As filed with the Securities and Exchange Commission on February 25, 1998
Registration No: 333-45877
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
STARBASE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-0567363
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
18872 MacArthur Boulevard
Irvine, CA 92612
(714) 442-4400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Donald R. Farrow
President & Chief Operating 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
- --------------------------------------------------------------------------------
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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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ----------------------------------- --- ------------- -- ------------- ----- ------------------- -- ---------------
Proposed
Maximum Proposed Maximum
Amount Aggregate Aggregate Amount of
Title of each class of To Be Price Per Offering Price(1) Registration
securities to be registered Registered Unit (1) Fee (4)
- ----------------------------------- ------------- ------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01
per share (2) 1,825,210 $ 1.734 $ 3,165,599.04 $ 933.85
Common Stock, par value $0.01
per share (3) 512,533 $ 1.734 (3) $ 888,924.42 $ 262.23
- ----------------------------------- --- ------------- -- ------------- ----- ------------------- -- ---------------
Total 2,337,743 $ 4,054,523.46 $ 1,196.08
- ----------------------------------- --- ------------- -- ------------- ----- ------------------- -- ---------------
<FN>
(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 February 4, 1998.
(2) Issuable upon the conversion of Series D and Series F Preferred Stock (the
"Preferred Stock"), which is estimated based on conversion terms set forth
in the Registration Rights Agreements (the "Registration Rights
Agreements") between the Company and each of the Selling Stockholders, and
is subject to adjustment and could be materially less than such estimated
amount depending upon factors that cannot be predicted by the Company at
this time, including, among others, the future market price of the Common
Stock. This is not intended to constitute a prediction as to the number of
shares of Common Stock into which the Preferred Stock will be converted.
(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).
</FN>
</TABLE>
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-6
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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 FEBRUARY __, 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 2,337,743 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 512,533 shares issuable under
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 February 4, 1998, the closing bid price of the Common Stock on the
Nasdaq SmallCap Market was $1.719 per share.
*The shares of Common Stock offered hereby include the resale of such
presently indeterminate number of shares of Common Stock issuable upon
conversion of the Series D and Series F Preferred Stock (the "Preferred Stock"),
issued in separate private placements in January 1998 (the "Private
Placements"). The number of shares of Common Stock indicated to be issuable in
connection with such transactions and offered for resale hereby is an estimate
based on the conversion terms set forth in the Registration Rights Agreements
(the "Registration Rights Agreements") between the Company and each of the
Selling Stockholders, and is subject to adjustment and could be materially less
than such estimated amount depending upon factors that cannot be predicted by
the Company at this time, including, among others, the future market price of
the Common Stock. If, however, 1,200,000 shares of Series D Preferred Stock and
383,664 shares of Series F Preferred Stock were converted, based on the closing
bid price of the Common Stock as reported by NASDAQ on February 4, 1998, and all
Warrants were exercised, the Company would be obligated to issue a total of
1,800,451 shares of the Common Stock. This presentation is not intended to
constitute a prediction as to the future market price of the Common Stock or as
to the number of shares of Common Stock into which the Preferred Stock will be
converted. See "Risk Factors" on pages 5 - 11 of this Prospectus.
(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 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 $12,196.
THE DATE OF THIS PROSPECTUS IS FEBRUARY __, 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, 1997 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.
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 Quarterly
Report on Form 10-QSB for the quarter ended December 31, 1997; (ii) the
Company's Quarterly Report on Form 10-QSB for the quarter ended September 30,
1997; (iii) the Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1997;(iv) the Company's Report on Form 10-KSB for the fiscal year ended
March 31, 1997, (v) Current Reports on Form 8-K filed on January 12, 1998 and
September 16, 1997; (vi) the Company's Proxy Statement dated August 26, 1997
related to the Annual Meeting of Stockholders to be held on September 24, 1997;
and (vi) 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
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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 and 1997 and the nine
months ended December 31, 1997 was $6,179,000; $4,949,000; $6,506,000 and
$4,173,000, 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.
EARLY STAGE OF DEVELOPMENT; HISTORY OF LOSSES. The Company is a
development stage company and is subject to all of the risks inherent in a
development stage company. There can be no assurance that the Company's
product development efforts will result in a commercially viable business
or that the Company will be able to generate significant revenues or
operate profitably. Since its inception, the Company has had a history of
losses and as of December 31, 1997, the Company had a consolidated
accumulated deficit of approximately $29,175,000. From inception to date a
substantial portion of the Company's revenues was derived from the
activities of its Consulting Services division, which was discontinued in
1995, and from sales of products that have been de-emphasized. The Company
anticipates incurring additional losses until it can successfully market
and distribute its existing 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 in connection with
the development of new technologies. There can be no assurance that the
Company will ever achieve profitability.
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PRODUCT LINES UNDER DEVELOPMENT; DEVELOPING MARKET. At present, the
Company has commercially introduced its products with limited marketing.
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 implemented, the Company may be unable to reduce
them quickly if revenue is less than expected. As a result, fluctuations in
revenues can cause significant variations in quarterly results of
operations. The Company does not operate with 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 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
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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, Haht Software, 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 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, and Windows NT
environments is substantially dependent on its ability to gain timely
access to, and to develop expertise in, current and future developments by
Microsoft, of which there can be no assurance. Moreover, the abandonment by
Microsoft of its current operating system, product line or strategy, or the
decision by Microsoft to develop and market products that directly or
indirectly compete with the Company's products would have a material
adverse effect on the Company's business, financial condition, and results
of operations.
PRODUCT RETURNS. Consistent with industry practice, the Company allows
distributors, retailers, and end users to return products for credits
towards the purchase of additional products. In addition, the Company's
promotional activities, including free trial and satisfaction guaranteed
offers, and competitors' promotional or other activities could cause
returns to increase sharply at any time. The Company expects that the rate
of product returns may increase as it introduces new versions of its
existing products and records additional reserves accordingly. Product
returns that exceed the Company's reserves could have a material adverse
effect on the Company's business, financial condition, and results of
operations.
PRICE PROTECTION. In the event the Company reduces its prices, the Company
credits its distributors for the difference between the purchase price of
products remaining in their inventory and the Company's reduced price for
such product ("Price Protection"). Price Protection may have a material
adverse effect on future operating results, since the Company seeks to
continually introduce new and enhanced products and is likely to face
increasing price competition.
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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.
UTILIZATION OF NET OPERATING LOSS CARRYFORWARD. Realization of future tax
benefits from utilization of the Company's net operating loss carryforwards
for income tax purposes is limited by changes in ownership.
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 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 January 31, 1998, the Company had issued 17,758,431 shares
of Common Stock; an estimated 1,825,210 shares of Common Stock were
issuable upon the conversion of the Series D and Series F Preferred Stock;
441,609 shares of Common Stock were issuable upon the conversion of Series
E Preferred Stock; 961,841 shares of Common Stock were issuable upon the
exercise of outstanding warrants issued by the Company, and 1,129,987
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 1,600,000 shares of Series E Preferred Stock (of which
441,609 shares have already been issued) which might result in an
additional 1,600,000 shares of Common Stock being issued upon the
conversion of the Series E 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
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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
January 31, 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 4.1% and 10.1%, 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. At December 31,
1997, the Company's balance sheet reflected an accumulated deficit of
approximately $29,175,000, 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 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 January 31, 1998, the Company had
outstanding 17,758,431 shares of Common Stock of which 16,040,063 shares
are freely transferable without restriction or further registration under
the Securities Act. Of the 16,040,063 shares which are freely transferable,
588,023 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 2,091,738 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 512,533 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.
11
<PAGE>
Also included on this registration statement are a presently indeterminated
number of shares of Common Stock issuable upon conversion of the Company's
Preferred Stock. If however, the Preferred Stock were converted based on
the closing bid price of the Common Stock as reported by NASDAQ on February
4, 1998, the Company would be obligated to issue a total of 1,800,451
shares of the Common Stock.
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 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 December 31, 1997, the Company's net
tangible assets were approximately $194,000. The Company has put in place
financing and balance sheet restructuring plans that are designed to bring
the Company back into compliance with the listing requirements. 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
12
<PAGE>
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 500,000 Warrants
exercisable at $1.50 per share through January 8, 2003 and 12,533 Warrants
exercisable at $1.25 through January 23, 2001. If all Warrants representing
shares of Common Stock in this offering are exercised, the Company will receive
aggregate proceeds therefrom of $765,666. 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 separate January 1998 private placements (the "Private
Placements") and consist of the Common Stock issuable upon conversion of the
Series D Preferred Stock and Series F Preferred Stock and upon exercise of the
Warrants. Of the 1,200,000 shares of Series D Preferred Stock placed in one of
the Private Placements, all were placed with one Selling Stockholder. Such
Selling Stockholder has purchased and the Company has issued 600,000 units
consisting of 600,000 shares of Series D Preferred Stock (the "Initial Shares")
and a warrant to purchase 250,000 shares of Common Stock (the "Initial
Warrant"), and such Selling Stockholder is obligated to purchase the remaining
600,000 units (the "Additional Units") two (2) days after the date of this
Prospectus. The Additional Units must be purchased by such Selling Stockholder
subject only to the maintenance at a certain level of the daily trading value
and the closing bid price of the Shares for a period preceding the day of the
effective registration of the Shares. Of the 383,664 shares of Series F
Preferred Stock placed in the other Private Placement, all were placed with the
remaining Selling Stockholders.
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) January 8, 2004, (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."
13
<PAGE>
<TABLE>
<CAPTION>
Amount Percentage
Amount Beneficially Beneficially
Beneficially Owned Owned
Owned Prior to Amount Following Following
Name Offering (1) Offered (1) Offering (2) Offering
- -------------------------------------- ----------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Gundyco in Trust for RRSP 550-98866-19 2,063,334 (3) 1,833,334 (3) 230,000 *
Tonga Partners L.P. 375,624 (4) 375,624 (4) 0 *
The Cuttyhunk Fund Ltd. 128,786 (5) 128,786 (5) 0 *
- ------------------------
<FN>
(1) The number of shares of Common Stock indicated is an estimate and is
subject to adjustment. The actual amount could be materially more or less
than such estimated amount depending upon factors that cannot be predicted
by the Company at this time.
(2) Assumes no sales are effected by the Selling Stockholder during the
offering period other than pursuant to this Registration Statement.
(3) Includes 500,000 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.50 per share through January 8, 2003.
(4) Includes 9,333 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.25 per share through January 23, 2001.
(5) Includes 3,200 shares of Common Stock issuable upon the exercise of
warrants at an exercise price of $1.25 per share through January 23, 2001.
* Represents less than one percent.
</FN>
</TABLE>
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.
14
<PAGE>
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 of StarBase Corporation for the year ended March
31, 1997 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 change in its method of calculating loss per
common share, as described in Note 3 to the financial statements) of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in accounting and auditing.
15
<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 3
Risk Factors 5
Use of Proceeds 11
Selling Stockholders 11
Plan of Distribution 12
Legal Matters 13
Experts 13
- --------------------------------------------------------------------------------
SHARES OF COMMON STOCK
(Par Value $0.01 per Share)
STARBASE CORPORATION
-------------
PROSPECTUS
--------------
February __, 1998
16
<PAGE>
II-14
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 $ 1,196
Printing and Engraving Expenses 500
Legal Fees and Expenses 2,000
Accounting Fees and Expenses 5,000
Registrar and Transfer Agent Fees and Expenses 500
Blue Sky Fees and Expenses 2,000
Miscellaneous Expenses 1,000
================
Total $ 12,196
================
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 Company's By-laws
entitle officers and directors of the Company to indemnification to the fullest
extent permitted by Delaware Law.
II-1
17
<PAGE>
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 Designation for Series D Preferred Stock
4.2 Certificate of Designation for Series F Preferred Stock
4.3 Form of Registration Rights Agreement (Series D Preferred Stock)
4.4 Form of Registration Rights Agreement (Series F 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 Price Waterhouse LLP
24.1 Powers of Attorney of certain directors and officers of the Company
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in the volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424 (b) if, in the aggregate the
changes in volume and price represent no more than 20 percent change in the
maximum 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.
II-2
18
<PAGE>
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-3
19
<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 Amendment No. 1 to 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
February 25, 1998.
STARBASE CORPORATION
By: /S/ DONALD R. FARROW
------------------------------------
Donald R. Farrow
President & Chief Operating Officer
II-4
20
<PAGE>
POWER OF ATTORNEY
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
Chief Executive Officer February 24, 1998
/s/ William R. Stow III and Chairman of the Board
- -----------------------------
William R. Stow III
/s/ Donald R. Farrow President, Chief Operating February 24, 1998
- ------------------------------ Officer, and Director
Donald R. Farrow
* Director February 24, 1998
- -----------------------------
John R. Snedegar
* Director February 24, 1998
- -----------------------------
Kenneth A. Sexton
* Director February 24, 1998
- -----------------------------
Phillip E. Pearce
* Director February 24, 1998
- -----------------------------
Daniel P. Ginns
* by: /S/ William R. Stow III
------------------------
William R. Stow III
Attorney-in-fact
II-5
21
<PAGE>
EXHIBIT INDEX
EXHIBIT SEQUENTIAL PAGE
NO. DESCRIPTION OF EXHIBIT NO./REF.
- ------- ------------------------------------------------------- ---------------
4.1 Certificate of Designation for Series D Preferred Stock II-7
4.2 Certificate of Designation for Series F Preferred Stock II-12
4.3 Form of Registration Rights Agreement
(Series D Preferred Stock) (A)
4.4 Form of Registration Rights Agreement
(Series F Preferred Stock) (A)
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP II-17
23.1 Consent of Parker Chapin Flattau & Klimpl, LLP
(included in Exhibit 5.1) II-17
23.2 Consent of Price Waterhouse LLP II-18
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 12, 1998.
(B) Included as part of the signature page on page II-5 of this filing.
II-6
22
<PAGE>
Exhibit 4.1
---------------------------------------
CERTIFICATE OF DESIGNATION
OF
STARBASE CORPORATION
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
---------------------------------------
SERIES D PREFERRED STOCK
StarBase Corporation, a Delaware corporation (the "Corporation"),
hereby certifies that the following resolution has been duly adopted by the
Board of Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation (the "Board") by the
provisions of the Restated Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), there hereby is created, out of the 10,000,000
shares of Preferred Stock, par value $0.01 per share, of the Corporation
authorized in Article 4 of the Certificate of Incorporation (the "Preferred
Stock"), a series of the Preferred Stock of the Corporation consisting of
1,200,000 shares, which series shall have the following powers, designations,
preferences and relative, participating, optional and other rights, and the
following qualifications, limitations and restrictions:
1. DESIGNATION AND AMOUNT. This series of Preferred Stock shall be
designated "Series D Preferred Stock" and the authorized number of shares
constituting such series shall be 1,200,000. The par value of the Series D
Preferred Stock shall be $0.01 per share.
2. NO DIVIDEND RIGHTS. The holders of the Series D Preferred Stock
shall not be entitled to receive any dividends.
3. RANKING. The Series D Preferred Stock shall, with respect to rights
on liquidation, winding up and dissolution, (i) rank senior to any of the Common
Stock and any other class or series of stock of the Corporation which by its
terms shall rank junior to the Series D Preferred Stock, and (ii) rank on a
parity with any other class or series of stock of the Corporation which by its
terms shall rank on a parity with the Series D Preferred Stock. No approval of
the holders of Series D Preferred Stock shall be required for the authorization
or issuance of any shares of any class or series of stock of the Corporation,
whether ranking junior to or on a parity with the Series D Preferred Stock.
4. PREFERENCE ON LIQUIDATION.
(a) In the event of any liquidation, dissolution, or winding
up of the Corporation, either voluntary or involuntary, distributions to the
stockholders of the Corporation shall be made in the following manner:
(i) The holders of Series D Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Common Stock or
any other class or series of stock of the Corporation by reason of their
ownership of the Common Stock or any stock ranking junior to the Series D
Preferred Stock in respect of liquidation rights, an amount for each share of
Series D Preferred Stock then held by them, equal to $1.25, appropriately
II-7
23
<PAGE>
adjusted for any combinations, consolidations or stock distributions with
respect to such shares (hereinafter such amount shall be referred to as the
"Series D Preference Amount"). If upon occurrence of such event of liquidation,
dissolution or winding up, the assets and property legally available to be
distributed among the holders of the Series D Preferred Stock and to holders of
any stock ranking as to liquidation on a parity with the Series D Preferred
Stock shall be insufficient to permit the payment to such holders of the Series
D Preference Amount, then the entire assets and property of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series D Preferred Stock and such parity stock.
(ii) After payment has been made to the holders of
the Series D Preferred Stock of the full amounts to which they shall be entitled
pursuant to Section 4(a)(i) above, all remaining assets available for
distribution, if any, shall be distributed, ratably among the holders of the
Preferred Stock ranking junior to the Series D Preferred Stock and the Common
Stock based upon the number of outstanding shares of Common Stock then held.
(b) For purposes of this paragraph 4, a merger or
consolidation of the Corporation with or into any other corporation or
corporations, or the merger of any other corporation or corporations into the
Corporation, in which consolidation or merger the shareholders of the
Corporation receive distributions in cash or securities of another corporation
or corporations as a result of such consolidation or merger, or a sale of all or
substantially all of the assets of the Corporation, shall be treated as a
liquidation, dissolution or winding up of the Corporation. The valuation of any
securities or other property other than cash received by the Corporation in any
transaction covered by this subparagraph 4(b) shall be computed at the fair
value thereof at the time of receipt as determined in good faith by the Board of
Directors.
(c) The holders of Series D Preferred Stock shall have no
priority or preference with respect to distributions made by the Corporation in
connection with the repurchase of shares of Common Stock issued to or held by
employees, directors or consultants upon termination of their employment or
services pursuant to agreements providing for the right of said repurchase
between the Corporation and such persons.
5. VOTING RIGHTS. Except as otherwise provided by law, the holders of
the Series D Preferred Stock shall not be entitled to vote upon any matter
relating to the business or affairs of the Corporation or for any other purpose.
6. CONVERSION RIGHTS.
(a) Each share of Series D Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Series D Preferred Stock or Common Stock, into Common Stock as more
fully described below. The number of shares of fully paid and nonassessable
Common Stock into which each share of Series D Preferred Stock may be converted
shall be determined by dividing the Series D Preference Amount by the Conversion
Price (as hereinafter defined) in effect on the Conversion Date (as hereinafter
defined). No shares of Series D Preferred Stock may be converted prior to the
sixtieth (60th) day after the date of first issuance of Series D Preferred
Stock. At any time after the sixtieth (60th) day after the first issuance date
of Series D Preferred Stock through the ninetieth (90th) day after the first
issuance date of Series D Preferred Stock, the holder may convert, at its option
and on a cumulative basis, one-third (1/3) of the outstanding shares of Series D
Preferred Stock, from the ninety-first (91st) day through the one hundred
twentieth (120th) day after the first issuance date of Series D Preferred Stock
an additional one-third (1/3) of the outstanding shares of Series D Preferred
Stock, and thereafter the balance of the outstanding shares of Series D
Preferred Stock. Notwithstanding the foregoing to the contrary, the Purchaser
may convert shares of Series D Preferred Stock prior to the dates and in excess
of the amounts set forth in this Section 6(a) with the prior written consent of
the Company.
(b) For purposes of this paragraph 6, (i) "Conversion Price"
means the lesser of (A) a price equal to 90% of the average closing bid prices
of the Common Stock as quoted on Nasdaq SmallCap Market for the five-day trading
period ending on the day before the Conversion Date or (B) $1.25; and (ii)
"Conversion Date" means the date upon which the holder delivers the notice of
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conversion to the Corporation or any transfer agent for Series D Preferred Stock
or Common Stock or the second anniversary of the issuance of the outstanding
Series D Preferred Stock, whichever is earlier. In the event there is a period
in which the Series D Preferred Stock is not convertible into Common Stock (a
"Blackout Period"), at the time conversion is permissible, clause (A) of the
Conversion Price shall be based on the five (5) lowest closing bid prices
reported during such Blackout Period, if the holder elects to convert on the day
after the Blackout Period.
(c) Each share of Series D Preferred Stock shall automatically
be converted into shares of Common Stock utilizing the then effective Conversion
Price for each such share upon the second anniversary of the issuance date of
the outstanding Series D Preferred Stock.
(d) No fractional shares of Common Stock shall be issued upon
conversion of the Series D Preferred Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the fair market value of the Common Stock
on the Conversion Date, as determined by the Corporation's Board of Directors.
Before any holder of Series D Preferred Stock shall be entitled to convert the
same into full shares of Common Stock, the holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of any
transfer agent for the Series D Preferred Stock or Common Stock, and shall give
written notice, by facsimile or delivery to the Corporation at such office that
the holder elects to convert the same, with a copy by facsimile or delivery to
the transfer agent c/o American Stock Transfer & Trust Company, 40 Wall Street,
New York, New York 10005, Attn.: Herbert Lemmer and the Corporation's counsel
c/o Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York,
NY 10036, Attn: Martin Eric Weisberg, Esq.; PROVIDED, HOWEVER, that in the event
of an automatic conversion pursuant to subparagraph 6(c) the outstanding shares
of all Series D Preferred Stock, shall be converted automatically without any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent; provided further, however, that the Corporation shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
automatic conversion unless either the certificates evidencing such shares of
Series D Preferred Stock are delivered to the Corporation or its transfer agent
as provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates.
(e) The Corporation shall, within 2 business days after such
delivery, or after such agreement and indemnification, issue at such office to
such holder of Series D Preferred Stock (and deliver forthwith thereafter), a
certificate or certificates for the number of shares of Common Stock to which it
shall be entitled as aforesaid and a check payable to the holder, or order, in
the amount of any cash amounts payable as the result of a conversion into
fractional shares of Common Stock, and a certificate for any shares of Series D
Preferred Stock not so converted. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Series D Preferred Stock to be converted, or in the case of
automatic conversion on the date of the event causing such automatic conversion,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date.
(f) In the event of any taking by this Corporation of a record
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Series D Preferred Stock, at least 10
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such distribution or right,
and the amount and character of such distribution or right.
(g) Upon any conversion of Series D Preferred Stock pursuant
to this Section 6, the shares of Series D Preferred Stock which are converted
shall not be reissued. Upon conversion of all of the then outstanding Series D
Preferred Stock pursuant to this Section 6 and upon the taking of any action
required by law, all matters set forth in this Certificate of Designation shall
be eliminated from the Certificate of Incorporation, shares of Series D
Preferred Stock shall not be deemed outstanding for any purpose whatsoever and
all such shares shall revert to the status of authorized and unissued shares of
Preferred Stock.
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(h) Any notices required by the provisions of this Section 6
to be given to the holders of shares of Series D Preferred Stock shall be deemed
given if deposited in the United States mail, first class, postage prepaid and
addressed to each holder of record at its address appearing on the books of the
Corporation.
7. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price is subject to
adjustment from time to time as follows:
(a) If at any time, while any shares of Series D Preferred
Stock are outstanding and not converted, there shall be (i) a reorganization
(other than a combination, reclassification exchange or subdivision of shares
otherwise provided for in Section 7(b)), (ii) a merger or consolidation of the
Corporation with or into another corporation in which the Corporation is not the
surviving person, or a reverse triangular merger in which the Corporation is the
surviving person but the shares of the Corporation's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of cash, securities or otherwise, or (iii) a sale
or transfer of the Corporation's properties and assets as, or substantially as,
an entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
holder shall thereafter be entitled to receive upon conversion of any shares of
Series D Preferred Stock, during the period in accordance with this Certificate
of Designation, the number of shares of stock or other securities or property of
the successor corporation resulting from such reorganization, merger,
consolidation, sale or transfer which a holder of the shares deliverable upon
conversion of any shares of Series D Preferred Stock, would have been entitled
to receive in such reorganization, consolidation, merger, sale or transfer if
the shares of Series D Preferred Stock, had been converted immediately before
such reorganization, merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section 7. The foregoing provisions of
this Section 7(a) shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation which are at the time receivable upon the conversion of
any shares of Series D Preferred Stock. If the per share consideration payable
to the holder for shares in connection with any such transaction is in a form
other than cash or marketable securities, then the value of such consideration
shall be determined in good faith by the Corporation's Board of Directors, whose
determination shall be final and binding. In all events, appropriate adjustment
(as determined in good faith by the Corporation's Board of Directors) shall be
made in the application of the provisions of the Series D Preferred Stock with
respect to the rights and interests of the holder after the transaction, to the
end that the rights of a holder of Series D Preferred Stock shall be applicable
after that event, as nearly as reasonably may be, in relation to any shares or
other property deliverable after that event upon conversion of any shares of
Series D Preferred Stock.
(b) If the Corporation, at any time while any shares of Series D
Preferred Stock remain outstanding and not converted, shall by reclassification
of securities or otherwise, change any of the securities as to which conversion
rights under the Series D Preferred Stock exist into the same or a different
number of securities of any other class or classes, the Series D Preferred Stock
shall thereafter represent the right to convert into such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities which were subject to the conversion rights under the Series D
Preferred Stock immediately prior to such reclassification or other change and
the Conversion Price therefor shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 7.
(c) If while any shares of the Series D Preferred Stock remain
outstanding and not converted the holders of the securities as to which
conversion rights under the Series D Preferred Stock exist at the time shall
have received, or, on or after the record date fixed for the determination of
eligible stockholders, shall have become entitled to receive, without payment
therefor, other or additional stock or other securities or property (other than
cash) of the Corporation by way of dividend, then and in each case, the Series D
Preferred Stock shall represent the right to acquire, in addition to the number
of shares of the security receivable upon conversion of the Series D Preferred
Stock, the amount of such other or additional stock or other securities or
property (other than cash) of the Corporation which such holder would hold on
the date of such conversion had it been the holder of record of the security
receivable upon conversion of the Series D Preferred Stock on January 8, 1998
and had thereafter, during the period from January 8, 1998 to and including the
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date of such exercise, retained such shares and/or all other additional stock
available by it as aforesaid during such period, giving effect to all
adjustments called for during such period by the provisions of this Section 7.
(d) Upon the occurrence of each adjustment or readjustment pursuant to
this Section 7, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series D Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request, at any time, of any holder of Series D Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth: (i) such
adjustments and readjustments; (ii) the Conversion Price at the time in effect;
and (iii) the number of shares and the amount, if any, of other property which
at the time would be received upon the conversion of the Series D Preferred
Stock.
(e) The Corporation will not, by any voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 7 and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holders against impairment.
(f) The Corporation shall at all times reserve and keep available
out of its authorized but unissued Common Stock, solely for the purpose of
effecting the conversion of Series D Preferred Stock, the full number of shares
of Common Stock deliverable upon the conversion of all Series D Preferred Stock
from time to time outstanding. The Corporation shall from time to time (subject
to obtaining necessary director and stockholder authorizations), in accordance
with the laws of the State of Delaware, increase the authorized amount of its
Common Stock if at any time the authorized number of shares of Common Stock
remaining unissued shall not be sufficient to permit the conversion of all of
the shares of Series D Preferred Stock at the time outstanding.
8. CALL AND REDEMPTION
(a) In lieu of converting into Common Stock, the Corporation
will have the option of partially or fully paying cash to the holders of Series
D Preferred Stock so that the holders will realize the "full economic value"
being the cash amount the holder would derive from converting the Series D
Preferred Stock and selling the Common Stock at the closing ask price on the
conversion date (or in the case of (b) below, the redemption date) with no
transaction fees. The Corporation agrees to notify the purchaser, in writing, at
least ten trading days in advance of any time period in which it intends to
exercise this option.
(b) The Corporation may redeem the Series D Preferred Stock
upon 10 days prior written notice at a 10% premium above the full economic value
at the time of notice; PROVIDED, that if the holder has delivered a Notice of
Conversion to the Corporation, the shares of Series D Preferred Stock designated
to be converted may not be redeemed by the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its Chairman, and attested by its Assistant
Secretary, this 8th day of January 1998.
StarBase Corporation
By: /S/ WILLIAM R. STOW, III
-------------------------
William R. Stow, III
Chairman
Attest:
By: /S/ DOUGLAS S. NORMAN
-------------------------
Douglas S. Norman
Assistant Secretary
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Exhibit 4.2
---------------------------------------
CERTIFICATE OF DESIGNATION
OF
STARBASE CORPORATION
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
---------------------------------------
SERIES F PREFERRED STOCK
StarBase Corporation, a Delaware corporation (the "Corporation"),
hereby certifies that the following resolution has been duly adopted by the
Board of Directors of the Corporation:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation (the "Board") by the
provisions of the Restated Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), there hereby is created, out of the 10,000,000
shares of Preferred Stock, par value $0.01 per share, of the Corporation
authorized in Article 4 of the Certificate of Incorporation (the "Preferred
Stock"), a series of the Preferred Stock of the Corporation consisting of
400,000 shares, which series shall have the following powers, designations,
preferences and relative, participating, optional and other rights, and the
following qualifications, limitations and restrictions:
1. DESIGNATION AND AMOUNT. This series of Preferred Stock shall be
designated "Series F Preferred Stock" and the authorized number of shares
constituting such series shall be 400,000. The par value of the Series F
Preferred Stock shall be $0.01 per share.
2. DIVIDEND RIGHTS OF SERIES F PREFERRED STOCK. The holders of the
Series F Preferred Stock shall not be entitled to receive any dividends.
3. RANKING. The Series F Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding up and dissolution, (i) rank
senior to any of the Common Stock and any other class or series of stock of the
Corporation which by its terms shall rank junior to the Series F Preferred
Stock, (ii) rank junior to any class or series of stock of the Corporation which
by its terms shall rank senior to the Series F Preferred Stock, and (iii) rank
on a parity with any other class or series of stock of the Corporation which by
its terms shall rank on a parity with the Series F Preferred Stock. No approval
of the holders of Series F Preferred Stock shall be required for the
authorization or issuance of any shares of any class or series of stock of the
Corporation, whether ranking senior to, junior to or on a parity with the Series
F Preferred Stock.
4. PREFERENCE ON LIQUIDATION.
(a) In the event of any liquidation, dissolution, or winding
up of the Corporation, either voluntary or involuntary, distributions to the
stockholders of the Corporation shall be made in the following manner:
(i) The holders of Series F Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Common Stock or
any other class or series of stock of the Corporation by reason of their
ownership of the Common Stock or any stock ranking junior to the Series F
Preferred Stock in respect of liquidation rights, but subject to the right of
holders of any other class or series of stock of the Corporation ranking senior
to the Series F Preferred Stock in respect of liquidation rights to receive a
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preferential distribution, an amount for each share of Series F Preferred Stock
then held by them, equal to $1,000, appropriately adjusted for any combinations,
consolidations, stock distributions or stock dividends with respect to such
shares plus all accrued and unpaid dividends thereon (hereinafter such amount
shall be referred to as the "Series F Preference Amount"). If upon occurrence of
such event of liquidation, dissolution or winding up, the assets and property
legally available to be distributed among the holders of the Series F Preferred
Stock and to holders of any stock ranking as to liquidation on a parity with the
Series F Preferred Stock shall be insufficient to permit the payment to such
holders of the Series F Preference Amount, then the entire assets and property
of the Corporation legally available for distribution shall be distributed
ratably among the holders of the Series F Preferred Stock and such parity stock.
(ii) After payment has been made to the holders of
the Series F Preferred Stock of the full amounts to which they shall be entitled
pursuant to Paragraph 4(a)(i) above, all remaining assets available for
distribution, if any, shall be distributed, ratably among the holders of the
Common Stock based upon the number of outstanding shares of Common Stock then
held.
(b) For purposes of this paragraph 4, a merger or
consolidation of the Corporation with or into any other corporation or
corporations, or the merger of any other corporation or corporations into the
Corporation, in which consolidation or merger the shareholders of the
Corporation receive distributions in cash or securities of another corporation
or corporations as a result of such consolidation or merger, or a sale of all or
substantially all of the assets of the Corporation, shall be treated as a
liquidation, dissolution or winding up of the Corporation. The valuation of any
securities or other property other than cash received by the Corporation in any
transaction covered by this subparagraph 4(b) shall be computed at the fair
value thereof at the time of receipt as determined in good faith by the Board of
Directors.
(c) The holders of Series F Preferred Stock shall have no
priority or preference with respect to distributions made by the Corporation in
connection with the repurchase of shares of Common Stock issued to or held by
employees, directors or consultants upon termination of their employment or
services pursuant to agreements providing for the right of said repurchase
between the Corporation and such persons.
5. VOTING RIGHTS. Except as otherwise provided by law, the holders of
the Series F Preferred Stock shall not be entitled to vote upon any matter
relating to the business or affairs of the Corporation or for any other purpose.
6. CONVERSION RIGHTS. The holders of Series F Preferred Stock shall
have conversion rights as follows:
(a) Each share of Series F Preferred Stock may be converted,
at the option of the holder thereof, at any time after the date of issuance of
such share, at the office of the Corporation or any transfer agent for the
Series F Preferred Stock, into Common Stock as more fully described below. The
number of shares of fully paid and nonassessable Common Stock into which each
share of Series F Preferred Stock may be converted shall be determined by
dividing the Series F Preference Amount by the Conversion Price (as hereinafter
defined) in effect on the Conversion Date.
(b) For purposes of this Paragraph 6, (i) "Conversion Date"
means the date on which the holder of the Series F Preferred Stock has delivered
by facsimile the Notice of Conversion (as hereinafter defined) to the
Corporation; (ii) "Conversion Price" means an amount equal to the lesser of (A)
100% of the Market Price (as hereinafter defined) on September 5, 1997, and (B)
(x) 84% of the Market Price on the Conversion Date if such date is between
December 4, 1997 and January 3, 1998; (y) 80% of the Market Price on the
Conversion Date if such date is between January 4, 1998 and February 3, 1998; or
(z) 78% of the Market Price on the Conversion Date if such date is on February
4, 1998 and thereafter; and (iii) "Market Price" means the average closing bid
price of the Common Stock on the fifteen (15) trading days immediately preceding
September 5, 1997 or the Conversion Date, as may be applicable, as reported by
the National Association of Securities Dealers, or the closing bid price on the
over-the-counter market on such date or, in the event the Common Stock is listed
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on a stock exchange, the "Market Price" shall be the closing price on the
exchange on such date, as reported in the Wall Street Journal.
(c) Each share of Series F Preferred Stock shall automatically
be converted into shares of Common Stock utilizing the then effective Conversion
Price for each such share on September 5, 1999. The Corporation shall have the
right to require, by written notice to the holder of the Series F Preferred
Stock at least ten (10) days prior to September 5, 1999, that the holder
exercises its right of conversion with respect to all of its outstanding shares
of Series F Preferred Stock.
(d) No fractional shares of Common Stock shall be issued upon
conversion of the Series F Preferred Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the fair market value of the Common Stock
on the Conversion Date, as determined by the Corporation's Board of Directors.
Before any holder of Series F Preferred Stock shall be entitled to convert the
same into full shares of Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series F Preferred Stock, and shall give written notice
to the Corporation at such office that the holder elects to convert the same;
provided, however, that in the event of an automatic conversion pursuant to
subparagraph 6(c) the outstanding shares of all Series F Preferred Stock, shall
be converted automatically without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided further, however,
that the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such automatic conversion unless either the
certificates evidencing such shares of Series F Preferred Stock are delivered to
the Corporation or its transfer agent as provided above, or the holder notifies
the Corporation or its transfer agent that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates.
(e) The Corporation shall, as soon as practicable after such
delivery, or after such agreement and indemnification, issue and deliver at such
office to such holder of Series F Preferred Stock, a certificate or certificates
for the number of shares of Common Stock to which he shall be entitled as
aforesaid and a check payable to the holder, or order, in the amount of any cash
amounts payable as the result of a conversion into fractional shares of Common
Stock, plus any accrued and unpaid dividends on the converted Series F Preferred
Stock, and a certificate for any shares of Series F Preferred Stock not so
converted. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of Series F
Preferred Stock to be converted, or in the case of automatic conversion on the
date of the event causing such automatic conversion, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.
(f) In the event of any taking by this Corporation of a record
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, this Corporation shall mail to each
holder of Series F Preferred Stock, at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(g) Upon any conversion of Series F Preferred Stock pursuant
to this Paragraph 6, the shares of Series F Preferred Stock which are converted
shall not be reissued. Upon conversion of all of the then outstanding Series F
Preferred Stock pursuant to this Paragraph 6 and upon the taking of any action
required by law, all matters set forth in this Certificate of Designation shall
be eliminated from the Certificate of Incorporation, shares of Series F
Preferred Stock shall not be deemed outstanding for any purpose whatsoever and
all such shares shall revert to the status of authorized and unissued shares of
Preferred Stock.
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(h) Any notices required by the provisions of this Paragraph 6
to be given to the holders of shares of Series F Preferred Stock shall be deemed
given if deposited in the United States mail, first class, postage prepaid and
addressed to each holder of record at its address appearing on the books of the
Corporation.
7. ADJUSTMENTS TO CONVERSION PRICE.
(a) In the event the Corporation at any time or from time to
time effects a subdivision or combination of its outstanding Common into a
greater or lesser number of shares without a proportionate and corresponding
subdivision or combination of its outstanding Series F Preferred Stock, then and
in each such event the Conversion Price shall be decreased or increased
proportionately.
(b) In the event the Corporation at any time or from time to
time shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights (hereinafter
referred to as "Common Stock Equivalents") convertible into or entitling the
holder thereof to receive additional shares of Common Stock without payment of
any consideration by such holder for such Common Stock Equivalents or the
additional shares of Common Stock, then and in each such event the maximum
number of shares (as set forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent adjustment of such number)
of Common Stock issuable in payment of such dividend or distribution or upon
conversion or exercise of such Common Stock Equivalents shall be deemed to be
issued and outstanding as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of business on such record
date. In each such event, the Conversion Price shall be proportionately
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date.
(c) In case of any merger (other than a merger in which the
Corporation is not the continuing or surviving entity) or any reclassification
of the Common Stock of the Corporation, each share of the Series F Preferred
Stock shall thereafter be convertible into that number of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock issuable upon conversion of a share of Series F Preferred Stock
immediately prior to such merger or reclassification would have been entitled
upon such merger or reclassification. In any such case, appropriate adjustment
(as determined by the Board of Directors in good faith) shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holders of Series F Preferred Stock, such that the
provisions set forth herein shall thereafter be applicable, as nearly as
reasonably may be, in relation to any share of stock or other property
thereafter issuable upon conversion.
(d) The Corporation shall at all times reserve and keep
available out of its authorized but unissued Common Stock, solely for the
purpose of effecting the conversion of Series F Preferred Stock, the full number
of shares of Common Stock deliverable upon the conversion of all Series F
Preferred Stock from time to time outstanding. The Corporation shall from time
to time (subject to obtaining necessary director and stockholder
authorizations), in accordance with the laws of the State of Delaware, increase
the authorized amount of its Common Stock if at any time the authorized number
of shares of Common Stock remaining unissued shall not be sufficient to permit
the conversion of all of the shares of Series F Preferred Stock at the time
outstanding.
8. REDEMPTION. The Company shall have the right to redeem all or a
portion of the outstanding Series F Preferred Stock upon ten (10) days prior
written notice to the holder of the Series F Preferred Stock.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be signed by its President, and attested by its Assistant
Secretary, this 9th day of January, 1998.
StarBase Corporation
By:/S/ WILLIAM R. STOW III
---------------------------
William R. Stow, III
Chief Executive Officer
Attest:
By: /S/ DOUGLAS S. NORMAN
------------------------
Douglas S. Norman
Assistant Secretary
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Exhibit 5.1
OPINION OF PARKER CHAPIN FLATTAU & KLIMPL, LLP
February 23, 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 Amendment No. 1 to Registration Statement of Form S-3 (file no. 333-45877)
filed by the Company with the Securities and Exchange Commission (the
"Registration Statement") relating to up to 2,337,743 shares (the "Shares") of
the Company's Common Stock, par value $0.01 per share (the "Common Stock"). Of
such Shares, 1,825,210 may be issued upon conversion of the Series D and Series
F Preferred Stock which were issued to the holders of the Shares (the "Preferred
Stock"), and 512,533 may be issued upon the exercise of warrants which were
issued to the holders of the Shares (the "Warrants").
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
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Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment No. 1 to Registration Statement on Form S-3
of our report dated June 20, 1997, appearing on page 26 of StarBase
Corporation's Annual Report on Form 10-KSB for the year ended March 31, 1997. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Costa Mesa, California
February 23, 1998
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