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As filed with the Securities and Exchange Commission on February 11, 2000
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
STARBASE CORPORATION
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(Exact name of registrant as specified in its charter)
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DELAWARE 7372 33-0567363
(State or other jurisdiction (Primary Standard Industrial (IRS employer
of incorporation or organization) Classification Code Number) Identification number)
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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)
Copies to:
Martin Eric Weisberg, Esq. William J. Simpson, Esq.
Parker Chapin, LLP Paul, Hastings, Janofsky & Walker LLP
405 Lexington Avenue 695 Town Center Drive, 17th Floor
New York, NY 10174 Costa Mesa, CA 92626
(212) 704-6000 (714) 668-6200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective and all
other conditions to the merger of ObjectShare, Inc. ("ObjectShare") with and
into OBJS Acquisition Corp. ("Subsidiary"), a wholly-owned subsidiary of
StarBase Corporation (the "Registrant" or "StarBase") pursuant to the Agreement
and Plan of Merger described in the enclosed proxy statement/prospectus have
been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed maximum Proposed maximum
Title of each class of Amount to be offering price per aggregate offering Amount of
securities to be registered registered (1) share (2) price (2) registration fee
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Common Stock, $0.01 par value 568,671 $0.709654 $5,861,306 $1,547.38
===================================================================================================================
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(1) This Registration Statement relates to the common stock, par value $0.01
per share, of the Registrant (the "StarBase Common Stock") estimated to be
issuable to holders of common stock, par value $0.001 per share, of
ObjectShare Inc. (the "ObjectShare Common Stock") in connection with the
merger. The number of shares to be registered pursuant to this
Registration Statement is based on the maximum number of shares of
StarBase Common Stock estimated to be issuable to stockholders of
ObjectShare upon the consummation of the merger, determined as the product
of (a) 0.0456, the exchange ratio at which the Registrant would issue the
maximum number of shares of StarBase Common Stock to equal approximately
$0.71 per share of ObjectShare Common Stock (based upon an
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assumed minimum average per share value of $15.5625 for StarBase Common
Stock), and (b) 12,470,863, the number of shares of ObjectShare Common
Stock which were issued and outstanding as of February 10, 2000.
(2) Estimated solely for the purpose of calculating the registration fee. The
proposed maximum aggregate offering price has been computed pursuant to
Rule 457(c) and 457(f)(1) and (3) under the Securities Act based on the
aggregate market value of the outstanding ObjectShare Common Stock, based
upon the $0.47 per share average of the high and low prices of the
ObjectShare Common Stock reported on the OTC Bulletin Board on February
10, 2000.
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), SHALL DETERMINE.
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SUBJECT TO COMPLETION, DATED FEBRUARY 11, 2000
[OBJECTSHARE LOGO]
Special Meeting of Stockholders
MERGER PROPOSED-YOUR
VOTE IS VERY IMPORTANT
The Board of Directors of ObjectShare, Inc. has unanimously approved a merger
between ObjectShare and a wholly-owned subsidiary of StarBase Corporation. The
merger will combine ObjectShare's leadership in object-oriented technologies in
training and consulting with StarBase's competencies in providing end-to-end
eBusiness lifecycle solutions. We believe the merger will create a company able
to offer a vast array of solutions and services to the Software Configuration
Market and Web content and portal infrastructure markets, thereby enabling these
businesses to take advantage of the cost and operational efficiencies offered by
the Internet.
Your Board of Directors has determined that the merger is fair to you and is in
your best interests. THE BOARD THEREFORE RECOMMENDS THAT YOU VOTE TO APPROVE THE
MERGER AND THE RELATED MERGER AGREEMENT.
If the merger is completed, and subject to certain limitations and adjustments
set forth in the related merger agreement, StarBase will issue shares of
StarBase common stock to ObjectShare stockholders with a minimum value of
$6,150,000 and a maximum value of $8,850,000. This equates to a per share
exchange value for each share of ObjectShare common stock of a range between
approximately $0.49 and $0.71.
Assuming the price per share of StarBase common stock remains at above $2.37, we
estimate that each share of ObjectShare common stock will effectively be valued
at approximately $0.71 and that ObjectShare stockholders will collectively hold
or have a right to acquire approximately ____% of the outstanding StarBase
common stock after the merger (assuming all StarBase stock options are
exercised). The per share price of StarBase common stock as of the date of this
Proxy Statement/Prospectus was [$___]. StarBase stockholders will continue to
own their existing shares after the merger.
At the special meeting, you will be asked to approve the merger and the related
merger agreement. The affirmative vote of the holders of a majority of the
outstanding shares of ObjectShare common stock at February __, 2000, the record
date for the vote, is required to approve the merger and related merger
agreement. THE MERGER CANNOT BE COMPLETED UNLESS A MAJORITY OF OBJECTSHARE
STOCKHOLDERS APPROVE IT. Stockholders of StarBase are not required to approve
the merger.
The date, time and place of the special meeting:
__________ ___, 2000, 10:00 a.m., PST
16811 Hale Avenue, Suite A
Irvine, California 92614
This Proxy Statement/Prospectus provides you with detailed information about the
proposed merger. In addition, you may obtain information about ObjectShare and
StarBase from documents filed with the Securities and Exchange Commission. We
encourage you to read this entire document carefully.
Whether or not you plan to attend the special meeting, please take the time to
vote by completing and mailing the enclosed proxy card to us. If you sign, date
and mail your proxy card without indicating how you wish to vote, your proxy
will be counted as a vote in favor of the merger and the related merger
agreement. If you fail to return your card, the effect will be a vote against
the merger. YOUR VOTE IS VERY IMPORTANT.
On behalf of the Board of Directors of ObjectShare, we urge you to vote "FOR"
approval of the merger and the related merger agreement.
EUGENE L. GODA
Chairman of the Board,
Chief Executive Officer and President
ObjectShare, Inc.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DESCRIPTION OF RISK FACTORS
THAT SHOULD BE CONSIDERED BY STOCKHOLDERS WITH RESPECT TO THE MERGER.
Neither the Securities and Exchange Commission nor any state securities
commission has approved the StarBase common stock to be issued in the merger or
determined if this Proxy Statement/Prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
THIS PROXY STATEMENT/PROSPECTUS IS DATED ___________, 2000 AND IS FIRST MAILED
TO STOCKHOLDERS ON OR ABOUT ______________ 2000.
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OBJECTSHARE, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held on _______ ___, 2000
TO THE STOCKHOLDERS OF OBJECTSHARE, INC.
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of ObjectShare,
Inc., a Delaware corporation, will be held on _______ __, 2000, at 10:00 a.m.
California time, at the Company's offices located at 16811 Hale Avenue, Suite A,
Irvine, CA 92614, for the following purposes:
1. To consider and vote upon the merger of ObjectShare with and into
OBJS Acquisition Corp., a Delaware corporation ("Subsidiary") and a wholly-owned
subsidiary of StarBase Corporation, a Delaware corporation ("StarBase"), as a
result of which ObjectShare will be merged with and into Subsidiary and each
share of ObjectShare common stock other than dissenting shares will be converted
into shares of StarBase common stock. The merger will occur as soon as possible
after ObjectShare and StarBase obtain all necessary regulatory and stockholder
approvals and satisfy certain other conditions set forth in the merger
agreement. Pursuant to a formula set forth in the merger agreement, each share
of ObjectShare common stock will be converted into the right to receive a
fraction of a share of StarBase common stock, and all options to acquire
ObjectShare common stock, excepting grants to specific executive officers and
employees which will be converted, will be canceled and extinguished without any
conversion. The aggregate number of shares of StarBase common stock that
StarBase will issue pursuant to the merger agreement depends on several factors
that cannot be determined definitively until the effective date of the merger,
including, but not limited to:
- the average of the closing price per share of StarBase
common stock as reported on the Nasdaq SmallCap Market for the three trading
days immediately preceding the day prior to the closing date of the merger
agreement; and
- the enterprise value of ObjectShare determined pursuant to
the formula contained in the merger agreement.
Depending on the average closing price per share of StarBase
common stock and the enterprise value of ObjectShare, StarBase will issue shares
of StarBase common stock with a minimum value of $6,150,000 and a maximum value
of $8,850,000. This equates to a per share exchange value for each share of
ObjectShare common stock of a range between approximately $0.49 and $0.71. If
the average closing price per share of StarBase common stock at the effective
date is above $2.37, then each share of ObjectShare common stock will
effectively be valued at approximately $0.71. On the basis of the same
assumptions, ObjectShare stockholders will collectively hold or have a right to
acquire approximately [__%] of StarBase common stock on a fully-diluted basis.
Each of these aspects of the merger is more fully described in the enclosed
Proxy Statement/Prospectus.
2. To consider and vote upon any postponement or adjournment of the
special meeting in order to solicit additional votes to approve the merger if
the secretary of the special meeting determines that there are not enough votes
to approve the merger.
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The close of business on February __, 2000, has been fixed as
the record date for determining stockholders entitled to vote at the special
meeting. Only stockholders of record on that date are entitled to notices of,
and to vote at, the special meeting and any adjournments or postponements
thereof.
Stockholders of ObjectShare who do not vote in favor of the
merger and who otherwise comply with the applicable statutory procedures set
forth in Section 262 of the Delaware General Corporation Law (the "Delaware
Law") may exercise appraisal rights and receive cash for their shares of
ObjectShare common stock ("Appraisal Rights"). A dissenting Stockholder of
ObjectShare must follow the appropriate procedures under Delaware Law or suffer
the termination or waiver of such rights. StarBase has no obligation to
consummate the merger if demands for Appraisal Rights are made with respect to
five percent (5%) or more of the outstanding shares of ObjectShare common stock.
A description of the Appraisal Rights of the holders of ObjectShare common stock
is more fully described in the enclosed Proxy Statement/Prospectus.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH
DOES NOT REQUIRE POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE
SPECIAL MEETING, YOU MAY VOTE IN PERSON, EVEN IF YOU HAVE PREVIOUSLY RETURNED
YOUR PROXY CARD.
PLEASE NOTE THAT THE MERGER MUST BE APPROVED BY THE HOLDERS OF A
MAJORITY OF OBJECTSHARE'S COMMON STOCK. ACCORDINGLY, YOUR VOTE IS EXTREMELY
IMPORTANT. WE URGE YOU TO REVIEW CAREFULLY THE ENCLOSED MATERIALS AND TO RETURN
YOUR PROXY CARD PROMPTLY.
By Order of the Board of Directors,
Eugene L. Goda
Chairman of the Board,
Chief Executive Officer and President
_________ __, 2000
Irvine, California
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TABLE OF CONTENTS
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Page
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PROXY STATEMENT/PROSPECTUS SUMMARY.......................................................................1
SELECTED HISTORICAL FINANCIAL DATA.......................................................................6
StarBase Corporation................................................................................7
ObjectShare, Inc...................................................................................8
FORWARD-LOOKING STATEMENTS...............................................................................9
RISK FACTORS............................................................................................10
OBJECTSHARE SPECIAL MEETING.............................................................................17
Time and Place; Purpose............................................................................17
Record Date; Voting Rights And Proxies.............................................................17
Share Ownership Of Management And Certain Stockholders.............................................17
Solicitation Of Proxies............................................................................18
Quorum.............................................................................................18
Required Vote......................................................................................18
APPRAISAL RIGHTS OF OBJECTSHARE STOCKHOLDERS............................................................19
THE MERGER TRANSACTION..................................................................................22
General............................................................................................22
Background Of The Merger...........................................................................22
StarBase's Reasons For Merger......................................................................24
ObjectShare's Reasons For Merger...................................................................25
Opinion Of Financial Advisor Of ObjectShare........................................................27
Recommendation Of ObjectShare's Board Of Directors.................................................31
Accounting Treatment...............................................................................31
Certain Federal Income Tax Consequences Of The Merger..............................................32
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA.....................................................34
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION.............................................35
Dividend Policies..................................................................................35
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION......................................................36
STARBASE AND OBJECTSHARE UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET...........................37
STARBASE AND OBJECTSHARE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS.................39
The Merger Agreement...............................................................................42
Closing............................................................................................42
Consideration To Be Received For ObjectShare Common Stock In The Merger............................42
Procedures For Exchange Of ObjectShare Common Stock................................................45
Treatment Of Fractional Shares.....................................................................45
Treatment Of ObjectShare Employee And Director Stock Options.......................................45
Treatment Of Certain ObjectShare Employee Stock Options............................................45
Treatment Of Executive Officers' Stock Options In ObjectShare......................................45
ObjectShare's Employee Severance Payments..........................................................46
ObjectShare's Directors' And Officers' Liability...................................................46
Registration Of StarBase Common Stock..............................................................46
Representations And Warranties.....................................................................46
Covenants Regarding Conduct Of Business Before The Merger..........................................47
Conditions To The Completion Of The Merger.........................................................48
Termination Of The Merger Agreement................................................................48
Termination Fees And Expenses......................................................................49
No Solicitation....................................................................................49
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Amendment Or Waiver Of The Merger Agreement........................................................50
INTERESTS OF CERTAIN PERSONS IN THE MERGER..............................................................51
Arrangements with ObjectShare Employees Regarding Stock Options....................................51
Arrangements with Certain ObjectShare Executives Regarding Stock Options...........................51
Arrangements Regarding ObjectShare Employee Severance Payments.....................................53
Indemnification and Insurance......................................................................54
Consultancy Arrangement............................................................................54
RELATIONSHIP BETWEEN STARBASE AND OBJECTSHARE...........................................................55
Line of Credit.................................................................................... 55
Employment of James H. Smith...................................................................... 55
MANAGEMENT OF SURVIVING CORPORATION.....................................................................57
DESCRIPTION OF STARBASE SECURITIES......................................................................60
Common Stock.......................................................................................60
Preferred Stock....................................................................................60
Warrants...........................................................................................60
Options............................................................................................60
COMPARISON OF RIGHTS OF HOLDERS OF STARBASE COMMON STOCK AND HOLDERS OF OBJECTSHARE COMMON STOCK........61
STARBASE CORPORATION....................................................................................62
Description of StarBase's Business.................................................................62
The Market Opportunity.............................................................................62
The StarBase Solution..............................................................................63
StarBase Strategy..................................................................................63
Products...........................................................................................64
Services...........................................................................................65
Sales and Marketing................................................................................66
Competition........................................................................................66
Proprietary Rights.................................................................................67
Employees..........................................................................................67
Description of Property............................................................................67
Legal Proceedings..................................................................................67
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................68
Results of Operations............................................................................. 69
Liquidity and Capital Resources................................................................... 72
Executive Compensation.............................................................................73
BENEFICIAL STOCKHOLDERS OF STARBASE CORPORATION.........................................................76
OBJECTSHARE, INC........................................................................................78
Description Of ObjectShare's Business..............................................................78
General............................................................................................78
Background.........................................................................................78
Professional Services..............................................................................80
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Strategic Relationships............................................................................81
Employees..........................................................................................81
Description of Property............................................................................81
Competition........................................................................................81
Legal Proceedings..................................................................................82
Management's Discussion And Analysis Of Financial Condition And Results Of Operations..............82
Selected Consolidated Historical Financial Data Objectshare, Inc...................................83
Overview......................................................................................... 83
Recent Sale Transactions......................................................................... 84
Results of Operations............................................................................ 88
Liquidity and Capital Resources.................................................................. 96
BENEFICIAL STOCKHOLDERS OF OBJECTSHARE, INC.............................................................98
NAMED EXPERTS...........................................................................................99
Legal Matters......................................................................................99
Experts............................................................................................99
Financial Advisors.................................................................................99
OTHER MATTERS..........................................................................................101
WHERE YOU CAN FIND MORE INFORMATION....................................................................101
APPENDIX A - Agreement and Plan of Merger..............................................................A-1
APPENDIX B - Financial Statements of StarBase Corporation..............................................B-1
APPENDIX C - Consolidated Financial Statements of ObjectShare, Inc.....................................C-1
APPENDIX D - Delaware General Corporation Law, Section 262.............................................D-1
APPENDIX E - Fairness Opinion of Duff & Phelps, LLC....................................................E-1
INFORMATION NOT REQUIRED IN PROSPECTUS................................................................II-1
SIGNATURES............................................................................................[ ]
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHEN AND WHERE IS THE OBJECTSHARE STOCKHOLDER'S MEETING?
A: ObjectShare's meeting of its stockholders will be held at the offices of
ObjectShare located at 16811 Hale Avenue, Suite A, Irvine, California 92614 on
_____________, 2000 at 10:00 a.m., California time.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: ObjectShare stockholders are being asked to approve the merger agreement
and the merger of ObjectShare with and into a wholly-owned subsidiary of
StarBase.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: At the effective date of the merger, except for ObjectShare stockholders
dissenting to the merger, stockholders of ObjectShare will receive for their
shares of ObjectShare common stock that number of shares of StarBase common
stock having a minimum aggregate value of $6,150,000 and a maximum aggregate
value of $8,850,000. Accordingly, the exchange value per share of ObjectShare
common stock shall range from approximately $0.49 to $0.71, which per share
exchange value divided by the average closing price of StarBase's common stock
for the three trading day immediately preceding the day prior to the effective
date of the merger shall determine the actual fraction of a share of StarBase
common stock to be received in the merger.
Assuming the average closing price per share of StarBase common stock at
the effective date is greater than $2.37, then each share of ObjectShare common
stock will effectively be valued at approximately $0.71 and holders of
ObjectShare common stock will acquire $0.71 worth of StarBase common stock for
each one (1) share of ObjectShare common stock held. At the date of this Proxy
Statement/Prospectus, the closing price per share of StarBase common stock is
[$____].
OTHER THAN THE MAXIMUM AND MINIMUM AGGREGATE VALUE, THE EXACT VALUE OF THE
SECURITIES YOU WILL RECEIVE IN THE MERGER AS AN OBJECTSHARE STOCKHOLDER WILL NOT
BE KNOWN AT THE TIME YOU VOTE ON THE MERGER AND MAY INCREASE OR DECREASE AS THE
MARKET PRICE OF STARBASE COMMON STOCK GOES UP OR DOWN AND BASED UPON
OBJECTSHARE'S ENTERPRISE VALUE.
ObjectShare stockholders dissenting to the merger will receive appraisal
rights, entitling them to receive cash for their shares of ObjectShare common
stock.
StarBase stockholders will continue to hold their respective shares of
StarBase common stock after the merger.
Q: HOW DOES MY BOARD OF DIRECTORS RECOMMEND THAT I VOTE ON THE PROPOSALS?
A: The board of directors for ObjectShare unanimously recommends that the
ObjectShare stockholders, vote FOR the merger agreement and the merger.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSALS?
A: The merger agreement and the merger must be approved by the holders of a
majority of the outstanding shares of ObjectShare common stock.
Q: HOW DO I CAST MY VOTE?
A: Each ObjectShare stockholder should indicate on their enclosed proxy
card how he, she or it wants to vote, sign it and mail it in the enclosed return
envelope, as soon as possible, so that his, her or its shares may be represented
at their stockholders' meeting. ObjectShare stockholders may also attend the
stockholders' meeting and vote their shares in person.
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Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Just send in a later-dated, signed proxy card to ObjectShare's President
as set forth above in the notice of special meeting. Any person holding common
stock in ObjectShare can also attend the stockholders' meeting in person and
vote. An ObjectShare stockholder may also revoke his, her or its proxy by
sending a notice of revocation to ObjectShare's President. Further details on
how to revoke a proxy may be found on page 17.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No, shares of ObjectShare held in street name will not be voted on any
matter if the beneficial owner of the shares does not provide his, her or its
broker with instructions on how to vote the "street name" shares. ObjectShare
stockholders should therefore instruct their brokers how to vote their
respective shares, following the directions provided by the broker.
IF YOU ARE AN OBJECTSHARE STOCKHOLDER AND DO NOT GIVE VOTING INSTRUCTIONS
TO YOUR BROKER, YOU WILL, IN EFFECT, BE VOTING AGAINST THE MERGER, UNLESS YOU
APPEAR IN PERSON AT THE STOCKHOLDERS' MEETING AND VOTE IN FAVOR OF THE MERGER.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, the transfer agent for StarBase will
send ObjectShare stockholders written instructions for exchanging their stock
certificates. StarBase stockholders will keep their existing certificates.
Q: WHEN IS THE MERGER GOING TO BE COMPLETED?
A: ObjectShare and StarBase hope to complete the merger as soon as possible
after the stockholders approve the transaction at the stockholders' meeting.
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WHO CAN HELP ANSWER YOUR QUESTIONS?
FOR STARBASE INFORMATION: FOR OBJECTSHARE INFORMATION:
StarBase Corporation MacKenzie Partners, Inc.
4 Hutton Centre Drive, Suite 800 156 Fifth Avenue
Santa Ana, CA 92707 New York, New York, 10010
(714) 445-4400 (212) 929-5500 (Call Collect)
Attn: Douglas S. Norman or
CALL TOLL-FREE (800) 322-2885
This document incorporates by reference important business and financial
information about StarBase and ObjectShare from other documents filed or as may
be filed in the future with the SEC. A listing of these documents can be found
under the heading "Where You Can Find More Information," but you can obtain any
of them from StarBase or ObjectShare's proxy solicitor, MacKenzie Partners,
Inc., as appropriate, or the SEC. The documents incorporated by reference are
available without charge upon written or oral request to the persons or entities
identified above. If you would like to request documents from either StarBase or
MacKenzie Partners, Inc., please do so by _______, 2000 to receive them before
the ObjectShare special meeting.
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PROXY STATEMENT/PROSPECTUS SUMMARY
This brief summary highlights selected information from this Proxy
Statement/Prospectus. It does not contain all of the information that is
important to you. You should carefully read the entire Proxy
Statement/Prospectus and the other documents to which this Proxy
Statement/Prospectus refers for a complete understanding of the proposed merger.
See "Where You Can Find More Information" on page 101.
THE COMPANIES
STARBASE CORPORATION
StarBase Corporation, a Delaware corporation, headquartered in Santa Ana,
California, is a leading provider of eBusiness digital asset mangement solutions
for the enterprise. StarBase offers a complete family of user-friendly software
products that enable teams of people to collaborate in the production of Web
sites, e-Commerce and business critical applications while managing all
associated digital assets. StarBase's products are designed to increase the
productivity of centralized and geographically remote teams of people that are
both internal and external to an enterprise. StarBase's current product line
consists of StarTeam(R) 4.2 and Enterprise Suite as well as StarSweeper(TM),
RoundTable(R) and Versions(R).
StarBase's principal executive offices are located at 4 Hutton Centre Drive,
Suite 800, Santa Ana, California 92707 and its telephone number is (714)
445-4400.
OBJS ACQUISITION CORP.
OBJS Acquisition Corp., a Delaware corporation, is a wholly-owned subsidiary of
StarBase formed solely in connection with the proposed merger. Upon successful
completion of the merger, ObjectShare shall be merged into this subsidiary and
carry on its business as a subsidiary of StarBase.
OBJS Acquisition Corp.'s principal executive offices are located c/o StarBase
Corporation, 4 Hutton Centre Drive, Suite 800, Santa Ana, California 92707 and
its telephone number is (714) 445-4400.
OBJECTSHARE, INC.
ObjectShare, Inc., a Delaware corporation, headquartered in Irvine, California,
provides a comprehensive range of training and consulting services supporting
object-oriented application developments for use in distributed
client/server/web applications.
ObjectShare's principal executive offices are located at 16811 Hale Avenue,
Suite A, Irvine, CA 92606 and its telephone number is (949) 833-1122.
THE SPECIAL MEETING
TIME, DATE AND PLACE OF THE SPECIAL MEETING (SEE PAGE 17)
10:00 a.m. P.S.T. or California time on ___________ ____, 2000,
at 16811 Hale Avenue, Suite A, Irvine, CA 92606.
RECORD DATE AND THE VOTES REQUIRED
You can vote at the special meeting if you owned ObjectShare common stock at the
close of business on February __, 2000, the record date for the meeting. You can
cast one vote for each share of ObjectShare common stock you owned at that time.
To adopt the merger agreement, the holders of a majority of shares of
ObjectShare common stock allowed to vote at the special meeting must vote in
favor of the agreement. On February __, 2000, 12,470,863 shares of ObjectShare
common stock were outstanding and entitled to vote.
AFFILIATED VOTING (SEE PAGE 17).
As of February __, 2000, directors, executive officers and affiliates of
ObjectShare did not beneficially own any shares of ObjectShare common stock
(excluding options).
StarBase's directors, executive officers and affiliates owned no shares of
ObjectShare common stock as of February __, 2000.
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<PAGE> 13
VOTING PROCEDURE (SEE PAGES 17-18).
As a holder of shares of ObjectShare common stock on February __, 2000, you may
vote your shares in person by attending the meeting or by mailing to ObjectShare
a proxy if you are unable to or do not wish to attend. You may revoke your proxy
at any time before a vote is taken at the meeting by sending a written notice
revoking the proxy or a later-dated proxy to the President of ObjectShare, or by
attending the meeting and voting in person.
APPRAISAL RIGHTS (SEE PAGE 19).
If the merger is completed, stockholders of ObjectShare who do not vote for the
merger may, under certain circumstances, be entitled to appraisal rights under
Delaware Law.
THE MERGER
We have attached the merger agreement to this document as Appendix A. Please
read the merger agreement. It is the legal document that governs the
transaction.
GENERAL (SEE PAGE 42).
We propose a merger in which ObjectShare will merge with and into a wholly-owned
subsidiary of StarBase
WHAT YOU WILL RECEIVE (SEE PAGE 42).
If you are an ObjectShare stockholder, your ObjectShare shares will be converted
into the right to receive merger consideration consisting of shares of StarBase
common stock. The number of shares of StarBase common stock deliverable for each
share of ObjectShare common stock will depend on an exchange ratio determined by
the average closing price per share of StarBase common stock on the Nasdaq
SmallCap Market for the three trading days ending on the trading day prior to
the effective date of the merger. Accordingly, it will not be known at the time
of the ObjectShare stockholder meeting what the exchange ratio will be. However,
assuming the price per share of StarBase common stock remains greater than or
equal to $2.37, we estimate that each share of ObjectShare common stock will
effectively receive approximately $0.71 of StarBase common stock. At the
minimum, each share of ObjectShare common stock will convert into approximately
$0.49 of StarBase common stock. At the date of this Proxy Statement/Prospectus,
the price per share of StarBase common stock equals $_____.
REASONS FOR THE MERGER (SEE PAGE 24).
Management of ObjectShare and StarBase believe that the merger will enable the
companies to enhance the potential value of their combined assets and businesses
and to more effectively compete in the eBusiness industry as a result of the
synergies of an integrated management team, operations and strengthened product
and service offering.
OPINIONS OF FINANCIAL ADVISOR (SEE PAGE 27).
ObjectShare's financial advisor, Duff & Phelps, gave a written opinion to the
ObjectShare board of directors that, as of the date of the opinion, the merger
consideration for the ObjectShare common stock, was fair to ObjectShare
stockholders from a financial point of view.
We have attached a copy of the opinion of the financial advisor as Appendix E
and encourage you to read the same. The fairness opinion is subject to the
qualifications and limitations referred to in the opinion.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS (SEE PAGE 31).
On November 3, 1999 and November 2, 1999, respectively, the boards of directors
for each of StarBase and ObjectShare approved the merger agreement, authorized
its execution and delivery, and determined that the merger is fair to and in the
best interests of their respective companies. Each board of directors, in
reaching its decision, considered a number of factors. The ObjectShare board of
directors recommends that you vote "FOR" the proposal to approve and adopt the
merger agreement.
NO FRACTIONAL SHARES (SEE PAGE 45).
No fractional shares of StarBase common stock will be issued at the closing of
the merger and, as a holder of ObjectShare common stock, you will be paid an
amount of cash equal to such fraction of a share multiplied by the average of
the closing price per share of StarBase common stock for the three trading days
immediately preceding the day prior to the closing date of the merger agreement.
2
<PAGE> 14
EMPLOYEE STOCK OPTIONS (SEE PAGE 45).
With the exception of certain director/officer options and certain employee
options, each outstanding stock option of ObjectShare will be canceled in the
merger. Each employee who is employed by StarBase after the merger, will, on a
case by case basis, receive options to purchase shares of StarBase common stock
upon substantially the same terms and conditions as the outstanding options
currently held with ObjectShare.
DIRECTORS' AND EXECUTIVE OFFICERS' OPTIONS/SEVERANCE PAY (SEE PAGES 45-46).
Eugene L. Goda, the President of ObjectShare, pursuant to his employment
agreement dated June 10, 1997 (the "Goda Agreement"), currently holds options to
purchase 650,000 shares of ObjectShare common stock. By the terms of the Goda
Agreement, in the event Mr. Goda's employment terminated, his options were to
continue to be in existence for an additional three years. In consideration
thereof, StarBase shall grant to the President of ObjectShare stock options to
purchase shares of the common stock of StarBase, upon substantially the same
terms and conditions as the outstanding stock options currently held by such
officer with ObjectShare.
StarBase has granted options to a certain former vice president of ObjectShare,
who is currently in the employ of StarBase.
Four officers and directors of ObjectShare are entitled to severance, in the
aggregate sum of $415,000, upon the closing of the merger. Payment shall be in
the form of shares of ObjectShare common stock issued to such officers
immediately prior to the closing of the merger, at which time such shares shall
be converted into the right to receive merger consideration, as provided above.
The shares of ObjectShare common stock issued as severance will not affect the
calculation of your exchange ratio or the maximum and minimum aggregate value to
be paid to ObjectShare stockholders.
CONDITIONS TO COMPLETING THE MERGER (SEE PAGE 48).
The respective obligations of StarBase and ObjectShare to complete the merger
are subject to the satisfaction or waiver of certain conditions. These
conditions include:
- approval of the merger by ObjectShare stockholders;
- that there is no law or court order prohibiting the merger;
- that the representations and warranties of the respective parties made
in the merger agreement remain accurate in all material respects, with
permitted exceptions; and
- that each of StarBase and ObjectShare has performed in all material
respects all of its respective obligations under the merger agreement.
GOVERNMENTAL APPROVALS.
Neither ObjectShare nor StarBase is aware of any governmental approvals required
to complete the merger other than compliance with applicable securities laws of
the various states.
However, either of StarBase or ObjectShare can choose to complete the merger
even though one or more of these conditions has not been satisfied, as long as
the law allows the companies to do so. There can be no certainty, when, or if,
the conditions to the merger will be satisfied or waived, or that the merger
will be completed.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 48).
Both ObjectShare and StarBase can mutually agree at any time prior to completing
the merger to terminate the merger agreement. Also, either company can decide,
without the other's consent, to terminate the merger agreement if the merger has
not been completed by April 17, 2000 or if the other company has breached the
merger agreement.
In addition, ObjectShare may terminate the merger agreement if, after
ObjectShare's board of directors has received an unsolicited proposal from a
potential acquirer, its board decides in good faith, after consultation with
legal counsel, that it must withdraw its recommendation of the merger in order
to comply with its fiduciary duties under Delaware Law.
Moreover, StarBase may terminate the merger agreement if:
- ObjectShare's accounts receivable (net), plus cash and cash
equivalents less indebtedness for borrowed money less accounts payable
less accrued liabilities less net proceeds realized
3
<PAGE> 15
from any sale of the European operation exceed a negative balance of
$2,500,000 in the aggregate;
- StarBase is required to issue more than 4,750,000 shares of StarBase
common stock in the merger (exclusive of options to purchase shares of
StarBase common stock granted to certain officers and directors and
employees of ObjectShare); or
- ObjectShare stockholders holding more than 5% of the outstanding
shares of ObjectShare common stock exercise their appraisal rights.
TERMINATION FEES AND EXPENSES (SEE PAGE 49).
In the event that ObjectShare terminates the merger agreement because of a third
party transaction, ObjectShare has agreed to pay StarBase a termination fee
equal to $500,000 plus reasonable legal, accounting and investment banking fees
incurred by StarBase in connection with the merger, not to exceed $200,000.
NO SOLICITATION (SEE PAGE 49).
From November 3, 1999 until the merger is completed, each of StarBase and
ObjectShare has agreed not to initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer with respect to a merger, transaction, consolidation or similar
transaction involving, or any purchase of all or substantially all of the assets
or equity securities resulting in, a change of control of either of the two
companies, except under certain circumstances.
ObjectShare may, however, engage in negotiations regarding an unsolicited
proposal from a potential acquirer other than StarBase if the ObjectShare's
board decides, in good faith and with the assistance of its financial advisor,
that the potential acquirer is presenting a proposal that is superior to the
merger.
ACCOUNTING TREATMENT (SEE PAGE 31).
The merger will be treated as a purchase for accounting and financial reporting
purposes.
CERTAIN TAX CONSEQUENCES (SEE PAGE 32).
It is expected that, for United States federal income tax purposes, the
conversion of shares of ObjectShare common stock for shares of StarBase common
stock generally will not cause ObjectShare stockholders to recognize any gain or
loss. ObjectShare stockholders may, however, recognize gain or loss in
connection with any cash they receive in lieu of fractional shares as provided
in the merger agreement.
THE ACTUAL TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON YOUR SPECIFIC
SITUATION AND YOU SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL UNDERSTANDING
OF THE MERGER'S TAX CONSEQUENCES ON YOU.
MARKET VALUE OF SECURITIES (SEE PAGE 35).
StarBase common stock is traded on the Nasdaq SmallCap Market and ObjectShare
common stock is traded on the OTC Bulletin Board. On November 3, 1999, the last
full trading day prior to the public announcement of the merger, StarBase common
stock closed at $1.3125 and ObjectShare common stock closed at $0.359375. On
February __, 2000, StarBase common stock closed at $_____ and ObjectShare common
stock closed at $____.
LISTING OF STARBASE COMMON STOCK.
StarBase will list the shares of its common stock issued in the merger on the
Nasdaq SmallCap Market.
OTHER MATTERS
RISK FACTORS (SEE PAGE 10).
The decision to vote to adopt the merger agreement and to authorize the merger
of ObjectShare into a wholly-owned subsidiary of StarBase involves a number of
risks to the stockholder and should not be made without reference to the risk
factors incorporated into this Proxy Statement/Prospectus.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (SEE PAGE 9).
Each of StarBase and ObjectShare has made forward-looking statements in this
Proxy Statement/Prospectus that are subject to risks and uncertainties.
Forward-looking statements include expectations concerning matters that are not
historical facts. Words such as "believes," "expects," "anticipates" or similar
expressions indicate forward-looking statements. For more information regarding
factors that could cause
4
<PAGE> 16
actual results to differ from these expectations, you should refer to "Risk
Factors" on page 10.
WHO CAN HELP ANSWER YOUR QUESTIONS.
If you have questions about the merger, you should contact:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York, 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
5
<PAGE> 17
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for StarBase and
ObjectShare is provided to help you in your analysis of the financial aspects of
the merger. This financial data for the five years ended March 31, 1999 are
derived from the audited financial statements of StarBase and ObjectShare. For
the four years ended March 31, 1998, the financial statements of StarBase were
audited by independent accountants PricewaterhouseCoopers LLP and for the year
ended March 31, 1999 the financial statements of StarBase were audited by
independent auditors Deloitte & Touche LLP. Deloitte & Touche LLP's report on
the consolidated financial statements of StarBase for the year ended March 31,
1999, which is attached as Appendix B, includes an explanatory paragraph which
describes an uncertainty about StarBase's ability to continue as a going
concern. For the five years ended March 31, 1999, the financial statements of
ObjectShare were audited by independent auditors Ernst & Young LLP. Ernst &
Young LLP's report on the consolidated financial statements of ObjectShare for
the year ended March 31, 1999, which is attached as Appendix C, includes an
explanatory paragraph which describes an uncertainty about ObjectShare's ability
to continue as a going concern. The financial data for the six month periods
ended September 30, 1999 and 1998 are derived from unaudited financial
statements. The management of StarBase and the management of ObjectShare believe
that the unaudited financial statements include all adjustments, consisting of
normal recurring adjustments, considered necessary for a fair presentation of
the financial position and the results of operations for these periods. The
results for the interim periods presented are not necessarily indicative of the
results that may be expected for any future period.
The data is only a summary and you should read it together with the
consolidated financial statements, related notes, and other financial
information included elsewhere in this Proxy Statement/Prospectus. See "Where
You Can Find More Information" on page 101.
6
<PAGE> 18
STARBASE CORPORATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended
September 30, For the year ended March 31,
---------------------- ----------------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
License fees $ 6,093 $ 2,459 $ 5,964 $ 1,863 $ 968 $ 491 $ 959
Services 1,112 339 868 276 71 500 2,576
-------- -------- -------- -------- -------- -------- --------
Total revenues 7,205 2,798 6,832 2,139 1,039 991 3,535
Costs and expenses:
Cost of license fees 673 336 508 162 96 82 182
Cost of services 561 0 0 0 0 624 2,666
Research and development 1,943 2,138 4,437 2,762 1,791 2,466 3,145
Selling, general and
administrative 5,684 5,277 10,601 5,370 5,050 3,759 5,312
-------- -------- -------- -------- -------- -------- --------
Total costs and
expenses 8,861 7,751 15,546 8,294 6,937 6,931 11,305
-------- -------- -------- -------- -------- -------- --------
Operating loss (1,656) (4,953) (8,714) (6,155) (5,898) (5,940) (7,770)
Other income, interest
expense and other (215) 44 32 (877) 198 48 52
-------- -------- -------- -------- -------- -------- --------
Loss before income taxes (1,871) (4,909) (8,682) (7,032) (5,700) (5,892) (7,718)
Provision for income taxes 1 2 1 1 3 1 2
-------- -------- -------- -------- -------- -------- --------
Net loss (1,872) (4,911) (8,683) (7,033) (5,703) (5,893) (7,720)
Non-cash dividend and
accretion of beneficial
conversion feature 549 334 1,277 2,832 1,096 3,635 1,878
-------- -------- -------- -------- -------- -------- --------
Net loss applicable to
common stockholders (2,421) $ (5,245) $ (9,960) $ (9,865) $ (6,799) $ (9,528) $ (9,598)
======== ======== ======== ======== ======== ======== ========
Per Common Share Data
Basic loss per share $ (0.08) $ (0.29) $ (0.49) $ (0.70) $ (0.62) $ (1.64) $ (2.65)
</TABLE>
<TABLE>
<CAPTION>
As of September 30, As of March 31,
---------------------- ----------------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents $ 6,185 $ 1,287 $ 1,363 $ 4,167 $ 2,722 $ 1,252 $ 1,972
Working capital $ 5,856 $ 1,594 $ 2,308 $ 3,632 $ 2,384 $ (536) $ 191
Total assets $ 11,239 $ 4,695 $ 6,605 $ 5,682 $ 3,876 $ 2,173 $ 4,147
Long term debt $ 103 $ 163 $ 116 $ 38 $ - $ 153 $ 45
Stockholders' equity $ 7,300 $ 2,691 $ 4,462 $ 4,430 $ 2,991 $ 68 $ 1,357
</TABLE>
7
<PAGE> 19
OBJECTSHARE, INC.
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended
September 30, For the year ended March 31,
-------------------- --------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
License $ 1,464 $ 2,547 $ 5,380 $ 8,172 $ 20,148 $ 31,667 $ 32,521
Services 4,074 5,059 10,426 12,068 17,138 17,943 23,147
-------- -------- -------- -------- -------- -------- --------
Total revenues 5,538 7,606 15,806 20,240 37,286 49,610 55,668
Costs and expenses:
Cost of license 543 445 1,737 1,626 5,537 5,814 5,286
Cost of services 2,586 2,367 5,705 7,569 10,379 11,111 12,548
Research and development 824 2,024 3,542 4,648 8,904 10,335 8,306
Selling, general and administrative 4,157 4,228 9,834 14,261 35,576 33,947 25,271
(including restructuring and
acquired R&D)
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses 8,110 9,064 20,818 28,104 60,396 61,207 51,411
-------- -------- -------- -------- -------- -------- --------
Operating income/(loss) (2,572) (1,458) (5,012) (7,864) (23,110) (11,597) 4,257
Other income, interest expense and other 3,102 141 160 313 725 1,303 1,385
-------- -------- -------- -------- -------- -------- --------
Income/(loss) before income taxes 530 (1,317) (4,852) (7,551) (22,385) (10,294) 5,642
Provision/(benefit) for income taxes - (49) (13) 31 95 102 1,078
-------- -------- -------- -------- -------- -------- --------
Net income/(loss) $ 530 $ (1,268) $ (4,839) $ (7,582) $(22,480) $(10,396) $ 4,564
======== ======== ======== ======== ======== ======== ========
Per Common Share Data
Basic net income/(loss) per share $ 0.04 $ (0.10) $ (0.39) $ (0.63) $ (1.91) $ (0.98) $ 0.47
Diluted net income/(loss) per share $ 0.04 $ (0.10) $ (0.39) $ (0.63) $ (1.91) $ (0.98) $ 0.38
As of September 30, As of March 31,
-------------------- --------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
BALANCE SHEET DATA
Cash and cash equivalents $ 774 $ 2,983 $ 1,675 $ 5,134 $ 7,418 $ 14,367 $ 25,059
Working capital $ 156 $ 2,165 $ (1,366) $ 3,420 $ 8,108 $ 27,701 $ 35,368
Total assets $ 3,430 $ 8,446 $ 7,712 $ 13,255 $ 23,872 $ 47,302 $ 54,119
Long term debt $ 76 $ -- $ 103 $ -- $ -- $ -- $ --
Stockholders' equity $ 726 $ 3,713 $ 124 $ 4,792 $ 12,272 $ 33,504 $ 37,463
</TABLE>
8
<PAGE> 20
FORWARD-LOOKING STATEMENTS
StarBase and ObjectShare have made forward-looking statements in this
Proxy Statement/Prospectus and in other documents to which you are referred that
are subject to risks and uncertainties. These forward-looking statements include
information about possible or assumed future results of operations or the
performance of the companies after the merger is completed. When any of the
words "believes," "expects," "anticipates," "intends," "estimates" or similar
expressions are used, forward-looking statements are being made. Many possible
events or factors could affect the actual financial results and performance of
each of the companies before the merger and of the combined company after the
merger, and these factors or events could cause those results or performance to
differ significantly from those expressed in these forward-looking statements.
Many of these risks and uncertainties are not within either company's control
and are set forth under "Risk Factors" at page 10. Possible events or factors
include the following:
- revenues after the merger may be lower than currently expected
for a variety of reasons including loss of personnel, loss of
consulting projects, changes in market conditions and responses
by competitors;
- integrating the businesses and products or any businesses
acquired in the future may be more time consuming, costly and
difficult than anticipated;
- competition in StarBase's and ObjectShare's industries is
extremely intense and may increase;
- third parties may infringe StarBase's proprietary intellectual
property rights;
- issues and difficulties that are faced in connection with rapid
growth;
- litigation involving matters such as intellectual property,
securities, antitrust, employees and customer issues may
adversely affect the business;
- general economic conditions in the U.S. or abroad may change or
be worse than currently expected; and
- changes may occur with respect to StarBase's stock price or in
the securities markets in general.
Neither StarBase nor ObjectShare is undertaking any responsibility to
release publicly any revisions to these forward-looking statements to take into
account events or circumstances that occur after the date of this Proxy
Statement/Prospectus. Additionally, neither StarBase nor ObjectShare is
undertaking any responsibility to update you on the occurrence of any
unanticipated events which may cause actual results to differ from those
expressed or implied by the forward-looking statements contained in this Proxy
Statement/Prospectus. You are cautioned not to place undue reliance on these
statements, which speak only as of the date of this Proxy Statement/Prospectus.
9
<PAGE> 21
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 PROXY STATEMENT/PROSPECTUS, BEFORE DECIDING TO
INVEST IN SHARES OF STARBASE COMMON STOCK.
RISKS ASSOCIATED WITH THE MERGER
UNCERTAINTIES EXIST REGARDING INTEGRATION OF THE COMBINED COMPANIES.
Although ObjectShare and StarBase entered into the merger agreement
with the expectation that the merger will result in beneficial synergistic
effects for the combined companies, there are significant uncertainties and
risks relating to the integration of the two companies' operations. Whether the
anticipated benefits of the merger are ultimately achieved will depend on a
number of factors, including the ability of the combined companies to achieve
administrative cost savings, general economies of scale and, generally, to
capitalize on the combined asset base and strategic position of the combined
entity. The timing and manner of the implementation of decisions made with
respect to the ongoing business of the combined companies following the merger
will materially affect the operations of the combined companies. There can be no
assurance that any expected synergies will be realized, that decisions affecting
the business of the combined companies will be made on a timely or effective
basis or that the results of the combined operations of ObjectShare and StarBase
will prove to be favorable.
OBJECTSHARE'S STOCKHOLDERS WILL HAVE A REDUCED OWNERSHIP AND VOTING INTEREST
AFTER THE MERGER.
After the merger's completion, ObjectShare stockholders will own a
significantly smaller percentage of StarBase than they currently own of
ObjectShare. Consequently, ObjectShare stockholders will be able to exercise
less influence over the management and policies of StarBase than they currently
exercise over the management and policies of ObjectShare.
OBJECTSHARE'S DIRECTORS AND OFFICERS HAVE INTERESTS THAT DIFFER IN SOME RESPECTS
FROM OBJECTSHARE STOCKHOLDERS.
In considering the recommendation of the ObjectShare's board of
directors to approve the merger, ObjectShare's stockholders should consider that
some of ObjectShare's directors and officers have interests in the merger that
differ from, or are in addition to, their interests as ObjectShare stockholders.
ObjectShare's directors and officers may receive benefits from the merger not
available to ObjectShare stockholders generally. These benefits include the
receipt of StarBase stock options for persons who will provide services to
StarBase, payments under ObjectShare's severance agreements and the continuation
of existing indemnification policies and agreements.
OBJECTSHARE STOCKHOLDERS MAY BE ENTITLED TO APPRAISAL RIGHTS.
Stockholders of ObjectShare who do not vote in favor of the merger may,
under certain circumstances and by following procedures prescribed by the
Delaware General Corporation Law (the "Delaware Law"), exercise appraisal rights
and receive cash for their shares of ObjectShare common stock ("Appraisal
Rights"). A dissenting stockholder of ObjectShare must follow the appropriate
procedures under Delaware Law or suffer the termination or waiver of such
rights. In the event an ObjectShare stockholder relinquishes or loses his, her
or its Appraisal Rights, the stockholder will receive from StarBase the same
number of shares of StarBase common stock that the stockholder would have
received in the merger had such stockholder not attempted to exercise
10
<PAGE> 22
his, her or its Appraisal Rights. StarBase has no obligation to consummate the
merger if more than five percent (5%) of the outstanding shares of ObjectShare
common stock request or continue to have the right to exercise Appraisal Rights.
See "The Merger - Appraisal Rights."
RISKS ASSOCIATED WITH STARBASE
When referenced in the remainder of this "Risk Factors" section,
references to "us," "our Company" and "we" shall mean StarBase.
WE HAVE A HISTORY OF LOSSES.
There can be no assurance that our Company's product development
efforts will result in a commercially viable business or that our Company will
be able to generate significant revenues or operate profitably. Since our
inception, we have had a history of losses and as of September 30, 1999, we had
an accumulated deficit of $54,429,000. We anticipate incurring additional losses
until our Company can successfully market and distribute its existing products,
as well as successfully develop, market and distribute its planned future
products. The development of software products is difficult and time consuming,
requiring the coordinated participation of various technical and marketing
personnel and, at times, independent third-party suppliers. This development
process often encounters unanticipated delays and expenses. The likelihood of
the success of our business must be considered in light of the problems,
expenses, difficulties, complications and unforeseen delays frequently
encountered in connection with the development of new technologies.
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 generating
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. Although we have had positive cash flow for the six months ended
September 30, 1999, we cannot guarantee that we will have positive cash flow in
the future. 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 cash flow from operations is as follows:
<TABLE>
<CAPTION>
Fiscal year ended: Negative Cash Flow
------------------ ------------------
<S> <C>
March 31, 1995 ........................... $6,179,000
March 31, 1996 ........................... $4,949,000
March 31, 1997 ........................... $6,506,000
March 31, 1998 ........................... $5,662,000
March 31, 1999 ........................... $9,430,000
</TABLE>
<TABLE>
<CAPTION>
Six months ended: Positive Cash Flow
----------------- ------------------
<S> <C>
September 30, 1999 ...................... $528,000
</TABLE>
11
<PAGE> 23
OUR SUCCESS IS DEPENDENT ON PRODUCT LINES UNDER DEVELOPMENT AND/OR DEVELOPING
CERTAIN MARKETS.
Our success will be dependent in large part upon our ability to market
our StarTeam 4.1 and Enterprise product lines and to quickly introduce and
market additional products. While we are in various stages of developing
additional products, there can be no assurance that such additional products
will be completed or successfully marketed. User preferences for software
products are difficult to predict and, historically, only a limited number of
software products have achieved sustained market acceptance. Demand for software
products is subject to a number of variables, including user preferences and the
size of the installed base of personal computers capable of running the
products. Further, the market for our software products is evolving. There can
be no assurance that the products introduced by us 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 have a material
adverse effect on our Company.
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 which 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 intensive 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.
WE MAY NOT ACHIEVE OR SUSTAIN OUR REVENUE OR PROFIT GOALS.
Because we expect to continue to incur significant product development, sales
and marketing, and administrative expenses, we will need to generate significant
revenue to achieve and sustain profitability on a quarterly or annual basis. We
may not achieve or sustain our revenue or profit goals and our ability to do so
depends on a number of factors outside of our control, including the extent to
which:
- there is market acceptance of commercial services utilizing
our products;
- our competitors announce and develop competing products or
significantly lower their prices; and
- our customers promote our products to their subscribers and
customers.
12
<PAGE> 24
WE MAY FAIL TO SUPPORT OUR ANTICIPATED GROWTH IN OPERATIONS.
To succeed in the implementation of our business strategy, we must rapidly
execute our sales strategy and further develop products and expand service
capabilities, while managing anticipated growth by implementing effective
planning and operating processes. To manage anticipated growth, we must:
- continue to implement and improve our operational, financial
and management information systems;
- hire, train and retain additional qualified personnel;
- continue to expand and upgrade core technologies; and
- effectively manage multiple relationships with various
e-commerce website operators, applications developers and
other third parties.
If we fail to manage our growth effectively, our business could suffer
materially.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS.
Our success depends significantly on our ability to protect our proprietary
rights to the technologies used in our business. If we are not adequately
protected, our competitors could use the intellectual property that we have
developed to enhance their products and services, which could harm our business.
We rely on a combination of copyright and trademark laws, trade secrets,
confidentiality provisions and other contractual provisions to protect our
proprietary rights, but these legal means provide only limited protection. As
the number of entrants into our market increases, the possibility of a patent
infringement claim against us grows. For example, we inadvertently may be
infringing a patent of which we are unaware. In addition, because patent
applications can take many years to issue, there may be a patent application now
pending of which we are unaware, which will cause us to be infringing such
patent when it issues in the future. To address any patent infringement claims,
we may have to enter into royalty or licensing agreements on disadvantageous
commercial terms. A successful claim of product infringement against us, and our
failure to license the infringed or similar technology, would harm our business.
In addition, any infringement claims, with or without merit, would be
time-consuming and expensive to litigate or settle and could divert management
attention from administering our core business.
WE MAY ACQUIRE TECHNOLOGIES OR COMPANIES IN THE FUTURE AND THESE ACQUISITIONS
COULD RESULT IN THE DILUTION OF OUR SHAREHOLDERS AND DISRUPTION OF OUR BUSINESS.
We may acquire technologies or companies in the future through a merger,
acquisition, joint venture or other structure. We may not be able to identify,
acquire, profitably manage or successfully integrate any acquired business
without substantial expense, delay or other operational or financial problems.
Entering into an acquisition entails many risks, any of which could materially
harm our business, including:
- diversion of management's attention from other business
concerns;
- failure to assimilate the acquired company with our
pre-existing business;
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<PAGE> 25
- potential loss of key employees from either our pre-existing
business or the acquired business;
- dilution of our existing shareholders as a result of issuing
common stock or other securities; and
- assumption of liabilities of the acquired company.
RISKS ASSOCIATED WITH HOLDING 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.
We have the authority to issue up to 80,000,000 shares of our common
stock and to issue preferred stock as well as options and warrants to purchase
shares of our common stock without shareholder approval. These future issuances
could be at values substantially below the price paid for our common stock by
current stockholders.
As of December 31, 1999, we had the following capital structure:
<TABLE>
<S> <C>
Shares of common stock outstanding: 40,983,568
Shares of common stock issuable upon:
Conversion of warrants: 1,112,000
Conversion of options: 9,213,114
----------
Total: 51,308,682
==========
</TABLE>
The number of shares of common stock outstanding includes 1,418,638
shares held in escrow under a performance escrow agreement. The common stock
issuable upon exercise of options must vest and is generally issuable over a
four year period. As of December 31, 1999, only 2,296,234 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.
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 StarBase common stock may result in a decrease in the value
or market price of StarBase 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 StarBase 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> 26
OUR STOCK PRICE FLUCTUATIONS MAY AFFECT THE NUMBER OF SHARES OF OUR COMMON STOCK
YOU WILL RECEIVE IN THE MERGER.
In the merger, you will receive shares of our common stock for the
respective shares of ObjectShare common stock that you currently hold. The
market price of our common stock will fluctuate as a result of changes in our
business, operations, prospects or the market assessment of the impact of the
merger. Because the market price of our common stock fluctuates, the value of
our common stock that you will receive for your ObjectShare common stock will
depend upon the market price of our stock at the time of the merger. There can
be no assurance as to this value. For historical and current market prices of
our common stock, see "Comparative Per Share Market Price and Dividend
Information" on page 35.
IF WE CANNOT MEET THE NASDAQ SMALLCAP MARKET MAINTENANCE REQUIREMENTS AND NASDAQ
RULES, NASDAQ MAY DELIST OUR COMMON STOCK WHICH COULD NEGATIVELY AFFECT THE
PRICE OF STARBASE COMMON STOCK AND YOUR ABILITY TO SELL STARBASE 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. Although we currently comply with Nasdaq's
listing maintenance requirements, in the past there were times when we have not
been in compliance and it is possible we may not meet the requirements in the
future. 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 Nasdaq 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.
RISKS RELATED TO E-BUSINESS AND THE INTERNET
OUR EXISTING PRODUCTS COULD BECOME OBSOLETE, IF WE ARE UNABLE TO MEET THE RAPID
CHANGES IN E-BUSINESS TECHNOLOGY.
The market for our products is marked by rapid technological change,
frequent new product introductions and Internet-related technology evolving
industry standards. We cannot be certain that we will successfully develop and
market new products, new product enhancements or new products compliant with
present or emerging Internet technology standards. New products based on new
technologies or new industry standards can render existing products obsolete and
unmarketable. To succeed, we will need to enhance our current products and
develop new products on a timely basis to keep pace with developments related to
Internet technology and to satisfy the increasingly sophisticated requirements
of our clients. Internet commerce technology, particularly e-Business software
technology, is complex and new products and product enhancements can require
long development and testing periods. Any delays in developing and releasing
enhanced or new products could have a material adverse effect on our business,
operating results and financial condition.
OUR PERFORMANCE WILL DEPEND ON THE GROWTH OF THE INTERNET FOR COMMERCE.
Our future success depends heavily on the Internet being accepted and
widely used for commerce. If Internet commerce does not continue to grow or
grows more slowly than expected, our business, operating results and financial
condition would be materially adversely affected. Consumers and businesses may
reject the Internet as a viable commercial medium for a number
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<PAGE> 27
of reasons, including potentially inadequate network infrastructure, slow
development of enabling technologies or insufficient commercial support. The
Internet infrastructure may not be able to support the demands placed on it by
increased Internet usage and bandwidth requirements. In addition, delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or increased government regulation could
cause the Internet to lose its viability as a commercial medium. Even if the
required infrastructure, standards, protocols or complementary products,
services or facilities are developed, we may incur substantial expenses adapting
our solutions to changing or emerging technologies.
OUR PERFORMANCE WILL DEPEND ON THE NEW MARKET FOR EBUSINESS SOLUTIONS.
The market for eBusiness solutions is new and rapidly evolving. We
expect that we will continue to need intensive marketing and sales efforts to
educate prospective clients about the uses and benefits of our products and
services. Accordingly, we cannot be certain that a viable market for our
products will emerge or be sustainable. Enterprises that have already invested
substantial resources in other methods of conducting eBusiness may be reluctant
or slow to adopt a new approach that may replace, limit or compete with their
existing systems. Similarly, individuals have established patterns of purchasing
goods and services. They may be reluctant to alter those patterns. They may also
resist providing the personal data necessary to support our existing and
potential product uses. Any of these factors could inhibit the growth of on-line
business generally and the market's acceptance of our products and services in
particular.
THERE IS SUBSTANTIAL RISK THAT FUTURE REGULATIONS COULD BE ENACTED THAT EITHER
DIRECTLY RESTRICT OUR BUSINESS OR INDIRECTLY IMPACT OUR BUSINESS BY LIMITING THE
GROWTH OF INTERNET COMMERCE.
As Internet commerce evolves, federal, state or foreign agencies may
adopt new legislation or regulations covering issues such as user privacy,
pricing, content and quality of products and services. If enacted, these laws,
rules or regulations could indirectly harm us to the extent that they impact our
customers and potential customers. We cannot predict if or how any future
legislation or regulations would impact our business. Although many of these
regulations may not apply to our business directly, these laws regulating or
affecting commerce on the Internet could indirectly harm our business.
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<PAGE> 28
OBJECTSHARE SPECIAL MEETING
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies from the holders of ObjectShare common stock by
ObjectShare's board of directors for use at the special meeting. This Proxy
Statement/Prospectus and accompanying form of proxy are first being mailed to
the stockholders of ObjectShare on or about ________ ___, 2000.
TIME AND PLACE; PURPOSE
The special meeting will be held at 10:00 a.m., California or Pacific
Standard Time, on ___________ __, 2000 at the headquarters of ObjectShare Inc.,
16811 Hale Avenue, Suite A, Irvine, California 92614. At the special meeting
(and any adjournment or postponement thereof), the stockholders of ObjectShare
will be asked to consider and vote upon the approval and adoption of the merger
agreement and the merger and such other matters as may properly come before the
special meeting.
ObjectShare stockholder approval of the merger agreement and the merger
is required by Delaware Law.
The ObjectShare Board has unanimously approved the terms of the merger
agreement and the consummation of the merger contemplated thereby, unanimously
believes that the terms of the merger agreement and the merger are fair to, and
in the best interests of, ObjectShare and its stockholders, and unanimously
recommends that holders of ObjectShare common stock vote "FOR" approval of the
merger and the merger agreement.
RECORD DATE; VOTING RIGHTS AND PROXIES
Only holders of record of ObjectShare common stock at the close of
business on February __, 2000 (the "Record Date") are entitled to notice of and
to vote at the special meeting. As of the Record Date, there were 12,470,863
shares of ObjectShare common stock outstanding, each of which entitled the
holder thereof to one vote.
All shares of ObjectShare common stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH SHARES OF OBJECTSHARE COMMON STOCK WILL BE VOTED "FOR"
APPROVAL OF THE MERGER AND THE MERGER AGREEMENT. ObjectShare does not know of
any matters other than the approval of the merger and the related merger
agreement that are to come before the special meeting. If any other matter or
matters are properly presented for action at the special meeting, the persons
named in the enclosed form of proxy and acting thereunder will have the
discretion to vote on such matters in accordance with their best judgment. A
stockholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice of revocation to ObjectShare by signing and
returning a later dated proxy, or by voting in person at the special meeting.
Votes cast by proxy or in person at the special meeting will be tabulated by the
inspector of election appointed for the meeting.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
On the Record Date, ObjectShare directors, executive officers, and
their affiliates did not beneficially own any shares of ObjectShare common stock
(excluding options).
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<PAGE> 29
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the ObjectShare Board.
In addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of ObjectShare in person or by telephone,
telegram or other means of communication. Such directors, officers and employees
will not be additionally compensated, but may be reimbursed for out-of-pocket
expenses incurred in connection with such solicitation. Arrangements have also
been made with brokerage firms, banks, custodians, nominees and fiduciaries for
the forwarding of proxy solicitation materials to owners of ObjectShare common
stock held of record by such persons and in connection therewith such firms will
be reimbursed for reasonable expenses incurred in forwarding such materials.
ObjectShare has retained MacKenzie Partners to assist in the solicitation of
proxies from its stockholders. The total fees and expenses of MacKenzie Partners
are estimated to be $86,500. StarBase will reimburse ObjectShare for the payment
of such fees and expenses.
ObjectShare stockholders should not send any certificates representing
ObjectShare common stock with their proxy cards. Following the effective date of
the merger, ObjectShare stockholders will receive instructions for the
surrender, and exchange of such stock certificates.
QUORUM
The presence in person or by properly executed proxy of a majority of
the issued and outstanding shares of ObjectShare stock entitled to vote is
necessary to constitute a quorum at the special meeting.
REQUIRED VOTE
Approval of the merger and the merger agreement requires the
affirmative vote of a majority of the outstanding shares of ObjectShare common
stock. Accordingly, any failure to vote will have the effect of a vote against
the merger and the merger agreement.
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<PAGE> 30
APPRAISAL RIGHTS OF OBJECTSHARE STOCKHOLDERS
Holders of shares of StarBase common stock are not entitled to
Appraisal Rights.
Holders of ObjectShare common stock who do not vote in favor of the
merger may, under certain circumstances and by following the procedure
prescribed by Section 262 of the Delaware Law, exercise Appraisal Rights and
receive cash for their shares of ObjectShare common stock. A dissenting
stockholder must follow the appropriate procedures under the Delaware Law or
suffer the termination or waiver of such rights.
Holders of record of ObjectShare common stock who do not vote in favor
of the merger and who otherwise comply with the procedures set forth in Section
262 of the Delaware Law, and summarized herein, will be entitled to have their
shares of ObjectShare common stock appraised (the "Appraisal Shares") and will
receive a payment in cash for such shares. The failure of an ObjectShare
stockholder to follow the appropriate procedures set forth in Section 262 will
result in the termination or waiver of the stockholder's Appraisal Rights. A
person having a beneficial interest in shares of ObjectShare common stock held
of record in the name of another person, such as a broker or nominee, must act
promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect Appraisal Rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW
PERTAINING TO APPRAISAL RIGHTS UNDER THE DELAWARE LAW AND IS QUALIFIED IN ITS
ENTIRETY BY THE FULL TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS ENTIRETY AS
APPENDIX D. ALL REFERENCES IN SECTION 262 AND THIS SUMMARY TO A "STOCKHOLDER" OR
"HOLDER" ARE TO THE RECORD HOLDER OF THE SHARES OF OBJECTSHARE COMMON STOCK AS
TO WHICH APPRAISAL RIGHTS ARE ASSERTED.
Under the Delaware Law, holders of shares of ObjectShare common stock
who follow the procedures set forth in Section 262 will be entitled to have
their Appraisal Shares appraised by the Delaware Chancery Court and to receive
payment in cash of the "fair value" of such Appraisal Shares, exclusive of any
element of value arising from the accomplishment or expectation of the merger,
together with a fair rate of interest, if any, as determined by such court.
Pursuant to the terms of the merger agreement, StarBase has no obligation to
consummate the merger if demands for Appraisal Rights are made or continue to
exist with respect to more than five percent (5%) of the outstanding shares of
ObjectShare common stock. If the merger is not consummated, no ObjectShare
stockholder will be entitled to Appraisal Rights.
Under Section 262, where a proposed merger is to be submitted for
approval at a meeting of stockholders, the corporation, must notify each of its
stockholders, as determined on the record date for such meeting, not less than
twenty (20) days prior to the meeting that Appraisal Rights are available. The
corporation must also include a copy of Section 262 in such notice.
This Proxy Statement/Prospectus constitutes notice to the holders of
ObjectShare common stock of their Appraisal Rights as required by Section 262.
Section 262 is attached to this Proxy Statement/ Prospectus as Appendix D. Any
ObjectShare's stockholder who wishes to exercise his, her or its Appraisal
Rights, or who wishes to preserve his, her or its right to do so, should review
the following discussion and Appendix D carefully. Failure to comply timely and
properly with the procedures specified in Section 262 will result in the loss of
Appraisal Rights.
A HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE SUCH HOLDER'S
APPRAISAL RIGHTS MUST (1) NOT VOTE IN FAVOR OF THE MERGER AND (2) DELIVER TO
OBJECTSHARE PRIOR TO THE VOTE ON THE MERGER AGREEMENT AT THE OBJECTSHARE MEETING
TO BE HELD ON ______ __, 2000, A WRITTEN
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DEMAND FOR APPRAISAL. A HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE SUCH
HOLDER'S APPRAISAL RIGHTS MUST BE THE RECORD HOLDER OF SUCH APPRAISAL SHARES ON
THE DATE THE WRITTEN DEMAND FOR APPRAISAL IS MADE AND MUST CONTINUE TO HOLD SUCH
APPRAISAL SHARES OF RECORD UNTIL THE CONSUMMATION OF THE MERGER. ACCORDINGLY, A
HOLDER OF APPRAISAL SHARES WHO IS THE RECORD HOLDER OF APPRAISAL SHARES ON THE
DATE THE WRITTEN DEMAND FOR APPRAISAL IS MADE, BUT WHO THEREAFTER TRANSFERS SUCH
APPRAISAL SHARES PRIOR TO THE CONSUMMATION OF THE MERGER, WILL LOSE ANY RIGHT TO
APPRAISAL IN RESPECT OF SUCH APPRAISAL SHARES. A PROXY OR VOTE AGAINST THE
APPROVAL OF THE MERGER DOES NOT IN ITSELF CONSTITUTE A DEMAND FOR APPRAISAL.
Only a holder of record of Appraisal Shares is entitled to assert
Appraisal Rights for the Appraisal Shares registered in that holder's name. A
demand for appraisal should be executed by or on behalf of the holder of record,
fully and correctly, as such holder's name appears on such holder's stock
certificate. If the Appraisal Shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and if the Appraisal Shares are owned of record
by more than one person as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on behalf
of a holder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, the agent
is agent for such owner or owners. A record holder such as a broker who holds
Appraisal Shares as a nominee for several beneficial owners may exercise
appraisal rights with respect to the Appraisal Shares held for one or more
beneficial owners while not exercising such rights with respect to the Appraisal
Shares held for other beneficial owners; in such case, the written demand should
set forth the number of Appraisal Shares as to which appraisal is sought. When
no number of Appraisal Shares is expressly mentioned, the demand will be
presumed to cover all Appraisal Shares held in the name of the record owner.
Stockholders who hold their Appraisal Shares in brokerage accounts or other
nominee forms and who wish to exercise Appraisal Rights are urged to consult
with their brokers to determine the appropriate procedures for the making of a
demand for appraisal by such a nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO
OBJECTSHARE, INC., 16811 HALE AVENUE, SUITE A, IRVINE, CALIFORNIA 92614,
ATTENTION: EUGENE L. GODA.
Within ten (10) days after the consummation of the merger, the combined
company will provide notice of the date on which the merger was consummated to
each stockholder who has properly asserted Appraisal Rights under Section 262
and has not voted in favor of the merger.
Within 120 days after the consummation of the merger but not
thereafter, the combined company or any stockholder who has complied with the
statutory requirements summarized above may file a petition in the Delaware
Chancery Court demanding a determination of the fair value of the Appraisal
Shares. Accordingly, it is the obligation of the stockholders to initiate all
necessary action to perfect their Appraisal Rights within the time prescribed in
Section 262. At any time within sixty (60) days from the consummation of the
merger, a stockholder may withdraw his, her or its demand for appraisal, and
accept the terms offered under the merger agreement.
Within 120 days after the consummation of the merger, any stockholder
who has complied with the requirements for exercise of Appraisal Rights will be
entitled, upon written request, to receive from the combined company a statement
setting forth the aggregate number of Appraisal Shares and the aggregate number
of holders of such Appraisal Shares not voted in favor of the merger and with
respect to which demands for appraisal have been received. The
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<PAGE> 32
combined company must mail the statement within ten (10) days after it has
received a written request.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine the stockholders entitled
to Appraisal Rights and will appraise the fair value of their Appraisal Shares,
exclusive of any element of value arising from the accomplishment or expectation
of the merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Stockholders considering whether to
seek appraisal should be aware that the fair value of their Appraisal Shares as
determined under Section 262 could be more than, the same as or less than the
value of the consideration they would receive pursuant to the merger agreement
if they did not seek appraisal of their Appraisal Shares. Investment banking
opinions as to fairness from a financial point of view are not necessarily
opinions as to fair value under Section 262. The Delaware Supreme Court has
stated that proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court should be considered in the appraisal proceedings.
The Delaware Chancery Court will determine the amount of interest, if
any, to be paid upon the amounts to be received by persons whose Appraisal
Shares have been appraised. The costs of the action may be determined by the
Delaware Chancery Court and taxed upon the parties as the Delaware Chancery
Court deems equitable. The Delaware Chancery Court may also order that all or a
portion of the expenses incurred by any stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all the Appraisal Shares entitled to appraisal.
Any holder of Appraisal Shares who had duly demanded an appraisal in
compliance with Section 262 will not, after the consummation of the merger, be
entitled to vote the Appraisal Shares subject to such demand for any purpose or
be entitled to the payment of dividends or other distributions on those
Appraisal Shares (except dividends or other distributions payable to holders of
record of Appraisal Shares as of a record date prior to the consummation of the
merger).
If any stockholder who properly demands appraisal of his, her or its
Appraisal Shares under Section 262 fails to perfect, or effectively withdraws or
loses, his, her or its Appraisal Rights, the Appraisal Shares of such
stockholder will be converted into the right to receive the consideration
receivable with respect to such Appraisal Shares in accordance with the merger
agreement. A stockholder will fail to perfect, or effectively lose or withdraw
his, her or its right to appraisal if, among other things, no petition for
appraisal is filed within 120 days after the consummation of the merger, or if
the stockholder delivers to StarBase a written withdrawal of his, her or its
demand for appraisal. Any such attempt to withdraw an appraisal demand more than
sixty (60) days after the consummation of the merger will require the written
approval of StarBase.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A
STOCKHOLDER WILL BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE with
RESPECT TO SUCH APPRAISAL SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT). IN
VIEW OF THE COMPLEXITY OF THE PROVISIONS OF SECTION 262, OBJECTSHARE
STOCKHOLDERS WHO ARE CONSIDERING OBJECTING TO THE MERGER SHOULD CONSULT THEIR
OWN LEGAL ADVISORS.
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<PAGE> 33
THE MERGER TRANSACTION
GENERAL
Each of StarBase's and ObjectShare's board of directors has approved
the merger agreement, which provides for acquisition, by merger, of ObjectShare,
as a result of which ObjectShare shall become a wholly-owned subsidiary of
StarBase. Under the merger, ObjectShare stockholders will receive in the
aggregate for their shares of ObjectShare common stock shares of StarBase common
stock having a minimum value of $6,150,000 and a maximum value of $8,850,000.
The exact aggregate number of shares of StarBase common stock that will be
issued by StarBase pursuant to the merger agreement depends on several factors
that cannot be determined definitively until the effective date of the merger.
These factors include:
- the average of the closing price per share of StarBase
common stock as reported on the Nasdaq SmallCap Market for the
three trading days immediately preceding the day prior to the
closing date of the merger agreement; and
- the enterprise value of ObjectShare determined pursuant
to the formula contained in the merger agreement.
Based on an average closing price per share of StarBase common stock of
$9.292 as of the date of this Proxy Statement/Prospectus, ObjectShare
stockholders would acquire approximately 952,432 shares of StarBase common
stock, representing approximately __% of StarBase common stock on a
fully-diluted basis.
BACKGROUND OF THE MERGER
On April 25,1999, James H. Smith, the then Chief Operating Officer/Vice
President of Sales and Marketing of ObjectShare, contacted William McManes, Vice
President of Sales at StarBase, to discuss opportunities for the two companies
to work together or form a strategic alliance. Mr. Smith had spent the past
several months talking to various companies about partnering or acquiring all or
pieces of ObjectShare's tools business in connection with both the Java and
Smalltalk product lines. Mr. Smith had earlier been successful in facilitating
the sale of ObjectShare's Java product line to SeaGull Software Systems, Inc.
and was exploring at such time opportunities for the remaining Smalltalk and
consulting/training business of ObjectShare.
ObjectShare had been looking to expand its presence in the eBusiness
marketplace and started searching the web for potential partners. Because
StarBase had repositioned the company from a traditional SCM vendor into
providing solutions for the web and the Internet, Mr. Smith believed that the
training and consulting business at ObjectShare could be very complimentary to
StarBase and that the object-oriented application development experience,
training and customer base were extremely complimentary as well.
On May 7, 1999, Messrs. Smith and McManes and Carlos Caballero, Vice
President of Marketing at StarBase, met to discuss some general thoughts about
partnering. This meeting led to additional meetings with Mr. Stow and Douglas
Norman, Chief Accounting Officer of StarBase, with respect to the possibility of
the two companies working together.
On three separate occasions during May 1999, representatives of
ObjectShare and StarBase met to explore the strategy and possible synergies of
merging the two companies.
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<PAGE> 34
On June 9, 1999, Messrs. Farrow, Norman and Smith and Eugene Goda,
Chairman, Chief Executive Officer and President of ObjectShare and Winston
Hickman (interim Chief Financial Officer of ObjectShare) met to explore possible
deal structures.
On June 10, 1999, Messrs. Smith and Stow met to discuss valuation
issues, the involvement of investment bankers and more particularly, the
engagement of First Security Van Kasper ("FSVK") and Duff & Phelps, LLC ("Duff &
Phelps").
On June 23, 1999, ObjectShare's board of directors met to decide
whether to pursue the opportunity presented by StarBase.
On June 25, 1999, Messrs. Goda and Smith met with Duff & Phelps to
begin financial analysis.
From June 25, 1999 through August of 1999, discussions of a possible
merger with StarBase were put on hold while ObjectShare engaged in discussions
with a number of potential buyers for ObjectShare's VisualWorks product line
based on the SmallTalk programming language. On August 30, 1999, ObjectShare
sold its VisualWorks product line to Cincom Systems, Inc.
On September 10, 1999, discussions again took place between Messrs.
Goda and Stow, together with the two companies' investment bankers, FSVK and
Duff & Phelps, concerning the proposed valuation of ObjectShare for establishing
a purchase price.
On September 23 and 24, 1999, Messrs. Smith and Stow met to discuss
employee issues and the drafting of the definitive merger agreement.
On October 5, 1999, ObjectShare's board of directors met to discuss the
definitive merger agreement and the proposed valuation.
On October 21, 1999, ObjectShare presented to StarBase's board of
directors the strategy of the merged companies and the synergies on the combined
entity in order for the StarBase Board to make an informed decision concerning a
decision to approve the proposed merger. Attendees included Messrs. Goda, Smith,
Farrow, Stow and each of Phillip Pierce and Daniel Ginns, directors of StarBase.
On October 25, 1999, representatives of ObjectShare met with
representatives of Duff & Phelps to go over the financial projections of both
ObjectShare and StarBase.
During October 1999, StarBase's attorneys and accountants performed
additional due diligence concerning ObjectShare and its business.
The form of merger agreement and the proposed merger were approved by
the boards of directors of ObjectShare and StarBase on each of November 2, 1999
and November 3, 1999, respectively.
On November 3, 1999, representatives of ObjectShare and StarBase signed
a definitive merger agreement.
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STARBASE'S REASONS FOR MERGER
The StarBase Board's decision to approve the merger agreement was based
primarily on factors resulting from the rapid expansion of the eBusiness
industry in recent months and StarBase's business prospects within that
industry. StarBase's strategy going forward is to provide eBusiness life cycle
management solutions for enterprise level applications. The ability to provide
professional services is a major component of this strategy due to the
increasing complexity of eBusiness applications and the need for custom
solutions. StarBase currently has a small professional services group that has
been focused primarily on training and consulting in the software configuration
management (SCM) space. The eBusiness sector of the economy is much broader,
covering web, portal and software application development and entailing
management of diverse components such as graphics, HTML pages, Active Server
Pages (ASP) as well as software components such as Java, C++, COBOL. The
StarBase Board determined that a strong professional services organization, with
expertise in web, portal and software application development, was needed to
support the eBusiness life cycle management strategy. ObjectShare can help to
provide this expertise.
The following sets forth the StarBase need for professional services,
and the specific synergies achieved by merging ObjectShare with StarBase:
The Need for Professional Services:
- StarBase needs to provide a `whole product' solution to
compete effectively in the eBusiness sector.
- Many of the major web software framework companies competitive
with, or perceived as so by, StarBase have invested heavily in
services (e.g. Interwoven, Vignette, Rational, BroadVision,
etc.).
- According to Industry analysts, "Labor represents 79% of the
cost to build an e-commerce web site; software and hardware
represent 21%."
- eBusiness applications, in particular those which need to
integrate legacy software components with web-specific
components, are significantly more complex as compared to
software specific or web specific applications. The synergies
realized by the merger can enable StarBase to manage such
applications.
- The new complexity consists primarily of implementing backend
connections to existing software-based applications such as
billing, sales tax, inventory and warehouse, as well as help
desk - no two websites are alike. Absent the synergies to be
realized by the merger, StarBase currently lacks the breadth
of in-house expertise needed to deal with these
implementations.
- To attempt to position StarBase as the `premier' enterprise
solution for eBusiness life cycle management.
- To create a predictable backlog of service revenue for
earnings projections.
ObjectShare Provides StarBase:
- Established training and consulting infrastructure;
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<PAGE> 36
- Object-oriented language expertise in Java, HTML, XML and
Smalltalk;
- Distributed architecture expertise with back-end connection
and integration experience (CORBA, COM/DCOM, DLL/C, MQ/CICS);
- e-commerce, portal, web development expertise;
- SCM/Version Control expertise (e.g. Envy, TEAM V, and STORE);
- Senior sales and marketing personnel;
- Worldwide commercial customer base (60% of Fortune 100), the
majority of which is transitioning to eBusiness; and
- Revenue stream
Synergies with StarBase:
- eBusiness focus - managing all life cycle components;
- Portal infrastructure focus;
- Complementary and synergistic technology that requires
professional services to implement; and
- Organizational synergies.
The merger of ObjectShare with StarBase provides an opportunity for
added value over and above each company's individual value.
OBJECTSHARE'S REASONS FOR MERGER
The ObjectShare Board has unanimously approved the merger agreement and
recommends that the holders of shares of ObjectShare common stock vote FOR the
approval of the merger and the merger agreement.
The ObjectShare Board's decision to approve the merger agreement was
based on a number of factors including: the rapid expansion of the eBusiness
industry in recent months and ObjectShare's business prospects within that
industry, increased competition and the need for working capital.
In particular, ObjectShare's Board noted the potential for training and
consulting opportunities created by the rapid proliferation of eBusiness
solutions as well as the need for StarBase to increase its training and
consulting capabilities with its proprietary software solutions. ObjectShare's
Board concluded that the best means for ObjectShare to capitalize on these
opportunities was to enter into a strategic combination with StarBase whose
software product is well positioned to provide solutions for eBusiness
applications.
The ObjectShare Board also believed that increasing competition in the
expanding eBusiness market would make it more difficult for ObjectShare to
succeed as a relatively small independent training and consulting company. The
ObjectShare Board believed that it would be
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<PAGE> 37
increasingly important for ObjectShare to grow and gain critical mass in order
to compete against larger companies with substantially greater resources and
broader, more integrated product offerings. In order to enhance its competitive
position, the ObjectShare Board has considered a number of alternatives,
including growth through the acquisition of smaller companies that could extend
ObjectShare's training and consulting capabilities or a merger with a larger
company.
The ObjectShare Board identified a number of benefits for ObjectShare
stockholders, employees and customers that could result from the merger. These
potential benefits include:
- synergies and compatibility of ObjectShare and StarBase, based on
their complementary skill sets, which could lead to the creation of a
comprehensive eBusiness life cycle products and services;
- opportunities for ObjectShare, as part of the combined company, to
compete more effectively in the increasingly competitive and rapidly changing
eBusiness industry;
- the access to working capital resulting in the ability to dedicate
greater resources to fund the future growth of ObjectShare's business; and
- the merger consideration to be received by ObjectShare stockholders
which represented a premium of approximately 36% over the market price as of the
date of the merger agreement;
- the opportunity for ObjectShare stockholders to participate in the
growth potential of the combined company after the merger;
- the greater liquidity to ObjectShare stockholders offered by StarBase
common stock relative to ObjectShare common stock;
- the presentation by Duff & Phelps and its opinion dated as of
November 3, 1999, that based upon the facts and circumstances as they existed at
that time, and subject to certain assumptions and factors set forth in the
opinion, the consideration to be received by ObjectShare stockholders under the
terms of the merger agreement is fair to ObjectShare stockholders from a
financial point of view. In particular, the ObjectShare Board focused on the
portions of the Duff & Phelps presentation regarding the implied valuation of
the ObjectShare common stock in the proposed transaction, including the
comparison of the implied valuation to historic and recent market valuations of
shares of ObjectShare common stock as well as the premium cited by Duff & Phelps
for the ObjectShare common stock to be acquired by StarBase. See "Opinion of
ObjectShare's Financial Advisor" for a discussion of the factors considered by
Duff & Phelps in rendering its opinion;
- the tax-free aspects of the merger to ObjectShare stockholders;
- the compatibility of the business philosophies and strategies of
ObjectShare and StarBase, which the ObjectShare Board believes is important for
the successful integration of the companies;
- historical information concerning ObjectShare's and StarBase's
respective businesses, prospects, financial performance and condition,
operations, technology, management and competitive position, including public
reports concerning results of operations during the most recent fiscal year and
fiscal quarter for each company; and
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<PAGE> 38
- current financial market conditions and historical market prices,
volatility and trading information with respect to ObjectShare and StarBase
common stock.
The ObjectShare Board also identified and considered a number of
potentially negative factors in its deliberations concerning the merger,
including, but not limited to:
- the risk that, despite the efforts of ObjectShare and StarBase, key
technical marketing and management personnel might choose not to remain employed
by StarBase after the merger;
- the risk that the potential benefits sought in the merger might not
be realized fully, or within the time frame contemplated, if at all;
- the possibility that the merger would not be consummated and the
effect of the public announcement of the merger on (a) ObjectShare's sales and
operating results and (b) ObjectShare's ability to attract and retain key
management, sales, marketing and technical personnel;
- the substantial charges to be incurred, primarily in the quarter in
which the merger is consummated, including costs of integrating the business and
transaction expenses arising from the merger; and
- the other risks associated with StarBase's business and the merger
described under "Risk Factors" herein.
The ObjectShare Board believes that the potential benefits of the
merger outweigh these risks.
The foregoing discussion of the information and factors considered by
the ObjectShare Board is not intended to be exhaustive but is believed to
include all material factors considered by the ObjectShare Board. In view of the
variety of factors considered in connection with its evaluation of the merger,
the ObjectShare Board did not find it practicable to and did not quantify or
otherwise assign relative weight to the specific factors considered in reaching
its determination. In addition, individual members of the ObjectShare Board may
have given different weight to different factors.
In light of the size and diversity of the marketplace and the
competitive positions of both StarBase and ObjectShare, the ObjectShare Board
has concluded that the merger represents the best current and long-term strategy
for ObjectShare.
OPINION OF FINANCIAL ADVISOR OF OBJECTSHARE
On November 3, 1999, in connection with the evaluation of the merger
agreement by the ObjectShare Board, Duff & Phelps, LLC ("Duff & Phelps")
rendered a written opinion to the ObjectShare Board that, as of November 3,
1999, the merger transaction was fair to the stockholders of ObjectShare from a
financial point of view. Duff & Phelps' opinion is attached as Appendix E and is
incorporated herein by reference. OBJECTSHARE STOCKHOLDERS ARE ENCOURAGED TO
READ THE ATTACHED OPINION IN ITS ENTIRETY.
Pursuant to an agreement dated June 22, 1999, (the "Agreement"), Duff &
Phelps was engaged by the ObjectShare Board to render an opinion to the
ObjectShare Board as to whether the merger transaction is fair to ObjectShare
and its stockholders from a financial point of view.
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<PAGE> 39
Duff & Phelps is a nationally recognized investment banking firm that
is regularly engaged in rendering financial opinions in connection with mergers
and acquisitions, private placements, tax matters, corporate planning, and other
purposes. Duff & Phelps has previously provided fairness opinions to ObjectShare
in connection with transactions involving the sale of ObjectShare's SmallTalk
operations to Cincom Systems, Inc., and the sale of ObjectShare's two
wholly-owned European subsidiaries, ObjectShare GmbH and ObjectShare Limited, to
Valtech S.A. and Valtech Limited, respectively.
Duff & Phelps' opinion is directed to the ObjectShare Board only and is
directed only as to the fairness of the merger transaction to ObjectShare and
its stockholders from a financial point of view and does not constitute a
recommendation to any of ObjectShare stockholders as to how such stockholders
should vote on any matter.
For purposes of its opinion and in connection with its review of the
merger transaction, among other things, Duff & Phelps:
- met with certain members of senior management of ObjectShare and
StarBase to discuss the history, financial condition, future prospects and
projected performance of both ObjectShare and StarBase;
- reviewed the merger agreement;
- reviewed the Asset Purchase Agreement by and between Cincom Systems
and ObjectShare dated August 27, 1999;
- reviewed ObjectShare's and StarBase's annual reports and forms 10-K
and 10-KSB, respectively, for the year ended March 31, 1999;
- reviewed ObjectShare's and StarBase's forms 10-Q and 10-QSB,
respectively, for the quarter ended June 30, 1999, including the financial
statements contained therein;
- reviewed projections prepared by ObjectShare and StarBase management
and their representatives;
- reviewed historical trading price and volume of ObjectShare and
StarBase common stock;
- reviewed certain articles and press releases regarding ObjectShare
and StarBase and miscellaneous SEC filings for ObjectShare and StarBase;
- reviewed the ObjectShare Board minutes from February 1, 1996, through
August 26, 1999;
- reviewed other operating and financial information provided by
management of ObjectShare and StarBase; and
- reviewed economic and industry information and conducted such
studies, analyses and investigations that it deemed appropriate.
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<PAGE> 40
In connection with its opinion, with ObjectShare's permission and
without any independent verification, Duff & Phelps relied on the accuracy and
completeness of all the financial and other information reviewed by Duff &
Phelps, furnished, or otherwise communicated to Duff & Phelps by ObjectShare and
StarBase or obtained by Duff & Phelps from publicly available sources. Duff &
Phelps did not make an independent valuation or appraisal of the assets or
liabilities of ObjectShare or StarBase and was not furnished with such valuation
or appraisal. Any inaccuracies in the information on which Duff & Phelps relied
could materially affect its opinion.
Set forth below is a brief summary of the analyses performed by Duff &
Phelps in reaching its opinion as of November 3, 1999.
PREMIUM TO MARKET VALUE. Duff & Phelps compared the value of the merger
transaction to the market valuation of ObjectShare. Based on the market price of
ObjectShare common stock as of November 3, 1999 of $0.36, and balance sheet data
as of September 30, 1999, ObjectShare's enterprise value was approximately $4.3
million, or $0.35 per share. The merger transaction value of $7.5 million, or
$0.60 per share, indicated a premium of approximately 73% over the market value
of ObjectShare.
CURRENT STATUS OF BUSINESS. Duff & Phelps considered ObjectShare's
projected cash flows, historical stock price performance and employee turnover
ratio among other factors used in determining the fairness of the merger
transaction.
ObjectShare's revenues have been trending downward since 1995. In 1995,
total net revenues for the fiscal year ended March 31 were $55.7 million and
decreased to $15.8 million by fiscal year 1999. ObjectShare has been
unprofitable every year since 1996, with losses ranging from $22.5 million in
fiscal 1997 to $4.8 million in fiscal 1999. As of June 30, 1999, ObjectShare had
a very weakened financial position, with only $1.4 million in cash and
equivalents, $2.0 million in receivables and $6.0 million in current
liabilities. ObjectShare's working capital was a deficit of $2.2 million with a
quick ratio of 0.2 and current ratio of 0.6. Furthermore, ObjectShare's
accumulated deficit was $51.0 million.
ObjectShare (including its predecessor companies) went public in 1994
at $15.50 per share. Since then, ObjectShare's stock price has declined
significantly, with the stock price dropping to $1 per share in May 1997.
ObjectShare was delisted from NASDAQ on June 24, 1999, due to the continued
failure to meet listing requirements. The market reacted to the delisting with a
40% decline in the stock price, to approximately $0.63 per share on the day of
the delisting announcement. ObjectShare common stock is currently trading on the
OTC Bulletin Board. On November 3, 1999, the closing price for ObjectShare
common stock was $0.36 per share, implying a value of ObjectShare's equity of
approximately $4.5 million.
Without a capital infusion in the near-term future, ObjectShare would
most likely be unable to meet its financial requirements and would be unlikely
to continue to operate as a going concern, posing a very serious risk to
ObjectShare's ability to retain its clients and employees.
In rendering its opinion, Duff & Phelps considered potential benefits
of the merger transaction to ObjectShare such as cost reductions, increased
financial stability and growth prospects, and increased liquidity for
ObjectShare's stockholders.
COMPARABLE COMPANIES ANALYSIS. Duff & Phelps compared selected
financial and other operating ratios for ObjectShare to the corresponding ratios
of certain publicly traded software
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<PAGE> 41
training and consulting companies. These comparable public companies were as
follows: A Consulting Team, Inc., Canterbury Information Technology, Inc.,
Learning Tree International, Inc., National TechTeam, Inc., New Horizons
Worldwide, Inc., ProsoftTraining.com and Wave Technologies International, Inc.
Such ratios included enterprise value-to-sales and equity value-to-book value.
Other commonly used valuation multiples, such as enterprise value-to-cash flow
and equity value-to-net income, were not applicable since ObjectShare had
negative cash flow and negative earnings. The statistics were generally based on
financial and operating data up to, at or for the twelve months ended September
30, 1999, and market prices as of November 3, 1999.
Duff & Phelps compared the typical range of valuation multiples for the
comparable public companies with the valuation multiples for ObjectShare that
were implied by the merger transaction. Enterprise value as a multiple of latest
twelve months' revenues for the comparable companies ranged from 0.3x to 5.4x
with a median of 1.3x. The merger transaction values ObjectShare at $7.5
million, or 0.6x the latest twelve months' revenues, which falls near the middle
of the range observed for the comparable public companies. Equity value as a
multiple of book value ranged from 0.7x to 8.9x, with a median of 1.3x, for the
comparable companies. The merger transaction values ObjectShare's equity at
approximately 10.5x book value, above the range formed by the comparable
companies.
Duff & Phelps also performed a comparable control merger transaction
analysis by identifying selected mergers and acquisitions in the software
training and consulting industry. Merger transaction value as a multiple of
latest twelve months revenues ranged from 0.1x to 15.4x, with a median of 1.5x,
for the identified control transactions. The implied merger transaction
value-to-sales multiple of 0.6x for ObjectShare falls within this range.
DISCOUNTED CASH FLOW ANALYSIS. Duff & Phelps performed a discounted
cash flow analysis of ObjectShare based on the forecasted information provided
by ObjectShare's management. The terminal value of ObjectShare was estimated by
capitalizing projected year 2004 debt-free net cash flows. The projected cash
flows and terminal value were discounted to present value using discount rates
ranging from 20% to 35%, which reflect different assumptions regarding the
required rates of return of holders and prospective buyers of ObjectShare common
stock. The range of equity value of ObjectShare common stock resulting from this
analysis was $0.06 to $0.31 per share, or $0.8 million to $3.8 million for the
total equity. This compares to an equity value of approximately $0.61 per share,
or $7.7 million, implied in the merger transaction.
LIQUIDATION ANALYSIS. Duff & Phelps considered the value of
ObjectShare's equity under an orderly liquidation scenario. This analysis
supported only speculative value for ObjectShare's equity.
No company or transaction used in the above analyses is identical to
ObjectShare, StarBase or the merger transaction. Accordingly, an analysis of the
foregoing results is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other facts that could affect the public
trading value of the companies to which they are being compared.
The material analyses performed by Duff & Phelps have been summarized
above. Nonetheless, the summary set forth above does not purport to be a
complete description of the analyses performed by Duff & Phelps. The preparation
of a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these methods
to the particular circumstances. Therefore, such an opinion is not
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<PAGE> 42
readily susceptible to a summary description. Duff & Phelps did not form a
conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to fairness. Rather, in reaching
its conclusion, Duff & Phelps considered the results of the analyses in light of
each other and ultimately reached its opinion based on the results of all
analyses taken as a whole. Duff & Phelps did not place a particular reliance or
weight on any particular analysis, but instead concluded that its analyses,
taken as whole, supported its determination.
In performing its analyses, Duff & Phelps made numerous assumptions
with respect to ObjectShare's performance, general business and economic
conditions and other matters. The analyses performed by Duff & Phelps are not
necessarily indicative of future actual values or future results, which may be
significantly more or less favorable than suggested by such analyses. The
analyses do not purport to be appraisals or to reflect prices at which a company
might actually be sold or the prices at which any securities may trade at the
present time or at any time in the future. Duff & Phelps used in its analyses
various projections of future performance prepared by the management of
ObjectShare. The projections were based on numerous variables and assumptions
which are inherently unpredictable and must be considered not certain of
occurrence as projected. Accordingly, actual results could vary significantly
from those assumed in the projections and any related analyses. Duff & Phelps'
opinion does not address the relative merits of the merger transaction as
compared to any alternative business strategies that might exist for ObjectShare
or the effect of any other business combination in which ObjectShare might
engage.
Pursuant to the terms of its agreement with Duff & Phelps, ObjectShare
has agreed to pay Duff & Phelps a fee of $125,000 for financial advisory
services in connection with the merger transaction, including the rendering of
its opinion. ObjectShare has also agreed to reimburse Duff & Phelps for
reasonable out-of-pocket expenses and to indemnify Duff & Phelps against certain
expenses and liabilities, including liabilities under federal securities law,
incurred in connection with the performance of its duties under the Agreement.
Duff & Phelps' opinion to the ObjectShare board of directors was one of
many factors taken into consideration by the ObjectShare Board in making its
determination to approve the merger transaction.
RECOMMENDATION OF OBJECTSHARE'S BOARD OF DIRECTORS
FOR THE REASONS DISCUSSED ABOVE, THE OBJECTSHARE BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT OBJECTSHARE
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
In considering the recommendation of ObjectShare's board of directors
with respect to the merger agreement, you should be aware that certain directors
and officers of ObjectShare have certain interests in the merger that are
different from, or are in addition to, the interests of ObjectShare stockholders
generally. Please see the section entitled "Interests of Certain Persons in the
Merger" on page 51 of this Proxy Statement/Prospectus.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase as such term is used
under generally accepted accounting principles, for accounting and financial
reporting purposes.
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<PAGE> 43
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary of the material federal income
tax consequences of the merger to ObjectShare stockholders who hold their shares
of ObjectShare common stock as capital assets. This summary is based upon
provisions of the Code, applicable Treasury regulations promulgated under the
Code, and judicial and administrative decisions currently in effect. All of
these authorities are subject to retroactive or prospective change and to
possibly differing interpretations. This discussion does not address the federal
income tax consequences applicable to holders of ObjectShare common stock who
are subject to special treatment under the Code, such as foreign holders,
holders who acquired their stock pursuant to the exercise of employee stock
options or otherwise as compensation, holders who are dealers in securities,
banks, insurance companies or tax exempt organizations, and holders who hold
their shares of ObjectShare common stock as part of a hedge, straddle, or other
risk reduction transaction. In addition, this discussion does not address the
tax consequences of the merger under applicable state or local tax laws.
STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES OF THE MERGER, INCLUDING THE EFFECTS OF STATE, LOCAL AND FOREIGN
TAX LAWS.
It is expected that the merger will constitute a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). It is anticipated that the merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, and, accordingly, the merger will result in the following
U.S. federal income tax consequences:
An ObjectShare stockholder exchanging shares of ObjectShare common
stock for shares of StarBase common stock will not recognize any gain or loss
upon the exchange, except for any gain or loss attributable to any cash received
in lieu of a fractional share of StarBase common stock. The aggregate tax basis
of the shares of StarBase common stock received by the stockholder in the
exchange will be the aggregate tax basis of the shares of ObjectShare common
stock surrendered in the exchange. Also, the stockholder's holding period for
the StarBase common stock received in exchange for shares of ObjectShare common
stock will include the period during which the stockholder held shares of
ObjectShare common stock that were surrendered in the exchange.
Any cash received by ObjectShare stockholders in lieu of fractional
shares of StarBase common stock will result in the recognition of gain or loss
equal to the difference between the amount of cash received and the portion of
the adjusted tax basis of each stockholder's shares of ObjectShare common stock
that are allocable to the fractional interest. Such gain or loss will constitute
capital gain or loss, and will generally be long-term capital gain or loss if
the holding period for the shares was greater than one year as of the date of
the exchange. Capital gains of individuals, estates and trusts generally are
subject to a maximum federal income tax rate of (a) 39.6% if, at the effective
date of the merger, the ObjectShare common stock has been held by the
stockholder for not more than one year, and (b) 20% if the common stock had been
held for more than one year. Capital gains of corporations generally are taxed
at the federal income tax rates applicable to corporate ordinary income.
Each ObjectShare stockholder's aggregate tax basis in the StarBase
common stock received in the merger will equal his or her aggregate tax basis in
the ObjectShare common stock exchanged therefor, decreased by the amount of any
tax basis allocable to any fractional share interest for which cash is received.
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<PAGE> 44
In the event of a successful Internal Revenue Service challenge to the
"reorganization" status of the merger, ObjectShare stockholders would recognize
gain or loss with respect to each share of their common stock surrendered equal
to the difference between the their basis in such share and the sum of the fair
market value, as of the effective date of the merger, of the StarBase common
stock received in exchange therefore plus the amount of any cash received in
lieu of a fractional share. In such event, ObjectShare stockholder's aggregate
basis in StarBase common stock so received would equal its fair market value,
and his or her holding period for such stock would begin the day after the
effective date of the merger.
THE ABOVE DISCUSSION MAY NOT APPLY TO CERTAIN CATEGORIES OF STOCKHOLDERS SUBJECT
TO SPECIAL TREATMENT UNDER THE CODE. OBJECTSHARE STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER, INCLUDING ANY FEDERAL, STATE, LOCAL OR OTHER TAX CONSEQUENCES OF THE
MERGER.
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COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following table shows StarBase's, ObjectShare's and the pro forma
combined historical book value per share data at September 30, 1999 and March
31, 1999 along with the basic and diluted net income/(loss) per share data for
the six month period ended September 30, 1999 and for the year ended March 31,
1999. The historical information for the six month periods ended September 30,
1999 was derived from unaudited financial statements. The historical information
for the year ended March 31, 1999 was derived from the audited consolidated
financial statements of StarBase and ObjectShare, which have been audited by the
independent auditors Deloitte & Touche LLP and Ernst & Young LLP, respectively.
Deloitte & Touche LLP's report on the financial statements of StarBase for the
year ended March 31, 1999, which is attached as Appendix B, includes an
explanatory paragraph which describes an uncertainty about StarBase's ability to
continue as a going concern. Ernst & Young LLP's report on the consolidated
financial statements of ObjectShare for the year ended March 31, 1999, which is
attached as Appendix C, includes and explanatory paragraph which describes an
uncertainty about ObjectShare's ability to continue as a going concern. The pro
forma data is calculated assuming the merger is to be accounted for under the
purchase method of accounting.
The pro forma combined financial information does not purport to
represent what the combined financial position or results of operations actually
would have been if the merger had been consummated at the beginning of the
periods presented. The data below should be read in conjunction with the
historical consolidated financial statements, related notes, and other financial
information unaudited pro forma combined condensed financial statements included
elsewhere in this Prospectus/Proxy Statement. See "Selected Unaudited Pro Forma
Condensed Financial Information."
<TABLE>
<CAPTION>
HISTORICAL EQUIVALENT PRO
--------------------------- FORMA PER
STARBASE OBJECTSHARE PRO FORMA SHARE DATA (3)
--------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
BOOK VALUE PER SHARE (1):
At September 30, 1999 $ 0.22 $ 0.06 $ 0.58 $ 0.04
At March 31, 1999 $ 0.16 $ 0.01 $ 0.48 $ 0.04
NET INCOME/(LOSS) PER SHARE -
BASIC AND DILUTED (2):
For the six months ended
September 30, 1999 $ (0.08) $ 0.04 $ (0.10) $ (0.01)
For the year ended
March 31, 1999 $ (0.49) $ (0.39) $ (0.78) $ (0.06)
</TABLE>
- ------------------
(1) Pro forma book value per share data assumes the merger occurred on
September 30, 1999 and March 31, 1999, respectively.
(2) Pro forma net income/(loss) per share assumes the merger occurred on
April 1, 1999 for the six month period ended September 30, 1999 and on
April 1, 1998 for the year ended March 31, 1999.
(3) Determined by multiplying Pro Forma data by Exchange Ratio (0.076373)
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<PAGE> 46
COMPARATIVE PER SHARE MARKET PRICE
AND DIVIDEND INFORMATION
The following table sets out the high and low sales prices of StarBase (symbol:
"SBAS") and ObjectShare (symbol: "OBJS") common stock for each quarter within
the last two fiscal years, as reported on the NASDAQ SmallCap Market and, with
respect to ObjectShare after June 23, 1999, the OTC Bulletin Board where its
stock is currently traded.
<TABLE>
<CAPTION>
STARBASE OBJECTSHARE
--------------------- ------------------
DATE HIGH LOW HIGH LOW
- ---- ---- --- ---- ---
<S> <C> <C> <C> <C>
FISCAL YEAR 2000
Quarter Ended December 31, 1999 $15.13 $1.19 $0.58 $0.19
Period Ended November 3, 1999 2.03 1.19 0.58 0.19
Quarter Ended September 30, 1999 2.97 1.78 0.94 0.31
Quarter Ended June 30, 1999 3.38 1.50 2.75 0.19
FISCAL YEAR 1999
Quarter Ended March 31, 1999 $2.50 $0.62 $4.88 $1.88
Quarter Ended December 31, 1998 1.25 0.59 2.75 1.06
Quarter Ended September 30, 1998 2.13 0.66 1.50 1.06
Quarter Ended June 30, 1998 3.41 1.47 1.34 0.25
FISCAL YEAR 1998
Quarter Ended March 31, 1998 $3.75 $1.13 $1.56 $1.00
Quarter Ended December 31, 1997 2.00 1.00 1.38 0.97
Quarter Ended September 30, 1997 2.06 0.88 1.33 0.50
Quarter Ended June 30, 1997 1.75 0.53 2.94 0.63
</TABLE>
As of December 31, 1999, based on information received from the
transfer agent for each of StarBase and ObjectShare, the number of stockholders
of record for StarBase and ObjectShare was 634 and 232 respectively.
DIVIDEND POLICIES
StarBase has never declared a cash dividend on its common stock or
preferred stock. The StarBase Board of Directors presently intends to retain all
earnings for use in StarBase's business and therefore does not anticipate paying
any cash dividends on its common stock in the foreseeable future. Payment of
dividends on common stock, if any, would be subject to the discretion of the
Board of Directors, which may consider factors such as StarBase's results of
operations, financial condition, capital needs and merger strategy, among
others. In addition, under the Delaware Law StarBase is prohibited from paying
dividends except out of StarBase's surplus (retained earnings) or, if there is
no surplus, out of StarBase's net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. At September 30, 1999,
StarBase's balance sheet reflected an accumulated deficit of $54,429,000.
ObjectShare has not paid any dividends since its inception and does not
intend to pay any dividends in the foreseeable future.
35
<PAGE> 47
SELECTED UNAUDITED PRO FORMA
CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma financial information is provided in
this Proxy Statement/Prospectus to show you how StarBase might have looked if
the merger had been completed on September 30, 1999 for the unaudited pro forma
combined condensed balance sheet as of September 30, 1999 and on April 1, 1998
for the unaudited pro forma combined condensed statements of operations for the
year ended March 31, 1999 and the interim six month period ended September 30,
1999. The pro forma financial information for the six month period ended
September 30, 1999 is derived from the unaudited financial statements of
StarBase and ObjectShare, combined and adjusted to give effect to the merger.
The pro forma financial information for the year ended March 31, 1999 is derived
from the audited consolidated financial statements of StarBase and ObjectShare,
combined and adjusted to give effect to the merger.
The audited financial statements of StarBase and ObjectShare for the
year ended March 31, 1999 have been audited by the independent auditors Deloitte
& Touche LLP and Ernst & Young LLP, respectively. Deloitte & Touche LLP's report
on the financial statements of StarBase for the year ended March 31, 1999, which
is attached as Appendix B, includes an explanatory paragraph which describes an
uncertainty about StarBase's ability to continue as a going concern. Ernst &
Young LLP's report on the consolidated financial statements of ObjectShare for
the year ended March 31, 1999, which is attached as Appendix C, includes an
explanatory paragraph which describes an uncertainty about ObjectShare's ability
to continue as a going concern. The information should be read in conjunction
with the consolidated financial statements, related notes, and other financial
information included elsewhere in this Prospectus/Proxy Statement.
The pro forma financial information was prepared using the purchase
method of accounting.
If the merger had actually been completed on those dates, the acquired
company might have performed differently. You should not rely on the pro forma
financial information as an indication of the results that would have been
achieved if the merger had taken place earlier or the future results that will
be experienced after completion of the merger.
36
<PAGE> 48
STARBASE AND OBJECTSHARE
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
(In thousands) STARBASE OBJECTSHARE ADJUSTMENTS COMBINED
-------- ----------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE SHEETS
Assets
Current Assets:
Cash and cash equivalents $ 6,185 $ 774 $ $ 6,959
Restricted cash 39 0 39
Marketable securities 121 0 121
Account receivable 2,237 1,881 4,118
Notes and other receivables 0 0 0
Inventories 58 0 58
Prepaid expenses and other assets 310 129 439
--------- --------- -------- ---------
Total current assets 8,950 2,784 0 11,734
Property and equipment, net 976 497 (1) (497) 976
Developed technology, net 872 0 872
Note receivable from officer 97 0 97
Long-term restricted cash 39 0 39
Other non-current assets 305 149 454
Goodwill 0 0 (2) 10,525 10,525
--------- --------- -------- ---------
Total assets $ 11,239 $ 3,430 $ 10,028 $ 24,697
========= ========= ======== =========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 1,657 $ 1,913 (3) $ 560 $ 4,130
Line of credit 0 481 481
Deferred revenue 1,300 175 1,475
Current portion of long-term debt 137 59 196
--------- --------- -------- ---------
Total current liabilities 3,094 2,628 560 6,282
Long-term liabilities:
Long-term debt, less current portion 103 76 179
Other long-term liabilities 742 0 742
--------- --------- -------- ---------
Total long-term liabilities 845 76 0 921
--------- --------- -------- ---------
Total liabilities 3,939 2,704 560 7,203
Commitments and contingencies
Stockholders' equity:
Preferred stock 4 0 4
Common stock 326 12 (4) (1) 337
Additional paid-in capital 61,429 50,239 (5) (40,056) 71,612
Accumulated deficit (54,459) (49,307) (6) 49,307 (54,459)
Accumulated other comprehensive loss (218) (6) 218 0
--------- --------- -------- ---------
Total stockholders' equity 7,300 726 9,468 17,494
--------- --------- -------- ---------
Total liabilities and stockholders' equity $ 11,239 $ 3,430 $ 10,028 $ 24,697
========= ======== ======== =========
</TABLE>
37
<PAGE> 49
STARBASE AND OBJECTSHARE
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
STARBASE OBJECTSHARE ADJUSTMENTS COMBINED
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
(In thousands)
STATEMENT OF OPERATIONS
Revenues:
License $ 6,093 $ 1,464 $ $ 7,557
Services 1,112 4,074 5,186
-------- -------- -------- --------
Total revenues 7,205 5,538 0 12,743
Costs and expenses:
Cost of license 673 543 1,216
Cost of services 561 2,586 3,147
Research and development 1,943 824 2,767
Selling, general and administrative 5,684 4,157 9,841
Amortization of goodwill 0 0 (7) 1,053 1,053
-------- -------- -------- --------
Total costs and expenses 8,861 8,110 1,053 18,024
-------- -------- -------- --------
Operating loss (1,656) (2,572) (1,053) (5,281)
Other income, interest expense and other (215) 3,102 2,887
-------- -------- -------- --------
Income/(Loss) before income taxes (1,871) 530 (1,053) (2,394)
Provision for income taxes 1 0 1
-------- -------- -------- --------
Net income/(loss) (1,872) 530 (1,053) (2,395)
Non-cash dividend and accretion of
beneficial conversion feature 549 0 549
-------- -------- -------- --------
Net income/(loss) applicable to
common stockholders $ (2,421) $ 530 $ (1,053) $(2,944)
======== ======== ======== ========
Per common share data
Basic and diluted gain/(loss) per share $ (0.08) $ .04 $ $ (0.10)
Basic and diluted weighted average number
of common shares outstanding 29,146 12,441 30,243
</TABLE>
38
<PAGE> 50
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
STARBASE OBJECTSHARE ADJUSTMENTS COMBINED
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
(In thousands)
STATEMENT OF OPERATIONS
Revenues:
License $ 5,964 $ 5,380 $ $ 11,344
Services 868 10,426 11,294
-------- -------- -------- --------
Total revenues 6,832 15,806 0 22,638
Costs and expenses:
Cost of license 508 1,737 2,245
Cost of services 0 5,705 5,705
Research and development 4,437 3,542 7,979
Selling, general and administrative 10,601 9,834 20,435
Amortization of goodwill 0 0 (8) 2,105 2,105
-------- -------- -------- --------
Total costs and expenses 15,546 20,818 2,105 38,469
-------- -------- -------- --------
Operating loss (8,714) (5,012) (2,105) (15,831)
Other income, interest expense and other 32 160 192
-------- -------- -------- --------
Loss before income taxes (8,682) (4,852) (2,105) (15,639)
Provision for income taxes 1 (13) (12)
-------- -------- -------- --------
Net loss (8,683) (4,839) (2,105) (15,627)
Non-cash dividend and accretion of
beneficial conversion feature 1,277 0 1,277
-------- -------- -------- --------
Net (loss) applicable to
common stockholders $ (9,960) $ (4,839) $ (2,105) $(16,904)
======== ======== ======== ========
Per common share data
Basic and diluted gain/(loss) per share $ (0.49) $ (0.39) $ $ (0.78)
Basic and diluted weighted average number
of common shares outstanding 20,526 12,308 21,623
</TABLE>
39
<PAGE> 51
ADJUSTMENTS:
(1) Property and equipment, net
Write-down of ObjectShare's property and equipment, net, to fair market
value.
(2) Goodwill
Goodwill is calculated as follows assuming acquisition is completed on
September 30, 1999.
<TABLE>
<S> <C>
Value of StarBase common stock issued (enterprise value) $ 8,850
Less: ObjectShare's total stockholders' equity (726)
Plus: Write-down of ObjectShare's property and equipment, net (1) 497
Plus: Acquisition transaction expenses (3) 560
Plus: Market value of StarBase common stock issued to First Security Van Kasper (4,5) 929
Plus: Severance (issued as StarBase common stock) 415
--------
Total goodwill $ 10,525
</TABLE>
(3) Accounts payable and accrued liabilities
<TABLE>
<S> <C>
Transaction expenses estimated as follows:
Accounting fees $ 80
Legal fees 155
Investment banking fees 170
Proxy statement costs 25
Registration statement fees 75
Miscellaneous 55
----
Total transaction expense $560
</TABLE>
(4) Common stock
<TABLE>
<S> <C>
100,000 shares of StarBase common stock issued to First Security Van Kasper (a) $ 1
Value of 12,470,863 shares of ObjectShare common stock redeemed for StarBase common stock (12)
952,432 shares of StarBase stock issued to ObjectShare stockholders (a)(b) 10
44,662 shares of StarBase common stock issued for severance (a) 0
----
Total common stock $ (1)
</TABLE>
(5) Additional paid-in capital
<TABLE>
<S> <C>
100,000 shares of StarBase common stock issued to First Security Van Kasper (a) $ 928
Value of 12,470,863 shares of ObjectShare common stock redeemed for StarBase common stock (50,239)
952,432 shares of StarBase common stock issued to ObjectShare stockholders (a)(b) 8,840
44,662 shares of StarBase common stock issued for severance (a) 415
--------
Total common stock $(40,056)
</TABLE>
(a) Average closing price of StarBase common stock for the last three
trading days as of December 31, 1999 is $9.292, which is above the
price required for the maximum aggregate value.
(b) Number of StarBase common stock shares issued is determined by dividing
value to be paid ($8,850,000) by the average closing price ($9.292)
determine in (a) above.
40
<PAGE> 52
(6) Accumulated deficit and accumulated other comprehensive loss
To eliminate ObjectShare's balances.
(7) Amortization of goodwill
Goodwill is calculated as if the acquisition is completed on September
30, 1999, and amortized assuming the acquisition is completed on April
1, 1999, using the straight line method over a five year period.
(8) Amortization of goodwill
Goodwill is calculated as if the acquisition is completed on September
30, 1999, and amortized assuming the acquisition is completed on April
1, 1998, using the straight line method over a five year period.
41
<PAGE> 53
THE MERGER AGREEMENT
This is a description of the terms of the material terms and conditions of the
merger agreement. However, the description does not contain all the terms of the
merger agreement. A copy of the merger agreement, as amended, is attached as
Appendix A to this Proxy Statement/Prospectus and is incorporated herein by
reference. ObjectShare stockholders are encouraged you to read the entire merger
agreement.
CLOSING
The merger will become effective at the closing, which will take place
on the date on which all closing conditions under the merger agreement are
satisfied and/or waived and the certificate of merger is filed with the Delaware
Secretary of State, or at such later time as the certificate of merger
specifies. It is anticipated that the filing of the certificate of merger with
the State of Delaware will occur as soon as practicable after ObjectShare
stockholders approve and adopt the merger at the special meeting.
CONSIDERATION TO BE RECEIVED FOR OBJECTSHARE COMMON STOCK IN THE MERGER
At the effective date of the merger, each share of ObjectShare common
stock, other than shares held by dissenting stockholders of ObjectShare, shall
be converted into the right to receive that fraction of a share of StarBase
common stock equal to the merger exchange ratio (the "Merger Exchange Ratio").
Except as discussed under "Maximum and minimum Aggregate Value To Be Paid," the
Merger Exchange Ratio shall be equal to:
(enterprise value of ObjectShare) divided by
(outstanding number of shares of ObjectShare common stock)
----------------------------------------------------------
$2.00
For example, if the enterprise value were $7.5 million and ObjectShare
had 12,470,863 shares outstanding, then the Merger Exchange Ratio would be:
($7,500,000 divided by 12,470,863*) = .30
-----------------------------------
$2.00
- --------------
* The number of outstanding shares of ObjectShare common stock will not include
any shares issued as severance to ObjectShare officers and directors.
Thus, one share of ObjectShare common stock would be eligible to
receive .30 shares of StarBase common stock. The ultimate value to the
ObjectShare stockholder will be determined, in part, by the average closing
price per share of the StarBase common stock. If the closing price of StarBase
common stock were $2.00, then each share of ObjectShare common stock would be
valued at $2.00 X Merger Exchange Ratio (or .30) = $0.60.
It is important to note that the enterprise value of ObjectShare is a
value which, as a base amount, has been set at $7.5 million. This $7.5 million
figure is subject to reduction as set forth in the merger agreement. In general,
the $7.5 million base amount will be reduced to the extent that the
42
<PAGE> 54
result of the following formula (the "Enterprise Adjustment Amount") is less
than a negative balance of $1.6 million:
<TABLE>
<S> <C>
Enterprise
Amount Adjustment - (A/R* + cash + cash equivalents) = (debt** + A/P*** + accrued liabilities)
</TABLE>
- --------------
* ObjectShare's accounts receivable.
** ObjectShare's indebtedness for borrowed money.
*** ObjectShare's accounts payable.
Accordingly, if the Enterprise Adjustment Amount is determined to
negatively exceed a negative balance of $1.6 million, then and to the extent of
such excess, the $7.5 million enterprise value shall be reduced. It is important
to note that StarBase has the right to terminate the merger transaction if this
negative balance exceeds $2.5 million. See "-Termination of the Merger
Agreement."
Given that the numerator of the formula used to derive the Merger
Exchange Ratio would be reduced by any reduction in the enterprise value, so too
would the Merger Exchange Ratio. This, of course, would result in fewer shares
of StarBase common stock being exchanged for shares of ObjectShare common stock.
For example, if the enterprise value were adjusted downward by $500,000, then we
would have the following:
Merger Exchange Ratio: [($7,500,000 - $500,000) divided by 12,470,863] = .28
----------------------------------------------------------------------
$2.00
Thus, assuming the average closing price of StarBase common stock were
at $2.00, then each share of ObjectShare common stock would be valued at $2.00 X
Merger Exchange Ratio (or .28) = $0.56.
MAXIMUM AND MINIMUM AGGREGATE VALUE TO BE PAID
The above analysis holds true unless the price of the StarBase common
stock declines or raises substantially below or above the $2.00 price. The
merger agreement allows for an upper and lower end collar which provides that no
matter how large or small of a number results from use of the Merger Exchange
Ratio formula, the actual total value paid by StarBase for all of the shares of
common stock of ObjectShare will never be less than $6,150,000 or greater than
$8,850,000. To accomplish this result, the merger agreement provides for a lower
end collar formula and an upper end collar formula.
The lower end collar formula is as follows:
Merger Exchange Ratio: ($6,150,000 divided by 12,470,863*)
-----------------------------------
(average closing price of StarBase common stock)
The upper end collar formula is as follows:
Merger Exchange Ratio: ($8,850,000 divided by 12,470,863*)
-----------------------------------
(average closing price of StarBase common stock)
43
<PAGE> 55
- -------------
* The number of outstanding shares of ObjectShare common stock will not include
any shares issued as severance to ObjectShare officers and directors.
The two collar formulae are dependent upon the average of the closing
price per share of StarBase common stock as reported on the Nasdaq SmallCap
Market for the three trading days immediately preceding the day prior to the
closing date of the merger agreement. The two collar formulae adjust the Merger
Exchange Ratio so that no matter how high or how low the price per share of
StarBase common stock moves, the overall value paid for all the shares of
ObjectShare common stock will be no less $6,150,000 and no more than $8,850,000.
Put another way, the result of collar formulae is to require that each share of
ObjectShare common stock be valued at least approximately $0.49 and no more than
approximately $0.71.
The other practical result of the two-collar formulae, is that
enterprise value, or any adjustment thereto, is not utilized to determine the
Merger Exchange Ratio unless the average closing price of StarBase common stock
is between the approximate value range of $1.64 to $2.37 per share. Accordingly,
if the average closing price per share of StarBase common stock falls outside of
that range, then the collar formulae apply and ObjectShare stockholders will
receive either approximately $0.49 or $0.71 per share, as applicable.
For purposes of illustration only, lets assume that the average closing
price per share of StarBase common stock on the closing date was $1.50. Because
the average closing price per share of StarBase common stock is below $1.64 the
lower collar formula applies as follows:
Merger Exchange Ratio: ($6,150,000 divided by 12,470,863) =.3288
----------------------------------
$1.50
The value of the exchange to a holder of 100 shares would be calculated
as follows: [(100 shares X .3288 X $1.50)] = $49.31. Thus each share of
ObjectShare common stock would receive approximately $0.49 in value per share
exchanged.
For purposes of illustration only, let us assume that the average
closing price per share of StarBase common stock on the closing date will be the
same as at the date of this Proxy Statement/Prospectus or [$11.00]. Because the
average closing price per share of StarBase common stock is above $2.37 the
upper collar formula applies as follows:
Merger Exchange Ratio: ($8,850,000 divided by 12,470,863) =.0645
----------------------------------
$11.00
The value of the exchange to a holder of 100 shares would be calculated
as follows: [(100 shares X .0645) X $11.00)] = $70.97. Thus each share of
ObjectShare common stock would receive approximately $0.71 in value per share
exchanged.
After the effective date of the merger, all shares of ObjectShare
common stock will cease to be outstanding and will automatically be canceled.
Each share of ObjectShare common stock held by ObjectShare as treasury
stock or owned by StarBase or any wholly-owned subsidiary of either company
immediately before the effective date of the merger will be canceled without any
conversion or payment.
44
<PAGE> 56
PROCEDURES FOR EXCHANGE OF OBJECTSHARE COMMON STOCK
Soon after the merger is completed, StarBase's transfer agent, American
Stock Transfer & Trust Co., shall send to ObjectShare stockholders of record
immediately before the closing, other than dissenting stockholders, a notice and
letter of transmittal instructing the stockholders on how to exchange their
shares of ObjectShare common stock for shares of StarBase common stock. Promptly
after surrender to American Stock Transfer & Trust Co. of the completed
instruction letter and stock certificate(s) representing ObjectShare common
stock held by the stockholder, American Stock Transfer & Trust Co. shall issue
to the stockholder a new stock certificate for shares StarBase common stock
(based on the exchange ratio) and a check with respect to any fractional share
interests the stockholder is entitled to receive under the merger.
TREATMENT OF FRACTIONAL SHARES
Holders of ObjectShare common stock will be paid cash instead of any
fractional shares of StarBase common stock they would otherwise receive. The
amount of cash (rounded to the nearest whole U.S. $0.01) to be received instead
of the fractional share (after aggregating all fractional shares of StarBase
common stock to be received by such holder) shall be equal to such fraction of a
share multiplied by the average of the closing price per share of StarBase
common stock as reported on the Nasdaq SmallCap Market for the three trading
days immediately preceding the day prior to the closing date of the merger
agreement.
TREATMENT OF OBJECTSHARE EMPLOYEE AND DIRECTOR STOCK OPTIONS
At the effective date of the merger, all outstanding stock options to
purchase ObjectShare common stock, (with the exception of specific grants to
officers and certain employees) shall be canceled and extinguished in accordance
with the terms of the plans under which the options were issued. Following the
merger, if StarBase chooses to employ any former employees of ObjectShare,
StarBase shall reserve sufficient shares of its common stock to grant options to
purchase StarBase common stock, upon substantially similar terms and conditions
as the outstanding options currently held by such employees and directors who
held options to purchase ObjectShare common stock.
TREATMENT OF CERTAIN OBJECTSHARE EMPLOYEE STOCK OPTIONS
Subsequent to the signing of the merger agreement, the StarBase Board
of Directors has, in light of ObjectShare employees current ObjectShare options
terminating as a result of merger and in the interest of retaining/acquiring
certain of the employees of ObjectShare, approved, subject to the closing of the
merger agreement, the issuance of options to purchase shares of StarBase common
stock to certain ObjectShare employees. See "Interests of Certain Persons in the
Merger" at page 51.
TREATMENT OF EXECUTIVE OFFICERS' STOCK OPTIONS IN OBJECTSHARE
Under the terms of the merger agreement the 650,000 and 550,000 options
to purchase shares of ObjectShare held by Mr. Goda and Mr. Smith, respectively,
will be (in the case of Mr. Goda) and have been (in the case of Mr. Smith)
converted into options to purchase shares of StarBase common stock. See
"Interests of Certain Persons in the Merger" at page 51.
45
<PAGE> 57
OBJECTSHARE'S EMPLOYEE SEVERANCE PAYMENTS
Pursuant to an ObjectShare Board resolution, each of Eugene L. Goda,
James H. Smith, Samuel Inman and Edward B. Merino, as officers and directors of
ObjectShare, are entitled to receive severance payments, in the amounts of
$240,000, $100,000, $50,000 and $25,000, respectively, in the event of a merger
or other fundamental corporate change.
Under the merger agreement, ObjectShare shall immediately prior to the
merger closing issue shares of the common stock of ObjectShare (which shares
shall be converted into the right to receive shares of StarBase common stock at
the effective date, as provided above) which shall equate to a value which
corresponds to the applicable severance amounts. See "Interests of Certain
Persons in the Merger" at page 51.
OBJECTSHARE'S DIRECTORS' AND OFFICERS' LIABILITY
At the effective date of the merger and for two years thereafter,
StarBase shall procure and maintain for Mr. Goda, Mr. Smith, Mr. Inman, Mr.
Merino insurance against liability by ObjectShare as of November 3, 1999 when
the merger agreement was executed an insurance policy with respect to any
liability to ObjectShare existing at the closing by reason of the fact that such
named individual holds or held a position with ObjectShare. The cost to procure
and maintain each insurance policy shall be shared equally by StarBase and
ObjectShare.
StarBase further agrees that all provisions with respect to
indemnification by ObjectShare or with respect to liability to ObjectShare
existing at the closing in favor of any named individual, as set forth in
ObjectShare's Certificate of Incorporation, as amended, or By-laws or the
agreements in effect on the date hereof with respect to each of Messrs. Goda,
Smith, Inman and Merino as well as Jos Henkens, James F. Sutter and Lester
"Buck" Hill shall survive the merger and shall continue in full force and effect
for a period of two years.
REGISTRATION OF STARBASE COMMON STOCK
This Proxy Statement/Prospectus, when declared effective by the SEC,
shall register the shares of StarBase common stock to be issued as consideration
in the merger under the Securities Act of 1933, as amended. StarBase shall also
file with the Nasdaq Stock Market a supplemental listing application to list the
shares of StarBase common stock to be issued pursuant to the transactions called
for under the merger agreement on the Nasdaq SmallCap Market.
However, Mr. Smith has agreed, for a period of six (6) months after the
merger closing, not to sell or transfer any StarBase common stock issued to Mr.
Smith pursuant to the merger or upon the exercise of any of the options (as well
as the StarBase common stock underlying any such options) granted to Smith by
StarBase in connection with the merger. Stock certificates with respect to the
StarBase common stock issued to Mr. Smith, either in connection with the merger
or upon Smith's exercise of options, shall bear a restrictive legend to such
effect.
REPRESENTATIONS AND WARRANTIES
Each of ObjectShare and StarBase has made certain customary
representations and warranties to each other in the merger agreement, including
as to:
- corporate existence; - disclosure documents;
- corporate authorization; - absence of certain changes;
46
<PAGE> 58
- government authorization; - no undisclosed material
liabilities;
- compliance with laws; - capitalization;
- litigation; - subsidiaries;
- SEC filings; - taxes;
- financial statements; - employee benefit plans;
- environmental matters; - opinion of financial advisors;
- insurance; - intellectual property; and
- real property - customers and suppliers.
None of the representations and warranties contained in the merger
agreement survive beyond the effective date of the merger.
COVENANTS REGARDING CONDUCT OF BUSINESS BEFORE THE MERGER
ObjectShare and StarBase have agreed to conduct their businesses from
November 3, 1999 to the effective date of the merger in the ordinary course,
consistent with past practice, and each has further agreed to use its reasonable
best efforts to preserve intact its current business organizations and
relationships with third parties.
ObjectShare has also agreed with certain exceptions not to take any of
the following actions outside the ordinary course as specified in the merger
agreement:
- declaring or paying dividends or recapitalizing or redeeming
its capital stock;
- issuing, selling or encumbering any shares of its capital
stock or options (except as otherwise provided in the merger
agreement) to acquire shares of its capital stock;
- amending its organization documents;
- making loans, advances or capital contributions, except in the
ordinary course or under its business plan;
- selling, leasing or otherwise encumbering its property or
assets, except in the ordinary course or pursuant to existing
commitments;
- incurring indebtedness, except in the ordinary course or under
its business plan or pursuant to that loan agreement dated
November 3, 1999 between ObjectShare and StarBase (see
"Relationship between StarBase and ObjectShare");
- entering into or adopting a new, or amending an existing
severance arrangement, employee plan or employment or
consulting agreement;
47
<PAGE> 59
- increasing the compensation of its officers and employees;
- granting or awarding equity-based incentive awards;
- changing its accounting practices or its fiscal year;
- settling a federal, state, local or foreign tax liability; and
- preparing or filing a tax return inconsistent with past
practice.
An exception to the foregoing prohibitions was made for the November
24, 1999 sale of all of the stock of the two European subsidiaries of
ObjectShare, ObjectShare, GmbH in Germany and ObjectShare (U.K.) Limited in
England to Valtech S.A., a French societe anonyme and its wholly-owned
subsidiary Valtech Limited. Total consideration paid for these two subsidiaries
was (i) approximately $1,600,000, in cash, and (ii) the cancellation of certain
intercompany indebtedness owed by the subsidiaries to ObjectShare.
CONDITIONS TO THE COMPLETION OF THE MERGER
Neither StarBase nor ObjectShare is obligated to complete the merger
unless the conditions specified in the merger agreement are either satisfied or
waived. The conditions include:
- ObjectShare stockholders have approved and adopted the merger;
- there is no law or court order prohibiting the merger;
- ObjectShare, on the one hand, and StarBase, on the other hand,
have performed in all material respects all of their
respective obligations under the merger agreement; and
- the representations and warranties made by the other party in
the merger agreement remain accurate in all material respects,
with such exceptions as would not reasonably be expected to
have a material adverse effect.
TERMINATION OF THE MERGER AGREEMENT
Both companies may mutually agree to terminate the merger agreement at
any time without completing the merger.
Either company may terminate the merger agreement if :
(1) the merger is not completed by April 17, 2000. Neither
company may terminate the merger agreement on this basis, however, if that
company's breach of the merger agreement results in the merger not being
completed by the applicable deadline;
(2) a court or other governmental authority issues a final,
non-appealable order prohibiting the merger, or any law makes the merger
illegal. Neither company may terminate the merger agreement on this basis,
however, if its breach of the merger agreement results in the imposition of the
order or the application of the law or regulation to the merger; or
(3) ObjectShare stockholders do not approve the merger.
48
<PAGE> 60
In addition, StarBase may terminate the merger agreement if :
(1) certain elements constituting ObjectShare's enterprise
value exceed a negative balance of $2,500,000 in the aggregate;
(2) based upon the exchange ratio as of the closing date of
the merger, StarBase is required to issue, in the aggregate, more than 4,750,000
shares of its common stock in the merger (exclusive of options to purchase
shares of StarBase common stock granted to certain officers and directors and
employees of ObjectShare). However, ObjectShare, at its option, could elect to
complete the transaction for an aggregate of the 4,750,000 shares of StarBase
common stock; or
(3) ObjectShare's stockholders holding more than 5% of the
outstanding shares of ObjectShare common stock exercise their Appraisal Rights.
Furthermore, ObjectShare may terminate the merger agreement if
ObjectShare's board of directors approves a superior, unsolicited proposal or
withdraws or amends, in a manner adverse to StarBase, its recommendation of the
merger, so long as ObjectShare's board of directors also determines in good
faith, after consultation with outside legal counsel, that failure to take such
action would be consistent with its fiduciary duties and ObjectShare
concurrently pays to StarBase the termination fee.
TERMINATION FEES AND EXPENSES
ObjectShare has agreed to pay StarBase a termination fee of $500,000
plus reasonable legal, accounting and investment banking fees incurred by
StarBase in connection with the merger, not to exceed $200,000, if ObjectShare
terminates the merger agreement because of a third party solicitation.
NO SOLICITATION
The merger agreement prevents ObjectShare from negotiating or otherwise
engaging in discussions with, or furnishing information to, a third party
regarding an acquisition transaction with ObjectShare unless:
- ObjectShare has received an unsolicited proposal for the transaction
from that third party;
- ObjectShare has notified StarBase about the proposal;
- ObjectShare's board of directors determines in good faith with the
assistance of its financial advisor that, based on the terms and conditions
contained in the third-party proposal, the proposal represents a transaction
more favorable to ObjectShare and, after consulting with its legal counsel, that
failure to enter into discussions and/or negotiations with the third party would
be inconsistent with the board's fiduciary duties under applicable law; and
- the third party executes a confidentiality agreement.
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<PAGE> 61
AMENDMENT OR WAIVER OF THE MERGER AGREEMENT
The parties may amend the merger agreement or waive its terms and
conditions before the effective date; but, after ObjectShare stockholders have
approved the merger agreement, the parties may not amend the merger agreement in
a manner that would reduce or change the kind of consideration ObjectShare
stockholders will receive in the merger.
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<PAGE> 62
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of ObjectShare's management and employees have
interests in the merger that are different from and in addition to the interests
of ObjectShare stockholders generally. ObjectShare's board of directors was
aware of these interests, to the extent they existed prior to the signing of the
merger agreement, and considered them in approving the merger agreement.
ARRANGEMENTS WITH OBJECTSHARE EMPLOYEES REGARDING STOCK OPTIONS.
Subsequent to the signing of the merger agreement, the StarBase Board
of Directors has, in light of ObjectShare employees current ObjectShare options
terminating as a result of merger and in the interest of retaining/acquiring
certain of the employees of ObjectShare, approved, the issuance of options to
purchase shares of StarBase common stock to the following employees:
<TABLE>
<CAPTION>
Number of Shares of StarBase Common
Name Stock Subject to Option
- ---- ----------------------------------
<S> <C>
Anderson, David 15,455
Brown, Christopher 16,183
Calbert, Barbara 30,167
Dand, Dilip 70,841
Lambert, Brian 8,455
Larson, Jamie 8,804
Sherman, Daniel 4,082
Somppi, Donald 11,455
Suydam, William 26,820
Thompson, Georgia 7,437
Viswanathan, K. 49,550
White, Jerry 11,455
</TABLE>
The foregoing option grants will consist of options subject to full
four year vesting. All options grants shall be at an exercise price ($1.32)
equal to the average of the high ($1.38) and low ($1.25) price per share of
StarBase common stock as of the date prior to the signing of the merger
agreement (November 3, 1999).
Within sixty (60) days of the merger closing, StarBase shall register
the shares of common stock underlying the options granted to above employees at
the closing by filing a registration statement on Form S-8 with the Securities
and Exchange Commission as well as filing with the Nasdaq Stock Market a
supplemental listing application for such shares.
ARRANGEMENTS WITH CERTAIN OBJECTSHARE EXECUTIVES REGARDING STOCK OPTIONS.
By stock option agreements dated June 10, 1997 with Object Share, each
of Eugene Goda, President of ObjectShare, and James H. Smith, a former officer
of ObjectShare, were granted stock options to purchase up to 650,000 and 455,000
shares, respectively, of the common stock of ObjectShare. James H. Smith was
granted stock options to purchase an additional 100,000 on February 3, 1998, for
a total number of options at 555,000. At the time of the merger negotiations,
these stock options were fully vested and exercisable.
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<PAGE> 63
The merger agreement requires StarBase to assume the outstanding stock
options held by Mr. Goda at the effective date of the merger, in the following
manner:
At the merger closing, StarBase shall grant to Mr. Goda
options to purchase shares of StarBase common stock on the same terms
and conditions as contained in Mr. Goda's prior stock option agreement
with ObjectShare, except that: (i) such options will be exercisable to
purchase up to that number of shares of StarBase common stock equal to
650,000 (that number of shares of ObjectShare common stock for which
Mr. Goda previously held options) multiplied by the Merger Exchange
Ratio and (ii) the per share exercise price for each share of StarBase
common stock issuable to Mr. Goda upon exercise of his options will be
equal to the quotient determined by dividing $1.0625 (that exercise
price per share of ObjectShare common stock at which Mr. Goda's prior
options were exercisable) by the Merger Exchange Ratio, rounded to the
nearest whole cent.
For example, assuming that the average closing price per share
of StarBase common stock on the closing date will be the same as at the
date of this Proxy Statement/Prospectus or [$11.00], then, in
accordance with the following calculation, Goda would receive [41,934]
fully-vested options to purchase shares of StarBase common stock at an
exercise price of [$16.47] per share.
650,000 x (8,850,000 [DIVIDED BY] 12,470,863) = [41,934] options
-----------------------------------
[$11.00]
$1.0625 [DIVIDED BY] ($8,850,000 [DIVIDED BY] 12,470,863) = [$16.47]
------------------------------------
[$11.00]
The merger agreement requires StarBase to assume the outstanding stock
options held by Mr. Smith in the following manner:
At the merger closing, StarBase shall grant to Mr. Smith
options to purchase shares of StarBase common stock on the same terms
and conditions as contained in Mr. Smith's prior stock option agreement
with ObjectShare, except that: (i) such options will be exercisable to
purchase up to that number of shares of StarBase common stock equal to
555,000 (that number of shares of ObjectShare for which Mr. Smith
previously held options) multiplied by the Merger Exchange Ratio and
(ii) the per share exercise price for each share of StarBase common
stock issuable to Mr. Smith upon exercise of his options will be equal
to the fair market value of the StarBase common stock on the date of
the merger closing (the grant date).
For example, assuming that the average closing price per share
of StarBase common stock on the closing date will be the same as at the
date of this Proxy Statement/Prospectus or [$11.00], then, in
accordance with the following calculation, Smith would receive [35,483]
fully-vested options to purchase shares of StarBase common stock at an
exercise price of [$11.00] per share.
550,000 x (8,850,000 [DIVIDED BY] 12,470,863) = [35,483] options
-----------------------------------
[$11.00]
Mr. Smith was also issued, on November 3, 1999, an additional 437,000
options to purchase shares of StarBase common stock with an exercise price of
$1.32 and vesting ratably
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<PAGE> 64
over four years. See "Relationship between StarBase and ObjectShare - Employment
of James H. Smith"
If the above calculations result in fractional shares being authorized
in the foregoing options, such fractional number of shares shall be rounded up
or down to the nearest whole share of StarBase common stock.
StarBase shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued common stock, the full
number of shares of common stock issuable upon the exercise of any of the
foregoing options.
Within sixty (60) days of the merger closing, StarBase shall register
the shares of common stock underlying the options granted to Messrs. Goda and
Smith at the closing by filing a registration statement on Form S-8 with the
Securities and Exchange Commission as well as filing with the Nasdaq Stock
Market a supplemental listing application for such shares.
ARRANGEMENTS REGARDING OBJECTSHARE EMPLOYEE SEVERANCE PAYMENTS.
Pursuant to an ObjectShare board resolution, each of Eugene L. Goda,
James H. Smith, Samuel Inman and Edward B. Merino, as officers and directors of
ObjectShare, is entitled to receive severance payments, in the amounts of
$240,000, $100,000, $50,000 and $25,000, respectively, in the event of a merger
or other fundamental corporate change.
Under the merger agreement, ObjectShare shall immediately prior to the
merger closing issue shares of the common stock of ObjectShare (which shares
shall be converted into the right to receive shares of StarBase common stock at
the effective date, as provided above) in the following manner:
(1) to Mr. Goda, that number of shares of ObjectShare common
stock determined by dividing $240,000 (the severance amount to which he
is entitled if the merger closes) by the average closing market price
of StarBase common stock for the 3 trading days preceding the day prior
to the merger closing and then, by dividing the result obtained by the
Merger Exchange Ratio;
(2) to Mr. Smith, (i) that number of shares of ObjectShare
common stock determined by dividing $50,000 (constituting 50% of the
severance amount to which he is entitled if the merger closes) by the
average closing market price of StarBase common stock for the 3 trading
days preceding the day prior to the merger closing and then, by
dividing the result obtained by the Merger Exchange Ratio. In addition,
ObjectShare shall pay to Mr. Smith the aggregate sum of $50,000
(constituting the other 50% of Mr. Smith's severance package) at the
merger closing;
(3) to Mr. Inman, that number of shares of ObjectShare common
stock determined by dividing $50,000 (the severance amount to which he
is entitled if the merger closes) by the average closing market price
of StarBase common stock for the 3 trading days preceding the day prior
to the merger closing and then, by dividing the result obtained by the
Merger Exchange Ratio; and
(4) to Mr. Merino, that number of shares of ObjectShare common
stock determined by dividing $25,000 (the severance amount to which he
is entitled if the merger closes) by the average closing market price
of StarBase common stock for the 3
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<PAGE> 65
trading days preceding the day prior to the merger closing and then, by
dividing the result obtained by the Merger Exchange Ratio.
If the above calculations result in fractional shares being authorized
by the foregoing, such fractional number of shares shall be rounded up or down
to the nearest whole share of ObjectShare common stock.
By way of illustration, assuming that the average closing price per
share of StarBase common stock on the closing date will be the same as at the
date of this Proxy Statement/Prospectus or [$11.00], then, in accordance with
the following calculation, Mr. Goda, Mr. Smith, Mr. Inman and Mr. Merino would
receive [338,993], [70,457], [70,457] and [35,228] shares of ObjectShare common
stock, respectively:
Goda: (240,000 [DIVIDED BY] [$11.00] = [338,193] shares
-------------------------------
(8,850,000 [DIVIDED BY] 12,470,863)
-------------------------------------
[$11.00]
Inman/Smith: (50,000 [DIVIDED BY] [$11.00] = [70,457] shares
-------------------------------
(8,850,000 [DIVIDED BY] 12,470,863)
-----------------------------------
[$11.00]
Merino: (25,000 [DIVIDED BY] [$11.00] = [35,228] shares
------------------------------
(8,850,000 [DIVIDED BY] 12,470,863)
-------------------------------------
[$11.00]
INDEMNIFICATION AND INSURANCE
At the effective date of the merger and for two years thereafter,
StarBase shall procure and maintain for any present or former director, officer,
employee or agent of ObjectShare (each, an "Indemnitee") insured against
liability by ObjectShare as of November 3, 1999 when the merger agreement was
executed an insurance policy with respect to any liability to ObjectShare
existing at the closing by reason of the fact that such named individual holds
or held a position with ObjectShare. The cost to procure and maintain each
insurance policy shall be shared equally by StarBase and ObjectShare.
StarBase further agrees that all provisions with respect to
indemnification by ObjectShare or with respect to liability to ObjectShare
existing at the closing in favor of any named individual, as set forth in
ObjectShare's Certificate of Incorporation, as amended, or By-laws or the
agreements in effect on the date hereof with respect to each of Messrs. Goda,
Smith, Inman and Marino as well as Jos Henkens, James F. Sutter and Lester
"Buck" Hill shall survive the merger and shall continue in full force and effect
for a period of two years.
CONSULTANCY ARRANGEMENT
Edward Merino serves as a member of ObjectShare's Board of Directors.
Mr. Merino is also the Chief Executive Officer of Office of the Chairman, Inc.
("Office"). ObjectShare has retained the consultancy services of Office related
to certain corporate governance issues. ObjectShare has paid a total of
approximately $21,000 in consulting fees to Office under this arrangement.
ObjectShare's management believes that the terms of the consultancy arrangement
are at least as favorable to ObjectShare as would be available from a company
other than Office in an arm's length transaction.
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<PAGE> 66
RELATIONSHIP BETWEEN STARBASE AND OBJECTSHARE
LINE OF CREDIT
On November 3, 1999, StarBase extended to ObjectShare a line of credit
up to $500,000, subject to limitations on the aggregate amount of funds advanced
or outstanding during any given month. The line of credit is evidenced by a
Secured Promissory Note, bears interest at prime plus 0.75%, and matures on
October 31, 2000 unless earlier becoming repayable in full upon the occurrence
of specified events. Such events include the termination of the merger agreement
and the sale by ObjectShare of its foreign subsidiaries. A sale of the foreign
subsidiaries took place in late November 1999, at which time the $200,000
initially advanced by StarBase under the note was repaid in full.
Under the terms of the note, ObjectShare made standard representations
and warranties to StarBase with respect to its authority to execute the note and
its ownership of collateral being pledged as security for the line of credit. In
addition, ObjectShare agreed to furnish to StarBase during the term of the note
its financial statements and a current list of its accounts receivable, together
with aging schedule, as updated on a biweekly basis. Until payment in full of
any outstanding balance under the note, ObjectShare also agreed:
- not to permit the ratio of its "quick" assets to its current
liabilities fall below 0.48;
- to keep its cash flow within an acceptable range of its
projected ending cash balance for each week; and
- not to incur additional indebtedness other than an existing
facility not to exceed a prescribed amount.
Other than the initial advance in November 1999 of $200,000, which
amount was repaid in full at the time of the sale of the foreign subsidiaries by
ObjectShare, no additional funds have been advanced. At the date of this Proxy
Statement/Prospectus, there was no outstanding balance under the note and
StarBase is under no obligation to make further advances.
EMPLOYMENT OF JAMES H. SMITH
By an employment agreement dated November 3, 1999, StarBase employed
James H. Smith for an initial one-year term as its Executive Vice President of
Sales and Marketing. The agreement contains the standard confidentiality and
"work for hire" provisions and provides for a salary to Mr. Smith of $200,000
per annum. Under the terms of the agreement, Mr. Smith agreed not to compete
with StarBase for a period of a year after termination of his employment.
The agreement contains a "change of control" provision, entitling Mr.
Smith to receive his salary at the annual rate in effect at the time of a change
in control for a twelve month period from the date of his termination. A "change
of control" includes the sale, directly and indirectly, of more than fifty
percent (50%) of StarBase's voting stock as well as a merger or consolidation in
which StarBase is not the surviving entity.
As part of Mr. Smith's compensation, StarBase also granted him ten (10)
year options to purchase up to 437,000 shares of the company's common stock, at
an exercise price of $1.32 per
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<PAGE> 67
share (the then fair market value of StarBase common stock). Such options vest
in equal installments (109,250) over a four year period, commencing on November
3, 2000.
Mr. Smith previously served as Chief Operating Officer/Executive Vice
President of Sales and Marketing for ObjectShare, from which position he
resigned as of November 3, 1999.
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<PAGE> 68
MANAGEMENT OF SURVIVING CORPORATION
At the effective date of the merger, the directors and the executive
officers of the surviving corporation, appointed to serve until their removal or
resignation, shall be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William R. Stow III 55 Chief Executive Officer and Chairman of the Board
Donald R. Farrow 54 Vice Chairman and Director
Alan D. Kucheck 48 Vice President, Engineering
Douglas S. Norman 36 Chief Accounting Officer and Assistant Secretary
James H. Smith 44 Vice President, Marketing and Sales
Lydia J. Patterson 49 Vice President, Products Group
Thomas M. Brattvet 43 Vice President, Sales
Frank R. Caccamo 60 Director
Daniel P. Ginns 49 Director
Phillip E. Pearce 70 Director
John R. Snedegar 50 Director
Barry W. Sullivan 58 Director
</TABLE>
WILLIAM R. STOW III - founded the company in September 1991. Mr. Stow has served
as Chief Executive Officer of the Company since September 1991 (exclusive of the
period from August 1996 to January 1997) and has served as President of the
Company since July 1998. This is a position he also held from September 1991 to
August 1996, exclusive of the period from April 1994 through July 1995. Mr. Stow
has served as a Director of the Company since September 1991, Co-Chairman of the
Board from October 1994 to August 1996 and Chairman of the Board since August
1996.
FRANK R. CACCAMO - has served as a Director of the Company since November 1998.
Mr. Caccamo is the Vice President and Chief Information Officer of The Reynolds
and Reynolds Company, a position he has held since January 1997. Prior to
joining Reynolds and Reynolds, Mr. Caccamo was Vice President of Information
Systems at Procter & Gamble from 1990 to January 1997. Mr. Caccamo is a director
of the Agency Services Division of the Cincinnati Community Chest, the
Cincinnati Community Chest, the Cincinnati Eye Bank for Sight Restoration, and
the Health Alliance Information Systems and Technology Governance Board.
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<PAGE> 69
DONALD R. FARROW - has served as the Vice Chairman of the Company since July
1998. Mr. Farrow has been with the Company since March 1996. His various
positions within the company include: (1) President (January 1997 to July 1998);
(2) Chief Operating Officer and Director (February 1997 to July 1998); (3) Vice
President, Sales and Marketing (August 1996 to January 1997); Vice President,
Sales (May 1996 to August 1996); and (4) consultant (March 1996 to May 1996).
From January 1995 to May 1996, Mr. Farrow was an independent consultant in the
area of sales and marketing of software technology. Prior to January 1995, Mr.
Farrow served as Vice President, Sales and Marketing for Comm Vision, a leading
provider of server solutions, from December 1993 through December 1994;
Vice-President of Sales of Image Online from February 1993 through November
1993; and Director - Western Area of Novell, a provider of network software,
from 1987 to February, 1993.
DANIEL P. GINNS - has served as a Director of the Company since January 1997.
Since October 1996, Mr. Ginns has been Chairman of the Board and Chief Executive
Officer of Datametrics Corporation, a reporting company which designs, develops
and manufactures printers and computers. From 1989 to 1996, Mr. Ginns was
President of Belmont Capital, Inc., a management and financial advisory firm.
PHILLIP E. PEARCE - has served as a Director of the Company since January 1996.
Mr. Pearce is the owner of Phil Pearce & Associates since 1986. Prior to that,
he was Senior Vice President and a member of the Board of Directors of E.F.
Hutton & Co., from 1971 through 1983, a member of the Board of Governors of the
New York Stock Exchange, and Chairman of the Board of governors of the NASD. Mr.
Pearce is a member of the Board of three other reporting companies, China
Peregrine, Mustang Software and Xybernaut Corporation.
JOHN R. SNEDEGAR - has served as a Director of the Company since December 1991.
Mr. Snedegar is President/CEO and a director of Micro General Corporation, a
full service telecommunications and electronic commerce company. From May 1990
through April 1999, Mr. Snedegar served as President, Director and Chief
Executive Officer of United Digital Network Inc., a diversified
telecommunications provider based in Irving, Texas. From March 1981 to May 1992,
Mr. Snedegar served as President and Chief Executive Officer of AmeriTel
Management, Inc., currently known as WCT Communications, Inc. Mr. Snedegar is
also a member of the Board of Star Communications, Inc., an international long
distance wholesale provider, ShopNow.com, an electronic commerce shopping portal
and TeleHub Communications Corporation, a long distance technology company.
BARRY W. SULLIVAN - has served as a Director of the Company since September
1998. Mr. Sullivan has served the Electronic Data Systems (EDS) from 1971
through 1998, most recently as Corporate Vice President in charge of managing
their Internet, New Media and Electronic Business. Mr. Sullivan was a member of
(1) the Stanford University Computer Industry Project form 1992 to 1997 and (2)
the New Marketing Imperatives Roundtable. He has served on the Board and as
Chairman of the Information Technology Association of America (ITAA) from 1993
through 1998, and on the Board of CommerceNet, a not-for-profit market and
business development organization from 1996 to 1998.
The following biographical information has been submitted by the
non-Director Executive Officers.
ALAN D. KUCHECK - has served the Company as the Vice President of Engineering
since January 1995. From July 1993 to January 1995, Mr. Kucheck served as a
Project Director for the Company.
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<PAGE> 70
JAMES H. SMITH - has served the Company as Executive Vice President, Customer
Group in November 1999. He has over 18 years experience in the software industry
with specific expertise in marketing and selling application development
products and services. Prior to StarBase, from June 1997 until November 1999,
Mr. Smith was Chief Operating Officer/Executive Vice President of Sales and
Marketing at ObjectShare Inc., a developer of objected-oriented tools and
services. From October 1995 to June 1997, Mr. Smith served as COO for Select
Software Tools, a provider of object-oriented application development tools and
services. From 1994 to October 1995, Mr. Smith was VP of Sales at SoftLab. From
1993 to 1994, Mr. Smith served as VP Sales at Knowledgeware. From 1988 until
1993 Mr. Smith functioned as EVP Sales and Marketing at Meridian Software, which
was acquired by what is now Rational Software. Smith received a BS in
Business/Marketing from the University of Rhode Island in 1977.
DOUGLAS S. NORMAN - founded the Company in September 1991. He has served as
Chief Accounting Officer since September 1997, Assistant Secretary of the
Company since February 1997, Director of Finance since June 1996, and as
Financial Manager from 1991 to 1996. Douglas S. Norman is the son-in-law of
William R. Stow III.
LYDIA J. PATTERSON - has served the Company as Vice President, Products Group
since November 1999. From March 1999 to November 1999, Ms. Patterson served as
Director of Marketing at Rational Software. From 1993 to 1999, Ms. Patterson
held several positions at SELECT Software including: Senior Vice President,
Technology (1997-1999); Vice President, Product Marketing (1997); Vice
President, Technical Services (1995-1997); Vice President, Technical Marketing
(1994); and Product Manager (1993). She has over 18 years experience in the
software industry, in both vendor and end-user organizations. Ms. Patterson
received a BSc in Computer Science from the University of Cheltenham &
Gloucester (U.K.) and a Bachelor of Education from the University of Liverpool
(U.K.).
THOMAS M. BRATTVET - has served the Company as Vice President, Sales since
October 1998. Mr. Brattvet history in software sales, began in the late 70's
with the payroll and human resource systems industry selling for ADP. In the
mid-80's Brattvet moved into mainframe based database management systems, 4GL,
and network Management software sales with Cincom Systems. In 1988, he was
recruited to California by application development software provider Intersolv,
now Merant (Nasdaq: MRNT), to overhaul their sales efforts on the West Coast. As
a top producing salesperson there, Mr. Brattvet moved into sales management in
1991, resulting in the western region being their top-producing region in the
U.S for Intersolv. He next took a position as western regional sales manager at
start-up Template Software in 1992, closing large opportunities at PacBell,
BCBS, EPRI, MCI and Jet Propulsion Lab. He then became GUPTA (now Centura
Software) western region director, where Mr. Brattvet helped develop the region
by opening new offices in Dallas and Los Angeles thereby increasing revenue from
$400K to over $4 million. Prior to joining StarBase Mr. Brattvet was Regional
Vice President at Novadigm for 3 years, where he set up the western U.S. sales
division making it the top-producing region in the world with revenues in excess
of $6 million. Mr Brattvet holds a B.S. in Business Administration from Ramapo
College of New Jersey.
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<PAGE> 71
DESCRIPTION OF STARBASE SECURITIES
StarBase is authorized to issue up to 80,000,000 shares of common
stock, $.01 par value, and up to 10,000,000 shares of preferred stock, $.01 par
value. As of December 31, 1999, 40,983,568 shares of StarBase common stock and
no shares of StarBase preferred stock were issued and outstanding.
COMMON STOCK
Each holder of StarBase common stock is entitled to one vote for each
share held of record. There is no right to cumulative votes for the election of
directors. The shares of common stock are neither entitled to pre-emptive rights
nor subject to redemption or assessment. Each share of common stock is entitled
to share ratably in distributions to stockholders and to receive ratably such
dividends as may be declared by StarBase's board of directors out of funds
legally available therefore. Upon liquidation, dissolution or winding up of
StarBase, the holders of StarBase common stock are entitled to receive, pro
rata, the assets which are legally available for distribution to shareholders.
The issued and outstanding shares of common stock are validly issued, fully paid
and non-assessable.
PREFERRED STOCK
The preferred stock of StarBase can be issued in one or more series as
may be determined from time to time by the board of directors without further
stockholder approval. In establishing a series, StarBase's board of directors
shall give to it a distinctive designation so as to distinguish it from the
shares of all other series and classes, shall fix the number of shares in such
series, and the preferences, rights and restrictions thereof. All shares of any
one series shall be alike in every particular. All series shall be alike except
that there may be variation as to the following: (1) the rate of distribution,
(2) the price at and the terms and conditions on which shares shall be redeemed,
(3) the amount payable upon shares for distributions of any kind, (4) sinking
fund provisions for the redemption of shares, and (5) the terms and conditions
on which shares may be converted if the shares of any series are issued with the
privilege of conversion, and (6) voting rights except as limited by law.
There are currently no series of preferred stock outstanding; all
series previously designated having been converted by the preferred stockholders
and/or redeemed by StarBase as of the date of this Proxy Statement/Prospectus.
WARRANTS
StarBase has issued from time to time in connection with raising
private capital two, three, four and five year warrants to purchase common
stock. As of December 31, 1999, 1,112,000 warrants were outstanding.
OPTIONS
As of December 31, 1999, StarBase had granted to its employees,
directors and officers options to purchase up to an aggregate of 9,051,114
shares of its common stock, of which options to purchase 2,296,234 shares of
StarBase common stock are exercisable.
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<PAGE> 72
COMPARISON OF RIGHTS OF HOLDERS OF STARBASE COMMON STOCK
AND HOLDERS OF OBJECTSHARE COMMON STOCK
Both StarBase and ObjectShare are corporations organized under the laws
of the State of Delaware and the rights of their respective stockholders are
governed by the Delaware General Corporation Law. Accordingly, if the merger
agreement is approved and the merger becomes effective, the ObjectShare
stockholders will become stockholders of StarBase whereby their rights will
continue to be governed by the Delaware General Corporation Law.
There are no significant differences between the provisions contained
in the Certificates of Incorporation and Bylaws of StarBase and ObjectShare.
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<PAGE> 73
STARBASE CORPORATION
DESCRIPTION OF STARBASE'S BUSINESS
StarBase Corporation, a Delaware corporation ("StarBase"), is a leading
provider of eBusiness digital asset management solutions for the enterprise.
StarBase offers a complete family of user-friendly software products that enable
teams of people to collaborate in the production of Web sites, e-Commerce and
business critical applications while managing all associated digital assets.
StarBase's products are designed to increase the productivity of centralized and
geographically remote teams of people that are both internal and external to an
enterprise. StarBase's professional services organization provides
implementation, consulting and training expertise.
StarBase's software has been licensed directly to over 1,000
corporations, government agencies, software developers and eBusiness vendors.
StarBase focuses on three core markets, the corporation developing eBusiness
solutions, corporations updating their traditional software applications to work
over the Internet or just developing traditional software applications and
embedded solutions for OEMs. StarBase pursues sales opportunities through the
efforts of a direct sales force and its products are also sold indirectly
through a network of OEMs, distributors, value added resellers and system
integrators.
THE MARKET OPPORTUNITY
The Internet has rapidly emerged as an important vehicle for software
application development, team collaboration and electronic commerce, known as
e-commerce or e-business. International Data Corporation has described the
market for e-business solutions as the Web Development Life-Cycle Management
(WDLM) market. This market is estimated to be $300 million for 2000 and is
expected to grow to $1.6 billion by 2003. International Data Corporation also
estimates that e-commerce software applications licensing revenue will grow to
$13.2 billion in 2003, up from $444 million in 1998. In addition, the
traditional software change management market was estimated to be $640 million
for 1999, growing to $1.2 billion by 2003.
The increased use of the Internet by businesses has been driven by the rapid
acceptance of e-business and the development of e-business applications. This
broad acceptance of the Internet led initially to the emergence of corporate
intranets as a platform for internal corporate development and team
collaboration. Corporations have further leveraged the Web to work with business
partners, suppliers and customers via Web-based applications on corporate
extranets. Intranets and extranets represent a significant opportunity for
enterprises to conduct business, improve collaboration for geographically
dispersed teams and improve overall operating efficiencies.
Organizations must rapidly develop increasingly complex software solutions to
address e-business market. In addition, outdated traditional software
applications (usually custom developed) must be updated to operate over the
Internet. Both of these markets require contributions from a wide range of
geographically distributed people with various technical skill levels. Team
members today might include marketing executives, IT managers, graphic
designers, advertising agents, Webmasters, and programmers.
StarBase is positioned to address the convergence of these two markets through
the combination of its e-business application development technology and its
traditional software application development technology.
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THE STARBASE SOLUTION
StarBase is a leading provider e-business digital asset management solutions for
the enterprise. StarBase offers a complete family of user-friendly software
products that enable teams of people to collaborate in the production of Web
sites, e-business and business critical applications while managing all
associated digital assets. These teams can include both technical and
non-technical contributors that are either centralized or geographically
dispersed and are either internal or external to an enterprise. StarBase's
products enable organizations to manage software development projects through
their life cycle by increasing project predictability, control, visibility and
productivity
StarBase's core technology was created from the ground up by StarBase, beginning
in 1996, to serve the needs of the Microsoft Windows development environment.
StarBase's products are scalable and now operate in multiple development
environments. StarBase's product's architecture encompasses new emerging
technologies such as Microsoft COM and Java. This architecture also enables
seamless integration with a variety of proprietary source code control software
programs, which allow users to easily export their data to our more
comprehensive solution. The architecture also allows interfaces to many other
software products and devices.
StarBase originally developed its e-business lifecycle management technology for
use in the traditional software application market. StarBase had anticipated the
wide usage of the Internet as a vehicle for conducting business, and therefore
built its products to work over the Internet. Over the past several years,
StarBase has enhanced and expanded our family of products and markets. Today,
StarBase offers a robust solution for organizations developing e-business
solutions, traditional software applications as well as OEM's and embedded
solutions.
E-business solutions. Organizations must rapidly develop increasingly complex
software solutions to address e-business market. The rapid growth in the
e-business market has resulted in an increase in the number of web sites, the
complexity of web sites and the cost of web projects. StarBase's products help
these organizations to manage the development of these complex software
applications by reducing project delays, failures and cost overruns.
Traditional software applications. Many of StarBase's existing customers are
currently using its products to perform basic change management functions
associated with traditional business software applications. The products provide
them with a secure, controlled repository for software code. It also enables
version control, defect tracking, change management and other software
development functions. In addition, organizations must update their traditional
software applications to e-business applications that operate on the Internet.
StarBase's products are uniquely positioned to help these organizations "webify"
their existing applications.
OEM's and Embedded Solutions. StarBase sells its products and/or technology to
other software companies that embed it into their product offerings. Currently,
StarBase has OEM relationships with content provider Macromedia, test tool
company Cyrano and database provider Progress. In each of these relationships,
StarBase's products have helped these companies provide life cycle management
solutions to their customers.
STARBASE STRATEGY
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StarBase's objective is to maintain and expand its position as a leading
provider e-business digital asset management solutions for the enterprise. Key
elements of StarBase's strategy to achieve this objective are as follows:
Grow revenues through new and existing customers. With over 1,000 existing
customers, StarBase is positioned to generate additional revenue from these
customers by upgrading and expanding their use of our products. Many of
StarBase's customers use its software for traditional business software
applications. These customers are prime targets to expand their use of StarTeam
for Web site and e-business software development.
Increase penetration of the e-business market. StarBase believes our technology,
product offerings, large installed customer base and partnering relationships
position us well for deeper market penetration in e-business. StarBase intends
to leverage our market leadership to capitalize on the rapid expansion of
e-business. As StarBase's current installed customer base adopts e-business
strategies, StarBase intends to provide them with e-business solutions that
complement their existing traditional software development application
solutions.
Enhance sales and marketing capabilities. StarBase intends to enhance our sales
and marketing organization in order to benefit from the growth of e-business and
Internet usage. StarBase seeks to continue to increase the size and
effectiveness of their direct sales organization to capitalize on the key growth
segments of our business. In addition, StarBase intends to leverage its
relationships with strategic partners such as original equipment manufacturers
(OEMs), value-added resellers (VARS), distributors, application service
providers (ASPs), and implementation partners. StarBase intends to increase its
brand awareness through a combination of advertising, direct marketing, public
relations and other marketing programs. StarBase also intends to develop
promotional and media campaigns with key customers and partners to increase its
visibility and improve its competitive position in the marketplace.
Expand product and service offerings. StarBase believes that its products
provide a strong foundation to provide e-business Life Cycle Management
Solutions. To strengthen this foundation, StarBase intends to expand its
products, technologies and services to meet its customer's strategic e-business
needs. To accomplish this goal, StarBase intends to continue to develop new
products and technologies through internal research and development, through
partnerships and the acquisition of complementary technologies and businesses.
StarBase also intends to expand the breadth of its professional services to
provide its business partners and customers with additional expertise in the
implementation of its products.
PRODUCTS
StarTeam and StarTeam Enterprise. StarBase's flagship product is called StarTeam
and it currently consists of StarTeam 4.2 and an enhanced version called
StarTeam Enterprise 4.2. StarTeam resides on a client system and runs in a
variety of development environments including Microsoft Windows NT, UNIX, and
Java Virtual Machine (JVM). StarBase is currently developing a Solaris and Linux
version. StarTeam's architecture also allows seamless integration with a variety
of source code control products, which allow users to easily export their data
to the more comprehensive StarTeam solution. The architecture also allows
interfaces to many other software products developed by other companies, such as
Microsoft Project (a Microsoft desktop project management software application).
StarTeam provides functions designed to improve productivity by increasing team
collaboration. StarTeam Enterprise adds enhanced task management and
customization capabilities. Both of
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these products include the StarTeam Task Component, which is software that
enables the flow of information between the members of a project. StarTeam's
Repository Customization component provides the capability to track the unique
information that a development team might need.
StarDisk. Disk, included with StarTeam Enterprise, provides an easy-to-use
software version control capability. It integrates with Microsoft Windows
Explorer, which allows both technical and non-technical team members to easily
access, revise, and store files that contain programming code, letters,
graphics, data, or other information. Team members can easily perform these
functions locally or remotely over intranets, extranets or the Internet.
StarTeam VirtualTeam Server and StarBase Server. StarTeam VirtualTeam Server
(VTS) provides team members with access to centralized project information. The
StarBase Server will add platform independence and other new functional
capabilities and includes project administration such as security, user and
group management, as well as license management. The centralized server software
is linked to the client system through a network connection (Local area network,
wide area network, or the Internet). Users on the client system have the full
functionality of the StarTeam products through the combination of the StarTeam
Client software (on the desktop) and the StarTeam VTS/Server software (on the
server).
The StarBase Server is designed to support complex eBusiness environments
including best-of-breed application development software products and Web
content-oriented portals. It will be platform independent, supporting Solaris
(Sun Microsystems) and Linux, in addition to Windows platforms.
StarGate. StarGate is a software development kit (SDK) providing access to
StarTeam's comprehensive application programming interfaces. StarGate enables
remote access to the StarBase Server through COM and JAVA interfaces. which
enables remote access to the StarBase Server. StarGate provides the necessary
foundation for the rapid creation of e-business software applications and Web
browser interfaces.
SERVICES
StarBase provides extensive technical support and training services to its
customers, and provides consulting services designed to assist its customers in
using StarBase software to develop e-business solutions.
Technical Support and Maintenance. StarBase provides post-sale customer support
directly through its own technical support engineers, who handle most support
calls by telephone and electronic mail. StarBase offers annual maintenance
contracts, which entitle its customers to full telephone support service and
software maintenance releases. StarBase also provides its customers access to
technical support services by electronic mail and over the Internet.
Consulting. StarBase offers consulting services to its customers, OEMs, value
added resellers and system integrators to assist them in designing and deploying
StarBase applications tailored to meet their particular e-business application
needs. Consulting services have typically been offered on a time and materials
basis.
Training. StarBase provides training services at its own location as well as at
the facilities of its customers, value added resellers and system integrators
worldwide. StarBase believes its training helps to increase customer
satisfaction while enhancing its ability to make additional sales to its
existing customer base. Customers typically pay for training services on a set
fee basis.
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SALES AND MARKETING
StarBase has established a centralized direct corporate sales organization that
is predominately telephone based. This centralized group is complemented by
regional sales managers, who are in the field, and sales engineers, who provide
pre-sales technical support. Sales leads are generated through a number of
marketing programs, including focused advertisements, direct mail campaigns,
trade show participation, seminars and press relations.
StarBase's domestic direct sales force produces the majority of its sales. At
December 31, 1999, StarBase 31 employees in our sales force. StarBase intends to
increase our sales force to include more field sales and strategic partnership
sales personnel. Additionally, the marketing department has sought to further
increase industry and potential customer recognition though various marketing
programs.
StarBase has also developed indirect sales channels through value-added
resellers, system integrators, resellers, consultants as well as international
distributors and resellers. In addition, StarBase has established OEM
relationships with software vendors that include our technology in their private
label products.
COMPETITION
Competition for StarBase's products and services come from companies that
address either of two major markets:
1. Team collaboration market for building and managing e-business and Web
based applications
2. Traditional software change management providers
Team collaboration market for building and managing e-business and Web based
applications
Every organization with a presence on the Internet has the requirement to manage
the process of developing, deploying, and maintaining its web sites and
intranets. The development and maintenance of web applications involve not only
the management of source code but also content. IDC refers to this particular
market as Web Development Life-Cycle Management (WDLM). As an emerging market,
WDLM includes new startup vendors and well known software developers including
Future Tense, Interwoven, Inso, IBM, NetObjects, Computer Associates and
Vignette. StarBase is positioned in this market to provide a unique solution
that addresses the needs for management of software releases together with web
applications and web objects such as text pages, graphics, applets, templates,
style sheets and streaming media.
Traditional software change management
The market for traditional software change management solutions for application
development, like StarTeam, is intensely competitive. The major developers and
competitors in the lower-end SCM marketplace include Merant (PVCS), Microsoft
(Visual SourceSafe) and Mortice Kern Systems, Inc., "MKS", (Source Integrity),
with Continuus (Continuus/CM), Rational (ClearCase) and Computer Associates
(CCC/Harvest) products competing at the high-end of the software configuration
management market. At this time, StarBase is unaware of any company that offers
the comprehensive set of integrated tools found in StarTeam, nor the Internet
management capabilities that are present in StarTeam VirtualTeam Server. Merant,
MKS, Microsoft, Rational and others offer SCM capabilities that are similar to
those offered by StarTeam. MKS and others
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have introduced configuration management products for the Web that offer some
features that are included in StarTeam VirtualTeam Server.
Many of StarBase's existing competitors have significantly greater financial,
technical and marketing resources than we do. Although StarBase believes that
its products and technologies compete favorably, StarBase cannot assure you that
it will be able to compete successfully against its current or future
competitors or that competition will not seriously harm its business.
PROPRIETARY RIGHTS
StarBase's success is heavily dependent upon its proprietary software
technology. StarBase does not currently have any patents and relies upon a
combination of copyright, trademark and trade secret laws, as well as license,
proprietary rights, non-disclosure and other contractual agreements to protect
the proprietary rights to its technology. StarBase generally enters into
proprietary information and inventions agreements with its employees. StarBase
also routinely limits access to its software, documentation and other
proprietary information. There can be no assurance that the steps taken by
StarBase will prevent misappropriation of its technology. In addition, such
protections may not preclude competitors from developing products with features
similar to StarBase's products. Although StarBase believes its products will not
infringe upon the proprietary rights of third parties, there can be no assurance
that infringement claims will not be brought against StarBase in the future. Any
such claims could result in costly litigation or have a material adverse effect
on StarBase's business, operating results and financial condition.
EMPLOYEES
As of December 31, 1999 StarBase had 97 full-time and 6 part-time
employees. Of these employees, 31 full-time and 3 part-time were in Research and
Development, 17 full-time and 2 part-time were in Administration and 49
full-time and 1 part-time were in Sales and Marketing. StarBase's workforce is
not unionized and management believes that StarBase's relations with its
employees are good.
DESCRIPTION OF PROPERTY
In July 1998, StarBase entered into a sub-lease for new office space
located at 4 Hutton Centre Drive, Santa Ana, CA 92707. The offices consist of
17,000 square feet costing approximately $27,000 per month through February 22,
2000. Simultaneously, StarBase also entered into a lease agreement for 4,100
contiguous square feet beginning January 1999 through September 2003 at a rate
of approximately $8,000 per month. In addition, StarBase entered into a lease
agreement for the 17,000 square feet beginning February 23, 2000 through
September 2003 at a rate of approximately $41,000 per month.
LEGAL PROCEEDINGS
None.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following selected financial data should be read in conjunction
with StarBase's financial statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein. The selected financial data presented below under the
captions "Statement of Operations Data" for the years ended March 31, 1999,
1998, 1997, 1996 and 1995 and "Balance Sheet Data" as of March 31, 1999, 1998,
1997, 1996 and 1995 are derived from the audited financial statements of
StarBase. The selected financial data presented below for the six months ended
September 30, 1999 and 1998, are derived from the unaudited financial statements
of StarBase. The unaudited financial statements have been prepared by StarBase
on a basis consistent with StarBase's operating results and financial position
for the periods and dates to which such statements are related. Historical
results are not necessarily indicative of future results of operations.
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
STARBASE CORPORATION
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended
September 30, For the year ended March 31,
-------------------- --------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
License fees $ 6,093 $ 2,459 $ 5,964 $ 1,863 $ 968 $ 491 $ 959
Services 1,112 339 868 276 71 500 2,576
-------- -------- -------- -------- -------- -------- --------
Total revenues 7,205 2,798 6,832 2,139 1,039 991 3,535
Costs and expenses:
Cost of license fees 673 336 508 162 96 82 182
Cost of services 561 0 0 0 0 624 2,666
Research and development 1,943 2,138 4,437 2,762 1,791 2,466 3,145
Selling, general and administrative 5,684 5,277 10,601 5,370 5,050 3,759 5,312
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses 8,861 7,751 15,546 8,294 6,937 6,931 11,305
-------- -------- -------- -------- -------- -------- --------
Operating loss (1,656) (4,953) (8,714) (6,155) (5,898) (5,940) (7,770)
Other income, interest expense and other (215) 44 32 (877) 198 48 52
-------- -------- -------- -------- -------- -------- --------
Loss before income taxes (1,871) (4,909) (8,682) (7,032) (5,700) (5,892) (7,718)
Provision for income taxes 1 2 1 1 3 1 2
-------- -------- -------- -------- -------- -------- --------
Net loss (1,872) (4,911) (8,683) (7,033) (5,703) (5,893) (7,720)
Non-cash dividend and accretion of
beneficial conversion feature 549 334 1,277 2,832 1,096 3,635 1,878
-------- -------- -------- -------- -------- -------- --------
Net loss applicable to
common stockholders $ (2,421) $ (5,245) $ (9,960) $ (9,865) $ (6,799) $ (9,528) $ (9,598)
======== ======== ======== ======== ======== ======== ========
Per Common Share Data
Basic loss per share $ (0.08) $ (0.29) $ (0.49) $ (0.70) $ (0.62) $ (1.64) $ (2.65)
As of September 30, As of March 31,
-------------------- --------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents $ 6,185 $ 1,287 $ 1,363 $ 4,167 $ 2,722 $ 1,252 $ 1,972
Working capital $ 5,856 $ 1,594 $ 2,308 $ 3,632 $ 2,384 $ (536) $ 191
Total assets $ 11,239 $ 4,695 $ 6,605 $ 5,682 $ 3,876 $ 2,173 $ 4,147
Long term debt $ 103 $ 163 $ 116 $ 38 $ -- $ 153 $ 45
Stockholders' equity $ 7,300 $ 2,691 $ 4,462 $ 4,430 $ 2,991 $ 68 $ 1,357
</TABLE>
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Results of Operations
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1998
Revenue
Total revenue for the six month period ended September 30, 1999,
increased to $7,205,000 from $2,798,000 in the same period of the prior year.
The increase in product revenue was a result of the continued acceptance of the
StarTeam 4.1 family of products.
Cost of revenues consists primarily of manufacturing and related costs
such as media, documentation, product assembly and costs related to the training
and consulting revenue. StarBase out-sources manufacturing for all software
products, with the exception of StarBase's Roundtable product. For the six month
period ended September 30, 1999 cost of revenues increased to $1,234,000 from
$336,000 due to the increase in training and consulting costs along with costs
of $471,000 for an exchange of technology.
Operating Expenses
Operating expenses for the six month period ended September 30, 1999,
operating expenses increased to $7,627,000 from $7,415,000. The increase was
primarily due to the continued building of the sales and marketing
infrastructure to support the increased level of sales.
The number of persons employed by StarBase at September 30, 1999
compared with September 30, 1998:
<TABLE>
<CAPTION>
Department: 1999 1998
- ----------- ---- ----
<S> <C> <C>
Research & Development 35.5 38
Sales & Marketing 41 40
Administration 16.5 18
---- --
Total 92.5 97
==== ==
</TABLE>
Part time employees are included in the count as one-half.
Research and development expenses.
Research and development expenses include personnel and other direct
and overhead expenses incurred in the development of StarBase's products.
StarBase continues to make significant investments in research and development
intended to bring its products to market and to support existing products. In
the six month period ended September 30, 1999 overall research and development
expenses decreased to $1,943,000 from $2,138,000 for the same period in the
prior year. The decreases are a result of the decrease in the development staff.
Selling, general and administrative expenses.
For the six month period ended September 30, 1999 selling, general and
administrative expenses increased to $5,684,000 from $5,277,000 in the
corresponding period of the prior year.
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The increase was mainly the result of additional sales and marketing
personnel coupled with the advertising and promotion programs to support the
StarTeam 4.1 family of products.
Interest Income/Expense
Interest income for the six month period ended September 30, 1999, was
53,000, unchanged from the same period in the prior year. Interest expense for
the six month period ended September 30, 1999, increased to $18,000 from $5,000
for the same period in the prior year.
Equity in loss from investee
Equity in loss from investee for the six month period ended September
30, 1999 was $250,000. This amount is StarBase's portion, 47%, of the operating
results of OpenAvenue Inc. limited to the total amount invested of $250,000.
Income Taxes
StarBase has not recorded a current or deferred provision for federal
income taxes for any period to date, as a result of losses incurred since its
inception. Any provision for income taxes represents the minimum required for
state taxes.
Non-Cash Dividend and Accretion of Beneficial Conversion Feature
For the six month period ended September 30, 1999, non-cash dividend
and accretion of beneficial conversion feature was $549,000 compared to $334,000
for the same period in the prior year.
YEAR ENDED MARCH 31, 1999 COMPARED TO 1998
Revenue
Total revenue increased $4,693,000 or 219%, to $6,832,000, from
$2,139,000 in fiscal 1998. This increase was substantially due to increased
license and maintenance revenue from the StarTeam product line. StarTeam 3.0 was
released in February 1998 and StarTeam 4.0 was released in February 1999.
Cost of revenues consists primarily of manufacturing and related costs
such as media, documentation, product assembly and third party royalties.
StarBase outsources manufacturing for all software products, except Roundtable.
For the year ended March 31, 1999 cost of revenues increased $346,000, to
$508,000, from $162,000 in fiscal 1998.
Operating expenses increased by approximately $6,906,000 or 85% from
fiscal 1998. This increase was substantially all due to increased labor costs
necessary to develop and market the new products.
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The number of persons employed by StarBase at March 31, 1999 compared
with March 31, 1998:
<TABLE>
<CAPTION>
Department: 1999 1998
----------- ---- ----
<S> <C> <C>
Research & Development 40 31
Sales & Marketing 36.5 26
Administration 16.5 9
---- --
Total 93 66
==== ==
</TABLE>
Part time employees are included in the count as one-half.
Research and development expenses
StarBase continues to make significant investments in research and
development intended to bring its products to market and to support existing
products. Research and development expenses increased $1,675,000 from the prior
year. The majority of the increase was due to increased compensation-related
expenses due to a higher average number of employees during fiscal 1999 as
compared to fiscal 1998. In addition, costs increased for outside contractors
engaged for special programming and testing.
Selling, general and administrative expenses
For the year ended March 31, 1999, selling, general & administrative
expenses increased approximately $5,231,000 over the prior year. This was
substantially all due to increased compensation related expenses due to a higher
average number of employees during fiscal 1999 as compared to fiscal 1998.
Income Taxes
StarBase incurred minimal income taxes in the last two fiscal years due
to its cumulative losses. As of March 31, 1999, StarBase has net operating loss
("NOL") carryforwards of approximately $36.8 million and $17.6 million for
federal and state income tax purposes. The NOL are available to offset future
taxable income at varying amounts through the year 2019. At March 31, 1999, a
100% valuation allowance has been provided on the net deferred tax assets since
StarBase can not determine that such are "more likely than not" to be realized.
NEW ACCOUNTING PRONOUNCEMENTS
In fiscal 2002, StarBase intends to adopt SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This pronouncement is not
expected to have a significant impact on StarBase's reported financial position
or results of operations.
THE YEAR 2000
As of January 31, 2000, the StarBase has experienced no disruptions or problems
regarding the year 2000 changeover. As part of StarBase's Y2K plan, prior to
January 1, 2000, StarBase tested and sampled internal systems consisting
primarily of desktop and network computers, and third-party software utilized in
the day-to-day operations of StarBase. All sampling and testing completed by
January 1, 2000 indicated all systems were operating as
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normal. Through January 31, 2000, all of StarBase's internal hardware and
software continue to operate as normal and to-date, all vendors utilized by
StarBase in its daily operations are operating normally and have not indicated
any Y2K anomalies.
StarBase will continue to monitor and oversee all internal operations
and be in contact with its vendors regarding the upcoming dates (such as
February 29,2000) which are identified as presenting potential Y2K issues. Based
upon the successful transition through the January 1, 2000 rollover period,
StarBase does not anticipate any problems to materialize.
StarBase's expenditures for the Y2K effort were not material and
StarBase does not expect to incur any material costs over the next few months in
regards to Y2K.
Liquidity and Capital Resources
SIX MONTHS ENDED SEPTEMBER 30, 1999
Cash and cash equivalents as of September 30, 1999 were $6,185,000 and
$1,363,000 as of March 31, 1999. At September 30, 1999 StarBase had working
capital of $5,856,000, compared to $2,308,000 at March 31, 1999.
Net cash provided by operating activities was $528,000 for the six
month periods ended September 30, 1999.
Investing activities have consisted of purchases of property and
equipment, investment in equity affiliates, and restricted cash. Capital
expenditures were approximately $155,000 and during the six months ended
September 30, 1999. Investment in equity affiliates was $250,000 for the six
month period ended September 30, 1999. Restricted cash decreased $40,000 in the
six month period ended September 30, 1999.
Financing activities provided $4,659,000 for the six month period ended
September 30, 1999. In July 1999, StarBase raised $4,225,000 through a private
placement of common stock. See note 5 of the notes to the financial statements.
Exercise of options provided $615,000 and exercise of warrants provided $394,000
for the six month period ended September 30, 1999.
StarBase believes that the net proceeds from this offering, it's
existing cash balances and cash equivalents and cash from operations will be
sufficient to finance it's operations through at least the next 12 months. If
additional financing is needed, there can be no assurance that such financing
will be available to StarBase on commercially reasonable terms or at all.
StarBase warrants products against defects for 90 days and has a policy
permitting the return of products within 30 days. Warranty costs and returns,
which are not significant, have historically been within management's
expectations. StarBase has reserved approximately $84,000 at September 30, 1999
for future returns and other collection issues down from $155,000 at March 31,
1999.
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
Cash and cash equivalents as of year-end were $1.4 million in fiscal
1999 and $4.2 million in fiscal 1998. At March 31, 1999 StarBase had working
capital of $2.3 million, compared to $3.6 million at March 31, 1998.
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Proceeds from the issuance of equity securities represent the primary
source of funds for meeting StarBase's requirements for operations. During
fiscal 1999, StarBase generated $7.1 million in cash from the sale of new
Preferred Stock. In addition, $0.6 million of capital was raised from the
exercise of warrants and $0.1 million was raised from the exercise of employee
stock options.
During fiscal 1999, StarBase used $9.4 million for operations, an
increase of approximately $3.8 million from the amount used for operations in
the prior year. The increase was primarily due to an increased loss from
operations due to investments in research and development and in sales and
marketing infrastructure and an increase of $2.2 million in accounts receivable.
Capital expenditures totaled $0.6 million, representing purchases primarily of
computer equipment and furniture. Capital expenditures in fiscal 1998 totaled
$0.4 million.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information regarding
compensation paid or accrued by StarBase to, or on behalf of, StarBase's Chief
Executive Officer and the other most highly compensated executive officers of
StarBase (the "Named StarBase Executive Officers"), for services rendered in all
capacities to StarBase during the fiscal years ended March 31, 1998 and 1999.
Except as otherwise noted, no Named StarBase Executive Officer received any
restricted stock award, stock appreciation right or payment under any long-term
incentive plan. No other officer of StarBase received annual salary and bonus
exceeding $100,000 during the relevant periods.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------ -------------
Securities
Underlying All Other
Options (1) Compen-
Name and Principal Position Year Salary ($) Bonus ($) (Shares) sation
- --------------------------- -------- -------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C>
William R. Stow III (2) 1999 $150,000 $-0- 152,000 $-0-
Chief Executive Officer, 1998 $150,000 $-0- 249,790 $-0-
Chairman of the Board and
Director
Donald R. Farrow (3) President 1999 $141,538 $-0- 60,000 $-0-
and Director 1998 $150,000 $-0- 297,447 $-0-
Alan D. Kucheck (4) Vice 1999 $130,000 $ 37,824 25,000 $-0-
President, Engineering 1998 $120,833 $-0- 245,075 $-0-
Douglas S. Norman (5) Director 1999 $ 92,850 $ 28,587 30,000 $-0-
of Finance, Chief Accounting 1998 $ 72,100 $-0- 91,700 $-0-
Officer and Assistant Secretary
</TABLE>
- ----------
(1) Amounts represent stock options granted and/or repriced for the
period shown.
(2) Options granted during fiscal year 1998 include options to
purchase 156,666 shares of the StarBase common stock, originally
granted in prior years, that were repriced.
(3) Options granted during fiscal year 1998 include options to
purchase 206,250 shares of the StarBase common stock, originally
granted in prior years, that were repriced.
(4) Options granted during fiscal year 1998 include options to
purchase 175,667 shares of the StarBase common stock, originally
granted in prior years, that were repriced.
(5) Option granted during fiscal year 1998 include options to
purchase 54,590 shares of the StarBase common stock originally
granted in prior years, that were repriced.
(6) Amounts listed as All Other Compensation represent commissions
earned or consulting fees.
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<PAGE> 85
STOCK OPTIONS
The following table sets forth information concerning stock option
grants made during the fiscal year ended March 31, 1999 under StarBase's Stock
Option Plan (the "Plan") to Named Executive Officers. No stock appreciation
rights were granted to such individuals during the fiscal year.
OPTION/SAR GRANTS IN THE FISCAL YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------
Number of
Securities Percent
Underlying of Total
Options/ Options/ SARs
SARs Granted to Exercise
Granted Employees of Base
(# of in Fiscal Price Expiration
Name Shares) (1) Year (2) ($/sh) (3) Date
- ---- ---------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C>
William R. Stow III 60,000 1.6% $ .0625 1/04/2009
92,000 2.4% $ .0625 1/04/2009
Donald R. Farrow 35,000 * $ .0625 1/04/2009
25,000 * $ .0625 1/04/2009
Alan D. Kucheck 25,000 * $ .0625 1/04/2009
Douglas S. Norman 30,000 * $ .0625 1/04/2009
</TABLE>
- ----------
* Less than 1%.
(1) Options granted to purchase common stock. Generally, twenty-five
percent of the options granted vest one year from the date of
grant with the remaining options vesting in equal monthly
increments over the following thirty-six months. Fifty percent of
both the 60,000 options granted to Mr. Stow and the 35,000
options granted to Mr. Farrow vest immediately upon grant with
the remaining shares vesting in equal monthly increments over the
following twelve months. All of the options shown have a maximum
term of ten years, subject to earlier termination following the
optionee's cessation of service with StarBase.
(2) StarBase granted options to purchase a total of 3,873,160 shares
of Common Stock to employees, consultants and Board members
during the year ended March 31, 1999.
(3) The exercise price may be paid in cash or in shares of Common
Stock valued at fair market value on the exercise date.
OPTION EXERCISES, HOLDINGS AND FISCAL YEAR-END VALUES
The following table sets forth information concerning the number of
shares covered by both exercisable and unexercisable options held by each of the
Named Executive Officers as of March 31, 1999. No options were exercised during
the fiscal year ended March 31, 1999 by any of the Named Executive Officers.
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<PAGE> 86
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999 AND OPTION VALUES
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
Shares Number of Securities Underlying Value of Unexercised
Acquired Value Unexercised Options at in-the-money Options at
on Realized March 31, 1999 (# of shares) March 31, 1999 (1)
Name Exercise ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William R. Stow III 210,907 215,883 $ 90,473 $156,607
Donald R. Farrow 241,595 140,852 $ 99,595 $ 78,676
Alan D. Kucheck 162,413 107,662 $ 65,310 $ 48,773
Douglas S. Norman 55,880 65,820 $ 26,446 $ 47,608
</TABLE>
- ----------
(1) Calculated based on the closing price of the StarBase common Stock
as reported on the NASDAQ SmallCap Market on March 31, 1999 of $1.6875 per
share, less the applicable exercise price.
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<PAGE> 87
BENEFICIAL STOCKHOLDERS OF STARBASE CORPORATION
The following table sets forth as of December 31. 1999 certain
information regarding the ownership of voting securities of StarBase by each
stockholder known to the management of StarBase to be (i) the beneficial owner
of more than 5% of StarBase's outstanding Common Stock, (ii) each of the
directors and nominees for director of StarBase, (iii) the executive officers
named in the Summary Compensation Table herein under "Executive Compensation"
and (iv) all named executive officers and directors as a group. Except as
otherwise noted, StarBase believes that the beneficial owners of the Common
Stock listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares.
<TABLE>
<CAPTION>
Number of
Shares of Percentage of
Name (1) Common Stock Common Stock
- -------- -------------- --------------
<S> <C> <C>
William R. Stow III .......................... 971,164(2) 2.3%
Frank R. Caccamo ............................. 84,791(3) *
Donald R. Farrow ............................. 257,364(4) *
Daniel P. Ginns .............................. 278,491(5) *
Alan D. Kucheck .............................. 210,521(6) *
Douglas S. Norman ............................ 102,884(7) *
Phillip E. Pearce ............................ 134,791(3) *
John R. Snedegar ............................. 248,235(8) *
Barry W. Sullivan ............................ 77,791(3) *
Thomas M Brattvet ............................ 46,405(3) *
Total: All Directors and
Named Executive Officers. (12 Persons) ....... 3,361,959(9) 5.7%
</TABLE>
- ----------
* Less than 1%.
(1) Except as otherwise noted, the persons named in the above table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them, subject to community property laws where applicable. The address
of each person named in the above table is in care of StarBase Corporation, 4
Hutton Centre Drive, Suite 800 Santa Ana, CA 92707-8713.
(2) Includes 33,882 shares of StarBase common stock held by Mr. Stow. Also
includes 573,119 shares of StarBase common stock held by Mr. Stow as trustee of
the Stow Family Trust, of which 568,124 shares are subject to a Performance
Escrow Agreement. Also includes an aggregate of 1,749 shares of StarBase common
stock held by Mr. Stow in trust for his daughter and son. Also includes 335,601
shares of StarBase common stock and 26,813 shares of StarBase common stock
issuable upon the exercise of currently exercisable stock options by Mr. Stow
and Mrs. Stow, respectively. Mr. Stow disclaims beneficial ownership of the
shares exercisable by Mrs. Stow.
(3) Represents shares of StarBase common stock issuable upon the exercise of
currently exercisable stock options.
(4) Includes 15,000 shares of StarBase common stock held by Mr. Farrow. Also
includes 242,364 shares of StarBase common stock issuable upon the exercise of
currently exercisable stock options.
(5) Includes 163,200 shares of StarBase common stock held by Mr. Ginns and 5,500
shares of StarBase common stock held by Mrs. Ginns. Also includes 109,791 shares
of StarBase
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<PAGE> 88
common stock issuable upon the exercise of currently exercisable stock options.
Mr. Ginns disclaims beneficial ownership of the shares held by Mrs. Ginns.
(6) Includes 9,434 shares of StarBase common stock held by Mr. Kucheck. Also
includes 199,200 shares of StarBase common stock issuable upon the exercise of
currently exercisable stock options and 1,887 shares of StarBase common stock
issuable upon the exercise of warrants.
(7) Includes 24,220 shares of StarBase common stock held by Mr. Norman of which
13,786 shares are subject to a Performance Escrow Agreement. Also includes
76,777 shares of StarBase common stock issuable upon the exercise of currently
exercisable stock options and 1,887 shares of StarBase common stock issuable
upon the exercise of warrants.
(8) Includes 13,753 shares of StarBase common stock held by Mr. Snedegar; 1,191
shares of StarBase common stock held by Mr. Snedegar as trustee for the Snedegar
Revocable Living Trust; 1,667 shares held by Norexco Petroleum of which Mr.
Snedegar is President; and 83,501 shares held by Access Financial Limited of
which Mr. Snedegar is the general partner. Also includes 148,123 shares of
StarBase common stock issuable upon the exercise of currently exercisable stock
options.
(9) Includes a total of 926,216 shares of StarBase common stock, 3,774 shares of
StarBase common stock issuable upon the exercise of warrants and 1,482,447
shares of StarBase common stock issuable upon exercise of stock options held by
all directors and named executive officers of StarBase as a group that are
currently exercisable.
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<PAGE> 89
OBJECTSHARE, INC.
DESCRIPTION OF OBJECTSHARE'S BUSINESS
GENERAL
ObjectShare provides a broad range of training and consulting services
supporting object-oriented software application development tools for use in the
development of distributed client/server/web applications. The three application
environments through which ObjectShare provides its services are Visual Works,
Visual Wave and Distributed SmallTalk. The first application, VisualWorks, is
the primary application development environment ("ADE") concerning which
ObjectShare provides its services. Visual Works provides a powerful visual
programming environment that enables programmers to develop, deploy, and
maintain applications ranging from workgroup and departmental applications to
complex enterprise-wide mission-critical client/server applications. VisualWorks
applications are portable across multiple platforms. The second application,
VisualWave, is an extension of the VisualWorks environment that allows a
VisualWorks application to be enhanced for deployment on the Internet. The third
application, Distributed Smalltalk ("DST"), is a tool set, when used in
conjunction with VisualWorks or VisualWave, which provides a proven architecture
for developing mission-critical, enterprise-wide distributed applications.
BACKGROUND
Object Oriented Application Development
Object-oriented application development represents a widely accepted
approach to develop software applications. The basic concept of object-oriented
technology is to construct software in terms of objects, which are independent
modules that can be modified independently from each other, reused in new
applications, and reused and extended to create new objects. Thus,
object-oriented technology can offer substantial productivity gains by enabling
programmers to reuse more of their application code in developing new
applications or adding new functionality to existing applications. Because new
functions can be added incrementally without changing existing objects,
applications developed using object-oriented programming are also more easily
maintained without risking the integrity of the entire system. The reusability
of tried-and-tested objects results in higher-quality code and reduced
maintenance requirements. Since independent objects can be combined to form new
objects, a complex system can be created from simpler sub-structures. These
characteristics of object-oriented systems make them well suited for the
complexity of larger-scale systems, such as those needed to support
enterprise-wide mission-critical business applications.
Smalltalk is a pure object-oriented programming language. As a pure
object-oriented language, Smalltalk provides the intended benefits of object
programming: direct business modeling, an easy-to-learn syntax, rapid
development of new objects, incremental changes to existing objects, and easy
and safe reuse of objects. Such benefits make Smalltalk generally more suitable
to corporate application development than object-based extensions of other
programming languages, such as C++, which is an object-oriented extension of C.
Both C and C++ are too complex and low level to provide a pragmatic solution for
the vast majority of corporate applications. In addition, although the C++
language provides for object orientation, it allows programmers to revert to
procedural programming techniques, thereby potentially limiting the benefits of
object-oriented programming.
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<PAGE> 90
Java is also an object-oriented programming language, and is being used
primarily for development of Web-based applications. Java has become the
perceived market leader for object-oriented programming language.
Client/Server/Web Computing
In recent years, many organizations have moved their information
systems from mainframe and mini-computer based architectures to distributed
client/server computing environments. Client/server systems typically consist of
multiple desktop PC and workstation clients linked in a network to one or more
high-performance servers. This computing architecture has several benefits:
- client/server computing enables end-users to access and share
enterprise-wide data and applications;
- additional clients, servers and other computing resources can
easily be added to the network in cost-effective increments; and
- because of the distributed nature of client/server systems,
organizations can improve the overall effectiveness of their
computing resources by appropriately distributing application
logic, processing and data among clients and servers.
The distribution of functionality among objects and the ability of
objects to communicate with each other makes object-oriented technology ideally
suited for the client/server environment. Client/server architectures are based
upon the distribution of functionality among different computers on a network
and the ability of clients and servers to communicate via message-passing.
Object-oriented technology is based on a similar message-passing architecture in
which objects on clients and servers throughout a network can easily communicate
to comprise an enterprise-wide client/server application. Distributed computing
standards like the Common Object Request Broker Architecture ("CORBA") enhance
communication among objects.
The Internet is a global web of computer networks. This "network of
networks" allows any computer attached to the Internet to talk to any other,
using the Internet Protocol. Much of the recent growth in Internet use by
businesses and individuals has been driven by the emergence of the World Wide
Web (the "Web"), a format for delivering graphical information over the
Internet. The Web, based on a client/server model and a set of standards for
information access and navigation, can be accessed using client "browser"
software that allows non-technical users to exploit the capabilities of the
Internet. As an increasing number of organizations provide their employees with
Web access from their desktops, an opportunity is emerging for internal
information systems and enterprise applications hosted on internal Web servers.
These systems are referred to as the "intranet." An intranet enables
organizations to extend their internal information systems and enterprise
applications to geographically dispersed facilities, remote offices, and mobile
employees using Web browsers and server software.
Client/server/web computing refers to application development and
delivery systems for business software that will operate in both a client/server
environment and on the Internet and/or Intranet without modification or
recompilation.
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<PAGE> 91
Distributed Computing
Distributed computing is based on the ability to distribute
applications across a network. Early application networks provided simple data
or procedural interfaces among software programs that needed to interact. The
complexity of such a system expands geometrically as the number of discrete
application components in such a system increases. Managing application networks
larger than a single enterprise can be an impossible task unless distributed
components can communicate with each other without the need to understand each
interface in the distributed network of components.
Distributed objects resolve this crucial problem by using standards
that support sending messages to and receiving messages from other objects
regardless of location. Distributed objects can reside on different machines and
on an intranet or the Internet, and they can migrate from one host to the other,
surviving beyond the life of a current host. A majority of distributed objects
adhere to CORBA, a standard for object messaging maintained by the Object
Management Group ("OMG"). The main advantage of CORBA is the ability to
transparently interoperate with other languages that support CORBA. Messages
between objects are converted into language-neutral forms that are processed by
an object request broker ("ORB"), which carries the translated message from one
object to another.
Integrated Application Development Environment
ObjectShare believes that customers developing client/server/web or
distributed computing applications require a service provider who is complete,
powerful, robust and extensible development environment as a foundation for
their development efforts. VisualWorks, one of the application environments
within which ObjectShare delivers its services, provides a fully integrated
graphical user interface ("GUI") builder, access to multiple databases,
cross-platform portability, true object-oriented visual programming in the
Smalltalk language, and an extensive library of pre-developed classes and
methods that support its environment. VisualWave, a second application
environment within which ObjectShare delivers its services and as an extension
of VisualWorks, provides the capabilities to develop applications that are ready
to be deployed on the Internet in the familiar VisualWorks development
environment.
PROFESSIONAL SERVICES
To help ensure successful development, deployment and maintenance of
mission-critical business applications, ObjectShare provides a full range of
professional services and support. ObjectShare's training programs and
consulting services allow ObjectShare to provide a complete service solution for
corporate application developers seeking the benefits of object-oriented
technology. As of December 31, 1999, ObjectShare had 13 full-time employees
consisting of three (3) in sales and marketing, four (4) in finance and
administration and six (6) employees providing training and consulting services.
In addition, ObjectShare maintains a network of contractor/consultants to
augment its permanent staff.
ObjectShare offers extensive training. ObjectShare offers courses
focusing on the concepts of object-oriented programming, as well as courses in
the use of ObjectShare's preferred application development environments, add-on
tools, and developer productivity tools.
For customers requiring experienced object-oriented developers,
ObjectShare offers consulting services. ObjectShare provides both short-term and
long-term project assistance at customer sites to help ensure a project's
success and an accelerated transfer of skills.
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<PAGE> 92
STRATEGIC RELATIONSHIPS
Overview
ObjectShare has established a number of strategic relationships with
management consultants, system integrators, and computer system and software
providers. ObjectShare believes that its relationships with product and service
providers for client/server computing will encourage and reinforce the decision
by corporations to entrust their strategic mission-critical applications to
ObjectShare's training and support services. ObjectShare has strived to
establish strategic alliances to make object-oriented technology a clear choice
for large organizations.
Management Consultants and System Integrators
ObjectShare has marketing, training and development relationships with
leading management consultants and system integrators that help corporations
reengineer their business models and implement client/server computing
solutions. As facilitators for many customers migrating to client/server
architectures and object-oriented technology, management consultants and system
integrators help to encourage use of ObjectShare's services. ObjectShare has had
strategic relationships with organizations such as: American Management Systems,
Andersen Consulting, Arbor Intelligence, Cambridge Technology, Computer Sciences
Corporation, Gemini Consulting, Intelligent Environments, MCI Systemhouse,
Morgan, Parker, Johnson, Object Wave, and SPL Worldgroup. It has also
established technology partnerships with organizations such as Rational, Arbor
Intelligence, Intersolv, Oracle, Applied Reasoning, IC&K, and Unisys.
ObjectShare collaborates on projects and in the cross selling of services, etc.
These relationships are non-exclusive, are not all subject to written agreements
and may be discontinued at any time.
EMPLOYEES
As of December 31, 1999, ObjectShare had thirteen (13) full-time
employees, consisting of three (3) in sales and marketing, four (4) in finance
and administration and six (6) in training and professional services. No
employees are covered by any collective bargaining agreements. ObjectShare
believes that its relationships with its employees are generally good. The
future success of ObjectShare depends in a large part on its ability to attract
and retain qualified personnel. The loss of the services of one or more of
ObjectShare's key employees could have a material adverse effect on
ObjectShare's ability to deliver its training and consulting services, thereby
affecting ObjectShare's operating results and financial condition. Competition
for qualified personnel is intense, and there can be no assurance that
ObjectShare will be able to retain or attract qualified personnel.
DESCRIPTION OF PROPERTY
ObjectShare's corporate headquarters are located in Irvine, California
in an 11,600 square foot facility occupied under a lease expiring in December,
2000. Also, ObjectShare leases offices in Illinois, Oregon and Virginia, which
are no longer utilized by ObjectShare and have been subleased or are being
offered for sublease. ObjectShare believes that its existing facilities will be
adequate to meet its needs through at least fiscal 2000.
COMPETITION
The market for providing training and consulting services related to large-scale
client/server/web computing environments is intensely competitive and
ObjectShare expects
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<PAGE> 93
competition to continue to increase. ObjectShare's competitors include a broad
range of companies that also develop and market tools and languages for software
application development, including Borland, Forte, Informix, Microsoft, Oracle,
Sun Microsystems, and Sybase. Many of ObjectShare's current and prospective
competitors have significantly greater financial, technical, and marketing
resources than ObjectShare
The principal competitive factors affecting the market for ObjectShare's
services include the skillsets of the consultants ObjectShare is able to bring
to a project and the timeliness and content of the training courseware. There
can be no assurance that ObjectShare will be successful in the face of
increasing competition from new products and enhancements introduced by existing
competitors and by new companies entering the market.
LEGAL PROCEEDINGS
ObjectShare does not know of any current pending legal proceedings but
may in the future be subject to legal proceedings and claims, either asserted or
unasserted, which arise in the ordinary course of business. While the outcome of
these claims cannot be predicted with certainty, ObjectShare's management does
not believe that the outcome of any of these legal matters will have a material
adverse affect on ObjectShare's consolidated results of operations or
consolidated financial position.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following selected financial data should be read in conjunction
with ObjectShare's financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The selected financial data presented
below under the captions "Statement of Operations Data" for the years ended
March 31, 1997, 1998 and 1999 and "Balance Sheet Data" as of March 31, 1997,
1998 and 1999 are derived from the financial statements of ObjectShare, which
have been audited by Ernst & Young, LLP, independent auditors. The selected
financial data presented below for the six months ended September 30, 1998 and
1999, are derived from the unaudited financial statements of ObjectShare. The
unaudited financial statements have been prepared by ObjectShare on a basis
consistent with ObjectShare's audited financial statements and in the opinion of
management include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of ObjectShare's operating results
and financial position for the periods and dates to which such statements are
related. Historical results are not necessarily indicative of future results of
operations.
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<PAGE> 94
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
OBJECTSHARE, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED MARCH 31,
---------------------- ------------------------------------
1999 1998 1999 1998 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net revenues:
Service $ 4,074 $ 5,059 $ 10,426 $ 12,068 $ 17,138
License 1,464 2,547 5,380 8,172 20,148
-------- -------- -------- -------- --------
Total net revenues 5,538 7,606 15,806 20,240 37,286
Cost of net revenues:
Cost of service 2,586 2,367 5,705 7,569 10,379
Cost of license 543 445 1,737 1,626 5,537
-------- -------- -------- -------- --------
Total cost of net revenues 3,129 2,812 7,442 9,195 15,916
-------- -------- -------- -------- --------
Gross profit 2,409 4,794 8,364 11,045 21,370
Operating expenses:
Sales and marketing 2,466 3,163 6,719 7,684 19,465
Research and development 824 2,024 3,542 4,648 8,904
General and administrative 1,691 1,231 3,281 3,956 7,436
Acquired research and development -- -- -- -- 3,513
Restructuring and merger-related costs (166) (166) 2,621 5,162
-------- -------- -------- -------- --------
Total operating expenses 4,981 6,252 13,376 18,909 44,480
-------- -------- -------- -------- --------
Operating income/(loss) from operations (2,572) (1,458) (5,012) (7,864) (23,110)
Interest and other income, net 3,102 141 160 313 725
-------- -------- -------- -------- --------
Income/(loss) before provision for income taxes 530 (1,317) (4,852) (7,551) (22,385)
Provision (benefit) for income taxes -- (49) (13) 31 95
-------- -------- -------- -------- --------
Net income/(loss) $ 530 $ (1,268) $ (4,839) $ (7,582) $(22,480)
======== ======== ======== ======== ========
Basic and diluted net income/(loss) per share $ 0.04 $ (0.10) $ (0.39) $ (0.63) $ (1.91)
Shares used in computing basic and diluted
net income/(loss) per share 12,441 12,268 12,308 12,022 11,775
As of September 30, As of March 31,
---------------------- ------------------------------------
1999 1998 1999 1998 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents $ 774 2,983 1,675 5,134 7,418
Working capital $ 156 2,165 (1,366) 3,420 8,108
Total assets $ 3,430 8,446 7,712 13,255 23,872
Long term debt $ 76 -- 103 -- --
Stockholders' equity $ 726 3,713 124 4,792 12,272
</TABLE>
The following should be read in conjunction with ObjectShare's
condensed financial statements and notes thereto for the six months ended
September 30, 1999 and the consolidated financial statements for the three years
ended March 31, 1999.
OVERVIEW
ObjectShare provides a comprehensive range of training and consulting
services supporting object-oriented application developments for use in
distributed client/server/web applications.
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<PAGE> 95
Prior to September 1999, ObjectShare also sold software and related
support. ObjectShare's primary products were VisualWorks, VisualWave and
Distributed Smalltalk, which are application development environments ("ADEs")
based on the Smalltalk programming language. ObjectShare has over the last
fiscal year, sold off certain of its rights and assets related to its former
products sales. See "--Recent Sales Transactions." ObjectShare is now focusing
exclusively on its training and consulting business.
RECENT SALE TRANSACTIONS
JAVA/SEAGULL TRANSACTION
On April 8, 1999, ObjectShare completed the sale of certain rights and
assets to Seagull Software Systems, Inc. ("Seagull") in exchange for
approximately $725,000 in cash and the assumption of liabilities in the
approximate amount of $96,000. These rights and assets consisted of, among other
things: ObjectShare's proprietary computer software application development
environments, including VisualSmalltalk and PARTS for Java, a visual programming
environment based on Java programming language; products currently in
development to support Enterprise JavaBeans and legacy software system
integration; all technology, warranties, documentation and other intellectual
property rights of ObjectShare related to such software; as well as certain
personal property. Pursuant to a software license agreement between ObjectShare
and Seagull, Seagull licensed back to ObjectShare: the rights to continue to
provide support and maintenance and to sell the VisualSmalltalk product line;
and the rights to (a) sell, for a period of one year, and (b) provide support
and maintenance, perpetually, the PARTS for Java product line. The sale of these
assets resulted in a gain of $483,000 for ObjectShare which is included in Other
Income.
SMALLTALK/CINCOM TRANSACTION
On August 30, 1999, ObjectShare completed the sale of certain rights
and assets to Cincom Systems, Inc. ("Cincom"), in exchange for approximately
$425,000 in cash, the assumption of certain liabilities, and guaranteed
royalties of approximately $500,000. These rights and assets consisted of, among
other things, ObjectShare's proprietary computer software known generally as
Smalltalk, and other intellectual property rights of ObjectShare related to such
software and certain personal property. Pursuant to this transaction, Cincom
agreed to allow ObjectShare the rights to continue to use the software for
training and consulting purposes and to sell the Smalltalk product line. In
addition, Cincom assumed the future obligations under certain other agreements.
The liabilities assumed by Cincom included ongoing maintenance and support,
certain capital leases, and accrued vacation and others, which were recorded on
the books of ObjectShare at approximately $2,100,000. The actual cost to perform
these obligations may be less than the amounts recorded. The sale of these
assets resulted in a gain of $2,538,000 for ObjectShare which is included in
Other Income.
EUROPEAN TRANSACTION
On November 24, 1999, ObjectShare completed the sale of all of the
stock of ObjectShare, Gmbh, a German corporation, and ObjectShare (U.K.)
Limited, an English corporation (collectively, the "Subsidiaries"), to Valtech
S.A. a French societe anonyme and its wholly-owned subsidiary Valtech Limited,
respectively, in exchange for total consideration of (a) approximately
$1,600,000 in cash and (b) the cancellation of certain intercompany indebtedness
owed by the Subsidiaries to ObjectShare. As a result of this transaction,
ObjectShare has no operations in Europe, with its remaining operations
consisting primarily of providing training and consulting services in the United
States.
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<PAGE> 96
As a result of these transactions, ObjectShare's remaining operations
consist primarily of providing training and consulting services.
FACTORS WHICH MAY AFFECT FUTURE RESULTS
In addition to the other information set forth in this report, the
following are certain risks that should be considered with regard to ObjectShare
and its common stock.
DECREASED ACCEPTANCE OF SMALLTALK
ObjectShare's training and consulting services are largely based on
object oriented analysis, design and development programming languages, which
includes both Java and Smalltalk. Previously, these services were based
primarily on Smalltalk which was a major factor in ObjectShare's sales decline
in recent years due in large part to corporate users' reluctance to make new
and/or additional investments in Smalltalk-based applications. This reluctance
correlates to the perception that Java has emerged as the leading programming
language for future object-oriented application development. Corporate users'
reluctance to invest in Smalltalk was further compounded by ObjectShare's
declining sales and recurring operating losses from fiscal 1996 through fiscal
1999.
LOSS OF AND DEPENDENCE ON KEY PERSONNEL
ObjectShare has in the last nine months lost a total of 97 personnel,
primarily due to the sale transactions mentioned above. ObjectShare's future
success depends upon its ability to attract and retain highly qualified
personnel. Loss of key personnel or inability to hire and retain qualified
personnel could have a material adverse effect on ObjectShare's business and
results of operations. Competition for qualified personnel is intense and has
recently intensified in ObjectShare's geographic and industry segments. The loss
of key personnel or an inability to hire qualified personnel will adversely
affect ObjectShare's business and results of operations.
NEED FOR CONTINUED ACCEPTANCE OF OBJECT-ORIENTED TECHNOLOGY
ObjectShare currently derives substantially all of its revenue from
consulting and training services focused on object-oriented application
development environments and expects this concentration to continue for the
foreseeable future. As a result, any factor adversely affecting the demand for,
or pricing of, object-oriented application development environments and related
services, would have a material adverse effect on ObjectShare's business and
results of operations. In addition, the future success of ObjectShare's current
product family depends upon continued market acceptance of object-oriented
technology, particularly continued investment by corporate users in developing
mission-critical applications. Because object-oriented technology represents a
fundamental shift in programming methodology, it requires a substantial
investment in the retraining of programmers, which can discourage organizations
from choosing object-oriented tools. Even if organizations choose to make the
investment required to use object-oriented technology, there can be no assurance
that they will choose products based on the Smalltalk language, such as
ObjectShare's services, or that ObjectShare will be successful in the market for
object-oriented application development environments, which is already crowded
with larger and better-funded competitors such as Oracle, IBM, Sun Microsystems
and Symantec. There are a number of potential approaches to implementing object
technology, including the use of languages other than Smalltalk, such as C++,
object extensions of COBOL, Java, object-based third-generation programming
languages ("3GLs"), and other new languages and software tools that may
currently be under development or that may be developed in the future.
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<PAGE> 97
NEED FOR CONTINUED ACCEPTANCE OF OBJECTSHARE'S LEGACY
ObjectShare has built its training and consulting practice based in
part on its expertise as a developer of Smalltalk and related tools. There can
be no assurance that, now that ObjectShare is no longer a developer, the
marketplace will not choose a competitor who is also a developer to provide
training and consulting services.
FLUCTUATIONS IN QUARTERLY RESULTS
ObjectShare has experienced significant quarterly fluctuations in
operating results and anticipates such fluctuations in the future. Service
revenues tend to fluctuate as consulting projects, which may continue over
several quarters, are undertaken or completed. Training revenues may fluctuate,
as there are normally periods of time between classes for preparation and
development of new courseware. Because ObjectShare's staffing and other
operating expenses are based on anticipated revenues, operating results will be
adversely affected if the anticipated level of revenues is not realized in the
expected quarter or over the course of the year. ObjectShare's results in recent
quarters are not necessarily indicative of future results and ObjectShare
believes that period-to-period comparisons of its financial results should not
be relied upon as the sole indicator of future performance, although such
comparisons may be useful in establishing an overall trend in financial results.
For reasons discussed above, ObjectShare will no longer generate license related
revenue.
VOLATILITY OF STOCK PRICE
The market for ObjectShare common stock is highly volatile. The trading
price of ObjectShare common stock has been and will likely continue to be
subject to wide fluctuations in response to quarterly variations in
ObjectShare's operating results, announcements of new services provided by
ObjectShare or its competitors, general market fluctuations, and other events
and factors. Changes in earnings estimates made by brokerage firms and industry
analysts relating to the market in which ObjectShare does business, or relating
to ObjectShare specifically, have in the past resulted and could in the future
result in an immediate and adverse effect on the market price of ObjectShare
common stock.
On June 23, 1999, ObjectShare common stock was de-listed from the
Nasdaq Stock Market. Currently ObjectShare common stock is traded on the OTC
Bulletin Board under the symbol "OBJS".
TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for software related training and consulting for
client/server/web computing environments is characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
ObjectShare must continually update its existing services to keep them current
with changing customer needs, technology, and competitive products. New
technologies could render existing products obsolete. If ObjectShare is unable
to enhance its existing consulting and training skillsets and develop new
skillsets in response to changing customer requirements, ObjectShare's business
and results of operations will be materially and adversely affected.
In particular, the market for ObjectShare's services has been adversely
affected by the emergence of Java as the dominant language for developing
web-based client applications. Also, the growth of the Internet as a means of
communicating information about competitive products
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has shortened the average development cycle for software. This has caused an
increase in competition in the market for ObjectShare's services. The failure of
others to develop or enhance technologies that are critical to broad public
acceptance and use of the Internet may also affect ObjectShare's ability to
market its services for Internet application development.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
ObjectShare disposed of all significant intellectual property during
the quarter ended September 30, 1999 in connection with several recent sale
transactions (see "Recent Sale Transactions").
DEPENDENCE ON THIRD-PARTY RELATIONSHIPS
In its service offerings, ObjectShare uses certain products and
technologies of various third-party software developers. Such products and
technologies are obtained from the third-party providers under contractual
license agreements, which in some cases are for limited time periods and in some
cases provide that such licenses may be terminated under certain circumstances.
There can be no assurances that ObjectShare will be able to maintain adequate
relations with these third-party providers, that these third-party providers
will commit adequate development resources to maintain these products and
technologies, or that the license agreements that are for limited time periods
will be renewed upon termination. ObjectShare has established a number of
strategic relationships with management consultants, system integrators, and
computer system and software providers. These companies provide software
development, marketing, reselling, and training services that ObjectShare
believes are important to its existing and future business. These relationships
are non-exclusive and may be discontinued at any time.
MANAGING A CHANGING BUSINESS
Since its inception, ObjectShare has experienced changes in its
operations which have placed significant demands on ObjectShare's
administrative, operational, and financial resources. ObjectShare has
experienced both rapid growth and substantial downturns, which have caused
extreme stresses on the organization, both in the immediate term and in the
longer term. In recent years, ObjectShare has implemented a number of
restructurings and reductions in its workforce. As a result, ObjectShare has
incurred a number of risks associated with its reduced operating size and
capabilities. These risks include an increased sensitivity to employee turnover,
with a greater likelihood that turnover would have a significant negative effect
on ObjectShare's operations, potentially causing delays in generating consulting
and training billings and the need for ObjectShare to effectively manage
dramatically changing operations.
LOSS OF REVENUES FROM INTERNATIONAL OPERATIONS
Approximately 31%, 31%, and 32% of ObjectShare's net revenues for the
years ended March 31, 1999, 1998, and 1997, respectively, were attributable to
international sales. Approximately half of these international revenues were
derived from service revenues. As mentioned above, ObjectShare no longer has
operations outside the United States. See "Recent Sale Transactions - European
Transaction."
FUTURE CAPITAL REQUIREMENTS
It is anticipated that ObjectShare will need additional funds to support its
operations during fiscal year 2000. The terms of any equity financing may be
dilutive to ObjectShare's stockholders, and the terms of any debt financing are
likely to contain restrictive covenants which
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limit ObjectShare's ability to pursue certain courses of action. There can be no
assurance that additional funding will be available on acceptable terms, if at
all. If adequate funds are not available, ObjectShare will experience severe
liquidity problems. This matter raises substantial doubt as to ObjectShare's
ability to continue as a going concern.
In connection with the signing of the merger agreement, StarBase has,
pursuant to a Secured Promissory Note, dated November 3, 1999 (the "Note"),
provided ObjectShare a line of credit of up to $500,000. This credit line bears
interest at a prime plus 0.75%, is secured by all assets of ObjectShare, and
matures on October 31, 2000 subject to earlier maturity based upon specified
events. Under the terms of the Note, StarBase may advance, but is not obligated
to advance, loans to ObjectShare following ObjectShare's sale of its previously
held foreign subsidiaries. These subsidiaries were sold on November 29, 1999.
See "Recent Sale Transactions - European Transactions."
As of October 6, 1999, ObjectShare entered into an Accounts Receivable
Purchase Agreement with a bank. This agreement provides ObjectShare with the
ability to sell up to $1,000,000 of eligible receivables to the bank. The bank
will pay ObjectShare 80% of the face value upon the sale and the balance after
subsequent collection by the bank. ObjectShare remains contingently liable for
the collection of these receivables. ObjectShare's obligations are secured by
all of ObjectShare's assets. Fees include an administrative fee of 0.5% of the
amount sold and 1.5% per month on the uncollected balance of the receivables
sold. This replaced the prior credit agreement with the same bank.
Results Of Operations
The following table sets forth for the periods indicated the percentage
of total revenues represented by certain items in ObjectShare's Statements of
Operations:
<TABLE>
<CAPTION>
Six Months Ended
September 30, Year Ending March 31,
----------------- ----------------------------
1999 1998 1999 1998 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total Net Revenues: 100% 100% 100% 100% 100%
Service 74 67 66 60 46
License 26 33 34 40 54
Total Cost of Net Revenues: 57 37 47 45 43
Cost of Service 47 31 36 37 28
Cost of License 10 6 11 8 15
Gross Profit 43 63 53 55 57
Total Operating Expenses: 90 82 85 93 119
Sales and marketing 45 42 43 38 52
Research and development 15 27 22 23 24
General and administrative 31 16 21 20 20
Acquired research and development -- -- -- -- 9
Restructuring and merger related costs -- (2) (1) 13 14
Net income/(loss) from operations (46) (19) (32) (39) (62)
Interest and other income (expense), net 56 2 1 2 2
Income/(loss) before income taxes 10 17 (31) (37) (60)
Provision for income taxes -- * * * *
Net income/(loss) 10 (17) (31) (37) (60)
</TABLE>
- ----------
* Less than one percent.
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SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
Net Revenues. Total net revenues for the six months ended September 30,
1999 were $5.5 million, compared with $7.6 million for the comparable 1998
period. This equates to a decrease of 27%. The decrease is due primarily to a
declining demand for SmallTalk products and related services resulting in
corresponding decreased in license and service revenues. Net revenues are
comprised of service revenues and license revenues.
Service Revenues. Service revenues for the six months ended September
30, 1999 were $4.1 million, or 74% of net revenues, compared with $5.1 million,
or 67% of net revenues, for the comparable 1998 period. This increase in service
revenues as a percentage of total net revenue was driven by the fact that
ObjectShare sold all aspects of its business which produced license revenues in
August 1999. See "--Recent Sales Transactions."
License Revenues. License revenues for the six months ended September
30, 1999 were $1.5 million, or 26% of net revenues, compared with $2.6 million,
or 33% of net revenues, for the comparable 1998 period. This $1.1 million
decrease relates to the fact that in August 1999, ObjectShare sold the portion
of its business which produced significant license revenues. See "--Recent Sales
Transactions.". Also the release of the new 5i version of Visual Works in March
1999, resulted in many customers making or accelerating Smalltalk related
license purchases into March 1999. Smalltalk license sales decreased $1.0
million. The balance of the decrease related to reduced Java license sales.
Cost of Net Revenues. Cost of Net Revenues for the six months ended
September 30, 1999 were $3.1 million, or 57% of net revenues, compared with $2.8
million, or 37% of net revenues, for the comparable 1998 period.
Cost of Service Revenues. Cost of service revenues consists primarily
of salaries, commissions, facility expenses, travel-related expenses, and
advertising. Cost of service revenues for the six months ended September 30,
1999 were $2.6 million, or 63% of related net service revenues, compared with
$2.4 million, or 47% of net service revenues, for the comparable 1998 period.
Cost of service revenues increased for the first six months of fiscal 2000, from
the comparable periods of fiscal 1999, because of an increase in total headcount
in the training, consulting and technical support departments in anticipation of
increased service contracts which did not come to fruition by the first quarter
of fiscal 2000. During the second quarter headcount and related expenses
decreased to more closely match anticipated revenue levels. Expenses related to
support activities also decreased during the second quarter of fiscal 2000 as a
result of the Cincom transaction. See "--Recent Sales Transactions."
Cost of License Revenues. Cost of license revenues is primarily
comprised of the cost of production of ObjectShare's products, related royalties
and the amortization of capitalized software costs. Cost of service revenues for
the six months ended September 30, 1999 were $543,000, or 37% of related net
license revenues, compared with $445,000, or 17% of net license revenues, for
the comparable 1998 period. Costs associated with license revenues increased for
the first six months of fiscal 2000, from the comparable period of fiscal 1999
due primarily to ObjectShare's effecting definitive calculations of future
royalty payments owed by ObjectShare, primarily minimum royalties, now due as a
result of the Cincom transaction. See "--Recent Sales Transactions."
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Operating Expenses. Total operating expenses for the six months ended
September 30, 1999 were $5.0 million, or 90% of net revenues, compared with $6.3
million, or 82% of net revenues, for the comparable 1998 period.
Sales and Marketing. Sales and marketing expenses consisting primarily
of salaries, commissions, travel-related expenses and advertising. Sales and
marketing expenses for the six months ended September 30, 1999 were $2.5
million, or 45% of net revenues, compared with $3.2 million, or 42% of net
revenues, for the comparable 1998 period. The total amount spent decreased as
the Company scaled back its efforts in this area in anticipation of lower sales
levels. Total expense as a percentage of net revenues increased due to the fixed
nature of certain of the costs.
Research and Development. Research and development expenses for the six
months ended September 30, 1999 were $824,000, or 15% of net revenues, compared
with $2.0 million, or 27% of net revenues, for the comparable 1998 period. This
decrease in research and development expense was due to a planned reduction in
research and related headcount. In August 1999, ObjectShare discontinued this
operation as part of the Cincom transaction. See "--Recent Sales Transactions."
General and Administrative. General and administrative expenses for the
six months ended September 30, 1999 were $1.7 million, or 31% of net revenues,
compared with $1.2 million, or 16% of net revenues, for the comparable 1998
period. This increase was largely due to increased reliance on outside services
for the divestitures effected during fiscal year 2000, for required increased
disclosure in the annual Form 10-K, and the hiring of certain investment bankers
and other professionals to assist in identifying strategic options and
downsizing opportunities.
Restructuring and Merger Related Costs. ObjectShare recorded
restructuring costs in the second quarter of fiscal 1998 and the third and
fourth quarters of fiscal 1997. During the six months ended September 30, 1998,
ObjectShare made payments of $267,000 and recorded a return to operations of
reserves of $166,000 provided in prior years for events that were completed in
the current period. ObjectShare utilized the remaining reserve in fiscal 1999.
Interest And Other Income (Expense), Net. Interest and other income
(expense) for the six months ended September 30, 1999 were $3.1 million, or 56%
of net revenues, compared with $141,000, or 2% of net revenues, for the
comparable 1998 period. This substantial increase was due primarily to the $2.5
million gain on the sale related to the Smalltalk/Cincom transaction and the
$483,000 gain related to the Java/Seagull transaction. See "--Recent Sales
Transactions."
Provision For Income Taxes. No provision for income taxes has been
recorded for fiscal 2000, as ObjectShare does not anticipate taxable income for
the year and has operating loss carryforwards in excess of the income reported
for the first six months of fiscal 2000. ObjectShare reported losses for the
first six months of fiscal 1999. It recorded a foreign tax benefit of $49,000 in
fiscal 1999.
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
Net revenues
<TABLE>
<CAPTION>
Year Ended March 31
----------------------------------------------------------------------------
1999 Change 1998 Change 1997 Change
------- ------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
License ............ $ 5,380 (34)% $ 8,172 (59)% $20,148 (36)%
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Service ............ 10,426 (14)% 12,068 (30)% $17,138 (4)%
------- ------- -------
Net Revenues ....... $15,806 (22)% $20,240 (46)% $37,286 (25)%
======= ======= =======
</TABLE>
Net revenues for fiscal 1999, 1998 and 1997 were $15.8 million, 20.2 million
and $37.3 million, respectively, which reflect decreases of 22%, 46% and 25%
from each of the previous years, respectively. The decrease in revenues from
fiscal 1998 to fiscal 1999 is believed by ObjectShare to be due to the following
factors:
- Weakness in the marketplace for Smalltalk products resulting from the
perceived strength of Java;
- Customer concern regarding the viability of ObjectShare in light of four
years of declining sales and recurring operating losses; and
- A shift of focus to Y2K compliance by potential customers with a
resulting delay in development projects.
ObjectShare believes that the decrease in sales from fiscal 1997 to fiscal
1998 was due largely to events occurring in fiscal 1997 that affected results
for fiscal 1998, including:
- Termination of the VisualSmalltalk Enterprise (VSE) product line in
fiscal 1997;
- Elimination of runtime license fees in fiscal 1997;
- Lack of new releases in the core VisualWorks product line;
- Customer concern over the viability of ObjectShare in light of three
years of declining sales and recurring operating losses, led to
significant gains from competitors entering the Smalltalk market,
including IBM; and
- Growing customer perception of the Smalltalk programming language as an
academic/specialty niche tool, correlated to the emergence and
popularity of Java.
License Revenues. License revenues for fiscal 1999, 1998 and 1997 were
$5.4 million, 8.2 million and $20.1 million, respectively, which reflect
decreases of 34%, 59% and 36% from each of the previous years, respectively.
License revenues for fiscal 1999, 1998 and 1997 represented 34%, 40% and 54%,
respectively, of net revenues. These declines are the result of Smalltalk's
weakness in the marketplace and the customer concerns regarding the financial
viability of ObjectShare.
Service Revenues. Service revenues for fiscal 1999, 1998 and 1997 were
$10.4 million, 12.1 million and $17.1 million, respectively, which reflect
decreases 14%, 30% and 4% from each of the previous years, respectively. Service
revenues for fiscal 1999, 1998 and 1997 represented 66%, 60% and 46%,
respectively, of net revenues. The overall downward trend of service revenues is
due to both reduced demand for training and consulting, which is largely driven
by sales of development environments and the emergence of Smalltalk-oriented
consultancies that specialize in custom application/solution development, in
particular industries.
International Revenues. International revenues for fiscal 1999, 1998,
and 1997 were $4.9 million, $6.2 million, and $11.9 million, respectively, which
reflect decreases 21%, 48% and 23% from each of the previous years,
respectively. International revenues for fiscal 1999, 1998 and
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1997 represented 31%, 31%, and 32%, respectively, of net revenues. International
revenues consist primarily of U.S. export sales and European training and
consulting. The decrease in international revenue in fiscal 1999 was due to the
same factors discussed above for worldwide revenues. The 48% decrease in
international revenue in fiscal 1998 was also the result, in part, of the sale
of the French subsidiary in mid year. ObjectShare no longer has any
international operations. See "--Recent Sales Transactions."
Cost Of Net Revenues.
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------------------------------------
1999 Change 1998 Change 1997 Change
-------- ------ -------- ------ -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cost of license revenues .......... $ 1,737 7% $ 1,626 (71)% $ 5,537 (5)%
Percentage of license revenues..... 32.3% 19.9% 27.5%
Cost of service revenues .......... $ 5,705 (25)% $ 7,569 (27)% $ 10,379 (7)%
Percentage of service revenues..... 54.7% 62.7% 60.6%
Total cost of revenues ............ $ 7,442 (19)% $ 9,195 (42)% $ 15,916 (6)%
Percentage of net revenues ........ 47.1% 45.4% 42.7%
</TABLE>
Cost of net revenues is charged to either license revenues or service
revenues. Cost of license revenues, which is primarily comprised of the
production of ObjectShare's products and related royalties, is substantially
lower than cost of service revenues, which consists primarily of personnel
costs. Cost of net revenues for fiscal 1999, 1998, and 1997 were $7.4 million,
$9.2 million, and $15.9 million, respectively, representing 47%, 45%, and 43%,
respectively, of net revenues.
Cost Of License Revenues. Cost of license revenues consists principally
of royalties, materials, packaging and freight, and amortization of capitalized
software costs. Cost of license revenues for fiscal 1999, 1998, and 1997 were
$1.7 million, $1.6 million, and $5.5 million, respectively. Cost of license
revenues increased by 7% in fiscal 1999 compared to the prior year and decreased
by 71% and 5% in fiscal 1998 and fiscal 1997 compared to the prior years,
respectively, due to lower sales of development environments. License gross
profit as a percentage of license revenues in fiscal 1999 decreased to 68%. This
was primarily the result of the write-off of $372,000 of capitalized software
related to VEOS, ObjectShare's middleware product, at the end of fiscal 1999.
License gross profit improved as a percentage of license revenues in fiscal 1998
to 80%, as fiscal 1997 cost of sales were high due to write-offs of purchased
capitalized software, increased royalty accruals, write-offs of obsolete
inventory, and the higher launch cost of sales on Parts for Java.
Cost Of Service Revenues. Cost of service revenues consists principally
of personnel, and related costs for training, consulting and customer support.
Cost of service revenues for fiscal 1999, 1998, and 1997 were $5.7 million, $7.6
million, and $10.4 million, respectively. Overall services headcount and
contract personnel were reduced in fiscal 1998 and in fiscal 1997, although
international services headcount increased in fiscal 1997. In fiscal 1999,
service gross profit increased as a percentage of service revenues to 45%, due
to the full year benefit of the cost reduction actions taken in fiscal 1998.
Operating expenses.
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------------------------------------
1999 Change 1998 Change 1997 Change
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales and marketing ................... $ 6,719 (13)% $ 7,684 (61)% $ 19,465 (12)%
Percentage of net revenues ............ 42.5% 38.0% 52.2%
Research and development .............. $ 3,542 (24)% $ 4,648 (48)% $ 8,904 (14)%
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Percentage of net revenues ............ 22.4% 23.0% 23.9%
General and administrative ............ $ 3,281 (17)% $ 3,956 (47)% $ 7,436 8%
Percentage of net revenues ............ 20.8% 19.5% 19.9%
Acquired research and development ..... -- -- $ 3,513 (N/A)
Percentage of net revenues ............ 9.4%
Restructuring and merger related
costs ................................. (166) (106)% $ 2,621 (49)% $ 5,162 1%
Percentage of net revenues ............ (1.1)% 12.9% 13.8%
Total operating expenses .............. $ 13,376 (29)% $ 18,909 (58)% $ 44,480 0%
Percentage of net revenues ............ 84.6% 93.4% 119.3%
</TABLE>
Operating expenses for fiscal 1999, 1998, and 1997 were $13.4 million, $18.9
million, and $44.5 million, respectively, which reflect decreases of 29%, 58%
and 0% from each of the previous years, respectively. Operating expenses for
fiscal 1999, 1998 and 1997 represented 84.6%, 93.4%, and 119.3%, respectively,
of net revenues. The fiscal 1999 declines reflect the full year impact of the
prior year's reduction of its workforce. In response to declining revenues,
ObjectShare implemented two reductions in the workforce in fiscal 1997, and one
in fiscal 1998. The year-to-year decline in operating expenses reflect these
workforce reductions and lower volume driven expenses such as commissions on
sales.
Sales And Marketing Expenses. Sales and marketing expenses consist
principally of salaries, commissions, travel, facility costs, marketing programs
and advertising. Sales and marketing expenses for fiscal 1999, 1998 and 1997
were $6.7 million, $7.7 million, and $19.5 million, respectively, which reflect
decreases of 13%, 61% and 12% from each of the previous years, respectively.
Sales and marketing expenses for fiscal 1999, 1998 and 1997 represented 42.5%,
38%, and 52.2%, respectively, of net revenues. During fiscal 1999, expenses
continued to decrease as a result of reducing the international sales force, the
effect of the spin-off of the sales subsidiary in France effected in fiscal
1998, and a reduction in marketing personnel. As a percentage of net revenues,
however, these expenses increased to 42.5%. Expense declines in fiscal year 1998
were also a result of the 1997 and 1998 de-layering and workforce reduction
actions.
Research And Development Expenditures. Research and development
expenditures are mostly personnel related. Research and development expenditures
for fiscal 1999, 1998 and 1997 were $3.5 million, $4.7 million, and $8.9
million, respectively, which represents 22%, 23%, and 24%, respectively, of net
revenues. The decrease in fiscal 1999 was due to manpower reductions and the
capitalization of projects, which reached technological feasibility. During the
year, ObjectShare capitalized $495,000 of software development costs related to
its middleware product, VEOS, and $522,000 of costs associated with development
of the internet capable version of ObjectShare's VisualWorks Smalltalk product,
VW5i, as the development of these products reached technological feasibility.
Subsequently, in the fourth quarter of fiscal 1999, the unamortized development
costs related to VEOS were written off and charged to license cost of sales, as
the recoverability of such costs through future revenue did not materialize as
expected. ObjectShare did not capitalize software development costs in fiscal
1998 and fiscal 1997.
General And Administrative Expenses. General and administrative
expenses consist of personnel costs for administration, finance, information
systems, human resources, and general management, as well as professional
service expenses. General and administrative expenses were $3.3 million, $4.0
million, and $7.4 million, respectively, which represents 21%, 20%, and 20%,
respectively, of net revenues. General and administrative expenses decreased in
fiscal 1999 and 1998 primarily due to manpower reductions. The fiscal 1998
decrease was also impacted by a decrease in bad debt allowance. Fiscal 1997
expenses were up 8% from the prior year.
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Acquired Research And Development. Acquired research and development
represents charges for software that had not yet reached technological
feasibility under SFAS 86. In fiscal 1997, a charge of $646,000 was taken in
connection with the October 1996 acquisition of privately held Polymorphic
Software, Inc. and a charge of $2.9 million was taken in connection with the
July 1996 acquisition of privately held ObjectShare Systems, Inc.
Restructuring And Merger Related Costs. Restructuring and merger
related costs for fiscal 1999, 1998 and 1997 were ($166,000), $2.6 million, and
$5.2 million, respectively, which represents (1)%, 13% and 14%, respectively, of
net revenues. The following business combinations and restructurings are
reflected in these figures:
- In February 1996, ObjectShare acquired all the assets of AMiGO S.A, a
French-based distributor of ObjectShare's VisualWorks product. In
September 1997, ObjectShare decided to spin-off the entity to its
management. At the time of the acquisition, which was accounted for as
a purchase, ObjectShare made an initial payment of $688,000. In the
second quarter of fiscal 1998, ObjectShare paid an additional $150,000
in satisfaction of its "earnout" obligation under the acquisition
agreement, in connection with revenues in France in accordance with the
agreement for the specified period. ObjectShare also provided an
additional $100,000 to the spin-off entity as working capital. Most of
the initial purchase price, which included transaction costs, was
allocated to intangible assets (included in other assets), a portion of
which was amortized in fiscal 1997 and the balance of which was written
off in connection with the spin-off. The results of operations of
AMiGO, which have not been material in relation to those of
ObjectShare, are included in the consolidated results of operations for
the period of ownership by ObjectShare.
- On July 31, 1996, ObjectShare acquired ObjectShare Systems, Inc.
("OSI"), a privately held corporation which developed and marketed
add-on products for Smalltalk tools. The acquisition was accounted for
as a purchase in which ObjectShare paid $3.0 million in cash and
assumed options for the purchase of 104,086 shares of ObjectShare
common stock. In connection with the acquisition, ObjectShare recorded
intangible assets of $363,000 and charged to operations $2.9 million
for acquired research and development. In connection with a
restructuring of operations later in fiscal 1997, ObjectShare charged
to operations the unamortized portion of the intangible assets. The
operating results of OSI have been included in ObjectShare's
consolidated results of operations from the date of acquisition.
- On October 1, 1996, ObjectShare acquired Polymorphic Software, Inc.
("PSI"), a privately held corporation which developed and marketed
Smalltalk tools and provided related consulting services. This
acquisition was accounted for as a purchase in which ObjectShare agreed
to pay approximately $1.0 million in cash, of which $700,000 was paid
during the third quarter of fiscal 1997, in exchange for all
outstanding shares of PSI common stock. The operating results of PSI
are included in ObjectShare's consolidated results of operations from
the date of acquisition. In connection with the acquisition,
ObjectShare recorded intangible assets of $403,000 and charged to
operations $646,000 for acquired research and development. In
connection with the restructuring of operations later in fiscal 1997,
ObjectShare charged to operations the unamortized portion of the
intangible assets.
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<PAGE> 106
- Across fiscal 2000, several transaction occurred which are described
under "Recent Sales Transactions."
Restructuring and merger related costs reflect charges recorded in
connection with the restructuring of operations in the second quarter of fiscal
1998, and the third and fourth quarters of fiscal 1997. In the restructurings,
ObjectShare reduced its total headcount by an aggregate of approximately 160
people, including employees and contractors, down to 110 at March 31, 1998.
These actions were taken in an effort to reduce ObjectShare's ongoing operating
expenses. ObjectShare recorded restructuring charges in the second quarter of
fiscal 1998 of $2.6 million and in the third and fourth quarters of fiscal 1997
of approximately $2.2 million and $3.0 million, respectively, to cover severance
benefits, the closing of excess facilities, write-down of acquired intangible
assets related to discontinued products, and the write-down of excess computer
equipment and office furniture.
The fiscal 1998 restructuring costs and 1999 utilization and related
liabilities are summarized below:
<TABLE>
<CAPTION>
Write-Downs, Write-Downs,
Payments, and Accrued Payments, and Accrued
1998 Reclassifications Restructuring Reclassifications Restructuring
Restructuring Through Costs at Through Costs at
Costs March 31, March 31, March 31, March 31,
Provision 1998 1998 1999 1999
------------- ----------------- ------------- ----------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Severance benefits ..................... $ 550 $ 550 $ -- $ -- $ --
Closing of excess facilities ........... 1,395 881 514 514 --
Intangible assets write-down ........... 584 564 20 20 --
Equipment and furniture write-down ..... 68 68 -- -- --
Other .................................. 24 24 -- -- --
------ ------ ------ ------ ------
$2,621 $2,087 $ 534 $ 534 $
====== ====== ====== ====== ======
</TABLE>
In fiscal 1999, ObjectShare completed these restructuring activities
and reversed to operations $166,000 of excess accruals related to the closing of
excess facilities.
Interest and other income, net.
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------------------------------------
1999 Change 1998 Change 1997 Change
------ ------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest and other income, net $ 160 (49)% $ 313 (57)% $ 725 (44)%
Percentage of net revenues 1.0% 1.5% 1.9%
</TABLE>
Interest and other income, net consists primarily of interest earned on
ObjectShare's cash and cash equivalent balances and marketable securities,
offset by interest paid and other expenses. The decrease in fiscal 1999 and 1998
reflects lower interest income from reduced cash, cash equivalent and marketable
securities balances.
The Year 2000
As of January 31, 2000, ObjectShare has experienced no disruptions or
problems regarding the year 2000 changeover. As part of ObjectShare's Y2K plan,
prior to January 1, 2000, ObjectShare tested and sampled internal systems
consisting primarily of desktop and
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<PAGE> 107
network computers, and third-party software utilized in the day-to-day
operations of ObjectShare. All sampling and testing completed by January 1, 2000
indicated all systems were operating as normal, Through January 31, 2000, all of
ObjectShare's internal hardware and software continue to operate as normal and
to-date, all vendors utilized by ObjectShare in its daily operations are
operating normally and have not indicated any Y2K anomalies.
ObjectShare will continue to monitor and oversee all internal operations and be
in contact with its vendors regarding the upcoming dates (such as February 29,
2000) which are identified as presenting potential Y2K issues. Based upon the
successful transition through the January 1, 2000 rollover period, ObjectShare
does not anticipate any problems to materialize.
ObjectShare's expenditures for the Y2K effort were not material and ObjectShare
does not expect to incur any material costs over the next few months in regards
to Y2K.
Liquidity And Capital Resources
ObjectShare's operations have resulted in net losses of $4.8 million,
$7.6 million and $22.5 million during each of the three years ended March 31,
1999, 1998 and 1997, respectively. As of March 31, 1999, ObjectShare has an
accumulated deficit of $49.8 million and ObjectShare's current liabilities
exceed its current assets by $1.4 million. During fiscal 1999 and 1998,
management implemented certain cost reduction and product development actions to
improve ObjectShare's revenues and profitability. These actions included
leveraging and redirecting ObjectShare's technology and consulting resources and
revising the marketing strategy to implement more of a solutions and
services-oriented business model. However, ObjectShare continues to experience
operating losses which have seriously eroded cash reserves.
Although management's goal is to reduce losses and, ultimately, return
ObjectShare to profitability, there can be no assurance that these actions will
allow ObjectShare to achieve profitability. After giving effect to the planned
cost cutting measures, management believes that ObjectShare will still need to
obtain additional sources of financing to satisfy ObjectShare's near-term
operating requirements.
As of September 30, 1999, ObjectShare had cash and cash equivalents
$0.8 million and positive working capital of $0.2 million compared to $1.7
million of cash and cash equivalents and $1.4 million of negative working
capital as of March 31, 1999
ObjectShare used cash in operations of $1.6 million in the six months
ended September 30, 1999 down from the $2.5 million used in the six months ended
September 30, 1998. This reflects the reduced sales level of operations and
related reduced payable and royalty levels. Due to its net losses in fiscal
1999, 1998 and 1997, ObjectShare used $4.1 million, $9.2 million and $9.4
million, respectively, of cash to fund its operating activities. The net cash
used in operating activities in fiscal 1998 was greater than the net loss,
primarily due to the net effect of decreases in accounts payable, accrued
liabilities, accrued restructuring costs, and deferred revenue. Accounts
receivable decreased as a result of reduced revenues.
ObjectShare has no significant capital commitments for fiscal 2000.
Financing activities provided cash of $1.2 million, $.1 million and
$1.3 million for fiscal 1999, 1998 and 1997, respectively. Cash from financing
activities in 1999 was derived primarily from borrowings from ObjectShare's line
of credit with a bank and interest earned on cash equivalents.
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<PAGE> 108
Cash from financing activities in fiscal 1998 and 1997 was derived
primarily from the issuance of common stock under ObjectShare's employee stock
plans.
Cash from investing activities in 1998 and 1997 was derived primarily
from the maturing of marketable securities.
During December 1998, ObjectShare entered into a $5 million line of
credit with a commercial bank that expires in December 1999. Borrowings under
the line, that are secured by ObjectShare's assets including accounts receivable
and intellectual property, are limited to 70% of eligible accounts receivable
and bear interest at the bank prime rate plus a variable percentage adjusted
monthly, ranging from .75% to 1.75% (9.0% at September 30, 1999). At September
30, 1999, ObjectShare was not in compliance with both the quick ratio and
tangible net worth covenants in the line of credit that require ObjectShare to
meet or exceed a predetermined quick ratio and a tangible net worth minimum
level. The bank has not waived these defaults.
On October 28, 1999 ObjectShare paid off substantially all of the
indebtedness under the above credit agreement using the proceeds from the sale
of certain receivables to the bank under an Accounts Receivable Purchase
Agreement. There will be no more advances under the above credit agreement. The
Receivable Purchase Agreement provides the facility to sell up to $1,000,000 of
eligible receivables to the bank. The bank will pay 80% of the face value upon
the sale and the balance after subsequent collection by the bank. ObjectShare
remains contingently liable for the collection of these receivables.
ObjectShare's obligations are secured by all of ObjectShare's assets. Fees
include an administrative fee of 0.5% of the amount sold and 1.5% per month on
the uncollected balance of the receivables sold.
It is anticipated that cash on hand and cash flow from operations will
not be sufficient to support ObjectShare's operations beyond the anticipated
timeframe for the completion of the merger is not completed. There is no
assurance ObjectShare will be able to obtain additional capital on terms
acceptable to ObjectShare or at all. Failure to obtain sufficient levels of
additional capital will result in material liquidity problems for ObjectShare.
These matters raise substantial doubt about ObjectShare's ability to continue as
a going concern.
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<PAGE> 109
BENEFICIAL STOCKHOLDERS OF OBJECTSHARE, INC.
The following table sets forth certain information regarding the beneficial
ownership of ObjectShare common stock of ObjectShare as of December 31, 1999 by:
(i) each person known by ObjectShare to be the beneficial owner of more than 5%
of the outstanding ObjectShare common stock; (ii) each director and executive
officer of ObjectShare; and (iii) all directors and executive officers of
ObjectShare as a group. Unless otherwise indicated, the persons named in this
table have sole voting and sole investment power with respect to all shares
shown as beneficially owned, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
Shares Beneficially Owned
--------- ----------
Name And Address Of Beneficial Owner(1) Number(1) Percent(2)
- --------------------------------------- --------- ----------
<S> <C> <C>
Eugene L. Goda (3) .................................... 650,000 5.2%
Sam Inman III (4) ..................................... 7,916 *
Edward B. Merino (5) .................................. 4,166 *
James H. Smith (6) .................................... 555,000 4.5%
All directors and executive officers as a group
(4 persons)(7) ........................................ 1,217,082 9.8%
</TABLE>
(1) Except as otherwise indicated, (i) the persons named in the table have
sole voting and investment power with respect to all shares of
ObjectShare common stock shown as beneficially owned by them, subject to
community property laws, where applicable and (ii) the address for
persons named in the table is: 16811 Hale Avenue, Suite A, Irvine,
California 92614.
(2) Percentage of ownership is based on 12,470,863 shares of ObjectShare
common stock outstanding on December 31, 1999, and is calculated
pursuant to Rule 13d-3(d)(1) under the Securities Exchange Act of 1934,
as amended.
(3) Includes 650,000 shares issuable upon the exercise of options
exercisable within 60 days of December 31, 1999.
(4) Includes 7,916 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1999.
(5) Includes 4,166 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1999.
(6) Includes 555,000 shares issuable to Mr. Smith upon the exercise of
options exercisable within 60 days of December 31, 1999. Mr. Smith's
address is: c/o 4 Hutton, Centre Drive, Suite 800, Santa Ana, CA 92707.
(7) Includes 1,217,082 shares issuable upon the exercise of options
exercisable within 60 days of December 31, 1999.
98
<PAGE> 110
NAMED EXPERTS
LEGAL MATTERS
Parker Chapin, LLP, New York, New York will pass upon the validity of
the securities offered hereby.
EXPERTS
The financial statements as of March 31, 1998 and for the year then
ended included in this Proxy Statement/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 of StarBase Corporation for the year ended
March 31, 1999, included in this prospectus, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein
(which report expresses an unqualified opinion and includes an explanatory
paragraph referring to substantial doubt about the ability of StarBase
Corporation to continue as a going concern, as described in Note 2 to the
financial statements), and have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of ObjectShare, Inc. at March 31,
1999 and 1998, and for each of the years in the period ended March 31, 999,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors as set forth in their report thereon
(which contains an explanatory paragraph describing conditions that raise
substantial doubt about ObjectShare's ability to continue as a going concern as
described in Note 2 to the consolidated financial statements appearing elsewhere
herein, and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
FINANCIAL ADVISORS
Duff & Phelps acted as financial advisor to ObjectShare in connection
with the merger. Pursuant to the terms of its engagement, ObjectShare has agreed
to pay Duff & Phelps $125,000 certain fees for its financial advisory services
provided in connection with the merger. In addition, ObjectShare has agreed to
indemnify Duff & Phelps and certain related persons against certain liabilities,
including certain liabilities under the federal securities laws, relating to, or
arising out of, its engagement.
First Security Van Kasper acted as StarBase's financial advisor in
connection with the merger. Pursuant to the terms of its engagement, StarBase
has agreed to pay FSVK certain fees for its financial advisory services provided
in connection with the merger. In addition, StarBase has agreed to indemnify
FSVK and certain related persons against certain liabilities, including certain
liabilities under the federal securities laws, relating to, or arising out of,
its engagement.
NEITHER STARBASE NOR OBJECTSHARE HAS AUTHORIZED ANY DEALER, SALESPERSON
OR ANY OTHER PERSON TO GIVE ANY INFORMATION OR TO REPRESENT ANYTHING NOT
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. YOU MUST NOT RELY ON ANY
UNAUTHORIZED INFORMATION. THIS PROXY STATEMENT/PROSPECTUS DOES NOT OFFER TO SELL
OR BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS
99
<PAGE> 111
UNLAWFUL. THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS CURRENT AS OF
_____________ 2000.
100
<PAGE> 112
OTHER MATTERS
ObjectShare knows of no other business that will be presented for
action by its stockholders at the special meeting. If other business is properly
presented for consideration at the special meeting, the enclosed proxy
authorizes the person named therein to vote the shares in their discretion.
WHERE YOU CAN FIND MORE INFORMATION
StarBase and ObjectShare are subject to the informational requirements
of the Securities Exchange Act of 1934 (the "Exchange Act"), and, in accordance
therewith, file periodic reports, proxy statements and other information with
the SEC relating to their business, financial statements and other matters. You
can inspect and copy reports and proxy and information statements filed pursuant
to Sections 14(a) and 14(c) of the Exchange Act and other information filed with
the SEC as well as copies of the Registration Statement, of which this
Prospectus/Proxy Statement is a part, at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549, and at the following Regional Offices of the SEC:
Midwest Regional Office, 500 West Madison Avenue, Suite 1400, Chicago, Illinois
60661; and Northeast Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048. You can also obtain copies of such material at prescribed
rates from the Public Reference Section of the SEC at its principal office at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, (800) 732-0330.
In addition, the SEC maintains a Web site that contains reports, proxy and
information statements and other information that StarBase and ObjectShare file
electronically with the SEC. The SEC's Web site address is http:\\www.sec.gov.
StarBase has filed with the SEC a Registration Statement on Form S-4
with respect to the securities to be issued to ObjectShare' stockholders in the
merger. This Prospectus/Proxy Statement also constitutes the prospectus of
StarBase filed as part of the Registration Statement and does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. Statements made in this Prospectus/Proxy Statement as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, we refer you to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. You may
inspect and copy the Registration Statement and any amendments thereto,
including exhibits filed as part thereof, at the SEC's offices as described
above.
StarBase and ObjectShare incorporate herein by reference additional
documents that either company may file with the SEC between the date of this
Proxy Statement/Prospectus and the date of the ObjectShare special meeting.
These documents include periodic reports, such as Annual Reports on From 10-K,
Quarterly Reports on Form 10-Q and Current Reports on From 8-K, as well as proxy
statements.
You can obtain any of the documents incorporated by reference in this
document from StarBase or ObjectShare, as the case may be, or from the SEC
through the SEC's web site at the address provided above. Documents incorporated
by reference are available from the companies without charge, excluding any
exhibits to those documents unless the exhibit is specifically incorporated by
reference as an exhibit in this Proxy Statement/Prospectus. You can obtain
documents incorporated by reference in this Proxy Statement/Prospectus by
requesting them in writing or by telephone from the appropriate company at the
following addresses.
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<PAGE> 113
FOR STARBASE DOCUMENTS: FOR OBJECTSHARE DOCUMENTS:
StarBase Corporation MacKenzie Partners, Inc.
4 Hutton Centre Drive, Suite 800 156 Fifth Avenue
Santa Ana, California, 92707 New York, New York 10010
(714) 445-4400 (212) 929-5500 (Call Collect) or
CALL TOLL-FREE (800) 322-2885
If you would like to request documents related to either ObjectShare or
StarBase, please do so by _________, 2000 in order to receive them before the
ObjectShare special meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS
DATED __________, 2000. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN
THE PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE,
AND NEITHER THE MAILING OF THE PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOT
THE ISSUANCE OF STARBASE COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION
TO THE CONTRARY.
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<PAGE> 114
APPENDIX A
AGREEMENT AND PLAN OF MERGER
<PAGE> 115
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. THE MERGER....................................................................1
1.1. The Merger....................................................................1
1.2. Effective Date................................................................1
1.3. Effect of the Merger..........................................................1
1.4. Certificate of Incorporation; By-Laws.........................................2
1.5. Directors and Officers of the Surviving Corporation...........................2
1.6. Conversion of Securities......................................................2
1.7. Closing of Transfer Books.....................................................4
1.8. Exchange of Certificates......................................................4
2. REPRESENTATIONS AND WARRANTIES AS TO OBJS............................................5
2.1. Organization, Standing and Power..............................................5
2.2. Capitalization................................................................6
2.3. Interests in Other Entities...................................................6
2.4. Authority.....................................................................6
2.5. Noncontravention..............................................................7
2.6. Litigation....................................................................8
2.7. Compliance with Law...........................................................8
2.8. Financial Statements; SEC Filings; Books and Records..........................9
2.9. Absence of Undisclosed Liabilities............................................9
2.10. Accounts Receivables; Inventories............................................10
2.11. Properties...................................................................10
2.12. Intellectual Property........................................................11
2.13. Systems and Software.........................................................11
2.14. Insurance....................................................................12
2.15. Tax Matters..................................................................12
2.16. Employee Arrangements........................................................16
2.17. Certain Business Matters.....................................................18
2.18. Certain Contracts............................................................18
2.19. Customers and Suppliers......................................................18
2.20. Approvals/Consents...........................................................19
2.21. Registration Statement; Blue Sky Filings; Proxy Statement; Other
Information..................................................................19
2.22. Transactions with Affiliated Parties.........................................20
2.23. Information as to OBJS.......................................................20
3. REPRESENTATIONS AND WARRANTIES AS TO STARBASE AND SUBSIDIARY........................20
3.1. Organization, Standing and Power.............................................20
3.2. Capitalization...............................................................21
3.3. Merger Consideration.........................................................21
</TABLE>
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<PAGE> 116
<TABLE>
<S> <C> <C>
3.4. Authority....................................................................21
3.5. Noncontravention.............................................................22
3.6. Securities and Exchange Commission Filings; Financials.......................22
3.7. Registration Statement; Blue Sky Filings; Proxy Statement;
Other Information..............................................23
3.8. Litigation...................................................................23
3.9. Compliance with Law..........................................................24
3.10. Absence of Undisclosed Liabilities...........................................24
3.11. Information as to StarBase and Subsidiary....................................24
4. COVENANTS...........................................................................24
4.1. Investigation................................................................24
4.2. Consummation of Transaction..................................................25
4.3. Cooperation/Further Assurances...............................................25
4.4. Accuracy of Representations, Notification....................................26
4.5. Broker.......................................................................26
4.6. Registration Statement. ................................................26
4.7. Proxy Statement; Meeting.....................................................27
4.8. Conduct of the Business Prior to the Effective Date..........................27
4.9. No Shop......................................................................30
4.10. Certification of Stockholder Vote............................................30
4.11. Smith Employment/Goda Stock Options..........................................31
4.12. OBJS Voting Agreement........................................................31
4.13. Fees and Expenses............................................................31
4.14. Insurance/Indemnity Agreements...............................................31
4.15. OBJS Subsidiaries' Bank Accounts and Corporate Books and Records.............32
4.16. Severance Payments...........................................................32
4.17. Lock-Up Arrangement .........................................................32
4.18. Rule 16b-3 Exemption.........................................................32
5. CONDITIONS OF MERGER................................................................32
5.1. Conditions to Each Party's Obligation to Effect the Merger.....................32
5.2. Conditions to the Obligation of OBJS to Effect the Merger....................33
5.3. Conditions to Obligations of StarBase and Subsidiary to Effect the
Merger.......................................................................34
6. TERMINATION, AMENDMENT AND WAIVER...................................................35
6.1. Termination..................................................................35
6.2. Termination Fee..............................................................36
6.3. Waiver.......................................................................37
7. GENERAL PROVISIONS..................................................................37
7.1. Survival.....................................................................37
7.2. Publicity....................................................................37
</TABLE>
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<PAGE> 117
<TABLE>
<S> <C> <C>
7.3. Notices......................................................................37
7.4. Severability.................................................................38
7.7. Entire Agreement.............................................................38
7.8. Amendment....................................................................39
7.9. No Assignment................................................................39
7.10. Governing Law................................................................39
7.12. Counterparts.................................................................39
</TABLE>
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<PAGE> 118
SCHEDULES
Schedule 2.1 -- Foreign Jurisdictions
Schedule 2.2(c) -- OBJS Options
Schedule 2.3 -- Subsidiaries of OBJS
Schedule 2.5 -- Noncontravention
Schedule 2.6 -- OBJS Litigation/Product Liability Claims
Schedule 2.8 -- OBJS Reports/Financial Statements
Schedule 2.9 -- Undisclosed Liabilities of OBJS
Schedule 2.11 -- Real and Personal Property
Schedule 2.12 -- Intellectual Property
Schedule 2.13 -- Systems and Software
Schedule 2.14 -- Insurance Policies
Schedule 2.15 -- Tax Matters
Schedule 2.16(a) -- OBJS Employment Agreements
Schedule 2.16(b) -- OBJS Employment Benefit Plans
Schedule 2.16(c) -- OBJS Labor Matters
Schedule 2.17(a) -- OBJS Business Related Contracts
Schedule 2.17(b) -- OBJS Business Matters
Schedule 2.18 -- Certain Other Contracts of OBJS
Schedule 2.19(a) -- OBJS Customers/Suppliers
Schedule 2.19(b) -- Adverse Customer/Supplier Matters
Schedule 2.20 -- Consents and Approvals
Schedule 2.22 -- Affiliated Transactions
Schedule 3.6 -- StarBase SEC Filings
Schedule 3.8 -- StarBase Litigation/Product Liability Claims
Schedule 3.10 -- Undisclosed Liabilities of StarBase
Schedule 4.8 -- OBJS Conduct of Business
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<PAGE> 119
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of November 3, 1999 (the
"Agreement"), by and among STARBASE CORPORATION, a Delaware corporation
("StarBase"); OBJS ACQUISITION CORP., a Delaware corporation and a wholly-owned
subsidiary of StarBase ("Subsidiary"); and OBJECTSHARE, INC., a Delaware
corporation ("OBJS").
W I T N E S S E T H :
WHEREAS, OBJS is engaged in the provision of software related customer
support, training and consulting services, either on its own accord or acting
through its subsidiaries or affiliates set forth in Schedule 2.3 hereof (the
"Business");
WHEREAS, the Boards of Directors of StarBase and of Subsidiary, and
StarBase, as the sole stockholder of Subsidiary, as well as the Board of
Directors of OBJS and the stockholders of OBJS have (or shall have on or before
the Effective Date) (a) determined that it is in the best interests of their
respective companies for OBJS to be merged with and into Subsidiary upon the
terms and subject to the conditions set forth herein and (b) approved the merger
of OBJS with and into Subsidiary (the "Merger") in accordance with the General
Corporation Law of the State of Delaware ("Delaware Law"), and upon the terms
and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
parties hereto do hereby agree as follows:
1. THE MERGER.
1.1. The Merger. At the Effective Date (as defined in Section 1.2),
and subject to and upon the terms and conditions of this Agreement and Delaware
Law, OBJS shall be merged with and into Subsidiary, the separate corporate
existence of OBJS shall cease, and Subsidiary shall continue as the surviving
corporation. Subsidiary, as the surviving corporation after the Merger, is
hereinafter sometimes referred to as the "Surviving Corporation."
1.2. Effective Date. StarBase, Subsidiary and OBJS shall cause the
Merger to be consummated by filing a Certificate of Merger (the "Certificate of
Merger") with the Secretary of State of the State of Delaware and making such
other filing as may be required by Delaware Law, in such form as required by and
executed in accordance with such laws (the time of the last such filings to be
made being the "Effective Date").
1.3. Effect of the Merger. At the Effective Date, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting
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<PAGE> 120
the generality of the foregoing, and subject thereto, at the Effective Date, all
the rights, privileges, powers, franchises and all property (real, personal and
mixed) of OBJS and all debts due OBJS shall vest in Subsidiary, and all debts,
liabilities, obligations and duties of OBJS shall become the debts, liabilities,
obligations and duties of Subsidiary.
1.4. Certificate of Incorporation; By-Laws.
(a) The Certificate of Incorporation of Subsidiary, as in effect
immediately prior to the Effective Date, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law or such Certificate of Incorporation.
(b) The By-Laws of Subsidiary, as in effect immediately prior to
the Effective Date, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of the
Surviving Corporation or By-Laws.
1.5. Directors and Officers of the Surviving Corporation. The officers
and directors of the Subsidiary immediately prior to the Effective Date shall be
the officers and directors of Surviving Corporation immediately after
consummation of the Merger, which directors and officers shall serve as such in
accordance with applicable law, the Certificate of Incorporation and By-Laws of
the Surviving Corporation until their resignation, removal or replacement.
1.6. Conversion of Securities. At the Effective Date, by virtue of the
Merger and without any action on the part of StarBase, Subsidiary or OBJS:
(a) Each issued and outstanding share of the OBJS Stock (as
defined in Section 2.2 hereof), other than Dissenting Stock (as defined below)
or shares of OBJS Stock held in treasury of OBJS as of the Effective Date, shall
be automatically converted into the right to receive consideration per share
(the "Merger Consideration") consisting of that number of shares of StarBase
Common Stock (as defined in Section 3.2 hereof), determined by dividing (i) a
fraction, (A) the numerator of which shall be the OBJS Enterprise Value (as
defined below), as adjusted, and (B) the denominator of which shall be the
number of issued and outstanding shares of OBJS Stock (including Dissenting
Stock, if any, but excluding that number of shares of OBJS Stock, if any, issued
pursuant to Section 4.16 hereof) other than shares of OBJS Stock held in
treasury by (ii) $2.00, subject to adjustment as appropriate to account for any
split, combination or reclassification with respect to the StarBase Common
Stock. Anything to the contrary contained herein notwithstanding, the Merger
Consideration shall not be (x) less than the quotient determined by a dividing a
fraction, the numerator of which shall be $6,150,000 and the denominator which
shall be the number of outstanding shares of OBJS Stock (including Dissenting
Stock, if any, but excluding that number of shares of OBJS Stock, if any, issued
pursuant to Section 4.16 hereof), by the average closing price of StarBase
Common Stock as reported on the Nasdaq SmallCap Market for the three (3) trading
days immediately prior to that date which is one (1) business day prior to the
Effective Date (the "StarBase Closing Market Price") or (y) greater than the
quotient determined by dividing a fraction, the numerator of which shall be
$8,850,000 and the denominator which shall be the number of outstanding shares
of
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OBJS Stock (including Dissenting Stock, if any, but excluding that number of
shares of OBJS Stock, if any, issued pursuant to Section 4.16 hereof), by the
StarBase Closing Market Price. The number of StarBase Common Stock (or portion
thereof) issuable for each share of OBJS Stock as herein provided shall be
hereinafter referred to as the "Merger Exchange Ratio."
For purposes hereof, the "OBJS Enterprise Value" shall equal
$7,500,000 less the Enterprise Value Adjustment Amount (as defined herein), if
any. "Enterprise Value Adjustment Amount" shall mean the amount by which the sum
of OBJS' (on a consolidated basis): (1) accounts receivable (net of allowances
for doubtful accounts consistent with generally accepted accounting principles
("GAAP") and OBJS' prior practices) and (2) cash and cash equivalents minus (A)
indebtedness for borrowed money minus (B) accounts payable, (C) accrued
liabilities (including employee severance not to exceed $500,000 in aggregate
value, OBJS' portion of the premiums with respect to each Insurance Policy (as
defined in Section 4.14 hereof) but excluding capitalized leases and deferred
revenue) and (D) to the extent that the cash proceeds realized from any European
Transaction (as defined in Section 4.8 hereof), net of any expenses incurred in
connection therewith, are less than $1.8 million, an amount equal to the
difference between $1.8 million and the actual net proceeds realized with
respect to such European Transaction (each of items (1), (2) and (A) - (D) an
"Enterprise Value Factor"), each as determined in accordance with GAAP and as
evidenced by the balance sheet for OBJS on a consolidated basis at two business
days prior to the Effective Date (the "Closing Balance Sheet"), exceeds a
negative balance of $1,600,000. For purpose of calculating the OBJS Enterprise
Value, "cash and cash equivalents" shall also include all cash proceeds received
by OBJS from the holders of OBJS Options (as defined in Section 1.6(c) hereof)
with respect to the exercise of their respective OBJS Options on or before the
date of the Closing Balance Sheet. Notwithstanding the provisions of this
paragraph, the Closing Date Balance Sheet shall reflect the assets and
liabilities of the European operations as of the day prior to the European
Transaction as though such assets and liabilities were part of OBJS as of the
Closing Date Balance Sheet and an amount equal to the net proceeds received by
OBJS from the European Transaction shall be treated as an accrued liability on
the Closing Date Balance Sheet.
(b) All shares of the OBJS Stock surrendered in exchange for
shares of StarBase Common Stock, shall be canceled and extinguished by OBJS.
(c) Any option exercisable or exchangeable into shares of OBJS
Stock and outstanding as of the Effective Date (the "OBJS Options"), a complete
and accurate list of which is set forth in Schedule 2.2(c), shall be canceled
and extinguished without any conversion thereof and no payment shall be made
with respect thereto; it being acknowledged hereby that StarBase may grant, on a
case by case basis, options to purchase shares of StarBase Common Stock (the
"StarBase Merger Options") to certain holders of OBJS Options in connection with
this Merger. As of the Effective Date, StarBase shall have reserved sufficient
shares of StarBase Common Stock for issuance of the required number of shares of
StarBase Common Stock pursuant to the exercise of any StarBase Merger Options.
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(d) Any shares of the capital stock of OBJS held in the treasury
of OBJS shall be canceled and extinguished without any conversion thereof and no
payment shall be made with respect thereto.
(e) No fractional shares of StarBase Common Stock shall be issued
in connection with the Merger but, in lieu thereof, each holder of OBJS Stock
who would otherwise be entitled to a fraction of a share of StarBase Common
Stock (after aggregating all fractional shares of StarBase Common Stock to be
received by such holder) will be entitled to receive from StarBase an amount of
cash (rounded to the nearest whole US $0.01) equal to the product of (i) such
fraction of a share multiplied by (ii) the StarBase Closing Market Price.
(f) From and after the Effective Date, the holders of
certificates evidencing ownership of OBJS Stock shall cease to have any rights
with respect to such stock, except as otherwise provided herein or by law.
(g) Notwithstanding any provision of this Agreement to the
contrary, shares of the OBJS Stock with respect to which appraisal rights have
been demanded and perfected in accordance with Section 262(d) of Delaware Law
(the "Dissenting Stock") shall not be converted into the right to receive the
Merger Consideration at or after the Effective Date, and the holder thereof
shall be entitled only to such rights as are granted by Delaware Law.
Notwithstanding the preceding sentence, if any holder of shares of the OBJS
Stock who demands appraisal of such shares under Delaware Law shall effectively
withdraw his demand for such appraisal (in accordance with Section 262(k) of
Delaware Law) or becomes ineligible for such appraisal (through failure to
perfect or otherwise) then, as of the Effective Date or the occurrence of such
event, whichever is the last to occur, such holder's Dissenting Stock shall
cease to be Dissenting Stock and shall be converted into and represent the right
to receive the Merger Consideration, without interest thereon, as provided in
this Section 1.6. OBJS shall give StarBase and Subsidiary (i) prompt notice of
any written demands for appraisal, withdrawals of demands for appraisal and any
other instrument served pursuant to Section 262 of Delaware Law received by OBJS
and (ii) the opportunity to participate in all negotiations and proceedings with
respect to demands for appraisal under such Section.
(h) Each share of the capital stock of Subsidiary issued and
outstanding at the Effective Date shall remain outstanding as fully paid and
nonassessable shares of the common stock of the Surviving Corporation.
(i) The Merger Exchange Ratio shall be adjusted as may be
necessary and appropriate to reflect any and all stock splits, reverse stock
splits, reclassifications and similar capital events that affect the StarBase
Common Stock.
1.7. Closing of Transfer Books. At the Effective Date, the stock
transfer books of OBJS shall be closed and there shall be no further
registration of transfers of any shares of the capital stock of OBJS thereafter
on its records.
1.8. Exchange of Certificates. At least five days prior to the mailing
of the Proxy Statement (as defined in Section 4.7 hereof), Subsidiary shall,
subject to the reasonable
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approval of OBJS, designate an exchange agent (the "Exchange Agent") to effect
the exchange for StarBase Common Stock of certificates that, prior to the
Effective Date, represented shares of OBJS Stock entitled to the Merger
Consideration. As soon as practicable after the Effective Date, the Exchange
Agent shall send a notice and transmittal form to each holder of record of OBJS
Stock immediately prior to the Effective Date advising such holder of the
effectiveness of the Merger and the procedure for surrendering to the Exchange
Agent (who may appoint forwarding agents with the approval of Subsidiary) the
certificates to be exchanged pursuant to the Merger. Upon the surrender for
exchange of such a certificate, together with instructions thereto and such
other documents as may be required pursuant to such instructions, the holder
shall receive the Merger Consideration. After the Effective Date, until so
surrendered and exchanged, each certificate which immediately prior to the
Effective Date represented outstanding shares of the OBJS Stock (other than
Dissenting Stock) shall represent solely the right to receive the Merger
Consideration.
2. REPRESENTATIONS AND WARRANTIES AS TO OBJS.
OBJS hereby represents and warrants to StarBase and Subsidiary, as
follows:
2.1. Organization, Standing and Power.
(a) OBJS is a corporation duly organized, validly existing and in
good standing under the laws of Delaware, with full corporate power and
authority to own, lease and operate its properties and to carry on the Business,
as presently conducted by it. Except as set forth on Schedule 2.1, OBJS is duly
qualified and is in good standing as a foreign corporation in all states or
jurisdictions in which the character and location of any of the properties owned
or leased by OBJS, or the conduct of its Business, makes it necessary for it to
qualify to do business as a foreign corporation and where it has not so
qualified, except for those jurisdictions in which the failure to so qualify
would not have a Material Adverse Effect (as defined in Section 2.5 hereof) on
the Business or operations of OBJS. Copies of the Certificate of Incorporation
of OBJS and all amendments thereof and the By-laws of OBJS, as amended to date,
have been made available to StarBase and are complete and correct. OBJS's minute
books heretofore made available to StarBase contain complete and accurate
records of all meetings and other corporate actions of its stockholders and
board of directors (including committees of its Board of Directors).
(b) Each of the OBJS Subsidiaries (as defined in Section 2.3
hereof) is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its formation, with full power and authority to own,
lease and operate its properties and to carry on the Business, as presently
conducted by it. Except as set forth on Schedule 2.1, each of the subsidiaries
set forth on Schedule 2.3 is duly qualified and/or licensed in all states or
jurisdictions in which the character and location of any of the properties owned
or leased by it, or the conduct of its Business, makes it necessary for it to be
so qualified and/or licensed, except for those jurisdictions in which the
failure to so qualify would not have a Material Adverse Effect on the Business
or operations of such subsidiary. Copies of the constituent documents of each
such
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subsidiary and all amendments to date thereof, have been made available to
StarBase and are complete and correct.
2.2. Capitalization.
(a) The authorized capital stock of OBJS consists of 30,000,000
shares of common stock, par value $0.001 per share (the "OBJS Stock") and
3,000,000 shares of preferred stock, $0.001 par value (the "OBJS Preferred"), of
which 12,459,000 shares of OBJS Stock and no shares of Preferred Stock are
issued and outstanding, as of the date hereof. Except for 2,303,772 shares of
OBJS Stock reserved for issuance upon the exercise of the OBJS Stock Options,
there are no outstanding options, warrants, rights, calls, commitments,
conversion rights, puts, plans or other agreements of any character to which
OBJS is a party or otherwise bound which provide for the acquisition or
disposition of any of the OBJS Stock or any of the securities of OBJS. Schedule
2.2 sets forth a true and complete list of the holders of all outstanding OBJS
Options and the amount of shares of OBJS Stock issuable upon exercise of such
OBJS Options, as of the date hereof. Except as set forth on Schedule 2.2 and
except for the transactions contemplated by this Agreement, there are (a) no
options, warrants or other rights, agreements, arrangements or commitments of
any character obligating OBJS to issue or sell any shares of capital stock of or
other equity interests in OBJS, (b) no outstanding contractual obligations or
other commitments or arrangements of OBJS to: (i) repurchase, redeem or
otherwise acquire any shares of the capital stock of OBJS (or any interest
therein) or (ii) provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any other entity, or (iii) issue or
distribute to any person any capital stock of OBJS, or (iv) issue or distribute
to holders of any of the capital stock of OBJS any evidences of indebtedness or
assets of OBJS, and (c) no preemptive rights with regard to the capital stock of
OBJS, and no right-of-first refusal or similar catch-up rights with regard to
such capital stock. All of the outstanding securities of OBJS have been issued
and sold by OBJS in full compliance with applicable federal and state securities
laws. All of the outstanding OBJS Stock has been duly and validly issued and is
fully paid and nonassessable.
2.3. Interests in Other Entities. Except for the subsidiaries and
affiliates set forth on Schedule 2.3 (the "OBJS Subsidiaries"), OBJS does not:
(a) own, directly or indirectly, of record or beneficially, any shares of voting
stock or other equity securities of any other entity; (b) have any ownership
interest, direct or indirect, of record or beneficially, in any unincorporated
entity; or (c) have any obligation, direct or indirect, present or contingent,
(i) to purchase or subscribe for any interest in, advance or loan monies to, or
in any way make investments in, any person or entity, or (ii) to share any
profits or capital investments or both from any entity.
2.4. Authority.
(a) The execution and delivery by OBJS of this Agreement and of
all of the agreements to be executed and delivered by it pursuant hereto (the
"OBJS Documents"), the performance by OBJS of its obligations hereunder and
thereunder, and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly
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authorized by its Board of Directors and (other than the approval and adoption
of this Agreement by the holders of a majority of the then outstanding shares of
OBJS Stock, as provided in Section 4.7 hereof, the filing and recordation of
appropriate merger documents as required by Delaware Law and the receipt of the
opinion of its financial advisors that the Merger and other transactions
contemplated by this Agreement are fair, from a financial point of view, to the
stockholders of OBJS (the "Fairness Opinion")) no other corporate proceedings on
the part of OBJS or its stockholders are necessary to authorize the execution
and delivery of this Agreement by OBJS or the consummation of the transactions
contemplated hereby. In that regard, OBJS hereby represents that its Board of
Directors has: (i) determined that the Merger is fair to and in the best
interests of its stockholders; (ii) approved the Merger; and (iii) resolved to
recommend in the Proxy Statement adoption of this Agreement and authorization of
the Merger by its stockholders, such matters to be subject to the fiduciary
duties of such directors and to the receipt of the Fairness Opinion.
(b) This Agreement is, and when executed and delivered by OBJS,
the OBJS Documents to be delivered by it pursuant hereto will be, the valid and
binding obligation of OBJS, enforceable in accordance with their respective
terms, subject to the effect of applicable bankruptcy, reorganization,
insolvency, moratorium and other similar laws of general application relating
to, limiting or affecting the enforcement of creditors' rights generally and
general principles of equity that may limit the enforceability of the remedies,
covenants or other provisions of this Agreement or the OBJS Documents and the
availability of injunctive relief or other equitable remedies.
2.5. Noncontravention. Except as set forth on Schedule 2.5, neither
the execution and delivery by OBJS of this Agreement or the OBJS Documents
pursuant hereto, nor the consummation of any of the transactions contemplated
hereby or thereby, nor the performance by OBJS of its obligations hereunder or
thereunder, will (nor with the giving of notice or the lapse of time or both
would): (a) conflict with or result in a breach of any provision of the
Certificate of Incorporation or By-laws of OBJS; or (b) in any manner which
would materially affect the ability of OBJS to consummate or perform the
transactions contemplated hereby or have a material adverse effect on the
business, assets, liabilities, properties, prospects, results of operations or
financial condition of OBJS or the OBJS Subsidiaries (hereinafter, a "Material
Adverse Effect"), (i) give rise to a default, or any right of termination,
cancellation or acceleration, or otherwise be in conflict with or result in a
loss of contractual benefits to either OBJS or the OBJS Subsidiaries or under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which OBJS or
the OBJS Subsidiaries is a party or by which OBJS or the OBJS Subsidiaries may
be bound or to which OBJS, the OBJS Subsidiaries or the Business may be subject,
or require any consent, approval or notice under the terms of any such document
or instrument, or (ii) violate any order, writ, injunction, decree, law,
statute, rule or regulation of any court or governmental authority which is
applicable to OBJS, the OBJS Subsidiaries or the Business, or (iii) result in
the creation or imposition of any lien, adverse claim, security interest,
pledge, mortgage, charge or encumbrance, of any nature whatsoever (a "Lien"),
upon any of the properties or assets of OBJS or of the OBJS Subsidiaries ; or
(c) interfere with or otherwise adversely affect the ability of the Surviving
Corporation to carry on the Business after the Effective Date on substantially
the same
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basis as is now conducted; or (d) require the consent, waiver, approval,
authorization, license, certificate or franchise, of or any filing by OBJS or
the OBJS Subsidiaries with a third party or public authority (other than (y) in
connection with, or in compliance with, the provisions of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act of
1933, as amended (the "Securities Act"), Delaware Law, or the "takeover" or
"blue sky" or "public utility" laws of various states, and (z) any other filings
and approvals expressly contemplated by this Agreement).
2.6. Litigation.
(a) Except as disclosed on Schedule 2.6, there are no suits or
actions, or administrative, arbitration or other proceedings or governmental
investigations, pending or, to the knowledge of OBJS, threatened, against or
relating to OBJS, the OBJS Subsidiaries or the Business. There are no judgments,
orders, stipulations, injunctions, decrees or awards in effect which relate to
OBJS, the OBJS Subsidiaries, the Business or the operation of OBJS, which if
decided against OBJS would have a Material Adverse Effect.
(b) Schedule 2.6 also lists all products liability claims made
or, to the best of the knowledge of OBJS, threatened against OBJS or the OBJS
Subsidiaries in any of OBJS's last three fiscal years.
2.7. Compliance with Law. Neither OBJS nor any of the OBJS
Subsidiaries is engaging in any activity or omitting to take any action as a
result of which (a) it is in violation of any law, rule, regulation, zoning or
other ordinance, statute, order, injunction or decree, or any other requirement
of any court or governmental or administrative body or agency, applicable to
OBJS, the OBJS Subsidiaries, their respective assets or the Business ("Laws"),
which would have a Material Adverse Effect, which Laws include, but are not
limited to, those relating to: the use, storage, handling, transport or disposal
of pollutants, contaminants, pesticides, petroleum or petroleum product,
asbestos, hazardous or toxic materials or wastes, or any substance, whether
solid, liquid or gaseous, that is listed, defined or regulated as a "hazardous
substance", "hazardous waste" or "solid waste" or otherwise classified as
hazardous or toxic, in or pursuant to any Environmental Law (as defined herein),
causing or posing a threat to cause contamination or adverse effect to the
environment ("Hazardous Substances"); occupational safety and health; business
practices and operations; labor practices; employee benefits; and zoning and
other land use, and (b) to the knowledge of OBJS, either OBJS, the OBJS
Subsidiaries or the Business or any of the assets of OBJS or of the OBJS
Subsidiaries have been or may be materially and adversely affected. For purposes
hereof, "Environmental Laws" means all federal, state and local laws, rules,
regulations, permits, orders, judgments, injunctions and decrees relating to
Hazardous Substances applicable to the Business and the facilities of OBJS or
the OBJS Subsidiaries (whether or not owned by them). Such laws and regulations
include, without limitation, the Resource Conservation and Recovery Act of 1976
("RCRA"); the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"); the Toxic Substances Control Act; the Clean Water Act;
and the Clean Air Act, all as amended from time to time; state and federal
superlien and environmental cleanup programs;
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and the regulations of the U.S. Department of Transportation (with respect to
hazardous materials transportation) and the Nuclear Regulatory Commission.
2.8. Financial Statements; SEC Filings; Books and Records.
(a) OBJS has delivered or made available to StarBase and
Subsidiary via EDGAR (i) its most recent report on Form 10-K, containing audited
financial statements, (ii) its quarterly report on Form 10-Q for the period
ended June 30, 1999, (iii) an unaudited interim consolidated balance sheet at
August 31, 1999 and the related unaudited statements of cash flow and income for
the five (5) months then ended, and (iv) all other forms, reports, statements
and documents required to be, and having been, filed by OBJS with the Securities
and Exchange Commission ("SEC") since January 1, 1998, as listed on Schedule 2.8
(the audited and unaudited interim financial statements and such other reports
filed with the SEC are collectively hereinafter referred to as the "OBJS
Reports"). Each of the OBJS Reports complied in form in all material respects
with the applicable requirements of the Securities Act or the Exchange Act, as
applicable, each as in effect on the date so filed. None of the OBJS Reports
(including but not limited to any financial statements or schedules included or
incorporated by reference therein) filed by OBJS, when filed (except to the
extent revised or superseded by a subsequent filing with the SEC) contained any
untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements therein contained not misleading.
(b) Each of the financial statements contained in the OBJS
Reports has been prepared in accordance with generally accepted accounting
principles ("GAAP"), applied on a consistent basis throughout the periods
involved (except as may otherwise be indicated in the notes thereto or, in the
case of unaudited financial statements, as permitted by the SEC) and each
presents fairly the financial position of OBJS as at the dates thereof and the
results of operations and the cash flow for the periods indicated, subject, in
the case of unaudited interim financial statements, to normal recurring year-end
adjustments.
(c) The books and records of OBJS are materially complete and
correct, have been maintained in accordance with good business practices, and
accurately reflect the basis for the financial condition, results of operations
and cash flow of OBJS as set forth in the financial statements contained in the
OBJS Reports.
2.9. Absence of Undisclosed Liabilities. Neither OBJS nor any of the
OBJS Subsidiaries has material liabilities or obligations of any nature
whatsoever, whether accrued, absolute, contingent or otherwise, which have not
been (a) in the case of liabilities and obligations of a type customarily
reflected on a corporate balance sheet prepared in accordance with GAAP, (1) set
forth on the audited balance sheet of OBJS at March 31, 1999 (the "March 1999
Balance Sheet") or (2) incurred in the ordinary course of business since the
date of the March 1999 Balance Sheet, or (b) in the case of other types of
liabilities and obligations, described in Schedule 2.9 or any of the other
schedules delivered pursuant hereto or omitted from said schedules in accordance
with the terms of this Agreement.
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2.10. Accounts Receivables; Inventories.
(a) The accounts receivable, net of the allowance for doubtful
accounts applicable thereto (which allowance is established on a basis
consistent with GAAP) included in the March 1999 Balance Sheet, have already
been collected or are at the date hereof collectible in full over the period of
usual trade terms (by use of the normal collection methods of OBJS and the OBJS
Subsidiaries), and there do not exist any defenses, counterclaims and set-offs
which would materially adversely affect such receivables representing
obligations for the total dollar amount thereof shown on the books of OBJS and
the OBJS Subsidiaries. OBJS and the OBJS Subsidiaries has performed all
obligations with respect thereto which they were obligated to perform to the
date hereof.
(b) The inventories reflected on the audited financial statements
of OBJS and the OBJS Subsidiaries for the period ended March 31, 1999 (the
"March 1999 Financial Statements") consist of items of a quality and quantity
usable or saleable in the ordinary course of business, except for obsolete
materials, slow-moving items, materials of below standard quality and not
readily marketable items, all of which (i) have been written down to net
realizable value or (ii) have been adequately reserved against on the books and
records of OBJS and the OBJS Subsidiaries or (iii) are to be marked-down
pursuant to the existing inventory practices and the OBJS Subsidiaries,
consistently applied. All inventories are stated at the lower of cost or market
in accordance with GAAP.
2.11. Properties. Except as set forth on Schedule 2.11, Each of OBJS
and each of the OBJS Subsidiaries has good and valid title to all of the
properties and assets that are necessary for the conduct of the Business, as
reflected on the March 1999 Financial Statements as owned by each of them or
thereafter acquired, except properties or assets sold or otherwise disposed of
in the ordinary course of business, free and clear of any and all Liens
(including liens for current Taxes (as defined in Section 2.15 hereof)), of any
nature whatsoever. Except as set forth on Schedule 2.11, all plants, structures
and equipment which are utilized in the Business, or are material to the
condition (financial or otherwise) of OBJS are owned or leased by OBJS or the
OBJS Subsidiaries. Schedule 2.11 sets forth all (1) real property which is
owned, leased (whether as lessor or lessee) or subject to contract or commitment
of purchase or sale or lease (whether as lessor or lessee) by OBJS or the OBJS
Subsidiaries, or which is subject to a title retention or conditional sales
agreement or other security device, and (2) tangible personal property which is
owned, leased (whether as lessor or lessee) or subject to contract or commitment
of purchase or sale or lease (whether as lessor or lessee) by OBJS or the OBJS
Subsidiaries.
2.12. Intellectual Property.
(a) Schedule 2.12 identifies (by a summary description) the
Intellectual Property (as defined below) of OBJS and the OBJS Subsidiaries which
Schedule encompasses: (i) all United States and foreign patents, trademark and
trade name registrations, trademarks and tradenames, brandmarks and brand name
registrations, servicemarks and servicemark registrations, assumed names and
copyrights and copyright registrations, owned in
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whole or in part or used by OBJS or the OBJS Subsidiaries, and all applications
therefor, (ii) all material inventions, discoveries, improvements, processes,
formulae, technology, know-how, processes and other intellectual property,
proprietary rights and trade secrets relating to the Business and (iii) all
licenses and other agreements (the "Licenses") to which OBJS or any of the OBJS
Subsidiaries is a party or otherwise bound which relate to any of the
Intellectual Property or the use thereof by OBJS or the OBJS Subsidiaries in
connection with the Business (collectively, the "Intellectual Property"). No
violations of the material terms of any of the aforesaid licenses and/or
agreements have occurred.
(b) Except as disclosed on Schedule 2.12, (i) either OBJS or the
OBJS Subsidiaries owns or is authorized to use in connection with the Business
all of the Intellectual Property; (ii) no proceedings have been instituted, are
pending, or to the knowledge of OBJS, are threatened which challenge the rights
of OBJS or the OBJS Subsidiaries with respect to the Intellectual Property or
its use thereof in connection with the Business and/or the assets and properties
of OBJS or the OBJS Subsidiaries or the validity thereof and, to the knowledge
of OBJS, there is no valid basis for any such proceedings; (iii) neither OBJS's
or the OBJS Subsidiaries' ownership of the Intellectual Property nor their use
thereof in connection with the Business and/or the assets and properties of OBJS
or the OBJS Subsidiaries violates any Laws, or has at any time infringed upon or
violated any rights of others or, to the knowledge of OBJS, is being infringed
by others; (iv) none of the Intellectual Property, or use thereof by OBJS or the
OBJS Subsidiaries in connection with the Business and/or the assets and
properties of OBJS or the OBJS Subsidiaries is subject to any outstanding order,
decree, judgment, stipulation or any Lien except as set forth on Schedule 2.11;
and (v) neither OBJS nor the OBJS Subsidiaries has granted any license to third
parties with regard to the Intellectual Property.
2.13. Systems and Software. OBJS and the OBJS Subsidiaries own or have
the right to use pursuant to lease, license, sublicense, agreement, or
permission all computer hardware, software and information systems listed on
Schedule 2.13 and necessary for the operation of the Business as presently
conducted (collectively, "Systems"). Except as set forth on Schedule 2.13, each
System owned by OBJS or the OBJS Subsidiaries immediately prior to the Effective
Date will be owned by the Surviving Corporation or the OBJS Subsidiaries on
identical terms and conditions immediately subsequent to the Effective Date.
Except as set forth on Schedule 2.13, with respect to each System owned by a
third party and used by OBJS or the OBJS Subsidiaries pursuant to lease,
license, sublicense, agreement or permission: (a) the lease, license, sublicense
agreement or permission covering the System is legal, valid, binding,
enforceable, and in full force and effect with regard to OBJS or the OBJS
Subsidiaries, and to the knowledge of OBJS, with regard to the other party
thereto; (b) the lease, license, sublicense, agreement or permission will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the Effective Date with regard to OBJS or the OBJS
Subsidiaries , and to the knowledge of OBJS, with regard to the other party
thereto; (c) neither OBJS nor the OBJS Subsidiaries nor, to the knowledge of
OBJS, any party to any such lease, license, sublicense, agreement or permission
is in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default, and permit termination, modification
or acceleration thereunder; (d) neither OBJS nor the OBJS Subsidiaries nor, to
the knowledge of OBJS, any party or any such lease, license, sublicense,
agreement or permission
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has repudiated any provision thereof; (e) neither OBJS nor the OBJS Subsidiaries
has granted any sublicense, sublease or similar right with respect to any such
lease, license, sublicense, agreement or permission; (f) to the knowledge of
OBJS, use and continued use by OBJS or the OBJS Subsidiaries of such System does
not and will not interfere with, infringe upon, misappropriate, or otherwise
come into conflict with, any intellectual property rights of third parties as a
result of the continued operation of the Business.
2.14. Insurance. Annexed hereto as Schedule 2.14 is a complete and
correct list and summary description of all material policies of insurance
relating to the Business or in which OBJS or any of the OBJS Subsidiaries is an
insured party, beneficiary or loss payable payee, including without limitation
any products liability insurance. Such policies are in full force and effect,
all premiums due and payable with respect thereto have been paid, and no notice
of cancellation or termination has been received by OBJS or the OBJS
Subsidiaries with respect to any such policy.
2.15. Tax Matters.
(a) Except as set forth in Schedule 2.15,
(i) OBJS and the OBJS Subsidiaries have (A) duly and timely
filed or caused to be filed with the appropriate branch, office, department,
agency or other instrumentality engaged in the monitoring, collection and
enforcement of Taxes (as defined below) (the "Tax Authority") each return,
declaration or statement, and any amendment thereto (the "Tax Return") that is
required to be filed by or on behalf of the OBJS or the OBJS Subsidiaries or
that includes or relates to OBJS's income, sales, assets or business, which Tax
Return is true, correct and complete in all material respects, (B) duly and
timely paid in full, caused to be paid in full, all Taxes due and payable in
respect of all Tax periods up to and including the date of this Agreement, and
(C) has properly accrued on the books and records of OBJS in accordance with
GAAP a provision for the payment of all Taxes due or claimed to be due or for
which OBJS or the OBJS Subsidiaries otherwise is or may be liable, except for
Taxes which the failure to pay would not have a Material Adverse Effect;
(ii) OBJS and the OBJS Subsidiaries have complied in all
respects with all applicable material laws relating to the payment, collection
or withholding of any Tax, and the remittance thereof to any and all Tax
Authorities, including, but not limited to, Code sections 1441, 1442, 1445 and
3402;
(iii) there is no Lien for Taxes upon any of the assets or
properties of OBJS or the OBJS Subsidiaries (except for any statutory Lien for
any Tax not yet due);
(iv) no Tax Return filed by or on behalf of OBJS or the OBJS
Subsidiaries or that includes or relates to their income, sales, assets or the
Business, has ever been examined, audited or reviewed by any Tax Authority;
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(v) no audit, examination, investigation, reassessment or
other administrative or court proceeding is pending, proposed, or to the
knowledge of OBJS, threatened with regard to any Tax or Tax Return or the
payment, collection or withholding of any Tax;
(vi) neither OBJS nor any of the OBJS Subsidiaries has
received a ruling from any Tax Authority or signed an agreement with any Tax
Authority or has requested a ruling from or an agreement with any Tax Authority,
and there is no outstanding subpoena or request for information or documents
from any Tax Authority, with respect to any Tax for which OBJS or any of the
OBJS Subsidiaries is or may be liable or with respect to OBJS's income, sales,
assets or the Business;
(vii) the statute of limitations for the assessment or
collection of any Tax for which OBJS is or may be liable or with respect to
OBJS's income, sales, assets or the Business, has never been extended or waived;
(viii) neither OBJS nor any of the OBJS Subsidiaries has
requested an extension of time within which to file any material Tax Return in
respect of any Tax period which has not since been filed;
(ix) all Taxes assessed or proposed to be assessed with
respect to OBJS's income, sales, assets or the Business or for which OBJS or any
of the OBJS Subsidiaries is or may be liable have been paid;
(x) any deficiency or adjustment related to or in connection
with any Tax for which OBJS or any of the OBJS Subsidiaries is or may be liable
or with respect to OBJS's income, sales, assets or the Business that is or was
required to be reported to any Tax Authority has been so reported, and any
additional Taxes owed with respect thereto have been paid or accrued, except for
such Taxes which the failure to pay would not have a Material Adverse Effect;
(xi) there is no closing agreement, within the meaning of
Code section 7121 or any analogous provision of applicable law relating to any
Tax for which OBJS is or may be liable or with respect to OBJS's income, sales,
assets or business;
(xii) neither OBJS nor any of the OBJS Subsidiaries has, or
is expected to have, any material liability in respect of any Tax as a
transferee or successor of any Person (including, but not limited to, liability
arising under Treas. Reg. Section 1.1502-6), and OBJS is not, and never has
been, a party to any Tax allocation, Tax indemnification or Tax sharing contract
or agreement;
(xiii) there is no power of attorney in effect relating to
any Tax for which OBJS or any of the OBJS Subsidiaries is or may be liable or
with respect to OBJS's income, sales, assets or the Business;
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(xiv) neither OBJS nor any of the OBJS Subsidiaries is a
party to any contract, agreement or other arrangement that would result, alone
or in conjunction with any other contract, agreement or other arrangement, in
the payment of any amount that would not be deductible by reason of Code
sections 162, 280G or 404 or any similar provision of applicable law;
(xv) neither OBJS nor any of the OBJS Subsidiaries is a
"consenting corporation" within the meaning of Code section 341(f) or any
similar provision of applicable law and has not agreed to have Code section
341(f)(2) apply to any disposition of a subsection (f) asset (as such term is
defined in Code section 341(f)(4)) owned by OBJS of the OBJS Subsidiaries;
(xvi) neither OBJS nor any of the OBJS Subsidiaries has any
"tax-exempt use property" within the meaning of Code sections 168(g) or (h) or
any similar provision of applicable law with respect to OBJS's income, sales,
assets or the Business;
(xvii) none of the assets of OBJS or any of the Subsidiaries
is required to be treated as being owned by any other Person pursuant to any
provision of applicable law, including, but not limited to, the "safe harbor"
leasing provisions of Code section 168(f)(8) as in effect prior to the repeal of
those "safe harbor" leasing provisions;
(xviii) no election under Code section 338 or any similar
provision of applicable law has been made or required to be made by or with
respect to OBJS or the OBJS Subsidiaries;
(xix) neither OBJS nor any of the OBJS Subsidiaries is, nor
has it been, a "United States real property holding corporation" within the
meaning of Code section 897(c)(2) at any time during the applicable period
referred to in Code section 897(c)(1)(A)(ii);
(xx) neither OBJS nor the OBJS Subsidiaries has ever been
classified as an "S" corporation, a partnership or other pass-through entity for
purposes of any Tax;
(xxi) no jurisdiction where OBJS or any of the OBJS
Subsidiaries files a Tax Return has made or, to the knowledge of OBJS,
threatened to make a claim that OBJS or any of the OBJS Subsidiaries is required
to file a Tax Return for such jurisdiction;
(xxii) neither OBJS nor any of the OBJS Subsidiaries has
changed any method of accounting, received a ruling from any Tax Authority or
signed an agreement with any Tax Authority;
(xxiii) neither OBJS nor any of the OBJS Subsidiaries (A) is
required to include in income any adjustment pursuant to Code section 481(a) (or
any similar provision of applicable law) by reason of a change in accounting
method, and no Tax Authority
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has proposed any such adjustment or change of accounting method, and (B) none
has deferred any income to a period after the Effective Date that has
economically accrued or is otherwise attributable to a period prior to the
Effective Date or has accelerated any deductions into a period ending on or
before the Effective Date that will or may economically accrue after the
Effective Date; and
(xxiv) Schedule 2.15 sets forth a list of all jurisdictions
(both foreign and domestic) in which any Tax Returns have been filed by or on
behalf of OBJS or the OBJS Subsidiaries, respectively, or with respect to OBJS's
income, sales, assets or the Business since the Latest Balance Sheet Date and a
description of each such Tax Return and the period for which it was filed; and
OBJS has provided to StarBase (A) a copy of all Tax Returns for the past three
(3) years, and (B) all audit reports, closing agreements, letter rulings, or
technical advice memoranda relating to any Tax for which OBJS or any of the OBJS
Subsidiaries is or may be liable with respect to OBJS's income, sales, assets or
the Business.
(b) For purposes hereof, "Code" or "IRC" shall mean the Internal
Revenue Code of 1986, as amended, and "Tax" or "Taxes" shall mean any tax,
charge, fee, levy, deficiency or other assessment of whatever kind or nature
including, without limitation, any net income, gross income, profits, gross
receipts, excise, real or personal property, sales, ad valorem, withholding,
social security, retirement, excise, employment, unemployment, minimum,
estimated, severance, stamp, property, occupation, environmental, windfall
profits, use, service, net worth, payroll, franchise, license, gains, customs,
transfer, recording and other tax, customs duty, fee assessment or charge of any
kind whatsoever, imposed by any Tax Authority, including any liability therefor
as a transferee (including without limitation under section 6901 of the Code or
any similar provision of applicable law), as a result of Treasury Regulation
Section 1.1502-6 or any similar provision of applicable law, or as a result of
any tax sharing or similar agreement, together with any interest, penalties or
additions to tax relating thereto.
2.16. Employee Arrangements.
(a) Except as disclosed on Schedule 2.16(a), neither OBJS nor any
of the OBJS Subsidiaries has outstanding any employment agreement with any
officer or employee of OBJS or any of the OBJS Subsidiaries or any bonus,
incentive compensation, deferred compensation, profit sharing, stock option,
stock bonus, stock purchase, savings, severance, salary continuation,
consulting, retirement (including health and life insurance benefits provided
after retirement) or pension plan (including Employee Benefit Plans as defined
in Section 2.16(b) hereof) or arrangement with or for the benefit of any
officer, employee or other person, or for the benefit of any group of officers,
employees or other persons that provides for payment of more than $100,000 in
annual benefits. Neither OBJS nor any of the OBJS Subsidiaries has made, or
entered into any agreement to make, any payment that becomes payable as a result
of the consummation of this transaction which would be treated as an "excess
parachute payment" as defined in Section 280G of the Code. There are no such
agreements, plans or other arrangements entered into with or provided for any
independent contractors with whom OBJS or any of the OBJS Subsidiaries has a
business relationship.
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(b) Set forth on Schedule 2.16(b) are all of the employee benefit
plans as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), but without regard to whether any such plan is in
fact subject to ERISA, that is sponsored, or is being maintained or contributed
to, by OBJS or the OBJS Subsidiaries that provides for payment of more than
$25,000 in annual benefits (the "Employee Benefit Plan"). None of the Employee
Benefit Plans are "multiemployer plans" as defined in Section 3(37) of ERISA.
OBJS has furnished or made available or will promptly after the date hereof make
available to Subsidiary and StarBase (i) a true and complete copy of the plan
document and summary plan description for each Employee Benefit Plan, (ii) a
true and complete copy of the most recently filed Form 5500 (including the
related schedules) with respect to Employee Benefit Plan for which such form is
required to be filed, (iii) a true and complete copy of any trust agreement,
insurance contract or other agreement or arrangement serving as source of
funding any benefits payable under any Employee Benefit Plan, and (iv) the most
recently issued financial statement and actuarial report, if any, for each
Employee Benefit Plan. No "prohibited transactions" (as such term is defined in
Section 4975 of the IRC, or in Part 4 of Subtitle B of Title I of ERISA) have
occurred with respect to any Employee Benefit Plan that could result in the
imposition of taxes or penalties that, in the aggregate, could have a Material
Adverse Effect. With respect to each of the Employee Benefit Plans that is
intended to qualify for favorable income tax treatment under Section 401(a) of
the IRC, (x) the Internal Revenue Service ("IRS") has issued a favorable
determination letter with respect to such plan; (y) except as set forth on
Schedule 2.16(b), OBJS has furnished StarBase and Subsidiary with a copy of the
determination letter most recently issued by the IRS with respect to such plan
and the application filed with the IRS for such determination letter; and (z) to
the knowledge of OBJS, no event has occurred from the date of each such
favorable determination letter that would adversely effect the tax-qualified
status of the plan in question. Each Employee Benefit Plan has been administered
in compliance with the applicable requirements of ERISA and the IRC, and in
compliance with all other applicable provisions of law, except for such
noncompliance, if any, that, in the aggregate would not have a Material Adverse
Effect. With respect to each Employee Benefit Plan, neither OBJS nor any of the
OBJS Subsidiaries has incurred liabilities which, in the aggregate, could have a
Material Adverse Effect as a result of the violation of or the failure to comply
with any applicable provision of ERISA, the IRC, any other applicable provision
of law, or any provision of such plan. None of the Employee Benefit Plans which
is an "employee pension benefit plan", as that term is defined in Section 3(2)
of ERISA (a "Company Employee Pension Benefit Plan"), has incurred an
"accumulated funding deficiency," within the meaning of Section 302 of ERISA or
Section 412 of the IRC which, in the aggregate, could have a Material Adverse
Effect. Neither OBJS nor any of the OBJS Subsidiaries has failed to make any
contribution to, or to make any payment under, any Employee Benefit Plan that it
was required to make pursuant to the terms of the plan or pursuant to applicable
law in any amount which, in the aggregate, could have a Material Adverse Effect.
To the knowledge of OBJS, no "reportable events," with respect to which a notice
must be filed with the Pension Benefit Guaranty Corporation ("PBGC"), has
occurred with respect to any Employee Pension Benefit Plan subject to Title IV
of the ERISA which events, in the aggregate, could have a Material Adverse
Effect. No proceedings by the PBGC to terminate any Employee Pension Benefit
Plan pursuant to Subtitle C of Title IV of ERISA have to the best of the OBJS's
knowledge, been instituted or threatened which, in the aggregate, could have a
Material Adverse Effect. Except for any liabilities in an amount which,
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in the aggregate, would not have a Material Adverse Effect, OBJS and the OBJS
Subsidiaries (1) has not incurred any liability to the PBGC in connection with
any Employee Pension Benefit Plan, including any liability under Section 4069 of
ERISA and any penalty imposed under Section 4071 of ERISA, (2) has not
terminated any Employee Pension Benefit Plan, or ceased operations at any
facility or withdrawn from any Employee Pension Benefit Plan, in a manner that
could subject it to liability or any liens under Section 4062, 4063, 4064 or
4068 of ERISA or (3) has no knowledge as to the existence of any state of facts,
or as to the occurrence of any transactions, that might reasonably be
anticipated to result in any liability of OBJS or the OBJS Subsidiaries to the
PBGC under any other provision of Title IV of ERISA. There is no pending or, to
the knowledge of OBJS, threatened legal action, proceeding or investigation
against or involving any Employee Benefit Plan which could result in liabilities
to the Plan, OBJS or the OBJS Subsidiaries that, in the aggregate could have a
Material Adverse Effect. Except as disclosed on Schedule 2.16(b), the present
value of accrued benefits of each Employee Benefit that is a defined benefit
plan as defined in Section 3(35) of ERISA does not exceed the value of the
assets of such plan available to pay such benefits by an amount that, in the
aggregate for all such plans, could have a Material Adverse Effect.
(c) Except as disclosed on Schedule 2.16(c), there are no
pending, or to the best of the knowledge of OBJS, threatened, labor
negotiations, work stoppages or work slowdowns involving or affecting the
Business, and no union representation questions exist, and there are no
organizing activities, in respect of any of the employees of OBJS or of the OBJS
Subsidiaries.
2.17. Certain Business Matters and Practices
(a) Except as set forth on Schedule 2.17(a), neither OBJS nor any
of the OBJS Subsidiaries is not a party to or bound by any material
distributorship, dealership, sales agency, franchise or similar agreement which
relates to the Business. Neither OBJS nor any of the OBJS Subsidiaries provides
any warranties on its respective products and has no greater obligations than to
replace the product sold or as is otherwise customary in the industry.
(b) Set forth on Schedule 2.17(b) is a description of (i) the
rebate and volume discount practices and obligations of OBJS and the OBJS
Subsidiaries, (ii) the allowance and customer return practices and obligations
of OBJS and the OBJS Subsidiaries, (iii) the co-op advertising and other
promotional practices of OBJS and the OBJS Subsidiaries, (iv) price protection
agreements, and (v) return policies and historical return rates, as each of the
foregoing relate to the customers and suppliers of OBJS and the OBJS
Subsidiaries.
2.18. Certain Contracts. (a) Set forth on Schedule 2.18 is a complete
and correct list of all material contracts, commitments, obligations and
understandings which are not set forth in any other schedule delivered hereunder
and to which OBJS or any of the OBJS Subsidiaries is a party or otherwise bound,
except for each of those which (a) was made in the ordinary course of business,
and (b) either (i) is terminable by OBJS or the OBJS Subsidiaries (and will be
terminable by the Surviving Corporation) without liability, expense or other
obligation in excess of $5,000 on thirty (30) days' notice or less, or (ii) may
be anticipated to
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involve aggregate payments to or by OBJS or the OBJS Subsidiaries of $5,000 (or
the equivalent) or less calculated over the full term thereof, and (c) is not
otherwise material to the Business. Except as set forth in the immediately
preceding sentence, there are no agreements or arrangements in effect with
respect to the Business entered into by OBJS or the OBJS Subsidiaries with any
independent salesperson, distributor, sublicensor or other remarketer or sales
organization.
(b) Complete and correct copies of all contracts, commitments,
obligations and undertakings set forth on any of the Schedules delivered
pursuant to this Agreement have been furnished or made available by OBJS to
StarBase and Subsidiary, and (i) each of them is in full force and effect, no
person or entity which is a party thereto or otherwise bound thereby is in
default thereunder, and no event, occurrence, condition or act exists which does
(or which with the giving of notice or the lapse of time or both would) give
rise to a default or right of cancellation, acceleration or loss of contractual
benefits thereunder; (ii) there has been no threatened cancellations thereof,
and (iii) there are no outstanding disputes thereunder; except, in any of the
foregoing cases, where such default, cancellation, dispute or the like would not
have a Material Adverse Effect.
2.19. Customers and Suppliers. (a) Schedule 2.19(a) sets forth a
complete and correct list, as of August 31, 1999, of (i) the 10 largest
customers of the Business and the amount for which each such customer is
invoiced, and (ii) the 10 largest suppliers of the Business and the amount of
goods and services purchased from each such supplier.
(b) Except as set forth on Schedule 2.19(b), neither OBJS nor any
of the OBJS Subsidiaries has received any notice that any of the suppliers or
customers listed on Schedule 2.19(a) have any disputes with OBJS, the OBJS
Subsidiaries or the Business or intend to cease selling or rendering services
to, or dealing with, as applicable, OBJS or the OBJS Subsidiaries on
substantially the same basis as of the date hereof, nor has any information been
brought to its attention which might reasonably lead it to believe any such
suppliers or customers intend to alter in any material respect the amount of
sales or services or the extent of dealings with OBJS and the OBJS Subsidiaries,
or would alter in any material respect the sales or services or dealings in the
event of the consummation of the Merger. Neither OBJS nor any of the OBJS
Subsidiaries has any information which might reasonably indicate, nor has any
information been brought to any of their attention which might reasonably lead
any of them to believe, that any supplier of OBJS or the OBJS Subsidiaries will
not be able to fulfill outstanding or currently anticipated purchase orders
placed by, or service obligations to, OBJS or the OBJS Subsidiaries.
2.20. Approvals/Consents. Except as set forth on Schedule 2.20, no
governmental, administrative or third-party consents, permits, appointments,
approvals, licenses, certificates or franchises are necessary for the operation
of the Business (the "Permits"). All such Permits are in full force and effect
and will, upon the consummation of the Merger, remain in full force and effect
without the payment of any penalty, the incurrence of any additional debt or
liability or the change of any term. No material violations of the terms thereof
have heretofore occurred or are known by OBJS to exist as of the date hereof.
There are no proceedings pending
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or, to the knowledge of OBJS, threatened, or any basis therefor, seeking to
cancel, terminate or limit such Permits.
2.21. Registration Statement; Blue Sky Filings; Proxy Statement; Other
Information. The Proxy Statement and the information supplied or to be supplied
in writing by OBJS for inclusion in the Registration Statement and any other
documents to be filed with the SEC or any other regulatory agency in connection
with the transactions contemplated hereby will not, at the respective times such
documents are filed, or, as applicable, declared effective, and on the Effective
Date, and, with respect to the Proxy Statement, when first published, sent or
given to stockholders of OBJS, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not misleading or, in the case of the Proxy Statement or any
amendment thereof or supplement thereto, at the time of the meeting of the
stockholders of OBJS provided for in Section 4.7 hereof, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of any proxy for such meeting. If, at any time prior to the
Effective Date, any event relating to OBJS or any of its affiliates, officers or
directors is discovered by OBJS that should be set forth in an amendment to the
Registration Statement or a supplement thereto will be promptly delivered to
StarBase for subsequent filing with the appropriate regulatory agency and
dissemination to the stockholders of OBJS, to the extent required by applicable
securities laws. All documents which OBJS files or is responsible for filing
with any regulatory agency in connection with the Merger (including, without
limitation, the Proxy Statement) will comply as to form and content in all
material respects with the provisions of applicable law and regulations.
Notwithstanding the foregoing, OBJS does not make any representations or
warranties with respect to any information that has been supplied in writing by
StarBase or Subsidiary, or their respective auditors, attorneys, financial
advisors, specifically for use in the Proxy Statement, or in any other documents
to be filed with any regulatory agency in connection with the transactions
contemplated hereby.
2.22. Transactions with Affiliated Parties. Schedule 2.22 sets forth a
true and complete list and description of all transactions engaged in between
OBJS or any of the OBJS Subsidiaries and any director, officer, employee,
stockholder, partner or agent of OBJS or the OBJS Subsidiaries, as the case may
be, or any of their respective spouses or children, any trust of which any such
person is the grantor, trustee or beneficiary, any corporation of which any such
person or party is a stockholder, employee, officer or director, or any
partnership or other person in which any such person or party owns an interest
(each such person, trust, corporation and partnership, an "Affiliated Party").
No Affiliated Party is a party to any agreement, contract or commitment with
OBJS or the OBJS Subsidiaries except as set forth in Schedule 2.22.
2.23. Information as to OBJS. None of the representations or
warranties made by OBJS in this Agreement or in any agreement executed and
delivered by or on behalf of it pursuant hereto are false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements therein contained not misleading.
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3. REPRESENTATIONS AND WARRANTIES AS TO STARBASE AND SUBSIDIARY.
StarBase and Subsidiary, as applicable, hereby represent and warrant
to OBJS, as follows:
3.1. Organization, Standing and Power. Each of StarBase and Subsidiary
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, with full corporate power and authority to own,
lease and operate its respective properties and to carry on its respective
business as presently conducted by it. There are no states or jurisdictions in
which the character and location of any of the properties owned or leased by
StarBase or Subsidiary, or the conduct of their respective businesses makes it
necessary for them to qualify to do business as a foreign corporation and where
they have not so qualified, except for those jurisdictions in which the failure
to so qualify would not have a materially adverse effect on the their respective
businesses or operations. Copies of the Certificates of Incorporation of
StarBase and Subsidiary and all amendments thereof and the By-laws of StarBase
and Subsidiary, as amended to date, have been heretofore made available to OBJS.
3.2. Capitalization. The authorized capital stock of StarBase consists
of 80,000,000 shares of common stock, $.01 par value (the "StarBase Common
Stock") and 10,000,000 shares of blanket preferred stock, par value of $.01 per
share. As of the date hereof: (1) 32,495,283 shares of StarBase Common Stock are
issued and outstanding, all of which are duly authorized, validly issued, fully
paid and nonassessable; (2) an aggregate of 3,865,885 shares of Series E, H and
I preferred stock are issued and outstanding, all of which are duly authorized,
validly issued, fully paid and nonassessable; (3) 5,980,474 shares of StarBase
Common Stock are reserved for future issuance upon exercise of options granted
by StarBase (of which options to purchase up to 2,327,668 shares of StarBase
Common Stock are exercisable as of the date hereof); and (4) 4,626,668 shares of
StarBase Stock are reserved for future issuance upon exercise of warrants
granted by StarBase.
3.3. Merger Consideration. The Merger Consideration, when issued and
delivered in accordance with the terms and provisions of this Agreement, will be
(1) duly authorized and validly issued, fully paid and non-assessable, (2) free
and clear of any security interests, pledges, mortgages, claims, liens and
encumbrances of any kind whatsoever, and (3) issued in compliance with all
applicable federal and state securities laws.
3.4. Authority.
(a) The execution and delivery by StarBase and Subsidiary of this
Agreement and of each agreement, document and instrument to be executed and
delivered by either or both of them pursuant hereto (the "StarBase Documents"),
the performance by either or both of them of their respective obligations
hereunder and thereunder, and the consummation of the transactions contemplated
hereby and thereby, have been duly and validly authorized by its Board of
Directors and (other than the filing and recordation of appropriate merger
documents as
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required by Delaware Law and the receipt by StarBase of the opinion of its
financial advisors that the Merger and other transactions contemplated by this
Agreement are fair, from a financial point of view, to the stockholders of
StarBase) no other corporate proceedings on the part of either StarBase or
Subsidiary (or its stockholders) are necessary to authorize the execution and
delivery of this Agreement by StarBase and Subsidiary or the consummation of the
transactions contemplated hereby. In that regard, StarBase and Subsidiary each
hereby represents that its Board of Directors has determined that the Merger is
in the best interests of its stockholders and has approved the Merger, such
matters to be subject to the fiduciary duties of such directors.
(b) This Agreement is, and when executed and delivered by each of
StarBase and Subsidiary, the StarBase Documents to be executed and delivered by
either or both of them pursuant hereto will be, the valid and binding obligation
of StarBase and Subsidiary, enforceable in accordance with their respective
terms, subject to the effect of applicable bankruptcy, reorganization,
insolvency, moratorium and other similar laws of general application relating
to, limiting or affecting the enforcement of creditors' rights generally and
general principles of equity that may limit the enforceability of the remedies,
covenants or other provisions of this Agreement or the StarBase Documents and
the availability of injunctive relief or other equitable remedies.
3.5. Noncontravention. Neither the execution and delivery by StarBase
or Subsidiary of this Agreement or the StarBase Documents pursuant hereto, nor
the consummation of the transactions contemplated hereby or thereby, nor the
compliance by StarBase or Subsidiary with the provisions hereof and thereof, (a)
will (nor with the giving of notice or the lapse of time or both, would)
conflict with or result in a violation of any provision of the Certificates of
Incorporation or By-laws of StarBase and Subsidiary, or (b) in any manner which
would materially affect the ability of StarBase or Subsidiary to consummate the
transactions contemplated hereby, (i) give rise to a default, or any right of
termination, cancellation or acceleration, or otherwise be in conflict with or
result in a loss of contractual benefits to StarBase or Subsidiary or under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which either of them is
a party or by which either of them may be bound or to which StarBase or
Subsidiary may be subject, or require any consent, approval or notice under the
terms of any such document or instrument, or (ii) violate any order, writ,
injunction, decree, law, statute, rule or regulation of any court or
governmental authority which is applicable to StarBase or Subsidiary, or (iii)
result in the creation or imposition of any Lien upon any of the properties or
assets of StarBase or Subsidiary, or (c) require the consent, waiver, approval,
authorization, license, certificate or franchise of or any filing by StarBase or
Subsidiary with a third party or public authority (other than (y) in connection
with or in compliance with the provisions of the Exchange Act, the Securities
Act, Delaware Law, or the "takeover" or "blue sky" or "public utility" laws of
various states, and (z) and any other filings and approvals expressly
contemplated by this Agreement).
3.6. Securities and Exchange Commission Filings; Financials.
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(a) Since January 1, 1998, StarBase has filed on EDGAR all forms,
reports, statements and documents required to be filed with the SEC
(collectively, the "StarBase SEC Reports"), as set forth in Schedule 3.6, each
of which has complied in form in all material respects with the applicable
requirements of the Securities Act or the Exchange Act, as applicable, each as
in effect on the date so filed. None of such reports (including but not limited
to any financial statements or schedules included or incorporated by reference
therein) filed by StarBase, when filed (except to the extent to the extent
revised or superseded by a subsequent filing with the SEC) contained any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements therein contained not misleading.
(b) Each of the financial statements contained in the StarBase
SEC Reports has been prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may otherwise be indicated in
the notes thereto) and each presents fairly, in all material respects, the
financial position of StarBase as at the respective dates thereof and the
results of its operations and cash flow position for the periods indicated.
(c) Except as and to the extent set forth on the balance sheet of
StarBase as at March 31, 1999, including the notes thereto, StarBase does not
have any liabilities or obligations, whether or not accrued, contingent or
otherwise, that would be required to be included on a balance sheet prepared in
accordance with GAAP, except for liabilities or obligations incurred in the
ordinary course of business since March 31, 1999, none of which would,
individually or in the aggregate, have a material adverse effect on the
financial condition, or results of the operations or cash flows of StarBase.
3.7. Registration Statement; Blue Sky Filings; Proxy Statement; Other
Information. The Registration Statement and the information supplied or to be
supplied in writing by either StarBase or Subsidiary for inclusion in the Proxy
Statement and any other documents to be filed with the SEC or any other
regulatory agency in connection with the transactions contemplated hereby will
not, at the respective times such documents are filed, or, as applicable,
declared effective by the SEC, and on the Effective Date, and, with respect to
the Proxy Statement, when first published, sent or given to stockholders of
OBJS, be false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein not
misleading or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the meeting of the stockholders of OBJS
provided for in Section 4.7 hereof, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for such meeting. All documents which either StarBase or Subsidiary files
or is responsible for filing with the SEC and any other regulatory agency in
connection with the Merger (including, without limitation, the Registration
Statement) will comply as to form and content in all material respects with the
provisions of applicable law and regulations. Notwithstanding the foregoing,
neither StarBase nor Subsidiary make any representations or warranties with
respect to any information that has been supplied in writing by OBJS, or its
auditors, attorneys, financial advisors, specifically for use in the
Registration Statement, or in any other documents to be filed with the SEC or
any other regulatory agency in connection with the transactions contemplated
hereby.
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3.8. Litigation.
(a) Except as disclosed on Schedule 3.8, there are no suits or
actions, or administrative, arbitration or other proceedings or governmental
investigations, pending or, to the knowledge of StarBase, threatened, against or
relating to StarBase. There are no judgments, orders, stipulations, injunctions,
decrees or awards in effect which relate to StarBase or the operation of
StarBase, which if decided against StarBase would materially affect the ability
of StarBase or Subsidiary to consummate the transactions contemplated hereby.
(b) Schedule 3.8 also lists all products liability claims made
or, to the best of the knowledge of StarBase, threatened against StarBase in any
of StarBase's last three fiscal years.
3.9. Compliance with Law. StarBase is not engaging in any activity or
omitting to take any action as a result of which (a) it is in violation of any
law, rule, regulation, zoning or other ordinance, statute, order, injunction or
decree, or any other requirement of any court or governmental or administrative
body or agency, applicable to StarBase, its assets or the operation of its
business, which would materially affect the ability of StarBase or Subsidiary to
consummate the transactions contemplated hereby including, but are not limited
to, laws relating to: the use, storage, handling, transport or disposal of
pollutants, contaminants, pesticides, petroleum or petroleum product, asbestos,
hazardous or toxic materials or wastes, or any Hazardous Substances;
occupational safety and health; business practices and operations; labor
practices; employee benefits; and zoning and other land use, and (b) to the
knowledge of StarBase, either StarBase or any of the assets of StarBase have
been or may be materially and adversely affected.
3.10. Absence of Undisclosed Liabilities. StarBase has no material
liabilities or obligations of any nature whatsoever, whether accrued, absolute,
contingent or otherwise, which have not been (a) in the case of liabilities and
obligations of a type customarily reflected on a corporate balance sheet
prepared in accordance with GAAP, (1) set forth on the audited balance sheet of
StarBase at March 31, 1999 or (2) incurred in the ordinary course of business
since the date of such balance sheet, or (b) in the case of other types of
liabilities and obligations, described in Schedule 3.10 or any of the other
schedules delivered pursuant hereto or omitted from said schedules in accordance
with the terms of this Agreement.
3.11. Information as to StarBase and Subsidiary. None of the
representations or warranties made by StarBase or Subsidiary in this Agreement
or in any agreement executed and delivered by or on behalf of either or both of
them pursuant hereto are false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements
therein contained not misleading.
4. COVENANTS
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4.1. Investigation.
(a) Between the date hereof and the earlier of the Effective Date
or the termination date of this Agreement, StarBase and/or Subsidiary, on the
one hand, and OBJS, on the other hand (each an "Investigating Party"), may,
directly and through their respective representatives, make such investigation
of the other parties (including, with respect to any investigation of OBJS, the
OBJS Subsidiaries) and their respective businesses and assets as such
Investigating Party reasonably deems necessary or advisable; provided, that such
investigation shall not affect any of the representations and warranties
contained herein or in any instrument or document delivered pursuant hereto. In
furtherance of the foregoing, the Investigating Party shall have reasonable
access, upon reasonable advance notice, during normal business hours after the
date hereof, to all properties, books, contracts, commitments and records of
StarBase and/or Subsidiary, on the one hand, or OBJS and the OBJS Subsidiaries,
on the other hand, and the party being investigated hereunder shall furnish such
financial and operating data and other information as may from time to time be
reasonably requested relating to the transactions contemplated by this
Agreement. The party being investigated hereunder, and its respective
management, employees, accountants and attorneys, shall cooperate fully with the
Investigating Party in connection with any such investigation.
(b) The Investigating Party (and its officers, directors,
affiliates and other representatives) shall use its best efforts to hold in
strict confidence and not to disclose or use any confidential information which
it obtains in connection with any investigation pursuant hereto to the detriment
of the other party. In the event that the Merger is not consummated for any
reason whatsoever, the Investigating Party shall return to the other parties all
documents, work papers and other written materials which were obtained by it
during the course of such investigation which constitute confidential
information.
4.2. Consummation of Transaction. Each of the parties hereto hereby
agrees to use all reasonable efforts to cause all conditions precedent to his or
its obligations (and to the obligations of the other parties hereto) to
consummate the transactions contemplated hereby to be satisfied, including, but
not limited to, using all reasonable efforts to obtain all required (if so
required by this Agreement) consents, waivers, amendments, modifications,
approvals, authorizations, novations and licenses; provided, however, that
nothing herein contained shall be deemed to modify any of the absolute
obligations imposed upon or rights of any of the parties hereto under this
Agreement or any agreement executed and delivered pursuant hereto. No party
hereto will take any action for the purpose of delaying impairing or impeding
the receipt of any required consent, authorization, order or approval or the
making of any required filing or registration.
4.3. Cooperation/Further Assurances.
(i) Each of the parties hereto hereby agrees to fully
cooperate with the other parties hereto in preparing and filing any notices,
applications, reports and other instruments and documents which are required by,
or which are desirable in the
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reasonable opinion of any of the parties hereto, or their respective legal
counsel, in respect of, any statute, rule, regulation or order of any
governmental or administrative body in connection with the transactions
contemplated by this Agreement.
(b) Each of the parties hereto hereby further agrees to execute,
acknowledge, deliver, file and/or record, or cause such other parties to the
extent permitted by law to execute, acknowledge, deliver, file and/or record
such other documents as may be required by this Agreement and as StarBase and/or
Subsidiary, on the one hand, and/or OBJS, on the other, or their respective
legal counsel may reasonably require in order to document and carry out the
transactions contemplated by this Agreement.
4.4. Accuracy of Representations, Notification.
(i) Each party hereto agrees that prior to the Effective
Date it will enter into no transaction and take no action, and will use its best
efforts to prevent the occurrence of any event (but excluding events which occur
in the ordinary course of business and events over which such party has no
control), which would result in any of its representations, warranties or
covenants contained in this Agreement or in any agreement, document or
instrument executed and delivered by him or it pursuant hereto not to be true
and correct, or not to be performed as contemplated, at and as of the time
immediately after the occurrence of such transaction or event.
(b) Each party hereto shall give prompt notice to the other
parties hereto of (i) the occurrence, or nonoccurrence, or any event the
occurrence, or nonoccurrence, of which would be likely to cause any
representation contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Date and (ii) any material failure
by such party giving notice, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by him or it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 4.4 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
4.5. Broker. Each of the parties hereto represents and warrants to the
other parties that no broker or finder was engaged or dealt with in connection
with any of the transactions contemplated by this Agreement, and each of the
parties shall indemnify and hold the other harmless from and against any and all
claims or liabilities asserted by or on behalf of any alleged broker or finder
for broker's fees, finder's fees, commissions or like payments.
4.6. Registration Statement. As promptly as practicable after the
execution of this Agreement, StarBase and Subsidiary will file with the SEC a
registration statement on Form S-4, including the Proxy Statement and related
prospectus (as amended or supplemented, the "Registration Statement") relating
to the registration under the Securities Act of the StarBase Common Stock to be
received in the Merger, and file with state securities administrators such
registration statements or other documents as may be required under applicable
blue sky laws to qualify or register such StarBase Common Stock in such states
as are
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designated by OBJS (the "Blue Sky Filings"). StarBase and Subsidiary will use
their reasonable best efforts to cause the Registration Statement to become
effective as soon as practicable and, upon registration, to cause such shares of
StarBase Common Stock to be listed with the Nasdaq SmallCap Market or such other
exchange on which the StarBase Common Stock is traded or listed, as applicable.
In the process of its preparation of the Registration Statement, StarBase will
provide OBJS and its advisors drafts of the Registration Statement and will
provide OBJS and its advisors a reasonable opportunity to participate in such
drafting process. StarBase will notify OBJS promptly of the receipt of any
comments from the SEC or its staff or from any state securities administrators
and of any request by the SEC or its staff or by any state securities
administrators for amendments or supplements to the Registration Statement or
any Blue Sky Filings or for additional information, and will supply OBJS and its
legal counsel with copies of all correspondence between StarBase or any of its
representatives, on the one hand, and the SEC, its staff or any state securities
administrators, on the other hand, with respect to the Registration Statement.
4.7. Proxy Statement; Meeting. As promptly as practicable following
the execution of this Agreement, and after receipt by OBJS of the Fairness
Opinion, OBJS agrees that this Agreement shall be submitted at a meeting (the
"Meeting") of its stockholders duly called and held pursuant to Section 251(c)
of Delaware Law. As soon as practicable after the date of this Agreement, OBJS
shall take all action, to the extent necessary in accordance with applicable
law, its Certificate of Incorporation and By-Laws, to convene a meeting of its
stockholders promptly to consider and vote upon the approval of the Merger, OBJS
shall prepare and file with the appropriate regulatory agency, subject to the
prior approval of StarBase, such information as may be necessary to allow such
regulatory authority to approve the Merger (the "Regulatory Approval"),
preliminary and final versions of a proxy statement and proxy and other filings
relating to the Meeting as required by such regulatory authority and the
applicable regulations thereof. The term "Proxy Statement" shall mean such proxy
statement at the time it initially is mailed to stockholders and all duly filed
amendments or revisions made thereto, if any, similarly mailed. Notice of the
Meeting shall be mailed to the stockholders of OBJS along with the Proxy
Statement. OBJS will notify StarBase promptly of the receipt of any comments
from the regulatory authority with respect to the Proxy Statement and will
supply StarBase and its legal counsel with copies of all correspondence from or
to such and any other applicable regulatory authorities. OBJS, after
consultation with StarBase and its legal counsel, shall respond promptly to any
comments made by the regulatory authority with respect to the Regulatory
Approval and the Proxy Statement and cause the Proxy Statement and proxy to be
mailed to its stockholders at the earliest practicable time following the
execution hereof.
4.8. Conduct of the Business Prior to the Effective Date. Except as
set forth on Schedule 4.8, OBJS agrees that prior to the Effective Date, except
as otherwise consented to or approved in writing by StarBase or expressly
permitted by this Agreement:
(i) the Business shall be conducted only in the ordinary
course and consistent with past practice;
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(b) OBJS shall not (i) amend its Certificate of Incorporation or
By-Laws, (ii) change the number of authorized, issued or outstanding shares of
its capital stock, except upon the exercise of Options outstanding on the date
hereof and in accordance with Section 4.16 hereof, (iii) declare, set aside or
pay any dividend or other distribution or payment in cash, stock or property in
respect of shares of its capital stock, (iv) make any direct or indirect
redemption, retirement, purchase or other acquisition of any of its capital
stock, or (v) split, combine or reclassify its outstanding shares of capital
stock;
(c) OBJS shall not, and shall cause the OBJS Subsidiaries not to,
directly or indirectly, (i) issue, grant, sell or pledge or agree or propose to
issue, grant, sell or pledge any shares of, or rights of any kind to acquire any
shares of the capital stock of OBJS or the OBJS Subsidiaries, except that OBJS
may issue shares of OBJS Stock upon the exercise of OBJS Options outstanding on
the date hereof, (ii) other than in the ordinary course of business and
consistent with past practice, incur any material indebtedness for borrowed
money, except indebtedness incurred under its existing credit facility with
Silicon Valley Bank, (iii) waive, release, grant or transfer any rights of
material value, except in the ordinary course of business consistent with past
practices or (iv) transfer, lease, license, sell, mortgage, pledge, dispose of
or encumber any material assets of OBJS of the OBJS Subsidiaries other than in
the ordinary course of business and consistent with past practice; provided,
however, that notwithstanding anything to the contrary contained in this Section
4.8, StarBase shall permit OBJS to negotiate and enter into an agreement to sell
the stock or substantially all of the business and assets of OBJS' European
subsidiaries, ObjectShare GmbH, ObjectShare (UK) Limited and ObjectShare AG (the
"European Transaction"), subject to the following terms and conditions: (A)
consideration paid shall be cash only (including escrowed cash and/or any
promissory notes), in an amount not less than $1.5 million; (B) the terms of any
agreements, documents and instruments to be executed and delivered with respect
to any European Transaction shall be in form and substance acceptable to
StarBase, in its reasonable discretion; it being understood that OBJS shall
provide StarBase with copies of all drafts of such agreements, documents and
instruments and keep StarBase apprised of all negotiations with respect thereto;
and (C) the proceeds realized from any such sale shall be used first to repay
any outstanding indebtedness owing from OBJS to StarBase and thereafter for
working capital purposes only.
(d) other than respect to any European Transaction, OBJS shall
use its reasonable commercial efforts, and shall cause the OBJS Subsidiaries to
use their reasonable commercial efforts, to preserve intact it or their
respective business organizations, to keep available the services of its or
their respective operating personnel and to preserve the goodwill of those
having business relationships with each of them, including, without limitation,
suppliers and customers;
(e) OBJS will not, and shall cause the OBJS Subsidiaries not to,
directly or indirectly, (i) increase the compensation payable or to become
payable by any of them to any of their respective employees, officers or
directors, except in accordance with welfare and benefit plans set forth on
Schedule 2.16(b) and except, with respect to employees who are not directors or
officers, for increases in the ordinary course of business, consistent with past
practice, (ii) adopt additional, or make any payment or provision, other than as
required by
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existing plans or agreements, including provisions and actions under existing
stock option plans in connection with the Merger, in the ordinary course of
business and consistent with prior practice, with respect to any stock option,
bonus, profit sharing, pension, retirement, deferred compensation, employment or
other payment or employee compensation plan, agreement or arrangement for the
benefit of employees of OBJS or the OBJS Subsidiaries , (iii) in the ordinary
course, grant any stock options or stock appreciation rights or issue any
warrants; provided, however, in the event that StarBase fails to give or to
withhold, in writing, its consent or approval to OBJS within five (5) business
days of written notice (in the manner provided in Section 7.3 hereof) from OBJS
to StarBase requesting permission to grant or issue any such options, rights or
warrants, as the case may be, with respect to the OBJS Stock, then StarBase
shall be deemed to have given the requisite consent or authorization to so grant
or issue such options, rights or warrants; (iv) enter into or amend any
employment or severance agreement or arrangement or (v) make any loan or advance
to, or enter into any written contract, lease or commitment with, any officer or
director of OBJS of the OBJS Subsidiaries;
(f) OBJS shall not, and shall cause the OBJS Subsidiaries not to,
directly or indirectly, assume, guarantee, endorse or otherwise become
responsible for the obligations of any other individual, firm or corporation or
make any loans or advances to any individual, firm or corporation except in the
ordinary course of its business and consistent with past practices;
(g) OBJS shall not, and shall cause the OBJS Subsidiaries not to,
make any investment of a capital nature either by purchase of stock or
securities, contributions to capital, property transfers, acquisition or
financing of equipment or otherwise, other than in the ordinary course of
business, by the purchase of any property or assets of any other individual,
firm or corporation;
(h) OBJS shall not, and shall cause the OBJS Subsidiaries not to,
enter into modify or amend in any material respect or take any action to
terminate any of its material contracts, except in the ordinary course of
business;
(i) OBJS shall not, and shall cause the OBJS Subsidiaries not to,
take any action, other than reasonable and usual actions in the ordinary course
of business and consistent with past practice, with respect to accounting
policies or procedures, except for changes required by GAAP;
(j) OBJS shall not, and shall cause the OBJS Subsidiaries not to,
settle or compromise any material federal, state, local or foreign Tax
proceeding;
(k) OBJS will, and shall cause the OBJS Subsidiaries to, promptly
advise StarBase in writing of any Material Adverse Effect or any breach of the
representations or warranties of OBJS, or any material breach of a covenant
contained herein of which has knowledge; and
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(l) OBJS shall not, and shall cause the OBJS Subsidiaries not to,
enter into an agreement or arrangement to do any of the foregoing actions.
4.9. No Shop.
(i) Following the execution of this Agreement by OBJS,
neither OBJS nor its directors, officers, attorneys, financial advisors, or its
other authorized persons shall, directly or indirectly, solicit, initiate or
participate in discussions or negotiations with or the submission of any offer
or proposal by or provide any information to, any corporation, partnership,
person, or other entity or group (other than StarBase and Subsidiary or any
officer or other authorized representative of StarBase or Subsidiary) concerning
any Third Party Transaction (as defined below) or, except as provided in Section
6.1(d) hereof, or as may be consistent with fiduciary responsibilities under
applicable law, participate in any negotiation regarding any Third Party
Transaction or otherwise cooperate in any way with any effort or attempt by any
other person to effectuate a Third Party Transaction.
(b) Notwithstanding the foregoing, the Board of Directors of OBJS
may furnish such information to or enter into discussions and/or negotiations
with any corporation, partnership, person or other entity or group that makes an
unsolicited offer to engage in a Third Party Transaction with OBJS that the
Board of Directors of OBJS in good faith determines, with the assistance of its
financial advisor, may represent a transaction more favorable to OBJS
Stockholders when compared to the Merger and the Merger Consideration if, and
only to the extent that, the Board determines after consultation with outside
legal counsel that the failure to take such action would be inconsistent with
the compliance by the Board of Directors with its fiduciary duties to the OBJS
Stockholders under applicable law, provided that such party shall enter into a
confidentiality agreement with OBJS, OBJS shall notify StarBase as to the
contents of information being provided to such party and OBJS shall diligently
enforce its rights under such confidentiality agreement. For purposes of this
Agreement, a "Third Party Transaction" shall mean a bona fide arm's length
proposal, whether solicited or unsolicited, to acquire (by means of a tender or
exchange offer, merger, consolidation, business combination or otherwise) all or
a substantial portion of the outstanding shares of OBJS Stock or of the assets
of OBJS.
(c) OBJS represents and warrants that it is not currently
involved in discussions or negotiations with any third party with respect to a
Third Party Transaction. OBJS will promptly communicate to StarBase the identity
of any potential third party purchaser making any such proposal or contact and,
prior to the execution of any agreement relating to any such Third Party
Transaction, shall also communicate the proposed terms and conditions thereof.
OBJS agrees not to release any third party from, or waive any provision of, any
confidentiality or standstill agreement to which OBJS is a party.
4.10. Certification of Stockholder Vote. At or prior to the Effective
Date, OBJS shall deliver to StarBase a certificate of the secretary of OBJS
setting forth (i) the number of shares of OBJS Stock voted in favor of adoption
of
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this Agreement and consummation of the Merger and the number of shares of OBJS
Stock voted against adoption of the Agreement and consummation of the Merger and
(ii) the number of shares of Dissenting Stock.
4.11. Smith Employment/Goda Stock Options.
(i) At or prior to the Effective Date, the Surviving
Corporation shall enter into an employment agreement (the "Employment
Arrangement") with James H. Smith ("Smith"), upon terms and conditions mutually
agreeable; it being acknowledged hereby that fair consideration shall be given
by StarBase to include, but not be limited to, the granting of options to
purchase shares of StarBase Common Stock in connection with such Employment
Arrangement, taking into account, among other factors, the vesting schedule
under any OBJS Options formerly held by Smith.
(b) Notwithstanding paragraph (a) hereto and Section 1.6(c), the
outstanding options to purchase 650,000 shares of OBJS Stock held by Eugene L.
Goda ("Goda"), issued pursuant to that certain stock option agreement, dated
June 10, 1997 (the"Goda Option Agreement") shall be assumed by StarBase (the
"Assumed Options"). Each Assumed Option shall continue to have, and be subject
to, the same terms and conditions set forth in the Goda Option Agreement,
immediately prior to the Effective Time, except that (i) such options will be
exercisable for that number of whole shares of StarBase Common Stock equal to
the product of 650,000 multiplied by the Merger Exchange Ratio and, in the case
of fractional shares, such number shall be rounded down to the nearest whole
share of StarBase Common Stock unless such fractional share of 0.5 of a share or
above, in which case such number shall be rounded up to the nearest whole share
of StarBase Common Stock, and (ii) the per share exercise price for each share
of StarBase Common Stock issuable upon exercise of each of the Assumed Options
will be equal to the quotient determined by dividing $1.0625 (the exercise price
per share of OBJS Stock at which such Assumed Option was exercisable immediately
prior to the Effective Date) by the Merger Exchange Ratio, rounded to the
nearest whole cent. As soon as practicable after the Effective Date but in no
event later than sixty days after the Effective Date, StarBase shall file a
registration statement on Form S-8 registering the shares underlying the Assumed
Options with the SEC and file with the Nasdaq Stock Market a supplemental
listing application for such shares.
4.12. OBJS Voting Agreement. Senior management of OBJS shall enter
into a voting arrangement to vote to the extent of their combined shares of OBJS
Stock, if any, at the Meeting in favor of the Merger and the transactions
contemplated by this Agreement.
4.13. Fees and Expenses. StarBase, on the one hand, and OBJS, on the
other hand, shall be responsible for, and shall pay, the fees and expenses
incurred by each of StarBase and Subsidiary, and OBJS, respectively, in
connection with the Merger and the transactions contemplated by this Agreement.
4.14. Insurance/Indemnity Agreements. At the Effective Date and for
two years thereafter, StarBase shall procure and maintain for any present or
former director, officer, employee or agent of OBJS (each, an "Indemnitee")
insured against liability by OBJS as of the date hereof an insurance policy
(each, an "Insurance Policy") with respect to any liability
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to OBJS existing at the Effective Date by reason of the fact that such
Indemnitee holds or held such position. The cost to procure and maintain each
Insurance Policy shall be shared equally by StarBase and OBJS. In accordance
therewith, OBJS shall have accrued for an amount equal to 50% of the cost
incurred by StarBase and/or Subsidiary to procure and maintain for the two year
period each Insurance Policy. StarBase further agrees that all provisions with
respect to indemnification by OBJS or with respect to liability to OBJS existing
at the Effective Date in favor of any Indemnitee, as set forth in OBJS's
Certificate of Incorporation, as amended, or By-laws or the agreements in effect
on the date hereof with respect to each of Eugene L. Goda, Jos Henkens, Lester
"Buck" Hill, Sam M. Inman III, Edward B. Marino, James H. Smith and James F.
Sutter, shall survive the Merger and shall continue in full force and effect for
a period of two years.
4.15. OBJS Subsidiaries' Bank Accounts and Corporate Books and
Records. At the Effective Date, certain senior management of StarBase shall be
designated or appointed pursuant to applicable law (contractual or otherwise) as
"authorized signatories" to execute and deliver on behalf of the OBJS
Subsidiaries their respective bank accounts and other institutional or custodial
arrangements, together with all rights associated therewith. Prior to the
Effective Date, OBJS shall, and shall cause the OBJS Subsidiaries to, take all
steps necessary to effect the foregoing.
i.1. Severance Payments.
(i) Anything to the contrary contained in this Agreement
notwithstanding, OBJS shall be permitted to issue immediately prior to the
Merger OBJS Stock to each of Goda, Samuel Inman ("Inman") and Edward B. Merino
("Merino") in an amount having a value equal to the severance amount which would
be otherwise owing to each of them as a result of the Merger - i.e. $240,000,
$50,000 and $25,000, respectively (the "Severance Amount"). Goda, Inman and
Merino shall each be issued the number of shares of OBJS Stock determined by
dividing (i) a fraction, (A) the numerator of which shall be the applicable
Severance Amount, and (B) the denominator of which shall be StarBase Closing
Market Price, by (ii) the Merger Exchange Ratio and, in the case of fractional
shares, such number shall be rounded down to the nearest whole share of OBJS
Stock unless such fractional share is 0.5 of a share or above, in which case
such number shall be rounded up to the nearest whole share of OBJS Stock.
(b) Anything to the contrary contained in this Agreement
notwithstanding, on account of the severance amount which would be otherwise
owing to Smith as a result of the Merger, OBJS shall be permitted (i) to issue
immediately prior to the Merger that number of OBJS Stock to Smith determined by
dividing (A) a fraction, (1) the numerator of which shall $50,000 (constituting
fifty percent (50%) the applicable severance amount otherwise owing to Smith)
and (2) the denominator of which shall be StarBase Closing Market Price, by (B)
the Merger Exchange Ratio and, in the case of fractional shares, such number
shall be rounded down to the nearest whole share of OBJS Stock unless such
fractional share is 0.5 of a share or above, in which case such number shall be
rounded up to the nearest whole share of OBJS Stock and (ii) to pay to Smith the
aggregate sum of $50,000, payable at the Effective Date.
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i.2. Lock-Up Arrangement. Anything contained herein to the contrary
notwithstanding, Smith shall enter into an arrangement as of the Effective Date
pursuant to which Smith shall, for a period of six (6) months after the
Effective Date, lock up and not sell or transfer any StarBase Common Stock
issued to Smith pursuant to the Merger or any of the StarBase Merger Options (as
well as the StarBase Common Stock underlying any such options) granted to Smith
in connection with the Merger; it being understood that stock certificates with
respect to the StarBase Common Stock issued to Smith, either in connection with
the Merger or upon Smith's exercise of StarBase Merger Options, shall bear a
restrictive legend to such effect.
i.3. Rule 16b-3 Exemption. StarBase's Board of Directors, upon
approving the Merger but prior to the consummation of the Merger, shall also
approve, in such form as is required by Rule 16b-3 promulgated by the SEC under
the Exchange Act and is acceptable to OBJS, the deemed acquisition of shares of
StarBase Common Stock issued in connection with the Merger and of StarBase
Merger Options, as applicable, by Smith (including the shares of StarBase Common
Stock issued pursuant to the conversion of OBJS Stock acquired under Section
4.16 hereof) and any other officers of OBJS, if any, who will be (a) exchanging
OBJS Options for the StarBase Merger Options and (b) functioning as officers of
StarBase following the Merger.
5. CONDITIONS OF MERGER.
5.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of the parties hereto to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Date of the following
conditions:
(i) Litigation. No order of any court or administrative
agency shall be in effect which restrains or prohibits the transactions
contemplated hereby, and no claim, suit, action, inquiry, investigation or
proceeding in which it will be, or it is, sought to restrain, prohibit or change
the terms of or obtain damages or other relief in connection with this Agreement
or any of the transactions contemplated hereby, shall have been instituted or
threatened by any person or entity, and which, upon the advice of either counsel
to the parties hereto (based on the reasonable likelihood of success and
material consequences of such claim, suit, action, inquiry or proceeding), makes
it inadvisable to proceed with the consummation of such transactions.
(b) Injunctions. No Federal or state governmental authority or other
agency or commission or court of competent jurisdiction shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
injunction or other order (whether temporary, preliminary or permanent) which is
in effect and has the effect of making the acquisition of OBJS Stock by
Subsidiary illegal or otherwise prohibiting consummation of the transactions
contemplated by this Agreement.
(c) Vote. This Agreement and the Merger contemplated hereby shall have
been approved and adopted by the requisite vote of the holders of the
outstanding shares of OBJS Stock entitled to vote thereon at the Meeting.
A-32
<PAGE> 151
(d) Merger Certificate. Confirmation, in the form satisfactory to the
parties hereto, from the State of Delaware or a filing service (jointly chosen
by the parties hereto) that the Certificate of Merger of OBJS with and into
Subsidiary has been filed with the Secretary of State of Delaware, together with
a copy of the executed form of such agreement.
(e) Registration Statement. The Registration Statement shall have been
declared effective, and no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC or shall be continuing
to be in effect, and no proceedings for that purpose shall have been initiated
or threatened by the SEC.
(f) Consents. All consents, waivers, approvals, licenses and
authorizations by third parties and governmental and administrative authorities
(and all amendments or modifications to existing agreements with third parties)
required as a precondition to the performance by either StarBase, Subsidiary or
OBJS of their respective obligations hereunder and under any agreement delivered
pursuant hereto shall have been duly obtained and shall be in full force and
effect.
(g) Date of Consummation. The Merger shall have been consummated on or
prior to April 17, 2000, or such later date as the parties shall agree by a
written instrument signed by all of them.
5.2. Conditions to the Obligation of OBJS to Effect the Merger. The
obligation of OBJS to effect the Merger shall be subject to the fulfillment at
or prior to the Effective Date of the following additional conditions:
(i) Each of StarBase and Subsidiary shall have performed in
all materials respects their respective obligations under this Agreement
required to be performed by either or both of them on or prior to the Effective
Date pursuant to the terms hereof.
(b) All representations or warranties of StarBase and Subsidiary
in this Agreement which are qualified with respect to a material adverse effect
or materiality shall be true and correct, and all such representations or
warranties that are not so qualified shall be true and correct in all material
respects, in each case as if such representation or warranty was made as of the
Effective Date, except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct as of such specified date.
(c) Each of StarBase and Subsidiary shall have delivered to OBJS
a certificate dated the Effective Date and executed by their respective Chairman
of the Board, President or Vice President to the effect set forth in paragraphs
(a) and (b) of this Section 5.2.
(d) Each of StarBase and Subsidiary shall have delivered to OBJS
a certificate of the secretary of such party, setting forth a copy of their
respective Certificates of
A-33
<PAGE> 152
Incorporation, resolutions adopted by the Board of Directors approving the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, together with a signature and incumbency
certificate.
(e) OBJS shall have received from Parker Chapin Flattau & Klimpl,
LLP, counsel to StarBase and Subsidiary, an opinion dated the Effective Date in
the form reasonably agreed to by the parties hereto.
(f) Since the date of this Agreement, there shall not have been
any material adverse change in the financial condition, results of operations,
assets, properties, liabilities, business or prospects of StarBase.
5.3. Conditions to Obligations of StarBase and Subsidiary to Effect
the Merger. The obligations of StarBase and Subsidiary to effect the Merger
shall be subject to the fulfillment at or prior to the Effective Date of the
following additional conditions:
(i) OBJS shall have performed in all material respects each
of its obligations under this Agreement required to be performed by it on or
prior to the Effective Date pursuant to the terms hereof.
(b) All representations or warranties of OBJS in this Agreement
which are qualified with respect to a Material Adverse Effect or materiality
shall be true and correct, and all representations or warranties that are not so
qualified shall be true and correct in all material respects, in each case as if
such representation or warranty were made as of the Effective Date except to the
extent that any such representation or warranty is made as of a specified date,
in which case such representation or warranty shall have been true and correct
as of such specified date.
(c) Since the date of this Agreement, there shall not have been
any material adverse change in the financial condition, results of operations,
assets, properties, liabilities, business or prospects of OBJS.
(d) OBJS shall have delivered to StarBase and Subsidiary a
certificate of its Chairman of the Board, President or Vice President to the
effect set forth in paragraphs (a), (b) and (c) to this Section 5.3.
(e) OBJS shall have delivered to StarBase and Subsidiary a
certificate of the secretary of OBJS, setting forth a copy of its Certificate of
Incorporation, By-laws and the resolutions having been adopted by the Board of
Directors approving the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, together with a signature
and incumbency certificate.
(f) StarBase shall have received from Paul, Hastings, Janofsky &
Walker LLP, counsel to OBJS, an opinion dated the Effective Date in the form
reasonably agreed to by the parties hereto.
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<PAGE> 153
6. TERMINATION, AMENDMENT AND WAIVER.
6.1. Termination. Notwithstanding anything to the contrary contained
in this Agreement, this Agreement may be terminated and the Merger contemplated
hereby abandoned at any time prior to the Effective Date and before approval by
the stockholders of OBJS, as follows:
(i) by mutual consent of the parties hereto;
(b) by any party hereto if any of the conditions set forth in
Section 5.1 hereto are not waived or satisfied on or before the Effective Date;
provided that neither party may terminate under this paragraph (b) if such
failure has been caused by that party's material breach of this Agreement;
(c) by either OBJS, on the one hand, or StarBase and Subsidiary,
on the other hand, if (i) any of the conditions set forth in Section 5.2 or 5.3
hereto, respectively, are not satisfied or waived or (ii) any time prior to or
on the fifteenth (15th) business day after the date hereof (which date may be
extended by five (5) business days) provided that the parties are in good faith
proceeding with respect to the due diligence inquiry, in connection with its due
diligence review pursuant to Section 4.1 hereof, as the Investigating Party,
OBJS or StarBase and Subsidiary, the case may be, shall discover any fact, event
or condition with respect to the other party which in such Investigating Party's
sole judgment makes it inadvisable for it to consummate the Merger on the terms
and conditions, including the consideration, provided for herein; provided that
neither party may terminate under this paragraph (c) if such failure has been
caused by that party's material breach of this Agreement;
(d) by OBJS, if (i) the stockholders of OBJS shall have failed to
vote in favor of this Agreement and the Merger or (ii) the Board of Directors of
OBJS shall have failed to recommend, or withdrawn, modified or amended in any
respect its approval or recommendation of the Merger and of the transactions
contemplated hereby, or such Board of Directors shall have resolved to do any of
the foregoing, by reason of a Third Party Transaction and, in which case, OBJS
having paid to StarBase the Termination Fee (as defined in Section 6.2 hereof).
(e) by StarBase, if (i) the sum of the Enterprise Value Factors
exceed a negative balance of $2,500,000, (ii) the number of shares of StarBase
Common Stock to be issued as Merger Consideration will exceed 4,750,000 shares
of StarBase Common Stock, unless OBJS is otherwise willing to consummate the
transactions contemplated by this Agreement for an aggregate Merger
Consideration of 4,750,000 shares of StarBase Common Stock, which aggregate
number of shares shall be adjusted as appropriate to account for any split,
combination or reclassification with respect to the StarBase Common Stock, (iii)
the aggregate amount of Dissenting Stock equals or exceeds five percent (5%) of
the issued and outstanding shares of OBJS Stock as of the record date with
respect to the Meeting to be held pursuant to Section 4.7 hereof, or (iv) there
is a breach of any of the representations and
A-35
<PAGE> 154
warranties of OBJS which are qualified with respect to a Material Adverse Effect
or materiality or if OBJS shall have breached in any material respect any of
such representations or warranties which are not so qualified, or if OBJS fails
to comply in any material respect with any of its covenants or agreements
contained herein, which breaches or failures, as the case may be, are, in the
aggregate, material in the context of the transactions contemplated by this
Agreement;
(f) by OBJS, if there is a breach of any of the representations
and warranties of either StarBase or Subsidiary which are qualified with respect
to a material adverse effect or materiality or if either StarBase or Subsidiary
shall have breached in any material respect any of their respective
representations or warranties which are not so qualified, or if either StarBase
or Subsidiary fails to comply in any material respect with any of their
respective covenants or agreements contained herein, which breaches or failures,
as the case may be, are, in the aggregate, material in the context of the
transactions contemplated by this Agreement; or
(g) by any party hereto if the Effective Date of the Merger is
not on or before April 17, 2000, or such later date as may be agreed upon by the
parties hereto in writing; provided that neither party may terminate under this
paragraph (g) if such failure has been caused by that party's material breach of
this Agreement.
In the event of termination and abandonment pursuant to this Section 6.1,
this Agreement shall, except as otherwise provided in Section 7.1 hereof,
forthwith become null and void and there shall be no liability on the part of
any party hereto under any provision hereof; provided, however, that
notwithstanding the provisions of the foregoing sentence, nothing in this
Agreement shall relieve any party from liability for any wilful breach of the
terms hereof.
6.2. Termination Fee. If this Agreement is terminated by OBJS pursuant
to Section 6.1(d)(ii) as a result of a Third Party Transaction, then OBJS shall,
simultaneously with such termination, pay to StarBase by wire transfer of
immediately available funds the sum of $500,000, together with any and all
reasonable legal, accounting, investment banking and other such fees and
expenses incurred by StarBase and Subsidiary in connection with the transactions
contemplated by this Agreement, which other such fees and expenses shall not
exceed, in the aggregate, $200,000 (collectively, the "Termination Fee").
6.3. Waiver. At any time prior to the Effective Date, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
7. GENERAL PROVISIONS.
7.1. Survival. All representations, warranties and agreements
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall terminate and be extinguished at the Effective Date or the
earlier date of termination of this
A-36
<PAGE> 155
Agreement pursuant to Section 6.1, as the case may be, except that the
agreements set forth in Article I and in Sections 4.1(b), 4.2, 4.3, 4.5 and 7.2
hereof will survive the Effective Date indefinitely and those set forth in
Sections 4.13, 6.2 and 7.2 hereof will survive the termination of this Agreement
indefinitely, and other than any covenant the breach of which has resulted in
the termination of this Agreement.
7.2. Publicity. StarBase, Subsidiary and OBJS shall consult with each
other prior to issuing any press release or otherwise making any public
statement with respect to the contents of this Agreement or the transactions
contemplated hereby, and none of the parties hereto shall issue any such press
release or make any such public statement prior to having such consultation and
using the best efforts to obtaining the consent of the other parties hereto,
except as may be required by law or applicable stock exchange or NASDAQ
regulations.
7.3. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date received. Notices shall be either delivered personally,
deposited with courier, sent by telecopy, or mailed by registered or certified
mail (postage prepaid, return receipt requested), to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
If to StarBase or Subsidiary: StarBase Corporate
4 Hutton Drive, Suite 800
Santa Ana, CA 92707
Attn: Doug Norman
Fax: (714) 445-4482
with a copy to: Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attn: Martin Weisberg, Esq.
Fax: (212) 704-6228
If to OBJS: ObjectShare, Inc.
16811 Hale Avenue, Suite A
Irvine, CA 92606
Attn: Eugene Goda
Fax: (949) 253-3720
with a copy to: Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive
Costa Mesa, CA 92626-1924
Attn: William J. Simpson, Esq.
Fax: (714) 979-1921
A-37
<PAGE> 156
7.4. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the greatest extent possible.
i.1. Specific Performance. Each of the parties hereto acknowledges and
agrees that the other parties hereto would be irreparably damaged in the event
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. Accordingly, each of the
parties hereto agrees that they each shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and conditions hereof in any
action instituted in any court of the United States or any state having
competent jurisdiction, in addition to any other remedy to which such party may
be entitled, at law or in equity.
i.2. Definition of Knowledge. As used in this Agreement, "knowledge"
with respect to OBJS shall mean the knowledge, after due inquiry, of the
officers and directors of OBJS.
7.5. Entire Agreement. This Agreement and the agreements referred to
herein constitute the entire agreement, and supersede all prior agreements,
representations and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof.
7.6. Amendment. Subject to the applicable provisions of Delaware Law,
this Agreement may be amended by the parties hereto solely by action taken by
their respective Boards of Directors. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
7.7. No Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefits of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations shall be assigned by any of the parties
hereto without the prior written consent of the other parties, provided that the
rights and duties of Subsidiary hereunder may be assigned to another
wholly-owned subsidiary of StarBase, which assumes all of Subsidiary's duties
and obligations. This Agreement is not intended to confer upon any other person
any rights or remedies hereunder.
7.8. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the law of the State of Delaware, without regard to its
choice of law principles.
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<PAGE> 157
i.1. Headings. The headings contained are for convenience of reference
only and shall in no way be deemed to limit or affect the meaning or
interpretation of any of the terms or provisions hereof.
7.9. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
A-39
<PAGE> 158
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first written above.
STARBASE CORPORATION
By: /s/ Douglas S. Norman
-------------------------------------
Name: Douglas S. Norman
Title: Director of Finance
OBJS ACQUISITION CORP.
By: /s/ Douglas S. Norman
-------------------------------------
Name: Douglas S. Norman
Title: Director of Finance
OBJECTSHARE, INC.
By: /s/ Eugene L. Goda
-------------------------------------
Name: Eugene L. Goda
Title: President and CEO
A-40
<PAGE> 159
APPENDIX B
FINANCIAL STATEMENTS
OF
STARBASE CORPORATION
INDEX
<TABLE>
<S> <C>
YEAR-END FINANCIAL STATEMENTS (AUDITED)
Independent Auditors Report....................................... B-2
Report of Independent Accountants................................. B-3
Balance Sheets at March 31, 1999 and 1998......................... B-4
Statements of Operations for the years ended March 31,
1999 and 1998................................................. B-5
Statements of Cash Flows for the years ended March 31,
1999 and 1998................................................. B-6
Statements of Shareholders' Equity for the years ended
March 31, 1999 and 1998....................................... B-8
Notes to Financial Statements..................................... B-9
FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED
SEPTEMBER 30, 1999 (UNAUDITED)
Balance Sheets as of September 30, 1999 (unaudited)
and March 31, 1999 (audited).................................. B-23
Statements of Operations for the three and six
months ended September 30, 1999 and 1998 (unaudited).......... B-24
Statements of Cash Flows for the three and six months
ended September 30, 1999 and 1998 (unaudited)................. B-25
Notes to Financial Statements..................................... B-26
</TABLE>
B-1
<PAGE> 160
INDEPENDENT AUDITORS REPORT
To The Board of Directors and
Stockholders of StarBase Corporation
We have audited the accompanying balance sheet of StarBase Corporation (the
Company) as of March 31, 1999, and the related statement of operations,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of StarBase Corporation at March 31, 1999, and
the results of its operations and cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's working capital is insufficient to support
the Company's projected operating needs. Additionally the Company has
experienced recurring losses from operations. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans concerning this matter are described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Deloitte & Touche LLP
Costa Mesa, California
June 18, 1999
B-2
<PAGE> 161
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and
Stockholders of StarBase Corporation
In our opinion, the balance sheet and the related statements of operations, of
stockholders' equity and of cash flows as of and for the year ended March 31,
1998 present fairly, in all material respects, the financial position, results
of operations and cash flows of StarBase Corporation as of and for the year
ended March 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to this matter are described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
PricewaterhouseCoopers LLP
Costa Mesa, California
June 26, 1998
B-3
<PAGE> 162
STARBASE CORPORATION
BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,363 $ 4,167
Restricted cash 39 -
Marketable securities 121 -
Accounts receivable, net of allowances of $155 (1999)
and $89 (1998) 2,528 464
Notes and other receivables 9 45
Inventories 51 57
Prepaid expenses and other assets 214 113
-------- --------
Total current assets 4,325 4,846
Property and equipment, net 987 747
Developed technology, net 971 -
Note receivable from officer 94 76
Long-term restricted cash 79 -
Other non-current assets 149 13
-------- --------
Total assets $ 6,605 $ 5,682
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,264 $ 941
Deferred revenue 658 263
Current portion of long-term debt 95 10
-------- --------
Total current liabilities 2,017 1,214
Long-term liabilities:
Long-term debt, less current portion 116 38
Other long-term liabilities 10 -
-------- --------
Total long-term liabilities 126 38
-------- --------
Total liabilities 2,143 1,252
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized,
588,993 and 3,772,952 shares issued and outstanding at
March 31, 1999 and March 31, 1998; liquidation preference
of $4,916 (March 31, 1999) and $4,716 (March 31, 1998) 6 38
Common stock, $.01 par value; 50,000,000 shares authorized;
28,636,362 and 18,580,499 shares issued and outstanding
at March 31, 1999 and March 31, 1998 286 186
Additional paid-in capital 56,208 46,287
Accumulated deficit (52,038) (42,081)
-------- --------
Total stockholders' equity 4,462 4,430
-------- --------
Total liabilities and stockholders' equity $ 6,605 $ 5,682
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-4
<PAGE> 163
STARBASE CORPORATION
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years
ended March 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues:
License $ 5,262 $ 1,481
Maintenance, training and consulting 868 276
Royalty 702 382
-------- --------
Total revenues 6,832 2,139
Cost of Revenues:
Products, licenses and other 508 162
-------- --------
Gross margin 6,324 1,977
Operating Expenses:
Research and development 4,437 2,762
Selling, general and administrative 10,601 5,370
-------- --------
Total operating expenses 15,038 8,132
-------- --------
Operating loss (8,714) (6,155)
Total interest and other income
expense 32 (877)
-------- --------
Loss before income taxes (8,682) (7,032)
Provision for income taxes 1 1
-------- --------
Net loss (8,683) (7,033)
Non-cash dividend and accretion
of beneficial conversion feature 1,277 2,832
-------- --------
Net loss applicable to
common stockholders $ (9,960) $ (9,865)
======== ========
Per share data:
Basic and diluted net loss per
common share $ (0.49) $ (0.70)
======== ========
Basic and diluted weighted
average number of common shares
outstanding 20,526 14,126
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-5
<PAGE> 164
STARBASE CORPORATION
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the years ended March 31,
-------------------------------
1999 1998
------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(8,683) $(7,033)
Adjustments to reconcile net loss to
net cash used in operating activities:
Non-cash interest - 933
Depreciation and amortization 386 238
Provision for doubtful accounts 66 24
Loss on disposition of property, equipment 7 -
and capital lease
Deferred revenue 397 160
Stock option compensation expense 177 -
Other adjustments - 19
Changes in operating assets and liabilities:
Accounts receivable (2,130) (370)
Notes and other receivables 36 38
Inventories 6 (23)
Prepaid expenses 150 199
Other non- current assets (156) (6)
Accounts payable and accrued liabilities 314 159
------- -------
Net cash used in operating activities (9,430) (5,662)
Cash Flows from Investing Activities:
Increase in restricted cash (118) -
Increase in marketable securities (121) -
Capital expenditures (600) (407)
------- -------
Net cash used in investing activities (839) (407)
Cash Flows from Financing Activities:
Proceeds from sale of preferred stock 7,053 4,950
Proceeds from issuance of common stock:
Private placements 60 -
For payment of expenses 152 -
Exercise of options 61 181
Exercise of warrants 581
Proceeds from convertible debentures - 3,100
Payment of financing related costs (358) (711)
Payments on capitalized lease obligations (84) (6)
------- -------
Net cash provided from financing activities 7,465 7,514
------- -------
Net increase in cash and cash equivalents (2,804) 1,445
Cash and cash equivalents, beginning of year 4,167 2,722
------- -------
Cash and cash equivalents, end of year $ 1,363 $ 4,167
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-6
<PAGE> 165
STARBASE CORPORATION
SUPPLEMENTAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
For the years ended
March 31,
------------------
1999 1998
====== ======
<S> <C> <C>
Interest paid in cash $ 16 $ 11
====== ======
Income taxes paid $ 5 $ 1
====== ======
Non-cash investing and financing transactions:
Non-cash preferred stock and common stock
dividends (Note 7) $1,277 $4,492
Conversion of preferred stock to
common stock (Note 7) 85 8
Conversion of debentures to equity (Note 7) - 2,875
Conversion of warrants to
common stock (Note 7) - 16
Capitalized lease financing 16 54
Capitalized insurance financing 252 -
Options for services provided - 28
Issuance of common stock for developed
technology (Note 7) 987 -
</TABLE>
B-7
<PAGE> 166
STARBASE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Additional Total
Preferred Stock Common Stock Stock Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Subscribed Capital Deficit Equity
-------- -------- -------- -------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 25 $ - 13,319 $ 133 $ - $ 33,414 $(30,556) $ 2,991
Preferred stock conversion to common (710) (7) 855 9 - (2) - -
Preferred stock issued - Series D 1,200 12 - - - 1,347 - 1,359
Preferred stock issued - Series E 2,873 29 - - - 3,105 - 3,134
Preferred stock issued - Series F 385 4 - - - 477 - 481
Warrants converted to common stock - - 1,581 16 - (16) - -
Debentures converted to common stock - - 2,704 27 - 3,263 - 3,290
Stock options exercised - - 121 1 - 179 - 180
Options for services provided - - - - - 28 - 28
Non-cash dividend - - - - - 4,492 (4,492) -
Net loss - - - - - - (7,033) (7,033)
-------- -------- -------- -------- ------- -------- -------- --------
Balance at March 31, 1998 3,773 38 18,580 186 - 46,287 (42,081) 4,430
-------- -------- -------- -------- ------- -------- -------- --------
Preferred stock conversion to
common stock (3,191) (32) 8,500 85 - (53) - -
Preferred stock issued - Series D - - - - - (8) - (8)
Preferred stock issued - Series E - - - - - (26) - (26)
Preferred stock issued - Series F - - - - - (4) - (4)
Preferred stock issued - Series G 3 - - - - 2,866 - 2,866
Preferred stock issued - Series H 3 - - - - 2,938 - 2,938
Preferred stock issued - Series I 1 - - - - 884 - 884
Options and warrants issued - - - - - 177 - 177
for services provided
Common stock issued:
Exercise of options - - 49 - - 61 - 61
Exercise of warrants - - 688 7 - 623 - 630
Asset Purchase & Sale - - 625 6 - 981 - 987
Private Placement - - 38 - - 58 - 58
Payment of liabilities - - 156 2 - 150 - 152
Non-cash dividend - - - - - 1,277 (1,277) -
Net loss - - - - - - (8,683) (8,683)
-------- -------- -------- -------- ------- -------- -------- --------
Balance at March 31, 1999 589 $ 6 28,636 $ 286 $ - $ 56,208 $(52,038) $ 4,462
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-8
<PAGE> 167
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
StarBase Corporation, a Delaware corporation (the "Company"), is a leading
provider of advanced Internet and intranet based technical collaboration
products for web site application production and software configuration
management (SCM). The Company develops, markets and supports team-oriented
development software that targets the evolving needs of corporate information
technology (IT) structures which support projects requiring technical
collaboration on an enterprise level. The Company's current product line
consists of the recently launched products StarTeam(R) 4.0 and Enterprise Suite,
as well as StarSweeper, StarContent, RoundTable(R) and Versions(R).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
RESTRICTED CASH
On September 17, 1998, the Company pledged $118,000 of cash for an irrevocable
letter of credit related to the lease of new office space that was classified as
restricted cash on the balance sheet. The letter of credit will be reduced by
33.33% each year and will expire on July 2, 2001.
ACCOUNTS RECEIVABLE
The Company sells its products worldwide. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. The
Company maintains reserves for potential credit losses and those losses have
been within management's expectations. Allowance for product returns and price
protection are included in accounts receivable on the accompanying balance
sheets.
One customer represented 10% of total revenue for the year ended March 31, 1999,
and 18% of total revenue for the year ended March 31, 1998. At March 31, 1999
and March 31, 1998 no one customer comprised greater than 10% of outstanding
accounts receivable.
MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. This standard
requires the Company to classify and account for investments in equity
securities that have readily determinable fair values and all debt securities as
follows: (1) debt securities that the Company has the intent and the ability to
hold to maturity are classified as held-to-maturity securities and are reported
at amortized cost; (2) debt and equity securities that are bought and held
principally for the purpose of selling them in the near-term are classified as
trading securities and are reported at fair value, with unrealized gains and
losses included in earnings; and (3) debt and equity securities not classified
as held-to-maturity securities or trading securities are classified as
available-for-sale securities and reported at fair value, with unrealized gains
and losses excluded from earning and reported as a separate component of
stockholders' equity.
B-9
<PAGE> 168
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
INVENTORIES
Inventories consist of the Company's software products and packaging and are
stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Depreciation and amortization are calculated under the
straight-line basis over the shorter of the estimated useful lives of the
respective assets, generally three to seven years, or the related lease term. At
March 31, 1999, and March 31, 1998, property and equipment included equipment
under capital lease, net of accumulated amortization, of $60,000 and $51,000
respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for the impairment and disposition of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." In accordance with SFAS 121, long-lived assets to be held are
reviewed for events or changes in circumstances which indicate that their
carrying value may not be recoverable. The Company periodically reviews the
carrying value of long-lived assets to determine whether or not an impairment to
such value has occurred and has determined based on its most recent assessment
that there was no impairment at March 31, 1999.
DEVELOPED TECHNOLOGY
Developed technology (net of accumulated amortization of $16,500 at March 31,
1999) is amortized on a straight-line basis over 5 years.
REVENUE RECOGNITION
During October 1997, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 97-2, Software Revenue Recognition, which provides
guidance in recognizing revenue on software transactions. SOP 97-2 is effective
for transactions entered into in fiscal years beginning after December 15, 1997,
and supersedes SOP 91-1. The Company adopted this statement, as amended, during
the year ended March 31, 1999.
Software license revenue is recognized upon shipment of packaged products.
Software maintenance revenue is recorded as deferred revenue and recognized
ratably over the contractual maintenance period, generally twelve months.
Revenue from training, which is recognized after the related services have been
performed, totaled $72,000 for the year ended March 31, 1999 and $12,000 for the
year ended March 31, 1998. Royalty revenue pertains to sales of the Company's
Roundtable Total Software Management System licensed to a distributor for
resale. Such revenue is recorded at the time the distributor sells the licensed
product.
WARRANTIES AND RETURNS
The Company warrants products against defects for 90 days and has a policy
permitting the return of products within 30 days. Warranty costs and returns,
which are not significant, have historically been within management's
expectations.
B-10
<PAGE> 169
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
RESEARCH AND DEVELOPMENT
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," technological feasibility is typically established when a working
model is completed and its consistency with product design has been confirmed by
testing. As technological feasibility typically is established immediately prior
to first customer shipment, capitalizable research and development costs are
insignificant. Consequently research and development costs related to the
development of the Company's software systems are expensed as incurred.
INCOME TAXES
The Company follows the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements and tax returns.
Deferred tax assets and liabilities are determined based upon the difference
between the financial statement and tax bases of assets and liabilities, using
the enacted tax rates in effect for the year in which the differences are
expected to reverse. A valuation allowance is provided when it is more likely
than not that deferred tax assets will not be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments of the Company consist of cash and cash equivalents,
marketable securities, accounts, notes and other receivables, accounts payable
and accrued liabilities, and capital lease obligation. The carrying amount of
the Company's capital lease obligation approximates fair market value based on
prevailing market rates. The Company's other financial instruments generally
approximate their fair values at March 31, 1999 and 1998 based on the short-term
nature of these instruments.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees."
NET LOSS PER SHARE
Basic loss per share applicable to common stockholders is computed using the
weighted average number of common shares outstanding during the periods
presented. Diluted loss per share applicable to common stockholders is computed
using the weighted average number of common and common equivalent shares
outstanding during the periods presented assuming the exercise of the Company's
stock options, warrants, and potential shares (Escrow Shares). Common equivalent
shares have not been included where inclusion would be antidilutive. Escrow
Shares can be released to the founders upon attaining certain defined cash flow
requirements. The release of the Escrow Shares will be deemed compensatory and,
accordingly, will result in charges to earnings equal to the fair market value
of these shares recorded ratably over the period beginning on the date when
management determines that the cash flow requirements are probable of being met
and ending on the date when the goal is attained, causing the Escrow Shares to
be released. At the time a goal is attained, previously unrecognized
compensation expense will be adjusted by a one-time charge based on the then
fair market value of the shares released from escrow. Such charges could
substantially reduce the Company's net income or increase the
B-11
<PAGE> 170
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Company's loss for financial reporting purposes in the periods such charges are
recorded. Based upon historical results, the attainment of the goal is not
probable at this time. However, this does not preclude the attainment of the
goal with future results.
FOR THE YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Net Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ----------
<S> <C> <C> <C>
BASIC AND DILUTED LOSS PER SHARE
Net loss $ (8,683)
Non-cash dividend (1,277)
------------
BASIC LOSS TO COMMON STOCKHOLDERS PER SHARE (9,960) 20,526 $ (0.49)
==========
Effect of Dilutive Securities - -
------------ -------------
DILUTIVE LOSS TO COMMON STOCKHOLDERS PER SHARE $ (9,960) 20,526 $ (0.49)
============ ============= ==========
</TABLE>
FOR THE YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Net Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ----------
<S> <C> <C> <C>
BASIC AND DILUTED LOSS PER SHARE
Net loss $ (7,033)
Non-cash dividend (2,832)
------------
BASIC LOSS TO COMMON STOCKHOLDERS PER SHARE (9,865) 14,126 $ (0.70)
==========
Effect of Dilutive Securities - -
------------ -------------
DILUTIVE LOSS TO COMMON STOCKHOLDERS PER SHARE $ (9,865) 14,126 $ (0.70)
============ ============= ==========
</TABLE>
Common stock equivalents, which consist of options to purchase 2,091,067 shares
of common stock at prices ranging from $0.625 to $3.44 per share, warrants to
purchase 2,984,388 shares of common stock at prices ranging from $0.59 to $3.25
per share, and 1,418,638 common shares held in escrow were not included in the
computation of diluted loss per share because such inclusion would have been
antidilutive for the year ended March 31, 1999. Common stock equivalents, which
consist of options to purchase 3,420,527 shares of common stock at prices
ranging from $0.84 to $3.44 per share, warrants to purchase 2,177,722 shares of
common stock at prices ranging from $1.25 to $1.80 per share, and 1,418,638
common shares held in escrow were not included in the computation of diluted
loss per share because such inclusion would have been antidilutive for the year
ended March 31, 1998.
REPORTING CURRENCY
The accompanying financial statements are reported in the currency of the United
States of America. Certain warrants are denominated in Canadian dollars and are
indicated as CDN$.
B-12
<PAGE> 171
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
USE OF ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles, which require management to make estimates and
assumptions that affect the amounts and disclosures reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130 "Reporting Comprehensive Income." This
statement established standards for the reporting of comprehensive income and
its components. Comprehensive income, as defined, includes all changes in equity
(net assets) during a period from non-owner sources. For each of the years ended
March 31, 1999 and 1998, there was no difference between net loss and
comprehensive loss.
OPERATING SEGMENT
In accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and
related information, the Company has determined that is has one operating
segment which operates in North America.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which the Company
is required to adopt effective in its fiscal year 2000. SFAS No. 133 will
require the Company to record all derivatives on the balance sheet at fair
value. The Company does not currently engage in hedging activities but will
continue to evaluate the effect of adopting SFAS No. 133. The Company will adopt
SFAS No. 133 in its fiscal year 2000.
2. BASIS OF PRESENTATION
Management believes based upon projected operating needs that the Company's
working capital is insufficient for the Company to maintain its current level of
operating activities through March 31, 2000. The Company has also experienced
recurring losses from operations. These factors, among others, raise substantial
doubt about the Company's ability to continue as a going concern. The Company is
currently in the process of negotiating additional financing through the private
placement of common and/or convertible Preferred stock. The Company believes
that proceeds from the sale of debt and equity securities during fiscal year
2000, combined with operating revenues, will be sufficient to allow the Company
to conduct its operations during the fiscal year ended March 31, 2000. While the
Company has successfully raised equity capital in the past, there can be no
assurance that the Company will be successful in their efforts to obtain
additional financing in the future.
B-13
<PAGE> 172
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
3. COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS
<TABLE>
<CAPTION>
(In thousands) March 31,
-----------------------
1999 1998
------- -------
<S> <C> <C>
Property and equipment:
Computer hardware $ 1,337 $ 1,110
Furniture and fixtures 315 255
Computer software 199 269
Leasehold improvements 198 40
------- -------
2,049 1,674
Less accumulated depreciation and
amortization (1,062) (927)
------- -------
$ 987 $ 747
======= =======
Accounts payable and accrued
liabilities:
Trade accounts payable $ 640 $ 390
Accrued professional fees 86 255
Accrued wages and benefits 493 205
Other accrued expenses 45 91
------- -------
$ 1,264 $ 941
======= =======
</TABLE>
4. MARKETABLE SECURITIES
At March 31, 1999, the Company's marketable securities represent
available-for-sale securities that have been recorded at fair value and are
comprised of one equity stock for which its fair value approximates its cost.
5. CAPITAL LEASE AND LONG-TERM OBLIGATIONS
The Company is the lessee of certain office equipment under capital leases that
expire in 2002 and 2003. The assets are depreciated over their estimated useful
life.
B-14
<PAGE> 173
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
The future annual minimum lease payments under the capital leases are as
follows:
<TABLE>
<CAPTION>
Years ending March 31: (in thousands)
<S> <C>
2000 $ 21
2001 21
2002 20
2003 3
2004 2
---------
Total minimum lease payments 67
Less amount representing interest (15)
---------
Present value of minimum lease payments 52
Less current maturities (14)
---------
$ 38
=========
</TABLE>
In September 1998, the Company financed the renewal of its commercial insurance
(1 year policy) and director's and officer's insurance (3 year policy). The
asset is amortized over the life of the policies and the amortization is
included in general and administrative expense.
The future annual minimum payments under the financing are as follows:
<TABLE>
<CAPTION>
Years ending March 31: (in thousands)
<S> <C>
2000 $ 92
2001 81
----------
Total minimum payments 173
Less amount representing interest (14)
----------
Present value of minimum payments 159
Less current maturities (81)
----------
$ $78
==========
</TABLE>
B-15
<PAGE> 174
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
6. INCOME TAXES
The Company has recorded a valuation allowance equal to the current and deferred
provision for federal income tax benefit for all periods to date, as a result of
losses incurred since its inception. The provision for income taxes represents
the minimum required for state taxes. At March 31, 1999, the Company had net
operating loss carryforwards of approximately $36.8 million and $17.6 million
for federal and state income tax purposes, respectively, expiring in varying
amounts through the year 2019 which are available to offset future federal and
state taxable income. The ability of the Company to utilize the federal and
state net operating loss carryforwards may be subject to annual limitations
under certain provisions of the Internal Revenue Code, as a result of ownership
changes.
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
(In thousands) March 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Net operating loss carryforwards $ 14,451 $ 11,995
State taxes (711) -
Accounts and notes receivable allowances 34 28
Accrued expenses 188 26
Deferred income 289 109
Credits 990 -
Deferred tax asset valuation allowance (15,241) (12,158)
-------- --------
Net deferred tax assets $ - $ -
======== ========
</TABLE>
7. EQUITY TRANSACTIONS
The Company has authorized 50,000,000 shares of common stock and 10,000,000
shares of preferred stock with a par value of $0.01 per share. Of the preferred
stock, 584,808 shares of Series E, 3,185 shares of Series H and 1,000 shares of
Series I are outstanding at March 31, 1999.
The Company accounts for the beneficial conversion feature of convertible
preferred stock in accordance with Emerging Issues Task Force Topic No. D-60.
Under Topic No. D-60, the beneficial conversion feature of convertible preferred
stock is recognized as a dividend and additional paid-in capital. The amount of
the beneficial conversion feature is measured at the date of issue of the
convertible security as the difference between the conversion price and the
market value of the common stock into which the security is convertible. This
amount is recorded as a non-cash dividend, with a corresponding increase to
additional paid-in capital and is recognized over the period from issuance date
to the date the preferred stock is first convertible. Thus, there is non effect
on total stockholders' equity.
ACTIVITY FOR YEAR ENDED MARCH 31, 1999
During the year ending March 31, 1999, 900,000 shares of Series D Preferred
Stock, 2,288,145 shares of Series E Preferred Stock, and 3,100 shares of Series
G Preferred Stock were converted into 1,068,982, 2,288,145 and 5,142,550 shares
of common stock, respectively.
B-16
<PAGE> 175
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Effective July 31, 1998, the Company completed a private placement of 3,100
shares of Series G Preferred Stock for $3,000,000. The Series G Preferred Stock
is not redeemable and has a liquidation preference of $1,000 per share. The
holders of Series G Preferred Stock are 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. Each share of Series G Preferred Stock is convertible,
after 120 days, into the Company's 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) $1.66 or (b) 95% of the average closing bid price of
the three lowest bid prices of common stock as reported by Bloomberg, L.P. for
shares traded in the United States during the 22 consecutive trading days
preceding the conversion date. In conjunction, the Company issued 805,234
warrants related to the Series G Preferred Stock. Of these warrants, 635,034 are
exercisable for one share of common stock at $0.75 through August 31, 2000,
after which the warrants will expire and 170,200 warrants are exercisable for
one share of common stock at a range of $0.59 to $0.84, expiring from November
10, 2000 to January 4, 2001. The fair value of these warrants using the
Black-Scholes pricing model at the date of grant was $201,354 and was recorded
as a non-cash dividend at the time of issuance.
During November 1998, the Company entered into agreements to complete a three
phase private placement consisting of 3,185 shares of Series H Preferred Stock
for $3,000,000. The first phase closed in November 1998, the second phase closed
in December 1998 and the third phase closed in February 1999. The Series H
Preferred Stock is not redeemable and has a liquidation preference of $1,000 per
share. The holders of Series H Preferred Stock are 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. Each share of Series H Preferred Stock is
convertible, after 120 days, into the Company's 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) 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 each Closing Date (the "Closing Price") or (b) the
average of the two (2) lowest closing bid prices of the common stock during the
thirty (30) trading days preceding the conversion date. In conjunction, the
Company issued 323,025 warrants with the Series H Preferred Stock. One-third of
the warrants is exercisable for one share of common stock at $0.95 through
November 24, 2003, one-third of the warrants is exercisable for one share of
common stock at $0.73 through December 20, 2003, and one-third of the warrants
is exercisable for one share of common stock at $1.93 through February 8, 2004
after which the warrants will expire. The fair value of these warrants using the
Black-Scholes pricing model at the date of grant was $177,642.
Effective January 26, 1999, the Company completed a private placement of 37,736
shares of restricted Common Stock for $60,000 to Company executives. The Company
also issued 7,548 warrants to purchase shares of common stock at $1.59 through
January 26, 2001.
On January 19, 1999, the Company entered into an accounts receivable purchase
agreement with Silicon Valley Bank for up to $2,000,000 of receivables. In
conjunction with the agreement, the Company issued 55,452 warrants to purchase
shares of common stock at $1.08 exercisable through January 19, 2004. At March
31, 1999, the Company has not sold any of its receivables pursuant to this
agreement.
B-17
<PAGE> 176
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Effective March 16, 1999, the Company completed a private placement of 1,000
shares of Series I Preferred Stock for $1,000,000. The Series I Preferred Stock
is not redeemable and has a liquidation preference of $1,000 per share. The
holders of Series I Preferred Stock are 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. Each share of Series I Preferred Stock is convertible,
after 120 days, into the Company's 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 during the thirty (30)
consecutive trading days preceding the conversion date. In conjunction, the
Company issued 253,333 warrants with the Series I Preferred Stock. Each warrant
is exercisable for one share of common stock at $1.50 through March 16, 2002,
after which the warrants will expire. The fair value of these warrants using the
Black-Scholes pricing model at the date of grant was $198,360.
On March 17, 1999, the Company completed the purchase of certain intangible
assets of Site Technologies, Inc. for 625,000 shares of restricted Common Stock
valued at $987,500. The purchase price was allocated to intangible assets. The
purchase provides for the exclusive ownership and distribution rights of Site
Technologies core technology assets including the SiteSweeper, SiteMaster,
QuickSite, WebTools and SiteMarks products and related assets. The technologies
will be integrated with the Company's StarTeam product line, to produce a
next-generation technical collaboration and content management solution for
e-commerce application development.
ACTIVITY FOR THE YEAR ENDED MARCH 31, 1998
In June 1997, the Company offered to exchange its common stock for then all
outstanding warrants. Holders of 4,743,534 warrants tendered, thereby receiving
1,581,178 shares of Common Stock. Warrant holders received one share of common
stock for every three warrants. The differential value of the stock on the offer
date over the calculated value of the warrants, aggregated $1,660,000 and has
been reflected as a non-cash dividend, with a corresponding increase in
additional paid-in capital.
In August and September 1997, the Company issued $3,100,000 in convertible 6%
debentures. The conversion benefit applicable to the debentures, calculated at
$870,000, has been accounted for as a non-cash interest charge, with a
corresponding addition to additional paid-in capital. The sale of the debentures
included the issuance of an aggregate of 82,668 warrants to purchase the
Company's common stock. The warrants are exercisable into the Company's common
stock at prices ranging from $1.58 to $1.80 and expire after three years. The
estimated value of the warrants, utilizing the Black-Scholes Model, was $85,000
and is being amortized over the two-year life of the debentures as additional
interest. In conjunction, 117,167 warrants were issued as finders' fees to the
selling group on the same terms, valued at approximately $120,000. During the
year, holders of $2,630,000 debentures converted their debentures into 2,703,823
shares of the Company's common stock. When the debentures were converted, the
corresponding unamortized warrant value and debt issuance costs were offset to
additional paid-in capital.
The remaining holders of $470,000 debentures exchanged their debentures for
384,715 shares of Series F convertible preferred stock and warrants to acquire
12,533 shares of common stock at $1.25 per share for three years. The value of
the Series F preferred stock and warrants
B-18
<PAGE> 177
approximated the carrying value of the convertible debentures on the date of the
exchange. Additionally, the Series F preferred stock had the same conversion
terms as the convertible debentures. The conversion benefit applicable to the
Series F preferred stock was calculated at $226,000 and has been amortized and
accounted for as a non-cash dividend, with a corresponding increase to
additional paid-in capital as of March 31, 1998. The Series F convertible
preferred stock was subsequently converted into 411,019 shares of the Company's
common stock.
During January and March 1998, the Company issued units consisting of 1,200,000
shares of Series D preferred stock and 500,000 warrants. The Series D preferred
stock is convertible into the Company's common stock over the two years after
the issuance date and is automatically converted upon the second anniversary of
the issuance date. The warrants are exercisable into common stock at $1.50 per
share for five years. During the year ended March 31, 1998, 300,000 preferred
shares were exchanged for 300,000 shares of common stock. The conversion benefit
applicable to the Series D preferred stock was calculated at $1,209,000 of which
$1,030,000 has been amortized and accounted for as a non-cash dividend, with a
corresponding increase to additional paid-in capital as of March 31, 1998.
In January and February 1998, the Company issued units consisting of 2,872,953
shares of Series E preferred stock and 1,436,686 warrants. This stock is
convertible into the Company's common stock. The conversion benefit applicable
to the Series E preferred stock was calculated at $1,576,000 and has been
amortized and accounted for as a non-cash dividend, with a corresponding
increase to additional paid-in capital as of March 31, 1998. The warrants are
exercisable at $1.80 per share during the first year and $2.00 per share through
the second year. If the twenty-day average close price of the common stock as
reported by Bloomberg, LP, is not at least $2.50 one year after issuance date,
then the exercise price will be reduced to $1.00. The warrants expire at the end
of the second year. At March 31, 1998, none of the shares had been converted.
WARRANTS TO ACQUIRE COMMON STOCK
Warrant activity for the year ended March 31, 1998 and the year ended March 31,
1999 is as follows:
<TABLE>
<CAPTION>
Warrant Price
Shares Per Share
----------- ------------------
<S> <C> <C>
Outstanding at March 31, 1997 4,833,534
Issued in connection with stock and debenture 2,177,722 US$1.25 - $1.80
offerings
Exchanged (4,743,534) US$2.50, CDN$8.22
Expired (90,000) US$2.50, CDN$8.22
-----------
Outstanding at March 31, 1998 2,177,722
Issued in connection with stock offerings 1,494,592 US$0.59 - $3.25
Exercised (687,926) US$0.75 - $1.00
-----------
Outstanding at March 31, 1999 2,984,388
===========
</TABLE>
8. EMPLOYEE BENEFIT PLAN
Effective April 1, 1992, the Company adopted a 401(k) savings plan covering all
employees. Employees who work for the Company are eligible for participation
after three months of service. Company contributions to the savings plan are
made at the discretion of the Company's Board of Directors. The Company made no
contributions for the fiscal periods ending March 31, 1998 and March 31, 1999.
B-19
<PAGE> 178
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
9. STOCK OPTION PLANS
The Company's stock option plan (the "1996 Plan") provides for the grant of
non-qualified and incentive stock options to directors, officers and employees
of the Company. Options are granted at exercise prices equal to the fair market
value of the common stock on the date of grant. Generally, twenty-five percent
of the options are available for exercise at the end of one year, while the
remainder of the grant is exercisable ratably over the next thirty-six month
period, provided the optionee remains in service to the Company. The
weighted-average remaining contractual life of options outstanding at March 31,
1999 was nine years. A total of 2,833,333 shares of common stock have been
authorized under the 1996 Plan, of which 2,317,560 were outstanding at March 31,
1999. In addition, the Company has granted non-qualified stock options, of which
4,229,851 were outstanding at March 31, 1999.
Stock option activity for the year ended March 31, 1998 and the year ended March
31, 1999 is as follows:
<TABLE>
<CAPTION>
Number Option price
Of Shares Per share (US$)
---------------- ---------------
<S> <C> <C>
Outstanding at March 31, 1997 2,082,042 1.43 - 5.46
Granted 2,045,827 0.84 - 3.44
Lapsed or canceled (586,552) 1.25 - 5.46
Exercised (120,790) 1.25 - 1.75
----------------
Outstanding at March 31, 1998 3,420,527 0.84 - 3.44
Granted 3,873,160 0.625 - 3.24
Lapsed or canceled (696,747) 0.625 - 3.24
Exercised (49,529) 0.84 - 1.63
----------------
Outstanding at March 31, 1999 6,547,411 0.625 - 3.44
================
Exercisable at March 31, 1999 2,091,067
================
</TABLE>
Of the options exercisable at March 31, 1999, weighted average prices of $0.7212
related to 358,491 options, $1.4029 related to 1,571,326 options, $2.1713
related to 158,750 options and $3.4400 related to 2,500 options.
In May 1997, the Board of Directors authorized a repricing of employee stock
options then outstanding, to $1.25, which was above market value.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", the Company
is required to disclose the effects on the net loss and per share data as if the
Company had elected to use the fair value approach to account for all its
employee stock-based compensation plans. Had the compensation cost for the
Company's plan been determined using the fair value method, the compensation
expense would have had the effect of increasing the Company's net loss
applicable to common stockholders for the year ended March 31, 1999 and 1998 to
the pro forma amounts of $10,611,000 and $10,739,000, respectively, with a
corresponding pro forma net loss per
B-20
<PAGE> 179
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
common share of $0.52 and $0.76, respectively. These pro forma amounts were
determined estimating the fair value of each option on its grant date using the
Black-Scholes option-pricing model. Assumptions of no dividend yield, the
average of the Federal Reserve Board's 3 year and 5 year treasury constant
maturity interest rate for the month of grant, 4 years expected life and an
expected rate of volatility of 55.0% were applied to all grants for the year
ended March 31, 1998. Assumptions of no dividend yield, the average of the
Federal Reserve Board's 3 year and 5 year treasury constant maturity interest
rate for the month of grant, 4 years expected life and an expected rate of
volatility of 100.0% were applied to all grants for the year ended March 31,
1999. The weighted-average fair value at grant date for the options granted
during the year ended March 31, 1999 and 1998 was $0.78 and $0.53 per option,
respectively.
10. COMMITMENTS AND CONTINGENCIES
In July 1998, the Company entered into a sub-lease for new office space. The new
offices consist of 17,000 square feet costing approximately $27,000 per month
through February 22, 2000. Simultaneously, the Company also entered into a lease
agreement for 4,100 contiguous square feet beginning January 1999 through
September 2003 at a rate of approximately $8,000 per month. In addition, the
Company entered into a lease agreement for the 17,000 square feet beginning
February 23, 2000 through September 2003 at a rate of approximately $41,000 per
month.
Minimum rental commitments under lease agreements at March 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Non-cancelable
Year ending March 31, Operating
Leases
---------------
(In thousands)
<S> <C>
2000 $ 455
2001 599
2002 599
2003 594
2004 467
------------
Total payments $ 2,714
============
</TABLE>
Rent expense for the year ended March 31, 1999 and 1998 totaled $387,710 and
$200,000, respectively.
B-21
<PAGE> 180
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
11. RELATED PARTIES
In fiscal 1995, the Board of Directors authorized the Company to loan William
Stow III, President and CEO of StarBase, the sum of $126,000. Principal and
accrued interest aggregated $94,259 and $89,447, at March 31, 1999 and 1998,
respectively. The loan is evidenced by a promissory note and is collateralized
by shares of the Company's common stock, which are owned by Mr. Stow. The note
bears interest at a rate of 6.34% per annum, payable at maturity. The maturity
date was originally November 4, 1998, and during the year ended March 31, 1999,
the maturity date on the note was extended to November 4, 2000.
B-22
<PAGE> 181
STARBASE CORPORATION
BALANCE SHEETS
(in thousands, except number of shares and par values)
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,185 $ 1,363
Restricted cash 39 39
Marketable securities 121 121
Accounts receivable, net of allowances of $84 at Sept 30, 1999 and $155 2,237 2,528
at Mar 31, 1999
Notes and other receivables, net of reserve of $647 at Sept 30, 1999 0 9
Inventories 58 51
Prepaid expenses and other assets 310 214
-------- --------
Total current assets 8,950 4,325
Property and equipment, net 976 987
Developed technology, net 872 971
Note receivable from officer 97 94
Long-term restricted cash 39 79
Other non-current assets 305 149
-------- --------
Total assets $ 11,239 $ 6,605
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,657 $ 1,264
Deferred revenue 1,300 658
Current portion of capital lease obligation 137 95
-------- --------
Total current liabilities 3,094 2,017
Long-term liabilities:
Long-term debt, less current portion 103 116
Other long-term liabilities 742 10
-------- --------
Total long-term liabilities 845 126
-------- --------
Total liabilities 3,933 2,143
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized, 424,638 and
588,993 shares issued and outstanding at September 30, 1999 and
March 31, 1999; liquidation preference of $3,957 (September 30, 1999)
and $4,916 (March 31, 1999) 4 6
Common stock, $.01 par value; 80,000,000 authorized; 32,557,783 and
28,636,362 shares issued and outstanding at September 30, 1999 and March
31, 1999 326 286
Additional paid-in capital 61,429 56,208
Accumulated deficit (54,459) (52,038)
-------- --------
Total stockholders' equity 7,300 4,462
-------- --------
Total liabilities and stockholders' equity $ 11,239 $ 6,605
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
B-23
<PAGE> 182
STARBASE CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
License $ 2,928 $ 1,371 $ 5,724 $ 2,264
Maintenance, training and consulting 593 187 1,112 339
Royalty 191 86 369 195
-------- -------- -------- --------
Total revenues 3,712 1,644 7,205 2,798
Cost of Revenues:
Products, licenses and other 788 97 1,234 336
-------- -------- -------- --------
Gross margin 2,924 1,547 5,971 2,462
Operating Expenses:
Research and development 966 1,085 1,943 2,138
Selling, general and administrative 2,904 3,096 5,684 5,277
-------- -------- -------- --------
Total operating expenses 3,870 4,181 7,627 7,415
-------- -------- -------- --------
Operating loss (946) (2,634) (1,656) (4,953)
Interest and other income 32 5 35 44
Equity in loss from investee (250) 0 (250) 0
-------- -------- -------- --------
Loss before income taxes (1,164) (2,629) (1,871) (4,909)
Provision for income taxes 1 2 1 2
-------- -------- -------- --------
Net loss (1,165) (2,631) (1,872) (4,911)
Non-cash dividend and accretion of beneficial (47) 178 549 334
conversion feature
Net loss applicable to common stockholders $ (1,118) $ (2,809) $ (2,421) $ (5,245)
======== ======== ======== ========
Per share data:
Basic and diluted loss per common share $ (0.04) $ (0.15) $ (0.08) $ (0.29)
======== ======== ======== ========
Basic and diluted weighted average number of
common shares outstanding 30,355 18,378 29,146 17,932
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
B-24
<PAGE> 183
STARBASE CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six months ended
September 30,
----------------------
1999 1998
------- -------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,872) $(4,911)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 288 166
Provision for doubtful accounts and sales returns 576 44
Loss on disposition of property, equipment and capital 41 3
lease
Deferred revenue 1,384 142
Stock option compensation (recovery) expense (10) 130
Equity in loss from investee 250 -
Changes in operating assets and liabilities:
Accounts receivable 362 (1,130)
Notes and other receivables (638) 31
Inventories (7) (16)
Prepaid expenses (70) (280)
Other non-current assets (159) (50)
Accounts payable and accrued liabilities 383 611
------- -------
Net cash provided (used) by operations 528 (5,260)
Cash Flows from Investing Activities:
Decrease (increase) in restricted cash 40 (118)
Investment in equity affiliates (250) -
Capital expenditures (155) (547)
------- -------
Net cash used by investing activities (365) (665)
Cash Flows from Financing Activities:
Proceeds from sale of preferred stock - 3,000
Proceeds from issuance of common stock:
From private placements 4,225 92
Exercise of options 615 23
Exercise of warrants 394 -
Payment of financing related costs (514) (48)
Payments on capitalized lease obligations (61) (23)
------- -------
Net cash provided by financing activities 4,659 3,045
------- -------
Net increase (decrease) in cash 4,822 (2,880)
Cash and cash equivalents, beginning of period 1,363 4,167
------- -------
Cash and cash equivalents, end of period $ 6,185 $ 1,287
======= =======
Supplemental Cash Flow Information:
Interest paid in cash $ 18 $ 6
======= =======
Income taxes paid $ 1 $ 2
======= =======
Non-cash investing and financing transactions:
Non-cash preferred stock and common stock dividends $ 549 $ 334
======= =======
Conversion of preferred stock to common stock (Note 5) $ 6 $ 22
======= =======
Capitalized lease and insurance financing $ 90 $ 0
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
B-25
<PAGE> 184
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
StarBase Corporation, a Delaware corporation (the "Company"), is a leading
provider of advanced Internet and intranet based technical collaboration
products for web site application production and software configuration
management (SCM) tools. The Company develops, markets, and supports
team-oriented development software that targets the evolving needs of corporate
information technology (IT) structures that support projects requiring technical
collaboration on an enterprise level. The Company's current product line
consists of StarTeam(R) 4.1 and Enterprise Suite as well as StarSweeper(TM),
RoundTable(R) and Versions(R).
2. BASIS OF PRESENTATION
The unaudited interim financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have not been presented. The accompanying unaudited financial statements should
be read in conjunction with the financial statements and the notes thereto
included in the StarBase Corporation report to the Securities and Exchange
Commission on Form 10-KSB, for the year ended March 31, 1999.
The interim financial statements reflect all normal recurring adjustments that
are, in the opinion of management, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for the
period presented. The results of operations for the six months ended September
30, 1999 are not necessarily indicative of the operating results for a full
year.
NET LOSS PER SHARE
Basic loss per share applicable to common stockholders is computed using the
weighted average number of common shares outstanding during the periods
presented. Diluted loss per share applicable to common stockholders is computed
using the weighted average number of common and common equivalent shares
outstanding during the periods presented assuming the exercise of the Company's
stock options, warrants, and potential shares (Escrow Shares). Common equivalent
shares have not been included where inclusion would be antidilutive. Escrow
Shares can be released to the founders upon attaining certain defined cash flow
requirements. The release of the Escrow Shares will be deemed compensatory and,
accordingly, will result in charges to earnings equal to the fair market value
of these shares recorded ratably over the period beginning on the date when
management determines that the cash flow requirements are probable of being met
and ending on the date when the goal is attained, causing the Escrow Shares to
be released. At the time a goal is attained, previously unrecognized
compensation expense will be adjusted by a one-time charge based on the then
fair market value of the shares released from escrow. Such charges could
substantially reduce the Company's net income or increase the Company's loss for
financial reporting purposes in the periods such charges are recorded. Based
upon historical results, the attainment of the goal is not probable at this
time. However, this does not preclude the attainment of the goal with future
results.
B-26
<PAGE> 185
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands except per-share amounts)
<TABLE>
<CAPTION>
Net Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ----------
<S> <C> <C> <C>
BASIC AND DILUTED LOSS PER SHARE
Net loss $ (1,165)
Non-cash dividend 47
------------
BASIC LOSS TO COMMON STOCKHOLDERS PER SHARE (1,118) 30,355 $ (0.04)
==========
Effect of Dilutive Securities - -
------------ -------------
DILUTIVE LOSS TO COMMON STOCKHOLDERS PER
SHARE $ (1,118) 30,355 $ (0.04)
============ ============= ==========
</TABLE>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(in thousands except per-share amounts)
<TABLE>
<CAPTION>
Net Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ----------
<S> <C> <C> <C>
BASIC AND DILUTED LOSS PER SHARE
Net loss $ (2,631)
Non-cash dividend (178)
------------
BASIC LOSS TO COMMON STOCKHOLDERS PER SHARE (2,809) 18,378 $ (0.15)
==========
Effect of Dilutive Securities - -
------------ -------------
DILUTIVE LOSS TO COMMON STOCKHOLDERS PER
SHARE $ (2,809) 18,378 $ (0.15)
============ ============= ==========
</TABLE>
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
(in thousands except per-share amounts)
<TABLE>
<CAPTION>
Net Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ----------
<S> <C> <C> <C>
BASIC AND DILUTED LOSS PER SHARE
Net loss $ (1,872)
Non-cash dividend (549)
------------
BASIC LOSS TO COMMON STOCKHOLDERS PER SHARE (2,421) 29,146 $ (0.08)
==========
Effect of Dilutive Securities - -
------------ -------------
DILUTIVE LOSS TO COMMON STOCKHOLDERS PER
SHARE $ (2,421) 29,146 $ (0.08)
============ ============= ==========
</TABLE>
B-27
<PAGE> 186
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
(in thousands except per-share amounts)
<TABLE>
<CAPTION>
Net Loss Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ----------
<S> <C> <C> <C>
BASIC AND DILUTED LOSS PER SHARE
Net loss $ (4,911)
Non-cash dividend (334)
------------
BASIC LOSS TO COMMON STOCKHOLDERS PER SHARE (5,245) 17,932 $ (0.29)
==========
Effect of Dilutive Securities - -
------------ -------------
DILUTIVE LOSS TO COMMON STOCKHOLDERS PER
SHARE $ (5,245) 17,932 $ (0.29)
============ ============= ==========
</TABLE>
Common stock equivalents, which consist of options to purchase 2,460,750 shares
of common stock at prices ranging from $0.625 to $3.44 per share, warrants to
purchase 4,526,668 shares of common stock at prices ranging from $0.59 to $3.25
per share, and 1,418,638 common shares held in escrow were not included in the
computation of diluted loss per share because such inclusion would have been
antidilutive for the three and six month periods ended September 30, 1999.
Common stock equivalents, which consist of options to purchase 1,214,473 shares
of common stock at prices ranging from $0.84 to $3.44 per share, warrants to
purchase 2,177,722 shares of common stock at prices ranging from $1.25 to $1.80
per share, and 1,418,638 common shares held in escrow were not included in the
computation of diluted loss per share because such inclusion would have been
antidilutive for the six month period ended September 30, 1998.
B-28
<PAGE> 187
3. COMPOSITION OF CERTAIN BALANCE SHEET CAPTIONS
<TABLE>
<CAPTION>
(In thousands) September 30, March 31,
1999 1999
------------ ---------
(Unaudited)
<S> <C> <C>
Property and equipment:
Computer hardware $ 1,470 $ 1,337
Furniture and fixtures 315 315
Computer software 199 199
Leasehold improvements 233 198
------- -------
2,217 2,049
Less accumulated depreciation and amortization (1,241) (1,062)
------- -------
$ 976 $ 987
======= =======
Accounts payable and accrued liabilities:
Trade accounts payable $ 766 $ 640
Accrued professional fees 26 86
Accrued wages and bonuses 543 493
Other accrued expenses 322 45
------- -------
$ 1,657 $ 1,264
======= =======
</TABLE>
4. INVESTMENT IN OPENAVENUE INC.
During the quarter ending September 30, 1999, the Company invested $250,000 for
900,000 shares of common stock, or 47%, of OpenAvenue Inc ("OpenAvenue").
OpenAvenue is an internet portal company for open-source knowledge and effort
sharing over the internet providing a meeting and work place for virtual
development teams acting in concert on distributed projects. The Company is
accounting for this ownership under the equity method because the Company does
not have control over OpenAvenue.
A condensed summary of the assets and liabilities of OpenAvenue and the results
of its operation follows:
<TABLE>
<CAPTION>
(In thousands) September 30,
1999
-------------
<S> <C>
ASSETS
Current assets $ 344
Property and equipment, net 185
Other assets 10
-----
Total assets $ 539
=====
LIABILITIES
Short-term debt and current portion of long-term debt 681
Other current liabilities 41
-----
Total current liabilities 722
Long-term debt, less current portion 81
-----
Total liabilities $ 803
=====
Net equity $(264)
=====
</TABLE>
B-29
<PAGE> 188
<TABLE>
<CAPTION>
(In thousands) Three months ended
September 30, 1999
------------------
<S> <C>
Revenue $ -
Operating expenses 846
-----
Net loss $(846)
=====
</TABLE>
In addition, the Company agreed to loan OpenAvenue up to $750,000 on a
short-term basis until OpenAvenue's first round of financing is completed. At
the time of the financing, the Company will have the option of converting the
loan into common stock of OpenAvenue at the financing per share rate. As of
September 30, 1999, the amount loaned is $646,560. This amount has been fully
reserved for and is included in selling, general and administrative expense for
the three month period ended September 30, 1999.
5. EQUITY TRANSACTIONS
During the quarter ending September 30, 1999, 20,000 shares of Series E
Preferred Stock were converted into 20,000 shares of common stock.
During July 1999, the Company entered into agreements to complete a three
tranche private placement consisting of 2,503,877 shares of Common Stock for
$4,225,000. The first tranche closed on July 15, 1999, the second tranche closed
on July 30, 1999, and the third tranche closed on September 2, 1999. In
addition, the Company issued warrants to purchase 1,407,948 shares of common
stock of which warrants to purchase 1,061,541 shares are exercisable at $2.68
per share and expire on July 15, 2002, warrants to purchase 770,537 shares are
exercisable at $2.11 per share and expire on July 29, 2002 and warrants to
purchase 115,830 shares are exercisable to $2.09 per share and expired on
September 1, 2002. The fair value of these warrants using the Black-Scholes
model at the date of grant was $2,749,637.
During September 1999, the Company bought back 36 shares of Series H Preferred
Stock for $118,500. The shares were originally issued in lieu of cash for
finder's fees relating to the Series H Preferred Stock private placement.
As of September 30, 1999, 421,208 shares of Series E Preferred Stock, 2,430
shares of Series H Preferred Stock, and 1,000 shares of Series I Preferred Stock
were outstanding.
WARRANTS
Warrant activity for the six month period ended September 30, 1999 is as
follows:
<TABLE>
<CAPTION>
Warrant Price
Shares Per Share
-------------- ---------------
<S> <C> <C>
Outstanding at March 31, 1999 2,984,388 $0.59 - $3.25
Granted 1,948,011 $2.08 - $2.68
Exercised (405,731) $0.75 - $1.80
-------------
Outstanding at September 30, 1999 4,526,668 $0.59 - $3.25
=============
</TABLE>
B-30
<PAGE> 189
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
6. STOCK OPTION PLAN
The Company's stock option plan (the "1996 Plan") provides for the grant of
non-qualified and incentive stock options to directors, officers and employees
of the Company. Options are granted at exercise prices equal to the fair market
value of the common stock on the date of grant. Generally, twenty-five percent
of the options are available for exercise at the end of one year, while the
remainder of the grant is exercisable ratably over the next thirty-six month
period, provided the optionee remains in service to the Company. The
weighted-average remaining contractual life of options outstanding at September
30, 1999 was eight years. A total of 2,833,333 shares of common stock have been
authorized under the 1996 Plan, of which 2,116,994 were outstanding at September
30, 1999. In addition, the Company has granted non-qualified stock options, of
which 4,136,980 were outstanding at September 30, 1999.
Stock option activity for the six month period ended September 30, 1999 is as
follows:
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price
----------- ---------------
<S> <C> <C>
Outstanding at March 31, 1999 6,547,411 $1.23
Granted 452,500 $2.15
Lapsed or canceled (355,548) $1.68
Exercised (390,389) $1.58
----------
Outstanding at September 30, 1999 6,253,974 $1.25
==========
Exercisable at September 30, 1999 2,460,750 $1.35
==========
</TABLE>
Stock option summary information at September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------------
Weighted-Average
Remaining
Range of Contractual Weighted-Average Weighted-Average
Exercise Prices Shares Life Exercise Price Shares Exercise Price
- ------------- --------- ---------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$0.50 - $1.00 2,462,202 9.1 years $0.68 494,110 $0.72
$1.01 - $1.50 1,434,622 7.0 years $1.26 1,006,299 $1.26
$1.51 - $2.00 1,708,150 8.3 years $1.65 742,989 $1.64
$2.01 - $2.50 451,000 9.7 years $2.11 159,528 $2.06
$2.51 - $3.00 178,000 8.8 years $2.62 50,534 $2.62
$3.01 - $3.50 20,000 8.5 years $3.34 7,290 $3.34
--------- --------------
6,253,974 2,460,750
========= ==============
</TABLE>
B-31
<PAGE> 190
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
7. OPERATING SEGMENT INFORMATION
The Company's reportable operating segments include software licenses and
services. The software licenses operating segment develops and markets the
Company's web site application production and software configuration management
products. The services segment provides after-sale support for software products
and fee-based training and consulting services related to the Company products.
The Company does not allocate operating expenses to these segments, nor does it
allocate specific assets to these segments. Therefore, segment information
reported includes only revenues, cost of revenues and gross margin.
Operating segment data for the three and six month periods ended September 30,
1999 and 1998 was as follows:
<TABLE>
<CAPTION>
Software
licenses Services Total
------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Three months ended September 30, 1999:
Revenues $2,928 $784 $3,712
Cost of revenues 509 279 788
------------- ------------- -------------
Gross margin $2,419 $505 $2,924
============= ============= =============
Three months ended September 30, 1998:
Revenues $1,371 $273 $1,644
Cost of revenues 97 0 97
------------- ------------- -------------
Gross margin $1,274 $273 $1,547
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Software
licenses Services Total
------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Six months ended September 30, 1999:
Revenues $5,724 $1,481 $7,205
Cost of revenues 673 561 1,234
------------- ------------- -------------
Gross margin $5,051 $920 $5,971
============= ============= =============
Six months ended September 30, 1998:
Revenues $2,264 $534 $2,798
Cost of revenues 336 0 336
------------- ------------- -------------
Gross margin $1,928 $534 $2,462
============= ============= =============
</TABLE>
B-32
<PAGE> 191
STARBASE CORPORATION
NOTES TO FINANCIAL STATEMENTS
8. SUBSEQUENT EVENTS
On November 4, 1999, the Company signed a definitive agreement to acquire
ObjectShare, Inc. ("ObjectShare"), a leading provider of object-oriented and
eBusiness professional services, in a merger transaction. The Company will issue
its stock in exchange for ObjectShare stock at an anticipated enterprise value
of $7.5 million, with a minimum of $6.15 million and a maximum of $8.85 million
based upon the average trading price of StarBase stock prior to the closing. The
transaction, which is subject to ObjectShare stockholders' approval and certain
other conditions, is expected to be completed in early 2000. In addition, the
Company will provide ObjectShare with a $500,000 line of credit under the terms
of a credit agreement. The line of credit will be secured by all of the accounts
receivable and other assets of ObjectShare.
B-33
<PAGE> 192
APPENDIX C
CONSOLIDATED FINANCIAL STATEMENTS
OF
OBJECTSHARE, INC.
INDEX
<TABLE>
<S> <C>
YEAR-END FINANCIAL STATEMENTS (AUDITED)
Report of Independent Auditors.................................... C-2
Consolidated Balance Sheets at March 31, 1999 and 1998............ C-3
Consolidated Statement of Operations for the years ended March
31, 1999 and 1998............................................. C-4
Consolidated Statement of Stockholder's Equity for the years
ended March 31, 1999, 1998 and 1997........................... C-5
Consolidated Statement of Cash Flows for the years ended March
31, 1999, 1998 and 1997....................................... C-6
Notes to Consolidated Financial Statements........................ C-7
Quarterly Financial Information (Unaudited)....................... C-22
Schedule II: Valuation Of Qualifying Accounts C-23
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED
SEPTEMBER 30, 1999 (UNAUDITED)
Condensed Consolidated Balance Sheets as of September 30, 1999
and March 31, 1999............................................ C-24
Condensed Consolidated Statements of Operations for the three and
six months ended September 30, 1999 and 1998.................. C-25
Consolidated Statements of Comprehensive Income (Loss) for the
three and six months ended September 30, 1999 and 1998........ C-26
Condensed Consolidated Statements of Cash Flows for the six
months ended September 30, 1999 and 1998...................... C-27
Notes to Condensed Consolidated Financial Statements.............. C-28
</TABLE>
C-1
<PAGE> 193
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
ObjectShare, Inc.
We have audited the accompanying consolidated balance sheets of ObjectShare,
Inc. as of March 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended March 31, 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ObjectShare, Inc. at March 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the
Company's recurring losses from operations and net working capital deficiency
raise substantial doubt about its ability to continue as a going concern.
Management's plans as to these matters are also described in Note 2. The 1999
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Orange County, California
June 14, 1999
C-2
<PAGE> 194
OBJECTSHARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> ASSETS
MARCH 31,
-------------------------
1999 1998
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................ $ 1,675 $ 5,134
Marketable securities ............................................ -- 600
Accounts receivable, net of allowances of $205 in
1999 and $622 in 1998 .......................................... 3,988 5,166
Prepaid expenses and other current assets ........................ 456 983
-------- --------
Total current assets ..................................... 6,119 11,883
Property and equipment:
Computers and other equipment .................................... 4,927 4,696
Furniture and fixtures ........................................... 614 636
Leasehold improvements ........................................... 804 719
-------- --------
Property and equipment at cost ........................... 6,345 6,051
Less: Accumulated depreciation and amortization .................. (5,392) (4,853)
-------- --------
Net property and equipment ............................... 953 1,198
Capitalized software development costs, net of
accumulated amortization of $11 in 1999 .......................... 511 --
Other assets ....................................................... 129 174
-------- --------
Total assets ............................................. $ 7,712 $ 13,255
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit ................................................... $ 1,000 $ --
Accounts payable ................................................. 1,309 1,134
Accrued payroll and related expenses ............................. 893 1,088
Note payable and current portion of capital lease obligations .... 103 --
Accrued restructuring costs ...................................... -- 534
Accrued royalties ................................................ 489 686
Other accrued liabilities ........................................ 1,104 1,806
Deferred revenue ................................................. 2,587 3,215
-------- --------
Total current liabilities ................................ 7,485 8,463
Capital lease obligations .......................................... 103 --
Commitments and contingencies (Notes 2, 4 and 9)
Stockholders' equity:
Common stock, $0.001 par value: Authorized shares -- 30,000
Issued and outstanding shares -- 12,383 in 1999 and
12,199 in 1998 ............................................... 12 12
Additional paid-in capital ....................................... 50,160 49,992
Accumulated deficit .............................................. (49,772) (44,933)
Accumulated other comprehensive loss ............................. (276) (279)
-------- --------
Total stockholders' equity ............................... 124 4,792
-------- --------
Total liabilities and stockholders' equity ............... $ 7,712 $ 13,255
======== ========
</TABLE>
See accompanying notes.
C-3
<PAGE> 195
OBJECTSHARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net revenues:
Service .................................... $ 10,426 $ 12,068 $ 17,138
License .................................... 5,380 8,172 20,148
-------- -------- --------
Total net revenues ................. 15,806 20,240 37,286
Cost of net revenues:
Service .................................... 5,705 7,569 10,379
License .................................... 1,737 1,626 5,537
-------- -------- --------
Total cost of net revenues ......... 7,442 9,195 15,916
-------- -------- --------
Gross profit ................................. 8,364 11,045 21,370
Operating expenses:
Sales and marketing ........................ 6,719 7,684 19,465
Research and development ................... 3,542 4,648 8,904
General and administrative ................. 3,281 3,956 7,436
Acquired research and development .......... -- -- 3,513
Restructuring and merger-related costs ..... (166) 2,621 5,162
-------- -------- --------
Total operating expenses ........... 13,376 18,909 44,480
-------- -------- --------
Loss from operations ......................... (5,012) (7,864) (23,110)
Interest and other income, net ............... 160 313 725
-------- -------- --------
Loss before provision for income taxes ....... (4,852) (7,551) (22,385)
Provision (benefit) for income taxes ......... (13) 31 95
-------- -------- --------
Net loss ..................................... $ (4,839) $ (7,582) $(22,480)
======== ======== ========
Basic and diluted net loss per share ......... $ (0.39) $ (0.63) $ (1.91)
======== ======== ========
Shares used in computing basic and
diluted net loss per share ................. 12,308 12,022 11,775
======== ======== ========
</TABLE>
See accompanying notes.
C-4
<PAGE> 196
OBJECTSHARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
---------------------- PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT LOSS EQUITY
-------- -------- ---------- ------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 ............. 11,532 $ 12 $ 48,392 $(14,871) $ (29) $ 33,504
Translation adjustment ................ -- -- -- -- (158) (158)
Unrealized loss on investments ........ -- -- -- -- (65) (65)
Net loss .............................. -- -- -- (22,480) -- (22,480)
--------
Comprehensive loss .......... (22,703)
Exercise of stock options ............. 196 -- 699 -- -- 699
Issuance of common stock under
Employee Stock Purchase Plan ........ 201 -- 604 -- -- 604
Stock options assumed in business
combinations ....................... -- -- 168 -- -- 168
-------- -------- -------- -------- -------- --------
Balance at March 31, 1997 ........... 11,929 12 49,863 (37,351) (252) 12,272
Translation adjustment ................ -- -- -- -- (27) (27)
Net loss .............................. -- -- -- (7,582) -- (7,582)
--------
Comprehensive loss .......... (7,609)
Exercise of stock options ............. 250 -- 120 -- -- 120
Issuance of common stock under
Employee Stock Purchase Plan ........ 20 -- 9 -- 9
-------- -------- -------- -------- -------- --------
Balance at March 31, 1998 ............. 12,199 12 49,992 (44,933) (279) 4,792
Translation adjustment ................ -- -- -- -- 3 3
Net loss .............................. -- -- -- (4,839) -- (4,839)
--------
Comprehensive loss .......... (4,836)
Exercise of stock options ............. 83 -- 85 -- -- 85
Issuance of common stock under
Employee Stock Purchase Plan ........ 101 -- 83 -- -- 83
-------- -------- -------- -------- -------- --------
Balance at March 31, 1999 ............. 12,383 $ 12 $ 50,160 $(49,772) $ (276) $ 124
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
C-5
<PAGE> 197
OBJECTSHARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss .............................................................. $ (4,839) $ (7,582) $(22,480)
Adjustments to reconcile net loss to net cash used in
operating activities:
Write-off of unamortized capitalized software development costs ..... 372 -- --
Depreciation and amortization ....................................... 673 783 3,707
Provision for doubtful accounts ..................................... 257 106 939
Restructuring costs ................................................. -- 165 1,887
Acquired research and development ................................... -- -- 3,513
Changes in operating assets and liabilities:
Accounts receivable .............................................. 921 314 5,440
Other current assets ............................................. 572 183 315
Accounts payable and accrued liabilities ......................... (919) (753) (3,472)
Accrued restructuring costs ...................................... (534) (533) 1,067
Deferred revenue ................................................. (628) (1,851) (310)
-------- -------- --------
Net cash used in operating activities ................................. (4,125) (9,168) (9,394)
INVESTING ACTIVITIES
Capitalized software development costs ................................ (1,017) -- --
Purchases of property and equipment ................................... (88) (254) (1,564)
Maturities of marketable securities ................................... 600 6,438 23,239
Purchases of marketable securities .................................... -- -- (16,479)
Business combinations ................................................. -- -- (3,699)
Decrease (increase) in other assets ................................... -- 598 (197)
-------- -------- --------
Net cash provided by (used in) investing activities ................... (505) 6,782 1,300
FINANCING ACTIVITIES
Borrowings on line of credit .......................................... 1,000 -- --
Proceeds from issuance of common stock, net of repurchase ............. 168 129 1,303
-------- -------- --------
Net cash provided by financing activities ............................. 1,168 129 1,303
Effect of exchange rate changes on cash and cash equivalents .......... 3 (27) (158)
-------- -------- --------
Net decrease in cash and cash equivalents ............................. (3,459) (2,284) (6,949)
Cash and cash equivalents at beginning of year ........................ 5,134 7,418 14,367
-------- -------- --------
Cash and cash equivalents at end of year .............................. $ 1,675 $ 5,134 $ 7,418
-------- -------- --------
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
Equipment acquired under note payable issued in exchange for
leasehold improvements .............................................. $ 40 $ -- $ --
Capital lease obligations ............................................. $ 166 $ -- $ --
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for taxes ................................................... $ 21 $ 24 $ 82
Cash paid for interest ................................................ $ 29 $ -- $ --
</TABLE>
See accompanying notes.
C-6
<PAGE> 198
OBJECTSHARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
ObjectShare, Inc. (the Company) a Delaware corporation, develops, markets,
and supports object-oriented application development tools for the
client/server/web computing market. The Company also provides customer support,
training, on-site assistance and consulting.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries in France (through the period of
ownership), Germany, Switzerland and the United Kingdom after eliminating all
significant inter-company accounts and transactions.
The financial statements of foreign subsidiaries have been translated into
U.S. dollars in accordance with Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards No. 52 (SFAS), Foreign Currency
Translation. Gains and losses from translation are recorded as components of
accumulated other comprehensive loss in stockholders' equity. The effect of
foreign currency transaction gains and losses on the consolidated statements of
operations is insignificant for all years presented.
Use of Estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenue and expenses during the
reporting periods. Actual results could differ from those estimates. Significant
estimates made in preparing the consolidated financial statements include the
allowance for doubtful accounts receivable, product returns, sales allowances,
certain other accrued liabilities, and estimates of future net cash flows
developed to determine whether conditions indicating asset impairment are
present.
Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Short-term
marketable securities consist principally of debt instruments with maturities
between three and twelve months.
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<PAGE> 199
At March 31, 1999, the Company did not have any marketable securities. At
March 31, 1998, all of the Company's debt securities were classified as
available-for-sale and were carried at fair market value with unrealized gains
and losses recorded in stockholders' equity. The cost of the securities is based
upon the specific identification method.
Such investments consist of the following:
<TABLE>
<CAPTION>
FAIR MARKET
VALUE AT
MARCH 31,
------------------
1999 1998
------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash equivalents -- corporate debt securities .................. $ -- $3,074
====== ======
Short-term marketable securities (maturing through March
1999 -- U.S. treasury securities and obligations of U.S. .....
government agencies .......................................... $ -- $ 600
====== ======
</TABLE>
Realized gains and losses from the sale of such investments were not material
in fiscal 1999, 1998 and 1997. At March 31, 1998, the estimated fair value of
cash equivalents and marketable securities approximated cost and the amount of
unrealized gains or losses were not significant.
Property and Equipment
Equipment is stated at cost. Depreciation and amortization are computed using
the straight-line method over estimated useful lives of three to five years.
Assets under capital leases of $196,000 included in computers and other
equipment are amortized over the shorter of the asset life or the remaining
lease term. At March 31, 1999 accumulated depreciation on capital lease
equipment amounted to $23,000. Amortization of capital lease equipment is
included in depreciation and amortization expense.
Long Lived Assets
The Company reviews for impairment long-lived assets and certain intangibles
held and used whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The recoverability test is
performed at the lowest level at which undiscounted net cash flows can be
directly attributable to long-lived assets.
Capitalized Software
The Company's policy is to capitalize software development costs incurred
subsequent to the time the products reach technological feasibility. Based on
the Company's product development process, technological feasibility is
generally established upon completion of a working model. Capitalized internally
developed software is stated at the lower of amortized cost or net realizable
value. Amortization of capitalized software development commences when the
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<PAGE> 200
products are available for general release to new customers and is determined
using the straight-line method over the expected useful life of the related
product.
During fiscal 1999, the Company capitalized $1,017,000 of software
development costs related to its VisualWorks 5i and VEOS products. The Company
evaluates recoverability of its capitalized software development costs at each
reporting period based upon its estimates of related product sales to be
realized in future periods. As a result, during the fourth quarter ended March
31, 1999, the Company wrote off $372,000 of capitalized software development
costs related to the VEOS product. In addition, normal amortization of
capitalized software development costs aggregated $134,000 during the year ended
March 31, 1999.
Income Taxes
The Company utilizes the liability method of accounting for income taxes as
set forth in SFAS 109, Accounting for Income Taxes. Under the liability method,
deferred taxes are determined based on the differences between the financial
statement and tax basis of assets and liabilities using enacted tax rates.
Revenue Recognition
In October 1997, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position (SOP) No. 97-2, Software Revenue Recognition, which
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. SOP 97-2 is intended to reduce the
diversity in accounting for software revenue recognition and changes certain of
the specific criteria for recognizing revenue related to software licensing
arrangements. Specifically, the new SOP contains more restrictive revenue
recognition provisions for software arrangements containing multiple elements
(i.e. upgrades, enhancements, implementation and other services) similar to the
arrangements entered into by the Company. Effective April 1998, the Company
implemented the provisions of the new SOP for transactions recognized for fiscal
1999 and thereafter.
License revenue is recognized on delivery of product, provided persuasive
evidence of an agreement exists, no significant vendor obligations remain and
collection of the resulting receivable is deemed probable. Insignificant vendor
obligations are accrued upon recognition of revenue. License revenue also
includes revenue from the sale of software manufactured by a third party.
Service revenue includes training, consulting, and customer support. Revenues
from training and consulting are recognized at the time the service is
performed.
Deferred revenue relates primarily to software support contracts and training
coupons sold under separate arrangements with customers. The term of the
software support contracts is generally one year, and the Company recognizes the
associated revenue on a pro rata basis over the life of the contract.
C-9
<PAGE> 201
Potential sales returns are covered by the Company's allowance for sales
returns and doubtful accounts. The Company provides for the costs of warranty
when specific problems are identified. The Company has not experienced
significant warranty claims to date.
Research and Development Costs
Research and development costs are expensed as incurred.
Concentration of Credit Risk
The Company sells its products to various companies across several
industries. The Company performs ongoing credit evaluations of its customers and
maintains an allowance for potential credit losses, which have been within
management's expectations. The Company generally requires no collateral from its
customers.
Loss Per Share
SFAS 128, "Earnings Per Share," requires the presentation of both basic and
diluted net income (loss) per share for financial statement purposes. Basic net
income (loss) per share is computed by dividing income (loss) available to
common stockholders by the weighted average number of common shares outstanding.
Diluted net income (loss) per share includes the effect of the potential shares
outstanding, including dilutive stock options and warrants using the treasury
stock method. Because the impact of options and warrants are antidilutive, there
is no difference between the loss per share amounts computed for basic and
diluted purposes.
Segments of a Business Enterprise
Effective March 31, 1999, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, SFAS 131 superseded SFAS No.
14, Financial Reporting for Segments of a Business Enterprise. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual consolidated financial statements
and requires that those enterprises report selected information about operating
segments in interim financial reports. SFAS No. 131 also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS No. 131 did not affect the consolidated results
of operations or financial position of the Company.
Impact of Recently Issued Accounting Standards
In April 1998, the Company adopted Financial Accounting Standard Board (FASB)
SFAS 130, Reporting Comprehensive Income, which establishes standards for the
reporting and display of comprehensive income and its components in financial
statements. Comprehensive income generally represents all changes in
shareholders' equity except those resulting from investments by and/or
distributions to shareholders. SFAS 130 requires unrealized gains or losses on
the Company's available-for-sale securities and foreign currency translation
adjustments, which prior
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<PAGE> 202
to adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. All periods presented have been reclassified to
conform to the requirements of SFAS 130.
In April 1998, the Company adopted SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1 requires
capitalization of certain costs incurred in connection with developing or
obtaining internal use software. The adoption of SOP No. 98-1 had no material
effect on the Company's consolidated financial position as of March 31, 1999 or
its consolidated results of operations for the year then ended.
In June 1998, the FASB issued SFAS 133, Accounting for Derivative Instruments
and Hedging Activities, which is required to be adopted in years beginning after
June 15, 2000. Because of the Company's minimal use of derivatives, management
does not anticipate that the adoption of the new Statement will have a
significant effect on its consolidated financial position or consolidated
results of operations.
Reclassification
Certain prior year amounts have been reclassified to conform with current
year presentation.
Derivative Financial Instruments
The Company sells its products to its European customers in local currencies.
There may be potential risks caused by economic and political instability;
foreign exchange translation and transaction exposure; and the burdens of
complying with a wide variety of foreign laws. When considered appropriate, the
Company enters into forward foreign exchange contracts primarily to hedge
against the short-term impact of foreign currency fluctuations from invoices
denominated in foreign currencies. The maturities of the forward foreign
exchange contracts are short-term in nature, generally 90 days. The contracts
are recorded at fair market value as of each balance sheet date. Gains and
losses from these contracts are recorded in interest and other income. At March
31, 1999, the Company had no such contracts. At March 31, 1998, the Company had
contracts to exchange various European currencies to U.S. dollars in the amounts
of $1,072,000. The fair value (quoted market price) of these contracts was
$1,072,000 at March 31, 1998. Net foreign currency transaction gains and losses
have not been material.
2. OPERATIONS
The Company's operations have resulted in net losses of $4.8 million, $7.6
million and $22.5 million during each of the three years ended March 31, 1999,
1998 and 1997, respectively. As of March 31, 1999, the Company has an
accumulated deficit of $49.8 million and the Company's current liabilities
exceed its current assets by $1.4 million. During fiscal 1999 and 1998,
management implemented certain cost reduction and product development actions to
improve the Company's revenues and profitability. These actions included
leveraging and redirecting the Company's technology and consulting resources and
revising the marketing strategy to
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<PAGE> 203
implement more of a solutions and services-oriented business model. However, the
Company continues to experience operating losses which have seriously eroded
cash reserves.
Management of the Company anticipates implementing additional cost cutting
measures in 1999 to attempt to reduce the Company's cost structure to be
commensurate with estimated revenues. Such cost cutting measures could have the
initial effect of increasing expenses for the period during which such actions
are taken. Although management's goal is to reduce losses and, ultimately,
return the Company to profitability, there can be no assurance that these
actions will allow the Company to achieve profitability. After giving effect to
the planned cost cutting measures, management believes that the Company will
still need to obtain additional sources of financing to satisfy the Company's
near-term operating requirements.
During December 1998, the Company entered into a $5 million line of credit
with a commercial bank that expires in December 1999. At March 31, 1999, the
Company was not in compliance with the covenants in the line of credit that
requires the Company to maintain a certain level of tangible net worth and a
minimum quick ratio. As a result, the bank may demand repayment of $1.0 million
($606,000 on June 14, 1999) borrowed in January 1999 and has the right to
terminate the credit facility. There is no assurance that the Company will be
able to cure the covenant violation or that it will be able to obtain
alternative financing in the event that the credit agreement is terminated.
The Company is actively pursuing various sources of debt and equity
financing. However, there is no assurance the Company will be able to obtain
additional debt or equity financing on terms acceptable to the Company or at
all. Failure to obtain sufficient levels of additional financing will result in
material liquidity problems for the Company. These matters raise substantial
doubt about the Company's ability to continue as a going concern.
3. DEBT
Line of Credit
The Company has a credit agreement with a commercial bank that provides a
revolving line of credit for borrowings, limited to 70% of eligible accounts
receivable, up to a maximum of $5,000,000. The credit agreement also provides
letters of credit subject to certain condition for borrowings up to a maximum
amount of $500,000. Maximum aggregate borrowings under the credit agreement is
$5,000,000. The credit agreement expires on December 9, 1999. Interest accrues
at prime plus a variable percentage, adjusted monthly, ranging from .75% to
1.75% (9.50% at March 31, 1999). At March 31, 1999, borrowings under the line of
credit and letters of credit were $1.0 million and no additional borrowings were
available. The credit agreement is secured by all of the Company's assets
including intellectual property. At March 31, 1999, the Company was in violation
of certain financial covenants. No waiver has been obtained for such violation,
therefore, the bank may at any time demand repayment of the outstanding
borrowings which were $1.0 million on March 31, 1999 and $606,000 on June 14,
1999.
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<PAGE> 204
Capital Leases
Obligations under capital leases have terms of three to five years. Certain
leases provide the Company with a guaranteed purchase option at lease
expiration. At March 31, 1999, assets with a cost of $196,000 were financed
under capital leases. Total obligations under capital leases as of March 31,
1999 were $166,000 with the current portion of the capital lease obligations of
$63,000. Future required payments of the obligations under capital leases as of
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2000 ...................................... $ 78,000
2001 ...................................... 54,000
2002 ...................................... 40,000
2003 ...................................... 22,000
2004 ...................................... 11,000
--------
Total ................................ 205,000
Less amount representing interest ......... 39,000
--------
Present value of minimum lease payment .... $166,000
========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under non-cancelable
operating leases that expire through 2004. Rental expense was $730,000,
$1,682,000 and $1,763,000 for fiscal 1999, 1998 and 1997 respectively. Minimum
rental commitments under all non-cancelable leases with an initial term in
excess of one year are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2000 ................................. $ 562,000
2001 ................................. 432,000
2002 ................................. 315,000
2003 ................................. 301,000
2004 ................................. 234,000
----------
Totals ............................... $1,844,000
==========
</TABLE>
5. STOCK OPTION AND STOCK PURCHASE PLANS
Stock Option Plans
The Company has elected to follow Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, Accounting
for Stock-based Compensation, requires use of option valuation models that were
not developed for use in valuing employee stock options and employee stock
purchase plans. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.
The Company has two current stock option plans: the 1993 Stock Plan, which
provides for the grant of stock options to the Company's employees and
consultants, and the 1995 Director Stock Option Plan, which provides for the
grant of stock options to the Company's Directors. The Company also has two
other stock option plans which have terminated but under which stock
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<PAGE> 205
options remain outstanding: the 1989 Stock Option Plan, the Incentive and
Non-statutory Stock Option Plan adopted by Digitalk in 1992 (as to which the
Company assumed all outstanding options at the time of the merger in August
1995), and the 1995 Stock Option/Stock Issuance Plan of Objectshare Systems,
Inc. (as to which the Company assumed all outstanding options at the time of the
acquisition in July 1996). No further options may be granted under these
terminated plans. In addition, the Company granted options in fiscal 1998 to the
new executive officers hired in June 1997. Because of the number of option
shares and the terms required in the employment agreements with such
individuals, the options were granted outside of the existing stock plans.
Under the 1993 Stock Plan, the vesting and exercise provisions of option
grants are determined by the Board of Directors. As of March 31, 1999, the 1993
Stock Plan provides for the issuance of incentive stock options and nonqualified
stock options to purchase up to 3,300,664 shares of common stock (including
97,122 shares already issued upon exercise of options and not including 9,063
shares that could be added under the terms of the plan if outstanding options
covering such shares under the 1989 plan are cancelled in the future). There
were 987,190 shares available for option grants under this plan at March 31,
1999.
Under the 1995 Director Stock Option Plan, options are automatically granted
to non-employee Directors. The Director Stock Option Plan provides for the
issuance of nonqualified stock options to purchase up to 200,000 shares of
common stock. There were 108,000 shares available for option grants under this
plan at March 31, 1999.
Generally, options granted under the plans vest over a three or four-year
period and have a term of ten years from the date of grant, subject to continued
service to the Company, although certain grants under the 1995 Director Stock
Option Plan vest over a longer period.
In July 1996 and November 1997, the Board of Directors approved stock option
repricing programs pursuant to which employees of the Company (excluding all
executive officers) could elect to exchange their then outstanding employee
stock options for new employee stock options having an exercise price per share
equal to the then fair market value of the common stock, with exercisability
generally prohibited for six months after the exchange. Under the July 1996
re-pricing, 747,098 options with exercise prices ranging from $4.875 to $18.25
per share were exchanged for options with an exercise price of $4.375 per share.
Under the November 1997 repricing, 513,868 options with exercise prices ranging
from $1.0625 to $4.6875 per share were exchanged for options with an exercise
price of $1.00 per share. The exchange of all such options is included in grants
and cancellations is shown in the table below.
Activity under these stock option plans is set forth below. Options assumed
in the Digitalk merger are included as historically granted, adjusted for the
exchange ratio for the merger. Options assumed in the Objectshare acquisition
are included as assumed in fiscal 1997, adjusted for the exchange ratio for that
merger.
C-14
<PAGE> 206
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------
WEIGHTED-
AVERAGE
NUMBER OF PRICE PER
SHARES PRICE PER SHARE SHARE
--------- --------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at March 31, 1996 ...... 2,468 $0.22--$22.50 $ 7.90
Granted ...................... 2,198 $1.50--$13.81 $ 3.97
Assumed (acquisition) ........ 104 $3.21 $ 3.21
Canceled ..................... (2,277) $0.22--$22.50 $ 8.10
Exercised .................... (196) $0.22--$ 9.88 $ 3.58
------ -------------- ------
Balance at March 31, 1997 ...... 2,297 $0.44--$18.25 $ 4.09
Granted ...................... 3,891 $0.63--$ 3.81 $ 1.03
Canceled ..................... (2,495) $0.44--$18.25 $ 3.82
Exercised .................... (250) $0.44--$ 1.06 $ 0.56
------ -------------- ------
Balance at March 31, 1998 ...... 3,443 $0.63--$11.50 $ 1.17
Granted ...................... 916 $0.44--$ 4.88 $ 2.15
Canceled ..................... (745) $0.66--$ 9.00 $ 2.38
Exercised .................... (83) $1.00--$ 1.00 $ 1.00
------ -------------- ------
Balance at March 31, 1999 ...... 3,531 $0.44--$11.50 $ 1.17
====== ============== ======
</TABLE>
At March 31, 1999, an aggregate of 4,625,826 shares were reserved for future
issuance under the plans, including 3,530,636 shares subject to outstanding
options and 1,095,190 available for grant.
The following table summarizes information about the Company's stock options
outstanding at March 31, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- --------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF MARCH 31, CONTRACTUAL EXERCISE MARCH 31, EXERCISE
EXERCISE PRICE 1999 LIFE PRICE 1999 PRICE
- -------------- -------------- ----------- --------- -------------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$0.44 -- $0.97 152 8.71 $ 0.79 49 $ 0.79
$1.00 1,457 7.73 $ 1.00 668 $ 1.00
$1.03 394 9.39 $ 1.03 -- $ --
$1.06 1,289 3.63 $ 1.06 1,197 $ 1.06
$1.09 -- $1.13 33 9.76 $ 1.12 -- $ --
$1.16 -- $1.66 43 9.41 $ 1.12 2 $ 1.66
$2.19 -- $2.41 45 9.30 $ 2.38 7 $ 2.40
$2.50 -- $3.50 41 9.23 $ 2.66 1 $ 3.00
$3.56 -- $3.94 39 9.06 $ 3.65 -- $ --
$4.88 -- $11.50 38 7.16 $ 8.82 23 $11.07
------ ------
$0.44 -- $11.50 3,531 6.54 $ 1.17 1,947 $ 1.16
====== ======
</TABLE>
Pro forma information regarding net loss and net loss per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
employee stock purchase plan and employee stock options granted subsequent to
March 31, 1995 under the fair value method of SFAS 123. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model for the single option approach with the following assumptions for fiscal,
1999, 1998, and 1997: risk-free interest rates of 5%, 6%, and 7%, respectively,
volatility factors of the expected market price of the Company's common stock of
1.5, 1.4, and 0.9, respectively, and, for all years, an expected life of the
options of 3 years from the grant date and a dividend yield of zero.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options and employee stock purchase plan have
characteristics significantly different from those of traded options, and
because
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<PAGE> 207
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of the Company's employee
stock options and the employee stock purchase plan.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to pro forma net loss over the options' vesting period. The
Company's historical and pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Net Loss
Historical ............. $ (4,839) $ (7,582) $(22,480)
Pro Forma .............. $ (6,041) $ (8,697) $(24,496)
Basic and diluted
Net loss per share
Historical ............. $ (0.39) $ (0.63) $ (1.91)
Pro Forma .............. $ (0.49) $ (0.72) $ (2.08)
</TABLE>
Stock Purchase Plan
The Company's 1993 Employee Stock Purchase Plan allows eligible employees,
through payroll deductions, to purchase shares of the Company's stock at the
lower of 85% of the fair market value of the stock on the first or last day of a
six-month offering period or such other offering period determined by the Board
of Directors. The plan provides for the issuance of up to 800,000 shares of the
Company's common stock. In fiscal 1999, 1998, and 1997, the Company issued
101,625, 19,944, and 200,867 shares, respectively, under the plan. At March 31,
1999, 520,739 cumulative shares have been issued under the plan, and 279,261
remained available for future issuance.
Common Stock Reserved
At March 31, 1999, a total of 4,905,087 shares of the Company's common stock
was reserved for future issuance under the Company's stock option and employee
stock purchase plans.
6. RETIREMENT PLAN
The Company has a defined contribution 401(k) plan covering substantially all
of its employees. Participants may elect to contribute up to 20% of their
compensation to this plan (up to the statutory maximum amount). The Company can
make discretionary contributions to the plan determined solely by the Board of
Directors. The Company made no contributions to the plan through March 31, 1999.
Effective April 1, 1999, the Company matches $0.50 for every dollar its
employees contribute up to 6% of their salary deferral.
7. INCOME TAXES
The provision (benefit) for income taxes are as follows:
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<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1999 1998 1997
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
State ............ $ -- $ 40
Foreign .......... (13) 31 55
------ ------ ------
Total .............. $ (13) $ 31 $ 95
====== ====== ======
</TABLE>
A reconciliation of income tax provision at the U.S. federal statutory rate
(34%) to the income tax provision at the effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------
1999 1998 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income taxes computed at the federal statutory rate ......... $(1,656) $(2,577) $(7,600)
Losses without benefit ...................................... 1,643 2,577 6,405
Acquired research and development costs with no tax basis ... -- -- 1,195
State taxes, net of federal benefit ......................... -- -- 40
Foreign income and withholding taxes ........................ -- 31 55
------- ------- -------
$ (13) $ 31 $ 95
======= ======= =======
</TABLE>
As of March 31, 1999, the Company has federal and state net operating loss
carryforwards of approximately $46,100,000 and $13,500,000, respectively, that
will expire in the fiscal years 2000 through 2019. The Company also has federal
and state research and experimentation credits of approximately $1,300,000 and
$700,000, respectively, that will expire in the fiscal years 2003 through 2019.
In addition, the Company has a federal foreign tax credit carryforward of
approximately $243,000 that will expire in the fiscal years 2000 through 2002.
Finally, the Company also has federal alternative minimum tax credit carry
forwards of approximately $60,000 that do not expire.
Utilization of these net operating losses and credits may be subject to an
annual limitation due to ownership change constraints provided by the Internal
Revenue Code of 1986 and similar state tax provisions.
Significant components of the Company's deferred income taxes consist of the
following:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating loss carryforwards ......... $ 16,491 $ 11,708
Research credit carryforwards ............ 1,955 1,991
Foreign tax credit ....................... 243 243
Allowances for sales returns ............. -- 30
Accrued vacation pay ..................... -- 128
Other individually immaterial items ...... (1,062) 616
-------- --------
Total deferred tax assets ........ 17,627 14,716
Valuation allowance ...................... (17,627) (14,716)
-------- --------
Net deferred tax assets .................... $ -- $ --
======== ========
</TABLE>
Approximately $744,000 of the deferred tax asset described above (and a
similar amount of valuation allowance) relates to tax benefits of stock option
exercises that may be realized in future years. When realized, these benefits
will be allocated to paid-in capital.
C-17
<PAGE> 209
Under Statement of Financial Accounting Standards No. 109, deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. The Company has provided a full valuation allowance against
its deferred tax assets due to uncertainties surrounding their realization
resulting primarily from the Company's history of operating losses.
The income before provision for income taxes provided by foreign operations
was not material for any period presented, and the undistributed earnings of the
Company's foreign subsidiaries were not material at March 31, 1999.
8. BUSINESS COMBINATIONS
In February 1996, the Company acquired all the assets of AMiGO S.A, a
French-based distributor of the Company's VisualWorks product. In September
1997, the Company decided to spin-off the entity to its management. At the time
of the acquisition, which was accounted for as a purchase, the Company made an
initial payment of $688,000. In the second quarter of fiscal 1998, the Company
paid an additional $150,000 in satisfaction of its "earnout" obligation under
the acquisition agreement, in connection with revenues in France determined in
accordance with the agreement for the specified time period. The Company also
provided an additional $100,000 to the spin-off entity as working capital. Most
of the initial purchase price, which included transaction costs, was allocated
to intangible assets (included in other assets), a portion of which was
amortized in fiscal 1997 and the balance of which was written off in connection
with the spin-off. The results of operations of AMiGO, which have not been
material in relation to those of the Company, are included in the consolidated
results of operations for the period of ownership by the Company.
On July 31, 1996, the Company acquired ObjectShare Systems, Inc. ("OSI"), a
privately held corporation that developed and marketed add-on products for
Smalltalk tools. The acquisition was accounted for as a purchase in which the
Company paid $3.0 million in cash and assumed options for the purchase of
104,086 shares of the Company's common stock. In connection with the
acquisition, the Company recorded intangible assets of $363,000 and charged to
operations $2.9 million for acquired research and development. In connection
with the restructuring of operations (Note 10), the Company charged to
operations the unamortized portion of the intangible assets. The operating
results of OSI have been included in the Company's consolidated results of
operations from the date of acquisition.
On October 1, 1996, the Company acquired Polymorphic Software, Inc. ("PSI"),
a privately held corporation which developed and marketed Smalltalk tools and
provided related consulting services. This acquisition was accounted for as a
purchase in which the Company agreed to pay approximately $1.0 million in cash,
of which $700,000 was paid during the third quarter, in exchange for all
outstanding shares of PSI common stock. The operating results of PSI are
included in the Company's consolidated results of operations from the date of
acquisition. In connection with the acquisition, the Company recorded intangible
assets of $403,000 and charged to operations $646,000 for acquired research and
development. In connection with the
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<PAGE> 210
restructuring of operations (Note 10), the Company charged to operations the
unamortized portion of the intangible assets.
9. LEGAL PROCEEDINGS
During the quarter ended December 31, 1996, the Company and its insurers
agreed to settle a securities class action lawsuit filed against the Company and
certain of its officers and directors on October 11, 1995, in the U.S. District
Court for the Northern District of California. Under the terms of the
settlement, a settlement fund of $3.1 million was established, of which
$2,850,000 was paid by the Company's insurers and $250,000 was paid by the
Company. The amount paid by the Company is included in interest and other income
(expense) in the consolidated statement of operations for fiscal 1997. The
settlement was approved by the court in March of 1997.
The Company may be subject to various legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims cannot be predicted with certainty, management does
not believe that the outcome of any of these legal matters will have a material
adverse affect on the Company's consolidated results of operations, financial
position or cash flows.
10. RESTRUCTURING CHARGES AND MERGER RELATED COSTS
Restructuring and merger related expenses reflect charges recorded in
connection with the restructuring of operations in the second quarter of fiscal
1998, and in the third and fourth quarters of fiscal 1997. In the
restructurings, the Company reduced its total headcount by an aggregate of
approximately 160 people, including employees and contractors, down to 112 at
March 31, 1998. These actions were taken in an effort to reduce the Company's
ongoing operating expenses. The Company recorded restructuring charges in the
second quarter of fiscal 1998 of $2.6 million and in the third and fourth
quarters of fiscal 1997 of approximately $2.2 million and $3.0 million,
respectively, to cover severance benefits, the closing of excess facilities,
write-down of acquired intangible assets related to discontinued products, and
the write-down of excess computer equipment and office furniture.
The fiscal 1998 restructuring costs and 1999 utilization and related
liabilities are summarized below:
<TABLE>
<CAPTION>
WRITE-DOWNS, WRITE-DOWNS,
PAYMENTS, AND ACCRUED PAYMENTS, AND ACCRUED
1998 RECLASSIFICATIONS RESTRUCTURING RECLASSIFICATIONS RESTRUCTURING
RESTRUCTURING THROUGH COSTS AT THROUGH COSTS AT
COSTS MARCH 31, MARCH 31, MARCH 31, MARCH 31,
PROVISION 1998 1998 1999 1999
------------- ----------------- ------------- ----------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Severance benefits ...................... $ 550 $ 550 $ -- $ --
Closing of excess facilities ............ 1,395 881 514 514 --
Intangible assets write-down ............ 584 564 20 20 --
Equipment and furniture write-down ...... 68 68 -- -- --
Other ................................... 24 24 -- -- --
------ ------ ------ ------ ------
Total ......................... $2,621 $2,087 $ 534 $ 534
====== ====== ====== ====== ======
</TABLE>
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<PAGE> 211
Cash payments included in the above table and charges to the restructuring
cost provision were $348,000 and $1.4 million in fiscal 1999 and 1998,
respectively. In fiscal 1999, the Company completed these restructuring
activities and reversed to operations $166,000 of excess accruals related to the
closing of excess facilities against operations.
11. INDUSTRY AND GEOGRAPHIC INFORMATION
The Company markets its products in the United States and in foreign
countries through its sales personnel, dealers, distributors, and its
subsidiaries. License and service revenue from external customers attributed to
United States and other foreign countries, based on the customers' residence,
are summarized by license and service as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------
1999 1998
---------------------- ----------------------
SERVICE LICENSE SERVICE LICENSE
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
United States ............ $ 7,782 $ 3,124 $ 8,478 $ 5,545
Europe ................... 1,937 1,892 3,104 1,899
Other International ...... 707 364 486 728
------- ------- ------- -------
Total .......... $10,426 $ 5,380 $12,068 $ 8,172
======= ======= ======= =======
</TABLE>
Long-lived assets located in the United Stated and other foreign countries
are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1999 1998
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
United States .................... $ 6,235 $ 5,434
International .................... 761 791
Depreciation/Amortization ........ (5,403) (4,853)
------- -------
$ 1,593 $ 1,372
======= =======
</TABLE>
License and service revenue amounts and long lived asset amounts related to
fiscal 1997 are not present as it was impracticable to determine such
information.
12. SUBSEQUENT EVENTS
Disposition of Assets
On April 8, 1999, the Company completed the sale of certain rights and assets
to a software company "the Buyer" in exchange for approximately $725,000 in cash
and the assumption of liabilities in the approximate amount of $96,000. The
rights and assets consisted of, among other things: the Company's proprietary
computer software application development environments, including
VisualSmalltalk and PARTS for Java, a visual programming environment based on
Java programming language; products currently in development to support
Enterprise JavaBeans and legacy software system integration; all technology,
warranties, documentation and other intellectual property rights of the Company
related to such software; as well as certain personal property. Pursuant to a
software license agreement between the Company and the Buyer, the Buyer will
license back to the Company: the rights to continue to provide support and
maintenance and to sell the VisualSmalltalk product line; and the rights to (i)
sell, for a period of
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<PAGE> 212
one year, and (ii) provide support and maintenance, perpetually, the PARTS for
Java product line.
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<PAGE> 213
OBJECTSHARE, INC.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for fiscal 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH TOTAL
QUARTER(2) QUARTER(2) QUARTER QUARTER YEAR
---------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Fiscal 1999:
Net revenues ............................. $ 3,703 $ 3,903 $ 3,982 $ 4,218 $ 15,806
Gross profit ............................. $ 2,446 $ 2,348 $ 1,852 $ 1,718 $ 8,364
Loss from operations ..................... $ (958) $ (500) $ (1,201) $ (2,353) $ (5,012)
Net loss ................................. $ (778) $ (490) $ (1,106) $ (2,465) $ (4,839)
Basic and diluted net loss per share ..... $ (0.06) $ (0.04) $ (0.09) $ (0.20) $ (0.39)
Shares used in computing basic and
diluted net loss per share ............... 12,231 12,303 12,331 12,369 12,308
Fiscal 1998:
Net revenues ............................. $ 5,122 $ 4,752 $ 4,935 $ 5,431 $ 20,240
Gross profit ............................. $ 2,773 $ 2,380 $ 2,645 $ 3,247 $ 11,045
Income (loss) from operations(1) ......... $ (2,615) $ (5,031) $ (533) $ 315 $ (7,864)
Net income (loss) ........................ $ (2,515) $ (4,977) $ (417) $ 327 $ (7,582)
Basic net income (loss) per share ........ $ (0.21) $ (0.42) $ (0.03) $ 0.03 $ (0.63)
Shares used in computing basic net
income (loss) per share .................. 11,925 11,925 12,075 12,126 12,022
Diluted net income (loss) per share ........ $ (0.21) $ (0.42) $ (0.03) $ 0.02 $ (0.63)
Shares used in computing diluted net
income (loss) per share .................. 11,925 11,925 12,075 15,570 12,022
</TABLE>
- ----------
(1) The second quarter of fiscal 1998 included $2,621,000 of restructuring costs
as described in Note 10 to the consolidated financial statements.
(2) The Company has restated its 10-Q's for the three months ended June 30 and
September 30, 1998. The above quarterly financial data is derived from the
restated Form 10-Q's as applicable.
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<PAGE> 214
SCHEDULE II: VALUATION OF QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO NET AT END
DESCRIPTION OF PERIOD EXPENSES REVENUES DEDUCTIONS* OF PERIOD
- ----------- ---------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year Ended March 31, 1999 .......... $ 547 $ 257 $ -- $ 629 175
Year Ended March 31, 1998 .......... 958 106 -- 517 547
Year Ended March 31, 1997 .......... 498 939 -- 479 958
Allowance for Sales Returns:
Year Ended March 31, 1999 .......... $ 75 $ -- $ -- $ 45 $ 30
Year Ended March 31, 1998 .......... 1,351 -- 82 1,358 75
Year Ended March 31, 1997 .......... 969 -- 1,964 1,582 1,351
</TABLE>
- ----------
* Uncollectible accounts written off, net of recoveries
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<PAGE> 215
OBJECTSHARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
------------- --------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 774 $ 1,675
Accounts receivable, net of allowance of
$179 at September 30 and $205 at March 31 1,881 3,988
Inventories 24
Other current assets 129 432
-------- --------
Total current assets 2,784 6,119
Property and equipment:
Property and equipment 3,893 6,345
Less accumulated depreciation (3,396) (5,392)
-------- --------
Net property and equipment 497 953
Deposits and other assets 149 129
Capitalized Software 522
Less Accumulated Amortization (11)
-------- --------
511
-------- --------
Total assets $ 3,430 $ 7,712
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 734 $ 1,309
Accrued compensation and related expenses 328 893
Note payable 40
Capital Lease Obligation-Short Term 59 63
Other accrued liabilities 851 1,593
Deferred revenue 175 2,587
Line of credit 481 1,000
-------- --------
Total current liabilities 2,628 7,485
Commitments and contingencies
Capital Lease Obligation-Long Term 76 103
Stockholders' equity:
Common stock, $0.001 par value:
Authorized shares - 30,000
Issued and outstanding shares -
12,471 at September 30 and
12,383 at March 31 12 12
Additional paid-in capital 50,239 50,160
Accumulated deficit (49,307) (49,772)
Accumulated other comprehensive loss (218) (276)
-------- --------
Total stockholders' equity 726 124
-------- --------
Total liabilities and
stockholders' equity $ 3,430 $ 7,712
======== ========
</TABLE>
See accompanying notes.
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<PAGE> 216
OBJECTSHARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues:
Service $ 1,865 $ 2,774 $ 4,074 $ 5,059
License 455 1,129 1,464 2,547
-------- -------- -------- --------
Total net revenues 2,320 3,903 5,538 7,606
Cost of net revenues:
Service 1,113 1,283 2,586 2,367
License 160 272 543 445
-------- -------- -------- --------
Total cost of net revenues 1,273 1,555 3,129 2,812
-------- -------- -------- --------
Gross profit 1,047 2,348 2,409 4,794
Operating expenses:
Sales and marketing 962 1,346 2,466 3,163
Research and development 302 1,022 824 2,024
General and administrative 725 511 1,691 1,231
Restructuring (31) (166)
-------- --------
Total operating expenses 1,989 2,848 4,981 6,252
-------- -------- -------- --------
Net income/(loss) from operations (942) (500) (2,572) (1,458)
Interest and other income (expense), net 2,649 10 3,102 141
-------- -------- -------- --------
Income/(loss) before income taxes 1,707 (490) 530 (1,317)
Provision for income taxes (49)
--------
Net income/(loss) 1,707 (490) 530 (1,268)
======== ======== ======== ========
Basic and diluted net income/(loss) per share $ 0.14 $ (0.04) $ 0.04 $ (0.10)
Shares used in computing basic and diluted
net income/(loss) per share 12,468 12,303 12,441 12,268
======== ======== ======== ========
</TABLE>
See accompanying notes
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OBJECTSHARE, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 1,707 $ (490) 530 $ (1,268)
-------- -------- -------- --------
Other comprehensive income, net of tax:
Foreign currency translation adjustment 6 60 (7) 68
-------- -------- -------- --------
Comprehensive income (loss) $ 1,713 $ (430) $ 527 $ (1,200)
======== ======== ======== ========
</TABLE>
See accompanying notes.
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OBJECTSHARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED SEPTEMBER 30
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Operating Activities
Net income/(loss) $ 530 $ (1,268)
Adjustments to reconcile net income/(loss) to net cash
used in operating activities:
Depreciation and amortization 376 313
Gain on sale of assets (3,021)
Changes in operating assets and liabilities:
Accounts receivable 2,607 2,215
Inventories 19 20
Other assets 197 (1)
Accounts payable and accrued liabilities (1,607) (2,157)
Accrued restructuring costs (433)
Deferred revenue (663) (1,140)
-------- --------
Net cash used in operating activities (1,562) (2,451)
Investing Activities:
Net purchases of property and equipment (9) (91)
Maturities of marketable securities 600
Capitalized Software (400)
Proceeds from Java Transaction 725
Proceeds from Cincom Transaction 425
Increase in other assets 2
-------- --------
Net cash provided by (used in) investing activities 1,141 111
Financing Activities:
Increase in line of credit (519)
Payments on capital lease obligations (30)
Decrease of note payable (3)
Proceeds from issuance of common stock, net of repurchases 79 121
-------- --------
Net cash provided by financing activities (473) 121
-------- --------
Effect of exchange rate changes on cash
and cash equivalents (7) 68
-------- --------
Net decrease in cash and cash equivalents (901) (2,151)
-------- --------
Cash and cash equivalents at beginning of period 1,675 5,134
-------- --------
Cash and cash equivalents at end of period $ 774 $ 2,983
======== ========
</TABLE>
See accompanying notes.
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OBJECTSHARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the United
States Securities and Exchange Commission regarding interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements
and should be read in conjunction with the audited financial statements included
in the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1999.
In the opinion of management the accompanying unaudited condensed
consolidated financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the financial
position and results of the operations for interim periods presented. The
operating results for the six months ended September 30, 1999 are not
necessarily indicative of the results expected for the full fiscal year ending
March 31, 2000.
2. LOSS PER SHARE
The Company has adopted SFAS 128, "Earnings Per Share," and applied this
pronouncement to all periods presented. This statement requires the presentation
of both basic and diluted net income (loss) per share for financial statement
purposes. Basic net income (loss) per share is computed by dividing income
(loss) available to common stockholders by the weighted average number of common
shares outstanding. Diluted net income (loss) per share includes the effect of
the potential shares outstanding, including dilutive stock options and warrants
using the treasury stock method.
3. CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
4. RESTRUCTURING COSTS
The Company recorded restructuring costs in the second quarter of fiscal 1998
and in the third and fourth quarters of fiscal 1997. During the six months ended
September 30, 1998, the Company made payments of $267,000 and recorded a return
to operations of reserves of $166,000 provided in prior years for events that
were completed in the current period. The Company utilized the remaining reserve
during fiscal 1999.
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5. SOFTWARE REVENUE RECOGNITION
In October 1997, the Accounting Standards Executive Committee of the AICPA
issued SOP 97-2, Software Revenue Recognition which provides guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. SOP 97-2 is intended to reduce the diversity in
accounting for software revenue recognition and changes certain of the specific
criteria for recognizing revenue related to software licensing arrangements.
Specifically, the new SOP contains more restrictive revenue recognition
provisions for software arrangements containing multiple elements (i.e.
upgrades, enhancements, implementation and other services) similar to the
arrangements entered into by the Company. Effective April 1998, the Company has
implemented the provisions of the new SOP. Adoption of this new standard had no
effect on the results of operation of the Company.
6. COMPREHENSIVE INCOME
In April 1998, the Company adopted FASB Statement No. 130, Reporting
Comprehensive Income, which establishes standards for the reporting and display
of comprehensive income and its components in financial statements.
Comprehensive income generally represents all changes in shareholders' equity
except those resulting from investments by and distributions to shareholders.
7. SEGMENT INFORMATION
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information, which requires publicly-held companies
to report financial and descriptive information about its operating segments in
financial statements issued to shareholders for interim and annual periods. The
statement also requires additional disclosures with respect to products and
services, geographical areas of operations and major customers. The Company
adopted Statement No. 131 at the end of fiscal 1999. There was no effect on the
consolidated results of operations or financial position of the Company.
8. LINE OF CREDIT
The Company had a credit agreement with a commercial bank that provided a
revolving line of credit for borrowings, limited to 70% of eligible accounts
receivable, up to a maximum of $5,000,000. The credit agreement also provided
letters of credit subject to certain condition for borrowings up to a maximum
amount of $500,000. Maximum aggregate borrowings under the credit agreement are
$5,000,000. The credit agreement was to expire on December 9, 1999. Interest
accrued at prime plus a variable percentage, adjusted monthly, ranging from
0.75% to 1.75% (9.0% at September 30, 1999). At September 30, 1999, borrowings
under the line of credit and letters of credit were $481,000. The credit
agreement was secured by all the Company's assets including intellectual
property. At September 30, 1999, the Company was in violation of certain
financial covenants.
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On October 28, 1999 the Company paid off substantially all of the
indebtedness under the above credit agreement using the proceeds from the sale
of certain receivables to the bank under an Accounts Receivable Purchase
Agreement. There will be no more advances under the above Credit Agreement. The
Receivable Purchase Agreement provides the facility to sell up to $1,000,000 of
eligible receivables to the bank. The bank will pay 80% of the face value upon
the sale and the balance after subsequent collection by the bank. The Company
remains contingently liable for the collection of these receivables. The
Company's obligations are secured by all of the Company's assets. Fees include
an administrative fee of 0.5% of the amount sold and 1.5% per month on the
uncollected balance of the receivables sold.
9. DISPOSITIONS OF ASSETS
On August 30, 1999, the Company completed the sale of certain rights and
assets to Cincom Systems, Inc. ("Cincom"), in exchange for approximately
$425,000 in cash, the assumption of certain liabilities, and guaranteed
royalties of approximately $500,000. The Rights and Assets consisted of, among
other things, the Registrant's proprietary computer software known generally as
Smalltalk, and other intellectual property rights of the Registrant related to
such software and certain personal property. Pursuant to this transaction,
Cincom will license back to the Registrant the rights to continue to use the
software for training and consulting purposes and to sell the Smalltalk product
line. In addition Cincom assumed the future obligations under certain other
agreements. The liabilities assumed by Cincom included ongoing maintenance and
support, certain capital leases, and accrued vacation and others, which were
recorded on the books of the Company at approximately $2,100,000. The actual
cost to perform these obligations may be less than the amounts recorded. The
sale of these assets resulted in a gain of $2,538,000 for the Company which is
included in Other Income.
On April 8, 1999, the Company completed the sale of certain rights and assets
to a software company "the Buyer" in exchange for approximately $725,000 in cash
and the assumption of liabilities in the approximate amount of $96,000. The
rights and assets consisted, among other things: the Company's propriety
computer software application development environments, including
VisualSmalltalk and PARTS for Java, a visual programming environment based on
Java programming language; products currently in development to support
Enterprise JavaBeans and legacy software system integration; all technology,
warranties, documentation and other intellectual property rights of the Company
related to such software; as well as certain personal property. Pursuant to a
software license agreement between the Company and the Buyer, the Buyer licensed
back to the Company: the rights to continue to provide support and maintenance
and to sell the VisualSmalltalk product line; and the rights to (i) sell, for a
period of one year, and (ii) provide support and maintenance, perpetually, the
PARTS for Java product line. The sale of these assets resulted in a gain of
$483,000 for the Company which is included in Other Income.
As a result of these transactions, the Company's remaining operations consist
primarily of providing training and consulting services.
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10. SUBSEQUENT EVENTS
On November 4, 1999, The Company signed a definitive agreement to merge with
StarBase Corporation ("StarBase"). StarBase will issue its stock in exchange for
the Company's stock at an anticipated enterprise value of $7.5 million, with a
minimum of $6.15 million and a maximum of $8.85 million based upon the average
trading price of StarBase stock prior to the closing. The transaction, which is
subject to shareholders' approval and certain other conditions, is expected to
be completed in early 2000. In addition, StarBase has provided the Company a
$500,000 line of credit. This line bears interest at prime plus 0.75%, is
secured by all assets of the Company, and matures on October 31, 2000 subject to
earlier maturity based upon specified events. On November 5, 1999 the Company
borrowed $200,000 under this line.
On November 24, 1999, the Company sold of all of the stock of ObjectShare,
Gmbh, a German corporation and ObjectShare (U.K.) Limited, an English
corporation (collectively, the "Subsidiaries") to Valtech S.A. a French societe
anonyme and its wholly-owned subsidiary Valtech Limited, a company incorporated
in England and Wales (Valtech U.K.), respectively, in exchange for total
consideration of (i) approximately $1,600,000 in cash and (ii) the cancellation
of certain intercompany indebtedness owed by the Subsidiaries to the Company. As
a result of this transaction, the Company has no remaining opera
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Appendix D
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
DELAWARE CORPORATIONS CODE
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
SECTION 262. Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to Section 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's
shares of stock under the circumstances described in subsections (b) and
(c) of this section. As used in this section, the word "stockholder" means
a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and
include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with
the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation
to be effected pursuant to Section 251 (other than a merger effected
pursuant to Section 251(g) of this title), Section 252, Section 254,
Section 257, Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record
date fixed to determine the stockholders entitled to receive notice of
and to vote at the meeting of stockholders to act upon the agreement
of merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not
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require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this
title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to Sections 251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not
owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the
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corporation, not less than 20 days prior to the meeting, shall notify each
of its stockholders who was such on the record date for such meeting with
respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any
or all of the shares of the constituent corporations, and shall include in
such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking
of the vote on the merger or consolidation, a written demand for appraisal
of his shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each
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<PAGE> 226
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent
of the corporation that is required to give either notice that such notice
has been given shall, in the absence of fraud, be prima facie evidence of
the facts stated therein. For purposes of determining the stockholders
entitled to receive either notice, each constituent corporation may fix, in
advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after
the effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the
merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at
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<PAGE> 227
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of
the proceeding. Upon application by the surviving or resulting corporation
or by any stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder
whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation
to the stockholders entitled thereto. Interest may be simple or compound,
as the Court may direct. Payment shall be so made to each such stockholder,
in the case of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this
State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a
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<PAGE> 228
stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares
entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of his demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the effective date of
the merger or consolidation as provided in subsection (e) of this section
or thereafter with the written approval of the corporation, then the right
of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be
dismissed as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
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APPENDIX E
Opinion of Duff & Phelps, LLC
November 3, 1999
Board of Directors
ObjectShare, Inc.
16811 Hale Avenue, Suite A
Irvine, CA 92606-5020
To the Board of Directors of ObjectShare, Inc.:
Duff & Phelps, LLC ("Duff & Phelps") has been engaged by ObjectShare, Inc.
("ObjectShare" or the "Company"), as financial advisor to the Board of Directors
of the Company in connection with a transaction (the "Transaction") involving
the merger of ObjectShare with and into OBJS Acquisition Corp., a subsidiary of
StarBase Corporation ("StarBase"). Specifically, Duff & Phelps has been engaged
to provide an opinion (the "Opinion") as to whether the Transaction is fair to
the Company and its stockholders from a financial point of view. It is our
understanding that ObjectShare common stock will be exchanged for StarBase
common stock pursuant to the merger exchange ratio calculated as set forth in
the Agreement and Plan of Merger dated as of November 3, 1999, by and among
StarBase Corporation, OBJS Acquisition Corp. and ObjectShare, Inc.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. Met with certain members of senior management of ObjectShare at the
Company's headquarters in Irvine, California, to discuss the history,
financial condition, future prospects and projected performance of the
Company;
2. Met with certain members of senior management of StarBase at its
headquarters in Santa Ana, California, to discuss the history, financial
condition, future prospects and projected performance of StarBase;
3. Reviewed the Agreement and Plan of Merger dated as of November 3, 1999, by
and among StarBase Corporation, OBJS Acquisition Corp. and ObjectShare,
Inc;
4. Reviewed the Asset Purchase Agreement by and between Cincom Systems, Inc.,
and ObjectShare, Inc., dated August 27, 1999;
5. Reviewed ObjectShare's and StarBase's annual reports and forms 10-K and
10-KSB for the year ended March 31, 1999, including the financial
statements contained therein;
6. Reviewed ObjectShare's and StarBase's forms 10-Q and 10-QSB for the quarter
ended June 30, 1999, including the financial statements contained therein;
7. Reviewed ObjectShare's unaudited financial statements for the six months
ended September 30, 1999;
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Board of Directors
ObjectShare, Inc.
November 3, 1999
Page 2
8. Reviewed projections prepared by ObjectShare and StarBase management and
their representatives;
9. Reviewed the historical trading price and volume of ObjectShare and
StarBase common stock;
10. Reviewed certain articles and press releases regarding ObjectShare and
StarBase;
11. Reviewed miscellaneous SEC filings for ObjectShare and StarBase;
12. Reviewed ObjectShare's Board of Directors minutes from February 1, 1996,
through August 26, 1999;
13. Reviewed other operating and financial information provided by management
of ObjectShare and StarBase; and
14. Reviewed economic and industry information and conducted such studies,
analyses and investigations as we deemed appropriate.
Our Opinion assumes the accuracy and completeness of the information provided to
us. Duff & Phelps has not independently verified the accuracy and completeness
of the information supplied to us with respect to the Company and does not
assume any responsibility with respect to it. Furthermore, we have assumed that
there has been no material change in the assets, financial condition, business,
or prospects of the Company since the date of the most recent financial
statements made available to us. Furthermore, industry information and data on
comparable companies used as background for our analysis were obtained from
regularly published sources. We did not independently verify the accuracy and
completeness of the information obtained from published sources.
Conclusions
Based on our analysis and relying upon the accuracy and completeness of all
information provided to us, it is our opinion that as of this date, the
Transaction is fair to ObjectShare and its stockholders from a financial point
of view.
Respectfully submitted,
Duff & Phelps, LLC
E-2
<PAGE> 231
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law allows companies to
indemnify their directors and officers against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement under the conditions and
limitations described in the law. However, Delaware law provides 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 a company 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.
StarBase's certificate of incorporation provides that a director is not
personally liable for monetary damages to it or its 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 StarBase or its 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. StarBase's certificate of incorporation authorizes it to indemnify
its officers, directors and other agent to the fullest extent permitted under
Delaware law.
StarBase has entered into an indemnification agreement with each of its
directors and officers. In some cases, the provisions of the indemnification
agreement may be broader than the specific indemnification provisions contained
in StarBase's certificate of incorporation or otherwise permitted under Delaware
law. Each indemnification agreement may require StarBase 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 StarBase to obtain directors' and officers' liability
insurance, if available on reasonable terms. StarBase currently 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 its directors, officers and controlling persons
pursuant to these provisions, or otherwise, StarBase has 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.
II-1
<PAGE> 232
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
No. Description
- --- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of November 3, 1999 among
StarBase Corporation, OBJS Acquisition Corp. and ObjectShare, Inc.
(included as Appendix A to the Proxy Statement/Prospectus contained in
this Registration Statement).
3.1 Certificate of Incorporation of OBJS Acquisition Corp.
3.2 Bylaws of OBJS Acquisition Corp.
4.1 Specimen StarBase Common Stock Certificate (incorporated herein by
reference to an Exhibit to the StarBase Corporation Registration
Statement filed on Form SB-2 with the Securities and Exchange
Commission on November 2, 1993 (File No. 33-68228)).
5.1 Opinion of Parker Chapin, LLP regarding the validity of the securities
being registered.
10.1 Fairness Opinion, dated November 3, 1999, of Duff & Phelps, LLP.
(included as Appendix E to the Proxy Statement/Prospectus
contained in this Registration Statement).
10.2 Secured Promissory Note, dated November 3, 1999, from ObjectShare, Inc.
to StarBase Corporation.
10.3 Employment Agreement, dated November 3, 1999, between StarBase
Corporation and James H. Smith.
10.4 Lease, dated October 3, 1997, between ParcPlace Digitalk, Inc. and Hale
Property Ltd., L.P.
10.5 SubLease, dated March 26, 1997, between ParcPlace Digitalk, Inc. and
Carollo Engineers, an Arizona partnership.*
10.6 Form of Stock Option Agreement granted to Messrs. James H. Smith,
Eugene L. Goda and specific employees of ObjectShare, Inc. in
connection with the merger.
10.7 Lock Up Letter dated as of November 3, 1999 from James H. Smith.
23.1 Consent of PricewaterhouseCoopers LLP.*
23.2 Consent of Deloitte & Touche LLP.*
23.3 Consent of Ernst & Young LLP, independent auditors.*
</TABLE>
II-2
<PAGE> 233
<TABLE>
<S> <C>
23.4 Consent of Parker Chapin, LLP (included in the opinion filed as Exhibit
5.1 to this Registration Statement).
99.1 Form of ObjectShare, Inc. Proxy Card.
- -------------
(*) Exhibit to be filed by Amendment
</TABLE>
Item 22. Undertakings.
(1) The undersigned registrant hereby undertakes that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, 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.
II-3
<PAGE> 234
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant 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 the 11th day of February, 2000.
STARBASE CORPORATION
By: /s/ Douglas S. Norman
------------------------------------
Douglas S. Norman,
Assistant Secretary and Chief
Accounting Officer
The undersigned directors and officers of StarBase hereby constitute
and appoint William Stow III, and Douglas S. Norman, and each of them, with full
power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys-in-fact with full power to execute
in our name and behalf in the capacities indicated below any and all amendments
(including post-effective amendments and amendments thereto) 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, as amended) and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Commission and
hereby ratify and confirm each and every act and thing that such
attorneys-in-fact, or any of them, or their substitutes, shall lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM R. STOW III Chairman of the Board, Chief February 11, 2000
- --------------------------------------- Executive Officer, and Director
William R. Stow III (principal executive officer)
/s/ DONALD R. FARROW Vice Chairman and Director February 11, 2000
- ---------------------------------------
Donald R. Farrow
/s/ PHILLIP E. PEARCE Director February 11, 2000
- ---------------------------------------
Phillip E. Pearce
/s/ DANIEL P. GINNS Director February 11, 2000
- ---------------------------------------
Daniel P. Ginns
/s/ JOHN R. SNEDEGAR Director February 11, 2000
- ---------------------------------------
John R. Snedegar
/s/ FRANK R. CACCAMO Director February 11, 2000
- ---------------------------------------
Frank R. Caccamo
</TABLE>
<PAGE> 235
<TABLE>
<S> <C> <C>
/s/ Barry W. Sullivan Director February 11, 2000
- ---------------------------------------
Barry W. Sullivan
</TABLE>
<PAGE> 236
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Description
- --- -----------
<S> <C>
2.1 Agreement and Plan of Merger dated as of November 3, 1999 among
StarBase Corporation, OBJS Acquisition Corp. and ObjectShare, Inc.
(included as Appendix A to the Proxy Statement/Prospectus contained in
this Registration Statement).
3.1 Certificate of Incorporation of OBJS Acquisition Corp.
3.2 Bylaws of OBJS Acquisition Corp.
4.1 Specimen StarBase Common Stock Certificate (incorporated herein by
reference to an Exhibit to the StarBase Corporation Registration
Statement filed on Form SB-2 with the Securities and Exchange
Commission on November 2, 1993 (File No. 33-68228)).
5.1 Opinion of Parker Chapin, LLP regarding the validity of the securities
being registered.
10.1 Fairness Opinion, dated November 3, 1999, of Duff & Phelps, LLP.
(included as Appendix E to the Proxy Statement/Prospectus
contained in this Registration Statement).
10.2 Secured Promissory Note, dated November 3, 1999, from ObjectShare, Inc.
to StarBase Corporation.
10.3 Employment Agreement, dated November 3, 1999, between StarBase
Corporation and James H. Smith.
10.4 Lease, dated October 3, 1997, between ParcPlace Digitalk, Inc. and Hale
Property Ltd., L.P.
10.5 SubLease, dated March 26, 1997, between ParcPlace Digitalk, Inc. and
Carollo Engineers, an Arizona partnership.*
10.6 Form of Stock Option Agreement granted to Messrs. James H. Smith,
Eugene L. Goda and specific employees of ObjectShare, Inc. in
connection with the merger.
10.7 Lock Up Letter dated as of November 3, 1999 from James H. Smith.
23.1 Consent of PricewaterhouseCoopers LLP.*
23.2 Consent of Deloitte & Touche LLP.*
23.3 Consent of Ernst & Young LLP, independent auditors.*
23.4 Consent of Parker Chapin, LLP (included in the opinion filed as Exhibit
5.1 to this Registration Statement).*
99.1 Form of ObjectShare, Inc. Proxy Card.
- -------------
(*) Exhibit to be filed by Amendment
</TABLE>
<PAGE> 1
EXHIBIT 3.1
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "OBJS ACQUISITION CORP.", FILED IN THIS OFFICE ON THE
TWENTY-SIXTH DAY OF OCTOBER, A.D. 1999, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[STATE OF DELAWARE SEAL] /S/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
3116928 8100 AUTHENTICATION: 0050055
991454471 DATE: 10/28/99
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 A.M. 10/26/1999
9914S4471 - 3116928
CERTIFICATE OF INCORPORATION
OF
OBJS Acquisition Corp.
-----------
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware"), hereby
certifies that:
FIRST: The name of the corporation (hereinafter called the
"corporation") is OBJS Acquisition Corp.
SECOND: The address, including street, number, city, and county, of the
registered office of the corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington 19805, County of New Castle; and the name of the
registered agent of the corporation in the State of Delaware is Corporation
Service Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares which the Corporation shall have
authority to issue is Three Thousand (3,000) shares of Common Stock with a par
value of $.01 per share.
FIFTH: The name and the mailing address of the incorporator are as
follows:
NAME MAILING ADDRESS
Barbara Toffler c/o Parker Chapin Flatran & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
SIXTH: The corporation is to have perpetual existence.
<PAGE> 3
SEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under Section 279 of Title 8 of the Delaware
Code order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequences of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may
be, and also on this corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the Bylaws. The phrase "whole
Board" and the phrase "total number of directors" shall be deemed to have
the same meaning, to wit, the total number of directors which the
corporation would have if there were no vacancies. No election of directors
need be by written ballot.
2. After the original or other Bylaws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of
its stock, the power to adopt, amend, or repeal the Bylaws of the
corporation may be exercised by the Board of Directors of the corporation;
however, nothing contained herein shall derogate from the power of the
stockholders of the corporation to adopt, amend or repeal the Bylaws.
<PAGE> 4
NINTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all
of the expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and
all rights at any time conferred upon the stockholders of the corporation by
this certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on October 26, 1999
/s/ Barbara Toffler
------------------------------------
Barbara Toffler, Incorporator
-3-
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
OBJS ACQUISITION CORP.
-------------
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The corporation's registered office
in the state of Delaware shall be established and maintained at 1013 Centre
Road, in the City of Wilmington, County of New Castle, and the name of its
registered agent at such address is The United States Corporation Company.
SECTION 2. OTHER OFFICES. The corporation may have other offices,
either within or without the state of Delaware, at such place or places as the
board of directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for
the election of directors and for such other business as may be stated in the
notice of the meeting, shall be held at such place, either within or without the
state of Delaware, and at such time and date as the board of directors, by
resolution, shall determine and as set forth in the notice of the meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a board of directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. OTHER MEETINGS. Meetings of stockholders for any
purpose other than the election of directors may be held at such time and place,
within or without the state of Delaware, as shall be stated in the notice of the
meeting.
<PAGE> 2
SECTION 3. VOTING. Each stockholder entitled to vote in
accordance with the terms of the corporation's certificate of incorporation and
these by-laws shall be entitled to one vote, in person or by proxy, for each
share of stock entitled to vote held by that stockholder, but no proxy shall be
voted after three years from its date unless that proxy provides for a longer
period. Upon the demand of any stockholder, the vote for directors and the vote
upon any question before the meeting, shall be by ballot. All elections for
directors shall be decided by plurality vote; all other questions shall be
decided by majority vote except as otherwise provided by the corporation's
certificate of incorporation or the laws of the state of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM. Except as otherwise required by law, by the
corporation's certificate of incorporation or by these by-laws, the presence, in
person or by proxy, of stockholders holding a majority of the stock of the
corporation entitled to vote shall constitute a quorum at all meetings of the
stockholders. In case a quorum shall not be present at any meeting, a majority
in interest of the stockholders entitled to vote thereat, present in person or
by proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until the requisite amount of
stock entitled to vote shall be present. At any such adjourned meeting at which
the requisite amount of stock entitled to vote shall be represented, any
business may be transacted that might have been transacted at the meeting as
originally noticed; but only those stockholders entitled to vote at the meeting
as originally noticed shall be entitled to vote at any adjournment or
adjournments thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the stockholders
for any purpose or purposes may be called by the Chairman, Vice-Chairman, Chief
Executive Officer, President or secretary, or by resolution of the majority of
the board of directors or by vote of the stockholders holding 25% or more of the
outstanding stock of the corporation. Any business (regardless of whether
specified in the notice of meeting) may be conducted at a special meeting.
SECTION 6. NOTICE OF MEETINGS. Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it
-2-
<PAGE> 3
appears on the records of the corporation, not less than ten nor more than 60
days before the date of the meeting. No business other than that stated in the
notice shall be transacted at any meeting without the unanimous consent of all
the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING. Unless otherwise provided by
the corporation's certificate of incorporation, any action required to be taken
at any annual or special meeting of stockholders, or any action that may be
taken at any annual or special meeting, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take that action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. The number of directors constituting
the board of directors shall be not more than nine nor less than one, as fixed
from time to time in these by-laws or by action of the board of directors. The
initial number of directors shall be one. Except as otherwise permitted in these
by-laws (including but not limited to section 3 of this article III) or as
otherwise permitted under the applicable provisions of the Delaware General
Corporate Law (including but not limited to section 223 thereof), the directors
shall be elected at the annual meeting of the stockholders. Each director shall
be elected to serve until his or her successor shall be elected and shall
qualify. Directors need not be stockholders.
SECTION 2. RESIGNATIONS. Any director, member of a committee or
other officer may resign at any time. That resignation shall be made in writing,
and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the president or secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. If the office of any director becomes
vacant for whatever reason (including by reason of retirement, resignation,
death or disability, or as a result of removal for or without cause or as a
result of an increase in the number of directors), then such vacancy may be
filled by a majority of the directors then in office, though less than a quorum,
or such vacancy may be filled by the stockholders.
-3-
<PAGE> 4
SECTION 4. REMOVAL. Except as hereinafter provided, any director
or directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote, at a special meeting of the stockholders
called for the purpose, and (without limiting the power of the directors then
remaining in office to fill such vacancy pursuant to section 3 of this article
III) the vacancies thus created may be filled, at the meeting held for the
purpose of removal by the affirmative vote of a majority in interest of the
stockholders entitled to vote.
Unless the corporation's certificate of incorporation otherwise
provides, stockholders may effect removal of a director who is a member of a
classified board of directors only for cause. If the corporation's certificate
of incorporation provides for cumulative voting and if less than the entire
board is to be removed, no director may be removed without cause if the votes
cast against his removal would be sufficient to elect him if then cumulatively
voted at an election of the entire board of directors, or, if there be classes
of directors, at an election of the class of directors of which he is a part.
If the holders of any class or series are entitled to elect one
or more directors by the provisions of the corporation's certificate of
incorporation, these provisions shall apply, with respect to the removal without
cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole.
SECTION 5. INCREASE OR DECREASE OF NUMBER. The number of
directors may be increased or decreased by the affirmative vote of a majority of
the directors, though less than a quorum, or by the affirmative vote of a
majority in interest of the stockholders. No decrease in the number of directors
shall reduce the term of any person then serving as a director.
SECTION 6. POWERS. The board of directors shall exercise all of
the powers of the corporation except such powers as are by law, or by the
corporation's certificate of incorporation or by these by-laws, conferred upon
or reserved to the stockholders.
SECTION 7. COMMITTEES. The board of directors may, by resolution
or resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of the absent or disqualified member or members.
-4-
<PAGE> 5
Any committee, to the extent provided in the resolution of the
board of directors, or in these by-laws, shall have and may exercise all the
powers and authority of the board of directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers that may require it; but no committee shall have the
power or authority in reference to amending the corporation's certificate of
incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
by-laws of the corporation; and, unless the resolution, these by-laws or the
corporation's certificate of incorporation expressly so provide, no committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
SECTION 8. MEETINGS. The directors elected upon any annual
meeting of the stockholders may hold their first meeting for the purpose of
organization and the transaction of business, if a quorum be present,
immediately after the annual meeting of the stockholders; or the time and place
of that meeting may be fixed by consent in writing of all the directors.
Regular meetings of the directors may be held without notice at
such places and times as shall be determined from time to time by resolution of
the directors.
Special meetings of the board may be called by the chairman, vice
chairman, chief executive officer or the president on the written request of
majority of the directors on at least two days notice to each director and shall
be held at such place or places as may be determined by the directors, or as
shall be stated in the call of the meeting.
Unless otherwise restricted by the corporation's certificate of
incorporation or these by-laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and that participation in a meeting shall
constitute presence in person at the meeting.
SECTION 9. QUORUM. A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting that is so
adjourned.
SECTION 10. COMPENSATION. Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing in these by-laws shall be construed to
preclude any director from
-5-
<PAGE> 6
serving the corporation in any other capacity as an officer, agent or otherwise,
and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the board of directors, or of any
committee thereof, may be taken without a meeting, if a written consent thereto
is signed by all members of the board or committee, as the case may be, and that
written consent is filed with the minutes of proceedings of the board or
committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation shall be a
president, a treasurer, and a secretary, all of whom shall be elected by the
board of directors and who shall hold office until their successors are elected
and qualified. In addition, the board of directors may elect a chairman, a
vice-chairman, a chief executive officer, a chief operating officer, one or more
vice-presidents and such assistant secretaries and assistant treasurers as they
may deem proper. None of the officers of the corporation need be directors.
Each of the foregoing officers shall have the power and authority
to sign instruments and stock certificates in accordance with section 103(a)(2)
of the Delaware General Corporation Law and to sign agreements on behalf of the
corporation. The officers shall be elected at the first meeting of the board of
directors after each annual meeting of the stockholders. Any two or more offices
may be held at the same time by the same person. Any officer may be removed,
with or without cause, by the board of directors. Any vacancy may be filled by
the board of directors.
SECTION 2. OTHER OFFICERS AND AGENTS. The board of directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the board of directors.
SECTION 3. CHAIRMAN. The chairman, if one be elected, shall
preside at all meetings of the stockholders and at all meetings of the board of
directors, and shall have such other power and authority and perform such other
duties as may be prescribed by these by-laws or as may be assigned from time to
time by the board of directors.
SECTION 4. VICE-CHAIRMAN. The vice-chairman, if one be elected,
shall, in the absence or disability of the chairman, preside at all meetings of
the stockholders and at all meetings of the board of directors, and shall have
such other
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<PAGE> 7
power and authority and perform such other duties as may be prescribed by these
by-laws or as may be assigned from time to time by the board of directors or the
chairman.
SECTION 5. CHIEF EXECUTIVE OFFICER. The chief executive officer,
if one be elected, shall, in the absence or disability of the chairman and
vice-chairman, preside at all meetings of the stockholders and at all meetings
of the board of directors, and shall have general supervision, direction and
control of the business and affairs of the corporation subject to the
authorization and control of the board of directors, and shall have such other
power and authority and perform such other duties as may be prescribed by these
by-laws or as may be assigned from time to time by the board of directors.
In the absence or disability of the chief executive officer, the
president, if available, and if the president is not available the chief
operating officer, if available, shall have the authority, and shall perform the
duties, of the chief executive officer.
SECTION 6. PRESIDENT. The president shall, in the absence or
disability of the chairman, vice-chairman and chief executive officer, preside
at all meetings of the stockholders and at all meetings of the board of
directors, and shall have such other power and authority and perform such other
duties as may be prescribed by these by-laws or as may be assigned from time to
time by the board of directors or the chief executive officer.
In the absence or disability of the chief executive officer, the
president, if available, shall have the authority, and shall perform the duties,
of the chief executive officer.
SECTION 7. CHIEF OPERATING OFFICER. The chief operating officer,
if one be elected, shall have such power and authority and perform such duties
as may be prescribed by these by-laws or as may be assigned from time to time by
the board of directors.
In the absence or disability of the president, the chief
operating officer, if available, shall have the authority, and shall perform the
duties, of the president. In addition, in the absence or disability of the chief
executive officer and the president, the chief operating officer, if available,
shall have the authority and perform the duties of the chief executive officer.
SECTION 8. VICE-PRESIDENT. Each vice-president shall have such
power and authority and perform such duties as may be prescribed by these
by-laws or as may be assigned from time to time by the board of directors or the
chief executive officer.
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<PAGE> 8
The board of directors may designate one or more vice-
presidents, in such order of priority as shall be specified by the board of
directors, to have the authority, and to perform the duties, of the chief
executive officer in the absence or disability of the chief executive officer,
the president and the chief operating officer; provided, however, that no
vice-president shall have such authority or perform such duties unless
specifically designated for that purpose by the board of directors.
SECTION 9. TREASURER. The treasurer shall have the custody of the
corporate funds and securities, shall keep full and accurate account of receipts
and disbursements in books belonging to the corporation and shall deposit all
moneys and other valuables in the name and to the credit of the corporation in
such depositaries as may be designated by the board of directors.
The Treasurer shall disburse the funds of the corporation as may
be ordered by the board of directors, or the chief executive officer, taking
proper vouchers for such disbursements. He shall render to the chief executive
officer and board of directors at the regular meetings of the board of
directors, or whenever they may request it, an account of all his transactions
as treasurer and of the financial condition of the corporation. If required by
the board of directors, he shall give the corporation a bond for the faithful
discharge of his duties in such amount and with such surety as the board of
directors shall prescribe.
SECTION 10. SECRETARY. The secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these by-laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the chief executive officer, the president, the chairman,
the vice-chairman or by the board of directors or stockholders, upon whose
requisition the meeting is called as provided in these by-laws.
The secretary shall record all the proceedings of the meetings of
the corporation and of the directors in a book to be kept for that purpose, and
shall perform such other duties as may be assigned to him by the chief executive
officer or the board of directors. He shall have custody of the seal of the
corporation and shall affix the same to all instruments requiring it, when
authorized by the chief executive officer or the board of directors, and attest
the same.
SECTION 11. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.
Assistant treasurers, if any shall be elected, shall, in the absence of the
treasurer, have the authority, and perform the duties, of the treasurer, and
shall have such other power and authority and perform such other duties as may
be prescribed by these by-laws or as may be assigned from time to time by the
board of directors or the chief executive officer.
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<PAGE> 9
Assistant secretaries, if any shall be elected, shall, in the
absence of the secretary, have the authority, and perform the duties, of the
secretary, and shall have such other power and authority and perform such other
duties as may be prescribed by these by-laws or as may be assigned from time to
time by the board of directors or the chief executive officer.
ARTICLE V
INDEMNIFICATION
SECTION 1. RIGHT TO INDEMNIFICATION. Any person who was or is
made a party or is threatened to be made a party to or is involved in any
pending, threatened, or completed civil, criminal, or administrative action,
suit, or proceeding and any appeal therein and any inquiry or investigation in
connection therewith or which could lead thereto (a "proceeding"), by reason of
his or her being or having been a stockholder, director or officer of the
corporation or of any predecessor, including, without limitation, any
predecessor absorbed by the corporation in a consolidation or merger, or by
reason of his or her being or having been a stockholder, member, director,
officer, trustee, employee or agent of any other corporation (domestic or
foreign) or of any foundation, limited liability company, partnership, joint
venture, sole proprietorship, trust, employee benefit plan or other enterprise
(whether or not for profit), serving as such at the request of the corporation
or of any such predecessor of the corporation, or the legal representative of
any such stockholder, director, or officer, shall be indemnified and held
harmless by the corporation to the fullest extent permitted by the laws of the
State of Delaware, as the same exist or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said Act permitted
prior to such amendment), from and against any and all reasonable costs,
disbursements and attorneys' fees incurred or suffered in connection with any
such proceeding, and any and all amounts paid or to be paid in satisfaction of
settlements, judgments, fines, excise taxes, and penalties (including those
payable under the Employee Retirement Income Security Act of 1974, as amended),
in connection with any such proceeding, and such indemnification shall continue
as to a person who has ceased to be a stockholder, director, or officer and
shall inure to the benefit of his or her heirs, executors, administrators, and
assigns, provided however, that the corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
specifically authorized by the Board of Directors of the corporation. The
termination of any proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent, shall not of itself create a
presumption that such stockholder, director, or officer did not meet the
applicable standards of conduct required under the laws of the State of Delaware
to be so indemnified.
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<PAGE> 10
SECTION 2. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any
indemnification of a stockholder, director or officer of the corporation under
this article (unless ordered by a court) shall be made by the corporation unless
a determination is made that indemnification of the stockholder, director or
officer is not proper in the circumstances because he or she has not met the
applicable standard of conduct or because indemnification would otherwise be
prohibited under the laws of the State of Delaware. Any such determination shall
be made (i) by the Board of Directors by majority vote of a quorum consisting of
Disinterested Directors (hereinafter defined), or (ii) if a quorum of the Board
of Directors is not obtainable, or even if obtainable, such quorum of
Disinterested Directors so directs, by Independent Counsel (hereinafter
defined), to be selected by the Board of Directors, in a written opinion to the
Board of Directors, a copy of which shall be delivered to the indemnitee, or
(iii) by the stockholders of the corporation. If it is so determined that the
indemnitee is entitled to indemnification, payment to the indemnitee shall be
promptly made.
For purposes of this section, "Disinterested Director" means a
director of the corporation who is not and was not a party to or otherwise
interested in the matter in respect of which indemnification is sought by the
indemnitee, and "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (a) the
corporation or the indemnitee in any matter material to either such party, or
(b) any other party to the matter giving rise to a claim for indemnification.
Notwithstanding the foregoing, the term "Independent Counsel' shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
corporation or the indemnitee in an action to determine the indemnitee's rights
under this section.
SECTION 3. ADVANCE PAYMENT OF EXPENSES. The right to
indemnification in this section shall be a contract right and shall include the
right to be paid by the corporation the expenses (including attorneys' fees)
incurred by any stockholder, director or officer in connection with the
proceeding in advance of the final disposition of such proceeding as authorized
by the Board of Directors, provided however, that if the laws of the State of
Delaware so require, the payment of expenses in advance shall be made only upon
receipt by the corporation of an undertaking, by or on behalf of such
stockholder, director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such person is not entitled to be indemnified
under this section and the laws of the State of Delaware.
SECTION 4. PROCEDURE FOR INDEMNIFICATION. Any indemnification of
a stockholder, director or officer of the corporation, or advance of costs,
charges or expenses to a stockholder, director or officer under this section,
shall be made promptly, and in any event within 60 days, upon the written
request of the stockholder, director or officer. If a determination by the
corporation that the stockholder, director or officer is entitled to
indemnification or advances pursuant to this
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<PAGE> 11
section is required, and the corporation fails to respond within 60 days to a
written request therefor, the corporation shall be deemed to have approved such
request.
SECTION 5. SAVINGS CLAUSE. If this article or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the corporation shall nevertheless indemnify each member, director or officer as
to costs, charges, and expenses (including attorney's fees), judgments, fines
and amounts paid in settlement with respect to any action, suit or proceeding,
whether civil, criminal, administrative, or investigative, including any action
by or in the right of the corporation, to the full extent permitted by any
applicable portion of this Article that shall not have been invalidated and to
the full extent permitted by applicable law."
ARTICLE VI
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. Certificates of stock, signed
by the chairman or vice chairman of the board of directors, if they be elected,
president or vice-president, and the treasurer or an assistant treasurer, or
secretary or an assistant secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation. Any or all the
signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES. A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
the certificate, or the issuance of the new certificate.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the
corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
transfer the old certificates shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be canceled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in
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<PAGE> 12
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the board of directors may fix, in advance,
a record date, which shall not be more than 60 nor less than ten days before the
date of the meeting, nor more than 60 days before any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
SECTION 5. DIVIDENDS. Subject to the provisions of the
corporation's certificate of incorporation, the board of directors may, out of
funds legally available therefor at any regular or special meeting, declare
dividends upon the capital stock of the corporation as and when they deem
expedient. Before declaring any dividend there may be set apart out of any funds
of the corporation available for dividends, such sum or sums as the directors
from time to time in their discretion deem proper for working capital or as a
reserve fund to meet contingencies or for equalizing dividends or for such other
purposes as the directors shall deem conducive to the interests of the
corporation.
SECTION 6. SEAL. The corporate seal shall be circular in form and
shall contain the name of the corporation, the year of its creation and the
words "CORPORATE SEAL DELAWARE." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR. The fiscal year of the corporation shall
be determined by resolution of the board of directors.
SECTION 8. CHECKS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, agent or agents of
the corporation, and in such manner, as shall be determined from time to time by
resolution of the board of directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE. Whenever any notice is
required by these by-laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his address as it appears on the
records of the corporation, and that notice shall be deemed to have been given
on the day of the mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise provided by
statute.
Whenever any notice whatsoever is required to be given under the
provisions of any law, or under the provisions of the corporation's certificate
of incorporation or these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to that
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notice, whether before or after the time stated therein, shall be deemed
equivalent to that notice.
ARTICLE VII
AMENDMENTS
These by-laws may be altered or repealed and by-laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal of the by-law or by-laws to be made be
contained in the notice of that special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the board of directors, at any regular
meeting of the board of directors, or at any special meeting of the board of
directors, if notice of the proposed alteration or repeal, or of the by-law or
by-laws to be made, be contained in the notice of that special meeting.
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<PAGE> 1
EXHIBIT 5.1
February 11, 2000
StarBase Corporation
4 Hutton Centre Drive, Suite 800
Santa Ana, CA 92707-8713
Ladies and Gentlemen:
We have acted as counsel to StarBase Corporation, a Delaware
corporation (the "Company"), in connection with a Registration Statement on Form
S-4 (No. 333-________) filed by the Company with the Securities and Exchange
Commission (the "Registration Statement") covering the registration of up to an
aggregate of _________ shares (the "Shares") of the Company's common stock, par
value $0.01 per share (the "Common Stock") to be issued pursuant to the
Agreement and Plan of Merger, dated as of November 3, 1999, among the Company,
OBJS Acquisition Co. and ObjectShare, Inc. (the "Merger Agreement").
In connection with this opinion, we have examined (i) the Registration
Statement, (ii) the Merger Agreement and (iii) 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, exclusively relied on
certificates of public officials and certificates, oaths and declarations of
officers or other representatives of the Company.
We have assumed that each party to the Merger Agreement other than the
Company has the requisite power and authority to enter into and perform its
obligations under the Merger Agreement, that the Merger Agreement has been duly
authorized, executed and delivered by each such party, and that the Merger
Agreement constitutes a legal, valid and binding obligation of each such party,
enforceable against each of them in accordance with its terms.
Based upon the foregoing, we are of the opinion that, the Shares have
been validly authorized and, when issued as contemplated in the Merger Agreement
and the Registration Statement, will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
This opinion may not be used or relied on by you for any other purpose, or by
any other person, firm, corporation or entity for any purpose, without the
undersigned's prior written consent.
The opinion expressed herein is given as of the effective date of the
Registration Statement and we undertake no obligations to supplement this letter
if any applicable law changes after such date or if we become aware of any facts
that might change the opinions expressed herein after such date or for any other
reason.
Very truly yours,
PARKER CHAPIN, LLP
<PAGE> 1
EXHIBIT 10.2
SECURED PROMISSORY NOTE
$500,000 Irvine, California
November __, 1999
FOR VALUE RECEIVED, the undersigned, OBJECTSHARE, INC., a Delaware
corporation having a place of business at 16811 Hale Avenue, Suite A, Irvine, CA
92606 ("OBJS") promises to pay to the order of STARBASE CORPORATION ("StarBase")
at the office of StarBase located at 4 Hutton Drive, Suite 800, Santa Ana, CA
92707 or at such other place as StarBase may designate in writing, the lesser of
(a) the principal sum of Five Hundred Thousand Dollars ($500,000) and (b) the
aggregate outstanding unpaid principal amount of this Note as set forth on
Schedule A attached hereto, together with any accrued and unpaid interest
thereon, on October 31, 2000 (the "Maturity Date") unless earlier becoming due
pursuant to Section A(3) hereof or as otherwise provided in this Note..
A. LOANS AND TERMS OF PAYMENT
1. Loans. (a) Subject to the provisions of Article B hereof and the terms and
conditions hereinafter set forth, at any time prior to the Maturity Date on ten
(10) days prior written notice in the form of Exhibit 1 attached hereto (the
"Borrowing Request"), OBJS may request from StarBase, and StarBase shall make to
OBJS, a loan (each a "Loan"); provided, however that no Loan requested shall be
greater than the Maximum Request Allotment (as defined in subparagraph (c)
below) at the time of such request and further provided, however, that the
aggregate principal amount of all Loans outstanding hereunder shall not exceed
Five Hundred Thousand Dollars ($500,000).
(a) Each Loan made hereunder shall be evidenced by a notation thereof on
Schedule A annexed hereto and incorporated herein by reference, constituting an
integral part of this Note. For purposes hereof, StarBase is hereby authorized
to record the date and amount of each Loan made by StarBase, and the date and
amount of each payment or prepayment of principal thereof on Schedule A and any
such recordation shall constitute prima facie evidence of the amount of the
Loans made and outstanding hereunder.
(b) Notwithstanding compliance by OBJS with the provisions of Article B hereof,
in no event shall OBJS request Loan(s) aggregating more than the amounts
available during the periods indicated below (the "Maximum Request Allotment"):
<TABLE>
<CAPTION>
Period Maximum Request Allotment
------ -------------------------
<S> <C>
During November 1999 up to $200,000
After December 1, 1999 up to an additional $200,000, for an aggregate of $400,000
After January 1, 2000 up to an additional $100,000, for an aggregate of $500,000
</TABLE>
<PAGE> 2
2. Interest. (a) OBJS shall pay interest in arrears on the unpaid
principal amount of this Note from time to time outstanding at a rate per annum
which shall be equal to three quarters of a percent (0.75%) above the rate of
interest from time to time announced by Bank of America, NA at its principal
office in San Francisco, California as its prime rate (the "Prime Rate").
Interest shall accrue and shall be computed on the basis of a year of 360 days.
(a) OBJS will pay interest, at the rate described above, monthly
on the first day of each month in each year, commencing November 1, 1999, for
the interest which accrued in the prior month, at the maturity of this Note
(whether by acceleration, at the Maturity Date, or otherwise) and upon the
making of any prepayment of the principal amount of this Note, as hereinafter
provided. In addition, Borrower will pay interest on any overdue installment of
principal, and, to the extent permitted by applicable law, overdue interest for
the period for which overdue, on demand, at a rate equal to five percent (5%)
per annum above the Prime Rate. In no event shall interest exceed the maximum
legal rate permitted by law.
3. Mandatory Prepayment.
(a) In the event the Merger Agreement (as defined in Section B(2)
hereof) is terminated prior to StarBase loaning to OBJS the full aggregate
Maximum Request Allotment permitted under this Note, then the outstanding
principal balance and all accrued interest due and owing under this Note at the
time of such termination shall become due and payable in equal monthly
installment payments, commencing on the 1st business day of the month next
succeeding the date of termination, equal to the aggregate outstanding principal
balance and all accrued interest thereon amortized over the number of months
left until the Maturity Date. Notwithstanding anything to the contrary contained
in this Note, StarBase shall not be obligated to make any further Loans to OBJS
under this Note following the termination of the Merger Agreement as provided
herein or therein.
(b) In the event prior to the Maturity Date OBJS sells in
accordance with the Merger Agreement substantially all of the stock or the
business and assets of its European subsidiaries, ObjectShare GmbH, ObjectShare
(UK) Limited and ObjectShare AG (a "European Transaction"), then, upon receipt
of the proceeds therefrom (whether in cash or in the form of a promissory note
or some other instrument) the outstanding principal balance and all accrued
interest due and owing under this Note at the time of such receipt shall be
immediately due and payable, automatically, without any demand required.
Notwithstanding anything to the contrary contained in this Note, StarBase shall
not be obligated to make any further Loans to OBJS under this Note following any
European Transaction.
4. Optional Prepayment. Subject to Section A(3) hereof, OBJS shall
have the right to prepay the outstanding principal amount of this Note, in whole
or in part, at any time and from time to time; provided that any such prepayment
of principal shall be accompanied by the payment of accrued interest on the
amount of principal being paid.
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<PAGE> 3
5. Payments. If any payment of principal or interest becomes due on a
day on which banks in the State of California are closed (as required or
permitted by law or otherwise), such payment shall be made not later than the
next succeeding business day, and such extension shall be included in computing
interest in connection with such payment. All payments by OBJS of this Note on
account of principal or interest hereunder shall be made in lawful money of the
United States of America and in immediately available funds.
B. CONDITIONS TO LENDING
The obligation of StarBase to make any Loan hereunder is subject to the
following conditions precedent:
1. Corporate Documentation. Receipt by StarBase, in form and substance
satisfactory to StarBase, of (a) certified copies of the resolutions of the
Board of Directors of OBJS approving the execution and delivery of this Note and
performance hereunder and (b) certificates of the Secretary of OBJS certifying
the names and true signatures and incumbency of the officers of OBJS authorized
to sign this Note, the Borrowing Request and the other documents to be delivered
by OBJS pursuant to this Note.
2. Agreement and Plan of Merger. OBJS shall have executed and
delivered the Agreement and Plan of Merger dated as of even date herewith by and
among StarBase, OBJS Acquisition Corp. and OBJS (the "Merger Agreement").
3. Consent of Silicon Valley Bank. Receipt of written consent of
Silicon Valley Bank with respect to OBJS's execution and delivery of and
performance under this Note, as well as to the Loans and the security interest
granted to StarBase hereby.
4. Financing Statements. Receipt of: (a) acknowledgment copies of
Uniform Commercial Code Financing Statements (Forms UCC-1) duly filed under the
Uniform Commercial Code of all jurisdictions as may be necessary or, in the
opinion of StarBase and its counsel, desirable in order to perfect the security
interests created pursuant to Article F hereof and (b) copies of all effective
financing statements, other than those referred to in subparagraph (a) above,
which name OBJS as debtor and which are filed in the jurisdictions referred to
in said subparagraph (a), together with copies of such other financing
statements as may be requested by StarBase (none of which financing statements
shall cover the Collateral purported to be covered by the security interest
granted in Article F hereof except such financing statements which may have been
previously filed by Silicon Valley Bank as the secured party).
5. Perfected Security Interest. Receipt of evidence that all other
actions necessary or, in the opinion of StarBase and its counsel, desirable to
create a valid, enforceable and perfected security interest and lien in the
Collateral (as defined in Section F(1) hereof) covered by this Note and, subject
to any proposed factoring arrangement between OBJS and Silicon Valley Bank or an
alternative provider of factoring (a "Substitute Provider"), provided StarBase
has consented to the substitution of the Substitute Provider for Silicon Valley
Bank,
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<PAGE> 4
which consent shall not be unreasonably withheld, to maintain and protect the
validity, perfection, enforceability and priority of the security interest
created hereby have been taken. Any transfer of accounts receivable to the
Silicon Valley Bank or a Substitute Provider shall be free and clear of any
security interest and lien of StarBase.
6. Representations and Warranties. The representations and warranties
contained in this Note are true, complete and correct on and as of the date of
each Loan as though made on and as of such date, except to the extent such
representations and warranties may be affected by the occurrence of transactions
permitted under this Agreement
7. No Default. A certificate of the Chief Executive Officer, President
or Chief Financial Officer of OBJS to the effect that no event has occurred and
is continuing, or would result from the Loan which constitutes an Event of
Default or would constitute an Event of Default except for the requirement that
notice be given or time elapse or both.
8. Officer Certificate. A certificate of the Chief Executive Officer,
President or Chief Financial Officer of OBJS to the effect that all conditions
herein to the obligation of StarBase to make the Loan have been satisfied; it
being understood nonetheless that each borrowing by OBJS under this Note shall
constitute a representation and warranty by OBJS as of the date of such
borrowing that the conditions in this Article B have been satisfied.
9. Other Actions. Such other documents and such other action as may be
reasonably requested from time to time by StarBase in connection with the
transactions contemplated by this Note, all on terms and in form and substance
satisfactory to StarBase and its counsel.
C. REPRESENTATIONS AND WARRANTIES
OBJS represents and warrants to StarBase, as follows:
1. Organization. OBJS is a corporation, validly existing, and in good
standing under the laws of the State of Delaware, has full corporate power and
authority to own, lease and operate its properties and to transact the business
as presently conducted by it, is duly qualified and is in good standing under
the laws of each jurisdiction in which such qualification is required.
2. Authority. OBJS has full power and authority to execute and deliver
this Note, to borrow Loans hereunder and to grant to StarBase a perfected
security interest in the Collateral, all of which have been duly and validly
authorized by all proper and necessary action on the part of OBJS.
3. Binding Agreement. This Note constitutes, and the Borrowing Request
and each other document to be executed and delivered by OBJS pursuant hereto
will constitute, the legal, valid, and binding obligation of OBJS, enforceable
against OBJS in accordance with their respective terms.
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4. Noncontravention. Neither the execution and delivery by OBJS of
this Note or such other documents to be executed and delivered by OBJS pursuant
hereto, nor any borrowing by OBJS nor the granting of any security interest to
StarBase contemplated hereby, nor the performance by OBJS of its obligations
hereunder or thereunder, will (nor with the giving of notice or the lapse of
time or both would): (a) conflict with or result in a breach of any provision of
the Certificate of Incorporation or By-laws of OBJS; or (b) give rise to a
default, or any right of termination, cancellation or acceleration, or otherwise
be in conflict with or result in a loss of contractual benefits to OBJS or under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation to which OBJS is
a party or by which OBJS may be bound or to which OBJS or its assets (including
the Collateral) may be subject, or require any consent, approval or notice under
the terms of any such document or instrument, other than the prior consent of
Silicon Valley Bank as provided in Section B(3) hereof, or (c) violate any
order, writ, injunction, decree, law, statute, rule or regulation of any court
or governmental authority which is applicable to OBJS, its assets or its
business, or (d) except for the prior consent of Silicon Valley Bank, require
the consent, waiver, approval, authorization, license, certificate or franchise,
of or any filing by OBJS with a third party or public authority.
5. Litigation. There are no suits or actions, or administrative,
arbitration or other proceedings or governmental investigations, pending, or, to
the knowledge of OBJS, threatened, against or relating to OBJS, any of its
properties or assets (including the Collateral), or with respect to this Note
and any other documents to be executed and delivered pursuant hereto or with the
transactions contemplated hereby or thereby (a "Proceeding"), which Proceeding
would have a material adverse effect on the business, results of operations,
property or financial or other condition of OBJS.
6. Financial Statements. The audited balance sheets of OBJS as at
March 31, 1999 and the related audited statements of income and retained
earnings and cash flows for the fiscal year then ended, and the unaudited
balance sheets of OBJS as at June 30, 1999 and each of August 31, 1999 and
September 30, 1999 and the related unaudited statements of income and retained
earnings and cash flows for the fiscal periods then ended, certified by the
Chief Financial Officer of OBJS or its accountants, copies of which have
heretofore been furnished to StarBase, are complete and materially correct and
present fairly the financial condition of OBJS as at such dates, and the results
of its operations and changes in financial position as at and for the fiscal
years and periods then ended (subject, in the case of unaudited interim
financial statements, to normal recurring year-end adjustments). All such
financial statements, including the related schedules and notes thereto, have
been prepared in accordance with generally accepted accounting principles
("GAAP"), applied on a consistent basis throughout the periods involved (except
as may otherwise be indicated in the notes thereto or, in the case of unaudited
financial statements, as permitted by the Securities and Exchange Commission
("SEC")) . OBJS has no contingent obligations, liabilities or long-term
commitments of the nature required to be disclosed or accrued for in said
financial statements, and to the best knowledge of OBJS, there are no material
unrealized or anticipated losses or any unfavorable commitments of OBJS which
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have not been disclosed therein. OBJS has not incurred or agreed to any
indebtedness to any of its officers, directors, employees or shareholders nor
has OBJS granted or agreed to grant any Lien to any such persons, except as
otherwise provided in the Merger Agreement or as incurred in the ordinary course
of the business of OBJS with respect to reimbursement of employee business
related expenses.
7. No Undisclosed Liabilities. Neither OBJS nor any of its
subsidiaries has material liabilities or obligations of any nature whatsoever,
whether accrued, absolute, contingent or otherwise, which have not been (1) set
forth on the audited balance sheet of OBJS at March 31, 1999, (2) incurred in
the ordinary course of business since the date of such audited balance sheet or
(3) disclosed in the form of a public filing with the SEC pursuant to the rules
and regulations promulgated under the Securities and Exchange Act of 1934, as
amended.
8. Accounts Receivable. The accounts receivable, net of the allowance
for doubtful accounts applicable thereto (which allowance is established on a
basis consistent with GAAP) included in the unaudited balance sheet of OBJS at
September 30, 1999 (a) have already been collected or are at the date hereof
collectible in full over the period of usual trade terms (by use of the normal
collection methods of OBJS) and (b) are not subject to any defenses,
counterclaims or set-offs which would materially adversely affect such
receivables representing obligations for the total dollar amount thereof shown
on the books of OBJS. Subject to the allowances made for doubtful accounts
(established on a basis consistent with GAAP), OBJS has performed all
obligations with respect thereto which they were obligated to perform to the
date hereof.
9. Ownership of Collateral. With respect to the Collateral, OBJS has,
and at the time the Collateral becomes subject to the security interest granted
to StarBase pursuant to Article F hereof shall have, good record and marketable
title in fee simple to, or valid leasehold interests in, all its real property
and good title to all its other property, and such Collateral is and, at such
time will be, free and clear of all Liens (as defined in Section E(4) hereof)
whatsoever, except for the security interest granted to StarBase pursuant to
this Note and the security interest and rights granted to Silicon Valley Bank
under its financing arrangement with OBJS.
10. Tax. Except as otherwise disclosed in the Merger Agreement or in
the event OBJS has obtained an appropriate extension, OBJS has duly and timely
filed or caused to be so filed all tax returns which are required to be filed by
it and has paid all taxes shown to be due and payable on said returns or on any
assessments made against it or any of its properties or assets, and all other
taxes, fees or other charges imposed on it or any of its properties or assets by
any governmental authority which are due, except for such taxes, fees or other
charges which the failure to pay would not have a material adverse effect on the
business, results of operations, property or financial or other condition of
OBJS. No tax liens have been filed and no claims are being asserted against OBJS
with respect to any such taxes, assessments, fees or other charges.
11. Use of Proceeds. The proceeds of the loans shall be used by OBJS
for working capital purposes only.
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D. AFFIRMATIVE COVENANTS
Until payment in full of this Note and the payment and performance of
all indebtedness, obligations and liabilities of any kind of OBJS to StarBase,
OBJS shall:
1. Monthly Financial Statements. (a) Furnish to StarBase as soon as
available, but in any event within 20 days after the end of each calendar month
with respect to OBJS' United States operations and within 30 days after the end
of each calendar month with respect to the consolidated operations of OBJS, a
copy of the unaudited consolidated balance sheets of OBJS and its subsidiaries
as at the end of such month and the related unaudited consolidated statements of
income and retained earnings and cash flows for such month, setting forth in
each case in comparative form the figures for the prior monthly period, with
such consolidated financial statements, certified by the Chief Financial Officer
of OBJS.
(b) To the extent that the end of any quarterly or fiscal year
period should occur prior to the Maturity Date, furnish to StarBase as soon as
available, but in any event within 45 days after the end of the quarterly period
or 90 days after the end of the fiscal year, as the case may be, a copy of the
audited consolidated balance sheets of OBJS and its subsidiaries (unaudited in
the case of a quarterly report) as at such quarterly or fiscal year end and the
related audited (or unaudited, in the case of a quarterly report) consolidated
statements of income and retained earnings and cash flows for such quarter or
fiscal year, setting forth in each case in comparative form the figures for the
prior quarterly or fiscal year period, with such consolidated financial
statements, certified by the Chief Financial Officer of OBJS.
2. SEC Reports Furnish to StarBase promptly after the sending or
filing thereof, copies of all reports which OBJS sends to any of its security
holders and copies of all reports and registration statements which OBJS files
with the SEC or any national securities exchange or other organization on any of
its securities are traded or quoted pursuant to the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, or otherwise.
3. Compliance Certificate. Furnish to StarBase, concurrently with the
delivery of the financial statements referred to in Section D(1) hereof, a
certificate of the Chief Financial Officer of OBJS, (i) stating that during such
period OBJS has observed or performed all of its covenants and other agreements,
and satisfied every condition contained in this Note and all other instruments
and documents executed in connection herewith to be observed, performed or
satisfied by it, and that no Event of Default has occurred except as specified
in such certificate and (ii) showing in detail the calculations supporting the
statements set forth in (i) above in respect of Sections E(1) and E(2) hereof.
4. Accounts Receivable Certificate. Furnish to StarBase, on the 1st
and 15th day of each calendar month, a schedule of OBJS's accounts receivable as
at the end of such period,
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indicating, among other things from time to time requested by StarBase, the name
of the debtor of each account receivable, the aggregate amount thereof and an
aging schedule of all accounts receivable, indicating those receivables more
than 30 days past due, more than 60 days past due, more than 90 days past due
and more than 120 days past due and those receivables factored.
5. Projected Financial Condition. Simultaneously with the execution
and delivery hereof and updated weekly thereafter for the term of this Note, (a)
furnish to StarBase statements of projected consolidated cash flows, projected
cash flows and projected consolidated income for the next succeeding week and
subsequent 30-day period, in the form of Schedule D(5) hereto, certified by the
Chief Financial Officer of OBJS as being prepared in accordance with sound
financial planning practice and based on OBJS's best good faith estimates,
information and assumptions at the time (the "OBJS Projections"), and (b)
consult with StarBase as to the status of OBJS' accounts payable.
6. Conduct of Business and Maintenance of Existence. Continue to
engage in business of the same general type as now conducted by it, and
preserve, renew and keep in full force and effect its corporate existence,
rights, privileges and franchises in good standing in the jurisdiction of
incorporation and qualify and remain qualified, as a foreign corporation in each
jurisdiction in which such qualification is necessary in view of its businesses
and operations or the ownership of its properties and assets.
7. Inspection of Property; Books and Records. Keep proper books of
records and account in which full, true and correct entries in conformity with
GAAP and in compliance with all applicable laws shall be made of all dealings
and transactions in relation to its business and activities, and permit
representatives of StarBase to visit and inspect any of OBJS's properties and
assets and examine and make abstracts from or copy any of OBJS's books and
records, and to discuss the business, operations, properties, assets and
financial and other condition of OBJS with officers and employees of OBJS and
with OBJS's accountants and other representatives.
8. Notices. Promptly give notice to StarBase: (a) of the occurrence of
any Event of Default; (b) of any (i) default or event of default under any
material agreement, instrument or undertaking to which OBJS is a party or by
which it or its properties and assets (including the Collateral) are bound or
(ii) litigation or investigation of which OBJS has knowledge, or proceeding
which may exist, at any time between OBJS and any court, administrative agency
or body or arbitrator; (c) of the commencement of all actions, proceedings and
investigations to which OBJS is a party where the amount involved shall exceed
$25,000 in any single instance or in the aggregate, or in which injunctive or
similar relief is sought, by or before any governmental agency or body, in any
court or before any arbitrator against or in any way relating to OBJS or any of
its properties or assets (including the Collateral); and (d) of a material
adverse change in the business, results of operations, property or financial or
other condition of OBJS. Each notice pursuant to this Section D(9) shall be
accompanied by a statement of the Chief Executive Officer, President or Chief
Financial Officer of OBJS setting
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forth all details of the occurrence referred to therein and stating what action
OBJS proposes to take with respect thereto.
9. Payment of Debts, Taxes, Etc. Pay, discharge and perform all debts
and obligations relating to taxes, assessments, governmental charges and levies
imposed upon OBJS and any of its properties and assets promptly and in
accordance with the terms thereof before the same shall become in default or
become a Lien or charge upon the properties or assets of OBJS (including the
Collateral) except as otherwise contemplated by this Note.
E. NEGATIVE COVENANTS
Until payment in full of this Note and the payment and performance of
all indebtedness, obligations and liabilities of any kind by OBJS to StarBase,
except as otherwise expressly consented to or approved in writing by StarBase,
OBJS will not:
1. Quick Ratio. Permit the ratio of Quick Assets to Current
Liabilities to be less than 0.48 (the "Quick Ratio"). For purposes hereof,
"Quick Assets" shall mean, as of the date of determination thereof, the cash,
cash equivalents, accounts receivable, royalties and any bank refund account
established pursuant to any factoring arrangement between OBJS and Silicon
Valley Bank or a Substitute Provider, all as classified as such in OBJS'
consolidated financial statements in accordance with GAAP consistently applied,
and "Current Liabilities" shall mean, as of the date of determination thereof,
the accounts payable, accrued expenses and indebtedness for money borrowed from
Silicon Valley Bank, a Substitute Provider and StarBase, all as classified as
such on OBJS' consolidated balance sheet in accordance with GAAP consistently
applied.
2. Cash Flow. Permit the ending cash balance for any week during the
term of this Note to deviate more than a negative $75,000 from the projected
ending cash balance from OBJS' operations for such week, as set forth in the
latest set of OBJS Projections delivered to StarBase in accordance with Section
D(5).
3. Indebtedness. Create, incur, assume or suffer to exist any
indebtedness for borrowed money of any kind except as evidenced by this Note and
any factoring arrangement with Silicon Valley Bank or a Substitute Provider in
an amount not to exceed $475,000 at any time in funds provided for outstanding
accounts receivable.
4. Limitation on Liens. Create, incur, assume or suffer to exist, any
mortgage, pledge, hypothecation, assignment for security purposes, deposit
arrangements, encumbrances, lien (statutory or other), or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (a "Lien") upon any of the properties, assets or revenues, whether
now owned or hereafter acquired, of OBJS except Liens held by StarBase, Silicon
Valley Bank and any Substitute Provider in respect of the Collateral.
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5. Capital Expenditures. Directly or indirectly (by way of the
acquisition of the securities of any person or entity, leases entered into which
under GAAP are required to be capitalized, or otherwise) make or commit to make
any expenditure in respect of the purchase or other acquisition of fixed or
capital assets, except as might by required contractually under any consulting
or training agreement to which OBJS is a party.
6. Prohibition of Fundamental Changes. Except for any European
Transaction, (a) enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), convey, sell, lease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or a substantial part of
its business or assets, or acquire by purchase or otherwise all or substantially
all the business or assets of, or stock or other evidences of beneficial
ownership of, any person or entity or make any change in the present method of
conducting business by OBJS or (b) sell, lease, assign, transfer or otherwise
dispose of any of its assets, whether now owned or hereafter acquired,
including, without limitation, the Collateral, other than in the ordinary course
of business.
7. Loan, Advances, Investments. Except for investment in government
securities and advances to employees not to exceed $ 10,000 made in the ordinary
course of business with respect to travel and related business expenses, make
any loan, advance or capital contribution or extend any credit to any person or
entity, or make any commitment to purchase or otherwise acquire, hold or invest
in any stock, bond, debenture, note or other security or obligation of any
person or entity.
8. Prepayment of Indebtedness. Prepay, acquire prior to stated
maturity or modify the terms of any indebtedness, obligation or liability of any
kind (including any such indebtedness or an obligation in the nature of a lease)
other than prepayment of indebtedness evidenced by this Note (to the extent
permitted herein) or under any factoring arrangement with Silicon Valley Bank or
a Substitute Provider.
9. Transactions with Affiliates. Enter into any transaction
(including, without limitation, the lease, purchase, sale or exchange of any
asset or property, the making of any advance or loan or the entering into of any
agreement or arrangement for any payment in respect of any fee, charge or other
expense for services performed or to be performed or any allocation of
administrative salaries, expenses and other general overhead), directly or
indirectly, with any affiliate other than in the ordinary course and pursuant to
the reasonable requirements of the business of OBJS and upon fair and reasonable
terms and provisions no less favorable to OBJS than it could have obtained in a
comparable arm's-length transaction with a person who is not an affiliate of
OBJS.
10. No Material Adverse Change. Since the date of this Note, there
shall not have been any material adverse change in the business, results of
operations, property or financial or other condition of OBJS.
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F. SECURITY INTEREST
1. Grant/Collateral. In order to induce StarBase to make the Loans
evidenced by this Note, and as security for the repayment in full of all amounts
owing under this Note with respect to the Loans, all interest, fees, charges,
premiums and penalties due and owing under this Note and all costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) which
StarBase may incur in enforcing this Note and/or to protect, perfect or enforce
its rights as a secured party under the Uniform Commercial Code (collectively,
the "Liabilities"), OBJS hereby assigns, pledges and grants to StarBase a
perfected, continuing lien and security interest in all of OBJS's right, title
and interest in personal property, whether now existing or hereafter acquired,
including, without limitation, the following:
(i) Tangible Personal Property. All goods, machinery, equipment,
inventory and all other tangible personal property of any
nature whatsoever, wherever located;
(ii) Rights to Payment of Money. All rights of OBJS to receive
the payment of money, including, without limitation,
accounts and receivables, rights to receive the payment of
money under contracts, franchises, licenses, permits,
subscriptions or other agreements (whether or not earned by
performance);
(iii) Intangibles. All (A) contracts, franchises, licenses,
permits, subscriptions and other agreements and all rights
thereunder; (B) rights granted by others which permit OBJS
to sell or market items of personal property; (C) United
States and foreign common law and statutory copyrights and
rights in literary property and rights and licenses
thereunder; (D) United States and foreign trade names,
trademarks, service marks, Internet domain names,
registrations of any of the foregoing and all related
goodwill; (E) United States and foreign patents and patent
applications; (F) owned computer software, designs, models,
know-how, trade secrets, rights in proprietary information,
formulas, customer lists, backlog, orders, subscriptions,
royalties, catalogues, sales material, documents, all
related goodwill, inventions and processes; (G) judgments,
causes in action and claims, whether or not inchoate; and
(H) all other general intangibles and intangible property
and rights thereunder;
(iv) Chattel Paper, Instruments, etc. All chattel paper,
non-negotiable instruments, negotiable instruments,
documents and investment property;
(v) Leases. All leases of personal property, whether OBJS is the
lessor the lessee thereunder;
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(vi) Deposit Accounts. All general or special deposit accounts,
including any demand, time, savings, passbook or similar
account maintained by OBJS with any bank, trust company,
savings and loan association, credit union or similar
organization, and all money, cash and cash equivalents of
OBJS, whether or not deposited in any such deposit account;
(vii) Collateral. All collateral granted by third parties to, or
held by, OBJS;
(viii) Books and Records. All of OBJS's books and records,
including, without limitation, books of account and ledgers
of every kind and nature, and electronically recorded data;
(ix) Insurance. All rights of OBJS under insurance policies,
whether or not owned by OBJS;
(x) All Other Property. All other property, assets and items of
value of every kind and nature, tangible or intangible,
absolute or contingent, legal or equitable; and
(xi) Proceeds and Products. All proceeds, including, without
limitation, insurance proceeds, of any of the foregoing.
All of the items of personal property set forth in this Section F(1)(i) - (xi)
are herein collectively called the "Collateral".
2. Perfected Security Interest. (a) StarBase may, in its discretion,
file one or more financing statements (with or, to the extent permitted by law,
without the signature of OBJS, as debtor) under the Uniform Commercial Code
naming OBJS as debtor and StarBase as secured party and indicating therein the
types or describing the items of Collateral. OBJS shall execute, file and record
any notices, affidavits or other documents and take all such other actions as
StarBase may deem appropriate to protect or perfect its security interest in the
Collateral or to otherwise accomplish the purposes of this Article F. OBJS
hereby agrees to pay on demand, and/or authorizes StarBase to charge its account
with the cost of, any and all filing, recording and other fees and expenses
which StarBase deems appropriate in order to protect or perfect its security
interest in the Collateral or to otherwise accomplish the purposes of this Note,
including, without limitation, the cost of all searches of public records as
StarBase in its sole discretion shall require. OBJS will promptly notify
StarBase of the imposition at any time of any Lien upon any of the Collateral.
The security interest granted hereby shall be subordinated to any security
interest with respect to the Collateral granted to Silicon Valley Bank or a
Substitute Provider under its respective financing arrangement with OBJS.
StarBase shall execute a subordination agreement to effectuate such
subordination if requested by Silicon Valley Bank or the Substitute Provider.
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<PAGE> 13
(b) Notwithstanding the foregoing, OBJS represents, warrants and
covenants that all of the Collateral now existing or hereafter arising or
acquired is and will be owned by OBJS free and clear of all security interests,
liens and encumbrances of any kind, except for the security interest herein
granted to StarBase, a prior, first security interest granted to Silicon Valley
Bank and any security interest granted to a Substitute Provider. OBJS shall
defend the Collateral against all claims and demands of all persons at any time
claiming the same or any interest therein adverse to StarBase.
(c) Notwithstanding the foregoing, StarBase shall have no
obligation to comply with any recording, re-recording, filing, re-filing, or
other legal requirements necessary to establish or maintain the validity,
priority or enforceability of, or StarBase's right in or to, the Collateral or
any part thereof.
3. Disposition of Collateral. Until the occurrence of an Event of
Default or notice from StarBase terminating or limiting the right of OBJS to do
so, or, in the case of the collection, compromise, or adjustment of accounts
receivable, until StarBase takes any action pursuant to this Article F, OBJS may
collect, compromise and adjust accounts receivable constituting a part of the
Collateral, all on such terms as OBJS may in good faith deem advisable in the
ordinary course of its regular business, and may retain all sums so collected.
4. Preservation of Collateral. Until payment and performance in full
of all of the Liabilities and termination of this Note, StarBase's interests in
the Collateral shall continue in full force and effect. During such period OBJS
shall not, without StarBase's prior written consent, pledge, sell, assign,
transfer, create or suffer to exist a Lien upon, or encumber or allow or suffer
to be encumbered in any way, except for the security interest previously granted
to Silicon Valley Bank and any future security interest granted to a Substitute
Provider, any part of the Collateral.
5. Further Assurances. OBJS agrees to take all actions and to execute
all documents and instruments (including, without limitation, financing
statements and instruments of assignment) as StarBase may request in order to
perfect, protect and enforce the security interest of StarBase in and to the
Collateral.
G. EVENTS OF DEFAULT
1. Event of Default. The occurrence (and continuation) of any of the
following events shall constitute an "Event of Default":
(a) OBJS shall fail to make any payment of principal or interest
on this Note in the manner or at the time provided for in this Note, which
failure to pay is not cured within ten (10) days of written notice thereof.
(b) OBJS shall default in the performance or observance of any
non-financial covenant or agreement contained herein and such default is not
cured within thirty (30) days after written notice thereof;
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<PAGE> 14
(c) OBJS shall default in the performance or observance of any
financial covenant or materially default on any agreement contained herein and
such default is not cured within fifteen (15) days after written notice thereof;
(d) any representation or warranty made by or on behalf of OBJS
in this Note shall at any time prove to have been incorrect when made in any
material respect;
(e) OBJS shall default in the payment of principal or interest on
any indebtedness for borrowed money (including, without limitation, any
factoring arrangement with Silicon Valley Bank or a Substitute Provider) or
shall default in the performance or observance of the terms of any instrument
pursuant to which such indebtedness was created or is secured, the effect of
which default is to cause or permit any holder of any such indebtedness to cause
the same to become due prior to its stated maturity; provided, however, that no
such default shall be deemed an Event of Default hereunder in the event that
such default is waived by the holder thereof;
(f) any judgment against OBJS or any attachment, levy or
execution against any of its properties for any amount shall remain unpaid, or
shall not be released, discharged, dismissed, stayed or fully bonded for a
period of thirty (30) days or more after its entry, issue or levy, as the case
may be;
(g) OBJS shall make an assignment for the benefit of creditors,
or a trustee, receiver or liquidator shall be appointed for OBJS or for any
substantial portion of its assets or property, or
(h) the commencement of any proceedings by OBJS under any
bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of
debt, receivership, liquidation or dissolution law or statute, or the
commencement of any such proceedings without the consent of OBJS and such
proceedings shall continue undischarged for a period of sixty (60) days;
(i) OBJS shall fail to pay any indebtedness or any interest,
fees, charges or premiums thereon, when due (whether by scheduled maturity,
prepayment, acceleration, demand or otherwise) or any other default under any
agreement or instrument relating to any such indebtedness, or any event shall
occur if the effect of such failure, default or event is to accelerate, or to
permit the acceleration of, the maturity of such indebtedness, or any such
indebtedness shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), prior to the stated
maturity thereof; and
(j) any proceeding shall be instituted by or against OBJS seeking
to adjudicate it a bankrupt or insolvent, or seeking liquidation, dissolution,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts, or relief similar to any of the foregoing, under
any statute, law or regulation, now and from time to time hereafter in effect,
relating to bankruptcy, insolvency or reorganization or relief of debtors,
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or seeking the entry of an order for relief or the appointment of a receiver,
trustee, or other similar official for it or for any part of its property.
2. Remedies. Upon the occurrence of an Event of Default, StarBase may:
(a) declare this Note, all interest thereon and all other amounts and
Liabilities payable under this Note to be forthwith due and payable. whereupon
this Note, all such interest and all such amounts and Liabilities shall become
and be forthwith due and payable, without presentment, demand, protest, notice
of protest, or other notice of any kind, all of which are hereby expressly
waived by OBJS; (b) in its discretion, take possession of the Collateral and,
for that purpose, may enter, with the assistance of any persons, any premises
where the Collateral or any part thereof may be located, and retain possession
of the Collateral at such premises or remove the same therefrom; and (c) in
addition to and notwithstanding any other rights granted by law or herein (or
any limitations contained herein on any such rights), StarBase shall have the
rights and remedies with respect to the Security of a secured party under the
Uniform Commercial Code as in effect from time to time in the State of
California with respect to the Collateral. OBJS agrees that any action taken by
StarBase in accordance with this paragraph shall be deemed to be commercially
reasonable.
H. MISCELLANEOUS
1. Governing Law. This Note shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to its rules
or principles of conflicts of laws. This Note shall not be interpreted or
construed with any presumption against StarBase by virtue of StarBase having
caused this Note to be drafted.
2. No Waiver. No failure or delay on the part of StarBase in
exercising any right, power, or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such rights, power, or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power, or remedy hereunder. The rights and remedies provided herein
are cumulative, and are not exclusive of any other rights, powers, privileges,
or remedies, now or hereafter existing, at law or in equity or otherwise.
3. Costs And Expenses. OBJS shall pay to StarBase all costs and
expenses incurred and sums paid by StarBase (including without limitation
attorneys' fees, insurance premiums and sales commissions) in connection with
enforcing this Note and any of the rights of StarBase in and to the Collateral.
4. Amendments. No amendment, modification, or waiver of any provision
of this Note nor consent to any departure by OBJS therefrom shall be effective
unless the same shall be in writing and signed by StarBase and OBJS and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
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<PAGE> 16
5. Successors And Assigns. This Note shall be binding upon OBJS and
its successors and permitted assigns and the terms hereof shall inure to the
benefit of StarBase and its successors and assigns (including subsequent holders
hereof).
6. Severability. The provisions of this Note are severable, and if any
provision shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Note in any jurisdiction.
7. Entire Agreement. This Note, together with Schedule A annexed
hereto, sets forth the entire agreement of OBJS and StarBase with respect to the
subject matter of this Note and it supersedes all prior agreements with respect
to such subject matter, all of which are merged herein.
8. Jurisdiction; Service Of Process. OBJS agrees that in any action,
suit or proceeding on or in connection with this Note and/or any of the Loans
(i) shall be brought in the courts located in the State of California, Orange
County or (in a case involving diversity of citizenship) the federal court
situated thereat, which Courts shall have exclusive jurisdiction of any such
action, suit or proceeding, (ii) service of any summons and complaint or other
process in any such action, suit or proceeding may be made by StarBase upon OBJS
by registered or certified mail directed to OBJS, OBJS hereby waiving personal
service thereof, and (iii) within thirty (30) days after such mailing, OBJS
shall appear or answer to any summons and complaint or other process, and should
OBJS fail to appear to answer within said thirty (30) day period, it shall be
deemed in default and judgment may be entered by StarBase against OBJS for the
amount as demanded in any summons or complaint or other process so served.
9. WAIVER OF THE RIGHT TO TRIAL BY JURY. OBJS AND, BY ITS ACCEPTANCE
HEREOF, STARBASE HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
ACTION, SUIT, CLAIM, COUNTERCLAIM OR OTHER PROCEEDING, WHETHER IN CONTRACT OR
TORT, AT LAW OR IN EQUITY, IN ANY MANNER CONNECTED WITH THIS NOTE OR ANY
TRANSACTIONS HEREUNDER.
10. Notices. All notices, demands and other communications hereunder
shall be in writing, and shall be delivered in person, by first class registered
mail return receipt requested (postage prepaid) or by facsimile transmission
duly addressed to the parties at their respective addresses and/or facsimile
numbers first set forth herein. Copies of any notice hereunder shall also be
sent to the parties' respective legal counsel, as follows: (a) with respect to
StarBase, Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New
York, New York 10036-8735 (Attn: Martin Weisberg, Esq.), facsimile No.: (212)
704-6288 and (b) with respect to OBJS, Paul, Hastings, Janofsky & Walker LLP,
695 Town Center Drive, Costa Mesa, CA 92626 (Attn: William J. Simpson, Esq.),
facsimile No.: (714) 979-1921. Any party may specify a different address or
facsimile number for such purpose by a notice of change of address or facsimile
number given to the other parties in the manner specified by this Section 10.
Any
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<PAGE> 17
notice hereunder shall be effective on the day delivered, if delivered in
person, on the day received, if sent by mail (as aforesaid), and on the day
sent, if sent by facsimile transmission prior to 5:00 p.m. (Pacific time) on a
business day and if a written confirmation of receipt is obtained or otherwise
received.
11. Headings. The headings herein are for convenience only and shall
not limit or define the meaning of the provisions of this Note.
OBJECTSHARE, INC.
By:________________________________
Name:
Title:
SCHEDULE A TO PROMISSORY NOTE
Borrower: ObjectShare, Inc.
Date of Note: November __, 1999
<TABLE>
<CAPTION>
- --------------------- -------------------- -------------------- ---------------------- -------------------------
AMOUNT UNPAID PRINCIPAL NAME OF
PRINCIPAL OF BALANCE PERSON
AMOUNT PRINCIPAL REPAID OF NOTE MAKING NOTATION
DATE OF LOAN
- --------------------- -------------------- -------------------- ---------------------- -------------------------
<S> <C> <C> <C> <C>
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
</TABLE>
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<PAGE> 18
<TABLE>
- --------------------- -------------------- -------------------- ---------------------- -------------------------
<S> <C> <C> <C> <C>
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
- --------------------- -------------------- -------------------- ---------------------- -------------------------
</TABLE>
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<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of November 3, 1999 by and between StarBase
Corporation, a Delaware corporation with an address at 4 Hutton Centre, Suite
800, Santa Ana, California 92707 (the "Company"), and James Smith, an individual
residing at 9 Atherton Drive, Coto DeCaza, CA 92679 ( Employee").
W I T N E S S E T H :
WHEREAS, subject to the execution of the Merger Agreement between
StarBase Corporation and ObjectShare, Inc., the Company wishes to obtain the
services of Employee as the Executive Vice President of Sales and Marketing of
the Company, upon the terms and subject to the conditions hereinafter set forth;
and
WHEREAS, Employee is willing to serve as the Executive Vice
President of Sales and Marketing of the Company upon such terms and subject to
such conditions.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and Employee hereby
agree as follows:
Section 1.01 Employment and Term.
The Company hereby employs Employee, and Employee hereby accepts
employment by the Company, on the terms and conditions herein contained, to
perform the duties described in paragraph 2 for a term of twelve months
beginning the day after the signing of Merger Agreement (the "Employment Term"),
subject to the remaining provisions of this Agreement.
Section 1.02 Duties.
(A) During the Employment Term, Employee shall serve as Executive
Vice President of Sales and Marketing of the Company. Employee shall serve the
Company faithfully and to the best of his ability, and devote his full business
time and attention to the business and affairs of the Company.
(B) The Company and Employee acknowledge and agree that the
duties of Employee are intended primarily to be performed at 4 Hutton Centre
Drive, Suite 800, Santa Ana, Ca 92707.
Section 1.03 Compensation and Benefits.
(A) During the Employment Term, the Company agrees to pay
Employee a base annual salary ("Salary") at the rate of $200,000 per annum, less
all necessary and required federal, state and local payroll deductions, payable
in semi-monthly
<PAGE> 2
installments, or in such other manner as senior employees are regularly paid by
the Company. The Company may, at its discretion, at any time and from time to
time, increase (but not decrease) the Salary for Employee. In addition, Employee
will participate in a commission/bonus program to be determined.
(B) As of the Merger Agreement Date, Employee will be granted
options (the "Options"), under the Company's Stock Plan (the "Plan"), to
purchase up to 437,000 shares of common stock of the Company, par value $.01 per
share, (the "Common Stock") at an exercise price of $1.32 per share. The Options
are exercisable over a four-year period with the initial vesting date one-year
after the date of the Consulting Agreement. The Options shall have a term of ten
(10) years, and shall be subject to the terms and conditions of the Stock Option
Agreement (attached as "Exhibit A"), provided, however, that in the event of a
conflict between such terms and conditions and the terms of this Agreement, the
terms and conditions of the Stock Option Agreement shall govern.
In addition, in conjunction with the merger between
ObjectShare and StarBase, pursuant to certain agreements between ObjectShare and
Employee, StarBase will issue to Employee granted options (the "Merger
Options"), under the Company's Stock Plan (the "Plan"), to purchase up to
[555,000 multiplied by the Merger Exchange Ratio as defined in the Merger
Agreement] shares of common stock of the Company, par value $.01 per share, (the
"Common Stock") at an exercise price of $[the average of day before closing of
the Merger] per share. The Options will be immediately exercisable. The Options
shall have a term of three (3) years, and shall be subject to the terms and
conditions of the Stock Option Agreement (attached as "Exhibit A"), provided,
however, that in the event of a conflict between such terms and conditions and
the terms of this Agreement, the terms and conditions of the Stock Option
Agreement shall govern. The Company will also file an S-8 registration agreement
within sixty (60) days of the closing of the Merger.
(C) Employee shall be entitled to vacation in accordance with
Company's vacation policy. For purposes of vacation accrual, the hire date of
the employee will be the Employee's hire date at ObjectShare.
(D) If (i) the Employment Term is terminated for "cause" (as
defined in paragraph 6 hereof) or (ii) Employee voluntarily leaves the employ of
the Company prior to the end of the Employment Term, then all unvested Options
shall automatically become null and void.
(E) During the Employment Term, Employee shall be entitled to
participate in any retirement, medical payment, disability, health or life
insurance and other similar benefit plans and arrangements which may be or
become available to executive officers of the Company in general; provided, that
Employee shall be required to comply with the conditions attendant to coverage
by such plans and arrangements and shall comply with, and be entitled to
benefits only in accordance with, the terms and conditions of such plans and
arrangements.
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<PAGE> 3
(F) Employee shall be entitled to reimbursement for expenses
reasonably incurred by him in furtherance of the business of the Company and in
the performance of his duties hereunder, upon submission and approval of written
statements and bills in accordance with the regular procedures of the Company.
(G) Employee agrees not to sell or transfer any Company stock for
a period of six (6) months after the effective date of the Merger.
Section 1.04 Early Termination upon Death; Death Benefit. Employment
shall terminate on the date of Employee's death, except that Employee's Salary
shall be paid to his estate through the end of the month in which his death
occurs.
Section 1.05 Termination for Disability. In the event of Employee's
Incapacity (as defined below) during Employment, the Company may, in its
discretion, terminate Employee's employment hereunder; provided, however, that
Employee or Employee's legal representative, as the case may be, shall be
entitled to receive, and the Company shall pay, pay to Employee his/her Salary
(at the annual rate in effect prior to the events described in the immediately
preceding paragraph) from the date of termination of Employment through and
including the date which is six (6) months after such date of termination, which
amount shall be payable in semi-monthly installments in accordance with the
Company's regular pay intervals for its employees or in such other manner as
shall be mutually agreeable to Employee and the Company, and shall continue to
maintain all benefits in effect for a period of six (6) months following the
date of termination. The payments and obligations of the Company pursuant to
this Section 5 shall be in addition to any amounts payable under any disability
insurance coverage maintained for benefit of Employee. "Incapacity" shall mean
any illness or mental or physical incapacity or disability which prevents
Employee from performing Employee's duties hereunder for a continuous period of
one hundred twenty (120) consecutive days or for shorter periods aggregating one
hundred eighty (180) days within any consecutive twelve (12) month period.
Section 1.06 Termination by Company for Cause.
(A) The Company may terminate this Agreement, without liability
other than for payment of accrued but unpaid compensation through the date
Employment ends, for "cause." The term for "cause" shall mean (i) the failure by
Employee to perform any of his duties or obligations hereunder, which failure
shall have continued for at least ninety (90) days after notice of such failure
shall have been given to Employee by the Company and provided, however, that
such failure shall be reasonably within the control of the Employee; (ii)
Employee's conviction of, guilty plea or plea of nolo contendere concerning any
felony; (iii) any act of fraud, embezzlement, theft or gross malfeasance on the
part of Employee with respect to the Company or any of its assets; (iv) any of
the representations and warranties made by Employee herein shall prove to have
been materially false or misleading as of the time made; or (v) the breach by
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<PAGE> 4
Employee caused by Employee's failure to observe or perform any of the
agreements or covenants made by Employee herein and the failure of Employee to
remedy such breach or failure to observe or perform any such agreement or
covenant for a period of fourteen (14) days after such notice thereof from the
Company to Employee. The Company shall have the right to terminate Employee's
employment with the Company hereunder immediately upon the occurrence and
continuance of any grounds for termination for "cause," upon written notice to
Employee.
(B) In the event of (i) termination pursuant to this Section 6 or
(ii) Employee voluntarily leaves the employ of the Company and such departure is
not due to the occurrence of any event set forth in Section 6 (a) or 5 hereof,
then Employee shall receive payment of accrued but unpaid compensation and
vacation pay through the date of termination or resignation, as the case may be,
and all non-vested Options shall automatically become null and void.
Section 1.07 Termination in Conjunction with a Change of Control. A
"Change of Control" shall be deemed to have occurred if any of the following
occurs with respect to the Company: (i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company; (ii) a
merger or consolidation in which the Company is a party and is not the surviving
entity; (iii) the sale, exchange, or transfer of all or substantially all of the
assets of the Company; or (iv) a liquidation or dissolution of the Company.
Pursuant to this Section 7, in the event of any termination of
employment by the Company or any successor, or in the event of any reduction in
Employee's Salary, then Employee shall receive, upon written notice to Company,
the compensation set forth in Section 7(b) hereof.
In the event of termination pursuant to this Section 7, then
Employee shall receive payment, provided Employee shall not at any time be in
violation of Section 10 hereof, and except as provided in Section 6 hereof, the
Company shall pay to Employee his/her Salary (at the annual rate in effect prior
to the events described in the immediately preceding paragraph) from the date of
termination of Employment through and including the date which is twelve (12)
months after such date of termination, which amount shall be payable in
semi-monthly installments in accordance with the Company's regular pay intervals
for its employees or in such other manner as shall be mutually agreeable to
Employee and the Company. The Company shall also pay for or provide any benefits
to Employee (and each member of his/her immediate family) through the date which
is twelve (12) months after such date of termination. Employee shall receive
payment of accrued but unpaid vacation pay through the date of termination and
vacation pay will cease to accrue on termination date. Upon termination all
vested Options will remain exerciseable through the date that is twelve months
after the date of such termination; provided, however, that in the event of a
conflict between any terms and conditions of the Plan and this Agreement, the
terms and conditions of the Plan shall govern. In addition, the Company shall
pay to the Employee all accrued but unpaid bonus or incentive compensation
through the date of termination.
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<PAGE> 5
Section 1.08 Termination by Employee. The Employee may terminate Employment with
three (3) months' advance written notice to Company and Employee shall be
entitled to receive, and the Company shall pay, from the date of notice through
and including the date which is three (3) months after such date, which amount
shall be payable in semi-monthly installments in accordance with the Company's
regular pay intervals for its employees or in such other manner as shall be
mutually agreeable to Employee and the Company, and shall continue to maintain
all benefits in effect for a period of three (3) months following the date of
notice. Employee shall be obligated to continue to provide services in the
normal course of business during such three-month period.
Section 1.09 Termination by Mutual Agreement. The Company and Employee may
mutually agree to terminate Employment. In the event of (i) termination pursuant
to this Section 6, Employee shall be entitled to receive, and the Company shall
pay, from the date of notice through and including the date which is nine (9)
months after such date, which amount shall be payable in semi-monthly
installments in accordance with the Company's regular pay intervals for its
employees or in such other manner as shall be mutually agreeable to Employee and
the Company, and shall continue to maintain all benefits in effect for a period
of nine (9) months following the date of notice.
Section 1.10 Non-Disclosure; Non-Competition.
(A) In consideration of Employee's employment hereunder, Employee
agrees that during the Employment Term and for a period of one year thereafter
Employee will not directly or indirectly (i) engage in any activity intended to
terminate, disrupt or interfere with the Company's or any of its subsidiary's or
affiliate's relationship with a customer, supplier, lessor or other person, or
(ii) engage or participate in, or have any interest in any corporation, entity
or other person that engages or participates in any business or activity
(relating to software configuration management, team collaboration software or
any of the Software as defined in the Purchase Agreement) engaged or
participated in by the Company on date of termination of the Employment Term.
For purposes of this paragraph, Employee will be deemed directly or indirectly
to be engaged or participating in the operation of such a business or activity,
or to have an interest in a corporation, entity or other person, if he is a
proprietor, partner, joint venturer, shareholder, director, officer, lender,
manager, employee, consultant, advisor or agent or if he, directly or indirectly
(including as a member of a group), controls all or any part thereof; provided,
that nothing in this paragraph shall prohibit Employee from holding less than
two percent (2%) of a class of a corporation's outstanding securities that are
listed on a national securities exchange or traded in the over-the-counter
market.
(B) In the event of a breach or threatened breach by Employee of
any of the provisions of this paragraph, the Company shall be entitled to an
injunction to be
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<PAGE> 6
issued by any court or tribunal of competent jurisdiction to restrain Employee
from committing or continuing any such violation. In any proceeding for an
injunction, Employee agrees that his ability to answer in damages, or his or the
Company's ability to take any other lawful remedial action, shall not be a bar
or be interposed as a defense to the granting of a temporary or permanent
injunction against him. Employee acknowledges that the Company will not have an
adequate remedy at law in the event of any breach by him as aforesaid and that
the Company may suffer irreparable damage and injury in the event of such a
breach by him. Nothing contained herein shall be construed as prohibiting the
Company from pursuing any other remedy or remedies available to the Company in
respect of such breach or threatened breach.
(C) If any term or provision of this paragraph 10 shall be held
invalid or unenforceable because of its duration, geographic scope, or for any
other reason, the Company and Employee agree that the court making such
determination shall have the power to modify such provision, whether by limiting
the geographic scope, reducing the duration, or otherwise, to the minimum extent
necessary to make such term or provision valid and enforceable, and such term or
provision shall be enforceable in such modified form.
(D) The provisions of this paragraph 10 shall survive the
termination of the Employment Term.
Section 1.11 Inventions. Employee agrees to execute the Company's
standard Employee Proprietary Information and Inventions Agreement attached as
"Exhibit B".
Section 1.12 Company Property. All records, files, lists, including,
without limitation, computer generated lists, drawings, documents, equipment and
similar items relating to the Company's business which Employee prepared or
received from the Company during the course of the retention of Employee
hereunder shall remain the Company's sole and exclusive property and Employee
shall not acquire any interest therein. Upon termination of this Agreement, and
in any event at the request of the Company at any time, Employee shall promptly
return to the Company all property of the Company in its possession. Employee
further agrees that it will not copy or cause to be copied, print out or cause
to be printed any software, documents or other materials originating with or
belonging to the Company. Employee additionally agrees that, upon termination of
its retention by the Company or earlier at the request of the Company, it will
not retain in its possession any such software, documents or other materials in
machine or human readable form.
Section 1.13 Assignability. This Agreement may not be assigned by
Employee and all of its terms and conditions shall be binding upon and inure to
the benefit of Employee and his heirs, executors, administrators, legal
representatives and assigns and the Company and its successors and assigns.
Successors of the Company shall include, without limitation, any corporation or
other entity acquiring directly or indirectly all or a
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<PAGE> 7
substantial part of the assets of the Company by merger, consolidation,
purchase, lease or otherwise, and such successor shall thereafter be deemed the
"Company" for purposes hereof.
Section 1.14 Notices. All notices, requests, demands and other
communications provided for hereby shall be in writing and shall be deemed to
have been duly given when delivered personally or two days after sent by
registered or certified mail, return receipt requested, to the party entitled
thereto at the address first above written or to such changed address as the
addressee may have given by a similar notice, with a copy, in each case, to
Martin Eric Weisberg, Esq., Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of
the Americas, New York, New York 10036-8735.
Section 1.15 Modification. This Agreement may be modified or amended
only by an instrument in writing signed by Employee and the Company and any
provision hereof may be waived only by an instrument in writing signed by the
party hereto against whom any such waiver is sought to be enforced.
Section 1.16 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect, impair or invalidate any other
provision of this Agreement.
Section 1.17 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
without regard to principles of conflicts of law (or any other law that would
make the laws of any jurisdiction other than the State of California applicable
to this Agreement).
Section 1.18 Captions. The captioned headings contained herein are for
convenience of reference only and are not intended, nor shall they be construed,
to have any substantive effect.
Section 1.19 Arbitration.
(A) In connection with any dispute between the parties arising
out of or relating to this Agreement which cannot be resolved by the parties,
either party shall be entitled to have the dispute resolved by exclusive binding
arbitration to be conducted in the county of Orange Los Angeles, California in
accordance with the rules and procedures for arbitration as are from time to
time prescribed by the American Arbitration Association (the "AAA"). If a
dispute exists, the parties shall negotiate in good faith for a period of
fifteen (15) days in an attempt to resolve such dispute. If the dispute is not
resolved within that period, either party may submit the dispute to arbitration
upon ten (10) days' prior written notice to the other party. The arbitration
shall be conducted by one arbitrator mutually acceptable to Employee and the
Company or if they are unable to agree on one arbitrator they shall each
designate one individual from a panel of potential arbitrators designated by the
AAA who shall together designate a third arbitrator from a panel of potential
arbitrators designated by the AAA who shall
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<PAGE> 8
be the sole arbitrator in the arbitration proceedings (the "Arbitrator"). The
determination by the Arbitrator shall be conclusive and binding on the parties
and shall not be subject to appeal or other judicial review. The Arbitrator
shall be entitled to award to the prevailing party in the arbitration, the
reimbursement of such party's reasonable costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses, the compensation payable to
the Arbitrator and fees payable to the AAA) incurred in connection with such
arbitration. The prevailing party shall be entitled to enforce the determination
of the Arbitrator in any court of competent jurisdiction and the other party
hereby unconditionally and irrevocably waives any right to challenge or contest
such enforcement. The prevailing party shall be entitled to reimbursement of
such party's reasonable costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred in attempting to enforce any
such determination.
(B) Notwithstanding anything to the contrary set forth herein and
in furtherance of the rights and remedies afforded to the Company pursuant to
paragraph 6 hereof, the Company shall be entitled to seek injunctive relief in
any court of competent jurisdiction for any breach or threatened breach of any
of Employee's duties, covenants, agreements or obligations thereunder.
Section 1.20 Counterparts. This Agreement may be executed in two
counterpart copies, each of which may be executed by one of the parties hereto,
but both of which, when taken together, shall constitute a single agreement
binding upon each of the parties hereto.
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<PAGE> 9
IN WITNESS WHEREOF, the Company and Employee have signed this
Agreement as of the date set forth on the first page of this Agreement.
STARBASE CORPORATION
By: /s/ Douglas S. Norman
--------------------------------------
Name: Douglas S. Norman
Title: Director of Finance
/s/ James Smith
--------------------------------------
Employee
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<PAGE> 10
EXHIBIT A
STOCK OPTION PLAN
STARBASE CORPORATION
(i) NONSTATUTORY STOCK OPTION AGREEMENT
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is
made and entered into as of ((CurrGDat)) by and between StarBase Corporation and
((FirstNam)) ((LastName)) (the "OPTIONEE").
STARBASE CORPORATION
By: ____________________________________
Title: Assistant Secretary
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement (Sections I and II) and hereby accepts the
Option subject to all of the terms and provisions thereof, including any changes
in the terms and conditions of the Option Agreement. The Optionee hereby agrees
to accept as binding, conclusive and final all decisions or interpretations of
the Board of Directors upon any questions arising under this Option Agreement.
Optionee: ___________________________
Date: _______________________________
- --------------------------------------------------------------------------------
I. NOTICE OF STOCK OPTION GRANT
The Optionee has been granted an Option to purchase Common Stock of the
Company, subject to the terms and conditions of this Option Agreement, as
follows:
<TABLE>
<S> <C>
DATE OF OPTION GRANT: ((CURRGDAT))
INITIAL VESTING DATE: ((IVESTDT))
EXERCISE PRICE PER SHARE: $((EXCPRICE))
NUMBER OF OPTION SHARES: ((OPTIONS))
OPTION EXPIRATION DATE*: ((EXPIRYDT))
</TABLE>
VESTING SCHEDULE:
This option shall be exercisable, in whole or in part, according to the
following vesting schedule:
The right to exercise the Option with respect to 25% of the Option
Shares shall vest on the Initial Vesting Date as stated above, and 1/48 of the
Option Shares shall vest each month thereafter until the Option is exercisable
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<PAGE> 11
with respect to all of the Option Shares, provided the Optionee's Service is
continuous from the Date of the Option Grant until the relevant vesting date.
TERMINATION PERIOD:
*Options may terminate earlier pursuant to Section 7.
II. NONSTATUTORY STOCK OPTION AGREEMENT
The Company has granted to the Optionee an option to purchase certain
shares of Stock upon the terms and conditions set forth in this Option Agreement
(the "OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more committees have been appointed by the Board to
administer the Option Agreement, "Board" also means such committee(s).
(b) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(c) "COMPANY" means StarBase Corporation, a Delaware
corporation, or any successor corporation thereto.
(d) "DATE OF OPTION GRANT" is stated on the Notice of
Stock Option Grant.
(e) "DISABILITY" means the inability of the Optionee,
in the opinion of a qualified physician acceptable to the Company, to perform
the major duties of the Optionee's position with the Participating Company Group
because of the sickness or injury of the Optionee.
(f) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
(g) "EXERCISE PRICE" means the Exercise Price per
Share of Stock stated on the Notice of Stock Option Grant, as adjusted from time
to time pursuant to Section 9.
(h) "FAIR MARKET VALUE" means, as of any date, the
value of a share of stock or other property as determined by the Board, in its
sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein.
(i) "INITIAL EXERCISE DATE" means the Initial Vesting
Date.
(j) "INITIAL VESTING DATE" means the date stated on
the Notice of Stock Option Grant.
(k) "NUMBER OF OPTION SHARES" means the number of
shares of Stock stated on the Notice of Stock Option Grant, as adjusted from
time to time pursuant to Section 9.
(l) "OPTION EXPIRATION DATE" means the date ten (10)
years after the Date of Option Grant.
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<PAGE> 12
(m) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(n) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(o) "PARTICIPATING COMPANY GROUP" means, at any point
in time, all corporations collectively, which are then Participating Companies.
(p) "SECURITIES ACT" means the Securities Act of
1933, as amended.
(q) "SERVICE" means the Optionee's employment or
service with the Participating Company Group, whether in the capacity of an
employee, a director, independent contractor, consultant or otherwise. The
Optionee's Service shall not be deemed to have terminated merely because of a
change in the capacity in which the Optionee renders Service to the
Participating Company Group or a change in the Participating Company for which
the Optionee renders such Service, provided that there is no interruption or
termination of the Optionee's Service. The Optionee's Service shall be deemed to
have terminated either upon an actual termination of Service or upon the
corporation for which the Optionee performs Service ceasing to be a
Participating Company. Subject to the foregoing, the Company, in its sole
discretion, shall determine whether the Optionee's Service has terminated and
the effective date of such termination.
(r) "STOCK" means the common stock, $0.01 par value,
of the Company, as adjusted from time to time in accordance with Section 4.2.
(s) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
(t) "VESTING SCHEDULE" specifies the TIMING and
amount of option shares that become exercisable. No option shares are
exercisable prior to the Initial Vesting Date. The schedule is stated on the
Notice of Stock Option Grant.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. TAX CONSEQUENCES. TAX STATUS OF OPTION. This Option is intended to
be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock
Option within the meaning of Section 422(b) of the Code. The Optionee
acknowledges that the Optionee has been advised to consult with a tax advisor
prior to the exercise of the Option regarding the tax consequences to the
Optionee of the exercise of the Option.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board. All determinations by the
Board shall be final and binding upon all persons having an interest in the
Option. Any officer of a Participating Company shall have the authority to act
on behalf of the Company with respect to any matter, right, obligation, or
election which is the responsibility of or which is allocated to the Company
herein, provided the officer has apparent authority with respect to such matter,
right, obligation, or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein,
the Option shall be exercisable on and after the Initial Exercise Date and prior
to the termination of the Option (as provided in Section 6) in an
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amount (determined as of the date on which the Option is to be exercised
pursuant to the terms set forth in Section 4.2), not to exceed the Number of
Option Shares exercisable determined by the Vesting Schedule set forth on the
Notice of Stock Option Grant less the number of shares previously acquired upon
exercise of the Option.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as to the Optionee's
investment intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. The written notice must be signed by the
Optionee and must be delivered in person, by certified or registered mail,
return receipt requested, by confirmed facsimile transmission, or by such other
means as the Company may permit, to the Chief Financial Officer of the Company,
or other authorized representative of the Participating Company Group, prior to
the termination of the Option as set forth in Section 6, accompanied by (i) full
payment of the aggregate Exercise Price for the number of shares of Stock being
purchased (as determined under Section 4.3), (ii) an executed copy, if required
herein, of the then current forms of escrow and security agreement referenced
below and iii) the payment of any taxes attributable to the exercise of the
Option (or evidence of such other arrangement satisfactory to the Company). The
Option shall be deemed to be exercised upon receipt by the Company of such
written notice, the aggregate Exercise Price, and, if required by the Company,
such executed agreements.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value (as determined
by the Company without regard to any restrictions on transferability applicable
to such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company) not less than the aggregate Exercise Price,
(iii) by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by cash for a
portion of the aggregate Exercise Price not less than the par value of the
shares being acquired and the Optionee's promissory note for the balance of the
aggregate Exercise Price, or (v) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing,
the Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "Cashless Exercise" means
the assignment in a form acceptable to the Company of the proceeds of a sale or
loan with respect to some or all of the shares of Stock acquired upon the
exercise of the Option pursuant to a program or procedure approved by the
Company (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note
shall be permitted if an exercise of the Option using a promissory note would be
a violation of any law. Unless otherwise specified by the Board at the time the
Option is granted, the promissory note permitted in clause (iv) of Section
4.3(a) shall be a full recourse note in a form satisfactory to the Company, with
principal payable not more than four (4) years after the date the Option is
exercised. Interest on the principal balance of the promissory note shall be
payable in monthly installments at the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then current form of security agreement as approved by the Company. At any time
the Company is subject to the regulations promulgated by the Board of Governors
of the Federal Reserve System or any other governmental entity
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<PAGE> 14
affecting the extension of credit in connection with the Company's Securities,
any promissory note shall comply with such applicable regulations, and the
Optionee shall pay the unpaid principal and accrued interest, if any, to the
extent necessary to comply with such applicable regulations. Except as the
Company in its sole discretion shall determine, the Optionee shall pay the
unpaid principal balance of the promissory note and any accrued interest thereon
upon termination of the Optionee's Service with the Participating Company Group
for any reason, with or without cause.
4.4 TAX WITHHOLDING. At the time of, and as a condition to,
any exercise of the Option, in whole or in part, or at any time thereafter as
requested by the Company, the Optionee hereby authorizes withholding from wages
and any other amounts payable to the Optionee, and, at the direction of the
Company, otherwise agrees to make adequate provision for (including by means of
a Cashless Exercise to the extent permitted by the Company), any sums required
to satisfy the federal, state, local and foreign tax withholding obligations of
the Participating Company Group, if any, which arise in connection with the
Option, including, without limitation, obligations arising upon (i) the
exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in
part, of any shares acquired upon exercise of the Option, (iii) the operation of
any law or regulation providing for the imputation of interest or (iv) the
lapsing of any restriction with respect to any shares acquired upon exercise of
the Option.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF
SHARES. The grant of the Option and the issuance of shares of Stock upon
exercise of the Option shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
The Option may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
the Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares subject to the Option shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which
such requisite authority shall not have been obtained. As a condition to the
exercise of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
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<PAGE> 15
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABLE.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of one (1) year after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's guardian or legal representative, or other person who acquired the
right to exercise the Option by reason of the Optionee's death) at any time
prior to the expiration of one (1) year after the date on which the Optionee's
Service terminated, but in any event no later than the Option Expiration Date.
The Optionee's Service shall be deemed to have terminated on account of death if
the Optionee dies within three (3) months after the Optionee's termination of
Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within thirty (30) days (or such other longer period
of time as determined by the Board, in its sole discretion) after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
7.2 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Except as the
Company and the Optionee otherwise agree, exercise of the Option pursuant to
Section 7.1 following termination of the Optionee's Service may not be made by
delivery of a promissory note as provided in Section 4.3(d).
7.3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 7.1 is prevented by the provisions of Section 4.6, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date.
7.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7.5 LEAVE OF ABSENCE. For purposes of Section 7.1, the
Optionee's Service with the Participating Company Group shall not be deemed to
terminate if the Optionee takes any military leave, sick leave, or other bona
fide leave of absence approved by the Company of ninety (90) days or less. In
the event of a leave of absence in excess of ninety (90) days, the Optionee's
Service shall be deemed to terminate on the ninety-first (91st) day of such
leave unless the Optionee's right to reemployment with the Participating Company
Group remains
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<PAGE> 16
guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company (or required by law), a leave of absence
shall not be treated as Service for purposes of determining the Optionee's
Vesting Schedule.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the
Company is a party;
(iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the
Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or Multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, all Options granted under the Plan shall become immediately
exercisable in full, effective as of the date of the Transfer of Control.
Notwithstanding the foregoing, shares acquired upon exercise of the Option prior
to the date of the Transfer of Control and any consideration received pursuant
to the Transfer of Control with respect to such shares shall continue to be
subject to all applicable provisions of this Option Agreement except as
otherwise provided herein.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise
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Price shall be adjusted in a fair and equitable manner, as determined by the
Board, in its sole discretion. Notwithstanding the foregoing, any fractional
share resulting from an adjustment pursuant to this Section 9 shall be rounded
up or down to the nearest whole number, as determined by the Board, and in no
event may the Exercise Price be decreased to an amount less than the par value,
if any, of the stock subject to the Option. The adjustments determined by the
Board pursuant to this Section 9 shall be final, binding, and conclusive.
10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an employee, consultant, or otherwise as the
case may be, at any time.
11. ESCROW.
11.1 ESTABLISHMENT OF ESCROW. If the Optionee pays for the
shares with a promissory note, the Company may require the Optionee to deposit
the certificate evidencing the shares which the Optionee purchases upon exercise
of the Option with an agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the Option,
the Company reserves the right at any time to require the Optionee to so deposit
the certificate in escrow. Upon the occurrence of an Ownership Change Event or a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the Company the stock of which is subject to the provisions
of this Option Agreement, any and all new, substituted or additional securities
or other property to which the Optionee is entitled by reason of the Optionee's
ownership of shares of Stock acquired upon exercise of the Option that remain,
following such Ownership Change Event or change described in Section 9, subject
to any security interest held by the Company shall be immediately subject to the
escrow to the same extent as such shares of Stock immediately before such event.
The Company shall bear the expenses of the escrow.
11.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable
after full repayment of any promissory note secured by the shares or other
property in escrow, but not more frequently than twice each calendar year, the
escrow agent shall deliver to the Optionee the shares and any other property no
longer subject to such restrictions and no longer securing any promissory note.
11.3 NOTICES AND PAYMENTS. In the event the shares and any
other property are held in escrow, the notices required to be given to the
Optionee shall be given to the escrow agent, and any payment required to be
given to the Optionee shall be given to the escrow agent. Within thirty (30)
days after payment by the Company, the escrow agent shall deliver the shares and
any other property which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.
12. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
13. PUBLIC OFFERING. The Optionee hereby agrees that in the event of
any underwritten public offering of stock, including an initial public offering
of stock, made by the Company pursuant to an effective registration statement
filed under the Securities Act, the Optionee shall not offer, sell, contract to
sell, pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any shares of stock of the Company or any rights to
acquire stock of the Company for such period of time from and after the
effective date of such registration statement as may be established by the
underwriter for such initial public offering; provided,
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however, that such period of time shall not exceed one hundred eighty (180) days
from the effective date of the registration statement to be filed in connection
with such public offering. The foregoing limitation shall not apply to shares
registered in the public offering under the Securities Act. The Optionee shall
be subject to this Section provided and only if the officers and directors of
the Company are also subject to similar arrangements.
14. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
15. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that except as provided in Section
8.2 in connection with a Transfer of Control, no such termination or amendment
may adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation. No amendment or
addition to this Option Agreement shall be effective unless in writing.
16. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein and there are no agreements,
understandings, restrictions, representations, or warranties among the Optionee
and the Participating Company Group with respect to such subject matter other
than those as set forth or provided for herein. To the extent contemplated
herein, the provisions of this Option Agreement shall survive any exercise of
the Option and shall remain in full force and effect.
17. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
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EXHIBIT B
EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
STARBASE CORPORATION
4 Hutton Centre Drive
Suite 800
Santa Ana, CA 92707
Gentlemen:
The following confirms an agreement between me and StarBase Corporation, a
Delaware corporation, one of its subsidiaries, its successors or assigns (the
"Company"), which is a material part of the consideration for my employment by
the Company:
1. I understand that the Company possesses and will possess Proprietary
Information which is important to its business. For purposes of this
Agreement, "Proprietary Information" is information that was or will be
developed, created, or discovered by or on behalf of the Company, or which
became or will become known by, or was or is conveyed to the Company, which
has commercial value in the Company's business. "Proprietary Information"
includes, but is not limited to, information about circuits, mask works,
layouts, algorithms, trade secrets, computer programs, designs, technology,
ideas, know-how, processes, formulas, compositions, data, techniques,
improvements, inventions (whether patentable or not), works of authorship,
business and product development plans, the salaries and terms of
compensation of other employees, customers and other information concerning
the Company's actual or anticipated business, research or development, or
which is received in confidence by or for the Company from any other
person. I understand that my employment creates a relationship of
confidence and trust between me and the Company with respect to Proprietary
Information.
2. I understand that the Company possesses or will possess "Company Materials"
which are important to its business. For purposes of this Agreement,
"Company Materials" are documents or other media or tangible items that
contain or embody Proprietary Information or any other information
concerning the business, operations or plans of the Company, whether such
documents have been prepared by me or by others. "Company Materials"
include, but are not limited to, blueprints, drawings, photographs, charts,
graphs, notebooks, customer lists, computer disks, tapes or printouts,
sound recordings and other printed, typewritten or handwritten documents,
as well as samples, prototypes, models, products and the like.
3. In consideration of my employment by the Company and the compensation
received by me from the Company from time to time, I hereby agree,
effective as of my first day of employment with the Company, as follows:
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<PAGE> 20
a. All Proprietary Information and all title, patents, patent rights,
copyrights, mask work rights, trade secret rights, and other
intellectual property and rights (collectively "Rights") in connection
therewith shall be the sole property of the Company. I hereby assign
to the Company any Rights I may have or acquire in such Proprietary
Information. At all times, both during my employment by the Company
and after its termination, I will keep in confidence and trust and
will not use or disclose any Proprietary Information or anything
relating to it without the prior written consent of an officer of the
Company. Nothing contained herein will prohibit an employee from
disclosing to anyone the amount of his or her wages. I understand and
agree that, with respect to work under Government contracts, title to
certain patents and inventions or licenses therein shall be determined
as provided by Federal law or regulation or by contract with the
Government.
b. All Company Materials shall be the sole property of the Company. I
agree that during my employment by the Company, I will not remove any
Company Materials from the business premises of the Company or deliver
any Company Materials to any person or entity outside the Company. I
further agree that, immediately upon the termination of my employment
by me or by the Company for any reason, or during my employment if so
requested by the Company, I will return all Company Materials,
apparatus, equipment and other physical property, or any reproduction
of such property, excepting only (i) my personal copies of records
relating to my compensation; (ii) my personal copies of any materials
previously distributed generally to stockholders of the Company; and
(iii) my copy of this Agreement.
c. I will promptly disclose to the Company in writing, all discoveries,
concepts and ideas, whether patentable or unpatentable, including but
not limited to processes, methods, formulas, and techniques, as well
as improvements and know-how related thereto, conceived or reduced to
practice by me while in the Company's employ, either solely or jointly
with others during my employment ("Company Inventions"). This
agreement shall not apply to any invention which qualifies fully under
the provisions of Section 2870 of the California Labor Code which
includes inventions developed entirely on my own time without using
the Company's equipment, supplies, facilities or trade secret
information, except for those ideas and inventions that either; (a)
relate, at the time of conception or reduction to practice of the
invention, to the Company's business, or actual or demonstrably
anticipated research or development of the Company, or (b) results
from any work performed by me for the Company.
To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from
being required to be assigned under subdivision (a), the provision is
against the public policy of this state and is unenforceable.
d. I agree to perform, during and after my employment, all acts deemed
necessary or desirable by the Company to permit and assist it, at the
Company's expense, in obtaining, maintaining, defending and enforcing
Rights with respect to such Inventions and improvements in any and all
countries. Such acts may include, but are not limited to, execution of
documents and assistance or cooperation in legal proceedings. I hereby
irrevocably designate and appoint the Company and its duly authorized
officers and agents, as my agents and attorneys-in-fact to act for and
in my behalf and instead of me, to execute and file any documents and
to do all other lawfully permitted acts to further the above purposes
with the same legal force and effect as if executed by me.
e. Any assignment of copyright hereunder includes, but is not limited to,
all rights of paternity, integrity, disclosure and withdrawal that may
be known as or referred to as "moral rights"
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<PAGE> 21
(collectively "Moral Rights"). To the extent such Moral Rights cannot
be assigned under applicable law and to the extent the following is
allowed by the laws in the various countries where Moral Rights exist,
I hereby waive such Moral Rights and consent to any action of the
Company that would violate such Moral Rights in the absence of such
consent. I will confirm any such waivers and consents from time to
time as requested by the Company.
f. I have attached hereto a complete list of all existing Inventions or
improvements to which I claim ownership as of the date of this
Agreement and that I desire to specifically clarify are not subject to
this Agreement, and I acknowledge and agree that such list is
complete. If no such list is attached to this Agreement, I represent
that I have no such Inventions and improvements at the time of signing
this Agreement.
g. During the term of my employment and for one (1) year thereafter, I
will not encourage or solicit any employee or consultant of the
Company to leave the Company for any reason. However, this obligation
shall not affect any responsibility I may have as an employee of the
Company with respect to the bona fide hiring and firing of Company
personnel.
h. I agree that during my employment with the Company I will not engage
in any employment, business, or activity that is in any way
competitive with the business or proposed business of the Company, and
I will not assist any other person or organization in competing with
the Company or in preparing to engage in competition with the business
or proposed business of the Company. The provisions of this paragraph
shall apply both during normal working hours and at all other times
including, but not limited to, nights, weekends and vacation time,
while I am employed by the Company.
i. I represent that my performance of all the terms of this Agreement will
not breach any agreement to keep in confidence proprietary information
acquired by me in confidence or in trust prior to my employment by the
Company. I have not entered into, and I agree I will not enter into,
unless I have the prior written consent of the Company, any agreement
either written or oral in conflict herewith or in conflict with my
employment with the Company.
4. I agree that I have the right to resign and the Company has the right to
terminate my employment at any time, for any reason, with or without cause.
5. I agree that this Agreement does not purport to set forth all of the terms
and conditions of my employment, and that as an employee of the Company I
have obligations to the Company which are not set forth in this Agreement.
6. I agree that my obligations under paragraphs 3(a) through 3(f) of this
Agreement shall continue in effect after termination of my employment,
regardless of the reason or reasons for termination, and whether such
termination is voluntary or involuntary on my part, and that the Company is
entitled to communicate my obligations under this Agreement to any future
employer or potential employer of mine.
7. I agree that any dispute in the meaning, effect or validity of this
Agreement shall be resolved in accordance with the laws of the State of
California without regard to the conflict of laws provisions thereof. I
further agree that if one or more provisions of this Agreement are held to
be illegal or unenforceable under applicable California law, such illegal
or unenforceable portion(s) shall be
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<PAGE> 22
limited or excluded from this Agreement to the minimum extent required so
that this Agreement shall otherwise remain in full force and effect and
enforceable in accordance with its terms.
8. This Agreement shall be effective as of the first day of employment with
the Company and shall be binding upon me, my heirs, executors, assigns, and
administrators and shall inure to the benefit of the Company, its
subsidiaries, successors and assigns.
9. This Agreement can only be modified by a subsequent written agreement
executed by the President of the Company or his designee.
I HAVE READ THIS AGREEMENT CAREFULLY AND I UNDERSTAND AND ACCEPT THE OBLIGATIONS
WHICH IT IMPOSES UPON ME WITHOUT RESERVATION. NO PROMISES OR REPRESENTATIONS
HAVE BEEN MADE TO ME TO INDUCE ME TO SIGN THIS AGREEMENT. I SIGN THIS AGREEMENT
VOLUNTARILY AND FREELY, IN DUPLICATE, WITH THE UNDERSTANDING THAT ONE
COUNTERPART WILL BE RETAINED BY THE COMPANY AND THE OTHER COUNTERPART WILL BE
RETAINED BY ME.
Accepted and Agreed to: Accepted and Agreed to:
STARBASE CORPORATION
Employee By
------------------- ----------------------------
Douglas S. Norman
Director of Finance
Date Date
------------------- ----------------------------
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<PAGE> 23
EXHIBIT A
STARBASE CORPORATION
4 Hutton Centre Drive
Suite 800
Santa Ana, CA 92707
Gentlemen:
1. The following is a complete list of inventions or improvements relevant to
the subject matter of my employment by StarBase Corporation (the "Company")
that have been made or conceived or first reduced to practice by me alone
or jointly with others prior to my employment by the Company that I desire
to clarify are not subject to the Company's Proprietary Information and
Inventions Agreement.
No inventions or improvements
-----
See below:
-----
Additional sheets attached
-----
2. I propose to bring to my employment the following materials and documents
of a former employer:
No materials or documents
-----
See below:
-----
Employee
---------------------------
Date
---------------------------
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<PAGE> 1
EXHIBIT 10.4
LEASE AGREEMENT
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1. PARTIES: This Lease ("LEASE"), dated for reference purposes
only, October 3 , 1997, is made by and between Hale Property, Ltd., L.P., a
California Limited Partnership ("LESSOR") and ParcPlace Digitalk, Inc., a
California Corporation (LESSEE"), (collectively the "PARTIES," or individually a
"PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 16811 Hale Avenue, Suite A, located in
the City of Irvine County of Orange, State of California, with zip code 92614 ,
as outlined on Exhibit A attached hereto ("PREMISES"). The "BUILDING" is that
certain building containing the Premises and generally described as (describe
briefly the nature of the Building): The Premises shall consist of 11,645 square
feet of the 29,565 square foot building located as cross-hatched on Exhibit A In
addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas as defined
in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights
to the roof, exterior walls or utility raceways of the Building or to any other
buildings in the Industrial Center. The Premises, The Building, the Common
Areas, the land upon which they are located, along with all other buildings and
improvements thereon, are herein collectively referred to as the "INDUSTRIAL
CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: 35 unreserved vehicle parking spaces ("UNRESERVED
PARKING SPACES"); and 0 reserved vehicle parking spaces ("RESERVED PARKING
SPACES"). (Also see Paragraph 2.6.)
1.3 TERM:2 years and 11 months ("ORIGINAL TERM") commencing February
1, 1998 ("COMMENCEMENT DATE") and ending December 31, 2000 ("EXPIRATION DATE").
(Also see Paragraph 3.)
1.4 EARLY POSSESSION: Upon Lease execution ("EARLY POSSESSION DATE").
(Also see Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $ 8,500.85 per month ("BASE RENT"), payable on the
first day of each month commencing February 1, 1998 (Also see Paragraph 4.)
[X] If this box is checked, this Lease proves for the Base Rent to be adjusted
per Addendum #49, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $ 8,500.85 as Base Rent for the
period February 1998.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: Thirty-nine
& 4/10ths percent (39.4%) ("LESSEE'S SHARE") as determined by [X] prorata square
footage of the Premises as compared to the total square footage of the Building
or per other prorata square footage share as shall from time to time reflect
Lessee's actual prorata use.
1.7 SECURITY DEPOSIT: $51,005.10 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: Tenant will use the Premises for general office,
storage, sales and administrative offices ___________________ ("PERMITTED USE")
<PAGE> 2
(Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." Also see
Paragraph 8
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[ ] ___________________________________ represents Lessor exclusively ("LESSOR'S
BROKER");
[ ] ___________________________________ represents Lessee exclusively ("LESSEE'S
BROKER"); or
[X] CB Commercial represents both Lessor and Lessee ("DUAL AGENCY"). (Also see
Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of
$_______) for brokerage services rendered by said Broker(s) in connection with
this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by None ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 52, and Exhibits A through _______________,
all of which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in a good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty with thirty (30) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or a Lessor's direction shall
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<PAGE> 3
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non compliance, Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Broker(s) to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and fire
sprinkler systems, security, environmental aspects, seismic and earthquake
requirements, and compliance with the Americans with Disabilities Act and
applicable zoning, municipal, county, state and federal laws, ordinances and
regulations, and any covenants of restrictions of record (collectively,
"APPLICABLE LAWS") and the present and future suitability of the Premises for
Lessee's intended use; (b) that Lessee has made such investigation as it deems
necessary with reference to such matters, is satisfied with reference thereto,
and assumes all responsibility therefore as the same relate to Lessee's
occupancy of the Premises and/or the terms of this Lease; and (c) that neither
Lessor, nor any of Lessor's agents, has made any oral or written representations
of warranties with respect to said matters other than as set forth in this
Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that
belong to or are controlled by Lessee or Lessee's employees, suppliers,
shippers, customers, contractors or invitees to be loaded, unloaded, or parked
in areas other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited
activities described in this Paragraph 2.6, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease,
provide the parking facilities required by Applicable Law.
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<PAGE> 4
2.7 COMMON AREAS - DEFINITION. The term "COMMON AREAS" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Industrial Center and interior utility raceways within the Premises
that are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee,
for the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas to be
deemed to include the right to store any property, temporarily or permanently,
in the Common Areas. Any such storage shall be permitted only by the prior
written consent of Lessor or Lessor's designated agent, which consent may be
revoked at any time. In the event that any unauthorized storage shall occur then
Lessor shall have the right, without notice, in addition to such other rights
and remedies that it may have, to remove the property and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable Rules and Regulations with respect thereto
in accordance with Paragraph 40. Lessee agrees to abide by and conform to all
such Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available.
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the
Common Areas;
(e) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Industrial Center, or any
portion thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
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<PAGE> 5
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but no limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefore, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor with
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days caused by the acts, charges or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges,
as the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for
purposes of this Lease, as all costs incurred by Lessor relating to the
ownership and operation of the Industrial Center, including, but not limited
to, the following:
(i) The operation, repair and maintenance, in
neat, clean, good order and condition, of the following:
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<PAGE> 6
(aa) The Common Areas, including
parking areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant
directories.
(cc) Fire detection and sprinkler
systems.
(ii) The cost of water, gas, electricity and
telephone to service the Common Areas.
(iii) Trash disposal, property management and
security services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and
repair of Common Areas.
(v) Real Property Taxes (as defined in Paragraph
10.2) to be paid by Lessor for the Building and the Common Areas under Paragraph
10 hereof.
(vi) The cost of the premiums for the insurance
policies maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of any insured loss
concerning the Building or the Common Areas.
(viii) Any other services to be provided by
Lessor that are stated elsewhere in this Lease to be a Common Area Operating
Expense.
(b) Any Common Area Operating Expenses and Real Property
Taxes that are specifically attributable to the Building or to any other
building in the Industrial Center or to the operation, repair and maintenance
thereof, shall be allocated entirely to the Building or to such other building.
However, any Common Area Operating Expenses and Real Property Taxes that are not
specifically attributable to the Building or to any other building or to the
operation, repair and maintenance thereof, shall be equitably allocated by
Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and
services set forth in Subparagraph 4.2(a) shall not be deemed to impose an
obligation upon Lessor to either have said improvements or facilities or to
provide those services unless the Industrial Center already has the same, Lessor
already provides the services, or Lessor has agreed elsewhere in this Lease to
provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall
be payable by Lessee with ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee with sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such over
payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
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<PAGE> 7
to Lessor the amount of the deficiency within ten (10) days after delivery by
Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise +s under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall with ten (10) days after written request therefore deposit monies
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Lessor shall not be required to keep all or any part of
the Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor , no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease. (See Addendum,
Paragraph #52)
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or
delay its consent to any written request by Lessee, Lessee's assignees or
subtenants, and by prospective assignees and subtenants or Lessee, its assignees
and subtenants, for a modification of said Permitted Use, so long as the same
will not impair the structural integrity of the improvements on the Premises or
in the Building or the mechanical or electrical systems therein, does not
conflict with uses by other lessees, is not significantly more burdensome to the
Premises or the Building and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall with five (5) business days after such request give a
written notification of same, which notice shall include an explanation of
Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i ) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
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<PAGE> 8
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to any
Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor
such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including but
not limited to the installation (and, at Lessor's option, removal on or before
Lease expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance has come to be located
in, on, under or about the Premises or the Building, other than as previously
consented to by Lessor, Lessee shall immediately give Lessor written notice
thereof, together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect,
defend and hold Lessor, its agents, employees, lenders and ground lessor, if
any, and the Premises, harmless from and against any and all damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, loss of
permits and attorneys' and consultants' fees arising out of or involving any
Hazardous Substance brought onto the Premises by or for Lessee or by anyone
under Lessee's control. Lessee's obligation under this Paragraph 6.2(c) shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultants' and attorneys' fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances, unless specifically so
agreed by Lessor in writing at the time of such agreement.
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6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDERS") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise at reasonable times, for the purpose of inspecting the condition
of the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
entitled to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections. Lessee shall not be responsible for any costs as a result of
recommendations of Lessor's engineers or consultants which would be in excess of
those required by government agencies and/or insurance underwriters and/or any
other third party which establishes Applicable Requirements.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations, 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
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excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements of renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) N/A
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair; in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as proving the services
for which there is a Common Area Operating Expense pursuant to Paragraph 4.2.
Lessor shall not be obligated to paint the exterior or interior surfaces of
exterior walls nor shall Lessor be obligated to maintain, repair or replace
windows, doors or plate glass of the Premises. Lessee expressly waives the
benefit of any statute now or hereafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Building, Industrial Center or Common
Areas in good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS: CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make or cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require
the consent of the Lessor shall be presented to Lessor in written form with
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detailed plans. All consents given by Lessor, whether by virtue of Paragraph
7.3(a) or by subsequent specific consent, shall be deemed conditioned upon: (i)
Lessee's acquiring all applicable permits required by governmental authorities;
(ii) the furnishing of copies of such permits together with a copy of the plans
and specifications for the Alteration or Utility Installation to Lessor prior to
commencement of the work thereon; and (iii) the compliance by Lessee with all
conditions of said permits in a prompt and expeditious manner. Any Alterations
or Utility Installations by Lessee during the term of this Lease shall be done
in a good workmanlike manner, with good and sufficient materials, and be in
compliance with all Applicable Requirements. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may, (but without obligation to do so) condition its consent to
any requested Alteration or Utility Installation that costs $2,500.00 or more
upon Lessee's providing Lessor with a lien and completion bond in an amount
equal to one and one-half times the estimated cost of such Alteration or Utility
Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to one and one-half times the amount of such contested lien claim or
demand, indemnifying Lessor against liability for the same, as required by law
for the holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's reasonable attorneys fees
and costs in participating in such action if Lessor shall decide it is to its
best interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal and
to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time or all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
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maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
(8.1) PAYMENT OF PREMIUMS. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement Date or Expiration
Date.
(8.2) LIABILITY INSURANCE
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in
force during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee, Lessor and any Lender(s) whose names have been
provided to Lessee in writing (as additional insured) against claims for bodily
injury, personal injury and property damage based upon, involving or arising out
of the ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on a occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
Heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
(8.3) PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lenders(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any additional
costs resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Building required
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to be demolished or removed by reason of the enforcement or any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and any Lender(s) insuring the loss of the full
rental and other charges payable by all lessees of the Building to Lessor for
one year (including all Real Property Taxes, insurance costs, all Common Area
Operating Expenses and any scheduled rental increases). Said insurance may
provide that in the event the Lease is terminated by reason of an insured loss,
the period of indemnity for such coverage shall be extended beyond the date of
the completion of repairs or replacement of the Premises, to provide for one
full year's loss of rental revenues from the date of any such loss. Said
insurance shall contain an agreed valuation provision in lieu of any
co-insurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected rental income, Real Property Taxes, insurance premium
costs and other expenses, if any, otherwise payable, for the next 12 month
period. Common Area Operating Expenses shall include any deductible amount in
the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in
the premiums for the property insurance of the Building and for the Common Areas
or other buildings in the Industrial Center if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring
Party, Lessor shall not be required to insure Lessee-Owned Alterations and
Utility Installations unless the item in question has become the property of
Lessor under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property. Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises, similar in
coverage to that carried by Lessor as the insuring Party under Paragraph 8.3(a).
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
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prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss of damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8,. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor to Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of
express warranties, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters. Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and the
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less that fifty
percent (50%) of the then Replacement Cost (as defined in Paragraph 9.1(d) of
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the Premises (excluding Lessee-Owned Alterations and Utility Installations and
Trade Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty percent
(50%) or more of the then Replacement Cost of the Premises (excluding Lessee
- -Owned Alterations and Utility Installations and Trade Fixtures) immediately
prior to such damage or destruction. In addition, damage or destruction to the
Building, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures of any lessees of the Building, the cost of which damage or
destruction is fifty percent (50%) or more of the then Replacement Cost
(excluding Lessee-Owned Alterations and Utility Installations and Trade Fixtures
of any lessees of the Building) off the Building shall, at the option of Lessor,
be deemed to be Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the
occurrence or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance as defined in Paragraph 6.2(a) in, on,
or under the Premises.
9.2 PREMISES PARTIAL DAMAGE -- INSURED LOSS. If Premises Partial
Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense,
repair such damage (but no Lessee's Trade Fixtures or Lessee-Owned Alterations
and Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement costs insurance coverage was not commercially reasonable and
available. Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds of assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair, any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for
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the repairs if made by either Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If Premises Partial Damage that
is not an insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date (60) days following the date of such notice.
In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expire. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in excess
of proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
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(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "COMMENCE" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Requirements and this Lease shall continue in full force and effect,
but subject to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor
may at Lessor's option either (i) investigate and remediate such Hazardous
Substances Condition, if required , as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) if the estimated cost to investigate and remediate such condition exceeds
twelve (12) times the then monthly Base Rent or $100,000 whichever is greater,
give written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such Hazardous Substance Condition of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the date
of such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten (10)
days after the receipt of such notice to give written notice to Lessor of
Lessee's commitment to pay for the excess costs of (a) investigation and
remediation of such Hazardous Substance Condition to the extend required by
Applicable Requirements, over (b) an amount equal to twelve (12) times the then
monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor
with the funds required of Lessee or satisfactory assurance thereof within
thirty (30) days following said commitment by Lessee. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
investigation and remediation as soon as reasonably possible after the required
funds are available. If Lessee does not give such notice and provide the
required funds or assurance thereof within the time period specified above, this
Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.8 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent it is
inconsistent herewith.
10. REAL PROPERTY TAXES.
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10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the Provisions
of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION. As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Industrial Center by any
authority having the direct or indirect power to tax, including any city, state
or federal government, or any school, agricultural, sanitary, fire, street,
drainage, or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Industrial Center or any portion thereof,
Lessor's right to rent or other income therefrom, and/or Lessor's business of
leasing the Premises. The term "REAL PROPERTY TAXES" shall also include any tax,
fee, levy, assessment or charge, or any increase therein, imposed by reason of
events occurring, or changes in Applicable Law taking effect, during the term of
this Lease, including but not limited to a change in the ownership of the
Industrial Center or in the improvements thereon, the execution of this Lease,
or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties. In calculating Real Property Taxes for any calendar
year, the Real Property Taxes for any real estate tax year shall be included in
the calculation of Real Property Taxes for such calendar year based upon the
number of days which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall
not include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed,
Real Property Taxes allocated to the Building shall be an equitable proportion
of the Real Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof, in good faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services supplied
to the Premises, including but not limited to electricity, telephone, security,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be
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determined by Lessor of all such charges jointly metered or billed with other
premises in the Building, in the manner and within the time periods set forth in
Paragraph 4.2(d).
12. ASSIGNMENT OF SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublet all or any part of Lessee's interest in this Lease or in the
Premises without Lessor's prior written consent given under and subject to the
terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis of
fifty percent (50%) or more of the voting control of Lessee shall constitute a
change in control for this purpose.
(c) N/A
(d) An assignment or subletting of Lessee's interest in
this Lease without Lessor's specific prior written consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1, or a non-curable
Breach without the necessity of any notice and grace period. If Lessor elects to
treat such unconsented to assignment or subletting as a non-curable Breach,
Lessor shall have the right to either (i) terminate this Lease, or (ii) upon
thirty (30) days' written notice ("LESSOR'S NOTICE"), increase the monthly Base
Rent for the Premises to the greater of the then fair market rental value of the
Premises, as reasonably determined by Lessor, or one hundred ten percent (110%)
of the Base Rent then in effect. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with an overpayment credited against the next installment(s) of
Base Rent coming due, and any underpayment for the period retroactively to the
effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index applicable
to the time of such adjustment, and (iii) any fixed rental adjustments scheduled
during the remainder of the Lease term shall be increased in the same ratio as
the new rental bears to the Base Rent in effect immediately prior to the
adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1
by Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
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(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach of
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
assignee or sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Lessee or anyone else liable under this Lease or the sublease and
without obtaining their consent, and such action shall not relieve such persons
from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by Information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including not limited to
the intended use and/or required modification of the Premises, if any, together
with a non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base
Rent applicable to the portion of the Premises which is the subject of the
proposed assignment or sublease, whichever is greater, as reasonable
consideration for Lessor's considering and processing the request for consent.
Lessee agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall,
by reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Lessor, to have assumed and agreed to conform and
comply with each and every term, covenant, condition and obligation herein to be
observed or performed by Lessee during the term of said assignment or sublease,
other than such obligations as are contrary to or inconsistent with provisions
of an assignment or sublease to which Lessor has specifically consented in
writing.
(g) The occurrence of a transaction described in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment schedule of
the rent payable under this Lease be adjusted to what is then the market value
and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
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(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease, Lessor shall not, by reason of the
foregoing provision of any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee under such Sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, and shall pay such rents and other charges to Lessor without
any obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance
of its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to such sublessor or for any other prior
defaults or breaches under such sublease.
(c) Any matter or thing requiring the consent of the
sublessor under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $35,000 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and services of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules, applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the expiration of the applicable grace period, and shall entitle Lessor to
pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) Without Landlord consent, which shall not be
unreasonably withheld, the vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease,
the failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
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reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease,
the failure by Lessee to provide Lessor with reasonable written evidence (in
duly executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3 (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where such failure continues for a period
of (10) days following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants,
conditions or provisions of this Lease, or of the rules adopted under Paragraph
40 hereof that are to be observed, complied with or performed by Lessee, other
than those described in Subparagraphs 13.1(a), (b) or (c), above, where such
Default continues for a period of thirty (30) days after written notice thereof
by or on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably required
for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee
if Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurances of security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
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time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises
by any lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the Premises to
Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the
worth at the time of the award of unpaid rent which had been earned at the time
of termination; (ii) the worth at the time of the award of the amount by which
the unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of the
award of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1 (b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b),(c) or (d). In such case, the applicable grace period under the unlawful
detainer statue shall run concurrently after the one such statutory notice, and
the failure of Lessee to cure the Default within the greater of the two (2) such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the right to
sublet or assign, subject only to reasonable limitations. Lessor and Lessee
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agree that the limitations on assignment and subletting in this Lease are
reasonable. Acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver to protect the Lessor's interest under this
Lease, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or thereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cue of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of the
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee when due, then, without any
requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal
to six percent (6%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH OF LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
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nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced with such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, with ten (10) days after the condemning authority shall
have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are
the procuring cause of this Lease.
15.2 N/A
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
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the indemnifying Party, including any costs, expenses, and/or attorneys fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall
within ten (10) days after written notice from the other Party (the "REQUESTING
PARTY") execute, acknowledge and deliver to the Requesting Party a statement in
writing in a form similar to the then most current "TENANCY STATEMENT" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements of the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease.
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in :Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Leased, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
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Each Broker shall be an intended third party beneficiary of the provisions of
this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or registered
mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's signature on this Lease shall be that Party's address for
delivery or mailing of notice purposes, except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
the purpose of mailing or delivering notices to Lessee. A copy of all notices
required or permitted to be given to Lessor hereunder shall be concurrently
transmitted to such party or parties at such addresses as Lessor may from time
to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation or
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any such act shall not be
deemed to render unnecessary the obtaining of Lessor's consent to, or approval
of, any subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision of provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time of
accepting rent, the acceptance of rent by Lessor shall not be a waiver of any
Default or Breach by Lessee of any provision hereof. Any payment given Lessor by
Lessee may be accepted by Lessor on account of moneys or damages due Lessor,
notwithstanding any qualifying statements or conditions made by Lessee in
connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to one hundred fifty
percent (150%) of the Base Rent applicable during the month immediately
preceding such expiration or earlier termination. Nothing contained herein shall
be construed as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies a
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law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties,
their personal representatives, successors, and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all advances
made on the security thereof, and to all renewals, modifications,
consolidations, replacement and extensions thereof. Lessee agrees that the
Lenders holding any such Security Device shall have no duty, liability or
obligation to perform any of the obligations of Lessor under this Lease, but
that in the event of Lessor's default with respect to any such obligation,
Lessee will give any Lender whose name and address have been furnished Lessee in
writing for such purpose notice of Lessor's default pursuant to Paragraph 13.5.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act of omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this lease, Lessee's subordination of this
Lease shall be subject to receiving assurance (a "non-disturbance agreement")
from the Lender that Lessee's possession and this Lease, including any options
to extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing of refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonably attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
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relief sought, as the case may be whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to reasonable attorneys' fees, costs and
expenses incurred in preparation and service of notices of Default and
consultations in connection therewith, whether or not a legal action is
subsequently commenced in connection with such Default or resulting Breach.
Broker(s) shall be intended third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonably times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily, any auction upon the Premises without first having obtained
Lessor's prior written consent. Notwithstanding anything to the contrary in this
Lease, Lessor shall not be obligated to exercise any standard of reasonableness
in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as
otherwise provided herein, wherever in this Lease the consent of a Party is
required to an act by or for the other Party, such consent shall not be
unreasonably withheld or delayed. Excluding initial Lessee ("tenant")
improvements Lessor's actual reasonably costs and expenses (including but not
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limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this
Lease are acknowledged by Lessee as being reasonable. The failure to specify
herein any particular condition to Lessor's consent shall not preclude the
impositions by Lessor at the time of consent of such further or other conditions
as are then reasonable with reference to the particular mater for which consent
is being given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this
Lease per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a
Default of this Lease if any such Guarantor fails or refuses, upon reasonably
request by Lessor to give: (a) evidence of the due execution of the guaranty
called for by this Lease, including the authority of the Guarantor (and of the
party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
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purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee while the original Lessee is in
full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease in
any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised unless
the prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the notice Default is cured, or (ii) during the period
of time any monetary obligation due Lessor from Lessee is unpaid (without regard
to whether notice thereof is given Lessee), or (iii) during the time Lessee is
in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee
three (3) or more notices of separate Defaults under Paragraph 13.1 during the
twelve (12) month period immediately preceding the exercise of the Option,
whether or not the Defaults are cured.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of Paragraph 39.4.
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of separate Defaults under
Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults
are cured, or (iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
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interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment (under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or any part
thereof, said Party shall be entitled to recover such sum or so much thereof as
it was not legally required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do no
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company ore pension plan Lender in
connection with the obtaining of normal financing of the property of which the
Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND
STORAGE TANKS FOR HAZARDOUS SUBSTANCES, NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS
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<PAGE> 33
TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE, IF THE SUBJECT PROPERTY IS IN A
STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS
LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the date
specified above their respective signatures.
Executed at: Executed at:
Irvine, California
- --------------------------------------------------- --------------------
On: on 12/18/97
- ---------------------------------------------------- --------------------
By LESSOR: By LESSEE:
Hale Property, Ltd., L.P., ParcPlace
Digitalk,Inc.,
a California Limited Partnership a California
Corporation
By: SKY VISTA., a California Corporation
By: /s/ ALFRED E. BALDWIN General Partner By: /s/ RONALD J. CLEAR
------------------------------------------ ----------------------
Name Printed: Alfred E. Baldwin Name Printed: Ronald J. Clear
Title: President Title: C.F.O
- ---------------------------------------------- ----------------------
By: By:
- ---------------------------------------------- ----------------------
Name Printed: Name Printed:
- ---------------------------------------------- ----------------------
Title: Title:
- ---------------------------------------------- ----------------------
Address: Address:
- ---------------------------------------------- ----------------------
Telephone: ( ) Telephone: ( )
- ---------------------------------------------- ----------------------
Facsimile: ( ) Facsimile: ( )
- ---------------------------------------------- ----------------------
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<PAGE> 34
BROKER: BROKER:
Executed at: Dave Desper Executed at: Jason Shepard
- ---------------------------------------------- ----------------------
on: on:
- ---------------------------------------------- ----------------------
By: By:
- ---------------------------------------------- ----------------------
Name Printed: Name Printed:
- ---------------------------------------------- ----------------------
Title: Title:
- ---------------------------------------------- ----------------------
Address: Address:
- ---------------------------------------------- ----------------------
Telephone: (714) 725-8504 Telephone:(714) 725-8539
- ---------------------------------------------- ----------------------
Facsimile: (714) 725-8545 Facsimile:(714) 725-8545
- ---------------------------------------------- ----------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 South Flower
Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777.
ADDENDUM TO THE STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE
MODIFIED NET DATED OCTOBER 3, 1997 BY AND BETWEEN
HALE PROPERTY LTD., L.P., AS LESSOR AND
PARCPLACE DIGITALK, INC., AS LESSEE FOR THE PROPERTY COMMONLY KNOWN AS
16811 HALE AVE., SUITE A, IRVINE, CALIFORNIA 92614
49. Base Rent Schedule:
<TABLE>
<CAPTION>
Months Rate/NNN
------ --------
<S> <C>
February 1, 1998 - February 28, 1998 $11,333.85
</TABLE>
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<PAGE> 35
<TABLE>
<S> <C>
March 1, 1998 - December 31, 1998 $8,500.85
January 1, 1999 - December 31, 1999 $8,925.89
January 1, 2000 - December 31, 2000 $9,372.19
</TABLE>
50. Improvements to the Premises:
All improvements to the Premises desired by Lessee shall be made by
Lessee at Lessee's sole cost. Lessor Shall make no improvements to
the Premises and shall deliver possession of the Premises to Lessee
in an "as is" condition. Lessee accepts possession of the Premises in
their "as is" condition and hereby waives any right or claim against
Lessor for any cause directly or indirectly arising out of the
condition of the Premises, appurtenances thereto, or the improvements
or equipment therein, and Lessor shall not be liable for any latent
or patent defects therein. Nothing contained in this paragraph,
however, shall be deemed to limit Lessor's obligation to repair the
Premises wherever such obligation is expressly set forth in the
Lease.
All improvements to the Premises being made by Lessee shall be
considered as Alterations or Utility Installations as such terms are
defined in Paragraph 7.3 of the Lease, and Lessee shall carefully
adhere to all obligations and procedures therefore set out in said
Paragraph 7.3 and Paragraph 7.4 of the Lease, including but not
limited to the preparation of improvements plans, obtaining Lessor's
consent to such plans and obtaining governmental approvals. After
submission to it of Lessee's plans, Lessor shall have five (5)
business days to examine and approve them. If Lessor disapproves
Lessee's plans, it shall deliver a written statement to Lessee within
five (5) business day period setting forth its objections in
reasonable detail. In the event Lessor does not deliver such written
objections to Lessee with such five (5) business day period, Lessor
shall be deemed to have approved Lessee's plans.
Lessee shall only use contractors and subcontractors which have
procured, paid for and maintained public liability insurance in an
amount not less than $1,000,000,00 and which are licensed in the
State of California. Prior to commencement of such work, Lessee shall
cause each of its contractors and subcontractors to furnish Lessee
with a certificate from their respective public liability insurers
evidencing such coverage, naming Lessor as an additional insured and
providing for severability of interests or containing a
cross-liability endorsement. Lessee shall, upon final completion of
its work, furnish Lessor with all certificates, lien releases and
approvals relating to any work or installations performed by Lessee
that may be required by any governmental or insurance requirements.
51. Option to Extend:
For the purposes of this Lease, the term "Previous Period" shall mean
the Original Term of this Lease.
Provided Lessee is not and has never been in default under any of the
terms and conditions of the Lease and has not assigned or sublet the
Premises to another tenant, Lessee shall have the option to extend
the Term of this Lease for one (1) additional three (3) year period
upon the same terms and conditions except that the Base Rent at the
commencement of such option period shall be increased to the Fair
Market Rent at the time of commencement of such option period, as
determined in accordance with the following paragraphs of this
Paragraph 51. In no event shall the Base Rent at the commencement of
such option period be less than the Base Rent for the last year of
the Previous Period. Lessee's Base Rent, as established upon
commencement of such option period, shall thereafter be increased
commencing on the first day of the month next following
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<PAGE> 36
the passage of the initial twelve (12) calendar months of such option
period and on the first day of the month next following the passage
of each successive twelve (12) calendar months of such option period
(each of which shall be referred to as an "Adjustment Date"). On each
Adjustment Date, the Base Rent shall be increased by an amount
calculated by comparing the CPI for the month which is four (4)
months prior to the Adjustment Date (the "Adjustment Index") with the
CPI for the calendar month which is four (4) months prior to the
month in which such option period commenced (the "Option Index") and
then adjusting the Base Rent paid during the first year of such
option period by the percentage increase of the Adjustment Index over
the Option Index. In no event shall the increase in the Base Rent for
any twelve (12) months of such option period be less than five
percent (5%) nor greater than eight percent (8%) of the Base Rent for
the preceding twelve (12) months of such option period.
If Lessee intends to exercise this option to extend the Term, then
not more than two hundred and seventy (270) days nor less than two
hundred and forty (240) days prior to the expiration of the Previous
Period, Lessee shall deliver to Lessor a notice of its intention to
exercise its option to extend ("Notice of Intention"). Within ten
(10) days of the delivery to Lessor of the Notice of Intention,
Lessor and Lessee shall meet to determine, in good faith, what they
consider to be the Fair Market Rent based upon this Lease and the
terms, covenants, and rights provided for in the Lease. In
determining the Fair Market Rent for the Premises, the primary
consideration shall be lease transactions recently executed within
the market area with appropriate adjustments being made for location,
type of tenant, building attributers, lease term and financial
condition of Lessee. In the event Lessor and Lessee are unable to
agree on the Fair Market Rent within thirty (30) days after delivery
of the Notice of Intention, the Fair Market Rent shall be determined
as follows: Lessor and Lessee shall cause an appraisal to be made of
the then-current rental value of three (3) appraisers, each of whom
shall be an MAI appraiser with at lease five (5) years experience
appraising leases in industrial building in the Orange County area.
Lessor and Lessee, each at its own cost, shall each select one (1)
appraiser who shall complete an appraisal and each shall immediately
notify the other of the appraiser so selected. Such selections shall
be made no later than the earlier of: (I) ten (10) days after the
date on which Lessor and Lessee agree that they are unable to agree
on the Fair Market Rent: or (ii) forty (40) days after delivery of
the Notice of Intention. The two appraisers so selected shall select
a third appraiser. Lessor and Lessee shall each bear one-half (1/2)
of the costs of selecting the third appraiser and of paying the third
appraiser's fee. The third appraiser, however selected, shall be a
person who is not and who has not previously been an agent or
employee of either Lessor or Lessee. In the event the two appraisers
are unable to agree upon the selection of a third appraiser, the two
appraisers shall, within five (5) days after the date on which they
agree they are unable to agree on a third appraiser, request the
Presiding Judge of the Superior Court in and for the County of
Orange, State of California, to appoint the third appraiser. Within
thirty (30) days after the selection of the third appraiser, a
majority of the appraiser's shall establish the Fair Market Rent. If
no two appraisers agree on the current Fair Market Rent, the
appraisal which is neither highest nor lowest shall control.
The option to extend shall be exercised by Lessee by delivering to
Lessor written notice ("Notice of Exercise") no less than one hundred
ten (110) days prior to the expiration of the Previous Period;
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<PAGE> 37
provided, however, that if the Fair Market Rent has not been
established by one hundred twenty (120) days prior to the expiration
of the Previous Period due to failure of Lessor to comply with the
time periods set forth herein, then the date by which the option to
extend must be exercised shall be extended for a period equal to
Lessor's delay. If, for any reason other than the failure of Lessor
to comply with the time periods set forth herein, Lessee has not
delivered to Lessor its Notice of Exercise by one hundred ten (110)
days prior to the expiration of the Previous Period, Lessee shall
have no option to extend the term of the Lease.
52. Security Deposit Reduction:
If on February 2, 1999 and/or on February 2, 2000, Lessee (1) shall
have paid its Base Rent and all other charges due under this Lease on
a timely basis for all of the twelve (12) preceding months (March
1998 through February 1999 and March 1999 through February 2000) and
(2) shall have otherwise never been in default of this Lease, then on
February 2, 1999 and/or on February 2, 2000 the amount of the
Security Deposit shall be reduced by $17,001.70, and such amount
shall be credited to Lessee's account.
LESSOR: HALE PROPERTY, LTD., L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
By: SKY VISTA, INC., a California corporation,
General Partner
By: /s/ Alfred Baldwin
--------------------------------------------
Name Alfred A. Baldwin
--------------------------------------------
Its: President
--------------------------------------------
LESSEE: PARCPLACE DIGITALK, INC.,
A CALIFORNIA CORPORATION
By: /s/ Ronald J. Clear
--------------------------------------------
Name: Ronald J. Clear
--------------------------------------------
Its: C.F.O.
--------------------------------------------
-37-
<PAGE> 1
STARBASE CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "OPTION AGREEMENT") is
made and entered into as of ((CurrGDat)) by and between StarBase Corporation and
((First Name)) ((Last Name)) (THE "OPtionee").
STARBASE CORPORATION
By: ____________________________________
Title: Assistant Secretary
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement (Sections I and II) and hereby accepts the
Option subject to all of the terms and provisions thereof, including any changes
in the terms and conditions of the Option Agreement. The Optionee hereby agrees
to accept as binding, conclusive and final all decisions or interpretations of
the Board of Directors upon any questions arising under this Option Agreement.
Optionee: ___________________________
Date: _______________________________
I. NOTICE OF STOCK OPTION GRANT
The Optionee has been granted an Option to purchase Common Stock of the
Company, subject to the terms and conditions of this Option Agreement, as
follows:
DATE OF OPTION GRANT: ((CURRENT GRANT DATE))
INITIAL VESTING DATE: ((INITIAL VESTING DATE))
EXERCISE PRICE PER SHARE: $ ((EXERCISE PRICE))
NUMBER OF OPTION SHARES: ((OPTIONS))
OPTION EXPIRATION DATE*: ((EXPIRYDATE))
VESTING SCHEDULE:
This option shall be exercisable, in whole or in part, according to the
following vesting schedule:
The right to exercise the Option with respect to 25% of the Option
Shares shall vest on the Initial Vesting Date as stated above, and 1/48 of the
Option Shares shall vest each month thereafter until the Option is exercisable
with respect to all of the Option Shares, provided the Optionee's Service is
continuous from the Date of the Option Grant until the relevant vesting date.
TERMINATION PERIOD:
*Options may terminate earlier pursuant to Section 7.
<PAGE> 2
II. NONSTATUTORY STOCK OPTION AGREEMENT
The Company has granted to the Optionee an option to purchase certain
shares of Stock upon the terms and conditions set forth in this Option Agreement
(the "OPTION").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more committees have been appointed by the Board to
administer the Option Agreement, "Board" also means such committee(s).
(b) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(c) "COMPANY" means StarBase Corporation, a Delaware
corporation, or any successor corporation thereto.
(d) "DATE OF OPTION GRANT" is stated on the Notice of
Stock Option Grant.
(e) "DISABILITY" means the inability of the Optionee,
in the opinion of a qualified physician acceptable to the Company, to perform
the major duties of the Optionee's position with the Participating Company Group
because of the sickness or injury of the Optionee.
(f) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
(g) "EXERCISE PRICE" means the Exercise Price per
Share of Stock stated on the Notice of Stock Option Grant, as adjusted from time
to time pursuant to Section 9.
(h) "FAIR MARKET VALUE" means, as of any date, the
value of a share of stock or other property as determined by the Board, in its
sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein.
(i) "INITIAL EXERCISE DATE" means the Initial Vesting
Date.
(j) "INITIAL VESTING DATE" means the date STATED on
the Notice of Stock Option Grant.
(k) "NUMBER OF OPTION SHARES" means the number of
shares of Stock stated on the Notice of Stock Option Grant, as adjusted from
time to time pursuant to Section 9.
(l) "OPTION EXPIRATION DATE" means the date ten (10)
years after the Date of Option Grant.
(m) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(n) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
-2-
<PAGE> 3
(o) "PARTICIPATING COMPANY GROUP" means, at any point
in time, all corporations collectively, which are then Participating Companies.
(p) "SECURITIES ACT" means the Securities Act of
1933, as amended.
(q) "SERVICE" means the Optionee's employment or
service with the Participating Company Group, whether in the capacity of an
employee, a director, independent contractor, consultant or otherwise. The
Optionee's Service shall not be deemed to have terminated merely because of a
change in the capacity in which the Optionee renders Service to the
Participating Company Group or a change in the Participating Company for which
the Optionee renders such Service, provided that there is no interruption or
termination of the Optionee's Service. The Optionee's Service shall be deemed to
have terminated either upon an actual termination of Service or upon the
corporation for which the Optionee performs Service ceasing to be a
Participating Company. Subject to the foregoing, the Company, in its sole
discretion, shall determine whether the Optionee's Service has terminated and
the effective date of such termination.
(r) "STOCK" means the common stock, $0.01 par value,
of the Company, as adjusted from time to time in accordance with Section 4.2.
(s) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
(t) "VESTING SCHEDULE" specifies the timing and
amount of option shares that become exercisable. No option shares are
exercisable prior to the Initial Vesting Date. The schedule is stated on the
Notice of Stock Option Grant.
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. TAX CONSEQUENCES. TAX STATUS OF OPTION. This Option is intended to
be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock
Option within the meaning of Section 422(b) of the Code. The Optionee
acknowledges that the Optionee has been advised to consult with a tax advisor
prior to the exercise of the Option regarding the tax consequences to the
Optionee of the exercise of the Option.
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board. All determinations by the
Board shall be final and binding upon all persons having an interest in the
Option. Any officer of a Participating Company shall have the authority to act
on behalf of the Company with respect to any matter, right, obligation, or
election which is the responsibility of or which is allocated to the Company
herein, provided the officer has apparent authority with respect to such matter,
right, obligation, or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein,
the Option shall be exercisable on and after the Initial Exercise Date and prior
to the termination of the Option (as provided in Section 6) in an amount
(determined as of the date on which the Option is to be exercised pursuant to
the terms set forth in Section 4.2), not to exceed the Number of Option Shares
exercisable determined by the Vesting Schedule set forth on the Notice of Stock
Option Grant less the number of shares previously acquired upon exercise of the
Option.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is
-3-
<PAGE> 4
being exercised and such other representations and agreements as to the
Optionee's investment intent with respect to such shares as may be required
pursuant to the provisions of this Option Agreement. The written notice must be
signed by the Optionee and must be delivered in person, by certified or
registered mail, return receipt requested, by confirmed facsimile transmission,
or by such other means as the Company may permit, to the Chief Financial Officer
of the Company, or other authorized representative of the Participating Company
Group, prior to the termination of the Option as set forth in Section 6,
accompanied by (i) full payment of the aggregate Exercise Price for the number
of shares of Stock being purchased (as determined under Section 4.3), (ii) an
executed copy, if required herein, of the then current forms of escrow and
security agreement referenced below and iii) the payment of any taxes
attributable to the exercise of the Option (or evidence of such other
arrangement satisfactory to the Company). The Option shall be deemed to be
exercised upon receipt by the Company of such written notice, the aggregate
Exercise Price, and, if required by the Company, such executed agreements.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the aggregate Exercise Price for the number
of shares of Stock for which the Option is being exercised shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of whole
shares of Stock owned by the Optionee having a Fair Market Value (as determined
by the Company without regard to any restrictions on transferability applicable
to such stock by reason of federal or state securities laws or agreements with
an underwriter for the Company) not less than the aggregate Exercise Price,
(iii) by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by cash for a
portion of the aggregate Exercise Price not less than the par value of the
shares being acquired and the Optionee's promissory note for the balance of the
aggregate Exercise Price, or (v) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing,
the Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "Cashless Exercise" means
the assignment in a form acceptable to the Company of the proceeds of a sale or
loan with respect to some or all of the shares of Stock acquired upon the
exercise of the Option pursuant to a program or procedure approved by the
Company (including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note
shall be permitted if an exercise of the Option using a promissory note would be
a violation of any law. Unless otherwise specified by the Board at the time the
Option is granted, the promissory note permitted in clause (iv) of Section
4.3(a) shall be a full recourse note in a form satisfactory to the Company, with
principal payable not more than four (4) years after the date the Option is
exercised. Interest on the principal balance of the promissory note shall be
payable in monthly installments at the minimum interest rate necessary to avoid
imputed interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of Stock acquired pursuant to the
then current form of security agreement as approved by the Company. At any time
the Company is subject to the regulations promulgated by the Board of Governors
of the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's Securities, any promissory
note shall comply with such applicable regulations, and the Optionee shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations. Except as the Company in its sole
discretion shall determine, the Optionee shall pay the unpaid principal balance
of the promissory note and any accrued interest thereon upon termination of the
Optionee's Service with the Participating Company Group for any reason, with or
without cause.
-4-
<PAGE> 5
4.4 TAX WITHHOLDING. At the time of, and as a condition to,
any exercise of the Option , in whole or in part, or at any time thereafter as
requested by the Company, the Optionee hereby authorizes withholding from wages
and any other amounts payable to the Optionee, and, at the direction of the
Company, otherwise agrees to make adequate provision for (including by means of
a Cashless Exercise to the extent permitted by the Company), any sums required
to satisfy the federal, state, local and foreign tax withholding obligations of
the Participating Company Group, if any, which arise in connection with the
Option, including, without limitation, obligations arising upon (i) the
exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in
part, of any shares acquired upon exercise of the Option, (iii) the operation of
any law or regulation providing for the imputation of interest or (iv) the
lapsing of any restriction with respect to any shares acquired upon exercise of
the Option.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF
SHARES. The grant of the Option and the issuance of shares of Stock upon
exercise of the Option shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
The Option may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
the Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act. THE OPTIONEE IS
CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS
ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION
WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares subject to the Option shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which
such requisite authority shall not have been obtained. As a condition to the
exercise of the Option, the Company may require the Optionee to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation and to make any representation or warranty with
respect thereto as may be requested by the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABLE.
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<PAGE> 6
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of one (1) year after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's guardian or legal representative, or other person who acquired the
right to exercise the Option by reason of the Optionee's death) at any time
prior to the expiration of one (1) year after the date on which the Optionee's
Service terminated, but in any event no later than the Option Expiration Date.
The Optionee's Service shall be deemed to have terminated on account of death if
the Optionee dies within three (3) months after the Optionee's termination of
Service.
(c) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within thirty (30) days (or such other longer period
of time as determined by the Board, in its sole discretion) after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
7.2 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Except as the
Company and the Optionee otherwise agree, exercise of the Option pursuant to
Section 7.1 following termination of the Optionee's Service may not be made by
delivery of a promissory note as provided in Section 4.3(d).
7.3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding
the foregoing, if the exercise of the Option within the applicable time periods
set forth in Section 7.1 is prevented by the provisions of Section 4.6, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Expiration Date.
7.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(B).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7.5 LEAVE OF ABSENCE. For purposes of Section 7.1, the
Optionee's Service with the Participating Company Group shall not be deemed to
terminate if the Optionee takes any military leave, sick leave, or other bona
fide leave of absence approved by the Company of ninety (90) days or less. In
the event of a leave of absence in excess of ninety (90) days, the Optionee's
Service shall be deemed to terminate on the ninety-first (91st) day of such
leave unless the Optionee's right to reemployment with the Participating Company
Group remains guaranteed by statute or contract. Notwithstanding the foregoing,
unless otherwise designated by the Company (or required by law), a leave of
absence shall not be treated as Service for purposes of determining the
Optionee's Vesting Schedule.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company:
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<PAGE> 7
(i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the
Company is a party;
(iii) the sale, exchange, or transfer of
all or substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the
Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or Multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, all Options granted under the Plan shall become immediately
exercisable in full, effective as of the date of the Transfer of Control.
Notwithstanding the foregoing, shares acquired upon exercise of the Option prior
to the date of the Transfer of Control and any consideration received pursuant
to the Transfer of Control with respect to such shares shall continue to be
subject to all applicable provisions of this Option Agreement except as
otherwise provided herein.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded up or down to the nearest whole number, as determined by the Board,
and in no event may the Exercise Price be decreased to an amount less than the
par value, if any, of the stock subject to the Option. The adjustments
determined by the Board pursuant to this Section 9 shall be final, binding, and
conclusive.
10. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an employee, consultant, or otherwise as the
case may be, at any time.
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<PAGE> 8
11. ESCROW.
11.1 ESTABLISHMENT OF ESCROW. If the Optionee pays for the
shares with a promissory note, the Company may require the Optionee to deposit
the certificate evidencing the shares which the Optionee purchases upon exercise
of the Option with an agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the Option,
the Company reserves the right at any time to require the Optionee to so deposit
the certificate in escrow. Upon the occurrence of an Ownership Change Event or a
change, as described in Section 9, in the character or amount of any of the
outstanding stock of the Company the stock of which is subject to the provisions
of this Option Agreement, any and all new, substituted or additional securities
or other property to which the Optionee is entitled by reason of the Optionee's
ownership of shares of Stock acquired upon exercise of the Option that remain,
following such Ownership Change Event or change described in Section 9, subject
to any security interest held by the Company shall be immediately subject to the
escrow to the same extent as such shares of Stock immediately before such event.
The Company shall bear the expenses of the escrow.
11.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable
after full repayment of any promissory note secured by the shares or other
property in escrow, but not more frequently than twice each calendar year, the
escrow agent shall deliver to the Optionee the shares and any other property no
longer subject to such restrictions and no longer securing any promissory note.
11.3 NOTICES AND PAYMENTS. In the event the shares and any
other property are held in escrow, the notices required to be given to the
Optionee shall be given to the escrow agent, and any payment required to be
given to the Optionee shall be given to the escrow agent. Within thirty (30)
days after payment by the Company, the escrow agent shall deliver the shares and
any other property which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.
12. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
13. PUBLIC OFFERING. The Optionee hereby agrees that in the event of
any underwritten public offering of stock, including an initial public offering
of stock, made by the Company pursuant to an effective registration statement
filed under the Securities Act, the Optionee shall not offer, sell, contract to
sell, pledge, hypothecate, grant any option to purchase or make any short sale
of, or otherwise dispose of any shares of stock of the Company or any rights to
acquire stock of the Company for such period of time from and after the
effective date of such registration statement as may be established by the
underwriter for such initial public offering; provided, however, that such
period of time shall not exceed one hundred eighty (180) days from the effective
date of the registration statement to be filed in connection with such public
offering. The foregoing limitation shall not apply to shares registered in the
public offering under the Securities Act. The Optionee shall be subject to this
Section provided and only if the officers and directors of the Company are also
subject to similar arrangements.
14. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
15. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan
or the Option at any time; provided, however, that except as provided in Section
8.2 in connection with a Transfer of Control, no such termination or amendment
may adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation. No amendment or
addition to this Option Agreement shall be effective unless in writing.
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<PAGE> 9
16. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein and there are no agreements,
understandings, restrictions, representations, or warranties among the Optionee
and the Participating Company Group with respect to such subject matter other
than those as set forth or provided for herein. To the extent contemplated
herein, the provisions of this Option Agreement shall survive any exercise of
the Option and shall remain in full force and effect.
17. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
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<PAGE> 1
Exhibit 10.7
As of November 3, 1999
STARBASE CORPORATION
4 Hutton Drive, Suite 800
Santa Ana, CA 92707
Re: Lock-Up Agreement
Gentlemen:
As an additional inducement to StarBase Corporation (the "Company") to
execute the Agreement and Plan of Merger of even date herewith (the "Merger
Agreement") with ObjectShare, Inc. and its wholly-owned subsidiary, pursuant to
which the undersigned would receive shares of common stock, par value $.001 per
share, of the Company and options to purchase additional shares of the Company's
common stock (collectively, the "Securities"), the undersigned hereby agrees
that, for a period of 180 days after the Effective Date (as such term is defined
in the Merger Agreement), the undersigned shall not (i) offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, any shares of
Securities or securities convertible into or exchangeable or exercisable for any
shares of Securities, or publicly disclose the intention to make any such offer,
sale, pledge or disposal or (ii) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences of ownership of
such shares of Securities, whether any transaction described in clause (i) or
(ii) above is to be settled by delivery of shares of Securities or such other
securities, in cash or otherwise, in each case without the prior written consent
of the Company.
In furtherance of the foregoing, the Company and its transfer agent and
registrar are hereby authorized to decline to make any transfer of shares of
Securities or of such other securities if such transfer would constitute a
violation or breach of this Agreement.
This Agreement shall be binding on the undersigned and the respective
successors, heirs, personal representatives and assigns of the undersigned. This
Agreement shall lapse and become null and void if the Effective Date shall not
have occurred on or before [April 17, 2000 or such later date as may be agreed
upon in writing by the parties to the Merger Agreement under Section 6.1(g) of
the Merger Agreement.]
Very truly yours,
----------------------------------
James H. Smith
<PAGE> 1
Exhibit 99.1
OBJECTSHARE, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Eugene Goda and Ed Merino jointly
and severally as proxies, with full power of substitution and resubstitution, to
vote all shares of stock which the undersigned is entitled to vote at the
Special Meeting of Stockholders of ObjectShare, Inc. (the "Company") to be held
on _______, 2000, or at any adjournments or postponements thereof, as specified
below, and to vote in the proxyholders' discretion on such other business as may
properly come before the Meeting and any adjournments or postponements thereof.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
<TABLE>
<S> <C> <C> <C>
1. Approval of Merger. A proposal to approve and adopt the |_|FOR |_|AGAINST |_|ABSTAIN
Agreement and Plan of Merger, dated November 3, 1999
(the "Merger Agreement"), by and among the Company,
StarBase Corporation, a Delaware corporation ("StarBase"),
and OBJS Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of StarBase ("Subsidiary"),
and to approve StarBase's acquisition of the Company
through the merger of the Company with and into
Subsidiary, with Subsidiary being the surviving
corporation and remaining a wholly-owned subsidiary
of StarBase.
</TABLE>
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
<TABLE>
<S> <C> <C> <C>
2. Postponement or Adjournment of Special Meeting. |_|FOR |_|AGAINST |_|ABSTAIN
A Proposal to approve the postponement or adjournment
of the special meeting in order to solicit additional
votes to approve the merger if the secretary of the
special meeting determines that there are not enough
votes to approve the merger.
</TABLE>
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Unless otherwise specified by the
undersigned, this proxy will be
voted in the manner directed above,
but if no contrary direction is
made, it will be voted FOR Proposal
1 and FOR Proposal 2 above and by
the proxyholders, in the
proxyholders' discretion, as to any
other matters properly transacted at
the Special Meeting or any
adjournments or postponements
thereof. To vote in accordance with
the Board of Directors'
recommendation, just sign below; no
box need be checked.
Dated:
----------------
------------------------------
Signature of Stockholder
------------------------------
Printed Name of Stockholder
------------------------------
Title (if appropriate)
Please sign exactly as your name appears hereon. If signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such, and, if signing for a corporation, please give your title.
When shares are in the names of more than one person, each should sign.
CHECK HERE IF YOU PLAN TO ATTEND THE SPECIAL MEETING |_|
