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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GADZOOX NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3576 77-0308899
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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5850 HELLYER AVENUE
SAN JOSE, CALIFORNIA 95138
(408) 360-4950
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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K. WILLIAM SICKLER
GADZOOX NETWORKS, INC.
5850 HELLYER AVENUE
SAN JOSE, CALIFORNIA 95138
(408) 360-4950
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
JUDITH M. O'BRIEN
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300
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, as amended, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
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Common Stock $0.005 par
value.................. 239,433 shares $12.125 $2,903,125.13 $766.43
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(1) Estimated solely for the purposes of calculation of the registration fee in
accordance with Rule 457(c) of the Securities Act of 1933 based on the
average of the high and low prices of the Registrant's Common Stock on the
Nasdaq National Market on July 14, 2000.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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The information in this preliminary prospectus is not complete and may
be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
DATED JULY 19, 2000
PROSPECTUS
239,433 SHARES
GADZOOX NETWORKS, INC.
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COMMON STOCK
($0.005 PAR VALUE)
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This Prospectus relates to 239,433 shares (the "Shares") of our Common
Stock, $0.005 par value (the "Common Stock"). The Shares may be offered by
certain stockholders of the Company (the "Selling Stockholders") from time to
time in transactions on the Nasdaq National Market System, in privately
negotiated transactions or otherwise at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such market
prices or at negotiated prices. The Shares were originally issued by the Company
in connection with the Company's acquisition of SmartSAN Systems, Inc.
("SmartSAN") by and through a merger (the "Merger") of a wholly-owned subsidiary
of the Company ("MergerSub") with and into SmartSAN pursuant to the Agreement
and Plan of Reorganization dated March 2, 2000 by and among, the Company,
MergerSub, SmartSAN and U.S. Bank Trust National Association, as escrow agent
(the "Reorganization Agreement"). The Shares were issued pursuant to an
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), under Section 4(2) thereof. See "Selling
Stockholders" and "Plan of Distribution."
We will receive no part of the proceeds of sales made hereunder. All
expenses of registration incurred in connection with this offering are being
borne by us, but all selling and other expenses incurred by the Selling
Stockholders will be borne by the Selling Stockholders. Gadzoox and the Selling
Stockholders have each agreed to indemnify the other against certain
liabilities, including certain liabilities under the Securities Act.
Our Common Stock is traded on the Nasdaq National Market under the symbol
"ZOOX." On July 18, 2000, the closing price of the Common Stock on the Nasdaq
National Market was $12.50.
SEE "RISK FACTORS" BEGINNING ON PAGE 1 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF OUR COMMON STOCK OFFERED
HEREBY.
The Selling Stockholders and any broker executing selling orders on behalf
of the Selling Stockholders may be deemed to be an underwriter within the
meaning of the Securities Act. Commissions received by any such broker may be
deemed to be underwriting commissions under the Securities Act.
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THESE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is July 19, 2000.
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TABLE OF CONTENTS
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Risk Factors.......................... 1
The Company........................... 12
Recent Events......................... 12
Use of Proceeds....................... 13
Selling Stockholders.................. 14
Plan of Distribution.................. 15
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Experts............................... 15
Legal Matters......................... 15
Available Information................. 15
Incorporation of Certain Documents by
Reference........................... 16
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US OR ANY
SELLING STOCKHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THE SHARES BY
ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE
SUCH OFFER, SOLICITATION OR SALE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
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RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth in the following risk factors and elsewhere in this Prospectus.
In addition to the other information in this Prospectus, you should carefully
consider the following risk factors and all other information contained in our
Form 10-K and our Forms 8-K, as amended, incorporated by reference into this
Prospectus, before purchasing the Common Stock offered by this Prospectus.
Risks and uncertainties, in addition to those we describe below, that are
not presently known to us, or that we currently believe are immaterial may also
impair our business operations. If any of the following risks occur, our
business, operating results and financial condition could be seriously harmed.
In addition, the trading price of our Common Stock could decline due to the
occurrence of any of these risks.
WE HAVE INCURRED SIGNIFICANT LOSSES IN EVERY FISCAL YEAR AND FISCAL QUARTER
SINCE OUR INCEPTION AND WE MAY NEVER BECOME PROFITABLE.
We have incurred significant losses since inception and expect to continue
to incur losses on both a quarterly and annual basis for the foreseeable future.
As of June 30, 2000, our accumulated deficit was $52.5 million. Although our
quarterly net revenues grew during the year ended March 31, 2000, we were not
able to sustain this growth during the quarter ended June 30, 2000, and we may
never realize sufficient net revenues to achieve profitability. Our net revenues
for the quarter ended June 30, 2000 were approximately $9 million, a decrease of
$6.1 million, or 40%, compared to net revenues for the quarter ended March 31,
2000. We also expect to incur significant product development, sales and
marketing and administrative expenses and, as a result, we will need to generate
increased net revenues to achieve profitability. Further, even if we achieve
profitability, given the competition in, and the evolving nature of the storage
area networking market, we may not be able to sustain or increase profitability
on a quarterly or annual basis.
DUE TO OUR LIMITED OPERATING HISTORY, WE MAY HAVE DIFFICULTY ACCURATELY
PREDICTING REVENUES FOR FUTURE PERIODS AND APPROPRIATELY BUDGETING FOR EXPENSES,
AND, BECAUSE MOST OF OUR EXPENSES ARE FIXED IN THE SHORT-TERM, WE MAY NOT BE
ABLE TO DECREASE OUR EXPENSES IN A TIMELY MANNER TO OFFSET ANY UNEXPECTED
SHORTFALL IN REVENUES.
We have generated net revenues for less than six years and, thus, we have
only a short history from which to predict future net revenues. This limited
operating experience, combined with the rapidly evolving nature of the storage
area network ("SAN") market in which we sell our products, reduces our ability
to accurately forecast our quarterly and annual revenue. Further, we plan our
operating expenses based primarily on these revenue projections. Because most of
our expenses are fixed in the short-term or incurred in advance of anticipated
revenue, we may not be able to decrease our expenses in a timely manner to
offset any unexpected shortfall in revenue. For example, during the quarter
ended June 30, 2000, orders from our distribution channel partners were lower
than expected due to decreased sell-through to end-user customers which resulted
in a corresponding decrease in net revenues of approximately $6.1 million, or
40%, to approximately $9 million for the quarter ended June 30, 2000 from
approximately $15.2 million for the quarter ended March 31, 2000. Additionally,
in July 1998, Digital Equipment Corporation cancelled orders for our Bitstrip
product, which resulted in a corresponding decrease in net revenues. If a
similar situation were to occur in the future, we may incur additional
unexpected losses which could seriously harm our business. For further financial
information relating to our business, see "Notes to Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Form 10-K.
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WE HAVE A HISTORY OF QUARTERLY AND ANNUAL FLUCTUATIONS IN OUR NET REVENUES AND
OPERATING RESULTS, AND EXPECT THESE FLUCTUATIONS TO CONTINUE, WHICH MAY RESULT
IN VOLATILITY IN OUR STOCK PRICE.
Our quarterly and annual net revenues and operating results have varied
significantly in the past and are likely to vary significantly in the future due
to a number of factors, many of which are outside of our control. The primary
factors that may cause our quarterly net revenues and operating results to
fluctuate include the following:
- fluctuations in demand for our products and services;
- the ability and willingness of our distribution channel partners to sell
our products;
- the timing of customer orders and product implementations, particularly
large orders from our customers;
- our ability to develop, introduce, ship and support new products product
enhancements;
- the rate of adoption of SANs as an alternative to existing data storage
and management systems;
- announcements and new product introductions by our competitors and
deferrals of customer orders in anticipation of new products, services or
product enhancements introduced by us or our competitors;
- decreases in the prices at which we can sell our products;
- our ability to obtain sufficient supplies of components, including sole
or limited source components, at expected prices;
- the mix of our hub and switch products sold and the mix of distribution
channels through which they are sold;
- increases in the prices of the components we purchase;
- our ability to maintain quality manufacturing standards for our products;
- competitive technology developments which may decrease the demand for
products based on the technology we utilize;
- our ability to maintain, increase or quickly decrease the contract
production of our products; and
- the mix of our hubs, switches, routers, software and other products sold
and the mix of distribution channels through which they are sold.
Accordingly, you should not rely on the results of any past periods as an
indication of our future performance. It is likely that in some future periods,
our operating results may be below expectations of public market analysts or
investors. If this occurs, our stock price may drop. For example, net revenues
for the quarter ended June 30, 2000 were significantly lower than expectations
as a result of a decline in orders from our distribution channel partners due to
a decline in sell-through to end-user customers.
IF OUR DISTRIBUTION CHANNEL PARTNERS ARE UNABLE OR UNWILLING TO RESELL OUR
PRODUCTS, OUR NET REVENUES WILL DECREASE AND OUR BUSINESS WILL BE HARMED.
During fiscal 2000, 35% of our net revenues were derived from sales to
distribution channel partners. Our OEM customers have demonstrated the ability
to resell our storage area network, or SAN, products due, in part, to the length
of time they have been involved in the SAN marketplace and the strength of their
internal technical, sales and marketing structures. Our distribution channel
partners have participated in the SAN market for a shorter period of time and
often do not have trained technical, sales and marketing staff. As a result,
they are not as well positioned as our original equipment manufacturer, or OEM,
customers to provide full solution sales. Additionally, distribution channel
partners may not be able to effectively compete with OEMs. For example, net
revenues for the quarter ended June 30, 2000 were significantly lower than
expectations as a result of a decline in orders from our distribution channel
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partners due to decreased sell-through to end-user customers. Although we have
taken several actions to improve our distribution channel partners' abilities to
sell our products to end-users, we can not assure you that demand for our
products through the distribution channel will increase. If we are unable to
effectively leverage sales through our distribution channel partners, our net
revenues may continue to decline, and our business could be harmed. The
inability or unwillingness of our distribution channel partners to resell SAN
networking equipment, including full SAN solutions, would significantly reduce
our net revenues which would harm our business.
BECAUSE WE DEPEND ON A FEW KEY OEM AND DISTRIBUTION CHANNEL PARTNERS, THE LOSS
OF ANY OF THESE CUSTOMERS COULD SIGNIFICANTLY REDUCE OUR NET REVENUES.
We depend on a few key OEM and distribution channel partners. In fiscal
2000, approximately 72% of our net revenues came from four customers with sales
to Hewlett-Packard Company, Compaq Computer Corporation, Bell Microproducts,
Inc. and Tokyo Electron Limited, each accounting for 10% or more of our net
revenues. During the quarter ended June 30, 2000, approximately 95% of our net
revenues came from two customers, with sales to Hewlett-Packard Company and
Compaq Computer Corporation each accounting for more than 10% of our net
revenues. In fiscal 1999, approximately 84% of our net revenues came from five
customers with sales to Hewlett-Packard Company and Digital Equipment
Corporation each accounting for more than 10% of our net revenues. Although we
intend to expand our original equipment manufacture customer base, we anticipate
that our operating results will continue to depend on sales to a relatively
small number of customers. None of our current customers have any minimum
purchase obligations, and they may stop placing orders with us at any time,
regardless of any forecast they may have previously provided. The loss of any of
our key customers, or a significant reduction in sales to those customers, could
significantly reduce our net revenues. For example, net revenues for the quarter
ended June 30, 2000 were significantly lower than expectations as a result of a
decline in orders from our distribution channel partners due to a decline in
sell-through to end-user customers. Additionally, in July 1998, Digital
Equipment Corporation cancelled orders for our Bitstrip product, and in December
1998, Hewlett-Packard Company unexpectedly reduced orders for our Gibraltar
10-port product. Digital Equipment Corporation's order cancellation resulted in
a reduction of anticipated net revenues by approximately 12% for the fiscal year
ended March 31, 1999.
OUR RELIANCE ON OEM CUSTOMERS AND DISTRIBUTION CHANNEL PARTNERS AND THE LENGTHY
PROCESS REQUIRED TO ADD THESE PARTNERS MAY IMPEDE THE GROWTH OF OUR NET
REVENUES.
We rely on OEM customers and distribution channel partners to distribute
and sell our products. As a result, our success depends substantially on (1) our
ability to initiate, manage and expand our relationships with significant OEM
customers, (2) our ability to attract distribution channel partners that are
able and willing to sell our products and (3) the sales efforts of these OEM
customers and distribution channel partners. Our OEM customers typically conduct
significant evaluation, testing, implementation and acceptance procedures before
they begin to market and sell new technologies, including our products. Based on
our experience with our larger OEM customers, this evaluation process is lengthy
and has historically been as long as nine months. This process is also complex
and may require significant sales, marketing and management efforts on our part.
The complexity of this process increases if we must qualify our products with
multiple customers at the same time. In addition, once our products have been
qualified, the length of the sales cycle of each of our OEM customers may vary
depending upon whether our products are being bundled with another product or
are being sold as an option or add-on. Sales to distribution channel partners
may also require lengthy sales and marketing cycles. As a result, we may expend
significant resources in developing partner relationships before recognizing any
revenue. We may not be able to manage and expand our relationships with OEM
customers and distribution channel partners successfully and they may not market
our products successfully. Moreover, our agreements with OEM customers and
distribution channel partners have no minimum purchase commitments. Our failure
to manage and expand our relationships with OEM customers and distribution
channel partners or their failure to market our products could substantially
reduce our net revenues and seriously harm our business.
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OUR BUSINESS MAY BE HARMED BY CLASS ACTION LITIGATION DUE TO STOCK PRICE
VOLATILITY.
In the past, securities class action litigation often has been brought
against a company due to volatility in the market price of its securities. The
market price of our securities has been volatile in the past and may be volatile
in the future. Therefore, we may in the future be the target of securities
litigation. Securities litigation could result in substantial costs and divert
management's attention and resources.
THE SAN MARKET IN WHICH WE COMPETE IS NEW AND UNPREDICTABLE, AND IF THIS MARKET
DOES NOT DEVELOP AND EXPAND AS WE ANTICIPATE, OUR BUSINESS WILL SUFFER.
The market for SANs and related hub and switch products has only recently
begun to develop and is rapidly evolving. Because the SAN market is new, it is
difficult to predict its potential size or future growth rate. Our products are
used exclusively in SANs. Accordingly, widespread adoption of SANs as an
integral part of data-intensive enterprise computing environments is critical to
our future success. Potential end-user customers who have invested substantial
resources in their existing data storage and management systems maybe reluctant
or slow to adopt a new approach, like SANs. The speed at which customers adopt
current and new products for SANs is highly unpredictable. Our success in
generating net revenues in this emerging market will depend on, among other
things, our ability to:
- educate potential OEM customers, distribution channel partners and end
users about the benefits of SANs and hub and switch technology;
- maintain and enhance our relationships with leading OEM customers and
channel partners;
- predict and base our products on standards which ultimately become
industry standards; and
- predict and deliver new and innovative products demanded by the storage
area marketplace.
In addition, SANs are often implemented in connection with deployment of
new storage systems and servers. Accordingly, our future success is also
substantially dependent on the market for new storage systems and servers.
WE HAVE LIMITED PRODUCT OFFERINGS AND OUR BUSINESS MAY SUFFER IF DEMAND FOR ANY
OF THESE PRODUCTS DECLINES OR FAILS TO DEVELOP AS WE EXPECT.
We derive a substantial portion of our net revenues from a limited number
of products. Specifically, in fiscal 2000, the majority of our net revenues were
derived from our hub and switch products. We expect that net revenues from our
hub and switch products will continue to account for a substantial portion of
our total net revenues for the foreseeable future. There is no assurance that
our Geminix and Axxess products will be adopted by our OEM or distribution
channel partners or that significant net revenues would be derived if adopted.
As a result, for the foreseeable future, we will continue to be subject to the
risk of a significant decrease in net revenues if demand for our hub products
decline. Therefore, continued market acceptance of our hub, switch and router
products is critical to our future success. Factors that may affect the market
acceptance of our products, some of which are beyond our control, include the
following:
- growth and changing requirements of the SAN and hub and switch product
markets;
- availability, price, quality and performance of competing products and
technologies;
- performance, quality, price and total cost of ownership of our products;
and
- successful development of our relationships with existing and potential
OEM customers and distribution channel partners.
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OUR BUSINESS WILL SUFFER IF WE FAIL TO DEVELOP AND SUCCESSFULLY INTRODUCE NEW
AND ENHANCED PRODUCTS THAT MEET THE CHANGING NEEDS OF OUR CUSTOMERS.
Our future success depends upon our ability to address the rapidly changing
SAN market including changes in relevant industry standards and the changing
needs of our customers by developing and introducing high-quality,
technologically-progressive, cost-effective products, product enhancements and
services on a timely basis. For example, in May 1999, we announced the launch of
our Capellix switch and commenced initial shipments in September 1999.
Additionally we intend to commercially ship our Geminix and Axxess products
during fiscal 2001. Our future net revenue growth will be dependent on the
success of these and other new products, and we may not be able to develop and
introduce these or other new products successfully in the time frame we expect.
Further, we cannot be certain of the demand for, and market acceptance of, these
and other new products. In addition, we must successfully manage the
introduction of new or enhanced products to minimize disruption in our
customers' ordering patterns, avoid excessive levels of older product
inventories and ensure that adequate supplies of new products can be delivered
to meet our customers' demands. Our net revenues may be reduced if we fail to
develop product enhancements, if we fail to introduce new products or if any new
products or product enhancements that we develop and introduce are not broadly
accepted.
COMPETING TECHNOLOGIES MAY EMERGE AND WE MAY FAIL TO ADOPT NEW TECHNOLOGIES ON A
TIMELY BASIS. FAILURE TO UTILIZE NEW TECHNOLOGIES MAY DECREASE THE DEMAND FOR
OUR PRODUCTS.
The technology being deployed today in most SAN products is based on the
fibre channel arbitrated loop protocol or the fibre channel fabric protocol.
During the last fiscal year, the development of competing technologies such as
Ethernet IP has been discussed by the technical community. If we are unable to
identify new technologies in a timely manner and efficiently utilize such new
technologies in our product developments, the demand for our current products
may decrease significantly and rapidly, which would harm our business.
WE WILL BE UNABLE TO MANUFACTURE OR SELL OUR PRODUCTS IF OUR SOLE CONTRACT
MANUFACTURER IS UNABLE TO MEET OUR MANUFACTURING NEEDS.
Sanmina Corporation, a third-party manufacturer for numerous companies,
manufactures all of our products at its Guntersville, Alabama facility. Sanmina
Corporation is not obligated to supply products to us for any specific period,
or in any specific quantity, except as may be provided in a particular purchase
order which has been accepted by Sanmina Corporation. If Sanmina Corporation
experiences delays, disruptions, capacity constraints or quality control
problems in its manufacturing operations, then product shipments to our
customers could be delayed, which would negatively impact our net revenues and
our competitive position and reputation. Further, our business would be harmed
if we fail to effectively manage the manufacture of our products. We generally
place orders with Sanmina Corporation at least two months prior to scheduled
delivery of products to our customers. Accordingly, if we inaccurately forecast
demand for our products, we may be unable to obtain adequate manufacturing
capacity from Sanmina Corporation or adequate quantities of components to meet
our customers' delivery requirements or we may accumulate excess inventories. In
the future we intend to work with additional new contract manufacturers that can
potentially manufacture our higher volume products, at lower costs in foreign
locations. We could experience difficulties and disruptions in the manufacture
of our products while we transition to new facilities. Manufacturing disruptions
could prevent us from achieving timely delivery of products and could result in
lost net revenues. Additionally, we must coordinate our efforts with those of
our suppliers and Sanmina Corporation, or other third party manufacturers, to
rapidly achieve volume production. Although we have not experienced supply
problems with Sanmina Corporation, we have experienced delays in product
deliveries from one of our former contract manufacturers. Moreover, we may in
the future need to find a new contract manufacturer that can manufacture our
products in higher volume and at lower costs. We may not find a contract
manufacturer that meets our needs. Additionally, qualifying a new contract
manufacturer and commencing volume production is expensive and time consuming.
If we are required or
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choose to change contract manufacturers, we may lose net revenues and our
customer relationships may suffer.
BECAUSE WE DEPEND ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR KEY
COMPONENTS, WE ARE SUSCEPTIBLE TO SUPPLY SHORTAGES THAT COULD ADVERSELY AFFECT
OUR OPERATING RESULTS.
We depend upon a single source for each type of our application-specific
integrated circuits, or ASICs, and limited sources of supply for several key
components, including, but not limited to, power supplies, chassis and optical
transceivers. We have in the past experienced and may in the future experience
shortages of, or difficulties in acquiring, these components. Because we rely on
Sanmina Corporation to procure components required for the manufacture of our
products, Sanmina Corporation may suffer component shortages. If we, or Sanmina
Corporation, are unable to buy these components, we will not be able to
manufacture our products on a timely basis which would harm our business
BECAUSE WE ORDER COMPONENTS AND MATERIALS BASED ON ROLLING FORECASTS, WE MAY
OVERESTIMATE OR UNDERESTIMATE OUR COMPONENT AND MATERIAL REQUIREMENTS, WHICH
COULD INCREASE OUR COSTS OR PREVENT US FROM MEETING CUSTOMER DEMAND.
We use rolling forecasts based on anticipated product orders to determine
our component requirements. Lead times for materials and components that we
order vary significantly and depend on factors such as specific supplier
requirements, contract terms and current market demand for such components. As a
result, our component requirement forecasts may not be accurate. If we
overestimate our component requirements, we may have excess inventory, which
would increase our costs. If we underestimate our component requirements, we may
have inadequate inventory, which could interrupt our manufacturing and delay
delivery of our products to our customers. Any of these occurrences would
negatively impact our business and operating results.
OUR OPERATING RESULTS MAY SUFFER BECAUSE OF COMPETITION IN THE SAN MARKET, AS
WELL AS ADDITIONAL COMPETITION FROM DATA NETWORKING COMPANIES AND ENTERPRISE
SOFTWARE DEVELOPERS.
The market for our SAN hub, switch and router products is competitive, and
is likely to become even more competitive. In the SAN market, our current
competitors include Ancor Communications, Inc., Brocade Communications Systems,
Inc., Emulex Corporation, McData Corporation, Vixel Corporation, Cornerstone,
Chaparral Network Storage, Inc., Atto and Pathlight. In addition to these
companies, we expect new SAN competitors to emerge. In the future, we may also
compete against data networking companies which may develop SAN products.
Furthermore, although we currently offer products that complement the software
products offered by Legato Systems, Inc. and Veritas Software Corporation, they
and other enterprise software developers may in the future compete with us. We
also compete with providers of data storage solutions that employ traditional
storage technologies, including small computer system interface-based technology
such as Adaptec, Inc., LSI Logic Corporation and QLogic Corporation. Increased
competition could result in pricing pressures, reduced sales, reduced margins,
reduced profits, reduced market share or the failure of our products to achieve
or maintain market acceptance. Some of our competitors and potential competitors
have longer operating histories, greater name recognition, access to larger
customer bases, more established distribution channels or substantially greater
resources than we have. As a result, they may be able to respond more quickly
than we can to new or changing opportunities, technologies, standards or
customer requirements. Moreover, we have only recently begun to offer SAN switch
products. Therefore, we may not be able to compete successfully in the SAN
switch product market.
IF WE CANNOT INCREASE OUR SALES VOLUMES, REDUCE OUR COSTS OR INTRODUCE HIGHER
MARGIN PRODUCTS TO OFFSET REDUCTIONS IN THE AVERAGE UNIT PRICE OF OUR PRODUCTS,
OUR OPERATING RESULTS MAY SUFFER.
We anticipate that as products in the storage area market become more
commoditized, the average unit price of our products will continue to decline in
the future in response to changes in product mix, competitive pricing pressures,
new product introductions by us or our competitors or other factors. If we
6
<PAGE> 10
are unable to offset the anticipated decrease in our average selling prices by
increasing our sales volumes, our net revenues will decline. In addition, to
maintain our gross margins, we must continue to reduce the manufacturing cost of
our products. Further, as average unit prices of our current products decline,
we must develop and introduce new products and product enhancements with higher
margins. If we cannot maintain our gross margins, our business could be
seriously harmed, particularly if the average selling price of our products
decreases significantly.
OUR PRODUCTS ARE COMPLEX AND MAY CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS,
WHICH COULD LEAD TO AN INCREASE IN OUR COSTS OR A REDUCTION IN OUR NET REVENUES.
Networking products frequently contain undetected software or hardware
errors when first introduced or as new versions are released. Our products are
complex and we have from time to time found errors in existing products, and we
may from time to time find errors in our existing, new or enhanced products. In
addition, our products are combined with products from other vendors. As a
result, should problems occur, it may be difficult to identify the source of the
problem. The occurrence of hardware and software errors, whether caused by our
or other vendors' SAN products, could adversely affect sales of our products,
cause us to incur significant warranty and repair costs, divert the attention of
our engineering personnel from our product development efforts and cause
significant customer relationship problems.
IF WE DO NOT HIRE, RETAIN AND INTEGRATE HIGHLY SKILLED MANAGERIAL, ENGINEERING,
SALES, MARKETING, FINANCE AND OPERATIONS PERSONNEL, OUR BUSINESS MAY SUFFER.
Our success depends to a significant degree upon the continued
contributions of our key personnel in engineering, sales, marketing, finance and
operations, many of whom would be difficult to replace. We do not maintain key
person life insurance on most of our key personnel and do not have employment
contracts with any of our key personnel. The loss of the services of any of our
key personnel could have a negative impact on our business. We also believe that
our success depends to a significant extent on the ability of our key personnel
to operate effectively, both individually and as a group. Many of our employees
have only recently joined us. If we are unable to integrate new employees in a
timely and cost-effective manner, our operating results may suffer. We believe
our future success will also depend in large part upon our ability to attract
and retain highly skilled managerial, engineering, sales, marketing, finance and
operations personnel. Competition for these people is intense, especially in the
San Francisco Bay area where our operations are headquartered. In particular, we
have experienced difficulty in hiring qualified ASIC, software, system, test and
customer support engineers and we may not be successful in attracting and
retaining individuals to fill these positions. If we are unable to attract or
retain qualified personnel in the future, or if we experience delays in hiring
required personnel, particularly qualified engineers and sales personnel, our
ability to develop, introduce and sell our products could be harmed. In
addition, companies in our industry whose employees accept positions with
competitors frequently claim that their competitors have engaged in unfair
hiring practices. We may be subject to such claims in the future as we seek to
hire qualified personnel. Any claim of this nature could result in material
litigation. We could incur substantial costs in defending ourselves against
these claims, regardless of their merits.
WE HAVE EXPERIENCED A PERIOD OF RAPID GROWTH, AND IF WE ARE NOT ABLE TO
SUCCESSFULLY MANAGE THIS AND FUTURE GROWTH, OUR BUSINESS MAY SUFFER.
We have recently experienced a period of rapid growth. At March 31, 1997,
we had a total of 38 employees, and at June 30, 2000, we had approximately 210
employees. We plan to continue to hire new employees to expand our operations
significantly to pursue existing and potential market opportunities. This growth
will place a significant demand on our management and our operational resources.
In order to manage growth effectively, we must implement and improve our
operational systems, procedures and controls on a timely basis. Our key
personnel have limited experience managing this type of growth. If we cannot
manage growth effectively, our business could suffer.
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<PAGE> 11
BECAUSE OUR INTELLECTUAL PROPERTY IS CRITICAL TO THE SUCCESS OF OUR BUSINESS,
OUR OPERATING RESULTS WOULD SUFFER IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR
INTELLECTUAL PROPERTY.
Because our products rely on proprietary technology and will likely
continue to rely on technological advancements for market acceptance, we believe
that the protection of our intellectual property rights will be critical to the
success of our business. To protect our intellectual property rights, we rely on
a combination of patent, copyright, trademark and trade secret laws and
restrictions on disclosure. We also enter into confidentiality or license
agreements with our employees, consultants and corporate partners, and control
access to and distribution of our software, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights, unauthorized
parties may copy or otherwise obtain and use our products or technology.
Monitoring unauthorized use of our products is difficult and the steps we have
taken may not prevent unauthorized use of our technology, particularly in
foreign countries where the laws may not protect our proprietary rights as fully
as in the United States. If we are unable to protect our intellectual property
from infringement, other companies may be able to use our intellectual property
to offer competitive products at lower prices. We may not be able to effectively
compete against these companies.
WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY, AND EFFORTS TO PROTECT IT MAY
CAUSE US TO BECOME INVOLVED IN COSTLY AND LENGTHY LITIGATION WHICH COULD
SERIOUSLY HARM OUR BUSINESS.
Although we are not currently involved in any intellectual property
litigation, we may be a party to litigation in the future either to protect our
intellectual property or as a result of an alleged infringement of others'
intellectual property. These claims and any resulting litigation could subject
us to significant liability for damages and could cause our proprietary rights
to be invalidated. Litigation, regardless of the merits of the claim or outcome,
would likely be time-consuming and expensive to resolve and would divert
management time and attention. Any potential intellectual property litigation
could also force us to do one or more of the following:
- stop using the challenged intellectual property or selling our products
or services that incorporate it;
- obtain a license to use the challenged intellectual property or to sell
products or services that incorporate it, which license may not be
available on reasonable terms, or at all; or
- redesign those products or services that are based on or incorporate the
challenged intellectual property.
If we are forced to take any of the foregoing actions, we may be unable to
manufacture and sell our products, and our net revenues would be substantially
reduced.
IF WE, OUR KEY SUPPLIERS OR OUR CUSTOMERS HAVE FAILED TO IDENTIFY YEAR 2000
CALENDAR CHANGE PROBLEMS, OUR BUSINESS MAY BE DISRUPTED AND OUR NET REVENUES MAY
DECLINE.
The year 2000 issue refers to the potential for disruption to business
activities caused by system failures or miscalculations that are triggered by
advancement of date records past the year 1999. A failure due to year 2000
issues involves numerous risks including:
- potential product warranty or other claims from our customers;
- negative impact on market demand for SANs or related hub and switch
products until preparations for the calendar change by existing and
potential customers are complete; and
- manufacturing, information, facility and development systems problems,
both those that are unique to us and those that affect geographical areas
where our business and employees reside.
Although we are past January 1, 2000, and to date have not experienced any
material problems related to the year 2000 issue, we may yet discover that our
current products, any of our new products or any product enhancements we develop
in the future may have problems because of the year 2000 calendar change. In
this event, our business may be adversely affected and our customer
relationships may suffer.
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<PAGE> 12
We may still find problems with our internal systems. In this event, our
business may be adversely affected and we may experience delays or disruptions
in sales or deliveries of our product.
INDUSTRY STANDARDS AND GOVERNMENT REGULATIONS AFFECTING OUR BUSINESS EVOLVE
RAPIDLY, AND IF WE CANNOT DEVELOP PRODUCTS THAT ARE COMPATIBLE WITH THESE
EVOLVING STANDARDS, OUR BUSINESS WILL SUFFER.
Our products must comply with industry standards. For example, in the
United States, our products must comply with various regulations and standards
defined by the Federal Communications Commission. Internationally, our products
are also required to comply with standards established by authorities in various
countries. Any new products and product enhancements that we introduce in the
future must also meet industry standards at the time they are introduced.
Failure to comply with existing or evolving industry standards or to obtain
timely domestic or foreign regulatory approvals or certificates could materially
harm our business. Our products comprise only apart of the entire SAN. All
components of the SAN must comply with the same standards in order to operate
efficiently together. We depend on companies that provide other components of
the SAN to support the industry standards as they evolve. Many of these
companies are significantly larger and more influential in effecting industry
standards than we are. Some industry standards may not be widely adopted or they
may not be implemented uniformly, and competing standards may emerge that may be
preferred by OEM customers or end users. If other companies do not support the
same industry standards that we do, or if competing standards emerge, market
acceptance of our products could suffer.
WE PLAN TO INCREASE OUR INTERNATIONAL SALES ACTIVITIES WHICH WILL SUBJECT US TO
ADDITIONAL BUSINESS RISKS.
For the fiscal year ended March 31, 2000, approximately 30% of our net
revenues were from international sales activities, and for the fiscal year ended
March 31, 1999, 21% of our net revenues were from international sales
activities. We plan to continue to increase our international sales activities.
Our international sales will be limited if we cannot establish relationships
with international distributors, establish additional foreign operations, expand
international sales channel management, hire additional personnel and develop
relationships with international service providers. Even if we are able to
successfully continue international operations, we may not be able to maintain
or increase international market demand for our products. Our international
operations are subject to a number of risks, including:
- multiple protectionist, adverse and changing governmental laws and
regulations;
- reduced or limited protections of intellectual property rights;
- potentially adverse tax consequences resulting from changes in tax laws;
and
- political and economic instability.
To date, none of our international net revenues and costs have been
denominated in foreign currencies. As a result, an increase in the value of the
U.S. dollar relative to foreign currencies could make our products more
expensive and thus less competitive in foreign markets. A portion of our
international net revenues may be denominated in foreign currencies in the
future, which would subject us to risks associated with fluctuations in those
foreign currencies.
WE MAY BECOME INVOLVED IN COSTLY AND TIME-CONSUMING LITIGATION THAT MAY
SUBSTANTIALLY INCREASE OUR COSTS AND THEREBY HARM OUR BUSINESS.
We may from time to time become involved in various lawsuits and legal
proceedings which arise in the ordinary course of our business. For example, in
May 1999, a former employee filed a complaint against us. We believe this claim
is without merit and that resolution of this claim will not have a material
adverse effect on our financial condition. However, litigation is subject to
inherent uncertainties, and an adverse result in this or other matters that may
arise from time-to-time may harm our business.
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<PAGE> 13
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS' EQUITY AND
CAUSE US TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES.
As part of our strategy, we expect to review opportunities to buy other
businesses or technologies that would complement our current products, expand
the breadth of our market or enhance our technical capabilities, or that may
otherwise offer growth opportunities. In April 2000, we completed our
acquisition of SmartSAN Systems, Inc. As a result, we issued 221,745 shares of
our common stock and agreed to issue 198,674 shares of our common stock pursuant
to the exercise of SmartSAN options outstanding at the time of the acquisition.
While we have no additional current agreements or negotiations underway, we may
buy businesses, products or technologies in the future. In the event of any
future purchases, we could:
- issue stock that would dilute our current stockholders' percentage
ownership;
- incur debt; and
- assume liabilities.
These purchases could also involve numerous risks, including:
- problems integrating the purchased operations, technologies or products;
- unanticipated costs;
- diversion of management's attention from our core business;
- adverse effects on existing business relationships with suppliers and
customers;
- risks associated with entering markets in which we have no or limited
prior experience; and
- potential loss of key employees of purchased organizations.
We may not be able to successfully integrate any businesses, products,
technologies or personnel that we might purchase in the future.
OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT MAY NOT BE IN THE BEST INTERESTS OF OUR OTHER STOCKHOLDERS.
As of May 31, 2000, our executive officers and directors and their
affiliates beneficially owned, in the aggregate, approximately 40% of our
outstanding common stock. As a result, these stockholders may be able to
exercise significant control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions, which could delay or prevent an outside party from acquiring or
merging with us.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF OUR COMPANY AND MAY REDUCE THE MARKET PRICE OF OUR COMMON
STOCK.
Provisions of our certificate of incorporation and bylaws may discourage,
delay or prevent a merger or acquisition that a stockholder may consider
favorable. These provisions include:
- authorizing our board of directors to issue preferred stock without
stockholder approval;
- providing for a classified board of directors with staggered, three-year
terms;
- prohibiting cumulative voting in the election of directors;
- requiring super-majority voting to effect significant amendments to our
certificate of incorporation and bylaws;
- limiting the ability of stockholders to call special meetings;
- prohibiting stockholder actions by written consent; and
10
<PAGE> 14
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Certain provisions of Delaware law also may discourage, delay or prevent
someone from acquiring or merging with us, which may cause the market price of
our common stock to decline.
IF WE ARE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS, WE MAY BE UNABLE TO
DEVELOP OR ENHANCE OUR PRODUCTS, TAKE ADVANTAGE OF FUTURE OPPORTUNITIES OR
RESPOND TO COMPETITIVE PRESSURES OR UNANTICIPATED REQUIREMENTS, EACH OF WHICH
WOULD MATERIALLY HARM OUR BUSINESS.
We believe that our existing cash balances, credit facilities and cashflow
expected to be generated from future operations, will be sufficient to meet our
capital requirements at least through the next 12 months. However, we may be
required, or could elect, to seek additional funding prior to that time. In the
event we are required to raise additional funds we may not be able to do so on
favorable terms, if at all. Further, if we issue new equity securities,
stockholders may experience additional dilution or the new equity securities may
have rights, preferences or privileges senior to those of existing holders of
common stock. If we cannot raise funds on acceptable terms, we may be unable to
develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements. For additional
information on our anticipated future capital requirements, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" in our Form 10-K.
11
<PAGE> 15
THE COMPANY
We are a leading provider of hardware and software products that enable the
creation of networks made up of computers and data storage devices which have
become known as storage area networks ("SANs"). Our SAN products are based on
fibre channel technology, a set of specifications designed to enable computing
devices, such as computers and storage devices, to rapidly exchange large
amounts of data. We have designed our products to leverage the capabilities of
fibre channel technology to enable companies to better manage the growth of
mission-critical data by overcoming the limitations of the traditional small
computer system interface ("SCSI"), which is a captive storage architecture.
We believe we have developed the most comprehensive line of products in the
SAN industry. These products include (1) the Bitstrip active hub, an unmanaged,
Gigabit fibre channel hub, which provides a cost-effective solution for
entry-level SANs; (2) the Gibraltar line of hubs, managed hubs designed to
provide centralized management of a SAN; (3) the Capellix 3000 chassis switch, a
switch that can be configured to perform multiple functions by adding hardware
and scalable from 6 to 32 ports; (4) the Capellix 2000 stackable switch, an
8-port switch that is extendable to 11 ports, designed for the entry-level
switch market; (5) the Geminix Fibre Channel to SCSI Router, a router that has
been designed to connect legacy SCSI disk and tape storage to fibre channel
SANs; (6) the Axxess managed storage system; and (7) the Ventana SAN management
software application which provides monitoring and control of SAN devices.
We began shipments of our SAN products, in commercial quantities, in
October 1995. Our primary customers included original equipment manufacturer
("OEM") customers and expanded to include distribution channel partners. Our OEM
customers include, among others, Hewlett-Packard Company, Compaq Computer
Corporation, NEC Limited, Data General Corporation, DotHill Systems Corporation,
XIOtec Corporation (a Seagate company), and Groupe Bull, S.A. We have developed
a two-tier distribution channel comprised of distributors and resellers
including, among others, Bell Micro Products, Inc., Tokyo Electron Limited,
Comstor.net, Consan -- A Gates/Arrow Company, ACAL Electronics, Ltd., Merisel
Americas, Inc., and Wyle Systems, Inc.
We believe that the SAN infrastructure created by our network products
forms the foundation for a new data management architecture. Just as the
infrastructure created by local area networks, or LANs, formed a platform for
the development of client-server computing, we believe that the SAN
infrastructure has the potential to enable the development of a distributed data
management architecture. We plan to leverage our technological expertise, our
market knowledge and the strength of our partnerships to drive the development
of this architecture and create new opportunities for our business.
Our principal executive offices are located at: 5850 Hellyer Avenue, San
Jose, CA 95138 and our telephone number at that address is (408) 360-4950. The
Common Stock of the Company is traded on the Nasdaq National Market under the
symbol "ZOOX."
RECENT EVENTS
On April 5, 2000, we merged with SmartSAN Systems, Inc., a California
Corporation ("SmartSAN"). This merger was accounted for using the
pooling-of-interest method of accounting. Accordingly, our unaudited operating
results for the three months ended June 30, 1999 have been restated to include
approximately $243,000 SmartSAN expenses for the period ended June 30, 1999.
Additionally, we increased our accumulated deficit as of April 5, 2000 to
include approximately $3,700,000 of SmartSAN accumulated deficit. During the
quarter ended June 30, 2000 we also recorded a one-time charge of approximately
$1,169,000 for acquisition costs.
In September 1998, we entered into a $15,000,000 convertible note purchase
agreement (the "Agreement") with Seagate Technology, Inc. ("Seagate"). Since
September 18, 1998, we have converted approximately $12,766,000 of accrued
interest and principal into 1,668,722 shares of our Common Stock under the
convertible note. At June 30, 2000, we owed approximately $3,038,000 in accrued
interest and principal under the convertible note which, if converted, would
have converted into approximately 397,121
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<PAGE> 16
shares of our Common Stock. In June 2000, we notified Seagate of our intention
to repay, on July 31, 2000, the outstanding accrued interest and principal
balance under the convertible note, which is estimated to be approximately
$3,111,000.
USE OF PROCEEDS
We will not receive any part of the proceeds of sales made hereunder. All
proceeds from the sale of the Shares will be for the account of the Selling
Stockholders, as described below. See "Selling Stockholders" and "Plan of
Distribution" described below.
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<PAGE> 17
SELLING STOCKHOLDERS
The following table sets forth the names of each of the Selling
Stockholders, the number of Shares beneficially owned by each Selling
Stockholder prior to the offering, the number of Shares being offered hereby and
the number of Shares that will be beneficially owned by each Selling
Stockholder, assuming the sale of all the Shares offered hereby, after
completion of the offering. The Shares are being registered to permit secondary
trading of the Shares, and the Selling Stockholders may offer Shares for resale
from time to time. See "Plan of Distribution."
The Shares being offered by the Selling Stockholders were issued to them in
connection with the Merger pursuant to an exemption from the registration
requirements of the Securities Act provided by Section 4(2) thereof.
Each of the Selling Stockholders represented to us in connection with the
Merger that it was acquiring the Shares for investment and not with the present
intention of distributing such Shares. We have filed with the Commission, under
the Act a Registration Statement on Form S-3, of which this Prospectus forms a
part, with respect to the resale of the Shares in satisfaction of our
obligations pursuant to the Registration Rights Agreement between the Selling
Stockholders and us.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES
PRIOR TO OFFERING NUMBER OF BENEFICIALLY
------------------------- SHARES BEING OWNED AFTER
SELLING STOCKHOLDERS NUMBER(1) PERCENT(2) OFFERED(1) OFFERING
-------------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Kaushik Shah.............................. 29,337 * 29,337 0
Kumar Gajjar.............................. 29,338 * 29,338 0
Krishna Jhaveri........................... 5,102 * 5,102 0
IAI, LLC.................................. 19,134 * 19,134 0
Rajiv Shah................................ 1,276 * 1,276 0
Rajan Shah................................ 1,276 * 1,276 0
Rajvi Shah................................ 1,276 * 1,276 0
Sandeep Bhagat............................ 767 * 767 0
Ajay Patel................................ 3,062 * 3,062 0
Roopal Shah............................... 2,297 * 2,297 0
Bournevale Ltd............................ 7,655 * 7,655 0
Janak Pathak.............................. 3,826 * 3,826 0
Pradip Morparia........................... 3,827 * 3,827 0
Vijay Parekh.............................. 2,551 * 2,551 0
Senthil Ponnuswarny....................... 13 * 13 0
Elton Armstrong........................... 178 * 178 0
Ajay Malik................................ 127 * 127 0
Montreux Equity Partners II, L.P. ........ 90,119 * 90,119 0
Ashwin Doshi.............................. 3,827 * 3,827 0
Harinder Kohli............................ 1,914 * 1,914 0
Hasmukh M. Patel Living Trust............. 24,492 * 24,492 0
Roop Jain & Shobha Jain Family Trust...... 1,531 * 1,531 0
Rogers Family Trust....................... 5,741 * 5,741 0
Viren Shah................................ 767 * 767 0
</TABLE>
-------------------------
* Less than one percent.
(1) 7.3% of the Shares beneficially owned by each Selling Stockholder, 17,390
Shares in the aggregate, have been deposited in an escrow fund pursuant to
the Reorganization Agreement to secure the respective indemnification
obligations of the Selling Stockholders thereunder (the "Escrowed Shares").
The Escrowed Shares will be released from the escrow on April 5, 2001 if and
to the extent that no claims have been made against the escrow. This
Registration Statement and the sums indicated in the column entitled "Number
of Shares Being Offered" include all of the Escrowed Shares, however, the
number of Shares offered by each Selling Stockholder shall not exceed the
number of Shares currently owned plus the total number of Escrowed Shares
released from the escrow.
(2) Based on 27,587,719 Shares issued and outstanding as of June 30, 2000.
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<PAGE> 18
PLAN OF DISTRIBUTION
We believe that the Selling Stockholders or their donees or transferees
intend to sell all or a portion of the Shares offered hereby from time to time
on the Nasdaq National Market, in privately negotiated transactions or
otherwise, and that sales will be made at fixed prices that may be changed, at
market prices prevailing at the times of such sales, at prices related to such
market prices or at negotiated prices. The Selling Stockholders or their donees
or transferees may also make private sales directly or through a broker or
brokers, who may act as agent or as principal. In connection with any sales, the
Selling Stockholders or their donees or transferees and any brokers
participating in such sales may be deemed to be underwriters within the meaning
of the Securities Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling Stockholders or their donees or transferees (and,
if they act as agent for the purchaser of such Shares, from such purchaser).
Brokerage fees may be paid by the Selling Stockholders or their donees or
transferees, which may be in excess of usual and customary brokerage fees.
Broker-dealers may agree with the Selling Stockholders or their donees or
transferees to sell a specified number of Shares at a stipulated price, and, to
the extent such a broker-dealer is unable to do so acting as agent for the
Selling Stockholders or their donees or transferees, to purchase as principal
any unsold Shares at the price required to fulfill the broker-dealer's
commitment to the Selling Stockholders or their donees or transferees.
Broker-dealers who acquire Shares as principal may thereafter resell such Shares
from time to time in transactions (which may involve crosses and block
transactions and which may involve sales to and through other broker-dealers,
including transactions of the nature described above) on the Nasdaq National
Market in negotiated transactions or otherwise at market prices prevailing at
the time of sale or at negotiated prices, and in connection with such resales
may pay to or receive from the purchasers of such Shares commissions computed as
described above.
Gadzoox and the Selling Stockholders have agreed to indemnify the other
against certain liabilities, including certain liabilities under the Securities
Act.
Any Shares covered by this Prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under that Rule rather than
pursuant to this Prospectus.
There can be no assurance that the Selling Stockholders will sell any or
all of the Shares offered by them hereunder.
EXPERTS
The audited financial statements and schedule as of March 31, 2000,
incorporated by reference in this Prospectus and elsewhere in this Registration
Statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill
Road, Palo Alto, California 94304-1050. As of the date of this Prospectus,
certain members of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
own or beneficially own shares of our Common Stock.
AVAILABLE INFORMATION
We are subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). You can inspect and
copy these reports, proxy statements and other information at the Public
Reference Room of the
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<PAGE> 19
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York, 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. You can obtain copies of these materials from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information
on the operation of the public reference rooms. Our SEC filings, including the
Registration Statement, will also be available to you on the SEC's Web site. The
address of this site is http://www.sec.gov.
We have filed with the Commission a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-3 under
the Securities Act, with respect to the Shares offered hereby. This Prospectus
does not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission, and to which reference is hereby made. Statements made in
this Prospectus as to the contents of any document referred to are not
necessarily complete. With respect to each document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You
can obtain copies of such materials from the Public Reference Section of the
Commission at 450 Fifth Street, N.W. Washington, D.C. 20549, at prescribed
rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference into this Prospectus the
information we file with the SEC, 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
information we file later with the SEC will automatically update and supersede
this information. We incorporate by reference the documents listed below and any
future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Securities and Exchange Act of 1934 until the sale of all of the Shares
of Common Stock that are part of this offering. The documents we are
incorporating by reference are as follows:
(1) our Annual Report on Form 10-K for the fiscal year ended March 31, 2000
filed on June 29, 2000;
(2) the description of the Company's Common Stock offered hereby contained
in the Company's Registration Statement on Form S-1/A filed on July 12,
1999;
(3) our Current Report on Form 8-K/A filed on May 16, 2000 amending a
previously filed report concerning the acquisition of SmartSAN Systems,
Inc.;
(4) our Current Report on Form 8-K filed on June 28, 2000 concerning a
press release announcing our expected revenues for the fiscal quarter
ending June 30, 2000; and
(5) our Current Report on Form 8-K filed on July 13, 2000 concerning a
press release announcing our earnings for the fiscal quarter ended June
30, 2000.
Any statement contained in a document incorporated by reference will be
modified or superseded for all purposes to the extent that a statement contained
in this Prospectus (or in any other document that is subsequently filed with the
SEC and incorporated by reference) modifies or is contrary to that previous
statement. Any statement so modified or superceded will not be deemed a part of
this Prospectus except as so modified or superseded.
16
<PAGE> 20
You may request a copy of these filing at no cost (other than exhibits
unless such exhibits are specifically incorporated by reference) by writing or
telephoning us at the following address and telephone number:
Gadzoox Networks, Inc.
5850 Hellyer Avenue
San Jose, California 95138
(408) 360-4950.
17
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 766
Nasdaq listing fee.......................................... $ 2,394
Legal fees and expenses..................................... $ 20,000
Miscellaneous............................................... $ 5,000
--------
Total............................................. $ 28,160
========
</TABLE>
-------------------------
* Represents expenses relating to the sale by the Selling Stockholders pursuant
to the Prospectus prepared in accordance with the requirements of Form S-3.
These expenses will be borne by the Company on behalf of the Selling
Stockholders. All amounts are estimates except for the SEC Registration Fee
and the Nasdaq listing fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Our restated certificate of incorporation provides for the indemnification
of directors to the fullest extent permissible under Delaware law.
Our bylaws provide for the indemnification of officers, directors and third
parties acting on behalf of us if such person acted in good faith and in a
manner reasonably believed to be in and not opposed to our best interest, and,
with respect to any criminal action or proceeding, the indemnified party had no
reason to believe his or her conduct was unlawful.
In addition to indemnification provided for in our certificate of
incorporation and bylaws, we have entered into indemnification agreements with
our directors, executive officers and controller. We intend to enter into
indemnification agreements with any new directors and executive officers in the
future.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Reorganization dated March 2, 2000 by
and among the Company, Gadzoox Acquisition Corporation,
SmartSAN Systems, Inc. and U.S. Bank Trust National
Association, as escrow agent*
2.2 Registration Rights Agreement dated April 5, 2000 by an
among the Company and the Selling Shareholders*
4.1 Form of Common Stock Certificate**
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
23.1 Consent of Arthur Andersen LLP, independent public
accountants
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in
Exhibit 5.1)
24.1 Power of Attorney (contained on Page II-3)
</TABLE>
-------------------------
* Incorporated by reference from Exhibit 2.1 to our Current Report on Form 8-K
filed March 16, 2000.
** Incorporated by reference from Exhibit 4.1 to our Registration Statement on
Form S-1/A as filed July 12, 1999 (File No. 333-78029).
II-1
<PAGE> 22
ITEM 17. UNDERTAKINGS.
We hereby undertake:
(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
this Registration Statement or any material change to such information in this
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.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of our annual report pursuant to Section 13(a) or 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.
(5) For the 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 us pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(6) For the purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, we have 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 the payment by us of expenses incurred or paid by
one of our directors, officers or controlling persons 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, we will,
unless in the opinion of our 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.
II-2
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form 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 San Jose, State of California, on July 19, 2000.
GADZOOX NETWORKS, INC.
By: /s/ K. WILLIAM SICKLER
------------------------------------
K. William Sickler
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints K. William Sickler and Christine E.
Munson, jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendment to this
Registration Statement on Form S-3 and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ K. WILLIAM SICKLER President, Chief Executive July 19, 2000
----------------------------------------------------- Officer and Director (Principal
K. William Sickler Executive Officer)
/s/ CHRISTINE E. MUNSON Chief Financial Officer, July 19, 2000
----------------------------------------------------- Vice President of Administration
Christine E. Munson (Principal Financial and
Accounting Officer)
/s/ DR. MILTON CHANG Director July 19, 2000
-----------------------------------------------------
Dr. Milton Chang
/s/ DR. DENNY R.S. KO Director July 19, 2000
-----------------------------------------------------
Dr. Denny R.S. Ko
/s/ ROBERT KUHLING Director July 19, 2000
-----------------------------------------------------
Robert Kuhling
/s/ STEPHEN J. LUCZO Director July 19, 2000
-----------------------------------------------------
Stephen J. Luczo
/s/ PETER MORRIS Director July 19, 2000
-----------------------------------------------------
Peter Morris
</TABLE>
II-3
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Reorganization dated March 2, 2000 by
and among the Company, Gadzoox Acquisition Corporation,
SmartSAN Systems, Inc. and U.S. Bank Trust National
Association, as escrow agent*
2.2 Registration Rights Agreement by and among the Company and
the Selling Shareholders*
4.1 Form of Common Stock Certificate**
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
23.1 Consent of Arthur Andersen LLP, independent public
accountants
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in
Exhibit 5.1)
24.1 Power of Attorney (contained on Page II-3)
</TABLE>
-------------------------
* Incorporated by reference from Exhibit 2.1 to our Current Report on Form 8-K
filed March 16, 2000.
** Incorporated by reference from Exhibit 4.1 to our Registration Statement on
Form S-1 as filed July 19, 1999 (File No. 333-78029).
