As filed with the Securities and Exchange Commission on August 8, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
CAMBEX CORPORATION
(Name of small business issuer in its charter)
Massachusetts 3572 04-2442959
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Cambex Corporation
360 Second Avenue, Waltham, MA 02451
(781) 890-6000
(Address and telephone number of principal executive offices and principal
place of business)
--------------------------------
Joseph F. Kruy
Chairman of the Board, President and Chief Executive Officer
Cambex Corporation
360 Second Avenue, Waltham, MA 02451
(781) 890-6000
(Name, address and telephone number of agent for service)
With copies to:
Neil H. Aronson, Esquire
Anthony E. Hubbard, Esquire
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Telephone: (617) 542-6000
Approximate date of commencement of proposed sale to public: from
time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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(c) 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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each class Amount Proposed maximum Proposed maximum Amount of
of securities to be offering price aggregate registration
to be registered registered per share offering price fee
Common Stock, Up to
$0.10 par value 2,600,000 (1) (2) $10,000,000.00(3) $ 2,640.00
Common Stock,
$0.10 par value(4) 2,297,603 (4) $ 5,258,556.34(1) $ 1,388.26
Total Up to
4,897,603 (1) $15,258,556.34(1) $ 4,028.26
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933.
(2) The price per common share will vary based on the volume-weighted
average daily price of Cambex's common stock during the drawdown
periods provided for in the common stock purchase agreement
described in this registration statement. The purchase price will be
equal to 93% of the volume-weighted average daily price for each
trading day within such drawdown pricing periods. The agreement
allows for up to 18 draws over a period of 18 months for amounts up
to $1 million per draw, except for the initial draw that may be up to
$2 million.
(3) This represents the maximum purchase price that Thumberland
Limited is obligated to pay Cambex under the common stock
purchase agreement. The maximum net proceeds Cambex can
receive is $10 million less a 5% cash placement fee payable to its
placement agent, Ladenburg Thalmann & Co. Inc., and $1,500 per
drawdown for escrow fees and expenses.
(4) These shares to be registered may be offered for sale and sold from
time to time during the period the registration statement remains
effective, by or for the accounts of Thumberland, Ladenburg
Thalmann, SovCap Equity Partners Ltd., Correllus International Ltd.
and Arab Commerce Bank Ltd. These shares include: (a) 195,771
shares issuable upon the exercise of a stock purchase warrant issued
to Thumberland under the common stock purchase agreement; (b)
195,771 shares issuable upon the exercise of a stock purchase warrant
issued to Ladenburg Thalmann as part of its placement agent
compensation; (c) a total of up to 649,958 issuable to SovCap Equity
Partners Ltd., Correllus International Ltd. and Arab Commerce Bank
Ltd. upon conversion of series 1 bridge financing notes issued to them
under the series 1 bridge note purchase agreement described in this
registration statement; (d) a total of up to 956,103 shares issuable to
SovCap Equity Partners Ltd., Correllus International Ltd. and Arab
Commerce Bank Ltd. upon exercise of repricing warrants attached to
the series 1 bridge note financings; and (e) a total of up to 300,000
shares issuable to SovCap Equity Partners, Ltd., Correllus
International Ltd. and Arab Commerce Bank Ltd. upon exercise of the
common stock purchase warrants issued to them under the series 1
bridge note purchase agreement. The total original principal amount
of the series 1 bridge financing notes is $2 million. These bridge
notes bear interest at the rate of 8% per annum and Cambex is
obligated to pay these lenders a premium ranging from 15% to 25%
of the original principal amount of the bridge notes. The exercise
price of the stock purchase warrants issued to Thumberland and
Ladenburg Thalmann is $2.9376 per share. These stock purchase
warrants may be exercised until July 20, 2003. The conversion price
for series 1 bridge financing notes relating to $1,750,000 of the
original principal amount borrowed is $3.79 per share. The
conversion price for the remaining $250,000 of the original principal
borrowed is $6.0875 per share. The exercise price of the attached
repricing warrants is $0.10 per share. The exercise price of the
common stock purchase warrants issued to SovCap Equity Partners
Ltd., Correllus International Ltd. and Arab Commerce Bank Ltd. is
$4.19 per share for warrants exercisable for 262,500 shares. The
exercise price for the remaining common stock purchase warrants is
$7.01 per shares for warrants exercisable for 37,500 shares. Common
stock purchase warrants issued to SovCap Equity Partners Ltd.,
Correllus International Ltd. and Arab Commerce Bank Ltd.
exercisable for 262,500 shares may be exercised until January 18,
2005 and the remaining warrants exercisable for 37,500 shares may
be exercised until February 9, 2005.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 8, 2000
PROSPECTUS
CAMBEX CORPORATION
Common Stock
4,897,603 Shares
The information in this prospectus is not complete and may be
changed. The selling securityholders identified on pages 51 and 52 may not
sell the shares of common stock that may be sold by Cambex Corporation or
the shares of common stock underlying the other securities of Cambex that
are held by selling securityholders until the registration statement filed by
Cambex with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
All of the shares of common stock being sold are offered by the selling
securityholders. The shares of common stock that may be sold
constitute up to 50.8% of our issued and outstanding common stock
as of May 31, 2000. We will not receive any proceeds from the sale
of the shares of common stock by the selling securityholders.
However, we will receive the sale price of any common stock that we
sell to Thumberland Limited under the common stock purchase
agreement described in this prospectus or upon the exercise for cash
of the warrants exercisable for shares of common stock held by other
selling securityholders, including warrants we issued to Thumberland.
We will pay the costs of registering the shares under this prospectus,
including legal fees.
Our common stock is listed on the OTC Bulletin Board under the trading
symbol "CBEX." The last reported sales price of our common stock
on the OTC Bulletin Board on August 4, 2000 was $2.50 per share.
The selling securityholders may offer shares of our common stock on the
OTC Bulletin Board in negotiated transactions or otherwise, or by a
combination of these methods. The selling securityholders may sell
the shares through broker-dealers who may receive compensation
from the selling shareholders in the form of discounts or
commissions. Thumberland Limited is an "underwriter" within the
meaning of the Securities Act of 1933 in connection with its sales.
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A
COMPLETE LOSS OF YOUR INVESTMENT. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
_________________________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION
NOR ANY STATE SECURITIES COMMISSION HAS APPROVED
OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-----------------------------------------------------------
The date of this prospectus is ___________, 2000.
<PAGE>
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the United States Securities and Exchange
Commission (the "Commission"). You may read and copy any
document we file at the Commission's public reference rooms in
Washington, D.C., New York, New York, and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Our filings with the
Commission are also publicly available through the Commission's
Web site on the Internet at http://www.sec.gov. This prospectus does
not contain all of the information set forth in the registration statement
and the exhibits thereto. Descriptions of any contract or other
document referred to in this prospectus are not complete, and in each
instance reference is made to the copy of such contract or other
document filed as an exhibit to the registration statement for a more
complete description of the matter involved, each such statement
being qualified in its entirety by such reference. At your written or
telephonic request, we will provide you, without charge, a copy of
any of the information that is incorporated by reference herein
(excluding exhibits to the information that is incorporated by
reference unless the exhibits are themselves specifically incorporated
by reference). Direct your request to the Company at Cambex
Corporation, 360 Second Avenue, Waltham, MA 02451, Attention:
Chief Executive Officer, telephone (781) 890-6000.
TABLE OF CONTENTS
Page
SUMMARY INFORMATION 3
OUR BUSINESS 4
THE OFFERING 5
RISK FACTORS 8
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 17
USE OF PROCEEDS 17
CAPITALIZATION 18
MARKET FOR OUR COMMON STOCK 19
DIVIDEND POLICY 19
BUSINESS 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 31
DIRECTORS AND EXECUTIVE OFFICERS 34
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 38
PRINCIPAL SHAREHOLDERS 39
DESCRIPTION OF SECURITIES 41
SOVEREIGN BRIDGE FINANCING 43
THUMBERLAND COMMON STOCK PURCHASE AGREEMENT 45
SELLING SECURITYHOLDERS 51
PLAN OF DISTRIBUTION 53
LEGAL MATTERS 56
EXPERTS 56
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
Our executive offices are located at 360 Second Avenue, Waltham,
Massachusetts 02451. Our telephone number is (781) 890-6000. Our
Web site is located at http://www.cambex.com. Information
contained on our Web site is not a part of this prospectus.
"Cambex", "Centurion", "Centurion Storage Manager", "Dynamic Path
Failover", "FibreQuik" and "STOR" are trademarks and trade names
of Cambex Corporation. All other trademarks or trade names referred
to in this prospectus are the property of their respective owners.
2
<PAGE>
SUMMARY INFORMATION
To understand this offering fully, we encourage you to read this entire
prospectus carefully, including the Financial Statements and the Notes
to the Consolidated Financial Statements of the Company appearing
elsewhere in this prospectus.
Unless the context otherwise requires, throughout this prospectus references
to:
"Cambex," "we," "us," and "our," refer to Cambex Corporation and its
subsidiaries;
"Thumberland" refers to Thumberland Limited;
"Ladenburg Thalmann" refers to Ladenburg Thalmann & Co. Inc., our
placement agent in connection with the equity financing contemplated by
the common stock purchase agreement between the Company and
Thumberland;
"Sovereign Lenders" refers collectively to SovCap Equity Partners, Ltd.,
Correllus International Ltd. and Arab Commerce Bank Ltd., the parties
that loaned us a total of $2 million under the terms of the series 1 bridge
note purchase agreement;
"Sovereign Capital" refers to Sovereign Capital Advisors LLC, our
placement agent in connection with the bridge note financing
contemplated by the series 1 bridge note purchase agreement; and
"CyberFin" refers to CyberFin Corporation, a corporation wholly owned
by Peter J. Kruy, our Executive Vice President, Chief Financial Officer
and Treasurer.
This prospectus contains forward-looking statements. The outcome of the
events described in these forward-looking statements is subject to
risks and actual results could differ materially. The sections entitled
"Risk Factors," "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" as well as
other sections in this prospectus, contain a discussion of some of the
factors that could contribute to those differences.
3
<PAGE>
OUR BUSINESS
Cambex Corporation is a designer and supplier of fibre channel
hardware and software products that enable computer servers and high
capacity electronic data storage devices to be interconnected into storage area
networks, commonly referred to as SANs. We develop and market both fibre
channel connectivity products that interconnect the computer servers and
storage devices as well as fibre channel disk storage devices. Because of the
growth of information-based economies, primarily due to the dramatic
growth of internet-based business models, businesses and other organizations
have experienced large increases in the volume of business-critical electronic
data that is generated, processed, stored and manipulated. Accordingly,
effectively storing and managing online data is one of the most important
challenges that face almost all enterprises. One of the ways that businesses
and other organizations have begun to meet this challenge is to incorporate
SANs into their enterprise. SANs enhance and simplify the management and
sharing of electronic data storage resources because they:
significantly improve the availability of online data;
improve the speed at which data is transferred from one device to another;
increase the distance over which data can reliably be transferred;
permit the employment of centralized management software to monitor
and control the performance and availability of the SAN; and
can be utilized in a range of computer operating environments including
UNIX, Linux and Windows NT.
Fibre channel protocol, developed in the early 1990's, is the backbone
connectivity technology that enables SANs to be a more effective means of
managing, storing and retrieving electronic data. We currently offer fibre
channel connectivity products consisting of host bus adapters and hubs, fibre
channel disk storage devices utilizing a redundant array of inexpensive disks
(RAID) technology, and software applications that significantly enhance the
performance and availability of SANs. By reselling fibre channel hardware
and software products from leading manufacturers, together with our host bus
adapters, hubs, disk storage arrays and proprietary software products, we are
able to offer customers a complete interoperable SAN solution.
We began developing our current fibre channel product business in
1997. In 1998, we began to ship our Centurion brand of fibre channel RAID
disk arrays. Our strategy has been to take advantage of the relationships
developed from being a long time supplier of memory and disk storage
products primarily for IBM mainframe computer users and to re-position
Cambex as a leading supplier of fibre channel connectivity and storage
products. We have also been working to establish relationships with a small
number of leading resellers and OEMs in the SAN market. However, these
relationships have not yet resulted in significant increases in our revenues.
We also are working to position ourselves as a source for customers for
complete SAN solutions including SAN design, integration and
implementation services together with the hardware and software needed to
supply fibre channel connectivity and storage products for a SAN solution.
Founded in 1968, we have more than 30 years experience in
providing highly reliable electronic data storage products. For more than 27
years we were a leading supplier of IBM compatible mainframe computer
memory having supplied memory and related products for seven generations
of IBM mainframe computers. In the mid-1990's, the IBM mainframe
computer market experienced a significant decline and our business suffered.
In October 1997, we voluntarily filed for protection under chapter 11 of the
federal bankruptcy laws. In April 1998, we emerged from bankruptcy
protection under a reorganization plan that we are continuing to implement.
Since 1998, we have continued to transition our business towards the fibre
channel products business, though we continue to support our computer
memory customers with memory products, upgrades and maintenance
services. In order to successfully transition our business and return to
sustained profitable operations, we need to generate significant increases in
revenues and meet our short-term debt obligations that mature in the next six
months. In support of our strategy, we recently established an eighteen
month $10 million equity drawdown facility that should enable us to meet
our short-term working capital needs. In addition, we plan to achieve our
longer term goals by expanding and improving our sales and marketing
function and increasing expenditures for research and development so that we
can broaden and enhance our product offerings as well.
4
<PAGE>
THE OFFERING
Common stock offered by Thumberland that it may purchase
under the common stock purchase agreement 2,600,000 shares
Common stock offered by Thumberland that it may purchase
by exercise of stock purchase warrant 195,771 shares
Common stock offered by Ladenburg Thalmann that it may
purchase by exercise of stock purchase warrant 195,771 shares
Common stock offered by the Sovereign Lenders that they may
obtain by conversion of series 1 bridge financing notes 649,958 shares
Common stock offered by the Sovereign Lenders that they may
purchase by exercise of repricing warrants attached to
series 1 bridge financing notes 956,103 shares
Common stock offered by the Sovereign Lenders that they may
obtain by exercise of common stock purchase warrants 300,000 shares
Common stock outstanding:
Prior to the sale of shares to Thumberland under the common
stock purchase agreement 9,731,635 shares
After sale of maximum number of shares to Thumberland
registered under this registration statement and
before issuance of shares issuable pursuant to
our securities held by selling securityholders
identified in this prospectus 12,331,635 shares
After sale of maximum number of shares to Thumberland
registered under this registration statement and
after issuance of shares issuable pursuant to our
securities held by selling securityholders
identified in this prospectus 14,629,238 shares
Trading symbol for common stock CBEX
This prospectus covers a total of 4,897,603 shares of our common stock that
may be sold by selling securityholders identified in this prospectus.
The number of shares of our common stock subject to this prospectus
represents 50.3% of our issued and outstanding common stock as of
August 8, 2000. The number of shares subject to this prospectus
represents 33.5% after the issuance of all currently unissued shares
included in this prospectus.
Sovereign Bridge Financing
In January and February 2000, we borrowed a total of $2 million from
the Sovereign Lenders which was arranged for us with the assistance of
Sovereign Capital. We entered into a series 1 bridge note purchase
agreement with the Sovereign Lenders pursuant to which we issued to the
Sovereign Lenders:
series 1 bridge financing notes that are convertible into up to a
total of 649,958 shares of our common stock, which number
includes shares issuable upon conversion of accrued interest and
premium amounts due under the notes;
repricing warrants attached to each series 1 bridge financing note
that may be exercisable for up to a total of 956,103 shares of our
common stock; and
common stock purchase warrants that are exercisable for up to a
total of 300,000 shares of our common stock.
5
<PAGE>
The series 1 bridge financing notes mature on August 15, 2000
and September 6, 2000. Prior to the maturity dates, we have the choice to
redeem the bridge notes for cash or in exchange for shares of our common
stock, plus a premium in excess of the original principal amount we borrowed
and accrued interest on the bridge notes. At the time this offering becomes
effective, we anticipate the applicable premium to be either 20% or 25% of
the original principal amount of the bridge notes. If we fail to redeem the
bridge notes at or before maturity, then the Sovereign Lenders have the
choice to accept cash or shares of our common stock to satisfy our
obligations.
The series 1 bridge financing notes bear interest at 8% per annum. If
we fail to redeem the bridge notes at or before maturity, then interest will
accrue at the rate of 12% per annum after maturity until the notes are paid in
full. We anticipate that accrued interest on the bridge notes at redemption will
not exceed $150,000.
In connection with the Sovereign Bridge Financing, attached to each
series 1 bridge note is a repricing warrant. If, during the 90 days after a
bridge note is converted into shares of our common stock (the "repricing
period"), a Sovereign Lender sells any shares it receives from conversion of
the bridge note and fails to realize a gain of at least 20% above the applicable
conversion price of the bridge note, then that Lender may exercise the
repricing warrant on the 91st day after conversion of the bridge note. If the
Sovereign Lender realizes less than a 20% gain on shares sold during the
repricing period, the number of shares that it may acquire by exercise of a
repricing warrant depends upon the number of shares sold and the market
price of our common stock during the repricing period. If the average market
price of our common stock during the repricing period is equal to or greater
than the conversion price of the converted bridge note, then the Sovereign
Lender may not acquire any shares by exercising the repricing warrant. If the
average market price of our common stock is less than the conversion price
of the converted bridge note, then the Sovereign Lenders may exercise the
repricing warrant for a number of shares of our common stock determined in
accordance with a formula. The maximum number of shares of common
stock for which the repricing warrants may be exercised is a total of 956,103
shares. The exercise price of the repricing warrants is $0.10 per share.
We also issued the Sovereign Lenders common stock purchase
warrants exercisable for up to a total of 300,000 shares of our common stock.
The exercise price of these common stock purchase warrants is $4.19 per
share for warrants exercisable for up to 262,500 shares and $7.01 per share
for warrants exercisable for up to 37,500 shares. These common stock
purchase warrants expire on January 18, 2005 for warrants exercisable for up
to 262,500 shares and on February 9, 2005 for warrants exercisable for up to
37,500 shares.
Our two largest stockholders, Joseph F. Kruy, our Chairman,
President and Chief Executive Officer, and CyberFin Corporation, a
corporation wholly owned by Peter J. Kruy, our Executive Vice President,
Treasurer and Chief Financial Officer, guaranteed our obligations under the
Sovereign Bridge Financing in the event that we fail to fulfill them. The
obligations of Joseph Kruy and CyberFin under these guarantees are secured
by their pledge to the Sovereign Lenders of a total of 1,709,467 shares of our
common stock that they own.
In addition to a series 1 bridge note purchase agreement, which contains
representations, warranties, covenants and other provisions typical to
this type of transaction, we entered into a registration rights
agreement with the Sovereign Lenders. Under this registration rights
agreement, we agreed to register the number of shares of our common
stock into which the series 1 bridge financing notes are convertible
and for which the repricing warrants and the common stock purchase
warrants are exercisable within 60 days following the issuance of the
bridge notes and related warrants. The Sovereign Lenders have
waived their rights resulting from our failure to file a registration
statement covering shares of our common stock 60 days following our
issuance of the bridge notes and related warrants, allowing us to
register those shares of our common stock in this registration.
Thumberland Equity Drawdown Facility
We signed a common stock purchase agreement with Thumberland Limited,
a British Virgin Islands corporation, on July 14, 2000, for the future
issuance and purchase of shares of our common stock. The
transaction closed on July 20, 2000. The common stock purchase
agreement establishes what is sometimes termed an equity line of
credit or an equity drawdown facility.
6
<PAGE>
In general, the drawdown facility operates as follows: the investor,
Thumberland, has committed to provide us up to $10 million as we
request it over an 18 month period, in return for shares of common
stock we issue to Thumberland. Subject to a maximum of 18 draws,
once every 22 trading days we may request a draw of up to $1 million
of that money, except that the initial draw may be up to $2 million.
The maximum amount we actually can draw down upon each request
will be determined by the volume-weighted average daily price of our
common stock for the 22 trading days prior to our request and the
average trading volume for the 45 trading days prior to our request.
Each draw down must be for at least $250,000. At the end of a 22-
day trading period following the drawdown request, the final
drawdown amount is determined based on the volume-weighted
average stock price during that 22-day period. We then use the
formulas contained in the common stock purchase agreement to
determine the number of shares we will issue to Thumberland in
return for that money.
The formulas for determining the final drawdown amounts, the number of
shares we issue to Thumberland and the price per share paid by
Thumberland are described in detail beginning on page 45 of this
prospectus. We may make up to a maximum of 18 draws; however,
the aggregate total of all draws cannot exceed $10 million and no
single draw can exceed $1 million, except for the initial draw which
may not exceed $2 million. We are under no obligation to request a
draw for any period.
The closing price for our common stock on May 31, 2000 was $2.5625 per
share and the average daily trading volume for the 45 trading days
ended May 31, 2000 was 28,357 shares per trading day. If our market
price on May 31, 2000 and the 45-day average trading volume
preceding May 31, 2000 each remained constant over the 18 month
period of the common stock purchase agreement and we requested the
maximum amount available to us under the common stock purchase
agreement, each draw would be capped at $319,725 and we could
make 18 draws for a total amount drawn of $5,755,050. As the
example shows, if our stock price stays at current levels, we will not
be able to draw down all $10 million under the common stock
purchase agreement. Moreover, if, as a result of applying these
formulas, the amount of the draw would be less than $250,000, then
we may not drawdown.
The number of shares registered under the registration statement of which
this prospectus is a part may limit the proceeds we receive under the
common stock purchase agreement. Moreover, the proceeds we
receive could be further limited by a provision of the common stock
purchase agreement that prevents us from issuing shares to
Thumberland to the extent Thumberland would beneficially own
more than 9.9% of our then outstanding common stock. Any resales
of shares by Thumberland under this prospectus would reduce the
number of shares beneficially owned by Thumberland, and would
enable us to issue additional shares to Thumberland without violating
this condition.
The per share dollar amount Thumberland pays for our common stock for
each drawdown includes a 7% discount to the average daily market
price of our common stock for the 22-day period after our drawdown
request, weighted by trading volume. We will receive the amount of
the drawdown less an escrow agent fee equal to $1,500 per drawdown
and a 5% placement fee payable to the placement agent, Ladenburg
Thalmann, which introduced Thumberland to us. Ladenburg
Thalmann is a registered broker dealer. It is not obligated to purchase
any of our shares, but as an additional placement agent compensation,
we have issued to Ladenburg Thalmann a stock purchase warrant to
purchase up to 195,771 shares of our common stock at an exercise
price of $2.9376 per share. The common stock issuable upon exercise
of this warrant is included in the registration statement of which this
prospectus is a part.
7
<PAGE>
RISK FACTORS
Risks Related to Our Industry
Because a significant and growing proportion of our revenues are
generated from the sale of our fibre channel products, our revenues will
be limited if fibre channel technology does not achieve a widespread
market acceptance or develops more slowly than we anticipate
The growth of the market for our fibre channel products is dependent
upon the broad acceptance of fibre channel technology as an alternative to
other technologies traditionally utilized for network and storage
communications. The fibre channel market, while rapidly evolving and
attracting an increasing number of market participants, is still at an early
stage of development. If the fibre channel market fails to develop, develops
more slowly than anticipated or attracts more competitors than we expect, our
business, operating results and financial condition would be materially
adversely affected. We cannot be certain that fibre channel products will
gain broader market acceptance or that customers will choose our technology
and products.
To achieve widespread market acceptance, fibre channel must
supplant current widely accepted alternative technologies such as small
computer systems interface or SCSI. Because many technology companies
with SCSI-based product portfolios already have (a) well-established
relationships with our current and potential customers, (b) extensive
knowledge of the markets we serve, (c) better name recognition and (d)
extensive development, sales and marketing resources, it may be difficult to
convince customers to adopt fibre channel technology. If fibre channel does
not replace existing technologies such as SCSI in emerging applications such
as SANs or otherwise achieve broad market acceptance, our growth will be
limited. Additionally, new technologies are currently in development that
may compete with fibre channel for market share if they are successfully
developed and commercialized. Because these competing new technologies
are likely to have support from technology companies with more significant
resources than we and other fibre channel companies have, they may limit the
growth of the fibre channel market and therefore our growth.
The SAN market in which we compete is new and unpredictable, and if
this market does not develop and expand as we anticipate, our business
will suffer
The market for SANs and the related equipment, including disk arrays
and host bus adapters, and management software that we offer, has only
recently begun to develop and is rapidly evolving. If this market does not
develop as rapidly as we anticipate, our operating results may be below the
expectations of public market analysts and investors, which would likely
cause our stock price to decline. Because this market is new, it is difficult
to predict its potential size or future growth rate. Our products are
principally purchased for use in SANs. Accordingly, widespread adoption of SANs
as an integral part of data-intensive enterprise computing environments is
critical to our future success. Potential end-users that have invested
substantial resources in their existing data storage and management systems
may be reluctant or slow to adopt a new approach similar to the SAN.
Our operating results may suffer because of increasing competition in
the fibre channel market, as well as additional competition from
alternative data storage solutions
The market in which we compete is intensely competitive. As a
result, we face a variety of significant challenges, including rapid
technological advances, price erosion, changing customer preferences and
evolving industry standards. Our competitors continue to introduce products
with improved price/performance characteristics, and we will have to do the
same to remain competitive. Increased competition could result in significant
price competition, reduced revenues, lower profit margins or loss of market
share, any of which would have a material adverse effect on our business,
operating results and financial condition. We cannot be certain that we will
be able to compete successfully against either current or potential competitors
in the future.
Many of our current and potential competitors have substantially
greater financial, technical, marketing and distribution resources than we
have. We face the threat of potential competition from new entrants into the
fibre channel market, including large technology companies who may
develop or acquire differentiating technology and then apply their resources,
including established distribution channels and brand recognition, to obtain
significant market share. It is also possible that we will face increased
competition due to mergers or consolidations of existing
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or potential competitors. Emerging companies attempting to obtain a share of
the existing market act as potential competition as well. Our products may also
compete at the end-user level with other technology alternatives, such as
SCSI. Further, businesses that implement SANs may select fully integrated
SAN systems that are offered by large technology companies. Because such
systems may not interoperate with products from independent open system
suppliers, like us, customers that invest in these systems may be less likely to
purchase our products. Because other technologies designed to address the
applications served by fibre channel today are under development, our
business would suffer as a result of competition from such competing
technologies.
In our industry, technology and other standards change rapidly, and we
must keep pace with the changes to compete successfully
The market for our products is characterized by rapidly changing
technology, evolving industry standards and the frequent introduction of new
products and enhancements. If we do not keep pace with these changes, we
may lose market share to our competitors and fail to meet our financial and
operational objectives. Because our products are designed to work with
software produced by third parties, our operating results could be adversely
affected if such third parties delay introduction of new versions of their
software for which we have designed new products or if they make
unanticipated modifications to such software. Our future success depends in
a large part on our ability to enhance our existing products and to introduce
new products on a timely basis to meet changes in customer preferences and
evolving industry standards. We cannot be certain that we will be successful
in designing, supplying and marketing new products or product
enhancements that respond to such changes in a timely manner and achieve
market acceptance. We also cannot be certain that we will be able to develop
the underlying core technologies necessary to create new products and
enhancements, or that we will be able to license the core technologies from
third parties. Additionally, changes in technology and customer preferences
could potentially render our current products uncompetitive or obsolete. If
we are unable, for technological or other reasons, to develop new products or
enhance existing products in a timely manner in response to technological
and market changes, our business, operating results and financial condition
would be materially adversely affected.
Risks Related to Our Business
We have a history that includes substantial operating losses and we are
in an unfavorable financial position that makes an evaluation of our
business difficult
We incurred substantial operating losses in each of the five years prior
to the current fiscal year. At April 1, 2000, we had an accumulated deficit of
approximately $22 million. At April 1, 2000 we had current assets totaling
approximately $1.9 million. At that same date, we had current liabilities
totaling approximately $4.7 million and long-term liabilities totaling
approximately $3.3 million, a substantial portion of which is attributable to a
1998 bankruptcy reorganization plan that we continue to implement. A total
of approximately $3 million of our debts will become due before the end of
2000. In order to continue as a going concern and compete effectively, we
need to increase our expenditures for research and development expenses and
selling, general and administrative expenses as well as other expenses, which
may not be possible if revenues do not increase significantly. If revenues
remain at current levels, we will not be able to achieve profitability on
quarterly or annual basis.
We have a limited operating history with respect to our fibre channel
products
We commenced our fibre channel products business in 1997 and we
shipped our first commercially available fibre channel products in 1998.
Because we have a limited operating history with respect to our fibre channel
products, you must consider the risks and difficulties frequently encountered
by companies in the early stage of developing a business such as ours in new
and rapidly evolving markets. Although our net product revenues from the
sale of fibre channel products have become a majority of our total product
revenues, sales from these products may not increase and we may not realize
sufficient net revenues to become profitable. In addition, because of the
competition in the fibre channel and SAN markets and the evolving nature of
these markets, sustaining profitability may be extremely challenging.
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We are developing relationships with potential OEM, distribution
channel and end user customers and a decision by any one of these
potential customers not to purchase our products, or any cancellation or
delay of orders that may be placed by any of these potential customers
will have a significant and adverse affect on our net revenues
Historically, a limited number of OEMs, distribution channel and end
user customers have accounted for a significant majority of our total net
revenues in each fiscal period. For example, sales to our top five customers
accounted for approximately 40% percent of net revenues for the fiscal year
ended December 31, 1999. We are in the process of developing relationships
with a small number of potential OEM, distribution channel and end user
customers. If any one of these potential customers decides not to purchase
our products or decides to purchase our products in quantities that are below
our expectations, then our net revenues will be adversely affected. We
expect to experience substantial period-to-period fluctuations in future
operating results because, among other factors, we depend to a significant
extent upon revenues from a small number of customers.
Our sales cycle, particularly to OEMs, typically involves a lengthy
qualification cycle during which there is a need to expend significant
resources in addressing customer specifications. Because of the length of the
sales cycle, we may experience a delay between increasing expenses for
research and development and sales and marketing efforts and the generation
of higher revenues, if any, from such expenditures. The purchase of our
products or of solutions that incorporate our products typically involves
significant internal procedures associated with the evaluation, testing,
implementation and acceptance of new technologies. This evaluation process
frequently results in a lengthy sales process, typically ranging from three
months to longer than a year, and subjects the sales cycle associated with the
purchase of our products to a number of significant risks, including budgetary
constraints and internal acceptance reviews. The length of our sales cycle
also varies substantially from customer to customer.
In addition, because we anticipate that none of our potential
customers will be, and none of our current customers are, contractually
obligated to purchase any fixed amount of products from us in the future,
they may stop placing orders with us at any time, regardless of any forecast
they may have previously provided. If any of our significant customers stop
or delay purchases, our revenues and operating results would be adversely
affected, which could cause our stock price to decline. We cannot be certain
that we will retain our current OEM, distribution channel or end user
customers or that we will be able to recruit additional or replacement
customers. As is common in an emerging technology industry, agreements
with OEMs and distribution channel customers are typically non-exclusive
and often may be terminated by either party without cause. Moreover, many
OEM and distribution channel customers carry competing product lines. If
we were to suddenly lose one or more important OEM, distribution channel
or end user customers or potential customers to a competitor, our business,
operating results or financial condition could be materially adversely
affected. Moreover, OEM customers could develop products internally that
would replace our products. The resulting reduction in sales of our products
to any OEM customers, in addition to the increased competition presented by
these customers, could have a material adverse effect on our business,
operating results or financial condition and could affect our ability to
continue as a going concern.
The failure of OEM customers to keep pace with rapid technological
change and to successfully develop and introduce new products could
adversely affect our net revenues
Our ability to generate increased revenues depends significantly upon
the ability and willingness of OEM customers to develop and promote
products on a timely basis that incorporate our technology. If OEM
customers do not successfully develop and market the solutions that
incorporate our products, then sales of our products to OEM customers will
be adversely affected. The ability and willingness of OEM customers to
develop and promote such products is based upon a number of factors beyond
our control.
While we have established relationships with a small number of OEM
and reseller customers, most of these customers are still at the very early
stages of incorporating fibre channel products into their systems. If our early
stage customers are unable to, or otherwise do not ship systems that
incorporate our products, or if their shipped systems are not commercially
successful, our business, operating results or financial condition could be
materially adversely affected as well as our ability to continue as a going
concern.
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Delays in product development could adversely affect our market
position or customer relationships
We have experienced delays in product development in the past and
may experience similar delays in the future. Given the short product life
cycles in the markets for our products, any delay or unanticipated difficulty
associated with new product introductions or product enhancements could
cause us to lose customers and damage our competitive position. Prior delays
have resulted from numerous factors, such as:
changing product specifications;
difficulties in hiring and retaining necessary personnel;
difficulties in reallocating engineering resources and other resource
limitations;
difficulties with independent contractors;
changing market or competitive product requirements;
unanticipated engineering complexity;
undetected errors or failures in software and hardware; and
delays in the acceptance or shipment of products by customers.
We expect the average selling prices of our products to continue to
decrease, which may reduce gross margins or revenues
The markets for fibre channel and disk storage products have
experienced erosion of average selling prices due to a number of factors,
including competitive pricing pressures and rapid technological change. We
may experience substantial period-to-period fluctuations in future operating
results due to the erosion of our average selling prices. We anticipate that the
average selling prices of our products will decrease in the future in response
to competitive pricing pressures, increased sales discounts, new product
introductions by us or our competitors or other factors. Therefore, to
maintain our gross margins, we must develop and introduce on a timely basis,
new products and product enhancements and continually reduce our product
costs. Our failure to do so would cause our revenue and gross margins to
decline, which could materially adversely affect our operating results and
cause the price of our common stock to decline.
If our business improves rapidly, our operations may be negatively
impacted and we may be required to incur substantial costs to upgrade
our infrastructure
If our business expands rapidly, then a significant strain may be
placed on our resources. Unless we manage such growth effectively, we may
make mistakes in operating our business such as inaccurate sales forecasting,
incorrect material planning or inaccurate financial reporting, which may
result in unanticipated fluctuations in our operating results. Our management
team has had limited experience managing rapidly growing companies on a
public or private basis. We may not be able to install adequate control
systems in an efficient and timely manner, and our current or planned
personnel, systems, procedures and controls may not be adequate to support
our future operations.
The loss of or failure to attract and retain key technical, sales and
marketing and managerial personnel could adversely affect our business
Our success depends to a significant degree upon the performance and
continued service of engineers involved in the development of our fibre
channel technology and technical support of products and customers. Our
success also depends to a significant degree upon the continued contributions
of our key management, sales and marketing and manufacturing personnel.
Accordingly, our future success depends upon our ability to attract, train and
retain such technical, sales and marketing and managerial personnel. Except
for an employment agreement with Joseph F. Kruy, our President and Chief
Executive Officer, we do not have employment agreements with any of these
personnel. We do not maintain key person life insurance on any of our
personnel. As we further develop our product line we will need to increase
the number of sales and marketing personnel as well as technical staff
members with experience in hardware and software development. In
addition, we are currently seeking to hire additional skilled software
programmers and experienced sales personnel who are currently in short
supply. Competition for such highly skilled employees in our industry is
intense, and we cannot be certain that we will be successful in recruiting or
retaining such personnel. In addition, our employees may leave and subsequently
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compete against us. The loss of key employees could have a
material adverse effect on our business, operating results or financial
condition.
We also believe that our success depends to a significant extent on the
ability of our key personnel to operate effectively, both individually and as a
group. Some of our employees have only recently joined us, and we intend
to expand our employee base significantly. If we are unable to identify, hire
and integrate new employees in a timely and cost-effective manner, our
operating results may suffer.
Our management has significant influence over stockholder decisions
Prior to the issuance of any our common stock covered by this
registration, our officers and directors control the vote of approximately
26.6% of the outstanding shares of common stock prior to the exercise of any
outstanding warrants or options held by them. Following the issuance of all
shares of our common stock covered by this registration, our officers and
directors will control the vote of approximately 17.7% of the then
outstanding shares of common stock. As a result, they may be able to
significantly influence all matters requiring approval by our stockholders,
including the election of directors.
Because we rely on a limited number of third party suppliers and
manufacturers, and failures by any of these third parties to provide key
components or to manufacture and assemble products of sufficient
quality and quantity could cause us to delay product shipments, which
could result in delay or lost revenues or customer dissatisfaction
PCWorld and Dynamic Details Incorporated fabricate our printed
circuit boards, and various subcontractors, such as Flextronics International
USA, Inc., perform assembly of our host bus adapters and hub circuit boards.
We have no long-term contracts with PCWorld, Dynamic Details or
Flextronics. Also, key components that we use in our products may, from
time to time, only be available from single sources with which we do not
have long-term contracts. In particular, QLogic Corporation is currently the
sole supplier of certain components in certain of our host bus adapters. The
components we use for our products are based on an emerging technology
and may not be available with the performance characteristics or in the
quantities that we require. Accordingly, our major suppliers are not obligated
to supply products to us for any specific period, or in any specific quantity,
except as may be provided in a particular purchase order. Moreover, any
inability to supply products due to a lack of components or to redesign
products to incorporate alternative components in a timely manner could
materially adversely affect our business, operating results or financial
condition. If any of our third-party manufacturers experiences delays,
disruptions, capacity constraints or quality control problems in its
manufacturing operations, then product shipments to our customers could be
delayed, which would negatively impact our net revenues, competitive
position and reputation.
Further, our business would be harmed if we fail to effectively
manage the manufacture of our products. Because we place orders with our
suppliers and manufacturers based on our forecasts of expected demand for
our products, if we inaccurately forecast demand, we may be unable to obtain
adequate manufacturing capacity or adequate quantities of components to
meet our customers' delivery requirements, or we may accumulate excess
inventories.
We may in the future need to find new contract manufacturers in
order to increase our volumes or to reduce our costs. We may not be able to
find contract manufacturers that meet our needs, and even if we do,
qualifying a new contract manufacturer and commencing volume production
is expensive and time consuming. If we are required or elect to change
contract manufacturers, we may lose revenues, and our customer
relationships may suffer.
Our products are complex and may contain undetected software or
hardware errors or may fail to achieve interoperability standards that
could lead to an increase in our costs, reduce our net revenues, or
damage our reputation
In order to satisfy our customers, the solutions that we design require
several different products to work together in a seamless fashion. Our
solutions may fail to achieve various interoperability standards necessary to
satisfy our customers. Moreover, products as complex as ours frequently
contain undetected software or hardware
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errors when first introduced or as new versions are released. We have from
time to time found errors in existing products, and we may from time to time
find errors in our existing, new or enhanced products. Generally, we provide
our customers with a one year warranty covering our products. Therefore,
failure to achieve interoperability among products or the occurrence of
hardware or software errors in various products could adversely affect
sales of our customer solutions and products, cause us to incur significant
warranty and repair costs, divert the attention of our engineering personnel
from our product development efforts, cause significant customer relations
problems and could result in product returns and loss of revenue.
Steps taken to protect our intellectual property may not be adequate to
protect our business
We primarily rely on unpatented trade secrets to protect our
proprietary rights. We seek to protect these secrets, in part, through
confidentiality agreements with employees, consultants, and our customers
and potential customers. If these agreements are breached, or if our trade
secrets become known to, or are independently developed by competitors, we
may not have adequate remedies for such breach. We cannot be certain that
the steps we take to protect our intellectual property will adequately protect
our proprietary rights, that others will not independently develop or otherwise
acquire equivalent or superior technology or that we can maintain such
technology as trade secrets. In addition, the laws of some of the countries in
which our products are or may be developed, manufactured or sold may not
protect our products and intellectual property rights to the same extent as the
laws of the United States, or at all. Our failure to protect our intellectual
property rights could have a material adverse effect on our business,
operating results or financial condition.
We may become involved in costly and lengthy patent infringement or
intellectual property litigation that could seriously harm our business
We may receive communications from third parties alleging
infringement of patents or other intellectual property rights, and there is the
chance that third parties may assert infringement claims against us. Any such
claims, with or without merit, could result in costly and time-consuming
litigation or cause product shipment delays that would adversely affect our
business, financial condition or operating results. It is possible that holders
of patents or other intellectual property rights may assert rights that apply
broadly to our industry, and that such patent or other intellectual property
rights, if valid, may apply to our products or technology. These or other
claims may require us to stop using the challenged intellectual property or to
enter into royalty or licensing agreements. We cannot be certain that the
necessary licenses will be available or that they can be obtained on
commercially reasonable terms. Our business, operating results or financial
condition could be materially adversely affected if we were to fail to obtain
such royalty or licensing agreements in a timely manner or on reasonable
terms.
Failure to comply with governmental regulations by our OEM customers
or us could reduce our sales or require design modifications
Our products are subject to U.S. Department of Commerce and
Federal Communications Commission regulations as well as various
standards established by various state, local and foreign authorities. Failure
to comply with existing or evolving U.S. or foreign governmental regulation
or to obtain timely domestic foreign regulatory approvals or certificates,
could materially harm our business by reducing our sales or requiring design
modifications to our products or the products of OEM customers. U.S.
export laws also prohibit the export of our products to a number of countries
deemed by the United States to be hostile. These restrictions may make
foreign competitors facing less stringent controls on their products more
competitive in the global market than we or our customers are. The U.S.
government may not approve future export license requests. In addition, the
list of products and countries for which export approval is required, and the
regulatory policies with respect thereto, could be revised.
Our quarterly operating results are volatile and may cause our stock
price to fluctuate
Our revenues and operating results have varied on a quarterly basis in
the past and are likely to vary significantly from quarter to quarter in the
future. The variations in our revenues and operating results are due to a
number of factors, many of which are outside of our control, including
among others:
Changes in our operating expenses;
Our ability to develop and market new products;
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The ability of our contract manufacturers and suppliers to produce
and supply our products in a timely manner;
The market acceptance of new fibre channel products;
The timing of the introduction or enhancement of products by us,
OEM and distribution channel customers, and competitors;
The level of product and price competition;
Our ability to expand our relationship with OEMs, distribution
channel and end user customers;
Activities of and acquisitions by our competitors;
Changes in technology, industry standards or consumer
preferences;
Changes in the mix of products sold, as our fibre channel
connectivity products typically have higher margins than our disk
array products;
Personnel changes;
Changes in customer budgeting cycles; and
General economic conditions.
Accordingly, you should not rely on quarter-to-quarter comparisons
of our operating results as an indication of future performance. It is possible
that in some future periods our operating results will be below the
expectations of public market analysts and investors. In this event, the price
of our common stock will likely decline.
We generally do not have a significant backlog of unfilled orders. As
a result, our revenues in a given quarter depend substantially on orders
booked in that quarter. A decrease in the number of orders we receive is
likely to adversely and disproportionately affect our quarterly operating
results. Moreover, a substantial portion of our sales of disk array products
involve large commitments by customers and the timing or occurrence of one
or more of these sales would have a significant impact on quarterly revenue
and operating results. Our expense levels are partially based on our
expectations of future sales. Therefore, our expenses may be
disproportionately large as compared to sales in a quarter with reduced
orders. As a result, we may be unable to adjust spending in a timely manner
to compensate for any unexpected revenue shortfall. Any shortfall in sales in
relation to our quarterly expectations or any delay of customer orders would
likely have an immediate and adverse impact on our business, quarterly
operating results and financial condition.
Risks Related to the Securities Markets
We may need additional capital and additional financing may not be
available
We currently anticipate that our available cash resources combined with the
maximum drawdown under the common stock purchase agreement
with Thumberland Limited will be sufficient to meet our anticipated
working capital and capital expenditure requirements through at least
the next 24 months. However, if our stock price and trading volume
stay at current levels, we will not be able to draw down all $10
million under the common stock purchase agreement and our
available cash resources will meet our requirements for only the next
18 months. The time period for which we believe our capital is
sufficient is an estimate; the actual time period may differ materially
as a result of a number of factors, risks and uncertainties which are
described herein. In addition, business and economic conditions may
not make it feasible to draw down under the common stock purchase
agreement at every opportunity, and drawdowns are available only
every 22 trading days. We may be unable to fund more rapid
expansion, to develop new and to enhance existing services to
respond to competitive pressures, or to acquire complementary
businesses or technologies without additional capital.
Until February 9, 2001 our placement agent agreement with Sovereign
Capital gives Sovereign Capital a right of first refusal to act as
placement agent for any of our equity financings in which we offer to
sell shares of our capital stock, or other securities convertible into or
exchangeable or exercisable for shares of our capital stock, at a price
of less than $3.79 per share. Sovereign Capital has waived its right of
first refusal with respect to the Thumberland financing. However, our
engagement with Thumberland restricts us from raising investment
capital during the term of the common stock purchase agreement
except through the common stock purchase agreement. If we need capital
but are unable to drawdown under the common stock purchase agreement for any
reason, we will need to separately negotiate with Thumberland to lift
those restrictions so we can obtain the capital from other
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sources. Our common stock purchase agreement with
Thumberland provides that if we sell our securities for cash at a
discount to the market price for 18 months from the effective date of
the registration statement of which this prospectus is a part, then we
must pay Thumberland $100,000 as liquidated damages before we
may drawdown additional funds under the equity drawdown facility.
Even if Sovereign Capital and Thumberland agree to permit us to raise
additional capital, we may not be able to obtain additional financing
on terms favorable to us, if at all. If adequate funds are not available
or are not available on terms favorable to us, we will not be able to
effectively execute our business plan and we may not be able to
continue as a going concern.
Our stock price is volatile and may drop unexpectedly
The stock market in general, and the stock prices of technology-based
companies in particular, have experienced extreme volatility that often has
been unrelated to the operating performance of any specific public company.
Changes in general economic conditions or developments in the data storage,
Internet, and personal computer and workstation markets that affect investor
confidence could have a dramatic impact on the market price of our common
stock. Also, changes in estimates of our earnings as well as any of the factors
described in "Risk Factors" could have a significant impact on the market
price of our common stock. In the past, companies that have experienced
volatility in the market price of their stock have been the subject of
securities class action litigation. We may be a target of such litigation in
the future. If we become the subject of securities class action litigation,
it could result in substantial costs and a diversion of management's
attention and resources and could seriously harm our business, financial
condition and results of operations.
We may engage in future acquisitions that dilute our stockholders'
equity and cause us to incur debt or assume contingent liabilities
Although we have no current plans to pursue any acquisition in the
near future, we may pursue acquisitions that could provide new technologies
or products. Future acquisitions may involve the use of significant amounts
of cash, potentially dilutive issuances of equity or equity-linked securities,
the incurrence of debt, or amortization expenses related to goodwill and other
intangible assets.
In addition, acquisitions involve numerous risks, including:
difficulties in the assimilation of the operations, technologies, products
and personnel of the acquired company;
the diversion of management's attention from other business concerns;
risks of entering markets in which we have no or limited prior experience;and
the potential loss of key employees of the acquired company.
In the event that such an acquisition does occur and we are unable to
successfully integrate businesses, products, technologies or personnel that we
acquire, our business, operating results or financial condition could be
materially adversely affected.
We do not plan to pay cash dividends on our common stock
We have never paid cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We intend to
retain future earnings, if any, to finance the growth and expansion of our
business and for general corporate purposes.
Sales of our common stock in the public market by the selling
securityholders could cause our stock price to decline
The shares of our common stock that we are registering in this
offering will be able to be sold in the public market upon the effectiveness of
this registration. The Sovereign Lenders hold securities which may be
exercisable for and convertible into approximately 19.8% of our outstanding
capital stock at May 31, 2000. Moreover, Thumberland and Ladenburg
Thalmann could purchase and resell up to approximately 31.0% of our outstanding
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capital stock at May 31, 2000 during the 18 months following the
effectiveness of the registration statement of which this prospectus is a part.
Sales of a substantial number of shares of our common stock could cause our
stock price to decline. In addition, the sale of these shares could impair our
ability to raise capital through the sale of additional stock.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We make many statements in this prospectus under the captions "Summary
Information," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Business," and elsewhere that are forward-looking and are not based
on historical facts. These statements relate to our future plans,
projections, objectives, expectations, assumptions, beliefs and
intentions. In some cases you can identify these statements by the use
of words such as "anticipate," "assume," "believe," "could,"
"estimates," "expect," "intend," "may," "plan," "project," "should"
and other similar expressions. These forward-looking statements
involve a number of known and unknown risks and uncertainties.
Our and our industry's actual results could differ materially from
those anticipated in these forward-looking statements as a result of
various factors, including those we discuss in "Risk Factors" and
elsewhere in this prospectus. These forward-looking statements speak
only as of the date of this prospectus, and we caution you not to rely
on these statements without also considering the risks and
uncertainties associated with these statements and our business that
are addressed in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels
of activity, performance, or achievements. The forward-looking
statements made in this prospectus relate only to events and
assumptions as of the date on which the statements are made.
Moreover, neither we or any other person assumes responsibility for
the accuracy and completeness of the forward-looking statements.
USE OF PROCEEDS
We will not receive any of the proceeds from sales of common stock by any
of the selling securityholders. However, we will receive the sale price
of any common stock we sell to Thumberland under the common
stock purchase agreement described in this prospectus and upon the
exercise of warrants held by selling securityholders that pay the
exercise price in cash. Depending upon the market value of shares of
our common stock, we may use the proceeds of any such sales for the
repayment of debt and if not, then for working capital and other
general corporate purposes.
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CAPITALIZATION
The following table shows:
our actual capitalization as of April 1, 2000; and
our pro forma capitalization adjusted to reflect the conversion of the
Series 1 bridge notes, Thumberland drawdown of $5,755,050 per the
example on page 7, and exercise of all outstanding warrants being
registered, excluding the repricing warrants issued to the Sovereign
Lenders, for the acquisition of an aggregate of 3,756,417 shares common
stock and the receipt by us of an aggregate $9,650,752 of proceeds.
You should read the following table with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the
financial statements and notes thereto and the description of the
equity drawdown facility under "Thumberland Common Stock
Purchase Agreement."
As of April 1, 2000
Actual Pro forma
Long-term obligations $1,273,730 $1,273,730
Stockholders' Equity:
Preferred Stock, par value $1.00 per share;
3,000,000 shares authorized; no shares issued
and outstanding, actual; no shares issued
and outstanding, pro forma
Common stock, $0.10 par value;
25,000,000 shares authorized
11,169,615 shares issued actual;
14,926,032 shares issued pro forma $ 1,116,962 $ 1,492,603
Capital in excess of par value 15,972,066 25,247,177
Accumulated other comprehensive income 101,989 101,989
Retained earnings (deficit) (22,300,843) (22,300,843)
Less Cost of 1,534,356 shares held in treasury (854,766) (854,766)
Total stockholders' equity (5,964,592) 3,686,160
Total capitalization (4,690,862) 4,959,890
The outstanding share information and amounts shown in the table above
excludes the effect of the following:
Shares of common stock issuable upon the exercise of options that remain
outstanding under our former 1987 Stock Option Plan and our former
1997 Combination Stock Option Plan and shares of common stock
issuable under our Year 2000 Equity Incentive Plan;
Shares of common stock issuable upon the exercise of warrants issued to
holders of our 10% Subordinated Convertible Promissory Notes and our
Loan and Security Agreements; and
Shares of common stock issuable upon the exercise of the repricing
warrants that are attached to the series 1 bridge financing notes issued to
the Sovereign Lenders.
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MARKET FOR OUR COMMON STOCK
Our common stock was listed on Nasdaq from 1972 until 1986. From 1986
through November 1989, our common stock was listed for quotation
by the National Quotation Bureau "pink sheets". From November
1989 until July 1997 our common stock was relisted on Nasdaq.
Since July 1997, our common stock has been listed for quotation on
the OTC Bulletin Board under the symbol "CBEX". However, the
market for such shares is limited. No assurance can be given that a
trading market for our common stock will be sustained.
The following table sets forth the range of the high and low closing bid prices
of our common stock during each of the calendar quarters identified
below. These bid prices were obtained from The OTC Bulletin Board
or from the National Quotation Bureau, Inc., and do not necessarily
reflect actual transactions, retail markups, mark downs or
commissions. The transactions include inter-dealer transactions.
High Low
1998
1st Quarter $0.34 $0.28
2nd Quarter 0.71 0.28
3rd Quarter 0.52 0.28
4th Quarter 0.35 0.15
1999
1st Quarter 0.33 0.16
2nd Quarter 1.03 0.20
3rd Quarter 3.13 0.69
4th Quarter 4.50 1.50
2000
1st Quarter 9.25 3.00
2nd Quarter 5.75 1.56
3rd Quarter (through August 4, 2000) 2.97 2.06
The last reported sale price of our common stock on May 31, 2000 was
$2.5625 per share. On that date, there were approximately 526
holders of record of our common stock.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business and do not anticipate that we will pay cash dividends in the
foreseeable future. Our future dividend policy will depend on our earnings,
capital requirements, expansion plans, financial condition and other relevant
factors.
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BUSINESS
Summary of Business
We are a designer and supplier of fibre channel hardware and
software products used to build storage area networks (SANs). SANs
enhance and simplify the centralized management and sharing of storage
resources while providing improved availability, scalability, performance,
and disaster recovery. SANs have been enabled by the emergence of fibre
channel, a new generation of server to storage communications technology.
We develop and offer Fibre Channel host bus adapters and hubs, high
availability software, fibre channel RAID disk arrays and management
software for the deployment of SAN solutions utilizing hardware and
software supplied by many different vendors. We supplement our own fibre
channel product offerings by reselling fibre channel SAN hardware and
software solutions from leading manufacturers. We also offer SAN design,
integration, and implementation services to value-added resellers (VARs) and
end-users.
We were organized as a corporation under the Massachusetts
Business Corporation Law on September 5, 1968. Our principal executive
offices are located at 360 Second Avenue, Waltham, Massachusetts. Prior to
1997, most of our revenue came from selling computer memory products to
customers using mainframe computers primarily manufactured by
International Business Machines Corporation. In October 1997 we
voluntarily filed for protection under chapter 11 of the federal bankruptcy
laws. In April 1998 we emerged from bankruptcy protection. We are
continuing to fulfill our obligations under our reorganization plan adopted in
April 1998.
Our fibre channel development efforts began in 1997, and in 1998 we
began to ship our Centurion brand of fibre channel disk arrays utilizing a
redundant array of inexpensive disk, or RAID, technology. We began
shipping our FibreQuik brand of fibre channel host bus adapters in 1999 and
our FibreQuik brand of fibre channel hubs in 2000. We recently announced
the introduction of the Centurion 2000 FF RAID disk storage array, our fifth
generation disk array, which utilizes full-fibre channel technology. The
Centurion 2000 FF delivers excellent price/performance for deploying
workgroup and enterprise level SANs.
We offer fibre channel connectivity products consisting of host bus
adapters and hubs for the SAN market. A host bus adapter provides fibre
channel connectivity between a computer workstation or server and a SAN.
Our host bus adapters can be used both with the Micro Channel interface
developed by IBM and the peripheral component interconnect, or PCI,
interface. Our host bus adapters are deployable across a wide variety of
network configurations and operating systems. Our proprietary driver
software incorporates features that enhance and simplify SAN device
integration and provide high availability. We work closely with some of our
customers to tailor our products to their specific requirements by making
software driver modifications to optimize performance with our customers'
products. Our fibre channel hubs enable users to create star topology fibre
channel SANs which greatly simplifies cabling and allows servers and
storage to be non-disruptively added or removed from the SAN. Our hub is
developed using digital circuitry providing cleaner fibre channel signals thus
allowing longer cabling distances.
We offer fibre channel RAID disk arrays that allow users to store
large amounts of online information with increased data protection,
availability and access capabilities. RAID systems allocate data across
multiple hard disk drives and allow the server to access these drives
simultaneously, thus increasing system storage and input/output performance.
RAID algorithms allow lost data on any drive to be recreated, thus ensuring
the integrity of RAID-protected data even in the event of a disk drive failure.
In addition, our RAID systems incorporate redundant power, cooling and
processing components for additional fault tolerance.
We sell our products domestically and internationally through OEM,
systems integrator, VAR and end-user channels. Our fibre channel
connectivity products are sold primarily through OEM, systems integrator
and VAR channels. Our fibre channel disk arrays are sold primarily through
VARs and directly to end-users.
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Industry Background
Growth and Management of Data
In today's information-based economy, a company's information and
databases are central to the value of the enterprise. The volume of business-
critical data generated, processed, stored and manipulated has grown
dramatically over the last decade, and managing the increase in data is one of
the most important challenges for organizations. The dramatic increase in
stored data is the result of a variety of factors, including:
the development of internet-based business operations and e-commerce;
high volume database access and transaction processing;
data warehousing and data mining of large databases;
data replication services;
digital video storage, transmission and editing; and
business and scientific computing.
As a result, enterprises face heightened requirements for data storage
solutions that offer:
improved access to shared data;
efficient management of shared data;
disaster tolerance and recovery;
reduced costs of ownership;
increased connectivity capabilities;
higher performance; and
greater reliability.
International Data Corporation, an independent industry research
company, projects that the overall storage market will reach $50 billion in
2002.
Today's enterprises generally access, share and manage the rapidly
expanding volume of data utilizing two major data communication
technologies: local area network and input/output. Local area network
technologies enable communications among servers and client computers,
while input/output technologies enable communication between servers and
their attached high-speed peripherals, such as storage devices. The servers
and storage devices in most traditional architectures communicate using an
input/output interface protocol known as small computer systems interface,
or SCSI. The SCSI protocol is based on the concept of a single server
transferring data in a serial manner to a limited number of disk drives. While
SCSI has achieved wide acceptance, it has several limitations, such as short
transport distance, lack of reliability and support for a limited number of
connections, which have restricted the capabilities of traditional network
storage architectures.
The traditional storage architectures are commonly referred to as
direct attached and network attached storage. In the widely-deployed direct
attached architecture, each server is linked to a limited number of storage
systems in close proximity using SCSI technologies. In the network attached
storage architecture, stored data can be accessed over the local area network
because the storage device is connected directly to the local area network by
a dedicated storage server. Due to the significant volume of data being stored
in today's business environment, both of these architectures have become
increasingly costly to maintain and expand.
The traditional architectures can provide acceptable performance in
smaller enterprises and even in larger organizations when a single server runs
the complete application. Over the past few years, however, the explosive
growth of networked computers has led to the distribution of applications
over hundreds or even thousands of servers. This trend, in combination with
the growth in stored data, has highlighted a number of significant problems
for enterprises using the traditional architectures:
Availability: Because access to each storage device is controlled by a
single server in traditional architectures, data can become inaccessible
if the server goes down. Further, because the server must
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process all requests for data in the storage device, the traditional model
drains server processing power and increases latency for users which
results in degraded overall performance.
Performance and Distance: To achieve higher transmission speeds in
traditional architectures, the distance between storage devices and servers
must be limited to less than 12 meters. This close proximity increases
configuration complexity and exposure to data loss in disaster situations.
Scalability: Users want to be able to increase the amount of storage
capacity without degrading performance. A business using a traditional
architecture will generally increase the number of servers as well as the
number of storage devices. Further, these architectures necessitate the
replication of data in multiple locations to eliminate bottlenecks, thus
increasing the cost of storing data.
Manageability: Businesses that use traditional architectures must rely on
network servers to provide performance, configuration, accounting, and
fault and security management of the SCSI connection and the stored
data. This decentralized management approach increases the costs of
operations and limits the ability to improve performance, ensure data
security and enable highly available data access.
As a result, the traditional architectures do not adequately support the
increasing requirements of today's data-intensive enterprises.
Fibre Channel Technology
In response to the demand for high-speed and high-reliability storage-
to-server and server-to-server connectivity, the fibre channel interconnect
protocol was developed in the early 1990s and received the American
National Standards Institute approval in 1994. Fibre channel is an open,
efficient transport system supporting multiple protocols.
Fibre channel technology has the following capabilities:
Performance capability of over four gigabits/second;
Support for distances up to 10 km;
Scalable networks to thousands of devices;
Reliable data transmission;
Interoperability with standard components; and
Ability to carry multiple existing interface data protocols, including
Internet Protocol, SCSI and VI.
As a result of its broad range of features, many industry analysts consider
fibre channel to be the most reliable, scalable, gigabit
communications technology for data storage applications available
today. Since its introduction, fibre channel has earned increasing
acceptance from industry and independent testing laboratories. Fibre
channel technology can be implemented in a wide variety of
applications, including computer clustering, networking, digital video
transmission and editing and storage access. To date, the most widely
accepted and deployed application for fibre channel technology has
been in SANs.
Storage Area Networks
A storage area network is a network of servers and data storage
devices which interconnects servers and storage devices at gigabit speeds.
Fibre channel is the enabling technology that has made implementation of a
SAN possible. Businesses are investing in SANs because they have found
that establishing a separate network for storage takes data movement off the
local area network, thereby freeing up network resources and reducing the
impact on network users. SANs provide an open, extensible platform for
storage access in data intensive environments like those used for web hosting,
online transaction processing and data warehousing. Equally important,
SANs can be significantly less expensive to maintain and expand than
traditional storage architectures because they enable shared, high-speed
access to stored data as well as centralized management. International Data
Corporation projects that the SAN market will reach $11 billion by 2003.
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SANs provide the following benefits that address the growing
challenges facing businesses using data-intensive, mission-critical
applications:
Availability: SANs enable businesses to eliminate the bottlenecks
inherent in traditional storage architectures and to reduce the dependence
on a single server to access each storage device. Because SANs use fibre
channel technology and a networked approach, SANs can be designed
with multiple fail-overs to provide more reliable connections and thereby
assure availability of data in spite of failures of individual links or
components of the system.
Performance: By using fibre channel technology, SANs support large
data block transfers at gigabit speeds and are therefore very effective for
data transfers between storage systems and servers. Fibre channel has
demonstrated transmission speeds of up to two gigabits per second and is
designed to scale to significantly higher speeds.
Distance: Fibre channel supports a transmission distance of up to 10
kilometers without loss of speed, which simplifies network configuration
and significantly reduces susceptibility to environmental disasters.
Scalability: By combining networking models with advanced server
performance and mass storage capacity, a SAN eliminates the bandwidth
bottlenecks and scalability limitations imposed by traditional storage
architectures. The network architecture reduces the need to replicate data
because all servers can share access to each storage device.
Manageability: SANs facilitate the use of centralized management
software for monitoring and control, allowing administrators to more
closely monitor their storage systems.
Flexibility: SANs provide high-speed connectivity for data-intensive
applications across multiple operating systems, including UNIX, Linux
and Windows NT. SANs can be configured in multiple topologies, and
the various topologies contribute to the flexibility of the SAN to solve
storage management issues by offering enterprises alternatives in cost and
scale.
Components of a SAN
Virtually all SANs use several basic components to make up the
network, including the following:
servers and workstations;
fibre channel host bus adapters;
fibre channel hubs and/or switches;
disk and/or tape storage devices;
copper or fiber optic cables; and
management software.
All the components must work together to deliver a functional SAN
environment.
Each server connects to a SAN through host bus adapters, which are
printed circuit cards that fit in standard sockets on computer motherboards
and enable high-speed data transfer. A host bus adapter connects the server
to other devices on a SAN via cables. The cables connect the host bus
adapter either directly to a fibre channel disk array or tape library or to a
hub or a switch. Host bus adapters are typically classified by (a) bus
architecture,(b) computer operating system, and (c) topology. Each host bus
adapter is designed to support a particular bus architecture, such as IBM's
Micro Channel bus architecture, Sun Microsystems SBus architecture or the
Peripheral Component Interconnect, or PCI, bus architecture. Because fibre
channel host bus adapter functions are regulated by software, each host bus
adapter must include software designed to work with the particular operating
system being used by the server/storage solution. These systems typically
include all types of UNIX as well as Linux and Windows NT systems. Host
bus adapters are therefore designed to work with one or more operating
systems and one or more fibre channel topologies.
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Hubs and switches are devices that direct the flow of data from one
computing device to another. When connecting multiple servers to one or
more storage devices, a hub or switch is used to create a fibre channel
network. Hubs and switches simplify cabling and allow the non-disruptive
addition or removal of servers or storage devices from the storage area
network. There are two main industry standards for the fibre channel
protocol: fibre channel arbitrated loop (FC-AL) and fibre channel switched
fabric (FC-SW), commonly known as "Fabric". Hubs utilize the fibre
channel arbitrated loop protocol, whereas switches use the fibre channel
switched fabric protocol. Hubs are typically deployed in workgroup or small
enterprise environments. A hub based arbitrated loop SAN can scale to 126
devices, but all devices on the arbitrated loop share the fibre channel
bandwidth on the loop. On the other hand, switches are used for large SAN
deployments, as a fabric network can scale to thousands of devices and each
device connected to a switch is provided with dedicated bandwidth when
talking to other devices on the fabric even when multiple conversations are
occurring simultaneously.
The Cambex Solution
We are a developer, manufacturer and reseller of fibre channel
hardware and software products that enable users to deploy SANs. We have
developed a family of host bus adapters, hubs and software that provide
increased bandwidth and availability when deploying mission-critical SANs.
Our fibre channel disk arrays allow the storage of large amounts of online
data in a high performance, high availability environment. By offering other
SAN products (tape storage, switches, software) from leading manufacturers,
we are able to deliver a complete and interoperable SAN solution to our
customers. As a result of our technology and product offerings, we are able to
deliver the following benefits to our customers and end-users:
Interoperability: The most difficult challenge faced in deploying SANs
today is to guarantee the interoperability of all the components making up
the SAN. Since we offer all the components of the SAN, including host
bus adapters, hubs, switches, disk and tape storage, management software
as well as SAN design, integration and implementation services we can
ensure that the user will receive a fully functional SAN solution.
Availability: Our products are installed in some of the most demanding
business environments, and our customers typically have extremely low
tolerance for system downtime. Our fibre channel host bus adapters
provide very high availability using our proprietary Dynamic Path
Failover software. Our fibre channel RAID disk arrays offer fully
redundant components with no single point of failure. All components
are hot swappable allowing for little or no downtime maintenance. We
conduct extensive testing with complex simulations of user
configurations to help ensure that our products will not cause any data
loss or data interruption.
Performance: Our integrated software and hardware implementations
provide high performance SAN solutions. We believe that our products
deliver exceptional price/performance, regardless of scale or
configuration.
Scalability: Our fibre channel connectivity products and RAID disk
arrays easily scale from simple, cost-sensitive SAN configurations to
complex, multi-terabyte enterprise solutions. Our products include both
workgroup class solutions and enterprise solutions that can support the
full range of connectivity enabled by the fibre channel standard.
Manageability: Our software can help eliminate configuration errors,
which are a common cause of SAN failure. Our Centurion Storage
Manager software provides an easy-to-use graphical user interface for
configuring and managing SAN attached storage.
Flexibility: Our products work with all SAN topologies and interoperate
with a wide variety of operating systems and computer platforms,
including IBM AIX, Sun Solaris, HP-UX, Linux, and Windows NT.
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Quality: We design, manufacture and test our products to meet high
standards for quality. During the product design process, each component
is qualified by testing to provide the necessary performance over ranges
of environmental conditions that are more extreme than what our
customers will encounter in normal use.
The Cambex Strategy
Our objective is to become a leading solution provider for deploying
high-speed fibre channel SANs by providing both our internally developed
fibre channel connectivity products, high availability software, and disk
arrays, as well as the highest quality products available from other fibre
channel product and storage vendors. The key elements of our strategy
include:
Focus On Fibre Channel Connectivity And Storage. We
plan to base all of our new product development on fibre channel technology.
We plan to enhance our presence in the SAN market by focusing all of our
resources on developing and supplying superior fibre channel connectivity
and storage solutions. By focusing on the design and development of fibre
channel products, we believe that we can enhance our existing products and
develop new products for SANs and other applications rapidly and
efficiently. We believe that our focus will provide us with a competitive
advantage in developing fibre channel products for complementary
applications as the markets for such applications develop.
Utilize Multiple Distribution Channels. We are focused on product
sales to new customers and on extending our product penetration within our
existing distribution channels and end-user customer base. By integrating the
highest quality products available from other fibre channel product and
storage vendors with our internally developed products, we believe that a
customer can obtain the increased benefits of our product breadth and our
interoperable, complete SAN solutions. To complement and support our
direct and indirect sales efforts, we intend to increase our sales force.
Leverage Fibre Channel Technology. We believe that we compete
effectively, in part, because of proprietary software and hardware designs.
We intend to continue to invest our engineering resources in software and
embedded hardware development in order to develop enhanced technologies
that increase the performance and functionality of our products. We believe
that product quality is an indispensable condition of competitiveness, and we
are focused on continuously improving product quality, delivery,
performance and service.
Provide Customer-Driven Product Functionality. We seek to
enhance customer satisfaction and build customer loyalty through the quality
of our service and support. In addition, we are committed to providing
customer-driven product functionality through feedback from key prospects,
consultants, and end-user, distribution channel and OEM customers.
Establish And Maintain Strategic Alliances. We intend to work
closely with leaders in the storage and computing industries to develop new
and enhanced fibre channel products. We believe that establishing strategic
relationships with technology partners is essential to facilitate the efficient
and reliable integration of our products into SANs.
Promote Our Brands. We plan to continue building awareness of our
brands in order to position ourselves as a leading provider of high-
performance fibre channel SAN solutions for high-end, enterprise-level
business applications. To promote our brand, we plan to increase our
investments in a range of marketing programs, including trade show
participation, advertising in print publications, direct marketing, public
relations and Web-based marketing.
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Products
We believe we offer high quality fibre channel products with a
superior price/performance profile. Our products include a comprehensive
suite of host bus adapters, hubs, disk arrays, and software.
Host Bus Adapters
We design, manufacture and sell a family of fibre channel host bus
adapters and related device driver software. A host bus adapter is a printed
circuit card that plugs into the motherboard of servers and workstations and
enables these devices to connect to other fibre channel devices in a SAN.
Communication between the host bus adapter and the operating system is
regulated by device driver software that is included with the host bus adapter.
Working in conjunction with our device driver software, our host bus
adapters can be used with both the Micro Channel and the PCI interface and
interoperate with a wide variety of operating systems, making our host bus
adapter capabilities one of the broadest currently available. Our software
drivers operate under all three fibre channel topologies - switched fabric,
arbitrated loop and point-to-point - as well as fibre channel configurations,
using switches and hubs. The result is our drivers simplify the installation and
ensure interoperability between many types of platforms and servers. We
introduced our FibreQuik MC1000 host bus adapter designed for the Micro
Channel interface in early 1999 and, to our knowledge, we are currently the
only supplier of gigabit speed fibre channel host bus adapters for the Micro
Channel bus architecture. In mid-1999, we introduced our FibreQuik PC1000
host bus adapter for the PCI interface.
Hubs
We design, manufacture and sell an entry-level fibre channel hub
targeted at workgroup and small enterprise SAN applications. Our FibreQuik
HB2000 provides a cost-effective solution that addresses SAN interconnect
requirements, linking servers with storage devices. By enhancing
functionality and reducing costs for entry-level SAN products, our hub
effectively addresses this segment of the SAN interconnect market.
Introduced in 2000, the FibreQuik HB2000 has been tested in a wide range of
demanding, mission-critical network environments and is a good option for
cost-conscious, entry-level SAN installations. Our hub supports full gigabit
data transfer speeds and automatically bypasses failed or unused ports in a
SAN. Our Gigabit Interface Converter (GBIC) based design allows
customers to add, move or delete storage capacity and Fibre Channel devices
on the SAN as needed. The flexible design of our entry-level hub also
enables different combinations of copper, short-wave optical, and long-wave
optical transceiver types in a single SAN solution.
Disk Arrays
We sell full fibre channel RAID (redundant array of inexpensive disk)
disk arrays that allow users to store large amounts of online information in
high availability, high performance environments. The Centurion 2000 FF is
our fifth generation disk array and is targeted at enterprises running mission-
critical Internet, e-commerce, on-line transaction processing, data
warehousing, and multimedia applications. The Centurion 2000 FF is ideal
for deploying heterogeneous SANs in IBM, Sun, HP, Windows, and Linux
environments. A fully redundant architecture ensures no single point of
failure - redundant components include RAID controllers, power supplies,
fans, AC power cords, Fibre I/O modules and global hot spares. All critical
system components are hot swappable allowing for little or no downtime
maintenance. Centurion's building block modularity allows users to start with
configurations as small as 18 gigabytes, but with the ability to scale up to 25
terabytes behind a pair of RAID controllers. Centurion Storage Manager, an
intuitive graphical user interface-based software management and
configuration application, allows for single seat management of Centurion
2000 FF arrays both locally and remotely. Users can monitor the status of
system components, gather performance statistics, and dynamically reallocate
storage to specific clients on the SAN.
Software
We develop and sell software designed to provide very high availability for
enterprise level, mission-critical SAN deployments. Our Dynamic
Path Failover (DPF) software, used with our FibreQuik host bus
adapters, provides full data path redundancy for superior data
availability, delivers dynamic and static load balancing
capabilities, and operates in active-active mode to deliver up
to twice the performance when accessing storage in a
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SAN environment. The software is deployed with two FibreQuik host bus
adapters in each server that is connected to the SAN. The SAN is
constructed to have redundant fibre channel data paths from each
server to the storage resources on the SAN. DPF software intelligently
monitors the end-to-end integrity of each fibre channel data path and
automatically detects a host bus adapter, cable, hub, switch, or
RAID controller failure. Upon detection of a path failure, DPF dynamically
remaps the storage on the failed path to the active data path. When the network
failure is corrected, DPF dynamically remaps the storage to the
restored path. The failover/failback sequence is transparent to users
and provides very high storage availability. DPF operates in active-
active mode which means that both fibre channel data paths from each
server can be accessing SAN-attached storage at the same time. This
can effectively double throughput to SAN attached storage.
Furthermore, DPF's load balancing capability acts as a traffic cop to
provide for optimal utilization of active-active fibre channel paths.
Load balancing can be done dynamically or the user can statically
configure storage to be accessed on a specific path.
SAN Integration Services
In addition, to selling our internally developed fibre channel
connectivity, disk array, and software products, we resell high quality SAN
solutions from leading manufacturers of fibre channel switches, tape storage
libraries, and management software. This allows us to offer our customer a
complete, fully integrated storage area network solution. This service is
currently made available, and included in the price of, our SAN products. We
expect to offer SAN design and integration services to customers and
potential customers on a separate fee for service basis in the future.
Technology
We possess a high level of multi-disciplinary technological expertise,
which we utilize in designing our products. This expertise includes fibre
channel technology, software design and development, embedded hardware
design, system design, and systems integration. We believe that our expertise
in these technologies provides us with competitive advantages in time-to-
market, price/performance, interoperability and product capabilities.
Our software developers have experience in developing software for
fibre channel devices and applications. We have considerable experience in
programming to meet the requirements of enterprise level systems running
mission-critical applications. Our engineers have experience in developing
software for major operating systems, including UNIX variants, Linux, and
Windows NT. Our team also possesses expertise in SAN configuration and
management as well as graphical user interface software.
We employ computer-aided design tools to engineer and design our
printed circuit boards. Our system design team has expertise in the
containment of high-frequency electromagnetic interference, which is
inherent in high-speed networking devices. We have expertise in chassis
design, including design for manufacturability, testability, usability,
reliability and low cost.
At our principal offices in Waltham, Massachusetts, we have
established a systems integration lab to provide comprehensive functional
and system level integration/interoperability testing between our fibre
channel host bus adapters, hubs, disk arrays, and software with various
computer platforms and fibre channel systems. To facilitate expanded market
penetration of our products and technology, our integration test
methodologies and software are continually evolving. Integration testing at
our lab combines our products with various fibre channel SAN components
to simulate the most commonly used functional configurations defined by our
reseller partners. The overall goal is to ensure enterprise class performance
and interoperability in real world SAN deployments.
Customers
We sell our products to OEMs, resellers and end-users. Our OEM and
reseller customers include Compaq, StorageTek, FDC Technologies, and
EDS. End-user customers of our products include Aetna Insurance, Fidelity
Investments, Chase Manhattan Bank, EDS, Lockheed Martin and
MCI/Worldcom.
In the year ended December 31, 1999, our top five customers
accounted for approximately 40% of our total net revenues, and, in the year
ended December 31, 1998, our top five customers accounted for
approximately 29% of our total net revenues.
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Customer Service and Support
We offer a wide range of customer service and support programs that include
telephone and on-site support 24 hours a day, seven days a week. In
addition, we have designed our products to allow easy diagnostics and
administration. We employ systems engineers for pre- and post-sales
support and technical support engineers for field support. In order to
support our customer service program, we have entered into an
agreement with IBM Global Services whereby IBM will provide
support for our products at end-user customer locations.
Sales and Marketing
We sell domestically and internationally to OEMs, systems
integrators, and VARs as well as directly to end users in the United States.
We target OEMs, systems integrators, and VARs who resell our products as a
part of complete SAN solutions to end-users. Our sales and marketing
strategy will continue to focus on the development of the fibre channel
market through these relationships. We also sell complete fibre channel SAN
solutions to certain targeted end-users through a small direct sales force.
Our marketing efforts are focused on increasing awareness of our
fibre channel products and being able to deliver complete SAN solutions,
promoting SAN-based solutions, and advocating industry-wide standards and
interoperability. Key components of our marketing efforts include:
extending our partnerships with leading manufacturers of fibre channel
connectivity, tape storage, and SAN management software products
allowing us to offer a complete SAN solution;
continuing our participation in industry associations and standards
committees to promote and further enhance fibre channel technology and
increase our visibility as industry experts; and
participating in major trade show events and SAN conferences to promote
our products and to continue our efforts to educate potential customers on
the value of SANs.
OEMs
OEMs can exercise significant influence in the early development of
our market because they utilize products to deliver to end users complete,
factory-configured solutions that are installed and field-serviced by the
OEMs' technical support organizations. We intend to continue our efforts to
develop relationships with leading OEM customers to introduce new
products. We believe that OEMs will continue to provide critical input as we
develop our next generation of products.
Reseller Customers
As the markets for fibre channel products and SAN solutions evolve,
and as end-user awareness of the benefits of fibre channel increases, we
believe an increasing volume of sales will occur through reseller channels.
We believe that as the market for fibre channel matures, we will be able to
leverage sales through distributors, systems integrators, and value-added
resellers and that such sales will represent an increasing percentage of our
total net revenues. As this market continues to develop, we plan to establish
additional relationships with select domestic and international resellers to
reach additional markets and increase our geographic coverage.
Manufacturing, Test and Assembly
We outsource the majority of our manufacturing, and we conduct
quality assurance, manufacturing, engineering, documentation control and
certain finish assembly and test operations at our headquarter facility in
Waltham, Massachusetts. This approach enables us to reduce fixed costs and
to provide flexibility in meeting market demands.
Except for the QLogic Corporation hardware we utilize in our host
bus adapters, we believe most component parts used in our products are
standard off-the-shelf items, which are, or can be, purchased from two or
more sources. We select suppliers on the basis of technology, manufacturing
capacity, quality and cost. Our reliance on third-party manufacturers involves
risks, including possible limitations on availability of products due to market
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abnormalities, unavailability of, or delays in obtaining access to, certain
product technologies and the absence of complete control over delivery
schedules, manufacturing yields, and total production costs. The inability of
our suppliers to deliver products of acceptable quality and in a timely manner
or our inability to procure adequate supplies of our products could have a
material adverse effect on our business, financial condition or operating
results.
Research and Development
Our success will depend to a substantial degree upon our ability to
develop and introduce in a timely fashion new products and enhancements to
our existing products that meet changing customer requirements and
emerging industry standards. We have made, and plan to continue to make,
expenditures for research and development and to participate in the
development of industry standards. However, because our net revenues
declined in each of the five most recently completed fiscal years, our
expenditures for research and development have also declined. Over the last
three fiscal years, our research and development expenses were
approximately $1.1 million in 1999, compared to $1.4 million in 1998 and
$2.3 million in 1997.
Because the amount of resources available for research and
development are limited, we have made the decision to devote all research
and development expenditures on fibre channel connectivity products, related
software drivers, and on high availability software applications for the SAN
market. Before a new product is developed, our research and development
engineers work with marketing managers and customers to develop a
comprehensive requirements specification. After the product is designed and
commercially released, our engineers continue to work with customers on
early design-in efforts to understand requirements for future generations and
upgrades.
Research and development expenses primarily consist of salaries and
related costs of employees engaged in ongoing research, design and
development activities and subcontracting costs. We are seeking to hire
additional skilled development engineers. Our business, operating results and
financial condition could be adversely affected if we encounter delays in
hiring additional engineers.
Competition
The markets in which we compete are intensely competitive and are
characterized by frequent new product introductions, changing customer
preferences and evolving technology and industry standards. Our competitors
continue to introduce products with improved price/performance
characteristics, and we will have to do the same to remain competitive.
Increased competition could result in significant price competition, reduced
revenues, lower profit margins or loss of market share, any of which would
have a material adverse effect on our business, operating results and financial
condition.
Our principal competitors in the fibre channel connectivity
product market include Emulex Corporation, QLogic Corporation, JNI
Corporation, Hewlett-Packard Corporation, Agilent Corporation, Vixel
Corporation, and Gadzoox Networks, Inc. Our primary competitors in the
disk array market include International Business Machines Corporation,
EMC Corporation and Sun Microsystems.
Our principal competitors in the host bus adapter market include
Emulex, QLogic, JNI and Agilent. Our products may also compete at the
end-user level with other technology alternatives, such as SCSI, which are
available from companies such as Adaptec, LSI Logic and QLogic as well as
a number of other companies. In the future, other technologies may evolve to
address the applications served by fibre channel today, and because we focus
on fibre channel, our business would suffer as a result of competition from
such competing technologies.
Some of our OEM and reseller customers could develop products
internally that would replace our products. The loss of opportunities to sell
our products to any such OEM and reseller customers, in addition to the
increased competition presented by these customers, could have a material
adverse effect on our business, operating results and financial condition.
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We believe that the principal bases of fibre channel product
competition presently include interoperability, reliability, scalability,
connectivity, performance and customization. We believe that other
competitive factors include pricing and technical support. We believe that
we compete favorably with respect to each of these factors.
Intellectual Property
The intellectual property rights we have in our technology, which
generally consist of system designs, software and know-how associated with
our product portfolio, principally arise from our own internal development
efforts. We attempt to protect our technology through a combination of
unpatented trade secrets, trademarks and contractual obligations. Our
software products are protected by copyright laws. We cannot assure you that
our intellectual property protection measures will be sufficient to prevent
misappropriation of our technology or that our competitors will not
independently develop technologies that are substantially equivalent or
superior to our technology. In addition, the laws of many foreign countries do
not protect our intellectual property rights to the same extent as the laws of
the United States. Our failure to protect our proprietary information could
have a material adverse effect on our business, financial condition or
operating results.
We may need to initiate litigation in the future to enforce our
intellectual property rights, to protect trade secrets or to determine the
validity and scope of the proprietary rights of others. Litigation could result
in substantial costs and diversion of our resources and could materially harm
our business. In the future, we may receive notice of infringement claims of
other parties' proprietary rights. Infringement or other claims could be
asserted or prosecuted against us in the future, and it is possible that such
assertions or prosecutions could harm our business. Any such claims, with or
without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel, cause delays in the
development and release of our products, or require us to develop non-
infringing technology or enter into royalty or licensing arrangements. Such
royalty or licensing arrangements, if required, may not be available on terms
acceptable to us, or at all. For these reasons, infringement claims could
materially harm our business.
Employees
At April 1, 2000, we had 26 full-time employees. None of our
employees are represented by a labor union. We have not experienced any
work stoppages and consider our relations with our employees to be good.
Legal Proceedings
There are no material legal proceedings pending against us.
Description of Property
We currently lease approximately 68,000 square feet in an office
facility in Waltham, Massachusetts pursuant to a lease that expires on May
31, 2003. Rent for the 68,000 square feet is approximately $381,924 per year.
We have leased this space since 1978. Of the 68,000 square feet leased,
approximately 42,000 square feet of this space is subleased to unrelated
parties for a term ending May 31, 2003.
We also own 12.4 acres of land in Poughkeepsie, New York. The land is
vacant and not subject to a mortgage.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in this prospectus.
Please refer to "Special Note Regarding Forward-Looking Statements" for
additional information.
Comparison of the three months ended April 1, 2000 and the three months
ended April 3, 1999
Our revenues were $655,000 for the quarter ended April 1, 2000 and
$1,390,000 for the quarter ended April 3, 1999. Revenues for the three
months ended April 1, 2000 decreased 53% compared to revenues for the
same three months in the prior year due to decreased disk array product sales
and related service revenues, which was partially offset by growth in sales of
our fibre channel connectivity products. The decrease in revenues from sales
of our disk array products and related services was partly due to transitioning
our line of storage products from traditional SCSI-based disk arrays to fibre
channel disk arrays. Moreover, we believe that the decrease in revenues was,
in part, because our sales and marketing organization was not as fully staffed
during the three months ended April 1, 2000 compared to the first quarter of
the prior year. We have experienced large fluctuations in quarter to quarter
revenues because our revenue base is small and revenue from a disk array
sale to a single customer is usually large, with a long sales cycle. Therefore,
a delay of any given disk array sale from one quarter to the next quarter can
have a significant impact on revenues from quarter to quarter.
Gross profit rate was 45% of sales for the three months ended April 1,
2000, compared to 55% of sales for the three months ended April 3, 1999.
This decrease in our gross profit rate was the result of the greater relative
amount of fixed manufacturing costs in relation to revenues in the first
quarter of this year as compared to the first quarter of fiscal 1999.
Operating expenses for the three months ended April 1, 2000
increased by 5% in comparison to operating expenses for the comparable
three months of the prior year. In order to remain competitive, we continue
to expend significant amounts for research and development for new product
development and the enhancement of existing fibre channel connectivity
products. Research and development expenses for the three months ended
April 1, 2000 increased by 13% compared to the amount of these expenses in
the first quarter of fiscal 1999. We also continued to expend increased
resources to build our sales and marketing organization and reseller channels.
Interest expense increased by 152% for the three months ended April
1, 2000 compared to the three months ended April 3, 1999. This increase in
interest expense was primarily due to funds borrowed for working capital
following the end of the first quarter of 1999. We borrowed $210,000 in
exchange for, among other things, our issuance of 10% subordinated
convertible promissory notes from June 1, 1999 through August 18, 1999.
We borrowed $550,000 in November 1999 in exchange for, among other
things, our issuance of 12% promissory notes due November 2000. We also
borrowed $2,000,000 in January and February 2000 from the Sovereign
Lenders in exchange for, among other things, our issuance of series 1 bridge
financing notes that bear interest at the rate of 8% per annum.
Extraordinary income items for the three months ended April 1, 2000
were recorded as a result of some of our creditors agreeing to accept partial
cash payments in full satisfaction of liabilities owed to these creditors. These
partial cash payments were made primarily to pre-bankruptcy creditors.
Total comprehensive net loss for the first quarter of fiscal 2000 was
$369,000, or $0.04 per share, as compared with net income of $101,000, or
$0.01 per share, for the first quarter of fiscal 1999.
Comparison of fiscal years 1999 and 1998
Our revenues were $3,402,000 and $3,749,000 in 1999 and 1998,
respectively. The increase in revenues for fibre channel connectivity
products in 1999 was completely offset by a decrease in service revenues
from memory products customers.
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Cost of sales as a percentage of revenues was 42% and 79% in 1999
and 1998, respectively. The improved gross profit was due to a change in the
mix of products sold to customers and a reduction in our fixed manufacturing
costs.
Our operating expenses for 1999 decreased by 27% in comparison to
operating expenses for 1998. Research and development expenses
represented 32% of sales, or $1,097,000, in 1999 and 37% of sales, or
$1,379,000, in 1998. Sales and general and administrative expenses were
$1,386,000 and $2,002,000 in 1999 and 1998, respectively. The reduction in
operating expenses is due principally to the cost savings achieved from
putting in place additional expense controls.
Interest expense increased by 148% in 1999 compared to 1998
primarily because of funds borrowed for working capital. In addition to the
$760,000 borrowed in 1999 described above, on June 1, 1998 we borrowed
$1,060,000 in exchange for, among other things, our issuance of 10%
subordinated convertible promissory notes. In November 1998 we entered
into a loan and security agreement with B.A. Associates, Inc. under which we
may borrow up to $650,000 on a revolving basis. Interest accrues at the rate
of 12% per annum on amounts outstanding under this revolving credit
facility. Interest accrued on amounts outstanding from time to time under
this revolving credit facility were $44,000 and $3,000 in 1999 and 1998,
respectively.
Interest income decreased by 89% in 1999 compared to 1998. We
recognized $405 and $3,641 in 1999 and 1998, respectively from certain
equipment leases that qualify as sales type leases. These leases ended in the
second quarter of 1999 and we do not currently have any sales type leases.
Extraordinary income items for 1999 were recorded as a result of
some of our creditors agreeing to accept partial cash payments in full
satisfaction of liabilities owed to these creditors. These partial cash payments
were made primarily to pre-bankruptcy creditors. Other expenses in 1998
were primarily legal and professional fees related to our 1998 bankruptcy
reorganization proceeding.
Total comprehensive income for fiscal 1999 was $110,000, or $0.01
per share, as compared with a total comprehensive loss of $2,746,000, or
$0.30 per share, for fiscal 1998.
Comparison of fiscal years 1998 and 1997
Our revenues were $3,749,000 and $10,066,000 in 1998 and 1997,
respectively. The revenues for mainframe storage and client/server products
declined significantly in 1998 compared to revenues from mainframe storage
and client/server products in 1997.
Cost of sales as a percentage of revenues was 79% and 94% in 1998
and 1997, respectively. Inventory write-downs in 1997 were approximately
$2,700,000. Their effect on the cost of sales percentage was 28% in 1997.
Operating expenses for 1998 decreased by 50% in comparison to
operating expenses for 1997. Research and development expenses
represented 37% of sales, or $1,379,000, in 1998 and 23% of sales, or
$2,322,000, in 1997. Sales and general and administrative expenses were
$2,002,000 and $4,489,000 in 1998 and 1997, respectively. The reduction in
operating expenses was due principally to the cost savings achieved from
outsourcing and putting in place additional expense controls.
Interest income decreased by 79% in 1998 compared to 1997. We
recognized $3,641 and $17,674 in 1998 and 1997, respectively from certain
equipment leases that qualify as sales type leases. There was a substantial
reduction in the recording of sales type leases in 1998 compared to 1997.
Total comprehensive loss for fiscal 1998 was $2,746,000, or $0.30
per share, as compared with a total comprehensive loss of $6,720,000, or
$0.74 per share, for fiscal 1997.
Inflation
We did not experience any material adverse effects in 1997, 1998,
1999 or in the first quarter of 2000 due to general inflation.
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Liquidity and Capital Resources
As discussed more fully in Note 1 to our consolidated financial
statements, we have suffered substantial recurring losses from operations for
the last five consecutive years. Consequently, our ability to continue as a
going concern, is dependent upon several factors, including our ability to
raise additional capital.
Management has taken corrective actions to reduce expenses through
consolidation of the workforce and outsourcing certain operations.
Management has also been active in establishing new strategic alliances that
it believes will result in increases in revenues in the future through the sale
of a greater volume of products. We cannot give any assurances that the actions
taken to date will increase revenues or continue to reduce operating losses.
Requirements
Depending upon the market value of shares of our common stock, any
additional financing that we obtain through the sale of common stock to
Thumberland Limited under the common stock purchase agreement or cash
that we may receive from the exercise of outstanding warrants may be used to
repay and prepay debt and for working capital purposes to fund our
continuing operations including research and development and sales and
marketing expenses.
Resources
Our cash and marketable securities were $1,008,000, $367,000 and
$211,000 at April 1, 2000, December 31, 1999 and December 31, 1998,
respectively. Working capital was a deficit of $2,851,000, $2,125,000 and
$1,575,000 at April 1, 2000, December 31, 1999 and at December 31, 1998,
respectively. During 1999, we expended $9,000 for capital equipment to
support our growth. During fiscal 2000, we expect to acquire less than
$100,000 of capital equipment.
As described above, we have a revolving credit facility with B.A.
Associates, Inc. under which we may borrow up to $650,000. At April 1,
2000 we had no amounts outstanding under this revolving credit facility.
Moreover, as described above, during the first quarter of 2000,
we borrowed $2,000,000 in cash from the Sovereign Lenders in
exchange for, among other things, our issuance of series 1 bridge
financing notes that mature in August and September 2000. We
received net proceeds equal to $1,737,900 from the Sovereign
Lenders as a result of this bridge financing. The series 1 bridge
financing notes bear interest at the rate of 8% per annum and are
convertible into shares of our common stock at a weighted average
per share price of $4.08. Depending upon the date on which these
series 1 bridge financing notes are paid in full or redeemed, we have
to pay the Sovereign Lenders a premium ranging from 15% to 20% of
the original principal amount of the notes prior to maturity and a
premium of 25% of the original principal amount of the notes after
maturity. Following conversion of the bridge notes, if the Sovereign
Lenders do not realize at least a 20% gain on the sale of the shares
received from conversion of the bridge notes and sold during the 90
days following conversion, then the Sovereign Lenders are entitled to
acquire additional shares of common stock at a price of $0.10 per
share through the exercise of repricing warrants. In addition to these
bridge notes and the attached repricing warrants, we issued warrants
to purchase 300,000 shares of common stock. These warrants have a
weighted average exercise prices of $4.54 per share.
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DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers
The following table shows the name, age and position of each of our
executive officers and directors as of the date of this prospectus.
Name Age Position
Joseph F. Kruy (1) 68 President, Chief Executive Officer and
Chairman of the Board and a Director
Philip C. Hankins (1)(2) 69 Director
C.V. Ramamoorthy, Ph.D.(1)(2) 74 Director
Robert J. Spain, Ph.D. (1). 62 Director
Peter J. Kruy, M.D.. 37 Executive Vice President, Treasurer
and Chief Financial Officer
Lois P. Lehberger. 44 Vice President and Controller
___________________
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Joseph F. Kruy has served as our President, Chief Executive Officer and a
member of our board of directors since our inception in 1968. Mr. Kruy has
served as our Chairman of the Board since October 1975. Mr. Kruy holds a
B.S. in electrical engineering and a Dipl. Eng. from the Technical University
in Budapest.
Philip C. Hankins has been a member of our board of directors since 1975.
Since 1975 Mr. Hankins has been the President of Charter Information
Corporation, an information processing company. Mr. Hankins holds a B.S.
in mechanical engineering from Cornell University and a M.S. from Harvard
University.
C.V. Ramamoorthy, Ph.D. has been a member of our board of directors since
our inception in 1968. Since prior to 1995, Dr. Ramamoorthy has been a
Professor of Electrical Engineering and Computer Sciences at the University
of California Berkeley. Dr. Ramamoorthy holds a B.S. in physics from the
University of Madras, India, a M.S. in mechanical engineering from the
University of California Berkeley and a M.S. and a Ph.D. from Harvard
University.
Robert J. Spain, Ph.D. has been a member of our board of directors since
1995. Dr. Spain was also our Vice President of Research from 1969 to 1977.
Since prior to 1995, Dr. Spain has been the President of CFC, Inc., an
electronic component manufacturing company. Dr. Spain holds a B.S.E.E.
and a M.S.E.E. from the Massachusetts Institute of Technology and a Doctor
of Science from Paris, Sorbonne.
Peter J. Kruy has served as our Executive Vice President, Treasurer and
Chief Financial Officer since August 1998. From November 1993 to January
1998, Dr. Kruy was the President, Chief Financial Officer and Chief
Executive Officer of Jupiter Technology, Inc. a data networking company.
Dr. Kruy holds a B.A. in biology from the University of Pennsylvania, a
M.D. from Tufts University School of Medicine and an M.B.A. from the
Wharton School at the University of Pennsylvania. Dr. Kruy is also the
owner of CyberFin Corporation, a more than five percent shareholder of
Cambex. Peter J. Kruy is the son of Joseph F. Kruy.
Lois P. Lehberger joined Cambex in June 1978 and has served as our
controller since August 1998, and our vice president since November 1999.
Since joining Cambex, Ms. Lehberger has been responsible for our
accounting function. Ms. Lehberger holds a B.A. in economics and
accounting from the College of the Holy Cross.
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Board Composition
Under Massachusetts law, our board of directors is classified into
three classes, as nearly equal in number as possible, with the term of office of
one class expiring each year. At the meeting of stockholders held on
December 23, 1999, the stockholders re-elected all directors for a one, two or
three year term and until their successors are duly elected and qualified. At
that meeting, Messrs. Joseph Kruy and C.V. Ramamoorthy were elected as
Class I directors with terms of three years, or until the annual meeting of
stockholders to be held in 2003, Dr. Spain was elected as a Class II director
with a term of one year, or until the next annual meeting of stockholders to be
held in 2001, and Mr. Hankins was elected as a Class III director with a term
of two years, or until the annual meeting of stockholders to be held in 2002.
Board Committees
Our board of directors has an audit committee and a compensation
committee.
Audit Committee. The current members of our audit
committee are Messrs. Ramamoorthy and Hankins. Our audit
committee reviews, acts on, and reports to the board of directors with
respect to various auditing and accounting matters, including the
selection of our independent auditors, the scope of the annual audits,
fees to be paid to the auditors, the performance of our independent
auditors and our accounting practices. On July 10, 2000 the board of
directors adopted an audit committee charter as required under the
rules of the Securities and Exchange Commission.
Compensation Committee. The current members of
our compensation committee are the members of the board of
directors. Our compensation committee determines the salaries and
incentive compensation of our officers and provides recommendations
for the salaries and incentive compensation of our other employees.
Compensation Committee and Insider Participation
The voting members of the compensation committee
are the members of our board of directors. Mr. Kruy is on the
compensation committee but abstains from discussions and voting on
decisions regarding his compensation.
Director Compensation
We compensate our non-employee directors with an annual fee of
$10,000 and a fee of $1,000 for each meeting of the board of directors
attended. In August 1998, the board of directors authorized the non-
employee director compensation to be converted from cash to shares of our
common stock at a price of $0.25 per share, or 50% of the fair market value,
whichever is greater. To date, no shares have been issued to the non-
employee directors as compensation for services as a member of the board of
directors.
The board of directors is also covered by indemnification provisions
of our by-laws, as amended. See the section entitled "Description of
Securities."
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Executive Compensation
The following table shows all compensation awarded to, earned by, or
paid to our Chief Executive Officer for services rendered to Cambex in all
capacities during the years ended December 31, 1999, 1998 and 1997. For
the years ended December 31, 1999, 1998 and 1997, none of our other
executive officers earned more than $100,000 per year and are omitted from
the table.
Summary Compensation Table
Name and Principal Position Year Annual Compensation(1)
Salary
Joseph F. Kruy 1999 $ 200,000
President and Chief Executive Officer 1998 $ 200,000
1997 $ 200,000 (2)
________________
(1) The columns for "Other Annual Compensation" and "Long-Term
Compensation" have been omitted because there is no such
compensation required to be reported.
(2) Compensation for fiscal 1997 includes $63,730 in annual base salary
that was earned, but the payment of which was deferred and paid to
Mr. Kruy in 1998.
Option Grants in 1999
No options were granted to, or exercised by Mr. Kruy in the fiscal
year ended December 31, 1999.
Year-end Option Values
No options were granted to Mr. Kruy in the fiscal year ended
December 31, 1999 or in previous years. Mr. Kruy does not hold any options
to purchase shares of our capital stock.
Employee Benefit Plans
Year 2000 Equity Incentive Plan. The following description of Cambex's Year
2000 Equity Incentive Plan is a summary of the material terms of the plan.
The purpose of the plan is to enhance the profitability and value of
Cambex for the benefit of its stockholders by enabling Cambex to offer
incentives to employees and other persons or entities associated with it. This
is a means to both increase the ownership of Cambex held by those
individuals in order to attract, retain and reward them and more closely align
the interests of those individuals and the stockholders of Cambex. The plan
authorizes the grant of awards in the form of stock options, stock appreciation
rights (SARs), restricted stock or unrestricted stock awards, deferred stock
awards, performance awards, loans or supplemental grants, or combinations
thereof, to employees and others associated with Cambex and its affiliates.
The plan was approved by Cambex's board of directors in November
December 1999. Our board of directors reserved a total of 1,500,000 shares
of our common stock for issuance under the plan. As of May 31, 2000, no
shares had been issued as the result of the exercise of options or awards
granted pursuant to the plan. As of May 31, 2000, 137,500 shares of our
common stock were subject to outstanding stock options granted pursuant to
the plan and 1,362,500 shares were available for future grants. The plan is
administered by the board of directors. According to the plan, the board of
directors has authority to determine the individuals or entities associated with
Cambex or one of its subsidiaries who are to be granted awards and the terms
of these awards, including:
the number of shares subject to an award;
the type of award;
the exercise price per share; and
the duration of the award.
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Incentive stock options must have an exercise price equal to at least 100%,
110% if the grant is to a stockholder holding more than 10% of
Cambex's voting stock, of the fair market value of our common stock
on the date of the award. Incentive stock options generally have a
duration of 10 years, and a duration of five years if the grant is to a
stockholder holding more than 10% of Cambex's voting stock.
There are also outstanding options granted under our 1997
Combination Stock Option Plan that was adopted by the board of directors.
While the 1997 Combination Stock Option Plan was not approved by our
stockholders, the stock options granted under this plan covering 1,176,500
shares of our common stock were approved by our stockholders in December
1999. Our Year 2000 Equity Incentive Plan replaced the 1997 Combination
Stock Option Plan.
Incentive Bonus Plan. In April 1980, the board of directors and the
stockholders approved the Incentive Bonus Plan. The Incentive Bonus Plan
authorizes the payment of a percentage of our pretax income to key
employees. The maximum aggregate incentive bonus awards for any fiscal
year shall be 15% of Cambex's pretax profits for each year. Pretax profit is
defined under the plan as net income before taxes, with certain adjustments.
The bonus plan is administered by the board of directors. The awards
granted under the bonus plan are non-transferable.
Employment Agreement
We entered into an employment agreement with Joseph F. Kruy on
November 18, 1994. An extension of the term of this employment agreement
to December 31, 2002 was approved by our board of directors in November
1999. Under his employment agreement, Mr. Kruy is engaged to serve as our
Chairman of the Board, President and Chief Executive Officer. Except for
illness, reasonable vacations and other customary exceptions, during the term
of the agreement, Mr. Kruy is to devote all of his working time and attention
to the performance of his duties and responsibilities at Cambex. Mr. Kruy is
to be paid a minimum annual base salary of $200,000 per year. Mr. Kruy is
also entitled to participate in our Incentive Bonus Plan and is eligible to
receive an annual bonus equal to 4% of our pre-tax profit, as that term
defined in the Incentive Bonus Plan. If Mr. Kruy voluntarily terminates his
employment with us, he is entitled to receive his base annual compensation
through the date of termination and any amount that he may be entitled to
receive under the Incentive Bonus Plan in accordance with the terms of that
Plan. If, after Mr. Kruy voluntarily terminates his employment with us, he
accepts employment during the remaining then current term of his agreement
with an entity that directly competes with us, then we may cease paying Mr.
Kruy any further amounts. If we terminate Mr. Kruy's employment for
reasons other than for cause or if we give another person either the title or
the powers of the Chief Executive Officer, then Mr. Kruy is entitled to
continue to receive his annual base salary through the end of the then
current term of the agreement, and is entitled to receive any incentive bonus
that would have been earned under the Incentive Bonus Plan during the fiscal
year in which his employment was terminated. If, following termination of Mr.
Kruy's employment with us, he accepts employment elsewhere before December 31,
2002, then we do not have to continue to pay Mr. Kruy for the year ending
December 31, 2002. Moreover, if on the date of termination of Mr. Kruy's
employment with us, our assets are in the hands of a receiver, an assignee for
the benefit of creditors, trustee in bankruptcy, debtor-in-possession or other
entity for the benefit of creditors or if our consolidated net worth is less
than our consolidated net worth at December 31, 1999, then we have no
obligation to pay Mr. Kruy any amount after termination of his employment.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
On June 1, 1998, we borrowed approximately $1,060,000, including
approximately $460,000 from Joseph F. Kruy, our Chairman of the
Board, President, and Chief Executive Officer, in exchange for the
issuance of 10% Subordinated Convertible Promissory Notes (the
"10% Notes"). Under the terms of the 10% Notes, which are due on
April 30, 2003, the holders may convert the 10% Notes into shares of
common stock at a conversion price of $0.22 per share. In addition to
the 10% Notes, each holder, including Mr. Kruy, was issued a Stock
Purchase Warrant, the exercise of which will allow the warrant holder
to purchase one share of common stock, at $0.50 per share, for each
dollar loaned to us. Additional Stock Purchase Warrants to purchase
96,373 shares of common stock, at an exercise price of $0.50 per
share, were issued to the holders of 10% Notes on June 1, 1999 in
relation to interest due on the June 1, 1998 notes. We believe that the
borrowing arrangements we made with Mr. Kruy and others are on
terms at least as favorable to us as we would have expected from
lenders unrelated to us and Mr. Kruy.
On June 1, 1998, we entered into a Master Lease with CyberFin
Corporation, a corporation wholly owned by Peter J. Kruy, our Executive
Vice President, Treasurer and Chief Financial Officer. Under the Master
Lease we are renting from CyberFin an IBM 2003 S/390 Multiprise
Processor and related software and maintenance at the rate of $3,787.64 per
month for a period of three years. We also purchased computer memory
from CyberFin for $141,920 in 1998 and $73,000 in 1999. We believe that
lease and the purchase arrangements we made with CyberFin are on terms at
least as favorable to us as we would have expected from an equipment lessor
unrelated to us, CyberFin and Dr. Kruy for equipment of comparable quality.
On November 9, 1998, we entered into a Loan and Security
Agreement with B.A. Associates, Inc. (BAA), which is a corporation owned
by a relative of Joseph F. Kruy, our Chairman, President and Chief Executive
Officer. This Loan and Security Agreement, as amended by a First
Amendment to Loan and Security Agreement dated March 15, 1999, and
further amended by a Second Amendment to Loan and Security Agreement
dated June 1, 1999 (as so amended, the "BAA Loan Agreement"), allows us
to borrow up to $650,000, which is the maximum that may be outstanding at
any one time. Under the BAA Loan Agreement, we granted BAA a first
priority security interest in all of our accounts, instruments, documents,
general intangibles, equipment, inventory, farm products and proceeds of any
of the foregoing. We pay all amounts that we receive from collections of our
accounts receivable to BAA not less frequently than each week until the
outstanding loan amount plus interest, which accrues at a 12% annual rate, is
fully paid. Under the terms of the BAA Loan Agreement, BAA received a
warrant for the purchase of two shares of common stock for each dollar it has
committed to loan to us. The exercise price under the warrants is $0.22 per
share. We believe that the borrowing arrangements we made with BAA are
on terms at least as favorable to us as we would have expected from lenders
unrelated to us and relatives of Mr. Kruy.
From June 1, 1999 through August 18, 1999, we raised $210,000 in
exchange for the issuance of 10% Subordinated Convertible Promissory
Notes. During this time period Joseph F. Kruy loaned us $100,000 of the
total amount that we borrowed. In exchange for these loans, we issued 10%
Subordinated Convertible Promissory Notes, including a 10% Subordinated
Convertible Promissory Note to Mr. Kruy. We believe that the borrowing
arrangements we made with Mr. Kruy and others are on terms at least as
favorable to us as we would have expected from lenders unrelated to us and
Mr. Kruy.
In November 1999, we borrowed $125,000 from Joseph F. Kruy and
$125,000 from Philip C. Hankins, a member of our board of directors. We
also entered into separate Loan and Security Agreements with each of
Messrs. Kruy and Hankins. At that time, we entered into three other Loan
and Security Agreements with persons unrelated to the company (the "Other
1999 Lenders") pursuant to which we borrowed an additional $300,000. Our
payment obligations under these Loan and Security Agreements (the "1999
Loan Agreements") are evidenced by 12% Notes due in November 2000.
Under the 1999 Loan Agreements, we granted each of Messrs. Kruy and
Hankins and the Other 1999 Lenders a first priority security interest in all of
our accounts, instruments, documents, general intangibles, equipment,
inventory, farm products and proceeds of any of the foregoing. Under the
terms of the 1999 Loan Agreements, Messrs. Kruy and Hankins and the
Other 1999 Lenders received a warrant to purchase up two shares of common
stock for each dollar loaned to us. The exercise price under these warrants is
$2.00 per share. We believe that the borrowing arrangements we made with
Mr. Kruy and others are on terms at least as favorable to us as we would have
expected from lenders unrelated to us and Mr. Kruy.
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PRINCIPAL SHAREHOLDERS
The following table presents information regarding the beneficial
ownership of Cambex's common stock as of May 31, 2000, by:
each person, or group of affiliated persons, known to us to be the
beneficial owner of more than five percent of our outstanding shares of
common stock;
each of our directors;
each of our executive officers; and
all current directors and executive officers of Cambex as a group.
For purposes of calculating the number of shares of common stock
beneficially owned after the effectiveness of this registration, we have
assumed the sale of all shares covered by the registration statement of
which this prospectus is a part. For purposes of calculating the
percentage beneficially owned after the effectiveness of this
registration, the total number of shares of common stock outstanding
includes the number of shares of common stock covered by this
registration statement of which this prospectus is a part issuable to: (a)
the Sovereign Lenders upon conversion of the series 1 bridge
financing notes and the exercise of common stock purchase warrants
issued to the Sovereign Lenders; (b) Thumberland upon the exercise
of a stock purchase warrant issued to Thumberland; and (c)
Ladenburg Thalmann upon the exercise of a stock purchase warrant
issued to Ladenburg Thalmann. The number excludes (a) repricing
warrants and (b) shares of common stock issuable to Thumberland
under the common stock purchase agreement. Unless otherwise noted
in the table, the address for each person listed in the table is c/o
Cambex Corporation, 360 Second Avenue, Waltham, Massachusetts
02451.
Number of Shares Percentage of Outstanding
Name and address of Beneficially Shares Beneficially Owned(2)
Beneficial Owner Owned (1) Before Offering After Offering
Joseph F. Kruy (3) 2,194,288 21.0% 18.6%
Philip C. Hankins (4) 289,245 2.9 2.6
3011 North Lamar Boulevard
Austin, TX 78705
C.V. Ramamoorthy 99,156 1.0 *
University of California, Berkeley
Computer Science Division
Berkeley, CA 94720
Robert J. Spain -0- * *
179 Bear Hill Road
Waltham, MA 02451
Peter J. Kruy (5) 1,022,164 10.5 9.3
Lois P. Lehberger (6) 18,000 * *
All directors and
executive officers as
a group (6 persons) (7) 3,622,853 33.9 30.1
_______________
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership for purposes of the table is determined in
accordance with the rules of the Securities and Exchange Commission
and is not necessarily indicative of beneficial ownership for any other
purpose. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of common
stock issuable upon the exercise of options and warrants held by that
person that are currently exercisable or exercisable within 60 days of
following May 31, 2000 (July 31, 2000) are deemed to be outstanding.
These shares, however, are not considered outstanding for purposes
of computing the percentage ownership of any other person. Except
as indicated in the footnotes,
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we believe that the persons and entities named in the table have sole
voting and sole investment power with respect to all shares
beneficially owned by them, subject to community property laws where applicable.
(2) Percentage of ownership is based on 9,635,259 shares of common stock
outstanding as of May 31, 2000, and 10,976,759 shares of common
stock outstanding after completion of this offering.
(3) Includes 794,348 shares of common stock issuable upon exercise of
stock purchase warrants issued in 1998 and 1999 exercisable within 60
days following May 31, 2000 (or by July 31, 2000). This number also
includes 56,250 shares held by the Kruy Family Trust, for which Mr.
Kruy's wife and children are the beneficial owners. Mr. Kruy disclaims
beneficial ownership of these shares. Of these shares of common stock,
979,239 are subject to the terms of a stock pledge agreement dated as of
January 18, 2000 (the "Kruy Pledge Agreement"), among Joseph F.
Kruy, Cambex and the Sovereign Lenders. Provided that Cambex is not
in default under the series 1 bridge note purchase agreement dated as of
January 18, 2000 (the "Bridge Note Purchase Agreement"), among
Cambex and the Sovereign Lenders, the series 1 bridge financing notes
issued pursuant to the Bridge Note Purchase Agreement, or the Kruy
Pledge Agreement, Mr. Kruy has the right to vote the pledged shares.
(4) Includes 184,245 shares of common stock issuable upon exercise of a
stock purchase warrant issued in November 1999.
(5) Includes 960,164 shares owned by CyberFin Corporation, a corporation
wholly owned by Peter J. Kruy, and 60,000 shares subject to currently
exercisable options. Of these shares of common stock, 730,228 are
subject to the terms of a stock pledge agreement dated as of January 18,
2000 (the "CyberFin Pledge Agreement"), among CyberFin, Cambex,
and the Sovereign Lenders. Provided that Cambex is not in default
under the Bridge Note Purchase Agreement, the series 1 bridge
financing notes, or the CyberFin Pledge Agreement, CyberFin has the
right to vote the pledged shares.
(6) Consists of 18,000 shares subject to options exercisable within 60 days
following May 31, 2000 (or by July 31, 2000).
(7) Includes 1,056,593 shares subject to options and warrants
exercisable within 60 days following May 31, 2000 (or by July 31,
2000). See footnotes (3) through (6) above.
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DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue up to 25,000,000 shares of common stock,
$0.10 par value per share, of which 9,635,259 shares were issued and
outstanding as of May 31, 2000. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common
stock are entitled to receive ratably such dividends when, as and if declared
by our board of directors, out of funds legally available therefor. Holders of
common stock have one vote for each share held of record and do not have
cumulative voting rights. In the event of any liquidation, dissolution or
winding-up of our affairs, holders of our common stock are entitled to share
ratably in the net assets that are remaining after payment or provision for
payment of all or our debts and obligations, and after liquidation payments to
holders of any preferred stock then outstanding, if any. Shares of common
stock are not redeemable and have no preemptive or similar rights. All
outstanding shares of common stock are, and the shares of common stock to
be offered by us when issued will be, fully paid and nonassessable.
Preferred Stock
Our restated articles of organization authorize our board of directors, subject
to the limitations prescribed by law and without further approval of our
stockholders, to establish one or more series of preferred stock, to determine
from time to time the number of shares constituting any series, and to fix the
designation, preferences, powers, qualifications, special and relative rights
and privileges of the shares of any series and the qualifications, limitations
or restrictions thereof. We are authorized to issue up to 3,000,000 shares of
series preferred stock, $1.00 par value per share, of which none are issued or
outstanding as of the date hereof. We have no present intention to issue any
shares of preferred stock. The future issuance of preferred stock could
operate to dilute the voting power of holders of common stock, could create
voting impediments or deter persons seeking to effect a takeover or otherwise
gain control of Cambex, or could otherwise adversely affect the rights of
holders of common stock.
Miscellaneous
One of the provisions of our 1998 bankruptcy reorganization plan is
deemed to be an amendment to our restated articles of organization that
prohibits us from:
issuing non-voting equity securities;
creating a class of equity securities having a preference over any other
class of equity securities with respect to dividends unless adequate
provision is made for the election of directors representing the preferred
class in the event of a default in the payment of its dividends; and
creating any other class of equity securities unless an appropriate
distribution of voting power is made among all such classes.
Dividend Policy
We have not paid any cash dividends to date, and have no intention to pay
any cash dividends on our common stock in the foreseeable future. The
declaration and payment of dividends is subject to the discretion of the board
of directors and to certain limitations imposed by the Massachusetts
Corporation Laws. The timing, amount and form of dividends, if any, will
depend, among other things, on our results of operations, financial condition,
cash requirements and other factors deemed relevant by our board of
directors.
Registration Rights
Individuals holding warrants to purchase an aggregate of
1,370,103 shares of our common stock have both demand and piggyback
registration rights.
Our registration rights agreement with the Sovereign Lenders
requires us to file a registration statement covering shares of common stock
issued or issuable to them pursuant to the Sovereign Bridge Financing, including
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their assignees and transferees, within 60 days following the
completion of that financing. Moreover, the Sovereign Lenders have the
right to include shares of common stock issued or issuable to them pursuant
to the Sovereign Bridge Financing, including their assignees and transferees,
in registration statements that we file. Further, the Sovereign Lenders may
require that we register their shares of common stock in any registration
statements that we file to sell shares for our own account or the account of
others. We are obligated to pay the costs for the exercise of the Sovereign
Lenders' registration rights including their legal fees and disbursements. The
Sovereign Lenders have waived our failure to file a registration statement
covering the shares of common stock issuable to them in accordance with the
time periods described in the registration rights agreement.
Our registration rights agreement with Thumberland provides that we
will file a registration statement covering shares of our common stock
issuable to Thumberland under the common stock purchase agreement and
upon the exercise of the stock purchase warrant issued to Thumberland on or
before August 28, 2000. We are obligated to pay the costs associated with
the filing of the registration statement and related costs associated with the
registration of the shares of common stock issuable to Thumberland.
Indemnification Provisions
Our by-laws, as amended, reflect the adoption of the provisions of the
Massachusetts General Laws, Chapter 156B, Section 67 which
empowers a Massachusetts corporation to indemnify any person in
connection with any action, suit or proceeding brought or threatened
by reason of the fact that such person is or was a director, officer,
employee or agent of the corporation or was serving as such with
respect to another corporation or other entity at the request of such
corporation, unless such person shall have been adjudicated in any
proceeding not to have acted in good faith in the reasonable belief that
such action was in the best interests of the corporation. Our by-laws,
as amended, also provide that we will indemnify any person, who was
or is a party to a proceeding by reason of the fact that he is or was one
of our directors or officers, or is or was serving at our request as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with such proceeding if he acted in good faith and in a
manner he reasonably believed to be or not opposed to our best
interests, in accordance with, and to the full extent permitted by, the
Massachusetts General Corporation Law.
Transfer Agent and Registrar
The transfer agent for our common stock is American Stock Transfer
and Trust Company New York, New York.
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SOVEREIGN BRIDGE FINANCING
In January and February, 2000, we borrowed a total of $2 million
from the Sovereign Lenders which was arranged for us with the assistance of
Sovereign Capital. We entered into a series 1 bridge note purchase
agreement and other related agreements with the Sovereign Lenders pursuant
to which we issued the Sovereign Lenders:
series 1 bridge financing notes that are convertible into up to a
total of 649,958 shares of our common stock, which number
includes shares issuable upon conversion of accrued interest and
premium amounts due under the notes;
repricing warrants that are attached to each series 1 bridge
financing note which may be exercisable for up to a total of
956,103 shares of our common stock; and
common stock purchase warrants that are exercisable for up to a
total of 300,000 shares of our common stock.
The series 1 bridge financing notes mature on August 15, 2000 and
September 6, 2000. Prior to the maturity dates, we have the choice of
redeeming the bridge notes for cash or exchanging the notes for shares of our
common stock, plus a premium in excess of the original principal amount we
borrowed and accrued interest on the bridge notes. At the time the
registration statement of which this prospectus is a part becomes effective,
we anticipate the applicable premium to be either 20% or 25% of the original
principal amount of the bridge notes. If we fail to redeem the bridge notes at
or before maturity, then the Sovereign Lenders have the choice to accept cash
or shares of our common stock to satisfy our obligations. If we fail to redeem
the bridge notes at or before maturity, in addition to the original amount we
borrowed and accrued interest, we will have to pay a premium equal to 25%
of the original principal amount of the notes. We have had preliminary
discussions with representatives of the Sovereign Lenders requesting that the
Sovereign Lenders postpone the maturity date of the series 1 bridge financing
notes. However, we are unable to assure you that the Sovereign Lenders will
agree to postpone the maturity date of the bridge notes. If we fail to redeem
the bridge notes at or before maturity, in addition to the original amount we
borrowed and accrued interest, we will have to pay a premium equal to 25%
of the original principal amount of the notes.
The series 1 bridge financing notes bear interest at 8% per annum. If we fail
to redeem the bridge notes at or before maturity, then interest will
accrue at a rate of 12% per annum after maturity until the notes are
paid in full. We anticipate that accrued interest on the bridge notes at
redemption will not exceed $150,000.
In connection with the Sovereign Bridge Financing, attached to each
series 1 bridge note is a repricing warrant. If, during the 90 days after a
bridge note is converted into shares of our common stock (the "repricing
period"), a Sovereign Lender sells any shares it receives from conversion of
the bridge note and fails to realize a gain of at least 20% above the applicable
conversion price of the bridge note, then that Lender may exercise the
repricing warrant on the 91st day after conversion of the bridge note. The
number of shares that a Sovereign Lender may acquire by exercise of a
repricing warrant is equal to the number of shares sold for less than a 20%
gain during the repricing period, multiplied by a fraction. The numerator of
the fraction is the difference between the conversion price of the bridge note
and the average market price of our common stock during the repricing
period. The denominator of the fraction is the average market price of our
common stock during the repricing period. The lowest average market price
that may be used in calculating the fraction is $1.65 per share, unless our
revenues decline by more than 10% in any two consecutive quarters
beginning with the fourth quarter of our fiscal year ended December 31,
1999, in which case the lowest possible price in the fraction would be equal
to the lesser of (a) $1.65 or (b) the average closing bid price of our common
stock during the 30 day period immediately prior to the maturity date of the
bridge notes.
The Sovereign Lenders may not exercise the repricing warrants to
acquire shares of our common stock if:
we redeem the bridge notes in cash;
the average market price of our common stock during the repricing period
is equal to or greater than the conversion price of the bridge notes;
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the Sovereign Lenders do not sell any shares of common stock received
upon conversion of the bridge notes during the repricing period; or
the Sovereign Lenders sell shares of common stock received upon
conversion of the bridge notes during the repricing period and realize a
gain of 20% or greater.
However, if the average market price of our common stock is less
than the conversion price of the bridge notes and the Sovereign Lenders do
not realize a 20% gain from the sale during the repricing period of shares
received from conversion of the bridge notes, then they are entitled to
acquire, depending upon the number of shares sold during the repricing
period and the average market price of our common stock during that period,
a maximum of up to 956,103 shares by exercise of the repricing warrants.
The exercise price of the repricing warrants is $0.10 per share.
We also issued the Sovereign Lenders common stock purchase
warrants exercisable for up to a total of 300,000 shares of our common stock.
The exercise price of these common stock purchase warrants is $4.19 per
share for warrants exercisable for up to 262,500 shares and $7.01 per share
for warrants exercisable for up to 37,500 shares. These common stock
purchase warrants expire on January 18, 2005 for warrants exercisable for up
to 262,500 shares and on February 9, 2005 for warrants exercisable for up to
37,500 shares.
Our two largest stockholders, Joseph F. Kruy, our Chairman,
President and Chief Executive Officer, and CyberFin Corporation, a
corporation wholly owned by Peter J. Kruy, our Executive Vice President,
Treasurer and Chief Financial Officer, guaranteed our obligations under the
Sovereign Bridge Financing in the event that we fail to fulfill them. The
obligations of Joseph Kruy and CyberFin under these guarantees are secured
by their pledge to the Sovereign Lenders of a total of 1,709,467 shares of our
common stock that they own.
In connection with the Sovereign Bridge Financing, we issued
Sovereign Capital Advisors, LLC a warrant exercisable for up to 100,000
shares of our common stock.
In addition to a series 1 bridge note purchase
agreement, which contains representations, warranties, covenants and
other provisions typical for this type of transaction, we entered into a
registration rights agreement with the Sovereign Lenders. Under this
registration rights agreement, we agreed to register the number of
shares of our common stock into which the series 1 bridge financing
notes are convertible and for which the repricing warrants and other
warrants are exercisable within 60 days of issuing the bridge notes.
The Sovereign Lenders have waived their rights resulting from our
failure to register shares of our common stock issuable to them within
60 days after issuance of the bridge notes with the understanding that
we would to register those shares pursuant to the registration
statement of which this prospectus is a part.
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THUMBERLAND COMMON STOCK PURCHASE AGREEMENT
Overview
We signed a common stock purchase agreement with Thumberland
Limited, a British Virgin Islands corporation, on July 14, 2000, for the future
issuance and purchase of shares of our common stock. The transaction
closed on July 20, 2000. The common stock purchase agreement establishes
what is often referred to as a structured equity line or an equity drawdown
facility.
In general, the drawdown facility operates as follows: the investor,
Thumberland, has committed to provide us up to $10 million as we request it
over an 18 month period, in return for common stock we issue to
Thumberland. Once every 22 trading days, we may request a draw of up to
$1 million of that money (except that our initial drawdown may be for up to
$2 million), subject to a maximum of 18 draws. The maximum amount we
actually can drawdown upon each request will be determined by the volume-
weighted average daily price of our common stock for the 22 trading days
prior to our request and the average trading volume for the 45 trading days
prior to our request. Each draw down must be for at least $250,000.
At the end of a 22-day trading period following the drawdown
request, the actual drawdown amount principally is determined based on the
volume-weighted average stock price during that 22-day period. We then use
the formulas in the common stock purchase agreement to determine the
number of shares we will issue to Thumberland in return for that money. We
may make up to a maximum of 18 draws; however, the aggregate total of all
draws cannot exceed $10 million and no single draw can exceed $1 million,
except that our first draw may not exceed $2 million. We are under no
obligation to request a draw for any period.
The per share dollar amount Thumberland pays for our common stock
for each drawdown includes a 7% discount to the average daily market price
of our common stock for the 22-day period after our drawdown request,
weighted by trading volume. We will receive the amount of the drawdown
less an escrow agent fee equal to $1,500 per drawdown, and a 5% placement
fee payable to the placement agent, Ladenburg Thalmann, which introduced
Thumberland to us. Ladenburg Thalmann is not obligated to purchase any of
our shares, but as additional placement agent compensation, we have issued
to Ladenburg Thalmann a stock purchase warrant to purchase up to 195,771
shares of our common stock at an exercise price of $2.9376 per share, which
is equal to 115% of the volume-weighted average share price for the five
trading days prior to July 20, 2000. The warrant expires on July 20, 2003.
The shares of common stock issuable upon exercise of that stock purchase
warrant are included in the registration statement of which this prospectus is
a part.
In lieu of providing Thumberland with a minimum aggregate
drawdown commitment, we have issued to Thumberland a stock purchase
warrant to purchase up to 195,771 shares of our common stock with an
exercise price of $2.9376 per share, which is equal to 115% of the volume-
weighted average share price for the five trading days prior to the closing
date. The warrant expires July 20, 2003.
The number of shares registered under the registration statement of
which this prospectus is a part may limit the proceeds we receive under the
common stock purchase agreement. Moreover, the proceeds we receive
could be further limited by a provision of the common stock purchase
agreement that prevents us from issuing shares to Thumberland to the extent
Thumberland would beneficially own more than 9.9% of our then
outstanding common stock. Any resales of shares by Thumberland under this
prospectus would reduce the number of shares beneficially owned by
Thumberland, and would enable us to issue additional shares to Thumberland
without violating this condition.
The Drawdown Procedure and the Stock Purchases
We may request a drawdown by faxing a drawdown notice to
Thumberland, stating the amount of the drawdown we wish to exercise and
the minimum threshold price, if any, at which we are willing to sell the
shares. We will set the threshold price by determining the price below which
we are unwilling to sell shares of our common stock.
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Amount of the Draw
Except for the initial drawdown which may not exceed $2 million, no
draw may exceed the lesser of $1 million and the capped amount that is
derived from the following formula:
Average daily trading volume for the 45 trading days immediately prior
to the date we give notice of the drawdown, multiplied by 22;
multiplied by
The average of the volume-weighted average daily prices for the 22
trading days immediately prior to the date we give notice of the
drawdown;
multiplied by
20%.
The lesser of our draw request and the capped amount is reduced by
1/22 for every day in the 22 trading days after our drawdown request that the
volume-weighted average daily price for a trading day is below the threshold
price set by us in the request. If the daily price for a day is below the
threshold price we will not issue any shares and Thumberland will not
purchase any shares for that day. Thus, if we set a threshold price too high
and our stock price does not consistently meet that level during the 22 trading
days after our drawdown request, the amount we can draw and the number of
shares we can sell to Thumberland will be reduced. However, if we set a
threshold price too low and our stock price falls significantly but stays above
the threshold price, we will be able to draw the lesser of our draw request and
the capped amount, but we will have to issue a greater number of shares to
Thumberland at a reduced price. We cannot make another drawdown request
until expiration of the 22 trading days that follow a drawdown request we
have already made.
Number of Shares
The 22 trading days immediately following the drawdown notice are also
used to determine the number of shares we will issue in return for the
money provided by Thumberland, and thus the price per share
Thumberland will pay for our shares. To determine the number of
shares of common stock we must issue in connection with a
drawdown, take 1/22 of the drawdown amount determined by the
formulas above, and for each of the 22 trading days immediately
following the date we give notice of the drawdown, divide it by 93%
of the volume-weighted average daily trading price of our common
stock for that day. The 93% accounts for Thumberland's 7% discount.
The sum of these 22 daily calculations produces the number of
common shares we will issue, unless the volume-weighted average
daily price for any given trading day is below the threshold amount, in
which case that day is ignored in the calculation. The price per share
Thumberland ultimately pays is determined by dividing the final
drawdown amount by the number of shares we issue Thumberland.
Sample Calculation of Stock Purchases
The following is an example of the calculation of the drawdown
amount and the number of shares we would issue to Thumberland in
connection with that drawdown based on hypothetical assumptions.
Sample drawdown amount calculation.
We provide a drawdown request notice to Thumberland. Suppose
that we specify in our drawdown notice a threshold price of $1.75 per share,
below which we will not sell any shares to Thumberland during this
drawdown period.
Suppose further the average daily trading volume for the 45 trading days
prior to our drawdown notice is 40,000 shares and that the average of
the volume-weighted average daily prices of our common stock for
the 22 trading days prior to the notice is $2.00. You can apply the
formula to these hypothetical numbers as follows:
the average trading volume for the 45 trading days prior to our drawdown
notice (40,000) multiplied by 22, equals 880,000
multiplied by
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the average of the volume-weighted average daily prices of our common
stock for the 22 trading days prior to the notice ($2.00)
multiplied by
20%.
The maximum amount we can draw down under the formula is therefore
capped at $352,000, subject to further adjustments if the volume-
weighted average daily price of our common stock for any of the 22
trading days following the drawdown notice is below the threshold
price we set of $1.75 per share. For example, if the volume-weighted
average daily per share price of our common stock is below $1.75 on
one of those 22 days, the $352,000 would be reduced by 1/22 for each
of those days and our draw down amount would be 21/22 of
$352,000, or $336,000.
Sample Calculation of Number of Shares
Assume that we have made a drawdown request with a threshold price of
$1.75 per share. Assume the maximum amount we can draw down is
capped at $352,000 based on the formula above. Also, assume that the
volume-weighted average daily price for our common stock is as set
forth in the table below. The number of shares to be issued based on
any trading day during the drawdown period is calculated from the
formula:
1/22 of the drawdown amount of $352,000,
divided by
93% of the volume weighted average daily price.
For example, for the first trading day in the example in the table below, the
calculation is as follows: 1/22 of $352,000 is $16,000. Divide
$16,000 by 93% of the volume-weighed average daily price for that
day of $2.00 per share, to get 8,602 shares. Perform this calculation
for each of the 22 measuring days, excluding any days on which the
volume-weighted average daily price is below the $1.75 threshold
price, and add the results to determine the number of shares to be
issued. In the table below, there is one day which must be excluded:
day 8.
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After excluding the day that is below the threshold price, the amount of our
drawdown in this example would be $336,000, and the total number
of shares we would issue to Thumberland for this drawdown request
would be 137,702, as long as those shares would not cause
Thumberland to beneficially own more than 9.9% of our then
outstanding common stock. Thumberland would pay $2.44 per share
for these shares.
Trading Day Volume-Weighted Average 1/22 of Requested Number of Shares of
Daily Stock Price* Draw Down Amount Common Stock to be
Issued for the
Trading Day
1 $2.563 $16,000.00 6,713
2 2.625 16,000.00 6,554
3 1.750 16,000.00 9,831
4 1.844 16,000.00 9,330
5 1.840 16,000.00 9,350
6 2.000 16,000.00 8,602
7 1.844 16,000.00 9,330
8 1.563 ** **
9 1.875 16,000.00 9,176
10 2.469 16,000.00 6,968
11 2.688 16,000.00 6,400
12 2.750 16,000.00 6,256
13 3.000 16,000.00 5,735
14 3.313 16,000.00 5,193
15 3.375 16,000.00 5,098
16 3.531 16,000.00 4,872
17 3.500 16,000.00 4,916
18 3.563 16,000.00 4,829
19 3.688 16,000.00 4,665
20 3.750 16,000.00 4,588
21 3.781 16,000.00 4,550
22 3.625 16,000.00 4,746
Total $336,000.00 137,702
* The share prices are illustrative only and should not be interpreted as
a forecast of share prices or the expected or historical volatility of the
share prices of our common stock.
** Excluded because the volume-weighted average daily price is below
the threshold specified in our hypothetical draw down notice.
We would receive the amount of our drawdown ($336,000) less a 5% cash
fee paid to the placement agent of $16,800, less a $1,500 escrow fee,
for net proceeds to us of $317,700. The delivery of the requisite
number of shares and payment of the draw will take place through an
escrow agent, Epstein, Becker & Green, P.C. of New York, New
York. The escrow agent pays 95% of the draw to us-after
subtracting its escrow fee-and 5% to Ladenburg Thalmann & Co.
Inc., our placement agent, in satisfaction of placement agent fees.
48
<PAGE>
Necessary Conditions Before Thumberland is Obligated to Purchase our Shares
The following conditions must be satisfied before Thumberland is
obligated to purchase the common shares that we wish to sell from time to
time:
A registration statement for the shares must be declared effective by the
Securities and Exchange Commission and must remain effective and
available as of the draw down settlement date for making resales of the
common shares purchased by Thumberland;
There can be no material adverse change in our business, operations,
properties, prospects or financial condition;
We must not have merged or consolidated with or into another company
or transferred all or substantially all of our assets to another company,
unless the acquiring company has agreed to honor the common stock
purchase agreement;
No statute, rule, regulation, executive order, decree, ruling or injunction
may be in effect which prohibits consummation of the transactions
contemplated by the common stock purchase agreement;
No litigation or proceeding nor any investigation by any governmental
authority can be pending or threatened against us or Thumberland seeking
to restrain, prevent or change the transactions contemplated by the stock
purchase agreement or seeking damages in connection with such
transactions; and
Trading in our common shares must not have been suspended by the
Securities and Exchange Commission or The OTC Bulletin Board, nor
shall minimum prices have been established on securities whose trades
are reported by The OTC Bulletin Board.
On each drawdown settlement date for the sale of common shares, we
must deliver an opinion from our counsel about these matters.
Restrictions on Future Financings
The common stock purchase agreement provides that we must pay
Thumberland a $100,000 fee before we may raise money by selling our
securities for cash at a discount to the market price until the earlier of 18
months from the effective date of the registration statement of which this
prospectus is a part or the date which is 60 days after Thumberland has
purchased the maximum of $10 million worth of common stock from us
under the common stock purchase agreement. There are exceptions to this
liquidated damages payment for securities that we may sell under the
following circumstances:
in a registered public offering which is underwritten by one or more
established investment banks;
in one or more private placements where the purchasers do not have
registration rights;
pursuant to any presently existing or future employee benefit plan which
plan has been or is approved by the our stockholders;
pursuant to any compensatory plan for a full-time employee or key
consultant;
in connection with a strategic partnership or other business transaction,
the principal purpose of which is not simply to raise money; and
a transaction to which Thumberland gives its written approval.
Costs of Closing the Transaction
At the closing of the transaction on July 20, 2000, we delivered the
requisite opinion of counsel to Thumberland and paid the escrow agent,
Epstein Becker & Green P.C., $10,000 for Thumberland's legal,
administrative and escrow costs. We paid Ladenburg Thalmann & Co. Inc.
an additional $7,500 for its expenses. Ladenburg Thalmann also received a
stock purchase warrant exercisable for up to 195,771 shares of our common
stock with an exercise price equal to 115% of the volume-weighted average
price of our common stock on the five trading days prior to July 20, 2000 or
$2.9376. We are also obligated to pay a fee of $17,500 to Ladenburg upon
our initial draw. Ladenburg Thalmann is not obligated to purchase any of our
shares pursuant to the warrant.
49
<PAGE>
Termination of the Stock Purchase Agreement
Thumberland may terminate the equity draw down facility under the
common stock purchase agreement if any of the following events occur:
our common shares are delisted from The OTC Bulletin Board unless
such delisting is in connection with the listing of such shares on another
stock exchange in the United States; or
we file for protection from creditors.
We may terminate the common stock purchase agreement if
Thumberland fails to fund more than one drawdown within three
trading days of the date payment for such drawdown is due. If
Thumberland fails to fund more than one drawdown, each of the stock
purchase warrants issued to Thumberland and Ladenburg Thalmann
will be cancelled except as to ten percent of the shares covered by the
stock purchase warrant and any warrant shares previously purchased
under the warrant. This cancellation does not apply to the shares of
common stock already purchased through the exercise of the warrants
prior to Thumberland's failure to timely fund more than one drawdown.
Indemnification of Thumberland
Thumberland is entitled to customary indemnification from us for any
losses or liabilities suffered by it based upon material misstatements or
omissions from the registration statement and the prospectus, except as they
relate to information supplied by Thumberland to us for inclusion in the
registration statement and prospectus.
50
<PAGE>
SELLING SECURITYHOLDERS
Overview
Shares of our common stock registered for resale under this
prospectus constitute 50.8% of our issued and outstanding common shares as
of May 31, 2000. The number of shares we are registering is based in part
on:
our good faith estimate of the maximum number of shares we will issue
to Thumberland under the common stock purchase agreement; and
the decision to register the maximum number of shares issuable through
exercise of the attached repricing warrants held by the Sovereign Lenders.
Accordingly, the number of shares we are registering for issuance
under the common stock purchase agreement and for exercise of the repricing
warrants, may be higher than the number we actually issue under the
common stock purchase agreement.
Thumberland Limited
Thumberland Limited is engaged in the business of investing in
publicly traded equity securities for its own account. Thumberland's principal
offices are located at c/o Dr. Batliner & Partner, Aeulestrasse 74, FL-9490
Vaduz, Liechtenstein. Investment decisions for Thumberland are made by its
board of directors. Other than the stock purchase warrant we issued to
Thumberland in connection with closing the common stock purchase
agreement, Thumberland does not currently own any of our securities as of
the date of this prospectus. Other than its obligation to purchase shares of
our common stock under the common stock purchase agreement, it has no other
commitments or arrangements to purchase or sell any of our securities. There
are no business relationships between Thumberland and Cambex other than
the common stock purchase agreement.
Ladenburg Thalmann & Co. Inc.
Ladenburg Thalmann & Co. Inc. has acted as placement agent in
connection with the common stock purchase agreement. Ladenburg
Thalmann introduced us to Thumberland and assisted us with structuring the
equity drawdown facility with Thumberland. Ladenburg Thalmann's duties
as placement agent were undertaken on a reasonable best efforts basis only. It
made no commitment to purchase shares from us and did not ensure us of the
successful placement of any securities.
This prospectus covers 195,771 shares of common stock issuable
upon exercise of a stock purchase warrant we issued to Ladenburg Thalmann
as placement compensation for introducing us to Thumberland. That warrant
is exercisable at $2.9376 per share and expires on July 20, 2003. The
decision to exercise the warrant issued, and the decision to sell the common
stock issuable through the exercise of the warrant, will be made by
Ladenburg Thalmann's officers and board of directors. Other than the
warrant, Ladenburg Thalmann does not currently own any of our securities as
of the date of this prospectus. Our engagement agreement with Ladenburg
Thalmann provides Ladenburg Thalmann with a right of first refusal for one
year after completion of the offering under the common stock purchase
agreement, as underwriter or placement agent, of all of our financing
arrangements at terms no less favorable than we could obtain in the market.
Sovereign Lenders
Of the 4,897,603 shares we are registering, 1,906,061 shares are being
registered and may be offered for sale from time to time during the period the
registration statement remains effective, by or for the accounts of the
Sovereign Lenders. The Sovereign Lenders currently hold series 1 bridge
financing notes that are convertible into shares of our common stock,
together with repricing warrants attached to the bridge notes that may be
exercisable for shares of our common stock. The Sovereign Lenders also
hold common stock purchase warrants for shares of our common stock. Our
securities now held by the Sovereign Lenders were acquired from us in a
private placement pursuant to a series 1 bridge note purchase agreement.
Certain of the shares of common stock being registered for resale will be
issued upon exercise of warrants.
51
<PAGE>
Based on information provided to us by each of the Sovereign
Lenders, the following table shows, as of May 31, 2000:
The number of shares and the percentage each Sovereign Lender
beneficially owns before the effectiveness of the registration statement of
which this prospectus is a part, based on our common stock outstanding
on May 31, 2000 (which amount includes the maximum number of shares
that the Sovereign Lenders may acquire as a result of the exercise of
attached repricing warrants);
The number of shares of common stock each Sovereign Lender may
resell under this prospectus; and
Assuming each Sovereign Lender sells all the shares it is entitled to sell
under this prospectus, the number of shares of common stock and the
percentage each Sovereign Lender will beneficially own after the
effectiveness of the registration statement of which this prospectus is a
part, based on our common stock outstanding on May 31, 2000 and the
issuance of shares included in this prospectus.
Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission, is not necessarily indicative of
beneficial ownership for any other purpose, and generally includes voting or
investment power with respect to securities. Except as indicated, we believe
each person possesses sole voting and investment power with respect to all of
the shares of common stock owned by such person, subject to community
property laws where applicable. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock issuable upon the exercise of options or warrants
held by that person that are currently exercisable or exercisable within 60
days following May 31, 2000 (July 31, 2000) are deemed outstanding. Such
shares, however, are not deemed outstanding for the purpose of computing
the percentage ownership of any other person.
Shares of Common Stock Shares of Common
Beneficially Owned Before Stock to be Beneficially
Offering Under this Owned After Ofeering
Prospectus Under this Prospectus(1)
Name Number Percentage Shares to Number Percentage
be Offered
SovCap Equity
Partners, Ltd. 1,524,848(2) 15.8% 1,524,848 0 0%
Correllus
International Ltd. 238,258(3) 2.5 238,258 0 0
Arab Commerce
Bank, Ltd. 142,955(4) 1.5 142,955 0 0
-----------------------------------
(1) Assumes the sale of all shares of our common stock that the selling
security holder may sell under this prospectus.
(2) Consists of a total of 519,966 shares issuable upon the exercise of two
series 1 bridge financing notes, a total of 764,882 shares issuable upon
exercise of two attached repricing warrants and a total of 240,000 shares
issuable upon exercise of two common stock purchase warrants.
(3) Consists of 81,245 shares issuable upon the exercise of a series 1 bridge
financing note, 119,513 shares issuable upon exercise of an attached
repricing warrant and 37,500 shares issuable upon exercise of a common
stock purchase warrant.
(4) Consists of 48,747 shares issuable upon the exercise of a series 1 bridge
financing note, 71,708 shares issuable upon exercise of an attached
repricing warrant and 22,500 shares issuable upon exercise of a common
stock purchase warrant.
The selling securityholders have not held any positions or offices or
had material relationships with us or any of our affiliates within the past
three years other than as a result of the ownership of our common stock.
52
<PAGE>
PLAN OF DISTRIBUTION
General
Thumberland is offering the shares of common stock for its account
as statutory underwriter, and not for our account. We will not receive any
proceeds from the sale of common shares by Thumberland. Thumberland
may be offering for sale up to 2,600,000 shares of common stock acquired by
it pursuant to the terms of the stock purchase agreement more fully described
under the section above entitled "Thumberland Common Stock Purchase
Agreement" and the stock purchase warrant we issued to it in connection
with the transaction. Thumberland has agreed to be named as a statutory
underwriter within the meaning of the Securities Act of 1933, as amended, in
connection with such sales of common stock and will be acting as an
underwriter in its resales of the shares of common stock under this
prospectus. Thumberland has, prior to any sales, agreed not to effect any
offers or sales of the common shares in any manner other than as specified in
the prospectus and not to purchase or induce others to purchase shares of
common stock in violation of any applicable state and federal securities laws,
rules and regulations and the rules and regulations of The National
Association of Securities Dealers.
To permit Thumberland to resell the common shares issued to it under
the stock purchase agreement, we agreed to register those shares and to
maintain that registration. To that end, we have agreed with Thumberland
that we will prepare and file such amendments and supplements to the
registration statement and the prospectus as may be necessary in accordance
with the Securities Act and the rules and regulations promulgated thereunder,
to keep it effective until the earliest of any of the following dates:
the date after which all of the shares of common stock held by
Thumberland or its transferees that are covered by the registration
statement of which this prospectus is a part have been sold under the
provisions of Rule 144 under the Securities Act;
the date after which all of the shares of common stock held by
Thumberland or its transferees that are covered by the registration
statement have been transferred to persons who may trade such shares
without restriction under the Securities Act and we have delivered new
certificates or other evidences of ownership of such common shares
without any restrictive legend;
the date after which all of the shares of common stock held by
Thumberland or its transferees that are covered by the registration
statement have been sold by Thumberland or its transferees pursuant to
such registration statement;
the date after which all of the shares of common stock held by
Thumberland or its transferees that are covered by the registration
statement may be sold, in the opinion of our counsel, under Rule 144
under the Securities Act irrespective of any applicable volume
limitations;
the date after which all of the shares of common stock held by
Thumberland or its transferees that are covered by the registration
statement may be sold, in the opinion of our counsel, without any time,
volume or manner limitations under Rule 144(k) or similar provision then
in effect under the Securities Act; or
the date after which none of the shares of common stock held by
Thumberland that are covered by the registration statement are or may
become issued and outstanding.
Shares of common stock offered through this prospectus may be sold
from time to time by Thumberland, Ladenburg Thalmann and the Sovereign
Lenders or by pledgees, donees, transferees or other successors in interest to
the Sovereign Lenders. We will supplement this prospectus to disclose the
names of any pledgees, donees, transferees or other successors in interest that
intend to offer common stock through this prospectus.
Sales may be made on the OTC Bulletin Board, or otherwise at prices
and at terms then prevailing or at prices related to the then current market
price, or in negotiated private transactions, or in a combination of these
methods. The selling securityholders will act independently of us in making
decisions with respect to the form, timing, manner and size of each sale. We
have been informed by the selling securityholders that there are no existing
arrangements between any selling stockholder and any other stockholder,
broker, dealer, underwriter or agent relating to the sale or distribution of
shares of common stock which may be sold by selling securityholders
through this prospectus. Selling securityholders may be deemed underwriters
in connection with resales of their shares.
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<PAGE>
The shares of common stock may be sold in one or more of the
following manners:
a block trade in which the broker or dealer so engaged will attempt to sell
the shares as agent, but may position and resell a portion of the block as
principal to facilitate the transaction;
purchases by a broker or dealer for its account under this prospectus; or
ordinary brokerage transactions and transactions in which the broker
solicits purchases.
In effecting sales, brokers or dealers engaged by the selling
securityholders may arrange for other brokers or dealers to participate.
Except as disclosed in a supplement to this prospectus, no broker-dealer will
be paid more than a customary brokerage commission in connection with any
sale of shares of common stock by the selling securityholders. Brokers or
dealers may receive commissions, discounts or other concessions from the
selling securityholders in amounts to be negotiated immediately prior to the
sale. The compensation to a particular broker-dealer may be in excess of
customary commissions. Profits on any resale of shares of common stock as a
principal by such broker-dealers and any commissions received by such
broker-dealers may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended. Any broker-dealer
participating in such transactions as agent may receive commissions from the
selling securityholders (and, if they act as agent for the purchaser of shares
of common stock, from such purchaser).
Broker-dealers may agree with the selling securityholders to sell a
specified number of shares of common stock at a stipulated price per share,
and, to the extent a broker dealer is unable to do so acting as agent for the
selling securityholders, to purchase as principal any unsold shares of common
stock at a price required to fulfill the broker-dealer commitment to the selling
securityholders. Broker-dealers who acquire shares of common stock as
principal may thereafter resell such shares from time to time in transactions
(which may involve crosses and block transactions and which may involve
sales to and through other broker-dealers, including transactions of the nature
described above) in the over-the-counter market, in negotiated transactions or
otherwise at market prices prevailing at the time of sale or at negotiated
prices, and in connection with such resales may pay to or receive from the
purchasers of such shares commissions computed as described above.
Brokers or dealers who acquire shares of common stock as principal and any
other participating brokers or dealers may be deemed to be underwriters in
connection with resales of the shares.
In addition, any shares of common stock covered by this prospectus
which qualify for sale pursuant to Rule 144, may be sold under Rule 144
rather than pursuant to this prospectus. We will not receive any of the
proceeds from the sale of these shares, although we have paid the expenses of
preparing this prospectus and the related registration statement of which it is
a part, and have reimbursed Thumberland $10,000 for its legal,
administrative and escrow costs.
Thumberland and each of the other selling securityholders are subject
to the applicable provisions of the 1934 Securities Exchange Act, including
without limitation, Rule 10b-5 thereunder. Under applicable rules and
regulations under the Exchange Act, any person engaged in a distribution of
shares of common stock may not simultaneously engage in market making
activities with respect to such securities for a period beginning when such
person becomes a distribution participant and ending upon such person's
completion of participation in a distribution, including stabilization
activities in the shares to effect covering transactions, to impose penalty
bids or to effect passive market making bids. In addition, in connection with
the transactions involving shares of common stock, Thumberland, each of the
Sovereign Lenders, and the Company will be subject to applicable provisions
of the Exchange Act and the rules and regulations under that Act, including,
without limitation, the rules set forth above. These restrictions may affect
the marketability of the shares.
The selling securityholders will pay all commissions and their own
expenses, if any, associated with the sale of shares of the common stock,
other than the expenses associated with preparing this prospectus and the
registration statement of which it is a part.
The price at which we will issue the common shares to Thumberland
under the stock purchase agreement will be 93% of the volume-weighted
average daily price traded on the OTC Bulletin Board, for each day in the
pricing period with respect to each drawdown request. Assuming we receive
$5,755,000 of financing available under the stock purchase agreement using
18 drawdowns, and assuming we issue 2,414,917 shares registered for
54
<PAGE>
issuance under the common stock purchase agreement, we will pay
underwriting compensation to and expenses for Thumberland, and other
offering expenses, as follows:
Underwriting Compensation and Expenses
Per Share Total
Discount to Thumberland (a) $0.179375 $433,176
Expenses payable on behalf of Thumberland:
Escrow Fees 0.011181 27,000
Legal fees of Thumberland 0.004141 10,000
Estimated offering expenses:
Placement agent fees (b) 0.129509 312,753
SEC filing fee 0.001668 4,029
Accountants' fees and expenses 0.000580 1,400
Legal fees and expenses 0.041409 100,000
Total 0.367863888,358
(a) We also issued to Thumberland a stock purchase warrant to purchase
195,771 shares of our common stock at $ 2.9376 per share as
consideration for providing the common stock purchase agreement. The
closing price of our common stock on July 20, 2000 was $2.969. The
warrant expires July 20, 2003.
(b) We also issued to the placement agent a stock purchase warrant to
purchase 195,771 shares of our common stock at $2.9376 per share as
consideration for placement services. The closing price of our common
stock on July 20, 2000 was $2.969 per share. The warrant expires on July
20, 2003.
Limited Grant of Registration Rights
We granted registration rights to Thumberland to enable it to sell the
common stock it purchases under the common stock purchase agreement. In
connection with any such registration, we will have no obligation:
to assist or cooperate with Thumberland in the offering or disposition of
such shares;
to indemnify or hold harmless the holders of any such shares (other than
Thumberland) or any underwriter designated by such holders;
to obtain a commitment from an underwriter relative to the sale of any
such shares; or
to include such shares within any underwritten offering we do.
We will assume no obligation or responsibility whatsoever to
determine a method of disposition for such shares or to otherwise include
such shares within the confines of any registered offering other than the
registration statement of which this prospectus is a part.
We will use our best efforts to file, during any period during which
we are required to do so under our registration rights agreement with
Thumberland, one or more post-effective amendments to the registration
statement of which this prospectus is a part to describe any material
information with respect to the plan of distribution not previously disclosed
in this prospectus or any material change to such information in this
prospectus. This obligation may include, to the extent required under the
Securities Act of 1933, as amended, that a supplemental prospectus be filed,
disclosing:
the name of any broker-dealers;
the number of common shares involved;
the price at which the common shares are to be sold;
the commissions paid or discounts or concessions allowed to broker-
dealers, where applicable;
that broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, as
supplemented; and
any other facts material to the transaction.
55
<PAGE>
Our registration rights agreement with Thumberland permits us to
restrict the resale of the shares Thumberland has purchased from us under the
common stock purchase agreement for a period of time sufficient to permit us
to amend or supplement this prospectus to include material information. If
we restrict Thumberland for more than 30 consecutive days and our stock
price declines during the restriction period, we are required to pay to
Thumberland cash to compensate Thumberland for its inability to sell shares
during the restriction period. The amount we would be required to pay would
be the difference between our stock price on the first day of the restriction
period and the last day of the restriction period, for each share held by
Thumberland during the restriction period that has been purchased under the
common stock purchase agreement.
LEGAL MATTERS
Certain legal matters in connection with the securities offered hereby
will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., Boston, Massachusetts.
EXPERTS
The financial statements of the Company appearing in this prospectus
have been audited by Belanger & Company, P.C., independent certified
public accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of said firm as experts in accounting and auditing.
56
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CAMBEX CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets at December 31, 1998, December 31, 1999
and April 1, 2000 (unaudited) F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and December 31, 1999 and for the three
months ended April 3, 1999 and April 1, 2000 (unaudited) F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998 and December 31, 1999 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and December 31, 1999 and for the three
months ended April 3, 1999 and April 1, 2000 (unaudited) F-7
Notes to Consolidated Financial Statements F-9
F-1
<PAGE>
Independent Auditors' Report
To The Stockholders of Cambex Corporation:
We have audited the accompanying consolidated balance sheets of
Cambex Corporation (a Massachusetts corporation) and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' investment and cash flows for the years ended
December 31, 1999, 1998 and 1997. These financial statements and the
schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We have 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 financial statements referred to above present fairly,
in all material respects, the financial position of Cambex Corporation and
subsidiaries as of December 31, 1999, and 1998 and the results of their
operations and their cash flows for the years ended December 31, 1999, 1998
and 1997 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 1 to
the financial statements, the Company has suffered recurring losses from
operations that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts
or the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of the
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as
a whole.
BELANGER & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Chelmsford, Massachusetts
March 29, 2000
F-2
<PAGE>
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 1, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
ASSETS
APRIL 1, DECEMBER 31, DECEMBER 31,
200 1999 1998
(unaudited)
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 1,008,108 $ 366,743 $ 211,452
ACCOUNTS RECEIVABLE,
Less Reserves of $100,000
in 2000, 1999 and 1998 245,187 202,466 514,335
CURRENT PORTION OF INVESTMENT
IN SALES-TYPE LEASES, net of unearned
interest income of $400 in 1998 - - 25,820
INVENTORIES 562,223 622,430 303,720
PREPAID EXPENSES 66,180 65,995 72,852
TOTAL CURRENT ASSETS $ 1,881,698 $1,257,634 $1,128,179
PROPERTY AND EQUIPMENT,at cost:
MACHINERY AND EQUIPMENT $ 3,052,887 $3,052,887 $3,044,199
FURNITURE AND FIXTURES 162,625 162,625 247,173
LEASEHOLD IMPROVEMENTS 602,092 602,092 602,092
$ 3,817,604 $3,817,604 $3,893,464
LESS-ACCUMULATED DEPRECIATION
AND AMORTIZATION 3,659,769 3,639,196 3,585,441
NET PROPERTY AND EQUIPMENT $ 157,835 $ 178,408 $ 308,023
OTHER ASSETS
OTHER $ 37,830 $ 37,830 $ 37,830
TOTAL ASSETS $ 2,077,363 $1,473,872 $1,474,032
</TABLE>
F-3
<PAGE>
<TABLE>
<S> <C>
CONSOLIDATED BALANCE SHEETS
APRIL 1, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
LIABILITIES AND STOCKHOLDERS' INVESTMENT
APRIL 1, DECEMBER 31, DECEMBER 31,
2000 1999 1998
(unaudited)
CURRENT LIABILITIES:
LOAN AGREEMENT $ - $ 601,029 $ 393,424
NOTES PAYABLE 2,287,940 550,000 -
ACCOUNTS PAYABLE 482,953 463,675 408,841
OBLIGATIONS FOR TRADE-IN MEMORY 240,000 286,250 360,250
OTHER LIABILITIES-SHORT TERM PORTION 1,177,421 967,558 1,146,168
ACCRUED EXPENSES 544,607 513,849 394,039
TOTAL CURRENT LIABILITIES $ 4,732,921 $ 3,382,361 $ 2,702,722
LONG TERM DEBT $ 1,273,730 $ 1,273,730 $ 1,063,730
OTHER LIABILITIES-LONG TERM PORTION 1,935,188 2,324,540 3,173,007
DEFERRED REVENUE 100,116 100,116 255,366
STOCKHOLDERS' INVESTMENT:
PREFERRED STOCK, $ 1.00 PAR VALUE PER SHARE
AUTHORIZED - 3,000,000 SHARES
ISSUED - NONE
COMMON STOCK, $ .10 PAR VALUE PER SHARE
AUTHORIZED - 25,000,000 SHARES
ISSUED - 11,169,615 shares in 2000,
11,076,232 shares in 1999, and
11,072,582 shares in 1998 $ 1,116,962 $ 1,107,623 $ 1,107,258
CAPITAL IN EXCESS OF PAR VALUE 15,972,066 15,970,199 15,966,625
ACCUMULATED OTHER
COMPREHENSIVE INCOME 101,989 101,989 88,134
RETAINED EARNINGS (DEFICIT) (22,300,843) (21,931,920) (22,028,044)
LESS - COST OF SHARES HELD IN TREASURY
1,534,356 in 2000, 1999 and 1998 (854,766) (854,766) (854,766)
TOTAL STOCKHOLDERS' INVESTMENT $ (5,964,592) $ (5,606,875)$ (5,720,793)
TOTAL LIABILITIES AND STOCKHOLDERS'
INVESTMENT $ 2,077,363 $ 1,473,872 $ 1,474,032
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1999
AND FOR THE THREE MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
Three Months Year Ended Three Months Year Ended
Ended Ended
April 1, December 31, April 3, December 31,
2000 1999 1999 1998
(unaudited)
REVENUES $ 655,028 $3,401,733 $1,390,148 $ 3,748,933
COST OF SALES 361,494 1,422,430 624,917 2,967,406
Gross profit $ 293,534 $1,979,303 $ 765,231 $ 781,527
OPERATING EXPENSES:
Research and development $ 351,786 $1,096,806 $ 311,728 $ 1,379,094
Selling 201,750 778,839 182,370 1,241,385
General and administrative 123,248 607,408 148,782 760,578
$ 676,784 $2,483,053 $ 642,880 $ 3,381,057
OPERATING INCOME (LOSS) $ (383,250) $ (503,750) $ 122,351 $(2,599,530)
OTHER INCOME (EXPENSE):
Interest expense (88,079) (173,265) (35,000) (70,000)
Interest income - 405 323 3,641
Other income (expense) - 14,827 13,810 (107,288)
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS $ (471,329) $ (661,783) $ 101,484 $(2,773,177)
Provision for income taxes - - - -
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS $ (471,329) $ (661,783) $ 101,484 $(2,773,177)
Extraordinary Items(Note 15) 102,406 757,907 - -
NET INCOME (LOSS) $ (368,923) $ 96,124 $ 101,484 $(2,773,177)
OTHER COMPREHENSIVE INCOME, NET
OF TAX:
Foreign Currency translation
Adjustments - 13,855 - 27,378
OTHER COMPREHENSIVE INCOME $ - $ 13,855 $ - $ 27,378
TOTAL COMPREHENSIVE INCOME(LOSS) $ (368,923) $ 109,979 $ 101,484 $(2,745,799)
TOTAL COMPREHENSIVE
INCOME (LOSS) PER COMMON SHARE $ (0.04) $ 0.01 $ 0.01 $ (0.30)
Weighted Average Common
Shares Outstanding 9,600,000 9,540,000 9,500,000 9,300,000
Weighted Average Common
and Common Equivalent
Shares Outstanding 10,390,000 10,390,000 9,500,000 9,300,000
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
Common Stock Capital in Accumulated Retained Cost of
$.10 Excess of Other Earnings Shares Held
Par Value Par Value Comprehensive (Deficit) in Treasury
Income
BALANCE AT DECEMBER 31,1997 $1,063,611 $15,814,783 $ 60,756 $(19,254,867) $(854,766)
ADD:
Net loss $ - $ - $ - $ (2,773,177) $ -
Exercise of employee stock
options 600 120 - - -
Stock Purchase Plan Shares 5,386 1,077 - - -
Issuance of shares pursuant
to reorganization plan 37,661 150,645 - - -
Translation adjustment - - 27,378 - -
BALANCE AT DECEMBER 31,1998 $1,107,258 $15,966,625 $ 88,134 $(22,028,044) $(854,766)
ADD:
Net income $ - $ - $ - $ 96,124 $ -
Exercise of employee stock
options 365 74 - - -
Issuance of warrants - 3,500 - - -
Translation adjustment - - 13,855 - -
BALANCE AT DECEMBER 31,1999 $1,107,623 $15,970,199 $ 101,989 $(21,931,920) $(854,766)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1999
AND FOR THE THREE MONTHS ENDED APRIL 3, 1999 AND APRIL 1, 2000
Three Months Year Ended Three Months Year Ended
Ended Ended
April 1, December 31, April 3, December 31,
2000 1999 1999 1998
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(368,923) $ 96,124 $ 101,484 $(2,773,177)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation $ 20,573 $ 131,603 $ 32,892 $ 283,243
Provision for losses on accounts
receivable - - - -
Provision for losses on inventory - - - -
Amortization of prepaid expenses 7,210 7,822 8,422 24,892
Common stock/warrants issued in
lieu of cash 10,246 - - 194,769
Change in assets and liabilities:
Decrease (increase) in accounts
receivable (42,721) 311,869 (76,900) 686,008
Decrease(increase) in inventory 60,207 (318,710) (205,961) 1,109,205
Decrease(increase) in investment
in sales-type leases - 25,820 15,411 59,299
Decrease(increase) in prepaid expenses(7,395) (965) 4,430 23,439
Decrease in other assets - - - -
Increase(decrease) in accounts payable19,278 54,834 56,505 112,422
Increase(decrease) in obligations
for trade-in memory (46,250) (74,000) - 360,250
Increase(decrease) in accrued expenses30,758 119,810 1,009 (67,686)
Increase(decrease) in deferred revenue - (155,250) - 239,888
Increase(decrease) in other
liabilities (179,489) (1,027,077) (37,781) 4,319,175
Increase(decrease) in liabilities
subject to compromise - - - (6,325,273)
Total adjustments $ (127,583) $ (924,244) $ (201,973) $ 1,019,631
Net cash provided by (used in)
operating activities $ (496,506) $ (828,120) $ (100,489) $(1,753,546)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, net $ - $ (1,988) $ (3,395) $ 3,500
Net cash provided by
(used in) investing activities $ - $ (1,988) $ (3,395) $ 3,500
</TABLE>
F-7
<PAGE>
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable $ 1,737,940 $ 760,000 $ - $ 1,063,730
Proceeds from sale of common
stock and warrants 960 3,939 - 720
Net borrowings (repayments) under
loan agreement (601,029) 207,605 65,445 393,424
Net cash provided by (used in)
financing activities $ 1,137,871 $ 971,544 $ 65,445 $ 1,457,874
Effect of exchange rate changes on cash - 13,855 - 27,378
Net increase (decrease) in cash
and cash equivalents $ 641,365 $ 155,291 $ (38,439) $ (264,794)
Cash and cash equivalents at
beginning of period 366,743 211,452 211,452 476,246
Cash and cash equivalents at
end of period $ 1,008,108 $ 366,743 $ 173,013 $ 211,452
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,618 $ 13,265 $ - $ -
Income Taxes - - - -
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the Three Months Ended April 3, 1999 and
April 1, 2000 is unaudited)
(1) Liquidity
As further described in Note 12, from June 1, 1998 through August
18, 1999, the Company borrowed $1,270,000 in cash in exchange for its
issuance of 10% Subordinated Convertible Promissory Notes, of which
$700,000 was used to pay pre-petition debt and legal and professional fees
resulting from the Company voluntarily filing a petition for relief under
Chapter 11 of the federal bankruptcy code on October 10, 1997 with the
United States Bankruptcy Court in Boston, Massachusetts. The Company's
reorganization plan was confirmed by the Court and the Company emerged
from Chapter 11 on April 23, 1998. As described in the Company's
Reorganization Plan, the success of the Reorganization Plan is dependent
upon several factors, including the Company's ability to raise additional
capital. Additional financing will be used to fund continuing operations of
the Company, particularly in research and development as well as sales and
marketing. The Company also has a loan and security agreement under
which the Company may borrow up to $650,000 outstanding at any one time.
During 1999, the Company borrowed $550,000 in cash from the issuance of
notes payable with interest at 12% per annum and maturities of November
2000.
The Company has suffered recurring losses from operations that
raises substantial doubt about its ability to continue as a going concern. The
Company's management believes it has taken the appropriate corrective
actions to reduce expenses through consolidation of the workforce and
outsourcing certain operations and to increase revenue through the
development of new strategic relationships which management believes will
lead to sale of a greater volume of products. These consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Cambex Corporation and its wholly-owned subsidiaries (the
Company). All material intercompany transactions and balances have been
eliminated in consolidation.
Revenue Recognition
The Company manufactures equipment for sale or lease. Revenue
from product sales is recognized at the time the hardware and software are
shipped. The Company accepts memory in trade as consideration in certain
revenue transactions. Revenue is recorded at the net cash received. When
the memory is subsequently sold, the amount received is recorded as revenue.
Service and other revenues are recognized ratably over the contractual period
or as the services are provided. Under certain equipment leases which
qualify as sales type leases, the present value of noncancelable payments is
currently included in revenues as sales, and all related costs, exclusive of the
residual value of the equipment, are currently included in cost of sales. The
unearned interest is recognized over the noncancelable term of the lease. The
Company has deferred revenue associated with the sale of certain products
that have future performance obligations. For equipment leased under
operating lease agreements, revenue is recognized over the lease term and the
equipment is depreciated over its estimated useful life.
License fees are amortized over the useful life of the technologies
being licensed.
Inventories
Inventories, which include materials, labor and manufacturing
overhead, are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
F-9
<PAGE>
December 31, 1998 December 31, 1999 April 1, 2000
Raw materials $ 228,524 $ 419,984 $ 358,653
Work-in-process 51,215 78,572 98,085
Finished goods 23,981 123,874 105,485
$ 303,720 $ 622,430 $ 562,223
Property and Equipment
The Company provides for depreciation and amortization on a
straight-line basis to amortize the cost of property and equipment over their
estimated useful lives as follows:
Leasehold improvements 2-10 Years
Machinery and equipment 3- 8 Years
Furniture and fixtures 3- 8 Years
Leased equipment 3- 5 Years
Maintenance and repair items are charged to expense when incurred;
renewals or betterments are capitalized.
If property is sold or otherwise disposed of, the Company's policy is
to remove the related cost and accumulated depreciation from the accounts
and to include any resulting gain or loss in income.
Depreciation expense of $131,603, $283,243, and $569,207, was
recorded for the periods ended December 31, 1999, December 31, 1998, and
December 31, 1997, respectively.
Net Income (Loss) Per Common Share
On January 1, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No. 128
replaces the presentation of primary income (loss) per share with a dual
presentation of basic income (loss) per share and diluted income (loss) per
share for each year for which a statement of operations is presented.
Basic income (loss) per share amounts are based on the weighted
average number of common shares outstanding during each year. Diluted
income (loss) per share amounts are based on the weighted average number
of common shares and common share equivalents outstanding during each
year to the extent such equivalents have a dilutive effect on the income (loss)
per share.
For the year ended December 31, 1999, common stock equivalents
had no material effect on the computation of earnings per share. For the years
ended December 31, 1998 and 1997, common share equivalents were not
included in diluted income (loss) per share because the Company incurred a
loss for each year. The inclusion of the common stock equivalents would
have had an antidilutive effect on the computation of diluted income (loss)
per share.
Cash and Cash Equivalents
Cash and cash equivalents are recorded at cost which approximates
market value. Cash equivalents include certificates of deposit, government
securities and money market instruments purchased with maturities of less
than three months.
F-10
<PAGE>
Stock Options and Employee Stock Purchase Plan
Proceeds from the sale of newly issued stock to employees under the
Company's stock option plans and Employee Stock Purchase Plan are
credited to common stock to the extent of par value and the excess to capital
in excess of par value. Income tax benefits attributable to stock options are
credited to capital in excess of par value.
Disclosures about the Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash, cash
equivalents, accounts receivable, investment in sales-type leases, property
held for sale, accounts payable, notes payable, and a revolving credit
agreement. The carrying amounts of these financial instruments approximate
their fair value due to the short-term nature of these instruments, except for
the following. Under the reorganization plan described in Note 1 to the
financial statements, other liabilities of approximately $4,300,000 are
expected to be paid over a 30 month period which commenced in October
1998, without interest. Accordingly, the net present value of these payments
approximate $2,200,000 at December 31, 1999 assuming an interest rate of
8.50%, $3,800,000 at December 31, 1998 assuming an interest rate of 7.44%
and $4,000,000 at December 31, 1997 assuming an interest rate of 9%.
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
disclosures of contingent assets and liabilities as of the date of the financial
statements, and the reported amounts of income and expenses during the
reporting periods. Actual results could differ from those estimates.
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
To Be Disposed Of
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of". SFAS
No. 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable.
The statement also requires that certain long-lived assets and
identifiable intangibles to be disposed of be reported at the lower of the
carrying amount or fair value less cost to sell. Based on its review, the
Company does not believe that any material impairment of its long-lived
assets has occurred. The Company's review was based on the assumption
that the Company continues as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the company be unable to continue as a going concern.
Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement requires that changes in
stockholders' equity from transactions and events other than those resulting
from investments by and distributions to stockholders be reflected in
comprehensive income or loss. All prior year financial statements have been
reclassified to comply with this statement.
Segment Reporting
SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," became effective for periods beginning after December
31, 1997. This statement requires the presentment of information about the
identifiable components comprising an enterprise's business activities.
The Company has determined that there are no separately reportable
operating segments and, therefore, does not present separate reporting
segments in the financial statements.
F-11
<PAGE>
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation",
encourages but does not require companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for such plans using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of grant over the
exercise price of the stock (See Note 9).
(3) Business, Operations and Segment Information
The Company is a designer and supplier of fibre channel hardware
and software solutions for building Storage Area Networks ("SANs"). The
Company's products include Fibre Channel host bus adapters, hubs, high
availability software and disk arrays for building SANs in heterogeneous
open systems operating environments. The Company also provides add-on
memory for IBM enterprise servers.
The Company sells its equipment to end users, resellers, distributors
and OEMs. The Company's principal customers operate in a wide variety of
industries and in a broad geographical area. No single customer or distributor
accounted for 10% or more of total sales in fiscal year 1997. During years
1998 and 1999, one customer accounted for 11% of total revenues each year.
Foreign sales were 23% in 1997 and less than 10% of total revenues in fiscal
1998 and 1999. In the year ended December 31, 1999, our top five customers
accounted for approximately 40% of our total net revenues, and, in the year
ended December 31, 1998, our top five customers accounted for
approximately 29% of our total net revenues.
(4) Income Taxes
In accordance with SFAS No. 109, "Accounting For Income Taxes",
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
The following table presents the components of income (loss) before
income taxes:
Year ended Year ended Year ended
December 31, 1999 December 31, 1998 December 31, 1997
Domestic $ ( 531,000) $ ( 2,549,000) $ ( 5,689,000)
Foreign ( 131,000) ( 224,000) ( 908,000)
$ ( 662,000) $ ( 2,773,000) $ ( 6,597,000)
The following table presents a reconciliation between taxes provided
at the statutory federal income tax rate and the actual tax provision recorded
for the following periods:
F-12
<PAGE>
Year ended Year ended Year ended
December 1999 December 1998 December 1997
Provision (credit) at
federal statutory rate $ 32,700 $ ( 943,000) $ ( 2,243,000)
State tax provision
(credit), net of federal
tax benefits 14,300 ( 160,000) ( 358,000)
Foreign and other
losses for which no
benefits have been
recorded 44,400 76,000 309,000
Change in valuation
allowances ( 90,800) 1,047,000 2,007,000
Other ( 600) ( 20,000) 285,000
$ -0- $ -0- $ -0-
The Company has federal net operating loss carryovers totaling
$16,271,000 which expire through the year ended December 31, 2014.
The tax effects of the significant items which comprise the deferred
tax liability and tax asset, as of fiscal 1999, 1998 and 1997 are as follows:
December 1999 December 1998 December 1997
Assets
Reserves not currently
deductible for tax
purposes $1,584,000 $1,920,000 $1,874,000
State tax net operating
loss carryforward 1,612,000 1,565,000 1,335,000
Federal net operating
loss carryforward 5,012,000 4,859,000 4,114,000
Employee benefits 41,000 47,000 96,000
Other 49,000 154,000 76,000
Total deferred tax assets $8,298,000 $8,545,000 $7,495,000
F-13
<PAGE>
Liabilities
Fixed asset basis
difference $ (164,000) -0- -0-
Other 158,000 (45,000) (42,000)
Total deferred tax
liabilities $ ( 6,000) $ (45,000) $ (42,000)
Net deferred tax asset $8,292,000 $8,500,000 $ 7,453,000
Valuation allowance (8,292,000) (8,500,000) (7,453,000)
Tax asset -0- -0- -0-
Tax refunds receivable -0- -0- -0-
Total tax asset -0- -0- -0-
Due to the uncertainty of the realizability of the deferred tax assets,
the Company has established a valuation allowance for the net deferred tax
assets.
(5) Short Term Borrowings
The Company has a loan and security agreement with a related party
referred to in Note 12. The outstanding balance due to the related party was
$601,029 and $393,424 at December 31, 1999 and 1998, respectively.
Notes payable of $550,000 at December 31, 1999 represent advances
payable which are due November, 2000. These notes include amounts of
$250,000 from related parties. These notes are further described in Note 12.
During 1993, the Company obtained a $10 million unsecured,
revolving line of bank credit, bearing interest at the prime rate plus one-half
percent with a commitment fee of 3/8 of 1% per year on the unused portion.
The Company was required to repay any borrowings under this revolving
credit line on March 29, 1996. During the second quarter of 1996, the
Company agreed with its bank to extend and modify its Revolving Credit
Agreement.
As of December 31, 1996, $1,800,000 remained outstanding under
this Agreement. Subsequent to the end of the year, the Company received its
refund from the Internal Revenue Service and repaid its bank in full and the
agreement was terminated. Consequently, the bank released its security
interest in the Company's accounts receivable, inventory and general
intangibles.
F-14
<PAGE>
(6) Long-Term Debt and Related Matters
Long-term debt at December 31, 1999 and 1998 consists of the
following:
1999 1998
Subordinated Convertible
Notes with interest rate of
10% due April 30, 2003 $1,273,730 $1,063,730
Less : Current maturities -0- -0-
Total $1,273,730 $1,063,730
Of the advances received for the notes, approximately $560,000 was
received from a related party and is discussed in Note 12.
The maturities of long-term debt for each of the succeeding five years
subsequent to December 31, 1999 are as follows:
Year Amount
2000 -0-
2001 -0-
2002 -0-
2003 $1,273,730
Thereafter -0-
Total $1,273,730
(7) Earnings Per Share
Earnings per share are computed by dividing net income by the
average number of common shares and common stock equivalents
outstanding during the year. The weighted average number of common shares
outstanding during the years ended December 31, 1999, 1998 and 1997 were
approximately 9,540,000, 9,300,000, and 9,100,000, respectively.
Common stock equivalents include the net additional number of
shares that would be issuable upon the exercise of the outstanding common
stock options and warrants (see Note 9), assuming that the Company
reinvested the proceeds to purchase additional shares at market value.
Common stock equivalents also include shares of common stock that would
be issuable upon conversion of subordinated promissory convertible notes.
Options and warrants to purchase 143,851 and 259,305 weighted
average shares of common stock during the years ended December 31, 1998
and 1997, respectively, were not included in the computation of diluted loss
per share because to do so would have had an antidilutive effect on the
computation of loss per share. Weighted average shares of 855,313 common
stock equivalents had no material effect on the computation of earnings per
share for the year ended December 31, 1999. Weighted average shares
issuable from convertible notes of 5,235,261 were not included in the diluted
earnings per share because to do so would have had an antidilutive effect on
the computation of earnings per share.
As more fully described in Note 9, options and warrants to purchase
4,959,423, 94,970 and 187,420 shares of common stock outstanding at
December 31, 1999, 1998 and 1997, respectively, and 5,235,261 shares of
common stock issuable upon conversion of notes outstanding at December
31, 1999 could potentially dilute basic income (loss) per share in the future.
F-15
<PAGE>
(8) Commitments and Contingencies
At December 31, 1999, the Company had minimum rental
commitments under long-term, noncancelable operating leases for facilities
and other equipment as follows:
Due during Fiscal Year
2000 $ 381,924
2001 $ 381,924
2002 $ 381,924
2003 $ 159,134
$1,304,906
Total rental expense, including the cost of short-term equipment
leases, real estate taxes and insurance paid to the landlord and charged to
operations approximated $213,000 for the year ended December 31, 1999,
$260,000 for the year ended December 31, 1998, and $1,160,000 for the year
ended December 31, 1997. During 1997, 1998, 1999 and 2000, the Company
entered into agreements to sublet portions of its facilities to unrelated
parties.
In the ordinary course of business, the Company is involved in legal
proceedings. The Company believes that the outcome of these proceedings
will not have a material adverse effect on the Company's financial condition
or results of operations.
(9) Stock Options and Warrants
On November 12, 1999, the Company established and on December
23, 1999, shareholders approved the Year 2000 Equity Incentive Plan. The
Year 2000 Equity Incentive Plan provides for the delivery of up to 1,500,000
shares. On March 7, 1997, the Company established the 1997 Stock Option
Plan. The Year 2000 Equity Incentive Plan replaces the 1997 Plan for all
future options. At December 31, 1999, the Company had three stock option
plans for officers and certain employees under which 2,564,320 shares were
reserved and options for 1,475,000 shares were available for future grants.
Options are granted at not less than 85%, or in certain cases, not less than
100%, of the fair market value of the common stock on the date of grant.
Options outstanding have a term of ten years and become exercisable in
installments as determined by the board of directors. The plans' options vest
between one through six years and all expire between January 6, 2002 and
November 12, 2009.
Stock option activity for the three years ended December 31, 1999
was as follows:
Number Option Price
Option Shares Outstanding at
December 31, 1996 368,820 .25 - 16.15
Granted - -
Exercised, cancelled or expired (181,400) .25 - 10.41
Outstanding at December 31, 1997 187,420 .35 - 16.15
Granted - -
Exercised, cancelled or expired (92,450) .15 - 16.15
Outstanding at December 31, 1998 94,970 .12
Granted 1,204,500 .12 - 2.10
F-16
<PAGE>
Exercised, cancelled or expired (210,150) .12 - 1.67
Outstanding at December 31, 1999 1,089,320 .12 - 2.10
As of December 31, 1999 and 1998, options for 161,620 and 27,970
shares were exercisable at aggregate option prices of $33,524 and $3,356,
respectively.
Had compensation cost for these plans been determined consistent
with SFAS No. 123, the Company's net income(loss) and income(loss) per
share would have been changed to the following pro forma amounts:
Year ended Year ended Year ended
December 31, 1999 December 31, 1998 December 31, 1997
Net Income (Loss):
As reported (000's) 96 (2,773) (6,597)
Pro Forma 96 (2,773) (6,597)
Basic and Diluted
EPS: As Reported 0.01 (0.30) ( .72)
Pro Forma 0.01 (0.30) ( .72)
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option pricing model with the following
weighted average assumptions and values for grants in the periods presented.
Year ended Year ended Year ended
December 31, 1999 December 31, 1998 December 31, 1997
Assumptions:
Risk free interest rate 6.92% N/A N/A
Expected dividend yield 0% N/A N/A
Expected life in years 10 N/A N/A
Expected volatility 129.2% N/A N/A
Values:
Weighted average fair
value of options granted 2.85 0 0
Weighted average
exercise price .43 .12 1.94
Because the SFAS No. 123 method of accounting has not been
applied to options granted prior to September 1, 1994, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
F-17
<PAGE>
As of December 31, 1999 and 1998, warrants to purchase 3,870,103
and 1,063,730 shares of common stock at weighted average prices of $0.82
and $0.50 per share, respectively, were outstanding and an equal number of
shares were reserved for issuance.
(10) Incentive Bonus Plan and 401(k) Profit Sharing Retirement Plan
The Company has an incentive bonus plan under which certain key
employees as a group are entitled to receive additional compensation up to a
maximum of 15% of the Company's pre-tax income, as defined. There was
no provision in 1999, 1998 or 1997.
On September 1, 1988, the Company established the Cambex
Corporation 401(k) Profit Sharing Retirement Plan (the Plan). Under the
Plan, employees are allowed to make pre-tax retirement contributions. In
addition, the Company may provide matching contributions based on pre-
established rates as determined by the board of directors. The Company's
contributions have been in the form of Cambex common stock since fiscal
1994.
The Company offers no post-retirement benefits other than those
provided under the Plan.
(11) Employee Stock Purchase Plan
On December 20, 1993, the Company established the Cambex
Corporation Employee Stock Purchase Plan (the Plan), which was approved
by the shareholders. On August 31, 1998, the board of directors voted,
subject to shareholder approval, to increase the number of shares to cover the
number of shares purchased under the Plan during the period January 1, 1998
to June 30, 1998 and to terminate the Plan. Under the Plan, employees could
elect to have a specified percentage of their wages withheld through payroll
deduction and purchase common stock shares at 85% of the lower of the fair
market value of Common Stock on the first or last trading day of each
Purchase Period. There were two (2) Purchase Periods each year - the first
six months and the last six months of each calendar year. During fiscal 1998,
fiscal 1997 and fiscal 1996, there were 53,862, 21,069, and 50,060 shares
issued under the Plan, respectively. At December 31, 1999, there were
160,708 shares reserved for issuance under the Plan.
(12) Related Party Transactions
In November, 1999, the Company raised $550,000, including
$125,000 from Joseph F. Kruy, Chairman, President and Chief Executive
Officer of the Company and $125,000 from Philip C. Hankins, a Director of
the Company, in cash from the issuance of 12% Notes Payable (the "Notes"),
which are not due before November, 2000. In addition to the Note, each
holder was issued a Stock Purchase Warrant (the "Warrant"), the exercise of
which will allow the warrant holder to purchase two shares of common stock,
at approximately $2.00 per share, for each dollar invested through the
issuance of the Notes.
From June 1, 1999 through August 18, 1999, the Company has raised
$210,000, including $100,000 from Joseph F. Kruy, Chairman, President and
Chief Executive Officer of the Company, in cash from the issuance of 10%
Subordinated Convertible Promissory Notes. On June 1, 1998, the Company
raised approximately $1,060,000, including approximately $460,000 from
Joseph F. Kruy, in cash from the issuance of 10% Subordinated Convertible
Promissory Notes. Under the terms of the Notes, which are due on April 30,
2003, the holders may convert the notes into shares of common stock at a
conversion price of $0.22 per share. In addition to the Note, each holder was
issued a Stock Purchase Warrant, the exercise of which will allow the warrant
holder to purchase one share of common stock, at $0.50 per share, for each
dollar invested through the issuance of the Notes. Additional warrants to
purchase approximately 96,000 shares of common stock, at $0.50 per share
were issued on June 1, 1999 in relation to interest due on the June 1, 1998
notes.
On November 9, 1998, the Company entered into a loan and security
agreement with a lender company, hereafter referred to as "Lender" which is
owned by a relative of Joseph F. Kruy, Chairman and Chief Executive
Officer of the Company, under which the Company may borrow up to a
maximum of $650,000 being outstanding at any one time. Such loan is fully
secured by all assets of the Company. The Company pays all collections
from accounts receivable to the Lender not less frequently than each week
until the outstanding loan amount plus related interest, which accrues at a 12%
annual rate, is fully paid. Under the terms of the loan agreement, the Lender
F-18
<PAGE>
receives a warrant for the purchase of two shares of common stock, at
$0.22 per share, for each dollar loaned to the Company.
On June 1, 1998, we entered into a Master Lease with CyberFin
Corporation, a corporation wholly owned by Peter J. Kruy, our Executive
Vice President, Treasurer and Chief Financial Officer. Under the Master
Lease we rent from CyberFin an IBM 2003 S/390 Multiprise Processor and
related software and maintenance at the rate of $3,787.64 per month for a
period of three years. We also purchased computer memory from CyberFin
for $141,920 in 1998 and $73,000 in 1999. We believe that lease and the
purchase arrangements we made with CyberFin are on terms at least as
favorable to us as we would have expected from an equipment lessor
unrelated to us, CyberFin and Dr. Kruy for equipment of comparable quality.
(13) Events (Unaudited) Subsequent to date of Report of Independent
Public Accountants
Subsequent to the end of 1999, the Company raised an additional
$2,000,000 in cash from the issuance of 8% Convertible Bridge Notes which
are due in August and September, 2000. The notes are convertible at a
weighted average share price of $4.08. The Company may redeem the notes
at any time during the term of the notes. If the Company does not redeem the
notes prior to maturity and the Company's stock price falls below certain
levels, the holders are entitled to acquire additional shares. In addition to
the notes, warrants to purchase 300,000 shares of common stock were issued at
weighted average exercise prices of $4.54 per share.
On March 1, 2000, the Company entered into a Sublease Agreement
with a third party pursuant to which the Company sublet approximately 8,000
square feet in its Waltham, Massachusetts facility (which is approximately
12% of the Company's total leased space). The term of the sublease is
coterminous with the primary lease and expires on May 31, 2003.
(14) Credit Risk
The Company maintains cash balances at financial institutions located
in Massachusetts. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. At December 31, 1999, the
Company's uninsured cash balances total $246,606.
The Company's subsidiaries maintain cash balances at several
financial institutions located throughout Europe. These cash balances are
subject to normal currency exchange fluctuations. At December 31, 1999, the
Company's overseas cash balances total $18,678.
(15) Extraordinary Items
Extraordinary income in 1999 consists of the payment of other
liabilities at a discount from face value. The per share amount of the gain on
the extinguishment of debt is $0.07.
F-19
<PAGE>
BACKCOVER OF PROSPECTUS
Until ___________, 2000 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Our by-laws, as amended, reflect the adoption of the provisions of the
Massachusetts General Laws, Chapter 156B, Section 67 which empowers a
Massachusetts corporation to indemnify any person in connection with any
action, suit or proceeding brought or threatened by reason of the fact that
such person is or was a director, officer, employee or agent of the corporation
or was serving as such with respect to another corporation or other entity at
the request of such corporation, unless such person shall have been
adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that such action was in the best interests of the corporation.
Our by-laws, as amended, also provide that the Company shall indemnify any
person, who was or is a party to a proceeding by reason of the fact that he is
or was a director or officer of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection with such proceeding if he acted in good faith and in a manner
he reasonably believed to be or not opposed to the best interests of the
Company, in accordance with, and to the full extent permitted by, the
Massachusetts General Corporation Law.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth an itemization of all estimated
expenses, all of which we will pay, in connection with the issuance and
distribution of securities being registered:
Registration fees 4,028.26
Federal taxes
Blue Sky fees
State taxes and fees
Transfer agent's and registrar fees
Legal fees 100,000.00
Accounting fees 1,400.00
Miscellaneous fees
Item 26. Recent Sales of Unregistered Securities
None
Item 27. Exhibits
2.1 Reorganization Plan of Cambex Corporation dated March 17, 1998
(included as Exhibit 2.1 to the Company's Amendment to Quarterly
Report on Form 10-Q/A for the quarter ended April 1, 2000, and
incorporated herein by reference).
2.2 Amended Disclosure Statement with respect to Reorganization Plan
of the Company dated March 17, 1998 (included as Exhibit 2.2 to the
Company's Amendment to Quarterly Report on Form 10-Q/A for the
quarter ended April 1, 2000, and incorporated herein by reference).
3.1 Restated Articles of Organization of Cambex Corporation.
3.2 Restated By-laws of Cambex Corporation.
4.1 Specimen Stock Certificate.
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<PAGE>
4.2 Registration Rights Agreement among the Company and the
Purchasers identified therein (the "Sovereign Purchasers") dated as of
January 18, 2000 (included as Exhibit 4.1 to the Company's
Amendment to Quarterly Report on Form 10-Q/A for the quarter
ended April 1, 2000, and incorporated herein by reference).
4.3 Registration Rights Agreement between the Company and
Thumberland Limited dated as of July 14, 2000.
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
10.1 Employment Agreement between Joseph F. Kruy and the Company,
dated as of November 18, 1994 (included as Exhibit 10.1 to the
Company's Amendment to Quarterly Report on Form 10-Q/A for the
quarter ended April 1, 2000, and incorporated herein by reference).
10.2 Incentive Bonus Plan.
10.3 1987 Combination Stock Option Plan (included as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1987, and incorporated herein by reference).
10.4 2000 Equity Incentive Plan (included as Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, and incorporated herein by reference).
10.5 Series 1 Bridge Note Purchase Agreement among the Company
and the Sovereign Purchasers dated as of January 18, 2000
(included as Exhibit 10.7 to the Company's Amendment to
Quarterly Report on Form 10-Q/A for the quarter ended April 1,
2000, and incorporated herein by reference).
10.6 Escrow Agreement among the Company, the Sovereign
Purchasers and Suntrust Bank, Atlanta dated as of January 6,
2000 (included as Exhibit 10.8 to the Company's Amendment to
Quarterly Report on Form 10-Q/A for the quarter ended April 1,
2000, and incorporated herein by reference).
10.7 Placement Agent Agreement between the Company and
Sovereign Capital Advisors, LLC ("Sovereign Advisors") dated as
of January 18, 2000 (included as Exhibit 10.9 to the Company's
Amendment to Quarterly Report on Form 10-Q/A for the quarter
ended April 1, 2000, and incorporated herein by reference).
10.8 Guaranty Agreement among Joseph F. Kruy, the Company and
the Sovereign Purchasers dated as of January 18, 2000. (included
as Exhibit 10.10 to the Company's Amendment to Quarterly
Report on Form 10-Q/A for the quarter ended April 1, 2000, and
incorporated herein by reference).
10.9 Guaranty Agreement among CyberFin Corporation, the
Company and the Sovereign Purchasers dated as of January 18,
2000 (included as Exhibit 10.11 to the Company's Amendment to
Quarterly Report on Form 10-Q/A for the quarter ended April 1,
2000, and incorporated herein by reference).
10.10 Stock Pledge Agreement by Joseph F. Kruy in favor of the Sovereign
Purchasers dated as of January 18, 2000 (included as Exhibit 10.12 to
the Company's Amendment to the Quarterly Report on Form 10-Q/A
for the quarter ended April 1, 2000, and incorporated herein by
reference).
10.11 Stock Pledge Agreement by CyberFin Corporation in favor of the
Sovereign Purchasers dated as of January 18, 2000 (included as
Exhibit 10.13 to the Company's Amendment to the Quarterly Report
on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated
herein by reference).
10.12 Series 1 Bridge Financing Note in favor of SovCap Equity Partners,
Ltd. dated as of January 18, 2000 (included as Exhibit 10.14 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by
reference).
II-2
<PAGE>
10.13 Series 1 Bridge Financing Note in favor of Correllus International,
Ltd. dated as of January 18, 2000 (included as Exhibit 10.16 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by
reference).
10.14 Common Stock Purchase Warrant in favor of SovCap Equity
Partners, Ltd. dated as of January 18, 2000 (included as Exhibit 10.18
to the Company's Amendment to the Quarterly Report on Form 10-
Q/A for the quarter ended April 1, 2000, and incorporated herein by
reference).
10.15 Common Stock Purchase Warrant in favor of Correllus International,
Ltd. dated as of January 18, 2000 (included as Exhibit 10.19 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by
reference).
10.16 Sovereign Warrant Agreement between the Company and Sovereign
Advisors dated as of January 18, 2000 (included as Exhibit 10.20 to
the Company's Amendment to the Quarterly Report on Form 10-Q/A
for the quarter ended April 1, 2000, and incorporated herein by
reference).
10.17 Warrant Certificate registered in the name of Sovereign Advisors
dated January 18, 2000 (included as Exhibit 10.21 to the Company's
Amendment to the Quarterly Report on Form 10-Q/A for the quarter
ended April 1, 2000, and incorporated herein by reference).
10.18 Series 1 Bridge Financing Note in favor of Arab Commerce Bank
Ltd. dated as of February 9, 2000 (included as Exhibit 10.22 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by
reference).
10.19 Common Stock Purchase Warrant in favor of Arab Commerce Bank
Ltd. dated as of February 9, 2000 (included as Exhibit 10.24 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by
reference).
10.20 Series 1 Bridge Financing Note in favor of SovCap Equity Partners,
Ltd. dated as of February 9, 2000 (included as Exhibit 10.25 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by
reference).
10.21 Common Stock Purchase Warrant in favor of SovCap Equity
Partners, Ltd. dated as of February 9, 2000 (included as Exhibit 10.27
to the Company's Amendment to the Quarterly Report on Form 10-
Q/A for the quarter ended April 1, 2000, and incorporated herein by
reference).
10.22 Common Stock Purchase Agreement between the Company and
Thumberland Limited dated as of July 14, 2000.
10.23 Escrow Agreement among the Company, Thumberland Limited and
Epstein, Becker & Green, P.C., dated as of July 14, 2000.
10.24 Stock Purchase Warrant in favor of Thumberland Limited dated as of
July 14, 2000.
10.25 Stock Purchase Warrant in favor of Ladenburg Thalmann & Co. Inc.
dated as of July 14, 2000.
21.1 List of subsidiaries of the Company.
*23.1 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included in Exhibit 5.1).
23.2 Consent of Belanger & Company, P.C.
24.1 Powers of Attorney (See Signature Page)
27.1 Financial Data Schedule.
II-3
<PAGE>
99.1 Audit Committee Charter.
____________
* To be filed by amendment.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the registrant pursuant to any
charter provision, by-law, contract arrangements, statute, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sales securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration statement;
and
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at that
time to be the initial bona fide offering of those securities.
(3) For determining any liability under the Act, to treat the
information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the registrant
under Rule 424(b)(1) or (4), or 497(h) under the Securities Act
as part of this Registration Statement as of the time the
Securities and Exchange Commission declared it effective.
(4) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end
of the offering.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Waltham, Commonwealth of Massachusetts, on August 8, 2000.
CAMBEX CORPORATION
By: /s/ Joseph F. Kruy
Joseph F. Kruy,
Chief Executive Officer,
President
and Chairman of the Board
POWER OF ATTORNEY
We the undersigned officers and directors of Cambex Corporation
hereby severally constitute and appoint Joseph F. Kruy our true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
in him for him and in his name, place and stead, and in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement (or any other Registration Statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933), and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as full to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
that the said attorney-in-fact and agent, or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Joseph F. Kruy Chairman, Chief Executive August 8, 2000
Joseph F. Kruy Officer and President
(principal executive officer)
/s/ Peter J. Kruy Executive Vice President and August 8, 2000
Peter J. Kruy Chief Financial Officer
(principal financial and accounting
officer)
/s/ Philip C. Hankins Director August 8, 2000
Philip C. Hankins
/s/ C.V. Ramamoorthy Director August 8, 2000
C.V. Ramamoorthy
/s/ Robert J. Spain Director August 8, 2000
Robert J. Spain
II-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2.1 Reorganization Plan of Cambex Corporation dated March 17, 1998
(included as Exhibit 2.1 to the Company's Amendment to Quarterly
Report on Form 10-Q/A for the quarter ended April 1, 2000, and
incorporated herein by reference).
2.2 Amended Disclosure Statement with respect to Reorganization Plan
of the Company dated March 17, 1998 (included as Exhibit 2.2 to the
Company's Amendment to Quarterly Report on Form 10-Q/A for the
quarter ended April 1, 2000, and incorporated herein by reference).
3.1 Restated Articles of Organization of Cambex Corporation.
3.2 Restated By-laws of Cambex Corporation.
4.1 Specimen Stock Certificate.
4.2 Registration Rights Agreement among the Company and the
Purchasers identified therein (the "Sovereign Purchasers") dated as of
January 18, 2000 (included as Exhibit 4.1 to the Company's
Amendment to Quarterly Report on Form 10-Q/A for the quarter
ended April 1, 2000, and incorporated herein by reference).
4.3 Registration Rights Agreement between the Company and
Thumberland Limited dated as of July 14, 2000.
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
10.1 Employment Agreement between Joseph F. Kruy and the Company,
dated as of November 18, 1994 (included as Exhibit 10.1 to the
Company's Amendment to Quarterly Report on Form 10-Q/A for the
quarter ended April 1, 2000, and incorporated herein by reference).
10.2 Incentive Bonus Plan.
10.3 1987 Combination Stock Option Plan (included as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1987, and incorporated herein by reference).
10.4 2000 Equity Incentive Plan (included as Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, and incorporated herein by reference).
10.5 Series 1 Bridge Note Purchase Agreement among the Company
and the Sovereign Purchasers dated as of January 18, 2000
(included as Exhibit 10.7 to the Company's Amendment to
Quarterly Report on Form 10-Q/A for the quarter ended April 1,
2000, and incorporated herein by reference).
10.6 Escrow Agreement among the Company, the Sovereign
Purchasers and Suntrust Bank, Atlanta dated as of January 6,
2000 (included as Exhibit 10.8 to the Company's Amendment to
Quarterly Report on Form 10-Q/A for the quarter ended April 1,
2000, and incorporated herein by reference).
10.7 Placement Agent Agreement between the Company and
Sovereign Capital Advisors, LLC ("Sovereign Advisors") dated as
of January 18, 2000 (included as Exhibit 10.9 to the Company's
Amendment to Quarterly Report on Form 10-Q/A for the quarter
ended April 1, 2000, and incorporated herein by reference).
<PAGE>
10.8 Guaranty Agreement among Joseph F. Kruy, the Company and
the Sovereign Purchasers dated as of January 18, 2000. (included
as Exhibit 10.10 to the Company's Amendment to Quarterly
Report on Form 10-Q/A for the quarter ended April 1, 2000, and
incorporated herein by reference).
10.9 Guaranty Agreement among CyberFin Corporation, the
Company and the Sovereign Purchasers dated as of January 18,
2000 (included as Exhibit 10.11 to the Company's Amendment to
Quarterly Report on Form 10-Q/A for the quarter ended April 1,
2000, and incorporated herein by reference).
10.10 Stock Pledge Agreement by Joseph F. Kruy in favor of the Sovereign
Purchasers dated as of January 18, 2000 (included as Exhibit 10.12 to
the Company's Amendment to the Quarterly Report on Form 10-Q/A
for the quarter ended April 1, 2000, and incorporated herein by
reference).
10.11 Stock Pledge Agreement by CyberFin Corporation in favor of the
Sovereign Purchasers dated as of January 18, 2000 (included as
Exhibit 10.13 to the Company's Amendment to the Quarterly Report
on Form 10-Q/A for the quarter ended April 1, 2000, and incorporated
herein by reference).
10.12 Series 1 Bridge Financing Note in favor of SovCap Equity Partners,
Ltd. dated as of January 18, 2000 (included as Exhibit 10.14 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by
reference).
10.13 Series 1 Bridge Financing Note in favor of Correllus International,
Ltd. dated as of January 18, 2000 (included as Exhibit 10.16 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by
reference).
10.14 Common Stock Purchase Warrant in favor of SovCap Equity
Partners, Ltd. dated as of January 18, 2000 (included as Exhibit 10.18
to the Company's Amendment to the Quarterly Report on Form 10-
Q/A for the quarter ended April 1, 2000, and incorporated herein by
reference).
10.15 Common Stock Purchase Warrant in favor of Correllus International,
Ltd. dated as of January 18, 2000 (included as Exhibit 10.19 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by
reference).
10.16 Sovereign Warrant Agreement between the Company and Sovereign
Advisors dated as of January 18, 2000 (included as Exhibit 10.20 to
the Company's Amendment to the Quarterly Report on Form 10-Q/A
for the quarter ended April 1, 2000, and incorporated herein by
reference).
10.17 Warrant Certificate registered in the name of Sovereign Advisors
dated January 18, 2000 (included as Exhibit 10.21 to the Company's
Amendment to the Quarterly Report on Form 10-Q/A for the quarter
ended April 1, 2000, and incorporated herein by reference).
10.18 Series 1 Bridge Financing Note in favor of Arab Commerce Bank
Ltd. dated as of February 9, 2000 (included as Exhibit 10.22 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by
reference).
10.19 Common Stock Purchase Warrant in favor of Arab Commerce Bank
Ltd. dated as of February 9, 2000 (included as Exhibit 10.24 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by
reference).
10.20 Series 1 Bridge Financing Note in favor of SovCap Equity Partners,
Ltd. dated as of February 9, 2000 (included as Exhibit 10.25 to the
Company's Amendment to the Quarterly Report on Form 10-Q/A for
the quarter ended April 1, 2000, and incorporated herein by
reference).
10.21 Common Stock Purchase Warrant in favor of SovCap Equity
Partners, Ltd. dated as of February 9, 2000 (included as Exhibit 10.27
to the Company's Amendment to the Quarterly Report on Form 10-
Q/A for the quarter ended April 1, 2000, and incorporated herein by
reference).
<PAGE>
10.22 Common Stock Purchase Agreement between the Company and
Thumberland Limited dated as of July 14, 2000.
10.23 Escrow Agreement among the Company, Thumberland Limited and
Epstein, Becker & Green, P.C., dated as of July 14, 2000.
10.24 Stock Purchase Warrant in favor of Thumberland Limited dated as of
July 14, 2000.
10.25 Stock Purchase Warrant in favor of Ladenburg Thalmann & Co. Inc.
dated as of July 14, 2000.
21.1 List of subsidiaries of the Company.
/23.1 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included in Exhibit 5.1).
23.2 Consent of Belanger & Company, P.C.
24.1 Powers of Attorney (See Signature Page)
27.1 Financial Data Schedule.
99.1 Audit Committee Charter.
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* To be filed by amendment.
