<PAGE> 1
As filed with the Securities and Exchange Commission on June 29, 2000
Registration No. 333-____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AUSPEX SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 93-0963760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2800 SCOTT BOULEVARD
SANTA CLARA, CALIFORNIA 95050
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
---------------------------
GARY J. SBONA
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
AUSPEX SYSTEMS, INC.
2800 SCOTT BOULEVARD
SANTA CLARA, CALIFORNIA 95050
(408) 566-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
---------------------------
Copies to:
HENRY P. MASSEY, ESQ.
PETER S. HEINECKE, ESQ.
ARMEN S. MARTIN, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304-1050
(650) 493-9300
---------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If the Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If the Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================================================================================================================
Proposed Proposed
Title of Securities to Amount to be Maximum Offering Maximum Aggregate Amount of
be Registered Registered(1) Price Per Share(2) Offering Price Registration Fee
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock Issuable Upon Conversion 9,932,540 $4.9375 $49,041,916 $13,633.65
of Preferred Stock, as Dividends
Thereon and Upon Exercise of Warrants
=============================================================================================================================
</TABLE>
<PAGE> 2
(1) Shares of common stock that may be offered pursuant to this Registration
Statement consist of 8,327,404 shares issuable upon conversion of and as
dividends upon 18,750 shares of Series B Convertible Preferred Stock,
and 1,605,136 shares issuable upon exercise of certain warrants. For
purposes of estimating the number of shares of common stock to be
included in this Registration Statement, we included (i) 8,255,366
shares, representing 200% of the number of shares of common stock
issuable upon conversion of the Series B Convertible Preferred Stock,
determined as if the Series B Convertible Preferred Stock were converted
in full at the conversion price of $4.5425 as of June 28, 2000; plus
(ii) 72,038 shares, representing 100% of the number of shares of common
stock issuable in lieu of cash dividends payable on the Series B
Convertible Preferred Stock, assuming the price used in calculating such
number of shares was $4.5425 per share, the applicable conversion price
as of June 28, 2000; plus (iii) 1,605,136 shares, representing 100% of
the number of shares of common stock issuable upon exercise of the
warrants.
8,016,779 shares of common stock were previously registered on Form S-3
(file number 333-30672), filed with the Securities and Exchange
Commission on February 18, 2000, as amended by Amendment No. 1 to Form
S-3 filed on February 18, 2000 and Amendment No. 2 to Form S-3 filed on
March 7, 2000. Of the 8,016,779 shares of common stock previously
registered, 1,064,617 shares have been sold. Due to a recent decrease in
the market price of the common stock, the Company is required by the
Registration Rights Agreement dated as of January 18, 2000 to register
an additional 2,980,378 shares of common stock. In accordance with Rule
429 of Regulation C of the Securities Act of 1933, the Company is
presenting a combined prospectus. The Company previously paid a filing
fee of $15,043.49 with the earlier registration statement.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the average of the high and low
prices of the common stock on June 23, 2000, as reported by the Nasdaq
National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
================================================================================
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THE SECURITIES OFFERED BY THIS PROSPECTUS
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
----------------
9,932,540 SHARES
AUSPEX SYSTEMS, INC.
----------------
COMMON STOCK
($.001 PAR VALUE)
----------------
This prospectus relates to 9,932,540 shares of common stock of Auspex
Systems, Inc. which may be sold from time to time by the selling stockholders
named herein, or their transferees, pledgees, donees or successors. Included in
this amount are 6,952,162 shares of common stock previously covered by an
earlier registration statement.
The shares are being registered to permit the selling stockholders to
sell the shares from time to time in the public market. The stockholders may
sell the common stock through ordinary brokerage transactions, directly to
market makers of our shares or through any other means described in the section
entitled "Plan of Distribution" beginning on page II-10. We cannot assure you
that the selling stockholders will sell all or any portion of the common stock
offered hereby.
We will not receive any of the proceeds from the sale of these shares,
although we have paid the expenses of preparing this prospectus and the related
registration statement.
Our common stock is traded on the Nasdaq National Market under the
symbol "ASPX."
We are a Delaware corporation formed on July 10, 1991. Our principal
executive offices are located at 2800 Scott Boulevard, Santa Clara, California
and our telephone number is (408) 566-2000.
BEFORE PURCHASING ANY OF THE SHARES COVERED BY THIS PROSPECTUS,
CAREFULLY READ AND CONSIDER THE RISK FACTORS INCLUDED IN THE SECTION ENTITLED
"RISK FACTORS" BEGINNING ON PAGE 3. YOU SHOULD BE PREPARED TO ACCEPT ANY AND ALL
OF THE RISKS ASSOCIATED WITH PURCHASING THE SHARES, INCLUDING A LOSS OF ALL OF
YOUR INVESTMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SALE OF THE COMMON STOCK OR DETERMINED THAT THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS ILLEGAL FOR ANY
PERSON TO TELL YOU OTHERWISE.
The date of this Prospectus is June 29, 2000.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk Factors .............................................................II-3
Use of Proceeds ..........................................................II-8
Selling Security Holders .................................................II-9
Plan of Distribution .....................................................II-10
Description of Securities ................................................II-12
Legal Opinions ...........................................................II-19
Where You Can Find More Information ......................................II-19
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS AND IN ANY ACCOMPANYING PROSPECTUS SUPPLEMENT. NO ONE HAS
BEEN AUTHORIZED TO PROVIDE YOU WITH DIFFERENT INFORMATION.
THE COMMON STOCK IS NOT BEING OFFERED IN ANY JURISDICTION WHERE THE OFFER IS NOT
PERMITTED.
YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THE
DOCUMENTS.
II-2
<PAGE> 5
FORWARD LOOKING STATEMENTS
WE MAKE FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS THAT MAY NOT PROVE
TO BE ACCURATE
This prospectus contains or incorporates forward-looking statements
including statements regarding, among other items, our business strategy, growth
strategy and anticipated trends in our business. We may make additional written
or oral forward-looking statements from time to time in filings with the
Securities and Exchange Commission or otherwise. When we use the words
"believe," "expect," "anticipate," "project" and similar expressions, this
should alert you that this is a forward-looking statement. We have identified
most, but not all, of these forward-looking statements with an asterisk (*)
symbol. Forward-looking statements speak only as of the date the statement is
made. These forward-looking statements are largely based on our expectations.
They are subject to a number of risks and uncertainties, some of which cannot be
predicted or quantified and are beyond our control. Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward-looking statements. Statements in this prospectus, and in
documents incorporated into this prospectus, including those set forth below in
"Risk Factors," describe factors, among others, that could contribute to or
cause these differences. In light of these risks and uncertainties, there can be
no assurance that the forward-looking information contained in this prospectus
will in fact transpire or prove to be accurate. All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by this section.
RISK FACTORS
We operate in a dynamic and rapidly changing environment that involves
numerous risks and uncertainties. The following section lists some, but not all,
of these risks and uncertainties which may have a material adverse effect on our
business, financial condition or results of operations.
RISKS RELATED TO THE SERIES B PREFERRED SHARES
THE CONVERSION OF THE SERIES B PREFERRED SHARES AND THE EXERCISE OF THE
RELATED WARRANTS COULD RESULT IN SUBSTANTIAL NUMBERS OF ADDITIONAL SHARES BEING
ISSUED IF OUR MARKET PRICE DECLINES.
The Series B Preferred Shares convert at a floating rate based on the
market price of our common stock, provided the conversion price may not exceed
$14.211 (the maximum conversion price may be reduced if the average closing
price of our common stock for the ten trading days after January 18, 2001 is
below $14.211). As a result, the lower the price of our common stock at the time
of conversion, the greater the number of shares the holder will receive. For
additional information regarding the number of additional shares that may be
issued at various assumed conversion prices, see the table on page II-13 under
"Description of Securities - Series B Preferred Shares."
To the extent the Series B Preferred Shares are converted or dividends
on the Series B Preferred Shares are paid in shares of common stock rather than
cash, a significant number of additional shares of common stock may be sold into
the market, which could decrease the price of our common stock and encourage
short sales by the selling stockholders or others. Short sales could place
further downward pressure on the price of our common stock. In that case, we
could be required to issue an increasingly greater number of shares of our
common stock upon future conversions of the Series B Preferred Shares, sales of
which could further depress the price of our common stock.
The conversion of and the payment of dividends in shares of common stock
in lieu of cash on the Series B Preferred Shares may result in substantial
dilution to the interests of other holders of our common stock. Even though no
selling stockholder may convert its Series B Preferred Shares into more than
4.99% of our then outstanding common stock (excluding for purposes of such
determination shares of common stock issuable upon conversion of Series B
Preferred
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Shares which have not been converted and upon exercise of warrants which have
not been exercised), this restriction does not prevent a selling stockholder
from selling a substantial number of shares in the market. By periodically
selling shares into the market, an individual selling stockholder could
eventually sell more than 4.99% of our outstanding common stock while never
holding more than 4.99% at any specific time.
We May Issue Additional Shares and Dilute Your Ownership Percentage
Certain events over which you have no control could result in the
issuance of additional shares of our common stock, which would dilute your
ownership percentage in Auspex Systems, Inc. We may issue additional shares of
common stock or preferred stock:
- to raise additional capital or finance acquisitions;
- upon the exercise or conversion of outstanding options, warrants
and shares of convertible preferred stock; and/or
- in lieu of cash payment of dividends.
As of June 28, 2000, there were no outstanding warrants to acquire
shares of common stock, other than the warrants issued to the holders of Series
B Preferred Shares, but there were outstanding options to acquire up to
approximately 6,413,445 additional shares of common stock. If converted or
exercised, these securities will dilute your percentage ownership of common
stock. These securities, unlike the common stock, provide for anti-dilution
protection upon the occurrence of stock splits, redemptions, mergers,
reclassifications, reorganizations and other similar corporate transactions,
and, in some cases, major corporate announcements. If one or more of these
events occurs, the number of shares of common stock that may be acquired upon
conversion or exercise would increase. In addition, as disclosed in the
preceding risk factor, the number of shares that may be issued upon conversion
of or payment of dividends in lieu of cash on the Series B Preferred Shares
could increase substantially if the market price of our common stock decreases
during the period the Series B Preferred Shares are outstanding.
For example, the number of shares that we would be required to issue
upon conversion of all 18,750 Series B Preferred Shares currently outstanding
(excluding shares issued as accrued dividends) would increase from 4,127,684
shares, based on the applicable conversion price of $4.5425 per share as of June
28, 2000, to:
- 5,503,578 shares if the applicable conversion price decreased
25%;
- 8,255,366 shares if the applicable conversion price decreased
50%; or
- 16,510,732 shares if the applicable conversion price decreased
75%.
We May Be Required to Delist Our Shares from Nasdaq if Certain Events
Occur
Although we are not obligated to issue more than 5,587,411 shares of
common stock, representing 19.99% of our outstanding common stock on January 18,
2000, the date of issuance of the Series B Preferred Shares, upon conversion or
the payment of dividends in lieu of cash on the Series B Preferred Shares
without obtaining stockholder approval, we are required to seek stockholder
approval within 75 days of the date the number of shares issued and to be issued
in such event exceeds 5,031,186, representing 18% of our outstanding common
stock as of January 18, 2000. As of the date of this prospectus, we are
obligated to seek stockholder approval prior to August 14, 2000 and we plan to
hold our Special Meeting of Stockholders prior to that date to ask for
stockholder approval to issue more than 19.99% of our outstanding common stock
on January 18, 2000. If we obtain stockholder approval, there is no limit on the
amount of shares that could be issued upon conversion or the payment of
dividends in lieu of cash on the Series B Preferred Shares. For
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additional information regarding the number of additional shares that may be
issued at various assumed conversion prices, see the table on page II-13 under
"Description of Securities - Series B Preferred Shares." In accordance with NASD
Rule 4460, which generally requires stockholder approval of any transaction that
would result in the issuance of securities representing 20% or more of an
issuer's outstanding listed securities, we are not obligated to issue shares of
our common stock upon conversion or the payment of dividends on the Series B
Preferred Shares in excess of 19.99% of our outstanding common stock on January
18, 2000, the date of issuance of the Series B Preferred Shares. If we have not
obtained stockholder approval and are not obligated to issue shares because of
the exchange cap described above, we will be required to redeem all or a portion
of the Series B Preferred Shares if requested by the holders of the Series B
Preferred Shares. If we fail to redeem any Series B Preferred Shares as
requested, the holders of at least two-thirds of the outstanding Series B
Preferred Shares have the right to require that we voluntarily delist our shares
of common stock from the Nasdaq Stock Market. In that event, trading in our
shares would likely decrease substantially, and the price of our common shares
may decline.
RISKS RELATED TO OUR BUSINESS
We Are in the Process of a Restructuring Plan
We are implementing a restructuring plan that includes a significant
reduction in force and a consolidation of Santa Clara based operations into one
building. While we believe these measures are necessary and that the reduction
in force was not so great as to impair any of our critical functions, our
inability to retain and recruit employees with critical skills in the future
could have a negative impact on future results.
There Is the Potential for Significant Fluctuations in Quarterly Results
Our operating results may fluctuate significantly from quarter to
quarter due to a combination of factors including the timing of orders and new
product introductions by us or our competitors as well as the mix of
distribution channels through which our products are sold and our ability to
align our expense levels with changing revenue levels. We generally realize
higher gross margins on sales of systems to end users and on single-system sales
than on systems sold through distributors and OEMs and on multiple-system sales.
Given our focus on highly configured enterprise class systems, the loss or delay
in a given quarter of a relatively limited number of system sales could
adversely affect our revenues.
We have historically recognized a substantial portion of our revenues in
the last month of any given quarter. Because we base our operating expenses on
anticipated revenue levels and therefore a high percentage of our expenses are
relatively fixed, a small variation in the timing of the recognition of revenues
could cause significant variations in operating results from quarter to quarter.
We Operate in a Competitive Market
The market for our products is highly competitive. Our principal
competitors include Sun Microsystems, Network Appliance Corporation, EMC
Corporation, Hewlett-Packard Company and SGI, among others. Some companies have
introduced proprietary products to provide network attached storage. Most of
these competitors are better known and have substantially greater financial,
technological, production and marketing resources than we do. Though price
competition in our product markets is intense, we believe that the
price/performance characteristics of our products are competitive. Any material
reduction in the price of our products without corresponding decreases in
manufacturing costs and increases in unit volume would negatively affect gross
margins. A negative effect on gross margins would in turn
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have a material adverse effect on our business, financial condition and results
of operations. We also derive a significant portion of our revenues from sales
of product upgrades to our installed base of customers, including additional
processors, memory and disk drives. Increased competition for our products that
results in lower product sales could also adversely impact our upgrades sales.
In addition, decisions by customers not to increase the capacity of their
current systems could adversely impact our revenues and results of operations.
Our ability to maintain our competitive position will depend upon, among other
factors, our success in anticipating industry trends, investing in product
engineering and development, developing new products with improved
price/performance characteristics and effectively managing the introduction of
new products into targeted markets.
We Depend on Key Personnel and Have Recently Had Significant Management
Turnover
Competition for employees with technical, management and other skills is
intense in the computer industry and is particularly intense in the San
Francisco Bay Area. We have recently encountered some difficulties in fulfilling
our hiring needs and retaining key employees in this employment market, and
there can be no assurance that we will be successful in hiring and retaining
qualified employees in the future. Our failure to retain the services of key
personnel or to attract additional qualified employees could have a material
adverse effect on our business, financial condition and results of operations.
We have experienced turnover of several senior members of management. In
particular, on February 15, 2000, Mr. Gary J. Sbona replaced Mr. Bruce N. Moore
as our Chief Executive Officer and Chairman of the Board of Directors, and we
entered into an agreement with Regent Pacific Management Corporation, a
management firm of which Mr. Sbona is the Chief Executive Officer. Pursuant to
the agreement, Regent Pacific will provide us with management services,
including the services of Mr. Sbona as Chief Executive Officer, one of a five
person Regent Pacific management team. The agreement has a one year term and may
be cancelled by us after expiration of the initial 26 week period, with a
minimum compensation to Regent Pacific of $1,950,000 for that initial period. We
rely on Regent Pacific Management Corporation for the management of Auspex and
the loss of these services could adversely affect our business.
There Are Product Risks Associated with Our Software
We market software products along with our line of network file servers.
These software products include: NeTservices(TM), DriveGuard(TM),
FastBackup(TM), ServerGuard(TM), ServerGuard Global(TM) and DataGuard(TM). We
also expect to release enhancements and new features for these products from
time to time.* Although we perform extensive testing prior to releasing software
products, they may nonetheless contain undetected errors or bugs when first
released. These bugs may not be discovered until the product has been used by
customers in different application environments. Failure to discover product
deficiencies or bugs could delay product introductions, require design
modifications to previously shipped products, cause unfavorable publicity or
negatively impact system shipments; any of which could result in a materially
adverse effect on our business, financial condition and results of operations.
New Products Could Delay or Cancel Existing Product Orders
New product introductions by us or our competitors carry the risk that
customers could delay or cancel orders for existing products pending shipment of
the new products. For instance, product transition issues had an adverse impact
on North America and Europe revenue in the first nine months of fiscal 2000 and
entire fiscal 1999. While our strategy is to continue to introduce new products
and upgrades to existing products on an ongoing basis, we may experience
difficulties that delay or prevent the successful development, introduction or
marketing of these products and enhancements. Further, it is possible that these
new products and enhancements will not adequately address market requirements,
achieve market acceptance or generate substantial sales. Delays in the launch or
lack of availability of new products could also significantly hurt our business
prospects.
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We Depend on Established Standards
The rapid emergence of new or alternate standards such as Linux, which
replace or diminish the market acceptance of UNIX operating systems, Network
File System (NFS) or Windows NT, on which our products are currently based,
could materially and adversely affect our results of operations unless we are
able to incorporate any such standards in our products in a timely manner.
We May Face Increased Price Pressure from our Customers
During our third fiscal quarter we have faced increased pressure from
customers to reduce the price for our products or provide significant discounts
on volume purchases. To the extent that we provide such reductions or discounts
our operating results will be adversely affected.
We Depend on Certain Customers and Distributors
For the three months ended March 31, 2000, direct sales of products and
services to one customer represented approximately 18% of our revenues. For the
three months ended March 31, 1999, direct sales of products and services to one
customer represented approximately 17% of our revenues. Customers are not
obligated to purchase any minimum level of our products. However, significant
reductions in product sales to certain key customers would materially and
adversely affect our business, financial condition and results of operations.
We Depend on Certain Suppliers
Some of our products contain critical components supplied by a single or
limited number of third parties. While we have an inventory of these critical
components, any significant or prolonged shortage of these components or the
failure of the third-party suppliers to maintain or enhance these components
could materially and adversely affect our results of operations.
We May Have Problems Managing Excess or Obsolete Inventory
Managing our inventory of components and finished products is a complex
task. We maintain large amounts of inventory because some of our components are
in short supply or must be purchased in bulk to obtain favorable pricing. We
must also maintain a large inventory to meet the general unpredictability of
demand for specific products and customer requests for quick delivery schedules.
Other factors, including changes in market demand and technology, may cause
inventory to become obsolete. Any excess or obsolete inventory could result in
price reductions and/or inventory write-downs, adversely affecting the Company's
business and results of operations.
There are Substantial Risks in Our International Sales
During the nine months ended March 31, 2000 and 1999, approximately 36%
and 32%, respectively, of our total revenues were derived from markets outside
of North America. We expect that sales to the Pacific Rim and Europe will
continue to represent a significant portion of our business.* Nonetheless, there
can be no assurance that our Pacific Rim or European operations will continue to
be successful.
Our international business may be affected by changes in demand
resulting from localized economic and market conditions. For example, we
experienced a decrease in revenues from the Pacific Rim during the six months
ended December 31, 1999 due to continued weakness in the Japanese economy. In
addition, our international business may be affected by fluctuations in currency
exchange rates and currency restrictions. We purchase the majority of our
materials and services in U.S. dollars, and most of our foreign sales are
transacted in U.S. dollars. Continued increases in the value of the U.S. dollar
relative to foreign currencies will make our products sold internationally less
price competitive.
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We have offices in a number of foreign countries, the operating expenses of
which are also subject to the effects of fluctuations in foreign exchange rates.
Financial exposure may result due to the timing of transactions and movement of
exchange rates. Our international business may further be affected by risks such
as trade restrictions, increase in tariff and freight rates and difficulties in
obtaining necessary export licenses and meeting appropriate local regulatory
standards. For example, we have had to modify our products in minor respects in
Japan to comply with local electromagnetic emissions standards, and must also
comply with corresponding European Economic Community standards. In marketing
our products to the European Economic Community, we also must face the
challenges posed by a fragmented market complicated by local distribution
channels and local cultural considerations. For international sales, we have
largely relied on distributors or OEMs, most of whom are entitled to carry our
competitors' products.
There can be no assurance that any of the foregoing risks or issues will
not have a material adverse effect on our business, financial condition and
results of operations.
There Is the Risk of Substantial Stock Market Fluctuations
In recent years, the stock market in general, and the market for
technology stocks in particular, including our common stock, have experienced
extreme price fluctuations. The market price for our common stock may be
significantly affected by various factors such as quarterly variations in our
operating results, changes in revenue growth rates for us as a whole or for
specific geographic areas or products, changes in earning estimates by market
analysts, the announcements of new products or product enhancements by our
competitors or ourselves, speculation in the press or analyst community and
general market conditions or market conditions specific to particular
industries. Therefore, it is possible that our common stock may experience
significant fluctuations in the future.
There are Risks in Protecting Our Intellectual Property and Proprietary
Rights
We currently rely on a combination of patent, copyright, trademark and
trade secret laws and contractual provisions to protect our proprietary rights
in our hardware and software products. We currently hold fifteen United States
patents and have filed applications for additional patents. We also have filed
applications for counterpart patents in foreign countries, including Japan.
However, our present or future competitors may be able to independently develop
technologies that are substantially equivalent or superior to our technology.
Further, it is possible that our patent applications will not result in issued
patents or that our issued patents will not be upheld if challenged.
Additionally, it is possible that third parties will assert intellectual
property infringement claims against us in the future with respect to current or
future projects. It is also possible that any such assertions may require us to
refrain from the sale of our products, enter into royalty arrangements or
undertake costly litigation.
Our adherence to industry standards with respect to our products limits
our opportunities to provide proprietary features, which may be protected. In
addition, the laws of various countries in which our products may be sold may
not protect our products and intellectual property rights to the same extent as
the laws of the United States.
We Have Not Incurred Material Costs So Far Associated with Year 2000
Compliance
To date, we have not incurred material costs associated with Year 2000
compliance nor any disruption with vendors or operations. Furthermore, we
believe that any future costs associated with our Year 2000 compliance efforts
will not be material.*
USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale
of the common stock offered under this prospectus, although we may receive up to
$13,750,076.51 upon exercise of the warrants issued in connection with the
Series B Preferred Shares.
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SELLING SECURITY HOLDERS
The shares of common stock being offered by the selling stockholders are
issuable (i) upon conversion of the Series B Preferred Shares, (ii) as dividends
on the Series B Preferred Shares, or (iii) upon exercise of the related
warrants. For additional information about the Series B Preferred Shares, see
"Description of Securities - Series B Preferred Shares." We are registering the
shares in order to permit the selling stockholders to offer these shares for
resale from time to time. Except for the ownership of the Series B Preferred
Shares and the warrants, the selling stockholders have not had any material
relationship with us within the past three years.
The table below lists the selling stockholders and other information
regarding the beneficial ownership of the common stock by each of the selling
stockholders. The second column lists, for each selling stockholder, the number
of shares of common stock (based on its ownership of Series B Preferred Shares
and related warrants) that would have been issuable to the selling stockholders
on June 28, 2000 assuming conversion of all Series B Preferred Shares, accrued
dividends and the exercise of all warrants held by such selling stockholder on
that date, without regard to any limitations on conversions or exercise. Because
conversion of the Series B Preferred Shares is based on a formula that depends
on the market price of our common stock, the numbers listed in the second column
may fluctuate from time to time. The third column lists each selling
stockholder's pro rata portion (based on its ownership of Series B Preferred
Shares) of the 9,932,540 shares of common stock being offered by this
prospectus.
We determined the number of shares of common stock to be offered for
resale by this prospectus by agreement with the selling stockholders and in
order to adequately cover a reasonable increase in the number of shares
required. Our calculation of the number of shares to be offered for resale
assumes a conversion price on June 28, 2000 of $4.5425, which represents 92% of
the lowest closing sale price during the four consecutive trading days through
and including June 28, 2000. In accordance with the terms of a Registration
Rights Agreement with the holders of the Series B Preferred Shares, this
prospectus covers the resale of 200% of the number of shares of common stock
issuable upon conversion of the Series B Preferred Shares, determined as if the
Series B Preferred Shares were converted in full at the assumed conversion price
of $4.5425, plus 100% of the number of shares of common stock issuable in lieu
of cash dividends payable on the Series B Preferred Shares, plus 100% of the
number of shares of common stock issuable upon exercise of the related warrants.
Because the conversion of the Series B Preferred Shares into common stock is
based on a formula that depends upon the market price of our common stock, the
number of shares that will actually be issued upon conversion may be more or
less than the 9,932,540 shares being offered by this prospectus. The fourth
column assumes the sale of all of the shares offered by each selling
stockholder.
Under the Certificate of Designations, Preferences and Rights of Series
B Convertible Preferred Stock for the Series B Preferred Shares and under the
terms of the warrants, no selling stockholder may convert Series B Preferred
Shares or exercise the warrants, respectively, to the extent such conversion or
exercise would cause such selling stockholder's beneficial ownership of our
common stock (other than shares deemed beneficially owned through ownership of
unconverted shares of the Series B Preferred Shares or unexercised warrants) to
exceed 4.99% of the outstanding shares of our common stock. The number of shares
in the second column does not reflect this limitation. The selling stockholders
may sell all, some or none of their shares in this offering. See "Plan of
Distribution."
Of the shares being sold by this prospectus, 6,952,162 shares were
previously registered on Form S-3 (file number 333-30672), filed with the
Securities and Exchange Commission on February 18, 2000, as amended by Amendment
No. 1 to Form S-3 filed on February 18, 2000 and Amendment No. 2 to Form S-3
filed on March 7, 2000. Of the 8,016,779 shares of common stock previously
registered, 1,064,617 shares have been sold. Due to a recent decrease in the
market price of our common stock, we are required by the Registration Rights
Agreement to register an additional 2,980,378 shares of common stock. In
accordance with Rule 429 of Regulation C of the Securities Act of 1933, we are
presenting a combined prospectus.
II-9
<PAGE> 12
<TABLE>
<CAPTION>
Common Shares
Name of Selling Beneficially Owned Common Shares Offered Common Shares Owned After
Stockholder on June 28, 2000 by this Prospectus Offering
--------------- ------------------ --------------------- -------------------------
<S> <C> <C> <C>
HFTP Investment, 1,393,166 (4) 2,383,810 0
L.L.C. (1)
Fisher Capital Ltd. 1,655,621 (5) 2,709,597 0
(2)
Wingate Capital Ltd. 1,017,184 (6) 1,660,721 0
(2)
Leonardo, L.P. (3) 1,857,554 (7) 3,178,412 0
</TABLE>
(1) Promethean Investment Group, LLC, a New York limited liability company
("Promethean"), serves as investment advisor to HFTP Investment, L.L.C.
("HFTP") and may be deemed to share beneficial ownership of the shares
beneficially owned by HFTP by reason of shared power to vote and to
dispose of the shares beneficially owned by HFTP. Promethean disclaims
beneficial ownership of the shares beneficially owned by HFTP. Mr. James
F. O'Brien, Jr. indirectly controls Promethean. Mr. O'Brien disclaims
beneficial ownership of the shares beneficially owned by Promethean and
HFTP. HFTP is not a registered broker-dealer. HFTP, however, is under
common control with, and therefore an affiliate of, a registered
broker-dealer.
(2) Citadel Limited Partnership is the trading manager of each of Fisher
Capital Ltd. and Wingate Capital Ltd. (collectively, the "Citadel
Entities") and consequently has voting control and investment discretion
over securities held by the Citadel Entities. Kenneth C. Griffin
indirectly controls Citadel Limited Partnership. The ownership
information for each of the Citadel Entities does not include ownership
information for the other Citadel Entities. Citadel Limited Partnership,
Kenneth C. Griffin and each of the Citadel Entities disclaim ownership
of the shares held by the other Citadel Entities, Citadel Trading Group
LLC and Aragon Investments Ltd. Neither Fisher nor Wingate is a
registered broker-dealer. Each of Fisher and Wingate, however, is under
common control with, and therefore an affiliate of, a registered
broker-dealer.
(3) Angelo, Gordon & Co., L.P. ("Angelo Gordon") is a general partner of AG
Super Fund International Partners, L.P., Leonardo, L.P. and Raphael,
L.P., and is the investment advisor of GAM Arbitrage Investment, Inc.
(collectively, the "Angelo Gordon Entities") and consequently has voting
control and investment discretion over securities held by the Angelo
Gordon Entities. The ownership information for each of the Angelo Gordon
Entities does not include the ownership information for the other Angelo
Gordon Entities. Angelo Gordon and each of the Angelo Gordon Entities
disclaim beneficial ownership of the shares held by the other Angela
Gordon Entities. Mr. John M. Angelo, the Chief Executive Officer of
Angelo Gordon, and Mr. Michael R. Gordon, the Chief Operating Officer of
Angelo Gordon, are the sole general partners of A.G. Partners, L.P., the
sole general partner of Angelo Gordon. As a result, Mr. Angelo and Mr.
Gordon may be considered beneficial owners of any shares deemed to be
beneficially owned by Angelo Gordon. Angelo Gordon is not a registered
broker-dealer. Angelo Gordon, however, is under common control with, and
therefore an affiliate of, a registered broker-dealer.
(4) Includes up to 990,644 shares of common stock issuable on June 28, 2000,
upon conversion of the Series B Preferred Shares at an assumed
conversion price of $4.5425, 17,289 shares of common stock issuable upon
conversion of accrued dividends as of June 30, 2000 at an assumed
conversion price of $4.5425 and up to 385,233 shares of common stock
issuable upon the exercise of the warrant issued in connection therewith
held of record by HFTP Investment, L.L.C.
(5) Includes up to 1,126,032 shares of common stock issuable on June 28,
2000, upon conversion of the Series B Preferred Shares at an assumed
conversion price of $4.5425, 19,652 shares of common stock issuable upon
conversion of accrued dividends as of June 30, 2000 at an assumed
conversion price of $4.5425 and up to 437,881 shares of common stock
issuable upon the exercise of the warrant issued in connection therewith
held of record by Fisher Capital Ltd. Also includes 72,056 shares of
common stock beneficially owned as of June 28, 2000.
(6) Includes up to 690,149 shares of common stock issuable on June 28, 2000,
upon conversion of the Series B Preferred Shares at an assumed
conversion price of $4.5425, 12,045 shares of common stock issuable upon
conversion of accrued dividends as of June 30, 2000 at an assumed
conversion price of $4.5425 and up to 268,379 shares of common stock
issuable upon the exercise of the warrant issued in connection therewith
held of record by Wingate Capital Ltd. Also includes 46,611 shares of
common stock beneficially owned as of June 28, 2000.
(7) Includes up to 1,320,859 shares of common stock issuable on June 28,
2000, upon conversion of the Series B Preferred Shares at an assumed
conversion price of $4.5425, 23,052 shares of common stock issuable upon
conversion of accrued dividends as of June 30, 2000 at an assumed
conversion price of $4.5425 and up to 513,643 shares of common stock
issuable upon the exercise of the warrant issued in connection therewith
held of record by Leonardo, L.P.
PLAN OF DISTRIBUTION
The selling stockholders (or, subject to applicable law, their pledgees,
donees, distributees, transferees, or successors in interest) are offering
shares of our common stock, which are issuable to them upon conversion of the
Series B Preferred Shares, in lieu of cash dividends on the Series B Preferred
Shares and upon exercise of warrants that they acquired from us in a private
placement transaction. This prospectus covers the selling stockholders' resale
of up to 9,932,540 shares of our common stock that we may issue to them upon
conversion of the Series B Preferred Shares, as payments of dividends thereon
and upon exercise of the related warrants, as well as any additional shares that
may become issuable upon conversion of the Series B Preferred Shares or exercise
of the warrants because of stock splits, stock dividends and other similar
transactions.
In connection with our issuance to the selling stockholders of the
Series B Preferred Shares and the related warrants, we subsequently filed a
registration statement on Form S-3 with the Commission. That registration
statement covers the resale of the common stock from time to time on the Nasdaq
National Market or in privately negotiated transactions. This prospectus forms a
part of that registration statement. We have also agreed to prepare and file any
amendments and supplements to the registration statement as may be necessary to
keep it effective until this prospectus is no longer required for the selling
stockholders to sell their shares of common stock and to indemnify and hold the
selling stockholders harmless against certain liabilities under the Securities
Act that could arise in connection with the selling
II-10
<PAGE> 13
stockholders' sale of their shares. We have agreed to pay all reasonable fees
and expenses incident to the filing of the registration statement, but the
selling stockholders will pay any brokerage commissions, discounts or other
expenses relating to the sale of the common stock.
The selling stockholders may sell the shares of common stock described
in this prospectus directly or through underwriters, broker-dealers or agents.
The selling stockholders may also transfer, devise or gift their shares by other
means not described in this prospectus. As a result, pledgees, donees,
transferees or other successors in interest that receive such shares as a gift,
partnership distribution or other non-sale related transfer may offer shares of
common stock. In addition, if any shares covered by this prospectus qualify for
sale pursuant to Rule 144 under the Securities Act, the selling stockholders may
sell such shares under Rule 144 rather than pursuant to this prospectus.
The selling stockholders may sell shares of common stock from time to
time in one or more transactions:
- at fixed prices that may be changed,
- at market prices prevailing at the time of sale, or
- at prices related to such prevailing market prices or at
negotiated prices.
The selling stockholders may offer their shares of common stock in one
or more of the following transactions:
- on any national securities exchange or quotation service on
which the common stock may be listed or quoted at the time of
sale, including the Nasdaq National Market,
- in the over-the-counter market,
- in privately negotiated transactions,
- through options,
- by pledge to secure debts and other obligations,
- by a combination of the above methods of sale, or
- to cover short sales made pursuant to this prospectus.
In effecting sales, broker or dealers engaged by the selling
stockholders may arrange for other brokers or dealers to participate in the
resales. The selling stockholders may enter into hedging transactions with
broker-dealers, and in connection with those transactions, broker-dealers may
engage in short sales of the shares. The selling stockholders also may sell
shares short and deliver the shares to close out such short positions, provided
that the short sale is made after the registration statement has been declared
effective and a copy of this prospectus is delivered in connection with the
short sale. The selling stockholders also may enter into option or other
transactions with broker-dealers that require the delivery to the broker-dealer
of the shares, which the broker-dealer may resell pursuant to this prospectus.
The selling stockholders also may pledge the shares to a broker or dealer, and
upon a default, the broker or dealer may effect sales of the pledged shares
pursuant to this prospectus.
The SEC may deem the selling stockholders and any underwriters,
broker-dealers or agents that participate in the distribution of the shares of
common stock to be "underwriters" within the meaning of the Securities Act. The
SEC may deem any profits on the resale of the shares of common stock and any
compensation received by any underwriter, broker-dealer or agent to be
underwriting discounts and commissions under the Securities Act. Each selling
stockholder
II-11
<PAGE> 14
has purchased the Series B Preferred Shares and related warrants in the ordinary
course of its business, and at the time the selling stockholder purchased the
Series B Preferred Shares and related warrants, it was not a party to any
agreement or other understanding to distribute the securities, directly or
indirectly.
UNDER THE EXCHANGE ACT, ANY PERSON ENGAGED IN THE DISTRIBUTION OF THE SHARES OF
COMMON STOCK MAY NOT SIMULTANEOUSLY ENGAGE IN MARKET-MAKING ACTIVITIES WITH
RESPECT TO THE COMMON STOCK FOR FIVE BUSINESS DAYS PRIOR TO THE START OF THE
DISTRIBUTION. IN ADDITION, EACH SELLING STOCKHOLDER AND ANY OTHER PERSON
PARTICIPATING IN A DISTRIBUTION WILL BE SUBJECT TO THE EXCHANGE ACT, WHICH MAY
LIMIT THE TIMING OF PURCHASES AND SALES OF COMMON STOCK BY THE SELLING
STOCKHOLDER OR ANY SUCH OTHER PERSON.
DESCRIPTION OF SECURITIES TO BE REGISTERED
We are authorized to issue up to 50,000,000 shares of common stock and
5,000,000 preferred shares. As of June 28, 2000, 29,862,760 shares of common
stock were issued and outstanding, and no shares of preferred stock were issued
or outstanding, other than the 25,000 Series B Preferred Shares issued to the
selling stockholders of which 18,750 shares are outstanding.
The 29,862,760 shares of common stock outstanding on June 28, 2000 does
not include any shares of common stock issuable upon exercise of currently
outstanding warrants and 6,413,445 shares of common stock reserved for issuance
upon exercise of currently outstanding stock options.
The following summary of certain provisions of the common stock and
preferred shares does not purport to be complete and is subject to, and is
qualified by, our amended Certificate of Incorporation, Bylaws, and by the
provisions of applicable law.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on
all matters on which stockholders are entitled to vote. Subject to the rights of
holders of any class or series of shares, including preferred shares, having a
preference over the common stock as to dividends or upon liquidation, the
holders of our common stock are also entitled to dividends as may be declared by
our Board of Directors out of funds that are lawfully available, and are
entitled upon liquidation to receive pro rata the assets that are available for
distribution to holders of common stock. Holders of the common stock have no
preemptive, subscription or conversion rights. The common stock is not subject
to assessment and has no redemption provisions.
PREFERRED STOCK
Our Board of Directors has the authority, without further action by the
stockholders, to issue a total of up to 5,000,000 preferred shares in one or
more series and to fix the rights, preferences, privileges and restrictions
granted to or imposed upon any series of unissued preferred shares and to
determine the number of shares constituting any series and the designation of
the series, without any further vote or action by the stockholders.
SERIES A PREFERRED SHARES
In April 1995 our Board of Directors approved a Preferred Shares Rights
Agreement and declared a dividend distribution of one Preferred Share Purchase
Right, a right, for each share of our common stock outstanding on May 1,
II-12
<PAGE> 15
1995 and each share of our common stock issued thereafter (subject to certain
limitations). Currently, the rights trade with shares of common stock and, when
the rights become exercisable, each Right will entitle the stockholder to buy
one newly issued share of common stock at an exercise price of $45 per share.
The rights will become exercisable and will trade separately from the common
stock (unless postponed by action of the disinterested directors) on the earlier
of (i) ten days following a public announcement that a person or group has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of our outstanding common stock or (ii) ten days following the commencement or
announcement of a tender offer or exchange offer which, if consummated, would
result in the beneficial ownership by a person or group of 20% or more of our
outstanding common stock. If any person or group acquires 20% or more of our
common stock without the approval of our Board of Directors, each right not held
by the acquiring person would entitle its holder to purchase $90 worth of our
common stock for $45.
If, after any person or group acquires 20% or more of our common stock
without the approval of our Board of Directors, we are acquired in a merger or
other business combination transaction, each right not held by the acquiring
person would entitle its holder to purchase $90 worth of the common stock of the
acquiring company for $45. Under certain conditions, we may elect to redeem the
rights for $.001 per right or to cause the exchange of each right not held by
the acquiring person for one share of our common stock. Additionally, the
exercise price, number of rights and number of shares of common stock that may
be acquired for that price are subject to adjustment from time to time to
prevent dilution. The rights expire on April 19, 2005 unless previously
exchanged or redeemed as described above, or terminated in connection with our
acquisition by consolidation or merger approved by our Board of Directors and
satisfying certain conditions.
SERIES B PREFERRED SHARES
GENERAL.
On January 18, 2000, we issued 25,000 shares of our Series B Convertible
Preferred Stock, $1,000 stated value per share, and warrants to purchase
1,605,136 shares of our common stock with a current warrant exercise price of
$8.5663 per share in a private placement to institutional investors. The net
proceeds of the offering, after expenses, were approximately $24,900,000. As of
the date of this prospectus, there are 18,750 Series B Preferred Shares
outstanding.
DIVIDENDS.
The Series B Preferred Shares carry a dividend rate of 7% per annum,
payable quarterly or upon conversion or redemption. At our option, the quarterly
dividend may be paid in cash or shares of common stock, subject to satisfaction
of certain conditions described below. If we choose to pay dividends in shares
of our common stock, the number of shares to be issued in payment of the
dividend on the Series B Preferred Shares will be equal to the accrued dividends
divided by the applicable conversion price as described below.
For purposes of this calculation, the applicable conversion price will
be equal to 92% of the lowest closing sale price of our common stock during the
four consecutive trading days ending on and including the second trading day
prior to the date of determination. For example, if we had elected to pay
dividends in shares of our common stock on June 28, 2000, 92% of the lowest
closing sale price of our common stock during the four consecutive trading days
ending on June 28, 2000 was $4.5425 per share, and we would have been required
to issue 72,038 shares of common stock in lieu of a cash dividend, calculated as
follows, where N represents the number of days since the last dividend payment
date (in this case N is 91 days):
(0.07) (N/365) ($1,000)
--------------------------- x 18,750 = 72,038
$4.5425
II-13
<PAGE> 16
We will not have the right to pay dividends in shares of our common
stock if a triggering event (as defined in Section 3(b) of the Certificate of
Designations relating to the Series B Preferred Shares) has occurred and is
continuing or the registration statement covering the shares of common stock
underlying the Series B Preferred Shares is not effective and available for
resale of all shares required to be registered. Triggering events include the
following:
- the failure of an applicable Registration Statement (such as the
one in which this prospectus will be included) to be declared
effective by the SEC on or prior to June 17, 2000;
- if while the Registration Statement is required to be maintained
effective, the effectiveness of the Registration Statement
lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the holder of the
preferred shares for sale of all of the shares being registered
by this Registration Statement, in accordance with the terms of
the Registration Rights Agreement (which was filed as an exhibit
to the Report on Form 8-K we filed on January 19, 2000), and
such lapse or unavailability continues for a period of five
consecutive trading days or for more than an aggregate of 10
trading days in any 365-day period. There is an exception for
days during Allowable Grace Periods (as that term is defined in
the Registration Rights Agreement);
- the suspension or delisting from trading of our common stock on
the Nasdaq National Market or the New York Stock Exchange for a
period of at least five consecutive trading days or for more
than ten trading days in any 365 day period;
- our notice to any holder of Series B Preferred Shares of our
intent not to comply with a request for conversion tendered in
accordance with the terms of the Series B Preferred Shares;
- our failure to issue shares of common stock upon conversion
prior to the 10th business day after the required date of
delivery;
- our failure to issue shares of common stock after a proper
request from a holder of the Series B Preferred Shares due to
the limitation on the number of shares we may issue to comply
with NASD rules; or
- the breach of any representation, warranty, covenant or other
term or condition of the documents governing the issuance of the
Series B Preferred Shares unless the breach would not have a
material adverse effect or is cured within 15 days after it
occurs for most events or 60 days after it occurs for a breach
of the covenant to keep the number of shares required to be
authorized and reserved for issuance under the Securities
Purchase Agreement.
MATURITY DATE.
The Series B Preferred Shares mature on January 18, 2002, subject to
extension in certain circumstances, at which time the Series B Preferred Shares
must be redeemed or converted at our option. If we elect to redeem any Series B
Preferred Shares outstanding on January 18, 2002, the amount required to be paid
will be equal to the liquidation preference of the Series B Preferred Shares,
which equals the price originally paid for such shares plus accrued and unpaid
dividends. If we elect to convert any Series B Preferred Shares outstanding on
January 18, 2002, we will be required to issue shares in an amount determined as
described below under "Description of Securities - Conversion."
CONVERSION.
Subject to certain conditions described below, we may require the
selling stockholders to convert the Series B Preferred Shares into shares of our
common stock. In addition, and subject to certain conditions described below,
the selling stockholders will have the right to convert the Series B Preferred
Shares into shares of our common stock.
II-14
<PAGE> 17
Regardless of whether the selling stockholders elect to convert or we require
conversion, the number of shares of common stock to be issued upon conversion of
a Series B Preferred Share is determined by dividing the sum of $1,000 (the
amount paid for that share) plus accrued and unpaid dividends by the applicable
conversion price as described below. The applicable conversion price will be 92%
of the lowest closing sale price of our common stock for the four consecutive
trading days ending on and including the conversion date, provided that, as of
June 28, 2000, the conversion price may not exceed $14.211 per share. The lowest
closing sale price of our common stock for the four consecutive trading days as
of June 28, 2000, was $4.9375.
The following table sets forth the number of shares of common stock we
would be required to issue upon conversion of all 18,750 Series B Preferred
Shares outstanding at an assumed conversion price of $4.5425 per share of common
stock as of June 28, 2000, and the resulting percentage of our total shares of
common stock outstanding after such a conversion. The table also sets forth the
number of shares of common stock we would be required to issue assuming (i)
increases of 25%, 50% and 75% in the assumed conversion price; (ii) decreases of
25%, 50% and 75% in the assumed conversion price; and (iii) the fixed conversion
price as of June 28, 2000 $14.211, which may be lowered if the average closing
price of our common stock for the ten trading days after January 18, 2001 is
below $14.211.
<TABLE>
<CAPTION>
Assumed Conversion Price No. of Shares of Common Stock Percentage of Outstanding Common
Per Share of Common Stock Issuable Upon Conversion(1) Stock After Conversion(2)(3)
------------------------- ----------------------------- --------------------------------
<S> <C> <C>
$ 4.5425 4,127,684 13.82%
$ 5.678 (+25%) 3,302,147 11.06%
$ 6.814 (+50%) 2,751,788 9.21%
$ 7.949 (+75%) 2,358,676 7.90%
$ 14.211 (Current Max.) 1,319,400 4.42%
$ 3.407 (-25%) 5,503,578 18.43%
$ 2.271 (-50%) 8,255,366 27.64%
$ 1.136 (-75%) 16,510,732 55.29%
</TABLE>
(1) The number of shares of common stock issuable upon conversion and the
percentage of outstanding common stock after such conversion set forth
above do not take into account any shares of common stock that may be
issuable as dividends on the Series B Preferred Shares or upon exercise
of the warrants issued in connection with the sale of the Series B
Preferred Shares. If the dividends on Series B Preferred Shares had been
converted in full as of June 30, 2000 and the related warrants had been
fully exercised as of June 28, 2000, we would have been required to
issue an additional 72,038 shares as payment for accrued dividends and
an additional 1,605,136 shares upon the exercise of the related
warrants.
(2) Calculated based on 29,862,760 shares of common stock issued and
outstanding as of June 28, 2000.
(3) Even though no selling stockholder may convert its Series B Preferred
Shares into more than 4.99% of our then outstanding common stock
(excluding for purposes of such determination shares of common stock
issuable upon conversion of Series B Preferred Shares which have not
been converted and upon exercise of warrants which have not been
exercised), this restriction does not prevent a selling stockholder from
selling a substantial number of shares in the market. By periodically
selling shares into the market, an individual selling stockholder could
eventually sell more than 4.99% of our outstanding common stock while
never holding more than 4.99% at any specific time.
Subject to certain limitations discussed below, at any time 20 business
days from the date the Registration Statement on Form S-3 has been declared
effective by the SEC through January 18, 2001, we have the right to require
conversion of any or all of the outstanding Series B Preferred Shares. Among the
conditions to our ability to require conversion of the Series B Preferred Shares
are the following:
- a registration statement is effective at all times during the
period between the effectiveness of the registration statement
and the date of conversion, covering the resale that number of
shares required to be registered pursuant to Registration Rights
Agreement;
- the common stock has been listed on a national market or
exchange since the effective date on the registration statement
and no delisting or suspension is threatened;
- from the date the Series B Preferred Shares were issued through
the required conversion date, there has not been a triggering
event as described under "Description of Securities -
Dividends," a change of control or a public announcement of our
intention to enter into a change of control agreement.
II-15
<PAGE> 18
- we agree to convert at least an aggregate of 1,000 shares;
- from the date the Series B Preferred Shares were issued through
the required conversion date, we have timely delivered shares of
common stock upon conversion of the Series B Preferred Shares
and exercise of the related warrants and we have been in
compliance in all material respects with and have not breached
in any material respects the terms of the Series B Preferred
Shares or the warrants;
- we cannot elect to convert the shares after our deadline to
solicit stockholder approval, unless we have gotten stockholder
approval.
As of the date of this prospectus, we satisfied all conditions to elect
conversion other than the twenty business day waiting period following the
declaration of effectiveness of the registration statement of which this
prospectus forms a part and the delivery of notice to the holders of the Series
B Preferred Shares of our election to require conversion.
Assuming satisfaction of the conditions described above, the selling
stockholders do not have the right to convert any of the Series B Preferred
Shares before January 18, 2001. This restriction on the holders' ability to
convert their Series B Preferred Shares, however, will not apply:
- during the period we trigger a mandatory conversion, but only
with respect to the number of Series B Preferred Shares we
require to be converted;
- after the delisting or suspension or the threatened delisting or
suspension from trading of our common stock;
- after the occurrence of a change of control or the announcement
of a pending change of control;
- after there has occurred a triggering event as described under
"Description of Securities - Dividends."
- after we issue any other convertible securities at a variable
conversion price;
- on or after any date on which we fail to pay the redemption
price for any preferred shares in a timely manner in accordance
with a redemption at our election pursuant to Section 6 of the
agreement;
- with respect to an amount of Series B Preferred Shares equal to
the consideration we receive from issuing any additional equity
securities after January 18, 2000;
- after the closing sale price of our common stock is greater than
$10.4688 for any 15 trading days during 20 consecutive trading
days, but only with respect to a number of Preferred shares of
each holder equal to the lesser of such holder's pro rata
portion of 6,250 Preferred shares, and the aggregate number of
Preferred shares then held by such holder of Preferred shares;
- after the closing sale price of our common stock is less than
$4.1875 per share for any 10 trading days during 15 consecutive
trading days;
- with respect to any conversion of Preferred Stock at a price
equal to $14.211;
- if we fail to comply with the following obligations:
- on or before July 19, 2000 we
II-16
<PAGE> 19
(i) must deliver to each holder of Preferred Stock a
Company Conversion Election Notices or Notices of
Redemption at Company's Election for the
conversion or redemption, respectively, of a total
of at least 25% of the holder's Preferred shares;
(ii) must comply with our obligations to deliver the
conversion and redemption election notices
referred to above; and
(iii) must not have delivered any Company's Mandatory
Conversion Period Termination Notice (as defined
in the Certificate of Designations) with respect
to a Company's Conversion Election Notice referred
to in clause (i) above.
- on or before October 18, 2000 we
(i) must deliver to each holder of Preferred Stock a
Company Conversion Election Notices or Notices of
Redemption at Company's Election for the
conversion or redemption, respectively, of a total
of at least 50% (including the 25% referred to in
the previous section) of the holder's Preferred
shares;
(ii) must comply with our obligations to deliver the
conversion and redemption election notices
referred to above; and
(iii) must not have delivered any Company's Mandatory
Conversion Period Termination Notice (as defined
in the Certificate of Designations) with respect
to a Company's Conversion Election Notice referred
to in clause (i) above.
- on or after December 15, 2000 if we fail to receive stockholder
approval for the issuance of the Series B Preferred Stock by
that date.
On and after January 19, 2001, the holders of the Series B Preferred
Shares have the right to require conversion without restriction as described
above.
In addition, no holder may convert any Series B Preferred Shares
exceeding the number of shares which, upon giving effect to such conversion,
would cause the holder's beneficial ownership to exceed 4.99% of the common
stock then outstanding (excluding any shares of common stock underlying Series B
Preferred Shares that have not been converted and warrants that have not been
exercised).
REDEMPTION.
We also have the right, provided certain conditions are satisfied, to
redeem any outstanding Series B Preferred Shares prior to January 18, 2001 for
cash, in whole or in part, at 108% of the price paid for each preferred share
plus accrued dividends.
The conditions to our right to redeem Series B Preferred Shares include,
among others:
- providing each holder written notice within 10 business days but
not more than 20 business days prior to the date of redemption;
- from January 18, 2000 through the redemption date, we have
timely delivered shares of common stock upon conversion of the
Series B Preferred shares and exercise of the related warrants;
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<PAGE> 20
- a registration statement has been effective for at least 30 days
covering the resale that number of shares required to be
registered pursuant to Registration Rights Agreement;
- the common stock has been listed on a national market or
exchange for at least 30 days prior to such redemption;
- from January 18, 2000 to the date we send out our redemption
notice to the holders of Series B Preferred Shares, there has
not occurred a Triggering Event, change of control or the
announcement of a pending change of control;
- we have been in compliance in all material respects with and
have not breached in any material respects the terms of the
Series B Preferred shares and the related warrants;
- we cannot redeem the shares after we have given notice of our
intention to convert them without providing notice of
termination of our intent to convert within the time limits
applicable in the Certificate of Designations; and
- if the redemption date is after the stockholder meeting at which
we will seek approval for the issuance of the Series B Preferred
Stock, we must have received stockholder approval.
If a triggering event as described under "Description of Securities -
Dividends" occurs, or we fail to meet certain other obligations imposed by the
terms of the Series B Preferred Shares and the related warrants, the holders of
the Series B Preferred shares will have the right to require us to redeem all or
a portion of any outstanding Series B Preferred shares for cash. The redemption
price in such a case is the greater of:
- 118% of the price paid for the Series B Preferred Shares plus
accrued dividends; or
- the product of 92% of the lowest closing sale price during the 4
consecutive trading days immediately prior to the time of notice
and the closing sale price of our common stock on the day
immediately before the triggering event occurs.
LIQUIDATION PREFERENCE.
In the event of our liquidation, the holders of the Series B Preferred
Shares will be entitled to a liquidation preference before any amounts are paid
to the holders of our common stock. The liquidation preference is equal to the
amount originally paid for the Series B Preferred shares, or $1,000 per share,
plus accrued and unpaid dividends on any outstanding Series B Preferred shares.
WARRANTS.
The warrants to purchase the 1,605,136 shares of our common stock are
exercisable at the price of $8.5663 per share, subject to certain anti-dilution
adjustments. The exercise price may also be lowered to 110% of the average
closing bid prices for the ten trading days after January 18, 2001 (the "One
Year Adjusted Price"), if the current exercise price of $8.5663 is less the One
Year Adjusted Price. We intend to use the proceeds if the warrants are exercised
for working capital and to grow our business.
VOTING RIGHTS.
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<PAGE> 21
Other than as required by law, the holders of the Series B Preferred
Shares have no voting rights except that the consent of holders of at least
two-thirds of the outstanding Series B Preferred shares will be required to
effect any change in either our certificate of incorporation or certificate of
designations that would change any of the rights of the Series B Preferred
shares or to issue any other series of preferred shares.
LEGAL OPINIONS
Our counsel, Wilson Sonsini Goodrich & Rosati, Professional Corporation,
650 Page Mill Road, Palo Alto, California 94304-1050, has rendered an opinion to
the effect that the common stock offered hereby is duly and validly issued,
fully paid and non-assessable.
WHERE YOU CAN FIND MORE INFORMATION
GOVERNMENT FILINGS: We file annual, quarterly and special reports and
other information with the Securities and Exchange Commission. You may read and
copy any document that we file at the Commission's Public Reference Room at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048,
and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the Commission at 1-800-SEC-0330 for more
information about the Public Reference Rooms. Most of our filings are also
available to you free of charge at the Commission's web site at
http://www.sec.gov.
STOCK MARKET: Our common stock is listed on the Nasdaq National Market
and similar information can be inspected and copied at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
REGISTRATION STATEMENT: We have filed a registration statement under the
Securities Act with the Commission with respect to the common stock offered
under this prospectus. This prospectus is a part of the registration statement.
However, it does not contain all of the information contained in the
registration statement and its exhibits. You should refer to the registration
statement and its exhibits for further information about Auspex Systems, Inc.
and the common stock offered under this prospectus.
INFORMATION INCORPORATED BY REFERENCE: The Commission allows us to
"incorporate by reference" the information we file with it, which means that we
can disclose important information to you by referring you to those documents.
The information incorporated by reference is an important part of this
prospectus, and information that we file later with the Commission will
automatically update and supersede this information. We have filed the following
documents with the Commission and they are incorporated by reference into this
prospectus:
- our Annual Report on Form 10-K for the fiscal year ended June
30, 1999;
- our Quarterly Report on Form 10-Q for the quarters ended
September 31, 1999, December 31, 1999 and March 31, 2000;
- our Proxy Statement for the 1999 Annual Meeting of Stock
Holders, dated October 8, 1999;
- our Current Report on Form 8-K, including Exhibits, filed April
24, 2000;
- our Current Report on Form 8-K, including Exhibits, filed
January 19, 2000;
- our Registration Statement on Form 8-A, filed March 26, 1993;
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<PAGE> 22
- our Registration Statement on Form 8-A, filed April 19, 1995.
Please note that all other documents and reports filed under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act following the date of this
prospectus and prior to the termination of this offering will be deemed to be
incorporated by reference into this prospectus and to be made a part of it from
the date of the filing of our reports and documents.
You may request free copies of these filings by writing or telephoning
us at the following address:
Investor Relations
Auspex Systems, Inc.
2800 Scott Boulevard
Santa Clara, California 95050
(408) 566-2213.
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<PAGE> 23
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14 - OTHER EXPENSES OF INSURANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the issuance
and distribution of the securities being registered, all of which will be paid
by Auspex Systems, Inc.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $15,043
Nasdaq Listing Fee $17,500
Legal Fees and Expenses $75,000
Accounting Fees and Expenses $10,000
Transfer Agent Fees and Expenses $10,000
Miscellaneous $7,457
=========
TOTAL $135,000
</TABLE>
ITEM 15 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We have included in our Certificate of Incorporation a provision to
eliminate the personal liability of our directors for monetary damages for
breach or alleged breach of their fiduciary duties as directors, subject to
certain exceptions as permitted by the Delaware General Corporation Law. In
addition, our Bylaws provide that we are required to indemnify our officers and
directors under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary. Further, we are required to
advance expenses to our officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. We have entered into
indemnification agreements with our officers and directors containing provisions
that are in some respects broader than the specific indemnification provisions
contained in the Delaware General Corporation Law. The indemnification
agreements may require us, among other things, to indemnify such officers and
directors against liabilities that may arise by reason of their status or
service as directors or officers (other than liabilities arising from willful
misconduct of a culpable nature), to advance expenses incurred as a result of
any proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms. We believe
that our charter provisions and indemnification agreements are necessary to
attract and retain qualified persons as directors and officers.
We understand that the staff of the Securities and Exchange Commission
is of the opinion that statutory, charter and contractual provisions as are
described above have no effect on claims arising under the federal securities
laws.
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<PAGE> 24
ITEM 16 - EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
4.1 Form of Warrant (incorporated by reference to Exhibit 4.1 to
Auspex Systems, Inc.'s Current Report on Form 8-K filed as of
January 19, 2000).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati
23.1 Consent of Independent Public Accountants
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in
Exhibit 5.1)
24.1 Power of Attorney (contained on Page 23)
</TABLE>
ITEM 17 - UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement. To
reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement. To include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's Annual Report under Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report under Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against
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<PAGE> 25
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Auspex Systems, Inc., a corporation organized and existing under the
laws of the State of Delaware, certifies that it has reasonable cause to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Santa Clara, State of California, on
the 29th day of June 2000.
AUSPEX SYSTEMS, INC.
By: /s/ Gary J. Sbona
---------------------------------------
Gary J. Sbona
Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Henry P. Massey, Jr. and Gary J. Sbona,
jointly and severally, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendment to
this Registration Statement on Form S-3, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her substitute or substitutes, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- -------------
<S> <C> <C>
/s/ GARY J. SBONA Chairman of the Board of Directors and June 29, 2000
----------------------------- Chief Executive Officer (Principal
Gary J. Sbona Executive Officer)
/s/ PETER R. SIMPSON Chief Financial Officer (Principal June 29, 2000
----------------------------- Financial Officer and Principal Accounting
Peter R. Simpson Officer)
/s/ KARL C. POWELL Director June 29, 2000
-----------------------------
Karl C. Powell
/s/ JOHN E. MCNULTY Director June 29, 2000
-----------------------------
John E. McNulty
</TABLE>
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<PAGE> 27
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page
Number No.
------- ----
<S> <C> <C>
4.1 Form of Warrant (incorporated by reference to Exhibit 4.1 to Auspex Systems, Inc.'s -
Current Report on Form 8-K filed as of January 19, 2000).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati 24
23.1 Consent of Independent Public Accountants 25
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1) 24
24.1 Power of Attorney 23
</TABLE>
II-1
