As filed with the Securities and Exchange Commission on July 10, 1998
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
$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
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Total 4,393,225 $8,580,627.40 $2,531.29
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(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).
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
(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 Certificate of Designation for Series E Preferred Stock
4.4 Form of Securities Purchase Agreement (Series E Preferred Stock)
4.5 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)
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
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 10, 1998.
STARBASE CORPORATION
By: /S/ William R. Stow III
-----------------------------
William R. Stow III
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
II-6
<PAGE>
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NO. DESCRIPTION OF EXHIBIT PAGE
NO./REF.
- ------- --------------------------------------------- ----------
4.1 Certificate of Amendment of Designation for
Series E Preferred Stock II-8
4.2 Certificate of Designation for Series E Preferred
Stock (A)
4.3 Form of Securities Purchase Agreement
(Series E Preferred Stock) II-9
4.4 Form of Registration Rights Agreement
(Series E Preferred Stock) (A)
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP II-22
23.1 Consent of Parker Chapin Flattau & Klimpl, LLP
(included in Exhibit 5.1) II-22
23.2 Consent of PricewaterhouseCoopers LLP II-23
24.1 Powers of Attorney of certain directors and
officers of the Company (B)
(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.
II-7
----------------------------------------
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATION
(SERIES E PREFERRED STOCK)
OF
STARBASE CORPORATION
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
----------------------------------------
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is StarBase Corporation.
2. The Certificate of Designation (Series E Preferred Stock) of the
Corporation was filed with the Secretary of State of Delaware on January 8,
1998.
3. The Certificate of Designation (Series E Preferred Stock) of the
Corporation is hereby amended by deleting the resolution adopted by the Board of
Directors of the Corporation and Paragraph 1 thereof and by substituting in lieu
thereof the following (i) new resolution adopted by the Board of Directors of
the Corporation to increase the number of shares of Series E Preferred Stock
from "1,600,000" to "3,000,000" and (ii) new Paragraph 1:
A. "RESOLVED, that pursuant to the authority expressly granted to
and vested in the Board of Directors of the Corporation (the "Board") by
the provisions of the Restated Certificate of Incorporation of the
Corporation (the "Certificate of Incorporation"), there hereby is created,
out of the 10,000,000 shares of Preferred Stock, par value $0.01 per
share, of the Corporation authorized in Article 4 of the Certificate of
Incorporation (the "Preferred Stock"), a series of the Preferred Stock of
the Corporation consisting of 3,000,000 shares, which series shall have
the following powers, designations, preferences and relative,
participating, optional and other rights, and the following
qualifications, limitations and restrictions:"
B. "1. DESIGNATION AND AMOUNT. This series of Preferred Stock
shall be designated "Series E Preferred Stock" and the authorized number
of shares constituting such series shall be 3,000,000. The par value of
the Series E Preferred Stock shall be $0.01 per share."
4. The amendment to the Certificate of Designation (Series E Preferred
Stock) herein certified has been duly adopted in accordance with the provisions
of Section 151(g) of the General Corporation Law of the State of Delaware.
Signed on February 17, 1998
StarBase Corporation
By:/s/ William R. Stow, III
-------------------------
William R. Stow, III
President
II-8
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of
acceptance set forth below, is entered into by and between STARBASE CORPORATION,
a Delaware corporation, with headquarters located at 18872 MacArthur Boulevard,
Suite 300, Irvine, California 92612 ("Company"), and the undersigned (the
"Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded, INTER ALIA, by Rule 506 under Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act"), and/or
Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject to
the conditions of this Agreement, Series E Preferred Stock (the "Preferred
Stock"), of the Company which will be convertible into shares of Common Stock,
$.01 par value per share of the Company (the "Common Stock"), upon the terms and
subject to the conditions of such Preferred Stock (the Common Stock and the
Preferred Stock sometimes referred to herein as the "Securities"), and subject
to acceptance of this Agreement by the Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. PURCHASE. The undersigned hereby agrees to initially purchase from
the Company shares of Preferred Stock, in the amount set forth on
the signature page of this Agreement, out of a total offering of
$3,750,000 of such Preferred Stock, and having the terms and
conditions set forth in the certificate of designation of Series E
Preferred Stock to the Certificate of Incorporation of the Company
attached hereto as ANNEX I (the "Certificate of Designation"). The
purchase price for the Preferred Stock shall be as set forth on the
signature page hereto and shall be payable in United States Dollars.
b. FORM OF PAYMENT. The Buyer shall pay the purchase price for the
Preferred Stock by delivering immediately available good funds in
United States Dollars to the escrow agent (the "Escrow Agent")
identified in the Escrow Agreement attached hereto as ANNEX II (the
"Escrow Agreement") as set forth below. Promptly following payment
by the Buyer to the Escrow Agent of the purchase price of the
Preferred Stock, the Company shall deliver certificate(s)
representing the Preferred Stock duly executed on behalf of the
Company to the Escrow Agent. By signing this Agreement, the Buyer
and the Company, and subject to acceptance by the Escrow Agent, each
agrees to all of the terms and conditions of, and becomes a party
to, the Escrow Agreement, all of the provisions of which are
incorporated herein by this reference as if set forth in full.
II-9
<PAGE>
c. METHOD OF PAYMENT. Payment into escrow of the purchase price for the
Preferred Stock shall be made by wire transfer of funds to:
CITIBANK N.A.
153 East 53rd Street
New York, New York 10043
Account Name: Parker Chapin Flattau & Klimpl, LLP
Attorney Trust Account
Account No.: 37432544
Citibank ABA No.: 021000089
Not later than 1:00 p.m., New York time, on the date the Company shall have
accepted this Agreement and returned a signed counterpart of this Agreement to
the Escrow Agent by facsimile, the Buyer shall deposit with the Escrow Agent the
aggregate purchase price for the Preferred Stock, in currently available funds.
Time is of the essence with respect to such payment, and failure by the Buyer to
make such payment, shall allow the Company to cancel this Agreement.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees with,
the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock pursuant to
the Registration Statement, the Buyer is purchasing the Preferred
Stock and will be acquiring the shares of Common Stock issuable upon
conversion of the Preferred Stock for its own account for investment
only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any
distribution thereof;
b. The Buyer is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), and (ii) experienced in making investments
of the kind described in this Agreement and the related documents,
(iii) able, by reason of the business and financial experience of
its officers (if an entity) and professional advisors (who are not
affiliated with or compensated in any way by the Company or any of
its affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of
its investment in the Securities;
c. All subsequent offers and sales of the Preferred Stock and the
shares of Common Stock issuable upon conversion of the Preferred
Stock (the "Shares" or "Common Stock") by the Buyer shall be made
pursuant to registration of the Shares under the 1933 Act or
pursuant to an exemption from registration;
d. The Buyer understands that the Preferred Stock are being offered and
sold, and the Shares are being offered, to it in reliance on
specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Buyer's compliance
with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to
II-10
<PAGE>
determine the availability of such exemptions and the eligibility of
the Buyer to acquire the Preferred Stock and to receive an offer of
the Shares;
e. The Buyer and its advisors, if any, have been furnished with all
materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the
Preferred Stock and the offer of the Shares which have been
requested by the Buyer, including ANNEX V hereto. The Buyer and its
advisors, if any, have been afforded the opportunity to ask
questions of the Company and have received complete and satisfactory
answers to any such inquiries. Without limiting the generality of
the foregoing, the Buyer has also had the opportunity to obtain and
to review the Company's (1) Annual Report on Form 10-K for the
fiscal year ended March 31, 1997, (2) Quarterly Report on Form 10-Q
for the fiscal quarters ended September 30, 1997, June 30, 1997,
December 31, 1996 and September 30, 1996, (3) Forms 8-K dated
January 27, 1997, September 9, 1996 and August 16, 1996, and (4)
Form S-3/A dated [October __, 1997] (the "Company's SEC Documents").
f. The Buyer understands that its investment in the Securities involves
a high degree of risk;
g. The Buyer understands that no United States federal or state agency
or any other government or governmental agency has passed on or made
any recommendation or endorsement of the Securities;
h. This Agreement has been duly and validly authorized, executed and
delivered on behalf of the Buyer and is a valid and binding
agreement of the Buyer enforceable in accordance with its terms,
subject as to enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium and other similar laws affecting
the enforcement of creditors' rights generally;
i. Neither the Buyer, nor any affiliate of the Buyer, has any present
intention of entering into, any put option, short position, or other
similar position with respect to the Preferred Stock or the Shares.
j. Notwithstanding the provisions hereof or of the Preferred Stock, in
no event (except with respect to an automatic conversion of the
Preferred Stock as provided in the Certificate of Designation) shall
the holder be entitled to convert any shares of Preferred Stock to
the extent after such conversion, the sum of (1) the number of
shares of Common Stock beneficially owned by the Buyer and its
affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion
of the Preferred Stock), and (2) the number of shares of Common
Stock issuable upon the conversion of the Preferred Stock with
respect to which the determination of this proviso is being made,
would result in beneficial ownership by the Buyer and its affiliates
of more than 4.99% of the outstanding shares of Common Stock. For
purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), except as otherwise provided in clause (1) of such proviso.
3. COMPANY REPRESENTATIONS, ETC.
II-11
<PAGE>
The Company represents and warrants to the Buyer that:
a. CONCERNING THE SHARES. There are no preemptive rights of any
stockholder of the Company, as such, to acquire the Common Stock.
b. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Delaware. The Company has registered its Common Stock
pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Common Stock is listed and
traded on the Nasdaq SmallCap Market. Except as set forth in ANNEX V
hereto, the Company has received no notice, either oral or written,
with respect to the continued eligibility of the Common Stock for
such listing.
c. AUTHORIZED SHARES. The Company has sufficient authorized and
unissued Shares as may be reasonably necessary to effect the
conversion of the Preferred Stock. The Shares have been duly
authorized and, when issued upon conversion of, or as interest on,
the Preferred Stock, will be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal
liability by reason of being such holder.
d. SECURITIES PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT AND
STOCK. This Agreement and the Registration Rights Agreement, the
form of which is attached hereto as Annex IV (the "Registration
Rights Agreement"), and the transactions contemplated thereby, have
been duly and validly authorized by the Company, this Agreement has
been duly executed and delivered by the Company and this Agreement
is, and the Registration Rights Agreement, when executed and
delivered by the Company, will be, valid and binding agreements of
the Company enforceable in accordance with their respective terms,
subject as to enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium, and other similar laws affecting
the enforcement of creditors' rights generally; and the Preferred
Stock will be duly and validly authorized and, when executed and
delivered on behalf of the Company in accordance with this
Agreement, will be a valid and binding obligation of the Company in
accordance with its terms, subject to general principles of equity
and to bankruptcy, insolvency, moratorium, or other similar laws
affecting the enforcement of creditors' rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this Agreement and
the Registration Rights Agreement by the Company, the issuance of
the Securities, and the consummation by the Company of the other
transactions contemplated by this Agreement, the Registration Rights
Agreement, and the Preferred Stock do not and will not conflict with
or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under (i) the articles of
incorporation or by-laws of the Company, (ii) any indenture,
mortgage, deed of trust, or other material agreement or instrument
to which the Company is a party or by which it or any of its
properties or assets are bound, including any listing agreement for
the Common Stock except as herein set forth, (iii) to its knowledge,
any existing applicable law, rule, or regulation or any applicable
decree, judgment, or (iv) to its knowledge, order of any court,
United States federal or state regulatory body, administrative
agency, or other governmental body having jurisdiction over the
Company or any of its properties or assets, except such conflict,
breach or default which would not have a material adverse effect on
the transactions contemplated herein. .
II-12
<PAGE>
f. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization,
or stock exchange or market or the Stockholders of the Company is
required to be obtained by the Company for the issuance and sale of
the Securities to the Buyer as contemplated by this Agreement,
except such authorizations, approvals and consents that have been
obtained.
g. SEC FILINGS. None of the SEC Filings with the Securities and
Exchange Commission since the filing of the 10-K on June 30, 1997
contained, at the time they were filed, any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements made therein in
light of the circumstances under which they were made, not
misleading. Except as set forth on Annex V hereto, the Company has
since [January 1, 1997] timely filed all requisite forms, reports
and exhibits thereto with the Securities and Exchange Commission.
h. ABSENCE OF CERTAIN CHANGES. Since [January 1, 1997], there has been
no material adverse change and no material adverse development in
the business, properties, operations, financial condition, or
results of operations of the Company, except as disclosed in Annex V
or in the documents referred to in Section 2(e) hereof.
i. FULL DISCLOSURE. There is no fact known to the Company (other than
general economic conditions known to the public generally) or as
disclosed in the documents referred to in Section 2(e), that has not
been disclosed in writing to the Buyer that (i) would reasonably be
expected to have a material adverse effect on the business or
financial condition of the Company or (ii) would reasonably be
expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement.
j. ABSENCE OF LITIGATION. Except as set forth in ANNEX V hereto, and in
the documents referred to in Section 2(e), which the Buyer has
reviewed, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board or body pending
or, to the knowledge of the Company, threatened against or affecting
the Company, wherein an unfavorable decision, ruling or finding
would have a material adverse effect on the business or financial
condition of the Company or the transactions contemplated by this
Agreement or any of the documents contemplated hereby or which would
adversely affect the validity or enforceability of, or the authority
or ability of the Company to perform its obligations under, this
Agreement or any of such other documents.
k. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in ANNEX V hereto
and Section 3(e), no Event of Default, as defined in the respective
agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an
Event of Default (as so defined), has occurred and is continuing,
which would have a material adverse effect on the Company's
financial condition or results of operations.
l. PRIOR ISSUES. Except as set forth in Annex V, during the twelve (12)
months preceding the date hereof, the Company has not issued any
convertible securities. The presently outstanding unconverted
principal amount of each such issuance as at [June 30, 1997] are set
forth in ANNEX V.
II-13
<PAGE>
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the Preferred
Stock have not been and are not being registered under the
provisions of the 1933 Act and, except as provided in the
Registration Rights Agreement, the Shares have not been and are not
being registered under the 1933 Act, and may not be transferred
unless (A) subsequently registered thereunder or (B) the Buyer shall
have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the
effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; (2) any
sale of the Securities made in reliance on Rule 144 promulgated
under the 1933 Act may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any resale of
such Securities under circumstances in which the seller, or the
person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require
compliance with some other exemption under the 1933 Act or the rules
and regulations of the SEC thereunder; and (3) neither the Company
nor any other person is under any obligation to register the
Securities (other than pursuant to the Registration Rights
Agreement) under the 1933 Act or to comply with the terms and
conditions of any exemption thereunder.
b. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
Preferred Stock, and, until such time as the Common Stock has been
registered under the 1933 Act as contemplated by the Registration
Rights Agreement and sold pursuant to an effective registration
statement ("Registration Statement"), the Shares issued to the
Holder upon conversion of the Preferred Stock shall bear a
restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Preferred
Stock and such Shares):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO
THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
c. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to enter
into the Registration Rights Agreement, in substantially the form
attached hereto as ANNEX IV, on or before the Closing Date.
d. FILINGS. The Company undertakes and agrees to make all necessary
filings in connection with the sale of the Preferred Stock to the
Buyer under any United States laws and regulations, or by any
domestic securities exchange or trading market, and to provide a
copy thereof to the Buyer promptly after such filing.
e. REPORTING STATUS. So long as the Buyer beneficially owns any of the
Preferred Stock, the Company shall file all reports required to be
filed with the SEC pursuant to Section 13 or 15(d) of the 1934 Act,
and the Company shall not terminate its status as an issuer required
to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations
II-14
<PAGE>
thereunder would permit such termination.
f. USE OF PROCEEDS. The Company will use the proceeds from the sale of
the Preferred Stock (excluding amounts paid by the Company for legal
fees and finder's fees in connection with the sale of the Preferred
Stock) for internal working capital purposes, and shall not,
directly or indirectly, use such proceeds for any loan to or
investment in any other corporation, partnership enterprise or other
person.
g. AVAILABLE SHARES. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common
Stock sufficient to yield the number of shares of Common Stock
issuable at conversion as may be required to satisfy the conversion
rights of the Buyer pursuant to the terms and conditions of the
Preferred Stock.
h. WARRANTS. The Company agrees to issue to Buyer within thirty (30)
days after the Closing Date, non-transferable warrants (the
"Warrants") for one-half share of Common Stock for each $1.25 amount
of Preferred Stock. Such Warrants shall bear an exercise price per
share of Common Stock equal to $1.80 per share through the one-year
anniversary of the Closing Date and $2.00 per share through the
second anniversary of the Closing Date, and shall expire after the
second anniversary of the Closing Date, in the form annexed hereto
as ANNEX VI, together with registration rights granted pursuant to
the Registration Rights Agreement.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the aggregate
purchase price for the Preferred Stock in accordance with Section
1(c) hereof, the Company will irrevocably instruct its transfer
agent to issue Common Stock from time to time upon conversion of the
Preferred Stock in such amounts as specified from time to time by
the Company to the transfer agent, bearing the restrictive legend
specified in Section 4(b) of this Agreement prior to registration of
the Shares under the 1933 Act, registered in the name of the Buyer
or its nominee and in such denominations to be specified by the
Buyer in connection with each conversion of the Preferred Stock. The
Company warrants that no instruction other than such instructions
referred to in this Section 5 and stop transfer instructions to give
effect to Section 4(a) hereof prior to registration and sale of the
Shares under the 1933 Act will be given by the Company to the
transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the
extent provided in this Agreement, the Registration Rights
Agreement, and applicable law. Nothing in this Section shall affect
in any way the Buyer's obligations and agreement to comply with all
applicable securities laws upon resale of the Securities. If the
Buyer provides the Company with an opinion of counsel reasonably
satisfactory to the Company that registration of a resale by the
Buyer of any of the Securities in accordance with clause (1)(B) of
Section 4(a) of this Agreement is not required under the 1933 Act,
the Company shall (except as provided in clause (2) of Section 4(a)
of this Agreement) permit the transfer of the Securities and, in the
case of the Shares, promptly instruct the Company's transfer agent
to issue one or more certificates for Common Stock without legend in
such name and in such denominations as specified by the Buyer.
b. The Company will permit the Buyer to exercise its right to convert
the Preferred Stock by
II-15
260107-1
<PAGE>
telecopying an executed and completed Notice of Conversion to the
Company and delivering within three business days thereafter, the
original Notice of Conversion and the Preferred Stock representing
the Shares to the Company by express courier, with a copy to the
transfer agent. Each date on which a Notice of Conversion is
telecopied to and received by the Company in accordance with the
provisions hereof shall be deemed a Conversion Date. The Company
will transmit the certificates representing the Shares issuable upon
conversion of any shares of Preferred Stock (together with the
certificates representing the Preferred Stock not so converted) to
the Buyer via express courier, by electronic transfer or otherwise,
within three business days after receipt by the Company of the
original Notice of Conversion and the certificate representing the
Preferred Stock to be converted (the "Delivery Date").
6. DELIVERY INSTRUCTIONS.
The Preferred Stock shall be delivered by the Company to the Escrow
Agent pursuant to Section 1(b) hereof, or a delivery against payment basis on
the Closing Date.
7. CLOSING DATE.
The date and time of the issuance and sale of the Preferred Stock
(the "Closing Date") shall occur no later than 1:00 P.M., New York time on the
date of the fulfillment or waiver of all closing conditions pursuant to Sections
8 and 9, or such other mutually agreed to time. The closing shall occur on such
date at the offices of the Escrow Agent. Notwithstanding anything to the
contrary contained herein, the Escrow Agent will be authorized to release the
funds representing the Purchase Price for the Preferred Stock, and the Preferred
Stock only upon satisfaction of the conditions set forth in Section 8 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
Preferred Stock on the Closing Date to the Buyer pursuant to this Agreement is
conditioned upon:
a. The receipt and acceptance by the Company of such Agreement as
evidenced by execution of this Agreement by the Company for at least
($ ) Dollars in liquidation value of the Preferred Stock (or such
lesser amount as the Company, in its sole discretion, shall
determine);
b. Delivery by the Buyer to the Escrow Agent of good funds as payment
in full of an amount equal to the purchase price for the Preferred
Stock in accordance with Section 1(c) hereof;
c. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on
the Closing Date and the performance by the Buyer on or before the
Closing Date of all covenants and agreements of the Buyer required
to be performed on or before the Closing Date;
d. There shall not be in effect any law, rule or regulation prohibiting
or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
II-16
<PAGE>
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Preferred Stock on the Closing Date is conditioned upon:
a. Acceptance by Buyer of an Agreement for the sale of Preferred Stock,
as indicated by execution of this Agreement;
b. Delivery by the Company to the Escrow Agent of the Preferred Stock
in accordance with this Agreement;
c. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this
Agreement as if made on the Closing Date and the performance by the
Company on or before the Closing Date of all covenants and
agreements of the Company required to be performed on or before the
Closing Date; and
d. On the Closing Date, the Buyer having received [an opinion of
counsel for the Company, dated the Closing Date, in form, scope and
substance reasonably satisfactory to the Buyer, to the effect set
forth in Annex III attached hereto, and] the Registration Rights
Agreement annexed hereto as Annex IV.
10. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto. This Agreement may
be signed in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
11. NOTICES. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given, (i) on the date delivered, (a) by personal delivery, or (b) if advance
copy is given by fax, (ii) seven business days after deposit in the United
States Postal Service by regular or certified mail, or (iii) three business days
mailing by international express
II-17
<PAGE>
courier, with postage and fees prepaid, addressed to each of the other parties
thereunto entitled at the following addresses, or at such other addresses as a
party may designate by ten days advance written notice to each of the other
parties hereto.
COMPANY: STARBASE CORPORATION
18872 MacArthur Boulevard, Suite 300
Irvine, California 92612
Attention: President
Telecopier No.: (714) 442-4404
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Martin Eric Weisberg, Esq.
Telecopier No.: (212) 704-6288
PURCHASER: At the address set forth on the signature page of this
Agreement.
ESCROW AGENT: Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the America
New York, New York 10036
Telecopier No. (212) 704-6288
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Company's representations and
warranties shall survive the execution and delivery hereof of this Agreement and
the delivery of the Preferred Stock.
II-18
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Buyer or one of its officers thereunto duly authorized as of the date set forth
below.
AGGREGATE NUMBER OF SHARES OF
PREFERRED STOCK TO BE PURCHASED:
PURCHASE PRICE OF SUCH PREFERRED STOCK: $
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this day of , 1998.
___________________________________________________________________________
Address Printed Name of Subscriber
_______________________________ By: ________________________________
Telecopier No. ________________ (Signature of Authorized Person)
________________________________
Printed Name and Title
_______________________________
Jurisdiction of Incorporation
or Organization
This Agreement has been accepted as of the date set forth below.
STARBASE CORPORATION
By:____________________________
Title:_________________________
Date:__________________________
II-19
<PAGE>
ANNEX I CERTIFICATE OF DESIGNATION
ANNEX II ESCROW AGREEMENT
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI FORM OF WARRANT
II-20
<PAGE>
ANNEX V
COMPANY DISCLOSURE
------------------
3.b Reporting Company Status - The Company has received notice that it
has until January 9, 1998 to comply with certain NASD maintenance
requirements. As of January 8, 1998, the Company has complied with
the compliance request.
3.g SEC Filings - None
3.h Absence of Certain Changes - None
3.j Absence of Litigation - None
3.k Absence of Events of Default - None
3l Prior Issues
August 1997 - $1.5M of 6% Convertible Debentures
September 1997 - $1.6 M of 6% Convertible Debentures
January 1998 - $1.5 M of 0% Convertible Preferred Stock (Series D)
Outstanding Convertible Debentures as of January 8, 1997 are
$670,000.
II-21
OPINION OF PARKER CHAPIN FLATTAU & KLIMPL, LLP
----------------------------------------------
July 10, 1998
StarBase Corporation
18872 MacArthur Boulevard
Irvine, CA 92612
Ladies and Gentlemen:
We have acted as counsel to StarBase Corporation (the "Company") in connection
with a Registration Statement of Form S-3 (file no. 333-xxxxx) filed by the
Company with the Securities and Exchange Commission (the "Registration
Statement") relating to up to 4,393,225 shares (the "Shares") of the Company's
Common Stock, par value $0.01 per share (the "Common Stock"). Of such Shares,
144,918 are Common Stock; 2,772,953 may be issued upon conversion of the Series
E Preferred Stock which were issued to the holders of the Shares (the "Preferred
Stock"); and 1,475,354 may be issued upon the exercise of warrants which were
issued to the holders of the Shares (the "Warrants") of Series E and upon the
conversion of warrants held by participants in the placement of convertible
debentures in August and September, 1997.
In connection with the foregoing, we have examined, among other things, the
Registration Statement, the Warrants and originals or copies, satisfactory to
us, of all such corporate records and of all such agreements, certificates and
other documents as we have deemed relevant and necessary as a basis for the
opinion hereinafter expressed. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity with the original documents submitted to us as
copies. As to any facts material to such opinion, we have, to the extent that
relevant facts were not independently established by us, relied on certificates
of public officials and certificates, oaths and declarations of officers or
other representatives of the Company.
Based upon the foregoing, we are of the opinion that (i) the Shares issuable
upon conversion of the Preferred Stock (when such shares are paid for and issued
in accordance with the terms of the Subscription Agreements) will be legally
issued, fully paid and non-assessable; and (ii) the Shares issuable upon the
exercise of the Warrants (when such Shares are paid for and issued in accordance
with the terms of the Warrants) will be legally issued, fully paid and
non-assessable.
We hereby consent to the use of our name under the caption "Legal Matters" in
the Prospectus constituting a part of the Registration Statement and to the
filing of a copy of this opinion as an exhibit.
Very truly yours,
/s/ Parker Chapin Flattau & Klimpl, LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP
II-22
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 9, 1998
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