As filed with the Securities and Exchange Commission on November 28, 2000
Registration No. 333-
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 (Primary Standard (I.R.S.Employer
of incorporation or Classification Identification No.)
organization) Code Number)
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
Proposed Proposed
Title of each maximum maximum
class of Amount offering aggregate Amount of
securities to to be price offering registration
be registered registered per share price fee
(1)
Common Stock, Up to
$.10 par value 2,600,000(2) (3) $10,000,000.00(4) $2,640.00
Common Stock,
$.10 par value 2,381,542(5) (5) $ 5,404,684.30 $1,426.84
Total Up to 4,981,542 $15,404,684.30(2) $4,066.84(6)
(1) Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
amount being registered hereunder is carrying forward 1,990,000 shares of
the Company's common stock from our Registration Statement on Form SB-2
(Registration No. 333-43294, filed on August 8, 2000 and declared
effective on November 7, 2000) (the "Prior Registration Statement").
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933.
(3) The price per common share will vary based on the volume-weighted
average daily price of the Company's common stock during the drawdown
periods provided for in the common stock purchase agreement between the
Company and Thumberland described in this Registration Statement.The Purchase
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price will be equal to 93% of the volume-weighted average daily
price for each trading day within such drawdown pricing periods. The
common stock purchase 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.
(4) This represents the maximum purchase price that Thumberland is
obligated to pay the Company under the common stock purchase agreement.
The maximum net proceeds the Company 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.
(5) The 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 684,589 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 1,005,411 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 financing notes; 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. Before the maturity dates, these notes
accrued interest at the rate of 8% per annum. Currently, since the
maturity dates, interest is accruing at a rate of 12% per annum. Also,
Cambex is obligated to pay these lenders premiums and penalties equal to
approximately $607,000. 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 proposed maximum offering
price per share has been estimated solely for the purpose of calculating
the registration fee pursuant to Rule 457(c) of the Securities Act of
1933.
(6) Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
included herein covers the securities previously registered under the
Prior Registration Statement. A filing fee of $4,500.00 was paid at the
time of filing the Prior Registration Statement. As a result of
amendments, $1,123.19 was applied toward the Prior Registration Statement,
which registered an aggregate of $4,254,490.52 of the Company's
securities. The filing fee that would have been payable upon filing of
this Registration Statement ($2,943.65) is being brought over to this
filing from the Prior Registration Statement. Accordingly, no filing fee
is submitted herewith.
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.
STATEMENT PURSUANT TO RULE 429
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
included herein relates to securities previously registered under the
Company's Registration Statement on Form SB-2 (Registration No. 333-43294,
filed on August 8, 2000 and declared effective on November 7, 2000) (the
"Prior Registration Statement"). This Registration Statement, which is a new
Registration Statement, also constitutes the first post-effective amendment
to the Prior Registration Statement. Such post-effective amendment shall
hereafter become effective concurrently with the effectiveness of this
Registration Statement in accordance with Section 8(a) of the Securities Act
of 1933. The Prospectus contained herein is intended to be the combined
prospectus referred to in Rule 429 under the Securities Act of 1933.
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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.
SUBJECT TO COMPLETION, DATED NOVEMBER 28, 2000
PROSPECTUS
CAMBEX CORPORATION
Common Stock
4,981,542 Shares
The information in this prospectus is not complete and may be changed.
Thumberland Limited and Ladenburg Thalmann & Co. Inc., each of which are
identified as selling securityholders on pages 53 through 55 of this
prospectus 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 such selling securityholders until the registration
statement filed by Cambex with the Securities and Exchange Commission is
effective.
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 51.2% of our issued and outstanding common stock as of October 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 November 27, 2000 was $1.19 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 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.
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 9.
_________________________________
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.
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TABLE OF CONTENTS
Page
SUMMARY INFORMATION 3
THE OFFERING 5
RISK FACTORS 9
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 18
USE OF PROCEEDS 18
CAPITALIZATION 19
MARKET FOR OUR COMMON STOCK 20
DIVIDEND POLICY 20
BUSINESS 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 32
DIRECTORS AND EXECUTIVE OFFICERS 36
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 40
PRINCIPAL SHAREHOLDERS 41
DESCRIPTION OF SECURITIES 43
SOVEREIGN BRIDGE FINANCING 45
THUMBERLAND COMMON STOCK PURCHASE AGREEMENT 47
SELLING SECURITYHOLDERS 53
PLAN OF DISTRIBUTION 56
LEGAL MATTERS 60
EXPERTS 60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
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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.
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.
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 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. 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 established 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
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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 have matured. In support of our
strategy, we 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.
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.
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THE OFFERING
Common stock offered by Thumberland Limited
that it may purchase under the common stock
purchase agreement 2,600,000 shares
Common stock offered by Thumberland Limited
that it may purchase by
exercise of stock purchase warrant 195,771 shares
Common stock offered by Ladenburg Thalmann & Co.
Inc. 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 the
series 1 bridge financing notes 684,589 shares
Common stock offered by the Sovereign Lenders
that they may purchase by exercise of repricing
warrants attached to the series 1 bridge
financing notes 1,005,411 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 Limited registered under
this registration statement related to the
equity drawdown facility and before
issuance of shares issuable pursuant
to other securities held by selling
securityholders identified in this
prospectus 12,331,635 shares
After sale of maximum number of shares to
Thumberland Limited registered under this
registration statement related to the equity
drawdown facility and after issuance of
shares issuable pursuant to other securities
held by selling securityholders identified in
this prospectus 14,713,177 shares
Trading symbol for common stock CBEX
This prospectus covers a total of 4,981,542 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 51.2% of our issued and outstanding common stock as of November
27, 2000. The number of shares subject to this prospectus represents 33.9%
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 which
was arranged for us with the assistance of Sovereign Capital Advisors, LLC.
We entered into a series 1 bridge note purchase agreement with SovCap Equity
Partners, Ltd., Correllus International Ltd. and Arab Commerce Bank Ltd.
Pursuant to the series 1 bridge note purchase agreement, we issued these
lenders, who are referred to throughout this prospectus as the Sovereign
Lenders, the following:
series 1 bridge financing notes that are convertible into up to a
total of 684,589 shares of our common stock, which number includes
shares issuable upon conversion of accrued interest, premium amounts
and penalties due under the notes;
repricing warrants attached to each series 1 bridge financing note
that may be exercisable for up to a total of 1,005,411 shares of our
common stock; and
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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 matured on August 15, 2000 and
September 6, 2000. Because the bridge notes matured before we registered,
under the Securities Act of 1933, as amended, the offer and resale of shares
of our common issuable upon conversion of the bridge notes and exercise of
the repricing warrants and the common stock purchase warrants described
above, we owe the Sovereign Lenders premiums and penalties totaling
approximately $607,000 (in addition to the repayment of principal and
interest). On September 26, 2000, the Sovereign Lenders agreed, for a
specified period, to not cause us to default on our obligations by demanding
payment in cash, allowing us to continue the registration process. Before
the end of that grace period, we successfully completed the registration of
the offer and resale of shares of our common stock issuable to the Sovereign
Lenders in connection with the bridge notes and warrants on November 7, 2000.
This means that from and after November 7, 2000, the Sovereign Lenders have
the choice to accept cash or shares of our common stock to satisfy our
obligations. Currently, if the Sovereign Lenders demand immediate payment of
cash in full satisfaction of our obligations, we anticipate that we would be
unable to meet these obligations.
Before the maturity dates, the series 1 bridge notes accrued interest
at 8% per annum. Currently, since the maturity dates, interest is accruing
at a rate of 12% per annum until the notes are paid in full. The number of
shares of our common stock covered by our registration statement that was
declared effective on November 7, 2000 assumes that accrued interest on the
bridge notes will not exceed $193,000. If the actual interest amount exceeds
$193,000, we expect to pay the difference in cash.
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 a Sovereign Lender does not sell shares received upon conversion of a
bridge note during the repricing period, then it may not exercise the
repricing warrant regardless of market price of our common stock during the
repricing period. 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
Lender 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 1,005,411 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
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related warrants, allowing us to register those shares of our common stock
under the registration statement that was declared effective on November 7,
2000, and of which this prospectus is a part.
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
November 8, 2000. The common stock purchase agreement establishes what is
sometimes termed an equity line of credit or an equity drawdown facility.
In general, the drawdown facility operates as follows: the investor,
Thumberland, has committed to provide us with 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 47 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. For example, 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 common stock price and trading volume for our common stock were
at those levels, we would 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. For example, if the market price for shares of our common stock at
October 31, 2000 ($1.22 per share) and our average trading volume for the 45
days preceding October, 2000 (13,156 shares) remained constant, we would not
be able to draw funds from Thumberland because, as a result of applying the
formulas, the drawdown amount would be less than $250,000.
The number of shares registered under the registration statement of
which this prospectus is a part may limit the amount of money we receive
under the common stock purchase agreement. Moreover, the funds we may
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 & Co. Inc., 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.
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We did not make a commitment to Thumberland to draw a minimum amount of
funds under the common stock purchase agreement. In lieu of making a
commitment to Thumberland to draw a minimum aggregate amount, on July 20,
2000, we issued to Thumberland a stock purchase warrant to purchase up to
195,771 shares of our common stock. The common stock purchase warrant gives
Thumberland an opportunity to purchase shares of our common stock even though
we draw little or no amount of funds under the common stock purchase
agreement. The common stock purchase warrant has 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 date the warrant was
issued. The warrant expires July 20, 2003.
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RISK FACTORS
Risks Related to Our Industry
Because a 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, the growth of our fibre channel product sales 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. 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 SAN approach.
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 that 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 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
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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 September 30, 2000, we had an
accumulated deficit of approximately $23 million. At September 30, 2000 we
had current assets totaling approximately $1.1 million. At that same date,
we had current liabilities totaling approximately $5.7 million and long-term
liabilities totaling approximately $2.6 million, a substantial portion of
which is attributable to a 1998 bankruptcy reorganization plan that we
continue to implement. On August 15, 2000 and September 6, 2000 the series 1
bridge notes held by the Sovereign Lenders matured but the Sovereign Lenders
have agreed to not demand payment of our obligations under these bridge notes
until the earlier of (a) the effectiveness of the registration statement
covering shares of our common stock issuable to the Sovereign Lenders and (b)
and November 16, 2000. Our registration statement covering the shares
issuable to the Sovereign Lenders was declared effective on November 7, 2000.
Currently, if the Sovereign Lenders choose to demand immediate payment of
cash instead of shares of common stock in full satisfaction of our
obligations, we will be unable to satisfy this obligation. In order to
continue as a going concern and compete effectively, we need to satisfy our
short-term obligations, 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 have developed 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 have established 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.
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.
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
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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 Chairman,
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. 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. Our employees may leave and subsequently 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.
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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
26.4% 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 and our registration
statement declared effective on November 7, 2000, our officers and directors
will control the vote of approximately 17.4% 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.
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 suppliers and contract
manufacturers in order to increase our volumes or to reduce our costs. We
may not be able to find suppliers or 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 suppliers or 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 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.
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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;
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;
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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 six months. The time periods for which we
believe our capital is sufficient are estimates. The actual time periods 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. Without additional capital, we may be unable to fund
expansion, to develop new products and services and to enhance existing
products and services to respond to competitive pressures, or to acquire
complementary businesses or technologies.
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. Moreover, our agreement 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 sources. Our common stock purchase agreement with Thumberland provides
that if we sell our securities for cash at a discount to the then current
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.
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The issuance of shares to Thumberland and the Sovereign Lenders may cause
significant dilution in the value of our common stock.
The issuance of shares of our common stock to Thumberland will dilute
the equity interest of existing stockholders and could have an adverse effect
on the market price of our common stock. As of October 31, 2000, we had
12,285,265 shares of common stock reserved for possible future issuances
upon, among other things, draws under equity drawdown facility with
Thumberland, the conversion of series 1 bridge financing notes held by the
Sovereign Lenders and the exercise of outstanding options and warrants.
Under the common stock purchase agreement with Thumberland, the amount
of common stock issued to Thumberland is based on a formula that is directly
related to the market price and trading volume of our common stock prior to
the time of draw down under the equity drawdown facility. The issuance of
some or all of the shares of common stock under this common stock purchase
agreement could result in dilution of the per share value of our common stock
held by current stockholders. The lower the average trading price of our
common stock and our trading volume at the time of the draw down, the greater
the number of shares of common stock that will be issued. This causes a
substantial risk of dilution. The perceived risk of dilution may cause
Thumberland as well as other stockholders to sell their shares, which would
contribute to the downward movement in the stock price of our common stock.
We may seek additional financing, which would result in the issuance of
additional shares of our capital stock and/or rights to acquire additional
shares of our capital stock. Additional issuances of capital stock would
result in a reduction of current shareholders' percentage interest in Cambex.
If the exercise price of any outstanding options or warrants is lower than
the price per share of common stock at the time of the exercise, then the
price per share of common stock may decrease because the number of shares of
common stock outstanding would increase without a corresponding increase in
the dollar amount assigned to stockholders' equity. For example, if the
Sovereign Lenders become eligible to exercise the repricing warrants, which
have an exercise price of $0.10 per share, the shares of common stock issued
would have a significant dilutive effect on stockholders' equity
The addition of a substantial number of shares of common stock into the
market or by the registration of any other of our securities under the
Securities Act may significantly and negatively affect the prevailing market
price for our common stock. Furthermore, future sales of shares of common
stock issuable upon the exercise of outstanding options and warrants may have
a depressive effect on the market price of the common stock, as these
warrants and options would be more likely to be exercised at a time when the
price of the common stock is in excess of the applicable exercise price.
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 registered under our
registration statement that was declared effective on November 7, 2000 can,
since that date, be sold in the public market. The other shares of common
stock 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 20.4% of our outstanding capital stock at October 31, 2000.
Moreover, Thumberland and Ladenburg Thalmann could purchase and resell up to
approximately 30.7% of our outstanding capital stock at October 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.
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 the "Risk Factors" section of this prospectus 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
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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.
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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 September 30,
2000 and our pro forma capitalization adjusted to reflect:
the conversion of the series 1 bridge notes;
Thumberland drawdown of $5,755,050 in accordance with the example
using our common stock price and trading volume at May 31, 2000 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 3,791,048 of shares common stock and
the receipt by us of an aggregate $9,550,753 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 September 30, 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
11,269,615 shares issued actual;
15,060,663 shares issued pro forma $1,126,962 $1,506,066
Capital in excess of par value 15,984,266 25,155,915
Accumulated other comprehensive income 101,989 101,989
Retained earnings (deficit) (23,455,272) (23,455,272)
Less Cost of 1,537,980 shares held in treasury (876,966) (876,966)
Total stockholders' equity (7,119,021) 2,431,732
Total capitalization (5,845,291) 3,705,462
The outstanding share information and amounts shown in the table above
excludes the effect of the following:
Shares of common stock that are 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 and
that are issuable to the members of our board of directors in lieu
of cash compensation;
Shares of common stock issuable upon the conversion of 10%
Subordinated Convertible Promissory Notes and our Loan and Security
Agreements and upon the exercise of warrants issued to the holders
of those notes; 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 2.96 1.50
4th Quarter (through November 27, 2000) 1.62 1.06
The last reported sale price of our common stock on November 27, 2000
was $1.19 per share. On that date, there were approximately 520 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.
The series 1 bridge note purchase agreement with the Sovereign Lenders
provides that we may not pay dividends in cash or otherwise as long as any of
the series 1 bridge notes remain outstanding. With the consent of the
Sovereign Lenders and as long as we are not in default, we may pay dividends
to preferred shareholders in accordance with our articles of organization and
we may repurchase shares of our common stock issued upon the exercise of
options granted under our stock option plans.
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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.
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
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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
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
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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 kilometers;
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.
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
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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.
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.
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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.
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
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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.
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
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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 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.
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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 directly to end-users. Our
OEM and reseller customers include Compaq, StorageTek, FDC Technologies, and
EDS. Over the past two years, our end-user customers of our products and
services have included BASF, Mobil, 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.
Customer Service and Support
We offer 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 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.
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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 suppliers and
manufacturers involves risks, including possible limitations on availability
of products due to market 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 and third party manufacturers 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.
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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.
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 November 1, 2000, we had 27 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.
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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. This 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 September 30, 2000 and the three months
ended October 2, 1999.
Our revenues were $701,000 for the quarter ended September 30, 2000 and
$867,000 for the quarter ended October 2, 1999. Revenues for the three months
ended September 30, 2000 decreased 19% 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 full fibre channel disk arrays. We also experience 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 relatively
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 53% of sales for the three months ended September
30, 2000, compared to 64% of sales for the three months ended October 2,
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
third quarter of this year as compared to the third quarter of fiscal 1999.
Operating expenses for the three months ended September 30, 2000
increased by 43% in comparison to operating expenses for the comparable three
months of the prior year. Research and development expenses for the three
months ended September 30, 2000 increased by 109% compared to the amount of
these expenses in the third quarter of fiscal 1999. 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. Selling expenses for the three months ended
September 30, 2000 increased by 16% compared to the amount of these expenses
in the third quarter of fiscal 1999. We continued to expend increased amounts
to build our sales and marketing organization and reseller channels.
Interest expense increased by 117% for the three months ended September
30, 2000 compared to the three months ended October 2, 1999. This increase in
interest expense was primarily due to funds borrowed beginning in the third
and fourth quarters of 1999. We borrowed $110,000 in exchange for, among
other things, an issuance of 10% subordinated convertible promissory notes
from July 4, 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, which have been extended to November 2001. 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 until maturity
in August and September 2000. These notes began to accrue interest at the
rate of 12% per annum following their respective maturity dates.
Extraordinary income items for the third quarter of fiscal 1999 were
recorded as a result of some of our creditors agreeing to accept partial cash
payments in full satisfaction of liabilities owed to those creditors.
Total comprehensive net loss for the third quarter of fiscal 2000 was
$516,000, or $0.05 per share, as compared with total comprehensive income of
$213,000, or $0.02 per share, for the third 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.
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 (the availability of which was increased to $1
million on November 9, 2000). 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. 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 three quarters of 2000 due to general inflation.
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Liquidity and Capital Resources
As discussed more fully in Note 1 to our audited 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 and the assumption that certain of our creditors
will accept shares of our common stock instead of cash in satisfaction of our
obligations.
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.
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 matured 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 bore interest at the rate of 8% per annum prior to
their respective maturity dates. Since their respective maturity dates,
interest is accruing at a rate of 12% per annum. These bridge notes are
convertible into shares of our common stock at a weighted average per share
price of $4.08. Because the bridge notes matured before we registered, under
the Securities Act of 1933, as amended, the offer and resale of shares of our
common issuable upon conversion of the bridge notes and exercise of the
repricing warrants and the common stock purchase warrants described above, we
owe the Sovereign Lenders premiums and penalties totaling approximately
$607,000 (in addition to the repayment of principal and interest). Following
conversion of the bridge notes, if the Sovereign Lenders do not realize at
least a 20% gain on shares of common stock that they choose to sell 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. We filed a registration statement on
Form SB-2 with the Securities and Exchange Commission on August 8, 2000 for
1,990,000 shares issuable in connection with this bridge loan financing.
That registration statement was declared effective on November 7, 2000 after
the end of the third quarter of fiscal 2000.
Resources
Our cash and marketable securities were $156,000, $367,000 and $211,000
at September 30, 2000, December 31, 1999 and December 31, 1998, respectively.
Working capital was a deficit of $4,658,000, $2,125,000 and $1,575,000 at
September 30, 2000, December 31, 1999 and at December 31, 1998, respectively.
The increase in working capital deficit was primarily due to an increase in
short term notes payable relative to the Sovereign Bridge Financing. 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 $1,000,000. At September
30, 2000 we had a balance of $618,000 outstanding under this revolving credit
facility.
During the third quarter of fiscal 2000, we signed a common stock
purchase agreement with a private investor for the future issuance and
purchase of shares of our common stock. The common stock purchase agreement
was amended after the end of the third quarter of fiscal 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
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drawdown facility operates as follows: the investor 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 the investor, subject to registering in advance the
shares of common stock issuable under the Securities Act of 1933. 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.
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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) 69 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. 38 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 Dr.
Ramamoorthy and Mr. 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 1999
and its stockholders in 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 October 31, 2000, no shares had been issued as the result of the
exercise of options or awards granted pursuant to the plan. As of October
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 through November
9, 2000 (as so amended, the "BAA Loan Agreement"), allows us to borrow up to
$1,000,000, 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, originally BAA received a warrant for the
purchase of 1.3 million shares of common stock, at an exercise price of $0.22
per share. In consideration for increasing the amount of available funds,
the Company agreed to issue an additional warrant to BAA for the purchase of
350,000 shares of our common stock, at an exercise price of $1.25. 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 2001. 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. Originally, 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, at an exercise price of $2.00 per share. When we
extended the term of the loans in November 2000, the Company agreed to issue
additional warrants to Messrs. Kruy and Hankins and the Other 1999 Lenders to
purchase one share of our common stock at an exercise price of $1.25 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 October 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 immediately 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, except that such amount excludes shares
of common stock issuable (a) upon exercise of repricing warrants held by the
Sovereign Lenders and (b) under the common stock purchase agreement with
Thumberland. For purposes of calculating the percentage beneficially owned
immediately 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. 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.
Name and address of Number of Shares Percentage of Outstanding
Beneficial Owner Beneficially Shares Beneficially Owned(2)
Owned (1) Before Offering After Offering
Joseph F. Kruy (3) 2,385,043 22.3% 19.7%
Peter J. Kruy (4) 1,022,164 10.4 9.2
SovCap Equity Partners, Ltd. (5)
Cumberland House
#27 Cumberland St.,
P.O. Box CB-13016
Nassau, New Providence,
The Bahamas 787,671 7.5 *
Philip C. Hankins (6) 480,000 4.7 4.2
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
Lois P. Lehberger (7) 23,000 * *
All directors and executive
officers as a group
(6 persons) (8) 4,009,363 35.9 31.9
_______________
* Represents beneficial ownership of less than 1%.
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(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 October 31, 2000
(December 30, 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, 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 9,731,635 shares of common stock
outstanding as of October 31, 2000 and, in accordance with assumptions set
forth immediately preceding to the table, is based on 11,107,766 shares of
common stock outstanding immediately after effectiveness of the registration
statement of which this prospectus is a part.
(3) Includes 985,103 shares of common stock issuable upon exercise of stock
purchase warrants issued in 1998 and 1999 exercisable within 60 days
following October 31, 2000 (or by December 30, 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 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.
(5) Consists of a total 547,671 shares issuable upon the exercise of two
series 1 bridge financing notes and a total of 240,000 shares issuable upon
exercise of two common stock purchase warrants.
(6) Includes 375,000 shares of common stock issuable upon exercise of a
stock purchase warrant issued in November 1999.
(7) Consists of 23,000 shares subject to options exercisable within 60 days
following October 31, 2000 (or by December 30, 2000).
(8) Includes 1,443,103 shares subject to options and warrants exercisable
within 60 days following October 31, 2000 (or by December 30, 2000). See
footnotes (3), (4), (6) and (7) 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 9,731,635 shares were issued and
outstanding as of October 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.
The series 1 bridge note purchase agreement with the Sovereign Lenders
provides that we may not pay dividends in cash or otherwise as long as any of
the series 1 bridge notes remain outstanding. With the consent of the
Sovereign Lenders and as long as we are not in default, we may pay dividends
to preferred shareholders in accordance with our articles of organization and
we may repurchase shares of our common stock issued upon the exercise of
options granted under our stock option plans.
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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 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. The Sovereign Lenders also 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.
Under the registration rights agreement with Thumberland, as amended,
we are obligated to use our best efforts to cause 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 to be declared effective by the Securities and Exchange
Commission. We are also obliged to pay the costs associated with the filing
of this 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 Advisors, LLC. 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 684,589 shares of our common stock, which number includes
shares issuable upon conversion of accrued interest, premium amounts
and penalties 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
1,005,411 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 matured on August 15, 2000 and
September 6, 2000. Because the bridge notes matured before we registered,
under the Securities Act of 1933, as amended, the offer and resale of shares
of our common issuable upon conversion of the bridge notes and exercise of
the repricing warrants and the common stock purchase warrants described
above, we owe the Sovereign Lenders premiums and penalties totaling
approximately $607,000 (in addition to the repayment of principal and
interest). On September 26, 2000, the Sovereign Lenders agreed, for a
specified period, to not cause us to default on our obligations by demanding
payment in cash allowing us to continue the registration process. Before the
end of that grace period, we successfully completed the registration of the
offer and resale of shares of our common stock issuable to the Sovereign
Lenders in connection with the bridge notes and warrants on November 7, 2000.
This means that from and after November 7, 2000, the Sovereign Lenders have
the choice to accept cash or shares of our common stock to satisfy our
obligations. Currently, if the Sovereign Lenders demand immediate payment of
cash in full satisfaction of our obligations, we anticipate that we would be
unable to meet these obligations. On November 14, 2000 Correllus
International Ltd., one of the Sovereign Lenders, converted a portion of its
series 1 bridge note into 18,232 shares of our common stock.
Before the maturity dates, the series 1 bridge notes accrued interest
at 8% per annum. Currently, since the maturity dates, interest is accruing
at a rate of 12% per annum until the notes are paid in full. The number of
shares of our common stock covered by our registration statement that was
declared effective on November 7, 2000 assumes that accrued interest on the
bridge notes will not exceed $193,000. If the actual interest amount exceeds
$193,000, we expect to pay the difference in cash.
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 a Sovereign Lender does not sell shares received upon conversion of a
bridge note during the repricing period, then it may not exercise the
repricing warrant regardless of market price of our common stock during the
repricing period. 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.
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;
the Sovereign Lenders do not sell any shares of common stock
received upon conversion of the bridge notes during the repricing
period; or
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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 (assuming that accruals on the bridge notes due not exceed $193,000)
of up to 1,005,411 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 that was
declared effective on November 7, 2000, of which this prospectus is a part.
The series 1 bridge note purchase agreement with the Sovereign Lenders
provides that we may not pay any cash dividends as long as any of the series
1 bridge notes remain outstanding. With the consent of the Sovereign Lenders
and as long as we are not in default, we may pay dividends to preferred
shareholders in accordance with our articles of organization and we may
repurchase shares of our common stock issued upon the exercise of options
granted under our stock option plans.
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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
November 8, 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 at least $250,000. If, as a result of applying
the formulas in the common stock purchase agreement, the amount of the draw
down is less than $250,000, then we may not draw funds under this facility.
The closing price for our common stock on October 31, 2000 was $1.22 per
share and the average daily trading volume for the 45 days preceding October
31, 2000 was 13,156 shares. If, for example, our market price on October 31,
2000 and the 45-day average trading volume at that date remained constant, we
may not draw funds from Thumberland because, as a result of applying the
formulas, because the drawdown amount would be less than $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.
We did not make a commitment to Thumberland to draw a minimum amount
under the common stock purchase agreement. In lieu of making a commitment to
Thumberland to draw a minimum aggregate amount, on July 20, 2000, we issued
to Thumberland a stock purchase warrant to purchase up to 195,771 shares of
our common stock. The common stock purchase warrant gives Thumberland an
opportunity to purchase shares of our common stock even though we draw little
or no amount under the common stock purchase agreement. The common stock
purchase warrant has 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 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
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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, and Thumberland may not purchase any
shares at or below the threshold price.
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.
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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
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 Volume-Weighted 1/22 of Requested Number of Shares of
Day Average Daily Draw Down Amount Common Stock to be
Stock Price* 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.
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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
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 amended the common stock purchase agreement and
registration rights agreement on November 8, 2000 and closed the transaction
on that day. 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.
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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:
a material adverse change affecting our business, operations,
properties or financial condition or other condition, circumstance
or situation that would materially interfere with our ability to
perform our material obligations under any material agreement to
which we are a party; 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.
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SELLING SECURITYHOLDERS
Overview
Shares of our common stock registered for resale under this prospectus
constitute 51.2% of our issued and outstanding common shares as of October
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 differ from the number we actually issue under the common stock
purchase agreement and pursuant to exercise of the repricing warrants. If we
anticipate that the number of shares of common stock registered under the
registration statement, of which this prospectus is part, will be less than
the number of shares of common stock we may issue to Thumberland, then we
will then file another registration statement with the Securities and
Exchange Commission to register the offer and resale of additional shares of
our common stock.
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 the members
of its board of directors, Messrs. Hans Glassner and Martin Gstoehl. 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. Prior to being introduced to Thumberland by
Ladenburg Thalmann, there was no business relationship between Cambex and
Thumberland. Moreover, since that introduction, there remains no other
business relationship between Thumberland and Cambex other than the
relationship established by 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 4,981,542 shares we are registering, 1,990,000 shares were
registered in a registration statement declared effective by the Commission
on November 7, 2000, of which this prospectus is a part, 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
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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.
Selling Securityholders Table
Based on information provided to us by each of Thumberland and the
Sovereign Lenders, the following table shows, as of October 31, 2000:
The number of shares and the percentage each Sovereign Lender and
Thumberland beneficially owns before the effectiveness of the
registration statement of which this prospectus is a part, based on
our common stock outstanding on October 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 and
Thumberland may resell under this prospectus; and
Assuming each Sovereign Lender and Thumberland 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 and
Thumberland will beneficially own after the effectiveness of the
registration statement of which this prospectus is a part, based on
our common stock outstanding on October 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 October 31, 2000 (December 30, 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 Prospectus Owned After Offering
Under this Prospectus(1)
Name Number Percentage Shares to be Number Percentage
Offered
Thumberland Limited (2) 2,795,771 22.3% 2,795,771 0 0%
SovCap Equity Partners, Ltd.(3)1,592,000 14.1 1,592,000 0 0
Correllus International Ltd. (4) 248,750 2.5 248,750 0 0
Ladenburg Thalmann & Co., Inc.(5)195,771 2.0 195,771 0 0
Arab Commerce Bank, Ltd. (6) 149,250 1.5 149,250 0 0
-----------------------------------
(1) Assumes the sale of all shares of our common stock that the selling
security holder may sell under this prospectus.
(2) Assumes Thumberland is issued all 2,600,000 shares of our common stock
under the common stock purchase agreement that are being registered
pursuant to the registration statement of which this prospectus is a part
and includes 195,771 shares issuable upon exercise of a stock purchase
warrant.
(3) Consists of a total of 547,671 shares issuable upon the exercise of two
series 1 bridge financing notes, a total of 804,329 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.
(4) Consists of 85,574 shares issuable upon the exercise of a series 1
bridge financing note, 125,676 shares issuable upon exercise of an
attached repricing warrant and 37,500 shares issuable upon exercise of a
common stock purchase warrant. On November 14, 2000, Correllus converted
a portion of its series 1 bridge note into 18,232 shares of our common
stock.
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(5) Consists of shares issuable upon exercise of a stock purchase warrant.
(6) Consists of 51,344 shares issuable upon the exercise of a series 1
bridge financing note, 75,406 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 common stock purchase agreement
with Thumberland, the engagement letter with Ladenburg Thalmann and the
ownership of securities convertible into or exercisable for shares of our
common stock.
SovCap Equity Partners, Ltd., a Bahamas corporation, is controlled by
Mr. Barry Herman, its President. Arab Commerce Bank Ltd., a Caymans
corporation is controlled by Tony DeNazareth, the Company Secretary.
Canellus International, Ltd., a Belize corporation, is controlled by its
Director, Jan Telander.
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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.
On October 31, 2000, we had 9,731,635 shares of common stock
outstanding. The following table shows the number of shares we would issue
to Thumberland and the price it would pay for those shares given the
hypothetical variables shown in the table, if :
we requested drawdowns of the maximum amounts under the common stock
purchase agreement;
the volume weighted average daily price in the table is the volume-
weighted average daily price of our common stock for the 22 trading
days before each drawdown request under the common stock purchase
agreement and the 22 trading days after each drawdown request;
the average trading volume in the table is the average trading volume
for the 45 trading days before each drawdown request; and
we do not issue more shares to Thumberland under the common stock
purchase agreement than we are currently registering for resale of the
shares issued under the common stock purchase agreement.
Weighted Average Number of shares Price per share Percentage of
Average Trading issued to Thumberland paid by shares owned
Daily Price Volume(h) under Common Stock Thumberland by Thumberland
Purchase Agreement (i)
$1.219(a) 13,156 0 0 0
$0.914(b) 13,156 0 0 0
$0.610(c) 13,156 0 0 0
$0.305(d) 13,156 0 0 0
$1.524(e) 13,156 0 0 0
$1.829(f) 13,156 0 0 0
$2.33(g) 13,156 0 0 0
(a) Represents the closing price of our stock on October 31, 2000.
(b) Represents 75% of the closing price of our stock on October 31, 2000.
(c) Represents 50% of the closing price of our stock on October 31, 2000.
(d) Represents 25% of the closing price of our stock on October 31, 2000.
(e) Represents 125% of the closing price of our stock on October 31,2000.
(f) Represents 150% of the closing price of our stock on October 31,2000.
(g) Represents 175% of the closing price of our stock on October 31,2000.
(h) Represents the average trading volume of our common stock for the
45 trading days preceding August 31, 2000.
(i) The number of shares we would issue is limited by a provision of
the common stock purchase agreement that prevents us from issuing
shares to Thumberland to the extent that Thumberland would
beneficially own more than 9.9% our then outstanding stock and by
the minimum drawdown amount of $250,000.
To permit Thumberland to resell the shares of common stock 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
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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.
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).
57
<PAGE>
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 the 2,414,917 shares registered for issuance under the
common stock purchase agreement in connection with the $5,755,000 we receive,
we will pay underwriting compensation to and expenses for Thumberland, and
other offering expenses, as follows:
58
<PAGE>
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 $0.367863 $888,358
(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,
supplemented; and
any other facts material to the transaction.
59
<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.
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.
60
<PAGE>
CAMBEX CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets at December 31, 1998, December 31, 1999
and July 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 July 3, 1999 and
July 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 July 3, 1999 and
July 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>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
ASSETS
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
2000 1999 1998
(unaudited)
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 155,791 $ 366,743 $ 211,452
ACCOUNTS RECEIVABLE,
Less Reserves of $100,000
in 2000, 1999 and 1998 368,231 202,466 514,335
CURRENT PORTION OF INVESTMENT
IN SALES-TYPE LEASES, net of unearned
interest income of $400 in 1998 - - 25,820
INVENTORIES 465,555 622,430 303,720
PREPAID EXPENSES 63,298 65,995 72,852
TOTAL CURRENT ASSETS $ 1,052,875 $ 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 3,700,913 3,639,196 3,585,441
NET PROPERTY AND EQUIPMENT $ 116,691 $ 178,408 $ 308,023
OTHER ASSETS
OTHER $ 37,830 $ 37,830 $ 37,830
TOTAL ASSETS $ 1,207,396 $ 1,473,872 $ 1,474,032
F-3
<PAGE>
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000, DECEMBER 31, 1999 AND DECEMBER 31, 1998
LIABILITIES AND STOCKHOLDERS' INVESTMENT
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
2000 1999 1998
(unaudited)
CURRENT LIABILITIES:
LOAN AGREEMENT $ 618,087 $ 601,029 $ 393,424
NOTES PAYABLE 2,287,940 550,000 -
ACCOUNTS PAYABLE 517,831 463,675 408,841
OBLIGATIONS FOR TRADE-IN MEMORY 240,000 286,250 360,250
OTHER LIABILITIES-SHORT
TERM PORTION 1,446,214 967,558 1,146,168
ACCRUED EXPENSES 600,906 513,849 394,039
TOTAL CURRENT LIABILITIES $ 5,710,978 $ 3,382,361 $ 2,702,722
LONG TERM DEBT $ 1,273,730 $ 1,273,730 $ 1,063,730
OTHER LIABILITIES-LONG
TERM PORTION 1,341,709 2,324,540 3,173,007
DEFERRED REVENUE - 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 -11,269,615 shares in 2000,
11,076,232 shares in 1999, and
11,072,582 shares in 1998 $ 1,126,962$ 1,107,623 $ 1,107,258
CAPITAL IN EXCESS OF PAR VALUE 15,984,266 15,970,199 15,966,625
ACCUMULATED OTHER
COMPREHENSIVE INCOME 101,989 101,989 88,134
RETAINED EARNINGS (DEFICIT) (23,455,272) (21,931,920) (22,028,044)
LESS - COST OF SHARES HELD IN TREASURY
1,537,980 in 2000,
1,534,356 in 1999 and 1998 (876,966) (854,766) (854,766)
TOTAL STOCKHOLDERS' INVESTMENT $ (7,119,021)$ (5,606,875) $ (5,720,793)
TOTAL LIABILITIES AND
STOCKHOLDERS' INVESTMENT $ 1,207,396 $ 1,473,872 $ 1,474,032
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1999
AND FOR THE NINE MONTHS ENDED OCTOBER 2, 1999 AND SEPTEMBER 30, 2000
Nine Months Ended Year Ended Nine Months Ended Year Ended
September 30, 2000 December 31, October 2, 1999 December 31,
1999 1998
(unaudited)
REVENUES $ 1,758,320 $ 3,401,733 $2,870,416 $ 3,748,933
COST OF SALES 888,134 1,422,430 1,183,655 2,967,406
Gross profit $ 870,186 $ 1,979,303 $1,686,761 $ 781,527
OPERATING EXPENSES:
Research and development $ 1,111,862 $ 1,096,806 $ 837,016 $ 1,379,094
Selling 767,893 778,839 586,052 1,241,385
General and administrative 340,110 607,408 433,024 760,578
$ 2,219,865 $ 2,483,053 $1,856,092 $ 3,381,057
OPERATING INCOME (LOSS) $(1,349,679)$ (503,750)$ (169,331)$(2,599,530)
OTHER INCOME (EXPENSE):
Interest expense (276,079) (173,265) (118,648) (70,000)
Interest income - 405 405 3,641
Other income (expense) - 14,827 13,810 (107,288)
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS $(1,625,758)$ (661,783)$ (273,764)$(2,773,177)
Provision for income taxes - - - -
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS $(1,625,758)$ (661,783)$ (273,764)$(2,773,177)
Extraordinary Items(Note 15) 102,406 757,907 754,949 -
NET INCOME (LOSS) $(1,523,352)$ 96,124 $ 481,185 $(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) $(1,523,352)$ 109,979 $ 481,185 $(2,745,799)
TOTAL COMPREHENSIVE
INCOME (LOSS) PER COMMON SHARE $ (0.16)$ 0.01 $ 0.05 $ (0.30)
Weighted Average Common
Shares Outstanding 9,660,000 9,540,000 9,540,000 9,300,000
Weighted Average Common and Common
Equivalent Shares Outstanding 10,390,000 10,390,000 9,540,000 9,300,000
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
Common Stock Capital in Accumulated Retained Cost of
$.10 Excess of Other Comprehensive Earnings Shares Held
Par Value Par Value Income (Deficit) in Treasury
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)
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1999
AND FOR THE NINE MONTHS ENDED OCTOBER 2, 1999 AND SEPTEMBER 30, 2000
Nine Months Ended Year Ended Nine Months Ended Year Ended
September 30, 2000 December 31, October 2, 1999 December 31,
1999 1998
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,523,352)$ 96,124 $ 481,185 $ (2,773,177)
Adjustments to reconcile
net income(loss) to net
cash provided by (used in)
operating activities:
Depreciation $ 61,717 $ 131,603 $ 98,676 $ 283,243
Provision for losses on
accounts receivable - - - -
Provision for losses on
inventory - - - -
Amortization of prepaid expenses 7,210 7,822 7,822 24,892
Common stock/warrants issued in
lieu of cash 10,246 - - 194,769
Change in assets and liabilities:
Decrease (increase) in accounts
receivable (165,765) 311,869 255,276 686,008
Decrease(increase)in inventory 156,875 (318,710) (335,379) 1,109,205
Decrease(increase)in investment
in sales-type leases - 25,820 25,820 59,299
Decrease(increase)in prepaid
expenses (4,513) (965) 11,636 23,439
Decrease in other assets - - - -
Increase(decrease)in accounts
payable 54,156 54,834 (34,262) 112,422
Increase(decrease)in obligations
for trade-in memory (46,250) (74,000) - 360,250
Increase(decrease)in accrued
expenses 87,057 119,810 135,642 (67,686)
Increase(decrease)in deferred
revenue (100,116) (155,250) (154,000) 239,888
Increase(decrease)in other
liabilities (504,175)(1,027,077) (960,646) 4,319,175
Increase(decrease)in liabilities
subject to compromise - - - (6,325,273)
Total adjustments $ (443,558)$ (924,244)$ (949,415)$ 1,019,631
Net cash provided by
(used in) operating activities$(1,966,910)$ (828,120)$ (468,230)$(1,753,546)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, net $ - $ (1,988)$ (8,688)$ 3,500
Net cash provided by
(used in)investing activities$ - $ (1,988)$ (8,688)$ 3,500
F-7
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase(decrease) in
notes payable $ 1,737,940 $ 760,000 $ 210,000 $ 1,063,730
Proceeds from sale of
common stock and warrants 960 3,939 270 720
Net borrowings (repayments)
under loan agreement 17,058 207,605 159,272 393,424
Net cash provided by
(used in) financing activities$1,755,958 $ 971,544 $ 369,542 $ 1,457,874
Effect of exchange rate
changes on cash - 13,855 - 27,378
Net increase (decrease) in
cash and cash equivalents $ (210,952)$ 155,291 $ (107,376)$ (264,794)
Cash and cash equivalents at
beginning of year 366,743 211,452 211,452 476,246
Cash and cash equivalents at
end of year $ 155,791 $ 366,743 $ 104,076 $ 211,452
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 11,618 $ 13,265 $ 10,648 $ -
Income Taxes - - - -
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 Nine Months Ended September 30, 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
F-9
<PAGE>
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:
December 31,1998 December 31, 1999 September 30, 2000
Raw materials $ 228,524 $ 419,984 $ 245,016
Work-in-process 51,215 78,572 79,088
Finished goods 23,981 123,874 141,451
303,720 622,430 465,555
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
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.
F-16
<PAGE>
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.
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.
F-17
<PAGE>
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
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.
F-18
<PAGE>
(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>
[Inside Back Cover]
"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.
<PAGE
[Outside Back Cover]
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
State taxes and fees
Legal fees 100,000.00
Accounting fees 1,400.00
Item 26. Recent Sales of Unregistered Securities
Set forth in chronological order is information regarding securities
convertible into or exercisable for shares of Cambex common stock issued by
Cambex within the past three years:
In June 1998 Cambex borrowed approximately $1,060,000 in exchange
for the issuance of 10% Subordinated Convertible Promissory Notes in an
exempt transaction. In addition to the notes, each of the holders received a
stock purchase warrant entitling the holder to purchase one share of our
common stock at a price of $0.50 per share for each dollar loaned to us.
Additional stock purchase warrants were issued to the holders of these 10%
notes on June 1, 1999 in relation to interest due on these notes.
In November 1998 Cambex entered into a Loan and Security Agreement with
B.A. Associates, Inc. which allows Cambex to borrow up to $650,000. In
exchange for this revolving loan facility, Cambex issued the lender in an
exempt transaction a warrant for the purchase of two shares of common stock
for each dollar it committed to loan Cambex. In November 2000, the
agreement with B.A. Associates was amended to increase the amount the Company
can borrow to $1,000,000. In exchange for this $350,000 increased
commitment, the Company agreed to issue the lender a warrant to purchase one
share of common stock for each additional dollar it committed to loan to
Cambex.
In November 1999 Cambex entered into Loan and Security Agreements with
five individuals, under which the individuals received in an exempt
transaction warrants to purchase up to two shares of common stock for each
dollar loaned to Cambex. The exercise price of the warrants is $2.00 per
share. In November 2000, Cambex Amended the Loan and Security Agreements to
expand the date the loans are due. The individuals in an exempt transaction,
received warrants to purchase up to one share of common stock for each dollar
loaned to Cambex, at an exercise price of $1.25 per share.
II-1
<PAGE>
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 (included as
Exhibit 3.1 to the Company's Registration Statement on Form SB-2,
declared effective with the Commission on November 7, 2000, Reg. No.
333-43294, and incorporated herein by reference).
**3.2 Restated By-laws of Cambex Corporation (included as Exhibit 3.2 to the
Company's Registration Statement on Form SB-2, declared effective with
the Commission on November 7, 2000, Reg. No. 333-43294, and
incorporated herein by reference).
**4.1 Specimen Stock Certificate (included as Exhibit 4.1 to the Company's
Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
**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 (included as Exhibit 4.3 to the
Company's Registration Statement on Form SB-2, declared effective with
the Commission on November 7, 2000, Reg. No. 333-43294, and
incorporated herein by reference).
**4.4 Amendment to Registration Rights Agreement between the Company and
Thumberland Limited dated as of November 8, 2000 (included as Exhibit
4.4 to the Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 2000 and incorporated herein by reference).
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 (included as Exhibit 10.2 to the Company's
Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
**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).
II-2
<PAGE>
**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).
**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).
II-3
<PAGE>
**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 (included as Exhibit
10.22 to the Company's Registration Statement on Form SB-2, declared
effective with the Commission on November 7, 2000, Reg. No. 333-43294,
and incorporated herein by reference).
**10.23 Amendment to Common Stock Purchase Agreement between the Company
and Thumberland Limited, dated as of November 8, 2000 (included as
Exhibit 10.23 to the Company's Quarterly Report on 10QSB for the
quarter ended September 30, 2000, and incorporated herein by
reference).
**10.24 Escrow Agreement among the Company, Thumberland Limited and
Epstein, Becker & Green, P.C., dated as of July 14, 2000 (included as
Exhibit 10.23 to the Company's Registration Statement on Form SB-2,
declared effective with the Commission on November 7, 2000, Reg. No.
333-43294, and incorporated herein by reference).
**10.25 Stock Purchase Warrant in favor of Thumberland Limited dated as
of July 14, 2000 (included as Exhibit 10.24 to the Company's
Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
**10.26 Stock Purchase Warrant in favor of Ladenburg Thalmann & Co. Inc.
dated as of July 14, 2000 (included as Exhibit 10.25 to the Company's
Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
10.27 Loan and Security Agreement, as amended, by and between the Company and
BA Associates, Inc.
**21.1 List of subsidiaries of the Company (included as Exhibit 21.1 to
the
Company's Registration Statement on Form SB-2, declared effective with
the Commission on November 7, 2000, Reg. No. 333-43294, and
incorporated herein by reference).
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.
27.1 Financial Data Schedule.
**99.1 Audit Committee Charter (included as Exhibit 99.1 to the
Company's Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
____________
** Previously filed with the Commission.
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
II-4
<PAGE>
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-5
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 of the undersigned, in the
City of Waltham, Commonwealth of Massachusetts, on November 28, 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 November 28, 2000
Joseph F. Kruy Officer and President
(principal executive officer)
/s/ Peter J. Kruy Executive Vice President and November 28, 2000
Peter J. Kruy Chief Financial Officer
(principal financial and accounting
officer)
/s/ Philip C. Hankins Director November 28, 2000
Philip C. Hankins
/s/ C.V. Ramamoorthy Director November 28, 2000
C.V. Ramamoorthy
/s/ Robert J. Spain Director November 28, 2000
Robert J. Spain
II-6
<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 (included as
Exhibit 3.1 to the Company's Registration Statement on Form SB,
declared effective with the Commission on November 7, 2000, Reg. No.
333-43294, and incorporated herein by reference).
**3.2 Restated By-laws of Cambex Corporation (included as Exhibit 3.2 to the
Company's Registration Statement on Form SB-2, declared effective with
the Commission on November 7, 2000, Reg. No. 333-43294, and
incorporated herein by reference).
**4.1 Specimen Stock Certificate (included as Exhibit 4.1 to the Company's
Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
**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 (included as Exhibit 4.3 to the
Company's Registration Statement on Form SB-2, declared effective with
the Commission on November 7, 2000, Reg. No. 333-43294, and
incorporated herein by reference).
**4.4 Amendment to Registration Rights Agreement between the company and
Thumberland Limited dated as of November 8, 2000 (included as Exhibit
4.4 to the Company's Quarterly Report on Form 10-QSB for the quarter
ended September 30, 2000 and incorporated herein by reference).
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 (included as Exhibit 10.2 to the Company's
Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
**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).
<PAGE>
**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).
**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).
<PAGE>
**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 (included as Exhibit
10.22 to the Company's Registration Statement on Form SB-2, declared
effective with the Commission on November 7, 2000, Reg. No. 333-43294,
and incorporated herein by reference).
**10.23 Amendment to Common Stock Purchase Agreement between the Company
and Thumberland Limited, dated as of November 8, 2000 (included as
Exhibit 10.23 to the Company's Quarterly Report on 10QSB for the
quarter ended September 30, 2000, and incorporated herein by
reference).
**10.24 Escrow Agreement among the Company, Thumberland Limited and
Epstein, Becker & Green, P.C., dated as of July 14, 2000 (included as
Exhibit 10.23 to the Company's Registration Statement on Form SB-2,
declared effective with the Commission on November 7, 2000, Reg. No.
333-43294, and incorporated herein by reference).
**10.25 Stock Purchase Warrant in favor of Thumberland Limited dated as
of July 14, 2000 (included as Exhibit 10.24 to the Company's
Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
**10.26 Stock Purchase Warrant in favor of Ladenburg Thalmann & Co. Inc.
dated as of July 14, 2000 (included as Exhibit 10.25 to the Company's
Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
10.27 Loan and Security Agreement, as amended, by and between the Company and
BA Associates, Inc.
**21.1 List of subsidiaries of the Company (included as Exhibit 21.1 to
the
Company's Registration Statement on Form SB-2, declared effective with
the Commission on November 7, 2000, Reg. No. 333-43294, and
incorporated herein by reference).
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.
27.1 Financial Data Schedule.
**99.1 Audit Committee Charter (included as Exhibit 99.1 to the
Company's
Registration Statement on Form SB-2, declared effective with the
Commission on November 7, 2000, Reg. No. 333-43294, and incorporated
herein by reference).
____________
** Previously filed with the Commission.
