As filed with the Securities and Exchange Commission on June 30, 1999
Registration No. 333-72833
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
AMENDMENT NO. 2
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)
4 HUTTON CENTRE DRIVE, SUITE 800
SANTA ANA, CA 92707-8713
(714) 445-4400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DOUGLAS S. NORMAN
4 HUTTON CENTRE DRIVE, SUITE 800
SANTA ANA, CA 92707-8713
(714) 445-4400
(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: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest 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]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
[ ] _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(b) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed
Amount Maximum Proposed
To Be Aggregate Maximum Amount of
Title of each class of Registered Price Per Aggregate Registration
Securities to be registered (1) Share Offering Price Fee (6)
- ---------------------------- ------------- ------------ --------------------- ------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share 155,993 $ 2.079 (4) $ 324,231.45 $ 90.14
Common Stock, par value
$0.01 per share 6,588,842 (2) $ 2.079 (4) $ 13,694,908.10 $ 3,807.18
Common Stock, par value
$0.01 per share 435,977 (3) $ 2.274 (5) $ 964,753.19 $ 268.20
Total 7,180,812 $ 14,983,892.74 $ 4,165.52
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the shares of common stock being registered for resale by the
selling stockholders.
(2) The shares of common stock offered hereby is our good faith estimate of the
number of shares of common stock to be issued by us upon the conversion of
the series H preferred stock issued in connection with a private placement
with the selling stockholders. Our estimate represents 200% of the number
of shares that would be issuable upon conversion of the preferred stock
based on the price of the common stock on April 14, 1999. Such number is
subject to adjustment and could be materially greater or less than the
amount of shares being registered hereby depending upon the future price of
the common stock. Pursuant to Rule 416, the shares of common stock covered
hereby include such indeterminate number of shares that may be issued as a
result of anti-dilution provisions included in the securities purchase
agreement, including, among others, stock splits, stock dividends and
similar transactions. This presentation is not intended to constitute a
prediction of the future market price of the common stock or the number of
shares of common stock issuable upon conversion of the series H preferred
stock.
(3) Represents shares issuable upon exercise of warrants evidencing the right
to purchase shares of common stock. Pursuant to Rule 416, the shares of
common stock offered hereby also include such presently indeterminate
number of shares of common stock that may be issued as a result of
anti-dilution provisions included in the warrant agreements, including,
among others, stock splits, stock dividends and similar transactions.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (g) of the Securities Act of 1933, as amended,
based on the average ($2.079) of the bid ($2.063) and asked ($2.094) price
of the common stock on the Nasdaq SmallCap Market on April 14, 1999.
(5) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (g) of the Securities Act. The prices per share
and aggregate offering prices are based on (i) with respect to 385,977
shares of common stock issuable upon exercise of warrants, the average
($2.079) of the bid ($2.063) and asked ($2.094) price of the common stock
on the Nasdaq SmallCap Market on April 14, 1999 and (ii) with respect to
50,000 shares of common stock issuable upon exercise of warrants, the
exercise price of the warrants.
(6) An amount of $3,438.94 was previously paid in connection with the original
filing of the registration statement on February 23, 1999.
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
An Exhibit Index appears on page E-1
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not seeking an offer to buy these securities in
any state where the offer or sale is not permitted.
PROSPECTUS
STARBASE CORPORATION
7,180,812 SHARES OF COMMON STOCK
o The shares of common stock offered by this prospectus are
being sold by the selling stockholders.
o We will not receive any proceeds from the exercise of these
shares. We will receive proceeds from the exercise of warrants
and those proceeds will be used for our general corporate
purposes.
o Our common stock is traded on the Nasdaq SmallCap Market under
the symbol "SBAS."
o On June 25, 1999, the closing bid price of our common stock on
the Nasdaq SmallCap Market was $2.4375.
THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF
RISK. YOU SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE
HEADING "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
--------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------------------------------
____________ , 1999
<PAGE>
TABLE OF CONTENTS
Risk Factors..........................................................3
Forward-Looking Statements............................................7
Use of Proceeds.......................................................7
Selling Stockholders..................................................7
Description of Securities............................................10
Plan of Distribution.................................................12
Recent Developments..................................................13
Where You Can Find More Information..................................14
Indemnification of Directors and Officers............................14
Legal Matters........................................................15
Experts..............................................................15
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RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK, INCLUDING THOSE RISKS
DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER THESE RISK FACTORS, TOGETHER WITH
ALL OF THE OTHER INFORMATION IN THIS PROSPECTUS, BEFORE DECIDING TO INVEST IN
SHARES OF OUR COMMON STOCK.
RISKS ASSOCIATED WITH OUR PAST FINANCIAL RESULTS
WE COULD BE REQUIRED TO CUT BACK OR STOP OPERATIONS IF WE ARE UNABLE TO RAISE OR
OBTAIN NEEDED FUNDING
Our ability to continue operations will depend on our positive cash
flow, if any, from future operations or our ability to raise additional funds
through equity or debt financing. We do not know if we can raise additional
funding or that such funding will be available on favorable terms. On March 16,
1999, we completed a $1,000,000 private placement of shares of series I
preferred stock, which shares of preferred stock convert into common stock at
the lesser of $1.50 or 90% of the average closing bid price of the two lowest
closing bid prices of the common stock for the 30 trading days prior to the date
of conversion. See "Recent Developments." We could be required to cut back or
stop operations if we are unable to raise or obtain needed funding.
Our cash requirements to run our business have been and will
continue to be significant. Since 1995, our negative cash flow from operations
is as follows:
Fiscal year ended: Negative Cash Flow
- ----------------- ------------------
o March 31, 1995 $6,179,000
o March 31, 1996 $4,949,000
o March 31, 1997 $6,506,000
o March 31, 1998 $5,662,000
o March 31, 1999 $9,430,000
WE HAVE A HISTORY OF LOSSES AND IF WE DO NOT ACHIEVE PROFITABILITY WE MAY NOT BE
ABLE TO CONTINUE OUR BUSINESS IN THE FUTURE
As of March 31, 1999 we accumulated losses of approximately $52,038,000. We
anticipate incurring additional losses until we can successfully market and
distribute our products and develop new technologies and commercially viable
products. If we are unable to do so, we will continue to have losses and might
not be able to continue our operations.
THE "GOING CONCERN" QUALIFICATION ON THE REPORT OF OUR INDEPENDENT ACCOUNTANTS
MAY HURT OUR ABILITY TO RAISE ADDITIONAL FINANCING
The report of our independent accountants on our March 31, 1999
financial statements contains an explanatory paragraph regarding our ability to
continue as an ongoing business. Our independent accountants cite recurring
losses that raise substantial doubt as to our ability to continue as an ongoing
business. This "going concern" qualification may reduce our ability to obtain
necessary financing in the future to run our business.
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<PAGE>
RISKS ASSOCIATED WITH OUR BUSINESS
OUR SOFTWARE PRODUCTS MAY NOT BE SUCCESSFULLY COMPLETED OR ACCEPTED BY THE
PUBLIC WHICH COULD RESULT IN LOWER REVENUES
While we are in various stages of developing additional products, we
cannot assure you that such additional products will be completed in a timely
manner or successfully marketed. In the past we have experienced some product
release delays which resulted in lower revenues. Further, the market for our
team collaboration and software configuration management tools is evolving. This
causes the sales cycle to be longer due to the time it takes to educate
potential customers on the benefits of our products. We cannot assure you that
the products we introduce will achieve acceptance, or that other software
vendors will not develop and market products which render our products obsolete
or less competitive. Failure to obtain significant customer satisfaction or
market share for our products would significantly and negatively affect our
revenues.
WE MAY HAVE TO LOWER PRICES OR SPEND MORE MONEY TO EFFECTIVELY COMPETE AGAINST
COMPANIES WITH GREATER RESOURCES THAN US WHICH COULD RESULT IN LOWER REVENUES
AND/OR PROFITS
The success of our products in the marketplace depends on many factors,
including product performance, price, ease of use, support of industry
standards, and customer support and service. Given these factors we cannot
assure you that we will be able to compete successfully. For example, if our
competitors offer lower prices, we could be forced to lower prices which would
result in reduced margins and a decrease in revenues. If we do not lower prices
we could lose sales and market share. In either case, if we are unable to
compete against companies who can afford to cut prices, we would not be able to
generate sufficient revenues to grow the company or reverse our history of
losses.
In addition, we may have to spend more money to effectively compete for
market share, including funds to expand our infrastructure, which is a capital
and time extensive process. Further, if other companies want to aggressively
compete against us, we may have to spend more money on advertising, promotion,
trade shows, product development, marketing and overhead expenses, hiring and
retaining personnel, and developing new technologies. These higher expenses
would hurt our net income and profits.
OUR COMPUTER SYSTEMS MAY NOT RECOGNIZE THE YEAR 2000 WHICH MAY DISRUPT OUR
BUSINESS
The concerns about the upcoming year 2000 have arisen because older
computer programs that used two digits rather than four to define the applicable
year could malfunction. As a result, any computer programs that have
date-sensitive software may recognize a date using 00 as the calendar year 1900
rather than the year 2000. This could result in a computer system failure or in
miscalculations causing disruptions of operations, including a temporary
inability to process transactions, or engage in normal business activities.
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<PAGE>
RISKS ASSOCIATED WITH OUR SECURITIES
YOUR PERCENTAGE OF OWNERSHIP, VOTING POWER AND PRICE OF STARBASE COMMON STOCK
MAY DECREASE BECAUSE WE HAVE ISSUED, AND MAY CONTINUE TO ISSUE, A SUBSTANTIAL
NUMBER OF SECURITIES CONVERTIBLE OR EXERCISABLE INTO OUR COMMON STOCK
As of April 14, 1999, we had the following capital structure:
Common stock outstanding: 28,671,362
- ----------------------------------------------------------------
Common stock issuable upon:
Conversion of series E preferred stock: 584,808
Conversion of series H preferred stock: 3,294,421
Conversion of series I preferred stock: 756,372
Exercise of warrants: 2,949,388
Exercise of options: 6,557,411
- ----------------------------------------------------------------
Total: 42,813,762
The number of shares of our common stock outstanding includes 1,418,638
shares held in escrow under a performance escrow agreement. Each share of series
E preferred stock converts into one share of common stock. The series H
preferred stock and series I preferred stock are estimates based on the number
of shares that would be issuable upon conversion of the preferred stock as of
April 14, 1999. The common stock issuable upon exercise of options must vest and
is generally issuable over a four year period. As of April 14, 1999, only
2,124,693 shares could be issued upon the exercise of options. We may conduct
additional future offerings of our common stock or other securities with rights
to convert the securities into shares of our common stock.
The series H preferred stock and series I preferred stock convert into
common stock at a discount to the market price of the common stock at the time
of conversion. In this regard, the highest the conversion price can be for the
three equal installments of series H preferred stock is $0.95, $0.73 and $1.93,
and the highest the conversion price can be for the series I preferred stock is
$1.50. Once the market price of the common stock goes below these highest
conversion prices, the conversion price then varies with and, in the case of the
series I preferred stock, is at a fixed discount to the market price of the
common stock. Therefore, although there is a limit to the number of shares that
can be issued at a discount to the market price without stockholder approval
under Nasdaq rules, there is no limit to how low the conversion price can be.
The following table sets forth the number of shares of common stock
that would be issued assuming full conversion of our outstanding preferred stock
based upon the market price of the common stock as of April 14, 1999 ($2.06)
and, assuming a market price of the common stock at $1.00 per share and at $3.00
per share. The last row of the table shows the percentage of outstanding common
stock represented by the shares issuable upon conversion at the market prices
shown.
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<PAGE>
MARKET PRICE OF COMMON STOCK: $1.00 $2.06 $3.00
CONVERSION PRICE FOR SERIES H: $1.00 $1.47 $1.93
CONVERSION PRICE FOR SERIES I: $0.90 $1.32 $1.50
SERIES H PREFERRED STOCK: 3,633,479 3,294,421 3,121,738
SERIES I PREFERRED STOCK: 1,111,111 756,372 666,667
PERCENTAGE OF OUTSTANDING
COMMON STOCK: 17% 14% 13%
Conversion or exercise of our outstanding convertible securities,
options and warrants into common stock would result in a significant number of
additional shares of common stock in the market. This may significantly and
negatively affect the prevailing market price for the common stock and will
decrease your percentage of ownership and voting power.
THE CONVERSION OF OUTSTANDING PREFERRED STOCK MAY HAVE A SIGNIFICANT NEGATIVE
EFFECT ON THE PRICE OF THE COMMON STOCK AND CAUSE THE SELLING STOCKHOLDERS TO
RECEIVE A GREATER NUMBER OF SHARES UPON SUBSEQUENT CONVERSIONS OF THE PREFERRED
STOCK
The series H preferred stock and series I preferred stock are
convertible at a floating rate that may be below the market price of the common
stock. As a result, the lower the stock price at the time the holder converts,
the more common stock the holder will get upon conversion. To the extent the
selling stockholders convert and then sell their common stock, the common stock
price may decrease due to the additional shares in the market. This could allow
the selling stockholders to convert their convertible preferred stock into
greater amounts of common stock, the sales of which could further depress the
stock price. The significant downward pressure on the price of the common stock
as the selling stockholders convert and sell material amounts of common stock
could encourage short sales by the selling stockholders and others in which the
short-sellers borrow common stock at the current market price in hope to buy it
in the future at a lower price.
This could place further downward pressure on the price of the common stock.
In addition, the conversion of the convertible preferred stock may
result in substantial dilution to the interests of other holders of common stock
since each holder of convertible preferred stock may ultimately convert and sell
the full amount issuable on conversion. Although each selling stockholder may
not convert their preferred stock if, as a result, they would own more than
4.99% of the then outstanding common stock, this restriction does not prevent a
selling stockholder from converting and selling some of its holdings and then
converting the rest of its holdings. In this way, an individual selling
stockholder could sell more than 4.99% of the outstanding common stock while
never holding more than 4.99% at one time.
YOUR INTEREST IN STARBASE MAY BE DILUTED BY THE ISSUANCE OF PREFERRED STOCK WITH
GREATER RIGHTS THAN THE COMMON STOCK WHICH WE CAN SELL OR ISSUE AT ANY TIME
The sale or 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. The issuance of preferred stock could have the
effect of delaying, deferring or preventing a change of ownership without
further vote or action by the stockholders and may adversely affect the voting
and other rights of the holders of common stock.
Our board of directors is authorized to issue up to 10,000,000 shares
of preferred stock. The board has the power to establish the dividend rates,
preferential payments on our liquidation, voting rights, redemption and
conversion terms and privileges for any series of preferred stock.
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<PAGE>
IF WE CANNOT MEET THE NASDAQ SMALLCAP MARKET MAINTENANCE REQUIREMENTS AND NASDAQ
RULES, NASDAQ MAY DELIST THE COMMON STOCK WHICH COULD NEGATIVELY AFFECT THE
PRICE OF THE COMMON STOCK AND YOUR ABILITY TO SELL THE COMMON STOCK
In the future, we may not be able to meet the listing maintenance
requirements of the Nasdaq SmallCap Market and Nasdaq rules, which require,
among other things, minimum net tangible assets of $2 million, a minimum bid
price for our common stock of $1.00, and shareholder approval prior to the
issuance of securities in connection with a transaction involving the sale or
issuance of common stock equal to 20 percent or more of a company's outstanding
common stock before the issuance for less than the greater of book or market
value of the stock. Although we currently comply with Nasdaq's listing
maintenance requirements, in the past there have been times when we have not
been in compliance and it is possible we may not meet the requirements in the
future. For example, the dilution resulting from the issuance of the convertible
preferred stock discussed above and the subsequent conversion and sale of common
stock could have a substantial depressive effect on the common stock bid price,
causing it to decrease below $1.00. If we were no longer in compliance with
Nasdaq rules and were unable to receive a waiver of the rules or achieve
compliance, and if our common stock were to be delisted from the SmallCap
market, an investor in our company may find it more difficult to sell our common
stock. This lack of liquidity also may make it more difficult for us to raise
capital in the future.
FORWARD - LOOKING STATEMENTS
In this prospectus, we make statements about our future financial
condition, results of operations and business. These are based on estimates and
assumptions made from information currently available to us. Although we believe
these estimates and assumptions are reasonable, they are uncertain. These
forward- looking statements can generally be identified because the context of
the statement includes words such as may, will, except, anticipate, intend,
estimate, continue, believe or other similar words. Similarly, statements that
describe our future expectations, objectives and goals or contain projections of
our future results of operations or financial condition are also forward-looking
statements. Our future results, performance or achievements could differ
materially from those expressed or implied in these forward-looking statements,
including those listed under the heading "Risk Factors" and other cautionary
statements in this prospectus.
USE OF PROCEEDS
The selling stockholders are selling all of the shares covered by this
prospectus for their own accounts. Accordingly, we will not receive any proceeds
from the resale of the shares. We will receive proceeds from the exercise of the
warrants. If all the warrants were exercised, we would receive approximately
$617,000. We will use the net proceeds for general corporate purposes. We will
bear all expenses relating to this registration except for brokerage or
underwriting commissions and expenses, if any, which the selling stockholders
will pay.
SELLING STOCKHOLDERS
This prospectus covers the resale by the selling stockholders of up to
6,588,842 shares of our common stock to be issued upon the conversion of the
series H preferred stock, which amount of shares is an estimate and is not a
prediction of the actual number of shares of common stock we will issue upon
conversion of the series H preferred stock. This prospectus also covers the
resale by the selling stockholders of up to 435,977 shares of our common stock
issuable upon exercise of warrants issued in connection with a private
placement, consulting agreements and an accounts receivable purchase agreement.
This prospectus also covers the resale by the selling stockholders of 155,993
shares of our common stock issued for consulting services.
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<PAGE>
SERIES H PREFERRED STOCK
The holders of the series H preferred stock and warrants issued in
connection with the private placement have the material rights and obligations
discussed below and under the section entitled "Description of Securities". The
agreements relating to these rights and obligations have been previously filed
by us with the SEC and you are urged to read them in their entirety.
SECURITIES PURCHASE AGREEMENT
The investors listed in the table below agreed to buy 3,000 shares of
our series H preferred stock in increments of 1,000 shares on November 24, 1998,
December 30, 1998 and February 8, 1999. The price for each share was $1,000 for
an aggregate purchase price of $3,000,000.
REGISTRATION RIGHTS AGREEMENT
In connection with our sale of series H preferred stock, we agreed to
file a registration statement covering the resale of the common stock issuable
upon conversion of the series H preferred stock and exercise of the warrants by
February 23, 1999 and cause the registration statement to be declared effective
by the SEC by April 23, 1999. If the registration statement is not effective by
April 23, 1999, we will have to pay to the holders liquidated damages equal to
2% of the value of outstanding series H preferred stock for each 30 day period
until the registration statement has been declared effective.
WARRANTS
The holders of series H preferred stock also received 323,025 warrants
to purchase 323,025 shares of common stock. One-third of the warrants are
exercisable at $0.95 and expire on November 24, 2003, one-third are exercisable
at $0.73 and expire on December 31, 2003 and the final one-third are exercisable
at $1.93 and expire on February 8, 2004. All of the warrants have adjustment
provisions for standard dilution events including stock splits, stock dividends
and similar transactions.
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT
This prospectus also covers the resale by Silicon Valley Bank of 55,452
shares of common stock issuable upon exercise of warrants issued to Silicon
Valley Bank for establishing an accounts receivable facility with us. These
warrants are exercisable at $1.08 and expire on January 19, 2004.
CONSULTING AGREEMENTS
This prospectus also covers the resale by the selling stockholders of
common stock and warrants issued for consulting services. Included are 75,993
shares of common stock and 50,000 shares of common stock issuable upon exercise
of warrants issued for consulting fees to Continental Capital & Equity
Corporation, a financial public relations firm. The warrants are immediately
exercisable at $3.25 and expire on February 17, 2000. In addition, 80,000 shares
of common stock were issued to Mr. Kurt Motamedi who provided management and
team development consulting services.
We are registering the shares of common stock offered in this
prospectus with the SEC to permit public secondary trading. As a result, the
selling stockholders may offer all or part of the shares for resale to the
public from time to time.
The table below lists information regarding the selling stockholders'
ownership of shares of our common stock, assuming the conversion of preferred
stock at the then conversion ratio as of April 14, 1999, and as adjusted to
reflect the sale of the shares and the exercise of warrants on April 14, 1999.
Information concerning the selling stockholders may change from time to time. To
the extent that the selling stockholders
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<PAGE>
or any of its representatives advise us of such changes and if required, we will
report those changes in a supplement to this document. Except as set forth in
this prospectus, to our knowledge, no selling stockholder has held any position
or office, or has had any material relationship, with us or any parties related
to us within the past three years.
The number of shares of common stock indicated in the Amount
Beneficially Owned Prior to Offering column is an estimate and includes 200% of
the number of shares that would be issuable upon conversion of 3,185 shares of
the preferred stock based on the price of the common stock on April 14, 1999
plus the shares issuable upon exercise of warrants evidencing the right to
purchase shares of common stock and is subject to adjustment. The actual amount
could be materially more or less than such estimated amount depending upon
factors that we cannot predict at this time.
The Amount Offered column assumes no sales are effected by the selling
stockholders during the offering period other than under the registration
statement.
<TABLE>
<CAPTION>
Amount Percentage
Amount Percentage Beneficially Beneficially
Beneficially Beneficially Owned Owned
Owned Prior Owned Prior Amount Following Following
Name to Offering to Offering Offered Offering Offering
- ------------------------------------- -------------- -------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balmore Fund S.A. (1) 1,686,616 4.6 1,626,616 60,000 *
Austost Anstalt Schann (2) 1,686,616 4.6 1,626,616 60,000 *
Manchester Asset Management (3) 1,797,369 4.9 1,721,640 75,729 *
Amro International (4) 665,846 1.8 650,646 15,200 *
Gundyco in Trust for 1,759,847 4.8 1,138,632 621,215 1.7
RRSP 550-98866-19 (5)
Libra Finance S.A. (6) 69,517 * 65,064 4,453 *
Black Hills Investment Corp. (7) 78,153 * 78,153 0 0
Kurt Motamedi (8) 80,000 * 80,000 0 0
Continental Capital &
Equity Corp. (9) 125,993 * 125,993 0 0
Institutional Development, 12,000 * 12,000 0 0
Inc. (10)
Silicon Valley Bank (11) 66,952 * 55,452 11,500 *
- ------------------------------
</TABLE>
* Represents less than one percent.
(1) The number of shares issuable pursuant to conversion of series H
preferred stock is 1,551,616. Includes 135,000 shares of common stock
issuable upon the exercise of warrants owned prior to offering of which
75,000 are offered in this prospectus. The natural person who exercises
control over these shares is Mr. Francois Morax.
(2) The number of shares issuable pursuant to conversion of series H
preferred stock is 1,551,616. Includes 135,000 shares of common stock
issuable upon the exercise of warrants owned prior to offering of which
75,000 are offered in this prospectus. The natural person who exercises
control over these shares is Mr. Thomas Hackl.
(3) Includes 245,836 shares issuable upon conversion of series H preferred
stock and 11,850 shares issuable upon the exercise of warrants for
placement agent fees. The number of shares issuable pursuant to
conversion of series H preferred stock is 1,642,290. Includes 155,079
shares of common stock issuable upon the exercise of warrants owned
prior to offering of which 79,350 are offered in this prospectus. The
natural person who exercises control over these shares is Mr. Anthony
L.M. Inder Rieden.
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<PAGE>
(4) The number of shares issuable pursuant to conversion of series H
preferred stock is 620,646. Includes 45,200 shares of common stock
issuable upon the exercise of warrants owned prior to offering of which
30,000 are offered in this prospectus. The natural person who exercises
control over these shares is Mr. H.V. Bachofen.
(5) The number of shares issuable pursuant to conversion of series H
preferred stock is 1,086,132. Includes 673,715 shares of common stock
issuable upon the exercise of warrants owned prior to offering of which
52,500 are offered in this prospectus. The natural person who exercises
control over these shares is Mr. Mark Shoom.
(6) Includes 62,064 shares issuable upon conversion of series H preferred
stock and 3,000 shares issuable upon the exercise of warrants for
placement agent fees. The number of shares issuable pursuant to
conversion of series H preferred stock is 62,064. Includes 7,453 shares
of common stock issuable upon the exercise of warrants owned prior to
offering of which 3,000 are offered in this prospectus. The natural
person who exercises control over these shares is Mr. Seymour Braun.
(7) The number of shares issuable for placement agent fees pursuant to
conversion of series H preferred stock is 74,478. Includes 3,675 shares
of common stock issuable for placement agent fees upon the exercise of
warrants. The natural person who exercises control over these shares is
Mr. Lawrence Gibson.
(8) Represents shares of common stock.
(9) Includes 50,000 shares of common stock issuable upon the exercise of
warrants. The natural person who exercises control over these shares is
Ms. Dodi Zirkle.
(10) Represents common stock issuable upon the exercise of warrants for
placement agent fees. The natural person who exercises control over
these shares is Mr. Barry Lederman.
(11) Includes 55,452 shares of common stock issuable upon the exercise of
warrants. The natural person who exercises control over these shares is
Mr. David Jaques.
DESCRIPTION OF SECURITIES
SERIES H PREFERRED STOCK
In November 1998, we entered into security purchase agreements to sell
3,000 shares of series H preferred stock and 185 shares of series H preferred
stock were issued as placement agent's fees. Each share of preferred stock has a
stated value, or "liquidation preference", of up to $1,000, which means that, in
the event of a liquidation, dissolution or winding up of our company, for
example, if we go bankrupt and all of our assets are sold, the holders of each
share would be entitled to a preferential payment of up to $1,000 before holders
of our common stock would receive any of the proceeds from the sale. A
certificate of designation filed with the secretary of state of Delaware governs
the terms and conditions of the preferred stock. The following is a brief
description of key terms of the preferred stock.
DIVIDENDS
The holders of the preferred stock are not entitled to receive any
dividends.
-10-
<PAGE>
CONVERSION RIGHTS
The holders of preferred stock shall have the right to convert their
shares into common stock as follows:
(1) prior to March 23, 1999, a holder may not convert
preferred stock;
(2) beginning March 24, 1999, holders may convert one-third
of the preferred stock;
(3) beginning April 23, 1999, holders may convert an
additional one-third of the preferred stock; and
(4) beginning May 23, 1999, holders may convert the final
one-third of the preferred stock.
The number of shares of common stock into which each share of the
preferred stock may be converted shall be determined by dividing the liquidation
preference, or $1,000, by an amount equal to the lesser of:
(a) the "fixed conversion price", which was 110% of the
average of the closing bid prices of the common stock for the five-day
trading period on the trading date immediately preceding the date of
issuance of the preferred stock or
(b) the "market price", which means the average of the two
lowest closing bid prices of the common stock over the thirty trading
days immediately preceding the date of conversion.
The preferred stock was issued in three equal installments, therefore,
there are three different fixed conversion prices: $0.95, $0.73 and $1.93.
For example, if on April 14, 1999 an investor who purchased shares of
preferred stock in the first tranche converted one share of preferred stock, it
would receive 1,052 shares of common stock, calculated by dividing $1,000 by
$.95, since $.95 is less than the market price. The conversion price shall be
adjusted for subdivisions or combinations of common stock, dividends or
distributions payable in additional shares of common stock or other securities
or rights convertible into or entitling the holder to receive common stock
without payment of consideration, mergers or any reclassification of the common
stock. We shall not be obligated to issue any shares of common stock upon
conversion of the preferred stock if that issuance would exceed the number of
shares allowed to be issued by Nasdaq at the conversion ratio unless we obtain
stockholder approval for such issuances or a written legal opinion. However, if
shares cannot be converted at the conversion ratio under Nasdaq rules, we will
issue shares of common stock upon conversion of the preferred stock at the
closing bid price of the common stock together with warrants to purchase common
stock exercisable at the market price of the common stock. The number of
warrants issued shall be 200,000 shares for each $1,000,000 principal amount of
preferred stock which cannot be converted under the Nasdaq rules.
The preferred stock is convertible up to two years from the date the
registration statement is declared effective by the SEC. In the event that any
shares of preferred stock remain outstanding on the second anniversary of the
effective date, all remaining shares of preferred stock must be converted on
that date. We may elect upon written notice to convert the preferred stock if
the closing bid price of our common stock averages at least $5.00 for 20
consecutive trading days if the registration statement is effective and all
other conversion restrictions have lapsed for at least 30 calendar days. If we
do not convert preferred shares into common shares within five days of receipt
of a notice of conversion, then the holders will be entitled to penalties in the
amount of 1/2% per day of the value of the preferred stock being converted for
the first 10 calendar days without conversion and 1% per day thereafter until
the conversion is completed.
-11-
<PAGE>
We will reserve and keep available a sufficient number of authorized
shares of common stock to enable the conversion of all outstanding shares of the
preferred stock.
OPTIONAL REDEMPTION
We may redeem all or a portion of the preferred stock upon five
business days prior written notice to the holders at a price per share equal to
the greater of:
(1) $1,200 per share; or
(2) the difference between (a) the conversion price and
(b) the closing bid price of the common stock on the
trading date immediately preceding the date of the
notice of redemption.
Until converted, we will be entitled to redeem shares of the preferred stock in
accordance with the terms and conditions set forth in the certificate of
designation.
NO VOTING RIGHTS
Except as otherwise provided by law, preferred stockholders shall not
be entitled to vote upon any matter relating to our business affairs or for any
other purpose.
PLAN OF DISTRIBUTION
The selling stockholders may offer their shares of common stock at
various times in one or more of the following transactions:
o On any U.S. securities exchange on which our common stock may be
listed at the time of such sale;
o In the over-the-counter market;
o In transactions other than on such exchanges or in the over-the-
counter market;
o In connection with short sales; or
o In a combination of any of the above transactions.
The selling stockholders may offer their shares of common stock at
prevailing market prices, at prices related to such prevailing market prices, at
negotiated prices or at fixed prices.
The selling stockholders may use broker-dealers to sell their shares of
common stock. If this occurs, broker-dealers will either receive discounts or
commission from the selling stockholder, or they will receive commissions from
the purchasers of shares of common stock for whom they acted as agents. Such
brokers may act as dealers by purchasing any and all of the shares covered by
this prospectus either as agents for others or as principals for their own
accounts and reselling such securities under the prospectus.
The selling stockholders and any broker-dealers or other persons acting
on the behalf of parties that participate in the distribution of the shares may
be considered underwriters under the Securities Act. As such, any commissions or
profits they receive on the resale of the shares may be considered underwriting
discounts and commissions under the Securities Act.
-12-
<PAGE>
As of the date of this prospectus, we are not aware of any agreement,
arrangement or understanding between any broker or dealer and the selling
stockholders with respect to the offer to sale of the shares under this
prospectus. If we become aware of any agreement, arrangement or understanding,
to the extent required under the Securities Act, we will file a supplemental
prospectus to disclose:
(1) the name of any such broker-dealers;
(2) the number of shares involved;
(3) the price at which such shares are to be sold;
(4) the commissions paid or discounts or concessions
allowed to such broker-dealers, where applicable;
(5) that such broker-dealers did not conduct any
investigation to verify the information set out in
this prospectus, as supplemented; and
(6) other facts material to the transaction.
The stock purchase agreements have reciprocal indemnification
provisions between us and each selling stockholder to indemnify each other
against liabilities under the Securities Act, which may be based upon, among
other things, any untrue statement or alleged untrue statement of a material
fact or any omission or alleged omission of a material fact. We have agreed to
bear customary expenses incident to the registration of the shares for the
benefit of the selling stockholders in accordance with such agreements, other
than underwriting discounts and commissions directly attributable to the sale of
such securities by or on behalf of the investor.
RECENT DEVELOPMENTS
Effective March 16, 1999, we completed a private placement of 1,000
shares of series I preferred stock for $1,000,000 with Talisman Capital
Opportunity Fund, Ltd. The series I preferred stock is not redeemable and has a
liquidation preference of $1,000 per share. The holder of series I preferred
stock is not entitled to receive any dividends nor, except as provided by law,
vote upon any matter relating to the business or affairs of the Company or for
any other purpose. Each share of series I preferred stock is convertible, after
July 14, 1999, into our common stock, at a conversion rate which is determined
by dividing $1,000 by the conversion price. The conversion price shall be the
lesser of:
(a) $1.50 or
(b) 90% of the average closing bid price of the two
lowest closing bid prices of common stock as reported
by Bloomberg, L.P. for shares traded in the United
States during the 30 consecutive trading days
preceding the conversion date.
In addition, the Company issued 253,333 warrants to purchase common
stock in connection with the series I preferred stock. Each warrant is
exercisable for one share of common stock at $1.50 through March 16, 2004, after
which the warrants will expire. In connection with our sale of series I
preferred stock, we agreed to file a registration statement covering the resale
of the common stock issuable upon conversion of the series I preferred stock and
exercise of the warrants by June 14, 1999 and cause the registration statement
to be declared effective by the SEC by August 13, 1999. If the registration
statement is not effective by August 13, 1999, we will have to pay to the
holders liquidated damages equal to 2% of the value of outstanding series I
preferred stock each 30 day period for the first two months and 3% for each 30
day period after that until the registration statement has been declared
effective.
-13-
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, DC, New York, NY, and Chicago,
IL. Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from the SEC's
website at http://www.sec.gov.
We have filed a registration statement on Form S-3 with the SEC to
register shares of our common stock. This prospectus is part of that
registration statement and, as permitted by the SEC's rules, does not contain
all of the information included in the registration statement. For further
information about us and this offering, you may refer to the registration
statement and its exhibits. You can review and copy the registration statement
and its exhibits at the public reference facilities maintained by the SEC or on
the SEC's website described above.
This prospectus may contain summaries of contracts or other documents.
Because they are summaries, they will not contain all of the information that
may be important to you. If you would like complete information about a contract
or other document, you should read the copy filed as an exhibit to the
registration statement.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information we incorporate by reference is
considered to be a part of this prospectus, and information that we file with
the SEC at a later date will automatically update or supersede this information.
We incorporate by reference the following documents as well as any future filing
we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
1. Annual Report on Form 10-KSB for the fiscal year ended March 31,
1999; and
2. Registration Statement on Form 10, as amended, containing the
description of our common stock, dated April 27, 1995.
You may request a copy of these filings, at no cost, by writing to us
at 4 Hutton Centre Drive, Suite 800, Santa Ana, CA 92707-8713, Attention:
Investor Relations.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows companies to
indemnify their directors and officers against expenses, judgments, fines and
amounts paid in settlement under the conditions and limitations described in the
law.
Our certificate of incorporation provides that a director is not
personally liable for monetary damages to us or our stockholders for breach of
his or her fiduciary duties as a director. A director will be held liable for a
breach of his or her duty of loyalty to us or our stockholders, his or her
intentional misconduct or willful violation of law, actions or in actions not in
good faith, an unlawful stock purchase or payment of a dividend under Delaware
law, or transactions from which the director derives an improper personal
benefit. This limitation of liability does not affect the availability of
equitable remedies against the director including injunctive relief or
rescission. Our certificate of incorporation authorizes us to indemnify our
officers, directors and other agent to the fullest extent permitted under
Delaware law.
We have entered into an indemnification agreement with each of our
directors and officers. In some cases, the provisions of the indemnification
agreement may be broader than the specific indemnification
-14-
<PAGE>
provisions contained in our certificate of incorporation or otherwise permitted
under Delaware law. Each indemnification agreement may require us to indemnify
an officer or director against liabilities that may arise by reason of his
status or service as an officer or director, or against liabilities arising from
the director's willful misconduct of a culpable nature. The indemnification
agreement may also require us to obtain directors' and officers' liability
insurance, if available on reasonable terms. We maintain a directors and
officers liability policy with Lloyds of London and General Star Indemnity
Corporation that contains an aggregate limit of liability of $5,000,000 through
2001.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to these provisions, or otherwise, we have been advised that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
LEGAL MATTERS
Parker Chapin Flattau & Klimpl, LLP, New York, New York will pass upon
the validity of the securities offered hereby. Martin Eric Weisberg, Esq., a
member of the firm, is our Secretary.
EXPERTS
The financial statements as of March 31, 1998 and for the year then
ended included in this Prospectus have been so included in
reliance on the report (which contains an explanatory paragraph relating to the
ability of StarBase to continue as a going concern as described in Note 2 to the
financial statements) of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements for the year ended March 31, 1999 incorporated
by reference in this Prospectus have been so incorporated in reliance on the
report (which contains an explanatory paragraph relating to the ability of
StarBase to continue as a going concern, as described in Note 2 to the financial
statements) of Deloitte & Touche LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
-15-
<PAGE>
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR ANY OTHER PERSON TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL
OR BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN
THIS PROSPECTUS IS CURRENT AS OF _______________.
----------------
TABLE OF CONTENTS PAGE
- ----------------------------------------- ----
Risk Factors 3
Forward-Looking Statements 7
Use of Proceeds 7
Selling Stockholders 7
Description of Securities 10
Plan of Distribution 12
Recent Developments 13
Where You Can Find More Information 14
Indemnification of Directors and Officers 14
Legal Matters 15
Experts 15
-------------------------------------------------------------------------
7,180,812 SHARES OF COMMON STOCK
STARBASE CORPORATION
-------------
PROSPECTUS
-------------
_______________ , 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses which will be paid
by StarBase in connection with the issuance and distribution of the securities
being registered on this registration statement. The selling stockholders will
not incur any of the expenses set forth below. All amounts shown are estimates.
SEC Registration Fee $ 4,165.52
Legal Fees and Expenses 6,000.00
Accounting Fees and Expenses 10,000.00
Miscellaneous Expenses 1,000.00
--------------------
Total $ 21,165.52
====================
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") provides, in general, that a corporation incorporated under the
laws of the State of Delaware, such as the registrant, may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (other than a derivative action
by or in the right of the corporation) by reason of the fact that such person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation, and ,with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. In the case of a derivative action, a Delaware corporation
may indemnify any such person against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or any other court in which such
action was brought determines such person is fairly and reasonable entitled to
indemnity for such expenses.
The Certificate of Incorporation of StarBase provides that directors
shall not be personally liable for monetary damages to StarBase or its
stockholders for breach of fiduciary duty as a director, except for liability
resulting from a breach of the director's duty of loyalty to StarBase or its
stockholders, intentional misconduct or willful violation of law, actions or in
actions not in good faith, an unlawful stock purchase or payment of a dividend
under Delaware law, or transactions from which the director derives improper
personal benefit. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission. The Certificate
of Incorporation of StarBase also authorizes StarBase to indemnify its officers,
directors and other agents, by bylaws, agreements or otherwise, to the fullest
extent permitted under Delaware law. StarBase has entered into an
Indemnification Agreement (the "Indemnification Agreement") with each of its
directors and officers which may, in some cases, be broader than the specific
indemnification provisions contained in the Certificate of Incorporation of
StarBase or as otherwise permitted under Delaware law. Each Indemnification
Agreement may require StarBase, among other things, to indemnify officers and
directors against liabilities that may arise by reason of their status or
service as a director or officer, against liabilities arising from willful
II-1
<PAGE>
misconduct of a culpable nature, and to obtain directors' and officers'
liability insurance if available on reasonable terms.
StarBase maintains a directors and officers liability policy with
Lloyds of London and General Star Indemnity Corporation that contains an
aggregate limit of liability of $5,000,000 through 2001.
ITEM 16. EXHIBITS.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------------ -------------------------------------------------------------------
4.1* Form of Securities Purchase Agreement (Series H Preferred Stock).
4.2 Certificate of Designation (Series H Preferred Stock).
Incorporated by reference to Exhibit 10.2 to the Company's Report
on Form 10-QSB for the period ended December 31, 1998.
4.3 Form of Registration Rights Agreement (Series H Preferred Stock).
Incorporated by reference to Exhibit 10.3 to the Company's Report
on Form 10-QSB for the period ended December 31, 1998.
4.4 Form of Warrant (Series H Preferred Stock and other warrants).
Incorporated by reference to Exhibit 10.4 to the Company's Report
on Form 10-QSB for the period ended December 31, 1998.
4.5 Form of Warrant (Accounts Receivable Purchase Agreement with
Silicon Valley Bank). Incorporated by reference to Exhibit 4.5 to
the original filing of this registration statement, file number
333-72833.
4.6 Accounts Receivable Purchase Agreement with Silicon Valley Bank.
Incorporated by reference to Exhibit 4.6 to amendment no. 1 of this
registration statement, file number 333-72833.
4.7 Intellectual Property Security Agreement with Silicon Valley Bank.
Incorporated by reference to Exhibit 4.7 to amendment no. 1 of this
registration statement, file number 333-72833.
4.8 Consulting Agreement with Kurt Motamedi. Incorporated by reference
to Exhibit 4.8 to amendment no. 1 of this registration statement,
file number 333-72833.
4.9 Consulting Agreement with Continental Capital & Equity Corp.
Incorporated by reference to Exhibit 4.9 to amendment no. 1 of this
registration statement, file number 333-72833.
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP. Incorporated by
reference to Exhibit 5.1 to amendment no. 1 of this registration
statement, file number 333-72833.
23.1 Consent of Parker Chapin Flattau & Klimpl, LLP (included in
Exhibit 5.1).
23.2* Consent of PricewaterhouseCoopers, LLP.
23.3* Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney of certain directors and officers of
StarBase. Incorporated by reference to page II-5 of the original
filing of the registration statement, file number 333-72833.
- --------------------
* Filed herewith.
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
II-2
<PAGE>
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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, 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 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
of 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1923 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1923) that is incorporated by reference 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 bonafide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 2 to its Registration Statement on Form S-3 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Santa Ana, State of
California, on June 30, 1999.
STARBASE CORPORATION
By: /s/ Douglas S. Norman
--------------------------
Douglas S. Norman
Director of Finance and
Chief Accounting Officer
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President, Chief Executive June 30, 1999
* Officer
- --------------------------------------- and Chairman of the Board
William R. Stow III
* Vice Chairman June 30, 1999
- --------------------------------------- and Director
Donald R. Farrow
* Director June 30, 1999
- ---------------------------------------
Frank R. Caccamo
* Director June 30, 1999
- ---------------------------------------
John R. Snedegar
* Director June 30, 1999
- ---------------------------------------
Phillip E. Pearce
* Director June 30, 1999
- ---------------------------------------
Daniel P. Ginns
* Director June 30, 1999
- ---------------------------------------
Barry W. Sullivan
* Director June 30, 1999
- ---------------------------------------
Anders B. Vinberg
/s/ Douglas S. Norman Director of Finance and June 30, 1999
- --------------------------------------- Chief Accounting Officer
Douglas S. Norman
* By: /s/ Douglas S. Norman
- ----------------------------------------
Douglas S. Norman
Attorney-in-fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------------- -----------------------------------------------------------------
4.1* Form of Securities Purchase Agreement (Series H Preferred
Stock).
4.2 Certificate of Designation (Series H Preferred Stock).
Incorporated by reference to Exhibit 10.2 to the Company's
Report on Form 10-QSB for the period ended December 31,
1998.
4.3 Form of Registration Rights Agreement (Series H Preferred
Stock). Incorporated by reference to Exhibit 10.3 to the
Company's Report on Form 10-QSB for the period ended
December 31, 1998.
4.4 Form of Warrant (Series H Preferred Stock and other warrants).
Incorporated by reference to Exhibit 10.4 to the Company's
Report on Form 10-QSB for the period ended December 31,
1998.
4.5 Form of Warrant (Silicon Valley Bank). Incorporated by
reference to Exhibit 5.1 to the original filing of this
registration statement, file number 333-72833.
4.6 Accounts Receivable Purchase Agreement with Silicon Valley
Bank. Incorporated by reference to Exhibit 4.6 to amendment no.
1 of this registration statement, file number 333-72833.
4.7 Intellectual Property Security Agreement with Silicon Valley
Bank. Incorporated by reference to Exhibit 4.7 to amendment no.
1 of this registration statement, file number 333-72833.
4.8 Consulting Agreement with Kurt Motamedi. Incorporated by
reference to Exhibit 4.8 to amendment no. 1 of this registration
statement, file number 333-72833.
4.9 Consulting Agreement with Continental Capital & Equity Corp.
Incorporated by reference to Exhibit 4.9 to amendment no. 1 of
this registration statement, file number 333-72833.
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP. Incorporated
by reference to Exhibit 5.1 to amendment no. 1 of this
registration statement, file number 333-72833.
23.1 Consent of Parker Chapin Flattau & Klimpl, LLP (included in
Exhibit 5.1).
23.2* Consent of PricewaterhouseCoopers, LLP.
E-1
<PAGE>
23.3* Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney of certain directors and officers of StarBase.
Incorporated by reference to page II-5 of the original filing of
the registration statement, file number 333-72833.
- -------------------------
* Filed herewith.
E-2
EXHIBIT 4.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of November 23,
1998 (this "Agreement"), is entered into by and among STARBASE CORPORATION, a
Delaware corporation (Nasdaq SmallCap Market Symbol "SBAS"), with headquarters
located at 4 Hutton Centre Drive, Suite 800, Santa Ana, California 92707 (the
"Company"), and the undersigned entities (the "Buyers").
W I T N E S S E T H:
WHEREAS, the Company and the Buyers are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded, inter alia, by Rule 506 under Regulation
D ("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act"), and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyers wish to purchase and the Company wishes to
sell, upon the terms and subject to the conditions of this Agreement, shares of
Series H Preferred Stock (the "Preferred Stock"), of the Company which will be
convertible into shares of Common Stock, $.01 par value per share of the Company
(the "Common Stock"), upon the terms and subject to the conditions of the
Certificate of Designation for the Preferred Stock attached hereto as Annex I
(the "Certificate of Designation") and the Nontransferable Common Stock Purchase
Warrant to purchase Common Stock attached hereto as Annex II (the "Warrants")
(the Common Stock, the Preferred Stock and the Warrants sometimes referred to
herein as the "Securities");
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
A. PURCHASE. Each of the undersigned hereby agrees to
initially purchase from the Company its pro rata portion of shares of Preferred
Stock and Warrants for an aggregate purchase price of $1,166,666 and, at the
option of the Company and subject to the conditions set forth in Sections 7, 8
and 9 hereof, additional shares of Preferred Stock and Warrants in two tranches
each with an aggregate purchase price of $1,166,666, in the amount set forth on
the signature page of this Agreement, for a total offering of $3,500,000 of such
Preferred Stock and Warrants. The purchase price for each share of Preferred
Stock shall be $1,000 and shall be payable in United States Dollars.
<PAGE>
B. FORM OF PAYMENT. The Buyers shall pay the purchase price
for the Preferred Stock by delivering immediately available good funds in United
States Dollars to the escrow agent (the "Escrow Agent") identified in the Escrow
Agreement attached hereto as ANNEX II (the "Escrow Agreement") as set forth
below.
C. METHOD OF PAYMENT. Payment into escrow of the purchase
price for each tranche of the Preferred Stock shall be made by wire transfer of
funds to:
CITIBANK N.A.
153 East 53rd Street
New York, New York 10043
Account Name: Parker Chapin Flattau & Klimpl, LLP
Attorney Trust Account
Account No.: 37432544
Citibank ABA No.: 021000089
Not later than 3:00 p.m., New York time, on the date the Company and the Buyers
shall have executed this Agreement and returned a signed counterpart of this
Agreement to the Escrow Agent by facsimile, and thereafter on the Tranche II
Closing Date and the Tranche III Closing Date, the Buyers shall deposit with the
Escrow Agent the aggregate purchase price for the appropriate tranche of the
Preferred Stock, in currently available funds.
2. BUYERS' REPRESENTATIONS, WARRANTIES, ETC.; ACCESS
TO INFORMATION; INDEPENDENT INVESTIGATION.
The Buyers represent and warrant to, and covenant and agree
with, the Company as follows:
A. Without limiting Buyers' right to sell the Common Stock
pursuant to the Registration Statement or an exemption from registration, the
Buyers are purchasing the Preferred Stock and the Warrants and will be acquiring
the shares of Common Stock issuable upon conversion of the Preferred Stock and
exercise of the Warrants for their own account for investment only and not with
a view towards the public sale or distribution thereof and not with a view to or
for sale in connection with any distribution thereof;
B. Each of the Buyers is (i) an "accredited investor" as that
term is defined in Rule 501 of the General Rules and Regulations under the 1933
Act by reason of Rule 501(a)(3), and (ii) experienced in making investments of
the kind described in this Agreement and the related documents, (iii) able, by
reason of the business and financial experience of its officers (if an entity)
and professional advisors (who are not affiliated with or compensated in any way
by the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its investment
in the Securities;
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C. All subsequent offers and sales of the shares of Common
Stock issuable upon conversion of the Preferred Stock and exercise of the
Warrants (the "Shares" or "Common Stock") by the Buyers shall be made pursuant
to registration of the Shares under the 1933 Act or pursuant to an exemption
from registration;
D. The Buyers understand that the shares of Preferred Stock
are being offered and sold, and the Shares are being offered, to it in reliance
on specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying upon the truth
and accuracy of, and each of the Buyers' compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyers set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Buyers to acquire the Preferred Stock and to receive an offer
of the Shares;
E. The Buyers and their advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Preferred Stock and
the Warrants and the offer of the Shares which have been requested by the
Buyers, including ANNEX V hereto. The Buyers and their advisors, if any, have
been afforded the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries. Without limiting the
generality of the foregoing, the Buyers have also had the opportunity to obtain
and to review the Company's (1) Annual Report on Form 10-K for the fiscal year
ended March 31, 1998, (2) Quarterly Report on Form 10-Q for the fiscal quarters
ended June 30, 1998, December 31, 1997 and September 30, 1997, (3) Form 8- K
dated August 17, 1998, and (4) Form S-3/A dated October 28, 1998 (the "Company's
SEC Documents").
F. The Buyers understand that their investment in the
Securities involves a high degree of risk;
G. The Buyers understand that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities;
H. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Buyers and is a valid and binding
agreement of the Buyers enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally;
I. Neither the Buyers, nor any affiliate of the Buyers, has
any present intention of entering into, any put option, short position, or other
similar position with respect to the Preferred Stock or the Shares.
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<PAGE>
J. Notwithstanding the provisions hereof or of the Preferred
Stock, in no event (except with respect to an automatic conversion of the
Preferred Stock as provided in the Certificate of Designation) shall a Buyer be
entitled to convert any shares of Preferred Stock to the extent after such
conversion, the sum of (1) the number of shares of Common Stock beneficially
owned by the Buyers and their affiliates (other than shares of Common Stock
which may be deemed beneficially owned through the ownership of the unconverted
portion of the Preferred Stock), and (2) the number of shares of Common Stock
issuable upon the conversion of the Preferred Stock and exercise of the Warrants
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by the Buyers and their affiliates of more than
4.99% of the outstanding shares of Common Stock. For purposes of the proviso to
the immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such proviso.
The preceding shall not interfere with any Buyer's right to convert the
Preferred Stock or exercise the Warrants which in the aggregate total more than
4.99% of the outstanding shares of Common Stock, over time, as long as no single
Buyer owns more than 4.99% of the outstanding Common Stock at any given time.
The foregoing limitations shall not apply in the event of an automatic
conversion as contained in the Certificate of Designation.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyers that:
A. ORGANIZATION AND GOOD STANDING. The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of Delaware and has all requisite corporate authority to own its
properties and to carry on its business as now being conducted. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not be expected to have a material adverse effect on
the business or financial condition of the Company, or materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement. Except as disclosed in Annex V, the Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
partnership, association or other business entity.
B. CONCERNING THE SHARES. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock, $.01 par value per share,
and Annex V sets forth the number of shares which are issued and outstanding,
and the number of shares of Preferred Stock, $.01 par value per share, which are
issued and outstanding. All of the outstanding shares of Common Stock and
Preferred Stock of the Company have been duly and validly authorized and issued
and are fully paid and nonassessable. No shares of Common Stock are subject to
preemptive or similar rights. Except as specifically disclosed herein, there are
no outstanding options, warrants, rights to subscribe to, calls or commitments
of any character
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<PAGE>
whatsoever relating to, or, except as a result of the purchase and sale of the
Preferred Stock and the Warrants, securities, rights or obligations convertible
into or exchangeable for, or giving any person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any subsidiary is or may become bound to
issue additional shares of Common Stock or securities or rights convertible or
exchangeable into shares of Common Stock.
C. REPORTING COMPANY STATUS. The Company has registered its
Common Stock pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Common Stock is listed and traded on the
Nasdaq SmallCap Market. The Company is in compliance, to the extent applicable,
with all reporting obligations under either Section 12(b), 12(g) or 15(d) of the
1934 Act. The Company has complied in all material respects and to the extent
applicable with all reporting obligations, under either Section 13(a) or 15(d)
of the 1934 Act for a period of at least twelve (12) months immediately
preceding the offer and sale of the Securities. Except as set forth in ANNEX V
hereto, the Company has received no notice, either oral or written, with respect
to the continued eligibility of the Common Stock for such listing on the Nasdaq
Small Cap Market.
D. AUTHORIZED SHARES. The Company has sufficient authorized
and unissued Shares as may be reasonably necessary to effect the conversion of
the Preferred Stock and the exercise of the Warrants. The Shares have been duly
authorized and, when issued upon conversion of the Preferred Stock and upon
exercise of the Warrants, will be duly and validly issued, fully paid and
non-assessable and will not subject the holder thereof to personal liability by
reason of being such holder.
E. SECURITIES PURCHASE AGREEMENT; ESCROW AGREEMENT;
REGISTRATION RIGHTS AGREEMENT AND STOCK. The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement, and all Annexes attached hereto, and to issue the Preferred Stock,
Warrants, and the shares of Common Stock underlying the Preferred Stock and the
Warrants. This Agreement, the Escrow Agreement and the Registration Rights
Agreement, the form of which is attached hereto as ANNEX IV (the "Registration
Rights Agreement"), and the transactions contemplated thereby, have been duly
and validly authorized by the Company, this Agreement has been duly executed and
delivered by the Company and this Agreement is, and the Escrow Agreement and the
Registration Rights Agreement, when executed and delivered by the Company, will
be, valid and binding agreements of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights generally; and the Preferred
Stock and Warrants will be duly and validly authorized and, when executed and
delivered on behalf of the Company in accordance with this Agreement, will be a
valid and binding obligation of the Company in accordance with its terms,
subject to general principles of equity and to bankruptcy, insolvency,
moratorium, or other similar laws affecting the enforcement of creditors' rights
generally.
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<PAGE>
F. NON-CONTRAVENTION. The execution and delivery of this
Agreement, the Escrow Agreement and the Registration Rights Agreement by the
Company, the issuance of the Securities, and the consummation by the Company of
the other transactions contemplated by this Agreement, the Escrow Agreement, the
Registration Rights Agreement, and the Preferred Stock do not and will not
conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under (i) the articles of incorporation
or by-laws of the Company, (ii) any indenture, mortgage, deed of trust, or other
material agreement or instrument to which the Company is a party or by which it
or any of its properties or assets are bound, including any listing agreement
for the Common Stock or any "lock-up" or similar provision of any underwriting
or similar agreements except as herein set forth, (iii) to its knowledge, any
existing applicable law, rule, or regulation or any applicable decree, judgment,
or (iv) to its knowledge, order of any court, United States federal or state
regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, except such
conflict, breach or default which would not have a material adverse effect on
the transactions contemplated herein.
G. COMPLIANCE WITH LAW. The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate would not be expected to have a material adverse effect on the
business or financial condition of the Company, or materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement. The Company is not required under federal, state or local law, rule
or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Agreement or issue
and sell the Common Stock, Preferred Stock, or Warrants, in accordance with the
terms hereof.
H. APPROVALS. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the
Buyers as contemplated by this Agreement, except such authorizations, approvals
and consents that have been obtained.
I. SEC FILINGS. None of the SEC Filings with the Securities
and Exchange Commission since (and including) the filing of the Form 10-K SB/A
for the fiscal year ended March 31, 1998 contained, at the time they were filed,
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements made therein
in light of the circumstances under which they were made, not misleading. Except
as set forth on Annex V hereto, the Company has since June 30, 1998 timely filed
all requisite forms, reports and exhibits thereto with the Securities and
Exchange Commission and such filings comply in all material respects with the
requirements of the 1933 Act or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder. The Company has not
provided to any of the Buyers any information that, according to applicable law,
rule or
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<PAGE>
regulation, should have been disclosed publicly prior to the date hereof by the
Company, but which has not been so disclosed. The financial statements of the
Company included in the documents referred to in Section 2(e) hereof comply as
to form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto.
J. ABSENCE OF CERTAIN CHANGES. Since June 30, 1998, there has
been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, or results of operations
of the Company, except as disclosed in Annex V or in the documents referred to
in Section 2(e) hereof.
K. FULL DISCLOSURE. There is no fact known to the Company
(other than general economic conditions known to the public generally) or as
disclosed in the documents referred to in Section 2(e), that has not been
disclosed in writing to the Buyers that (i) would reasonably be expected to have
a material adverse effect on the business or financial condition of the Company
or (ii) would reasonably be expected to materially and adversely affect the
ability of the Company to perform its obligations pursuant to this Agreement.
L. ABSENCE OF LITIGATION. Except as set forth in ANNEX V
hereto, and in the documents referred to in Section 2(e), which the Buyers have
reviewed, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the business
or financial condition of the Company or the transactions contemplated by this
Agreement or any of the documents contemplated hereby or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, this Agreement or any of such other
documents. Except as set forth in Annex V hereto, and in the documents
referenced in Section 2(e), no judgment, order, decree, writ or award has been
issued by, or to the Company's knowledge, requested of any court, arbitrator, or
governmental agency which would have a material adverse effect on the business
or financial condition of the Company or the transactions contemplated by this
Agreement or any of the documents annexed hereto, or which would adversely and
materially affect the Company's ability to perform its obligations under this
Agreement or any document annexed hereto.
M. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in ANNEX
V hereto and Section 3(e), no Event of Default, as defined in the respective
agreement to which the Company is a party, and no event which, with the giving
of notice or the passage of time or both, would become an Event of Default (as
so defined), has occurred and is continuing, which would have a material adverse
effect on the Company's financial condition or results of operations.
N. PRIOR ISSUES. Except as set forth in ANNEX V, during the
twelve (12) months preceding the date hereof, the Company has not issued any
convertible securities. The
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<PAGE>
presently outstanding unconverted principal amount of each such issuance as at
June 30, 1998 are set forth in ANNEX V.
O. ACKNOWLEDGMENT OF DILUTION. The Company is aware and
acknowledges that issuance of Common Stock upon the conversion of the Preferred
Stock and/or exercise of the Warrants, may result in may result in dilution of
the outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue Common Stock in accordance with the Certificate of Designation and
Warrant is unconditional and absolute regardless of the effect of any such
dilution.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS. Each of the Buyers acknowledges that
(1) the shares of Preferred Stock and Warrants have not been and are not being
registered under the provisions of the 1933 Act and, except as provided in the
Registration Rights Agreement, the Shares have not been and are not being
registered under the 1933 Act, and may not be transferred unless (A)
subsequently registered thereunder or (B) an exemption from registration exists
and the Buyers shall have delivered to the Company any information reasonably
necessary for the Company's independent counsel to prepare and deliver an
opinion of counsel, reasonably satisfactory in form, scope and substance to the
Company, to the effect that the Shares to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; (2) any sale of the
Shares made in reliance on Rule 144 promulgated under the 1933 Act may be made
only in accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Shares under circumstances in which the seller,
or the person through whom the sale is made, may be deemed to be an underwriter,
as that term is used in the 1933 Act, may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (3) neither the Company nor any other person is under any obligation to
register the Shares (other than pursuant to the Registration Rights Agreement)
under the 1933 Act or to comply with the terms and conditions of any exemption
thereunder.
B. RESTRICTIVE LEGEND. Each of the Buyers acknowledges and
agrees that the Preferred Stock, and, until such time as the Common Stock has
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold pursuant to an effective registration statement
("Registration Statement") or an exemption from registration, the Shares issued
to the Buyer upon conversion of the Preferred Stock and exercise of the Warrants
shall bear a restrictive legend in substantially the following form:
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF
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<PAGE>
COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
C. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to
enter into the Registration Rights Agreement, in substantially the form attached
hereto as ANNEX IV, on or before the Tranche I Closing Date (as defined in
Section 7(b) hereof), and the Company shall cause such Registration Rights
Agreement to remain in full force and effect for so long as the Securities are
outstanding, and the Company shall comply with the terms thereof.
D. FILINGS. The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Preferred Stock and the
Warrants to the Buyers under any United States laws and regulations, or by any
domestic securities exchange or trading market, and to provide a copy thereof to
the Buyers promptly after such filing.
E. REPORTING STATUS. So long as the Buyers beneficially own
any of the Preferred Stock and/or Warrants, the Company shall file all reports
required to be filed with the SEC pursuant to Section 13 or 15(d) of the 1934
Act, and the Company shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination.
F. USE OF PROCEEDS. The Company will use the proceeds from the
sale of the Preferred Stock and the Warrants (excluding amounts paid by the
Company for legal fees and finder's fees in connection with the sale of the
Preferred Stock and the Warrants) for internal working capital purposes, and new
product development and support and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership
enterprise or other person.
G. AVAILABLE SHARES. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares of
Common Stock sufficient to yield the number of shares of Common Stock issuable
upon conversion and/or exercise as may be required to satisfy the conversion
rights of the Buyers pursuant to the terms and conditions of the Preferred Stock
and the exercise rights of the Buyers pursuant to the terms of the Warrants.
H. WARRANTS. The Company agrees to issue to each of the Buyers
on each Closing Date such Buyers' pro rata share of the Warrants to purchase an
aggregate of one hundred thousand (100,000) shares of Common Stock per
$1,000,000 of Preferred Stock purchased. Such Warrants shall bear an exercise
price equal to one hundred ten percent (110%) of the Closing Price (as defined
in the Warrant) and shall expire on the fifth anniversary of the issuance date
of the Warrant, in the form annexed hereto as ANNEX II, together with
registration rights granted pursuant to the Registration Rights Agreement.
I. LISTING OF COMMON STOCK. The Company shall (a) not later
than thirty (30) days following each Conversion Date (as defined in the
Certificate of Designation) and each
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<PAGE>
exercise of the Warrants prepare and file with the Nasdaq Small Cap Market (as
well as any other national securities exchange, market or trading facility on
which the Common Stock is then listed) an additional shares listing application
covering the amount of shares of Common Stock issued upon the conversion of the
Series H Preferred Stock or the exercise of the warrants, (b) take all steps
necessary to cause the such shares to be approved for listing on the Nasdaq
Small Cap Market (as well as on any other national securities exchange, market
or trading facility on which the Common Stock is then listed) as soon as
possible thereafter, and (c) provide to the Buyers evidence of such listing, and
the Company shall maintain the listing of its Common Stock on such exchange or
market. The Company will comply with the listing and trading requirements of its
Common Stock on Nasdaq Small Cap Market (including, without limitation,
maintaining sufficient net tangible assets) and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of the Nasdaq Small Cap Market. In the event the Company receives notification
from Nasdaq or any other controlling entity stating that the Company is not in
compliance with the listing qualifications of the Nasdaq Small Cap Market, the
Company will take all action necessary to bring the Company within compliance
with all applicable listing standards of the Nasdaq Small Cap Market.
J. EXCHANGE ACT REGISTRATION. The Company will maintain the
registration of its Common Stock under Section 12 of the Exchange Act, will
comply in all respects with its reporting and filing obligations under the
Exchange Act, and will not take any action or file any document (whether or not
permitted by Exchange Act or the rules thereunder) to terminate or suspend such
registration or to terminate or suspend its reporting and filing obligations
under said Act.
K. CORPORATE EXISTENCE. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
L. NOTICE OF CERTAIN EVENTS AFFECTING REGISTRATION. The
Company will immediately notify each of the Buyers upon the occurrence of any of
the following events in respect of a registration statement or related
prospectus in respect of an offering of Registrable Securities (as defined in
the Registration Rights Agreement): (i) receipt of any request for additional
information by the SEC or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to the Registration Statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state
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any material fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the related
prospectus, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; and (v) the Company's reasonable determination that a
post-effective amendment to the Registration Statement would be appropriate. The
Company will promptly make available to the Buyers any such supplement or
amendment to the related prospectus.
M. LEGAL OPINION. The Company's independent counsel shall
deliver to the Buyers upon execution of this Agreement and upon the Closing of
each subsequent tranche (dated as of the applicable closing), an opinion in the
form of Annex VI. The Company will obtain for the Buyers, at the Company's
expense, any and all opinions of counsel which may be reasonably required in
order to convert the Preferred Stock and/or exercise the Warrants, including,
but not limited to, obtaining for the Buyers an opinion of counsel, subject only
to receipt of a notice of conversion, and/or subject only to a receipt of a
notice of exercise in the form annexed to the Warrant, and in connection with
the resale of the Shares by the Buyers directing the transfer agent to remove
the legend from the certificate.
N. RESTRICTIONS ON FUTURE FINANCINGS. The Company may enter
into a subsequent or further offer or sale of Common Stock, or any securities or
other instruments convertible into shares of Common Stock, with any party that
is not a party to this Agreement; provided, that the investor in such future
financing shall not be permitted to convert its securities into Common Stock or
to have the right to receive freely tradeable shares of Common Stock until the
Buyers shall have freely tradeable shares of Common Stock. The Company must
disclose the terms of any proposed financing to the Buyers prior to closing on
such financing and the Buyers shall have the benefit of any terms in such
financing that are more beneficial to the terms of this Agreement.
Notwithstanding the foregoing, the Company may issue shares of its Common Stock
in connection with: (a) the issuance of securities (other than for cash) in
connection with a merger, consolidation, sale of assets, or other disposition,
(b) the exchange of capital shares for assets, stock, or joint venture interest,
(c) an offering of any of the Company's securities at then current market prices
with no repricing or reset provisions, or (d) any employee benefit plan.
5. TRANSFER AGENT INSTRUCTIONS.
A. Promptly following the Tranche I Closing Date, the Company
will irrevocably instruct its transfer agent to issue Common Stock from time to
time upon conversion of the Preferred Stock and/or exercise of the Warrants in
such amounts as specified from time to time by the Company to the transfer
agent, bearing the restrictive legend specified in Section 4(b) of this
Agreement prior to registration of the Shares under the 1933 Act and resale of
the Shares, registered in the name of the Buyers or its nominee and in such
denominations to be specified by the Buyers in connection with each conversion
of the Preferred Stock and/or exercise of the Warrants. The Company warrants
that no instruction other than such instructions referred to in this Section 5
and stop transfer instructions to give effect to Section 4(a) hereof prior to
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registration and sale of the Shares under the 1933 Act will be given by the
Company to the transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement, and applicable
law. Nothing in this Section shall affect in any way the Buyers' obligations and
agreement to comply with all applicable securities laws upon resale of the
Securities. If the Buyers provide the Company with an opinion of counsel
reasonably satisfactory to the Company that registration of a resale by the
Buyers of any of the Securities in accordance with clause (1)(B) of Section 4(a)
of this Agreement is not required under the 1933 Act, the Company shall (except
as provided in clause (2) of Section 4(a) of this Agreement) permit the transfer
of the Shares and, in the case of the Shares, promptly instruct the Company's
transfer agent to issue one or more certificates for Common Stock without legend
in such name and in such denominations as specified by the Buyers.
B. The Company will permit the Buyers to exercise its right to
convert the Preferred Stock in accordance with the terms of the Certificate of
Designation.
6. DELIVERY INSTRUCTIONS.
The Preferred Stock shall be delivered by the Company to the
Escrow Agent pursuant to Section 1(b) hereof, on a delivery against payment
basis on each Closing Date.
7. CLOSING DATE.
A. The date and time of the issuance and sale of each tranche
of the Preferred Stock (each, a "Closing Date") shall occur no later than 3:00
P.M., New York time on the date of the fulfillment or waiver of all of the
closing conditions pursuant to Sections 8 and 9, or such other mutually agreed
to time. The closing shall occur on such date at the offices of the Escrow
Agent. Notwithstanding anything to the contrary contained herein, the Escrow
Agent will be authorized to release the funds representing the Purchase Price
for the Preferred Stock and the Warrants, and the Preferred Stock and the
Warrants only upon satisfaction of each of the conditions set forth in Sections
8 and 9 hereof.
B. Notwithstanding anything to the contrary contained in
Section 7(a), the Closing Date of the first tranche (the "Tranche I Closing
Date") shall be upon the execution by the parties of this Agreement, and the
payment of the Purchase Price and the delivery of the original stock
certificates evidencing the Preferred Stock and the Warrants, the Closing Date
of the second tranche (the "Tranche II Closing Date") shall be December 30,
1998, and the Closing Date of the third tranche (the "Tranche III Closing Date")
shall be 40 calendar days after the Tranche II Closing Date; provided, that such
Closing Date is a business day, and, if not, then the immediately following
business day. In addition to the conditions contained in Sections 8 and 9 below,
the closing of each tranche shall be subject to the following restrictions:
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<PAGE>
I. The Common Stock must have a closing bid price of at
least $0.50 per share for the five consecutive
trading days prior to the Closing Date of the
applicable tranche.
II. The average trading volume for the Common Stock over
the five consecutive trading days prior to the
Closing Date of the applicable tranche must be at
least 100,000 shares per day if the Common Stock is
trading between $0.50 - $0.75 per share, 95,000
shares per day if the Common Stock is trading between
$0.76 - $1.00 per share, 90,000 shares per day if the
Common Stock is trading between $1.01 - $1.25 per
share, 80,000 shares per day if the Common Stock is
trading between $1.26 - $1.50 per share and at least
75,000 shares per day if the price of the Common
Stock is in excess of $1.50 per share.
III. If, using the closing bid price of the Common Stock
on the trading date immediately preceding the Closing
Date of the applicable tranche, the number of shares
of Common Stock that would be issued as a result of
complete conversion of the Preferred Stock associated
with the tranches previously funded and the tranche
to be funded exceeds 17% of the then issued and
outstanding Common Stock of the Company, the Buyers
shall not be obligated to fund the additional
tranche.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
Each of the Buyers understands that the Company's obligation
to sell the Preferred Stock and the Warrants on each Closing Date to the Buyers
pursuant to this Agreement is conditioned upon:
A. The receipt and acceptance by the Company of such Agreement
as evidenced by execution of this Agreement and all agreements annexed hereto by
the Company for at least $1,166,666 principal amount of Preferred Stock (or such
lesser amount as the Company, in its sole discretion, shall determine);
B. Delivery by the Buyers to the Escrow Agent of good funds as
payment in full of an amount equal to the purchase price for the Preferred Stock
and the Warrants in accordance with Section 1(c) hereof;
C. The accuracy in all material respects on each Closing Date
of the representations and warranties of the Buyers contained in this Agreement
as if made on such Closing Date and the performance by the Buyers on or before
each Closing Date of all covenants and agreements of the Buyers required to be
performed on or before such Closing Date;
-13-
<PAGE>
D. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
9. CONDITIONS TO EACH BUYERS' OBLIGATION TO
PURCHASE.
The Company understands that each Buyer's obligation to
purchase the Preferred Stock on each Closing Date is conditioned upon:
A. Acceptance by Buyers of an Agreement for the sale of
Preferred Stock and Warrants, as indicated by execution of this Agreement and
all agreements annexed hereto;
B. Delivery by the Company to the Escrow Agent of the original
shares of Preferred Stock and Warrants in accordance with this Agreement;
C. The accuracy in all material respects on each Closing Date
of the representations and warranties of the Company contained in this Agreement
as if made on each Closing Date and the performance by the Company on or before
each Closing Date of all covenants, agreements and conditions of the Company
required by this Agreement, the Registration Rights Agreement, the Escrow
Agreement and the Warrants to be performed on or before each Closing Date; and
D. On each Closing Date, the Buyers having received an opinion
of counsel for the Company, dated the such Closing Date, in form, scope and
substance reasonably satisfactory to the Buyers, to the effect set forth in
Annex VI attached hereto, and the Registration Rights Agreement annexed hereto
as Annex IV.
E. The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Preferred
Stock and Warrants, or shall have the availability of exemptions therefrom. The
sale and issuance of the Preferred Stock and Warrants shall be legally permitted
by all laws and regulations to which the Company is subject.
F. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that prohibits
or directly and adversely affects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced that may have the effect
of prohibiting or adversely affecting any of the transactions contemplated by
this Agreement.
G. Since the Tranche I Closing Date, no event that had or is
reasonably likely to have a material adverse effect on the business or financial
condition of the Company, or
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<PAGE>
materially and adversely affect the ability of the Company to perform its
obligations pursuant to this Agreement has occurred.
H. The trading of the Common Stock is not suspended by the SEC
or the Nasdaq Small Cap Market, and the Common Stock shall have been approved
for listing or quotation on and shall not have been delisted from the Nasdaq
Small Cap Market. The issuance of shares of Preferred Stock and Warrants with
respect to the applicable Closing, if any, shall not violate the shareholder
approval requirements of the Nasdaq Small Cap Market.
I. The parties hereto shall have entered into the Escrow
Agreement to hold the Preferred Stock and Warrants issuable upon each Closing
Date and the Purchase Prices due hereunder, which shall remain in full force and
effect as of each Closing Date.
10. GOVERNING LAW; SPECIFIC PERFORMANCE.
A. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the parties consents
to the exclusive jurisdiction of the federal courts whose districts encompass
any part of the City of New York in connection with any dispute arising under
this Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on FORUM NON CONVENIENS, to the
bringing of any such proceeding in such jurisdictions. Each party waives its
right to a trial by jury.
B. The Company and the Buyers acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement or the Registration Rights Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement or the Registration Rights
Agreement and to enforce specifically the terms and provisions hereof or
thereof, this being in addition to any other remedy to which any of them may be
entitled by law or equity.
11. NOTICES. Any notice required or permitted hereunder shall
be given in writing (unless otherwise specified herein) and shall be deemed
effectively given, (i) on the date delivered, (a) by personal delivery, or (b)
if advance copy is given by fax, (ii) seven business days after deposit in the
United States Postal Service by regular or certified mail, or (iii) three
business days mailing by international express courier, with postage and fees
prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days advance written notice to each of the other parties hereto.
COMPANY: STARBASE CORPORATION
4 Hutton Centre Drive, Suite 800
Santa Ana, California 92707
Attention: Chief Financial Officer
Telecopier No.: (714) 445-4482
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<PAGE>
with a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Martin Eric Weisberg, Esq.
Telecopier No.: (212) 704-6288
BUYER: At the address set forth on Schedule of Buyers
attached hereto.
ESCROW AGENT: Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the America
New York, New York 10036
Telecopier No. (212) 704-6288
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Company's representations and warranties shall survive the execution and
delivery hereof of this Agreement and the delivery of the Preferred Stock.
13. MISCELLANEOUS
A. INDEMNIFICATION. The Company agrees to indemnify and hold
harmless each of the Buyers and each officer, director of the Buyers or person,
if any, who controls the Buyers within the meaning of the Securities Act against
any losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees), to which the Buyers may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon the breach of any term of this Agreement. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
B. ASSIGNMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of, the parties and their respective
successors and assigns.
C. COUNTERPARTS; FACSIMILE; AMENDMENTS. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by the Company on the one hand, and all of the Buyers, on the other
hand.
-16-
<PAGE>
D. ENTIRE AGREEMENT. This Agreement, the Exhibits or Annexes,
which include, but are not limited to the Certificate of Designation, the
Warrant, the Escrow Agreement, and the Registration Rights Agreement, set forth
the entire agreement and understanding of the parties relating to the subject
matter hereof and supersedes all prior and contemporaneous agreements,
negotiations and understandings between the parties, both oral and written
relating to the subject matter hereof. The terms and conditions of all Exhibits
and Annexes to this Agreement are incorporated herein by this reference and
shall constitute part of this Agreement as is fully set forth herein.
E. SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
F. TITLE AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
G. REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given trading day for the purposes of this Agreement and all
Annexes shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Buyers and the Company shall be required to employ any other
reporting entity.
H. REPLACEMENT OF CERTIFICATES. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Preferred Stock, Warrants, or
shares of Common Stock underlying the Preferred Stock or Warrants, and (ii) in
the case of any such loss, theft or destruction of such certificate, upon
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
I. PUBLICITY. The Company and the Buyers shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Buyers without the prior written consent of the Buyers, except
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<PAGE>
to the extent required by law, in which case the Company shall provide the
Buyers with prior written notice of such public disclosure.
[end of page]
-18-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyers or one of their officers thereunto duly authorized as of the date
first above written.
STARBASE CORPORATION
By:_________________________
Name:
Title:
THE BUYERS:
AUSTOST ANSTALT SCHANN
By:_________________________
Name:
Title:
BALMORE FUND, S.A.
By:_________________________
Name:
Title:
MANCHESTER ASSET MANAGEMENT,
LTD.
By:_________________________
Name:
Title:
HSBC JAMES CAPEL CANADA,
INC.
By:_________________________
Name:
Title:
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<PAGE>
AMRO INTERNATIONAL
By:________________________
Name:
Title:
___________________________
Mark Shoom
-20-
<PAGE>
SCHEDULE OF BUYERS TO THE
SERIES H CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
FOR STARBASE CORPORATION
<TABLE>
<CAPTION>
NUMBER OF
INITIAL /
ADDITIONAL
INVESTOR ADDRESS PREFERRED INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
- ------------- --------------------- ------------- ------------------------------------
<S> <C> <C>
Balmore Fund S.A. Trident Chambers 250/500
P.O. Box 146
Roadstown Tortola, BVI
Facsimile Number:
Austost Anstalt Schann 744 Fuerstentum 250/500
Landstrasse 163, Lichenstein
Facsimile Number:
Manchester Asset Charlotte House 125/250
Mangement Charlotte Street
Nassau, Bahamas
Facsimile Number: (242) 325-7918
HSBC James Capel 105 Adelaide Street West 100/200
Canada, Inc. Suite 1200
Toronto, ON MSH IP9
Facsimile Number: (416) 947-9450
Amro International 48 Eighth Avenue, Suite 132 100/200
New York, New York 10014
Facsimile Number: (212) 255-9643
Gundyco., in trust for Mark Shoom 525
RRSP 550 98866 19 4120 Yonge Street
Suite 416
Toronto, Ontario M2P 2C8
Facsimile Number: (416) 225-7950
</TABLE>
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<PAGE>
ANNEX I CERTIFICATE OF DESIGNATION
ANNEX II FORM OF WARRANT
ANNEX III ESCROW AGREEMENT
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI OPINION OF COUNSEL
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<PAGE>
ANNEX III
ESCROW AGREEMENT
----------------
ESCROW AGREEMENT (the "Escrow Agreement") made as of the 23rd day
of November, 1998, by and among StarBase Corporation, a Delaware corporation
with offices at 4 Hutton Centre Drive, Suite 800, Santa Ana, California 92707
(the "Company"), the entities listed on the signature page (the "Purchasers")
and Parker Chapin Flattau and Klimpl, LLP, a New York limited liability
partnership with offices at 1211 Avenue of the Americas, New York, New York
10027, as escrow agent (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Company desires to raise capital in order to finance
the growth of its business operations and for other general corporate purposes;
WHEREAS, the Company and the Purchasers have agreed that, in order
to raise capital, the Company shall issue and sell to the Purchasers an
aggregate of 3,500 shares of Series H Preferred Stock of the Company (the
"Preferred Stock"), each share convertible into shares of the Company's common
stock, $0.01 par value per share (the "Common Stock"), and warrants to purchase
an aggregate of 350,000 shares of Common Stock (the "Warrants"),for a purchase
price of Three Million Five Hundred Thousand ($3,500,000) Dollars (the "Sale");
WHEREAS, pursuant to the Sale, the Company will enter into a
Securities Purchase Agreement dated November 23, 1998 (the "Purchase Agreement")
with the Purchasers, in the form attached as Exhibit A hereto; and
WHEREAS, the Purchase Agreement contemplates that all funds shall
be paid into escrow and the original certificates representing the Preferred
Stock (the "Certificates") and original Warrants shall be held in escrow prior
to each Closing Date (as defined in the Purchase Agreement) and the Escrow Agent
has agreed to receive, hold and pay such funds and to receive such Certificates
and Warrants, upon the terms and subject to the conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowl edged, the parties to this Escrow
Agreement hereby agree as follows:
1. Defined Terms. Capitalized terms used and not otherwise
defined herein shall have the meanings respectively assigned to them in the
Purchase Agreement.
2. Escrow of Funds. At or prior to each Closing Date, the
following shall occur: (a) each of the Purchasers shall remit by wire transfer
its portion of the Purchase Price to the Escrow Agent pursuant to this Escrow
Agreement as payment in full for the Preferred Stock
<PAGE>
and Warrants (the "Escrow Amount"); (b) Company shall deliver or cause to be
delivered to Escrow Agent the Certificates and Warrants registered in the name
of each of the Purchasers (or any nominee designated by each Purchaser at least
three days before each Closing Date), free and clear of all liens, claims,
charges and encumbrances. The Escrow Agent shall hold the Escrow Amount and the
Certificates and Warrant and shall deliver them or redeliver them to the Company
or to the Purchasers, as applicable, only in accordance with the terms and
conditions of this Escrow Agreement.
3. Investment of Funds. The Escrow Agent shall invest the
monies in the Escrow Amount in an interest bearing bank account with, or
certificates of deposit or time deposits with maturities of no more than thirty
(30) days issued by, a domestic commercial bank or such other bank or other
financial institution as it normally holds such funds.
4. Release of Funds. (a) The Escrow Agent shall release
the Escrow Amount and the Certificates and Warrants upon receipt, at any time,
of instructions from the Company and the Purchasers directing the manner in
which the return or other distribution of the funds in the Escrow Amount and the
Certificates and Warrants are to be made.
(b) Immediately following notification to the Escrow Agent
by the Company and the Purchasers that each of the conditions precedent to a
Closing has been satisfied or waived, the Company shall be paid the Escrow
Amount and the Purchasers shall receive the Certificates and Warrants.
(c) If no closing occurs and the Escrow Agent does not
receive joint instructions of the Company and the Purchasers regarding an
extension of the Closing Date, the Escrow Agent shall promptly thereafter return
the Escrow Amount to the Purchasers and the Certificates to the Company.
(d) Any interest earned on the Escrow Amount shall be paid
to the party receiving the Escrow Amount.
5. Further Assurances. The Company and the Purchasers
agree to do such further acts and to execute and deliver such statements,
assignments, agreements, instruments and other documents as the Escrow Agent
from time to time reasonably may request in connection with the administration,
maintenance, enforcement or adjudication of this Escrow Agreement in order (a)
to give the Escrow Agent confirmation and assurance of the Escrow Agent's
rights, powers, privileges, remedies and interests under this Escrow Agreement
and applicable law, (b) to better enable the Escrow Agent to exercise any such
right, power, privilege, remedy or interest, or (c) to otherwise effectuate the
purpose and the terms and provisions of this Escrow Agreement, each in such form
and substance as may be reasonably acceptable to the Escrow Agent.
-2-
<PAGE>
6. Conflicting Demands. If conflicting or adverse claims
or demands are made or notices served upon the Escrow Agent with respect to the
escrow provided for herein, the Company and the Purchasers agree that the Escrow
Agent shall refuse to comply with any such claim or demand and withhold and stop
all further performance of this escrow so long as such disagreement shall
continue. In so doing, the Escrow Agent shall not be or become liable for
damages, losses, costs, expenses or interest to any or any other person for its
failure to comply with such conflicting or adverse demands. The Escrow Agent
shall be entitled to continue to so refrain and refuse to so act until such
conflicting claims or demands shall have been finally determined by a court or
arbitrator of competent jurisdiction or shall have been settled by agreement of
the parties to such controversy, in which case the Escrow Agent shall be
notified thereof in a notice signed by such parties. The Escrow Agent may also
elect to commence an interpleader or other action for declaratory judgment for
the purpose of having the respective rights of the claimants adjudicated, and
may deposit with the court all funds held hereunder pursuant to this Escrow
Agreement; and if it so commences and deposits, the Escrow Agent shall be
relieved and discharged from any further duties and obligations under this
Escrow Agreement.
7. Disputes. Each of the parties hereto hereby covenants
and agrees that the Federal or state courts located in the Borough of Manhattan,
State of New York shall have jurisdiction over any dispute with the Escrow Agent
or relating to this Escrow Agreement.
8. Expenses of the Escrow Agent. The Company agrees to pay
any and all out-of-pocket costs and expenses incurred by the Escrow Agent in
connection with all waivers, releases, discharges, satisfactions, modifications
and amendments of this Escrow Agreement, the administration and holding of the
Escrow Amount and the investment of such funds, and the enforcement, protection
and adjudication of the parties' rights hereunder by the Escrow Agent,
including, without limitation, the out-of-pocket disbursements and expenses of
the Escrow Agent itself and those of other attorneys it may retain, if any. The
Company shall be liable to the Escrow Agent for any expenses payable by the
Escrow Agent.
9. Reliance on Documents and Experts. The Escrow Agent
shall be entitled to rely upon any notice, consent, certificate, affidavit,
statement, paper, document, writing or communication (which to the extent
permitted hereunder may be by telegram, cable, telex, telecopier, or telephone)
reasonably believed by it to be genuine and to have been signed, sent or made by
the proper person or persons, and upon opinions and advice of legal counsel
(including itself or counsel for any party hereto), independent public
accountants and other experts selected by the Escrow Agent and mutually
acceptable to each of the Company and the Purchasers. The Escrow Agent shall not
be responsible to review the Certificates other than to confirm that it has been
signed or to determine the clearance of checks received for the Escrow Amount.
10. Status of the Escrow Agent, Etc. The Escrow Agent is
acting under this Escrow Agreement as a stakeholder only. No term or provision
of this Escrow Agreement is intended to create, nor shall any such term or
provision be deemed to have created, any joint ven ture, partnership or
attorney-client relationship between or among the Escrow Agent and the
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<PAGE>
Company or the Purchasers. This Escrow Agreement shall not be deemed to prohibit
or in any way restrict the Escrow Agent's representation of the Company, who may
be advised by the Escrow Agent on any and all matters pertaining to this Escrow
Agreement. To the extent the Company has been represented by the Escrow Agent,
the Company hereby waives any conflict of interest and irrevocably authorizes
and directs the Escrow Agent to carry out the terms and provisions of this
Escrow Agreement fairly as to all parties, without regard to any such
representation and irrespective of the impact upon the Company. The Escrow
Agent's only duties are those expressly set forth in this Escrow Agreement, and
each of the Company and the Purchasers authorize the Escrow Agent to perform
those duties in accordance with its usual practices in holding funds of its own
or those of other escrows. The Escrow Agent may exercise or otherwise enforce
any of its rights, powers, privileges, remedies and interests under this Escrow
Agreement and applicable law or perform any of its duties under this Escrow
Agreement by or through its partners, employees, attorneys, agents or designees.
11. Exculpation. The Escrow Agent and its designees, and
their respective partners, employees, attorneys and agents, shall not incur any
liability whatsoever for the investment or disposition of funds or the taking of
any other action in accordance with the terms and provisions of this Escrow
Agreement, for any mistake or error in judgment, for compliance with any
applicable law or any attachment, order or other directive of any court or other
authority (irrespective of any conflicting term or provision of this Escrow
Agreement), or for any act or omission of any other person selected with
reasonable care and engaged by the Escrow Agent in connection with this Escrow
Agreement (other than for such Escrow Agent's or such person's own acts or
omissions breaching a duty owed to the claimant under this Escrow Agreement and
amounting to gross negligence or willful misconduct as finally determined
pursuant to applicable law by a governmental authority having jurisdiction); and
each of the Company and the Purchasers hereby waive any and all claims and
actions whatsoever against the Escrow Agent and its designees, and their
respective partners, employees, attorneys and agents, arising out of or related
directly or indirectly to any and all of the foregoing acts, omissions and
circumstances. Furthermore, the Escrow Agent and its designees, and their
respective partners, employees, attorneys and agents, shall not incur any
liability (other than for a person's own acts or omissions breaching a duty owed
to the claimant under this Escrow Agreement and amounting to willful misconduct
as finally determined pursuant to applicable law by a governmental authority
having jurisdiction) for other acts and omissions arising out of or related
directly or indirectly to this Escrow Agreement or the Escrow Amount; and each
of the Company and the Purchasers hereby expressly waives any and all claims and
actions (other than those attributable to a person's own acts or omissions
breaching a duty owed to the claimant and amounting to gross negligence or
willful misconduct as finally determined pursuant to applicable law by a
governmental authority having jurisdiction) against the Escrow Agent and its
designees, and their respective partners, employees, attorneys and agents,
arising out of or related directly or indirectly to any and all of the foregoing
acts, omissions and circumstances.
12. Indemnification. The Escrow Agent and its designees,
and their respective partners, employees, attorneys and agents, shall be
indemnified, reimbursed, held
-4-
<PAGE>
harmless and, at the request of the Escrow Agent, defended, by the Company from
and against any and all claims, liabilities, losses and expenses (including,
without limitation, the reasonable disbursements, expenses and fees of their
respective attorneys) that may be imposed upon, incurred by, or asserted against
any of them, arising out of or related directly or indirectly to this Escrow
Agreement or the Escrow Amount, except such as are occasioned by the indemnified
person's own acts and omissions breaching a duty owed to the claimant under this
Escrow Agreement and amounting to willful misconduct as finally determined
pursuant to applicable law by a governmental authority having jurisdiction.
13. Notices. Any notice required or permitted hereunder
shall be given in writing (unless otherwise specified herein) and shall be
deemed effectively given, (i) on the date delivered, (a) by personal delivery,
or (b) if advance copy is given by fax, (ii) seven business days after deposit
in the United States Postal Service by regular or certified mail, or (iii) three
business days mailing by international express courier, with postage and fees
prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days advance written notice to each of the other parties hereto.
14. Section and Other Headings. The section and other
headings contained in this Escrow Agreement are for convenience only, shall not
be deemed a part of this Escrow Agreement and shall not affect the meaning or
interpretation of this Escrow Agreement.
15. Governing Law. This Escrow Agreement shall be governed
by and interpreted in accordance with the laws of the State of New York. Each of
the parties consents to the exclusive jurisdiction of the federal courts whose
districts encompass any part of the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on FORUM NON
CONVENIENS, to the bringing of any such proceeding in such jurisdictions. Each
party waives its right to a trial by jury.
16. Counterparts. This Escrow Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original but all such counterparts shall together
constitute one and the same agreement.
17. Resignation of Escrow Agent. The Escrow Agent may, at
any time, at its option, elect to resign its duties as Escrow Agent under this
Escrow Agreement by providing notice thereof to each of the Company and the
Purchasers. In such event, the Escrow Agent shall deposit the Escrow Amount with
a successor escrow agent to be appointed by (a) the Company and the Purchasers
within thirty (30) days following the receipt by the parties of such notice of
resignation from the Escrow Agent, or (b) the Escrow Agent if the Company and
the Purchasers shall have not agreed on a successor escrow agent within the
aforesaid 30-day period, upon which appointment and delivery of the Escrow
Amount the Escrow Agent shall be released of and from all liability under this
Escrow Agreement.
-5-
<PAGE>
18. Successors and Assigns; Assignment. Whenever in this
Escrow Agreement reference is made to any party, such reference shall be deemed
to include the successors, assigns and legal representatives of such party, and,
without limiting the generality of the foregoing, all representations,
warranties, covenants and other agreements made by or on behalf of each of the
Company and the Purchasers in this Escrow Agreement shall inure to the benefit
of any successor escrow agent hereunder; provided, however, that nothing herein
shall be deemed to authorize or permit the Company or the Purchasers to assign
any of its rights or obligations hereunder to any other person (whether or not
an affiliate of the Company or the Purchasers) without the written consent of
each of the other parties nor to authorize or permit the Escrow Agent to assign
any of its duties or obligations hereunder except as provided in Section 17
hereof.
19. No Third Party Rights. The representations, warranties
and other terms and provisions of this Escrow Agreement are for the exclusive
benefit of the parties hereto, and no other person, including the creditors of
the Company or the Purchasers, shall have any right or claim against any party
by reason of any of those terms and provisions or be entitled to enforce any of
those terms and provisions against any party.
20. No Waiver by Action, Etc. Any waiver or consent
respecting any representation, warranty, covenant or other term or provision of
this Escrow Agreement shall be effective only in the specific instance and for
the specific purpose for which given and shall not be deemed, regardless of
frequency given, to be a further or continuing waiver or consent. The failure or
delay of a party at any time or times to require performance of, or to exercise
its rights with respect to, any representation, warranty, covenant or other term
or provision of this Escrow Agreement in no manner (except as otherwise
expressly provided herein) shall affect its right at a later time to enforce any
such term or provision. No notice to or demand on either the Company or the
Purchasers in any case shall entitle such party to any other or further notice
or demand in the same, similar or other circumstances. All rights, powers,
privileges, remedies and interests of the parties under this Escrow Agreement
are cumulative and not alternatives, and they are in addition to and shall not
limit (except as otherwise expressly provided herein) any other right, power,
privilege, remedy or interest of the parties under this Escrow Agreement or
applicable law.
21. Modification, Amendment, Etc. Each and every
modification and amendment of this Escrow Agreement shall be in writing and
signed by all of the parties hereto, and each and every waiver of, or consent to
any departure from, any covenant, representation, warranty or other provision of
this Escrow Agreement shall be in writing and signed by the party granting such
waiver or consent.
22. Entire Agreement. This Escrow Agreement and the
Purchase Agreement contain the entire agreement of the parties with respect to
the matters contained herein and therein and supersedes all prior
representations, agreements and understandings, oral or
-6-
<PAGE>
otherwise, among the parties with respect to the matters contained herein.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement on the date first written above.
STARBASE CORPORATION
By: --------------------------------
William R. Stow, III
Chief Executive Officer
AUSTOST ANSTALT SCHANN
By: --------------------------------
Name:
Title:
BALMORE FUND, S.A.
By: --------------------------------
Name:
Title:
MANCHESTER ASSET MANAGEMENT,LTD.
By: --------------------------------
Name:
Title:
-7-
<PAGE>
HSBC JAMES CAPEL CANADA, INC.
By: --------------------------------
Name:
Title:
AMRO INTERNATIONAL
By: --------------------------------
Name:
Title:
------------------------------------
Mark Shoom
PARKER CHAPIN FLATTAU & KLIMPL, LLP,
as escrow agent
-----------------------------------
-8-
<PAGE>
ANNEX V
COMPANY DISCLOSURE
------------------
3.a Organization and Good Standing - None.
3.b Concerning the Shares - See 3.n below.
3.c Reporting Company Status - The Company has received notice that it has
until January 9, 1998 to comply with certain NASD maintenance
requirements. As of January 8, 1998, the Company has complied with the
compliance request.
3.i SEC Filings - None
3.j Absence of Certain Changes - None
3.l Absence of Litigation - None
3.m Absence of Events of Default - None
3.n Prior Issues
January and February 1998 - $3.4M of 0% Convertible Preferred Stock
(Series E) January 1998 - $470K of 0% Convertible Preferred Stock
(Series F) January and February 1998 1.5 M of 0% Convertible Preferred
Stock (Series D) July 1998 - $3.0M of 0% Convertible Preferred Stock
(Series G)
Outstanding shares of Convertible Preferred Stock as of October 1,
1998:
Series D - 50,000
Series E - 1,379,103
Series F - 0
Series G - 3,100
<PAGE>
ANNEX VI
November __, 1998
To each of the Purchasers
listed on Schedule A hereto
RE: STARBASE CORPORATION
--------------------
Dear Sir/Madam:
We have acted as counsel to StarBase Corporation, a Delaware
corporation (the "Company"), in connection with (i) the issuance and sale by the
Company of 3,100 shares of Series H Preferred Stock (the "Series H Preferred
Stock") to each of the Purchasers listed on Schedule A hereto (collectively, the
"Purchasers"), each an Accredited Investor (as defined in Rule 501 of Regulation
D promulgated under the Securities Act of 1933, as amended (the "Act")) pursuant
to a Series H Convertible Preferred Stock Purchase Agreement dated as of July
31, 1998 (the "Purchase Agreement"), each share of Series H Preferred Stock
convertible into shares of common stock, $0.01 par value per share of the
Company (the "Common Stock"), and (ii) the preparation of the Purchase
Agreement, the Certificate of Designation, the Registration Rights Agreement and
the Warrant. The Purchase Agreement, the Registration Rights Agreement and the
Warrant are sometimes referred to herein collectively as the "Transaction
Agreements." Capitalized terms used herein, but not otherwise defined herein,
shall have the meanings ascribed to those terms in the Purchase Agreement.
This opinion is rendered solely for the information of the
addressees in connection with the transactions contemplated by the Transaction
Agreements and only the addressees are entitled to rely hereon. This opinion may
not be used or relied on by the addressees for any other purpose, or by any
other person, firm, corporation or entity for any purpose, without our prior
written consent.
In connection with rendering this opinion, we have examined
copies of the Transaction Agreements in the form submitted to the various
parties thereto for execution, the Company's certificate of incorporation, the
Company's amended and restated bylaws and resolutions of the Board of Directors
of the Company approving the transactions contemplated by the Transaction
Agreements.
We have also made such examination of law and have examined
originals or copies of such corporate records and documents of the Company, such
agreements, certificates of officers or
<PAGE>
The Purchasers listed on Schedule A
November __, 1998
Page 2
representatives of the Company, and such other records, certificates, including
certificates of public officials, and documents as we have deemed relevant and
necessary as a basis for the opinions 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 authentic
original documents of all documents submitted to us as copies. As to any facts
relevant to the opinions expressed below, we have relied upon certificates and
written and/or oral representations of officers of the Company (including,
without limitation, the representations of the Company set forth in the
Transaction Agreements) and public officials. We have also assumed that the
representations and warranties of the Purchasers set forth in the Transaction
Agreements are true and correct as of the date hereof. All references herein to
contracts, instruments or other documents of the Company are limited to such
documents as have been provided to us by the Company or of which we have actual
knowledge, after due inquiry of the Company and its officers. We have not
examined or reviewed any communication, instrument, agreement, document or other
item or conducted any independent inquiry or investigation of any matter except
as otherwise expressly set forth above. We have also assumed that the
Transaction Agreements which are to be executed by the Purchasers have been duly
authorized, executed and delivered by, and constitute legal, valid and binding
obligations of, the Purchasers.
The opinions expressed below with respect to the Company's
compliance with certain statutes, rules and regulations are based upon a review
of those statutes, rules and regulations that, in our experience, are applicable
to transactions of the type contemplated by the Transaction Agreements. Our
opinion as to the good standing of the Company in Delaware set forth in the
first sentence of paragraph 1 below is based solely upon our examination of a
certificate of good standing dated Novemer 25, 1998 provided by the Secretary of
State of Delaware, and such opinion is given solely as of such date.
In connection with our opinion with respect to pending
litigation set forth in paragraph 6 below we have not undertaken searches of the
dockets of any court of any jurisdiction, nor conducted a judgment, lien,
litigation or similar search and have relied solely upon certificates and
written or oral representations of officers of the Company.
We express no opinion respecting the enforceable nature of any
of the Transaction Agreements or any document or instrument executed pursuant
thereto or in connection therewith, insofar as the enforceable nature thereof,
or any right, power, privilege, remedy or interest intended to be created
thereunder, may be limited (i) by applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance, reorganization or other laws or judicial decisions
affecting any rights, powers, privileges, remedies or interests of creditors
generally, (ii) by rules or principles of equity affecting the enforcement of
obligations generally, whether at law, in equity or otherwise, (iii) by the
exercise of the discretionary powers of any court or other authority before
which may be brought any proceeding seeking equitable or other remedies,
including, without limitation, specific performance,
<PAGE>
The Purchasers listed on Schedule A
November __, 1998
Page 3
injunctive relief and indemnification or (iv) insofar as rights to indemnity
and/or contribution are concerned, by federal or state securities laws or the
public policy underlying such laws.
Our opinion is limited to the date hereof and we do not in any
event undertake to advise you of any facts or circumstances occurring or coming
to our attention subsequent to the date hereof.
Where reference is made in this opinion to matters within or
to our knowledge, to the best of our knowledge, or to facts or circumstances
known to us or which have come to our attention, such reference means the actual
knowledge of those attorneys in our firm who have given substantive attention to
the preparation of the Transaction Agreements, without, however, independent
investigation of any matter unless expressly set forth herein.
We call your attention to the fact that we are counsel
admitted to practice in the State of New York, and we do not express any opinion
with respect to the applicable laws, or the effect or applicability of the laws,
of any jurisdiction other than those of the State of New York, the General
Corporation Law of the State of Delaware and the securities laws of the United
States of America. In particular, but without limitation, we do not express any
opinion with respect to the blue sky laws of any State or securities laws of any
State or other jurisdiction (other than the federal securities laws of the
United States of America).
Based upon and subject to the foregoing, we are of the opinion
that:
1. The Company is a corporation organized, validly existing
and in good standing under the laws of the State of Delaware. The Company has
the requisite corporate power to own and operate its properties and assets, and
to carry on its business as presently conducted.
2. The Company has the requisite legal and corporate power to
execute and deliver the Transaction Agreements, to sell and issue the Series H
Preferred Stock (upon confirmation that the Certificate of Designation has been
filed with the Secretary of State of Delaware) and the Warrant and to issue the
Common Stock which are issuable upon conversion of the Series H Preferred Stock
or upon exercise of the Warrant, and to perform its obligations under the
Transaction Agreements.
3. The shares of Common Stock issuable upon conversion of the
Series H Preferred Stock and/or the exercise of the Warrant, have been duly
authorized and validly issued and, when delivered against payment in full as
provided in the Series H Preferred Stock and the Warrant, as applicable, will be
fully paid and nonassessable.
4. The Company has taken all necessary corporate action for
the authorization, execution and delivery of the Transaction Agreements on the
part of the Company; each of the
<PAGE>
The Purchasers listed on Schedule A
November __, 1998
Page 4
Transaction Agreements has been duly executed and delivered by and on behalf of
the Company, and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with their terms.
5. The execution, delivery and performance of and compliance
with the terms of the Transaction Agreements and the issuance of the Series H
Preferred Stock (i) do not violate any provision of the Company's certificate of
incorporation or bylaws, (ii) do not constitute a material default and will not
result in the creation of any mortgage, pledge, lien, encumbrance or charge upon
the properties or assets of the Company under the provisions of any material
agreement known to us to which the Company is a party or by which it is bound,
and (iii) do not violate or contravene (a) any applicable governmental statute,
rule or regulation known to us pertaining to the Company or (b) any applicable
order, writ, judgment, injunction, decree, determination or award which has been
entered against the Company and known to us, by any court or governmental body
having jurisdiction over the Company or any of its property, the violation or
contravention of which would materially and adversely affect the Company, its
assets, financial condition or operations.
6. To our knowledge, and except as disclosed in Annex V of the
Purchase Agreement, there are no actions, suits, proceedings or investigations
pending against the Company or its properties before any court or governmental
agency (nor, to our knowledge, has the Company received any written threat
thereof), which, if adversely determined, would result in a material adverse
change in the business or financial condition of the Company, or which questions
the validity of the Transaction Agreements, or any action taken or to be taken
by the Company in connection therewith.
7. No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the Company
is required in connection with the valid execution and delivery of the
Transaction Agreements, or the offer, sale or issuance of the Series H Preferred
Stock or the consummation of any other transaction contemplated by the
Transaction Agreements.
Very truly yours,
PARKER CHAPIN FLATTAU & KLIMPL, LLP
<PAGE>
Schedule A
----------
Balmore Fund S.A. Trident Chambers
P.O. Box 146
Roadstown Tortola, BVI
Austost Anstalt Schann 744 Fuerstentum
Landstrasse 163, Lichenstein
Manchester Asset Management Charlotte House
Charlotte Street
Nassau, Bahamas
HSBC James Capel Canada, Inc. 105 Adelaide Street West
Suite 1200
Toronto ON MSH 1P9
Amro International 48 Eighth Avenue
Suite 132
New York, New York 10014
Gundyco., in trust for Mark Shoom
RRSP 550 98866 19 4120 Yonge Street
Suite 416
Toronto, Ontario M2P 2C8
EXHIBIT 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated June 26, 1998 relating to the
financial statements, which appears in StarBase Corporation's Annual Report on
Form 10-KSB for the year ended March 31, 1999. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Costa Mesa, California
June 29, 1999
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement No.
333-72833 of StarBase Corporation on Form S-3 of our report dated June 18, 1999
(which report expresses an unqualified opinion and includes an explanatory
paragraph related to substantial doubt about the Company's ability to contine as
a going concern) appearing in the Form 10-KSB of StarBase Corporation for the
year ended March 31, 1999, and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Costa Mesa, California
June 29, 1999
