As filed with the Securities and Exchange Commission on July 22, 1998
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
STARBASE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-0567363
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
18872 MacArthur Boulevard
Irvine, CA 92612
(714) 442-4400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Douglas S. Norman
Director of Finance and Chief Accounting Officer
18872 MacArthur Boulevard
Irvine, CA 92612
(714) 442-4400
(Name, address, including zip code, telephone number, including area code, of
agent for service)
COPY TO:
Martin Eric Weisberg, Esq.
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036-8735
(212) 704-6050
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Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered pursuant
to dividend reinvestment plans, please check the following box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of each Amount Aggregate Aggregate Amount of
class of securities To Be Price Per Offering Registration
to be registered Registered Unit (1) Price (1) Fee (4)
- -------------------------- ---------- --------- ------------ -----------
Common Stock, par value 2,917,871 $1.95315 $5,699,039.74 $1,681.22(5)
$0.01 per share (2)
Common Stock, par value
$0.01 per share (3) 1,475,354 $1.95315 (3) $2,881,587.66 $ 850.07(5)
- --------------------------------------------------------------------------------
Total 4,393,225 $8,580,627.40 $2,531.29
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee. The
Proposed Maximum Aggregate Offering Price was calculated pursuant to Rule
457(c) under the Securities Act of 1933, as amended, on the basis of the
average of the bid and ask prices reported in the NASDAQ SmallCap Market
system on July 7, 1998.
(2) Consists of Common Stock or Common Stock issuable upon the conversion of
Series E Preferred Stock (the "Preferred Stock") which is convertible on a
one-for-one basis.
(3) Issuable upon exercise of warrants evidencing the right to purchase shares
of Common Stock, par value $0.01 per share.
(4) In accordance with Rule 457(g), the registration fee for these shares is
calculated based upon a price which represents the highest of: (i) the
price at which the warrants may be exercised; (ii) the offering price of
securities of the same class included in the registration statement; or
(iii) the price of securities of the same class, as determined pursuant to
Rule 457(c).
(5) Previously paid with the filing of the Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
An Exhibit Index appears on page II-7
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY __, 1998
PROSPECTUS
STARBASE CORPORATION
SHARES OF COMMON STOCK*
(par value $0.01 per share)
This Prospectus relates to the sale from time to time by certain persons (the
"Selling Stockholders") of 4,393,225 shares (the "Shares") of common stock,
$0.01 par value per share (the "Common Stock"), of StarBase Corporation, a
Delaware corporation (the "Company"). See "Selling Stockholders." The Company is
not offering any shares of Common Stock hereunder and will not receive any of
the proceeds from the sale of Shares by the Selling Stockholders. Included in
the number of Shares offered hereby are 1,475,354 shares issuable upon exercise
of outstanding warrants held by the Selling Stockholders (the "Warrants"). The
Company will receive proceeds represented by the exercise price of the Warrants
if exercised by the holders thereof. It is anticipated that the Selling
Stockholders will offer such Shares from time to time in the over-the-counter
market at the then prevailing market prices and terms or in negotiated
transactions and without the payment of any underwriting discounts or
commissions, except for usual and customary selling commissions paid to brokers
or dealers. See "Plan of Distribution." The Selling Stockholders also may sell
such Shares from time to time pursuant to Rule 144 under the Securities Act of
1933, as amended (the "Securities Act").
The Common Stock is traded on the Nasdaq SmallCap Market under the symbol
"SBAS." On July 7, 1998, the closing bid price of the Common Stock on the Nasdaq
SmallCap Market was $1.9375 per share.
*The shares of Common Stock offered hereby include the resale of such
presently indeterminate number of shares of common stock as shall be issued upon
conversion of Series E Preferred Stock (the "Preferred Stock") and warrants
pursuant to Rule 416.
(cover page continued on next page)
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THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE LOSS OF HIS ENTIRE
INVESTMENT. SEE "RISK FACTORS" ON PAGES 5 - 11 OF THIS PROSPECTUS FOR A
DESCRIPTION OF RISK FACTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Company has agreed to bear all of the expenses (other than selling
commissions and fees and expenses of counsel or other advisors to the Selling
Stockholders) in connection with the registration and sale of the Shares of
Common Stock being offered by the Selling Stockholders. See "Selling
Stockholders" and "Plan of Distribution." The Company has also agreed to
indemnify the Selling Stockholders against certain liabilities, including
liabilities under the Securities Act. The total expenses to be paid by the
Company for this offering are estimated at $ 13,531.29.
THE DATE OF THIS PROSPECTUS IS JULY __, 1998
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FORWARD-LOOKING STATEMENTS
Certain information incorporated by reference into this Prospectus under the
captions "Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Business" and elsewhere include "forward - looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, and is subject to the safe harbor created by that act. There are
several important factors that could cause actual results to differ materially
from those anticipated by the forward-looking statements contained in such
discussions. Additional information on the risk factors which could affect the
Company's financial results is included in this Prospectus and in the Company's
Annual Report for the fiscal year ended March 31, 1998 on Form 10-KSB and in
other documents incorporated by reference herein.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be inspected and
copied at the public reference facilities of the Commission located at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at the New York Regional
Office of the Commission, Seven World Trade Center, Suite 1300, New York, New
York 10048, and at the Chicago Regional Office of the Commission, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621. Copies of
such material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such materials may also be accessed electronically on the Internet at
http://www.sec.gov. The Common Stock is listed on the Nasdaq SmallCap Market
under the symbol "SBAS." Reports, proxy materials and other information
concerning the Company can also be inspected at the offices of the Nasdaq Stock
Market, Inc., 1735 K Street, NW, Washington, DC 20006-1500.
The Company has filed with the Commission a registration statement on Form S-3
(Commission File No. 333-59107)(together with any and all amendments, the
"Registration Statement") under the Securities Act of 1933, as amended, with
respect to the registration of the Common Stock. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto, certain portions of which have been omitted as permitted by
the rules and regulations of the Commission. In addition, certain documents
filed by the Company with the Commission have been incorporated herein by
reference. See "Incorporation of Certain Documents by Reference." For further
information regarding the Company and the Common Stock reference is made to the
Registration Statement, including the exhibits and schedules thereto and the
documents incorporated herein by reference.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, are incorporated herein by reference: (i) the Company's Report on
Form 10-KSB for the fiscal year ended March 31, 1998, and (ii) the description
of Common Stock contained in "Description of Securities" in the Company's
Registration Statement on Form 10, as amended, dated April 27, 1995, filed
pursuant to Section 12(g) of the Exchange Act. In addition, each document filed
by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of this Prospectus and prior to termination of the
offering of Shares shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date such document is filed with the
Commission.
Any statement contained herein, or any document, all or a portion of which is
incorporated or deemed to be incorporated by reference herein, shall be deemed
to be modified or superseded for purposes of the Registration Statement and this
Prospectus to the extent that a statement contained herein, or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of the Registration Statement or this Prospectus.
The Company will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus has been delivered, upon written or
oral request of any such person, a copy of any or all of the information that
has been incorporated by reference herein, other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates. Written or oral requests for
such copies should be directed to: Investor Relations, StarBase Corporation,
18872 MacArthur Boulevard, Irvine, CA 92612; (714) 442-4400.
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THE COMPANY
StarBase Corporation develops, markets and supports team-oriented product
development software that addresses the evolving needs of personal computer
users involved in projects requiring substantial collaboration. The Company was
founded in 1991 to address the inability of software development projects to
deliver software products on time and within budget, initially through the
improvement of individual programmer productivity tools. During 1993-1994,
however, the Company concluded that a next generation of individual productivity
tools would not be a lasting solution to the software productivity problem.
Based on focus group studies and market research, the Company decided to focus
entirely on the development and marketing of software designed to increase team
productivity, rather than individual programmer productivity. The Company was
reorganized in fiscal year 1996 to reflect this change in product and market
focus.
PRINCIPAL EXECUTIVE OFFICES
The principal executive offices of the Company are located at 18872 MacArthur
Boulevard, Irvine, CA 92612; its telephone number is (714) 442-4400 and its fax
number is (714) 442-4404.
RISK FACTORS
THIS OFFERING INVOLVES SUBSTANTIAL INVESTMENT RISK AND SHARES SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. IN
EVALUATING AN INVESTMENT IN THE COMPANY AND ITS BUSINESS, PROSPECTIVE INVESTORS
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AS WELL AS OTHER
INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY
REFERENCE.
* Significant Cash Requirements. The Company's cash requirements have been
and will continue to be significant. The Company's negative cash flow from
operations for the years ended March 31, 1995, 1996, 1997, 1998 was
$6,179,000; $4,949,000; $6,506,000 and $5,662,000, respectively. Continued
operations 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.
* History of Losses. There can be no assurance that the Company's product
development efforts will result in a commercially viable business or that
the Company will be able to generate significant revenues or operate
profitably. Since its inception, the Company has had a history of losses
and as of March 31, 1998, the Company had an accumulated deficit of
$42,081,000. The Company anticipates incurring additional losses until it
can successfully market and distribute its existing integrated team
environment ("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, and
unforeseen delays frequently encountered
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in connection with the development of new technologies. There can be no
assurance that the Company will ever achieve profitability.
* Product Lines Under Development; Developing Market. The Company's success
will be dependent in large part upon its ability to market its StarTeam
products and to quickly introduce and market additional products. While
the Company is in various stages of developing additional products, there
can be no assurance that such additional products will be completed or
successfully marketed. User preferences for software products are
difficult to predict and, historically, only a limited number of software
products have achieved sustained market acceptance. Demand for software
products is subject to a number of variables, including user preferences
and the size of the installed base of personal computers capable of
running the products. Further, the market for ITE software products is
evolving. There can be no assurance that the products introduced by the
Company will achieve acceptance, or that other software vendors will not
develop and market products which render the Company's products obsolete
or less competitive. Failure to obtain significant customer satisfaction
or market share for the Company's products would have a material adverse
effect on the Company.
* 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, 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 incurred, 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 an order backlog and a
substantial portion of its revenue in any quarter is derived from orders
booked in that 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.
* 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
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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.
* 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. None of
the Company's management is covered by an employment contract or key
person life insurance. 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 qualified personnel could have a material adverse effect
upon the Company's business, results of operations, and research and
development efforts.
* Strategic Alliances. The development of alliances with selected software
companies that complement the Company's market and sales direction is an
element in the Company's marketing strategy. These alliances typically
involve joint marketing agreements and the inclusion of the Company's
products in the product line of the strategic partner. To date, the
Company has entered into bundling agreements with companies including,
among others, Oracle, Aonix, Penumbra, SoftQuad and Visix. There can be no
assurance, however, of increased revenues as a result of these bundling
agreements or any other such alliance.
* 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 of commercial shipments, resulting in loss of
or delay in market acceptance.
* Reliance on Microsoft. 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, Windows 98 or Windows NT environments,
and anticipates that 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, Windows 98 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
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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.
* YEAR 2000. The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
Any computer programs that have data-sensitive software may recognize a
date using "00" as the calendar year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business
activities. Although the Company's management believes that its currently
supported products and its internal computer systems are Year 2000
compliant, the failure of the Company's customers or suppliers to be Year
2000 ready could have a material adverse effect on the Company's results
of operations, financial position and cash flows.
* Research and Development Costs. The development of sophisticated software
products is a lengthy and capital intensive process and is subject to
unforeseen risks, delays, problems and costs. There can be no assurance
that the Company will be able to successfully develop any additional
products or enhance existing products, or that unanticipated technical or
other problems will not occur which would result in delays in the
Company's development program. Failure to complete development of a
product could result in the complete loss of the funds committed by the
Company to that product, which could be substantial.
* 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.
* 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.
The Company 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 can be extremely costly.
The Company is not aware of any instances where any of its products
infringe the proprietary 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
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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.
* Possible Dilution Due to Issuance of Additional Common Stock; Market
Overhang. As of June 30, 1998, the Company had issued 19,049,405 shares of
Common Stock; 550,000 shares of Common Stock were issuable upon the
conversion of the Series D Preferred Stock; 2,772,953 shares of Common
Stock were issuable upon the conversion of Series E Preferred; 2,177,722
shares of Common Stock were issuable upon the exercise of outstanding
warrants issued by the Company, and 3,981,820 shares of Common Stock were
issuable upon the exercise of outstanding options issued by the Company.
The Company is presently undertaking a private placement of 1,000,000
shares of Series G Preferred Stock and 1,000,000 shares of Series H
Preferred Stock which might result in approximately 2,000,000 shares of
Common Stock being issued upon the conversion of the Series G and Series H
Preferred Stock. Furthermore, the Company may 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 or the conversion of
Preferred Stock, depending upon the exercise price of the options or
warrants and the conversion ratio 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 Securities Act of such additional
shares. 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.
* Concentration of Share Ownership. Based upon the shares outstanding as of
June 30, 1998, the Company's Chairman of the Board of Directors and the
Company's officers, directors and their affiliates as a group,
beneficially own approximately 3.9% and 7.7%, respectively, of the
Company's outstanding Common Stock. These amounts include Common Stock
issuable upon the exercise of warrants and/or options as well as indirect
ownership of Common Stock. 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.
No Dividends. The Company has not paid any dividends on its Common Stock
since inception. Under the corporate law of Delaware, the Company is
prohibited from paying dividends except in certain defined circumstances.
Included in these restrictions is the requirement that dividends be paid
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. On March 31, 1998,
the Company's balance sheet reflected an accumulated deficit of
$42,081,000, which prevents it from paying dividends in the foreseeable
future.
* Fluctuations in the Company's Stock Price. 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 operating results
of the Company, announcements of new products or technological innovations
by the Company or
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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.
* Shares Eligible for Sale. As of June 30, 1998, the Company had outstanding
19,049,405 shares of Common Stock of which 17,485,849 shares are freely
transferable without restriction or further registration under the
Securities Act. Of the 17,485,849 shares which are freely transferable,
568,124 are owned by affiliates and are subject to the volume limitations
of Rule 144. Under Rule 144, as amended, if certain conditions are met,
persons who are affiliates of the Company and persons who satisfy a one
year "holding period" may sell within any three month period a number of
shares which does not exceed the greater of one percent of the total
number of shares outstanding or the average weekly trading volume of such
shares during the four calendar weeks prior to such sale. After a two year
holding period is satisfied, persons who are not "Affiliates" of the
Company are permitted to sell such shares without regard to these volume
restrictions. "Affiliates" of the Company consist of all officers and
directors of the Company and all holders of ten percent (10%) or more of
the outstanding shares of Common Stock
An additional 6,159,542 shares of Common Stock which are not issued and
outstanding but which are issuable upon the exercise of warrants and
options are or may be included in currently effective registration
statements (of which 1,475,354 are covered by this Prospectus) and upon
issuance will be freely transferable during the effectiveness of such
registration statements. The shares of Common Stock issuable upon the
exercise of options are subject to various vesting periods.
An additional 3,322,953 Shares of the Common Stock which are not issued
and outstanding but which are issuable upon conversion of Series D and
Series E Preferred Stock are or may be included in currently effective
registration statements (of which 1,475,354 are covered by this
Prospectus) and upon issuance will be freely transferable during the
effectiveness of such registration statements.
* Outstanding Rights to Acquire Common Stock. To the extent that outstanding
options and warrants are exercised prior to their expiration dates,
additional equity investment funds will be paid into the Company at the
expense of dilution to the interests of the Company's stockholders.
Moreover, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected since the holders of
outstanding options and warrants and other securities can be expected to
exercise or convert them at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable
to the Company than those provided in such securities.
* Authorization and Issuance of Preferred Stock. The Company's Board of
Directors is authorized to issue up to 10,000,000 shares of Preferred
Stock. The Board of Directors has the power to establish the dividend
rates, liquidation preferences, voting rights, redemption and conversion
terms and privileges with respect to any series of Preferred Stock. The
issuance of any shares of Preferred Stock having rights superior to those
of the Common Stock may result in a decrease in the value or market price
of the Common Stock. Holders of Preferred Stock may have the right to
receive dividends, certain preferences in liquidation and conversion
rights. The issuance of Preferred Stock could, under certain
circumstances, have the effect of delaying, deferring or preventing a
change in control of the Company without further vote or action by the
stockholders and may adversely affect the voting and other rights of the
holders of Common Stock.
* Nasdaq SmallCap Market Maintenance Requirements; Possible Delisting of
Securities from Nasdaq SmallCap Market. The Board of Governors of the
National Association of Securities Dealers, Inc. has
10
<PAGE>
established certain standards for the continued listing of a security on
the Nasdaq SmallCap Market ("SmallCap"). The maintenance standards for
continued listing of the Company's Common Stock on the SmallCap require,
among other things, that (i) an issuer have net tangible assets of at
least $2 million or market capitalization of at least $35 million or net
income (2 of last 3 years) of at least $500,000; (ii) the public float be
at least 500,000 shares (iii) the market value of its public float is at
least $1 million; (iv) the minimum bid price of its Common Stock is at
least $1.00; and (v) the issuer has at least 300 round lot shareholders
(holding at least 100 shares) and (vi) at least two market makers. As of
March 31, 1998, the Company's net tangible assets were $4,430,000.
Although the Company is currently in compliance with the listing
requirements, there can be no assurance that the Company will satisfy the
requirements for maintaining a SmallCap listing in the future. If the
Company's securities were excluded from SmallCap, it may adversely affect
the prices of such securities and the ability of holders to sell them. If
the Company's securities were excluded from SmallCap, the Company would
seek to re-list its securities on the Nasdaq Electronic Bulletin Board
system.
* Penny Stock Regulation. In the event that the Company's securities are not
listed on the SmallCap, trading would be conducted in the "pink sheets" or
through the NASD's Electronic Bulletin Board. In the absence of the Common
Stock being quoted on Nasdaq, trading in the Common Stock would be covered
by Rule 15g- 9 promulgated under the Securities Exchange Act of 1934 for
non-Nasdaq and non-exchange listed securities. Under such rule,
broker/dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's
written agreement to a transaction prior to sale. Securities are exempt
from this rule if the market price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to
be any equity security that has a market price of less than $5.00 per
share, subject to certain exceptions. Such exceptions include an equity
security listed on NASDAQ and an equity security issued by an issuer that
has (i) net tangible assets of at least $2,000,000, if such issuer has
been in continuous operation for three years, (ii) net tangible assets of
at least $5,000,000, if such issuer has been in continuous operation for
less than three years, or (iii) average revenue of at least $6,000,000 for
the preceding three years. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a
penny stock, of a disclosure schedule explaining the penny stock market
and the risks associated therewith. If the Company's Common Stock were
subject to the regulations on penny stocks, the market liquidity for the
Common Stock would be severely affected by limiting the ability of
broker/dealers to sell the Common Stock and the ability of purchasers in
this offering to sell their securities in the secondary market. There is
no assurance that trading in the Company's securities will not be subject
to these or other regulations in the future which would adversely affect
the market for such securities.
USE OF PROCEEDS
The proceeds from the sale of the shares of Common Stock offered hereby are
solely for the account of the Selling Stockholders. Accordingly, the Company
will receive none of the proceeds from sales thereof. Certain of the shares
offered hereby, however, are issuable upon exercise of the Warrants held by the
Selling Stockholders. Included in this Prospectus are 1,436,686 Warrants
exercisable at $1.80 per share through February 20, 1999 and, thereafter, at
$2.00 per share through February 20, 2000; 10,000 Warrants exercisable at $1.80
per share through September 5, 2000 and 28,668 Warrants exercisable at $1.25
through September 5, 2000. If all Warrants representing shares of Common Stock
in this offering are exercised, the Company will receive aggregate proceeds
therefrom of $2,639,870 through February 20, 1999 or a maximum of $2,927,207 if
all Warrants are
11
<PAGE>
exercised between February 21, 1999 and February 20, 2000. The proceeds from any
and all Warrants exercised will be used for working capital and general
corporate purposes.
SELLING STOCKHOLDERS
The Shares being offered for resale by the Selling Stockholders were acquired in
connection with a January and February 1998 private placement (the "Private
Placement") and consist of the Common Stock issuable upon conversion of the
Series E Preferred Stock and upon exercise of the Warrants. In addition 38,668
shares are issuable upon the conversion of warrants held by participants in the
placement of convertible debentures in August and September, 1997.
In connection with the issuance of the Preferred Stock to the Selling
Stockholders, the Company agreed to file and use its best efforts to cause to be
declared effective the Registration Statement of which this Prospectus is a
part. The Company has also agreed to use its best efforts to keep the
Registration Statement effective until the earliest of (A) September 5, 2001,
(B) such time as all of the shares have been sold, and (C) such date as all of
the shares may be sold under Rule 144. The Company has agreed to indemnify the
Selling Stockholders and each of their officers, directors, employees, partners,
legal counsel and accountants, and each underwriter, if any, and each person who
controls any such underwriter, against certain expenses, claims, losses, damages
and liabilities (or action in respect thereof). The Company has agreed to pay
its expenses of registering the shares under the Securities Act, including
registration and filing fees, blue sky expenses, printing expenses, accounting
fees, administrative expenses and its own counsel fees.
The following table sets forth the name of each Selling Stockholder and the
number of shares of Common Stock being offered by each Selling Stockholder. The
shares of Common Stock being offered hereby are being registered to permit
public secondary trading, and the Selling Stockholders may offer all or part of
the shares for resale from time to time. See "Plan of Distribution."
12
<PAGE>
<TABLE>
<CAPTION>
Amount Percentage
Amount Beneficially Beneficially
Beneficially Owned Owned
Owned Prior Amount Following Following
Name to Offering Offered Offering (1) Offering
- ----------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C>
ADJ Ventures, LLC 300,000(2) 300,000(2) 0 *
American Capital Consultants, 150,000(3) 150,000(3) 0 *
LTD
American High Growth Equities 163,333(4) 163,333(4) 0 *
Retirement Trust
Eric Appell 111,200(5) 25,200(5) 86,000 *
Ardent Research Partners, LP 270,000(3) 150,000(3) 120,000 *
The Bank of Bermuda Limited 240,000(6) 240,000(6) 0 *
Clifford Berger 379,400(3) 150,000(3) 229,400 1 %
Berings International, Inc. 75,000(7) 75,000(7) 0 *
Grant Bettingen 22,083(8) 18,750(8) 3,333 *
Canaccord Capital Corporation 16,800(9) 16,800(9) 0 *
David Cantrell 10,000(10) 10,000(10) 0 *
CB Equities Retirement Trust 9,334(11) 2,667(11) 6,667 *
CounterPoint Master, LLC 262,000(12) 210,000(12) 52,000 *
Denise K. DiGiacomo 37,500(13) 37,500(13) 0 *
Jedd Dunas 23,691(14) 23,691(14) 0 *
Forrester, Michael G. Forrester & 150,000(3) 150,000(3) 0 *
Pamela W. Forrester
Lawrence C. Gibson 44,918 44,918 0 *
Klindt Ginsberg 14,200(15) 4,200(15) 10,000 *
Gruber & McBain Int'l 216,667(3) 150,000(3) 66,667 *
Gruber, Jon & Linda Gruber 97,733(16) 44,400(16) 53,333 *
Gundyco in Trust for RRSP 550- 12,668(11) 12,668(11) 0 *
98867-18
Julius Hess 30,000(17) 30,000(17) 0 *
High View Fund 212,000(3) 150,000(3) 62,000 *
High View Fund II, LP 166,700(3) 150,000(3) 16,700 *
High View Fund, LP 271,300(3) 150,000(3) 121,300 *
High View SSFI Fund, LDC 150,000(3) 150,000(3) 0 *
Hisaya Ltd 112,222(18) 90,000(18) 22,222 *
Infiniti Investment Fund, LP 150,000(3) 150,000(3) 0 *
Adam C. Joseph 75,000(7) 75,000(7) 0 *
Michael Korns 150,000(3) 150,000(3) 0 *
Lagunitas Partners LP 503,333(18) 90,000(18) 413,333 2 %
Kent W. Lillick 37,500(19) 37,500(19) 0 *
Lockhead Martin Master 32,600(20) 15,600(20) 17,000 *
Retirement Trust #169629
(Pitt & Co/169629)
Lawrence McCullough 30,000(17) 30,000(17) 0 *
Robert F. McCullough Jr 109,268(21) 108,601(21) 667 *
Robert F. McCullough Family 137,073(22) 134,406(22) 2,667 *
Foundation
Robert F. McCullough Sr 75,000(7) 75,000(7) 0 *
Delaware Charter Cust for IRA
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
McCullough Living Trust DTD 557,073(23) 284,406(23) 272,667 1 %
11/30/92
D. Jonathan Merriman 87,900(24) 87,900(24) 0 *
Novante Communications 150,000(3) 150,000(3) 0 *
Corporation Money Purchase
Plan Trust
Alain Oberrotman 101,277(25) 92,610(25) 8,667 *
The Seidler Companies 40,950(26) 19,950(26) 21,000 *
Sheffield Grace Inc. 13,125(27) 13,125(27) 0 *
Richard Stone 41,000(17) 30,000(17) 11,000 *
Brian G. Swift & Suzanne B 150,000(3) 150,000(3) 0 *
Swift TTEES UTD 3/13/91 FBO
Brian and Suzanne Swift 1991
Living Trust
</TABLE>
- ------------------------
(1) Assumes no sales are effected by the Selling Stockholder during the
offering period other than pursuant to this Registration Statement.
(2) Includes 100,000 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(3) Includes 50,000 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(4) Includes 50,000 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000 and 13,333 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.25 through September 5, 2000.
(5) Includes 8,400 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(6) Includes 80,000 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(7) Includes 25,000 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(8) Includes 6,250 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(9) Includes 5,600 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(10) Common Stock issuable upon the exercise of warrants at an exercise price
of $1.80 through September 5, 2000.
14
<PAGE>
(11) Common Stock issuable upon the exercise of warrants at an exercise price
of $1.25 through September 5, 2000.
(12) Includes 70,000 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through January 9, 1999
and at an exercise price of $2.00 from January 10, 1999 through January 9,
2000.
(13) Includes 12,500 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(14) Includes 7,897 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(15) Includes 1,400 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(16) Includes 14,800 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(17) Includes 10,000 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(18) Includes 30,000 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(19) Includes 12,500 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(20) Includes 5,200 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(21) Includes 25,000 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000 and 11,200 shares at an exercise price of $1.80 through January
8, 1999 and at an exercise price of $2.00 from January 9, 1999 through
January 8, 2000.
(22) Includes 44,802 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through January 8, 1999
and at an exercise price of $2.00 from January 9, 1999 through January 8,
2000.
(23) Includes 50,000 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000 and 44,802 shares at an exercise price of $1.80 through January
8, 1999 and at an exercise price of $2.00 from January 9, 1999 through
January 8, 2000.
(24) Includes 29,300 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(25) Includes 31,010 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
(26) Includes 6,650 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
15
<PAGE>
(27) Includes 4,375 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.80 per share through February 20, 1999
and at an exercise price of $2.00 from February 21, 1999 through February
20, 2000.
* Represents less than one percent.
Except as set forth in the notes above, no Selling Stockholder has held any
position or office, or has had any material relationship, with the Company or
any of its affiliates within the past three years.
PLAN OF DISTRIBUTION
The Selling Stockholders may sell Shares in any of the following transactions:
(i) through dealers; (ii) through agents; or (iii) directly to one or more
purchasers. The distribution of the Shares by the Selling Stockholders may be
effected from time to time in one or more transactions in the over-the-counter
market, in the Nasdaq SmallCap Market or in privately negotiated transactions at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Stockholders and
any underwriters, dealers or agents that participate in the distribution of the
Shares may be deemed to be underwriters within the meaning of Section 2(11) of
the Securities Act, and any profit on the sale of the Shares by them and any
discounts, concessions or commissions received by any such underwriters, dealers
or agents might be deemed to be underwriting discounts and commissions under the
Securities Act. At the time a particular offer of shares is made, to the extent
required, a Prospectus Supplement will be distributed which will set forth the
aggregate number of Shares being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, any
discounts, concessions or commissions and other items constituting compensation
from the Selling Stockholders and any discounts, commissions or concessions
allowed or re-allowed or paid to dealers.
Certain of the underwriters, dealers or agents may have other business
relationships with the Company and its affiliates in the ordinary course of
business.
TRANSFER AGENT
The Transfer Agent and Registrar for the Common Stock is American Stock Transfer
& Trust Company, 40 Wall Street, New York, New York 10005; its telephone number
is (212) 936-5100.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been passed upon
for the Company by Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the
Americas, New York, New York 10036-8735; its telephone number is (212) 704-6000.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-KSB for the year ended March 31, 1998 have been so
incorporated in reliance on the report (which contains an explanatory paragraph
relating to the Company's ability to continue as a going concern, as described
in Note 2 to the financial statements, and an explanatory paragraph relating to
the Company's restated loss per common share
16
<PAGE>
calculation, as described in Note 3 to the financial statements) of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
17
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THIS PROSPECTUS.
----------------
TABLE OF CONTENTS PAGE
- --------------------------------------------------------------------- --------
Available Information 3
Incorporation of Certain Documents by Reference 4
Risk Factors 5
Use of Proceeds 11
Selling Stockholders 12
Plan of Distribution 16
Transfer Agent 16
Legal Matters 16
Experts 16
================================================================================
SHARES OF COMMON STOCK
(Par Value $0.01 per Share)
STARBASE CORPORATION
--------------
PROSPECTUS
--------------
July ___, 1998
II-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses payable by the Company in
connection with the issuance and distribution of the securities being registered
hereunder, other than underwriting discounts and commissions.
Except for the SEC registration fee, all amounts are estimates.
SEC Registration Fee $ 2,531.29
Printing and Engraving Expenses 500.00
Legal Fees and Expenses 2,000.00
Accounting Fees and Expenses 5,000.00
Registrar and Transfer Agent Fees and Expenses 500.00
Blue Sky Fees and Expenses 2,000.00
Miscellaneous Expenses 1,000.00
----------
Total $13,531.29
==========
All of the costs identified above will be paid by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the General Corporation Law of Delaware ("Delaware Law")
enables a corporation in its original certificate of incorporation or an
amendment thereto to eliminate or limit the personal liability of a director to
a corporation or its stockholders for violations of the director's fiduciary
duty, except (i) for any breach of a director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the Delaware Law (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions), or (iv) for any transaction from which a director derived an
improper personal benefit. The Certificate of Incorporation of the Company, as
amended, provides in effect for the elimination of the liability of directors to
the extent permitted by Delaware Law.
Section 145 of the Delaware Law provides, in summary, that directors and
officers of Delaware corporations are entitled, under certain circumstances, to
be indemnified against all expenses and liabilities (including attorney's fees)
incurred by them as a result of suits brought against them in their capacity as
a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided, that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, they
are fairly and reasonably entitled to indemnity for such expenses which the
court shall deem proper. Any such indemnification may be made by the corporation
only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct. The
II-2
<PAGE>
Company's By-laws entitle officers and directors of the Company to
indemnification to the fullest extent permitted by Delaware Law.
The Company has entered into an agreement with each of its directors and certain
officers which provide for indemnification by the Company against certain
liabilities, including liabilities under the Securities Act. In addition, the
Company maintains an insurance policy with respect to potential liabilities of
its directors and officers, including potential liabilities under the Securities
Act.
See Item 17 of this Registration Statement regarding the opinion of the
Securities and Exchange Commission with respect to indemnification for
liabilities arising under the Securities Act.
ITEM 16. EXHIBITS.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- --------------------------------------------------------------------
4.1* Certificate of Amendment of Designation for Series E Preferred
Stock
4.2* Certificate of Designation for Series E Preferred Stock
4.3* Form of Securities Purchase Agreement (Series E Preferred Stock)
4.4* Form of Registration Rights Agreement (Series E Preferred Stock)
5.1* Opinion of Parker Chapin Flattau & Klimpl, LLP
23.1* Consent of Parker Chapin Flattau & Klimpl, LLP (included in
Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Powers of Attorney of certain directors and officers of the
Company (included on page II-6)
* Incorporated by reference to the Company's Registration Statement in Form
S-3 filed with the Securities and Exchange Commission on July 15, 1998.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424 (b) if, in the aggregate the changes in volume and
price represent no more than 20 percent change in the maximum
II-3
<PAGE>
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 15
above, or otherwise, the registrant 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. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on July 22, 1998.
STARBASE CORPORATION
By: /S/ Douglas S. Norman
-----------------------------
Douglas S. Norman
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints William R. Stow III and Douglas S. Norman, each acting
alone, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or either of them or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities indicated.
SIGNATURE TITLE DATE
/s/ William R. Stow III Chief Executive Officer _________, 1998
- ---------------------------- Chairman of the Board
William R. Stow III
/s/ Donald R. Farrow President and Director _________, 1998
- ----------------------------
Donald R. Farrow
/s/ John R. Snedegar Director _________, 1998
- ----------------------------
John R. Snedegar
/s/ Phillip E. Pearce Director _________, 1998
- ----------------------------
Phillip E. Pearce
/s/ Daniel P. Ginns Director _________, 1998
- ----------------------------
Daniel P. Ginns
/s/ Douglas S. Norman Director of Finance and _________, 1998
- ----------------------------- Chief Accounting Officer
Douglas S. Norman
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NO. DESCRIPTION OF EXHIBIT PAGE
NO./REF.
- ------- --------------------------------------------- ----------
4.1 Certificate of Amendment of Designation for (C)
Series E Preferred Stock
4.2 Certificate of Designation for Series E Preferred (A)
Stock
4.3 Form of Securities Purchase Agreement (C)
(Series E Preferred Stock)
4.4 Form of Registration Rights Agreement (A)
(Series E Preferred Stock)
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP (C)
23.1 Consent of Parker Chapin Flattau & Klimpl, LLP (C)
(included in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP II-8
24.1 Powers of Attorney of certain directors and (B)
officers of the Company
(A) Incorporated herein by reference to the Company's Form 8-K (file number
0-25612) filed with the Commission on January 8, 1998.
(B) Included as part of the signature page on page II-6 of this filing.
(C) Incorporated by reference to the Company's Registration Statement in Form
S-3 filed with the Securities and Exchange Commission on July 15, 1998.
II-7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
June 26, 1998, appearing on page 28 of StarBase Corporation's Annual Report on
Form 10-KSB for the year ended March 31, 1998. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Costa Mesa, California
July 21, 1998
II-8
