<PAGE> 1
As filed with the Securities and Exchange Commission on February 23, 1999
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
-----------------
STARBASE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0567363
(State or other jurisdiction (IRS employer
of incorporation or organization) Identification number)
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. [ ] ____________
<PAGE> 2
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
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
- --------------------------- ----------- --------- --------------- ------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share 155,993 $1.797(4) $ 280,319.42 $ 77.93
Common Stock, par value
$0.01 per share 6,243,476(2) $1.797(4) $ 11,219,526.38 $3,119.03
Common Stock, par value
$0.01 per share 435,977(3) $1.996(5) $ 870,421.44 $ 241.98
- -----------------------------------------------------------------------------------------------------------------
Total 6,835,446 $ 12,370,267.25 $3,438.94
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</TABLE>
(1) Represents the shares of common stock being registered for resale by the
selling stockholders.
(2) Pursuant to Rule 416, the shares of common stock offered hereby also include
such presently indeterminate number of shares of common stock as shall be
issued by us upon the conversion of the preferred stock issued in connection
with a private placement with the selling stockholders. The number of shares
is an estimate and is 200% of the number of shares that would be issuable
upon conversion of the preferred stock based on the closing price of the
common stock when the preferred stock was sold. Such number is subject to
adjustment and could be materially greater or less than such amount
depending upon factors that cannot be predicted at this time, including,
among others, stock splits, stock dividends and similar transactions, the
effect of anti-dilution provisions included in the securities purchase
agreement and by reason of changes in the conversion ratio of the preferred
stock in accordance with the terms thereof. 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 preferred stock.
(3) Represents shares issuable upon exercise of warrants evidencing the right to
purchase shares of common stock.
(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 ($1.797) of the bid ($1.781) and asked ($1.813) price
of the common stock on the Nasdaq SmallCap Market on February 18, 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 278,302
shares of common stock issuable upon exercise of warrants, the average
($1.797) of the bid ($1.781) and asked ($1.813) price of the common stock on
the Nasdaq SmallCap Market on February 18, 1999 and (ii) with respect to
157,675 shares of common stock issuable upon exercise of warrants, the
exercise price of the warrants.
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> 3
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
6,835,446 SHARES OF COMMON STOCK
o The shares of common stock offered by this prospectus are being sold
by the selling stockholders. 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 February 18, 1999, the closing bid price of our common stock on
the Nasdaq SmallCap Market was $1.781.
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.
--------------------------------------------------
STARBASE CORPORATION
4 Hutton Centre Drive, Suite 800
Santa Ana, CA 92707-8713
(714) 445-4400 (phone)
(714) 445-4404 (fax)
____________ , 1999
<PAGE> 4
TABLE OF CONTENTS
Risk Factors...............................................................3
Forward-Looking Statements.................................................8
Use of Proceeds............................................................9
Dividend Policy............................................................9
Selling Stockholders.......................................................9
Description of Securities.................................................11
Plan of Distribution......................................................12
Where You Can Find More Information.......................................13
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 MAY NOT HAVE ENOUGH CASH TO OPERATE OUR BUSINESS
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
--------------------- ------------------
Nine Months ended: Negative Cash Flow
--------------------- ------------------
o December 31, 1998 $8,021,000
--------------------- ------------------
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. We could be
required to cut back or stop operations if we are unable to raise or obtain
needed funding.
WE HAVE A HISTORY OF LOSSES AND WE MAY NOT BE ABLE TO OPERATE PROFITABLY IN THE
FUTURE
Since we began operations, we have had a history of losses. As of
December 31, 1998 we accumulated losses of approximately $49,000,000. We
anticipate incurring additional losses until we can successfully market and
distribute our existing products and develop, market, and distribute our planned
future products. The development of software products is difficult and time
consuming, requiring the coordinated participation of various technical and
marketing personnel and, at times, independent third-party suppliers. This
development process often encounters unanticipated delays due to changes in
features and functionality. There are also increased expenses frequently
encountered in connection with the development of new technologies. We cannot
assure you that our product development efforts will result in a commercially
viable business or that we will be able to generate significant revenues or
operate profitably.
The report of our independent accountants on our March 31, 1998
consolidated financial statements contains an explanatory paragraph regarding
our ability to continue as an ongoing business. Our independent accountants
cited recurring losses that raised substantial doubt as to our ability to
continue as an ongoing business.
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RISKS ASSOCIATED WITH THE SOFTWARE INDUSTRY
OUR SOFTWARE PRODUCTS MAY NOT BE SUCCESSFULLY COMPLETED OR ACCEPTED BY THE
PUBLIC
We are a leading provider of advanced Internet and intranet based team
collaboration and software configuration management tools. Our success will
depend on our ability to market our current products, including our StarTeam
products, and to quickly introduce and market additional products. While we are
in various stages of developing additional products, we cannot assure you that
such additional products will be completed or successfully marketed. User
preferences for software products are difficult to predict and, historically,
only a limited number of software products have achieved sustained market
acceptance. A number of factors beyond our control affect demand for software
products, including the preferences of users and the capability of personal
computers to run the software. Further, the market for our team collaboration
and software configuration management tools is evolving. 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
business.
THE SOFTWARE INDUSTRY IS HIGHLY COMPETITIVE AND WE COMPETE AGAINST COMPANIES
WITH GREATER RESOURCES THAN US
Our competitors include a broad range of companies that develop and
market tools for team collaboration. Many of our current and prospective
competitors have significantly greater financial, technical, sales and marketing
resources than we do. Our competitors may develop products comparable or
superior to ours and may adapt more quickly than we do to new technologies,
evolving industry trends or customer requirements.
The success of our products in the marketplace depends on product
performance, price, ease of use, support of industry standards, and customer
support and service. We cannot assure you that we will be able to compete
successfully given these factors. In particular, we face competitive pressures
from existing and new competitors who offer lower prices. This could result in
loss of sales, price reductions, reduced margins or loss of market share, any of
which would significantly and negatively affect our results of operations.
COMPETITION FOR PERSONNEL IN THE SOFTWARE INDUSTRY IS INTENSE AND WE MAY NOT BE
ABLE TO ATTRACT AND RETAIN KEY PERSONNEL FOR OUR BUSINESS
Our success depends on the continued service and performance of certain
key technical, marketing, sales, and management personnel. None of our
management is covered by an employment contract or a key person life insurance
policy. Moreover, other companies in the software industry are competing for
talented employees with generous stock option grants and bonus potential. We
cannot assure you that we will be successful in hiring or retaining qualified
personnel. Loss of key personnel or the inability to hire and retain qualified
personnel could significantly and negatively affect our business and research
and development efforts.
WE MAY NOT BE ABLE TO ADEQUATELY RESPOND TO RAPID CHANGES IN TECHNOLOGY AND
CUSTOMER PREFERENCES FOR SOFTWARE PRODUCTS
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The market for our products is characterized by rapidly changing
technology, evolving industry standards, changes in customer needs, and frequent
new product introductions. Our future success will depend on our ability to
enhance our current products, to develop new products on a timely and
cost-effective basis to meet changing customer needs and to respond to emerging
industry standards and other technological changes. If we fail to anticipate or
respond adequately to changes in technology and customer preferences, or have
any significant delays in product development or introduction, it could
significantly harm our results of operations.
In addition, our complex software products may contain undetected errors
when first introduced or as new versions of the software are released. Despite
extensive testing, errors may occur in new products after commercial shipments
begin. This could result in loss of, or delay in, market acceptance of our
products.
RISKS ASSOCIATED WITH OUR BUSINESS AND OPERATIONS
OUR COMPUTER SYSTEMS MAY NOT RECOGNIZE THE YEAR 2000
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 system failure or in
miscalculations causing disruptions of operations, including a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. Although we believe that our products and internal computer
systems comply with the year 2000, system failures of our customers or suppliers
due to the year 2000 problem could have a significant negative effect on our
business.
WE HAVE SIGNIFICANT RESEARCH AND DEVELOPMENT COSTS
The development of sophisticated software products is a lengthy and
capital intensive process and is subject to unforeseen risks, delays, problems
and costs. Unanticipated technical or other problems may occur which would
result in delays in our development program. If we fail to complete development
of a product or to enhance existing products we could suffer a complete loss of
the funds committed by us to that product. This loss could be substantial.
WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR EXPANSION AND GROWTH STRATEGY
The expansion of our product line has extended our resources and we
expect to continue to extend our management and operations, including our sales,
marketing, customer support, research and development, and finance and
administrative operations. Our future performance will depend in part on our
ability to manage growth, should that occur, and to adapt our operational and
financial control systems, if necessary, to respond to changes resulting from
that growth. Our failure to respond to growth and manage growth effectively
could have a significant negative effect on our business, financial condition,
and results of operations.
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<PAGE> 8
WE MAY NOT BE ABLE TO PROTECT THE RIGHTS TO OUR SOFTWARE TECHNOLOGY
The success of our business depends on protecting our proprietary
technology. We rely on a combination of copyright, trademark, and trade secret
laws, confidentiality procedures, and licensing arrangements to establish and
protect our proprietary rights. As part of our confidentiality procedures, we
generally enter into non-disclosure agreements with our employees and
distributors, and limit access to, and distribution of, our software,
documentation, and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use our
products or technology without authorization, or to develop similar technology
independently. In addition, effective protection of intellectual property rights
may depend on judicial interpretation of applicable law and may be unavailable
or limited in certain foreign countries.
We provide our products to end-users primarily under shrink-wrap, or
standard, license agreements included within the packaged software. The licensee
does not negotiate or sign these agreements, and thus these agreements may not
be enforceable in certain jurisdictions where enforcement is either expensive or
limited for other reasons. Protection of intellectual property can be extremely
costly.
We are not aware of any instances where any of our products infringe the
proprietary rights of third parties nor are we aware of all potential claims of
infringements. In addition, third parties may claim that we infringe on their
current or future products. Any such claims, with or without merit, could result
in costly litigation or might require us to enter into royalty or licensing
agreements.
RISKS ASSOCIATED WITH OUR SECURITIES
YOUR PERCENTAGE OF OWNERSHIP, VOTING POWER AND PRICE OF COMMON STOCK IN OUR
COMPANY MAY DECREASE AS A RESULT OF EVENTS WHICH INCREASE OUR OUTSTANDING COMMON
STOCK
As of February 8, 1999, we had the following capital structure:
Common Stock Outstanding: 27,311,971
Common Stock issuable upon:
Conversion of Series E Preferred Stock: 770,509
Conversion of Series H Preferred Stock: 4,853,331
Exercise of warrants: 3,043,920
Exercise of options: 6,439,680
----------
Total: 42,419,411
==========
The number of shares of our common stock outstanding includes 1,418,638
shares held in escrow under a performance escrow agreement. The common stock
issuable upon the conversion of Series H preferred stock is an estimate based on
the number of shares that would be issuable upon conversion of the preferred
stock at that time. The common stock issuable upon exercise of options must vest
and is generally issuable over a four year period. As of February 8, 1999, only
1,970,872 shares could be issued upon the exercise of options. We may also
conduct additional future offerings of our common stock or other securities with
rights to convert the securities into shares of our common stock.
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<PAGE> 9
As a result of the potential conversion of preferred stock into our
common stock, the exercise of warrants or options into our common stock, or
other future issuances of common stock, your percentage of ownership and voting
power of common stock may decrease. Also, the book value per share of common
stock may be reduced. This reduction would occur if the exercise price of the
options or warrants or the conversion ratio of the preferred stock were lower
than the book value per share of common stock at the time of such exercise or
conversion.
The addition of a substantial number of shares of common stock,
including the shares offered by this prospectus, into the market or by the
registration of securities under the Securities Act may significantly and
negatively affect the prevailing market price for the common stock. In addition,
future sales of shares of common stock issuable upon the exercise of outstanding
warrants and options may have a depressive effect on the market price of the
common stock, as such warrants and options would be more likely to be exercised
at a time when the price of the common stock is in excess of the applicable
exercise price.
WE ARE CONTROLLED BY OUR MANAGEMENT AND OTHER RELATED PARTIES
As of February 8, 1999, our chairman of the board of directors and our
officers, directors and related parties, as a group, beneficially own
approximately 3.1% and 7.7%, respectively, of our outstanding common stock.
These amounts include common stock issuable upon the exercise of warrants and/or
options as well as indirect ownership of common stock. As a result, these
stockholders will be able to exercise significant influence over matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions.
WE DO NOT PAY DIVIDENDS ON OUR COMMON STOCK
Since we began operations, we have not paid any dividends on our common
stock. Under the corporate law of Delaware, dividends can only be paid out of
our retained earnings, or, if there are no retained earnings, out of our net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. At December 31, 1998, we had an accumulated deficit of
approximately $49,000,000, which prevents us from paying dividends in the
foreseeable future.
OUR STOCK PRICE IS EXTREMELY VOLATILE AND MAY DECREASE RAPIDLY
The trading price of our common stock has historically been subject to
wide fluctuation in response to variations in actual or anticipated operating
results, announcements of new products or technological innovations by us or our
competitors, and general conditions in the software industry. In addition, stock
markets have experienced extreme price and volume trading volatility in recent
years. This volatility has had a substantial effect on the market prices of
securities of many high-technology companies for reasons frequently unrelated to
the operating performance of the specific companies. These broad market
fluctuations may significantly and negatively affect the market price of our
common stock.
WE CAN SELL OR ISSUE PREFERRED STOCK WITH GREATER RIGHTS THAN OUR 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,
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<PAGE> 10
redemption and conversion terms and privileges for any series of preferred
stock. 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, under
certain circumstances, 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.
IF WE CANNOT MEET THE NASDAQ SMALLCAP MARKET MAINTENANCE REQUIREMENTS NASDAQ MAY
DELIST THE COMMON STOCK WHICH COULD NEGATIVELY AFFECT THE PRICE OF COMMON STOCK
The board of governors of the NASD has established certain standards for
the continued listing of a security on the Nasdaq SmallCap Market. The
maintenance standards for continued listing of our common stock on the SmallCap
require, among other things, that we have net tangible assets of at least $2
million. As of February 8, 1999 we comply with the listing requirements.
Although we currently comply, we cannot assure you that we will be able to
satisfy the requirements for maintaining a SmallCap listing in the future. If
our common stock were to be excluded from listing on the SmallCap, it may
negatively affect the price of the common stock and the ability of holders to
sell the common stock.
IF NASDAQ DELISTS OUR COMMON STOCK YOU WOULD NEED TO COMPLY WITH THE PENNY STOCK
REGULATIONS WHICH COULD MAKE IT MORE DIFFICULT TO SELL YOUR COMMON STOCK
In the event that our securities are not listed on the SmallCap, trading
of the common stock would be conducted in the "pink sheets" or through the
NASD's Electronic Bulletin Board and covered by Rule 15g-9 under the Securities
Exchange Act of 1934. Under such rule, broker/dealers who recommend these
securities to persons other than established customers and accredited investors
must make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to a transaction prior to sale.
Securities are exempt from this rule if the market price is at least $5.00 per
share.
The SEC adopted regulations that generally define a penny stock as any
equity security that has a market price of less than $5.00 per share, with
certain exceptions. Unless an exception is available, the regulations require
the delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated with it. If
our common stock were a penny stock, the ability of broker/dealers to sell the
common stock and the ability of purchasers in this offering to sell their
securities in the secondary market would be limited. As a result, the market
liquidity for the common stock would be severely and adversely affected. We
cannot assure you that trading in our securities will not be subject to these or
other regulations in the future which would negatively affect the market for
such securities.
FORWARD - LOOKING STATEMENTS
This prospectus contains certain forward-looking statements which
involve substantial risks and uncertainties. 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 as a result of certain
factors, including those listed under the heading "Risk Factors" and other
cautionary statements in this prospectus.
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<PAGE> 11
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.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently anticipate that we will retain all available funds for use in the
operation of our business. As such, we do not anticipate paying any cash
dividends on our common stock in the foreseeable future.
SELLING STOCKHOLDERS
We issued the shares of common stock covered by this prospectus to the
selling stockholders under a private placement, consulting agreements and an
accounts receivable purchase agreement.
This prospectus covers the resale by the selling stockholders of up to
6,243,476 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 323,025 shares of our common stock
issuable upon exercise of warrants issued in the private placement, 55,452
shares of common stock issuable upon exercise of warrants issued for the
establishment of an accounts receivable financing agreement and 57,500 shares of
common stock issuable upon exercise of warrants issued under consulting
arrangements. Finally, this prospectus covers the resale by the selling
stockholders of 155,993 shares of common stock issued under consulting
agreements.
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 on the following page lists certain 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 February 8,
1999, and as adjusted to reflect the sale of the shares. Information concerning
the selling stockholders may change from time to time. To the extent that the
selling stockholders 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.
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<PAGE> 12
<TABLE>
<CAPTION>
Amount Percentage
Amount Beneficially Beneficially
Beneficially Owned Owned
Owned Prior Amount Following Following
Name to Offering(1) Offered(1) Offering(2) Offering
- ------------------------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balmore Fund S.A. 1,545,316(3) 1,545,316(3) 0 *
Austost Anstalt Schann. 1,545,316(3) 1,545,316(3) 0 *
HSBC James Capel Canada, Inc. 618,124(4) 618,124(4) 0 *
Manchester Asset Management. 1,078,065(5) 1,017,336(5) 60,729 *
Amro International 618,124(4) 618,124(4) 0 *
Gundyco in Trust for 1,682,937(6) 1,081,722(6) 601,215 2
RRSP 550-98866-19
Libra Finance S.A. 66,265(7) 61,812(7) 4,453 *
Black Hills Investment Corp. 74,251(8) 74,251(8) *
Kurt Motamedi 80,000 80,000 0 *
Continental Capital & Equity Corp. 125,993 (9) 125,993(9) 0 *
Institutional Development, Inc. 12,000(10) 12,000(10) 0 *
Silicon Valley Bank 66,952(11) 55,452(11) 11,500 *
</TABLE>
- -------------------------
* Represents less than one percent.
(1) The number of shares of common stock indicated 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 closing price of the
common stock when the preferred stock was sold 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.
(2) Assumes no sales are effected by the selling stockholder during the
offering period other than under the registration statement.
(3) Includes 75,000 shares of common stock issuable upon the exercise of
warrants.
(4) Includes 30,000 shares of common stock issuable upon the exercise of
warrants.
(5) Includes 110,079 shares of common stock issuable upon the exercise of
warrants owned prior to offering of which 49,350 are offered in this
prospectus.
(6) Includes 653,715 shares of common stock issuable upon the exercise of
warrants owned prior to offering of which 52,500 are offered in this
prospectus.
(7) 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.
(8) Includes 3,675 shares of common stock issuable upon the exercise of
warrants.
(9) Includes 50,000 shares of common stock issuable upon the exercise of
warrants.
(10) Represents common stock issuable upon the exercise of warrants.
(11) Includes 55,452 shares of common stock issuable upon the exercise of
warrants.
-10-
<PAGE> 13
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. Each share of preferred stock has a
stated value, or "liquidation preference", of $1,000, which means, for example,
that if we go bankrupt and all of our assets are sold, the holders of each share
would be entitled to a preferential payment of $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.
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.
Conversions can be made on a cumulative basis at the option of the
preferred stockholders. 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 by an amount equal to the lesser of: (1) 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) 100% of 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 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 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.
-11-
<PAGE> 14
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) 120% of the aggregate liquidation preference; and
(2) the product of (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> 15
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 purchase agreements have reciprocal indemnification provisions
between us and each selling stockholder to indemnify each other against certain
liabilities, including 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.
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
-13-
<PAGE> 16
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/A for the fiscal year ended March 31,
1998;
2. Quarterly Reports on Form 10-QSB for the periods ended June 20,
1998, September 30, 1998 and December 31, 1998;
3. Current Report on Form 8-K filed on August 17, 1998; and
4. 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, 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 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 certain 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.
-14-
<PAGE> 17
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 for the year ended March 31, 1998 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, and an explanatory paragraph relating to our restated loss per
common share calculation, as described in Note 3 to the financial statements) of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
-15-
<PAGE> 18
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 8
Use of Proceeds 9
Dividend Policy 9
Selling Stockholders 9
Description of Securities 11
Plan of Distribution 12
Where You Can Find More Information 13
Indemnification of Directors and Officers 14
Legal Matters 15
Experts 15
- -----------------------------------------------------------------------------
6,835,446 SHARES OF COMMON STOCK
STARBASE CORPORATION
-------------
PROSPECTUS
-------------
_______________ , 1999
<PAGE> 19
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 $ 3,438.94
Legal Fees and Expenses 3,000.00
Accounting Fees and Expenses 7,000.00
Miscellaneous Expenses 1,000.00
-----------
Total $ 14,438.94
===========
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 certain liabilities that may arise by reason of their status
or service as a director or officer, against liabilities arising from willful
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.
II-1
<PAGE> 20
ITEM 16. EXHIBITS.
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- -----------------------------------------------------------
4.1 Form of Stock Purchase Agreement (Series H Preferred Stock)
4.2 Certificate of Designation (Series H Preferred Stock)
4.3 Form of Registration Rights Agreement (Series H Preferred
Stock)
4.4 Form of Warrant (Series H Preferred Stock and other
warrants)
4.5 Form of Warrant (Accounts Receivable Purchase Agreement)
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP
23.1 Consent of Parker Chapin Flattau & Klimpl, LLP (included in
Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers, LLP+
24.1 Powers of Attorney of certain directors and officers of
StarBase (included on page II-5)
- ------------------
+ To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
and of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424 (b) if, in the aggregate the changes in volume
and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
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
II-2
<PAGE> 21
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> 22
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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Ana, State of California, on February 22, 1999.
STARBASE CORPORATION
By: /s/ Douglas S. Norman
-------------------------------
Douglas S. Norman
Director of Finance and
Chief Accounting Officer
II-4
<PAGE> 23
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William R. Stow III or Douglas S. Norman,
each acting alone, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement (or any other
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or either of them or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William R. Stow III President, Chief Executive Officer February 22, 1999
- ------------------------------- and Chairman of the Board
William R. Stow III
/s/ Donald R. Farrow Vice Chairman February 22, 1999
- ------------------------------- and Director
Donald R. Farrow
/s/ Frank R. Caccamo Director February 22, 1999
- -------------------------------
Frank R. Caccamo
/s/ John R. Snedegar Director February 22, 1999
- -------------------------------
John R. Snedegar
/s/ Phillip E. Pearce Director February 22, 1999
- -------------------------------
Phillip E. Pearce
/s/ Daniel P. Ginns Director February 22,1999
- -------------------------------
Daniel P. Ginns
/s/ Barry W. Sullivan Director February 22, 1999
- -------------------------------
Barry W. Sullivan
/s/ Anders B. Vinberg Director February 22, 1999
- -------------------------------
Anders B. Vinberg
/s/ Douglas S. Norman Director of Finance and February 22, 1999
- ------------------------------- Chief Accounting Officer
Douglas S. Norman
</TABLE>
II-5
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION OF EXHIBIT PAGE NO./REF.
------- ----------------------------------------------------------- -------------
<C> <S> <C>
4.1 Form of Stock Purchase Agreement (Series H Preferred Stock) (A)
4.2 Certificate of Designation (Series H Preferred Stock) (A)
4.3 Form of Registration Rights Agreement (Series H Preferred
Stock) (A)
4.4 Form of Warrant (Series H Preferred Stock and other
warrants) (A)
4.5 Form of Warrant (Accounts Receivable Purchase Agreement)
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP
23.1 Consent of Parker Chapin Flattau & Klimpl, LLP (included in
Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers, LLP (C)
24.1 Powers of Attorney of certain directors and officers of
StarBase (included on page II-5) (B)
</TABLE>
(A) Incorporated herein by reference to the StarBase's Form 10QSB (file number
000-25612) filed with the Commission on February 16, 1999.
(B) Included as part of the signature page on page II-5 of this filing.
(C) To be filed by amendment.
<PAGE> 1
EXHIBIT 4.5
WARRANT TO PURCHASE STOCK
Corporation: Starbase Corporation, a Delaware corporation
Number of Shares: 3% Warrant Coverage (as defined below)
Class of Stock: Common
Initial Exercise Price: The 5 day average closing price of the Company's Common
stock immediately prior to the execution of this Warrant to Purchase Stock. The
Company's Common stock is traded on the NASDAQ Over the Counter Electronic
Bulletin Board with "SBAS" as its trading symbol. $1.08 as of January 19, 1999
Issue Date: January 19, 1999
Expiration Date: January 19, 2004
Warrant Coverage means $2,000,000 divided by the Initial Exercise Price
multiplied by 3%.
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.4.
1.3 Intentionally Omitted
1.4 Fair Market Value. If the Shares are traded in a public market,
the fair market value of the Shares shall be the closing price of the Shares (or
the closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
1.5 Delivery of Certificate and New Warrant. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the
<PAGE> 2
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor.
1.7 Repurchase on Sale, Merger, or Consolidation of the Company.
1.7.1. "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. Assumption of Warrant. Upon the closing of any Acquisition
the successor entity shall assume the obligations of this Warrant, and this
Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3. Purchase Right. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2
<PAGE> 3
2.4 Intentionally Omitted.
2.5 No Impairment. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
(a) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, and all securities, if any, issuable
upon conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3
<PAGE> 4
3.3 Information Rights. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company (or if there are no such
requirements [or if the subject loan(s) no longer are outstanding]), then within
forty-five (45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements.
3.4 Registration Under Securities Act of 1933, as amended. The shares
issued under this warrant will be registered pursuant to that certain Form S-3
Registration Statement filed with the Securities and Exchange Commission no
later than February 28, 1999.
ARTICLE 4. MISCELLANEOUS.
4.1 Term; Notice of Expiration. This Warrant is exercisable, in whole
or in part, at any time and from time to time on or before the Expiration Date
set forth above. The Company shall give Holder written notice of Holder's right
to exercise this Warrant in the form attached as Appendix 2 not more than 90
days and not less than 30 days before the Expiration Date. If the notice is not
so given, the Expiration Date shall automatically be extended until 30 days
after the date the Company delivers the notice to Holder.
4.2 Intentionally Omitted.
4.3 Compliance with Securities Laws on Transfer. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder s notice of
proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section 4.3
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) at any time to Silicon Valley Bancshares
or The Silicon Valley Bank Foundation, or to any affiliate of Holder, or, to any
other transferree by giving the Company notice of the portion of the Warrant
being transferred setting forth the name, address and taxpayer identification
number of the transferee and surrendering this Warrant to the Company for
reissuance to the transferee(s) (and Holder if applicable).
4.5 Notices. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time. All notices to be provided under this Warrant shall be send to the
following address:
Silicon Valley Bank
Attn: Treasury Department
3003 Tasman Drive
Santa Clara, CA 95054
4
<PAGE> 5
4.6 Waiver. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 Attorneys Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
"COMPANY"
Starbase Corporation
By: _______________________________
Name:______________________________
(Print)
Title: Chairman of the Board,
President or Vice President
By: _______________________________
Name:______________________________
(Print)
Title: Chief Financial Officer,
Secretary, Assistant
Treasurer or Assistant
Secretary
5
<PAGE> 6
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase _______ shares of the
Common/Preferred Series ___ [Strike one] Stock of Starbase Corporation pursuant
to the terms of the attached Warrant, and tenders herewith payment of the
purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to _____________________ of the Shares covered by the
Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below:
-------------------------------------------
(Name)
-------------------------------------------
-------------------------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for
its own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with applicable
securities laws.
------------------------------------
(Signature)
- --------------------
(Date)
<PAGE> 7
APPENDIX 2
Notice that Warrant Is About to Expire
__________________, ____
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear : ______________________
This is to advise you that the Warrant issued to you described below
will expire on _________________________, 19__.
Issuer:
Issue Date:
Class of Security Issuable:
Exercise Price per Share:
Number of Shares Issuable:
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
-----------------------------------
(Name of Issuer)
By:
----------------------------------
Its:
----------------------------------
<PAGE> 1
Exhibit 5.1
OPINION OF PARKER CHAPIN FLATTAU & KLIMPL, LLP
February 22, 1999
StarBase Corporation
4 Hutton Centre Drive, Suite 800
Santa Ana, CA 92707-8713
Ladies and Gentlemen:
We have acted as counsel to StarBase Corporation (the "Company") in connection
with a Registration Statement on Form S-3 filed by the Company with the
Securities and Exchange Commission (the "Registration Statement") relating to up
to 6,835,446 shares (the "Shares") of the Company's common stock, par value
$0.01 per share (the "Common Stock"). Of such Shares , 6,243,476 may be issued
upon conversion of the Series H Preferred Stock, 435,977 may be issued upon the
exercise of warrants issuable to the holders of the Shares (the "Warrants") and
155,993 shares of common stock have been issued by the Company (the "Other
Shares").
In connection with the foregoing, we have examined, among other things, the
Registration Statement, the Warrants and originals or copies, satisfactory to
us, of all such corporate records and of all such agreements, certificates and
other documents as we have deemed relevant and necessary as a basis for the
opinion hereinafter expressed. In such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity with the original documents submitted to us as
copies. As to any facts material to such opinion, we have, to the extent that
relevant facts were not independently established by us, relied on certificates
of public officials and certificates, oaths and declarations of officers or
other representatives of the Company.
Based upon the foregoing, we are of the opinion that (i) the Shares issuable
upon conversion of the Series H Preferred Stock (when such shares are paid for
and issued in accordance with the terms of the Series H Preferred Stock) will be
legally issued, fully paid and non-assessable; (ii) the Shares issuable upon the
exercise of the Warrants (when such Shares are paid for and issued in accordance
with the terms of the Warrants) will be legally issued, fully paid and
non-assessable; and (iii) the Other Shares are legally issued, fully paid and
non-assessable.
We hereby consent to the use of our name under the caption "Legal Matters" in
the Prospectus constituting a part of the Registration Statement and to the
filing of a copy of this opinion as an exhibit.
Very truly yours,
/s/ Parker Chapin Flattau & Klimpl, LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP
