AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 2002
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
------------------------
COM21, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<Table>
DELAWARE 7370 94-3201698
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NUMBER)
</Table>
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750 TASMAN DRIVE
MILPITAS, CALIFORNIA 95035
(408) 953-9100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GEORGE MERRICK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COM21, INC.
750 TASMAN DRIVE
MILPITAS, CALIFORNIA 95035
(408) 953-9100
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
JOHN M. MONTGOMERY, ESQ.
BROBECK, PHLEGER & HARRISON LLP
2000 UNIVERSITY CIRCLE
PALO ALTO, CALIFORNIA 94303
(650) 331-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable on or after this Registration Statement is declared
effective.
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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, as amended, 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 of 1933, as amended, check the
following box and list the Securities Act of 1933, as amended, 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 of 1933, as amended, check the following box and list
the Securities Act of 1933, as amended, registration statement number of the
earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $0.001 per value per
share................................ 350,000 $0.76 $266,000 $25
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</Table>
(1) Pursuant to Rule 457(c) under the Securities Act, this per share amount is
based on the average high and low prices of our common stock on May 7, 2002
as reported on the NASDAQ National Market. Estimated solely for the purpose
of calculating the registration fee.
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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PRELIMINARY PROSPECTUS (SUBJECT TO COMPLETION, DATED MAY 10, 2002)
350,000 Shares
COM21, INC.
Common Stock
-------------------------
This prospectus relates to the sale of up to 350,000 shares of our common
stock by the selling stockholders identified in this prospectus on page 13. This
amount constitutes 350,000 shares of common stock potentially issuable upon
exercise of two currently outstanding warrants to purchase common stock held by
the selling stockholders. The prices at which the selling stockholders may sell
the shares will be determined by the prevailing market for the shares or in
negotiated transactions. We will not receive any proceeds from the sale of
shares offered under this prospectus. We will receive proceeds from the exercise
of the outstanding warrants by the selling stockholders and those proceeds will
be used for our general corporate purposes.
Our common stock is traded on the Nasdaq National Market under the symbol
CMTO. The closing price on May 7, 2002 was $0.76 per share.
-------------------------
THE SHARES OF OUR COMMON STOCK OFFERED OR SOLD UNDER THIS PROSPECTUS
INVOLVE A HIGH DEGREE OF RISK. SEE RISK FACTORS BEGINNING ON PAGE 1 OF THIS
PROSPECTUS TO READ ABOUT IMPORTANT FACTORS YOU SHOULD CONSIDER BEFORE BUYING THE
COMMON STOCK.
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
-------------------------
The date of this prospectus is May 10, 2002.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS.
COM21, INC.
Com21's principal executive offices are located at 750 Tasman Drive,
Milpitas, California 95035. Com21's telephone number is (408) 953-9100.
RISK FACTORS
You should carefully consider the following risks and the other information
included or incorporated by reference in this prospectus, before deciding
whether you wish to purchase any of the shares offered.
COM21'S REVENUES IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES
ANALYSTS OR INVESTORS.
Our operating results are likely to fluctuate significantly in the future
on a quarterly and an annual basis due to a number of factors, many of which are
outside of our control. Supply of components, delays in getting new products
into high volume manufacturing, and manufacturing or testing constraints could
result in delays in the delivery of products and impact revenues and gross
margins.
Revenues for any future quarter are difficult to predict. Delays in the
product distribution schedule of one or more of our cable operator customers
would likely reduce our operating results for a particular period. Factors that
could cause our revenues to fluctuate include:
- pressure to reduce prices;
- variations in the timing of orders and shipments of our products;
- variations in the size of orders by our customers;
- new product introductions by us or by competitors;
- delays in obtaining certification for our standards-based products;
- general economic conditions and economic conditions specific to the cable
and electronic data transmission industries;
- cable operators' financial ability to purchase our products; and
- delays in obtaining regulatory approvals necessary to sell our products.
COM21 MAY BE UNABLE TO OBTAIN ADDITIONAL CAPITAL NEEDED TO OPERATE AND GROW OUR
BUSINESS, WHICH COULD WEAKEN OUR FINANCIAL CONDITION AND MAKE US UNABLE TO
DEVELOP OUR TECHNOLOGIES AND PRODUCTS.
We cannot assure you that any additional financing will be available to us
on acceptable terms, or at all, when required. As previously announced, we are
currently evaluating alternative forms of financing. These alternatives may
include the sale of additional stock, additional lines of credit, and the
additional divestiture of certain business assets. If we raise additional funds
by issuing equity securities, there may be significant dilution to existing
stockholders given the current price of our common stock. If additional funds
are not available, we may be required to delay, scale back, or eliminate one or
more of our research and development or manufacturing programs.
In light of our current financial situation and our history of operating
losses, we expect such financing to be available but it may be at less favorable
terms than our present financing arrangement. Further alternative forms of
financing may also restrict Com21's operations or limit our ability to respond
quickly
1
to changes in the marketplace. At December 31, 2001, we had an accumulated
deficit of approximately $241.3 million. If we do not increase revenues, improve
gross margins, and reduce operating expenses, we may also incur net losses
during future quarters. Because of a decline in our revenues in the fourth
quarter of 2000, we introduced measures to reduce operating expenses that
resulted in restructuring charges of $69.3 million in the twelve months ended
December 31, 2001. In January 2002, we had an additional work force reduction
due to the reorganization of Com21 from a divisional structure centered on
multiple product lines to a single functional organization. We continue to
monitor market conditions to assess the need to take further action, if
necessary. Any subsequent actions may result in additional workforce reductions,
restructuring charges, discontinuation of product lines, and provisions for
impairment of long-lived assets, which could harm our financial position,
results of operations and stock price.
WE MAY NOT BE ABLE TO PRODUCE SUFFICIENT QUANTITIES OF OUR PRODUCTS BECAUSE WE
DEPEND ON THIRD-PARTY MANUFACTURERS, THEIR SUPPLIERS AND ORIGINAL EQUIPMENT
MANUFACTURERS AND HAVE LIMITED MANUFACTURING EXPERIENCE.
We contract for the manufacture of cable modems and integrated circuit
boards on a turnkey basis. Our future success will depend, in significant part,
on our ability to have others manufacture our products cost-effectively, in
sufficient volumes and to meet production and delivery schedules. Dependence on
third-party manufacturers presents a number of risks, including:
- not taking sufficient credit exposure on new product builds;
- the contract manufacturer may lower available credit limits;
- the contract manufacturer may not provide sufficient payment terms;
- failure of our contract manufacturer to meet delivery schedules;
- the contract manufacturer may not build products which meet our quality
standards;
- the contract manufacturer may produce less than satisfactory
manufacturing yields and costs;
- the contract manufacturer may not be able to build product to meet our
demand;
- difficulty in planning mix of units to be produced by us; and
- the potential misappropriation of our intellectual property if the
manufacturer were to market our products as its own.
In the fourth quarter of 2001, we entered into a contract with a new
contract manufacturer for the manufacture of our proprietary ComUNITY Access(R)
cable modems. If the transition from the existing third-party manufacturers to
this new contract manufacturer does not occur on a timely basis, or if the new
contract manufacturer is not able to produce our product to our quality
standards, or at a volume large enough to fulfill our orders then our revenues
and margins could be harmed.
We recently entered into a contract with a new contract manufacturer for
the manufacture of data-over-cable system interface specification, or DOCSIS,
cable modems in April 2002. If the transition from existing third-party
manufacturer to this new contract manufacturer does not occur on a timely basis,
or if the new contract manufacturer is not able to produce our product to our
quality standards, or at a volume large enough to fulfill our orders then our
revenues and margins could be harmed.
Any manufacturing disruption could impair our ability to fulfill orders. We
do not have arrangements with any of our vendors that guarantee product
availability, the continuation of particular payment terms, or the extension of
credit limits. We may experience manufacturing or supply problems in the future.
We are dependent on our manufacturers to secure components at favorable prices,
and in sufficient volume. If our contract manufacturers fail to perform in any
of these areas, it could harm our relationships with customers. Failure to
obtain these components and supply our customers with our products would
decrease our revenues.
2
COM21'S GROSS MARGIN IN ONE OR MORE FUTURE PERIODS IS LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY CAUSE OPERATING RESULTS TO FALL BELOW THE EXPECTATIONS OF
ANALYSTS AND INVESTORS.
Our operating results are impacted significantly by our ability to improve
and sustain gross margins. The factors which impact gross margins and cause them
to fluctuate from quarter to quarter include:
- pressures to reduce prices;
- write-off of excess inventory;
- changes in the cost of inventory;
- the sales mix within a product group, especially between proprietary and
standards-based DOCSIS modems;
- component prices we secure from our vendors;
- the average selling prices of our products;
- the effectiveness of our cost reduction efforts;
- the sales mix between our headend equipment and cable modems;
- the ability of the new contract manufacturers to produce quality
products; and
- the volume of products manufactured.
Additionally, our inability to reduce inventory levels may result in
substantial inventory-related charges including marking component inventory to
current market prices because of falling component prices, carrying charges from
our contract manufacturers, and significant write-offs of excess and obsolete
inventory that would not be utilized.
A reduction in gross margins would harm our operating results and reduce
the amount of cash flow generated from our operations. Additionally, if
operating results did not satisfy the expectations of analysts or investors, the
trading price of our common stock would likely decline.
COM21 SIGNED AGREEMENTS IN MARCH 2002, WITH OUR TWO PRIMARY CONTRACT
MANUFACTURERS TO ACCEPT EXCESS INVENTORY FROM THEM WHICH MAY HAVE NO VALUE TO
COM21, AND WOULD THEREFORE REDUCE OUR GROSS PROFIT.
In March 2002, Com21 cancelled all outstanding purchase orders with our two
primary contract manufacturers. In connection with the cancellation, we signed
promissory notes for existing payables to the vendors and for excess component
inventory materials held by the vendors. These notes total approximately $22.5
million, bear interest at an average rate ranging from 8% to 10% and mature in
December 2003 and May 2004. Of the $9.3 million of materials held by the
vendors, approximately $7.9 million will be of no future use to us as a result
of the new DOCSIS contract manufacturing arrangement we entered into with a new
third party in April 2002. Accordingly, the unusable materials will be written
off during the first quarter of 2002. Our provision for excess and obsolete
inventory at December 31, 2001 did not contain provisions for this inventory
held by the vendors. In addition to the notes, Com21 granted warrants to the
vendors to purchase a total of 350,000 shares of common stock.
COM21 MAY BE CHARGED FOR EXCESS INVENTORY HELD OR ON ORDER WITH CONTRACT
MANUFACTURERS WHICH WOULD REDUCE OUR GROSS PROFIT.
We rely on contract manufacturers for the production of our products.
Contract manufacturers generally require revenue forecasts in order to manage
component inventories to meet customer demand. Accordingly, our contract
manufacturers may order substantial amounts of inventory to meet our revenue
forecasts. If our future shipments do not utilize the committed inventory, these
contract manufacturers would have the right to charge us for inventory carrying
costs and to bill us for any excess component and finished goods inventory. We
would be required to fulfill these obligations even if demand for our products
were lower than we anticipate, which could reduce our working capital and have a
negative impact on our financial position.
3
FLUCTUATIONS IN OUR STOCK PRICE COULD IMPACT OUR RELATIONSHIPS WITH EXISTING
CUSTOMERS AND DISCOURAGE POTENTIAL CUSTOMERS FROM DOING BUSINESS WITH US.
Fluctuations in our stock price could lead to a loss of revenues due to our
inability to engage new customers and vendors and to renew contracts with our
current customers and vendors. Existing and potential customers and vendors may
perceive our fluctuating stock price as a sign of instability and may be
unwilling to do business with us. If this were to continue to occur, our
business, results of operations and financial condition could be harmed.
WE MAY NOT BE ABLE TO MAINTAIN OUR LISTING ON THE NASDAQ NATIONAL MARKET.
Our common stock is currently listed on the Nasdaq National Market. We must
satisfy a number of requirements to maintain our listing on the Nasdaq National
Market, including maintaining a minimum bid price for our common stock of $1.00
per share. As of May 7, 2002, the price of our common stock was $0.76. If the
common stock loses its Nasdaq National Market status, it would likely trade on
the Over the Counter Bulletin Board maintained by Nasdaq, which is viewed by
most investors as a less desirable, less liquid marketplace.
WE MUST REDUCE THE COST OF OUR CABLE MODEMS TO REMAIN COMPETITIVE, AND OUR
FAILURE TO DO SO COULD NEGATIVELY IMPACT OUR GROSS MARGINS AND OPERATING
RESULTS.
Some of our competitors have assets and annual revenues that far exceed
ours and because of their financial status, greater product portfolio, and
higher volume sales are able to offer cable modem products at lower prices than
we can. As headend equipment becomes more widely distributed, the price of cable
modems and related equipment will continue to decrease. In particular, the
adoption of the DOCSIS standard has caused increased price competition for cable
modems. Cable Television Laboratories, or CableLabs, performs certification for
the DOCSIS standard. To remain competitive, we may have to lower the price of
our modems in anticipation of planned product cost reductions of our DOCSIS
modems. We may not be able to continually reduce the costs of manufacturing our
cable modems or to secure component parts at a low enough cost to enable us to
lower our modem prices to compete effectively. As we perform on our cost
reduction program, we may not be able to continue to certify our DOCSIS modems
in a timely manner by various standards bodies, including CableLabs. If we are
unable to continue to reduce the manufacturing costs of our cable modems, our
gross margin and operating results could be harmed.
COM21 HAS A SHORT OPERATING HISTORY, HAS NOT MADE A PROFIT, AND EXPECTS TO INCUR
LOSSES IN THE FUTURE.
We have not made a profit, and we expect to continue to operate at a loss
through the first half of 2002. To achieve and subsequently maintain profitable
operations, we must successfully design, develop, test, manufacture, introduce,
market and distribute products on a broad commercial basis and secure higher
revenues and gross profits and contain our operating expenses. Our future
revenues will depend on a number of factors, many of which are beyond our
control. These factors include our ability to:
- reduce prices;
- manufacture products at acceptable quality standards;
- have product available when our customers need it;
- meet industry standards;
- respond to technological change; and
- have a strong competitive advantage.
Due to these factors, we cannot forecast with a degree of accuracy what our
revenues will be or how quickly cable operators will adopt our systems and buy
our cable modems. If we do not generate sufficient revenues and gross margins,
we may not achieve, or be able to sustain, profitability.
4
COM21'S CUSTOMER BASE IS CONCENTRATED AND THE LOSS OF ONE OR MORE OF OUR
CUSTOMERS COULD CAUSE OUR BUSINESS TO SUFFER.
A relatively small number of customers have accounted for a large part of
our revenues, and we expect that this trend will continue. For the year ending
December 31, 2001, our top five customers accounted for 54% of total revenues.
We expect that our largest customers in the future could be different from our
largest customers today due to a variety of factors, including customers'
distribution schedules and budget considerations. Additionally, some of our
systems integrators could develop and manufacture products that compete with our
products and choose not to distribute our products. Because a limited number of
companies account for a majority of our prospective customers, our future
success will depend upon our ability to establish and maintain relationships
with these companies. We may not be able to retain our current accounts or to
obtain additional accounts. Both in the U.S. and internationally, a substantial
majority of households passed by cable access are controlled by a relatively
small number of companies. The loss of one or more of our customers or our
inability to successfully develop relationships with other significant cable
operators could cause our business to suffer.
OUR FUTURE SUCCESS WILL DEPEND IN PART UPON OUR ABILITY TO ENHANCE OUR EXISTING
PRODUCTS AND TO DEVELOP AND INTRODUCE, ON A TIMELY BASIS, NEW PRODUCTS AND
FEATURES THAT MEET CHANGING CUSTOMER REQUIREMENTS AND EMERGING INDUSTRY
STANDARDS.
The market for cable modem systems and products is characterized by rapidly
changing technologies and short product life cycles. Our future success will
depend in large part upon our ability to:
- identify and respond to emerging technological trends in the market;
- develop and maintain competitive products;
- enhance our products by adding innovative features that differentiate our
products from those of competitors;
- bring products to market on a timely basis at competitive prices; and
- respond effectively to new technological changes or new product
announcements by others.
The technological innovations required for us to remain competitive are
inherently complex, require long development cycles, are dependent in some cases
on sole source suppliers and require us, in some cases, to license technology
from others. If our product development and enhancements take longer than
planned, the availability of products would be delayed. We must continue to
invest in research and development to attempt to maintain and enhance our
existing technologies and products, but we may not have the funds available to
do so. Even if we have sufficient funds, these investments may not serve the
needs of our customers or be compatible with changing technological requirements
or standards. Most costs must be incurred before we can determine the
technological feasibility or commercial viability. In addition, revenues from
future products or product enhancements may not be sufficient to recover the
development costs incurred by these products or enhancements.
We may not be successful in managing the transition from our current
products to our new and enhanced products. Product transitions contain a number
of inherent risks, including obsolescence of product inventory, unavailability
of product as inventory of existing product is exhausted before availability of
new product, market acceptance of new products, undetected defects in new
products, and availability of components and parts in new products. If we are
unable to successfully manage the risks of the release and transition of new and
enhanced products, our revenues could be reduced.
5
THE MARKET IN WHICH WE SELL OUR PRODUCTS IS CHARACTERIZED BY MANY COMPETING
TECHNOLOGIES, AND THE TECHNOLOGY ON WHICH OUR PRODUCT IS BASED MAY NOT COMPETE
EFFECTIVELY AGAINST OTHER TECHNOLOGIES.
There are many different methods of getting high speed Internet access to
the end customers. These methods include:
- Regular dial up connection -- using a telephone line and the average 28K
or 56K modem;
- Digital subscriber line/asymmetric digital subscriber line -- a digital
high-speed modem connection offered by telephone companies, also known as
DSL or ADSL;
- Cable modems -- high-speed modem connections offered by cable television
companies;
- Wireless -- high-speed wireless local loop connections that work similar
to cell phones. Digital subscriber line/asymmetric digital subscriber
line and cable modems can operate in a wireless environment; and
- Fiber optics -- strands of very pure glass capable of carrying enormous
volumes of data and voice traffic.
Because of the widespread reach of telephone networks and the financial
resources of telephone companies, competition from telephone-based solutions is
expected to be intense. Cable modem technology may not be able to compete
effectively against wireline or wireless technologies. Significant market
acceptance of alternative solutions for high-speed data transmission could
decrease the demand for our products if these alternatives are viewed as
providing faster access, greater reliability, increased cost-effectiveness or
other advantages.
COM21'S MARKET IS HIGHLY COMPETITIVE AND HAS MANY ESTABLISHED COMPETITORS.
The market for Com21's products is intensely competitive, rapidly evolving
and subject to rapid technological change. Our competitors include Motorola,
Inc., Scientific-Atlanta, Inc., Toshiba America, Inc., Thomson, Samsung
Electronics Company, Terayon Communication Systems, and Cisco Systems, Inc.
We believe that our business is affected by the following competitive
factors:
- costs;
- ease of installation;
- technical support and service;
- breadth of product line;
- conformity to industry standards; and
- implementation of additional product features and enhancements.
Many of our existing and potential competitors have been operating longer,
have better name recognition, more established business relationships, and
significantly greater financial, technical, marketing and distribution resources
than we do. These competitors may undertake more extensive marketing campaigns,
adopt more aggressive pricing policies, undertake more vendor financing programs
or longer customer payment cycles and devote substantially more resources to
developing new or enhanced products than we do. Some competitors may sell their
modems at below cost to reduce excess inventories, causing severe price
competition.
SUPPLY OF OUR PRODUCTS MAY BE LIMITED BY OUR ABILITY TO FORECAST DEMAND
ACCURATELY.
Our customers have increasingly been requiring us to ship product upon
ordering instead of submitting purchase orders far in advance of expected
shipment dates. This practice requires us to keep inventory on hand for
immediate shipment. Any significant cancellations or deferrals could adversely
affect our business by slowing our growth and decreasing our revenues.
Additionally, cancellations or deferrals could cause us
6
to hold excess inventory, which could reduce our profit margins and restrict our
ability to fund our operations. In particular, increases in inventory could
cause a harmful effect on operations if this inventory is not used or becomes
obsolete. This could cause inventory write-offs in any given period.
WE MAY BE SUBJECT TO PRODUCT RETURNS AND PRODUCT LIABILITY CLAIMS DUE TO DEFECTS
IN OUR PRODUCTS.
Our products are complex and may contain undetected defects, errors, design
deficiencies, or may have been manufactured incorrectly. Our products have
contained errors in the past and may contain errors in the future. Defects,
errors, or failures in our products could result in delayed shipments, returned
products, and loss or delay of market acceptance of our products. We could incur
costs or losses in excess of amounts that we have reserved for these events.
Although we have not experienced any product liability claims, due to the highly
technical nature of our products, such a risk exists. A successful product
liability claim brought against us could impair our business, operating results,
and financial condition by forcing us to use cash and personnel resources. This
would limit our ability to grow the company and would decrease our revenues.
OUR STOCK PRICE IS HIGHLY VOLATILE AND BROAD MARKET FLUCTUATIONS MAY IMPACT THE
MARKET PRICE OF OUR COMMON STOCK.
The trading price of our common stock has fluctuated significantly since
our initial public offering in May 1998. The common stock price has fluctuated
between $3.03 per share and $0.43 per share in the 12-month period ending March
31, 2002. The price of our common stock could continue to be subject to wide
fluctuations in response to a variety of factors including:
- variations in quarterly earnings;
- announcements of technological innovations or new products by us or our
competitors;
- announcements by certification and standards bodies;
- the state of Com21's patents or proprietary rights; and
- changes in financial estimates by securities analysts.
Additionally, the stock market is volatile. This volatility has
particularly affected the stock prices of equity securities of many high
technology companies and, often, has been unrelated or disproportionate to the
operating performance of these companies. Our stock price has declined
significantly and our stock price may continue to decline because of these broad
market and industry factors, regardless of our actual operating performance.
These broad market fluctuations may lower the market price of Com21 common
stock. Additionally, Com21 may choose to structure acquisitions or other
financing transactions by issuing additional Com21 common stock, or warrants or
options to purchase Com21 common stock that would dilute common stock
outstanding. Although Com21's management believes these types of transactions
will increase the overall long-term value of Com21, these transactions may
initially decrease the market price of our common stock.
COM21 MAY NOT BE SUCCESSFUL IN ATTRACTING AND RETAINING KEY PERSONNEL AND
MANAGEMENT.
Our success has always depended on our ability to attract and retain highly
skilled technical, managerial, sales, and marketing personnel. In spite of the
economic slowdown, competition for these personnel is intense, especially in the
Silicon Valley area of Northern California. We must retain and attract high
caliber personnel. Competitors and others have in the past and may in the future
attempt to recruit Com21's employees. We do not have employment contracts with
any of our key personnel. Volatility or lack of positive performance in our
stock price may also adversely affect our ability to retain key employees, all
of whom have been granted stock options. We do not maintain key person life
insurance on key personnel. The loss of services of any of our key personnel,
the inability to retain and attract qualified personnel in the future, or delays
in hiring required personnel, particularly engineers and sales personnel, could
make it difficult to meet key objectives, such as timely product introductions.
7
Competition for these personnel is intense; however, there is less competition
for these skilled workers in other countries. In June 2001 we completed, the
transfer of the research and development, product management, and marketing
functions for the proprietary ComUNITY Access System product line to our
facility in Cork, Ireland. We made this transition to take advantage of the
greater availability of qualified personnel in Cork to support this product
line. However, the loss of any key Cork employee with technical, marketing or
support knowledge may affect our ability to provide timely development and
support activities for the ComUNITY Access System product line.
WE MAY BE SUBJECT TO ADDITIONAL CREDIT RISK IN THE FORM OF TRADE ACCOUNTS
RECEIVABLE.
Our standard credit terms are net 30 days from the date of shipment, and we
generally do not require collateral or other security to support customer
receivables. Starting with third quarter 2001, we offered key customers a 2%
discount for payment received within 10 days of the invoice date. We may require
letters of credit from a customer before shipping an order if we determine that
the customer has not proven to be creditworthy. If our customers fail to pay us
on time or fail to pay us at all this will have a material adverse effect on our
revenues and results of operation.
OUR STANDARDS-BASED PRODUCTS ARE SUBJECT TO EVOLVING INDUSTRY STANDARDS. IF OUR
PRODUCTS DO NOT COMPLY WITH ANY STANDARD THAT ACHIEVES MARKET ACCEPTANCE,
CUSTOMERS MAY REFUSE TO PURCHASE OUR PRODUCTS.
Early cable modem equipment was not interoperable, meaning cable modem
products from different cable modem developers would not work together. For
different companies' products to work together, each company must meet an
established standard. For each standard, a certification body is established to
certify that a product does meet the standard. Cable operators are demanding
certified standards-based cable modem products for two primary reasons. First, a
certified product has proven to have the functionality they want. Second,
certified interoperable products give cable operators the freedom to buy
products from a variety of cable modem manufacturers, creating increased
competition and driving down prices.
Different standards are emerging in different parts of the world. In much
of the world, the DOCSIS standard has achieved substantial market acceptance.
Cable Television Laboratories, or CableLabs, performs certification for this
DOCSIS standard. The DOCSIS standard is an evolving standard and becomes more
complex and more difficult to comply with as it evolves. As we continue to
enhance and develop our DOCSIS products to meet the evolving DOCSIS standards,
we may incur additional costs. Additionally, we cannot assure you that
enhancements or new DOCSIS products will be CableLabs certified. Even if these
products are certified, we cannot assure you that they will be accepted by the
market. In Europe, there is movement by some cable operators towards
EuropeanDOCSIS, or EuroDOCSIS standard. We cannot assure you that if an European
DOCSIS standard obtains widespread acceptance, Com21 will be able to produce a
cable modem to meet these specifications. The emergence or evolution of industry
standards, either through adoption by official standards committees or
widespread use by cable operators or telephone companies, could require us to
redesign our products. The development of new competing technologies and
standards increases the risk that current or new competitors could develop
products that would reduce the competitiveness of our products. If any of these
new technologies or standards achieve widespread market acceptance, any failure
by us to develop new products or enhancements, or to address these new
technologies or standards, could harm our business.
THE ADOPTION OF STANDARDS COULD RESULT IN LOWER SALES OF COM21'S PROPRIETARY
PRODUCTS.
The widespread adoption of DOCSIS, EuroDOCSIS or other standards could
cause aggressive competition in the cable modem market and result in lower sales
of Com21's proprietary products not meeting design to these standards. As cable
operators move to standards-based products, sales of Com21's proprietary headend
products, and revenues from licensing of our network management software could
decrease if our products do not meet the appropriate standards. This could
reduce our gross margin and our operating results.
8
NEW PRODUCTS AND SERVICES MAY PRESENT ADDITIONAL AND UNANTICIPATED RISKS.
As we research and introduce new products and services such as the
DOXcontroller XB(TM) System, we may encounter risks not present in our current
business. We must anticipate and manage these risks, which may include new
regulations, competition, technological requirements and our own ability to
deliver or maintain reliable services to our customers or partners. Failure to
do so may result in unrecovered costs, loss of market share or adverse
publicity.
WE RELY ON INDIRECT DISTRIBUTION CHANNELS FOR OUR PRODUCTS AND NEED TO DEVELOP
ADDITIONAL DISTRIBUTION CHANNELS.
Today, cable operators and systems integrators purchase cable modems from
vendors through direct and indirect sales channels. We anticipate that the North
American cable modem market may at some point shift to a consumer purchase
model. If this occurs, we will likely sell more of our cable modems directly
through consumer sales channels. Our success will be dependent on our ability to
market effectively to end users, to establish brand awareness, to set up the
required channels of distribution and to have cable operators' reference sell
our products. We have begun to establish new distribution channels for our cable
modems. We may not have the capital required or the necessary personnel or
expertise to develop these distribution channels, which could harm our business,
operating results, and financial condition. As large consumer electronics
companies enter the cable modem market, their well-established retail
distribution capabilities and brands would provide them with a significant
competitive advantage.
IF WE FAIL TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS WE MAY BE UNABLE TO
SUCCESSFULLY COMPETE IN OUR INDUSTRY.
We depend on our proprietary technology. To protect our intellectual
property rights we rely on a combination of patent, copyright and trademark
laws, and trade secrets, confidentiality provisions and contractual provisions
to protect our proprietary rights. However, any of our intellectual proprietary
rights could be challenged by third parties. Our means of protecting our
proprietary rights in the U.S. or abroad may not be adequate. An unauthorized
party may attempt to copy aspects of our products or to obtain and use trade
secrets or other proprietary information. Additionally, the laws of some foreign
countries do not protect Com21's proprietary rights as fully as do the laws of
the U.S. Issued patents may not preserve Com21's proprietary position. Even if
they do, competitors or others may develop technologies similar to or superior
to those of Com21. If we do not enforce and protect our intellectual property,
our business will be harmed.
OUR PRODUCTS MAY INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES,
THAT MAY RESULT IN LAWSUITS AND PROHIBIT US FROM SELLING OUR PRODUCTS.
Third parties may claim that we are infringing on their intellectual
property. Even if we do not believe that our products are infringing third
parties' intellectual property rights, these claims can be time-consuming,
costly to defend, and divert management's attention and resources away from our
business. Claims of intellectual property infringement might also require us to
enter into costly royalty or license agreements. If we cannot or do not license
the infringed technology or substitute similar technology from another source,
our business could suffer. We may initiate claims or litigation against third
parties for infringement of our proprietary rights or to establish the validity
of our proprietary rights. Litigation to determine the validity of any claims,
whether or not the litigation is resolved in our favor, could result in
significant expense to us and divert the efforts of our technical and management
personnel from productive tasks. If there is an adverse ruling against us in any
litigation, we may be required to pay substantial damages, discontinue the use
and sale of infringing products, expend significant resources to develop non-
infringing technology, or obtain licenses to infringing technology. Our failure
to develop or license a substitute technology could prevent us from selling our
products.
9
OUR FAILURE TO MANAGE OUR OPERATIONS COULD SLOW OUR GROWTH RATE OR GIVE RISE TO
INEFFICIENCIES WHICH WOULD REDUCE OUR REVENUES.
To drive costs out of our business and improve our operating efficiencies,
we may be required to:
- improve existing and implement new operational, financial and management
information controls, reporting systems and procedures;
- hire, train, and manage additional qualified personnel;
- expand and upgrade our core technologies and;
- effectively manage multiple relationships with our customers, suppliers,
and other third parties.
Additionally, we must continue to recruit and retain personnel, and failure
to do so would prevent us from achieving our operational goals. Also, our
management team may not be able to achieve the rapid execution necessary to
fully exploit the market for our products and services. In the future, we may
experience difficulties meeting the demand for our products and services. We
cannot assure you that our systems, procedures, or controls will be adequate to
support the anticipated growth in our operations or that we will be able to
achieve the operational efficiencies needed to be competitive. Any failure could
cause us not to meet our operating revenues and cost objectives and weaken our
financial position.
COM21 DEPENDS ON STRATEGIC RELATIONSHIPS; IF WE ARE NOT ABLE TO FIND AND
MAINTAIN THESE RELATIONSHIPS, WE MAY NOT BE ABLE TO DEVELOP OUR TECHNOLOGIES OR
PRODUCTS, WHICH COULD SLOW OUR GROWTH AND DECREASE OUR REVENUES.
Our business strategy relies to a significant extent on strategic
relationships with other companies. These relationships include:
- software license arrangements for our network management system;
- technology licensing agreements;
- development arrangements and agreements with original equipment
manufacturers for advanced products;
- marketing arrangements with system integrators and others; and
- collaboration agreements with suppliers of routers and headend equipment
to ensure the interoperability of our cable modems with these suppliers'
products.
The failure to maintain and develop these relationships, or replace them if any
of these relationships are terminated and to renew or extend any license
agreements with a third party may harm our business.
COM21 IS EXPOSED TO GENERAL ECONOMIC AND MARKET CONDITIONS.
Our business is subject to the effects of general economic conditions in
the United States and globally, and, in particular, market conditions in the
communications and networking industries. In recent quarters, our operating
results have been adversely affected by unfavorable economic conditions and
reduced capital spending in the United States, Europe and Asia particularly in
the communications and networking industries. In particular, sales to North
America, and the manufacturing industry in the United States were materially
affected during fiscal 2001. If the economic conditions in the United States and
globally do not improve, or if we experience a worsening in the global economic
slowdown, we may continue to experience negative impacts on our business,
operating results, and financial condition.
COM21 IS SUBJECT TO RISKS OF OPERATING IN INTERNATIONAL MARKETS.
For the year ended December 31, 2001, international sales accounted for 77%
of revenues. We intend to enter new international markets, and we expect that a
significant portion of our sales will continue to be in international markets.
Because we sell primarily through systems integrators, a successful expansion of
10
our international operations and sales may require us to develop relationships
with new international systems integrators and distributors. If we are unable to
identify, attract or retain suitable international systems integrators or
distributors, we may not be able to successfully expand our international
operations. To increase revenues in international markets, we will need to
continue to establish foreign operations, to hire additional personnel to run
these operations and to maintain good relations with our foreign systems
integrators and distributors. If we are unable to successfully do so, our growth
in international sales will be limited, which would reduce our operating
results. Additionally, international operations involve a number of risks not
typically present in domestic operations, including:
- changes in regulatory requirements;
- the possibility of difficult accounts receivable collections;
- costs and risks of distributing systems in foreign countries;
- licenses, tariffs and other trade barriers;
- political and economic instability;
- difficulties in staffing and managing foreign operations;
- potentially adverse tax consequences;
- difficulties in obtaining governmental approvals for products;
- the burden of complying with a wide variety of complex foreign laws and
treaties;
- the imposition of legislation and regulations on the import and export of
high technology products; and
- fluctuations in foreign currency especially with the increasing use of
Euro as common currency for members of European union, this could have an
impact on foreign exchange exposure.
THE INDUSTRY IN WHICH WE COMPETE IS SUBJECT TO CONSOLIDATION.
There has been a trend toward industry consolidation for several years,
which is expected to continue through 2002. We expect this trend to continue as
companies attempt to strengthen or hold their market positions in an evolving
industry. We believe that industry consolidation may produce increasingly
stronger competitors that are better able to compete. This could lead to more
variability in operating results as we compete to be a vendor solution and could
harm our business, operating results, and financial condition. We believe that
industry consolidation may lead to fewer possible customers. If we are unable to
maintain our current customers or secure additional customers, our business
could be harmed.
OUR BUSINESS OPERATIONS MAY BE IMPACTED BY THE CALIFORNIA ENERGY CRISIS.
Our principal executive offices are located in the Silicon Valley in
Northern California. In 2001, California experienced an energy crisis that
resulted in disruptions in power supply and increased utility costs to consumers
and businesses throughout the State. Should the energy crisis continue, Com21,
together with many other Silicon Valley companies, may experience power
interruptions and shortages and be subject to significantly higher costs of
energy. Although we have not experienced any material disruption to our business
to date, if the energy crisis continues and power interruptions or shortages
occur in the future, they may cause a decline in our business.
THE LOCATION OF COM21'S FACILITIES IS SUBJECT TO THE RISK OF EARTHQUAKES AND
OTHER NATURAL DISASTERS.
Com21's corporate headquarters, including some of its research and
development operations and our in-house manufacturing facilities, are located in
the Silicon Valley area of Northern California, a region known for seismic
activity. A significant natural disaster in the Silicon Valley, such as an
earthquake or power loss, could halt our business, weaken our financial
condition and create disappointing operating results.
11
RISKS RELATED TO THIS OFFERING
THE COMMON STOCK SOLD IN THIS OFFERING WILL INCREASE THE SUPPLY OF OUR COMMON
STOCK ON THE PUBLIC MARKET, WHICH MAY CAUSE OUR STOCK PRICE TO DECLINE.
The sale into the public market of the common stock to be sold in this
offering could materially adversely affect the market price for our common
stock. These shares of common stock are eligible for immediate and unrestricted
sale in the public market at any time. Once the registration statement of which
this prospectus forms a part is declared effective, all shares of common stock
to be sold in this offering will be eligible for immediate and unrestricted
resale into the public market. The presence of all of these additional shares of
common stock in the public market may further depress our stock price.
12
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this document and the documents
incorporated by reference in this prospectus that are subject to risks and
uncertainties. These statements are based on management's beliefs and
assumptions, based on information available to management as of the date of this
prospectus. Some examples of forward-looking statements include information
concerning possible future results of our operations under Risk Factors.
Statements in this document and the documents incorporated into this prospectus
by reference preceded by, followed by or that include the following words
identify forward-looking statements: believes, expects, anticipates, intends,
plans, estimates, should or similar expressions.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and shareholder values
of Com21 may differ materially from those expressed in these forward-looking
statements. Many of the factors that will determine these results and values are
beyond our ability to control or predict. Shareholders are cautioned not to put
undue reliance on any forward-looking statements. We do not have any intention
or obligation to update forward-looking statements after the date of this
prospectus even if new information, future events or other circumstances have
made them incorrect or misleading. For those statements, we claim the protection
of the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
In evaluating our common stock, you should carefully consider the
discussion of risks and uncertainties in Risk Factors in this prospectus and in
the documents incorporated by reference into this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special 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 15 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference room. Our SEC filings are also available to the public
from our web site at http://www.Com21.com or at the SEC's web site at
http://www.sec.gov.
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 until our offering is
completed.
(a) Com21's annual report on Form 10-K for the fiscal year ended
December 31, 2001 filed April 1, 2002; and
(b) The description of Com21's common stock contained in our
registration statement on Form 8-A filed April 8, 1998, including any
amendments or reports filed for the purpose of updating these descriptions.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Ralph Marimon
Chief Financial Officer and Vice President, Finance and Administration
Com21, Inc.
750 Tasman Drive
Milpitas, CA 95035
(408) 953-9100
13
We have authorized no one to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of the document.
SELLING STOCKHOLDERS
The following table shows the name of the selling stockholders and the
number of shares being registered for sale as of the date of this prospectus and
shows the number of shares of common stock known by us to be beneficially owned
by the selling stockholders. The following table assumes that the selling
stockholders will sell all of the shares being offered for its account by this
prospectus. However, we are unable to determine the exact number of shares that
actually will be sold. The shares offered by this prospectus may be offered at
different times by the selling stockholders.
This registration statement also covers any additional shares of common
stock that become issuable with the shares registered in this prospectus by
reason of any stock dividend, stock split, recapitalization or other similar
transaction made without the receipt of consideration that results in an
increase in the number of Com21's outstanding shares of common stock.
This information is based upon information provided by each selling
stockholder, and is not necessarily indicative of beneficial ownership for any
other purpose. The term selling stockholder includes the stockholders listed
below and each of its transferees, assignees, pledgees, donees or other
successors. The percent of beneficial ownership is based on 28,106,818 shares of
common stock outstanding as of December 31, 2001.
<Table>
<Caption>
PERCENT OF NUMBER OF
NUMBER OF OUTSTANDING SHARES OF COMMON
SHARES OF SHARES STOCK REGISTERED
COMMON STOCK BENEFICIALLY FOR SALE IN
NAME OF SELLING SHAREHOLDER BENEFICIALLY OWNED OWNED THIS PROSPECTUS
--------------------------- ------------------ ------------ ----------------
Celestica International, Inc. .................. 200,000 * 200,000
Flextronics Malaysia SDN BHD.................... 150,000 * 150,000
</Table>
- -------------------------
* Less than one percent (1%).
The warrant issued to Celestica International, Inc. to purchase up to
200,000 shares of common stock was issued on March 20, 2002. The warrant
constitutes the 200,000 shares of common stock being registered for sale as of
the date of this prospectus. The warrant will expire on March 19, 2005 and has
an exercise price of $1.15 per share.
The warrant issued to Flextronics Malaysia SDN BHD to purchase up to
150,000 shares of common stock was issued on March 29, 2002. The warrant
constitutes the 150,000 shares of common stock being registered for sale as of
the date of this prospectus. The warrant will expire on March 28, 2005 and has
an exercise price of $1.31 per share.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the common stock
by the selling stockholders. All proceeds will be received by the selling
stockholders. We will receive the proceeds from the exercise of each of the
outstanding warrants by each of the selling stockholders and those proceeds will
be used for general corporate purposes. See the Selling Stockholders.
14
PLAN OF DISTRIBUTION
We are registering all 350,000 shares on behalf of the selling
stockholders. This amount constitutes 350,000 shares of common stock issuable
upon exercise of two outstanding warrants to purchase common stock held by the
selling stockholders. We will not receive any of the proceeds from sales by the
selling stockholder of the offered shares of common stock. We will receive
proceeds from the exercise of the outstanding warrants by the selling
stockholders and those proceeds will be used for our general corporate purposes.
The selling stockholders named in the table above or pledgees, donees,
transferees or other successors-in-interest selling shares received from the
selling stockholders as a gift, distribution or other non-sale related transfer
after the date of this prospectus may sell the shares at different times. The
selling stockholders will act independently of us in making decisions for the
timing, manner and size of each sale. The sales may be made on one or more
exchanges or in the over-the-counter market or other transactions, at prices and
at terms then prevailing or at prices related to the then current market price,
or in negotiated transactions. The selling stockholders may make these
transactions by selling the shares to or through broker-dealers.
The shares may be sold by one or more of, or a combination of, the
following:
- a block trade in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by this
broker-dealer for its account through this prospectus;
- an exchange distribution that complies with the rules of the exchange;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
- in privately negotiated transactions.
If required, this prospectus may be amended or supplemented on a continual
basis to describe a specific plan of distribution. In making sales,
broker-dealers engaged by the selling stockholders may arrange for other
broker-dealers to participate in the resales.
The selling stockholders may enter into hedging transactions with
broker-dealers relating to distributions of the shares or other transactions. In
these transactions, broker-dealers may engage in short sales of the shares in
the course of hedging the positions they assume with the selling stockholders.
The selling stockholders also may sell shares short and redeliver the shares to
close out these short positions. The selling stockholders may enter into option
or other transactions with broker-dealers that require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or transfer these
shares through this prospectus. The selling stockholders may also loan or pledge
the shares to a broker-dealer. The broker-dealer may sell the shares which are
loaned, or upon a default the broker-dealer may sell the pledged shares by use
of this prospectus. Some or all of the shares offered in this prospectus also
may be sold to or through an underwriter or underwriters. Any shares sold in
that manner will be acquired by the underwriters for their own accounts and may
be resold at different times in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. These shares may be offered to the public through
underwriting syndicates represented by one or more managing underwriters or may
be offered to the public directly by one or more underwriters. Any public
offering price and any discounts or concessions allowed or disallowed or paid to
dealers may be changed at different times.
Underwriters, broker-dealers or agents may receive compensation in the form
of commissions, discounts or concessions from the selling stockholders.
Underwriters, broker-dealers or agents may also receive compensation from the
purchasers of the shares for whom they act as agents or to whom they sell as
principals, or both. Compensation for particular underwriter or broker-dealer
might be in excess of customary commissions and will be in amounts to be
negotiated at the time of the sale. Underwriters, broker-dealers or agents and
any other participating broker-dealers or the selling stockholders may be
considered to be underwriters within the meaning of section 2(11) of the
Securities Act relating to the
15
sales of the shares. Underwriters are defined in this section as any person who
has purchased from an issuer with a view to, or offers or sells for an issuer
for the distribution of any security, or participates or has a direct or
indirect participation in any undertaking, or participates or has a
participation in the direct or indirect underwriting of any undertaking. Any
commission, discount or concession received by them and any profit on the resale
of the shares purchased by them may be considered to be underwriting discounts
or commissions under the Securities Act. Because selling stockholders may be
considered to be underwriters within the meaning of section 2(11) of the
Securities Act, the selling stockholders may be subject to the prospectus
delivery requirements of the Securities Act. Neither the delivery of any
prospectus, or any prospectus supplement, nor any other action taken by us, a
selling stockholder or any purchaser relating to the purchase or sale of shares
under this prospectus shall be considered or treated as an admission that any of
them is an underwriter within the meaning of the Securities Act relating to the
sale of any shares. Additionally, any securities covered by this prospectus that
qualify for sale through Rule 144 under the Securities Act may be sold under
Rule 144 rather than through this prospectus.
The shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. Additionally, in
some states the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act,
any person engaged in the distribution of the shares may not engage in
market-making activities for our common stock during some restricted periods.
Additionally, the selling stockholders will be subject to applicable provisions
of the Securities Exchange Act and the associated rules and regulations under
the Securities Exchange Act, including Regulation M, that may limit the timing
of purchases and sales of shares of our common stock by the selling
stockholders. We will make copies of this prospectus available to each selling
stockholder and have informed them of the need for delivery of copies of this
prospectus to purchasers at or before the time of any sale of the shares.
We will file a supplement to this prospectus, if required, under Rule
424(b) under the Securities Act upon being notified by a selling stockholder
that any material arrangement has been entered into with a broker-dealer for the
sale of shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer. This supplement will
disclose:
- the name of each selling stockholder and of the participating
broker-dealer or broker-dealers,
- the number of shares involved,
- the price at which these shares were sold,
- the commissions paid or discounts or concessions allowed to the
broker-dealer or broker-dealers, where applicable,
- that the broker-dealer or broker-dealers did not conduct any
investigation to verify the information in this prospectus or
incorporated by reference into this prospectus, and
- other facts material to the transaction.
We will bear all costs, expenses and fees for the registration of the
shares. The selling stockholders will bear all commissions and discounts, if
any, attributable to their individual sales of the shares. The selling
stockholders may agree to indemnify any broker-dealer or agent that participates
in transactions involving sales of the shares against some liabilities,
including liabilities arising under the Securities Act.
LEGAL MATTERS
The validity of the common stock offered in this prospectus and some other
legal matters will be passed upon for us by Brobeck, Phleger & Harrison LLP,
Palo Alto, California.
16
EXPERTS
The consolidated financial statements of Com21 and the related consolidated
financial statement schedule incorporated in this prospectus by reference from
Com21's annual report on Form 10-K for the year ended December 31, 2001 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
17
- ------------------------------------------------------
- ------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE A STATEMENT THAT DIFFERS FROM
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.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Com21, Inc. ......................... 1
Risk Factors......................... 1
Forward-Looking Statements........... 13
Where You Can Find More
Information........................ 13
Selling Stockholders................. 14
Use of Proceeds...................... 14
Plan of Distribution................. 15
Legal Matters........................ 16
Experts.............................. 17
</Table>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
COM21, INC.
350,000 Shares
of Common Stock
-------------------------
PROSPECTUS
-------------------------
May 10, 2002
- ------------------------------------------------------
- ------------------------------------------------------
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 Com21 in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee.
<Table>
SEC Registration Fee........................................ $ 50
Legal Fees and Expenses..................................... 5,000
Accounting Fees and Expenses................................ 15,000
Printing Fees............................................... 1,000
Transfer Agent Fees......................................... 1,000
Miscellaneous............................................... 1,000
-------
Total..................................................... $23,050
=======
</Table>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's certificate of incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except for liability
for (i) any breach of their duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law, or (iv) any transaction from which
the director derives an improper personal benefit.
The Registrant's bylaws provide that the Registrant shall indemnify its
directors and may indemnify its officers, employees and other agents to the
fullest extent permitted by law. The Registrant believes that indemnification
under its bylaws covers at least negligence and gross negligence on the part of
an indemnified party in connection with the defense of any action or proceeding
arising out of such party's status or service as a director, officer, employee
or other agent of the Registrant upon an undertaking by such party to repay such
advances if it is ultimately determined that such party is not entitled to
indemnification. The Registrant has entered into indemnification agreements with
its officers and directors. The indemnification agreements provide the
Registrant's officers and directors with further indemnification to the maximum
extent permitted by the Delaware General Corporation Law.
ITEM 16. EXHIBITS
<Table>
4.2(1) Amended and Restated Information and Registration Rights
Agreement, among the Registrant and the investors and
founders named therein, dated July 22, 1997
5.1 Opinion of Brobeck, Phleger & Harrison LLP
10.27(2) Amendment to Manufacturing Agreement between the Registrant
and Celestica International, Inc. dated March 20, 2002 and
accompanying Promissory Note and Warrant
10.28(2) Amendment to Manufacturing Agreement between the Registrant
and Flextronics Malaysia SDN BHD dated March 29, 2002 and
accompanying Promissory Note and Warrant
23.1 Independent Auditors' Consent
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in its
opinion filed as Exhibit 5.1)
24.1 Power of Attorney (see page II-3)
</Table>
- -------------------------
(1) Previously filed as an exhibit to the Registrant's registration statement on
Form S-1 (File No. 333-48107).
(2) Previously filed as an exhibit to the Registrant's current report on Form
10-K filed with the Commission on April 1, 2002.
II-1
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement, or the most recent
post-effective amendment thereof, which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and therefore is unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act, and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act, that is
incorporated by reference in this 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-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds 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 Milpitas, State of California, on this 10th day of
May, 2002.
COM21, INC.
By: /s/ GEORGE MERRICK
------------------------------------
George Merrick
President, Chief Executive Officer
and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints George Merrick and Ralph Marimon as his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to file same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitutes, may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GEORGE MERRICK President, Chief Executive Officer and May 10, 2002
- ------------------------------------------------ Director (Principal Executive Officer)
George Merrick
/s/ RALPH MARIMON Vice President, Finance and Corporate May 10, 2002
- ------------------------------------------------ Secretary (Principal Financial and
Ralph Marimon Accounting Officer)
/s/ PAUL BARAN Director May 10, 2002
- ------------------------------------------------
Paul Baran
/s/ JAMES GAGNARD Director May 10, 2002
- ------------------------------------------------
James Gagnard
Director May , 2002
- ------------------------------------------------
James Spilker, Jr.
/s/ DANIEL J. PIKE Director May 10, 2002
- ------------------------------------------------
Daniel J. Pike
Director May , 2002
- ------------------------------------------------
Susan Nycum
</Table>
II-3
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
4.2(1) Amended and Restated Information and Registration Rights
Agreement, among the Registrant and the investors and
founders named therein, dated July 22, 1997
5.1 Opinion of Brobeck, Phleger & Harrison LLP
10.27(2) Amendment to Manufacturing Agreement between the Registrant
and Celestica International, Inc. dated March 20, 2002 and
accompanying Promissory Note and Warrant
10.28(2) Amendment to Manufacturing Agreement between the Registrant
and Flextronics Malaysia SDN BHD dated March 29, 2002 and
accompanying Promissory Note and Warrant
23.1 Independent Auditors' Consent
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in its
opinion filed as Exhibit 5.1)
24.1 Power of Attorney (see page II-3)
</Table>
- -------------------------
(1) Previously filed as an exhibit to the Registrant's registration statement on
Form S-1 (File No. 333-48107).
(2) Previously filed as an exhibit to the Registrant's current report on Form
10-K filed with the Commission on April 1, 2002.