 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
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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 will begin 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 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.
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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.
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 Company's product line
include Intersolv, Inc. and Mortice Kern Systems, Inc. ("MKS"). In addition,
Microsoft recently purchased SourceSafe, a version control product with limited
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
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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. Functionally, the StarBase TSMS product
competes favorably with Intersolv Inc., Atria and SofTool on the
Progress Software platform.
* 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 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.
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<PAGE>
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 (multiuser 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 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,
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<PAGE>
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 in the process of building its marketing and sales organization.
The current plan includes the addition of the following positions: Vice
President of Sales, three Telesales Personnel, an OEM sales representative,
three Regional Sales Representatives, a Director of Product Marketing, and a
Marketing Communications Manager. Staffing for these positions is currently
underway and expected to be completed this summer. Several of these 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 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 joint marketing agreements
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under which Intersolv, Inc. may sell a version of StarTeam to its installed
customer base. 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.
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. See "Risk
Factors-Protection of Proprietary Rights."
RECENT OPERATING RESULTS
For the nine months ended December 31, 1995 the Company incurred a net loss of
approximately $4,612,000 on revenue of $728,000. During this period, selling,
general and administrative expenses decreased by 21% compared to the same period
in the prior year. This reduction was primarily due to a decrease in marketing
efforts and sales and marketing staff in areas being de-emphasized by the
Company. Cash used by operations totaled $3,081,000 for the period. Accounts
receivable decreased by $727,000, primarily due to the closure of the
Professional Services Division. Accounts payable and accrued expenses increased
by $620,000, due to a shortage of cash and the Company's inability to generate
working capital from operations. Capital expenditures for equipment were
$22,000.
The Company's cash balances totaled $3,077,000 at December 31, 1995, an increase
of $1,105,000 from March 31, 1995. The Company's cash balance was a result of
cash receipts during December 1995 from a private placement of the Series B
Preferred Stock. Cash flow from financing activities during the nine month
period ended December 31, 1995, generated $4,208,000. The cash provided from
financing activities included $3,201,000 from the private placement of the
Company's preferred stock; $304,000 from a private placement of the Company's
Common Stock; $102,000 from the exercise of stock options; aggregate borrowings
of $1,368,000 and payment on a note receivable of $55,000. These amounts were
offset by payments on the bank line of credit of $664,000, notes payable of
$150,000 and capitalized lease obligations of $8,000. On June 30, 1995 the
Company's Series A Preferred Stock was converted into approximately 2,111,000
shares of the Company's Common Stock.
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<PAGE>
The Company anticipates closing the Regulation S Offering before the closing of
this Offering. Net proceeds of the Regulation S Offering are anticipated to be
approximately $800,000. See "Description of Securities Rights, Preference,
Privileges and Restrictions - Series C Preferred Stock."
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, the
net book value of which is more particularly shown in Note 2 to the Consolidated
Financial Statements in the Company's Form 10-K, annexed hereto as Attachment A.
EMPLOYEES
As of February 29, 1996, the Company had 30 full-time employees. Of these
employees, 16 were in Research and Development, six (6) 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.
LEGAL PROCEEDINGS
As of December 31, 1995, the Company is a party to the following lawsuits:
On January 5, 1995, the Company obtained a judgment 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 requires 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. The Company is current with all payments due under the
stipulation.
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.
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<PAGE>
An action was filed against the Company in August, 1995, in the Orange County
Superior Court, case #752031 sued for failure to pay lease rent by McDonnell
Douglas Travel Co., which is seeking damages in the amount of $552,932 and
attorney's fees and costs. The Company has entered into a stipulation for
judgment with McDonnell Douglas Travel Co.
An action was filed against the Company on August 28, 1995 in the Municipal
Court, Orange Harbor Judicial District, County of Orange, case #95C4720 on a
Complaint for Money by Accelerated Cash Flow, Inc. in the amount of $16,053.19
for telephone services and/or supplies. Accelerated Cash Flow, Inc. was also
seeking a Writ of Attachment in connection with this proceeding. The Company
entered into a stipulation for judgment and has paid the debt in full, including
minor fees and expenses.
The Company is also the defendant in two actions in the Central Orange County
Municipal Court - Small Claims Division arising from the non-payment of trade
payables. Although neither of these actions have resulted in judgments against
the Company, the Company intends to enter into negotiations with the plaintiffs
should they be successful in their efforts in obtaining judgments against the
Company.
The Company is involved in a dispute regarding unpaid legal fees with a law firm
that previously represented the Company. A settlement offer has been accepted,
however negotiations continue in respect of the terms of the settlement
agreement.
V. SELECTED FINANCIAL DATA
The selected financial data set forth below for the fiscal years ended March 31,
1992, 1993, 1994, and 1995, are derived from the audited financial statements of
the Company. The selected financial data for the nine months ended December 31,
1994 and December 31, 1995 are derived from unaudited financial statements of
the Company, which include, in the opinion of management, all adjustments,
consisting only of normal recurring items, necessary to present fairly the
results of operations and financial position of the Company for the periods and
dates presented. The results of operations for the nine-month period ended
December 31, 1995 are not necessarily indicative of the results to be expected
for any other period. 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" in the
Company's Form 10-K for the fiscal year ended March 31, 1995 and Form 10-Q for
the quarter ended December 31, 1995, annexed hereto. 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 Professional Services division that has been
discontinued.
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<TABLE>
Nine Months Ended
Year Ended March 31, December 31,
----------------------------------------------- ---------------------------
1992(1) 1993 1994 1995 1994 1995
------- ---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenues $43 $ 393 $ 1,410 $ 3,535 $ 2,704 $ 728
Cost of sales 22 423 1,337 2,848 1,906 702
-------------------------------------------------- ------------------------
Gross profit 21 (30) 73 687 798 26
Research & development expenses - 454 1,370 3,145 2,118 1,973
Selling, general & administrative expenses 28 645 2,244 5,312 3,297 2,590
-------------------------------------------------- ------------------------
Operating loss (7) (1,129) (3,541) (7,770) (4,617) (4,537)
Other income (expense) - 10 62 52 45 (74)
--------------------------------------------------- ------------------------
Loss before income taxes (7) (1,119) (3,479) (7,718) (4,572) (4,611)
Provision for income taxes 1 2 2 2 2 1
--------------------------------------------------- ------------------------
Net loss $(8) $(1,121) $(3,481) $(7,720) $(4,574) $(4,612)
=================================================== =======================
Net loss per common share $ - $ (0.62) $ (0.81) $ (1.53) $ (0.92) $ (0.65)
================================================= =========================
</TABLE>
<TABLE>
March 31, December 31, February 29, 1996
------------------------ --------------------------------
1994 1995 1995 Actual As Adjusted (3)
---- ---- ---- ------ ---------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Cash and cash equivalents $2,450 $1,972 $3,077 $1,762 $7,892
Working capital 2,693 191 125 (213) 5,992
Total assets 3,922 4,147 4,134 2,860 8,990
Total debt (2) 696 2,790 3,100 2,184 2,109
Shareholders' equity 3,226 1,357 1,034 676 6,881
</TABLE>
(1) Results reflect the period September 6, 1991 (inception) through
March 31, 1992.
(2) Total debt includes trade payables.
(3) As adjusted to give effect to the receipt by the Company of the
estimated net proceeds from the sale of the 2,100,000 shares of Common
Stock offered hereby at the Offering price of $3.00 per share, and the
application of the estimated net proceeds; as well as the estimated net
proceeds from the Regulation S Offering in the amount of $800,000,
which is expected to close prior to the closing of this Offering. See
"Description of Securities -Preferred Stock" and "Use of Proceeds."
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VI. USE OF PROCEEDS
The Company estimates that the net proceeds from this Offering, after deducting
the 10% commission on the Offering, but before Offering costs, will be a maximum
of $5,750,000. The Company intends to use the proceeds from this Offering for
general corporate purposes, including working capital requirements, product
marketing and promotion, research and development, and debt reduction. Upon
successful completion of this Offering, the Company intends to use the net
proceeds in order of priority as follows:
Minimum Maximum
------- -------
Offering costs (1) $ 135,000 $ 345,000
General working capital 1,477,000 4,317,000
Reduction of indebtedness(2) 1,088,000 1,088,000
Total $2,700,000 $ 5,750,000
(1) Includes printing fees, legal fees, finder's fees and other
expenses. Finders' fees include a 2% fee on the proceeds of
the Units placed by Dabney.
(2) Includes two notes totaling $113,000, of which $100,000 is
owed to a stockholder. In addition, the Company has
approximately $975,000 in past due outstanding trade payables,
and although the Company has entered into arrangements with
creditors for the forbearance and restructuring of payment
terms for some of these amounts, the Company will be required
to pay the balance of accounts payable outstanding with the
proceeds of this Offering and cash flow from operations.
The foregoing projected use of proceeds are only estimates. The precise
application of the proceeds of this Offering may vary considerably depending
upon factors such as the Company's cash flow from operations and the
availability of funds from other sources. Any change in either the allocation of
funds or the order of priority, will be at the discretion of the Company's Board
of Directors. The Company may seek additional equity or debt financing if
opportunities arise. There can be no assurance that StarBase will be successful
in generating funds from operations or obtaining additional funds on terms
acceptable to the Company to continue its business once the proceeds of this
Offering have been expended.
VII. SHARE AND LOAN CAPITALIZATION
The following table sets forth the share and loan capitalization of the Company
at December 31, 1995, February 29, 1996 and as adjusted to reflect the proposed
private placement of Series C Preferred Shares and the receipt and application
of the net proceeds from the sale of the maximum Offering.
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<TABLE>
(Unaudited)
(In thousands except share date)
--------------------------------------------------------------
Pro Forma Adjustments
----------- ---------- -----------------------------------
Series C
Balance Balance Preferred This As Adjusted
December 31, February 29, Stock Offering February 29,
1995 1996 (3) (2) (4) 1996
------------ ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Notes payable to officer/director $ 73 $ 73 $ -- $ -- $ 73
Other Notes Payable 262 188 (75) (113) --
-------- -------- -------- -------- --------
Total current portion of debt 335 261 (75) (113) 73
Long-term debt, less current portion -- -- -- --
Stockholders' Equity: (1)
Preferred Stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding: no --
at December 31, 1995; 2,227,946 Series B at
February 29, 1996 (2); 300,000 Series C (3) ne 22 3 (22) 3
Preferred Stock subscribed 3,838 -- -- -- --
Common Stock, $.01 par value; authorized
50,000,000; issued 7,829,034 at
December 31, 1995; 7,848,479 at February 29, 1996; and
12,176,425 (2) (4) 78 78 -- 43 121
Common Stock subscribed 66 27 -- -- 27
Treasury Shares, 6,261 Common Shares (21) (21) -- -- (21)
Additional paid-in capital 14,015 18,209 797 5,384 24,390
Deficit accumulated during development stage (16,942) (17,639) -- -- (17,639)
-------- -------- -------- -------- --------
Total Stockholders' Equity 1,034 676 800 5,405 6,881
-------- -------- -------- -------- --------
Total capitalization $ 1,369 $ 937 $ 725 $ 5,292 $ 6,954
======== ======== ======== ======== ========
</TABLE>
(1) Excludes options to purchase 1,400,902 shares of Common Stock which
includes options to purchase 663,169 shares pending VSE approval, and
warrants to purchase 2,949,594 shares of Common Stock, each outstanding
as of February 29, 1996.
(2) Includes automatic conversion of 2,227,946 shares of Series B Preferred
to Common Stock upon the close of this Offering.
(3) The Company is in the process of finalizing the Regulation S Offering.
It is anticipated that the Regulation S Offering will close prior to
the closing of this Offering. The estimated net proceeds of that
offering are $800,000.
(4) Adjusted to give effect to the receipt by the Company of the estimated
net proceeds from the sale of the 2,100,000 Units offered hereby at the
Offering Price of $3.00 per Unit, and the application of the estimated
net proceeds thereof.
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<PAGE>
SERIES A PREFERRED STOCK CONVERSION
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 (CDN$1.34) per
share. At June 30, 1995, the Series A Preferred Stock automatically converted
into 2,111,104 shares of Common Stock. The conversion rate was determined by a
renegotiated formula based upon the Company's equity position.
REVERSE STOCK SPLIT
In January 1995, the shareholders of the Company approved the Reverse Split
which was completed on April 6, 1995. The Company retired 11,107,877 shares of
Common Stock in connection with the reverse stock split. The stated par value of
$.01 per share was not changed. All references in the financial statements to
average number of common stock shares outstanding and per common stock 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. See the Company's Financial
Statements and notes thereto contained in the Company's Form 10-K, annexed
hereto as Attachment A..
VIII. DESCRIPTION OF SECURITIES
The Company is offering pursuant to this private placement 2,100,000 Units of
the Company's Common Stock at the price of $3.00 per Unit. Each Unit consists of
one share of Common Stock and one non-transferable Warrant. Each Warrant
entitles the holder thereof to purchase one share of Common Stock of the
Company. The Warrant is 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 Warrant expires. Neither the newly issued Common Stock nor the
Warrants shall be listed and posted for trading on OTCEBB.
Assuming that 2,100,000 Units offered hereby are sold for, the Company will
derive net cash proceeds of approximately US $5,405,000, after the costs of the
Offering.
SHARE CAPITAL STRUCTURE
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 (the "Preferred
Stock"). Of the Preferred Stock, 2,500,000 have been designated Series B
Preferred Stock of which 2,227,946 are issued and outstanding and 300,000 shares
have been designated Series C Preferred Stock of which up to 300,000 may be
outstanding, assuming completion of the offering of Series C Preferred Stock
under Regulation S.
The following description of the Common Stock and Preferred Stock of the Company
does not purport to be complete. Reference is made to the Company's Certificate
of Incorporation, as amended, and Bylaws, as well as the applicable statutes of
the State of Delaware for a more complete description of the rights and
liabilities of stockholders.
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<PAGE>
COMMON STOCK
At March 31, 1996, 7,848,479 shares of the Company's Common Stock were issued.
There were an additional 4,318,100 shares of Common Stock issuable pursuant to
warrants and options to acquire additional shares of the Company's Common Stock,
which includes 663,169 shares of Common Stock issuable pursuant to options
pending VSE approval.
Each share of the Company's Common Stock has one vote on all matters submitted
to stockholders. Subject to applicable Delaware law, the holders of the Common
Stock are entitled to dividends when and if declared by the Board of Directors.
In the event of liquidation, holders of Common Stock are entitled to share
pro-rata in any and all assets remaining after the payment of corporate
liabilities and a return of capital plus unpaid dividends to the Preferred
Stockholders. The Company's Common Stock does not have cumulative voting rights,
and therefore, the holders of more than 50% of the shares may, if they choose to
do so, elect all the directors of the Company. The Company's Common Stock has no
preemptive or other subscription rights, and outstanding shares of Common Stock
are fully paid and non-assessable.
The Board of Directors may issue additional Common Stock within the limits
authorized by the Company's Certificate of Incorporation, as amended.
REGISTRATION RIGHTS
The registration rights granted to investors in the Units pursuant to the
Offering will be on a pari passu basis with the registration rights held by
existing stockholders of the Company.
1) Demand Rights.
At any time after August 8, 1996, holders of 500,000 or more
Registrable Securities (defined below) may request that the
Company effect a registration of at least 500,000 of such shares
(or any lesser number of shares if the anticipated aggregate
offering price, net of underwriting discounts and commissions,
would exceed $10,000,000); provided, that the Company shall be
obligated to effect only two such requested registrations. The
Company will use its "best efforts" to cause such shares to be
registered. If the Company is eligible to use Form S-3, the
investor agrees to request registration under the Form S-3
provisions below rather than the provisions of this paragraph.
For purposes of this Memorandum in connection with the
registration rights granted to investors in the Units,
"Registrable Securities" shall mean the shares of Common Stock
issued to the investors and issuable upon the exercise of the
Warrants issued as part of the Units.
2) Company Registrations.
Investors shall be entitled to "piggy back" 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 that the Company
effect a registration on Form S-3, provided that such
registration be limited to one per twelve-month period and
result in net proceeds to the Company of at least $500,000.
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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 100,000 shares of the
Registrable Securities. However, the Company must be given
written notice of the transfer.
PREFERRED STOCK
The Company's Certificate of Incorporation, as amended, authorizes 10,000,000
shares of Preferred Stock. The Board of Directors has the authority to issue the
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividends rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of any such series, without any further vote or action by the
stockholders.
RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS - SERIES B PREFERRED STOCK
Dividend Provisions. Cumulative 6% annual dividends per share, payable in annual
installments. No dividends may be declared or paid on Junior Stock (defined
below) during any fiscal year unless dividends on Series B Preferred Stock at
the annual rate have first been declared and paid or set aside for payment. For
purposes of this Memorandum in connection with the rights, preferences,
privileges and restrictions under the Series B Preferred Stock, "Junior Stock"
shall mean the Common Stock and all other stock of the Company ranking junior to
the Series B Preferred Stock.
Liquidation Preference. In the event of a liquidation or winding up of the
Company, each share of Series B Preferred Stock is entitled to receive an amount
equal to $2.00 per share, plus any unpaid dividends, before any payment to
holders of shares of Junior Stock. Any assets remaining available for
distribution after payment of the full preferential amount to holders of the
Series B Preferred Stock will be distributed pro rata among the holders of
Junior Stock.
Notice and Voting Rights. Except to the extent voting as a separate class or
series is required by law or as provided in "Protective Provisions" below, the
holders of the Series B Preferred Stock have the right to receive notice of,
speak at, and vote together with the Common Stock on an "as-converted" basis, at
all general meetings of the holders of Common Stock.
Conversion. (a) Elective. The holders of Series B Preferred Stock will have the
right to convert the Series B Preferred Stock, at the option of the holder, at
any time, into Common Stock of the Company on a one-for-one basis. (b)
Automatic. Each share of Series B Preferred Stock shall be automatically
converted into Common Stock at its then applicable conversion rate upon the
following events: (i) an acquisition of the Company by another entity or the
sale of all or substantially all of the assets of the Company; (ii) the
consummation of a public
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and/or private offering which results in gross proceeds to the Company of at
least $5,000,000; (iii) if the closing bid price of the Common Stock averages at
least $5.00 for a period of 20 consecutive trading days; or (iv) September 25,
1998.
Conversion Price Adjustments. The conversion price per share of Series B
Preferred Stock is initially the original purchase price of such share but is
subject to proportionate adjustment in the case of (a) any subdivision or
combination of the Company's Common Stock or (b) any payment by the Company of a
stock dividend to holders of Common Stock. The conversion price of the Series B
Preferred Stock is subject to adjustment to prevent dilution in the event of a
stock split, stock dividend, reverse stock split or recapitalization.
Protective Provisions. In addition to voting rights provided by law, and as long
as at least 50,000 shares of the Series B Preferred Stock are outstanding, the
Company shall not, without first obtaining the approval of a majority of the
outstanding shares of Series B Preferred Stock voting as a class; (a) issue
shares of any stock having rights and preferences superior to the Series B
Preferred Stock; (b) amend the Articles to adversely affect the rights,
preferences or restrictions provided for the benefit of the Series B Preferred
Stock; (c) declare or pay a dividend on any shares of Junior Stock if the
then-current dividends on the Series B Preferred Stock remain unpaid; (d) or
redeem, repurchase or retire any class or series of Junior Stock.
Registration Rights. The registration rights granted to holders of the Series B
Preferred Stock are on a pari passu basis with the registration rights held by
existing stockholders of the Company.
1) Demand Rights.
At any time after August 8, 1996, holders of 500,000 or more
Registrable Securities (defined below) may request that the
Company effect a registration of at least 500,000 of such shares
(or any lesser number of shares if the anticipated aggregate
offering price, net of underwriting discounts and commissions,
would exceed $10,000,000); provided, that the Company shall be
obligated to effect only two such requested registrations. The
Company will use its "best efforts" to cause such shares to be
registered. If the Company is eligible to use Form S-3, the
investor agrees to request registration under the Form S-3
provisions below rather than the provisions of this paragraph. For
purposes of this Memorandum in connection with the registration
rights granted to holders of the Series B Preferred Stock,
"Registrable Securities" shall mean the shares of Common Stock
issuable upon the conversion of the Series B Preferred Stock or
the exercise of the warrants issued together with the Series B
Preferred Stock.
2) Company Registrations.
Investors shall be entitled to "piggy back" 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 that the Company
effect a registration on Form S-3, provided that such registration
be limited to one per twelve-month period and result in net
proceeds to the Company of at least $500,000.
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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 100,000 shares of the
registrable securities. However, the Company must be given written
notice of the transfer.
RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS - SERIES C PREFERRED STOCK.
The Company anticipates that the Regulation S Offering will close prior to the
closing of this Offering on the terms contemplated below.
Dividend Provisions. The holders of the Series C Preferred Stock shall not be
entitled to receive any dividends.
Liquidation Preference. In the event of a liquidation or winding up of the
Company, each share of Series C Preferred Stock shall be entitled to receive an
amount equal to $3.00 per share, before any payment to holders of shares of
Junior Stock (as defined below). Any assets remaining available for distribution
after payment of the full preferential amount to holders of the Series C
Preferred Stock shall be distributed pro rata among the holders of Junior Stock.
For purposes of this Memorandum in connection with the rights, preferences,
privileges and restrictions under the Series C Preferred Stock, "Junior Stock"
shall mean the Common Stock and all other stock (other than the Series B
Preferred Stock) ranking junior to the Series C Preferred Stock.
Notice and Voting Rights. Except as otherwise provided by law, the holders of
the Series C Preferred Stock shall not be entitled to vote upon any matter
relating to the business or affairs of the Company or for any other purpose.
Conversion. (a) Elective. The holders of Series C Preferred Stock shall have the
right to convert the Series C Preferred Stock, at the option of the holder, at
any time, into Common Stock of the Company on a one-for-one basis, subject to
adjustments as provided in "Conversion Price Adjustments" below. (b) Automatic.
Each share of Series C Preferred Stock shall be automatically converted into
Common Stock at its then applicable conversion rate upon the following events:
(i) if the closing bid price of the Common Stock is at least $6.00 for a period
of 20 consecutive trading days; or (ii) September 25, 1998.
Conversion Price Adjustments. The conversion price per share of Series C
Preferred Stock shall initially be the original purchase price of such share but
shall be subject to proportionate adjustment in the case of (a) any subdivision
or combination of the Company's Common Stock or (b) any payment by the Company
of a stock dividend to holders of Common Stock. The conversion price of the
Series C Preferred Stock shall be subject to adjustment to prevent dilution in
the event of a stock split, stock dividend, reverse stock split or
recapitalization.
Registration Rights. The registration rights granted to holders of the Series C
Preferred Stock shall be governed by a Registration Rights Agreement between the
Company and the initial holder of the Series C Preferred Stock (the "Series C
Registration Rights Agreement"). The Series C Registration Rights Agreement
provides that the initial holder (or its assignee) may "demand" that the Company
effect a registration 41 days after the date of the issuance of the Series C
Preferred Stock but prior to April 30, 1997.
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1) Demand Rights.
The holder of the Series C Preferred Stock or the shares of Common
Stock issued upon conversion of the Series C Preferred Stock
having an initial aggregate purchase price of at least $375,000
may request that the Company use its best efforts to effect a
registration of 100% of the Registrable Shares (as defined below),
as soon as practicable but no later than 120 days following
receipt of such request. The Company shall not be obligated to
effect a requested registration: (a) after the Company has
effected one such registration pursuant to the Series C
Registration Rights Agreement and such registration has been
declared or ordered effective and the sale of such Registrable
Shares have closed; or (b) within the period starting with the
date 60 days prior to the Company's good faith estimated date of
filing of, and ending 180 days following the effective date of,
any registered offering of the Company's Common Stock to the
general public. For purposes of this Memorandum, "Registrable
Shares" shall mean the shares of Common Stock or any Common Stock
of the Company issued or issuable in respect of such shares or
upon any stock split, stock dividend, recapitalization or similar
event; provided, however, that shares of Common Stock or other
securities shall no longer be treated as Registrable Shares if (i)
they have been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities
transaction, (ii) they have been sold in a transaction exempt from
the registration and prospectus delivery requirements of the Act
so that all transfer restrictions and restrictive legends with
respect thereto are removed upon consummation of such sale or
(iii) the shares are available for sale under the Act (including
Rule 144), in the opinion of counsel to the Company, without
compliance with the registration and prospectus delivery
requirements of the Act so that no transfer restrictions or
restrictive legends will appear upon the share certificates
following the consummation of such sale.
2) 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) above).
3) Transfer of Rights.
A holder of registration rights may transfer the rights to any
transferee who purchases at least 125,000 shares of the
registrable securities. However, the Company must be given written
notice of the transfer.
DIVIDENDS ON COMMON STOCK AND PREFERRED STOCK
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.
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RESALE RESTRICTIONS
The Company files periodic reports with the Commission under Section 15(d) of
the Exchange Act. The Company's Common Stock is currently listed and posted for
trading on the OTCEBB and VSE.
The Common Stock sold in this Offering and the Common Stock derived from the
exercise of the Warrants offered in this Offering will be issued in transactions
exempt from registration under the Act by reliance under either Section 4(2) and
Regulation D, or under Regulation S of the Act, depending on the residence of
the purchaser. Accordingly, the Common Stock and the Common Stock derived from
the exercise of the Warrants will be "restricted securities" under the meaning
of Rule 144 promulgated under the Act and may be sold only pursuant to an
effective registration statement under federal and applicable state securities
laws or an applicable exemption. The holders of unregistered Common Stock may be
able to sell their Common Stock without registration in accordance with the
exemption provided by Rule 144 under the federal securities laws. In general,
under Rule 144 as currently in effect, a person or persons whose shares are
aggregated in accordance with Rule 144, who has beneficially owned "restricted
shares" (defined generally as shares acquired from the issuer or an affiliate in
a non-public transaction) for at least two years, as well as any persons who
purchase unrestricted shares on the open market who may be deemed "affiliates"
of the Company (as defined in Rule 144), would be entitled to sell within any
three-month period a number of shares of Common Stock that does not exceed the
greater of 1% of the then outstanding number of shares of Common Stock or the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding each such sale. After Common Stock is held for three years, a person
who is not deemed an "affiliate" of the Company is entitled to sell such Common
Stock under Rule 144 without regard to the volume limitations described above.
Sales of Common Stock by affiliates will continue to be subject to the volume
limitations. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly or indirectly, through the use of one or more intermediaries,
controls, or is controlled by, or is under common control with, such issuer. The
appropriate "restrictive legend" will be affixed to all stock certificates
substantially as follows:
For investors who are U.S. Persons:
- - -----------------------------------
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
PURSUANT TO A TRANSACTION EFFECTED IN RELIANCE UPON SECTION 4(2) OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND HAVE NOT BEEN THE
SUBJECT OF A REGISTRATION STATEMENT UNDER THE ACT OR ANY STATE
SECURITIES ACT. THESE SECURITIES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR APPLICABLE EXEMPTION
THEREFROM UNDER THE ACT OR ANY APPLICABLE STATE SECURITIES ACT."
For investors who are non-U.S. Persons:
- - ---------------------------------------
"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], 1996, EXCEPT IN EITHER
CASE IN ACCORDANCE WITH REGULATION S UNDER THE ACT. TERMS USED IN THIS
LEGEND HAVE THE MEANING GIVEN TO THEM BE REGULATION S."
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Terms of The Warrant:
1) Exercise Price: The exercise price shall be $2.00 per share
through January 31, 1997 and thereafter $2.50 per share through
January 31, 1998, after which date the Warrant expires.
2) Term: Void after January 31, 1998.
3) Information Rights: All shareholders shall receive annual audited
financial statements, and all other shareholder communications.
The Warrants will contain, among other things, anti-dilution
provisions and provisions for appropriate adjustment of the class,
number and price of shares issuable pursuant to any exercise
thereof upon the occurrence of certain events including any
subdivision, consolidation or reclassification of the shares of
Common Stock of the Company, the payment of stock dividends or the
merger of the Company.
The Offering Price of the Units has been determined by negotiation
between the Company and Dabney, an NASD registered broker dealer
who is the Placement Agent in regards to this private placement,
in part on the basis of the quoted price of the Company's Common
Stock on OTCEBB. While the Company's Common Stock is listed on
OTCEBB and the VSE and is therefore available for trading in the
public market, there has been only limited trading activity.
IX. TERMS OF THE OFFERING
The Company is offering a minimum of 1,000,000 and a maximum of 2,100,000 Units,
at a subscription price of $3.00 per Unit. The minimum subscription to be
accepted by the Company will be $30,000. The Company reserves the right to
accept subscriptions for less than the minimum. Each Unit consists of one share
of Common Stock and one non-transferable Warrant. Each Warrant entitles the
holder thereof to purchase one share of Common Stock of the Company. The Warrant
is 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
Warrant expires. Neither the newly issued Common Stock nor the Warrants shall be
listed on OTCEBB. Assuming that 2,100,000 Units offered hereby are fully
subscribed for, the Company will derive net cash proceeds of approximately
$5,750,000, before Offering expenses.
SUBSCRIPTION PROCEDURES
An investor intending to subscribe must notify the Placement Agent or the
Company of its decision to subscribe, and the Placement Agent will deliver to
such investor a complete set of subscription documents. The investor must
complete, sign and return such subscription documents to the Placement Agent at
Dabney/Resnick, Inc., 150 South Rodeo Drive, Suite 100, Beverly Hills,
California 90212, Attention: Peter Marcil. Payment must accompany the executed
subscription documents.
All subscriptions must be paid either in cash, by wire transfer or accompanied
by a cashier's or certified bank check for the full subscription price payable
to "StarBase Corporation." The Company reserves the right, exercisable in its
absolute discretion, to reject any subscription hereunder, in whole or in part,
for any reason, to allot to a particular subscriber less than the amount of
Units subscribed for and/or to withdraw or cancel the Offering without notice or
to modify the terms thereof. If this Offering is oversubscribed, the Company
will
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determine which subscriptions will be accepted.
All amounts received by the Placement Agent on behalf of the Company or by the
Company on Units placed by the Company prior to completion of the Offering will
be deposited in escrow accounts established by the Company with a banking
institution. The funds in the accounts will not be released until all conditions
to the completion of the Offering are satisfied, including, among other things,
that investors have subscribed for the minimum amount of Units. If the Offering
is terminated, subscribers hereunder will receive the return of all of their
subscription funds without interest.
REGISTRATION RIGHTS
Holders of the Units will be granted "demand" and "piggy back" registration
rights, subject to customary limitations. See "Description of Securities -
Registration Rights."
RESTRICTIONS ON TRANSFERABILITY
Neither the Units issued in this Offering nor the Common Stock will be freely
tradable without registration or other compliance with federal and applicable
state securities laws. See "Description of Securities."
REPRESENTATIONS MADE BY ALL INVESTORS
Unless otherwise determined by the Company in its sole discretion and in
compliance with applicable federal and state securities laws, subscriptions for
the Units will only be accepted from those investors who represent, and who can
support their contention, that: (i) they are "accredited investors"(see
"Investor Suitability Standards"); (ii) they are acquiring the Units for their
own account, for investment only and not with a view toward the resale or
distribution of the Units; (iii) they have such knowledge and experience in
financial and business matters that they are capable, either alone or together
with one or more advisors, of evaluating the merits and risks of the prospective
investment; and (iv) they have been provided the opportunity to ask questions of
and receive answers concerning the terms and conditions of the Offering and to
obtain any additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
of the information furnished in this Memorandum. Each subscriber will be
required to sign a Subscription Agreement which provides, in part, that no Units
may be sold, transferred or otherwise disposed of unless they are subsequently
registered under the applicable securities laws, or are transferred pursuant to
exemption therefrom, and which contains other representations and
acknowledgments of the prospective investor. The Company shall rely upon the
truth and accuracy of these representations.
PLACEMENT AGENT
The Company has engaged Dabney as its placement agent for Units of up to
$5,500,000 in this Offering. The placement agent, who will act as a broker,
dealer or agent in connection with the Offering, will receive a commission equal
to 10% of the total Units sold by them. The Company will issue Warrants to
Dabney to purchase a number of shares of Common Stock equal to 120,000 times a
fraction the numerator of which shall be the total dollar amount of Securities
sold by Dabney and the denominator of which shall be $5,500,000. In addition,
the Company will reimburse Dabney for its reasonable expenses incurred in
connection with the Offering. The Company has agreed to indemnify Dabney against
certain liabilities arising out of Dabney's
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engagement and the Offering, unless such liabilities resulted primarily from the
fraud, willful misconduct or gross negligence of Dabney. The arrangement between
the Company and Dabney may be terminated by either party if the Offering is not
consummated within thirty days after delivery to Dabney by the Company of the
initial completed copy of this Memorandum.
FINDERS' FEES
Units of up to $800,000 will also be offered and sold by the Company itself.
Pursuant to a Consulting Agreement, the Company will pay to The Gibson Group
finders' fees of 2% on the proceeds of the total Units placed by Dabney. No
sales commissions or other compensation will be paid to the Company or any of
its officers or employees in connection with their sales of Units.
X. DIRECTORS, OFFICERS AND CONTROL PERSONS
Directors and Officers
The following table sets forth certain information concerning the Company's
directors and executive officers as of February 29, 1996. The members of the
Board of Directors (the "Board") are elected to one year terms and are to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<S> <C> <C>
Name Age Principal Occupation For the Past Five Years
DIRECTORS:
William R. Stow III 51 Founder, President and Chief Executive
Officer of StarBase Corporation since
President, Chief Executive Officer, September 1992; Vice President-Architect at
Co-Chairman of the Board and Member Ashton-Tate from 1986 to 1991.
of Investment Banking Committee
Michael G. Lyons 53 President of Technology Management from
1991 to present. Partner in Potrero
Co-Chairman of the Board, and Member Management Partners. Co-founder, Vice
of Compensation Committee President and Director of Integrated Systems
Inc. from 1980 to 1991.
Roger C. Ferguson 53 President and CEO of DataTools, Inc. since
1993. Chief Operating Officer of Network
Member of Compensation Committee General Corporation from 1987 through 1993.
Alan M. Davis 52 Chief Operating Officer of StarBase
Corporation since February 1996. President of
Chief Operating Officer and Member of San Juan Building Supply since 1990. Partner
Investment Banking Committee in Potrero Management Partners since 1995.
Director of Software Development of MIPS
Computer Systems from 1989 through 1990.
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Name Age Principal Occupation For the Past Five Years
John R. Snedegar 46 President, Director and CEO of UniDex
Communications Corp. since 1990.
Member of Audit Committee
Kenneth A. Sexton 42 Vice President, Finance and Administration of
Intersolv, Inc. since 1991. From 1984 through
Member of Compensation and Audit 1991, Controller at Life Technologies, Inc.
Committees
Gary E. Gratny 36 Portfolio Manager at Whelan & Gratny
Capital Management, Inc. since 1994. Vice
Member of Compensation Committee President of Marketing and Business
Development at Focus Graphics, Inc. from
1989 through 1994.
Phillip E. Pearce 67 Owner, Phil Pearce & Associates since 1986.
Senior Vice President and Member of the
Member of Investment Banking Board of Directors of E.F. Hutton & Co. from
Committee 1971 through 1983.
OFFICERS:
Alan D. Kucheck 44 Vice President, Engineering since January
1995. From July 1993 to January 1995
Vice President, Engineering served as a Project Director for the Company.
From August 1990 to March 1993 was
Manager, Software Development for IMI, Inc.
Robert W. Leimena 52 Chief Financial Officer of StarBase Corporation
since February 1996. Entrepreneur and management
consultant since October 1987. Partner in
Potrero Management Partners since 1995. From
July 1981 through September 1987 was Senior
Vice President and CFO of View-Master
Ideal Group, Inc.
</TABLE>
WILLIAM R. STOW III has served as Chief Executive Officer of the Company since
September 1991. Mr. Stow has also served as President of the Company since
September 1991, exclusive of the period from April 1994 through July 1995. Mr.
Stow has served as a Director of the Company since September 1991 and as Co-
Chairman of the Board since October 1994. From February 1986 to October 1991,
Mr. Stow held various senior- level positions at Ashton-Tate Corporation,
including Vice President of Advanced Development.
MICHAEL G. LYONS has served as a Director of the Company since June 1992 and as
Co-Chairman of the Board of the Company since October 1994. From June 1992 until
October 1994, Mr. Lyons served as Chairman of the Board. Since October 1991, Mr.
Lyons has served as President and Chief Executive Officer of Technology
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Management, a management consulting group primarily serving high-technology
clients. He is partner in Potrero Management Partners, a high technology venture
and consulting firm. From June 1981 to October 1991, Mr. Lyons was a founder,
Vice President and Director of Integrated Systems, Inc.
ROGER C. FERGUSON has been President and CEO of DataTools, Inc., a privately
held supplier of database administration tools for client/server databases since
1993. For six years prior to joining DataTools, Mr. Ferguson was with Network
General, Inc., a publicly traded supplier of network analysis equipment, where
he was Chief Operating Officer and a member of the Board of Directors. Prior to
Network General he held executive positions at S-Vtek, Inc., General Instrument
and IBM. He is also currently Chairman of the Board of Directors of Microtest,
Inc., a publicly traded network tools company.
ALAN M. DAVIS has served as a Director and Chief Operating Officer of the
Company since February 1996. Mr. Davis has also been serving as the President of
San Juan Building Supply, since 1990, and partner in Potrero Management
Partners, a high technology venture and consulting firm, since 1995. From 1989
through 1990, he served as Director of Software Technology Development and
Marketing of MIPS Computer Systems. Prior to 1989, he served as General Manager
of the Systems division of Integrated Automation and held various senior
management positions at Bell & Howell and Intel Corporation over a period of
eight (8) years.
JOHN R. SNEDEGAR has served as a Director of the Company since December 1990.
Since May 1990, Mr. Snedegar has served as President, Director and Chief
Executive Officer of UniDex Communications Corp., a diversified
telecommunications provider based in Arlington, Texas. From March 1981 to May
1992, Mr. Snedegar served as President and Chief Executive Officer of AmeriTel
Management, Inc., currently known as WCT Communications, Inc.
KENNETH A. SEXTON is Vice President, Finance and Administration of Intersolv,
Inc., a leading provider of open client/server solutions. Prior to joining
Intersolv, Inc. in 1991, Mr. Sexton held several senior level positions at Life
Technologies Inc., a biotechnology company, and Coopers & Lybrand, a big six
accounting firm.
GARY E. GRATNY is senior portfolio manager for Whelan & Gratny Capital
Management, Inc., an investment advisor that concentrates on growth equity
investing. Prior to Whelan & Gratny, Mr. Gratny was Vice President of Marketing
and Business Development at Focus Graphics, Inc., a graphics and medical imaging
company, and held marketing and engineering positions at Hewlett Packard and
Rockwell International.
PHILIP E. PEARCE was Senior Vice President and a member of the Board of
Directors of E.F. Hutton & Co, a member of the Board of Governors of the New
York Stock Exchange, and Chairman of the Board of governors of the NASD. Mr.
Pearce is a member of the Board of RX Medical Services Corporation, a reporting
company.
ALAN D. KUCHECK has served as Vice President, Engineering since January 1995.
From July 1993 to January 1995, Mr. Kucheck served as a Project Director for the
Company. From August 1990 to March 1993, Mr. Kucheck was Manager, Software
Development for IMI, Inc., a software development company. Prior to that time,
Mr. Kucheck held various management positions with several other software
development companies.
ROBERT W. LEIMENA was appointed Chief Financial Officer of the Company in
February 1996. Mr. Leimena has been an entrepreneur and management consultant
since October 1987. He is a partner in Potrero Management Partners, a high
technology venture and consulting firm. From September 1994 through December
1995, in his capacity as a management consultant, he was interim CFO of a
multi-media computer peripheral company. From 1981 through 1987, Mr. Leimena was
Senior Vice President and Chief Financial Officer of View-Master Ideal Group,
Inc., a publicly traded company. Mr. Leimena is a Certified Public Accountant.
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OTHER DIRECTORSHIPS, ORDERS OR SANCTIONS
The Company is in good standing in the states of Delaware and California and the
Company's securities have not been the subject of a cease trade or suspension
order for a period of thirty consecutive days during the period the directors,
officers or promoters retained their respective positions.
No director, officer or promoter of the Company has within the last five years
prior to the date hereof, been declared bankrupt or made a voluntary assignment
in bankruptcy, nor made a proposal or been subject to any proceedings under any
legislation relating to bankruptcy or insolvency, except for Alan D. Kucheck who
on February 18, 1993 filed for protection under Chapter 7 of the United States
Bankruptcy Code.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
compensation paid or accrued by the Company to, or on behalf of, the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Company (the "Named Executive Officers"), for services
rendered in all capacities to the Company during the fiscal years ended March
31, 1993, 1994 and 1995. Except as otherwise noted, no Named Executive Officer
received any restricted stock award, stock appreciation right or payment under
any long-term incentive plan.
<TABLE>
Summary Compensation Table(1)
Long-Term
Annual Compensation Compensation
------------------------------------------ --------------
Other Securities
Fiscal Annual Underlying
Name and Principal Position(2) Year Salary Bonus Compensation Options
- - ----------------------------------------- ------------ ------------ ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
William R. Stow III 1995 $ 115,000 $ -- $ -- 6,666
Chief Executive Officer, Co-Chairman 1994 111,244 -- -- --
of the Board and Director 1993 87,083 -- -- --
D. Patrick Linehan 1995 160,000 -- -- 6,666
President, Chief Operating Officer 1994 -- -- -- 106,666
and Director(3) 1993 -- -- -- 6,666
Walter Zipperman 1995 115,000 25,650 -- --
Vice President, Consulting(4) 1994 115,000 18,000 -- --
1993 27,563 -- -- 100,168
Andrew D. Wahl 1995 115,000 -- -- --
Vice President, Operations(4) 1994 111,577 -- -- 59,000
Alan D. Kucheck 1995 110,000 -- -- --
Vice President, Engineering(5) 1994 87,212 59,000
===================================================================================================================
</TABLE>
(1) Certain columns have been omitted if they do not apply to any of the
Named Executive Officers.
(2) In January 1995, Mr. Berzle was appointed an executive officer at an
annual salary of $125,000. Mr. Berzle's employment with the Company
terminated in October 1995.
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(3) Mr. Linehan was President and Chief Operating Officer of the Company
from April 1994 through July 1995, when his employment terminated.
Previously, Mr. Linehan served as a management consultant to the
Company and received compensation totaling $71,000 in 1994 in
connection with consulting services provided to the Company.
(4) Mr. Zipperman's employment with the Company terminated in April 1995.
Mr. Wahl's employment with the Company terminated in May 1995.
(5) Mr. Kucheck assumed responsibility as Vice President of Engineering in
January 1995. During calendar year 1994, Mr. Kucheck served as the
Company's Project Director.
In February 1996, Messrs. Alan M. Davis and Robert W. Leimena were appointed
Chief Operating Officer and Chief Financial Officer, respectively. Mr. Davis
receives an annual salary of $170,000 and has been granted options to purchase
160,000 shares of Common Stock, subject to a vesting period. Mr. Leimena's
annual salary is $156,000 and he has been granted options to purchase 150,000
shares of Common Stock, subject to a vesting period. The stock option grants
were approved by the Compensation Committee of the Board of Directors in April
1996. As a member of the Board of Directors, Mr. Davis had earlier been granted
options to purchase 25,000 shares of Common Stock.
STOCK OPTIONS
The following table sets forth information concerning stock option grants made
during the fiscal year ended March 31, 1995 ("Fiscal 1995") under the Company's
Incentive Stock Option, Non-Qualified Stock Option and Restricted Stock Purchase
Plan - 1992 (the "Option Plan") to Messrs. Linehan and Stow. No options were
granted to Messrs. Wahl, Zipperman or Kucheck in Fiscal 1995 and no stock
appreciation rights were granted to such individuals during such fiscal year.
All options and exercise prices reflect the Reverse Split.
<TABLE>
Percent Individual Grants(1)
of Total -------------------------------------
Options Options Granted Exercise or
Granted to Base Price Expiration
Name (2) Employees(3) Per Share(4) Date
- - ------------------------------ ----------------------- -------------------- ------------------ ------------------
$CDN
<S> <C> <C> <C> <C>
D. Patrick Linehan 6,666 1% 7.26 01/31/05
William R. Stow III 6,666 1% 7.98 01/31/05
===================================================================================================================
</TABLE>
(1) Mr. Berzle was granted an option to purchase 50,000 shares at an
exercise price of $7.26 per share. Twenty-five percent of such shares
vest one year from the grant date with the remaining shares vesting
equally over the following thirty-six month period. Mr. Berzle's
employment with the Company terminated in October 1995.
(2) Fifty percent of such shares were vested on the date of grant with the
remaining shares vesting equally over the twelve months following the
date of grant. All of the options shown in the above table are
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incentive stock options and have a maximum term of five or ten years,
subject to earlier termination following the optionee's cessation of
service with the Company. The Company's Option Plan also provides for
the grant of non-qualified stock options.
(3) The Company granted options to purchase a total of 470,333 shares of
Common Stock to employees during the year ended March 31, 1995.
(4) The exercise price per share of the options granted to Mr. Linehan
represented the fair market value of the underlying shares of Common
Stock on the date the options were granted, as determined by averaging
the closing price of the Company's shares on the VSE for the ten (10)
trading days immediately preceding the grant date. The exercise price
per share for Mr. Stow represented 110% of such amount. The exercise
price may be paid in cash or in shares of Common Stock valued at fair
market value on the exercise date. The Company may also finance the
option exercise by loaning the optionee sufficient funds to pay the
exercise price for the purchased shares. On March 31, 1995, the
exchange rate was approximately U.S. $.71 to $1.00 Canadian.
WARRANTS
The Company issued and has outstanding the following warrants to purchase Common
Stock as of March 31, 1996:
<TABLE>
Event Number of Shares Exercise Price Expiration
<S> <C> <C> <C>
Silicon Valley Bank Line of Credit 7,182 CDN $8.22 December 15, 1999
Private Placement - 12/21/94 208,716 $5.67 June 20, 1996
Private Placement - 3/31/95 255,000 CDN $8.46 March 31, 1997
Year 1 / Year 2
Private Placement - 9/8/95 136,000 CDN $3.05 / CDN $3.51 September 8, 1997
Private Placement - 1/31/96 2,342,696 $2.00 / $2.50 January 31, 1998
Total Issued 2,949,594
===================================== ===================== ========================== ==========================
</TABLE>
On January 31, 1996, the Company issued warrants to purchase a total of
2,342,696 shares of the Company's Common Stock at a price of $2.00 per share
through January 31, 1997 and $2.50 per share through January 31, 1998.
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<PAGE>
XI. SECURITIES OWNERSHIP
BENEFICIAL OWNERSHIP
The following table sets forth at March 31, 1996 certain information regarding
the ownership of each class of the Company's voting securities by each person
known by the Company to be the beneficial owner of more than five percent of
each class of the Company's outstanding voting securities.
<TABLE>
Percentage Number of Percentage of
Number of Shares of of Common Shares Series Series B
Name (1) Common Stock (12) Stock B Preferred Preferred
<S> <C> <C> <C> <C>
Amerindo Technology Growth Fund, Ltd. II (2) 1,018,256 12.6 125,291 5.6
c/o Amerindo Investment Advisers, Inc.
One Embarcadero, Suite 2300
San Francisco, California 94111-3162
The Board of Pension Commissioners of the 959,593 12.2 - -
City of Los Angeles
c/o Amerindo Investment Advisers, Inc.
One Embarcadero, Suite 2300
San Francisco, California 94111-3162
Estate of Michael K. Benson (3) 709,608 8.9 50,078 2.2
c/o StarBase Corporation
18872 MacArthur Boulevard
Irvine, California 92715
Storie Partners, L.P. (4) 750,000 8.7 375,000 16.8
One Bush St. #1350
San Francisco, CA 94104
William R. Stow III (5)(6)(7) 588,083 7.5 - -
c/o StarBase Corporation
18872 MacArthur Boulevard
Irvine, California 92715
Intersolv, Inc. (8) 500,000 6.0 250,000 11.2
9420 Key West Ave
Rockville, MD 20850
Lagunitas Partners, L.P. (9) 400,000 4.8 200,000 9.0
50 Osgood Place/Penthouse
San Francisco, CA 94133
Robert F. McCullough(10) 300,000 3.7 150,000 6.7
101 California St., Suite 4250
San Francisco, CA 94920
Banque Genovoise de Gestion(11) 300,000 3.7 150,000 6.7
PO Box 3271 15, rue Toepffer 1211
Geneva 3 Switzerland
================================================= ===================== ============== =============== ================
</TABLE>
(1) Except as otherwise noted, the persons named in the above table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws
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<PAGE>
where applicable.
(2) Includes 125,291 shares of Common Stock issuable upon the exercise of
warrants by Amerindo Technology Growth Fund, Ltd. II and 125,291 shares
of Common Stock issuable upon the conversion of Series B Preferred
Stock.
(3) All shares are held by the Benson Trust. Includes 568,123 shares
subject to the Performance Escrow Agreement, 50,078 shares of Common
Stock issuable upon the exercise of warrants and 50,078 shares of
Common Stock issuable upon the conversion of Series B Preferred Stock.
(4) Includes 375,000 shares of Common Stock issuable upon the exercise of
warrants by Storie Partners, L.P. and 375,000 shares of Common Stock
issuable upon the conversion of Series B Preferred Stock.
(5) Includes 573,119 shares of Common Stock held by Mr. Stow as trustee of
the Stow Family Trust, of which, 568,124 shares are subject to a
Performance Escrow Agreement. Also includes an aggregate of 1,749
shares of Common Stock held by Mr. Stow in trust for his daughter and
minor son. Also includes 6,666 shares of Common Stock issuable upon the
exercise of stock options by Mr. Stow and 6,000 shares of Common Stock
issuable upon the exercise of stock options by spouse.
(6) Director.
(7) Named Executive Officer.
(8) Includes 250,000 shares of Common Stock issuable upon the exercise of
warrants by Intersolv, Inc. and 250,000 shares of Common Stock issuable
upon the conversion of Series B Preferred Stock.
(9) Includes 200,000 shares of Common Stock issuable upon the exercise of
warrants by Lagunitas Partners, L.P. and 200,000 shares of Common Stock
issuable upon the conversion of Series B Preferred Stock.
(10) Includes 150,000 shares of Common Stock issuable upon the exercise of
warrants by Robert McCullough and 150,000 shares of Common Stock
issuable upon the conversion of Series B Preferred Stock.
(11) Includes 150,000 shares of Common Stock issuable upon the exercise of
warrants by Banque Genovoise de Gestion and 150,000 shares of Common
Stock issuable upon the conversion of Series B Preferred Stock.
(12) Includes Common Stock owned directly or indirectly as well as Common
Stock issuable within 60 days through the exercise of options, warrants
and conversion of Series B Preferred Stock.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth at March 31, 1996 certain information regarding
the ownership of each class of the Company's voting securities by (i) each of
the Company's Directors, (ii) each of the Named Executive Officers, and (iii)
all officers and Directors of the Company as a group.
<TABLE>
Number of
Number of Shares of Percentage
Name Shares of Percentage Series B of Series B
Common of Common Preferred Preferred
Stock Stock Stock Stock
<S> <C> <C> <C> <C>
Alan M. Davis (2)(4) 25,000 * -- --
Roger C. Ferguson (2)(4) 25,000 * -- --
Gary E. Gratny (2)(5) 213,000 2.7 80,000 3.6
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Alan D. Kucheck (3)(6) 110,000 1.4 -- --
Robert W. Leimena -- -- -- --
D. Patrick Linehan (3)(7) 144,793 1.8 24,118 1.1
Michael G. Lyons (2)(8) 156,663 2.0 46,451 2.1
Philip E. Pearce (2)(4) 25,000 * -- --
Kenneth A. Sexton (2)(4)(9) 525,000 6.3 250,000 11.2
John R. Snedegar (2)(10) 125,979 1.6 -- --
William R. Stow(2)(3)(11) 588,083 7.5 -- --
Andrew D. Wahl (3) -- -- -- --
Walter H. Zipperman (3) -- -- -- --
All directors and executive officers as a group 1,929,782 21.5 400,569 18.0
(12 persons) (12)
============================================================= ================= ================= ================================
</TABLE>
(1) Except as otherwise noted, the persons named in the above table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them, subject to community property laws where
applicable. Unless otherwise indicated, the address of each person
named in the above table is care of StarBase Corporation, 18872
MacArthur Boulevard, Irvine, California 92715.
(2) Director.
(3) Named Executive Officer as of March 31, 1995.
(4) Includes 25,000 shares of Common Stock issuable upon the exercise of
stock options. The options have been granted and are pending regulatory
approval.
(5) Includes 53,000 shares of Common Stock, held by multiple entities,
which are managed by Whelan and Gratny Capital Management in which Mr.
Gratny is a principal and has voting and dispositive power over such
securities pursuant to the terms of an investment management agreement
with the holder. Also includes 80,000 shares of Common Stock issuable
upon the exercise of warrants, of which 67,500 shares are owned by
multiple entities and Mr. Gratny has voting and dispositive power over
such securities pursuant to the terms of an investment management
agreement with the holder and 12,500 are held by Whelan and Gratny
Capital Management. Also includes 80,000 shares of Common Stock
issuable upon conversion of Series B Preferred Stock. The Series B
Preferred Stock consists of 67,500 shares owned by multiple entities
and Mr. Gratny has voting and dispositive power over such securities
pursuant to the terms of an investment management agreement with the
holder and 12,500 are held by Whelan and Gratny Capital Management.
(6) Includes 110,000 shares of Common Stock issuable upon the exercise of
stock options by Mr. Kucheck.
(7) Includes 18,780 shares of Common Stock of which 17,114 share are
subject to a Performance Escrow Agreement. Also includes 76,711 shares
of Common Stock issuable upon the exercise of stock options and 25,784
shares issuable upon the exercise of warrants held by Mr. Linehan and
24,118 shares of Common Stock issuable upon conversion of Series B
Preferred Stock.
(8) Includes 41,262 shares of Common Stock, of which 17,115 shares are
subject to a Performance Escrow Agreement. Also includes 20,833 shares
of Common Stock issuable upon the exercise of stock options
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<PAGE>
and 48,117 shares of Common Stock issuable upon the exercise of
warrants held by Mr. Lyons and 46,451 shares of Common Stock issuable
upon conversion of Series B Preferred Stock.
(9) Includes 250,000 shares of Common Stock issuable upon the exercise of
warrants and 250,000 Series B Preferred Stock held by Intersolv, Inc.
in which Mr. Sexton is a corporate officer.
(10) Includes 13,333 shares of Common Stock issuable upon the exercise of
stock options by Mr. Snedegar. Also includes 3,892 shares held by Mr.
Snedegar as trustee of the Snedegar Revocable Living Trust, 9,833
shares held by Mr. Snedegar in trust for his minor son and daughter.
Also includes 1,667 held by Norexco Petroleum, which is owned by Mr.
Snedegar, and 83,501 shares held by Access Financial, Ltd., in which
Avalon Management, Inc., owned by Norexco Petroleum, is the general
partner.
(11) Includes 573,119 shares of Common Stock held by Mr. Stow as trustee of
the Stow Family Trust, of which, 568,124 shares are subject to a
Performance Escrow Agreement. Also includes an aggregate of 1,749
shares of Common Stock held by Mr. Stow in trust for his daughter and
minor son. Also includes 6,666 shares of Common Stock issuable upon the
exercise of stock options by Mr. Stow and 6,000 shares of Common Stock
issuable upon the exercise of stock options by spouse.
(12) Includes a total of 332,943 shares of Common Stock issuable upon
exercise of stock options, 403,901 shares of Common Stock issuable upon
the exercise of warrants, and 400,569 shares of Common Stock issuable
upon conversion of Series B Preferred Stock held by all directors and
executive officers of the Company as a group
- - -----------------------
* Less than 1%.
XII. FINANCIAL STATEMENTS
See the consolidated audited financial statements of the Company dated March 31,
1995 and the consolidated unaudited quarterly financial statements of the
Company dated December 31, 1995 in the Form 10-K and Form 10-Q, respectively,
annexed hereto as Attachments A and B.
XIII. ADDITIONAL INFORMATION
During the course of this Offering, each prospective investor and his or her
investor representative, if any, are invited to examine all documents relating
to this investment, and to ask questions of and obtain additional information
from the Company concerning the terms and conditions of the Offering or any
other relevant matters (including, but not limited to additional information
necessary to verify the accuracy of the information set forth herein), to the
extent the Company possesses such information or can acquire it without
reasonable effort or expense. Prospective investors or their representatives may
ask questions with respect to the terms and conditions of the Offering and
request additional information necessary to verify such information.
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.
XIV. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some of the directors and senior officers of the Company are directors or
officers of other corporations, with businesses which may conflict with the
business of the Company. In accordance with the laws of Delaware, the directors
and officers of the Company are required to act honestly, in good faith and in
the best interests of the
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<PAGE>
Company. In determining whether or not the Company will take a proposed course
of action, the directors will primarily consider the degree of risk to which the
Company may be exposed and the Company's financial position at the time, after
full disclosure of all direct or indirect conflicting interests.
The Company borrowed 33,333 and 13,948 unrestricted shares of its Common Stock
from William Stow III and Michael Lyons, respectively. The shares were sold in
the open market by the Company and the proceeds were used for general corporate
purposes. The two directors have agreed, subject to regulatory and other
approvals, to accept restricted shares in repayment.
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 or upon the sale of the property, whichever occurs earlier, and
bears interest at a rate of 6.34% per annum, payable at maturity.
The Company entered into an independent contractor agreement with John Snedegar,
a director, which ended March 31, 1996. The total amount earned by Mr. Snedegar
was $252,000. Mr. Snedegar recently acquired ownership in Access Financial Ltd.,
which received a finder's fee in connection with the Reorganization.
XV. CONTRACTUAL RIGHTS OF ACTION
In certain circumstances, an Investor who purchases Units hereunder, has, by
contract, the same right of action against the Company for rescission or damages
as are afforded to a person who purchases securities in respect of which a
prospectus has been filed. This right of action is in addition to any other
right of remedy the investor may have at law, including such remedies as may be
available under the federal or state laws of the United States of America.
XVI. INVESTOR SUITABILITY STANDARDS
THE INVESTMENT DESCRIBED IN THIS MEMORANDUM INVOLVES A VERY HIGH DEGREE OF RISK,
AND THE PURCHASE OF UNITS SHOULD ONLY BE CONSIDERED BY PERSONS WHO CAN AFFORD
THE TOTAL LOSS OF THEIR ENTIRE INVESTMENT IN THE UNITS HEREBY. SEE "RISK
FACTORS".
U.S. Persons
For the purposes of this Memorandum, "U.S. Person" has the meaning set forth in
Regulation S of the Act, including: (1) any natural person resident in the
United States; (2) any partnership or corporation organized or incorporated
under the laws of the United States; (3) any estate of which any executor or
administrator is a U.S. person; (4) any trust of which any trustee is a U.S.
person; (5) any agency or branch of a foreign entity located in the United
States; (6) any non-discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary for the benefit or account
of a U.S. person; (7) any discretionary account or similar account (other than
an estate or trust) held by a dealer of other fiduciary organized, incorporated,
or (if an individual) resident in the United States; and (8) any partnership or
corporation if: (A) organized or incorporated under the laws of any foreign
jurisdiction; and (B) formed by a U.S. person principally for the purpose of
investing in securities not registered under the Act, unless it is organized or
incorporated, and owned, by
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<PAGE>
accredited investors (as defined in Rule 501(a) of the Act) who are not natural
persons, estates or trusts.
Purchaser Qualifications
U.S. Persons
The Act and the Rules and Regulations promulgated thereunder by the Commission
impose limitations on the U.S. Persons who may participate in the Offering and
from whom subscriptions may be accepted. Accordingly, this offer and sale of
Units to U.S. Persons is limited to "accredited investors" as that term is
defined in Rule 501 of Regulation D promulgated under the Act.
The suitability standards discussed below represent minimum suitability
standards for prospective purchasers. The satisfaction of such standards by a
prospective purchaser does not necessarily mean that the Units are a suitable
investment for such prospective purchasers. Prospective purchasers are
encouraged to consult their personal financial, legal and tax advisors to
determine whether an investment in the Units is appropriate. The Company may
reject subscriptions, in whole or in part, in its absolute discretion.
Each purchaser must represent in writing that it qualifies as an "accredited
investor," as such term is defined in Rule 501(a) of Regulation D under the Act,
and must demonstrate the basis for such qualification. To be an accredited
investor, a purchaser must fall within any of the following categories at the
time of the sale of Units to that purchaser. Accordingly no subscriptions will
be accepted from investors not meeting one of the following standards:
(1) A bank as defined in Section 3(a)(2) of the Act, or a savings
and loan association or other institution as defined in
Section 3(a)(5)(A) of the Act, whether acting in its
individual or fiduciary capacity; a broker or dealer
registered pursuant to Section 15 of the Securities Exchange
Act of 1934; an insurance company as defined in Section 2(13)
of the Act; an investment company registered under the
Investment Company Act of 1940 or a business development
company as defined in Section 2(a)(48) of that Act; a Small
Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958; a plan established and
maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan
has total assets in excess of $5,000,000; an employee benefit
plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a
plan fiduciary, as defined in Section 3(21) of such Act, which
is either a bank, savings and loan association, insurance
company, or registered investment adviser, or if the employee
benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by
persons that are accredited investors;
(2) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(3) An organization described in Section 501c(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of
acquiring the Common Stock with total assets in excess of
$5,000,000;
(4) A director or executive officer of the Company;
(5) A natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of such person's
purchase of the Units exceeds $1,000,000;
(6) A natural person who had an individual income in excess of
$200,000 in each of the two most
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recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current
year;
(7) A trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the common stock, whose
purchase is directed by a sophisticated person as described in
Rule 506(b)(2)(ii) of Regulation D; and
(8) An entity in which all of the equity owners are accredited
investors (as defined in (1) through (7) above).
As used in this Memorandum, the term "net worth" means the excess of total
assets over total liabilities. In computing net worth for the purpose of (5)
above, the principal residence of the purchaser must be valued at cost,
including cost of improvements, or at recently appraised value by an
institutional lender making a secured loan, net of encumbrances. In determining
income, an investor should add to the purchaser's adjusted gross income any
amounts attributable to tax exempt income received, losses claimed as a limited
partner in any limited partnership, deductions claimed for depletion,
contributions to an IRA or KEOGH retirement plan, alimony payments, and any
amount by which income from long-term capital gains has been reduced in arriving
at adjusted gross income.
In order to meet the conditions for exemption from the registration requirements
under the securities laws of certain jurisdictions, purchasers who are residents
of such jurisdictions may be required to meet additional suitability
requirements.
All Units are offered and sold pursuant to exemptions under Section 25102(f) of
the California Corporate Securities Law of 1968, based upon the assumption that:
(1) each investor either has a pre-existing personal or business
relationship with the Company or any of its officers,
directors or controlling persons, or by reason of such
investor's business or financial experience or the business or
financial experience of such investor's professional advisors
who are unaffiliated with and who are not compensated by the
Company or any affiliate or selling agent of the Company,
directly or indirectly could be reasonably assumed to have the
capacity to protect their own interests in connection with the
transaction;
(2) each investor will represent that such investor is purchasing
the Units for such investor's own account (or a trust account
if the investor is a trustee) and not with a view to or for
sale in connection with any distribution of the security; and
(3) this Offering is not accompanied by the publication of any
advertisement.
In addition, investors who are Non-U.S. Persons may also be subject to the
requirements of other securities laws, including the securities laws of the
jurisdiction in which they reside.
XVII. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware Law, the Company has broad powers to indemnify
its directors and officers against liabilities they may incur in such
capacities, including liabilities under the Act. The Company's Amended and
Restated Bylaws (the "Bylaws") provide that the Company will indemnify its
directors and may indemnify its officers to the fullest extent permitted by law
and requires the Company, subject to certain exceptions, to advance litigation
expenses upon receipt of an undertaking by the director or officer. Any such
advances shall
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be repaid to the Company if it is ultimately determined that such person is not
entitled to indemnification. The Bylaws further provide that rights conferred
under such Bylaws shall not be deemed to be exclusive of any other right such
persons may have or acquire under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
In addition, the Company's Certificate of Incorporation, as amended, provides
that its directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty of care as a director to the Company and its
stockholders. This provision in the Certificate of Incorporation, as amended,
does not, however, eliminate the directors' duty of care, and in appropriate
circumstances equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware Law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Company or its stockholders, for acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware Law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
The Company has also entered into agreements to indemnify its directors and its
officers in addition to the indemnification provided for in the Certificate of
Incorporation, as amended, and Bylaws. These agreements will, among other
things, indemnify the Company's directors and its officers for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred by
such person in any action or proceeding, including any action by or in the right
of the Company, on account of services as a director or officer of the Company
or as a director or officer of any other company or enterprise that the person
provides services to at the request of the Company.
The Company has a directors' and officers' liability insurance policy that,
subject to the terms and conditions of the policy, insures the directors and
officers of the Company against losses up to $1 million in the aggregate arising
from any wrongful act (as defined by the policy) in his or her capacity as a
Director or Officer. The policy reimburses the Company for amounts which the
Company lawfully indemnifies or is required or permitted by law to indemnify its
directors and officers in excess of $250,000. The policy reimburses the
directors and officers for amounts in excess of $5,000 individually, or in
excess of $75,000 in the aggregate, for claims which the Company does not
reimburse or is not required to reimburse the directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. The Company believes that its Certificate of Incorporation, as
amended, and Bylaw provisions and indemnification agreements are necessary to
attract and retain qualified persons as directors and officers.
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<PAGE>
XVIII. EXHIBITS
The documents noted below (other than the documents noted with an asterisk) have
been previously filed with the Commission and are available in the Company's
public SEC filings under the exhibit number indicated.
Exhibit
Number Description
*3.1 Certificate of Incorporation of the Company, as amended.
3.2 Certificate of Designations, Preferences and Privileges
of Series A Preferred Stock.
3.3 Amended and Restated Bylaws of the Company.
4.1 Investors' Rights Agreement dated September 16, 1994
among the Company and certain investors.
4.2 Registration Rights Agreement dated December 15, 1994.
*5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP, counse
to the Company, regarding legality.
10.1 Form of Indemnity Agreement for Directors.
10.2 Form of Indemnity Agreement for Officers.
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.
10.4 Sublease dated December 2, 1993 between McDonnell
Douglas Travel Company and StarBase Corporation, for the
Company's Irvine, California facilities.
10.6 Incentive Stock Option, Non-Qualified Stock Option and
Restricted Stock Purchase Plan - 1992, as amended.
10.8 Form of Notice of Grant of Non-statutory Stock Option,
together with exhibits.
10.9 Form of Restricted Stock Issuance Agreement.
10.10 Form of Restricted Stock Purchase Agreement.
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.
10.12 Forms of Common Stock Subscription Agreement and
Warrants used in November 1994 Private Placement.
10.13 Forms of Common Stock Subscription Agreement and
Warrants used in March 1995 Private Placement.
10.14 Regional Prototype Defined Contribution Plan and Trust
of the Company.
10.15 Fiscal Agenc Agreement between the Company and
Canaccord Capital Corporation.
10.16 Form of Agents' Warrant.
10.17 Silicon Valley Bank Warrant dated December 15, 1994.
10.18 Loan and Security Agreement dated December 15, 1994
between the Company and Silicon Valley Bank.
10.19 Secured Promissory Note dated November 4, 1994 and Stock
Pledge Agreement from William R. Stow, III.
10.20 Promissory Note dated June 30, 1995 payable to William
R. Stow III.
10.21 Promissory Note dated June 30, 1995 payable to D.
Patrick Linehan.
10.22 Promissory Note dated June 30, 1995 payable to
Michael G. Lyons.
10.23 Forbearance Agreement between Silicon Valley Bank
and StarBase Corporation.
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<PAGE>
CERTIFICATE
The foregoing contains no untrue statement of a material fact and does not omit
to state a material fact that is required to be stated or that is necessary to
prevent a statement that is made from being false or misleading in the
circumstances in which it was made.
- - --------------------------- -------------------------------
William R. Stow III Robert W. Leimena
President and CEO Chief Financial Officer
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<PAGE>
XIX. ATTACHMENTS
Attachment A Form 10-K March 31, 1995
Attachment B Form 10-Q December 31, 1995
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