FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period to
Commission file number 0-6933
CAMBEX CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04 244 2959
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
360 Second Avenue 02451
Waltham, Massachusetts (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: 781-890-6000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
An Exhibit Index setting forth the exhibits filed herewith or incorporated by
reference herein is included herein at Page A-1.
The aggregate market value of the voting stock held by non-affiliates of Cambex
Corporation as of March 28, 2000 was $49,482,993 based on the closing price of
the common stock on that date.
The number of shares of Cambex Corporation's common stock outstanding as of
March 28, 2000: 9,635,259.
2
PART I
Item 1. Business.
Overview
The Company is a designer and supplier of Fibre Channel hardware and software
solutions for building Storage Area Networks (SAN). 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 rapid growth in the demand for increasing amounts of data storage is being
driven by data intensive applications including the Internet, e-commerce,
online transaction processing, multimedia, and data warehousing. As the amount
of data storage grows, enterprises need better ways to share, manage and
protect their data assets. As a result, Fibre Channel has emerged as a high-
speed storage interconnect for accessing a corporation's data residing on disk
storage arrays and tape back-up libraries. Fibre Channel technology is used to
build Storage Area Networks, a new storage architecture, which delivers the
increased availability, scalability, data sharing capability, performance, and
manageability necessary to effectively utilize ever increasing amounts of data
storage.
Products
The Company designs and markets three primary product families: Fibre Channel
infrastructure products, disk storage arrays, and add-on memory for IBM
enterprise servers.
The Company's Fibre Channel infrastructure products include Fibre Channel host
bus adapters (HBA) and hubs. The Company's HBAs provide Fibre Channel
connectivity for UNIX, Linux and Windows NT servers allowing them to
substantially expand the size, speed and scalability of their data storage.
The Company's Dynamic Path Failover software for use with its HBAs provides
high availability, load balancing, and a two-fold performance boost when using
two adapters in a host server. The Company's Fibre Channel hub enables users
to construct star topology Fibre Channel Storage Area Networks and allows users
to non-disruptively add or remove server and storage resources from the
network.
The Company's disk storage arrays provide ultra reliable, highly available
storage for heterogeneous UNIX, Linux and Microsoft Windows NT environments.
The Company markets disk arrays with Fibre Channel, SCSI, and SSA host
connectivity options for building enterprise-wide Storage Area Networks.
The Company's memory products include IBM compatible mainframe memory for IBM
9672 and Multiprise 2000 mainframe enterprise servers. The Company also sells
or leases trade-in memory which it acquires from its customers when this memory
is replaced by new memory. In most transactions, when the Company upgrades a
computer system with its memory, the customer pays the Company in whole or in
part with memory already resident on the machine. On certain occasions, the
memory already resident on the customer's machine is more valuable than the
Company's memory, and in those cases, the Company pays the difference to the
customer, net of a customary gross profit for the Company.
3
Research and Development
The Company maintains a research and development program directed to the
development of new products and to the continued improvement and refinement of
its present products. The Company continues to invest in the research and
development of new and existing Fibre Channel infrastructure and disk storage
array products. The dollar amount spent by the Company during each of its last
three fiscal years on such activities was approximately $1,097,000 in 1999,
$1,379,000 in 1998, and $2,322,000 in 1997.
Sales & Marketing
Cambex utilizes both direct and indirect sales channels to market its products.
The direct sales force sells to the Company's past and present customer base as
well as develops new large accounts that prefer dealing directly with the
manufacturer. The Company's indirect sales force sells to distributors,
systems integrators, value-added resellers, and original equipment
manufacturers (OEMs).
Customer Service & Support
The Company arranges for maintenance and service of its products at the time of
lease or sale on a monthly or lifetime fee per system basis. It normally
provides this maintenance through its own maintenance personnel or through
third party maintenance organizations supported by the Company's personnel. The
Company has an agreement with IBM Global Services for maintaining its Fibre
Channel infrastructure and disk array products.
Manufacturing
The Company subcontracts the printed circuit board assembly of its products to
several companies. The Company performs final assembly and testing of its
products at the Company's plant in Waltham, Massachusetts. Most of the
electronic components used in the Company's products are purchased from outside
suppliers and are either standard items or custom manufactured to the Company's
design and specifications and are generally available from several sources.
Competition
Primary competition for the Company's Fibre Channel infrastructure products
include products from Emulex Corporation, QLogic Corporation, Hewlett-Packard
Corporation, Vixel Corporation, Gadzoox Networks, Inc. as well as a number of
other companies. The Company's primary competition for its disk storage arrays
include products from International Business Machines Corporation (IBM), EMC
Corporation, and Sun Microsystems among others. The market for the Company's
add-on memory products is dominated by IBM.
The Company believes that its success in competing is dependent upon its
ability to offer products with better cost/performance characteristics than the
competition. In addition, the Company believes that other competitive factors
are non-price factors such as product quality, reliability and product
features, as well as service and support capability.
4
Competition in the Fibre Channel infrastructure, disk storage array, and add-on
memory markets is intense. The markets are characterized by rapid
technological advances resulting in the frequent introduction of new products
and services and by price reductions in established product categories. IBM
announcements concerning new systems, improved performance characteristics of
existing systems and price reductions have had adverse effects on the markets
for the Company's products in the past. A number of other companies, some of
which are substantially larger and have substantially greater resources than
the Company, are engaged in the manufacture and marketing of products similar
to those manufactured and marketed by the Company. More aggressive market and
product positioning by certain of these significantly larger competitors would
have a material adverse effect on the Company's business, results of
operations, financial condition and/or liquidity.
Backlog
As of December 31, 1999, the dollar amount of the Company's firm backlog was
approximately $98,000. On the same date of the preceding year, the comparable
amount was approximately $151,000. All such backlog was deliverable within a
year. Such backlog has no material seasonal characteristics. All equipment
ordered by customers is subject to acceptance and satisfactory performance as
well as the Company's ability to meet delivery schedules. The Company believes
that backlog is not a meaningful indication of future business.
Patents
Although the Company owns 26 patents, it does not consider its patent position
to be significant from a competitive standpoint.
Significant Customers
During fiscal 1999 and 1998, sales to one customer accounted for 11% of the
Company's sales each year. No single customer accounted for 10% or more of
sales during fiscal 1997.
Employees
On March 28, 2000, the Company employed 26 persons.
Item 2. Properties
The Company leases approximately 68,000 square feet of floor space in Waltham,
Massachusetts, under a lease for a term ending May 31, 2003. This facility
consists of office, manufacturing and R & D space. The Company subleases
approximately 34,000 square feet of this space (which is approximately 50% of
the Company's total leased space) for a term ending May 31, 2003. On March 1,
2000, the Company entered into a sublease agreement 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.
5
Item 3. Legal Proceedings
The Company is involved in certain legal proceedings arising in the ordinary
course of business. The Company believes that the outcome of these proceedings
will not have a material adverse effect on the Company's financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
6
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters.
The Company's common stock is traded over the counter. The approximate number
of shareholders of record at March 28, 2000 was 538. The high and low sales
prices for the Company's stock for each quarter during the years ended December
31, 1999 and December 31, 1998 are as follows:
1999 1998
High Low High Low
First Quarter 0.33 0.16 0.34 0.28
Second Quarter 1.03 0.20 0.71 0.28
Third Quarter 3.13 0.69 0.52 0.28
Fourth Quarter 4.50 1.50 0.35 0.15
The Company has not paid dividends on its common stock in the past and does not
expect to do so in the foreseeable future.
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Form 10-K.
7
Year Year Year Year Four Year
Ended Ended Ended Ended Months Ended Ended
December December December December December August
1999 1998 1997 1996 1995 1995
(In thousands, except per share amounts)
Revenues $ 3,402 $ 3,749 $ 10,066 $ 22,917 $ 8,509 $35,152
Net income(loss) 96 (2,773) ( 6,597) ( 8,632) ( 2,855) ( 9,899)
Per share data:
Net income(loss) 0.01 ( 0.30) ( 0.72) ( 0.96) ( 0.32) ( 1.14)
Weighted Average
Common and Common
Equivalent Shares
Outstanding 10,390 9,300 9,100 9,000 8,920 8,700
Total assets $ 1,474 $ 1,474 $ 3,928 $ 13,033 $26,212 $32,027
Long-term debt 1,274 1,064 ----- ------ ------ ------
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Fiscal 1999 as compared with Fiscal 1998
The Company's revenues were $3,402,000 and $3,749,000 in 1999 and 1998,
respectively. The Company's increase in revenues for Fibre Channel connectivity
products in 1999 was offset by a decrease in service revenue.
Cost of sales as a percentage of revenues was 42% and 79% in 1999 and 1998,
respectively. The improved gross profit was due to product mix and decreased
fixed costs.
Research and development expenses represented 32% ($1,097,000) and 37%
($1,379,000) in 1999 and 1998, respectively. Sales and general and
administrative expenses were $1,386,000 and $2,002,000 in 1999 and 1998,
respectively. The reduction in expenses is due principally to the cost savings
achieved from putting in place additional expense controls.
Extraordinary income for 1999 consists of payment of other liabilities at a
discount from face value. Other expense in 1998 was primarily legal and
professional fees.
8
Fiscal 1998 as compared with Fiscal 1997
The Company's revenues were $3,749,000 and $10,066,000 in 1998 and 1997,
respectively. The Company's revenues for mainframe storage and client/server
products declined significantly in 1998.
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.
Research and development expenses represented 37% ($1,379,000) and 23%
($2,322,000) in 1998 and 1997, respectively. Sales and general and
administrative expenses were $2,002,000 and $4,489,000 in 1998 and 1997,
respectively. The reduction in expenses is due to the cost savings achieved
from outsourcing certain activities and putting in place additional expense
controls.
Inflation
The Company did not experience any material adverse effects in 1999, 1998 and
1997 due to general inflation.
Liquidity and Capital Resources
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, 1998 through August 18, 1999, the Company has raised approximately
$1,270,000, including approximately $560,000 from Joseph F. Kruy, Chairman,
President and Chief Executive Officer of the Company, in cash from the issuance
of 10% Secured 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.
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.
9
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.
As discussed more fully in Note 1 to the financial statements, the Company has
suffered recurring losses from operations. Consequently, the Company's ability
to continue as a going concern, is dependent upon several factors, including
the Company's ability to raise additional capital. The additional financing
will be used to fund continuing operations of the Company, particularly in
development, sales and marketing.
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 new strategic
alliances and selling products with improved gross margins. There are no
assurances that such actions will increase revenues.
The Company's cash and marketable securities were $367,000 and $211,000 at
December 31, 1999 and December 31, 1998, respectively. Working capital was a
negative $2,125,000 and $1,575,000 at December 31, 1999 and at December 31,
1998, respectively. During 1999, the Company expended $9,000 for capital
equipment to support its growth. During fiscal 2000, the Company expects to
acquire less than $100,000 of capital equipment.
Year 2000
As stated previously, the Company evaluated the impact of changes necessary to
achieve a year 2000 date conversion. As expected, the Company did not
experience a material impact on future results due to conversion or
noncompliance.
Forward-Looking Statements
The statements contained in "Management Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere throughout this Annual
Report on Form 10-K that are not historical facts are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those reflected in the forward-looking
statements. These forward-looking statements reflect management's analysis,
judgment, belief or expectation only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date hereof or to publicly
release the results of any revisions to such forward-looking statements that
may be made to reflect events or circumstances after the date hereof. In
addition to the disclosure contained herein, readers should carefully review
any disclosure of risks and uncertainties contained in other documents the
Company files or has filed from time to time with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934.
10
Item 8. Financial Statements and Supplementary Data.
See financial statements, beginning at page F-2, incorporated herein by
reference.
Unaudited quarterly financial data pertaining to the results of operations for
1999 and 1998 are as follows:
Q1 Q2 Q3 Q4
(In thousands, except per share amounts)
December 31, 1999
Revenues $ 1,390 $ 613 $ 867 $ 532
Gross Profit (Loss) 765 368 553 293
Net Income (Loss) 101 167 213 ( 385)
Earnings (Loss)
Per Share 0.01 0.02 0.02 ( 0.04)
December 31, 1998
Revenues $ 909 $ 930 740 $ 1,170
Gross Profit (Loss) 46 172 13 551
Net Income (Loss) ( 990) ( 637) ( 941) ( 205)
Earnings (Loss)
Per Share ( 0.11) ( 0.07) ( 0.10) ( 0.02)
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
11
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors and Executive Officers of the Company are as follows:
Positions and Offices with the Company:
Name Business Experience During Last Five Years
Joseph F. Kruy Director since 1968. Chairman of the Board of
Age: 68 Directors, President and CEO.
Philip C. Hankins Director since 1979. President, Charter
Age: 68 Information Corporation (Information
Processing).
C. V. Ramamoorthy Director since 1968. Professor of Electrical
Age: 73 Engineering and Computer Sciences, University of
California at Berkeley.
Robert J. Spain Director since 1995. President, CFC, Inc.
Age: 62 (Electronic Components Manufacturing)
Peter J. Kruy Executive Vice President, Treasurer and Chief
Age: 37 Financial Officer from August, 1998 to date; President
and Chief Executive Officer of Jupiter Technology, Inc.
from 1994 to 1998.
Lois P. Lehberger Vice President and Controller from November, 1999
Age: 43 to date; Controller from August, 1998 to November,
1999; Manager of Corporate Accounting December, 1990 to
August, 1998; employed by the Company since June, 1978.
12
Item 11. Executive Compensation.
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the other executive officers of the Company
(determined as of the end of the last fiscal year) for the fiscal years ended
December 31, 1999, December 31, 1998, and December 31, 1997.
Summary Compensation Table
Annual Compensation
Commissions
Salary Salary and Incentive
Name and Position Year Paid Deferred(1) Bonuses
Joseph F. Kruy 1999 $200,000 $ - $ -
Chairman, President and CEO 1998 $200,000 $ - $ -
1997 $136,270 $63,730 $ -
Peter J. Kruy 1999 $ 85,000 $ - $ -
Executive Vice President and 1998 $ 34,327 $ - $ -
Chief Financial Officer 1997 $ - $ - $ -
Lois P. Lehberger(2) 1999 $ 6,539 $ - $ -
Vice President and 1998 $ - $ - $ -
Controller 1997 $ - $ - $ -
Long Term Compensation Awards
All Other
Name and Position Year Options(#) Compensation
Joseph F. Kruy 1999 - $ -
Chairman, President and CEO 1998 - $ -
1997 - $ -
Peter J. Kruy 1999 300,000 $ -
Executive Vice President and 1998 - $ -
Chief Financial Officer 1997 - $ -
Lois P. Lehberger 1999 25,000 $ -
Vice President and 1998 - $ -
Controller 1997 - $ -
(1) The Deferred Salary of $63,730 was incorporated into Mr. Kruy's loan to the
Company in exchange for a 10% secured subordinated promissory note.
(2) Mrs. Lehberger became an executive officer of the Company in November,
1999.
Directors who are not employed by the Company receive an annual fee of $10,000
and a fee of $1,000 for each meeting of the Board attended.
13
Stock Options
The following table contains information concerning the grant of stock options
under the Company's Year 1997 Combination Stock Option Plan and the Year 2000
Equity Incentive Plan to the executive officers named in the Summary
Compensation Table.
Option Grants in Last Fiscal Year
Individual Grants
Potential
Realizable Value at
% of Total Assumed Annual Value
Options Rates of Stock Price
Options Granted to Exercise Appreciation for
Granted Employees in Price Expiration Option Term ($)(1)
Name (#) Fiscal Year ($/Share) Date 0% 5% 10%
Joseph F. Kruy - - - - - - -
Peter J. Kruy 300,000 24.91% $0.26 6/09 12,000 69,000 156,000
Lois P. Lehberger(2) 75,000 6.23% $0.26 6/09 3,000 17,250 39,000
25,000 2.08% $2.10 11/09 9,250 48,000 107,750
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the options were granted to their
expiration date. This table does not take into account any appreciation
in the price of the stock to date. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock and
the date on which the options are exercised. The Company does not
necessarily agree that this procedure fairly values the options involved.
(2) Includes options granted during 1999 prior to Mrs. Lehberger becoming
an executive officer.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Value
Value of
Unexercised
Number of In-the-money
Options at Options at
December 31,1999 December 31,1999(1)
Shares Acquired Value Exercisable/ Exercisable/
Name Unexercisable Unexercisable
Joseph F. Kruy - - -/- -/-
Peter J. Kruy - - -/300,000 -/786,000
Lois P. Lehberger - - 2,000/102,500 5,520/222,900
(1) The closing price of the Company's Common Stock on December 31, 1999 was
$2.88. The numbers shown reflect the value of options accumulated over all
years of employment.
14
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is presently comprised of the Board of Directors.
Mr. Kruy, the Company Chairman of the Board of Directors, President and CEO,
participates as a member of the Board in compensation decisions, excluding
decisions regarding his own compensation.
Employment Contracts and Termination Agreements
Mr. Kruy is employed under an agreement which provides for his full-time
employment as Chairman of the Board of Directors, President and Chief Executive
Officer of the Company until December 31, 2002. Pursuant to an employment
agreement dated November 18, 1994, the Company has agreed to pay Mr. Kruy
minimum base compensation of $200,000 per year and an incentive bonus pursuant
to the Company's Incentive Bonus Plan in an amount equal to 4% of the Company's
pre-tax profit, as defined, beginning in fiscal 1995 for each fiscal year
during the term of the agreement. If another person is given either the title
or the powers of the Chief Executive Officer, Mr. Kruy will be entitled to
resign and continue to be paid his fixed and incentive compensation, subject to
mitigation, through December 31, 2002.
Report on Executive Compensation
The Company has designed its compensation program to compensate employees,
including its executives, in a consistent manner to promote a cooperative
effort toward common goals of quality performance. Compensation is set at
levels which the Company believes will attract, motivate, and retain employees
who can achieve these goals.
Compensation for the Company's executive officers consists of base salary,
bonus and stock options. Base salaries and stock options are approved by the
Compensation Committee presently comprised of the Board of Directors based upon
a review of the responsibilities of the officer as well as a review of the base
salaries and stock options of similar positions in other high technology
companies of comparable revenues.
The Company believes that a substantial portion of an employee's compensation
should be based on the performance of the Company. Therefore, the Company has
an Incentive Bonus Plan which provides for annual cash bonuses to certain key
employees of the Company based on the Company's operating results for the year
up to an aggregate maximum of 15% of the Company's pre-tax income. As of
December 31, 1999, approximately 10 employees were eligible to participate in
this plan. Of the executive officers, Mr. Kruy was a participant in this plan
in 1999. The amount of each individual bonus is determined at the discretion
of the Board of Directors.
BOARD OF DIRECTORS
Joseph F. Kruy
Philip C. Hankins
C.V. Ramamoorthy
Robert J. Spain
15
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(#)Shares of Common
Stock Beneficially Owned
Name as of December 31, 1999 Percent of Class
Joseph F. Kruy 1,399,940(1) 14.67%
Philip C. Hankins 105,000 1.10%
C.V. Ramamoorthy 99,156 1.04%
Robert Spain - -
Peter J. Kruy 962,164(2) 10.08%
Lois P. Lehberger 2,000(3) 0.02%
All directors and
executive officers
as a group (6 persons) 2,568,260(3)(4) 26.91%
(1) Includes 56,250 shares owned by Mr. Kruy as co-trustee for his wife and
children.
(2) Includes 960,164 shares held by CyberFin Corporation, which is
owned by Peter Kruy.
(3) Includes 2,000 shares as to which options are exercisable currently or
within 60 days.
(4) Directors and officers have shared investment power with respect to 56,250
shares and sole voting power with respect to 2,512,010 shares.
Solely for the purpose of calculating the aggregate market value of voting
stock held by non-affiliates of the Company as set forth on the Cover Page, it
was assumed that only directors and executive officers on the calculation date
together with spouses and dependent children of such persons constituted
affiliates.
Item 13. Certain Relationships and Related 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, 1998 through August 18, 1999, the Company has raised approximately
$1,270,000, including approximately $560,000 from Joseph F. Kruy, Chairman,
President and Chief Executive Officer of the Company, in cash from the issuance
of 10% Secured 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.
16
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.
17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) The financial statements listed in the index to
financial statements appearing at page F-1 of this
report, which index is incorporated in this item by
reference.
(2) The financial statement schedules as set forth in the
above-mentioned index to financial statements.
(3) See the exhibit index following on page A-1.
(b) No reports on Form 8-K were filed during the last quarter
of the period covered by this report.
18
EXHIBIT INDEX
The following exhibits are filed herewith or incorporated by reference herein.
Exhibit
3.1 Articles of Organization of Cambex Corporation, as amended
(incorporated herein by reference to Exhibit 1.1 to Form 10-K
for the fiscal year ended August 31, 1981).
3.1.1 Articles of Amendment to Articles of Organization filed with
the Massachusetts Secretary of State on December 11, 1987
(incorporated herein by reference to Exhibit 3.1.1 to
Form 10-K for the fiscal year ended August 31, 1987).
3.1.2 Articles of Amendment to Articles of Organization filed with
the Massachusetts Secretary of State on June 8, 1988
(incorporated herein by reference to Exhibit 3.1.2 to
Form 10-K for the fiscal year ended August 31, 1988).
3.1.3 Articles of Amendment to Articles of Organization filed with
the Massachusetts Secretary of State on January 23, 1992
(incorporated herein by reference to Exhibit 3.1.3 to
Form 10-K for the fiscal year ended August 31, 1993).
3.2 By-Laws of Cambex Corporation, as amended (incorporated herein
by reference to Exhibit 1.2 to Form 10-K for the fiscal year
ended August 31, 1981).
10.1 Employment Agreement between Joseph F. Kruy and Cambex
Corporation, dated as of April 22, 1987 (incorporated herein
by reference to Exhibit 10.1.1 to Form 10-K for the fiscal
year ended August 31, 1987).
10.2 Incentive Bonus Plan (incorporated herein by reference to
Exhibit 10.3 to Form 10-K for the fiscal year ended
August 31, 1983).
10.4 1985 Non-Qualified Stock Option Plan (incorporated herein by
reference to Exhibit 10.6 to Form 10-K for the fiscal year
ended August 31, 1985).
10.6 1987 Combination Stock Option Plan (incorporated herein by
reference to Exhibit 10.8 to Form 10-K for the fiscal year
ended August 31, 1987).
10.8 9021 Memory Products Business Acquisition Agreement dated
January 10, 1992 between the Company and EMC Corporation
(incorporated herein by reference to Exhibit 1 to Form 8-K
dated January 14, 1992).
19
Exhibit Index - Continued
Exhibit - Continued
10.9 Cambex Corporation Employee Stock Purchase Plan (incorporated
herein by reference to Exhibit 10.9 to Form 10-K for the
fiscal year ended August 31, 1994).
10.10 Revolving Credit Agreement dated April 15, 1993 between the
Company and the First National Bank of Boston (incorporated
herein by reference to Exhibit 10.10 to Form 10-K for the
fiscal year ended August 31, 1994).
10.11 Cambex Corporation Reorganization Plan (incorporated herein by
reference to Exhibit 10.11 to Form 8-K for April 23, 1998).
10.12 Cambex Corporation 2000 Equity Incentive Plan
23 Consent of Independent Public Accountants.
27 Financial Data Schedule
20
CAMBEX CORPORATION AND SUBSIDIARIES
(Information required by Part II, Item 8 and
Part IV, Item 14 of Form 10-K)
FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants F - 2
Consolidated Balance Sheets - December 31, 1999 and 1998 F - 3
Consolidated Statements of Operations for the Years
Ended December 31, 1999, December 31, 1998 and
December 31, 1997 F - 4
Consolidated Statements of Stockholders' Investment
for the Years Ended December 31, 1999,
December 31, 1998 and December 31, 1997 F - 5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, December 31, 1998
and December 31, 1997 F - 6
Notes to Consolidated Financial Statements F - 7
SUPPLEMENTARY SCHEDULE
FOR THE YEARS ENDED DECEMBER 31, 1999,
DECEMBER 31, 1998 AND DECEMBER 31, 1997
Schedule Number
II Valuation and Qualifying Accounts F-23
Schedules other than those referred to above have been omitted, as they are not
required or the information is included elsewhere in the financial statements
or the notes thereto.
21
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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
22
F-2
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
CURRENT ASSETS
Cash and cash equivalents $ 366,743 $ 211,452
Accounts receivable, less reserves of $100,000
in 1999 and $100,000 in 1998 202,466 514,335
Current portion of investment in sales-type
leases, net of unearned interest income of
$400 in 1998 - 25,820
Inventories 622,430 303,720
Prepaid expenses 65,995 72,852
Total current liabilities $ 1,257,634 $ 1,128,179
LEASED EQUIPMENT, at cost, net of
accumulated depreciation of $208,000
in 1998 $ - $ -
PROPERTY AND EQUIPMENT, at cost
Machinery and equipment $ 3,052,887 $ 3,044,199
Furniture and fixtures 162,625 247,173
Leasehold improvements 602,092 602,092
$ 3,817,604 $ 3,893,464
Less-Accumulated depreciation and amortization 3,639,196 3,585,441
$ 178,408 $ 308,023
OTHER ASSETS
Other $ 37,830 $ 37,830
Total Assets $ 1,473,872 $ 1,474,032
</TABLE>
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' INVESTMENT
1999 1998
CURRENT LIABILITIES:
Loan Agreement $ 601,029 $ 393,424
Notes payable 550,000 -
Accounts payable 463,675 408,841
Obligations for trade-in memory 286,250 360,250
Other liabilities-short term portion 967,558 1,146,168
Accrued expenses-
Payroll and related 117,524 136,349
Income and other taxes 63,981 83,869
Other 332,344 173,821
Total current liabilities $ 3,382,361 $ 2,702,722
LONG TERM DEBT $ 1,273,730 $ 1,063,730
OTHER LIABILITIES-LONG TERM PORTION $ 2,324,540 $ 3,173,007
DEFERRED REVENUE $ 100,116 $ 255,366
Total Liabilities $ 7,080,747 $ 7,194,825
COMMITMENTS AND CONTINGENCIES
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
Issued--11,076,232 shares in 1999 and
11,072,582 shares in 1998 1,107,623 1,107,258
Capital in excess of par value 15,970,199 15,966,625
Accumulated other comprehensive income 101,989 88,134
Retained earnings (deficit) (21,931,920) (22,028,044)
Less-Cost of shares held in treasury-
1,534,356 in 1999 and 1998 (854,766) (854,766)
Total Stockholders' Investment $ (5,606,875) $ (5,720,793)
Total Liabilities and Stockholders'
Investment $ 1,473,872 $ 1,474,032
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
F-3
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended Year ended Year ended
December 31, December 31, December 31,
1999 1998 1997
REVENUES
Sales $ 2,175,481 $ 1,600,644 $ 6,667,693
Professional services 1,226,252 2,148,289 3,398,699
Total revenues $ 3,401,733 $ 3,748,933 $ 10,066,392
COST OF SALES 1,422,430 2,967,406 9,501,543
Gross profit 1,979,303 781,527 564,849
OPERATING EXPENSES:
Research and development $ 1,096,806 $ 1,379,094 $ 2,321,925
Selling 778,839 1,241,385 3,193,271
General and administrative 607,408 760,578 1,295,465
$ 2,483,053 $ 3,381,057 $ 6,810,661
OPERATING INCOME (LOSS) $ (503,750) $ (2,599,530) $ (6,245,812)
OTHER INCOME (EXPENSE):
Interest expense (173,265) (70,000) (74,477)
Interest income 405 3,641 17,674
Other income (expense) 14,827 (107,288) (84,861)
INCOME (LOSS) BEFORE REORGANIZATION
ITEMS AND INCOME TAXES $ (661,783) $ (2,773,177) $ (6,387,476)
Professional fees $ - $ - $ (210,000)
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS $ (661,783) $ (2,773,177) $ (6,597,476)
Provision for income taxes $ - $ - $ -
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS $ (661,783) $ (2,773,177) $ (6,597,476)
Extraordinary Items (Note 15) 757,907 - -
NET INCOME (LOSS) $ 96,124 $ (2,773,177) $ (6,597,476)
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Foreign Currency translation adjustments 13,855 27,378 (122,599)
OTHER COMPREHENSIVE INCOME $ 13,855 $ 27,378 $ (122,599)
TOTAL COMPREHENSIVE INCOME(LOSS) $ 109,979 $ (2,745,799) $ (6,720,075)
TOTAL COMPREHENSIVE INCOME
(LOSS) PER COMMON SHARE $ 0.01 $(0.30) $(0.74)
Weighted Average Common and
Common Equivalent Shares Outstanding 10,390,000 9,300,000 9,100,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
F-4
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT 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, 1996 $1,061,414 $15,792,105 $183,355 $(12,657,391) $(854,766)
ADD:
Net loss $ - $ - $ - $ (6,597,476) $ -
Exercise of employee
stock options 90 135 - - -
Stock Purchase Plan Shares 2,107 22,543 - - -
Translation adjustment - - (122,599) - -
BALANCE AT DECEMBER 31, 1997 $1,063,611 $15,814,783 $ 60,756 $(19,254,867) $(854,766)
ADD:
Net loss $ - $ - $ - $ (2,773,177) $ -
Exercise of employee
stock options 600 120 - - -
Stock Purchase Plan Shares 5,386 1,077 - - -
Issuance of shares pursuant
to reorganization plan 37,661 150,645 - - -
Translation adjustment - - 27,378 - -
BALANCE AT DECEMBER 31, 1998 $1,107,258 $15,966,625 $ 88,134 $(22,028,044) $(854,766)
ADD:
Net income $ - $ - $ - $ 96,124 $ -
Exercise of employee stock
options 365 74 - - -
Issuance of warrants - 3,500 - - -
Translation adjustment - - 13,855 - -
BALANCE AT DECEMBER 31, 1999 $1,107,623 $15,970,199 $101,989 $(21,931,920) $(854,766)
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
25
F-5
<TABLE>
<S> <C>
CAMBEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss) $ 96,124 $(2,773,177) $(6,597,476)
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation $ 131,603 $ 283,243 $ 569,207
Amortization - - -
Provision for losses on accounts receivable - - -
Provision for losses on inventory - - 2,300,000
Amortization of prepaid expenses 7,822 24,892 28,990
Common stock/warrants issued in lieu of cash - 194,769 -
Changes in assets and liabilities:
Decrease(increase) in accounts receivable 311,869 686,008 734,365
Decrease(increase) in inventory (318,710) 1,109,205 2,487,108
Decrease(increase) in investment in
sales-type leases 25,820 59,299 501,072
Decrease in prepaid taxes - - 2,335,295
Decrease(increase) in prepaid expenses (965) 23,439 (14,452)
Decrease in other assets - - -
Increase(decrease) in accounts payable 54,834 112,422 (4,033,219)
Increase(decrease) in obligations for
trade-in memory (74,000) 360,250 (1,036,235)
Increase(decrease) in accrued expenses 119,810 (67,686) (857,512)
Increase(decrease) in deferred revenue (155,250) 239,888 (1,007,273)
Increase(decrease) in other liabilities (1,027,077) 4,319,175 -
Increase)decrease) in liabilities
subject to compromise - (6,325,273) 6,325,273
Total adjustments $ (924,244) $ 1,019,631 $ 8,332,619
Net cash provided by (used in) operating
activities $ (828,120) $(1,753,546) $ 1,735,143
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment, net $ (1,988) $ 3,500 $ 22,878
Net cash provided by (used in)
investing activities $ (1,988) $ 3,500 $ 22,878
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable $ 760,000 $ 1,063,730 $ -
Proceeds from the sale of common
stock and warrants 3,939 720 24,875
Net borrowings(repayments) under loan
agreement 207,605 393,424 -
Net borrowings(repayments) under
revolving credit agreement - - (1,800,000)
Net cash provided by(used in)
financing activities $ 971,544 $ 1,457,874 $(1,775,125)
Effect of exchange rate changes on cash 13,855 27,378 (122,599)
Net increase(decrease) in cash and
cash equivalents $ 155,291 $ (264,794) $ (139,703)
Cash and cash equivalents at beginning of year 211,452 476,246 615,949
Cash and cash equivalents at end of year 366,743 211,452 476,246
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for: Interest $ 13,265 $ - $ 43,477
Income taxes - - -
Refunds received from the Internal Revenue Service - - 2,335,295
Reorganization professional fees - - 210,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
26
F-6
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(1) Liquidity
As further described in Note 12, from June 1, 1998 through August 18, 1999, the
Company raised $1,270,000 in cash from the 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 filing a
voluntary petition for relief under Chapter 11 of the 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 in
April, 1998. Subsequently, the Company emerged from Chapter 11 on April 23,
1998. As described in the Company's Plan, the success of the Plan is dependent
upon several factors, including the Company's ability to raise additional
capital. The additional financing will be used to fund continuing operations
of the Company, particularly in development, 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 raised $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 sale of new products,
new strategic alliances and selling products with improved gross margins. 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
27
F-7
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(2) Summary of Significant Accounting Policies - Continued
included in revenues as sales, and all related costs, exclusive of the residual
value of the equipment, are currently included in cost of sales. The unearned
interest is recognized over the noncancelable term of the lease. The Company
has deferred revenue associated with the sale of certain products that have
future performance obligations. For equipment leased under operating lease
agreements, revenue is recognized over the lease term and the equipment is
depreciated over its estimated useful life.
License fees are amortized over the useful life of the technologies being
licensed.
Inventories
Inventories, which include materials, labor and manufacturing overhead, are
stated at the lower of cost (first-in, first-out) or market and consist of the
following:
December 31, December 31,
1999 1998
Raw materials $ 419,984 $ 228,524
Work-in-process 78,572 51,215
Finished goods 123,874 23,981
$ 622,430 $ 303,720
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.
28
F-8
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(2) Summary of Significant Accounting Policies - Continued
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.
29
F-9
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(2) Summary of Significant Accounting Policies - Continued
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.
30
F-10
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(2) Summary of Significant Accounting Policies - Continued
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.
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).
31
F-11
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(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 (SAN). 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.
(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, December 31, December 31,
1999 1998 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)
32
F-12
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(4) Income Taxes - Continued
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:
Year ended Year ended Year ended
December December December
1999 1998 1997
Provision (credit) at
federal statutory rate $ 32,700 $( 943,000) $(2,243,000)
State tax provision
(credit), net of federal
tax benefit 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-
33
F-13
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(4) Income Taxes - Continued
The Company has federal net operating loss carryovers totalling $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 December December
1999 1998 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
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.
34
F-14
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(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.
(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.
35
F-15
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(6) Long-Term Debt and Related Matters - Continued
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.
36
F-16
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(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.
37
F-17
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(9) Stock Options and Warrants - Continued
Stock option activity for the three years ended December 31, 1999 was as
follows:
Option Shares Number Option Price
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) .12 - 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.
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, December 31, December 31,
1999 1998 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)
38
F-18
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(9) Stock Options and Warrants - Continued
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, December 31, December 31,
1999 1998 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,
repectively, were outstanding and an equal number of shares were reserved for
issuance.
(10) Incentive Bonus Plan and 401(k) Profit Sharing Retirement Plan
The Company has an incentive bonus plan under which certain key employees as a
group are entitled to receive additional compensation up to a maximum of 15% of
the Company's pre-tax income, as defined. There was no provision in 1999, 1998
or 1997.
On September 1, 1988, the Company established the Cambex Corporation 401(k)
Profit Sharing Retirement Plan (the Plan). Under the Plan, employees are
allowed to make pre-tax retirement contributions. In addition, the Company may
provide matching contributions based on pre-established rates as determined by
the Board of Directors. The Company's contributions have been in the form of
Cambex common stock since fiscal 1994.
The Company offers no post-retirement benefits other than those provided under
the Plan.
39
F-19
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(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% Secured 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% Secured 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.
40
F-20
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(12) Related Party Transactions - Continued
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.
(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.
41
F-21
CAMBEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(Continued)
(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.
42
F-22
CAMBEX CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
Charged To
Balance at (Recovered Balance
Beginning From) Writeoffs/ at End
of Year Income Deductions of Year
---------- ----------- --------- -------
YEAR ENDED DECEMBER 31, 1997
Reserve for doubtful accounts $ 131,000 $ - $ - $131,000
YEAR ENDED DECEMBER 31, 1998:
Reserve for doubtful accounts $ 131,000 $ - $ (31,000)$100,000
YEAR ENDED DECEMBER 31, 1999:
Reserve for doubtful accounts $ 100,000 $ - $ - $100,000
43
F-23
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAMBEX CORPORATION
By: /s/Joseph F. Kruy
Joseph F. Kruy, President March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities indicated as of March 30, 2000.
By: /s/ Joseph F. Kruy
Joseph F. Kruy, Chairman of the Board, President and Treasurer
(Principal Executive Officer)
By: /s/ Peter J. Kruy
Peter J. Kruy, Executive Vice President
(Principal Financial and Accounting Officer)
By: /s/ Robert J. Spain
Robert J. Spain, Director
By: /s/ Philip C. Hankins
Philip C. Hankins, Director
By: /s/ C. V. Ramamoorthy
C. V. Ramamoorthy, Director
44
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File Nos. 2-77667 and 33-18072).
BELANGER & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Chelmsford, Massachusetts
March 29, 2000
EXHIBIT 10.12
CAMBEX CORPORATION
2000 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this 2000 Equity Incentive Plan (the "Plan") is to
advance the interests of CAMBEX CORPORATION (the "Company") by
enhancing its ability to attract and retain employees and other persons
or entities who are in a position to make significant contributions to
the success of the Company and its subsidiaries through ownership of
shares of the Company's common stock ("Stock").
The Plan is intended to accomplish these goals by enabling the
Company to grant Awards in the form of Options, Stock Appreciation
Rights, Restricted Stock or Unrestricted Stock Awards, Deferred Stock
Awards, Performance Awards, Loans or Supplemental Grants, or
combinations thereof, all as more fully described below.
2. ADMINISTRATION
The Plan will be administered by the Board of Directors of the
Company (the "Board"). The Board will have authority, not inconsistent
with the express provisions of the Plan and in addition to other
authority granted under the Plan, to (a) grant Awards at such time or
times as it may choose; (b) determine the size of each Award, including
the number of shares of Stock subject to the Award; (c) determine the
type or types of each Award; (d) determine the terms and conditions of
each Award; (e) waive compliance by a Participant (as defined below)
with any obligations to be performed by the Participant under an Award
and waive any term or condition of an Award; (f) amend or cancel an
existing Award in whole or in part (and if an Award is canceled, grant
another Award in its place on such terms as the Board shall specify),
except that the Board may not, without the consent of the holder of an
Award, take any action under this clause with respect to such Award if
such action would adversely affect the rights of such holder; (g)
prescribe the form or forms of instruments that are required or deemed
appropriate under the Plan, including any written notices and elections
required of Participants, and change such forms from time to time; (h)
adopt, amend and rescind rules and regulations for the administration
of the Plan; and (i) interpret the Plan and decide any questions and
settle all controversies and disputes that may arise in connection with
the Plan. Such determinations and actions of the Board and all other
determinations and actions of the Board made or taken under authority
granted by any provision of the Plan, will be conclusive and will
bind all parties. Nothing in this paragraph shall be construed as
limiting the power of the Board to make adjustments under Section 7.3
or Section 8.6.
The Board may, in its discretion, delegate some or all of its
powers with respect to the Plan to a committee (the "Committee"), in
which event all references (as appropriate) to the Board hereunder
shall be deemed to refer to the Committee. The Committee, if one is
appointed, shall consist of at least two directors. A majority of the
members of the Committee shall constitute a quorum, and all
determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made
without notice or meeting of the Committee by a writing signed by a
majority of the Committee members. On and after registration of the
Stock under the Securities Exchange Act of 1934 (the "1934 Act"), the
Board shall delegate the power to select directors and officers to
receive awards under the Plan and the timing, pricing and amount of
such Awards to a committee, all members of which shall be disinterested
persons within the meaning of Rule 16b-3 under the 1934 Act.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is
approved by the stockholders of the Company. Grants of Awards under
the plan may be made prior to that date (but after Board adoption of
the Plan), subject to such approval of the Plan.
No Award may be granted under the Plan after December 31, 2009,
but Awards previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to the adjustment as provided in Section 8.6 below, the
aggregate number of shares of Stock that may be delivered under the
Plan will be 1,500,000. If any Award requiring exercise by the
Participant for delivery of Stock terminates without having been
exercised in full, or if any Award payable in Stock or cash is
satisfied in cash rather than Stock, the number of shares of Stock as
to which such Award was not exercised or for which cash was substituted
will be available for future grants.
Stock delivered under the Plan may be either authorized but
unissued Stock or previously issued Stock acquired by the Company and
held in treasury. No fractional shares of Stock will be delivered
under the Plan.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan ("Participants")
will be persons in the employ of the Company or any of its subsidiaries
("Employees") and other persons or entities (including without
limitation non-Employee directors of the Company or a subsidiary of the
Company) who, in the opinion of the Board, are in a position to make a
significant contribution to the success of the Company or its
subsidiaries. A "subsidiary" for purposes of the Plan will be a
corporation in which the Company owns, directly or indirectly, stock
possessing 50% or more of the total combined voting power of all
classes of stock.
6. TYPES OF AWARDS
6.1. OPTIONS
(a) Nature of Options. An Option is an Award entitling the
recipient on exercise thereof to purchase Stock at a specified exercise
price.
Both "incentive stock options," as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") (any Option
intended to qualify as an incentive stock option being hereinafter
referred to as an "ISO"), and Options that are not incentive stock
options, may be granted under the Plan. ISOs shall be awarded only to
Employees.
(b) Exercise Price. The exercise price of an Option will be
determined by the Board subject to the following:
(1) The exercise price of an ISO shall not be less than
100% (110% in the case of an ISO granted to a ten-percent shareholder)
of the fair market value of the Stock subject to the Option, determined
as of the time the Option is granted. A "ten-percent shareholder" is
any person who at the time of grant owns, directly or indirectly, or is
deemed to own by reason of the attribution rules of section 424(d) of
the Code, stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any of its
subsidiaries.
(2) In no case may the exercise price paid for Stock
which is part of an original issue of authorized Stock be less than the
par value per share of the Stock.
(3) The Board may reduce the exercise price of an Option
at any time after the time of grant, but in the case of an Option
originally awarded as an ISO, only with the consent of the Participant.
(c) Duration of Options. The latest date on which an Option
may be exercised will be the tenth anniversary (fifth anniversary, in
the case of an ISO granted to a ten-percent shareholder) of the day
immediately preceding the date the Option was granted, or such earlier
date as may have been specified by the Board at the time the Option was
granted.
(d) Exercise of Options. Options granted under any single
Award will become exercisable at such time or times, and on such
conditions, as the Board may specify. The Board may at any time and
from time to time accelerate the time at which all or any part of the
Option may be exercised.
Any exercise of an Option must be in writing, signed by the
proper person and delivered or mailed to the Company, accompanied by
(1) any documents required by the Board and (2) payment in full in
accordance with paragraph (e) below for the number of shares for which
the Option is exercised.
(e) Payment for Stock. Stock purchased on exercise of an
Option must be paid for as follows: (1) in cash or by check
(acceptable to the Company in accordance with guidelines established
for this purpose), bank draft or money order payable to the order of
the Company or (2) if so permitted by the instrument evidencing the
Option (or in the case of an Option which is not an ISO, by the Board
at or after grant of the Option), (i) through the delivery of shares of
Stock which have been outstanding for at least six months (unless the
Board expressly approves a shorter period) and which have a fair market
value on the last business day preceding the date of exercise equal to
the exercise price, or (ii) by delivery of a promissory note of the
Option holder to the Company, payable on such terms as are specified by
the Board, or (iii) by delivery of an unconditional and irrevocable
undertaking by a broker to deliver promptly to the Company sufficient
funds to pay the exercise price, or (iv) by any combination of the
permissible forms of payment; provided, that if the Stock delivered
upon exercise of the Option is an original issue of authorized Stock,
at least so much of the exercise price as represents the par value of
such Stock must be paid other than by the Option holder's promissory
note or personal check.
(f) Discretionary Payments. If the market price of shares of
Stock subject to an Option (other than an Option which is in tandem
with a Stock Appreciation Right as described in Section 6.2 below)
exceeds the exercise price of the Option at the time of its exercise,
the Board may cancel the option and cause the Company to pay in cash or
in shares of Common Stock (at a price per share equal to the fair
market value per share) to the person exercising the Option an amount
equal to the difference between the fair market value of the Stock
which would have been purchased pursuant to the exercise (determined on
the date the Option is canceled) and the aggregate exercise price which
would have been paid. The Board may exercise its discretion to take
such action only if it has received a written request from the person
exercising the Option, but such a request will not be binding on the
Board.
6.2. STOCK APPRECIATION RIGHTS.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation
Right is an Award entitling the recipient on exercise of the Right to
receive an amount, in cash or Stock or a combination thereof (such form
to be determined by the Board), determined in whole or in part by
reference to appreciation in Stock value.
In general, a Stock Appreciation Right entitles the Participant
to receive, with respect to each share of Stock as to which the Right
is exercised, the excess of the share's fair market value on the date
of exercise over its fair market value on the date the Right was
granted. However, the Board may provide at the time of grant that the
amount the recipient is entitled to receive will be adjusted upward or
downward under rules established by the Board to take into account the
performance of the Stock in comparison with the performance of other
stocks or an index or indices of other stocks. The Board may also
grant Stock Appreciation Rights providing that following a change in
control of the Company, as determined by the Board, the holder of such
Right will be entitled to receive, with respect to each share of Stock
subject to the Right, an amount equal to the excess of a specified
value (which may include an average of values) for a share of Stock
during a period preceding such change in control over the fair market
value of a share of Stock on the date the Right was granted.
(b) Grant of Stock Appreciation Rights. Stock Appreciation
Rights may be granted in tandem with, or independently of, Options
granted under the Plan. A Stock Appreciation Right granted in tandem
with an Option which is not an ISO may be granted either at or after
the time the Option is granted. A Stock Appreciation Right granted in
tandem with an ISO may be granted only at the time the Option is
granted.
(c) Rules Applicable to Tandem Awards. When Stock Appreciation
Rights are granted in tandem with Options, the following will apply:
(1) The Stock Appreciation Right will be exercisable only
at such time or times, and to the extent, that the
related Option is exercisable and will be
exercisable in accordance with the procedure required for
exercise of the related Option.
(2) The Stock Appreciation Right will terminate and no
longer be exercisable upon the termination or
exercise of the related Option, except that a Stock
Appreciation Right granted with respect to less than
the full number of shares covered by an Option will
not be reduced until the number of shares as to
which the related Option has been exercised or has
terminated exceeds the number of shares not covered
by the Stock Appreciation Right.
(3) The Option will terminate and no longer be exercisable
upon the exercise of the related Stock
Appreciation Right.
(4) The Stock Appreciation Right will be transferable only
with the related option.
(5) A Stock Appreciation Right granted in tandem with an
ISO may be exercised only when the market price
of the Stock subject to the Option exceeds the
exercise price of such option.
(d) Exercise of Independent Stock Appreciation Rights. A Stock
Appreciation Right not granted in tandem with an Option will become
exercisable at such time or times, and on such conditions, as the Board
may specify. The Board may at any time accelerate the time at which
all or any part of the Right may be exercised.
Any exercise of an independent Stock Appreciation Right must be
in writing, signed by the proper person and delivered or mailed to the
Company, accompanied by any other documents required by the Board.
6.3. RESTRICTED AND UNRESTRICTED STOCK
(a) Nature of Restricted Stock Award. A Restricted Stock Award
entitles the recipient to acquire, for a purchase price equal to par
value, shares of Stock subject to the restrictions described in
paragraph (d) below ("Restricted Stock").
(b) Acceptance of Award. A Participant who is granted a
Restricted Stock Award will have no rights with respect to such Award
unless the Participant accepts the Award by written instrument
delivered or mailed to the Company accompanied by payment in full of
the specified purchase price, if any, of the shares covered by the
Award. Payment may be by certified or bank check or other instrument
acceptable to the Board.
(c) Rights as a Stockholder. A Participant who receives
Restricted Stock will have all the rights of a stockholder with respect
to the Stock, including voting and dividend rights, subject to the
restrictions described in paragraph (d) below and any other conditions
imposed by the Board at the time of grant. Unless the Board otherwise
determines, certificates evidencing shares of Restricted Stock will
remain in the possession of the Company until such shares are free of
all restrictions under the Plan.
(d) Restrictions. Except as otherwise specifically provided by
the Plan, Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of, and if the Participant
ceases to be an Employee or otherwise suffers a Status Change (as
defined in Section 7.2(a) below) for any reason, must be offered to the
Company for purchase for the amount of cash paid for the Stock, or
forfeited to the Company if no cash was paid. These restrictions will
lapse at such time or times, and on such conditions, as the Board may
specify. The Board may at any time accelerate the time at which the
restrictions on all or any part of the shares will lapse.
(e) Notice of Election. Any Participant making an election
under Section 83(b) of the Code with respect to Restricted Stock must
provide a copy thereof to the Company within 10 days of the filing of
such election with the Internal Revenue Service.
(f) Other Awards Settled with Restricted Stock. The Board may,
at the time any Award described in this Section 6 is granted, provide
that any or all the Stock delivered pursuant to the Award will be
Restricted Stock.
(g) Unrestricted Stock. The Board may, in its sole discretion,
approve the sale to any Participant of shares of Stock free of
restrictions under the Plan for a price which is not less than the par
value of the Stock.
6.4. DEFERRED STOCK.
A Deferred Stock Award entitles the recipient to receive shares
of Stock to be delivered in the future. Delivery of the Stock will
take place at such time or times, and on such conditions, as the Board
may specify. The Board may at any time accelerate the time at which
delivery of all or any part of the Stock will take place. At the time
any Award described in this Section 6 is granted, the Board may provide
that, at the time Stock would otherwise be delivered pursuant to the
Award, the Participant will instead receive an instrument evidencing
the Participant's right to future delivery of Deferred Stock.
6.5 PERFORMANCE AWARDS; PERFORMANCE GOALS
(a) Nature of Performance Awards. A Performance Award entitles
the recipient to receive, without payment, an amount in cash or Stock
or a combination thereof (such form to be determined by the Board)
following the attainment of Performance Goals. Performance Goals may
be related to personal performance, corporate performance, departmental
performance or any other category of performance deemed by the Board to
be important to the success of the Company. The Board will determine
the Performance Goals, the period or period during which performance is
to be measured and all other terms and conditions applicable to the
Award.
(b) Other Awards Subject to Performance Condition. The Board
may, at the time any Award described in this Section 6 is granted,
impose the condition (in addition to any conditions specified or
authorized in this Section 6 or any other provision of the Plan) that
Performance Goals be met prior to the Participant's realization of any
payment or benefit under the Award.
6.6 LOANS AND SUPPLEMENTAL GRANTS.
(a) Loans. The Company may take a loan to a Participant
("Loan"), either on the date of or after the grant of any Award to the
Participant. A Loan may be made either in connection with the purchase
of Stock under the Award or with the payment of any federal, state and
local income tax with respect to income recognized as a result of the
Award. The Board will have full authority to decide whether to make a
Loan and to determine the amount, terms and conditions of the Loan,
including the interest rate (which may be zero), whether the Loan is to
be secured or unsecured or with or without recourse against the
borrower, the terms on which the Loan is to be repaid and the
conditions, if any, under which it may be forgiven. However, no Loan
may have a term (including extensions) exceeding ten years in duration.
(b) Supplemental Grants. In connection with any Award, the
Board may at the time such Award is made or at a later date, provide
for and grant a cash award to the Participant ("Supplemental Grant")
not to exceed an amount equal to (1) the amount of any federal, state
and local income tax on ordinary income for which the Participant may
be liable with respect to the Award, determined by assuming taxation at
the highest marginal rate, plus (2) an additional amount on a grossed-
up basis intended to make the Participant whole on an after-tax basis
after discharging all the Participant's income tax liabilities arising
from all payments under this Section 6. Any payments under this
subsection (b) will be made at the time the Participant incurs federal
income tax liability with respect to the Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS.
7.1. DEATH.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the
Participant immediately prior to death, to the extent then exercisable,
may be exercised by the Participant's executor or administrator or the
person or persons to whom the Option or Right is transferred by will or
the applicable laws of descent and distribution, at any time within the
one year period ending with the first anniversary of the Participant's
death (or such shorter or longer period as the Board may determine),
and shall thereupon terminate. In no event, however, shall an Option
or Stock Appreciation Right remain exercisable beyond the latest date
on which it could have been exercised without regard to this Section 7.
Except as otherwise determined by the Board, all Options and Stock
Appreciation Rights held by a Participant immediately prior to death
that are not then exercisable shall terminate at death.
(b) Except as otherwise determined by the Board, all
Restricted Stock held by the Participant must be transferred to the
Company (and, in the event the certificates representing such
Restricted Stock are held by the Company, such Restricted Stock will be
so transferred without any further action by the Participant) in
accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award,
Performance Award, or Supplemental Grant to which the Participant was
not irrevocably entitled prior to death will be forfeited and the Award
canceled as of the time of death, unless otherwise determined by the
Board.
7.2. TERMINATION OF SERVICE (OTHER THAN BY DEATH).
If a Participant who is an Employee ceases to be an
Employee for any reason other than death, or if there is a termination
(other than by reason of death), of the consulting, service or similar
relationship in respect of which a non-Employee Participant was granted
an Award hereunder (such termination of the employment or other
relationship being hereinafter referred to as a "Status Change"), the
following will apply:
(a) Except as otherwise determined by the Board, all
Options and Stock Appreciation Rights held by the Participant that were
not exercisable immediately prior to the Status Change shall terminate
at the time of the Status Change. Any Options or Rights that were
exercisable immediately prior to the Status Change will continue to be
exercisable for a period of one month (or such longer period as the
Board may determine), and shall thereupon terminate, unless the Award
provides by its terms for immediate termination in the event of a
Status Change or unless the Status Change results from a discharge for
cause which in the opinion of the Board casts such discredit on the
Participant as to justify immediate termination of the Award. In no
event, however, shall an Option or Stock Appreciation Right remain
exercisable beyond the latest date on which it could have been
exercised without regard to this Section 7. For purposes of this
paragraph, in the case of a Participant who is an Employee, a Status
Change shall not be deemed to have resulted by reason of (i) a sick
leave or other bona fide leave of absence approved for purposes of the
Plan by the Board, so long as the Employee's right to reemployment is
guaranteed either by statute or by contract, or (ii) a transfer of
employment between the Company and a subsidiary or between subsidiary,
or to the employment of a corporation (or a parent or subsidiary
corporation of such corporation) issuing or assuming an option in a
transaction to which section 424(a) of the Code applies.
(b) Except as otherwise determined by the Board, all Restricted
Stock held by the Participant at the time of the Status Change must be
transferred to the Company (and, in the event the certificates
representing such Restricted Stock are held by the Company, such
Restricted Stock will be so transferred without any further action by
the Participant) in accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award,
Performance Award, or Supplemental Grant to which the Participant was
not irrevocably entitled prior to the Status Change, will be forfeited
and the Award canceled as of the date of such Status Change unless
otherwise determined by the Board.
7.3. CERTAIN CORPORATE TRANSACTION.
In the event of a consolidation or merger in which the Company is
not the surviving corporation or which results in the acquisition of
substantially all the Company's outstanding Stock by a single person or
entity or by a group of persons and/or entities acting in concert, or
in the event of the sale or transfer of substantially all the Company's
assets or a dissolution or liquidation of the Company (a "covered
transaction"), all outstanding Awards will terminate as of the
effective date of the covered transaction, and the following rules
shall apply;
(a) Subject to paragraphs (b) and (c) below, the Board may in
its sole discretion, prior to the effective date of the covered
transaction, (1) make each outstanding Option and Stock Appreciation
Right exercisable in full, (2) remove the restrictions from each
outstanding share of Restricted Stock, (3) cause the Company to make
any payment and provide any benefit under each outstanding Deferred
Stock Award, Performance Award, and Supplemental Grant which would have
been made or provided with the passage of time had the transaction not
occurred and the Participant not suffered a Status Change (or died),
and (4) forgive all or any portion of the principal of or interest on a
Loan.
(b) If an outstanding Award is subject to performance or other
conditions (other than conditions relating only to the passage of time
and continued employment) which will not have been satisfied at the
time of the covered transaction, the Board may in its sole discretion
remove such conditions. If it does not do so, however, such Award will
terminate as of the date of the covered transaction notwithstanding
paragraph (a) above.
(c) With respect to an outstanding Award held by a participant
who, following the covered transaction, will be employed by or
otherwise providing services to a corporation which is a surviving or
acquiring corporation in such transaction or an affiliate of such a
corporation, the Board may, in lieu of the action described in
paragraph (a) above, arrange to have such surviving or acquiring
corporation or affiliate grant to the Participant a replacement award
which, in the judgment of the Board, is substantially equivalent to the
Award.
8. GENERAL PROVISIONS
8.1. DOCUMENTATION OF AWARDS
Awards will be evidenced by such written instruments, if any, as
may be prescribed by the Board from time to time. Such instruments may
be in the form of agreements to be executed by both the Participant and
the Company, or certificates, letters or similar instruments, which
need not be executed by the Participant but acceptance of which will
evidence agreement to the terms thereof.
8.2. RIGHTS AS A STOCKHOLDER, DIVIDEND EQUIVALENTS.
Except as specifically provided by the Plan, the receipt of
an Award will not give a Participant rights as a stockholder; the
participant will obtain such rights, subject to any limitations imposed
by the Plan or the instrument evidencing the Award, upon actual receipt
of Stock. However, the Board may, on such conditions as it deems
appropriate, provide that a Participant will receive a benefit in lieu
of cash dividends that would have been payable on any or all Stock
subject to the Participant's Award had such Stock been outstanding.
Without limitation, the Board may provide for payment to the
Participant of amounts representing such dividends, either currently or
in the future, or for the investment of such amounts on behalf of the
Participant.
8.3. CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove restriction from shares previously
delivered under the Plan (a) until all conditions of the Award have
been satisfied or removed, (b) until, in the opinion of the Company's
counsel, all applicable federal and state laws and regulations have
been complied with, (c) if the outstanding Stock is at the time listed
on any stock exchange, until the shares to be delivered have been
listed or authorized to be listed on such exchange upon official notice
of notice of issuance, and (d) until all other legal matters in
connection with the issuance and delivery of such shares have been
approved by the Company's counsel. If the sale of Stock has not been
registered under the Securities Act of 1933, as amended, the Company
may require, as a condition to exercise of the Award, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend
restricting transfer.
If an Award is exercised by the Participant's legal
representative, the Company will be under no obligation to deliver
Stock pursuant to such exercise until the Company is satisfied as to
the authority of such representative.
8.4. TAX WITHHOLDING.
The Company will withhold from any cash payment made pursuant to
an Award an amount sufficient to satisfy all federal, state and local
withholding tax requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered,
the Board will have the right to require that the
Participant or other appropriate person remit to the Company an amount
sufficient to satisfy the withholding requirements, or make
other arrangements satisfactory to the Board with regard to such
requirements, prior to the delivery of any Stock. If and to the extent
that such withholding is required, the Board may permit the Participant
or such other person to elect at such time and in such manner as the
Board provides to have the Company hold back from the shares to be
delivered, or to deliver to the Company, Stock having a value
calculated to satisfy the withholding requirement.
If at the time an ISO is exercised the Board determines that the
Company could be liable for withholding requirements with respect to a
disposition of the Stock received upon exercise, the Board may require
as a condition of exercise that the person exercising the ISO agree (a)
to inform the Company promptly of any disposition (within the meaning
of section 424(c) of the Code) of Stock received upon exercise, and (b)
to give such security as the Board deems adequate to meet the potential
liability of the Company for the withholding requirements and to
augment such security from time to time in any amount reasonably deemed
necessary by the Board to preserve the adequacy of such security.
8.5. NONTRANSFERABILITY OF AWARDS
No Award (other than an Award in the form of an outright transfer
of cash or Unrestricted Stock) may be transferred other than by will or
by the laws of descent and distribution, and during an employee's
lifetime an Award requiring exercise may be exercised only by the
Participant (or in the event of the Participant's incapacity, the
person or persons legally appointed to act on the Participant's
behalf).
8.6. ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS.
(a) In the event of a stock dividend, stock split or
combination of shares, recapitalization or other change in the
Company's capitalization, or other distribution to common stockholders
other than normal cash dividends, after the effective date of the Plan,
the Board will make any appropriate adjustments to the maximum number
of shares that may be delivered under the Plan under Section 4 above.
(b) In any event referred to in paragraph (a), the Board will
also make any appropriate adjustments to the number and kind of shares
of stock or securities subject to Awards then outstanding or
subsequently granted, any exercise prices relating to Awards and any
other provision of Awards affected by such change. The Board may also
make such adjustments to take into account material changes in law or
in accounting practices or principles, mergers, consolidations,
acquisitions, dispositions or similar corporate transactions, or any
other event, if it is determined by the Board that adjustments are
appropriate to avoid distortion in the operation of the Plan.
8.7. EMPLOYMENT RIGHTS, ETC.
Neither the adoption of the Plan nor the grant of Awards will
confer upon any person any right to continued retention by the Company
or any subsidiary as an Employee or otherwise, or affect in any way the
right of the Company or subsidiary to terminate an employment, service
or similar relationship at any time. Except as specifically provided
by the Board in any particular case, the loss of existing or potential
profit in Awards granted under the Plan will not constitute an element
of damages in the event of termination of an employment, service or
similar relationship even if the termination is in violation of an
obligation of the Company to the Participant.
8.8. DEFERRAL OF PAYMENTS.
The Board may agree at any time, upon request of the Participant,
to defer the date on which any payment under an Award will be made.
8.9. PAST SERVICES AS CONSIDERATION
Where a Participant purchases Stock under an Award for a price
equal to the par value of the Stock the Board may determine that such
price has been satisfied by past services rendered by the Participant.
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a
participant will affect the Company's right to grant to such
Participant awards that are not subject to the Plan, to issue to such
Participant Stock as a bonus or otherwise, or to adopt other plans or
arrangements under which stock be issued to Employees.
The Board may at any time or times amend the Plan or any
outstanding Award for any purpose which may at the time be permitted by
law, or may at any time terminate the Plan as to any further grants of
Awards, provided that (except to the extent expressly required or
permitted by the Plan) no such amendment will, without the approval of
the stockholders of the Company, effectuate a change for which
stockholder approval is required in order for the Plan to continue to
qualify for the award of ISOs under section 422 of the Code and to
continue to qualify under Rule 16b-3 promulgated under Section 16 of
the 1934 Act.
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