-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TIWC9Gx0vv+owyYODBOSUkLRzel7IdD9Y39eLxFLEjY7JclK+oNZ7L+q+4A+wyvO FSzktpbzK/7/qOCGsRaGxg== 0000892569-01-500254.txt : 20010427 0000892569-01-500254.hdr.sgml : 20010427 ACCESSION NUMBER: 0000892569-01-500254 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20010425 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROCOM TECHNOLOGY INC CENTRAL INDEX KEY: 0001025711 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 330268063 STATE OF INCORPORATION: CA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-59534 FILM NUMBER: 1610962 BUSINESS ADDRESS: STREET 1: 58 DISCOVERY CITY: IRVINE STATE: CA ZIP: 92618 BUSINESS PHONE: 9497944257 MAIL ADDRESS: STREET 1: 58 DISCOVERY CITY: IRVINE STATE: CA ZIP: 92618 S-3 1 a71449ors-3.txt FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 2001 REGISTRATION NO. _________ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PROCOM TECHNOLOGY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 33-0268063 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 58 DISCOVERY, IRVINE, CALIFORNIA, 92618 (949) 852-1000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ALEX AYDIN EXECUTIVE VICE PRESIDENT -- FINANCE AND ADMINISTRATION, AND CHIEF FINANCIAL OFFICER PROCOM TECHNOLOGY, INC. 58 DISCOVERY IRVINE, CALIFORNIA 92618 (949) 852-1000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: J. JAY HERRON, ESQ. GLEN HETTINGER O'MELVENY & MYERS LLP HUGHES & LUCE LLP 114 PACIFICA, SUITE 100 1717 MAIN STREET IRVINE, CALIFORNIA 92618 SUITE 2800 (949) 760-9600 DALLAS, TEXAS 75201 (214) 939-5723 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. 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 this 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 this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
==================================================================================================================== MAXIMUM PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF SHARES TO AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF BE REGISTERED REGISTERED(2) SHARE(1) PRICE REGISTRATION FEE(3) - -------------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value issuable upon the conversion of debentures or the payment of interest 2,289,233 $8.55 $19,572,942.15 $4,893.24(3) - -------------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value to be issued upon exercise of warrant 32,916 $32.55 $1,071,415.80 $ 282.85(3) - --------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based on the price of Procom's Common Stock as reported on the Nasdaq National Market on April 18, 2001. (2) The outstanding warrants and debentures were issued in connection with a private placement financing. The number of shares of common stock included in this registration statement comprises (i) 2,289,233 shares, representing approximately 235% of the number of shares of common stock issuable on full conversion of the debentures, determined as if the debentures were converted on October 30, 2003 at the fixed conversion price of $22.79 per share, and the interest, calculated at 6%, was not paid in cash, and (ii) 32,916 shares, representing the shares issuable upon full exercise of the warrants. The warrants are exercisable at an exercise price of $32.55 per share. (3) Pursuant to Rule 457(p), the full amount of the filing fee due with respect to this registration statement is being paid by applying a portion of the $9,628.34 fee paid in connection with the filing of the Registrant's Form S-3 Registration Statement (No. 333-50562) filed on November 22, 2000. The prior registration statement was withdrawn on April 4, 2001 and no securities were sold under it. In addition to the shares of common stock set forth on the Calculation of Registration Fee Table, pursuant to Rule 416 of the Securities Act of 1933, as amended, this registration statement also registers such additional number of shares of common stock as may become issuable as a result of stock splits, stock dividends or similar transactions. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 PROSPECTUS 2,322,149 SHARES OF COMMON STOCK PROCOM TECHNOLOGY, INC. COMMON STOCK ($.01 PAR VALUE) The selling shareholder listed in this prospectus is offering and selling up to 2,322,149 shares of our common stock. We will not receive any proceeds from the sale of these shares. We will receive proceeds from the exercise of warrants. These proceeds will be used for working capital and other corporate purposes. Our common stock is traded on The Nasdaq National Market under the symbol "PRCM." The last reported sale price for our common stock on The Nasdaq National Market on April 18, 2001 was $8.55 per share. Each selling shareholder may sell any or all of its shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. We will bear all of the expenses and fees incurred in registering the shares offered by this prospectus. Each selling shareholder will pay any brokerage commissions and discounts attributable to the sale of its shares. INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS, AND THOSE RISK FACTORS CONTAINED IN THE REPORTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS, FOR A DISCUSSION OF RISKS ASSOCIATED WITH OWNING OUR COMMON STOCK. Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed on the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. Commissions received by a selling shareholder or any broker-dealers, agents or underwriters that help distribute the shares and any profit on the resale of the shares purchased by them may be considered underwriting commissions or discounts under the Securities Act of 1933. The date of this prospectus is April 25, 2001. 3 PROSPECTUS TABLE OF CONTENTS PAGE ---- Prospectus Summary................................... 1 Incorporation of Certain Documents by Reference...... 3 Where You Can Find More Information.................. 4 Risk Factors......................................... 5 Forward Looking Statements........................... 20 Use of Proceeds...................................... 20 Selling Shareholder.................................. 20 Description of Securities Issued to Selling Shareholder................................ 21 Debentures........................................... 21 The Warrants......................................... 23 Transfer Agent and Registrar......................... 24 Plan of Distribution................................. 24 Legal Matters........................................ 25 Experts.............................................. 25 ---------------- 2 4 Our executive offices are located at 58 Discovery, Irvine, California 92618, and the telephone number at that address is (949) 852-1000. Our Web site address is procom.com. The information on our Web site does not constitute part of this prospectus. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE We have filed with the Securities and Exchange Commission a registration statement on Form S-3 under the Securities Act of 1933, covering the securities offered by this prospectus. This prospectus does not contain all of the information that you can find in our registration statement and the exhibits to the registration statement. The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and later information filed with the SEC will update and supersede this information. We incorporate by reference the documents listed below and any future filings made with the SEC under Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934. (a) Our Annual Report on Form 10-K for the year ended July 31, 2000, as amended; (b) Our Quarterly Report on Form 10-Q for the three-month period ended October 31, 2000, as amended; (c) Our Quarterly Report on Form 10-Q for the three-month period ended January 31, 2001; (d) Our Current Report on Form 8-K filed on November 3, 2000; (e) Our Current Report on Form 8-K filed on January 12, 2001, as amended; and (f) The description of our common stock contained in our Form S-1 registration statement dated October 30, 1996, including any amendments or reports filed for the purpose of updating such descriptions. We will provide to each person, including any beneficial owner, to whom a prospectus is delivered, a copy of any or all of the information that has been incorporated by reference in the prospectus but not delivered with the prospectus. We will provide this information upon written or oral request at no cost to the requester. You may request this information by contacting our corporate 3 5 headquarters at the following address: Procom Technology, Inc., 58 Discovery, Irvine, California 92618 (949) 852-1000. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC's public reference room at the following locations: - Main Public Reference Room 450 Fifth Street, N.W. Washington, D.C. 20549 - Regional Public Reference Room 75 Park Place, 14th Floor New York, New York 10007 - Regional Public Reference Room Northwestern Atrium Center 500 West Madison Street, Suite 1400 Chicago, Illinois 60661-2511 You may obtain information on the operation of the SEC's public reference rooms by calling the SEC at (800) SEC-0330. We are required to file these documents with the SEC electronically. You can access the electronic versions of these filings on the Internet at the SEC's web site, located at http://www.sec.gov. We have included this prospectus in our registration statement that we filed with the SEC. The registration statement provides additional information that we are not required to include in the prospectus. You can receive a copy of the entire registration statement as described above. Although this prospectus describes the material terms of certain contracts, agreements and other documents filed as exhibits to the registration statement, you should read the exhibits for a more complete description of the document or matter involved. 4 6 RISK FACTORS Before investing in our common stock, you should be aware that there are risks inherent in our business, including those indicated below. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occurs, our business could be harmed. In that case, the trading price of our common stock could decline, and you might lose part or all of your investment. You should carefully consider the following risk factors as well as the other information in this prospectus. COMPETING DATA STORAGE TECHNOLOGIES MAY EMERGE AS A STANDARD FOR DATA STORAGE SOLUTIONS, WHICH COULD CAUSE GROWTH IN THE NAS MARKET NOT TO MEET OUR EXPECTATIONS AND DEPRESS OUR STOCK PRICE. The market for data storage is rapidly evolving. There are other storage technologies in use, including storage area network technology, which provide an alternative to network attached storage. We are not able to predict how the data storage market will evolve. For example, it is not clear whether usage of a number of different solutions will grow and co-exist in the marketplace or whether one or a small number of solutions will be dominant and displace the others. It is also not clear whether network attached storage technology will emerge as a dominant or even prevalent solution. Whether NAS becomes an accepted standard will be due to factors outside our control. If a solution other than network attached storage emerges as the standard in the data storage market, growth in the network attached storage market may not meet our expectations. In such event, our growth and the price of our stock would suffer. IF GROWTH IN THE NAS MARKET DOES NOT MEET OUR EXPECTATIONS, OUR FUTURE FINANCIAL PERFORMANCE COULD SUFFER. We believe our future financial performance will depend in large part upon the continued growth in the NAS market and on emerging standards in this market. We intend for NAS products to be our primary business. The market for NAS products, however, may not continue to grow. Long-term trends in storage technology remain unclear and some analysts have questioned whether competing technologies, such as storage area networks, may emerge as the preferred storage solution. If the NAS market grows more slowly than anticipated, or if NAS products based on emerging standards other than those adopted by us become increasingly accepted by the market, our operating results could be harmed. THE REVENUE AND PROFIT POTENTIAL OF NAS PRODUCTS IS UNPROVEN, AND WE MAY BE UNABLE TO ATTAIN REVENUE GROWTH OR PROFITABILITY FOR OUR NAS PRODUCT LINES. NAS technology is relatively recent, and our ability to be successful in the NAS market may be negatively affected by not only a lack of growth of the NAS market but also the lack of market acceptance of our NAS products. Additionally, we may be unable to achieve profitability as we transition to a greater emphasis on NAS products. 5 7 IF WE FAIL TO SUCCESSFULLY MANAGE OUR TRANSITION TO A FOCUS ON NAS PRODUCTS, OUR BUSINESS AND PROSPECTS WOULD BE HARMED. We began developing NAS products in 1997. Since then, we have focused our efforts and resources on our NAS business, and we intend to continue to do so. We expect to continue to wind down our non-NAS product development and marketing efforts. In the interim, we expect to continue to rely in large part upon sales of our non-NAS products to fund operating and development expenses. Net sales of our non-NAS products have been declining in amount and as a percentage of our overall net sales, and we expect these declines to continue. If the decline in net sales of our non-NAS products varies significantly from our expectations, or the decline in net sales of our non-NAS products is not substantially offset by increases in sales of our NAS products, we may not be able to generate sufficient cash flow to fund our operations or to develop our NAS business. We also expect our transition to a NAS-focused business to require us to continue: - engaging in significant marketing and sales efforts to achieve market awareness as a NAS vendor; - reallocating resources in product development and service and support of our NAS appliances; - modifying existing and entering into new channel partner relationships to include sales of our NAS appliances; and - expanding and reconfiguring manufacturing operations. In addition, we may face unanticipated challenges in implementing our transition to a NAS-focused company. We may not be successful in managing any anticipated or unanticipated challenges associated with this transition. Moreover, we expect to continue to incur costs in addressing these challenges, and there is no assurance that we will be able to generate sufficient revenues to cover these costs. If we fail to successfully implement our transition to a NAS-focused company, our business and prospects would be harmed. IF U.S. OR WORLD ECONOMIC CONDITIONS WORSEN, INFORMATION TECHNOLOGY SPENDING ON DATA STORAGE AND OTHER CAPITAL EQUIPMENT COULD DECLINE. IF TECHNOLOGY SPENDING IS REDUCED, OUR SALES AND OPERATING RESULTS COULD BE HARMED. Many of our customers are affected by economic conditions in the United States and throughout the world. Many companies have recently announced that they will reduce their spending on data storage and other capital equipment. If spending on data storage technology products is reduced by customers and potential customers, our sales could be harmed, and we may experience greater pressures on our gross margins. If economic conditions do not improve, or if our customers reduce their overall information technology purchases, our sales, gross profits and operating results may be reduced. OUR AGREEMENT WITH HEWLETT-PACKARD COMPANY IS UNLIKELY TO GENERATE SIGNIFICANT NET SALES. We believe our relationship with Hewlett-Packard Company helped us accomplish our strategy to increase penetration in the NAS market. There is no minimum purchase commitment under our agreement with Hewlett-Packard. We do not currently, and are unlikely ever to, generate significant net sales under this agreement. The Hewlett-Packard agreement has a five-year term, and there is no assurance that the agreement can or will be renewed. We commenced limited shipments under the agreement in April 2000 and sales to Hewlett-Packard have never been significant. In February 2001, Hewlett-Packard notified us that they do not anticipate they will purchase additional NAS products from us in the future. While neither they nor we have formally terminated the agreement, we do not anticipate that future sales to Hewlett-Packard will be significant. 6 8 IF WE FAIL TO INCREASE THE NUMBER OF DIRECT AND INDIRECT SALES CHANNELS FOR OUR NAS PRODUCTS, OUR ABILITY TO INCREASE NET SALES MAY BE LIMITED. In order to grow our business, we will need to increase market awareness and sales of our NAS appliances. To achieve these objectives, we believe it will be necessary to increase the number of our direct and indirect sales channels. We plan to significantly increase the number of our direct sales personnel. However, there is intense competition for these professionals, and we may not be able to attract and retain sufficient new sales personnel. We also plan to expand revenues from our indirect sales channels, including distributors, VARs, OEMs and systems integrators. To do this, we will need to modify and expand our existing relationships with these indirect channel partners, as well as enter into new indirect sales channel relationships. We may not be successful in accomplishing these objectives. If we are unable to expand our direct or indirect sales channels, our ability to increase revenues may be limited. BECAUSE WE DO NOT HAVE EXCLUSIVE RELATIONSHIPS WITH OUR DISTRIBUTORS OR RESELLERS, SUCH AS INGRAM MICRO, TECH DATA, COMPUCOM, CUSTOM EDGE, AND OTHERS, THESE CUSTOMERS MAY GIVE HIGHER PRIORITY TO PRODUCTS OF COMPETITORS, WHICH COULD HARM OUR OPERATING RESULTS. Our distributors and resellers generally offer products of several different companies, including products of our competitors. Accordingly, these distributors and resellers, such as Ingram Micro, Tech Data, Compucom, Custom Edge (formerly Inacom) may give higher priority to products of our competitors, which could harm our operating results. In addition, our distributors and resellers often demand additional significant selling concessions and inventory rights, such as limited return rights and price protection. We cannot assure you that sales to our distributors or resellers will continue, or that these sales will be profitable. BECAUSE WE HAVE ONLY APPROXIMATELY THREE YEARS OF OPERATING HISTORY IN THE NAS MARKET, WHICH IS NEW AND RAPIDLY EVOLVING, OUR HISTORICAL FINANCIAL INFORMATION IS OF LIMITED VALUE IN PROJECTING OUR FUTURE OPERATING RESULTS OR PROSPECTS. We have been manufacturing and selling our NAS products for only approximately three years. For the year ended July 31, 2000 and the first six months of the current fiscal year 2001, these products accounted for less than 41% and 66%, respectively, of our total net sales. We expect sales of our NAS products to represent an increasing percentage of our net sales in the future. Because our operating history in the NAS product market is only approximately three years, as well as the rapidly evolving nature of the NAS market, it is difficult to evaluate our business or our prospects. In particular, our historical financial information is of limited value in projecting our future operating results. MARKETS FOR BOTH OUR NAS APPLIANCES AND OUR NON-NAS PRODUCTS ARE INTENSELY COMPETITIVE, AND IF WE ARE UNABLE TO COMPETE EFFECTIVELY, WE MAY LOSE MARKET SHARE OR BE REQUIRED TO REDUCE PRICES. The markets in which we operate are intensely competitive and characterized by rapidly changing technology. Increased competition could result in price reductions, reduced gross margins or loss of market share, any of which could harm our operating results. We compete with other NAS companies, direct-selling storage providers and smaller vendors that provide storage solutions to end-users. In our non-NAS markets, we 7 9 compete with computer manufacturers that provide storage upgrades for their own products, as well as with manufacturers of hard drives, CD servers and arrays and storage upgrade products. Many of our current and potential competitors have longer operating histories, greater name recognition, larger customer bases and greater financial, technical, marketing and other resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, devote greater resources to the development, promotion, sale and support of their products, and reduce prices to increase market share. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. We may not be able to compete successfully against current or future competitors. In addition, new technologies may increase competitive pressures. WE DEPEND ON A FEW CUSTOMERS, INCLUDING DISTRIBUTORS SUCH AS INGRAM MICRO AND TECH DATA, AS WELL AS SPECIALIZED END-USERS, FOR A SUBSTANTIAL PORTION OF OUR NET SALES AND ACCOUNTS RECEIVABLE, AND CHANGES IN THE TIMING AND SIZE OF THESE CUSTOMERS' ORDERS MAY CAUSE OUR OPERATING RESULTS TO FLUCTUATE. Three customers accounted for approximately 42% and 45% of our total accounts receivable at July 31, 1999 and July 31, 2000, respectively, and one individual customer accounted for approximately 9% and 7% of our net sales for fiscal 1999 and 2000. One customer, Storway, a European storage service provider, accounted for approximately 20% of our net sales for the first six months of the current fiscal year 2001, and three customers, Storway, Ingram Micro and J-Dot Technology, accounted for approximately 56% of our total accounts receivable at January 31, 2001. In fiscal 1999 and 2000, we sold our non-NAS products principally to distributors and master resellers such as Ingram Micro, Tech Data, Custom Edge (previously Inacom) and Compucom. Unless and until we diversify and expand our customer base for NAS products, our future success will depend to a large extent on the timing and size of future purchase orders, if any, from these customers. In addition, we expect that single site purchasers of large installations of our NAS products will purchase large volumes of our NAS products over relatively short periods of time. This will cause both our sales and our accounts receivable to be highly concentrated and significantly dependent on one or only a few customers, as has occurred during the first six months of the current fiscal year 2001. If we lose a major customer, or if one of our customers significantly reduces its purchasing volume or experiences financial difficulties and is unable to pay its debts, our results of operations could be harmed. We cannot be certain that customers that have accounted for significant revenues in past periods will continue to purchase our products in future periods. OUR GROSS MARGINS OF OUR VARIOUS PRODUCT LINES HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST AND MAY CONTINUE TO FLUCTUATE SIGNIFICANTLY. FOR EXAMPLE, WE MAY SEE REDUCED SALES OF HIGHER-MARGIN CD SERVICES OR NOTEBOOK UPGRADE PRODUCTS AND WE MAY NOT SEE INCREASED SALES OF OUR NAS APPLIANCES. Historically, our gross margins have fluctuated significantly. Our gross margins vary significantly by product line and distribution channel, and, therefore, our overall gross margin varies with the mix of products we sell. Our markets are characterized by intense competition and declining average unit selling prices over the course of the relatively short life cycles of individual products. For example, we derive a significant portion of our sales from disk drives, CD servers and arrays, and storage upgrade products. The market for these products is highly competitive and subject to intense pricing pressures. Some of these products, such as CD servers and arrays and some laptop storage upgrade systems have historically generated high gross margins, although we 8 10 have experienced significant declines in sales of these products. Sales of disk drive upgrade systems generally generate lower gross margins than those of our NAS products. If we fail to increase sales of our NAS appliances, or if demand, sales or gross margins for CD servers and arrays and our laptop storage upgrade systems decline rapidly, we believe our overall gross margins will continue to decline. Our gross margins have been and may continue to be affected by a variety of other factors, including: - new product introductions and enhancements; - competition; - changes in the distribution channels we use; - the mix and average selling prices of products; and - the cost and availability of components and manufacturing labor. IF WE ARE UNABLE TO TIMELY INTRODUCE COST-EFFECTIVE HARDWARE OR SOFTWARE SOLUTIONS FOR NAS ENVIRONMENTS, OR IF OUR PRODUCTS FAIL TO KEEP PACE WITH TECHNOLOGICAL CHANGES IN THE MARKETS WE SERVE, OUR OPERATING RESULTS COULD BE MATERIALLY ADVERSELY AFFECTED. Our future growth will depend in large part upon our ability to successfully develop and introduce new hardware and software for the NAS market. Due to the complexity of products such as ours, and the difficulty in estimating the engineering effort required to produce new products, we face significant challenges in developing and introducing new products. We may be unable to introduce new products on a timely basis or at all. If we are unable to introduce new products in a timely manner, our operating results could be harmed. Even if we are successful in introducing new products, we may be unable to keep pace with technological changes in our markets and our products may not gain any meaningful market acceptance. The markets we serve are characterized by rapid technological change, evolving industry standards, and frequent new product introductions and enhancements that could render our products obsolete and less competitive. As a result, our position in these markets could erode rapidly due to changes in features and functions of competing products or price reductions by our competitors. In order to avoid product obsolescence, we will have to keep pace with rapid technological developments and emerging industry standards. We may not be successful in doing so, and if we fail in this regard, our operating results could be harmed. WE RELY UPON A LIMITED NUMBER OF SUPPLIERS FOR SEVERAL KEY COMPONENTS USED IN OUR PRODUCTS, INCLUDING DISK DRIVES, COMPUTER BOARDS, POWER SUPPLIES, MICROPROCESSORS AND OTHER COMPONENTS, AND ANY DISRUPTION OR TERMINATION OF THESE SUPPLY ARRANGEMENTS COULD DELAY SHIPMENT OF OUR PRODUCTS AND HARM OUR OPERATING RESULTS. We rely upon a limited number of suppliers of several key components used in our products, including disk drives, computer boards, power supplies and microprocessors. In the past, we have experienced periodic shortages, selective supply allocations and increased prices for these and other components. We may experience similar supply issues in the future. Even if we are able to obtain component supplies, the quality of these components may not meet our requirements. For example, in order to meet our product performance 9 11 requirements, we must obtain disk drives of extremely high quality and capacity. Even a small deviation from our requirements could render any of the disk drives we receive unusable by us. In the event of a reduction or interruption in the supply or a degradation in quality of any of our components, we may not be able to complete the assembly of our products on a timely basis or at all, which could force us to delay or reduce shipments of our products. If we were forced to delay or reduce product shipments, our operating results could be harmed. In addition, product shipment delays could adversely affect our relationships with our channel partners and current or future end-users. UNDETECTED DEFECTS OR ERRORS FOUND IN OUR PRODUCTS, OR THE FAILURE OF OUR PRODUCTS TO PROPERLY INTERFACE WITH THE PRODUCTS OF OTHER VENDORS, MAY RESULT IN DELAYS, INCREASED COSTS OR FAILURE TO ACHIEVE MARKET ACCEPTANCE, WHICH COULD MATERIALLY ADVERSELY AFFECT OUR OPERATING RESULTS. Complex products such as those we develop and offer may contain defects or errors, or may fail to properly interface with the products of other vendors, when first introduced or as new versions are released. Despite internal testing and testing by our customers or potential customers, we do, from time to time, and may in the future encounter these problems in our existing or future products. Any of these problems may: - cause delays in product introductions and shipments; - result in increased costs and diversion of development resources; - require design modifications; or - decrease market acceptance or customer satisfaction with these products, which could result in product returns. In addition, we may not find errors or failures in our products until after commencement of commercial shipments, resulting in loss of or delay in market acceptance, which could significantly harm our operating results. Our current or potential customers might seek or succeed in recovering from us any losses resulting from errors or failures in our products. IF WE ARE UNABLE TO MANAGE OUR INTERNATIONAL OPERATIONS EFFECTIVELY, OUR OPERATING RESULTS COULD BE MATERIALLY ADVERSELY AFFECTED. Net sales to our international customers, including export sales from the United States, accounted for approximately 60% of our net sales for the first six months of current fiscal year 2001 as compared to 44% of our net sales for the first six months of fiscal year 2000, 41% of our net sales for the year ended July 31, 2000 and approximately 33% of our net sales for the year ended July 31, 1999. We believe that our growth and profitability will require successful expansion of our international operations to which we have committed significant resources. Our international operations will expose us to operational challenges that we would not otherwise face if we conducted our operations only in the United States. These include: - currency exchange rate fluctuations, particularly when we sell our products in denominations other than U.S. dollars; - difficulties in collecting accounts receivable and longer accounts receivable payment cycles; 10 12 - reduced protection for intellectual property rights in some countries, particularly in Asia; - legal uncertainties regarding tariffs, export controls and other trade barriers; - the burdens of complying with a wide variety of foreign laws and regulations; and - seasonal fluctuations in purchasing patterns in other countries, particularly in Europe. Any of these factors could have an adverse impact on our existing international operations and business or impair our ability to continue expanding into international markets. For example, our reported sales can be affected by changes in the currency rates in effect during any particular period. The effects of currency fluctuations were evident in our results of operations for the first six months of the current fiscal year 2001. During this period, the Euro and two currencies whose values are pegged to the Euro, declined in value significantly, and then increased in value significantly in the quarter ended January 31, 2001. As a result, in the quarter ended October 31, 2000, we incurred a foreign currency loss of approximately $160,000 while, in the quarter ended January 31, 2001, we realized a gain of $219,000. Also, these fluctuation gains can cause us to report more or less in sales by virtue of the translation of the subsidiary's sales into US dollars at an average rate in effect throughout the quarter. Also, we have funded operational losses of our subsidiaries of approximately $2.8 million since we purchased them, and if our subsidiaries continue to incur operational losses, our cash and liquidity would be negatively impacted. In order to successfully expand our international sales, we must strengthen foreign operations, hire additional personnel and recruit additional international distributors and resellers. Expanding internationally and managing the financial and business operations of our foreign subsidiaries will also require significant management attention and financial resources. For example, our foreign subsidiaries in Europe have incurred operational losses. To the extent that we are unable to address these concerns in a timely manner, our growth, if any, in international sales will be limited, and our operating results could be materially adversely affected. In addition, we may not be able to maintain or increase international market demand for our products. OUR PROPRIETARY SOFTWARE RELIES ON OUR INTELLECTUAL PROPERTY, AND ANY FAILURE BY US TO PROTECT OUR INTELLECTUAL PROPERTY COULD ENABLE OUR COMPETITORS TO MARKET PRODUCTS WITH SIMILAR FEATURES THAT MAY REDUCE DEMAND FOR OUR PRODUCTS, WHICH WOULD ADVERSELY AFFECT OUR NET SALES. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our proprietary software or technology. We believe the protection of our proprietary technology is important to our business. If we are unable to protect our intellectual property rights, our business could be materially adversely affected. We currently rely on a combination of copyright and trademark laws and trade secrets to protect our proprietary rights. In addition, we generally enter into confidentiality agreements with our employees and license agreements with end-users and control access to our source code and other intellectual property. We have applied for the registration of some, but not all, of our trademarks. We have applied for U.S. patents with respect to the design and operation of our NetFORCE product, and we anticipate that we may apply for additional patents. It is possible that no patents will issue from our currently pending applications. New patent applications may not result in issued patents and may not provide us with any competitive advantages over, or may be challenged by, third parties. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries, and the enforcement 11 13 of those laws, do not protect proprietary rights to as great an extent as do the laws of the United States. We cannot assure you that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology, duplicate our products or design around any patent issued to us or other intellectual property rights of ours. In addition, we may initiate claims or litigation against third parties for infringement of our proprietary rights to establish the validity of our proprietary rights. This litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel. WE MAY FROM TIME TO TIME BE SUBJECT TO CLAIMS OF INFRINGEMENT OF OTHER PARTIES' PROPRIETARY RIGHTS OR CLAIMS THAT OUR OWN TRADEMARKS, PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS ARE INVALID, AND IF WE WERE TO SUBSEQUENTLY LOSE OUR INTELLECTUAL PROPERTY RIGHTS, OUR BUSINESS WOULD BE MATERIALLY ADVERSELY AFFECTED. We may from time to time receive claims that we are infringing third parties' intellectual property rights or claims that our own trademarks, patents or other intellectual property rights are invalid. For example, we have been recently notified by Intel Corporation that our products may infringe some of the intellectual property rights of Intel. In its notification, Intel offered us a non-exclusive license for patents in their portfolio. We do not know how our products may infringe the patents of Intel, but we have begun to investigate and we have had discussions with Intel regarding this matter. We do not believe that we infringe the patents of Intel, but our discussions and our investigation are preliminary, and we expect we will continue discussions with Intel. We cannot assure you that Intel would not be successful in asserting a successful claim of infringement, or if we were to seek a license from Intel regarding its patents, that Intel would continue to offer us a non-exclusive license on any terms. We expect that companies in our markets will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. The resolution of any claims of this nature, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays, require us to redesign our products or require us to enter into royalty or licensing agreements, any of which could harm our operating results. Royalty or licensing agreements, if required, might not be available on terms acceptable to us or at all. The loss of access to any key intellectual property right could harm our business. OUR NET SALES AND OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, AND ANY FLUCTUATIONS COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE. In recent periods, we have experienced significant declines in net sales and gross profit and incurred operating losses, causing our quarterly operating results to vary significantly. If we fail to meet the expectations of investors or securities analysts, as well as our internal operating goals, as a result of any future fluctuations in our quarterly operating results, the market price of our common stock could decline significantly. Our net sales and quarterly operating results are likely to fluctuate significantly in the future due to a number of factors. These factors include: - market acceptance of our new products and product enhancements or those of our competitors; - the level of competition in our target product markets; 12 14 - delays in our introduction of new products; - changes in sales volumes through our distribution channels, which have varying commission and sales discount structures; - changing technological needs within our target product markets; - the impact of price competition on the selling prices for our non-NAS products, which continue to represent a majority of our net sales; - the availability and pricing of our product components; - our expenditures on research and development and the cost to expand our sales and marketing programs; and - the volume, mix and timing of orders received. Due to these factors, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indicators of future performance. In addition, it is difficult for us to forecast accurately our future net sales. This difficulty results from our limited operating history in the emerging NAS market, as well as the fact that product sales in any quarter are generally booked and shipped in that quarter. Because we incur expenses, many of which are fixed, based in part on our expectations of future sales, our operating results may be disproportionately affected if sales levels are below our expectations. Our revenues in any quarter may also be affected by product returns and any warranty obligations in that quarter. Many of our distribution and reseller customers have limited return rights. In addition, we generally extend warranties to our customers that correspond to the warranties provided by our suppliers. If returns exceed applicable reserves or if a supplier were to fail to meet its warranty obligations, we could incur significant losses. In fiscal 2000, we experienced a 14% product return rate. This rate may vary significantly in the future, and we cannot assure you that our reserves for product returns will be adequate in any future period. IF WE ARE UNABLE TO ATTRACT QUALIFIED PERSONNEL OR RETAIN OUR EXECUTIVE OFFICERS AND OTHER KEY PERSONNEL, WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY. Our continued success depends, in part, on our ability to identify, attract, motivate and retain qualified technical and sales personnel. Competition for qualified engineers and sales personnel, particularly in Orange County, California, is intense, and we may not be able to compete effectively to retain and attract qualified, experienced employees. Should we lose the services of a significant number of our engineers or sales people, we may not be able to compete successfully in our targeted markets and our business would be harmed. We believe that our success will depend on the continued services of our executive officers and other key employees. In particular, we rely on the services of our four founders, Messrs. Razmjoo, Alaghband, Aydin and Shahrestany. We maintain employment agreements with each of our founders. We do not maintain key-person life insurance policies on these individuals. The loss of any of these executive officers or other key employees could harm our business. 13 15 WE MAY NOT BE ABLE TO ACHIEVE OR SUSTAIN PROFITABILITY, AND OUR FAILURE TO DO SO COULD REQUIRE US TO SEEK ADDITIONAL FINANCING, WHICH MAY NOT BE AVAILABLE TO US ON FAVORABLE OR ANY TERMS. In recent periods, we have experienced significant declines in net sales and gross profit, and we have incurred operating losses. We incurred operating losses of $5.2 million for fiscal 1999, $12.1 million for fiscal 2000 and $5.6 million (including a charge for in-process research and development) for the first six months of the current fiscal year 2001. We expect to continue to incur operating losses through at least the third quarter of fiscal 2001. As part of our strategy to focus on the NAS market, we plan to significantly increase our direct sales force and to increase our investment in research and development and marketing efforts. We will need to significantly increase our revenues from our NAS products to achieve and maintain profitability. The revenue and profit potential of these products is unproven. We may not be able to generate significant or any revenues from our NAS products or achieve or sustain profitability in the future. In addition, we have invested substantial cash in our new corporate headquarters. If we are unable to achieve or sustain profitability in the future, we will have to seek additional financing in the future, which may not be available to us on favorable or any terms. CONTROL BY OUR EXISTING SHAREHOLDERS COULD DISCOURAGE POTENTIAL ACQUISITIONS OF OUR BUSINESS THAT OTHER SHAREHOLDERS MAY CONSIDER FAVORABLE. Our executive officers, directors and 5% or greater shareholders and their affiliates own 6,400,000 shares, or approximately 52% of the outstanding shares of common stock. Acting together, these shareholders would be able to exert substantial influence on matters requiring approval by shareholders, including the election of directors. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could in turn have an adverse effect on the market price of our common stock or prevent our shareholders from realizing a premium over the market price for their shares of common stock. THE MARKET PRICE FOR OUR COMMON STOCK HAS FLUCTUATED SIGNIFICANTLY IN THE PAST AND WILL LIKELY CONTINUE TO DO SO IN THE FUTURE, WHICH COULD RESULT IN A DECLINE IN YOUR INVESTMENT'S VALUE. The market price for our common stock has been volatile in the past, and particularly volatile in the last twelve months, and may continue to fluctuate substantially in the future. The value of your investment in our common stock could decline due to the impact of any of the above or of the following factors upon the market price of our common stock: - fluctuations in our operating results; - fluctuations in the valuation of companies perceived by investors to be comparable to us; - a shortfall in net sales or operating results compared to securities analysts' expectations; - changes in analysts' recommendations or projections; - announcements of new products, applications or product enhancements by us or our competitors; and 14 16 - changes in our relationships with our suppliers or customers. WE HAVE ISSUED CONVERTIBLE DEBENTURES, AND THE OBLIGATIONS OF THE DEBENTURES POSE RISKS TO THE PRICE OF OUR COMMON STOCK AND OUR OPERATIONS. As we have described below under the heading "Selling Shareholder," on October 31, 2000, we issued 3-year $15 million convertible debentures to a private investor. The debentures provide that, in certain circumstances, the holder of the debentures may convert its position into our stock or demand that we repay outstanding amounts with cash. The terms and conditions of the debentures pose unique and special risks to our operations and the price of our common stock. Some of those risks are discussed in more detail below. OUR ISSUANCE OF STOCK UPON THE CONVERSION OF THE DEBENTURES AND THE EXERCISE OF THE WARRANTS, AS WELL AS ADDITIONAL SALES OF OUR COMMON STOCK BY THE SELLING SHAREHOLDER, MAY DEPRESS THE PRICE OF OUR COMMON STOCK AND SUBSTANTIALLY DILUTE YOUR SHARES. We are in the process of seeking to register for resale by the selling shareholder a total of 2,322,149 shares of our common stock. This number represents approximately 235% of the number of shares of our common stock issuable if our debentures were to remain outstanding until their stated maturity on October 31, 2003 and all interest on the debentures were to be paid in shares of our stock valued at $8.55 per share, plus the number of shares of our common stock issuable if the selling shareholder's warrant is exercised in full. As is noted in the risk factor immediately below, if the selling shareholder were to convert the debentures during a period when the re-set conversion price is in effect, we could be required to issue a substantially greater number of our shares to the selling shareholder. The issuance of all or any significant portion of the shares of our common stock that we are currently in the process of registering, together with any additional shares that we may be required to register for resale if the debentures are converted during a period when the re-set conversion price is in effect, could result in substantial dilution to the interests of our other shareholders and a decrease in the price of our stock. A decline in the price of our common stock could encourage short sales of our stock, which could place further downward pressure on the price of our stock. THE CONVERSION PRICE UNDER THE DEBENTURES WILL AUTOMATICALLY RE-SET PERIODICALLY. IF THE SELLING SHAREHOLDER CONVERTS SOME OR ALL OF THE DEBENTURES DURING THE RESET PERIODS AND WE DO NOT REPAY IN CASH THE DEBENTURES THAT THE SELLING SHAREHOLDER THEN DESIRES TO CONVERT, WE WILL HAVE TO ISSUE SHARES SUBSTANTIALLY IN EXCESS OF THOSE ORIGINALLY CONTEMPLATED, AND THOSE ADDITIONAL SHARES WILL DILUTE YOUR SHARES. The conversion price under the debentures will automatically re-set periodically. During these re-set periods, the conversion price will, for five consecutive trading days, adjust to 90% of the average closing price of our stock during the 10 trading days preceding each re-set period if this amount is less than the conversion price that would otherwise apply. The first re-set period begins on May 15, 2001, the next one begins on October 31, 2001 and additional re-set periods will occur every six months thereafter. During the first re-set period, the selling shareholder may elect to convert up to one-third of the debentures, plus any unpaid interest on that amount, at the re-set conversion price. Up to two-thirds of the debentures, plus any unpaid interest on that amount, may be converted at the re-set conversion price beginning on October 31, 2001, and up to the full amount of the debentures, plus any unpaid interest, may be converted at the re-set conversion price during any subsequent re-set period. We have the right to pay the selling shareholder in cash the principal amount of any portion of the debentures the selling shareholder elects to convert during a re-set period. If we do not make such election to pay cash, the number of shares of our common stock that we would be required to issue upon conversion of the debentures at the re-set conversion price could be substantial. For example, if the 10-trading day average of our shares preceding a re-set period were to be $1.30 per share, which is 75% lower than the lowest closing price reached by our shares since the date the debentures were issued, the re-set conversion price would be approximately $1.17 per share. If all of the debentures were to be converted at this price, we would be required to issue the selling shareholder approximately 12,845,215 shares, which would result in the selling shareholder owning approximately 51% of our outstanding stock after giving effect to such issuance to the selling shareholder. WE WILL RECORD A CHARGE IF THE DEBENTURES ARE CONVERTED AT A RE-SET PRICE THAT IS LESS THAN $22.79. If we issue shares of our common stock at a re-set conversion price that is less than $22.79 per share, we will record a charge to our statement of operations in the amount equal to the intrinsic value of such beneficial conversion feature. This value would be determined by subtracting the number of shares of our common stock issuable upon conversion of the applicable portion of the debentures at the fixed conversion price from the number of shares issuable upon conversion of that portion of the debentures at the re-set conversion price, and multiplying the difference by $22.79, the closing price of our common stock on the date we issued the debentures. Any such charge, if recorded, would be a non-cash charge and would not affect our net shareholders' equity. 15 17 IF OUR SHARES ARE ISSUED TO THE SELLING SHAREHOLDER, THOSE SHARES MAY BE SOLD INTO THE MARKET, WHICH COULD DEPRESS THE PRICE OF OUR STOCK AND ENCOURAGE SHORT SALES OF OUR STOCK. To the extent the debentures are converted or interest on the debentures is paid in shares of our common stock rather than cash, a significant number of these shares of our common stock may be sold into the market, which could decrease the price of our common stock and encourage short sales. 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 debentures as a result of the adjustments described above, sales of which could further depress the price of our common stock. THE DEBENTURES PROVIDE FOR VARIOUS EVENTS OF DEFAULT THAT WOULD ENTITLE THE SELLING SHAREHOLDER TO REQUIRE THE COMPANY TO REPAY THE ENTIRE AMOUNT OWED IN CASH WITHIN THREE DAYS. IF AN EVENT OF DEFAULT OCCURS, WE MAY BE UNABLE TO IMMEDIATELY REPAY THE AMOUNT OWED, AND ANY REPAYMENT MAY LEAVE US WITH LITTLE OR NO WORKING CAPITAL IN OUR BUSINESS. The debentures provide for various events of default, including the following: - the occurrence of an event of default under our loan agreements with The CIT Group; - our failure to pay the principal, interest or any liquidated damages due under the debentures; - our failure to make any payment on any indebtedness of $1 million or more to any third party if that failure results in the acceleration of the maturity of that indebtedness; - an acquisition after October 31, 2000 by any individual or entity, other than the investor and its affiliates, of more than 40% of our voting or equity securities; - the replacement of more than 50% of the persons serving as our directors as of October 31, 2000, unless the replacement director or directors are approved by our directors as of October 31, 2000 or by successors whose nominations they have approved; - a merger or consolidation of our company or a sale of more than 50% of its assets unless the holders of our securities immediately prior to such transaction continue to hold at least a majority of the voting rights and equity interests of the surviving entity or the acquirer of our assets; - our entry into bankruptcy; - our common stock fails to be listed or quoted for trading on the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market; - our completion of a "going private" transaction under SEC Rule 13e-3; - a holder of shares issuable under the debentures or the warrant is not permitted to sell those securities under our registration statement covering those shares for a period of five or more trading days; 16 18 - if our registration statement covering the shares of our common stock underlying the debentures and the warrant is not declared effective by March 31, 2001, the selling shareholder thereafter may give us 30 days' notice and we would be in default of our obligations upon the expiration of this period if the registration was not effected prior to the expiration of the 30-day notice period; - our failure to deliver certificates evidencing shares of our common stock underlying the debentures or the warrant within five days after the deadline specified in our transaction documents with the investor; - our failure to have a sufficient number of authorized but unissued and otherwise unreserved shares of our common stock available to issue such stock upon any exercise or conversion of the warrant and the debentures; - the exercise or conversion rights of the investor under the warrant or the debentures are suspended for any reason, except as provided in the applicable transaction documents; - our default on specified obligations under our registration rights agreement with the investor and failure to cure that default within 60 days; and - other than the specified defaults under the registration rights agreement referred to above, our default in the timely performance of any obligation under the transaction documents with the investor and failure to cure that default for 20 days after we are notified of the default. If an event of default occurs, the selling shareholder can require us to repurchase all or any portion of the principal amount of any outstanding debentures at a repurchase price equal to the greater of 110% of such outstanding principal amount, plus all accrued but unpaid interest on such outstanding debentures through the date of payment, or the total value of all of our shares issuable upon conversion of such outstanding debentures, valued based on the average closing price of our common stock for the preceding five trading days, plus any accrued but unpaid interest on such outstanding debentures. In addition, upon an event of default under the debentures, the investor could also require us to repurchase from the selling shareholder any of our shares of common stock issued to the selling shareholder upon conversion of the debentures within the preceding 30 days, which would be valued at the average closing price of our common stock over the preceding five trading days. We would be required to complete these repurchases no later than the third trading day following the date an event of default notice is delivered to us. If we were required to make a default payment at a time when all of the debentures were outstanding, the payment required would be a minimum of $16.5 million and could be substantially greater depending upon the market price of our common stock at the time. In addition, if we default in the timely performance of specified obligations under our registration rights agreement with the investor, we would also be obligated to pay as liquidated damages to the selling shareholder an amount equal to $300,000 each month until any such default is cured. Some of the events of default include matters over which we may have some, little or no control, such as various corporate transactions in which the control of our company changes, or if our common stock ceases to be listed on a trading market. If an event of default occurs, we may be unable to repay any part or all of the entire amount in cash. Any such repayment could leave us with little or no working capital for our business. 17 19 THE PAYMENT TO BRIGHTON CAPITAL, LTD. IN CONNECTION WITH OUR SALE OF OUR CONVERTIBLE DEBENTURES MAY BE INCONSISTENT WITH THE PROVISIONS OF SECTION 15 OF THE SECURITIES EXCHANGE ACT AND MAY ENABLE THE INVESTOR TO RESCIND ITS INVESTMENT. We paid Brighton Capital, Ltd. $375,000 for its introduction to us of the purchaser of our 6% convertible debentures. The Staff of the Securities and Exchange Commission has informed us that the receipt by Brighton Capital of this payment may be inconsistent with the registration provisions of Section 15 of the Securities Exchange Act of 1934, as amended. If this payment were determined to be inconsistent with Section 15, then, under Section 29 of the Securities Exchange Act: - the selling shareholder might have the right to rescind its purchase of these securities, which would require us to repay to selling shareholder the $15.0 million that it invested in us; - We might be subject to regulatory action; and - We might be able to recover the $375,000 fee that we paid to Brighton Capital in connection with the transaction. THE DEBENTURES RESTRICT OUR ABILITY TO RAISE ADDITIONAL EQUITY, WITHOUT THE CONSENT OF THE INVESTOR, WHICH COULD HINDER OUR EFFORTS TO OBTAIN ADDITIONAL NECESSARY FINANCING TO OPERATE OUR BUSINESS OR TO REPAY THE DEBENTURE HOLDERS. The agreements we executed when we issued these debentures prohibit us from obtaining additional equity or equity equivalent financing for a period of 90 trading days after the effective date of the registration statement covering the resale of the shares issuable upon conversion of the debentures. We also agreed that for a period of 180 trading days after the effective date of the registration statement covering the resale of the shares issuable upon conversion of the debentures, we would not, without the selling shareholder's consent, obtain additional equity or equity equivalent financing unless we first offer the selling shareholder the opportunity to provide such financing upon the terms and conditions proposed. These restrictions have several exceptions, such as issuances of options to employees and directors, strategic transactions and acquisitions and bona fide public offerings with proceeds exceeding $20 million in gross proceeds. However, the restrictions may make it extremely difficult to raise additional equity capital during the 90-day and 180-day periods. We may need to raise such additional capital, and if we are unable to do so, we may have little or no working capital for our business, and the market price of our stock may decline. WE MAY BE REQUIRED TO PAY LIQUIDATED DAMAGES IF WE DO NOT OBTAIN SHAREHOLDER APPROVAL FOR ISSUANCE OF OUR COMMON STOCK, OR IF WE ARE UNABLE TO TIMELY REGISTER THESE SHARES. We are subject to National Association of Securities Dealers Rule 4350, which generally requires shareholder approval of any transaction that would result in the issuance of securities representing 20% or more of an issuer's outstanding listed securities. Upon conversion or the payment of interest on debentures we are not able to issue more than 2,322,150 shares, or 19.99% of our outstanding common stock on October 30, 2000, 18 20 the day prior to the date of issuance of the debentures. The terms of the convertible debentures purchase agreement also provide that the shareholder desiring to convert has the option of requiring us either to seek shareholder approval within 75 days of the request or to pay the converting holder the monetary value of the debentures that cannot be converted, at a premium to the converting holder. If the shareholder chooses that we convert the debentures into shares and we have not obtained the requisite shareholder approval within 75 days, we would be obligated to pay the monetary value to the purchaser as liquidated damages. Also, under the terms of the Registration Rights Agreement, we will incur liquidated damages of approximately $300,000 per month if we are unable to register the shares on or before March 31, 2001, or maintain the registration of the shares, of common stock issuable upon the conversion of the debentures and the exercise of those warrants. The selling shareholder has, however, extended this date, and agreed that after March 31, 2001, the selling shareholder may give us 30-days notice and we would be in default of our obligations upon the expiration of this period if such registration was not effected prior to the expiration of the 30-day notice period. EVEN IF WE NEVER ISSUE OUR STOCK UPON CONVERSION OF THE DEBENTURES OR UPON EXERCISE OF THE INVESTOR'S WARRANTS, WE MAY ISSUE ADDITIONAL SHARES, WHICH WOULD REDUCE YOUR OWNERSHIP PERCENTAGE AND DILUTE THE VALUE OF YOUR SHARES. Other 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 Procom. Our issuance of 480,000 shares in connection with the acquisition of Scofima Software S.r.l. is an example of an issuance of additional shares to finance an acquisition that may dilute your ownership. In the future, 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, or in lieu of cash payment of dividends. Our issuance of additional shares would dilute your shares. In addition, resales of the shares covered by this prospectus could adversely affect the market price of our stock. 19 21 FORWARD LOOKING STATEMENTS Certain forward-looking statements, including statements regarding our expected financial position, business and financing plans are contained in this prospectus or in documents incorporated by reference in this prospectus. These forward-looking statements reflect our views with respect to future events and financial performance. The words, "believe," "expect," "plans" and "anticipate" and similar expressions identify forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from such expectations are disclosed in this prospectus, including, without limitation, under "Risk Factors" in reports filed by us with the Securities and Exchange Commission and incorporated by reference in this prospectus, and all subsequent written and oral forward-looking statements attributable to us are expressly qualified in their entirety by the cautionary statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. USE OF PROCEEDS The selling shareholder will receive all of the proceeds from the sale of its common stock offered by this prospectus. We will not receive any of the proceeds from the sale of the shares of common stock by the selling shareholder. We will, however, receive the exercise price of the warrants if and when those warrants are exercised. If all of the warrants are exercised, we estimate our net proceeds will be $1,071,416. We intend to use any proceeds from warrant exercises for working capital and other corporate purposes. SELLING SHAREHOLDER On October 31, 2000, Montrose Investments Ltd. acquired debentures and a common stock purchase warrant convertible into shares of our common stock. Montrose Investments Ltd. and its affiliates may not use these debentures and warrant to acquire more than 4.999% of our outstanding common stock. Montrose Investments Ltd. can waive this restriction on not less than 61 days notice to us. The number of shares of our common stock listed in the table below as being beneficially owned by the selling shareholder includes the shares that are issuable to the selling shareholder, subject to a 4.999% limitation, upon exercise of the warrants or conversion of the debentures. However, the 4.999% limitation would not prevent the selling shareholder from acquiring and selling in excess of 4.999% of our common stock through a series of acquisitions and sales under the warrant or debentures, while never beneficially owning more than 4.999% at any one time. This prospectus relates to the resale of shares of our common stock by the selling shareholder. We determined the number of shares of common stock to be offered for resale by this prospectus by agreement with the selling shareholder and in order to adequately cover the number of shares required. This prospectus covers the resale of approximately 235% of the number of shares of common stock issuable upon full conversion of the debentures at the fixed conversion price of $22.79 per share, plus the number of shares issuable in lieu of cash interest payable on the debentures over three years, plus the number of shares issuable upon full exercise of the selling shareholder's warrant. We will not receive any proceeds from the resale of common stock by the selling shareholder, although we may receive proceeds from the exercise of warrants. Assuming the selling shareholder sells all of the shares of our common stock covered by this prospectus, the selling shareholder will not continue to own any shares of our common stock. Beneficial ownership includes shares of outstanding common stock and the shares of common stock that a person has a right to acquire within 60 days after the date of this prospectus.
Number of shares Number of shares of common stock/ of common stock Number of shares Percentage of Class to be beneficially owned at to be offered owned after Completion Name April 18, 2001(2) for resale of the Offering(3) ---- --------------------- ---------------- ------------------------- Montrose Investments Ltd.(1) 627,504 2,322,149 216,700/1.7%
- -------------- (1) HBK Investments L.P. has voting and investment control over the securities of Montrose Investments Ltd. pursuant to an Investment Management Agreement. Each of Harlan B. Korenvaes, Kenneth M. Hirsh, Laurence H. Lebowitz, William E. Rose, Richard L. Booth, David C. Haley and Jamiel A. Akhtar may be deemed to have voting and investment control as the members of HBK Management LLC, the general partner of HBK Partners II L.P., which is the general partner of HBK Investments L.P. (2) Includes (i) 216,700 shares owned by the selling shareholder as of April 18, 2001 and (ii) 410,812 shares, which represents the maximum number of shares that may be acquired by the selling shareholder within 60 days of April 18, 2001 pursuant to the debentures and the selling shareholder's warrant. (3) Assumes sale of all shares offered hereby. There is no assurance that the selling shareholder will exercise any part or all of its warrant or will otherwise opt to sell any of the shares offered under this prospectus. To the extent required, the specific shares to be sold, the names of the selling shareholder, other additional shares of common stock beneficially owned by the selling shareholder, the public offering price of the shares to be sold, the names of any agent, dealer or underwriter employed by the selling shareholder in connection with such sale, and any applicable commission or discount with respect to a particular offer will be set forth in an accompanying prospectus supplement. 20 22 DESCRIPTION OF SECURITIES ISSUED TO SELLING SHAREHOLDER DEBENTURES General On October 31, 2000 we issued to the selling shareholder a total of $15.0 million of our convertible debentures due October 31, 2003. We also issued the selling shareholder warrants to purchase up to 32,916 shares of our common stock at an exercise price of $32.55 per share, subject to adjustment as described below. The net proceeds to us from this private placement were approximately $14.4 million. At the current exercise price, we would receive an additional $1.1 million if the warrants were exercised in full. In connection with this transaction, we paid Brighton Capital, Ltd., an unrelated party, a fee of $375,000. This fee was payable upon closing and was paid on October 31, 2000. Interest The Debentures bear interest at the rate of 6% per annum, payable quarterly. We have the option of paying this interest in cash or in shares of our common stock. If we pay interest in common stock, that stock will be valued at the average of the closing prices of our common stock as reported by Nasdaq for the five trading days preceding the date that interest payment is due or the first trading day after that date if the interest payment date is not a trading day. Conversion Conversion at the option of the selling shareholder. Fixed Conversion Price Except during the periods described below, the debentures are convertible at the option of the selling shareholder at any time after issuance at a conversion price of $22.79, subject to anti-dilution adjustment as a result of such events as stock dividends, distributions, subdivisions, combinations or reclassifications of our common stock. The conversion price is also subject to a weighted average adjustment if, subject to certain exceptions, we issue our common stock (other than to the selling shareholder) at a price below the conversion price then in effect for the debentures. The weighted average adjustment means that if we issue our stock at a per share price less than the debenture conversion price then in effect, the conversion price will be reduced on a weighted average basis, which will allow the selling shareholder to convert the debentures into a greater number of shares of our common stock. Under the weighted average adjustment provisions of the debentures, the more shares we issue (other than to the selling shareholder), and the greater the discount at which these shares are issued to the conversion price then in effect, the greater the resulting reduction in the conversion price. Re-set Conversion Price Beginning on May 15, 2001, October 31, 2001 and at six-month intervals after October 31, 2001, the conversion price under the debentures automatically re-sets to the lesser of the conversion price that would otherwise then apply or 90% of the average closing price of our stock during the 10 trading days preceding each such date. During the re-set period beginning on May 15, 2001, the selling shareholder may elect to convert up to one-third of the principal amount of the debentures, plus any unpaid interest on that amount, at the re-set conversion price. Up to two-thirds of the principal amount of the debentures, plus any unpaid interest on that amount, can be converted at the re-set conversion price during the re-set period beginning on October 31, 2001, and up to the full principal amount of the debentures, plus any unpaid interest, can be converted at the re-set conversion price during each subsequent five-trading day period. After the end of each re-set period, the conversion price will automatically revert to the fixed conversion price, which will remain in effect until the next re-set period. If the selling shareholder elects to convert the applicable portion of the debentures during any period when the re-set conversion price is in effect, we have the right under the debentures to pay the selling shareholder in cash the principal amount of the portion of the debentures desired to be converted, plus any unpaid interest on that portion. If we pay cash, the portion of the debentures paid for in cash will be retired and may not be converted into our shares at the re-set or any conversion price. If we do not pay cash, we will have to issue shares of our common stock at the re-set conversion price. The number of shares issuable to the selling shareholder in such event, and the percentage of our total outstanding common stock that the selling shareholder would have the right to acquire, would be substantial based on the recent market price of our stock. Further decreases in the market price of our stock would require us to issue an even greater number of our shares if we do not pay cash. Sales of our stock by the selling shareholder received as a result of any such conversion or from the exercise of the selling shareholder's warrants could depress the price of our stock, which could in turn require us to issue a greater number of our shares upon any subsequent conversions of the debentures at the re-set conversion price by the selling shareholder. 21 23 The following table sets forth the number of shares of our common stock that we would be required to issue to the selling shareholder if the debentures were to be converted in full at hypothetical re-set conversion prices, and the resulting percentage of our outstanding stock that would then be owned by the selling shareholder.
Number of Shares Issuable on Hypothetical Conversion Re-Set at Re-set Percentage of Prices Conversion Price(1) Outstanding Stock(2) ------------ ------------------- -------------------- 4.67(3) 3,211,304 20.9% 3.50(-25%)(4) 4,281,738 26.1% 2.34(-50%)(5) 6,422,608 34.6% 1.17(-75%)(6) 12,845,215 51.4%
- ------------- (1) The number of shares of common stock issuable upon conversion of the debentures at the re-set conversion price by the selling shareholder assumes that 100% of the debentures are converted but does not include any shares that may be issuable to pay interest on the debentures. The share figure also does not include any shares issuable upon exercise of any part or all of the selling shareholder's warrant. (2) Calculated based on 12,141,805 shares of our common stock issued and outstanding as of April 18, 2001 and after giving effect to the indicated issuance to the selling shareholder. (3) Represents a hypothetical re-set conversion price equal to 90% of $5.19, the closing price of our common stock on April 9, 2001, which was the lowest closing price of our common stock for any trading day since the closing of the sale of the debentures and warrant to the selling shareholder on October 31, 2000. (4) Represents a hypothetical re-set conversion price that is 25% lower than the hypothetical re-set conversion price specified in footnote (3). (5) Represents a hypothetical re-set conversion price that is 50% lower than the hypothetical re-set conversion price specified in footnote (3). (6) Represents a hypothetical re-set conversion price that is 75% lower than the hypothetical re-set conversion price specified in footnote (3). Conversion at our option. If the market price of our common stock exceeds $27.04 per share for at least 20 trading days in any period of 30 consecutive trading days after the effective date of the registration statement of which this prospectus is a part, we can require the selling shareholder to convert the outstanding debentures into shares of our common stock at the conversion price then in effect. At the initial conversion price of $22.79 per share, the full amount of the debentures would convert into 658,183 shares of our common stock, giving the selling shareholder approximately 5.1% of our outstanding shares of common stock after giving effect to such issuance to the selling shareholder. Repurchase Right We have the right, upon 20 trading days' notice to the selling shareholder, to repurchase for cash all or any portion of the outstanding debentures at a price equal to 110% of the outstanding principal amount of the debentures plus all accrued but unpaid interest through the date of our repurchase. 22 24 THE WARRANTS General At the same time we issued the debentures to the selling shareholder, we also issued the selling shareholder five-year warrants to purchase our common stock at an exercise price equal to $32.55 per share. Anti-Dilution Adjustments The exercise price and the number of shares of our common stock issuable upon exercise of the warrant are subject to anti-dilution adjustments that are similar to those described above for the debentures. For example, the exercise price is subject to adjustment as a result of such events as stock dividends, distributions, subdivisions, combinations or reclassifications of our common stock. The exercise price is also subject to a weighted average adjustment if we issue our common stock at a price below the exercise price then in effect for the warrants. The weighted average adjustment means that if we issue our stock at a per share price less than the warrant exercise price then in effect, the exercise price will be reduced on a weighted average basis, which will allow the selling shareholder to receive a greater number of shares of our common stock upon exercise of the warrants. Under the weighted average adjustment provisions of the warrants, the more shares we issue in the future (other than to the selling shareholder), and the greater the discount at which these shares are issued to the warrant exercise price then in effect, the greater the resulting reduction in the exercise price of the warrant. 23 25 TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the common stock is U.S. Stock Transfer Corp., Glendale, California. PLAN OF DISTRIBUTION The selling shareholder and any of its pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling shareholder may use any one or more of the following methods when selling shares: ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers, block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction, purchases by a broker-dealer as principal and resale by the broker-dealer for its account, an exchange distribution in accordance with the rules of the applicable exchange, privately negotiated transactions, short sales, broker-dealers may agree with the selling shareholder to sell a specified number of such shares at a stipulated price per share, a combination of any such methods of sale, and any other method permitted pursuant to applicable law. The selling shareholder may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. The selling shareholder may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades. The selling shareholder may pledge its shares to its brokers under the margin provisions of customer agreements. If the selling shareholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. The selling shareholder has advised us that it has not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of its shares other than ordinary course brokerage arrangements, nor is there an underwriter or coordinating broker acting in connection with the proposed sale of shares by the selling shareholder. Broker-dealers engaged by the selling shareholder may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling shareholder does not expect these commissions and discounts to exceed what is customary in the types of transactions involved. The selling shareholder and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by the broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. We are required to pay all fees and expenses incident to the registration of the shares, including fees and disbursements of counsel to the selling shareholder. We have agreed to indemnify the selling shareholder against losses, claims, damages and liabilities, including liabilities under the Securities Act. 24 26 LEGAL MATTERS The validity of the shares of common stock offered hereby and certain other legal matters will be passed upon for us by Frederick Judd, our counsel. EXPERTS The consolidated financial statements and schedule as of July 31, 1998 and for the year then ended have been incorporated herein by reference and in the registration statement in reliance upon the report of Arthur Andersen LLP, independent public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements and schedule as of July 31, 1999 and 2000 and for the years then ended have been incorporated herein by reference and in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. We have not authorized any person to make a statement that differs with what is in this prospectus. If any person does make a statement that differs from what is in this prospectus, you should not rely on it. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state in which the offer or sale is not permitted. The information in this prospectus is complete and accurate as of its date, but the information may change after that date. Procom Technology, Inc. 2,322,149 Shares of Common Stock ------------------------------------------------ Prospectus ------------------------------------------------ April 25, 2001 25 27 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of common stock being registered. All amounts are estimates. SEC registration fee ............... $ 9,118.85 Nasdaq National Market listing fee.. 10,000.00 Printing and engraving.............. 10,000.00 Legal fees and expenses............. 200,000.00 Accounting fees and expenses........ 40,000.00 Blue sky fees and expenses.......... -0- Transfer agent fees................. 1,000.00 Miscellaneous....................... 5,000.00 ----------- Total ............................ $275,118.85 =========== ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS We have adopted provisions in our Amended and Restated Articles of Incorporation that limit the liability of our directors in certain instances. As permitted by the California General Corporation Law, directors will not be liable to us for monetary damages arising from a breach of their fiduciary duty as directors in certain circumstances. See Item 17(a) of this registration statement regarding the opinion of the Securities and Exchange Commission as to indemnification of liabilities arising under the Securities Act. Such limitation does not affect liability for any breach of a director's duty to us or our shareholders (i) with respect to approval by the director of any transaction from which he derives an improper personal benefit, (ii) with respect to acts or omissions involving an absence of good faith, that he believes to be contrary to our best interests or the best interest of our shareholders, that involve intentional misconduct or a knowing and culpable violation of law, that constitute an unexcused pattern of inattention that amounts to an abdication of his duty to us or our shareholders, or that show a reckless disregard for his duty to us or our shareholders in circumstances in which he was, or should have been, aware, in the ordinary course of performing his duties, of a risk of serious injury to us or our shareholders or (iii) based on transactions between us and our directors or another corporation with interrelated directors or on improper distributions, loans, or guarantees under applicable sections of the California General Corporation Law. Such limitation of liability also does not affect the availability of equitable remedies such as injunctive relief or rescission, although in certain circumstances equitable relief may not be available as a practical matter. The limitation may relieve the directors of monetary liability to us for grossly negligent conduct, including conduct in situations involving attempted takeovers. No claim or litigation is currently pending against our directors that would be affected by the limitation of liability. Our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws provide that we shall indemnify our directors and may indemnify our officers to the fullest extent permitted by California law, including circumstances in which indemnification is otherwise discretionary under California law. II-1 28 ITEM 16. EXHIBITS. (a) EXHIBITS Exhibit Number Document ------- -------- 4.1 Form of Convertible Debenture dated October 31, 2000 4.1.1 Amendment to Convertible Debenture dated April 20, 2001 4.2 Form of Common Stock Purchase Warrant dated October 31, 2000 (incorporated by reference to Exhibit 4.2 in the Report on Form 8-K filed on November 3, 2000) 4.3 Securities Purchase Agreement dated October 31, 2000 (incorporated by reference to Exhibit 4.3 in the Report on Form 8-K filed on November 3, 2000) 4.4 Registration Rights Agreement dated October 31, 2000 by and between the Registrant and Montrose Investments, Ltd. (incorporated by reference to Exhibit 4.4 in the Report on Form 8-K filed on November 3, 2000) 4.5 Subordination Agreement dated October 31, 2000 by and between the Registrant, Montrose Investments, Ltd. and CIT Group/Business Credit, Inc. (incorporated by reference to Exhibit 4.5 in the Report on Form 8-K filed on November 3, 2000) 5.1 Opinion of Frederick Judd 10.1 Agreement for Wholesale Financing (Security Agreement) between Procom Technology, Inc. and IBM Credit Corporation. 23.1 Consent of KPMG LLP 23.2 Consent of Arthur Andersen LLP, Independent Public Accountants 23.3 Consent of Frederick Judd (included within Exhibit 5.1) ITEM 17. UNDERTAKINGS (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 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 Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than a payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of an 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 Act and will be governed by the final adjudication of such issue. (b) 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 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 of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 29 (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. (4) That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this Registration Statement as of the time it was declared effective. (5) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or 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. II-3 30 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, Procom Technology, Inc. certifies that it has reasonable ground 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 Ana, State of California, on this 25th day of April, 2001. PROCOM TECHNOLOGY, INC. By: /s/ ALEX RAZMJOO ------------------------------------- Alex Razmjoo President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Alex Razmjoo Chairman of the Board, President and April 25, 2001 - ------------------------------ Chief Executive Officer (Principal Alex Razmjoo Executive Officer) /s/ Alex Aydin Executive Vice President, Finance and April 25, 2001 - ------------------------------ Administration (Principal Financial Alex Aydin and Accounting Officer) /s/ Frank Alaghband Director April 25, 2001 - ------------------------------ Frank Alaghband /s/ Nick Shahrestany Director April 25, 2001 - ------------------------------ Nick Shahrestany Director - ------------------------------ Dom Genovese Director - ------------------------------ David Blake
II-4 31 INDEX TO EXHIBITS Exhibit Number Document ------- -------- 4.1 Form of Convertible Debenture dated October 31, 2000 4.1.1 Amendment to Convertible Debenture dated April 20, 2001 4.2 Form of Common Stock Purchase Warrant dated October 31, 2000 (incorporated by reference to Exhibit 4.2 in the Report on Form 8-K filed on November 3, 2000) 4.3 Securities Purchase Agreement dated October 31, 2000 (incorporated by reference to Exhibit 4.3 in the Report on Form 8-K filed on November 3, 2000) 4.4 Registration Rights Agreement dated October 31, 2000 by and between the Registrant and Montrose Investments, Ltd. (incorporated by reference to Exhibit 4.4 in the Report on Form 8-K filed on November 3, 2000) 4.5 Subordination Agreement dated October 31, 2000 by and between the Registrant, Montrose Investments, Ltd. and CIT Group/Business Credit, Inc. (incorporated by reference to Exhibit 4.5 in the Report on Form 8-K filed on November 3, 2000) 5.1 Opinion of Frederick Judd 10.1 Agreement for Wholesale Financing (Security Agreement) between Procom Technology, Inc. and IBM Credit Corporation. 23.1 Consent of KPMG LLP 23.2 Consent of Arthur Andersen LLP, Independent Public Accountants 23.3 Consent of Frederick Judd (included within Exhibit 5.1) EX-4.1 2 a71449orex4-1.txt EXHIBIT 4.1 1 EXHIBIT 4.1 THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR PAYMENT IN FULL OF THE SENIOR INDEBTEDNESS (AS DEFINED IN THE SUBORDINATION AGREEMENT HEREINAFTER REFERRED TO) PURSUANT TO, AND TO THE EXTENT PROVIDED IN, THE SUBORDINATION AGREEMENT EFFECTIVE AS OF OCTOBER 31, 2000, BY THE MAKER HEREOF AND PAYEE NAMED HEREIN IN FAVOR OF LENDER OR THE HOLDER OF SENIOR INDEBTEDNESS REFERRED TO IN SUCH SUBORDINATION AGREEMENT. THIS DEBENTURE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. No. 1 $15,000,000.00 PROCOM TECHNOLOGY, INC. 6% CONVERTIBLE DEBENTURE DUE OCTOBER 31, 2003 THIS DEBENTURE is one of a series of duly authorized and issued debentures of Procom Technology, Inc., a California corporation (the "COMPANY"), designated as its 6% Convertible Debentures due October 31, 2003, in the aggregate principal amount of $15,000,000 (the "DEBENTURES"). FOR VALUE RECEIVED, the Company promises to pay to [Holder] or its registered assigns (the "HOLDER"), the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000.00), on October 31, 2003 (the "MATURITY DATE"), or such earlier date as the Debentures are required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions. 1. Definitions. In addition to the terms defined elsewhere in this Debenture, (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Securities Purchase Agreement, dated as of October 31, 2000, among the Company and the Purchasers identified therein (the "PURCHASE AGREEMENT"), and (b) the following terms have the meanings indicated: "BANKRUPTCY EVENT" means any of the following events: (a) the Company or any Subsidiary commences a case or other proceeding under any bankruptcy, reorganization, 1 2 arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Subsidiary thereof; (b) there is commenced against the Company or any Subsidiary any such case or proceeding that is not dismissed within 60 days after commencement; (c) the Company or any Subsidiary is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Company or any Subsidiary suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 days; (e) the Company or any Subsidiary makes a general assignment for the benefit of creditors; (f) the Company or any Subsidiary fails to pay, or states that it is unable to pay or is unable to pay, its debts generally as they become due; (g) the Company or any Subsidiary calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (h) the Company or any Subsidiary, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing; provided, that with respect to any Subsidiary, in each foregoing case, such event may reasonably be expected to have a Material Adverse Effect. "CONVERSION PRICE" means $22.79, subject to adjustment as set forth herein. "EQUITY CONDITIONS" means, with respect to a specified issuance of Common Stock, that each of the following conditions is satisfied: (i) the number of authorized but unissued and otherwise unreserved shares of Common Stock is sufficient for such issuance; (ii) such shares of Common Stock are registered for resale by the Holder pursuant to an effective Underlying Shares Registration Statement or all such shares may be sold without volume restrictions pursuant to Rule 144(k) under the Securities Act; (iii) the Common Stock is listed or quoted (and is not suspended from trading) on an Eligible Market; (iv) such issuance would be permitted in full without violating Section 14 hereof or the rules or regulations of any Trading Market; and (v) the Company is not in default with respect to any material obligation hereunder or under any other Transaction Document. "EVENT EQUITY VALUE" means, in connection with any required payment following an Event Notice hereunder, the average of the Closing Prices for the five Trading Days preceding either (a) the date of delivery of the Event Notice or (b) the date on which such required payment (together with any other payments, expenses and liquidated damages then due and payable under the Transaction Documents) is paid in full, whichever is greater. "ORIGINAL ISSUE DATE" means the date of the first issuance of any Debentures, regardless of the number of transfers of any particular Debenture. "TRIGGERING EVENT" means (a) the occurrence of a Change of Control of the Company; (b) immediately prior to any Bankruptcy Event; (c) consummation with respect to the Company of a "Rule 13e-3 transaction" as defined in Rule 13e-3 under the Exchange Act, it being agreed that each Purchaser will receive actual notice of the 13e-3 Statement filed with the Commission; (d) for any period of three consecutive Trading Days, the Common Stock fails to be listed or quoted for trading or is suspended from trading on an 2 3 Eligible Market or there is no closing bid price on an Eligible Market; (e) after the Effective Date, a holder of Registrable Securities (as defined in the Registration Rights Agreement) is not permitted to sell Registrable Securities under the Underlying Shares Registration Statement for any reason for five or more Trading Days (whether or not consecutive); (f) the Underlying Shares Registration Statement is not declared effective by the Commission by the 30th day following the Required Effectiveness Date; (g) the Company fails for any reason to deliver certificates to a Purchaser within five Trading Days after delivery of such certificates is required pursuant to any Transaction Document; (h) the Company fails to have available a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock available to issue Underlying Shares upon any exercise or conversion of outstanding Securities; (i) the exercise or conversion rights of the Purchasers pursuant to the Transaction Documents are suspended for any reason other than as provided in Section 4.5(g) of the Purchase Agreement (but only so long as the Company is complying with Section 4.5(g) of the Purchase Agreement) or Section 14 hereof; (j) an Event (as defined in the Registration Rights Agreement) occurs and remains uncured for 60 days (excluding any Event that is specifically covered by another subsection of this paragraph); or (k) the Company defaults in the timely performance of any obligation under the Transaction Documents and such default continues uncured for a period of 20 days after the date on which notice of such default is first given to the Company by a Purchaser. 2. Interest. (a) The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 6.0% per annum, payable quarterly in arrears on each March 31, June 30, September 30 and December 31, except if such date is not a Trading Day, in which case such interest shall be payable on the next succeeding Trading Day (each, an "INTEREST PAYMENT DATE"). Interest shall be calculated on the basis of a 360-day year and shall accrue daily commencing on the Original Issue Date. (b) Subject to the conditions and limitations set forth below, the Company may pay interest on this Debenture (i) in cash or (ii) by issuing shares of Common Stock. The Company must deliver written notice to the Holder indicating the manner in which it intends to pay interest at least ten Trading Days prior to each Interest Payment Date, but the Company may indicate in any such notice that the election contained therein shall continue for subsequent Interest Payment Dates until revised. Failure to timely provide such written notice shall be deemed an election by the Company to pay interest by issuing shares of Common Stock, unless payment of interest in such manner is not permitted at the time of any such payment, in which case such interest shall be payable in cash. All interest payable on the Debentures on any Interest Payment Date must be paid in the same manner. (c) Except as otherwise provided herein, if at any time the Company pays less than the total amount of required interest on any Interest Payment Date, then such payment shall be distributed ratably among the holders of the Debentures based upon the principal amount of Debentures held by each such holder. 3 4 (d) If interest is payable in shares of Common Stock, the number of shares of Common Stock shall equal the dollar amount of such interest divided by the average Closing Price for the five Trading Days preceding the Interest Payment Date, and the Company shall deliver a certificate evidencing such shares to the Holder by the third Trading Day after the Interest Payment Date. Notwithstanding anything to the contrary contained herein, the Company may not pay interest in shares of Common Stock unless, at such time, the Equity Conditions are satisfied with respect to the issuance of such shares of Common Stock. (e) So long as any Debentures are outstanding, (i) neither the Company nor any Subsidiary shall, directly or indirectly, redeem, purchase or otherwise acquire any capital stock of the Company nor shall any Subsidiary directly or indirectly, redeem, purchase or otherwise acquire any capital stock of any Subsidiary, nor shall the Company or any Subsidiary set aside any monies for such a redemption, purchase or other acquisition, except that the Company may expend up to $250,000 in any twelve month period to repurchase Common Stock from any person who is an employee of the Company and that is not on the date hereof or at any subsequent date an executive officer of the Company, and (ii) the Company shall not pay or declare any dividend or make any distribution on any capital stock, except stock dividends on the Common Stock payable in additional shares of Common Stock and dividends due and paid in the ordinary course on preferred stock of the Company at such times as the Company is in compliance with its payment and other material obligations hereunder. 3. Registration of Debentures. The Company shall register the Debentures upon records to be maintained by the Company for that purpose (the "DEBENTURE REGISTER") in the name of each record holder thereof from time to time. The Company may deem and treat the registered Holder of this Debenture as the absolute owner hereof for the purpose of any conversion hereof or any payment of interest hereon, and for all other purposes, absent written notice to the contrary. 4. Registration of Transfers and Exchanges. The Company shall register the transfer of any portion of this Debenture in the Debenture Register upon surrender of this Debenture to the Company at its address for notice set forth herein. Upon any such registration or transfer, a new debenture, in substantially the form of this Debenture (any such new debenture, a "NEW DEBENTURE"), evidencing the portion of this Debenture so transferred shall be issued to the transferee and a New Debenture evidencing the remaining portion of this Debenture not so transferred, if any, shall be issued to the transferring Holder. The acceptance of the New Debenture by the transferee thereof shall be deemed the acceptance by such transferee of all of the rights and obligations of a holder of a Debenture. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge or other fee will be imposed in connection with any such registration of transfer or exchange. 5. Conversion. (a) Conversion at Option of Holder. At the option of the Holder, all or any portion of this Debenture may be converted into Common Stock based on the then-applicable Conversion Price. A Holder may convert this Debenture into Common Stock pursuant to this paragraph at any time and from time to time after the Original Issue Date, by delivering to the 4 5 Company a Conversion Notice, in the form attached hereto, appropriately completed and duly signed, and the date any such Conversion Notice is delivered to the Company (as determined in accordance with the notice provisions hereof) is a "CONVERSION DATE." (b) Conversion at Option of Company. If, at any time after the Effective Date, the Closing Price for 20 consecutive Trading Days exceeds 135% of the Conversion Price in effect at such time (the "THRESHOLD PRICE"), the Company may require the Holder to convert this Debenture in full into Common Stock based on the then-applicable Conversion Price. The Company may require a conversion pursuant to this paragraph by delivering irrevocable written notice of such election to the Holder, and the tenth Trading Day after the date any such notice is delivered to the Holder (as determined in accordance with the notice provisions hereof) will be the "CONVERSION DATE" for such required conversion. Notwithstanding the foregoing, the Company may not require any conversion under this paragraph (and any notice thereof will be void), unless (i) the Company requires conversion under the corresponding provisions of all outstanding Debentures and (ii) from the beginning of such period of 20 consecutive Trading Days through the Conversion Date, the Equity Conditions are satisfied with respect to all of the Underlying Shares then issuable upon conversion in full of all outstanding Debentures. 6. Mechanics of Conversion. (a) The number of Underlying Shares issuable upon any conversion hereunder shall equal (i) the outstanding principal amount of this Debenture to be converted, divided by the Conversion Price on the Conversion Date, plus (ii) the amount of any accrued but unpaid interest on this Debenture through the Conversion Date, divided by the Conversion Price on the Conversion Date. (b) Upon conversion of this Debenture, the Company shall promptly (but in no event later than three Trading Days after the Conversion Date) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate a certificate for the Underlying Shares issuable upon such conversion, free of restrictive legends unless a registration statement covering the resale of the Underlying Shares and naming the Holder as a selling stockholder thereunder is not then effective and such Underlying Shares are not then freely transferable without volume restrictions pursuant to Rule 144 under the Securities Act. Within three Trading Days after receipt thereof, the Holder will deliver the original Debenture so converted to the Company, unless the Holder is awaiting receipt of a New Debenture from the Company pursuant to another provision hereof. The Holder, or any Person so designated by the Holder to receive Underlying Shares, shall be deemed to have become holder of record of such Underlying Shares as of the Conversion Date. The Company shall, upon request of the Holder, use its best efforts to deliver Underlying Shares hereunder electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions. (c) If the Holder is converting less than all of the principal amount of this Debenture in connection with such conversion, or if such conversion cannot be effected in full for any reason, the Company shall promptly deliver to the Holder a New Debenture representing the outstanding principal amount not converted. 5 6 (d) The Company's obligations to issue and deliver Underlying Shares upon conversion of this Debenture in accordance with and subject to the terms hereof and of the Purchase Agreement are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Underlying Shares. 7. Repurchase Options. (a) Company's Option. Subject to the provisions of this Section, from and after the Original Issue Date, the Company shall have the right, upon 20 Trading Days' irrevocable notice (a "COMPANY REPURCHASE NOTICE") to the Holder, to repurchase all or any portion of the principal amount of this Debenture (as to which no Conversion Notice has been delivered), at a price equal to 110% of the outstanding principal amount hereof plus all accrued but unpaid interest thereon to the date of payment (the "COMPANY REPURCHASE PRICE"). The Company Repurchase Notice will specify the effective date of the repurchase under this paragraph, which must be a Trading Day at least 20 Trading Days after the date such notice is delivered (the "COMPANY REPURCHASE DATE"), and the entire Company Repurchase Price shall be paid in cash by the next Trading Day after the Company Repurchase Date. Upon receipt of such payment, the Holder will deliver the original Debenture so repurchased to the Company, unless such Holder is awaiting receipt of a New Debenture from the Company pursuant to another provision hereof. At any time on or prior to the Company Repurchase Date, the Holder may convert all or any portion of this Debenture into Common Stock, and the Company shall honor any such conversion in accordance with the terms hereof. Notwithstanding the foregoing, the Company may only deliver a Company Repurchase Notice and complete such optional repurchase if, on the date of the Company Repurchase Notice and from such date through the Company Repurchase Date, the Equity Conditions are satisfied with respect to all of the Underlying Shares then issuable upon conversion in full of all outstanding Debentures. If the Company fails to pay the Company Repurchase Price in full by the next Trading Day after the Company Repurchase Date, then, in addition to any other remedies available to the Holder under the Transaction Documents, (1) the Company shall thereafter have no further right under this Section to repurchase any portion of this Debenture, and (2) the Holder shall have the right (by notice to the Company) to declare the Company Repurchase Notice to be void ab initio. (b) Holder's Put Option. Each six month anniversary of the Original Issue Date shall constitute a "PUT DATE" hereunder, and the "APPLICABLE PORTION" shall equal (i) on the first Put Date, one-third of the original principal amount of this Debenture; (ii) on the second Put Date, two-thirds of the original principal amount of this Debenture, and (iii) on the third Put Date and each Put Date thereafter, 100% of the original principal amount of this Debenture. On each Put Date, the Holder shall have the right, in its sole discretion , to require the Company to repurchase all or any portion of the then outstanding principal amount of this Debenture, up to the Applicable Portion on 6 7 such Put Date, by delivering to the Company on or prior to such Put Date a written notice specifying the principal amount to be repurchased (a "PUT NOTICE"). The price applicable to any repurchase under this paragraph (the "PUT PRICE") shall equal 100% of the outstanding principal amount to be repurchased, plus all accrued but unpaid interest thereon to the date of payment. The Company shall pay the aggregate Put Price to the Holder in immediately available funds (free of any claim of subordination) no later than the third Trading Day following the applicable Put Date, and upon receipt thereof the Holder will deliver the original Debenture so repurchased to the Company, unless the Holder is awaiting receipt of a New Debenture from the Company pursuant to another provision hereof. Notwithstanding the foregoing, the Company may deliver a written notice to the Holder at least 20 Trading Days prior to any Put Date (a "PUT PAYMENT NOTICE"), indicating therein its intention not to pay in excess of a maximum dollar amount in cash as part of any subsequent Put Price (the "MAXIMUM CASH AMOUNT"). The Company may indicate in any Put Payment Notice that the election contained therein shall continue for later periods until revised. If the Company has delivered a Put Payment Notice with respect to any Put Date, then any Put Price payable on such Put Date shall be payable as follows: (A) the Company shall pay the Maximum Cash Amount in accordance with the payment provisions that would apply absent a Put Payment Notice, and (B) with respect to the excess (if any) of the Put Price over the Maximum Cash Amount (the "EXCESS AMOUNT"), the Company shall deliver to the Holder not later than the third Trading Day following the applicable Put Date a number of shares of Common Stock equal to the Excess Amount divided by the Put Conversion Price. For such purposes, the "PUT CONVERSION PRICE" means 90% of the average of the Closing Prices over the ten Trading Days preceding the Put Date. Any shares of Common Stock delivered in lieu of the Excess Amount pursuant to this paragraph shall constitute "Underlying Shares" for purposes of all Transaction Documents, and the Company's obligation to deliver such shares shall be subject to the same provisions otherwise applicable to a conversion of Debentures. If the Company fails to pay the cash portion of the Put Price in full when due pursuant to this Section, then, in addition to any other remedies available to the Holder under the Transaction Documents, the Holder shall have the right (by notice to the Company) to rescind the applicable Put Notice. 8. Events of Default. (a) "EVENT OF DEFAULT" means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body): (i) any default in the payment (free of any claim of subordination) of principal, interest or liquidated damages in respect of any Debentures, as and when the same becomes due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise); 7 8 (ii) the Company or any Subsidiary defaults in any of its obligations under any other debenture or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company or any Subsidiary in an amount exceeding $1,000,000, whether such indebtedness now exists or is hereafter created, and such default results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; or (iii) any Triggering Event. (b) At any time following the occurrence of an Event of Default, the Holder shall have the option to elect, by notice to the Company (an "EVENT NOTICE"), to require the Company to repurchase all or any portion of (i) the outstanding principal amount of this Debenture, at a repurchase price equal to the greater of (A) 110% of such outstanding principal amount, plus all accrued but unpaid interest thereon through the date of payment, or (B) the Event Equity Value of the Underlying Shares issuable upon conversion of such principal amount and all such accrued but unpaid interest thereon, and (ii) any Underlying Shares issued to such Holder upon conversion of Debentures during the 30 calendar days preceding such Event of Default, at a price per share equal to the Event Equity Value of such Underlying Shares. The aggregate amount payable pursuant to the preceding sentence is referred to as the "EVENT PRICE." The Company shall pay the aggregate Event Price to the Holder no later than the third Trading Day following the date of delivery of the Event Notice, and upon receipt thereof the Holder shall deliver the original Debenture and original certificates evidencing any Underlying Shares so repurchased to the Company (to the extent such documents have been delivered to the Holder). (c) Upon the occurrence of any Bankruptcy Event, all outstanding principal and accrued but unpaid interest on this Debenture shall immediately become due and payable in full in cash, without any further action by the Holder, and the Company shall immediately be obligated to repurchase this Debenture and all such Underlying Shares at the Event Price pursuant to the preceding paragraph as if the Holder had delivered an Event Notice immediately prior to the occurrence of such Bankruptcy Event. (d) In connection with any Event of Default, the Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Any such declaration may be rescinded and annulled by the Holder at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereto. 9. Ranking. This Debenture ranks pari passu with all other Debentures now or hereafter issued pursuant to the Transaction Documents. Except as set forth in Schedule 3.1(z) to the Purchase Agreement, no indebtedness for borrowed money or obligations of other Persons of the Company is senior to this Debenture in right of payment, whether with respect of interest, damages or upon liquidation or dissolution or otherwise. Except for the potential financing transaction described in 8 9 Schedule 3.1(z) to the Purchase Agreement, the Company will not, and will not permit any Subsidiary to, directly or indirectly, enter into, create, incur, assume or suffer to exist any indebtedness of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom, that is senior in any respect to the Company's obligations under the Debentures, other than indebtedness secured by purchase money security interests (which will be senior only as to the underlying assets covered thereby) and indebtedness under capital lease obligations (which will be senior only as to the assets covered thereby). 10. Charges, Taxes and Expenses. Issuance of certificates for Underlying Shares upon conversion of (or otherwise in respect of) this Debenture shall be made without charge to the Holder for any issue or transfer tax, withholding tax, transfer agent fee or other incidental tax or expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificates for Underlying Shares or Debentures in a name other than that of the Holder. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring this Debenture or receiving Underlying Shares in respect hereof. 11. Replacement of Debentures. If this Debenture or any certificate evidencing Underlying Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution therefor, a new certificate or a New Debenture, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. Applicants fora new certificate or a New Debenture under such circumstances shall also comply with such other reasonable regulations and procedures and pay such other reasonable third-party costs as the Company may prescribe. 12. Reservation of Underlying Shares. The Company covenants that it will at all times reserve and keep available out of the aggregate of its authorized but unissued and otherwise unreserved Common Stock, solely for the purpose of enabling it to issue Underlying Shares as required hereunder, the number of Underlying Shares which are then issuable and deliverable upon the conversion of (and otherwise in respect of) this entire Debenture (taking into account the adjustments of Section 13), free from preemptive rights or any other contingent purchase rights of persons other than the Holder. The Company covenants that all Underlying Shares so issuable and deliverable shall, upon issuance in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. 13. Certain Adjustments. The Conversion Price is subject to adjustment from time to time as set forth in this Section 13. (a) Stock Dividends and Splits. If the Company, at any time while this Debenture is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger number of shares, or (iii) combines outstanding shares of Common Stock into a smaller number of shares, then in each such case the Conversion 9 10 Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this paragraph occurs during the period that a Conversion Price (or similar price used in converting cash amounts into shares of Common Stock) is calculated hereunder, then the calculation thereof shall be adjusted appropriately to reflect such event. (b) Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, distributes to all holders of Common Stock (i) evidences of its indebtedness, (ii) any security (other than a distribution of Common Stock covered by the preceding paragraph), (iii) rights or warrants to subscribe for or purchase any security, or (iv) any other asset (in each case, "DISTRIBUTED PROPERTY"), then, at the request of the Holder delivered before the 90th day after the record date fixed for determination of stockholders entitled to receive such distribution, the Company will deliver to the Holder, within five Trading Days after such request (or, if later, on the effective date of such distribution), the Distributed Property that the Holder would have been entitled to receive in respect of the Underlying Shares for which this Debenture could have been converted immediately prior to such record date. If such Distributed Property is not delivered to the Holder pursuant to the preceding sentence, then upon any conversion of this Debenture that occurs after such record date, the Holder shall be entitled to receive, in addition to the Underlying Shares otherwise issuable upon such conversion, the Distributed Property that the Holder would have been entitled to receive in respect of such number of Underlying Shares had the Holder been the record holder of such Underlying Shares immediately prior to such record date. In the event that the Distributed Property is not the same for each share of Common Stock, the Holder will be entitled to choose any type of Distributed Property that any holder of Common Stock is entitled to receive in such distribution. (c) Fundamental Transactions. If, at any time while this Debenture is outstanding, (i) the Company effects any merger or consolidation of the Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a "FUNDAMENTAL TRANSACTION"), then upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Underlying Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the "ALTERNATE CONSIDERATION"). In the event that more than one type of Alternate Consideration is to be received by holders of Common Stock in a Fundamental Transaction, the Holder will be entitled to choose any type of Alternate Consideration 10 11 that any holder of Common Stock is entitled to receive in such Fundamental Transaction. For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder's right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (c) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. (d) Subsequent Equity Sales. (i) If, at any time while this Debenture is outstanding, the Company or any Subsidiary issues additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for shares of Common Stock or otherwise entitling any Person to acquire shares of Common Stock (collectively, "COMMON STOCK EQUIVALENTS") (except for issuance of Common Stock or Common Stock Equivalents in a Strategic Transaction or the issuance of up to an aggregate of 100,000 shares of Common Stock after the date hereof (appropriately adjusted for stock splits, stock dividends, reverse stock splits and similar events)) at an effective price per share of Common Stock (the "EFFECTIVE PRICE") less than the Conversion Price (as adjusted hereunder to such date), then the Conversion Price shall be reduced to equal the product of (A) the Exercise Price in effect immediately prior to such issuance of Common Stock or Common Stock Equivalents times (B) a fraction, the numerator of which is the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issuance, plus (2) the number of shares of Common Stock which the aggregate Effective Price of the Common Stock issued (or deemed to be issued) would purchase at the Exercise Price, and the denominator of which is the aggregate number of shares of Common Stock outstanding or deemed to be outstanding immediately after such issuance. For purposes of the foregoing adjustment, in connection with any issuance of any Common Stock Equivalents, (x) the maximum number of shares of Common Stock potentially issuable at any time upon conversion, exercise or exchange of such Common Stock Equivalents (the "DEEMED NUMBER") shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (y) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock, divided by the Deemed Number, and (z) no further adjustment shall be made to the Conversion Price 11 12 upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. (ii) If, at any time while this Debenture is outstanding, the Company or any Subsidiary issues Common Stock Equivalents with an Effective Price that floats or resets or otherwise varies or is subject to adjustment based on market prices of the Common Stock (a "FLOATING PRICE SECURITY"), then for purposes of applying the preceding paragraph in connection with any subsequent conversion, the Effective Price will be determined separately on each Conversion Date and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire shares of Common Stock on such Conversion Date (regardless of whether any such holder actually acquires any shares on such date). (iii) Notwithstanding the foregoing, no adjustment will be made under this paragraph (d) in respect of (A) the issuance of Common Stock upon exercise or conversion of any Common Stock Equivalents described in Schedule 3.1(g) to the Purchase Agreement (provided that such exercise or conversion occurs in accordance with the terms thereof, without amendment or modification, and that the applicable exercise or conversion price or ratio is described in such schedule), or (B) any grant of options to employees, officers or directors of the Company pursuant to any stock option plan duly adopted by the Company's board of directors or in respect of the issuance of Common Stock upon exercise of any such options. (e) Calculations. All calculations under this Section 13 shall be made to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock. (f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant to this Section 13, the Company at its expense will promptly compute such adjustment in accordance with the terms hereof and prepare a certificate describing in reasonable detail such adjustment and the transactions giving rise thereto, including all facts upon which such adjustment is based. Upon written request, the Company will promptly deliver a copy of each such certificate to the Holder. (h) Notice of Corporate Events. If the Company (i) declares a dividend or any other distribution of cash, securities or other property in respect of its Common Stock, including without limitation any granting of rights or warrants to subscribe for or purchase any capital stock of the Company or any Subsidiary, (ii) authorizes or approves, enters into any agreement contemplating or solicits stockholder approval for any Fundamental Transaction or (iii) authorizes the voluntary dissolution, liquidation or winding up of the affairs of the Company, then the Company shall deliver to the Holder a notice describing the material terms and conditions of such transaction, at least 20 calendar days prior to the applicable record or effective date on which a Person would need to hold Common Stock in order to participate in or vote with respect to such transaction, and the Company will take all steps reasonably necessary in order to insure that the Holder is given the practical opportunity to convert this Debenture prior to such time so as to participate in or vote with 12 13 respect to such transaction; provided, however, that the failure to deliver such notice or any defect therein shall not affect the validity of the corporate action required to be described in such notice. 14. Limitation on Conversion. Notwithstanding anything to the contrary contained herein, the number of shares of Common Stock that may be acquired by the Holder upon any conversion of this Debenture (or otherwise in respect hereof) shall be limited to the extent necessary to insure that, following such conversion (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its Affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with the Holder's for purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the "MAXIMUM PERCENTAGE") of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such conversion). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Each delivery of a Conversion Notice by the Holder will constitute a representation by the Holder that it has evaluated the limitation set forth in this paragraph and determined that issuance of the full number of Underlying Shares requested in such Conversion Notice is permitted under this paragraph, and the Company will have no liability for such determination. By written notice to the Company, the Holder may waive the provisions of this Section or increase or decrease the Maximum Percentage to any other percentage specified in such notice, but (i) any such waiver or increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such waiver or increase or decrease will apply only to the Holder and not to any other holder of Debentures. 15. Fractional Shares. The Company shall not be required to issue or cause to be issued fractional Underlying Shares on conversion of this Debenture. If any fraction of an Underlying Share would, except for the provisions of this Section, be issuable upon conversion of this Debenture, the Company shall pay an amount in cash equal to the average of the Closing Prices of the Common Stock for the five Trading Days immediately prior to (but not including) the Conversion Date multiplied by such fraction; provided that, unless the Holder requests otherwise, no payment shall be required to the Holder pursuant to this sentence until the aggregate amount payable to the Holder in connection with such conversion (together with unpaid amounts from prior conversions) exceeds $1,000, at which time all previously deferred payments shall be made. 16. Notices. Any and all notices or other communications or deliveries hereunder (including without limitation any Conversion Notice) shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be those set forth in the Purchase Agreement (with copies as indicated therein) or such other address or facsimile number as either party may provide to the other in accordance with this Section. 13 14 17. Miscellaneous. (a) This Debenture shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. This Debenture may be amended only in writing signed by the Company and the Holder and their successors and assigns. (b) Subject to Section 17(a), above, nothing in this Debenture shall be construed to give to any person or corporation other than the Company and the Holder any legal or equitable right, remedy or cause under this Debenture. This Debenture shall inure to the sole and exclusive benefit of the Company and the Holder. (c) The corporate laws of the State of California shall govern all issues concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of Texas, without regard to the principles of conflicts of law thereof. The Company and the Holder hereby irrevocably submit to the exclusive jurisdiction of the state and federal courts sitting in Dallas, Texas for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or that such suit, action or proceeding is improper. Each of the Company and the Holder hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Company at the address in effect for notices to it under this instrument and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. (d) The headings herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof. (e) In case any one or more of the provisions of this Debenture shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Debenture shall not in any way be affected or impaired thereby and the parties will attempt in good faith to agree upon a valid and enforceable provision which shall be a commercially reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Debenture. (f) No provision of this Debenture may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and the Holder or, or, in the case of a waiver, by the Holder. No waiver of any default with respect to any provision, condition or requirement of this Debenture shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK 14 15 [SIGNATURE PAGE FOLLOWS] 15 16 IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated. PROCOM TECHNOLOGY, INC. By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- 16 17 FORM OF CONVERSION NOTICE (To be executed by the registered Holder in order to convert Debenture) The undersigned hereby elects to convert the specified principal amount of 6% Convertible Debentures (the "DEBENTURES") into shares of common stock, par value $.01 per share (the "COMMON STOCK"), of Procom Technologies, Inc., a California corporation (the "COMPANY"), according to the conditions hereof, as of the date written below. ------------------------------------------------------------- Date to Effect Conversion ------------------------------------------------------------- Principal amount of Debentures owned prior to conversion ------------------------------------------------------------- Principal amount of Debentures to be Converted ------------------------------------------------------------- Number of shares of Common Stock to be Issued ------------------------------------------------------------- Applicable Conversion Price ------------------------------------------------------------- Principal amount of Debentures owned subsequent to Conversion ------------------------------------------------------------- Name of Holder By: ---------------------------------------------------------- Name: -------------------------------------------------------- Title: ------------------------------------------------------- EX-4.1.1 3 a71449orex4-1_1.txt EXHIBIT 4.1.1 1 EXHIBIT 4.1.1 AMENDMENT TO CONVERTIBLE DEBENTURE This Amendment to Convertible Debenture (the "Amendment") is entered into as of April 20, 2001 between Procom Technology, Inc., a California corporation (the "Company"), and Montrose Investments Ltd., a Cayman Islands corporation (the "Holder"). The Company and the Holder are parties to a Securities Purchase Agreement dated as of October 31, 2000 (the "Purchase Agreement"), pursuant to which the Company issued to the Holder a 6% Convertible Debenture due October 31, 2003 in the original principal amount of $15,000,000 (the "Debenture"). The Company and the Holder desire to amend the Debenture as set forth herein. Terms not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement or the Debenture. Accordingly, the Company and the Holder agree that Section 7(b) of the Debenture is hereby amended and restated in its entirety as follows: "(b) May 15, 2001 shall be the first "RESET DATE" and thereafter each six month anniversary of the Original Issue Date shall constitute a Reset Date hereunder, and the "APPLICABLE PORTION" shall equal (i) on the first Reset Date, one-third of the original principal amount of this Debenture; (ii) on the second Reset Date, two-thirds of the original principal amount of this Debenture, and (iii) on the third Reset Date and each Reset Date thereafter, 100% of the original principal amount of this Debenture. (i) For a period of five Trading Days beginning on and including each Reset Date (a "RESET PERIOD"), the Conversion Price applicable to the Applicable Portion of this Debenture shall be reset to the lesser of (A) the Conversion Price that would otherwise apply or (B) 90% of the average of the Closing Prices over the ten Trading Days preceding such Reset Date (the "RESET CONVERSION PRICE"). (ii) If the Holder delivers a Conversion Notice during any Reset Period with respect to all or any portion of the Applicable Portion of this Debenture (the "RESET PORTION"), the Company shall have the right, upon irrevocable notice delivered to the Holder within two Trading Days after receipt of such Conversion Notice, to repurchase all or any portion of the Reset Portion at a price equal to 100% of the outstanding principal amount thereof plus all accrued but unpaid interest thereon to the date of payment (the "RESET REPURCHASE PRICE"), and any portion of this Debenture so repurchased shall not be converted into Common Stock pursuant to such Conversion Notice. The Company shall pay the entire Reset Repurchase Price in immediately available funds (free of any claim of subordination) no later than 20 Trading Days after the Reset Date. Upon receipt of such payment, the Holder will deliver the original Debenture so repurchased to the Company, unless such Holder is awaiting receipt of a New Debenture from the Company pursuant to another provision hereof. (iii) If the Company fails to pay the Reset Repurchase Price in full when due, then, in addition to any other remedies available to the Holder under the Transaction Documents, the Holder shall have the right (by notice to the Company) to (A) declare such repurchase to be void ab initio and (B) to convert all or any portion of the Reset Portion into Common Stock at the Reset Conversion Price." Except as expressly set forth above, the Debenture and all of the other Transaction Documents (as defined in the Purchase Agreement) remain in full force and effect in accordance with their terms, and any reference therein to the "Debenture" shall mean the Debenture as amended by this Amendment. This Amendment effects an amendment and a modification of the Debenture and not a replacement or substitution thereof. 2 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written. PROCOM TECHNOLOGY, INC. By: /s/ ALEX RAZMJOO -------------------------------- Name: Alex Razmjoo ------------------------------ Title: President ----------------------------- MONTROSE INVESTMENTS LTD. By: /s/ KEVIN O'NEAL -------------------------------- Name: Kevin O'Neal ------------------------------ Title: Authorized Signatory ----------------------------- 2 EX-5.1 4 a71449orex5-1.txt EXHIBIT 5.1 1 EXHIBIT 5.1 FREDERICK L. JUDD 56 DISCOVERY IRVINE, CA 92618 April 25, 2001 Securities and Exchange Commission 450 Fifth Street, N.W. Judiciary Plaza Washington, D.C. 20549 Re: Procom Technology, Inc. Registration Statement on Form S-3 Gentlemen: Reference is made to the Registration Statement on Form S-3 dated April 25, 2001, as amended, (the "Registration Statement"), filed with the Securities and Exchange Commission by Procom Technology, Inc., a California corporation (the "Company"). The Registration Statement relates to the resale by certain selling shareholders of an aggregate of 2,322,149 shares (the "Shares") of the Company's Common Stock, $.01 par value. The Shares are issuable to such selling shareholders upon the conversion or exercise of 6% convertible debentures ("Debentures") and common stock purchase warrants ("Warrants"). I advise you that I have examined original or copies certified or otherwise identified to our satisfaction of the Certificate of Incorporation and By-laws of the Company, minutes of meetings of the Board of Directors and shareholders of the Company, the Registration Statement, and such other documents, instruments and certificates of officers and representatives of the Company and public officials, and I have made such examination of the law as I have deemed appropriate as the basis for the opinion hereinafter expressed. In making such examination, I have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to original documents of documents submitted to my office as certified or photostatic copies. Based upon the foregoing, I am of the opinion that the Shares have been duly authorized and reserved for and, when issued in accordance with the terms of the Debentures and Warrants, will be legally issued, fully paid and non-assessable. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and I further consent to the reference to this firm under the caption "Legal Matters" in the Registration Statement and the Prospectus forming a part thereof. Very truly yours, /s/ FREDERICK L. JUDD -------------------------------------- FREDERICK L. JUDD Counsel to Procom Technology, Inc. EX-10.1 5 a71449orex10-1.txt EXHIBIT 10.1 1 EXHIBIT 10.1 IBM CREDIT CORPORATION AGREEMENT FOR WHOLESALE FINANCING (SECURITY AGREEMENT) This Agreement for Wholesale Financing - Security Agreement (as amended, supplemented or otherwise modified from time to time, this "Agreement") dated October 11, 2000, is by and between IBM Credit Corporation, a Delaware corporation, with a place of business at 5000 Executive Parkway, Suite 450, San Ramon, CA 94583 ("IBM Credit"), and Procom Technology, Inc. a California corporation, ("Customer"). In the course of Customer's business, Customer acquires products and wants IBM Credit to finance Customer's purchase of such products under the following terms and conditions: 1. IBM Credit may in its sole discretion from time to time decide the amount of credit IBM Credit extends to Customer, notwithstanding any prior course of conduct between IBM Credit and Customer. IBM Credit may combine all of its advances to make one debt owed by Customer. 2. IBM Credit may in its sole discretion decide the amount of funds, if any, IBM Credit will advance on any products Customer may seek to acquire. Customer agrees that any decision to finance products will not be binding on IBM Credit until such time as the funds are actually advanced by IBM Credit. 3. In the course of Customer's operations, Customer intends to purchase from persons approved in writing by IBM Credit for the purpose of this Agreement (the "Authorized Suppliers") computer hardware and software products manufactured or distributed by or bearing any trademark or trade name of such Authorized Suppliers (the "Approved Inventory"). When IBM Credit advances funds, IBM Credit may send Customer a Statement of Transaction or other statement. If IBM Credit does, Customer will have acknowledged the debt to be an account stated and Customer will have agreed to the terms set forth on such statement unless Customer notifies IBM Credit in writing of any question or objection within seven (7) days after such statement is mailed to Customer. 4. To secure payment of all of Customer's current and future obligations to IBM Credit whether under this Agreement, any guaranty that Customer now or hereafter executes, or any other agreement between Customer and IBM Credit, whether direct or contingent, Customer grants IBM Credit a security interest in all of Customer's inventory, equipment, fixtures, accounts, contract rights, chattel paper, instruments, reserves, documents of title, deposit accounts and general intangibles, whether now owned or hereafter acquired, and all attachments, accessories, accessions, substitutions and/or replacements thereto and all proceeds thereof. All of the above assets are defined pursuant to the provisions of Article 9 of the Uniform Commercial Code and are hereinafter collectively referred to as the "Collateral". This security interest is also granted to secure Customer's obligations to all of IBM Credit's affiliates. Customer will hold all of the Collateral financed by IBM Credit, and the proceeds thereof, in trust for IBM Credit and Customer will immediately account for and remit directly to IBM Credit all such proceeds when payment is required under the terms set forth in the billing statement or as otherwise provided in this Agreement. IBM Credit may directly collect any amount owed to Customer from Authorized Suppliers with respect to the Collateral and credit Customer with all such sums received by IBM Credit from Authorized Suppliers. IBM Credit's title, lien or security interest will not be impaired by any payments 2 Customer makes to the seller or anyone else or by Customer's failure or refusal to account to IBM Credit for proceeds. 5. Customer's principal place of business is located at: 58 Discovery, Irvine, California, 92618. This paragraph is not in any manner intended to limit the extent of IBM Credit's security interest in the Collateral. 6. Customer represents and covenants that the Collateral is and will remain free from all claims and liens superior to IBM Credit's unless otherwise agreed to by IBM Credit in writing, and that Customer will defend the Collateral against all other claims and demands. Customer will not sell, rent, lease, lend, demonstrate, pledge, transfer or secrete any of the Collateral or use any of the Collateral for any purpose other than exhibition and sale to buyers in the ordinary course of business, without IBM Credit's prior written consent. Customer will execute all documents IBM Credit may request to confirm or perfect IBM Credit's security interest in the Collateral. Customer warrants and represents that Customer is not in default in the payment of any principal, interest or other charges relating to any indebtedness owed to any third party, and no event has occurred, as of the effective date of this Agreement or as of the date of any request by Customer to IBM Credit for financing in the future, under the terms of any agreement, document, promissory note or other instrument, which with or without the passage of time and/or the giving of notice constitutes or would constitute an event of default thereunder. Customer will promptly provide its year-end financial statement, in form and detail satisfactory to IBM Credit, to IBM Credit within ninety (90) days after Customer's fiscal year ends and, if requested by IBM Credit, Customer will also promptly provide Customer's financial statement to IBM Credit after each fiscal quarter within forty five (45) days. Customer represents and covenants that each financial statement that Customer submits to IBM Credit will be prepared according to generally accepted accounting principles, in effect in the United States from time to time, and is and will be correct and will accurately represent Customer's financial condition. Customer further acknowledges IBM Credit's reliance on the truthfulness and accuracy of each financial statement that Customer submits to IBM Credit in IBM Credit's extension of various financial accommodations to Customer. 7. Customer will pay all taxes, license fees, assessments and charges on the Collateral when due. Customer will immediately notify IBM Credit of any loss, theft, or destruction of or damage to any of the Collateral. Customer will be responsible for any loss, theft or destruction or damage of Collateral. Customer will keep the Collateral insured for its full insurable value against loss or damage under an "all risk" insurance policy. Customer will obtain insurance under such terms and in such amounts acceptable to IBM Credit, from time to time, with companies acceptable to IBM Credit, with a lender loss-payee or mortgagee clause payable to IBM Credit to the extent of any loss to the Collateral and containing a waiver of all defenses against Customer that is acceptable to IBM Credit. Customer agrees to provide IBM Credit with written evidence of the required insurance coverage and lender loss-payee or mortgagee clause. Customer assigns to IBM Credit all amounts owed to Customer under any insurance policy, and Customer directs any insurance company to make payment directly to IBM Credit to be applied to the unpaid obligations owed IBM Credit. Customer further grants IBM Credit an irrevocable power of attorney to endorse any checks or drafts and sign and file any of the papers, forms and documents required to 3 initiate and settle any insurance claims with respect to the Collateral. If Customer fails to pay any of the above-referenced costs, charges, or insurance premiums, or if Customer fails to insure the Collateral, IBM Credit may, but will not be obligated to, pay such costs, charges and insurance premiums, and the amounts paid will be considered an additional obligation owed by Customer to IBM Credit. 8. IBM Credit has the right to enter upon Customer's premises from time to time, as IBM Credit in its sole discretion may determine for IBM Credit's sole benefit, and all without any advance notice to Customer, to: examine the Collateral; appraise it as security; verify its condition and verify that all Collateral have been properly accounted for; verify that Customer has complied with all terms and provisions of this Agreement; and assess, examine, and make copies of Customer's books and records. Any collection by IBM Credit of any amounts Customer owes at or during IBM Credit's examination of the Collateral does not relieve Customer of its continuing obligation to pay Customer's obligations owed to IBM Credit in accordance with such terms. 9. Customer agrees to immediately pay IBM Credit the full amount of the principal balance owed IBM Credit on each item of Approved Inventory financed by IBM Credit at the time such Approved Inventory is sold, lost, stolen, destroyed, or damaged, whichever occurs first, unless IBM Credit has agreed in writing to provide financing to Customer on other terms. Customer also agrees to provide IBM Credit, upon IBM Credit's request, an inventory report which describes all the Approved Inventory in Customer's possession (excluding any Approved Inventory financed by IBM Credit under the Demonstration and Training Equipment Financing Option). Regardless of the repayment terms set forth in any billing statement, if IBM Credit determines, after conducting an inspection of all of Customer's inventory, that the current outstanding obligations owed by Customer to IBM Credit exceeds the aggregate wholesale invoice price, net of all applicable price reduction credits, of the Approved Inventory in Customer's possession that is new and in manufacturer sealed boxes and in which IBM Credit has a perfected first priority security interest, Customer agrees to immediately pay to IBM Credit an amount equal to the difference between such outstanding obligations and the aggregate wholesale invoice price, net of all applicable price reduction credits, of such Approved Inventory. Customer will make all payments to IBM Credit according to the remit to instructions in the billing statement. Any checks or other instruments delivered to IBM Credit to be applied against Customer's outstanding obligations will constitute conditional payment until the funds represented by such instruments are actually received by IBM Credit. IBM Credit may apply payments to reduce finance charges first and then principal, irrespective of Customer's instructions. Further, IBM Credit may apply principal payments to the oldest (earliest) invoice for the Approved Inventory financed by IBM Credit, or to such Approved Inventory which is sold, lost, stolen, destroyed, damaged, or otherwise disposed of. If Customer signs any instrument for any outstanding obligations, it will be evidence of Customer's obligation to pay and will not be payment. Any discount, rebate, bonus, or credit for Approved Inventory granted to Customer by any Authorized Supplier will not, in any way, reduce the obligations Customer owes IBM Credit, until IBM Credit has received payment in good funds. 10. Customer will pay IBM Credit finance charges on the total amount of credit extended to Customer in the amount agreed to between Customer and IBM Credit from time to time. The period of any financing will begin on the invoice date for the Approved Inventory whether or not IBM Credit 4 advances payment on such date. This period will be included in the calculation of the annual percentage rate of the finance charges. Such finance charges may be applied by IBM Credit to cover any amounts expended for IBM Credit's: appraisal and examination of the Collateral; maintenance of facilities for payment; assistance in support of Customer's retail sales; IBM Credit's commitments to Authorized Suppliers to finance shipments of Approved Inventory to Customer; recording and filing fees; expenses incurred in obtaining additional collateral or security; and any costs and expenses incurred by IBM Credit arising out of the financing IBM Credit extends to Customer. Customer also agrees to pay IBM Credit additional charges which will include: late payment fees at a per annum rate equal to the Prime Rate plus 6.5%; flat charges; charges for receiving checks from Customer; renewal charges; and any other charges agreed to by Customer and IBM Credit from time to time. For purposes of this Agreement, "Prime Rate" will mean the average of the rates of interest announced by banks which IBM Credit uses in its normal course of business of determining prime rate. Unless Customer hereafter otherwise agrees in writing, the finance charges and additional charges agreed upon will be IBM Credit's applicable finance charges and additional charges for the class of Approved Inventory involved prevailing from time to time at IBM Credit's principal place of business, but in no event greater than the highest rate from time to time permitted by applicable law. If it is determined that amounts received from Customer were in excess of such highest rate, then the amount representing such excess will be considered reductions to the outstanding principal of IBM Credit's advances to Customer. IBM Credit will send Customer, at monthly or other intervals, a statement of all charges due on Customer's account with IBM Credit. Customer will have acknowledged the charges due, as indicated on the statement, to be an account stated, unless Customer objects in writing to IBM Credit within seven (7) days after such statement is mailed to Customer. This statement may be adjusted by IBM Credit at any time to conform to applicable law and this Agreement. IBM Credit shall calculate any free financing period utilizing a methodology that is consistent with the methodologies used for similarly situated customers of IBM Credit. The Customer understands that IBM Credit may not offer, may change or may cease to offer a free financing period for the Customer's purchases of Approved Inventory. If any Authorized Supplier fails to provide payment of a finance charge for Customer, as agreed, Customer will be responsible for and pay to IBM Credit all finance charges billed to Customer's account. 11. Any of the following events will constitute an event of default by Customer under this Agreement: Customer breaches any of the terms, warranties or representations contained in this Agreement or in any other agreements between Customer and IBM Credit or between Customer and any of IBM Credit's affiliates; any guarantor of Customer's obligations to IBM Credit under this Agreement or any other agreements breaches any of the terms, warranties or representations contained in such guaranty or other agreements between such guarantor and IBM Credit; any representation, statement, report or certificate made or delivered by Customer or any of Customer's owners, representatives, employees or agents or by any guarantor to IBM Credit is not true and correct; Customer fails to pay any of the liabilities or obligations owed to IBM Credit or any of IBM Credit's affiliates when due and payable under this Agreement or under any other agreements between Customer and IBM Credit or between Customer and any of IBM Credit's affiliates; IBM Credit determines that IBM Credit is insecure with respect to any of the 5 Collateral or the payment of Customer's obligations owed to IBM Credit; Customer abandons the Collateral or any part thereof; Customer or any guarantor becomes in default in the payment of any indebtedness owed to any third party; a judgment issues on any money demand against Customer or any guarantor; an attachment, sale or seizure is issued against Customer or any of the Collateral; any part of the Collateral is seized or taken in execution; the death of the undersigned if the business is operated as a sole proprietorship, or the death of a partner if the business is operated as a partnership, or the death of any guarantor; Customer ceases or suspends Customer's business; Customer or any guarantor makes a general assignment for the benefit of creditors; Customer or any guarantor becomes insolvent or voluntarily or involuntarily becomes subject to the Federal Bankruptcy Code, state insolvency laws or any act for the benefit of creditors; any receiver is appointed for any of Customer's or any guarantor's assets, or any guaranty pertaining to Customer's obligations to IBM Credit is terminated for any reason whatsoever; any guarantor disclaims any obligations under any guaranty; Customer loses any franchise, permission, license or right to sell or deal in any Approved Inventory; Customer or any guarantor misrepresents its respective financial condition or organizational structure; or IBM Credit determines, in its sole discretion, that the Collateral, any other collateral given to IBM Credit to secure Customer's obligations to IBM Credit, any guarantor's guaranty, or Customer's or any guarantor's net worth has decreased in value, and Customer has been unable, within the time period prescribed by IBM Credit, to either provide IBM Credit with additional collateral in a form and substance satisfactory to IBM Credit or reduce Customer's total obligations by an amount sufficient to satisfy IBM Credit. Following an event of a default, IBM Credit may, at any time at IBM Credit's election, without notice or demand to Customer do any one or more of the following: declare all or any part of the obligations Customer owes IBM Credit immediately due and payable, together with all court costs and all costs and expenses of IBM Credit's repossession and collection activity, including, but not limited to, all attorney's fees; exercise any or all rights of a secured party under applicable law; cease making any further financial accommodations or extending any additional credit to Customer; and/or exercise any or all rights available at law or in equity. All of IBM Credit's rights and remedies are cumulative. Customer will segregate, hold and keep the Collateral in trust, in good order and repair, only for IBM Credit's benefit, and Customer will not exhibit, transfer, sell, further encumber, otherwise dispose of or use for any other purpose whatsoever any of the Collateral. Upon IBM Credit's oral or written demand, Customer will immediately deliver the Collateral to IBM Credit, in good order and repair, at a place specified by IBM Credit, together with all related documents; or IBM Credit may, in its sole discretion and without notice or demand to Customer, take immediate possession of the Collateral, together with all related documents. Customer waives and releases: any claims and causes of action which Customer may now or ever have against IBM Credit as a direct or indirect result of any possession, repossession, collection or sale by IBM Credit of any of the Collateral and the benefit of all valuation, appraisal and exemption laws. If IBM Credit seeks to take possession of any of the Collateral by court process, Customer irrevocably waives any notice, bonds, surety and security relating thereto required by any statute, court rule or otherwise. Customer appoints IBM Credit or any person IBM Credit may delegate as Customer's duly authorized to do, in IBM Credit's sole 6 discretion, any of the following in the event of a default: endorse Customer's name on any notes, checks, drafts or other forms of exchange constituting Collateral or received as payment on any Collateral for deposit in IBM Credit's account; sell, assign, transfer, negotiate, demand, collect, receive, settle, extend or renew any amounts due on any of the Collateral; and exercise any rights Customer has in the Collateral. If Customer brings any action or asserts any claim against IBM Credit which arises out of this Agreement, any other agreement or any of the business dealings between IBM Credit and Customer, in which Customer does not prevail, Customer agrees to pay IBM Credit all costs and expenses of IBM Credit's defense of such action or claim including, but not limited to, all attorney's fees. If IBM Credit fails to exercise any of IBM Credit's rights or remedies under this Agreement, such failure will in no way or manner waive any of IBM Credit's rights or remedies as to any past, current or future default. 12. Customer agrees that if IBM Credit conducts a private sale of any Collateral by soliciting bids from ten (10) or more other dealers or distributors in the type of Collateral repossessed by or returned to IBM Credit hereunder, any sale by IBM Credit of such property will be deemed to be a commercially reasonable disposition under the Uniform Commercial Code. IBM Credit agrees that commercially reasonable notice of any public or private sale will be deemed given to Customer if IBM Credit sends Customer a notice of sale at least seven (7) days prior to the date of any public sale or the time after which a private sale will be made. If IBM Credit disposes of any such Collateral other than as herein contemplated, the commercial reasonableness of such sale will be determined in accordance with the provisions of the Uniform Commercial Code as adopted by the state whose laws govern this Agreement. Customer agrees that IBM Credit does not warrant the Approved Inventory. Customer will pay IBM Credit in full even if the Approved Inventory is defective or fails to conform to any warranties extended by any third party. Customer's obligations to IBM Credit will not be affected by any dispute Customer may have with any third party. Customer will not assert against IBM Credit any claim or defense Customer may have against any third party. Customer will indemnify and hold IBM Credit harmless against any claims or defenses asserted by any buyer of the Approved Inventory by reason of: the condition of any Approved Inventory; any representations made about the Approved Inventory; or for any and all other reasons whatsoever. 13. Customer grants to IBM Credit a power of attorney authorizing any of IBM Credit's representatives to: execute or endorse on Customer's behalf any documents, financing statements and instruments evidencing Customer's obligations to IBM Credit; supply any omitted information and correct errors in any documents or other instruments executed by or for Customer; do any and every act which Customer is obligated to perform under this Agreement; and do any other things necessary to preserve and protect the Collateral and IBM Credit's security interest in the Collateral. Customer further authorizes IBM Credit to provide to any third party any credit, financial or other information about Customer that is in IBM Credit's possession. 14. Each party may electronically transmit to or receive from the other party certain documents specified in the Schedule A attached hereto via the Internet or electronic data interchange. Any transmission of data which is not a Document shall have no force or effect between the parties. Transmissions may be transmitted directly or through any third party service provider ("Provider") with which either party may contract. Each party will be liable for the acts or omissions of its 7 Provider while handling for such party, provided, that if both parties use the same Provider, the originating party will be liable for the acts or omissions of such Provider as to such. Some information to be made available to Customer will be specific to Customer and will require Customer to register with IBM Credit before access is provided. After IBM Credit has approved the registration submitted by Customer, IBM Credit will provide an ID and password(s) to an individual designated by Customer ("Customer Recipient"). Customer accepts responsibility for the designated individual's distribution of the ID and password(s) within its organization and Customer will take reasonable measures to ensure that passwords are not shared or disclosed to unauthorized individuals. Customer will conduct an annual review of all IDs and passwords to ensure that they are accurate and properly authorized. IBM CREDIT MAY CHANGE OR DISCONTINUE USE OF AN ID OR PASSWORD AT ITS DISCRETION AT ANY TIME. Customer will not be deemed to have been properly received, and will not give rise to any obligation, until accessible to the receiving party at such party's receipt computer at the address specified herein. Upon proper receipt of a Document, the receiving party will promptly transmit a functional acknowledgment in return. A functional acknowledgment will constitute conclusive evidence that a Document has been properly received. If any transmitted document is received in an unintelligible or garbled form, the receiving party will promptly notify the originating party in a reasonable manner. In the absence of such a notice, the originating party's records of the contents of such Document will control. Control. EFFECTIVE DATE OF THIS SCHEDULE A: ____________________. 15. Time is of the essence in this Agreement. This Agreement will be effective from the date of its acceptance at IBM Credit's office. Customer acknowledges receipt of a true copy and waives notice of IBM Credit's acceptance of it. If IBM Credit advances funds under this Agreement, IBM Credit will have accepted it. This Agreement will remain in force until one of the parties gives notice to the other that it is terminated. If Customer terminates this Agreement, IBM Credit may declare all or any part of the obligations Customer owes IBM Credit due and payable immediately. If this Agreement is terminated, Customer will not be relieved from any obligations to IBM Credit arising out of IBM Credit's advances or commitments made before the effective date of termination. IBM Credit's rights under this Agreement and IBM Credit's security interest in present and future Collateral will remain valid and enforceable until all Customer's obligations to IBM Credit are paid in full. This Agreement shall be binding upon and inure to the benefit of IBM Credit and the Customer and their respective successors and assigns; provided, that the Customer shall have no right to assign this Agreement without the prior written consent of IBM Credit. This Agreement will protect and bind IBM Credit's and Customer's respective heirs, representatives, successors and assigns. It can be varied only by a document signed by IBM Credit's and Customer's authorized representatives. If any provision of this Agreement or its application is invalid or unenforceable, the remainder of this Agreement will not be impaired or affected and will remain binding and enforceable. This Agreement is executed with the authority of Customer's Board of Directors, and with shareholder approval, if required by the law, if Customer is a corporation or if Customer is a limited liability company, with the authority of authorized members. All notices IBM Credit sends to Customer will be sufficiently given if mailed or delivered to Customer at its address shown in paragraph 5. 8 16. The laws of the State of New York will govern this Agreement. Customer agrees that venue for any lawsuit will be in the State or Federal Court within the county, parish, or district where IBM Credit's office, which provides the financial accommodations, is located. Customer hereby waives any right to change the venue of any action. 17. Customer has previously executed any security agreements relating to the Collateral with IBM Credit, Customer agrees that this Agreement is intended only to amend and supplement such written agreements, and will not be deemed to be a novation or termination of such written agreements. In the event the terms of this Agreement conflict with the terms of any prior security agreement that Customer previously executed with IBM Credit, the terms of this Agreement will control in determining the agreement between Customer and IBM Credit. 18. CUSTOMER WAIVES ALL EXEMPTIONS AND HOMESTEAD LAWS TO THE MAXIMUM EXTENT PERMITTED BY LAW. CUSTOMER WAIVES ANY STATUTORY RIGHT TO NOTICE OR HEARING PRIOR TO IBM CREDIT'S ATTACHMENT, REPOSSESSION OR SEIZURE OF THE COLLATERAL. CUSTOMER FURTHER WAIVES ANY AND ALL RIGHTS OF SETOFF CUSTOMER MAY HAVE AGAINST IBM CREDIT. CUSTOMER AGREES THAT ANY PROCEEDING IN WHICH CUSTOMER, OR IBM CREDIT OR ANY OF IBM CREDIT'S AFFILIATES, OR IBM CREDIT ASSIGNS ARE PARTIES, AS TO ALL MATTERS AND THINGS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT, OR THE RELATIONS AMONG THE PARTIES LISTED IN THIS PARAGRAPH WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES ANY RIGHT TO A JURY TRIAL IN ANY SUCH PROCEEDING. ATTEST: Frank Alaghband PROCOM TECHNOLOGY, INC. BY: /s/ FREDERICK JUDD ------------------------------ Frederick Judd Vice President Finance EX-23.1 6 a71449orex23-1.txt EXHIBIT 23.1 1 EXHIBIT 23.1 INDEPENDENT AUDITOR'S CONSENT The Board of Directors Procom Technology, Inc.: We consent to the use of our report dated September 22, 2000, except as to note 14, which is as of October 10, 2000, incorporated by reference in the registration statement on Form S-3 of Procom Technology, Inc., relating to the consolidated balance sheets of Procom Technology, Inc. and subsidiaries as of July 31, 1999 and 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended, and the related schedule and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG LLP ----------------------------------- KPMG LLP Orange County, California April 23, 2001 EX-23.2 7 a71449orex23-2.txt EXHIBIT 23.2 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement on Form S-3 dated April 25, 2001 of our report dated October 8, 1998, included in Procom Technology's Form 10-K for the year ended July 31, 2000, and to all references to our Firm included in this registration statement. /s/ ARTHUR ANDERSEN LLP ----------------------------------- ARTHUR ANDERSEN LLP Orange County, California April 23, 2001 -----END PRIVACY-ENHANCED MESSAGE-----