<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 1, 1999
REGISTRATION NO. 333-81347
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VIXEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3669 84-1176506
(STATE OF OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
11911 NORTHCREEK PARKWAY SOUTH
BOTHELL, WASHINGTON 98011
(425) 806-5509
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES M. MCCLUNEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VIXEL CORPORATION
11911 NORTHCREEK PARKWAY SOUTH
BOTHELL, WASHINGTON 98011
(425) 806-5509
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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JAMES C. T. LINFIELD, ESQ. GREGORY M. GALLO, ESQ.
GREGORY B. ABBOTT, ESQ. GRAY CARY WARE & FREIDENRICH LLP
COOLEY GODWARD LLP 400 HAMILTON AVENUE
5200 CARILLON POINT PALO ALTO, CA 94301
KIRKLAND, WA 98033-7355 (650) 833-2000
(425) 893-7700
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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,
check the following box. [ ]
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
number for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(3)
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Common Stock, $0.0015 par value........ 4,255,000 $12.00 $51,060,000 $14,195
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(1) Includes 555,000 shares which the underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended.
(3) Previously paid.
------------------------
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 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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<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: (1) one
prospectus to be used in connection with an offering in the United States and
Canada and (2) one prospectus to be used in connection with a concurrent
offering outside of the United States and Canada. The U.S. prospectus and the
international prospectus are identical in all respects except for the front
cover page and the "Underwriting" section. The front cover page and the
"Underwriting" section of the international prospectus are included immediately
before Part II of this registration statement.
<PAGE> 3
THE INFORMATION IN THIS 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 PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 1, 1999
VIXEL LOGO
3,700,000 SHARES
COMMON STOCK
Vixel Corporation is offering 3,700,000 shares of our common stock. This is
our initial public offering. We anticipate that the initial public offering
price will be between $10.00 and $12.00 per share. We have applied for approval
for quotation of our common stock on the Nasdaq National Market under the symbol
"VIXL."
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
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PER SHARE TOTAL
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Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Vixel........................................... $ $
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 555,000 shares of our common stock to cover over-allotments.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock
to purchasers on , 1999.
-------------------------
BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
NEEDHAM & COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE> 4
[EDGAR ARTWORK DESCRIPTIONS]
Location: inside front cover
Title: "Bringing connectivity and management to Storage Area Networks" is
centered at the top and is in white lettering against a black background. The
image of a purple Fibre Channel borders the left edge of the page. The remainder
of the words are in black lettering against white background.
Below the title, flush right, are the words "Vixel Corporation", in bold font.
Beneath our name are the words in bold font "Designing and producing the
essential building blocks for connecting high-speed storage area networks or
SANs:" followed by the words "management software, switches, managed hubs,
entry-level hubs and transceivers."
In the lower half of the page is another caption, "Optimizing the benefits of
storage networking:", in bold font, followed by these stacked phrases: "Scaling
from basic to complex SANs", "SAN interconnect management from a single software
application", "Interoperability across the product suite", and "Facilitates SANs
for both Unix and NT environments."
In the lower right corner of the page is our logo, which is the word "Vixel",
with a black background and white lettering, and a green slanted oval over the
letter "x". Below the logo flush right on the page are the words "Making the
Fibre Channel Connection," with a purple background and white lettering.
Location: top of cover bi-fold
Title: The words "Vixel Overview" at the upper flush left position of the
bi-fold. Following the title are the words "Building Storage Area Networks".
Image: The image consists of three graphical components, all of which are
connected to one another. The top component consists of a local area network,
labeled "LAN", represented by a green and blue straight line running across the
top of the page, approximately 85% up from the bottom of the page. Above the LAN
are five clusters of images, each connected by a line to the LAN, four
consisting of an image of computer monitors and computers, the first and fourth
of which are labeled "End-Users", and the fifth consisting of an image labeled
"Router", which connects by a bent line to a blue and green cloud image
containing the acronym "WAN", or wide area network. The computers and monitors
are colored green, blue, gray or black, and one monitor contains the letters
"NT" in white, one contains the Apple Computer logo and one has the words "Sun
Microsystems" in white letters.
There are seven lines intersecting below the LAN at 90 degree angles.
The first line connects to an image entitled "Traditional Storage Connectivity",
consisting of a purple device labeled a "Server", which connects to a blue
device labeled a "Storage Device".
The second line connects an image entitled "Vixel 1000 Entry-Level Hub". The
image consists of a device labeled "Server", which connects by another line to a
hub, which connects by three lines to three objects, labeled "Storage Devices".
The third and fourth lines connect to an image entitled "Vixel 2006 Managed
Hub". The image consists of two devices, labeled "Servers", which connect to a
hub, which connects by four lines to devices labeled "Storage Devices", and by
one line to an image of a transceiver. To the right of the transceiver are the
words "Vixel Transceivers in Ports of Switches and Hubs".
The fifth, sixth and seventh lines connect to one device each. The devices,
labeled "Servers" in two places, connect by separate lines to a switch labeled
the "Vixel 8100 Switch". Five additional lines connect the Vixel 8100 Switch to
different devices. The Vixel 8100 Switch and these devices are depicted in a
cloud labeled "SAN", or Storage Area Network, on the right side of the cloud.
The first two lines from the Vixel 8100 Switch connect to two devices each
labeled "Storage Device",
<PAGE> 5
and the third, fourth and fifth lines connect to three separate switches, each
labeled a "Vixel 8100 Switch". Each of the Vixel 8100 Switches within the cloud
are connected to one another by lines.
Of the three additional Vixel 8100 Switches, the first connects by two
additional lines to two devices, labeled "Storage Devices", and by three
additional lines to three of the other Vixel 8100 Switches within the cloud.
Three additional lines run from the second additional Vixel 8100 Switch. The
first line, the distance of which is labeled "10 kilometers", connects to an
additional switch labeled a "Vixel 8100 Switch", which in turn connects by two
lines to the image of two storage devices, labeled "Storage Devices". The second
and third lines connect to two images entitled "Storage Devices".
The third Vixel 8100 Switch is connected by two lines to two devices labeled
"Storage Devices" and by a third line to an image entitled "Vixel 2000 Managed
Hub", which in turn is connected by three lines each connecting to images
entitled "Storage Devices".
In the lower center of the bi-fold is the SAN InSite logo, which consists of the
words "SAN InSite(TM)" placed against a double oval to the left side of the
logo.
Computer and Monitor Image:
The image is located in the lower middle portion of the bi-fold, partly in the
left side of the cloud image. It consists of a computer monitor and a computer.
The words "Managed SAN Interconnect Software" appear above the image.
Location: Bottom left of cover bi-fold
Title: "Vixel's Total SAN Solution"
Stacked phrases: Proactive Management with SAN InSite Software
Fibre Channel Switches
Managed Fibre Channel Hubs
Entry-level Fibre Channel Hubs
Transceivers
In the lower right corner of the right-hand page is our logo, which is the word
"Vixel", with a black background and white lettering, and a green slanted oval
over the letter 'x". Below the logo flush right on the page are the words
"Making the Fibre Channel Connection", with a purple background and white
lettering.
<PAGE> 6
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 1999, 25 days after the date of this prospectus, all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
-------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 3
You Should Not Rely on Forward-Looking Statements Because
They are Inherently Uncertain............................. 14
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 30
Management.................................................. 43
Certain Transactions........................................ 54
Principal Stockholders...................................... 56
Description of Capital Stock................................ 58
Shares Eligible for Future Sale............................. 61
Underwriting................................................ 63
Legal Matters............................................... 65
Experts..................................................... 65
Where You Can Find Additional Information................... 65
Index to Financial Statements............................... F-1
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All share information contained in this prospectus gives effect to a
two-for-three reverse stock split in our common stock which occurred on August
27, 1999.
Unless otherwise indicated, this prospectus assumes that the underwriters
have not exercised their option to purchase additional shares. It also assumes
the conversion of 19,889,331 shares of preferred stock, which includes 894,333
shares of preferred stock issuable upon exercise of warrants, into 13,259,554
shares of common stock.
We own or have rights to the trademarks or tradenames that we use in
conjunction with the sale of our products and services. Vixel(R) and SAN
InSite(TM) are trademarks owned by us. This prospectus also makes reference to
trademarks of other companies which are the property of their respective owners.
We were incorporated in Colorado in June 1991 as Photonics Research
Incorporated and reincorporated in Delaware in February 1995 as Vixel
Corporation. Our corporate headquarters are located at 11911 Northcreek Parkway
South, Bothell, Washington 98011 and our telephone number is (425) 806-5509. Our
website address is www.vixel.com. Information contained on our website is not
part of this prospectus.
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PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
and our financial statements and notes appearing elsewhere in this prospectus.
THE COMPANY
We are a leading provider, based on revenue and number of ports shipped, of
comprehensive solutions used in storage area networks, or SANs. SANs are
networks that are specifically designed to interconnect computer systems and
data storage devices. Our comprehensive SAN interconnect solutions consist of a
variety of products that connect computers to data storage devices in a network
configuration. Our products utilize the Fibre Channel protocol, which is an
industry standard for the transfer of information between computers and storage
devices. Our Fibre Channel product portfolio consists of our SAN systems, which
include our SAN management software and switches and hubs, and other components,
which include our transceivers. Our products enable data storage devices to
connect to one or more computer systems and facilitate the reliable exchange of
large amounts of data at high speeds. Our products are fully interoperable and
designed to perform in concert so that customers can easily deploy a range of
SAN configurations, from simple point-to-point connections to more complex
high-performance networks. We believe our unique SAN InSite management software
optimizes the performance of our switches, hubs and transceivers, supports
network stability, and reduces enterprise information technology staffing,
training and support requirements.
In recent years there has been a significant increase in the volume of data
created, processed and accessed throughout the enterprise. This growth has been
fueled by the rapid expansion of the Internet, measured both by the number of
users as well as the number of web-based corporate initiatives which require
continuous access to critical business information 24 hours a day, seven days a
week. Enterprises traditionally have attempted to support and manage storage
requirements by linking single servers to dedicated storage devices. Fibre
Channel technology addresses the limitations of traditional server-to-storage
connections and enables data to be transferred from one network device to
another, allowing any server to access any storage device on the network. When
utilized in SANs, Fibre Channel technology combines the connectivity and
distance features of networking with the simplicity and reliability benefits of
the channel, or the dedicated circuit that carries information to and from data
storage devices. We believe, based on an International Data Corporation report
that was published in January 1999, that worldwide revenue from SAN products
should grow from approximately $2.5 billion in 1998 to over $13.3 billion in
2002, representing a compound annual growth rate of over 50%.
Our objective is to expand our position as a leading developer and supplier
of comprehensive SAN interconnect solutions. Key elements of our strategy
include the following:
- Offer new and existing customers a full Fibre Channel interconnect
product portfolio;
- Leverage our technology platforms and expertise to address rapidly
evolving SAN market demands;
- Extend our leadership in SAN interconnect management software;
- Partner with major storage solutions providers to promote
interoperability and enhance functionality;
- Expand our distribution channels; and
- Promote the Vixel brand in order to position ourselves as the leading
provider of high-performance, cost-effective SAN interconnect solutions.
We primarily market and sell our products to original equipment
manufacturers, or OEMs, which are companies that combine our products with their
own products and sell the combined products under their own brands. We also sell
to resellers. To date we have shipped to more than 30 OEMs and resellers
products representing over 500,000 Fibre Channel ports, which we believe are
more ports than any other Fibre Channel interconnect vendor has shipped.
1
<PAGE> 8
THE OFFERING
COMMON STOCK OFFERED BY VIXEL................... 3,700,000 shares
COMMON STOCK TO BE OUTSTANDING AFTER THIS
OFFERING........................................ 21,629,003 shares
USE OF PROCEEDS................................. Repayment of a promissory
note and accrued interest,
totaling $2.0 million,
working capital, general
corporate purposes and
repayment of other corporate
indebtedness.
PROPOSED NASDAQ NATIONAL MARKET SYMBOL.......... VIXL
All share information contained in this prospectus reflects a two-for-three
reverse stock split in our common stock which occurred on August 27, 1999. The
number of shares outstanding after the offering is based on shares outstanding
as of July 4, 1999 and does not include 2,217,179 shares of common stock subject
to outstanding options under our equity incentive plans or 419,865 shares of
common stock issuable upon exercise of warrants. It also assumes the conversion
of 19,889,331 shares of preferred stock, which includes 894,333 shares of
preferred stock issuable upon exercise of warrants, into 13,259,554 shares of
common stock.
The as adjusted balance sheet data summarized below reflects the conversion
of our preferred stock into 13,259,554 shares of common stock upon the
completion of this offering and the application of the net proceeds from the
sale of 3,700,000 shares of common stock offered by us at an assumed initial
public offering price of $11.00 per share, after deducting underwriting
discounts and commissions and our $900,000 estimated offering expenses. See note
1 to our financial statements for an explanation of the determination of the
number of shares used in calculating per share data.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------ ------------------
DEC. 29, DEC. 28, JAN. 3, JUNE 28, JULY 4,
1996 1997 1999 1998 1999
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(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Revenue:
SAN systems................................ $ 163 $ 3,282 $ 13,389 $ 6,557 $10,806
Components and other....................... 6,778 19,501 26,056 14,677 11,253
-------- -------- -------- -------- -------
Total revenue................................ 6,941 22,783 39,445 21,234 22,059
Gross profit (loss).......................... (401) 3,736 3,246 4,502 6,386
Loss from operations......................... (17,260) (13,525) (29,560) (12,713) (8,974)
Net loss..................................... (17,652) (13,759) (21,233) (3,930) (9,856)
Basic and diluted net loss per share
(unaudited)................................ $ (8.77) $ (2.83)
Pro forma basic and diluted net loss per
share (unaudited).......................... $ (1.42) $ (.61)
Weighted-average shares outstanding.......... 2,444 3,518
Pro forma weighted-average shares outstanding
(unaudited)................................ 14,921 16,181
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JULY 4, 1999
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ACTUAL AS ADJUSTED
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 595 $ 36,664
Investments................................................. 2,563 2,563
Working (deficit) capital................................... (8,037) 28,032
Total assets................................................ 25,169 61,238
Long-term obligations and noncurrent portion of capital
leases.................................................... 12,223 10,223
Mandatorily redeemable preferred stock...................... 20,101 --
Total stockholders' (deficit) equity........................ (27,929) 30,241
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially and adversely
affected. In that case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
WE HAVE INCURRED SIGNIFICANT LOSSES SINCE OUR INCEPTION, WE EXPECT FUTURE
LOSSES, AND WE MAY NOT BECOME PROFITABLE.
We have incurred significant losses since inception and expect to incur
losses in the future. As of July 4, 1999, we had an accumulated deficit of $66.1
million. We cannot be certain that we ever will realize sufficient revenue to
achieve profitability. We expect to incur significant product development, sales
and marketing and administrative expenses, and we will need to generate
significant revenue to achieve and maintain profitability. Even if we do achieve
profitability, we may not be able to sustain or increase profitability.
OUR OPERATING RESULTS ARE DIFFICULT TO FORECAST, MAY FLUCTUATE ON A QUARTERLY
BASIS AND MAY BE ADVERSELY AFFECTED BY MANY FACTORS, WHICH MAY RESULT IN
VOLATILITY IN OUR STOCK PRICE.
Our revenue and results of operations have varied on a quarterly basis in
the past and may vary significantly in the future due to a number of factors,
many of which may cause our stock price to fluctuate. Some of the factors that
could affect our operating results include:
- the size, timing, terms and fluctuations of customer orders, particularly
large orders from a limited number of OEMs;
- our ability to attain and maintain sufficient reliability levels for our
SAN interconnect products;
- the timing of the introduction or enhancement of products by us, our OEMs
and our competitors;
- decreases in the prices at which we can sell our products;
- the mix of products sold, as our switches and hubs typically have higher
margins than our transceivers, and the mix of distribution channels
through which our products are sold;
- the ability of our contract manufacturers to produce and distribute our
products in a timely fashion;
As a result of these and other factors, we believe that period to period
comparisons of our operating results should not be relied upon as an indicator
of our future performance. It is likely that in some future period our operating
results will be below your expectations or those of public market analysts.
A COMPONENT USED IN OUR TRANSCEIVERS HAS EXPERIENCED AN ABNORMALLY HIGH FAILURE
RATE WHICH HAS ADVERSELY AFFECTED AND COULD IN THE FUTURE AFFECT OUR SALES.
Our gigabit interface converter transceivers, or GBICs, and our gigabaud
link module transceivers, or GLMs, manufactured prior to March 1999 incorporate
a compact disk, or CD, laser manufactured by a third party. GBICs are removable
and GLMs are non-removable devices that convert optical and electrical signals.
We have observed, and some customers have confirmed, that in certain
applications our GBIC and GLM transceivers that incorporate this CD laser have
experienced an abnormally high failure rate. Although we recorded a warranty
reserve of $3.6 million in the fourth quarter of fiscal 1998 as a result of
these problems, there is a risk that this reserve will be inadequate to
implement a remedy that is satisfactory to our customers. In addition, we cannot
assure you that, over time, failure rates for products that incorporate these CD
lasers will not increase or that the lasers which we began using in our GBIC
transceiver products in March 1999 will not experience problems. Claims against
us in excess of the amount of our reserve could have a material adverse effect
on our business and financial condition. As a result of this problem, Sun
Microsystems has reduced its purchases of GBIC transceivers and in August
3
<PAGE> 10
1999, we issued to Sun Microsystems a warrant for 150,000 shares of our common
stock. In addition, if we are unable to resolve this matter to our customers'
satisfaction, or if failure rates in transceiver products increase, our
reputation and relationships with current and prospective customers could be
damaged and adversely affect the sales of all of our products.
OUR OEMS HAVE UNPREDICTABLE ORDER PATTERNS WHICH MAY CAUSE OUR REVENUE TO VARY
SIGNIFICANTLY FROM PERIOD TO PERIOD.
Our OEMs tend to order sporadically, and their purchases can vary
significantly from quarter to quarter. Our OEMs generally forecast expected
purchases in advance, but frequently do not order as expected and tend to place
purchase orders only shortly before the scheduled delivery date. For example,
during the quarter ended September 27, 1998, our SAN systems revenue declined to
$2.5 million, primarily as a result of decreases in purchases of our entry-level
hubs by two OEMs during that quarter. We plan our operating expenses based on
revenue projections derived from our OEMs' forecasts. 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. These order habits cause our backlog
to fluctuate significantly. Moreover, our backlog is not necessarily indicative
of actual sales for any succeeding period, as orders are subject to cancellation
or delay by our OEMs with limited or no penalty. Also, we typically generate a
large percentage of our quarterly revenue in the last month of the quarter.
THE LOSS OF ONE OR MORE KEY CUSTOMERS COULD SIGNIFICANTLY REDUCE OUR REVENUE.
Our success will depend on our continued ability to develop and manage
relationships with significant OEMs and resellers, as well as on the sales
efforts and success of these customers. Sun Microsystems, Compaq,
Hewlett-Packard and Interphase represented 34.4%, 19.8%, 11.8% and 10.4% of our
total revenue, respectively, for the six months ended July 4, 1999. In fiscal
1998, sales to our top two customers, Sun Microsystems and Hewlett-Packard,
represented 54.4% and 12.3% of our total revenue, respectively. Although we are
attempting to expand our base of OEMs, most of our future revenue may come from
a small number of OEMs.
Our agreements with our customers do not provide any assurance of future
sales to those customers. For example:
- our OEMs and resellers can stop purchasing and marketing our products at
any time;
- our OEM and reseller agreements are not exclusive and contain no renewal
obligation; and
- our OEM and reseller agreements do not require minimum purchases.
We cannot be certain that we will retain our current OEMs and resellers or
that we will be able to recruit additional or replacement customers. Many of our
OEMs and resellers carry or utilize competing product lines. If we were to lose
one or more important OEMs or resellers to a competitor, our business, results
of operations and financial condition could be significantly harmed.
OUR SUCCESS IS DEPENDENT UPON ACCEPTANCE OF FIBRE CHANNEL TECHNOLOGY AND THE
GROWTH OF THE EMERGING SAN MARKET.
Our SAN InSite management software, switches, hubs and transceivers are
used exclusively in SANs. Accordingly, widespread adoption of SANs is critical
to our future success. The market for SANs and related software, switches, hubs
and transceivers has begun to develop only recently and is evolving rapidly.
Because this market is new, it is difficult to predict its potential size or
future growth rate. SANs are often implemented in connection with deployment of
new storage systems and servers. Potential end-user customers that have invested
substantial resources in their existing data storage and management systems
4
<PAGE> 11
may be reluctant or slow to adopt a new approach, such as SANs. Our success in
generating revenue in this emerging SAN market will depend on, among other
things, our ability to:
- demonstrate the benefits of SANs and our SAN InSite management software,
switch, hub and transceiver products to OEMs, resellers and end-users;
- develop, maintain and build relationships with leading OEMs and
resellers; and
- accurately predict the direction of industry standards and base our
products on those industry standards.
Our failure to do any of these activities would adversely affect our
ability to successfully compete in the emerging SAN market.
BECAUSE A SIGNIFICANT PORTION OF OUR REVENUE IS DERIVED FROM SALES OF
ENTRY-LEVEL HUBS AND TRANSCEIVERS, WE ARE DEPENDENT ON CONTINUED WIDESPREAD
MARKET ACCEPTANCE OF THESE PRODUCTS.
We currently derive substantially all our revenue from sales of our
entry-level hubs and transceivers. We derived approximately 89.9% and 93.8% of
our total revenue from sales of these products for the six months ended July 4,
1999 and fiscal 1998, respectively. We expect that revenue from these products
will continue to account for a substantial portion of our total revenue for the
foreseeable future. If the market does not continue to accept our entry-level
hubs and transceivers, our revenue will decline significantly. Some of these
products have been introduced and shipped in volume only recently. Accordingly,
the demand for and market acceptance of these products are uncertain. Factors
that may affect the market acceptance of our products include the continued
growth of the market for SAN interconnect products, the performance, price and
total cost of ownership of our products, the availability, functionality and
price of competing products and technologies, and the success and development of
our OEMs and resellers. Many of these factors are beyond our control.
WE EXPECT THAT A GROWING PERCENTAGE OF OUR FUTURE REVENUE WILL BE DERIVED FROM
OUR SWITCH AND MANAGED HUB PRODUCTS, AND OUR SUCCESS WILL DEPEND ON WIDESPREAD
ACCEPTANCE OF THESE PRODUCTS.
Our future success depends upon our ability to address the rapidly changing
needs of our customers by developing and introducing high-quality,
cost-effective products as well as product enhancements and services on a timely
basis and by keeping pace with technological developments and emerging industry
standards. If we do not successfully develop, introduce and market new products,
especially our switch and managed hub products, our revenue may decline. In
particular, our future revenue growth will depend on the success of new product
launches of our switch and managed hub products and success of our current
switch and managed hub products. In addition, as we introduce new or enhanced
products, we will have to manage successfully the transition from older products
in order to minimize disruption in our customers' ordering patterns, avoid
excessive levels of older product inventories and ensure that enough supplies of
new products can be delivered to meet our customers' demands. To the extent
customers defer or cancel orders in expectation of new product releases, any
delay in development or introduction of new products could cause our operating
results to suffer.
COMPETITION IN OUR MARKETS MAY LEAD TO REDUCED PRICES AND SALES OF OUR PRODUCTS,
INCREASED LOSSES AND REDUCED MARKET SHARE.
The markets for SAN interconnect products are highly competitive. Our
current competitors include a number of domestic and international companies,
many of which have substantially greater financial, technical, marketing and
distribution resources than we have. We expect that more companies, including
our customers, may enter the market for SAN interconnect products. We may not be
able to compete successfully against either current or future competitors.
Increased competition could result in significant price erosion, reduced
revenue, lower margins or loss of market share, any of which would have a
material adverse effect on our business, results of operations and financial
condition.
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For fabric switch sales, we compete primarily with Ancor Communications,
Brocade Communications and McDATA. For hub sales, we compete primarily with
Emulex Corporation and Gadzoox Networks. For transceiver sales, we compete
primarily with Cielo Communications, Finisar, Hewlett-Packard and IBM. Although
we do not believe that any other vendor offers comprehensive SAN interconnect
management software that directly competes with ours, other vendors, such as
Brocade and Gadzoox, provide single point-device managers for either fabric
switch or hub products, but not across multiple interconnect devices, including
fabric switches, hubs and transceivers. Our competitors continue to introduce
improved products with lower prices, and we will have to do the same to remain
competitive. Furthermore, larger companies in other related industries or our
customers may develop or acquire technologies and apply their significant
resources, including their distribution channels and brand recognition, to
capture significant SAN market share. Therefore, we may not be able to compete
successfully in the SAN market.
OUR FAILURE TO ENHANCE OUR EXISTING PRODUCTS AND INTRODUCE NEW PRODUCTS ON A
TIMELY BASIS COULD CAUSE OUR REVENUE TO FALL.
Given the product life cycles in the markets for our products, any delay or
unanticipated difficulty associated with new product introductions or product
enhancements could significantly harm our business, results of operations and
financial condition. Product development delays may cause our revenue to
decrease and the price of our stock to fall. We may not be able to develop,
manufacture and market new products or product enhancements in a timely manner
that achieve market acceptance. We also may not be able to develop the
underlying core technologies necessary to create new products and enhancements,
or to license these technologies from third parties. Product development delays
may result from numerous factors, including:
- changing OEM product specifications;
- difficulties in hiring and retaining necessary personnel;
- difficulties in reallocating engineering resources and overcoming
resource limitations;
- difficulties with independent contractors;
- changing market or competitive product requirements; and
- unanticipated engineering complexities.
THE SALES CYCLE FOR OUR PRODUCTS IS LONG AND WE MAY INCUR SUBSTANTIAL
NON-RECOVERABLE EXPENSES AND DEVOTE SIGNIFICANT RESOURCES TO SALES THAT DO NOT
OCCUR WHEN ANTICIPATED OR AT ALL.
OEMs and resellers typically conduct significant evaluation, testing,
implementation and acceptance procedures before they begin to market and sell
new solutions that include our products. This evaluation process is lengthy and
may range from six months to one year or more. This process is complex and may
require significant sales, marketing and management efforts on our part. This
process becomes more complex as we simultaneously qualify our products with
multiple customers. As a result, we may expend significant resources to develop
customer relationships before we recognize any revenue from these relationships.
FAILURE TO MANAGE OUR OEM AND RESELLER RELATIONSHIPS AND EXPAND OUR DISTRIBUTION
CHANNELS COULD SIGNIFICANTLY REDUCE OUR REVENUE.
We rely on OEMs and resellers to distribute and sell our products. Our
success depends substantially on our ability to initiate, manage and expand our
relationships with OEMs, our ability to attract additional resellers and the
sales efforts of these OEMs and resellers. Our failure to manage and expand our
relationships with OEMs and resellers, or their failure to market our products
effectively, could substantially reduce our revenue and seriously harm our
business.
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ANY FAILURE BY US TO SUCCESSFULLY EXECUTE OUR DISTRIBUTION STRATEGY WILL
NEGATIVELY IMPACT OUR REVENUE.
Our distribution strategy focuses primarily on developing and expanding
indirect distribution channels through OEMs and resellers, as well as expanding
our field sales organization. Our failure to execute this strategy successfully
could limit our ability to grow or sustain revenue. Furthermore, as we expand
our sales to resellers, we may increase our selling costs as these parties
generally require a higher level of customer support than our OEMs. If we fail
to develop and cultivate relationships with significant resellers, or if these
resellers are not successful in their sales efforts, sales of our products may
decrease and our operating results would suffer. Many of our resellers also sell
products that compete with our products. We cannot assure you that our resellers
will market our products effectively or continue to devote the resources
necessary to provide us with effective sales, marketing and technical support.
Our failure to successfully manage our reseller relationships or their failure
to sell our products could reduce our revenue.
In order to support and develop opportunities for our indirect distribution
channels, we plan to expand our field sales and support staff significantly. We
cannot assure you that this expansion will be successfully completed, that the
cost of this expansion will not exceed the incremental revenue generated or that
our expanded field sales and support staff will be able to compete successfully
against the significantly more extensive and well-funded sales and marketing
operations of many of our current or potential competitors. Our inability to
effectively establish our distribution channels or manage the expansion of our
field sales and support staff would have a material adverse effect on our
ability to grow and increase revenue.
IF WE DO NOT SUCCESSFULLY COMPLETE THE TRANSITION OF OUR PRODUCT MANUFACTURING
TO K*TEC ELECTRONICS, OUR BUSINESS MAY SUFFER.
We rely on outside contract manufacturing firms, K*TEC Electronics, a
division of Kent Electronics, and Solectron Corporation, to manufacture our
products. Currently K*TEC manufactures our switches, hubs and GBIC transceivers,
and Solectron manufactures our GLM transceivers. We are in the process of
transitioning all GLM manufacturing to K*TEC. Our failure to manage this
transition effectively may disrupt the manufacture of our products. Any
difficulties or disruptions in the manufacture of our products could prevent us
from making timely customer deliveries and result in lost opportunities and
reduced revenue.
THE LOSS OF K*TEC, THE FAILURE TO FORECAST ACCURATELY DEMAND FOR OUR PRODUCTS OR
TO MANAGE SUCCESSFULLY OUR RELATIONSHIP WITH K*TEC WOULD NEGATIVELY AFFECT OUR
BUSINESS.
Once the transition to K*TEC is complete, as we expect it to be in the
second half of 1999, we will rely exclusively on K*TEC to manufacture, store and
ship our products. We share K*TEC's manufacturing capacity with numerous
companies whose manufacturing needs may conflict with ours. If K*TEC is unable
or unwilling to complete production runs for us in the future, or experiences
any significant delays in completing production runs or shipping our products,
the manufacturing and sale of our products would be temporarily suspended. We
have in the past experienced delivery problems based on capacity constraints for
production test and material supply. As our product volume requirements
increase, we may find it necessary to augment our manufacturing capacity by
exploring new subcontract manufacturers. We may not be successful in finding
qualified manufacturers that meet our needs. An interruption in supply of our
products, or additional costs incurred to qualify and shift production to an
alternative manufacturing facility, would significantly harm our business,
results of operations and financial condition.
K*TEC is not obligated to supply products for us, except as may be provided
in a particular purchase order that K*TEC has accepted. We place purchase orders
with K*TEC based on periodic forecasts. While most of the materials used in our
products are standard products, some are proprietary and/or sole-source and
require extended lead times. Our business will be adversely affected if we are
unable to accurately forecast demand for our products and manufacturing capacity
or if materials are not available at K*TEC to meet the demand. Lead times for
materials and components vary significantly and depend on
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the specific supplier, contract terms and demand for a component at a given
time. We also may experience shortages of components from time to time, which
could delay the manufacture of our products.
We plan to regularly introduce new products and product enhancements, which
will require that we coordinate our efforts with K*TEC to rapidly achieve volume
production. If we do not effectively manage our relationship with K*TEC, or if
K*TEC experiences delays, disruptions, capacity constraints or quality control
problems in its manufacturing operations, our ability to ship products to our
customers could be delayed and our competitive position and reputation could be
harmed. Qualifying a new contract manufacturer and commencing volume production
is expensive and time consuming. If we are required to or choose to change
contract manufacturers, we may lose revenue and damage our customer
relationships.
WE MAY LOSE SALES IF OUR SOLE SOURCE SUPPLIERS FAIL TO MEET OUR NEEDS.
We currently purchase several key components from single sources. We depend
on single sources for our vertical cavity surface emitting lasers, or VCSELs,
our application specific integrated circuits, or ASICs, and our microprocessors.
VCSELs are laser components that maintain a high quality signal and consume a
low amount of power. ASICs are custom designed computer chips that perform
specific functions very efficiently. In addition, we license from a third party
software that is incorporated into our switches and hubs. If we cannot supply
products due to a lack of components, or are unable to redesign products with
other components in a timely manner, our business, results of operations and
financial condition would be materially adversely affected. For a more complete
discussion of our supplier arrangements, see "Business -- Manufacturing" on page
40.
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 particular
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.
A DECREASE IN THE SELLING PRICES OF PRODUCTS WOULD REDUCE OUR REVENUE AND GROSS
MARGINS.
As the markets for SAN interconnect products mature, it is likely that the
average unit prices of our products will decrease in response to competitive
pricing pressures, increased sales discounts, new product introductions by us or
our competitors or other factors. If our efforts to reduce the cost of our
products through manufacturing efficiencies, design improvements and cost
reductions, as well as through increased sales of higher margin products are not
successful, our revenue and gross margins will decline, significantly harming
our operating results and financial condition which may cause our stock price to
drop.
UNDETECTED SOFTWARE OR HARDWARE DEFECTS COULD INCREASE OUR COSTS AND REDUCE OUR
REVENUE.
SAN interconnect products frequently contain undetected software or
hardware defects when first introduced or as new versions are released. Our
products are complex and problems may be found from time to time in our
existing, new or enhanced products. Our products incorporate components
manufactured by third parties. We have in the past experienced difficulties with
quality and reliability of components obtained from third parties and we could
experience similar problems in the future. In addition, our products are
integrated with products from other vendors. As a result, when problems occur,
it may be difficult to identify the source of the problem. These problems may
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 relations problems.
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IF WE FAIL TO SUCCESSFULLY DEVELOP THE VIXEL BRAND, OUR REVENUE MAY NOT GROW AND
OUR STOCK PRICE MAY FALL.
We believe that establishing and maintaining the Vixel brand is a critical
aspect of our efforts to maintain and develop strategic OEM and reseller
relationships, and that the importance of brand recognition will increase due to
the growing number of vendors of SAN interconnect products. Our failure to
successfully develop our brand may prevent us from growing our revenue, which
could cause the price of our stock to fall. We intend to increase our spending
on programs, including advertising campaigns and marketing events, to create and
maintain brand loyalty among our customers. If we do not generate a
corresponding increase in our revenue as a result of our branding efforts or
otherwise fail to promote our brand successfully, or if we incur excessive
expenses in an attempt to promote and maintain the Vixel brand, our business,
results of operations and financial condition may be materially adversely
affected. In addition, if our OEMs, resellers and end users of our SAN
interconnect products do not perceive our products to be of high quality, or if
we introduce new products or technologies that are not accepted by the market,
the value of the Vixel brand will decline and our business will suffer.
OUR MANAGEMENT TEAM IS NEW AND MAY NOT BE ABLE TO WORK TOGETHER SUCCESSFULLY
WHICH COULD HARM OUR BUSINESS.
Our success depends to a significant degree upon the continued joint
contributions of our key management, many of whom we only recently hired. In
April 1999, we hired a new president and chief executive officer, James M.
McCluney, and in September 1998, we hired a chief financial officer, Kurtis L.
Adams. Other members of our management team also joined us only recently.
Because of the limited time in which our management team has been working
together, we cannot assure you that management will be able to work effectively
as a team.
IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL,
WE MAY NOT BE SUCCESSFUL.
We believe our future success will depend in large part upon our ability to
attract and retain highly skilled managerial, technical, sales and marketing,
finance and operations personnel. In particular, we will need to increase the
number of technical staff members with experience in high-speed networking
applications as we further develop our product line. Competition for these
highly skilled employees in our industry is intense. Our failure to attract and
retain these key employees could have a material adverse effect on our business,
results of operations and financial condition.
We are seeking additional sales and marketing personnel. Competition for
qualified sales and marketing personnel is intense and we might not be able to
hire the kind and number of sales and marketing personnel we are targeting.
Unless we expand our sales and marketing force, we may not be able to increase
our revenue or extend our brand awareness. We also have a small customer service
and support organization and will need to increase our staff to support new OEMs
and resellers and the expanding needs of our existing customers. Hiring customer
service and support personnel is very competitive in our industry due to the
limited number of people available with the necessary technical skills and
understanding of SAN interconnect products.
The loss of the services of any of our key employees, the inability to
attract or retain qualified personnel in the future or delays in hiring required
personnel could hinder the development and introduction of and negatively impact
our ability to sell our products. In addition, employees may leave our company
and subsequently compete against us. Moreover, 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 claims
of this type in the future as we seek to hire qualified personnel and some of
these claims may result in material litigation. We could incur substantial costs
in defending ourselves against these claims, regardless of their merits.
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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 experienced a period of rapid growth, which has placed and
continues to place a significant strain on our resources. Unless we manage our
growth effectively, we may make mistakes in operating our business, such as
inaccurate sales forecasting, material planning and financial reporting, which
may result in fluctuations in our operating results and cause the price of our
stock to decline. We plan to continue to expand our operations significantly.
This growth will place a significant demand on our management and 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.
OUR PRODUCTS MUST COMPLY WITH EVOLVING INDUSTRY STANDARDS AND GOVERNMENT
REGULATIONS, AND IF WE CANNOT DEVELOP PRODUCTS THAT ARE COMPATIBLE WITH THESE
EVOLVING STANDARDS, OUR BUSINESS WILL SUFFER.
The market for SAN products is characterized by the need to support
industry standards as they emerge, evolve and achieve acceptance. To remain
competitive, we must continue to introduce new products and product enhancements
that meet these industry standards. All components of a SAN must utilize the
same standards in order to operate together. Our products comprise only a part
of an entire SAN and we depend on the companies that provide other components,
many of which are significantly larger than we are, to support industry
standards as they evolve. The failure of these providers to support these
industry standards could negatively impact market acceptance of our products.
In addition, in the United States, our products must comply with various
regulations and standards defined by the Federal Communications Commission and
Underwriters Laboratories. Internationally, products that we develop also will
be required to comply with standards established by authorities in various
countries. 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.
WE PLAN TO INCREASE OUR INTERNATIONAL SALES ACTIVITIES SIGNIFICANTLY, WHICH WILL
SUBJECT US TO ADDITIONAL BUSINESS RISKS.
Our revenue from international sales represented 17.9% and 17.3% of our
total revenue for the six months ended July 4, 1999 and fiscal 1998,
respectively. Prior to 1998, we derived less than 5% of our total annual revenue
from international sales. We plan to expand our international sales activities
significantly. In 1999 and 2000, we intend to expand our sales activities in
Europe and Asia. Our international sales growth will be limited if we are unable
to establish relationships with international distributors, establish foreign
operations, effectively manage international sales channels, hire additional
personnel and develop relationships with service organizations. We cannot be
certain that we will be able to establish, generate and build market demand for
our products internationally. Our international operations will be subject to a
number of risks, including:
- increased complexity and costs of managing international operations;
- multiple protectionist, conflicting and changing governmental laws and
regulations;
- reduced or limited protections of intellectual property rights; and
- political and economic instability.
These factors and others could harm future sales of our products to
international customers which would negatively impact our business and operating
results. To date, none of our international revenue and costs has 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. In the future, a portion
of our international revenue may be denominated in foreign currencies, including
the Euro, which would subject us to risks associated with foreign currency
fluctuations.
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Our SAN interconnect products are subject to U.S. Department of Commerce
export control restrictions. Neither we nor our customers may export those
products without obtaining an export license. These U.S. export laws also
prohibit the export of our SAN interconnect products to a number of countries
deemed by the United States to be hostile. These restrictions may make foreign
competitors facing less stringent controls on their products more competitive in
the global market than are we or our customers. The U.S. government may not
approve any pending or future export license requests. In addition, the list of
products and countries for which export approval is required, and the regulatory
policies with respect thereto, could be revised. The sale of our SAN
interconnect products could be harmed by our failure or the failure of our
customers to obtain the required government licenses or by the costs of
compliance.
OUR INTELLECTUAL PROPERTY PROTECTION MAY PROVE TO BE INADEQUATE WHICH COULD
NEGATIVELY AFFECT OUR ABILITY TO COMPETE.
We believe that our continued success depends on protecting our proprietary
technology. We currently rely on a combination of patents, copyrights,
trademarks, trade secrets and contractual provisions to establish and protect
our intellectual property rights. In addition, 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. Our failure to protect our
intellectual property rights could have a material adverse effect on our
business, results of operations and financial condition. We cannot be certain
that the steps we take to protect our intellectual property will adequately
protect our proprietary rights, that others will not independently develop or
otherwise acquire equivalent or superior technology or that we can maintain any
of our technology as trade secrets. In addition, the laws of some of the
countries in which our products are or may be sold may not protect our products
and intellectual property rights to the same extent as the laws of the United
States or at all.
THIRD-PARTY CLAIMS OF INFRINGEMENT OF THEIR INTELLECTUAL PROPERTY RIGHTS COULD
ADVERSELY AFFECT OUR BUSINESS.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We occasionally
receive communications from third parties alleging patent infringement, and
there always is the chance that third parties may assert infringement claims
against us. For example, we recently settled claims of patent infringement
related to our transceivers, which require us to make future payments. We
established a reserve for these payments in the fourth quarter of fiscal 1998.
Future patent infringement disputes, with or without merit, could result in
costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. We cannot be certain that the necessary
licenses would be available or that they could be obtained on commercially
reasonable terms. If we fail to obtain these royalty or licensing agreements in
a timely manner and on reasonable terms, our business, results of operations and
financial condition would be materially adversely affected.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS AND CAUSE US
TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES.
We expect to review opportunities to buy other businesses or technologies
that would complement our current products, expand the breadth of our markets or
enhance our technical capabilities, or that may otherwise offer growth
opportunities. While we have no current agreements or negotiations underway, we
may buy businesses, products or technologies in the future. If we make any
future purchases, we could issue stock that would dilute existing stockholders'
percentage ownership, incur substantial debt or assume contingent liabilities.
These purchases also involve numerous risks, including:
- problems assimilating the purchased operations, technologies or products;
- unanticipated costs associated with the acquisition;
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- diversion of management's attention from our core business;
- adverse effects on existing business relationships with suppliers and
customers;
- incorrect estimates made in the accounting for acquisitions;
- risks associated with entering markets in which we have no or limited
prior experience; and
- potential loss of key employees of purchased organizations.
OUR FAILURE AND THE FAILURE OF OUR SUPPLIERS AND CUSTOMERS TO BE YEAR 2000
COMPLIANT COULD HARM OUR BUSINESS.
The year 2000 computer issue creates risks for us. Failure of our products
to recognize date information correctly when the year changes to 2000 could
result in significant decreases in market acceptance of our products, increases
in warranty claims and legal liability for defective software. We have not
tested our products in every possible computer environment, and therefore our
products may not be fully year 2000 compliant. Our internal year 2000 compliance
review is focused on reviewing our internal computer information and security
systems for year 2000 compliance, and developing and implementing remedial
programs to resolve year 2000 issues in a timely manner. Additionally, we are
contacting our third party suppliers and requesting their assurances that their
systems are year 2000 compliant.
If our suppliers, vendors, major distributors and partners fail to correct
their year 2000 problems, these failures could result in an interruption in, or
a failure of, our normal business activities or operations. If a year 2000
problem occurs, it may be difficult to determine which vendor's products have
caused the problem. These failures could interrupt our operations and damage our
relationships with our customers. Due to the general uncertainty inherent in the
year 2000 problem resulting from the readiness of third-party suppliers and
vendors, we are unable to determine at this time whether any year 2000 failures
will harm us. We believe our year 2000 worst case scenario would be the failure
of a sole or limited source supplier to be year 2000 compliant. The failure of
one of these suppliers to be year 2000 compliant could seriously interrupt our
manufacturing process, which could substantially reduce our revenue.
As we have not yet completed our year 2000 assessment, we have not
developed a contingency plan. We anticipate that our full year 2000 review,
necessary remedial actions and contingency plan will be substantially complete
by the end of November 1999. To date our year 2000 costs primarily have been
driven by the cost of our personnel conducting the year 2000 compliance review.
We estimate that the costs of completing any required modifications, upgrades or
replacements of our internal systems will not exceed $280,000, almost all of
which we believe will be or has been incurred during fiscal 1999. However, this
amount may increase as we identify and address remaining issues.
Additionally, our customers' purchasing plans could be affected by year
2000 issues if they need to expend significant resources to fix their existing
systems. This situation may reduce funds available to purchase our products.
Therefore, some customers may wait to purchase our products until after the year
2000, which may reduce our revenue.
MANAGEMENT CAN SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH OUR
STOCKHOLDERS MAY
NOT AGREE.
Except for the promissory note and accrued interest totaling $2.0 million
which we are required to pay to Western Digital upon completion of this
offering, our management will be able to spend the remaining net proceeds from
this offering in ways with which our stockholders may not agree. We cannot
assure you that our investments and use of the net proceeds of this offering
will yield favorable returns or results.
OUR PRINCIPAL STOCKHOLDERS WILL EXERCISE SIGNIFICANT CONTROL OVER VIXEL AND MAY
TAKE ACTIONS THAT MAY NOT BE IN THE BEST INTERESTS OF OUR OTHER STOCKHOLDERS.
Upon completion of this offering, our executive officers and directors and
their affiliates will beneficially own, in the aggregate, approximately 38.4% of
our outstanding common stock. As a result,
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these stockholders will 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 someone from
acquiring or merging with us.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF VIXEL AND MAY REDUCE THE MARKET PRICE OF OUR COMMON STOCK.
Provisions in 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 the issuance of 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 certain amendments to our
certificate of incorporation and bylaws;
- limiting the persons who may call special meetings of stockholders; and
- prohibiting stockholder actions by written consent.
Other provisions of Delaware law also may discourage, delay or prevent
someone from acquiring or merging with us.
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT
OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.
There has been no public market for our common stock prior to this
offering. The initial public offering price for our common stock will be
determined through negotiations between the underwriters and us. The market
price of our common stock after the offering may vary from the initial public
offering price. If you purchase shares of our common stock, you may not be able
to resell those shares at or above the initial public offering price. The market
price of our common stock may fluctuate significantly in response to the
following factors, some of which are beyond our control:
- actual or anticipated fluctuations in our operating results;
- losses of our key OEMs;
- changes in financial estimates by securities analysts;
- changes in market valuations of other technology companies;
- announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
- additions or departures of key personnel; and
- sales of common stock in the future.
In addition, the stock market has experienced extreme volatility that often
has been unrelated to the performance of particular companies. These market
fluctuations may cause our stock price to fall regardless of our performance.
You should read the "Underwriting" section on page 64 for a more complete
discussion of the factors to be considered in determining the initial public
offering price of our common stock.
WE MAY NOT BE ABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS, LIMITING OUR ABILITY
TO GROW.
We believe that the net proceeds of this offering, after repayment to
Western Digital of a promissory note and accrued interest totaling $2.0 million,
together with our existing cash balances, credit facilities and the cash flow we
expect to generate from future operations, will be sufficient to meet our
capital
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requirements at least through the next 12 months. However, we may need, or could
elect, to seek additional funding prior to that time. If we need to raise
additional funds, we may not be able to do so on favorable terms, or at all.
Further, if we issue equity securities, existing stockholders may experience
additional dilution or the new equity securities may have rights, preferences or
privileges senior to those of existing holders. If we cannot raise funds on
acceptable terms, we may not be able to develop or enhance our products, take
advantage of future opportunities or respond to competitive pressures or
unanticipated funding requirements.
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS
OUR STOCK PRICE.
Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market in the near future. The 3,700,000
shares sold in this offering will be freely tradable. The other 17,929,003
shares outstanding will be restricted securities as defined in Rule 144 of the
Securities Act. Approximately 17,912,307 of those shares will be freely tradable
beginning 180 days after the effective date of this offering, and the remainder
of these will become freely tradable at various later times. Sales of a
substantial number of shares of our common stock after this offering could cause
our stock price to fall. In addition, the sale of these shares could impair our
ability to raise capital through the sale of additional stock.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock. Accordingly, if you purchase
common stock in the offering, you will incur immediate dilution of approximately
$9.82 in the book value per share of our common stock from the price you pay for
our common stock.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS
BECAUSE THEY ARE INHERENTLY UNCERTAIN
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "expects,"
"future," "intends," "plans" and similar expressions to identify forward-looking
statements. These statements are only predictions. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us and described on
the preceding pages and elsewhere in this prospectus.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The risk factors listed
above, as well as any cautionary language in this prospectus, provide examples
of risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in these risk factors and elsewhere in this prospectus
could have a material adverse effect on our business, operating results,
financial condition and stock price.
14
<PAGE> 21
USE OF PROCEEDS
Our net proceeds from the sale of the 3,700,000 shares of common stock we
are offering are estimated to be $37.0 million, or $42.6 million if the
underwriters' option to purchase additional shares is exercised in full,
assuming an offering price of $11.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses.
We will use $2.0 million of the net proceeds to repay a 8.69% promissory
note and accrued interest due Western Digital. We currently expect to use the
remaining net proceeds for working capital and general corporate purposes. We
currently intend to use the remaining net proceeds for working capital and
general corporate purposes, including to continue expanding and enhancing our
sales and marketing operations, to continue expanding our product offerings and
for capital expenditures made in the ordinary course of business. We have not
yet determined our expected use of these proceeds but we currently anticipate
that we will incur at least $12.0 million in research and development expenses
and $14.0 million in selling, general and administrative expenses over the next
twelve months. Actual expenditures may vary substantially from these estimates.
The amounts and timing of our actual expenditures will depend upon numerous
factors, including the status of our product development efforts, marketing and
sales activities and the amount of cash generated by our operations. We may find
it necessary or advisable to use portions of the proceeds for other purposes. We
may also use the net proceeds for the repayment of corporate indebtedness which
might include the early repayment of a $7.5 million promissory note due to
Greyrock Capital on September 30, 2000. The promissory note bears interest at
the London inter-bank offer rate, or LIBOR, plus 4.75% and represents the entire
amount due Greyrock Capital under our term loan agreement. In addition, we may
use a portion of the net proceeds for further development of our product lines
through acquisitions of products, technologies and businesses. However, we have
no present commitments or agreements to make any such acquisitions. Our
management will have broad discretion concerning the allocation and use of the
net proceeds of the offering to be received by us. Pending such uses, we will
invest the net proceeds in short-term, investment grade, interest-bearing
securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain any future earnings to fund the development and
growth of our business and do not currently anticipate paying any cash dividends
in the foreseeable future. Future dividends, if any, will be determined by our
board of directors. In addition, we have entered into agreements with creditors
which restrict our ability to pay dividends.
15
<PAGE> 22
CAPITALIZATION
The following table sets forth our capitalization as of July 4, 1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of all outstanding shares
of preferred stock, which includes 894,333 shares of preferred stock
issuable upon exercise of warrants, into 13,259,554 shares of common
stock; and
- on a pro forma as adjusted basis to reflect the sale of the common stock
in this offering at an assumed initial public offering price of $11.00
per share and the application of the net proceeds, after deducting
estimated underwriting discounts and commissions and our estimated
offering expenses.
The pro forma and pro forma as adjusted information set forth below is
unaudited and should be read in conjunction with our financial statements and
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JULY 4, 1999
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ------------ --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term obligations and noncurrent portion of capital
leases................................................ $ 12,223 $ 12,223 $ 10,223
Redeemable preferred stock, $.001 par value; 4,623,482
shares authorized, 4,529,221 shares issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted...... 20,101 -- --
-------- -------- --------
Stockholders' (deficit) equity..........................
Preferred stock, $.001 par value, 15,536,522 shares
authorized, 14,465,777 shares issued and
outstanding, actual; no shares issued or
outstanding, pro forma and pro forma as adjusted... 14 -- --
Common stock, $.0015 par value, 30,000,000 shares
authorized, 4,669,449 shares issued and
outstanding, actual; 17,929,003 shares issued and
outstanding, pro forma; 21,629,003 shares issued
and outstanding, pro forma as adjusted............. 7 27 32
Additional paid-in capital............................ 51,231 72,444 109,390
Deferred compensation................................. (7,787) (7,787) (7,787)
Notes receivable from stockholders.................... (5,246) (5,246) (5,246)
Treasury stock, at cost; 66,666 shares................ (50) (50) (50)
Accumulated deficit................................... (66,098) (66,098) (66,098)
-------- -------- --------
Total stockholders' (deficit) equity............... (27,929) (6,710) 30,241
-------- -------- --------
Total capitalization............................. $ 4,395 $ 5,513 40,464
======== ======== ========
</TABLE>
The outstanding share information in the table above is as of July 4, 1999
and excludes:
- 2,217,179 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $2.55 per share;
- 419,865 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $9.76 per share; and
- 1,973,230 shares available for future issuance under our equity incentive
plans.
16
<PAGE> 23
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma net tangible book value per share of our common
stock after this offering. In the table below, we have calculated net tangible
book value per share by dividing the net tangible book value, total assets less
intangible assets and total liabilities, by the number of outstanding shares of
common stock. If you elect to participate in this offering, you could pay $11.00
per share, the assumed initial public offering price, which substantially
exceeds $1.18 per share, which is the per share value of our tangible assets
after subtracting our liabilities. Additionally as detailed below, new investors
purchasing shares in this offering at the assumed initial public offering price
will contribute 44.4% of the total consideration paid to us but will own only
17.1% of our shares.
As of July 4, 1999, our pro forma net tangible book value was approximately
$(11.3) million, or $(.63) per share of common stock. Pro forma net tangible
book value per share represents the amount of our total tangible assets less
total liabilities divided by the pro forma number of shares of common stock
outstanding. Without taking into account any other changes in net tangible book
value after July 4, 1999, other than to give effect to the receipt by us of the
net proceeds from the sale of the 3,700,000 shares of common stock offered by us
at an assumed initial public offering price of $11.00 per share, our pro forma
net tangible book value at July 4, 1999 would have been approximately $25.6
million, or $1.18 per share. This represents an immediate increase in net
tangible book value of $1.81 per share to existing stockholders and an immediate
dilution of $9.82 per share to new investors purchasing shares at the assumed
initial public offering price. The following table illustrates this per share
dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share as of July 4,
1999................................................... $(.63)
Increase per share attributable to new investors.......... 1.81
-----
Pro forma net tangible book value per share after the
offering.................................................. 1.18
------
Dilution per share to new investors......................... $ 9.82
======
</TABLE>
The following table summarizes on a pro forma basis, as of July 4, 1999,
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid to us by existing stockholders
and by new investors purchasing shares of common stock in this offering. The
information presented is based upon an assumed initial public offering price of
$11.00 per share, before deducting estimated underwriting discounts and
commissions and estimated offering expenses of this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 17,929,003 82.9% $51,017,000 55.6% $ 2.85
New investors...................... 3,700,000 17.1 40,700,000 44.4 11.00
---------- ----- ----------- -----
Total.............................. 21,629,003 100.0% $91,717,000 100.0%
========== ===== =========== =====
</TABLE>
The information presented above with respect to existing stockholders
assumes the conversion of 19,889,331 shares of preferred stock, which includes
894,333 shares of preferred stock issuable upon exercise of warrants, into
13,259,554 shares of common stock, . This information is as of July 4, 1999 and
excludes:
- 2,217,179 shares of common stock issuable upon exercise of options
outstanding at a weighted average exercise price of $2.55 per share;
- 419,865 shares of common stock issuable upon exercise of warrants
outstanding at a weighted average exercise price of $9.76 per share; and
- 1,973,230 shares of common stock available for future issuance under our
equity incentive plans.
The issuance of common stock in connection with the exercise of these
options and warrants will result in further dilution to new investors. For a
complete discussion of these options and warrants, see "Management -- Employee
Benefit Plans" on page 48 and note 1 to our financial statements.
17
<PAGE> 24
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
our financial statements and related notes, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
information appearing elsewhere in this prospectus. We derived the statement of
operations data for the fiscal years ended December 29, 1996, December 28, 1997
and January 3, 1999, and balance sheet data as of December 28, 1997 and January
3, 1999, from the audited financial statements in this prospectus. The statement
of operations data for the fiscal years ended December 31, 1994 and 1995 and the
selected balanced sheet data set forth below for us as of December 31, 1994,
December 31, 1995 and December 29, 1996 is derived from our audited financial
statements not included in this prospectus. Those financial statements were
audited by PricewaterhouseCoopers, LLP, independent accountants. We derived the
statement of operations data for the six months ended June 28, 1998 and July 4,
1999 and balance sheet data as of July 4, 1999 from the unaudited financial
statements included in this prospectus. The historical unaudited financial
statements include, in the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
information contained in them. The results of operations for the six months
ended July 4, 1999 are not necessarily indicative of results expected for the
full fiscal year 1999 or future results. Net loss available to common
stockholders shown below includes our net loss, as well as the accretion related
to our redeemable preferred stock.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
---------------------------------------------------- -------------------
DEC. 31, DEC. 31, DEC. 29, DEC. 28, JAN. 3, JUNE 28, JULY 4,
1994 1995 1996 1997 1999 1998 1999
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
SAN systems........................................ $ -- $ -- $ 163 $ 3,282 $ 13,389 $ 6,557 $ 10,806
Components and other............................... 1,713 399 6,778 19,501 26,056 14,677 11,253
------ ------- -------- -------- -------- -------- --------
Total revenue................................ 1,713 399 6,941 22,783 39,445 21,234 22,059
Cost of revenue...................................... 448 521 7,342 19,047 36,199 16,732 15,673
------ ------- -------- -------- -------- -------- --------
Gross profit (loss).................................. 1,265 (122) (401) 3,736 3,246 4,502 6,386
------ ------- -------- -------- -------- -------- --------
Operating expenses:
Research and development........................... 537 1,678 4,474 9,360 11,110 5,249 6,233
Acquired in-process technology..................... -- -- 8,633 -- 5,118 5,118 --
Selling, general and administrative................ 961 967 3,549 7,629 14,521 6,237 6,664
Amortization and writedown of goodwill and
intangibles...................................... -- -- 167 222 2,057 611 680
Amortization of deferred compensation.............. 38 38 36 50 -- -- 1,783
------ ------- -------- -------- -------- -------- --------
Total operating expenses..................... 1,536 2,683 16,859 17,261 32,806 17,215 15,360
------ ------- -------- -------- -------- -------- --------
Loss from operations................................. (271) (2,805) (17,260) (13,525) (29,560) (12,713) (8,974)
Other (expense) income............................... (135) (154) (392) (234) 8,327 8,783 (882)
------ ------- -------- -------- -------- -------- --------
Net loss............................................. $ (406) $(2,959) $(17,652) $(13,759) $(21,233) $ (3,930) $ (9,856)
====== ======= ======== ======== ======== ======== ========
Net loss available to common stockholders............ $ (406) $(2,959) $(17,693) $(13,955) $(21,424) $ (4,029) $ (9,954)
====== ======= ======== ======== ======== ======== ========
Basic and diluted net loss per share................. $(0.12) $(26.47) $ (56.87) $ (18.90) $ (8.77) $ (1.99) $ (2.83)
====== ======= ======== ======== ======== ======== ========
Weighted-average shares outstanding.................. 3,389 112 311 738 2,444 2,020 3,518
====== ======= ======== ======== ======== ======== ========
Pro forma net loss available to common stockholders
(unaudited)........................................ $(21,233) $ (9,856)
======== ========
Pro forma basic and diluted net loss per share
(unaudited)........................................ $ (1.42) $ (.61)
======== ========
Pro forma weighted-average shares outstanding
(unaudited)........................................ 14,921 16,181
======== ========
</TABLE>
<TABLE>
<CAPTION>
DEC. 31, DEC. 31, DEC. 29, DEC. 28, JAN. 3, JULY 4,
1994 1995 1996 1997 1999 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 202 $ 7,883 $ 19,883 $ 3,776 $ 3,841 $ 595
Investments.................................................... -- -- -- -- 2,490 2,563
Working capital (deficit)...................................... 746 7,959 18,477 2,352 285 (8,037)
Total assets................................................... 4,923 12,318 29,374 19,934 28,165 25,169
Long-term obligations and noncurrent portion of capital
leases....................................................... 3,149 2,056 6,012 6,057 13,856 12,223
Mandatorily redeemable preferred stock......................... -- -- 19,327 19,523 19,993 20,101
Total stockholders' equity (deficit)........................... 818 8,980 (18,937) (14,030) (19,924) (27,929)
</TABLE>
18
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the related notes included elsewhere in this prospectus.
OVERVIEW
We are a leading provider of comprehensive interconnect solutions for use
in SANs. Our portfolio of Fibre Channel products, including our SAN management
software, fabric switches, arbitrated loop hubs and transceivers, is fully
interoperable and designed to perform in concert to address a wide variety of
data and storage needs.
We incorporated in Colorado in June 1991 under the name Photonics Research
Incorporated and initially developed fiber optic components for data
communications and related applications. In February 1995, we reincorporated in
Delaware and changed our name to Vixel Corporation. In the first quarter of
1996, we acquired the Fibre Channel hub and transceiver product lines from
Western Digital Corporation. In 1997 we began developing our SAN InSite software
to manage our SAN interconnect solutions. In the first quarter of 1998, we
acquired Arcxel Technologies, Inc., a developer of Fibre Channel switches. In
early 1998, we sold our laser diode fabrication facility and gigabit Ethernet
transceiver product line to Cielo Communications, Inc., and have since been
focused exclusively on designing, developing and marketing our Fibre Channel SAN
interconnect solutions.
We derive substantially all of our revenue from the sale of SAN
interconnect products, including switches, hubs and transceivers. We currently
include our SAN InSite software with our switches and managed hubs, and we do
not sell this software separately from our other products. We sell our products
primarily to a limited number of OEMs. Sun Microsystems, Compaq Computer,
Hewlett-Packard and Interphase represented 34.4%, 19.8%, 11.8% and 10.4% of our
total revenue, respectively, for the six months ended July 4, 1999. In fiscal
1998, five OEMs accounted for 81.6% of our total revenue, with sales to Sun
Microsystems and Hewlett-Packard accounting for 54.4% and 12.3% of our total
revenue, respectively. No other individual customer represented more than 10.0%
of our total revenue in either period. While we are seeking to diversify our
customer base and expand the portion of our revenue which is derived from sales
through various distribution channels, we anticipate that our operating results
will continue to depend on volume sales to a relatively small number of OEMs.
For the six months ended July 4, 1999 and fiscal 1998, only 3.1% and 4.6%,
respectively, of our total revenue was derived from sales to distribution
channel customers. We may not be successful in our efforts to diversify our
customer base and the loss of one of our key customers could significantly
reduce our total revenue.
We currently have one distributor in North America and one in Japan. These
distributors which sell our products to VARs and end users currently represent
only a small percentage of our total revenue. We plan to expand our sales
channels to include systems integrators, VARs and additional distributors in
North America and Europe.
We generally recognize revenue at the time of product shipment, unless we
have future obligations for installation or when we ship product demonstration
units. Revenue from products shipped with future installation obligations is
recognized when we meet our future obligation. Revenue is not recognized on
demonstration units unless the customer ultimately purchases the unit, and the
related revenue is recognized at that time. Our agreement with our North
American distributor provides for price protection and for stock rotation based
on a percentage of shipments for the preceding quarter when an offsetting order
is requested. Revenue for the percentage of shipments subject to these stock
rotation rights is deferred until the stock rotation period has passed. We
provide an allowance for price protection rights. We also maintain a reserve for
product warranty costs based on a combination of historical experience and
specifically identified potential warranty liabilities.
Our gross profit as a percentage of total revenue is affected by the mix of
products sold, sales channels and customers to which our products are sold. Our
gross profit as a percentage of total revenue
19
<PAGE> 26
also is affected by fluctuations in manufacturing volumes and component costs,
manufacturing costs charged by our contract manufacturers, new product
introductions, changes in our product pricing and estimated warranty costs. We
expect that average unit selling prices for our products will decline over time
in response to competitive pricing pressures, increased sales discounts, new
product introductions by us or our competitors and other factors. We seek to
maintain gross profit as a percentage of total revenue by selling a higher
percentage of higher margin products and reducing the cost of our products
through manufacturing efficiencies, design improvements and cost reductions for
components.
We currently outsource our product manufacturing to two contract
manufacturers, K*TEC Electronics, a division of Kent Electronics, and Solectron
Corporation. We are in the process of moving all our product manufacturing to
K*TEC, and we expect to complete this process in the second half of 1999. Our
strategy with this transition is to reduce indirect costs associated with
supplier management and performance tracking and to leverage the efficiencies of
K*TEC's consolidated purchasing power and materials management capabilities to
reduce average cost of goods sold. Our contract manufacturers also provide
distribution and repair operations and most of our materials management. We
purchase certain components directly from suppliers and resell them to our
contract manufacturers at our cost and recognize no revenue from these
transactions. We also outsource the manufacturing of our ASICs to third-party
manufacturers that ship these components to K*TEC for assembly.
In connection with the grant of stock options to employees during the first
six months of fiscal 1999, we recorded deferred compensation of $9.6 million.
Deferred compensation is presented as a reduction of stockholders' equity. The
balance is expensed on a graded vesting method over the vesting period of the
options. During the first six months of fiscal 1999, we recognized $1.8 million
of the deferred compensation as compensation expense.
Since our inception, we have incurred significant losses. As of January 3,
1999, we had operating loss carryforwards of $31.1 million for federal income
tax purposes. These operating loss carryforwards expire on various dates through
2017. We have recorded a valuation allowance equal to the gross deferred tax
asset balance because our accumulated deficit, history of recurring net losses
and possible limitations on the use of carryforwards give rise to uncertainty as
to whether the deferred tax assets are realizable. Further, these operating loss
carryforwards could be subject to usage limitations due to changes in our
ownership resulting from equity financings.
As of July 4, 1999, we had an accumulated deficit of $66.1 million and we
expect to continue to incur significant losses for the foreseeable future. We
also expect to incur significant product development, sales and marketing and
administrative expenses. We cannot be certain that we will ever realize
sufficient revenue to achieve profitability. Even if we do achieve
profitability, we may not be able to sustain or increase profitability.
ACQUISITIONS AND DIVESTITURES
In March 1996, we acquired the ModuLink business of Western Digital
Corporation for a total purchase price of $11.3 million. This acquisition
represented the start of our Fibre Channel business. At the time of the
acquisition, ModuLink had one commercial transceiver product, a low-speed GLM,
which represented a significant portion of our total revenue in 1996.
Also at the time of this acquisition, in-process development projects
included a full-speed GLM, a GBIC transceiver and an entry-level hub. Acquired
in-process technology related to these projects was valued at $8.6 million, 76%
of the total purchase price, and was expensed immediately. Of the total value of
in-process technology approximately 30% was associated with the GLM project
which was estimated to be 74% complete at the time of acquisition, approximately
46% with the GBIC project which was estimated to be 83% complete and
approximately 24% with the entry-level hub which was estimated to be 75%
complete. The value of the in-process technology related to each of these
projects was determined by estimating the future net cash flows resulting from
products anticipated to result from these projects and discounting the net cash
flows to the date of acquisition using a discount rate of 25%. All of these
projects subsequently resulted in commercialized products, including the Vixel
1000 entry-level hub. Combined
20
<PAGE> 27
with the low-speed GLM, these products have represented a significant portion of
our total revenue through July 4, 1999. Since this acquisition, we have also
developed our managed hub products, the Vixel 2000 and Vixel 2006, and our SAN
InSite management software to manage these products.
In February 1998, we acquired Arcxel Technologies, Inc. for a total
purchase price of $14.8 million. Arcxel Technologies was a developer of Fibre
Channel switches for the SAN market. We acquired this switch company to obtain
products and technology to expand our total SAN interconnect portfolio of
products to include management software, switches, managed hubs, entry-level
hubs and transceiver products. At the time of the acquisition, Arcxel had just
introduced its first product, a Fibre Channel switch. This product became our
Vixel 4000 switch.
Also at the time of the Arcxel acquisition, in-process development projects
included an ASIC, a fabric switch and a switching hub. Both the fabric switch
and the switching hub were being designed to use the in-process ASIC, which was
the key technology being developed by Arcxel. Of the total value of the acquired
in-process technology, approximately 74% was associated with the ASIC which was
estimated to be 70% complete at the time of the acquisition, approximately 22%
with the fabric switch which was estimated to be 27% complete and approximately
4% with the switching hub which was estimated to be 8% complete. The value of
the in-process technology related to each of these projects was determined by
estimating the future net cash flows resulting from products anticipated to
result from these projects and discounting the net cash flows to the date of
acquisition using a discount rate of 35%. Since this acquisition, we completed
the development of the ASIC and the fabric switch, which became our Vixel 8100
product. The Vixel 8100 began generating revenue in the quarter ended July 4,
1999. Also, subsequent to the acquisition, we decided not to complete the
development of the switching hub that was in process, rather we are devoting our
resources to developing other fabric switches that will use the ASIC that was in
development at the time of the acquisition.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenue, statement of
operations data for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------- -------------------
DEC. 29, DEC. 28, JAN. 3, JUNE 28, JULY 4,
1996 1997 1999 1998 1999
-------- -------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
SAN systems........................................ 2.3% 14.4% 33.9% 30.9% 49.0%
Component and other................................ 97.7 85.6 66.1 69.1 51.0
------ ----- ----- ----- -----
Total revenue.............................. 100.0 100.0 100.0 100.0 100.0
Cost of revenue...................................... 105.8 83.6 91.8 78.8 71.1
------ ----- ----- ----- -----
Gross profit (loss).................................. (5.8) 16.4 8.2 21.2 28.9
------ ----- ----- ----- -----
Operating expenses:
Research and development........................... 64.4 41.1 28.1 24.7 28.3
Acquired in-process technology..................... 124.4 -- 13.0 24.1 --
Selling, general and administrative................ 51.1 33.5 36.8 29.4 30.2
Amortization and writedown of goodwill and
intangibles..................................... 2.4 1.0 5.2 2.9 3.1
Amortization of deferred compensation.............. 0.5 0.2 -- -- 8.1
------ ----- ----- ----- -----
Total operating expenses................... 242.8 75.8 83.1 81.1 69.7
------ ----- ----- ----- -----
Loss from operations................................. (248.6) (59.4) (74.9) (59.9) (40.8)
Other (expense) income, net........................ (5.7) (1.0) 21.1 41.4 (4.0)
------ ----- ----- ----- -----
Net loss............................................. (254.3)% (60.4)% (53.8)% (18.5)% (44.8)%
====== ===== ===== ===== =====
</TABLE>
21
<PAGE> 28
SIX MONTHS ENDED JULY 4, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 28, 1998
Revenue. Total revenue for the six months ended July 4, 1999 was $22.1
million, an increase of $825,000 compared with $21.2 million in the six months
ended June 28, 1998. Total revenue includes SAN systems revenue as well as
component and other revenue. SAN systems revenue consists of revenue generated
from our SAN switches and hubs. SAN systems revenue for the six months ended
July 4, 1999 was $10.8 million, an increase of $4.2 million compared with $6.6
million in the six months ended June 28, 1998. This 64.8% increase was the
result of an increase in sales of each of our switch and hub products.
Component and other revenue consists of revenue generated from the sale of
our GBIC and GLM transceivers, service revenue and other miscellaneous revenue.
Component and other revenue in the six months ended July 4, 1999 was $11.3
million, a decrease of $3.4 million compared with $14.7 million in the six
months ended June 28, 1998. Performance issues with our CD based transceiver
products sold primarily in 1997 were identified in late 1998 and early 1999 and
resulted in decreased purchases of our transceiver products in the six months
ended July 4, 1999. We anticipate that our component revenue will continue to
decrease as a result of our decision to focus our resources on our SAN systems
as well as a result of our customers' perceptions of our transceiver performance
problems. For a more complete discussion of the performance problems with our
transceivers, see "Risk Factors -- A component used in our transceivers has
experienced an abnormally high failure rate which has adversely affected and
could in the future affect our sales" on page 3.
Gross Profit. Cost of revenue includes the cost to acquire finished
products from third party manufacturers of our products, expenses we incur
related to inventory management, product quality testing and customer order
fulfillment, and provisions for warranty expenses and inventory obsolescence.
Gross profit in the six months ended July 4, 1999 was $6.4 million, an increase
of $1.9 million, compared with $4.5 million in the six months ended June 28,
1998. Gross profit as a percentage of total revenue was 28.9% in the six months
ended July 4, 1999 and was 21.2% in the six months ended June 28, 1998. The
increases in both absolute dollars and percentage of total revenue reflect a
change in our product mix, as sales of switch and hub products increased while
sales of transceivers declined. Our switch and hub products generally have
higher gross margins than our transceiver products. Our provisions for warranty
expenses as a percentage of total revenue were 8.1% and 2.4% for the six month
periods ended July 4, 1999 and June 28, 1998, respectively.
Research and development expenses. Research and development expenses
consist primarily of salaries and related expenses for personnel engaged in the
design, development and sustaining engineering of our products, consulting and
outside service fees, costs for prototype and test units and other expenses
related to the design, development, testing and enhancements of our products.
Research and development expenses in the six months ended July 4, 1999 were $6.2
million, an increase of $1.0 million compared with $5.2 million in the six
months ended June 28, 1998. This increase was primarily the result of adding
personnel to our ASIC and switch development teams.
Acquired in-process technology. Acquired in-process technology in the six
months ended June 28, 1998 related to our acquisition of Arcxel Technologies in
February 1998. This acquired in-process technology was identified and valued at
$5.1 million, 34.5% of the total purchase price, and was expensed immediately.
The value of the acquired in-process technology was determined by estimating the
stage of development of each in-process research and development project at the
date of acquisition and estimating future net cash flows resulting from
anticipated revenue generated from those projects, and then discounting the
projected net cash flows to the date of acquisition.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of salaries, commissions and related
expenses for personnel engaged in marketing, sales, finance and information
technology support functions, as well as professional fees, allowance for
doubtful accounts receivable, trade shows and other marketing activities.
Selling, general and administrative expenses in the six months ended July 4,
1999 were $6.7 million, an increase of $427,000, compared with $6.2 million in
22
<PAGE> 29
the six months ended June 28, 1998. This increase was primarily the result of
hiring additional personnel during fiscal 1998 and the first six months of 1999.
Amortization and writedown of goodwill and intangibles. Amortization of
goodwill and intangibles in the six months ended July 4, 1999 was $680,000, an
increase of $69,000, compared with $611,000 in the six months ended June 28,
1998. This increase was the result of amortization of goodwill and intangibles
resulting from our acquisition of Arcxel Technologies in February 1998.
Amortization of deferred compensation. Amortization of deferred
compensation in the six months ended July 4, 1999 was $1.8 million as a result
of stock options granted in that period for which we recorded deferred
compensation of $9.6 million. We incurred no amortization of deferred
compensation in the six months ended June 28, 1998.
Other (expense) income, net. Other (expense) income, net, consists of the
gain or loss on the sale of business divisions or product lines, interest
income, interest expense and other miscellaneous income or expense. Other
expense, net, in the six months ended July 4, 1999 was $882,000, compared with
other income, net, of $8.8 million in the six months ended June 28, 1998. Other
income, net, in the six months ended June 28, 1998, included a one-time $9.1
million gain on the sale of our laser diode fabrication laboratory and gigabit
Ethernet transceiver product line to Cielo Communications.
FISCAL YEARS ENDED JANUARY 3, 1999, DECEMBER 28, 1997 AND DECEMBER 29, 1996
Revenue. Total revenue was $39.4 million, $22.8 million and $6.9 million in
fiscal 1998, 1997 and 1996, respectively. Our SAN systems revenue was $13.4
million, $3.3 million and $163,000 in fiscal 1998, 1997 and 1996, respectively.
The 308.0% increase in SAN systems revenue in fiscal 1998 compared with fiscal
1997 was the result of increased sales of our entry-level hubs as well as
revenue generated by our switch and managed hub products that were introduced
during fiscal 1998. The 1,913.5% increase in revenue in fiscal 1997 compared
with fiscal 1996 was the result of an increase in sales of our entry-level hub
that was introduced in the second half of fiscal 1996.
Component and other revenue was $26.1 million, $19.5 million and $6.8
million in fiscal 1998, 1997 and 1996, respectively. The 33.6% increase in
fiscal 1998 compared with fiscal 1997 was primarily the result of an increase in
sales of our transceiver products. The 187.7% increase in fiscal 1997 compared
with fiscal 1996 was primarily the result of an increase in revenue from our
transceiver products that were introduced in late fiscal 1996 and during fiscal
1997.
Gross profit. Gross profit (loss) was $3.2 million, $3.7 million and
$(401,000) in fiscal 1998, 1997 and 1996, respectively, representing 8.2%, 16.4%
and (5.8)% of total revenue, respectively. The lower gross profit percentage in
fiscal 1998 compared with fiscal 1997 was the result of recording an increase in
our warranty provisions of $3.6 million during fiscal 1998 for our GBIC
transceivers and a writedown in the fourth quarter of fiscal 1998 of developed
technologies capitalized as part of our purchase of Arcxel Technologies. The
increase in our warranty provisions in fiscal 1998 related to the estimated
costs to repair or replace those transceiver products that contain lasers that
are showing signs of faster deterioration than we historically have experienced.
Indications of this problem were first noticed in late fiscal 1998 to early
fiscal 1999. The improvement in gross profit as a percentage of revenue in
fiscal 1997 compared with fiscal 1996 was primarily due to efficiencies achieved
from an increased volume of product shipped. Our provisions for total warranty
expenses as a percentage of total revenue were 11.0% and 1.3% in fiscal 1998 and
1997, respectively. There was no provision for warranty cost or warranty
expenses in fiscal 1996.
Research and development expenses. Research and development expenses were
$11.1 million, $9.4 million and $4.5 million in fiscal 1998, 1997 and 1996,
respectively, representing 28.1%, 41.1% and 64.4% of total revenue,
respectively. The increase in research and development expenses in fiscal 1998
compared with fiscal 1997 primarily was due to increased development costs
relating to our management software, switch and managed hub products. This
increase partially was offset by a $4.9 million reduction in research and
development expenses as a result of the sale of our laser diode fabrication
facility and gigabit Ethernet transceiver product line to Cielo Communications
in February 1998. The increase from
23
<PAGE> 30
fiscal 1996 to 1997 primarily was the result of increased costs relating to the
development of our management software and hub products.
Acquired in-process technology. Acquired in-process technology expenses in
fiscal 1998 related to our acquisition of Arcxel Technologies in February 1998.
This acquired in-process technology was identified and valued by an independent
third party at $5.1 million, 34.5% of the total purchase price, and was expensed
immediately. Acquired in-process technology expenses in fiscal 1996 related to
our acquisition of the ModuLink operations of Western Digital in March 1996.
This acquired in-process technology was valued by an independent third party at
$8.6 million, 76.4% of the total purchase price, and was expensed immediately.
The value of acquired in-process technology was determined by estimating future
net cash flows resulting from products anticipated to result from the in-process
projects and discounting the net cash flows to the date of acquisition.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $14.5 million, $7.6 million and $3.5 million in
fiscal 1998, 1997 and 1996, respectively, representing 36.8%, 33.5% and 51.1% of
total revenue, respectively. The increases in absolute dollars in fiscal 1998
compared with fiscal 1997 and fiscal 1997 compared with fiscal 1996 were
primarily related to increases in sales, marketing and administrative personnel
to support our revenue growth. In addition, fiscal 1998 expenses increased in
absolute dollars and as a percentage of revenue as compared with fiscal 1997 as
a result of expenses we recognized in fiscal 1998 in connection with our defense
and settlement of certain patent lawsuits.
Amortization and writedown of goodwill and intangibles. Amortization and
writedown of goodwill and intangibles in fiscal 1998, 1997 and 1996 were $2.1
million, $222,000 and $167,000, respectively, representing 5.2%, 1.0% and 2.4%
of total revenue, respectively. The increase in fiscal 1998 compared with fiscal
1997 primarily was the result of amortization of goodwill and intangibles
resulting from our acquisition of Arcxel Technologies in February 1998. In
addition, the increase in fiscal 1998 compared with fiscal 1997 was the result
of the write-off of goodwill associated with capitalized developed technology
written down in fiscal 1998. The amounts amortized in fiscal 1997 and 1996
related to goodwill and intangibles resulting from our acquisition of the Fibre
Channel hub and transceiver product lines from Western Digital in the first
quarter of fiscal 1996.
Amortization of deferred compensation. Amortization of deferred
compensation in fiscal 1997 and 1996 was $50,000 and $36,000, respectively,
which we recognized as a result of stock option grants to nonemployees. There
was no amortization of deferred compensation recognized in fiscal 1998.
Other (expense) income, net. Other income, net, was $8.3 million in fiscal
1998. Other expense, net, was $234,000 and $392,000 in fiscal 1997 and 1996,
respectively. Other income, net, in fiscal 1998 included a one-time $9.1 million
gain on the sale of our laser diode fabrication laboratory and gigabit Ethernet
transceiver product line to Cielo Communications.
24
<PAGE> 31
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth statement of operations data for the ten
quarters ended July 4, 1999, as well as the percentage of our total revenue
represented by each item. This information has been derived from our unaudited
financial statements. The unaudited quarterly information has been prepared on
the same basis as our audited financial statements and includes all adjustments,
consisting only of normal recurring accruals, that our management considers
necessary for a fair presentation of such information when read in conjunction
with our annual audited financial statements and notes thereto appearing
elsewhere in this prospectus. Operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MARCH 30, JUNE 29, SEPT. 28, DEC. 28, MARCH 29, JUNE 28, SEPT. 27,
1997 1997 1997 1997 1998 1998 1998
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
SAN systems................... $ 24 $ 317 $ 1,186 $ 1,755 $ 2,753 $ 3,804 $ 2,475
Components and others......... 3,036 4,698 5,362 6,405 7,870 6,807 5,393
------- ------- ------- ------- ------- ------- -------
Total revenue........... 3,060 5,015 6,548 8,160 10,623 10,611 7,868
Cost of revenue................. 3,006 4,119 5,320 6,602 8,365 8,367 6,487
------- ------- ------- ------- ------- ------- -------
Gross profit (loss)............. 54 896 1,228 1,558 2,258 2,244 1,381
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development...... 2,078 2,371 2,015 2,896 2,460 2,789 2,813
Acquired in-process
technology.................. -- -- -- -- 5,118 -- --
Selling, general and
administrative.............. 1,488 1,796 1,959 2,386 2,874 3,363 2,942
Amortization and writedown of
goodwill and intangibles.... 56 55 57 54 230 381 369
Amortization of deferred
compensation................ 12 12 13 13 -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 3,634 4,234 4,044 5,349 10,682 6,533 6,124
------- ------- ------- ------- ------- ------- -------
Operating loss.................. (3,580) (3,338) (2,816) (3,791) (8,424) (4,289) (4,743)
Other income (expense), net..... 130 68 7 (439) 8,926 (143) (158)
------- ------- ------- ------- ------- ------- -------
Net (loss) income............... $(3,450) $(3,270) $(2,809) $(4,230) $ 502 $(4,432) $(4,901)
======= ======= ======= ======= ======= ======= =======
<CAPTION>
QUARTER ENDED
-----------------------------
JAN. 3, APRIL 4, JULY 4,
1999 1999 1999
-------- -------- -------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C>
Revenue:
SAN systems................... $ 4,357 $ 4,306 $ 6,500
Components and others......... 5,986 6,216 5,037
-------- ------- -------
Total revenue........... 10,343 10,522 11,537
Cost of revenue................. 12,980 7,529 8,144
-------- ------- -------
Gross profit (loss)............. (2,637) 2,993 3,393
-------- ------- -------
Operating expenses:
Research and development...... 3,048 3,101 3,132
Acquired in-process
technology.................. -- -- --
Selling, general and
administrative.............. 5,342 3,045 3,619
Amortization and writedown of
goodwill and intangibles.... 1,077 340 340
Amortization of deferred
compensation................ -- 112 1,671
-------- ------- -------
Total operating
expenses.............. 9,467 6,598 8,762
-------- ------- -------
Operating loss.................. (12,104) (3,605) (5,369)
Other income (expense), net..... (298) (443) (439)
-------- ------- -------
Net (loss) income............... $(12,402) $(4,048) $(5,808)
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
------------------------------------------------------------------
MARCH 30, JUNE 29, SEPT. 28, DEC. 28, MARCH 29, JUNE 28,
1997 1997 1997 1997 1998 1998
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
SAN systems.................... 0.8% 6.3% 18.1% 21.5% 25.9% 35.8%
Components and others.......... 99.2 93.7 81.9 78.5 74.1 64.2
------ ----- ----- ----- ----- -----
Total revenue............ 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue.................. 98.2 82.1 81.2 80.9 78.7 78.9
------ ----- ----- ----- ----- -----
Gross profit (loss).............. 1.8 17.9 18.8 19.1 21.3 21.1
------ ----- ----- ----- ----- -----
Operating expenses:
Research and development....... 67.9 47.3 30.8 35.5 23.1 26.3
Acquired in-process
technology................... -- -- -- -- 48.2 --
Selling, general and
administrative............... 48.6 35.8 29.9 29.2 27.1 31.7
Amortization and writedown of
goodwill and intangibles..... 1.8 1.1 0.9 0.7 2.2 3.6
Amortization of deferred
compensation................. 0.4 0.2 0.2 0.2 -- --
------ ----- ----- ----- ----- -----
Total operating
expenses............... 118.7 84.4 61.8 65.6 100.6 61.6
------ ----- ----- ----- ----- -----
Operating loss................... (116.9) (66.5) (43.0) (46.5) (79.3) (40.5)
Other income (expense), net...... 4.2 1.4 0.1 (5.4) 84.0 (1.3)
------ ----- ----- ----- ----- -----
Net (loss) income................ (112.7)% (65.1)% (42.9)% (51.9)% 4.7% (41.8)%
====== ===== ===== ===== ===== =====
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
----------------------------------------
SEPT. 27, JAN. 3, APRIL 4, JULY 4,
1998 1999 1999 1999
--------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenue:
SAN systems.................... 31.5% 42.1% 40.9% 56.3%
Components and others.......... 68.5 57.9 59.1 43.7
----- ------ ----- -----
Total revenue............ 100.0 100.0 100.0 100.0
Cost of revenue.................. 82.4 125.5 71.6 70.6
----- ------ ----- -----
Gross profit (loss).............. 17.6 (25.5) 28.4 29.4
----- ------ ----- -----
Operating expenses:
Research and development....... 35.8 29.5 29.5 27.1
Acquired in-process
technology................... -- -- -- --
Selling, general and
administrative............... 37.4 51.6 28.9 31.4
Amortization and writedown of
goodwill and intangibles..... 4.7 10.4 3.2 2.9
Amortization of deferred
compensation................. -- -- 1.0 14.5
----- ------ ----- -----
Total operating
expenses............... 77.9 91.5 62.6 75.9
----- ------ ----- -----
Operating loss................... (60.3) (117.0) (34.2) (46.5)
Other income (expense), net...... (2.0) (2.9) (4.2) (3.8)
----- ------ ----- -----
Net (loss) income................ (62.3)% (119.9)% (38.4)% (50.3)%
===== ====== ===== =====
</TABLE>
25
<PAGE> 32
Our total revenue increased each quarter from the quarter ended March 30,
1997 through the quarter ended March 29, 1998, when our total revenue reached
$10.6 million. Our SAN systems revenue increased in each quarter from the
quarter ended March 30, 1997 through the quarter ended June 28, 1998. These
increases were primarily the result of increased sales of our entry-level hub
that was introduced in the second half of fiscal 1996. During the quarter ended
September 27, 1998, our SAN systems revenue declined to $2.5 million, primarily
as a result of decreases in purchases of our entry-level hub by Compaq and Sun
during that quarter. In the quarter ended June 28, 1998, these two OEMs
purchased larger volumes of products that filled some of their demand in the
quarter ended September 27, 1998. The increase in SAN systems revenue in the
quarter ended July 4, 1999 compared with the quarter ended April 4, 1999 was
primarily the result of increases in sales of our switch and entry-level hub
products.
Our component and other revenue increased in each quarter from the quarter
ended March 30, 1997 through the quarter ended March 29, 1998. These increases
were primarily the result of increased sales to existing and new customers.
Component and other revenue declined to $6.8 million in the quarter ended June
28, 1998, primarily as a result of a reduction in purchases by Hewlett-Packard.
Component and other revenue continued to decline to $5.4 million in the quarter
ended September 27, 1998, primarily as a result of Sun reducing its purchases of
transceiver products. Component and other revenue in each of the next two
quarters increased, but declined to $5.0 million in the quarter ended July 4,
1999, primarily as a result of some of our customers' perceptions regarding the
reliability of our CD based transceivers. For a more complete discussion of the
performance problems with our transceivers, see "Risk Factors -- A component
used in our transceivers has experienced an abnormally high failure rate which
has adversely affected and could in the future affect our sales" on page 3.
Gross profit dollars and gross profit as a percentage of total revenue
increased each quarter from the quarter ended March 30, 1997 to the quarter
ended March 29, 1998, primarily as a result of volume efficiencies associated
with increased revenue during these periods. Our gross profit was negative in
the quarter ended January 3, 1999 as a result of recording a warranty provision
of $3.6 million during the quarter for transceiver products shipped in prior
quarters and the write-down of developed technology during the quarter. The
increase in our warranty provision was for anticipated costs to repair or
replace those transceivers that contain lasers that are showing signs of faster
deterioration than expected.
Research and development expenses generally have increased during the ten
quarters presented as a result of increases in the number of personnel devoted
to these activities. Quarterly fluctuations in research and development expenses
have occurred primarily as a result of the timing of prototype purchases and
outside contracting fees related to the development and testing of new products
at various times.
Selling, general and administrative expenses increased in each quarter from
the quarter ended March 30, 1997 through the quarter ended June 28, 1998,
primarily due to higher levels of staffing for sales, marketing and
administrative functions to support our revenue growth. These expenses decreased
in the quarter ending September 27, 1998, primarily as a result of decreased
sales in that period. The substantial increase in selling, general and
administrative expenses in the quarter ended January 3, 1999 reflects the cost
of settling patent lawsuits and the cost related to the recruitment, relocation
and termination of executive management personnel.
Other income, net, in the quarters ended March 30, 1997, June 29, 1997 and
September 28, 1997 resulted primarily from interest income on invested cash
received from the sale of series E preferred stock in the fourth quarter of
1996. Other income, net, in the quarter ended March 29, 1998, included a one-
time $9.1 million gain on the sale of our laser diode fabrication facility and
gigabit Ethernet transceiver product line. Other expenses, net, in each of the
other quarters of fiscal 1998 and 1999 primarily consisted of interest expense.
Amortization and writedown of goodwill and intangibles increased in the
quarter ended January 3, 1999 as a result of the writedown of goodwill
associated with our decision to discontinue manufacturing a product using
developed technology acquired through our purchase of Arcxel Technologies.
26
<PAGE> 33
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity at July 4, 1999 consisted of $3.2
million in cash and cash equivalents, a $2.5 million capital equipment lease
line of credit and a working capital credit facility with a borrowing limit of
the lesser of $7.5 million or 80.0% of eligible accounts receivable. As of July
4, 1999, we had utilized $723,000 under the capital equipment lease line.
Borrowings under the capital equipment lease line of credit bear interest at
8.25% per annum, are payable ratably over a 36 month term and are secured by the
fixed assets that we lease under the line of credit. As of July 4, 1999, $2.8
million borrowings were outstanding under the working capital credit facility.
This working capital credit facility expires on September 30, 2000. At July 4,
1999, we had outstanding a $7.5 million note payable to a bank. This note is due
on September 30, 2000. Both the working capital credit facility and the note
payable bear interest at LIBOR, plus 4.75% (9.97% as of July 4, 1999).
Since inception, we have financed our operations primarily through the sale
of common stock and preferred stock with aggregate proceeds of approximately
$29.8 million. Additionally, we have financed our operations through capital
equipment lease lines, working capital credit facilities, notes payable and $6.9
million in net cash received from the sale of our laser diode fabrication
facility and gigabit Ethernet product line.
Cash utilized by operating activities was $5.3 million in the six months
ended July 4, 1999, $9.2 million in fiscal 1998, $13.6 million in fiscal 1997
and $7.3 million in fiscal 1996. The cash utilized in each of these periods was
due to net losses, as well as working capital required to fund our increased
operations. Cash used in investing activities primarily consisted of capital
expenditures of $1.7 million, $1.0 million and $535,000 in fiscal 1998, 1997 and
1996, respectively, and $1.3 million paid as part of the acquisition of Western
Digital assets in fiscal 1996.
We will use $2.0 million of the net proceeds to repay a promissory note and
accrued interest due to Western Digital. We believe that after the repayment of
this amount, the remaining net proceeds of this offering, together with our
existing cash balances and available lines of credit, will be sufficient to meet
our cash requirements at least through the next twelve months. However, we may
be required, or could elect, to seek additional funding prior to that time. Our
future capital requirements will depend on many factors, including our future
revenue, the timing and extent of spending to support product development
efforts and expansion of sales, general and administrative activities, the
timing of introductions of new products, and market acceptance of our products.
We cannot assure you that additional equity or debt financing, if required, will
be available on acceptable terms or at all.
YEAR 2000 READINESS DISCLOSURE
The year 2000 problem refers to the potential disruption of business
activities caused by failures or miscalculations by computers, software and
other equipment which are triggered by advancement of date records past the year
1999. For example, if software that uses the calendar year in computations is
not ready for the millennium calendar change, it may recognize a date
represented as "00" as the year 1900 rather than the year 2000.
Products. Our products were designed so as not to affect date sensitive
data, and we expect them to be year 2000 compliant when configured and used in
accordance with the related documentation, provided that the host machine's
underlying operating system and any other software used with or in the host
machine or our products are also year 2000 compliant. We continue to respond to
customer questions about our products on a case-by-case basis.
We have tested our products and their third-party components for year 2000
compliance, but do not warrant the overall installation of our solutions because
we cannot guarantee the compliance of other vendors' products. Our general
purchase terms and conditions require that products and components supplied to
us are year 2000 compliant. We have obtained and continue to seek written
assurances from developers of products incorporated into our products that their
products are year 2000 compliant. If we identify a material year 2000 compliance
issue with a third party supplier, we will work with that supplier
27
<PAGE> 34
to resolve the issue or source the parts or services from a supplier that is
year 2000 compliant. We believe all critical components of our products obtained
from third-party suppliers are year 2000 compliant, and expect that we will be
able to resolve any significant year 2000 problems in these components with
them. We cannot be certain, however, that these suppliers will resolve any or
all year 2000 problems before the occurrence of a material disruption to the
operation of our business. Any failure of these third parties to timely resolve
year 2000 problems with their systems could harm our business.
Internal information technology systems. We expect to complete testing,
modifying, upgrading and replacing existent critical internal information
technology systems, including our own software products and third-party software
and hardware technology, by November 1999. To the extent that we are not able to
test the technology provided by third-party vendors, we have obtained and
continue to seek written assurances from these vendors that their systems are
year 2000 compliant. To date, we have identified one of our enterprise systems
that utilizes a database system that will require an upgrade to be year 2000
compliant. This upgrade is currently available and anticipated to be installed
in the early fall of 1999. Given the short time period between the completion of
our compliance efforts and the end of the year, we may not have the time to
implement solutions or such solutions may be costly or unavailable.
Systems other than information technology systems. We are assessing the
potential effect and costs of remediating the year 2000 problem on our office
equipment and facilities, but are not aware of any significant operational year
2000 issues or costs associated with our non-information technology systems. The
majority of the infrastructure of our offices has been constructed within the
last three years. However, we may experience significant unanticipated problems
and costs caused by undetected errors or defects in the technology used in these
systems.
Most likely consequences of the year 2000 problem. A business disruption
caused by the year 2000 problem could interrupt our operations and damage our
relationships with our customers. An internal disruption or product failure
unique to us could give our competitors a comparative advantage. Failure of our
internal systems to be year 2000 ready could delay order processing, invoicing
and developing products and could require us to devote significant resources to
correcting such problems. Further, our customers' purchasing plans could be
affected by year 2000 preparation and remediation of the need to expend
significant resources to fix their existing systems. In addition, some customers
may wait to purchase our products until after the year 2000, which may reduce
our revenue in the near future.
Cost. We have funded our year 2000 plan from cash balances and separately
have accounted for these costs. We estimate that the total cost to us of
completing any required modifications, upgrades or replacements of our internal
systems will not exceed $280,000, almost all of which we believe will be or has
been incurred during fiscal 1999.
Contingency Plans. We are developing contingency plans to be implemented if
our efforts to identify and correct year 2000 problems affecting our internal
systems are not effective. We expect to complete our contingency plans by
November 1999. Depending on the systems affected and because of the short time
period before the year 2000, these plans could be costly and might include:
- accelerated replacement of affected equipment or software;
- short to medium-term use of backup equipment and software;
- increased work hours for our personnel; and
- use of contract personnel to correct, on an accelerated schedule, any
year 2000 problems that arise or to provide manual workarounds for
information systems.
The need to or cost of implementing any of these contingency plans could
adversely affect our business.
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RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which establishes
guidelines for the accounting for the costs of all computer software developed
or obtained for internal use. We are required to adopt SOP 98-1 for the fiscal
year beginning on January 4, 1999. Our adoption of SOP 98-1 is not expected to
have a material impact on our financial statements.
As of December 29, 1997, we adopted Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income," which establishes standards
for reporting and displaying comprehensive income and its components in a full
set of general-purpose financial statements. We had no material components of
comprehensive income. The adoption of this statement has had no impact on our
financial position, stockholders' equity (deficit), results of operations or
cash flows. Accordingly, our comprehensive loss for fiscal 1998 is equal to our
reported loss.
The Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way business enterprises report information in
annual statements and interim financial reports regarding operating segments,
products and services, geographic areas and major customers. This statement is
effective for financial statements for fiscal years beginning after December 15,
1997. The adoption of this statement did not have a material impact on the way
we report information in our financial statements.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the nature of our short-term investments, we have
concluded that there is no material interest rate risk exposure. Therefore, no
quantitative tabular disclosures are required.
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BUSINESS
OVERVIEW
We are a leading provider, based on revenue and number of ports shipped, of
comprehensive solutions in storage area networks, or SANs. SANs are networks
that are specifically designed to interconnect computer systems and data storage
devices. Our comprehensive SAN interconnect solutions consist of a variety of
products that connect computers to data storage devices in a network
configuration. Our products utilize the Fibre Channel protocol, which is an
American National Standards Institute, or ANSI, defined standard for the
transfer of information between computers and storage devices. Our Fibre Channel
product portfolio consists of our SAN systems, which include our SAN management
software and our switches and hubs, and other components, which include our
transceivers. Our products enable data storage devices to connect to one or more
computer systems and facilitate the reliable exchange of large amounts of data
at high speeds. Our products are fully interoperable and designed to perform in
concert so that customers can easily deploy a range of SAN configurations, from
simple point-to-point connections to more complex high-performance networks. By
offering and supporting the key components necessary to connect servers and
storage, we enable our customers to turn to one vendor for their SAN
interconnect needs. To date, we have shipped products representing over 500,000
ports to more than 30 OEMs and resellers, including Compaq Computer,
Hewlett-Packard, IBM and Sun Microsystems.
INDUSTRY BACKGROUND
Significant growth in enterprise data requirements
In recent years there has been a significant increase in the volume of data
created, processed and accessed throughout the enterprise. This growth has been
fueled by the rapid expansion of the Internet, measured both by the number of
users as well as the number of web-based corporate initiatives which require
continuous access to critical business information 24 hours a day, seven days a
week. Rapid growth of data-intensive applications, such as online transaction
processing, e-commerce, Web hosting, data warehousing, data mining, enterprise
resource management and the sharing of multimedia-based information, has
dramatically increased the need for high-capacity, high-performance storage
devices and systems. This demand is compounded when organizations create
redundant sources of data to enable continuous error-free access to data. The
growth in stored data has been facilitated by the continued decline in the cost
per unit of storage capacity. We believe, based on a report that International
Data Corporation, or IDC, an independent research firm, published in September
1998, that the worldwide volume of stored data should grow from approximately
116,000 terabytes in 1998 to approximately 1.4 million terabytes in 2002,
representing a compound annual growth rate of over 85%.
The need to support ever-increasing storage requirements presents
enterprises with a number of significant challenges. As employees, customers and
suppliers depend increasingly on data for fundamental business processes,
storage systems and servers must handle greater volumes of input and output
transactions, or I/Os. Additionally, many of the mission-critical applications
utilized in the enterprise today require rapid access to massive amounts of
data. These requirements have placed significant stress on current storage
technology and software applications, many of which were not designed to handle
large volumes of dispersed data. Also, as the number of storage devices
increases, management of data becomes more complex. Organizations have attempted
to address these storage challenges by devoting additional financial and
personnel resources.
Traditional server-to-storage connection solutions are inadequate and
expensive
Enterprises traditionally have attempted to support and manage storage
requirements by linking single servers to dedicated storage devices through
storage interfaces such as the small computer system interface, or SCSI, a
technology that facilitates this captive connection. However, the most commonly-
used SCSI-based storage architecture has significant constraints: it can connect
a single server with only 15 devices; it supports transmission distances of only
25 meters; and it typically permits data transmission
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speeds of only 40 or 80 megabytes per second, or MBps. Furthermore, SCSI-based
storage devices are dependent on the servers to which they are attached,
creating captive pockets of storage behind each server. This architecture
increases the stress on the server through which all data must pass and results
in loss of access to data if the server goes down. Some enterprises have
responded to the limitations of SCSI by deploying more servers and more storage
devices, but this response increases the complexity and cost of maintaining such
storage systems.
Development of Fibre Channel technology and storage area networks
To address the limitations of traditional server-to-storage connections, a
family of Fibre Channel standards was developed in the early 1990s to facilitate
high-performance storage connectivity solutions. Fibre Channel technology
enables data to be transferred from one network device to another, allowing any
server to access any storage device on the network. The technology combines the
connectivity and distance features of networking with the simplicity and
reliability benefits of the channel, or the dedicated circuit that carries
information to and from data storage devices. Merging network and channel
technologies, Fibre Channel can carry storage as well as network traffic over
the same physical connection. Furthermore, Fibre Channel is capable of
supporting up to 15.5 million devices and transferring data across distances of
10 kilometers at speeds of 200 MBps. Fibre Channel also supports multiple
protocols, including SCSI and Internet Protocol, or IP.
The family of Fibre Channel standards has acquired broad industry support
and has been implemented in network configurations known as storage area
networks, or SANs. In a SAN, one or more storage devices are attached through
connection points, known as ports, to an interconnecting device, commonly
referred to as an interconnect. These interconnect devices include switches,
hubs and transceivers. As shown below, typical Fibre Channel SAN configurations
include point-to-point connections between two devices, an arbitrated loop for
up to 126 devices or a switched network, or fabric, which can enable the
connection of millions of devices.
Image:
The image consists of three components.
Component 1:
Title: The "Switched Fabric" title is in the top right corner of the image.
Description: Beneath the title is an image of a switch, to which run lines
connecting the switch to a device labeled "Disks", two devices labeled "Storage
Array", one device labeled a "Tape Library" and one device labeled a "Server".
The Server is connected by a line to a local area network, labeled a "LAN".
Component 2:
Title: The "Arbitrated Loop" title is located in approximately the middle of the
image.
Description: Beneath the title is a hub. The hub is connected by three lines to
three devices labeled "Storage Arrays", by one line to a device labeled "Tape
Library" and by one line to a server labeled "Server", which is connected by a
line to a local area network, labeled a "LAN."
Component 3:
Title: The "Point to Point" title is located in the lower left corner of the
image.
Description: The image depicts one device labeled a "Storage Array" and one
device labeled a "Server", which are connected by a line. Connecting the Storage
Array to the line is a GLM transceiver, which is labeled as such. Connecting the
Server to the line is a GLM transceiver, which is labeled as such. Above the
line are the words "Optical Fiber".
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FIBREC #1
FIBREC #2
FIBREC #2
These configurations allow SANs to meet a wide variety of storage and
network requirements, from the smallest server-to-storage configuration to
complex enterprise networks. By bringing networking capabilities into the
storage environment, a SAN offers storage flexibility, fault tolerance, ease of
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management and a lower cost of ownership. We believe, based on an IDC report
that was published in January 1999, that worldwide revenue from SAN products
should grow from approximately $2.5 billion in 1998 to over $13.3 billion in
2002, representing a compound annual growth rate of over 50%.
Need for a comprehensive SAN solution
Fibre Channel standards have been in place for over five years and the
technology has been adopted by a broad customer base. However, the deployment of
Fibre Channel-based SANs is still at an early stage. In order to meet exploding
data requirements, enterprises typically have turned to multiple Fibre Channel
vendors with point, or single, products. Furthermore, enterprises commonly have
installed multiple SAN configurations provided by different solutions providers
in different areas of their network. These mixed solutions and point products
typically are managed by multiple, disparate software applications.
These partial solutions offer some but not all of the benefits associated
with Fibre Channel. They are often difficult to deploy and manage as a complete
system and may not interoperate with other Fibre Channel devices. Also, the
additional time needed to test and qualify these fragmented solutions results in
delayed implementation. Furthermore, it may be difficult to integrate these
systems with other enterprise management software and applications. As a result,
enterprises that implement fragmented solutions may not be able to realize the
full benefits of SANs. To handle increased data and performance requirements as
well as growing network complexity, organizations are seeking comprehensive,
integrated SAN management solutions that address a wide variety of data and
storage needs. SAN solutions must accommodate a range of interconnect products
that can interoperate with other products, be deployed easily and scale as the
SAN grows, be managed under one management software solution and be robust
enough to support mission-critical networks.
OUR FIBRE CHANNEL SAN SOLUTION
We are a leading provider of comprehensive SAN interconnect solutions that
utilize a variety of devices to connect computers to storage devices in a
network configuration. We offer a broad portfolio, which includes our:
- SAN management software;
- fabric switches, devices that provide high-speed connections between
multiple computers and storage devices;
- managed hubs, devices that connect multiple computers and devices in a
shared environment and can be controlled remotely;
- entry-level hubs, devices that connect computers and devices without
remote management functionality; and
- transceivers, devices that are typically embedded in other Fibre Channel
products to convert optical and electrical signals.
Our comprehensive SAN interconnect solutions address the difficulties
customers may encounter when they assemble SAN components from multiple
suppliers. Further, we offer customers the convenience of dealing with a single
full-service vendor, allowing them to avoid the time-consuming and costly
process of qualifying and certifying multiple SAN interconnect vendors.
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LOGO
Image:
The image consists of four components. The first two components are placed
completely within a line forming the shape of an oval, the third component
intersects the line forming the shape of an oval, and the fourth component falls
outside the line forming the shape of an oval.
Component 1:
Title: The "Switched Fabric" title and the component are in approximately
the 1:00 position within the oval.
Description: Beneath the title is a device labeled "Vixel Switch", which is
at the center of a hub and spoke configuration. The Vixel switch connects by one
line to a device labeled "Disks", by a second line to a device labeled "Storage
Array", by a third line to a device depicting a storage array, by a fourth line
to a device labeled "Tape Library" and by a fifth line to a device labeled
"Server." The Server connects by a line to three additional lines intersecting
at ninety degree angles, depicting a local area network, labeled a "LAN."
Additionally, the Vixel switch connects by a line to an oval-shaped image
labeled "Vixel Hubs." This image consists of a hub, which connects by four lines
to four devices labeled "Storage Arrays", and by one line to a device labeled a
"Server."
Component 2:
Title: The "Arbitrated Loop" title and the component are in approximately
the 7:00 position within the oval.
Description: Beneath the title is an oval-shaped image labeled "Vixel
Hubs." This image consists of a hub which connects by three lines to three
devices labeled "Storage Arrays", by one line to a device labeled "Tape Library"
and by one line to a server. The server connects by a line to three additional
lines intersecting at ninety degree angles, depicting a local area network,
labeled a "LAN."
Component 3:
Title: The "Vixel SAN Management" title and the component are in
approximately the 5:00 position, partially inside and partially outside the
oval.Description: The image is of a computer monitor sitting on top of a desktop
computer. Within the computer monitor is the SAN InSite logo, which consists of
the words "SAN InSite" placed within an oval.
Component 4:
Title: The "Point to Point" title and the component are in approximately
the 7:00 position, placed completely outside the oval.
Description: Beneath the title is an image labeled "Vixel Transceivers",
and beneath those words, in smaller font, are the words "Fiber Optical." The
image depicts two devices, set opposite one another, labeled a "Storage Array"
and "Server", respectively. The Storage Array and Server are connected by a
line. At the point of intersection of the Storage Array and the line is a
gigabit link module, labeled "GLM." At the point of intersection of the Server
and the line is a gigabit link module, labeled "GLM."
Our SAN interconnect solutions provide customers with the following key
benefits:
Our broad product portfolio addresses a wide spectrum of storage
requirements. We offer a wide range of high-performance Fibre Channel
interconnect products, including fabric switches that support scalable Fibre
Channel device connections, managed and entry-level hubs that support arbitrated
loop SAN configurations and transceivers that enhance data transport and device
connectivity throughout the SAN. Our switches, managed hubs and transceivers are
proactively managed from a single platform by our SAN InSite interconnect
management software and support a wide range of SAN configurations. Because we
design our own ASICs that drive the performance capabilities of our products, we
are able to rapidly develop solutions that meet varying data storage
requirements.
Our software provides comprehensive SAN management. Our SAN InSite software
is a unified platform that offers a single system view from one computer screen
down to the port level of our fabric switches, managed hubs and transceivers.
Our SAN InSite software provides comprehensive status, control and diagnostics
for fabric switches, arbitrated loop hubs and transceivers under a single
management software umbrella. It is also designed to seamlessly integrate with
other enterprise software applications, such as storage management and network
management platforms. As a result, storage network management functions, such as
proactive monitoring, reporting, policy management, security and fault
tolerance, can be integrated and optimized across our devices in the SAN. We
believe this comprehensive network management solution enhances SAN performance,
offers high rates of data availability, promotes network stability and reduces
enterprise information technology staffing, training and support requirements.
Interoperability of our products optimizes SAN deployment and
functionality. We design standards-based interoperability into our products from
the beginning of the design cycle. Our fabric switches, hubs, transceivers and
SAN management software are engineered to perform in concert to handle the
rigorous requirements of enterprise networks and enable highly-available,
scalable and manageable SANs. Furthermore, because our products adhere to Fibre
Channel ANSI standards, they are compatible with other Fibre Channel
standards-based products. Also, our SAN InSite software has been designed to
interoperate with other enterprise management applications. We believe our
enhanced interoperability
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allows our OEMs and resellers to streamline the testing and qualification
process and increase their time to market. We also believe the interoperability
of our products reduces end users' deployment time and enhances the
functionality and performance of their SANs.
Our range of solutions support cost-effective scaling. Because we offer the
essential building blocks for SAN interconnects, our solutions can be
efficiently scaled as users' data and storage requirements expand. Our solutions
enable seamless additions of devices and ports to the SAN, regardless of the
installed Fibre Channel configuration. Our advanced fabric switch design allows
our switches to be easily installed and to immediately interact with existing
equipment, enabling legacy arbitrated loop configurations to scale to full
fabric switched SANs. Furthermore, our single management software platform can
support the management of our products that are part of or added to SAN
configurations. We believe our interoperable products supported by our SAN
InSite software reduce personnel and financial resource requirements, providing
our end users with a more cost-effective storage solution.
STRATEGY
Our objective is to expand our position as a leading developer and supplier
of comprehensive SAN interconnect solutions. Key elements of our strategy
include the following:
Offer customers a full Fibre Channel interconnect product portfolio. We are
committed to offering a complete, high-performance SAN interconnect solution
consisting of a full portfolio of switches, hubs, transceivers and management
software. We are focused on selling our SAN solutions to new customers as well
as extending our full product portfolio to existing customers who may be using
only some of our products. To date we have shipped products representing over
500,000 Fibre Channel ports to more than 30 OEMs and resellers which we believe
is more ports than any other Fibre Channel interconnect vendor has shipped. We
plan to leverage our existing customer base and spectrum of hardware and
software products to move beyond single product sales and aggressively offer and
market complete SAN interconnect solutions. With the adoption of our full
portfolio of products, a customer realizes the increased performance and cost
benefits of our interoperable, integrated SAN solution.
Leverage our technology platforms and expertise to address rapidly evolving
market demands. We seek to leverage our proven Fibre Channel expertise to
continually develop an expanding range of products in key areas of the SAN
interconnect, including fabric switches, hubs, transceivers and the software
that manages SAN interconnects. As a comprehensive SAN interconnect solutions
provider, we have accumulated extensive Fibre Channel expertise in all SAN
configurations, including point-to-point, arbitrated loop and fabric.
Furthermore, we have taken an active leadership role in Fibre Channel standards
boards that drive the development of Fibre Channel standards. We believe our
extensive Fibre Channel expertise, our internally-developed ASICs, and our
experienced engineering teams enable us to rapidly develop and market products
that address evolving market demands. To enhance our technological advantage, we
plan to continue to invest significant engineering resources in product
development.
Extend our SAN interconnect management software leadership. We believe we
offer the most comprehensive and best performing SAN interconnect management
software solution. We intend to extend our leadership position by developing new
management tools, offering additional functionality and enabling further
interoperability with other storage and systems management platforms. We believe
these enhanced SAN interconnect management solutions will increase SAN
reliability and functionality while decreasing total costs of ownership.
Partner with major storage solutions providers. We intend to continue to
expand our relationships with key storage system and server OEMs, resellers, and
other leading Fibre Channel component and device vendors. To date we have
established strategic relationships with leading storage solutions providers,
including EMC, Legato and Veritas, to enhance multi-vendor interoperability. We
plan to leverage existing and establish new strategic relationships to promote
Fibre Channel solutions and interoperability, and to enhance the functionality
of our products. We will also continue to seek opportunities to participate in
joint technology development with key strategic partners in order to offer our
customers robust, interoperable solutions. We seek to accelerate time to market
and simplify deployment of our solutions by
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continuing to expand our test and verification lab, the Vixel Verification Lab,
or the V(2) Lab, and by initiating pre-certification programs with additional
storage solutions providers.
Expand our distribution channels. We plan to extend our comprehensive
portfolio of product offerings to existing OEMs as well as sell to new OEMs.
Currently, our major OEMs include Amdahl, Avid Sports, Compaq, Emulex,
Hewlett-Packard, IBM, Interphase and Sun Microsystems. As we expand our OEM
base, we plan to introduce new products, develop new markets and leverage the
systems and service capabilities of industry-leading OEMs. As end-user awareness
of Fibre Channel benefits increases, we believe that resellers, including
distributors and VARs, have the potential to become significant sources of
revenue. We intend to establish relationships with, and increase sales to,
resellers in order to increase our market presence. We also are actively working
to expand our breadth of internationally-based resellers, particularly those in
Europe and Asia.
Promote the Vixel brand. We plan to continue building awareness of the
Vixel brand in order to position ourselves as the leading provider of
high-performance, cost-effective SAN interconnect solutions. We believe an
established brand will become increasingly important as our distribution
channels expand to include resellers. To promote our brand, we plan to increase
our investments in a range of marketing programs, including trade show
participation, advertising in print publications, direct marketing, public
relations and web-based marketing.
OUR PRODUCTS
We offer a comprehensive portfolio of SAN interconnect products, including
SAN management software, high-performance fabric switches, managed and
entry-level hubs, and transceivers including gigabaud link modules, or GLMs, and
gigabit interface converters, or GBICs. Our broad family of interoperable
products enables customers to easily deploy a wide variety of SAN
configurations, from simple point-to-point connections to more complex
high-performance networks built with a combination of managed arbitrated loop
hubs and fabric switches. Furthermore, by offering and supporting the key
components necessary to connect servers and storage, we enable our customers to
turn to one vendor for their SAN interconnect needs. We began commercial
shipments of our SAN products in 1996, and as of July 4, 1999, we had shipped
switches, hubs and transceivers representing over 500,000 Fibre Channel ports.
SAN InSite Interconnect Management Software
Our SAN InSite interconnect management software provides comprehensive
management functionality across our Fibre Channel fabric switches, managed hubs
and transceivers. SAN InSite provides status and control of the devices that
transport data in a SAN interconnect, and it includes management tools that
proactively detect, isolate and recover from storage networking and data access
problems. We believe our SAN InSite solution is the only management application
in the industry that provides proactive management of fabric switches,
arbitrated loop hubs and transceivers from a single management workstation. The
first version of our interconnect management software was available to customers
in early 1998. Our current version, SAN InSite, is installed in mission-critical
accounts which require a high level of visibility and control over the storage
area network. Key features of our SAN InSite interconnect management software
solution include the following:
- Single system view. Utilizing a simple graphical user interface and a
single computer screen, SAN InSite offers a complete view of all managed
devices in one or more SAN clusters.
- Built-in fault management. Leveraging the unique architecture and
embedded software of our fabric switches and managed hubs, SAN InSite is
able to recognize when a port is bypassed due to a malfunctioning storage
or server device. When these problems occur, SAN InSite either reports
that the problem has been automatically corrected or notifies the
administrator of the need to take corrective action.
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- Monitoring and reporting. SAN InSite automatically monitors the status of
each SAN interconnect device and keeps track of its activity in an
electronic record. With a suite of color-coded icons and legends
displayed on a single computer screen, users can easily monitor and
quickly identify any changes to the SAN environment. SAN InSite also
provides special traffic performance monitoring for our Vixel 8100 fabric
switch. This feature facilitates capacity planning and is displayed
through on-screen traffic meters.
- Advanced device configuration management and diagnostics. A rich set of
advanced diagnostic tools allows support personnel to test and verify
communications with new server or storage devices. Using SAN InSite's
intuitive graphical user interfaces, the user can quickly configure our
switches and hubs for specific application requirements. We believe this
simplified interface minimizes training and staffing requirements,
presents a consistent look and feel across our product set and gives
customers cost-effective, flexible options for configuring a variety of
SAN applications.
- Integrated with other leading functional storage software. We actively
partner with storage management software vendors in order to facilitate
the integration of SAN InSite's powerful tools into other enterprise
management applications. For example, SAN InSite can be launched by
Veritas' Storage Manager and Hewlett-Packard's HP OpenView, and our
switches and managed hubs can be configured to send notifications to
other management platforms.
We currently include our SAN InSite software with our switches and managed
hubs, and we do not sell this software separately from our other products at
this time.
Vixel 4000 and Vixel 8100 Fibre Channel Switches
Fibre Channel switches connect a wide range of server and storage devices
and provide a high level of performance and flexibility in building large
configurations in a SAN. We began commercial shipment of our first switch
product, the Vixel 4000, in February 1998. The eight port Vixel 4000 offered
distinct advantages over other switches available at that time, including
support for non-fabric arbitrated loop devices. Our next generation eight port
Vixel 8100 Fibre Channel switch was made commercially available in June 1999,
and extends our technology leadership in the switch arena. We believe our Vixel
8100, with its patent-pending architecture, is one of the highest performing,
most cost-effective fabric switches in the industry. In addition to supporting
fabric switch functionality, our Vixel 8100 has the following significant
features:
- High speed and high bandwidth. Our Vixel 8100 supports full speed, which
is 1.0625 gigabits per second, or Gbps, in transmit and receive
directions per port. In addition, our Vixel 8100 architecture supports
wire-speed full bandwidth, which is 100 MBps, in both directions per
port. Unlike other commercially available switch products, our Vixel 8100
provides consistent 100 MBps bandwidth between any two ports, which
enables reliable high-speed traffic in any configuration.
- Support for non-fabric arbitrated loop devices in a fabric switch. A
large number of devices currently deployed in SANs cannot communicate
with fabric configurations. Our patent-pending capability of our Vixel
8100 enables these devices to benefit from their attachment to a fabric
SAN.
- Support for arbitrated loop or fabric-attached topologies by the same
fabric port hardware. The flexible port architecture of the Vixel 8100
supports both arbitrated loop and fabric configurations and offers
significant flexibility and interoperability when building SANs.
- Hardware-based zoning. With hardware-based zoning capabilities, our Vixel
8100 allows potentially conflicting operating systems, such as Unix and
Windows NT, to co-exist in a single SAN environment.
- Full fabric software support services. Our Vixel 8100 supports
ANSI-defined fabric services such as the simple name server and state
change notification. Devices attached to a fabric configuration use these
services in order to create a full-functioning switched SAN.
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- Scalable architecture. Multiple Vixel 8100 fabric switches can be
interconnected without sacrificing performance, enabling the creation of
large, complex SANs.
- Extensive port buffering. Because of the extensive port buffering
capabilities designed into our Vixel 8100, data can be efficiently
transported through our switch.
Vixel 2000 and Vixel 2006 Managed Hubs
Our managed hubs connect devices in a SAN arbitrated loop configuration and
monitor the status of loop and port activity through auto-recovery functionality
and advanced diagnostic capabilities. Our managed hubs were available in
November 1997 and are designed to enhance customer uptime by proactively
responding to conditions that otherwise would disrupt system availability. Key
features of our managed hubs include:
- Six and 12 port configurations using removable GBICs. Our managed hubs
give customers the flexibility to deploy small or large arbitrated loop
installations. Because our managed hubs include full GBIC support,
customers can mix different transceiver types on the same hub and install
additional GBICs if needed.
- Loop status indicators. An indicator light on the front of our hub
products continuously reports to the operator whether the SAN arbitrated
loop is operating properly. Loop status also is reported through SAN
InSite's graphical user interface on a management workstation. These loop
status information features accelerate problem detection and resolution.
- Loop integrity and auto-recovery. Our managed hubs automatically detect
and bypass malfunctioning ports. An alert is posted to the operator via
SAN InSite, or another management application, so that further corrective
action can be taken. In addition, our managed hubs have a recovery
routine that can correct problems without disrupting ongoing loop
operations. Without this feature, the network would be down until an
administrator could manually reset each device.
- Full console interface and event logging. In addition to the SAN InSite
graphical user interface, our managed hubs support the full command line
interface favored by some Unix users. This interface facilitates remote
support of our product by OEMs, resellers or third-party support
organizations. Our hubs also support time-stamped event logging, a useful
tool for monitoring SAN status during unattended operation.
Vixel 1000 Entry-Level Hub
Our Vixel 1000 entry-level hub provides a cost-effective solution that
addresses SAN interconnect requirements, linking low and middle range servers
with storage devices. By enhancing functionality and reducing costs for
entry-level products, we are well positioned to address a broad segment of the
SAN interconnect market. Introduced in October 1996, our Vixel 1000 has been
tested and proven in a wide range of demanding, mission-critical networks and
continues to be a popular choice for cost-conscious, entry-level SAN
installations. Our Vixel 1000 hub supports full gigabit data transfer speeds and
automatically bypasses failed or unused ports in a SAN. Its GBIC-based design
allows customers to add, move or delete storage capacity and Fibre Channel
devices on the SAN as needed. The flexible design of our entry-level hub also
enables different combinations of copper, short-wave optical and long-wave
optical transceiver types in a single SAN solution.
Transceivers
Our transceivers provide fiber optic connectivity between devices installed
in a SAN. Our fiber optic transceivers include GLMs, which are attachable
modular interfaces for Fibre Channel host bus adapters and disk controllers, and
GBICs, which are removable transceivers for switches, hubs, host bus adapters
and disk controllers. We have been shipping gigabit GLMs since September 1996
and we are supplying full-speed GLMs to a variety of customers for use in host
bus adapters and disk controllers.
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As one of the original authors of the GBIC Specification, we have played a
strategic role in enabling modular, high-speed transceivers for Fibre Channel
environments. We have been shipping GBICs to customers since September 1996. Our
current optical GBIC employs state-of-the-art vertical cavity surface emitting
laser, or VCSEL, technology specifically designed for high-speed data transport
among disk controllers, arbitrated loop hubs and fabric switches. Our GBICs
support Serial ID, allowing host enclosures to solicit asset information,
including manufacturer, date of manufacture, serial number and batch number
directly from the GBIC. With our integrated product portfolio, this GBIC Serial
ID information can be read by our managed hubs and fabric switches and reported
to the user via SAN InSite. This feature allows a network administrator to track
inventory information from a single management platform, regardless of where the
GBIC is installed in a fabric switch or managed hub.
OUR TECHNOLOGY
We believe that our Fibre Channel expertise across a wide range of Fibre
Channel products and SAN configurations has enabled us to develop and ship in
volume leading high-performance SAN interconnect solutions. Key components of
our technology platform include the following:
Leadership in SAN interconnect management software. We have a core
competency in the development of SAN interconnect management software which, we
believe, provides us with a significant competitive advantage. We have leveraged
our knowledge of SAN interconnect components such as fabric switches, managed
and entry-level hubs, and transceivers to develop software that enables a
comprehensive solution to SAN interconnect management.
Fabric switch architecture. We have developed a full-featured and
high-performance architecture for our fabric switches. Our fabric switches
incorporate advanced features, such as extensive port buffering, to offer high
performance in a low-cost architecture. In addition, our switch architecture is
scalable, facilitating development of new generations of switches, including our
Vixel 8100 switch, that support more ports and faster transmission speeds. We
have several patents pending covering our switch architecture.
ASIC design expertise. We employ state-of-the-art ASIC design methodologies
and have demonstrated a successful track record of achieving short design cycles
for high-performance, complex ASICs. We use our own internally developed ASICs
in our Fibre Channel products which enables us to maximize our products'
reliability, functionality and interoperability while minimizing time to market.
Fabric switch and managed hub embedded software. Our embedded software
expertise covers a wide range of SAN interconnect devices, including our fabric
switches and managed hubs. We believe we are the only company that designs,
develops and markets a full range of SAN interconnect components. As a result,
we believe we are uniquely positioned to further develop embedded software that
maximizes interoperability and functionality of all of these SAN components
while supporting ANSI and Internet standards.
Designed-in interoperability. We design standards-based interoperability
into our products from the beginning of the design cycle and thoroughly validate
interoperability throughout the product release process. Our products also are
extensively tested with other vendors' products to ensure cross-vendor
interoperability. In January 1998, we launched our V(2) Lab to facilitate robust
interoperability testing and analysis of our products within a multi-vendor
system environment. We believe that our investment of personnel and capital
equipment in this facility has enhanced interoperability and time to market for
our OEMs and resellers. We also use this lab to certify specific SAN
configurations and reduce the need for our distribution partners to undergo
costly and timely testing processes.
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<PAGE> 46
CUSTOMERS
Our primary customers are OEMs and resellers who sell to end users and
VARs. Following is a list of our customers who have purchased more than $500,000
of our products since the beginning of fiscal 1998:
<TABLE>
<S> <C>
Amdahl Hewlett-Packard
Avid Sports IBM
Avid Technologies Interphase
Bell Microproducts Nissho Electronics
Compaq Computer Sun Microsystems
Emulex
</TABLE>
In some cases, we sell our products to our customers' contract
manufacturers who in turn sell them to our customers. Sun Microsystems, Compaq
Computer, Hewlett-Packard and Interphase represented 34.4%, 19.8%, 11.8% and
10.4% of our total revenue, respectively, for the six months ended July 4, 1999.
In fiscal 1998, Sun Microsystems and Hewlett-Packard represented 54.4% and 12.3%
of our total revenue, respectively.
CUSTOMER SERVICE AND SUPPORT
We emphasize customer service and support in order to provide our customers
and their end users with the knowledge and resources necessary to successfully
implement and integrate comprehensive, high-performance Fibre Channel solutions.
We offer a variety of support options for our products, including 24 hours a
day, seven days a week support and immediate parts replacement that enables
continuous customer response and rapid replacement of products at end-user
locations. Our customer service and systems engineering teams provide extensive
pre- and post-sale customer support, including consultation, network design and
in-depth training on SAN technology and product implementation.
In October 1998, we launched our Vixel Care Services program to further
enhance the support we provide to our OEMs and resellers. This program includes
comprehensive education and training for our products and Fibre Channel SANs,
telephone support, customized remote support contracts and onsite installation
consulting services. We also have an initiative with our OEMs and resellers to
extend train-the-trainer techniques so they may quickly develop their own
service organizations to support SAN installations that include our products and
SAN InSite management software. We intend to continue providing a high level of
education and service to further support and optimize SANs deployed at end-user
sites.
SALES AND MARKETING
We sell our SAN solutions, including SAN interconnect management software,
fabric switches, hubs and transceivers, to OEMs and select resellers. We
primarily sell to OEMs of specific operating systems-based servers including
Unix and Windows NT, as well as to OEMs of high-end disk and tape storage
subsystems. Our OEMs utilize our products to deliver to end users complete
factory-configured solutions, which are installed and field-serviced by OEMs'
technical support organizations.
As the markets for Fibre Channel products and SAN solutions evolve and as
end-user awareness of the benefits of Fibre Channel increases, we believe an
increasing volume of sales will occur through alternative distribution channels,
including resellers and systems integrators. To support our reseller channel, we
recently introduced our Premier Value Added Reseller program that provides
select resellers with the advanced technical training and sales support
necessary to successfully begin designing, installing and supporting complete,
integrated SAN solutions. As the SAN market continues to develop, we plan to
establish additional relationships with select domestic and international
resellers to reach additional markets and increase our geographic coverage. By
serving the needs of both OEMs and resellers, we can leverage the strengths of
our range of customers to further develop the Fibre Channel market and enhance
our ability to address a large end-user base.
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<PAGE> 47
We currently distribute our products in Japan though our relationship with
Nissho Electronics Corporation. We intend to continue expanding internationally
by partnering with additional OEMs and resellers who have a strong international
presence and are capable of selling and installing complex SAN solutions.
Our marketing efforts are focused on increasing awareness of our Fibre
Channel products and our Vixel brand, promoting SAN-based solutions in general,
and advocating industry-wide standards and interoperability. Key components of
our marketing efforts include:
- extending our strategic alliances with other Fibre Channel, SAN storage
management and enterprise vendors to promote standardization and enhance
interoperability;
- promoting our SAN solutions under the Vixel brand name to strengthen
sales through distribution and VAR channels;
- continuing our active participation in industry associations and
standards committees to promote and further enhance Fibre Channel
technology and increase our visibility as industry experts;
- leveraging major trade show events and SAN conferences to promote our
comprehensive solution and to continue our leading role in educating
customers on the value of SANs;
- expanding our web-based marketing program to provide both product and
sales information; and
- in cooperation with other vendors, certifying and packaging complete SAN
solutions with proven interoperability between SAN interconnects, devices
and applications.
MANUFACTURING
We outsource our manufacturing which reduces our need to make costly
investments in capital equipment and manufacturing facilities. K*TEC
Electronics, a division of Kent Electronics, and Solectron Corporation currently
manufacture our products. They are responsible for nearly all material
procurement, assembly and testing, packaging and shipment of our products. Our
switches, hubs and GBIC transceiver products are manufactured at K*TEC, and our
GLM transceivers are manufactured at Solectron; however, we are in the process
of transitioning our GLM manufacturing to K*TEC. We currently do not have a
long-term supply contract with K*TEC or Solectron. Therefore, they are not
obligated to manufacture products for us, except as may be provided in
particular purchase orders that they have accepted. We place purchase orders
with our manufacturers based on periodic forecasts. In the future, we may need
to add new manufacturing partners to achieve higher production volumes and/or
lower costs.
While our manufacturing partners are responsible for all facets of the
manufacturing process, we are directly involved in qualifying our vendors and
the key components that are used in our products. Most of our product components
can be obtained from multiple qualified manufacturers. While most of the
materials used in our products are standard, some are proprietary or sole
sourced and require extended lead times. Although we design our own ASICs, they
are manufactured by LSI Logic and VLSI. Motolora and Intel are currently our
sole suppliers for microprocessors. Honeywell is our sole supplier of the VCSEL
used in our transceivers. In addition, we license software for our hubs from
Wind River Systems. Our supply management team works closely with strategically
important suppliers who offer proprietary or sole-sourced products. In addition,
our operations team is focused on production test equipment development,
manufacturability, effective transfer of products from development to
production, and monitoring of supplier performance and quality.
RESEARCH AND DEVELOPMENT
We focus our research and development efforts on developing products that
meet the evolving needs of the SAN market. We are developing our SAN
interconnect management software to provide higher levels of management
capabilities for our products and others, including the ability of SAN InSite to
manage other vendors' devices. We also are developing interfaces that interact
with leading systems management software in order to more effectively manage
data transport and data storage throughout the
41
<PAGE> 48
enterprise. Our switch and hub development efforts are focused on enhancing
functionality through the development of higher-level ASICs, increasing the
number of ports and transmission speed capabilities, and enhancing
interoperability with other vendors' devices. In addition to the development of
our core technologies, we plan to continue to partner with other leading
providers of SAN technologies, products and services to jointly develop high
performance SAN products and support industry standards.
Our research and development expenses were $6.2 million in the six months
ended July 4, 1999 and $11.1 million in fiscal 1998. We believe that our
research and development efforts are key to our ability to maintain technical
competitiveness and to deliver innovative products that address the needs of the
market. However, our product development efforts may not result in commercially
viable products, and our products may be made obsolete by changing technology or
new product announcements by us or our competitors.
COMPETITION
The SAN interconnect market has become increasingly competitive. New
SAN-enabled products are being offered by a growing number of server, storage,
tape and storage management vendors. Because we offer a broad product portfolio,
each of our products competes with a different set of competitors. For fabric
switch sales, we compete primarily with Ancor, Brocade and McDATA. For hub
sales, we compete primarily with Emulex and Gadzoox. For transceiver sales, we
compete primarily with Cielo, Finisar, Hewlett-Packard and IBM. Although we do
not believe that any other vendor offers comprehensive SAN interconnect
management software that directly competes with ours, other vendors, such as
Brocade and Gadzoox, provide single point-device managers for either hub or
fabric switch products, but not across multiple devices, including fabric
switches, hubs and transceivers. As the market for SAN interconnect products
grows, we may face competition from traditional networking companies and other
manufacturers of networking equipment. These networking companies may enter the
SAN interconnect market by introducing their own products or by acquiring or
entering into an alliance with an existing SAN interconnect provider. It also is
possible that our OEMs could develop and introduce products competitive with our
product offerings.
We believe the primary competitive factors in the SAN interconnect market
are the following:
- product performance and features;
- product reliability and interoperability;
- the size of installed customer base;
- price;
- strength of distribution channel;
- ability to meet delivery schedules; and
- customer service and technical support.
We believe we compete favorably with our competitors based on these
factors. However, because many of our existing and potential competitors have
longer operating histories, greater name recognition, larger customer bases and
substantially greater financial, technical, sales and marketing resources, they
may have larger distribution channels, access to more customers and a larger
installed customer base than we do. These competitors may be able to undertake
more extensive marketing campaigns and adopt more aggressive pricing policies
than we can. To remain competitive, we believe we must, among other things,
invest significant resources in expanding our distribution channels, developing
new products and enhancing our current products. If we fail to do so, our
products will not compete favorably with those of our competitors which will
significantly harm our business.
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<PAGE> 49
INTELLECTUAL PROPERTY
Our success depends on our proprietary technology. We attempt to protect
our technology through a combination of patents, copyrights, trade secret laws,
trademarks, as well as confidentiality agreements and other contractual
restrictions. There can be no assurance that our intellectual property
protection measures will be sufficient to prevent misappropriation of our
technology or that our competitors will not independently develop technologies
that are substantially equivalent or superior to our technology. In addition,
the laws of many foreign countries do not protect our intellectual property
rights to the same extent as the laws of the United States. Our failure to
protect our proprietary information could have a material adverse effect on our
business, financial condition and results of operations.
We have been awarded one patent with respect to our GBIC transceivers. We
also have four pending patent applications in the United States and selected
countries abroad with respect to a broad scope of SAN technology including our
SAN management capabilities and switch and hub architecture. However, it is
possible that patents may not be issued for the pending applications and that
our issued patent may not adequately protect our technology from infringement or
prevent others from claiming our technology infringes that of third parties. All
our software products have copyright notices. We own several trademarks
including Vixel and SAN InSite. We also rely on trade secret law and contractual
provisions to protect our intellectual property, including technology
development which we have determined not to patent or copyright, or which is not
capable of more formal protection.
We may need to initiate litigation in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Litigation could result
in substantial costs and diversion of our resources and could materially harm
our business. From time to time we have received, and may receive in the future,
notice of infringement claims of other parties' proprietary rights. For
instance, a competing supplier of transceivers sued us, claiming that features
of our GBIC products infringed its patents. This lawsuit was settled in May
1999. We incurred significant costs in defending and settling such claims.
Infringement or other claims could be asserted or prosecuted against us in the
future, and it is possible that past or future assertions or prosecutions could
harm our business. Any such claims, with or without merit, could be
time-consuming, result in costly litigation and diversion of technical and
management personnel, cause delays in the development and release of our
products, or require us to develop non-infringing technology or enter into
royalty or licensing arrangements. Such royalty or licensing arrangements, if
required, may not be available on terms acceptable to us, or at all. For these
reasons, infringement claims could materially harm our business.
EMPLOYEES
As of July 31, 1999, we had 181 employees, 178 of who were full-time. Of
our employees, 80 were engaged in research and development, 39 in sales and
marketing, 34 in operations and 28 in finance, administration and information
services. None of our employees are represented by a labor union. We have not
experienced any work stoppages and consider our relations with our employees to
be good.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
FACILITIES
Our corporate headquarters are located in Bothell, Washington and occupy
approximately 43,000 square feet. Our lease for this facility expires in January
2002. In addition, we have a research and development and sales facility located
in Irvine, California that occupies approximately 13,000 square feet. Our lease
for this facility expires in November 2002. We believe these existing facilities
will be adequate to meet our needs for the next 12 months. If our growth
continues, we will need larger facilities after that time. We cannot assure you
that suitable additional facilities will be available as needed on commercially
reasonable terms. We also lease five domestic sales offices in San Jose,
California, Columbia, Maryland, Gloucester, Massachusetts, Nashua, New Hampshire
and Houston, Texas.
43
<PAGE> 50
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER OFFICERS
Our executive officers, directors and other officers and their ages as of
July 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James M. McCluney......................... 48 President, Chief Executive Officer and Director
Kurtis L. Adams........................... 44 Chief Financial Officer, Vice President of Finance,
Secretary and Treasurer
Stuart B. Berman.......................... 42 Chief Technology Officer
Richard G. Helgeson....................... 47 Vice President of Sales
Robert R. Lux............................. 55 Vice President of Customer Satisfaction and
Corporate Quality
Jay R. O'Donald........................... 56 Vice President of Operations
Stanley H. Reese.......................... 58 Vice President of Product Development
Arun K. Taneja............................ 52 Vice President of Marketing
Ronald G. von Trapp....................... 51 Vice President of Worldwide Sales
Donald P. Wenninger....................... 49 Vice President of Information Technology
Gregory R. Olbright....................... 43 Chairman of the Board of Directors
Kevin A. Fong(1).......................... 45 Director
Charles A. Haggerty(2).................... 57 Director
Juan A. Rodriguez......................... 58 Director
Timothy M. Spicer(1)...................... 49 Director
Werner F. Wolfen(2)....................... 69 Director
</TABLE>
- -------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
James M. McCluney has served as our president, chief executive officer and
director since April 1999. From October 1997 to January 1999, he served as
president and chief executive officer of Crag Technologies, formerly Ridge
Technologies, a storage system manufacturer. From October 1994 to September
1997, Mr. McCluney served in various positions at Apple Computer, including
senior vice president of worldwide operations and vice president of European
operations.
Kurtis L. Adams has served as our chief financial officer and vice
president of finance since September 1998. From December 1995 to September 1998,
he was chief financial officer and vice president of finance of Health Systems
Technologies, Inc., a software company. Mr. Adams was the corporate controller
from November 1989 to February 1991 and the corporate controller and chief
accounting officer from March 1991 to October 1995 for Chipcom Corporation, a
networking company.
Stuart B. Berman has served as our chief technology officer since February
1998. In July 1996, he co-founded Arcxel Technologies, Inc., a networking
company, and through February 1998 served as its chairman and chief technology
officer. From February 1993 to June 1996, Mr. Berman was a Fibre Channel
architect for Emulex Corporation, a networking company.
Richard G. Helgeson has served as our vice president of sales since January
1998. From May 1997 to January 1998, he served as vice president of sales for
Atreiva Corporation, an Internet services company. From June 1995 to May 1997,
Mr. Helgeson was vice president of sales at CNT Corporation, a networking
company. From June 1990 to May 1995, Mr. Helgeson held various senior sales
positions at Wellfleet Communications, Inc., a networking company.
Robert R. Lux has served as our vice president of customer satisfaction and
corporate quality since June 1999. From January 1999 to June 1999, he served as
a sales, marketing and corporate quality consultant to us. From November 1998 to
May 1999, he served as general partner of Lux & Associates, a consulting firm.
In April 1995, Mr. Lux founded Bay Stone Software, a software company, and
through
44
<PAGE> 51
Werner F. Wolfen has served as one of our directors since July 1994. He is
a retired partner of the law firm of Irell & Manella where he was co-chairman of
the firm's executive committee from 1982 to 1992. Mr. Wolfen is a member of the
board of directors of Broadcom Corporation, a publicly held networking company.
BOARD COMPOSITION
We currently have authorized seven directors. Upon the closing of this
offering, the terms of office of our directors will be divided into three
classes: Class I, whose term will expire at the annual meeting of stockholders
to be held in 2000 or special meeting held in lieu thereof, Class II, whose term
will expire at the annual meeting of stockholders to be held in 2001 or special
meeting held in lieu thereof and Class III, whose term will expire at the annual
meeting of stockholders to be held in 2002 or special meeting held in lieu
thereof. The Class I directors are Messrs. Fong, Olbright and Rodriguez, the
Class II directors are Messrs. Haggerty and Wolfen and the Class III directors
are Messrs. McCluney and Spicer. At each annual meeting of stockholders after
the initial classification or special meeting in lieu thereof, the successors to
directors whose terms will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election or
special meeting held in lieu thereof. In addition, our certificate of
incorporation will provide that the authorized number of directors may be
changed only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of Vixel, although our directors may be removed for cause by the
affirmative vote of the holders of a majority of our common stock.
BOARD COMPENSATION
The chairman of our board of directors, Gregory Olbright, receives $50,000
per year for serving in this capacity. We do not currently provide our other
directors with cash compensation for their services as members of the board of
directors, although we reimburse our directors for reasonable expenses they
incur in connection with attendance at board and committee meetings. Directors
are eligible to participate in our equity incentive plans. See "-- Employee
benefit plans" on page 49. In May 1999, the board of directors granted each
director who was not an employee, a fully vested option to purchase 16,667
shares of common stock at a price of $6.00 per share. Each director immediately
exercised the option to purchase 16,667 shares of common stock and delivered to
us a $100,000 full-recourse promissory note. In April 1999, the board of
directors granted a special option to purchase 26,667 shares of common stock at
a price of $3.08 per share to Timothy Spicer, one of our directors, and paid Mr.
Spicer $40,000 for his service as our interim chief executive officer from
February through April 1999.
BOARD COMMITTEES
The board of directors has an audit committee and a compensation committee.
The audit committee meets with our independent auditors at least annually
to review the results of the annual audit. The audit committee also recommends
to the board the independent accountants to be retained and reviews the
accountants' comments as to controls, adequacy of staff and management
performance and procedures in connection with our audit and financial controls.
The audit committee is composed of two non-employee directors, Messrs. Fong and
Spicer.
The compensation committee makes recommendations to the board concerning
salaries and incentive compensation, awards stock options to employees and
consultants under our stock option plans and performs other functions regarding
compensation as delegated by the board. The compensation committee is composed
of two non-employee directors, Messrs. Haggerty and Wolfen.
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<PAGE> 52
Werner F. Wolfen has served as one of our directors since July 1994. He is
a retired partner of the law firm of Irell & Manella where he was co-chairman of
the firm's executive committee from 1982 to 1992. Mr. Wolfen is a member of the
board of directors of Broadcom Corporation, a publicly held networking company.
BOARD COMPOSITION
We currently have authorized seven directors. Upon the closing of this
offering, the terms of office of our directors will be divided into three
classes: Class I, whose term will expire at the annual meeting of stockholders
to be held in 2000 or special meeting held in lieu thereof, Class II, whose term
will expire at the annual meeting of stockholders to be held in 2001 or special
meeting held in lieu thereof and Class III, whose term will expire at the annual
meeting of stockholders to be held in 2002 or special meeting held in lieu
thereof. The Class I directors are Messrs. Fong and Rodriguez, the Class II
directors are Messrs. Olbright and Wolfen and the Class III directors are
Messrs. Haggerty, McCluney and Spicer. At each annual meeting of stockholders
after the initial classification or special meeting in lieu thereof, the
successors to directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election or special meeting held in lieu thereof. In addition, our
certificate of incorporation will provide that the authorized number of
directors may be changed only by resolution of the board of directors. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible, each
class will consist of one-third of the directors. This classification of the
board of directors may have the effect of delaying or preventing changes in
control or management of Vixel, although our directors may be removed for cause
by the affirmative vote of the holders of a majority of our common stock.
BOARD COMPENSATION
The chairman of our board of directors, Gregory Olbright, receives $50,000
per year for serving in this capacity. We do not currently provide our other
directors with cash compensation for their services as members of the board of
directors, although we reimburse our directors for reasonable expenses they
incur in connection with attendance at board and committee meetings. Directors
are eligible to participate in our equity incentive plans. See "-- Employee
benefit plans" on page 49. In May 1999, the board of directors granted each
director who was not an employee, a fully vested option to purchase 16,667
shares of common stock at a price of $6.00 per share. Each director immediately
exercised the option to purchase 16,667 shares of common stock and delivered to
us a $100,000 full-recourse promissory note. In April 1999, the board of
directors granted a special option to purchase 26,667 shares of common stock at
a price of $3.08 per share to Timothy Spicer, one of our directors, and paid Mr.
Spicer $40,000 for his service as our interim chief executive officer from
February through April 1999.
BOARD COMMITTEES
The board of directors has an audit committee and a compensation committee.
The audit committee meets with our independent auditors at least annually
to review the results of the annual audit. The audit committee also recommends
to the board the independent accountants to be retained and reviews the
accountants' comments as to controls, adequacy of staff and management
performance and procedures in connection with our audit and financial controls.
The audit committee is composed of two non-employee directors, Messrs. Fong and
Spicer.
The compensation committee makes recommendations to the board concerning
salaries and incentive compensation, awards stock options to employees and
consultants under our stock option plans and performs other functions regarding
compensation as delegated by the board. The compensation committee is composed
of two non-employee directors, Messrs. Haggerty and Wolfen.
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<PAGE> 53
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our compensation committee is or has been, at any
time since our formation, an officer or employee of Vixel. No member of our
compensation committee and none of our executive officers serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of our board of directors or
compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid by us during the fiscal year ended January 3, 1999 to (A) our current chief
executive officer and president, (B) our president and chief executive officer
during the fiscal year ended January 3, 1999, and (C) our five most highly
compensated executive officers, other than the chief executive officer, whose
salary and bonus for the fiscal year exceeded $100,000 and who served as an
executive officer of Vixel during such year collectively, these individuals are
referred to as "Named Executive Officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- ---------------------
ALL OTHER SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(#)
--------------------------- -------- ------- ------------ ---------------------
<S> <C> <C> <C> <C>
James M. McCluney(1)......................... -- -- -- --
President and Chief Executive Officer
Stuart B. Berman............................. $128,082 -- -- 60,534
Chief Technology Officer
Richard G. Helgeson(2)....................... 127,212 $80,000 $ 2,181 160,000
Vice President of Sales
Jay R. O'Donald(3)........................... 130,481 -- 50,686 82,836
Vice President of Operations
Former Executive Officers
Gregory R. Olbright.......................... 249,039 -- 823,577 1,400,000
President and Chief Executive Officer(4)
Marlu E. Allan............................... 133,923 -- 25,535 --
Vice President of Business Development(5)
Karen L. Howard.............................. 129,808 -- 50,491 --
Vice President of Human Resources(6)
</TABLE>
- -------------------------
(1) Mr. McCluney joined Vixel in April 1999.
(2) Bonus consists of commissions and bonuses related to sales activities. Other
compensation consists of 401(k) plan matching contributions.
(3) Other compensation includes $42,857 in relocation payments and $7,829 in
401(k) plan matching contributions.
(4) Mr. Olbright resigned as president and chief executive officer of Vixel in
February 1999. Other compensation includes $473,643 in relocation expenses,
$250,000 in accrued severance, $90,334 in interest forgiveness and $9,600 in
401(k) matching contributions. With respect to securities underlying
options, an option to purchase 700,000 shares of common stock was exercised
in April 1998, and the shares acquired upon exercise were repurchased by us
at cost in October 1998.
(5) Ms. Allan resigned as an executive officer of Vixel in November 1998. Other
compensation includes $17,500 in accrued severance and $8,035 in 401(k)
matching contributions.
(6) Ms. Howard resigned as an executive officer of Vixel in January 1999. Other
compensation includes $42,703 in accrued severance and $7,788 in 401(k)
matching contributions.
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<PAGE> 54
The following table shows certain information regarding stock options
granted to the Named Executive Officers during fiscal 1998. No stock
appreciation rights were granted in fiscal 1998. All options granted to these
executive officers in the last fiscal year were granted under our 1995 stock
option plan. Unless otherwise noted, options vest 25% on the anniversary of the
vesting commencement date and monthly thereafter in 36 equal installments. The
percentage of total options set forth below is based on options for 3,426,073
shares granted to employees in fiscal 1998. All options are granted at the fair
market value as determined by the board of directors on the date of grant.
Potential realizable values are net of exercise price, but before associated
taxes based on the term of the option at the time of grant. The 5% and 10%
assumed annual rates of compounded stock price appreciation are mandated by the
SEC and do not represent our estimate or projection of the future common stock
price. Unless the market price of the common stock appreciates over the option
term, no value will be realized from the option grants made to the executive
officers. The assumed 5% and 10% rates of stock appreciation are based on the
assumed offering price of $11.00 per share.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE AT
TOTAL ASSUMED ANNUAL RATES OF
OPTIONS EXERCISE STOCK PRICE APPRECIATION
NUMBER OF SHARES GRANTED PRICE FOR OPTION TERM
UNDERLYING TO PER EXPIRATION ------------------------------
NAME OPTIONS GRANTED EMPLOYEES SHARE DATE 5% 10%
---- ---------------- ---------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
James M. McCluney....... -- -- -- -- -- --
Stuart B. Berman(1)..... 60,534 1.8% $0.11 9/21/07 $ 1,077,977 $ 1,720,449
Richard G. Helgeson..... 160,000 4.7 4.59 01/26/08 2,132,448 3,830,592
Jay R. O'Donald(2)...... 82,836 2.4 0.11 09/29/07 1,475,127 2,354,299
Gregory R.
Olbright(3)........... 700,000 20.4 5.00 03/03/08 13,563,690 24,707,760
700,000 20.4 3.08 12/08/08 15,584,940 26,729,010
Marlu E. Allan.......... -- -- -- -- -- --
Karen L. Howard......... -- -- -- -- -- --
</TABLE>
- -------------------------
(1) This option was substituted for an option originally granted by Arcxel, with
the exception of 2,088 shares which vested at the time of substitution, the
option vests at the rate of 2,088 shares per month for 28 months.
(2) This option was substituted for an option originally granted by Arcxel.
Except for 2,857 shares which had vested at the time of substitution, the
option vests at the rate of 2,857 shares per month for 28 months.
(3) The March 3, 1998 option was exercised for a promissory note in April 1998.
The shares acquired upon exercise were repurchased by us at cost in October
1998 in exchange for cancellation of the note. A new option was issued in
December 1998. With respect to the December 1998 option, 158,337 shares were
immediately vested, 208,340 shares vest monthly ratably over the first 15
months, 58,336 shares vest ratably over the next 12 months, 252,083 shares
vest ratably over the next 11 months and 22,903 shares vest in the last
month. In connection with Mr. Olbright's resignation as our president and
chief executive officer, options for 284,709 shares were cancelled in April
1999. At that time, Mr. Olbright exercised his option in full for the
remaining 415,290 shares. These shares are subject to a right of repurchase
in favor of Vixel which lapses according to the schedule above.
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<PAGE> 55
OPTION EXERCISES AND HOLDINGS
The following table sets forth the number of shares of common stock
acquired upon the exercise of stock options by the Named Executive Officers
during fiscal 1998, and the number and value of the shares of common stock
underlying unexercised options held by the Named Executive Officers as of
January 3, 1999. The value of unexercised in-the-money options is based on the
fair market value of our common stock as of January 3, 1999, which was $3.08 per
share, as determined by our board of directors, less the exercise price,
multiplied by the number of shares underlying the option. All options were
granted under our 1995 stock option plan. These options generally vest 25% on
the anniversary of the vesting commencement date and monthly thereafter in 36
equal installments.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT JANUARY 3, 1999 JANUARY 3, 1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James M. McCluney............ -- -- -- -- -- --
Stuart B. Berman............. 22,968 37,566 $68,150 $111,464
Richard G. Helgeson.......... -- -- -- 160,000 -- --
Jay R. O'Donald.............. -- -- 31,423 51,413 93,238 152,549
Gregory R. Olbright.......... 900,000 $810,000 172,227 527,773 -- --
Marlu E. Allan............... 50,013 241,933 12,274 71,046 32,219 186,496
Karen L. Howard.............. 36,477 221,596 9,737 70,453 23,368 169,088
</TABLE>
EMPLOYEE BENEFIT PLANS
1995 Stock Option Plan
The 1995 Stock Option Plan was adopted by our board of directors and
approved by our stockholders in February 1995 and later amended by the board of
directors with stockholder approval in March 1998 (the "1995 Plan"). The 1995
Plan authorizes the grant of incentive and nonstatutory stock options, stock
appreciation rights and stock bonuses.
A total of 6,133,333 shares of common stock of the Company were reserved
for issuance under the 1995 Plan. As of July 31, 1999, there were 2,442,460
shares reserved for option grants to Company employees, officers and directors.
As of July 31, 1999, there were options to purchase 2,424,193 shares of common
stock issued under the 1995 Plan, held by employees at a weighted average
exercise price of $3.26 per share.
In December 1998, the board authorized the exchange of all outstanding
options under the 1995 Plan with an exercise price of $3.38 for new stock
options. As a result, optionees were given the opportunity to receive repriced
options at $3.08 per share. The repriced options had a new vesting schedule,
under which electing optionees received credit toward the vesting of their
option equal to one-half of the time elapsed under their old option. Options for
568,137 shares of common stock were repriced and exchanged for new options
issued in December 1998.
The 1995 Plan will terminate in July 2005, unless terminated sooner by the
board of directors. Outstanding options under the 1995 Plan will continue to be
governed by their existing terms which are discussed below.
1999 Equity Incentive Plan
The Company's 1999 Equity Incentive Plan (the "1999 Plan") was adopted by
our board of directors and approved by our shareholders in August 1999. The 1999
Plan is intended to serve as the successor
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<PAGE> 56
equity incentive program to the 1995 Plan. The 1999 Plan authorizes the grant of
incentive and nonstatutory stock options, stock appreciation rights, and the
right to receive or purchase restricted stock.
Effective upon the completion of this offering, we will have a total of
1,700,000 shares of common stock reserved for issuance under the 1999 Plan
following a two-for-three reverse stock split anticipated to be completed before
the closing of this offering. In addition, the number of shares of common stock
reserved for issuance under the 1999 Plan will automatically increase on the
first day of each calendar year, beginning in calendar year 2001, by an amount
equal to the lesser of 1,700,000 shares or 4% percent of the total number of
shares of common stock outstanding on the first day of the calendar year. Under
the 1999 Plan, the board of directors has the authority to designate a smaller
number of shares by which the reserve will increase for a particular year. In no
event, however, may any one participant in the 1999 Plan receive option grants
or direct stock issuances for more than 1,200,000 shares of common stock in the
aggregate per calendar year. The 1999 Plan will terminate in August 2009, unless
terminated sooner by the board of directors.
Provisions Common to Both the 1995 Plan and the 1999 Plan
The terms of the stock options, stock appreciation rights and stock bonuses
and restricted stock under both our 1995 Plan and our 1999 Plan are
substantially similar. Both plans provide for grants of incentive stock options
that qualify under Section 422 of the Internal Revenue Code of 1986, to our
employees, including officers and employee directors or the employees of our
affiliates. Both plans provide for the grant of nonstatutory stock options,
stock bonuses and stock appreciation rights to employees, officers, non-
employee directors and consultants to the Company.
The 1995 Plan and the 1999 Plan are each administered by the board of
directors or a committee appointed by the board of directors; references herein
to the board of directors shall include any such committee. The 1995 Plan and
the 1999 Plan have been administered by the board's compensation committee which
is comprised of Messrs. Haggerty and Wolfen, who are "non-employee directors"
under applicable securities laws and outside directors, as defined under the
Internal Revenue Code. After this offering, it is anticipated that both plans
will continue to be administered by the compensation committee. The board of
directors has the authority to determine to whom awards are granted, the terms
of such awards, including the type of awards to be granted, the exercise price,
the number of shares subject to the awards and the vesting and exercisability of
the awards under both plans.
The term of a stock option granted under the 1995 Plan and the 1999 Plan
generally may not exceed 10 years. The exercise price of options granted under
each plan is determined by the board of directors, but, in the case of an
incentive stock option, cannot be less than 100% of the fair market value of the
common stock on that date of grant, and in the case of a nonstatutory stock
option, the exercise price generally cannot be less than 85% of the fair market
value of the common stock on the date of grant except for an assumption or
substitution of an existing stock option. Options granted under the 1995 Plan
and 1999 Plan vest at the rate specified in the option agreement.
Except as expressly provided by the terms of a nonstatutory stock option
agreement, no option under each plan may be transferred by the optionee other
than by will or the laws of descent and distribution or, in certain limited
instances, pursuant to a qualified domestic relations order, provided that an
optionee under each plan may designate a beneficiary who may exercise the option
following the optionee's death. An optionee under each plan whose relationship
with us or any of our affiliates ceases for any reason, other than due to death
or permanent and total disability, may generally exercise vested options in the
three month period following such cessation, unless such options terminate or
expire sooner by their terms or in such longer or shorter period as may be
determined by the board and set forth in the option agreement. Vested options
under each plan may generally be exercised during the period ending on the
earlier of the end of the original term of the options or the 12-month period
after an optionee's relationship with us or any of our affiliates ceases due to
disability and the 18-month period after an optionee's relationship with us or
any of our affiliates ceases due to death.
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<PAGE> 57
Under both plans no incentive stock option may be granted to any person
who, at the time of the grant, owns or is deemed to own common stock possessing
more than 10% of our total combined voting power or any of our affiliates,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant and the term of the option
does not exceed five years from the date of grant. In addition, the aggregate
fair market value, determined at the time of grant, of the shares of common
stock with respect to options, which become exercisable by an optionee during
any calendar year, may not exceed $100,000. Any options, or portions thereof,
which exceed this limit are treated as nonstatutory options.
Shares subject to stock awards that have lapsed or terminated, without
having been exercised in full, and any shares repurchased by us pursuant to a
repurchase option provided under the plans may again become available for the
grant of awards under the respective plan.
Rights to acquire restricted stock granted under the plans may be granted
subject to a repurchase option in favor of us that will expire pursuant to a
vesting schedule. The purchase price of these awards will be at least 85% of the
fair market value of the common stock on the date of grant. Stock bonuses may be
awarded in consideration for past services without the payment of a purchase
price. Rights under a stock bonus or restricted stock bonus agreement may not be
transferred other than by will, the laws of descent and distribution or a
qualified domestic relations order while the stock awarded pursuant to an
agreement remains subject to the agreement, provided that a holder of these
rights may designate a beneficiary who may exercise the right following the
holder's death.
Upon a change in control of Vixel, all outstanding stock awards under the
plans may be assumed by the surviving entity or replaced with similar stock
awards granted by the surviving entity. If the surviving entity does not assume
these awards or provide substitute awards, then with respect to persons whose
service with us or an affiliate has not terminated prior to the change in
control, the awards shall become fully vested and will terminate if not
exercised prior to the change in control.
Non-Employee Director Stock Option Grants Under the 1995 Plan and the 1999 Plan
Non-employee members of the board of directors are eligible to receive
nondiscretionary stock options under the 1995 Plan and the 1999 Plan. Under the
1999 Plan, an initial grant of nonstatutory options of 16,500 shares (following
a two-for-three reverse stock split in August 1999) of the common stock will be
made after the effective date of this Offering to each newly-elected
non-employee director on the date such individual is first elected to the board.
Beginning with the annual meeting of the stockholders of the Company (the
"Annual Meeting") in the year 2000, annual nonstatutory option grants will be
made to each non-employee director of five thousand (5,000) shares of common
stock as of the date of each Annual Meeting. The term of the stock options will
generally be ten years. The exercise price of the stock options shall be not
less than 100% of the fair market value of the stock. The stock options of a
director will vest annually over a three year period from the date of grant.
Employee Stock Purchase Plan
Effective upon the completion of this offering, we will implement an
employee stock purchase plan ("Purchase Plan"). A total of 300,000 shares of
common stock have been reserved for issuance under this purchase plan. Each
year, the number of shares reserved for issuance under the Purchase Plan will
automatically be increased by 1% of the total number of shares of common stock
then outstanding or, if less, by 300,000 shares. The Purchase Plan is intended
to qualify as an employee stock purchase plan within the meaning of section 423
of the Internal Revenue Code. Under the Purchase Plan, the board of directors or
a committee comprised of at least two members of the board of directors may
authorize participation by eligible employees, including officers, in periodic
offerings following the commencement of the Purchase Plan. The initial offering
under the purchase plan will commence on the effective date of this offering and
terminate on April 30, 2000.
Unless otherwise determined by the board of directors, employees are
eligible to participate in the purchase plan only if they are customarily
employed by us or one of our subsidiaries designated by the
51
<PAGE> 58
board of directors for at least 20 hours per week and five months per calendar
year and have completed at least ninety (90) days of continued employment.
Otherwise eligible employees who are employed on the effective date of this
offering with less than ninety (90) days of continued employment will be
immediately eligible to participate in the Purchase Plan with respect to the
first offering period provided that they remain in continued employment through
the end of the first offering period (April 30, 2000). Employees who participate
in an offering may have up to 15% of their eligible earnings withheld pursuant
to the Purchase Plan. The amount withheld is then used to purchase shares of the
common stock on specified dates determined by the board of directors. The price
of common stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value of the common stock at the commencement date of
each offering period or the relevant purchase date. Employees may end their
participation in an offering at any time during that offering, and their
participation will end automatically on termination of their employment with us
or one of our affiliates.
In the event of a merger, reorganization, consolidation or liquidation that
involves us, the board of directors has discretion to provide that each right to
purchase common stock will be assumed or an equivalent right substituted by the
successor corporation or the board of directors may provide for all sums
collected by payroll deductions to be applied to purchase stock immediately
prior to a merger or other transaction. The board of directors has the authority
to amend or terminate the Purchase Plan, provided, however, that no action may
adversely affect any outstanding rights to purchase common stock.
401(k) Plan
In January 1997, the board of directors adopted the Vixel Corporation
401(k) plan, which is intended to be a tax qualified employee savings retirement
plan, covering our employees who are at least 21 years of age, have at least six
months of service with us and work a minimum of 1,000 hours during the plan
year. Eligible employees may make pre-tax contributions to the 401(k) plan of up
to 15% of their eligible earnings, subject to a statutorily determined annual
limit. In addition, eligible employees may make roll-over contributions to the
401(k) plan from a tax-qualified retirement plan. The 401(k) plan allows us to
make discretionary matching and additional profit sharing contributions to an
employee's account.
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
In April 1999, we entered into an employment agreement with James M.
McCluney, our president and chief executive officer. Mr. McCluney is paid an
annual base salary of $300,000 during his first year of employment, after which
time his base salary will be reviewed, and potentially adjusted, by the
compensation committee. The agreement also requires us to pay Mr. McCluney an
annual incentive bonus of up to 100% of his base salary rate then in effect,
with a target payout rate of 50%, subject to his satisfaction of performance
criteria to be determined by the compensation committee and so long as he serves
as our president and chief executive officer for the year and during the first
quarter of the following calendar year. Mr. McCluney may defer all or any
portion of his annual incentive bonus. We also agreed to reimburse Mr. McCluney
for his relocation expenses associated with moving his family to Washington. In
the event that Mr. McCluney is terminated without cause, he will be entitled to
severance in the amount of one year's base salary at the rate then in effect,
any deferred incentive bonuses and continued vesting of his stock options for
one year.
We also granted Mr. McCluney an option to purchase up to 1,000,000 shares
of our common stock at an exercise price of $3.08 per share. This option vests
with respect to 250,000 shares on April 26, 2000, and then monthly thereafter in
36 equal installments. Under the terms of the option agreement, Mr. McCluney may
exercise unvested options; however, Vixel has a right to repurchase any of his
unvested shares. If there is a change in control of Vixel, Mr. McCluney's
options will accelerate and vest immediately on the occurrences and in the
amounts as follows:
(1) 500,000 shares if there is a change of control before April 26, 2000
and his options are not assumed or replaced by substantially equivalent
options;
52
<PAGE> 59
(2) the greater of 250,000 or half the unvested shares if there is a change
of control on or after April 26, 2000; and
(3) if his employment is terminated involuntarily, other than for cause, by
a successor company then as set forth above in (1) or (2) depending on
the date.
In December 1998, we entered into an employment agreement with Stanley H.
Reese, our vice president of product development. Mr. Reese is paid an annual
base salary of $150,000. He is also eligible to receive additional compensation
including a bonus linked to performance of up to $65,000 and additionally any
amounts that the compensation committee, in its sole discretion, may determine.
We granted Mr. Reese an option to purchase up to 216,667 shares of our common
stock at an exercise price of $3.08 per share. This option vests with respect to
54,167 shares on January 20, 2000, and then monthly thereafter in 36 equal
installments. If we terminate Mr. Reese prior to May 31, 2000 without cause, he
is entitled to receive $150,000 plus all accrued bonus that he has earned as of
the termination date.
In the fall of 1998 our then chief executive officer and the board of
directors agreed we would commence a search for a new chief executive officer
and that Mr. Olbright would continue as chief executive officer during the
course of the search and after selection of the new chief executive officer
would remain as chairman of the board. In November 1998, we entered into an
employment agreement with Mr. Olbright, in connection with his transition to
chairman of the board. Under the terms of his employment agreement, Mr. Olbright
receives an annual base salary of $50,000 while serving as our chairman. We
granted Mr. Olbright an option for 700,000 shares of common stock at an exercise
price of $3.08 per share. Under the terms of the option agreement, Mr. Olbright
may exercise unvested options; however, we have a right to repurchase any of his
unvested shares. This agreement also provides that Mr. Olbright will act as a
part-time employee, for which he will receive an annual salary of $25,000.
In September 1998, we entered into an employment agreement with Kurtis L.
Adams, our chief financial officer and vice president of finance. He is paid an
annual base salary of $140,000. Mr. Adams also is eligible to receive additional
compensation, bonus and benefits, in the sole discretion of the compensation
committee of our board of directors. We also granted Mr. Adams an option to
purchase up to 133,333 shares of our common stock at an exercise price of $6.75
per share. On the first anniversary of the grant, options for 29,167 shares will
vest. The remainder vest in monthly increments of 2,431 over the next 24 months
and then 3,819 per month until fully vested. Under the terms of the option
agreement, Mr. Adams may exercise unvested options; however, we have a right to
repurchase any of his unvested shares. As of May 31, 1999, Mr. Adams had
exercised options for 96,068 shares, all of which are subject to a right to
repurchase in our favor. If there is a change in control at any time prior to
September 21, 1999 and Mr. Adams is terminated without cause or there is a
significant change in his responsibilities, vesting of his options will
accelerate by 12 months. In addition, following a change in control subsequent
to September 21, 1999, if Mr. Adams is terminated without cause or there is a
significant change in his responsibilities, all his options immediately will
vest the greater of one half of any unvested shares or 12 months of accelerated
vesting.
In February 1998, we entered into employment agreements with Stuart B.
Berman, our chief technology officer, and Jay R. O'Donald, our vice president of
operations, in connection with our acquisition of Arcxel Technologies. These
employment agreements set the annual base salary for Mr. O'Donald at $147,500
and for Mr. Berman at $145,000. Their employment agreements provide, that if
either employee voluntarily terminates his employment with Vixel, is terminated
for cause, or in the event of a merger of Vixel in which his options are not
assumed or substituted by the acquiring entity with new options, we have the
right to repurchase any unvested shares then held by the employee. Mr.
O'Donald's agreement allows Vixel to repurchase up to 189,903 shares. This
number is reduced by 7,098 shares for each month of his employment from February
28, 1998 until January 31, 2000, after which the number is reduced at a rate of
3,912 shares per month. Mr. Berman's agreement allows Vixel to repurchase up to
318,661 shares. This number is reduced by 12,683 shares for each month of his
employment from February 28, 1998 until January 31, 2000, after which the
remaining balance is reduced at a rate of 2,859 shares per month. Both
employment agreements may be terminated at any time by either party.
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<PAGE> 60
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a director
of a corporation will not be personally liable for monetary damages for breach
of that individual's fiduciary duties as a director except for liability (A) for
any breach of the director's duty of loyalty to the company or to its
stockholders, (B) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (C) for unlawful payments
of dividends or unlawful stock repurchases or redemptions as provided in section
174 of the Delaware General Corporation Law or (D) for any transaction from
which a director derives an improper personal benefit.
Our bylaws provide that we indemnify our directors and executive officers
and may indemnify our officers, employees and other agents to the fullest extent
not prohibited by law. We believe that indemnification under our bylaws covers
at least negligence on the part of an indemnified party. Our bylaws also permit
us to advance expenses incurred by an indemnified party in connection with the
defense of any action or proceeding arising out of his or her status or service
as a director, officer, employee or other agent of Vixel upon an undertaking by
him or her to repay any advances if it is ultimately determined that he or she
is not entitled to indemnification.
We intend to enter into separate indemnification agreements with our
directors and officers. These agreements will require us to, among other things,
indemnify the director or officer against expenses, including attorney's fees,
judgements, fines and settlements paid by the individual in connection with any
action, suit or proceeding arising out of the individual's status or service as
a director or officer of Vixel, other than liabilities arising from willful
misconduct or conduct that is knowingly fraudulent or deliberately dishonest,
and to advance expenses incurred by the individual in connection with any
proceeding against him or her individual with respect to which he or she
individual may be entitled to indemnification by us. We believe that our
certificate of incorporation and bylaw provisions and indemnification agreements
are necessary to attract and retain qualified persons as directors and executive
officers. We also maintain directors' and officers' liability insurance.
At present we are not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of Vixel where
indemnification will be required or permitted. Furthermore, we are not aware of
any threatened litigation or proceeding that might result in a claim for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, executive officers or persons controlling Vixel,
we have been informed that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
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<PAGE> 61
CERTAIN TRANSACTIONS
Certain stock option grants to our directors and executive officers are
described in this prospectus under the caption "Management -- Board
Compensation" and "-- Executive Compensation."
WESTERN DIGITAL
In March 1996, we issued 2,000,000 shares of series D preferred stock and a
secured promissory note in the amount of $2.0 million to Western Digital
Corporation in connection with our purchase of certain assets. In March 1999, we
issued to Western Digital Corporation a warrant to purchase 16,490 shares of
series E preferred stock at an exercise price of $10.00 a share in connection
with an extension of the secured promissory note. Within two days of the closing
of this offering, we must pay off all outstanding principal and accrued interest
on the note, which currently totals $2.0 million. In connection with our
purchase of assets from Western Digital, Charles A. Haggerty, the chairman,
president and chief executive officer of Western Digital, joined our board of
directors.
SERIES E PREFERRED STOCK FINANCING
In October 1996, we issued, in a private placement transaction, 4,529,221
shares of series E preferred stock at a price of $4.50 per share. The following
table summarizes the shares of preferred stock purchased by Named Executive
Officers, directors and 5% stockholders, and persons and entities associated
with them:
<TABLE>
<CAPTION>
SERIES E
INVESTOR PREFERRED STOCK
-------- ---------------
<S> <C>
Kevin A. Fong/Entities affiliated with Mayfield Fund........ 202,222
Entities affiliated with Menlo Ventures..................... 202,222
Werner F. Wolfen............................................ 38,889
</TABLE>
CIELO COMMUNICATIONS
In February 1998, we sold our laser diode fabrication facility and gigabit
Ethernet transceiver product line to Cielo Communications for $6.9 million in
cash. In connection with this sale, Cielo assumed a portion of our liabilities.
Immediately prior to the asset purchase, Cielo sold $10.0 million of stock in a
private placement to investors including Herb Alpert and investment entities
managed by Mayfield Fund and Menlo Ventures, each a beneficial owner of more
than 5% of our capital stock. Gregory R. Olbright received, for strategic advice
given to the board of directors and executive officers of Cielo regarding
Cielo's strategy, structure and formation, 500,000 shares of Cielo and an option
to purchase 500,000 shares of Cielo at an exercise price of $0.20 per share. Mr.
Olbright is our chairman of the board of directors and, at the time of this
transaction, was our president and chief executive officer.
ARCXEL TECHNOLOGIES
In February 1998, we acquired Arcxel Technologies in exchange for 1,026,525
shares of common stock and 1,759,303 shares of series F preferred stock with an
aggregate value of approximately $5.1 million for the common stock and $7.0
million for the preferred stock. In connection with this acquisition, Timothy M.
Spicer, a director of Arcxel, joined our board of directors and Stuart B. Berman
and Jay R. O'Donald, the co-founders of Arcxel, became executive officers of
Vixel. The following table summarizes the shares of series F preferred stock and
common stock issued to our Named Executive Officers, directors and 5%
stockholders, and persons and entities associated with them in connection with
the Arcxel acquisition:
<TABLE>
<CAPTION>
SERIES F COMMON
INVESTOR PREFERRED STOCK STOCK
-------- --------------- -------
<S> <C> <C>
Stuart B. Berman............................................ 653,128
Jay R. O'Donald............................................. 363,202
Entities affiliated with Timothy M. Spicer.................. 1,744,011
</TABLE>
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<PAGE> 62
DIRECTOR AND OFFICER PROMISSORY NOTES
Between April 1998 and May 1999, Messrs. Olbright, McCluney and Adams
delivered promissory notes to us to finance their purchase of common stock upon
exercise of stock options. All of the notes are full-recourse, secured by the
shares purchased, bear interest at a rate of 5.75% and are due and payable upon
the earlier of four years from issuance or six months after the termination of
the officer's employment. In April 1998, Gregory R. Olbright, the chairman of
our board of directors, delivered to us a $3.5 million full-recourse promissory
note to purchase 700,000 shares of common stock. We repurchased these shares in
exchange for cancellation of the note in October 1998. In April 1999, in
connection with the exercise of a stock option for 415,290 shares of our common
stock, Mr. Olbright delivered to us a $1.3 million full-recourse promissory
note. In April 1999, in connection with the exercise of a stock option for
1,000,000 shares of our common stock, James M. McCluney, our president and chief
executive officer, delivered to us a $3.1 million full-recourse promissory note.
In May 1999, in connection with the exercise of stock options to purchase
121,068 shares of our common stock, Kurtis L. Adams, our chief financial
officer, delivered to us a $372,000 full-recourse promissory note.
In May 1999, in connection with the exercise of stock options by each of
our non-employee directors to purchase 16,666 shares of our common stock, these
directors delivered to us a $100,000 promissory note. All of the notes are
full-recourse, secured by the shares purchased, bear interest at a rate of 5.75%
and are due and payable the earlier of the date which is four years from
issuance or six months after the termination of the director's service to us.
In April 1999, we loaned $62,000 to Stuart B. Berman, our chief technology
officer. This loan is secured by the pledge of 653,128 shares of our common
stock held by Mr. Berman. This loan has similar terms as the other director and
officer notes except that it is due and payable on April 15, 2000.
INDEMNIFICATION AGREEMENTS
We intend to enter into separate indemnification agreements with our
executive officers and directors. These agreements will require us to, among
other things, indemnify the officer or director against liabilities that may
arise by reason of their status or service as an officer or director, other than
liabilities arising from willful misconduct of a culpable nature, and to advance
his or her expenses incurred as a result of any proceeding against them as to
which they could be indemnified.
REGISTRATION RIGHTS AGREEMENTS
A number of holders of common stock and warrants have registration rights
with respect to their shares of common stock and common stock issuable upon
exercise or conversion of their warrants.
CONFLICT OF INTEREST POLICY
All transactions with affiliates described above were approved by a
majority of disinterested directors and we believe were made on terms no less
favorable to us than could have been obtained from unaffiliated third parties.
Our policy is to require that a majority of the independent and disinterested
outside directors on our board of directors approve all future transactions
between us and our officers, directors, principal stockholders and their
affiliates. These transactions will continue to be on terms no less favorable to
us than we could obtain from unaffiliated third parties.
56
<PAGE> 63
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of July 31, 1999, and as adjusted to
reflect the sale of common stock offered hereby, as to (A) each person (or group
of affiliated persons) known by us to own beneficially more than 5% of our
outstanding common stock, (B) each of our directors, (C) each of the Named
Executive Officers and (D) all directors and executive officers of Vixel as a
group.
Unless otherwise indicated, the address for each of the named individuals
is c/o Vixel Corporation, 11911 Northcreek Parkway South, Bothell, Washington
98011. Except as otherwise indicated, and subject to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock held by them.
Beneficial ownership is determined in accordance with the rules of the SEC.
Shares of common stock subject to options or warrants that are exercisable or
will become exercisable within 60 days of July 31, 1999, are deemed outstanding
for the purpose of computing the percentage of ownership of the person or entity
holding options or warrants but are not treated as outstanding for the purpose
of computing the percentage ownership of any other person or entity. Percentage
of shares beneficially owned is based on 17,976,656 shares of common stock
outstanding as of July 31, 1999 and shares of common stock to be outstanding
upon the consummation of this offering.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY
OWNED
SHARES ------------------------
BENEFICALLY BEFORE AFTER
NAME AND ADDRESS OWNED OFFERING OFFERING
---------------- ----------- ---------- ----------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
James M. McCluney................................... 1,000,000 5.6% 4.6%
Stuart B. Berman(1)................................. 694,888 3.9 3.2
Richard G. Helgeson(2).............................. 66,665 * *
Jay R. O'Donald(3).................................. 420,335 2.3 1.9
Marlu E. Allan(4)................................... 66,679 * *
Karen L. Howard(5).................................. 48,626 * *
Gregory R. Olbright(6).............................. 1,638,750 9.1 7.6
Kevin A. Fong(7).................................... 1,512,631 8.4 7.0
Charles A. Haggerty(8).............................. 1,410,993 7.8 6.5
Juan A. Rodriguez(9)................................ 114,419 * *
Timothy M. Spicer(10)............................... 1,206,007 6.7 5.6
Werner F. Wolfen(11)................................ 155,888 * *
5% STOCKHOLDERS
Herb Alpert......................................... 2,070,424 11.5 9.6
360 N. La Cienega Boulevard
Los Angeles, CA 90048-1925
Mayfield Fund(12)................................... 1,495,964 8.3 6.9
2800 Sand Hill Road, Suite 250
Menlo Park, CA 94025-7076
Menlo Ventures(13).................................. 1,495,964 8.3 6.9
3000 Sand Hill Road, Building Four, Suite 100
Menlo Park, CA 94025-7116
Western Digital Corporation(14)..................... 1,344,326 7.5 6.2
8105 Irvine Center Drive
Irvine, CA 92718
AVI/Arcxel Investors L.P.(15)....................... 1,162,674 6.5 5.4
100 Pine Street, Suite 2700
San Francisco, CA 94111-5213
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A
GROUP(16)......................................... 8,423,382 46.2 38.4
</TABLE>
57
<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
On the closing of this offering, our authorized capital stock will consist
of 60,000,000 shares of common stock, $.0015 par value, and 5,000,000 shares of
preferred stock, $.001 par value, after giving effect to the amendment and
restatement of our certificate of incorporation to delete references to series
A, series B, series C, series D, series E and series F preferred stock, which
will occur upon conversion of the preferred stock into common stock upon the
closing of this offering, and the subsequent authorization of shares of
undesignated preferred stock, as described below.
COMMON STOCK
As of July 4, 1999, there were 17,929,003 shares of common stock
outstanding that were held of record by approximately 210 stockholders after
giving effect to the exercise of warrants to purchase up to 894,333 shares of
series A preferred stock and the conversion of all of our outstanding preferred
stock into common stock. There will be 21,629,003 shares of common stock
outstanding after giving effect to the sale of the shares of common stock to the
public offered hereby.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably all dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available therefor. In
the event of the liquidation, dissolution or winding up of Vixel, the holders of
our common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred stock,
if any, then outstanding. The common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable, and the shares of common stock to be
issued upon completion of this offering will be fully paid and nonassessable.
PREFERRED STOCK
On the closing of this offering, our certificate of incorporation will
authorize 5,000,000 shares of preferred stock. The board of directors has the
authority to issue the preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of any series, without further vote or action by
the stockholders. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of Vixel without further
action by the stockholders. For example, the board of directors could issue
preferred stock that has the power to prevent a change of control transaction.
The issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others. We currently have no plans to issue any of the
preferred stock.
WARRANTS
Upon completion of this offering, we will have outstanding warrants to
purchase up to 419,865 shares of common stock. Some of these warrants were
originally to purchase preferred stock, but upon the closing of the offering,
they will automatically become warrants to purchase shares of our common stock.
The numbers of shares, exercise prices and dates of these warrants are
summarized below:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE EXPIRATION DATE
- ---------------- -------------- ---------------
<C> <C> <S>
117,142 $ 5.25 Five years after the closing of this offering
46,174 8.45 October 16, 2001
16,667 8.43 One year after the closing of this offering
150,000 11.00 September 30, 2002
Up to 12,222 11.25 December 18, 2003
77,660 15.00 November 25, 2003 to March 31, 2004
</TABLE>
58
<PAGE> 65
DESCRIPTION OF CAPITAL STOCK
On the closing of this offering, our authorized capital stock will consist
of 60,000,000 shares of common stock, $.0015 par value, and 5,000,000 shares of
preferred stock, $.001 par value, after giving effect to the amendment and
restatement of our certificate of incorporation to delete references to series
A, series B, series C, series D, series E and series F preferred stock, which
will occur upon conversion of the preferred stock into common stock upon the
closing of this offering, and the subsequent authorization of shares of
undesignated preferred stock, as described below.
COMMON STOCK
As of July 4, 1999, there were 17,929,003 shares of common stock
outstanding that were held of record by approximately 210 stockholders after
giving effect to the exercise of warrants to purchase up to 894,333 shares of
series A preferred stock and the conversion of all of our outstanding preferred
stock into common stock. There will be 21,629,003 shares of common stock
outstanding after giving effect to the sale of the shares of common stock to the
public offered hereby.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably all dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available therefor. In
the event of the liquidation, dissolution or winding up of Vixel, the holders of
our common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred stock,
if any, then outstanding. The common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable, and the shares of common stock to be
issued upon completion of this offering will be fully paid and nonassessable.
PREFERRED STOCK
On the closing of this offering, our certificate of incorporation will
authorize 5,000,000 shares of preferred stock. The board of directors has the
authority to issue the preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of any series, without further vote or action by
the stockholders. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of Vixel without further
action by the stockholders. For example, the board of directors could issue
preferred stock that has the power to prevent a change of control transaction.
The issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others. We currently have no plans to issue any of the
preferred stock.
WARRANTS
Upon completion of this offering, we will have outstanding warrants to
purchase up to 419,865 shares of common stock. Some of these warrants were
originally to purchase preferred stock, but upon the closing of the offering,
they will automatically become warrants to purchase shares of our common stock.
The numbers of shares, exercise prices and dates of these warrants are
summarized below:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE EXPIRATION DATE
- ---------------- -------------- ---------------
<C> <C> <S>
117,142 $ 5.25 Five years after the closing of this offering
46,174 8.45 October 16, 2001
16,667 8.43 One year after the closing of this offering
150,000 11.00 August 27, 2002
Up to 12,222 11.25 December 18, 2003
77,660 15.00 November 25, 2003 to March 31, 2004
</TABLE>
59
<PAGE> 66
REGISTRATION RIGHTS OF CERTAIN HOLDERS
After this offering, the holders of 10,120,213 shares of common stock and
warrants to purchase up to 269,865 shares of common stock will be entitled to
rights with respect to the registration of such shares under the Securities Act
of 1933. The holders of registration rights are those investors, including some
former officers and a founder that hold shares of our preferred stock and
warrants to purchase shares of our series C preferred stock and series E
preferred stock. Under the terms of the agreements between us and the holders of
these securities, the holders of 50% of these securities may require, on two
occasions at any time after October 1, 1999, that Vixel use its best efforts to
register these securities for public resale, provided the proposed aggregate
offering price is at least $15.0 million and the offering is for at least 20% of
the shares entitled to be registered then outstanding. Further, if we propose to
register any of our securities under the Securities Act, either for our own
account or for the account of other security holders exercising registration
rights, these holders are entitled to notice of the registration and are
entitled to include shares of common stock in these registration, subject to the
ability of the underwriters to limit the number of shares included in the
offering. Further, holders may require us to file additional registration
statements on Form S-3 subject to certain limitations. All fees and expenses of
these registrations, other than underwriting discounts and commissions, will be
borne by us.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
CERTIFICATE OF INCORPORATION
On the closing of this offering, our certificate of incorporation will
provide that all stockholder actions must be effected at a duly called meeting
and not by a consent in writing. This provision could discourage potential
acquisition proposals and could delay or prevent a change of control of Vixel.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to various exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:
- prior to that date, the board of directors approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to that date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- subject to various exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
60
<PAGE> 67
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot provide any assurances that a significant public market for our
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market, or the possibility of
such sales occurring, could adversely affect prevailing market prices for the
common stock or our future ability to raise capital through an offering of
equity securities.
After this offering, we will have outstanding 21,682,251 shares of common
stock based on shares outstanding as of August 26, 1999. Of these shares, the
3,700,000 shares to be sold in this offering, 4,255,000 shares if the
underwriters' over-allotment option is exercised in full, will be freely
tradable in the public market without restriction under the Securities Act,
unless those shares are held by "Affiliates" of Vixel, as that term is defined
in Rule 144 under the Securities Act.
The remaining 17,982,251 shares of common stock held by existing
stockholders will, upon completion of this offering, be "restricted securities"
as that term is defined under Rule 144. We issued and sold these restricted
securities in private transactions in reliance on exemptions from registration
under the Securities Act. These restricted securities may be sold in the public
market only if they are registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act, as summarized
below.
Pursuant to certain "lock-up" agreements, all executive officers, directors
and substantially all stockholders of Vixel, who collectively hold approximately
17,830,492 shares or securities convertible into shares as of August 26, 1999,
have agreed not to offer, sell, contract to sell, grant any option to purchase
or otherwise dispose of any of these shares for a period of 180 days from the
date of this prospectus.
Upon expiration of the lock-up agreements, 180 days after the effective
date of the prospectus, approximately 16,225,486 shares that will not then be
subject to any repurchase option will be eligible for immediate sale subject in
some instances to restrictions under Rule 144. Following the completion of this
offering, warrants to purchase up to 269,865 shares will be outstanding, which,
if exercised pursuant to net-exercise provisions, would be immediately salable
without restriction upon the expiration of the 180 day lock-up period. If those
warrants were to be otherwise exercised, they would be salable upon the
expiration of various one-year holding periods, subject to certain volume,
manner of sale, and other limitations under Rule 144.
In general, under Rule 144 as in effect at the closing of this offering,
beginning 90 days after the date of this prospectus, a person who has
beneficially owned those shares for at least one year would be entitled to sell,
within any three month period, a number of shares that does not exceed the
greater of;
- 1% of the then-outstanding shares of common stock; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to those
sale. Sales under Rule 144 are also subject to manner of sale and notice
requirements and to the availability of current public information about
Vixel.
Under Rule 144(k), a person who is not deemed to have been an Affiliate of
Vixel at any time during the three months preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner who is not an Affiliate of
Vixel, is entitled to sell those shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
Subject to various limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from us by our employees,
directors, officers, consultants or advisors prior to the completion of this
offering, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of these persons. In addition, the Securities and
Exchange Commission has indicated that Rule 701 will apply to stock options
61
<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot provide any assurances that a significant public market for our
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market, or the possibility of
such sales occurring, could adversely affect prevailing market prices for the
common stock or our future ability to raise capital through an offering of
equity securities.
After this offering, we will have outstanding 21,682,251 shares of common
stock based on shares outstanding as of August 26, 1999. Of these shares, the
3,700,000 shares to be sold in this offering, 4,255,000 shares if the
underwriters' over-allotment option is exercised in full, will be freely
tradable in the public market without restriction under the Securities Act,
unless those shares are held by "Affiliates" of Vixel, as that term is defined
in Rule 144 under the Securities Act.
The remaining 17,982,251 shares of common stock held by existing
stockholders will, upon completion of this offering, be "restricted securities"
as that term is defined under Rule 144. We issued and sold these restricted
securities in private transactions in reliance on exemptions from registration
under the Securities Act. These restricted securities may be sold in the public
market only if they are registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act, as summarized
below.
Pursuant to certain "lock-up" agreements, all executive officers, directors
and substantially all stockholders of Vixel, who collectively hold approximately
18,008,270 shares or securities convertible into shares as of August 26, 1999,
have agreed not to offer, sell, contract to sell, grant any option to purchase
or otherwise dispose of any of these shares for a period of 180 days from the
date of this prospectus.
Upon expiration of the lock-up agreements, 180 days after the effective
date of the prospectus, approximately 16,225,486 shares that will not then be
subject to any repurchase option will be eligible for immediate sale subject in
some instances to restrictions under Rule 144. Following the completion of this
offering, warrants to purchase up to 269,865 shares will be outstanding, which,
if exercised pursuant to net-exercise provisions, would be immediately salable
without restriction upon the expiration of the 180 day lock-up period. If those
warrants were to be otherwise exercised, they would be salable upon the
expiration of various one-year holding periods, subject to certain volume,
manner of sale, and other limitations under Rule 144.
In general, under Rule 144 as in effect at the closing of this offering,
beginning 90 days after the date of this prospectus, a person who has
beneficially owned those shares for at least one year would be entitled to sell,
within any three month period, a number of shares that does not exceed the
greater of;
- 1% of the then-outstanding shares of common stock; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to those
sale. Sales under Rule 144 are also subject to manner of sale and notice
requirements and to the availability of current public information about
Vixel.
Under Rule 144(k), a person who is not deemed to have been an Affiliate of
Vixel at any time during the three months preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner who is not an Affiliate of
Vixel, is entitled to sell those shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
Subject to various limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from us by our employees,
directors, officers, consultants or advisors prior to the completion of this
offering, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of these persons. In addition, the Securities and
Exchange Commission has indicated that Rule 701 will apply to stock options
62
<PAGE> 69
granted by us before this offering, along with the shares acquired upon exercise
of such options. Securities issued in reliance on Rule 701 are deemed to be
restricted shares and, beginning 90 days after the date of this prospectus,
unless subject to the contractual restrictions described above, may be sold by
persons other than affiliates, subject only to the manner of sale provisions of
Rule 144 and by affiliates under Rule 144 without compliance with its one-year
minimum holding period requirement.
Of the options to purchase 2,424,193 shares of common stock outstanding as
of July 31, on the date 180 days following the assumed effective date of this
offering, options to purchase 1,088,324 shares of common stock will be fully
exercisable and saleable pursuant to Rule 701 or registration on Form S-8.
We intend to file, within 180 days of effective date of this offering, a
registration statement on Form S-8 to register approximately 4,442,460 shares of
common stock reserved for issuance under our 1995 Stock Option Plan, 1999 Equity
Incentive Plan and 1999 Employee Stock Purchase Plan. The registration statement
will become effective automatically upon filing. Shares issued under these
plans, after the filing of the registration statement on Form S-8, may be sold
in the open market, subject, in the case of certain holders, to the Rule 144
limitations applicable to Affiliates, the above-referenced lock-up agreements
and vesting restrictions imposed by us.
In addition, following this offering, the holders of 10,120,213 shares of
common stock and warrants to purchase up to 269,865 shares of common stock, or
their transferees, will have rights to require us to register their shares for
future sale.
63
<PAGE> 70
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc. and Needham &
Company, Inc., have severally agreed with us, subject to the terms and
conditions set forth in the underwriting agreement, to purchase from us the
numbers of shares of common stock set forth opposite their names below. The
underwriters are committed to purchase and pay for all these shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc...........................
Bear, Stearns & Co. Inc.....................................
Needham & Company, Inc......................................
---------
Total.................................................. 3,700,000
=========
</TABLE>
We have been advised by the representatives that the underwriters propose
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to certain dealers at
that price less a concession of not in excess of $ per share, of which
$ may be reallowed to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the representatives. No such reduction shall change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus. The common
stock is offered by the underwriters as stated herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or in
part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-allotment option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 555,000 additional shares of common stock at the same price per
share as we will receive for the 3,700,000 shares that the underwriters have
agreed to purchase from us. To the extent that the underwriters exercise this
option, each of the underwriters will have a firm commitment to purchase
approximately the same percentage of the additional shares that the number of
shares of common stock to be purchased by it shown in the above table represents
as a percentage of the 3,700,000 shares offered by this prospectus. If
purchased, the additional shares will be sold by the underwriters on the same
terms as those on which the 3,700,000 shares are being sold. We will be
obligated, pursuant to the option, to sell shares to the extent the option is
exercised. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered hereby. If the option is exercised in full, the total public offering
price and proceeds to us will be $46,805,000 and $42,629,000, respectively.
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
TOTAL
----------------------
WITHOUT WITH
PER OVER- OVER-
SHARE ALLOTMENT ALLOTMENT
-------- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by us....... $ $ $
</TABLE>
We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will be
approximately $900,000. The public offering price, underwriting discount and
other terms set forth in the underwriting agreement are subject to approval by
the pricing committee of our board of directors.
Indemnity. The underwriting agreement contains covenants of indemnity
between the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
64
<PAGE> 71
Lock-up agreements. All our executive officers, directors, and
substantially all our stockholders of record, optionholders and warrantholders
have agreed with BancBoston Robertson Stephens, for a period of 180 days after
the date of this prospectus and subject to certain exceptions, not to offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of common stock, any option or warrant to
purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or, with certain exceptions, thereafter acquired directly by such holders or
with respect to which they have or hereafter acquire the power of disposition,
without the prior written consent of BancBoston Robertson Stephens. However,
BancBoston Robertson Stephens may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to the
lock-up agreements. There are no agreements between the representatives and any
of our stockholders providing consent by the representatives to the sale of
shares prior to the expiration of the period of 180 days after this prospectus.
Future sales. In addition, we have agreed that during the period of 180
days after this prospectus, we will not, subject to certain exceptions and
without the prior written consent of BancBoston Robertson Stephens:
- Consent to the disposition of any shares held by stockholders prior to
the expiration of the period of 180 days after this prospectus; or
- Issue, sell, contract to sell or otherwise dispose of, any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock, other than (1) the sale of shares in this
offering, (2) the issuance of common stock upon the exercise or
conversion of outstanding options, warrants or convertible securities,
and (3) our issuance of stock options under our existing equity incentive
and stock purchase plans. For a more complete discussion of the shares
subject to a lock-up agreement, see "Shares Eligible for Future Sale," at
page 62.
Listing. We have filed an application to have the common stock approved for
quotation on the Nasdaq National Market under the symbol "VIXL."
No prior public market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered hereby will be determined through negotiations between
us and the representatives. Among the factors to be considered in these
negotiations are prevailing market conditions, certain of our financial
information, market valuations of other companies that we and the underwriters
believe to be comparable to us, estimates of our business potential, the present
state of our development and other factors deemed relevant.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for the purchase of the common stock on behalf of the
underwriters for the purpose of fixing or maintaining the price of the common
stock. A "syndicate covering transaction" is the bid for or the purchase of the
common stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with this offering. A "penalty bid" is an
arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with this
offering if the common stock originally sold by that underwriter or syndicate
member is purchased by the representatives in a syndicate covering transaction
and has therefore not been effectively placed by the underwriter or syndicate
member. The representatives have advised us that these transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discounted at any time.
Directed share program. At our request, the underwriters have reserved up
to five percent of common stock offered by us for sale, at the initial public
offering price, to our directors, officers, employees, business associates and
related persons. The number of shares of common stock available for sale to the
general public will be reduced to the extent these individuals purchase the
reserved shares. Any reserved
65
<PAGE> 72
INDEX TO FINANCIAL STATEMENTS
VIXEL CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet as of December 28, 1997, January 3, 1999, and
July 4, 1999 (unaudited).................................. F-3
Statement of Operations for the fiscal years ended December
29, 1996, December 28, 1997 and January 3, 1999, and for
the six months ended June 28, 1998 and July 4, 1999
(unaudited)............................................... F-4
Statement of Changes in Stockholders' Equity (Deficit) for
the fiscal years ended December 29, 1996, December 28,
1997 and January 3, 1999 and for the six months ended July
4, 1999 (unaudited)....................................... F-5
Statement of Cash Flows for the fiscal years ended December
29, 1996, December 28, 1997 and January 3, 1999 and for
the six months ended June 28, 1998 and July 4, 1999
(unaudited)............................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
ARCXEL TECHNOLOGIES, INC.
<TABLE>
<S> <C>
Reports of Independent Accountants.......................... F-25
Balance Sheet as of December 31, 1996 and 1997.............. F-27
Statement of Operations for the periods from June 18, 1996
(inception) to December 31, 1996, the year ended December
31, 1997 and the period from June 18, 1996 (inception) to
December 31, 1997......................................... F-28
Statement of Changes in Stockholders' Equity (Deficit) for
the period from June 18, 1996 (inception) to December 31,
1996 and the year ended December 31, 1997................. F-29
Statement of Cash Flows for the period from June 18, 1996
(inception) to December 31, 1996, the year ended December
31, 1997 and the period from June 18, 1996 (inception) to
December 31, 1997......................................... F-30
Notes to Financial Statements............................... F-31
Unaudited Pro Forma Condensed Financial Statements.......... F-38
</TABLE>
F-1
<PAGE> 73
INDEX TO FINANCIAL STATEMENTS
VIXEL CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet as of December 28, 1997, January 3, 1999, and
July 4, 1999 (unaudited).................................. F-3
Statement of Operations for the fiscal years ended December
29, 1996, December 28, 1997 and January 3, 1999, and for
the six months ended June 28, 1998 and July 4, 1999
(unaudited)............................................... F-4
Statement of Changes in Stockholders' Equity (Deficit) for
the fiscal years ended December 29, 1996, December 28,
1997 and January 3, 1999 and for the six months ended July
4, 1999 (unaudited)....................................... F-5
Statement of Cash Flows for the fiscal years ended December
29, 1996, December 28, 1997 and January 3, 1999 and for
the six months ended June 28, 1998 and July 4, 1999
(unaudited)............................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
ARCXEL TECHNOLOGIES, INC.
<TABLE>
<S> <C>
Reports of Independent Accountants.......................... F-25
Balance Sheet as of December 31, 1996 and 1997.............. F-27
Statement of Operations for the periods from June 18, 1996
(inception) to December 31, 1996, the year ended December
31, 1997 and the period from June 18, 1996 (inception) to
December 31, 1997......................................... F-28
Statement of Changes in Stockholders' Equity (Deficit) for
the period from June 18, 1996 (inception) to December 31,
1996 and the year ended December 31, 1997................. F-29
Statement of Cash Flows for the period from June 18, 1996
(inception) to December 31, 1996, the year ended December
31, 1997 and the period from June 18, 1996 (inception) to
December 31, 1997......................................... F-30
Notes to Financial Statements............................... F-31
Unaudited Pro Forma Combined Statement of Operations........ F-38
</TABLE>
F-1
<PAGE> 74
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Vixel Corporation
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in stockholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of Vixel
Corporation at December 28, 1997 and January 3, 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
January 3, 1999, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Seattle, Washington
May 19, 1999, except for paragraph 3 of Note 8
which is as of June 22, 1999 and paragraph 1
of Note 12 which is as of August 27, 1999
F-2
<PAGE> 75
VIXEL CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------------------- -------------------------
DECEMBER 29, DECEMBER 28, JANUARY 3, JUNE 28, JULY 4,
1996 1997 1999 1998 1999
------------ ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
SAN systems.................... $ 163 $ 3,282 $ 13,389 $ 6,557 $ 10,806
Components and other........... 6,778 19,501 26,056 14,677 11,253
-------- ---------- ----------- ----------- -----------
Total revenue.................. 6,941 22,783 39,445 21,234 22,059
Cost of revenue.................. 7,342 19,047 36,199 16,732 15,673
-------- ---------- ----------- ----------- -----------
Gross profit (loss).............. (401) 3,736 3,246 4,502 6,386
-------- ---------- ----------- ----------- -----------
Research and development......... 4,474 9,360 11,110 5,249 6,233
Acquired in-process technology... 8,633 -- 5,118 5,118 --
Selling, general and
administrative................. 3,549 7,629 14,521 6,237 6,664
Amortization and writedown of
goodwill and intangibles....... 167 222 2,057 611 680
Amortization of deferred
compensation................... 36 50 -- -- 1,783
-------- ---------- ----------- ----------- -----------
Total operating expenses....... 16,859 17,261 32,806 17,215 15,360
-------- ---------- ----------- ----------- -----------
Loss from operations............. (17,260) (13,525) (29,560) (12,713) (8,974)
Interest expense................. (610) (920) (1,256) (521) (1,048)
Interest income.................. 461 620 414 155 163
Gain on sale of division......... -- -- 9,061 9,061 --
Other (expense) income, net...... (243) 66 108 88 3
-------- ---------- ----------- ----------- -----------
Net loss......................... $(17,652) $ (13,759) $ (21,233) $ (3,930) $ (9,856)
======== ========== =========== =========== ===========
Net loss available to common
stockholders................... $(17,693) $ (13,955) $ (21,424) $ (4,029) $ (9,954)
======== ========== =========== =========== ===========
Basic and diluted net loss per
share.......................... $ (56.87) $ (18.90) $ (8.77) $ (1.99) $ (2.83)
======== ========== =========== =========== ===========
Weighted-average shares
outstanding.................... 311,109 738,318 2,443,769 2,019,730 3,517,655
======== ========== =========== =========== ===========
Pro forma net loss available to
common stockholders
(unaudited).................... $ (21,233) $ (9,856)
=========== ===========
Pro forma basic and diluted net
loss per share (unaudited)..... $ (1.42) $ (0.61)
=========== ===========
Pro forma weighted-average shares
outstanding (unaudited)........ 14,920,725 16,180,984
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE> 76
VIXEL CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------------------- -------------------------
DECEMBER 29, DECEMBER 28, JANUARY 3, JUNE 28, JULY 4,
1996 1997 1999 1998 1999
------------ ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
SAN systems.................... $ 163 $ 3,282 $ 13,389 $ 6,557 $ 10,806
Components and other........... 6,778 19,501 26,056 14,677 11,253
-------- ---------- ----------- ----------- -----------
Total revenue.................. 6,941 22,783 39,445 21,234 22,059
Cost of revenue.................. 7,342 19,047 36,199 16,732 15,673
-------- ---------- ----------- ----------- -----------
Gross profit (loss).............. (401) 3,736 3,246 4,502 6,386
-------- ---------- ----------- ----------- -----------
Research and development......... 4,474 9,360 11,110 5,249 6,233
Acquired in-process technology... 8,633 -- 5,118 5,118 --
Selling, general and
administrative................. 3,549 7,629 14,521 6,237 6,664
Amortization and writedown of
goodwill and intangibles....... 167 222 2,057 611 680
Amortization of deferred
compensation................... 36 50 -- -- 1,783
-------- ---------- ----------- ----------- -----------
Total operating expenses....... 16,859 17,261 32,806 17,215 15,360
-------- ---------- ----------- ----------- -----------
Loss from operations............. (17,260) (13,525) (29,560) (12,713) (8,974)
Interest expense................. (610) (920) (1,256) (521) (1,048)
Interest income.................. 461 620 414 155 163
Gain on sale of division......... -- -- 9,061 9,061 --
Other (expense) income, net...... (243) 66 108 88 3
-------- ---------- ----------- ----------- -----------
Net loss......................... $(17,652) $ (13,759) $ (21,233) $ (3,930) $ (9,856)
======== ========== =========== =========== ===========
Net loss available to common
stockholders................... $(17,693) $ (13,955) $ (21,424) $ (4,029) $ (9,954)
======== ========== =========== =========== ===========
Basic and diluted net loss per
share.......................... $ (56.87) $ (18.90) $ (10.32) $ (2.64) $ (2.42)
======== ========== =========== =========== ===========
Weighted-average shares
outstanding.................... 311,109 738,318 2,075,344 1,528,348 4,112,912
======== ========== =========== =========== ===========
Pro forma net loss available to
common stockholders
(unaudited).................... $ (21,233) $ (9,856)
=========== ===========
Pro forma basic and diluted net
loss per share (unaudited)..... $ (1.46) $ (0.59)
=========== ===========
Pro forma weighted-average shares
outstanding (unaudited)........ 14,552,300 16,776,241
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE> 77
VIXEL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL TREASURY STOCK
------------------- ------------------ PAID-IN ---------------- DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT COMPENSATION
---------- ------ --------- ------ ---------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995........ 10,706,474 $10 223,586 $ 1 $12,702 66,666 $(50) $ (86)
Stock issued upon acquisition of
Western Digital assets.......... 2,000,000 2 7,998
Detachable stock warrants issued
with note and capital lease
agreements...................... 319
Stock options exercised........... 153,766 58
Amortization of deferred
compensation.................... 36
Accretion of mandatorily
redeemable convertible preferred
stock........................... (41)
Net loss..........................
---------- --- --------- --- ------- ------- ---- -------
Balance, December 29, 1996........ 12,706,474 12 377,352 1 21,036 66,666 (50) (50)
Stock options exercised........... 634,100 1 136
Stock options granted to third
parties......................... 39
Amortization of deferred
compensation.................... 50
Accretion of mandatorily
redeemable convertible preferred
stock........................... (196)
Net loss..........................
---------- --- --------- --- ------- ------- ---- -------
Balance, December 28, 1997........ 12,706,474 12 1,011,452 2 21,015 66,666 (50) --
Stock issued upon acquisition of
Arcxel Technologies, Inc........ 1,759,303 2 1,026,525 2 12,115
Stock options assumed upon
acquisition of Arcxel
Technologies, Inc............... 2,566
Shares repurchased above fair
value........................... 251
Stock options exercised........... 860,402 1 378
Stock options granted to third
parties......................... 215
Accretion of mandatorily
redeemable convertible preferred
stock........................... (191)
Net loss..........................
---------- --- --------- --- ------- ------- ---- -------
Balance, January 3, 1999.......... 14,465,777 14 2,898,379 5 36,349 66,666 (50) --
Stock options exercised
(unaudited)..................... 1,771,070 2 5,346
Stock options granted to third
parties (unaudited)............. 64
Deferred compensation
(unaudited)..................... 9,570 (9,570)
Amortization of deferred
compensation (unaudited)........ 1,783
Accretion of mandatorily
redeemable convertible preferred
stock (unaudited)............... (98)
Net loss (unaudited)..............
---------- --- --------- --- ------- ------- ---- -------
Balance, July 4, 1999
(unaudited)..................... 14,465,777 $14 4,669,449 $ 7 $51,231 66,666 $(50) $(7,787)
========== === ========= === ======= ======= ==== =======
<CAPTION>
NOTES
RECEIVABLE TOTAL
FROM ACCUMULATED STOCKHOLDERS'
STOCKHOLDERS DEFICIT EQUITY (DEFICIT)
------------ ----------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1995........ $ -- $ (3,598) $ 8,979
Stock issued upon acquisition of
Western Digital assets.......... 8,000
Detachable stock warrants issued
with note and capital lease
agreements...................... 319
Stock options exercised........... 58
Amortization of deferred
compensation.................... 36
Accretion of mandatorily
redeemable convertible preferred
stock........................... (41)
Net loss.......................... (17,652) (17,652)
------- -------- --------
Balance, December 29, 1996........ -- (21,250) (301)
Stock options exercised........... 137
Stock options granted to third
parties......................... 39
Amortization of deferred
compensation.................... 50
Accretion of mandatorily
redeemable convertible preferred
stock........................... (196)
Net loss.......................... (13,759) (13,759)
------- -------- --------
Balance, December 28, 1997........ -- (35,009) (14,030)
Stock issued upon acquisition of
Arcxel Technologies, Inc........ 12,119
Stock options assumed upon
acquisition of Arcxel
Technologies, Inc............... 2,566
Shares repurchased above fair
value........................... 251
Stock options exercised........... 379
Stock options granted to third
parties......................... 215
Accretion of mandatorily
redeemable convertible preferred
stock........................... (191)
Net loss.......................... (21,233) (21,233)
------- -------- --------
Balance, January 3, 1999.......... -- (56,242) (19,924)
Stock options exercised
(unaudited)..................... (5,246) 102
Stock options granted to third
parties (unaudited)............. 64
Deferred compensation
(unaudited).....................
Amortization of deferred
compensation (unaudited)........ 1,783
Accretion of mandatorily
redeemable convertible preferred
stock (unaudited)............... (98)
Net loss (unaudited).............. (9,856) (9,856)
------- -------- --------
Balance, July 4, 1999
(unaudited)..................... $(5,246) $(66,098) $(27,929)
======= ======== ========
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE> 78
VIXEL CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED SIX MONTHS ENDED
---------------------------------------- -------------------
DECEMBER 29, DECEMBER 28, JANUARY 3, JUNE 28, JULY 4,
1996 1997 1999 1998 1999
------------ ------------ ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income..................................... $(17,652) $(13,759) $(21,233) $ (3,930) $ (9,856)
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation........................................ 1,094 1,962 2,334 990 1,161
Acquired in-process technology...................... 8,633 -- 5,118 5,118 --
Amortization of goodwill and intangibles............ 337 449 3,061 1,030 952
Writedown of impaired assets........................ -- -- 1,564 -- --
Amortization of debt discount....................... 216 77 192 -- 115
Stock-based compensation............................ 36 89 303 -- 1,847
Loss (gain) on disposal of property and equipment... 32 (264) -- -- 7
Gain on sale of division............................ -- -- (9,061) (9,061) --
Changes in:
Accounts receivable, net.......................... (1,431) (3,069) (857) 1 (731)
Inventory......................................... (110) (470) (667) (1,246) 865
Prepaid expenses and other assets................. (77) (752) (82) 133 (1,388)
Accounts payable and accrued liabilities.......... 1,610 2,156 10,100 2,847 1,701
-------- -------- -------- -------- --------
Net cash used in operating activities........... (7,312) (13,581) (9,228) (4,118) (5,327)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short term investments.................... -- -- (2,490) (4,442) (73)
Purchase of property and equipment.................... (535) (1,022) (1,663) (406) (372)
Proceeds from disposal of property and equipment...... -- 92 -- -- --
Cash paid for acquisition of Arcxel Technologies,
Inc................................................. -- -- (16) (16) --
Cash paid for acquisition of Western Digital
Corporation assets.................................. (1,302) -- -- -- --
Proceeds from sale of division........................ -- -- 6,865 6,865 --
-------- -------- -------- -------- --------
Net cash (used in) provided by investing
activities.................................... (1,837) (930) 2,696 2,001 (445)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit, net..................... -- -- -- -- 2,825
Proceeds from issuance of long-term note payable...... -- -- 7,500 -- --
Proceeds from issuance of long term debt.............. 3,500 -- -- -- --
Principal payments on long-term debt and capital
leases.............................................. (1,605) (1,743) (1,308) (300) (411)
Amortization of debt issuance costs................... -- 10 27 13 10
Proceeds from issuance of preferred stock, net........ 19,210 -- -- -- --
Proceeds from issuance of common stock, net........... 44 137 378 123 102
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities.................................... 21,149 (1,596) 6,597 (164) 2,526
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents.... 12,000 (16,107) 65 (2,281) (3,246)
Cash and cash equivalents, beginning of period.......... 7,883 19,883 3,776 3,776 3,841
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period................ $ 19,883 $ 3,776 $ 3,841 $ 1,495 $ 595
======== ======== ======== ======== ========
Cash paid for interest.................................. $ 319 $ 397 $ 922 $ 507 $ 1,049
Equipment purchased under capital leases................ $ 1,233 $ 3,513 $ 3,187 $ 2,176 662
Issuance of detachable stock warrants................... $ 319 $ 89 $ 279 $ -- $ 9
Accretion of mandatorily redeemable stock............... $ 41 $ 196 $ 191 $ 99 $ 98
Acquisitions (Note 2)
Sale of division (Note 3)
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE> 79
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Vixel Corporation (the "Company") is a leading provider of comprehensive
interconnect solutions for use in storage area networks, or SANS. Its products
include SAN management software, fabric switches, arbitrated loop hubs and
transceivers. The Company currently sells its products primarily to
manufacturers as well as resellers in the United States.
FISCAL YEAR
The Company has a 52 or 53-week fiscal year ending on the Sunday closest to
December 31. The fiscal years ended December 29, 1996, December 28, 1997 and
January 3, 1999 were 52, 52 and 53 weeks, respectively.
REVENUE RECOGNITION
Revenue is generally recognized at the time of product shipment, unless we
have future obligations for installation, or we ship product demonstration
units. Revenue from products shipped with future installation obligations is
recognized when the future obligation is met by the Company. Revenue is not
recognized on demonstration units unless the customer ultimately purchases the
unit, and the related revenue is recognized at that time. A portion of products
sold to a distributor is subject to stock rotation rights, and this portion of
revenue is deferred until the stock rotation period has passed. An allowance is
provided for estimated future warranty costs and sales returns. In addition to a
product warranty, the Company offers post-sale telephone customer support and
consulting and installation services. Consulting and most installation services
are billed to customers separately, and revenue for these services is recognized
when the service is provided. Telephone support is included in the sales price
of the Company's products and is not sold separately. The cost of providing this
telephone support is not material.
During the fiscal years ended December 29, 1996 and December 28, 1997,
revenue from government funded research and development arrangements was
recognized and recorded as an offset to the related research and development
expenses at the time specified milestones were met. The Company did not perform
any government funded research and development during fiscal 1998. The Company
performed government funded research and development of $2,250,000 and $993,000
during fiscal 1996 and 1997, respectively.
CONCENTRATION OF MANUFACTURING AND CREDIT RISK AND SALES TO MAJOR CUSTOMERS
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable and cash
equivalents. The Company performs ongoing credit evaluations of its commercial
customers' financial condition and requires no collateral from these customers.
The Company maintains an allowance for doubtful accounts receivable based upon
its historical experience and the expected collectibility of all accounts
receivable. Credit losses to date have been within the Company's estimates. The
Company has a cash investment policy which generally restricts investments to
ensure preservation of principal and maintenance of liquidity.
Two customers represented 46% and 35% of revenue for the year ended
December 29, 1996. Four customers represented 50%, 13%, 13% and 10% of revenue
for the year ended December 28, 1997. Two customers represented 54% and 12% of
revenue for the year ended January 3, 1999.
The Company's inventory is produced by two contract manufacturers. The
Company believes that alternative manufacturing sources could be obtained and
qualified to supply its products.
F-7
<PAGE> 80
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
investments, accounts receivable, accounts payable, accrued liabilities,
short-term notes payable, long-term debt and capital leases and mandatorily
redeemable convertible preferred stock. Except for long-term debt, capital
leases and mandatorily redeemable convertible preferred stock, the carrying
amounts of financial instruments approximate fair value due to their short
maturities. The fair value of long-term debt and capital leases at December 28,
1997 and January 3, 1999 is not materially different from the carrying amount,
based on interest rates available to the Company for similar types of
arrangements. The Company considers the fair value of the mandatorily redeemable
convertible preferred stock to be the liquidation value plus unpaid dividends.
CASH AND CASH EQUIVALENTS
Highly liquid investments purchased with original maturities of three
months or less are considered to be cash equivalents.
INVESTMENTS
Investments consist of highly rated commercial paper and corporate bonds
which have original maturities between three and six months. These investments
are classified as available-for-sale and are recorded at market value, which
approximates cost. There were no material unrealized gains or losses at January
3, 1999.
INVENTORY
Inventory is stated at the lower of cost or market, cost being determined
by the first-in, first-out cost flow assumption.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets as
follows:
<TABLE>
<S> <C>
1 - 3
Test equipment.............................................. years
Furniture and office equipment.............................. 5 years
Computer equipment and software............................. 3 years
</TABLE>
Leasehold improvements are amortized over the shorter of their useful lives
or the term of the related lease. Maintenance and repairs, which neither
materially add to the value of the asset nor prolong its life, are charged to
expense as incurred. Gains or losses on dispositions of property and equipment
are included in operations.
GOODWILL AND INTANGIBLES
Intangibles include goodwill, which represents costs in excess of net
assets of businesses acquired, acquired technology and other intangible assets
(Note 6). Goodwill and intangibles are being amortized over periods ranging from
three to five years, using the straight-line method. Amortization of developed
technology is recorded as cost of sales. All other amortization is recorded as
amortization of goodwill and intangibles in the statement of operations.
F-8
<PAGE> 81
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
IMPAIRMENT OF LONG-LIVED ASSETS
The Company continually reviews the carrying value of long-lived assets
including, but not limited to, property and equipment and goodwill and
intangibles to determine whether impairment has occurred. The carrying value of
long-lived assets is considered impaired when the anticipated undiscounted cash
flow from such asset is less than its carrying value. In that event, a loss is
recognized for the amount by which the carrying value exceeds the fair value of
the long-lived asset. Fair value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved.
In December 1998, the Company identified an impairment in the value of
developed technology acquired in the purchase of Arcxel Technologies, Inc. (Note
2). The impairment arose as a result of the development of a next-generation
switch product which had better functionality and a lower cost than Arcxel's
existing switch product at the time of the acquisition. At the time of the
Arcxel acquisition, the Company believed that both the existing switch product
and the next-generation product which was under development could co-exist, each
serving different customer needs. However, the functionality and cost-
effectiveness of the next-generation switch exceeded the Company's original
expectations, which led to a much shorter product life than originally
anticipated for the existing switch product when the value of developed
technology was determined. Accordingly, the carrying values of both the
developed technology and the portion of goodwill allocated to the developed
technology have been written down to their fair value in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Impairment losses of $1,564,000 and $691,000 have been recorded in cost of sales
and amortization expense, respectively, in the statement of operations.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Effective upon the closing of this offering, the outstanding shares of the
Company's convertible preferred stock will automatically convert into 13,259,554
shares of common stock. The number of preferred shares converted includes
894,333 shares of preferred stock issuable upon exercise of warrants. These
preferred shares will convert into 596,222 shares of common stock. The pro forma
effects of these transactions are unaudited and have been reflected in the
accompanying pro forma stockholders' equity at July 4, 1999.
INCOME TAXES
The Company accounts for income taxes under the liability method, which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. If it is more likely than not that
some portion of a deferred tax asset will not be realized, a valuation allowance
is recorded.
WARRANTY
The Company offers product warranties of one to five years. Estimated
future warranty obligations related to certain products are provided by charges
to operations in the period in which the related revenue is recognized. These
estimates are based on historical warranty experience and other relevant
information of which the Company is aware. During the years ended December 28,
1997 and January 3, 1999 warranty expense was $298,000 and $4,333,000,
respectively. The Company did not record any warranty expense during the year
ended December 29, 1996.
F-9
<PAGE> 82
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
The following table sets forth the computation of the numerators and
denominators in the basic, diluted and pro forma net loss per share calculations
for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------------------- -------------------------
DECEMBER 29, DECEMBER 28, JANUARY 3, JUNE 28, JULY 4,
1996 1997 1999 1998 1999
------------ ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss................... $(17,652) $(13,759) $ (21,233) $ (3,930) $ (9,856)
Accretion of mandatorily
redeemable Convertible
preferred stock......... (41) (196) (191) (99) (98)
-------- -------- ----------- ----------- -----------
Net loss available to
common stockholders..... $(17,693) $(13,955) (21,424) $ (4,029) (9,954)
======== ======== ===========
Effect of pro forma
conversion of
securities:
Accretion of mandatorily
redeemable convertible
preferred stock......... 191 98
----------- -----------
Pro forma net loss
available to common
stockholders............ $ (21,233) $ (9,856)
=========== ===========
Denominator:
Weighted-average shares
outstanding............. 311,109 738,318 2,443,769 2,019,730 3,517,655
======== ======== ===========
Dilutive effect of pro forma
securities:
Preferred stock -- Series
A....................... 3,260,826 3,260,826
Preferred stock -- Series
B....................... 3,495,870 3,495,870
Preferred stock -- Series
C....................... 380,952 380,952
Preferred stock -- Series
D....................... 1,333,333 1,333,333
Preferred stock -- Series
E....................... 3,019,480 3,019,480
Preferred stock -- Series
F....................... 986,495 1,172,868
----------- -----------
Pro forma weighted average
shares outstanding
(unaudited)................ 14,920,725 16,180,984
=========== ===========
</TABLE>
STOCK OPTIONS
The Company's stock option plan is subject to the provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). Under the provisions of this statement, employee
stock-based compensation expense is measured using either the intrinsic-value
method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), or the fair value method described in
FAS 123. Companies choosing the intrinsic-value method are required to disclose
the pro forma impact of the fair value method on net income. The Company has
elected to continue accounting for its employee and director stock-based awards
under the provisions of APB 25. The Company is required to implement FAS 123 for
stock-based awards to other than employees and directors.
F-11
<PAGE> 83
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
The following table sets forth the computation of the numerators and
denominators in the basic, diluted and pro forma net loss per share calculations
for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------------------- -------------------------
DECEMBER 29, DECEMBER 28, JANUARY 3, JUNE 28, JULY 4,
1996 1997 1999 1998 1999
------------ ------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss................... $(17,652) $(13,759) $ (21,233) $ (3,930) $ (9,856)
Accretion of mandatorily
redeemable Convertible
preferred stock......... (41) (196) (191) (99) (98)
-------- -------- ----------- ----------- -----------
Net loss available to
common stockholders..... $(17,693) $(13,955) (21,424) $ (4,029) (9,954)
======== ======== ===========
Effect of pro forma
conversion of
securities:
Accretion of mandatorily
redeemable convertible
preferred stock......... 191 98
----------- -----------
Pro forma net loss
available to common
stockholders............ $ (21,233) $ (9,856)
=========== ===========
Denominator:
Weighted-average shares
outstanding............. 311,109 738,318 2,075,344 1,528,348 4,112,912
======== ======== ===========
Dilutive effect of pro forma
securities:
Preferred stock -- Series
A....................... 3,260,826 3,260,826
Preferred stock -- Series
B....................... 3,495,870 3,495,870
Preferred stock -- Series
C....................... 380,952 380,952
Preferred stock -- Series
D....................... 1,333,333 1,333,333
Preferred stock -- Series
E....................... 3,019,480 3,019,480
Preferred stock -- Series
F....................... 986,495 1,172,868
----------- -----------
Pro forma weighted average
shares outstanding
(unaudited)................ 14,552,300 16,776,241
=========== ===========
</TABLE>
STOCK OPTIONS
The Company's stock option plan is subject to the provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). Under the provisions of this statement, employee
stock-based compensation expense is measured using either the intrinsic-value
method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), or the fair value method described in
FAS 123. Companies choosing the intrinsic-value method are required to disclose
the pro forma impact of the fair value method on net income. The Company has
elected to continue accounting for its employee and director stock-based awards
under the provisions of APB 25. The Company is required to implement FAS 123 for
stock-based awards to other than employees and directors.
F-11
<PAGE> 84
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. Amounts in the
financial statements which are particularly susceptible to changes in estimates
include the allowance for doubtful accounts receivable and product warranty
costs.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This statement is effective
for the Company beginning January 4, 1999 and establishes accounting standards
for costs incurred in the acquisition or development and implementation of
computer software. These new standards require capitalization of certain
software implementation costs relating to software acquired or developed and
implemented for the Company's use. This statement is not expected to have a
significant effect on the Company's financial position or results of operations.
The Financial Accounting Standards Board (FASB) recently issued FAS No.
130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes standards
for reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity during a period
from non-owner sources. The Company adopted FAS 130 on December 29, 1997. To
date, the Company has not had any significant transactions that are required to
be reported as other comprehensive income other than its net (loss) income.
The FASB recently issued FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). FAS 131 supersedes FAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management approach." The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. FAS 131 also requires disclosures about products
and services, geographic areas and major customers. The Company adopted FAS 131
on January 3, 1999. The Company has determined that it does not have any
separately reportable business or geographic segments.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of July 4, 1999 and for the six months ended
June 28, 1998 and July 4, 1999 is unaudited; however, in the opinion of
management, the interim data includes all adjustments consisting only of normal
recurring adjustments necessary to present fairly the Company's financial
position as of July 4, 1999 and the results of its operations and cash flows for
the six months ended June 28, 1998 and July 4, 1999.
RECLASSIFICATIONS
Certain items in the December 29, 1996 and December 28, 1997 financial
statements have been reclassified to conform to the January 3, 1999
presentation.
F-12
<PAGE> 85
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
Company compared to a public company. The common stock was valued as the
residual of the total value of the Company less the value of all classes of
preferred stock outstanding.
The fair value of the Arcxel stock options assumed by the Company was
determined using the Black-Scholes model with the following weighted average
assumptions: exercise price of $0.45 per share, fair value of common stock of
$4.95 per share, expected life of 3.48 years, risk-free interest rate of 5.55%
and no volatility or dividend yield factors.
A summary of assets acquired and liabilities assumed at the date of the
acquisition, as determined in accordance with APB 16, is presented below (in
thousands):
<TABLE>
<S> <C>
Cash........................................................ $ 141
Accounts receivable......................................... 53
Inventory................................................... 216
Prepaid expenses and other current assets................... 63
Property and equipment...................................... 404
Acquired in-process technology.............................. 5,118
Goodwill and intangibles.................................... 9,198
Other assets................................................ 161
Accounts payable............................................ (170)
Accrued liabilities......................................... (87)
Capital leases.............................................. (256)
-------
$14,841
=======
</TABLE>
The acquired in-process technology of WDC and Arcxel had not yet reached
technological feasibility and had no alternative future use. The acquired
in-process technology was recorded as expense at the time of acquisitions. The
valuations of the acquired in-process technology was based upon estimates by the
Company and a valuation by a third-party appraiser. The valuation of the
in-process technology related to these acquisitions was determined by estimating
the future net cash flows resulting from products anticipated to result from
these acquisitions and discounting the net cash flows to the date of acquisition
using a discount rate of 25% for WDC and 35% for Arxcel. The discount rates used
to value the acquired in-process technologies are based on the inherent risk
surrounding the development of the acquired technologies. All projects acquired
from WDC resulted in commercialized products and represent a significant portion
of the Company's fiscal 1996, 1997 and 1998 revenues. Given that the valuations
of the acquired in-process technology were an estimate, actual results may
change. If the estimate of the in-process technology were to decrease, the value
assigned to goodwill and intangibles would increase. Included in intangibles are
developed technology (products), core technology and other intangible assets.
The results of operations of WDC and Arcxel are included in the financial
statements from the dates of acquisition. Unaudited pro forma results as if WDC
and Arcxel had been included in the financial results since the beginning of the
year prior to their acquisition are as follows (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
------------------------------------------
DECEMBER 29, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue......................................... $ 8,924 $ 22,783 $ 39,497
Net loss........................................ (18,052) (17,836) (21,875)
Basic and diluted net loss per share............ (58.16) (24.42) (9.03)
</TABLE>
F-14
<PAGE> 86
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
Company compared to a public company. The common stock was valued as the
residual of the total value of the Company less the value of all classes of
preferred stock outstanding.
The fair value of the Arcxel stock options assumed by the Company was
determined using the Black-Scholes model with the following weighted average
assumptions: exercise price of $0.45 per share, fair value of common stock of
$4.95 per share, expected life of 3.48 years, risk-free interest rate of 5.55%
and no volatility or dividend yield factors.
A summary of assets acquired and liabilities assumed at the date of the
acquisition, as determined in accordance with APB 16, is presented below (in
thousands):
<TABLE>
<S> <C>
Cash........................................................ $ 141
Accounts receivable......................................... 53
Inventory................................................... 216
Prepaid expenses and other current assets................... 63
Property and equipment...................................... 404
Acquired in-process technology.............................. 5,118
Goodwill and intangibles.................................... 9,198
Other assets................................................ 161
Accounts payable............................................ (170)
Accrued liabilities......................................... (87)
Capital leases.............................................. (256)
-------
$14,841
=======
</TABLE>
The acquired in-process technology of WDC and Arcxel had not yet reached
technological feasibility and had no alternative future use. The acquired
in-process technology was recorded as expense at the time of acquisitions. The
valuations of the acquired in-process technology was based upon estimates by the
Company and a valuation by a third-party appraiser. The valuation of the
in-process technology related to these acquisitions was determined by estimating
the future net cash flows resulting from products anticipated to result from
these acquisitions and discounting the net cash flows to the date of acquisition
using a discount rate of 25% for WDC and 35% for Arxcel. The discount rates used
to value the acquired in-process technologies are based on the inherent risk
surrounding the development of the acquired technologies. All projects acquired
from WDC resulted in commercialized products and represent a significant portion
of the Company's fiscal 1996, 1997 and 1998 revenues. Given that the valuations
of the acquired in-process technology were an estimate, actual results may
change. If the estimate of the in-process technology were to decrease, the value
assigned to goodwill and intangibles would increase. Included in intangibles are
developed technology (products), core technology and other intangible assets.
The results of operations of WDC and Arcxel are included in the financial
statements from the dates of acquisition. Unaudited pro forma results as if WDC
and Arcxel had been included in the financial results since the beginning of the
year prior to their acquisition are as follows (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
------------------------------------------
DECEMBER 29, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue......................................... $ 8,924 $ 22,783 $ 39,497
Net loss........................................ (18,052) (17,836) (21,875)
Basic and diluted net loss per share............ (58.16) (24.42) (10.63)
</TABLE>
F-14
<PAGE> 87
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
The unaudited pro forma results are not necessarily indicative of the
results of operations that would have been reported had the acquisitions
occurred prior to the beginning of the periods presented. In addition, they are
not intended to be indicative of future results.
3. SALE OF DIVISION
On February 13, 1998, the Company sold substantially all of the laser diode
fabrication facility and gigabit Ethernet transceiver product line of its
Colorado division for cash proceeds of $7,250,000 and the assumption of net
liabilities of the Colorado division. The Company recorded a gain of
approximately $9,061,000 related to the sale. In connection with the sale,
certain employees of the division elected to receive accelerated vesting of
their stock options. The Company recorded an expense of $163,000 related to this
accelerated vesting. The Company also recorded cash expenses of $385,000 in
connection with this sale. Revenue and net loss of the Colorado division were
$133,000 and $7,530,000, respectively, for the fiscal year ended December 28,
1997. For the period from December 29, 1997 through February 13, 1998, revenue
and net loss of the division were $120,000 and $1,047,000, respectively. These
amounts are included in the Company's statement of operations.
4. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3, JULY 4,
1997 1999 1999
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.................................... $ 301 $ 606 $ 300
Work in process.................................. 211 -- 9
Finished goods................................... 642 1,423 715
Less: Writedown to expected realizable value..... (293) (483) (343)
----- ------ -----
$ 861 $1,546 $ 681
===== ====== =====
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3, JULY 4,
1997 1999 1999
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Test equipment................................... $ 7,467 $ 5,034 $ 5,371
Furniture and office and computer equipment...... 2,669 3,414 3,842
Software......................................... 1,034 1,763 1,766
Leasehold improvements........................... 459 233 239
------- ------- -------
11,629 10,444 11,218
Less: Accumulated depreciation................... (4,060) (3,066) (3,974)
------- ------- -------
$ 7,569 $ 7,378 $ 7,244
======= ======= =======
</TABLE>
Assets underlying capital leases included above are $5,384,000, $7,408,000
and $8,086,000 (unaudited) at December 28, 1997, January 3, 1999 and July 4,
1999, respectively, and accumulated amortization thereon aggregates $800,000,
$2,038,000 and $2,676,000 (unaudited) at December 28, 1997, January 3, 1999 and
July 4, 1999, respectively.
F-15
<PAGE> 88
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
6. GOODWILL AND INTANGIBLES
Goodwill and intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3, JULY 4,
1997 1999 1999
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill......................................... $ 946 $ 4,917 $ 4,917
Developed technology............................. 681 3,344 3,344
Core technology.................................. -- 2,183 2,183
Covenants not to compete......................... 166 166 166
Workforce........................................ -- 381 381
------ ------- -------
1,793 10,991 10,991
Less: Accumulated amortization................... (786) (3,156) (4,108)
Less: Impairment write-down...................... -- (2,256) (2,256)
------ ------- -------
$1,007 $ 5,579 $ 4,627
====== ======= =======
</TABLE>
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3, JULY 4,
1997 1999 1999
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued warranty costs........................... $ 306 $4,390 $3,887
Accrued payroll and related benefits............. 819 1,152 1,404
Accrued business taxes........................... 115 301 689
Accrued interest................................. 121 334 354
Accrued professional fees........................ 300 272 138
Accrued legal costs.............................. 153 600 600
Other............................................ 542 806 846
------ ------ ------
$2,356 $7,855 $7,918
====== ====== ======
</TABLE>
8. LINE OF CREDIT AND NOTE PAYABLE
In October 1998, the Company renewed its $5,000,000 line of credit facility
with a bank which matures on September 30, 1999 and bears interest at LIBOR
(5.108% at January 3, 1999) plus 4.75%. The outstanding principal balance cannot
exceed 80% of the Company's eligible accounts receivable. At January 3, 1999, no
borrowings were outstanding under this facility.
Concurrent with the renewal of the line of credit facility, the Company
entered into a $7,500,000 note payable to the bank due September 30, 1999. The
note bears interest at LIBOR (5.108% at January 3, 1999) plus 4.75% and is
collateralized by inventory, equipment, receivables, intangibles and deposit
accounts of the Company.
The Company increased its line of credit facility to $7,500,000 and on June
22, 1999 extended both the line of credit and the $7,500,000 note payable to
September 30, 2000.
F-16
<PAGE> 89
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
9. LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt and capital leases consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3,
1997 1999
------------ ----------
<S> <C> <C>
Note payable, interest rate of 8.69%, due the earlier of
March 31, 2000 or the occurrence of certain corporate
events; collateralized by certain assets acquired from
Western Digital Corporation............................... $ 1,649 $ 1,649
Note payable, interest rate of 9.86%, due September 30,
2000; net of unamortized discount of $172,000............. -- 7,328
Note payable, interest rate of 8.09%, monthly payments of
$60,000 through September 1999; net of unamortized
discount of $74,000; collateralized by certain
manufacturing and research and development equipment...... 1,233 --
Capital lease obligations, net of unamortized discount of
$106,000 and $34,000, respectively........................ 4,829 5,443
------- -------
7,711 14,420
Less: Current portion....................................... (3,457) (1,564)
------- -------
$ 4,254 $12,856
======= =======
</TABLE>
On February 17, 1998, the 8.09% note payable was assumed by the purchaser
of the Colorado division.
Maturities of long-term debt and capital leases at January 3, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
<S> <C>
1999......................................... $ 1,564
2000......................................... 10,901
2001......................................... 1,576
2002......................................... 585
-------
14,626
Less: Unamortized discount................... (206)
-------
$14,420
=======
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has commitments under long-term operating leases, principally
for building space and office equipment. These leases require payment of
property taxes and include escalation clauses and options to extend the lease
terms for three to five years. The following table summarizes the future
F-17
<PAGE> 90
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
minimum lease payments under all noncancelable operating lease obligations at
January 3, 1999 (in thousands).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
<S> <C>
1999.............................................. $ 632
2000.............................................. 639
2001.............................................. 658
2002.............................................. 220
------
$2,149
======
</TABLE>
Total rent expense was approximately $446,000, $897,000 and $1,235,000
during the fiscal years ended December 29, 1996, December 28, 1997 and January
3, 1999, respectively, and $615,000 and $591,000 (unaudited) during the six
months ended June 28, 1998 and July 4, 1999, respectively.
CAPITAL LEASES
The Company also leases certain equipment under capital lease agreements.
Future minimum lease payments under capital leases at January 3, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
<S> <C>
1999............................................. $ 2,224
2000............................................. 2,191
2001............................................. 1,766
2002............................................. 612
-------
Total minimum lease payments..................... 6,793
Less: Portion representing interest.............. (1,316)
Less: Unamortized discount....................... (34)
-------
Present value of capital lease obligations....... 5,443
Less: Current portion............................ (1,564)
-------
Capital leases, net of current portion........... $ 3,879
=======
</TABLE>
LEGAL PROCEEDINGS
During the fiscal year ended December 28, 1997, the Company was named as
the defendant in two patent infringement actions and was conducting the defense
of another patent infringement action brought against one of its contract
manufacturers, for which the Company was an indemnitor. Two of the patent
infringement actions, including the action brought against the contract
manufacturer, were dismissed without prejudice during the fiscal year ended
January 3, 1999. During the fiscal year ended January 3, 1999, the Company was
named as defendant in another patent infringement action filed by the plaintiff
in the remaining action.
In May 1999, the Company entered into a settlement agreement with the
plaintiff in these remaining patent infringement actions. Under the settlement
agreement, the Company is obligated to make certain future payments which have
been included in accrued liabilities and long-term liabilities at January 3,
1999.
F-18
<PAGE> 91
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
11. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company's Series E convertible preferred stock includes a provision
whereby, beginning in October 2001, holders of a majority of such stock have the
right to require the Company to repurchase the shares at a redemption price of
$4.50 per share plus any declared and unpaid dividends. The Company shall redeem
up to one-third of the Series E stock outstanding in October 2001, up to an
additional one-third in October 2002 and up to the remaining one-third in
October 2003.
The following is a summary of the number of shares, redemption price and
earliest redemption dates:
<TABLE>
<CAPTION>
EARLIEST
REDEMPTION REDEMPTION
SHARES PRICE DATE
------ ---------- ------------
<S> <C> <C>
1,509,741......................... $ 6,794 October 2001
1,509,740......................... 6,794 October 2002
1,509,740......................... 6,794 October 2003
-------
$20,382
=======
</TABLE>
The redemption value of the mandatorily redeemable convertible preferred
stock is being accreted over the period from issuance to the applicable earliest
redemption date using the effective interest method.
The Series E preferred stock is convertible, on a one-for-one basis, into
common stock at any time at the option of the holders. In the event of a
liquidation of the Company, the holders of Series E preferred stock will be
entitled to be paid out of the assets, prior and in preference to any payment of
Series A, Series B, Series C, Series D and Series F convertible preferred stock
(Note 12). The payment shall be an amount per share equal to the sum of $4.50
for each outstanding share of Series E preferred stock plus an amount per share
equal to all declared but unpaid dividends on each such share.
12. STOCKHOLDERS' EQUITY
STOCK SPLIT
On August 12, 1999, the Company's Board of Directors declared a
two-for-three reverse stock split of the Company's common stock which was
effective on August 27, 1999. All common share and per share amounts have been
restated to reflect this stock split.
F-19
<PAGE> 92
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
CONVERTIBLE PREFERRED STOCK
Convertible Preferred Stock consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28, JANUARY 3, JULY 4,
1996 1997 1999 1999
------------ ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Series A, $.001 par value, $1.25 liquidation
value; 5,785,573 shares authorized, 4,891,239
shares issued and outstanding................... $ 4 $ 4 $ 4 $ 4
Series B, $.001 par value, $1.75 liquidation
value; 5,243,806 shares authorized, issued and
outstanding..................................... 5 5 5 5
Series C, $.001 par value, $1.75 liquidation
value; 747,143 shares authorized, 571,429 shares
issued and outstanding.......................... 1 1 1 1
Series D, $.001 par value, $4.00 liquidation
value; 2,000,000 shares authorized, issued and
outstanding..................................... 2 2 2 2
Series F, $.001 par value, $4.00 liquidation
value; 1,760,000 shares authorized, 1,759,303
shares issued and outstanding................... 2 2
--- --- --- ---
$12 $12 $14 $14
=== === === ===
</TABLE>
Shares of Convertible Preferred Stock have dividend rights, voting rights
and liquidation preferences, and are convertible, on a two-for-three basis, into
common stock at any time at the option of the holders. The holders of
Convertible Preferred Stock are entitled to receive cash dividends when and if
declared by the Company's Board of Directors. There have been no declared but
unpaid dividends to date.
The holders of the Series A and Series B preferred stock, each voting
separately as a class, are entitled to elect two members of the Board of
Directors of the Company, and the holders of the Series D and Series F preferred
stock, each voting separately as a class, are entitled to elect one member of
the Board of Directors of the Company. Additional members of the Board of
Directors, if any, will be elected by the holders of shares of common stock,
Series E convertible preferred stock and Convertible Preferred Stock, voting
together as a single class.
Upon liquidation, the preferred shareholders are entitled to distributions
in order of their liquidation preferences. The holders of the Convertible
Preferred Stock will be entitled to be paid out of the assets of the Company an
amount per share equal to the sum of the per share liquidation amounts shown
above plus an amount equal to all declared but unpaid dividends on each
outstanding share. The Series A, Series B, Series C, Series D, and Series F
preferred stock will rank on a parity as to the receipt of the respective
preferential amounts for each such series.
STOCK OPTIONS
The Company has a stock option plan which provides for the grant of
incentive and non-qualified stock options to directors, employees and
consultants to purchase common stock of the Company. At January 3, 1999,
5,133,332 shares of common stock have been reserved for issuance to plan
participants and 397,420 shares remained reserved and available for grant under
the Plan. In April 1999, an additional 1,000,002 shares were reserved for
issuance under the plan to plan participants.
Incentive stock options are granted at an exercise price not less than the
fair market value of the common stock on the date of grant, as determined by the
Board of Directors. Incentive stock options and
F-20
<PAGE> 93
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
The following summarizes information about stock options outstanding and
exercisable at January 3, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.11 - $0.30.. 453,808 8.19 $0.17 201,995 $0.20
$0.45 - $0.98.. 692,889 8.44 $0.74 203,812 $0.75
$3.08 - $4.35.. 1,477,294 9.57 $3.21 232,409 $3.42
$4.59 - $6.75.. 240,064 9.08 $4.77 7,731 $6.75
--------- -------
2,864,055 645,947
========= =======
</TABLE>
During the fiscal years ended December 28, 1997 and January 3, 1999, the
Company recorded $39,000 and $52,000, respectively, of compensation expense
related to the issuance of stock options for services provided by consultants.
The value of these stock options was recorded using the Black-Scholes valuation
model. The Company did not issue any stock options to consultants during the
fiscal year ended December 29, 1996.
Had the Company determined compensation expense based on the fair value of
the option at the grant date for all stock options issued to employees, the
Company's net loss and net loss per share would have been increased to the pro
forma amounts indicated below (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 29, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ ------------ ----------
<S> <C> <C> <C>
Net loss
As reported........................... $(17,652) $(13,759) $(21,233)
Pro forma............................. (17,690) (13,837) (21,487)
Basic and diluted net loss per share
As reported........................... (56.87) (18.90) (8.77)
Pro forma............................. (56.99) (19.01) (8.87)
</TABLE>
In accordance with the guidance provided under FAS 123, fair values are
based on minimum values. The fair value of each employee option grant is
estimated on the date of grant using the minimum value option-pricing model
using the following weighted-average assumptions.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------
DECEMBER 29, DECEMBER 28 JANUARY 3,
1996 1997 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Expected term...................... 5 years 5 years 5 years
Risk-free interest rate............ 6.07% - 7.76% 5.71% - 6.75% 4.22% - 5.64%
Dividend yield..................... 0% 0% 0%
Volatility......................... 0% 0% 0%
</TABLE>
Pro forma net loss amounts reported above reflect only options granted in
1995 through 1998. The full impact of calculating compensation expense for stock
options based on fair value at the grant date is not reflected in the pro forma
net loss amounts because compensation expense is reflected over the options'
vesting period. In addition, because the determination of the fair value of all
options granted after such time as the Company may become a public entity will
include an expected volatility factor in addition to the factors described
above, the above results may not be representative of future periods.
F-22
<PAGE> 94
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
The following summarizes information about stock options outstanding and
exercisable at January 3, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.11 - $0.30.. 453,808 8.19 $0.17 201,995 $0.20
$0.45 - $0.98.. 692,889 8.44 $0.74 203,812 $0.75
$3.08 - $4.35.. 1,477,294 9.57 $3.21 232,409 $3.42
$4.59 - $6.75.. 240,064 9.08 $4.77 7,731 $6.75
--------- -------
2,864,055 645,947
========= =======
</TABLE>
During the fiscal years ended December 28, 1997 and January 3, 1999, the
Company recorded $39,000 and $52,000, respectively, of compensation expense
related to the issuance of stock options for services provided by consultants.
The value of these stock options was recorded using the Black-Scholes valuation
model. The Company did not issue any stock options to consultants during the
fiscal year ended December 29, 1996.
Had the Company determined compensation expense based on the fair value of
the option at the grant date for all stock options issued to employees, the
Company's net loss and net loss per share would have been increased to the pro
forma amounts indicated below (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 29, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ ------------ ----------
<S> <C> <C> <C>
Net loss
As reported........................... $(17,652) $(13,759) $(21,233)
Pro forma............................. (17,690) (13,837) (21,487)
Basic and diluted net loss per share
As reported........................... (56.87) (18.90) (10.32)
Pro forma............................. (56.99) (19.01) (10.45)
</TABLE>
In accordance with the guidance provided under FAS 123, fair values are
based on minimum values. The fair value of each employee option grant is
estimated on the date of grant using the minimum value option-pricing model
using the following weighted-average assumptions.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------
DECEMBER 29, DECEMBER 28 JANUARY 3,
1996 1997 1999
-------------- -------------- --------------
<S> <C> <C> <C>
Expected term...................... 5 years 5 years 5 years
Risk-free interest rate............ 6.07% - 7.76% 5.71% - 6.75% 4.22% - 5.64%
Dividend yield..................... 0% 0% 0%
Volatility......................... 0% 0% 0%
</TABLE>
Pro forma net loss amounts reported above reflect only options granted in
1995 through 1998. The full impact of calculating compensation expense for stock
options based on fair value at the grant date is not reflected in the pro forma
net loss amounts because compensation expense is reflected over the options'
vesting period. In addition, because the determination of the fair value of all
options granted after such time as the Company may become a public entity will
include an expected volatility factor in addition to the factors described
above, the above results may not be representative of future periods.
F-22
<PAGE> 95
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
The December 14, 1998 option-repricing event is considered a modification
of an existing option. For determination of the pro forma amounts, this
modification is treated as if a new option had been issued and any additional
incremental value recorded in the year of repricing is immediately recognized
for unvested options and amortized over the remaining vesting period for
nonvested options.
STOCK WARRANTS
All stock warrants have been valued using the Black-Scholes valuation
model.
In conjunction with the Series B preferred stock offering, the Company
issued warrants to purchase 654,333 shares of Series A preferred stock. The
warrants have an exercise price of $1.25 per share and expire on October 6,
2000. In conjunction with the Series E preferred stock offering in October 1996,
the Company issued warrants to purchase 69,261 shares of Series E preferred
stock. The warrants have an exercise price of $5.63 per share and expire on
October 16, 2001. As of January 3, 1999, the Company also had outstanding a
warrant to purchase 240,000 shares of Series A preferred stock at an exercise
price of $1.25 per share which expires on July 6, 2000.
During January and February 1996, the Company issued warrants to purchase
175,714 shares of Series C preferred stock at an exercise price of $3.50 per
share and terms ranging from eight to ten years. These warrants were issued in
conjunction with the Company's 8.09% note payable and a capital lease obligation
described in Note 9. These warrants were recorded at their fair value of
$319,000, which was recorded as an original issue discount and is being
amortized over the term of the note payable and a capital lease obligation. The
8.09% note and related debt discount was transferred to the acquirer of the
Colorado division (see Note 3).
During May 1997, the Company issued warrants to purchase 25,000 shares of
Series E preferred stock with an exercise price of $5.62 per share. These
warrants are exercisable through the earlier of (i) May 31, 2002, (ii) the
one-year anniversary of the effective date of an initial public offering of the
Company's common stock or (iii) the effective date of a merger of the Company or
sale of substantially all of the Company's assets. These warrants were issued in
conjunction with obtaining a capital lease line. The warrants were recorded at
their fair value of $89,000, which was recorded as a debt issue cost and is
being amortized over the terms of the lease line.
During December 1998, the Company issued warrants to purchase shares of
Series E preferred stock with a value of $137,500 at an exercise price equal to
the lesser of i) $10 per share or ii) the greater of $7.50 or the average of
$4.50 per share and the share value of the next round of financing. These
warrants are exercisable at any time after issuance for a period of five years.
These warrants were issued in conjunction with obtaining a capital lease line.
The warrants were recorded at their fair value of $48,766, which was recorded as
a debt issue cost and is being amortized over the term of the lease line. An
additional 100,000 shares of Series E preferred stock were also issued in
November 1998, in conjunction with obtaining a term loan as described in Note 9.
These warrants have an exercise price of $10 per share and are exercisable
through November 23, 2003. The warrants have been recorded at their fair value
of $230,000 as an original issue discount which is being amortized over the life
of the term loan.
13. INCOME TAXES
At January 3, 1999, the Company has net operating loss carryforwards of
approximately $31,100,000 which may be used to offset future taxable income.
These carryforwards expire beginning in 2010. The Internal Revenue Code places
certain limitations on the annual amount of net operating loss carryforwards
that can be utilized if certain changes in the Company's ownership occur. The
Company believes that, pursuant to Section 382 of the Internal Revenue Code,
there was a change in ownership of the Company
F-23
<PAGE> 96
VIXEL CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 29, 1996, DECEMBER 28, 1997 AND JANUARY 3, 1999
in 1995 and that a substantial portion of the net operating loss carryforwards
generated in or prior to 1995 (approximately $2,700,000) are significantly
limited and potentially unusable. Future changes in the Company's ownership may
further limit the use of such carryforward benefits.
A reconciliation of taxes on net loss at the federal statutory rate to
actual tax expense is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 29, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ ------------ ----------
<S> <C> <C> <C>
Tax at statutory rate........................... $(6,002) $(4,678) $(7,219)
Non deductible items............................ 15 57 2,236
Effect of state taxes........................... (618) (688) (734)
Change in tax credits........................... (243) (50) (990)
Change in valuation allowance................... 7,006 5,466 6,718
Other........................................... (158) (107) (11)
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
The Company's net deferred tax assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3,
1997 1999
------------ ----------
<S> <C> <C>
Net operating loss carryforwards............................ $ 9,600 $ 12,144
Goodwill and intangibles.................................... 3,176 2,263
Credit carryforwards........................................ 350 1,340
Accrued warranty costs...................................... 119 1,712
Other accruals.............................................. 222 1,213
Other....................................................... 84 508
-------- --------
Gross deferred tax assets................................... 13,551 19,180
Less: Valuation allowance................................... (13,551) (19,180)
-------- --------
Net deferred tax asset...................................... $ -- $ --
======== ========
</TABLE>
The Company has recorded a valuation allowance equal to the gross deferred
tax asset balance because the Company's accumulated deficit, history of
recurring net losses and possible limitations on the use of carryforwards give
rise to uncertainty as to whether the deferred tax assets are realizable.
14. RETIREMENT SAVINGS PLAN
The Company sponsors a retirement savings plan that qualifies under
Internal Revenue Code Section 401(k). The plan covers all qualified employees.
The Company matches a percentage of an employee's contribution as determined by
the Board of Directors. The Company contributed $252 and $398 to the plan in
fiscal years 1997 and 1998, respectively. The Company did not make contributions
to the plan in fiscal year 1996.
F-24
<PAGE> 97
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Vixel Corporation
In our opinion, based upon our audit and the report of other auditors, the
accompanying balance sheet and the related statements of operations, of changes
in stockholders' equity (deficit) and of cash flows present fairly, in all
material respects, the financial position of Arcxel Technologies, Inc. (the
Company), a development stage enterprise, at December 31, 1997, and the results
of its operations and its cash flows for the year then ended and for the period
from inception (June 18, 1996) through December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We did not audit the
financial statements for the period from inception (June 18, 1996) through
December 31, 1996, which statements reflect 14% of the cumulative net loss and
12%, 31% and 38% of the cumulative net cash flows from operating, investing and
financing activities, respectively, from inception (June 18, 1996) through
December 31, 1997. These statements were audited by other auditors whose report
thereon has been furnished to us, and our opinion, insofar as it relates to the
amounts for the period from inception (June 18, 1996) through December 31, 1996
is based solely on the report of the other auditors. We conducted our audit of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit and the report of
other auditors provide a reasonable basis for the opinion expressed above.
As described in Note 9, on February 12, 1998 the stockholders approved and
authorized the acquisition of the Company by Vixel Corporation. The acquisition
was effective on February 17, 1998.
PricewaterhouseCoopers LLP
Seattle, Washington
April 24, 1998, except for paragraph 1
of Note 9 which is as of
August 27, 1999
F-25
<PAGE> 98
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Arcxel Technologies, Inc.:
We have audited the accompanying balance sheet of Arcxel Technologies, Inc.
(a development stage enterprise) as of December 31, 1996 and the related
statements of operations, stockholders' equity and cash flows for the period
from June 18, 1996 (inception) through December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Arcxel Technologies, Inc. as
of December 31, 1996, and the results of its operations and its cash flows for
the period from June 18, 1996 (inception) through December 31, 1996 in
conformity with generally accepted accounting principles.
KPMG LLP
Orange County, California
May 1, 1997
F-26
<PAGE> 99
ARCXEL TECHNOLOGIES, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------ -------
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 789 $ 582
Inventories, net.......................................... -- 166
Prepaid expenses.......................................... 5 101
------ -------
Total current assets.............................. 794 849
Property and equipment, net of accumulated depreciation... 53 366
Other assets.............................................. 3 161
------ -------
Total assets...................................... $ 850 $ 1,376
------ -------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable.......................................... $ 12 $ 175
Accrued payroll and related benefits...................... 32 118
Other accrued liabilities................................. -- 16
Convertible notes payable to shareholder.................. -- 1,000
Current portion of capital lease obligations.............. -- 162
------ -------
Total current liabilities......................... 44 1,471
Long-term capital lease obligations......................... 55
------ -------
Total liabilities................................. 44 1,526
------ -------
Shareholders' equity (deficit)
Series A convertible preferred stock, $.01 par value;
authorized 5,000,000 shares; issued and outstanding
1,111,000 and 2,020,000 shares, respectively;
liquidation value $1.00 per share...................... 11 20
Common stock, $.01 par value; authorized 10,000,000
shares; issued and outstanding 1,170,000 and 1,495,000
shares, respectively................................... 1 4
Additional paid-in capital................................ 1,105 2,020
Deficit accumulated during the development stage.......... (311) (2,194)
------ -------
Total shareholders' equity (deficit).............. 806 (150)
Commitments and contingencies (Note 8)......................
Total liabilities and shareholders' equity
(deficit)........................................ $ 850 $ 1,376
====== =======
</TABLE>
See accompanying notes to the financial statements.
F-27
<PAGE> 100
ARCXEL TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INCEPTION INCEPTION
(JUNE 18, 1996) YEAR ENDED (JUNE 18, 1996)
TO DECEMBER 31, DECEMBER 31 TO DECEMBER 31,
1996 1997 1997
--------------- ----------- ---------------
<S> <C> <C> <C>
Operating expense
Research and development........................ $ 204 $ 1,225 $ 1,429
General and administrative...................... 130 415 545
Sales and marketing............................. -- 255 255
---------- ---------- ----------
Total operating expenses................ 334 1,895 2,229
---------- ---------- ----------
Other (income) expense
Interest income................................. (23) (35) (58)
Interest expense................................ -- 26 26
Other........................................... -- (3) (3)
---------- ---------- ----------
(23) (12) (35)
---------- ---------- ----------
Net loss.......................................... $ (311) $ (1,883) $ (2,194)
========== ========== ==========
Basic and diluted net loss per share.............. $ (0.27) $ (1.49) $ (1.80)
========== ========== ==========
Weighted-average shares outstanding............... 1,134,184 1,264,384 1,218,895
========== ========== ==========
</TABLE>
See accompanying notes to the financial statements.
F-28
<PAGE> 101
ARCXEL TECHNOLOGIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEFICIT
SERIES A ACCUMULATED TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE SHAREHOLDERS
------------------ ------------------ PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE (DEFICIT)
--------- ------ --------- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at inception, June 18, 1996..... -- $-- -- $-- $ -- $ -- $ --
Issuance of common stock for contributed
technology............................ -- -- 1,050,000 -- -- -- --
Issuance of common stock for cash....... -- -- 120,000 1 5 -- 6
Issuance of Series A convertible
preferred stock for cash.............. 1,111,000 11 -- -- 1,100 -- 1,111
Net loss................................ -- -- -- -- -- (311) (311)
--------- --- --------- --- ------ ------- -------
Balance at December 31, 1996............ 1,111,000 11 1,170,000 1 1,105 (311) 806
Issuance of Series A convertible
preferred stock for cash.............. 909,000 9 -- -- 900 -- 909
Exercise of stock options............... -- -- 325,000 3 15 -- 18
Net loss................................ -- -- -- -- -- (1,883) (1,883)
--------- --- --------- --- ------ ------- -------
Balance at December 31, 1997............ 2,020,000 $20 1,495,000 $ 4 $2,020 $(2,194) $ (150)
========= === ========= === ====== ======= =======
</TABLE>
See accompanying notes to the financial statements.
F-29
<PAGE> 102
ARCXEL TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION INCEPTION
(JUNE 18, 1996) YEAR ENDED (JUNE 18, 1996)
TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1996 1997 1997
--------------- ------------ ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss........................................ $ (311) $(1,882) $(2,193)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation................................. 9 148 157
Change in assets and liabilities:
Inventories................................ -- (166) (166)
Prepaid expenses........................... (5) (96) (101)
Other assets............................... (3) (159) (162)
Accounts payable........................... 12 163 175
Accrued payroll and related benefits....... 32 86 118
Other accrued liabilities.................. -- 16 16
------ ------- -------
Net cash used in operating activities...... (266) (1,890) (2,156)
------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment............. (62) (137) (199)
------ ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible preferred
stock........................................ 1,111 909 2,020
Proceeds from issuance of common stock.......... 6 18 24
Proceeds from issuance of convertible notes
payable to shareholder....................... -- 1,000 1,000
Principal payments of capital lease
obligations.................................. -- (107) (107)
------ ------- -------
Net cash provided by financing activities......... 1,117 1,820 2,937
------ ------- -------
Net increase (decrease) in cash and cash
equivalents..................................... 789 (207) 582
Cash and cash equivalents, beginning of period.... -- 789
------ ------- -------
Cash and cash equivalents end of period........... $ 789 $ 582 $ 582
====== ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Purchase of property and equipment under capital
lease obligations............................... $ -- $ 324 $ 324
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest........................................ $ -- $ 21 $ 21
Income taxes.................................... $ -- $ -- $ --
</TABLE>
See accompanying notes to the financial statements.
F-30
<PAGE> 103
ARCXEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Arcxel Technologies, Inc. (the Company) was formed on June 18, 1996 for the
purpose of developing and distributing fibre channel switches. During the period
from June 18, 1996 (inception) through December 31, 1997, the Company devoted
most of its efforts to activities such as financial planning, research and
development, acquiring property and equipment, and beginning production. At
December 31, 1997, the Company is a development stage enterprise, as it has not
yet generated revenue from its principal operations.
CASH AND CASH EQUIVALENTS
Cash equivalents are highly liquid investments readily convertible into
known amounts of cash and have original maturities of three months or less. The
Company maintains its cash accounts with two financial institutions that are
insured by the Federal Deposit Insurance Corporation up to $100,000.
The Company has cash equivalents potentially subject the Company to
concentrations of credit risk. The company has a cash investment policy which
restricts investments to ensure preservation of principal and maintenance of
liquidity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts payable, accrued liabilities, convertible notes payable to shareholder
and capital lease obligations. Except for capital lease obligations, the
carrying amounts of financial instruments approximate fair value due to their
short maturities. The fair value of capital lease obligations at December 31,
1997 is not materially different from the carrying amount, based on interest
rates available to the Company for similar types of arrangements.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being
determined by the first-in, first-out cost flow assumption.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets which
range from two to four years. The cost of additions is capitalized while
maintenance and repairs are expensed as incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically evaluates the carrying value of long-lived assets
to be held and used, including but not limited to, property and equipment, when
events and circumstances warrant such a review. The carrying value of a
long-lived asset is considered impaired when the anticipated undiscounted cash
flow from such asset is separately identifiable and is less than its carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair value of the long-lived asset. Fair value is
determined primarily using the anticipated cash flows discounted at a rate
commensurate with the risk involved. Losses on long-lived assets to be disposed
of are determined in a similar manner, except that fair values are reduced by
the cost to dispose. No losses from impairment have been recognized in the
financial statements.
F-31
<PAGE> 104
ARCXEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
INCOME TAXES
The Company provides for income taxes under the principles of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires that provision be made for taxes currently due and for the expected
future tax effects of temporary differences between the book and tax bases of
assets and liabilities.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
STOCK COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation". SFAS 123 permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS 123 allows entities to continue to apply the
provisions of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees", and provide pro forma net loss disclosures for
employee stock option grants as if the fair-value-based method defined by SFAS
123 had been applied. The Company has elected to continue to apply the
provisions of APB 25. The provisions of SFAS 123 do not have a material impact
on the Company's financial statements (Note 7).
NET LOSS PER SHARE
Basic net loss per share represents net loss available to common
shareholders divided by the weighted-average number of shares outstanding during
the period. Diluted loss per share represents net loss available to common
shareholders divided by the weighted-average number of shares outstanding
including the potentially dilutive impact of common stock options, convertible
notes payable and convertible preferred stock. Common stock options are
converted using the treasury stock method. Convertible notes payable and
convertible preferred stock are converted using the if-converted method. Basic
and diluted net loss per share are equal for the periods presented because the
impact of common stock equivalents is anti-dilutive. Potentially dilutive
securities totaling 2,506,000 and 3,902,809 shares at December 31, 1996 and
1997, respectively, were excluded from diluted net loss per share due to their
anti-dilutive effect.
ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the periods. Actual results could differ from
those estimates.
F-32
<PAGE> 105
ARCXEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
2. INVENTORIES
Inventories consist of the following at December 31, 1997 (in thousands):
<TABLE>
<S> <C>
Raw materials......................................... $119
Work in process....................................... 23
Finished goods........................................ 48
----
190
Less: Inventory allowance............................. (24)
----
$166
----
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
----- ------
(IN THOUSANDS)
<S> <C> <C>
Computer software and equipment.............. $52 $ 484
Furniture and fixtures....................... 10 39
--- -----
62 523
Accumulated depreciation..................... (9) (157)
--- -----
$53 $ 366
--- -----
</TABLE>
4. CONVERTIBLE NOTES PAYABLE TO SHAREHOLDER
In both November and December 1997, the Company issued $500,000 of 8%
convertible notes payable to a shareholder (the Notes) due June 30, 1998 for a
total of $1,000,000. The Notes are automatically converted into preferred stock
upon (i) closing of the sale at least $3,000,000 of shares of preferred stock
(Preferred Stock Offering) or (ii) closing of a merger with Vixel Corporation.
The conversion price of an automatic conversion is equal to the lower of the
selling price of the Preferred Stock Offering or $3.6126 principal and accrued
interest amount at the Company's option, per share. The Notes are convertible
into Series A preferred stock at the option of the holder upon (i) receiving
notice from the Company of its intent to prepay any outstanding principal of the
Notes; (ii) receiving notice of the Company's intention to merge with a company
other than Vixel Corporation, liquidate or otherwise change the organization of
the Company as it currently exists; or (iii) receiving less than full repayment
of the Notes' principal and accrued interest as of June 30, 1998. The conversion
price of a voluntary conversion is $3.6126 principal and accrued interest amount
per share.
5. SHAREHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
On June 18, 1996, the Company authorized 10,000,000 shares of $.01 par
value common stock. On June 24, 1996, the Company issued 120,000 shares of
common stock for cash to two shareholders at $.05 per share and 1,050,000 shares
of common stock to two officers for their contribution of technology to the
Company. The technology contributed by the shareholders had minimal basis for
financial statement purposes and therefore the shares issued for this
contributed technology were assigned no value.
F-33
<PAGE> 106
ARCXEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
In September 1997, the Company issued 325,000 shares of common stock to an
employee who exercised stock options with an exercise price of $0.055 per share.
PREFERRED STOCK
On June 18, 1996, the Company authorized 5,000,000 shares of convertible
preferred stock with a par value of $.01 per share, 2,020,000 shares of which
are designated Series A preferred stock.
On June 25, 1996 and March 24, 1997, the Company issued 1,111,000 and
909,000 shares, respectively, of $1.00 Series A convertible preferred stock to a
venture capital firm and one private investor, respectively. The preferred stock
has liquidation preferences over common stock and the holders of outstanding
shares of preferred stock are entitled to receive one noncumulative dividend at
a rate of $.10 per share when and if declared by the Board of Directors. Each
share of preferred stock can be converted, at the option of the holder, into one
share of common stock. Each share of preferred stock shall automatically be
converted into shares of common stock upon (i) the closing of a firmly
underwritten public offering, provided that the price per share is not less than
$5.00 and the aggregate gross proceeds to the Company are not less than
$7,500,000 or (ii) upon the election of the holders of a majority of the shares
of preferred stock then outstanding. Holders of preferred stock are entitled to
one vote for each share held and on all matters which the common stockholders
are entitled to vote.
6. INCOME TAXES
A current provision for income taxes has not been recorded for the periods
from June 18, 1996 (inception) through December 31, 1996 and the year ended
December 31, 1997 due to taxable losses incurred during such periods. A
valuation allowance has been recorded for deferred tax assets because
realization is primarily dependent on generating sufficient taxable income prior
to expiration of net operating loss carry-forwards.
A reconciliation of taxes on income at the Federal Statutory rate to actual
tax expense is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
----- -----
(IN THOUSANDS)
<S> <C> <C>
Tax at statutory rate....................... $(106) $(640)
State taxes................................. (20) (89)
Non-deductible items........................ 1 2
Tax credits................................. -- (56)
Change in valuation allowance............... 125 783
----- -----
$ -- $ --
----- -----
</TABLE>
F-34
<PAGE> 107
ARCXEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
Deferred tax assets (liabilities) are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
----- -----
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carry-forward............ $ 136 $ 805
Research and development credit
carry-forward............................. 56
Depreciation and amortization............... 8 20
Accrued employee benefits................... 4 16
Other....................................... (3) 11
Gross deferred tax assets................. 145 908
Less: Valuation allowance................... (145) (908)
----- -----
$ -- $ --
----- -----
</TABLE>
At December 31, 1997, the Company has net operating loss carry-forwards for
federal and state income tax reporting purposes of $2,065,000. These net
operating losses will expire beginning in 2011 and 2004, respectively, if not
previously utilized. In certain circumstances, as specified in the Internal
Revenue Code, a 50% or more ownership change by certain combinations of the
Company's shareholders during any three-year period would result in limitations
on the Company's ability to utilize net operating loss carry-forwards. The
Company has determined that such a change occurred in February 1998 (Note 9) and
the utilization of loss carry forwards generated through that period will be
limited.
7. STOCK OPTION PLAN
In June 1996, the Company adopted a stock option plan (the Plan) pursuant
to which the Company's Board of Directors may grant stock options to officers
and key employees. Options to purchase up to 2,330,000 shares of authorized but
unissued common stock are authorized under the Plan. Stock options have up to
ten-year terms and vest and become fully exercisable between two to four years
from the date of grant. Stock options granted to officers and key employees
during the periods from June 18, 1996 (inception) through December 31, 1996 and
the year ended December 31, 1997 were granted at no less than their estimated
fair value as determined by the Company's Board of Directors. Accordingly, no
compensation expense has been recorded under APB 25. If stock option grants in
1996 and 1997 had been recorded using the fair value method defined in SFAS 123,
pro forma net loss for both periods would not have been materially different
from the net loss as reported.
The following summarizes stock option activity from June 18, 1996
(inception) through December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Granted............................. 1,395,000 $0.05
Outstanding at December 31, 1996.... 1,395,000 $0.05
Granted............................. 536,000 $0.42
Exercised........................... (325,000) $0.06
Outstanding at December 31, 1997.... 1,606,000 $0.17
</TABLE>
F-35
<PAGE> 108
ARCXEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
The following summarizes information about stock options outstanding and
exercisable at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE WEIGHTED
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.05 - $0.06 1,170,000 5.13 $0.05 608,439 $0.05
$0.50 436,000 9.32 $0.50 --
--------- -------
1,606,000 608,439
========= =======
</TABLE>
At December 31, 1996, 281,500 stock options were exercisable at a weighted
average exercise price of $0.05 per share.
8. LEASE COMMITMENTS
The Company leases certain facilities under noncancelable operating lease
agreements which include escalation clauses. Future minimum operating lease
payments under all noncancelable operating leases as of December 31, 1997 are as
follows (in thousands):
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1998............................................. $169
1999............................................. 176
2000............................................. 183
2001............................................. 190
2002............................................. 181
----
Total minimum lease payments.......................... $899
====
</TABLE>
Rent expense was $13,000 and $45,000 for the period from June 18, 1996
(inception) through December 31, 1996 and 1997, respectively.
The Company also leases certain equipment under capital lease agreements.
Future minimum lease payments under capital leases as of December 31, 1997 are
as follows (in thousands):
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1998............................................ $ 182
1999............................................ 57
-----
239
Less: Interest....................................... (22)
-----
Principal payments................................... 217
Less: Current portion................................ (162)
-----
Long-term capital lease obligations.................. $ 55
=====
</TABLE>
At December 31, 1997, the cost and accumulated depreciation of equipment
under capital leases was $324,000 and $104,000, respectively. No equipment was
under capital lease at December 31 1996.
F-36
<PAGE> 109
ARCXEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1997
9. SUBSEQUENT EVENTS
On February 12, 1998, the Company's shareholders approved and authorized
the acquisition of the Company by Vixel Corporation (Vixel), a leading provider
of comprehensive storage area networks. The acquisition was effective on
February 17, 1998. Vixel acquired all outstanding shares of the Company's common
stock and Series A preferred stock in exchange for 0.51 shares of Vixel common
stock for each share of the Company's common stock and 0.765 shares of Vixel
Series F preferred stock for each share of the Company's Series A preferred
stock as adjusted for a two-for-three reverse stock split of the common stock of
Vixel, which was effective on August 27, 1999. The Company's outstanding stock
options were converted into stock options for Vixel common stock at the same
exchange rate. The acquisition will be accounted for using the purchase method
of accounting.
Immediately prior to the acquisition, the convertible notes payable to
shareholder were converted into the Company's Series A preferred stock (Note 4).
F-37
<PAGE> 110
VIXEL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JANUARY 3, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADD: DEDUCT:
ARCXEL CIELO PRO FORMA
VIXEL TECHNOLOGIES, COMMUNICATIONS, ADJUSTMENTS
CORPORATION INC. INC. (NOTE 1) TOTAL
----------- ------------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenue......................... $ 39,445 $ 52 $ 120 $ 39,377
Cost of revenue................. 36,199 34 313 35,920
---------- ----- ------- ------- ----------
Gross profit.................... 3,246 18 (193) 3,457
---------- ----- ------- ------- ----------
Operating expenses
Research and development...... 11,110 264 394 10,980
Acquired in-process
technology.................. 5,118 (5,118)(b) --
Selling, general and
administrative.............. 14,521 108 517 14,112
Amortization and writedown of
goodwill and intangibles.... 2,057 -- -- $ 274(a) 2,331
---------- ----- ------- ------- ----------
Total operating expenses.... 32,806 372 911 (4,844) 27,423
---------- ----- ------- ------- ----------
Loss from operations.......... (29,560) (354) (1,104) 4,844 (23,966)
Other expense, net............ 8,327 (14) 57 8,256
---------- ----- ------- ------- ----------
Net loss...................... $ (21,233) $(368) $(1,047) $ 4,844 $ (15,710)
========== ===== ======= ======= ==========
Net loss available to common
stockholders................ $ (21,424) $(368) $(1,047) $ 4,844 $ (15,901)
========== ===== ======= ======= ==========
Basic and diluted net loss per
share....................... $ (8.77) $ (6.51)
========== ==========
Weighted average shares of
common stock outstanding
used in computing basic and
diluted net loss per
share....................... 2,443,769 2,443,769
========== ==========
</TABLE>
Note 1 -- Pro forma adjustments
The pro forma combined statement of operations gives effect to the
following pro forma adjustments necessary to reflect the Arcxel
acquisition and Colorado division disposition described in Notes 2 and
3, respectively, of the Vixel Corporation Financial Statements:
(a) Adjustment to reflect the amortization expense of goodwill
acquired developed technology, core technology and workforce. The
acquisition values of these intangible assets (in thousands) and
the related amortization periods are summarized as follows:
<TABLE>
<CAPTION>
VALUE LIFE
------ -------
<S> <C> <C>
Goodwill......................................... $3,971 5 years
Developed technology............................. 2,663 3 years
Core technology.................................. 2,183 5 years
Workforce........................................ 381 5 years
</TABLE>
(b) Adjustment to remove the expense for acquired in-process
technology. This amount is removed from the pro forma combined
statement of operations due to its non-recurring nature.
F-39
<PAGE> 111
(Inside Back Cover)
Title: The title consists of the Vixel logo, and the words "Vixel's Total SAN
Solution."
Image:
The image consists of an arch labeled "SAN InSite Management Software". At the
lower left corner of the arch is an image of a device labeled the "Vixel 1000
Hub", which connects by a line to a device labeled "Vixel Transceiver". Moving
up the arch, from left to right, is an image of a device labeled "Vixel 2000
Hub," which connects by a line to a device labeled "Vixel Transceiver". Next is
a device labeled "Vixel 8100 Switch", which connects by a line to a device
labeled "Vixel Transceiver". Next is a device labeled "Vixel 2006 Hub", which
connects by a line to a device labeled "Vixel Transceiver". The last image is a
device labeled "Vixel 1000 Hub", which connects by a line to a device labeled
"Vixel Transceiver".
Beneath these images are the following additional images:
Image: SAN InSite logo with TM superscript
Text: Comprehensive SAN Management Software for Switches, Hubs and Transceivers
Image: Vixel Switch
Text: Switches with Advanced Features to Support Multiple SAN Configurations
Image: Vixel Managed Hub
Text: Managed Hubs with Automatic Monitoring and Recovery Capabilities
Image: Vixel Entry-level hub
Text: Entry-level Hubs for Low and Mid-Range Applications
Image: Two Vixel Transceivers
Text: Transceivers Based on Leading Technology that Facilitate Storage
Connectivity
<PAGE> 112
(Inside Back Cover)
Title: The title consists of the Vixel logo, and the words "Vixel's Total SAN
Solution."
Image:
The image consists of an arch labeled "SAN InSite Management Software". At the
lower left corner of the arch is an image of a device labeled the "Vixel 1000
Hub", which connects by a line to a device labeled "Vixel Transceiver". Moving
up the arch, from left to right, is an image of a device labeled "Vixel 2000
Hub," which connects by a line to a device labeled "Vixel Transceiver". Next is
a device labeled "Vixel 8100 Switch", which connects by a line to a device
labeled "Vixel Transceiver". Next is a device labeled "Vixel 2006 Hub", which
connects by a line to a device labeled "Vixel Transceiver". The last image is a
device labeled "Vixel 1000 Hub", which connects by a line to a device labeled
"Vixel Transceiver".
Beneath these images are the following additional images:
Image: SAN InSite logo with TM superscript
Text: Comprehensive SAN Management Software for Switches, Hubs and Transceivers
Image: Vixel Switch
Text: Switches with Advanced Features to Support Multiple SAN Configurations
Image: Vixel Managed Hub
Text: Managed Hubs with Automatic Monitoring and Recovery Capabilities
Image: Vixel Entry-level hub
Text: Entry-level Hubs for Low and Mid-Range Applications
Image: Two Vixel Transceivers
Text: Transceivers Based on Leading Technology that Facilitate Storage
Connectivity
VIXEL LOGO
<PAGE> 113
THE INFORMATION IN THIS 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 PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 1, 1999
VIXEL LOGO
3,700,000 SHARES
COMMON STOCK
Vixel Corporation is offering 3,700,000 shares of our common stock. This is
our initial public offering. We anticipate that the initial public offering
price will be between $10.00 and $12.00 per share. We have applied for approval
for quotation of our common stock on the Nasdaq National Market under the symbol
"VIXL."
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Vixel........................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 555,000 shares of our common stock to cover over-allotments.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock
to purchasers on , 1999.
-------------------------
BANCBOSTON ROBERTSON STEPHENS INTERNATIONAL LIMITED
BEAR, STEARNS INTERNATIONAL LIMITED
NEEDHAM & COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE> 114
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc. and Needham &
Company, Inc., have severally agreed with us, subject to the terms and
conditions set forth in the underwriting agreement, to purchase from us the
numbers of shares of common stock set forth opposite their names below. The
underwriters are committed to purchase and pay for all these shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
BancBoston Robertson Stephens Inc...........................
Bear, Stearns & Co. Inc.....................................
Needham & Company, Inc......................................
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL UNDERWRITERS
--------------------------
<S> <C>
BancBoston Robertson Stephens International Limited.........
Bear, Stearns International Limited.........................
Needham & Company, Inc......................................
---------
Total.................................................. 3,700,000
=========
</TABLE>
We have been advised by the representatives that the underwriters propose
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to certain dealers at
that price less a concession of not in excess of $ per share, of which
$ may be reallowed to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the representatives. No such reduction shall change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus. The common
stock is offered by the underwriters as stated herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or in
part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-allotment option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 555,000 additional shares of common stock at the same price per
share as we will receive for the 3,700,000 shares that the underwriters have
agreed to purchase from us. To the extent that the underwriters exercise this
option, each of the underwriters will have a firm commitment to purchase
approximately the same percentage of the additional shares that the number of
shares of common stock to be purchased by it shown in the above table represents
as a percentage of the 3,700,000 shares offered by this prospectus. If
purchased, the additional shares will be sold by the underwriters on the same
terms as those on which the 3,700,000 shares are being sold. We will be
obligated, pursuant to the option, to sell shares to the extent the option is
exercised. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered hereby. If the option is exercised in full, the total public offering
price and proceeds to us will be $46,805,000 and $42,629,000, respectively.
<PAGE> 115
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
TOTAL
----------------------
WITHOUT WITH
PER OVER- OVER-
SHARE ALLOTMENT ALLOTMENT
-------- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by us....... $ $ $
</TABLE>
We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will be
approximately $900,000. The public offering price, underwriting discount and
other terms set forth in the underwriting agreement are subject to approval by
the pricing committee of our board of directors.
Indemnity. The underwriting agreement contains covenants of indemnity
between the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-up agreements. All our executive officers, directors, and
substantially all our stockholders of record, optionholders and warrantholders
have agreed with BancBoston Robertson Stephens, for a period of 180 days after
the date of this prospectus and subject to certain exceptions, not to offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of common stock, any option or warrant to
purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or, with certain exceptions, thereafter acquired directly by such holders or
with respect to which they have or hereafter acquire the power of disposition,
without the prior written consent of BancBoston Robertson Stephens. However,
BancBoston Robertson Stephens may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to the
lock-up agreements. There are no agreements between the representatives and any
of our stockholders providing consent by the representatives to the sale of
shares prior to the expiration of the period of 180 days after this prospectus.
Future sales. In addition, we have agreed that during the period of 180
days after this prospectus, we will not, subject to certain exceptions and
without the prior written consent of BancBoston Robertson Stephens:
- Consent to the disposition of any shares held by stockholders prior to
the expiration of the period of 180 days after this prospectus; or
- Issue, sell, contract to sell or otherwise dispose of, any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock, other than (1) the sale of shares in this
offering, (2) the issuance of common stock upon the exercise or
conversion of outstanding options, warrants or convertible securities,
and (3) our issuance of stock options under our existing equity incentive
and stock purchase plans. For a more complete discussion of the shares
subject to a lock-up agreement, see "Shares Eligible for Future Sale," at
page 62.
Listing. We have filed an application to have the common stock approved for
quotation on the Nasdaq National Market under the symbol "VIXL."
No prior public market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered hereby will be determined through negotiations between
us and the representatives. Among the factors to be considered in these
negotiations are prevailing market conditions, certain of our financial
information, market valuations of other companies that we and the underwriters
believe to be comparable to us, estimates of our business potential, the present
state of our development and other factors deemed relevant.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for the purchase of the common stock on
<PAGE> 116
behalf of the underwriters for the purpose of fixing or maintaining the price of
the common stock. A "syndicate covering transaction" is the bid for or the
purchase of the common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by that
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
the underwriter or syndicate member. The representatives have advised us that
these transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discounted at any time.
Directed share program. At our request, the underwriters have reserved up
to five percent of common stock offered by us for sale, at the initial public
offering price, to our directors, officers, employees, business associates and
related persons. The number of shares of common stock available for sale to the
general public will be reduced to the extent these individuals purchase the
reserved shares. Any reserved shares which are not so purchased will be offered
by the underwriters to the general public on the same basis as the other shares
offered hereby.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Cooley Godward LLP, Kirkland, Washington. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Gray Cary Ware & Freidenrich LLP, Palo Alto, California.
EXPERTS
The financial statements of Vixel Corporation as of December 28, 1997 and
January 3, 1999 and for each of the three-years in the period ended January 3,
1999 included in this prospectus have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements of Arcxel Technologies, Inc. as of December 31,
1997 and for the year then ended included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Arcxel Technologies, Inc. as of December 31,
1996 and for the period from June 18, 1996 (inception) to December 31, 1996 have
been included herein and in the Registration Statement in reliance upon the
report of KPMG LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act that registers the shares of our common stock to be sold in this
offering. The registration statement, including the attached exhibits and
schedules, contain additional relevant information about us and our capital
stock. The rules and regulations of the SEC allow us to omit certain information
included in the registration statement from this document.
In addition, upon completion of this offer, we will become subject to the
reporting and information requirements of the Securities Exchange Act and,
accordingly, will file periodic reports, proxy statements and other information
with the SEC. You may read and copy this information at the following public
reference rooms of the SEC:
<TABLE>
<S> <C> <C>
Washington, D.C. New York, New York Chicago, Illinois
450 Fifth Street, N.W., 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, NY 10048 Chicago, IL 60661-2511
</TABLE>
<PAGE> 117
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. You may obtain information on the operation of
the public reference rooms by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an internet website that contains reports, proxy
statements and other information about issuers, like Vixel, who file
electronically with the SEC. The address of that website is http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
audited financial statements, and make available to our stockholders quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
<PAGE> 118
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 14,195
NASD fee.................................................... 5,606
Nasdaq National Market initial listing fee.................. 95,000
Printing and engraving...................................... 150,000
Legal fees and expenses of the Company...................... 350,000
Accounting fees and expenses................................ 200,000
Blue sky fees and expenses.................................. 5,000
Transfer agent fees......................................... 10,000
Miscellaneous............................................... 70,199
--------
Total............................................. $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933
(the "Act"). The Company's bylaws provides for mandatory indemnification of its
directors and officers and permissible indemnification of employees and other
agents to the maximum extent not prohibited by the Delaware General Corporation
Law. The Company's certificate of incorporation provides that, pursuant to
Delaware law, its directors shall not be liable for monetary damages for breach
of the directors' fiduciary duty as directors to the Company and its
stockholders. This provision in the certificate of incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Company has entered into indemnification agreements with its officers and
directors, a form of which is attached as Exhibit 10.1 hereto and incorporated
herein by reference. The indemnification agreements provide the Company's
officers and directors with further indemnification to the maximum extent
permitted by the Delaware General Corporation Law. We maintain liability
insurance for its directors and officers. Reference is also made to Section 7 of
the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying
officers and directors of the Company against certain liabilities, and Section
3.10 of the Amended and Restated Investor Rights Agreement contained in Exhibit
4.2 hereto, indemnifying certain of the Company's stockholders, including
controlling stockholders, against certain liabilities.
II-1
<PAGE> 119
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) During the past three years, we have issued unregistered securities to a
limited number of persons as described below:
- an aggregate of 4,529,221 shares of series E preferred stock at $4.50 per
share in October 1996 to 37 investors;
- an aggregate of 1,759,303 shares of series F preferred stock and
1,026,525 shares of common stock with an aggregate value of approximately
$12,100,000 in connection with the acquisition of Arcxel Technologies,
Inc. in February 1998;
- warrants to purchase 229,084 shares of series E preferred stock in
December 1996, May 1997, October 1998, December 1998 and March 1999 to
five investors at a weighted average exercise price of $12.03;
- options to purchase 10,627,871 shares of common stock at an average
exercise price of $2.43 per share to our officers, directors, employees
and consultants; and
- a warrant to purchase 150,000 shares of our common stock at $11.00 per
share in August 1999 to one investor.
All share information in this Item 15 reflects a two-for-three stock split that
occurred on August 27, 1999.
(b) There were no underwritten offerings employed in connection with any of the
transactions set forth in Item 15(a).
The issuances described in Items 15(a) were deemed to be exempt from
registration under the Securities Act in reliance upon Section 4(2) thereof as
transactions by an issuer not involving any public offering and in the case of
issuances to our founders, executives, employees and consultants are also exempt
from registration pursuant to Rule 701 promulgated under the Act. The recipients
of securities in each such transaction represented their intentions to acquire
the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends where affixed
to the securities issued in such transactions. All recipients had adequate
access, through their relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1* Restated Certificate of Incorporation, as amended
3.2* Form of Amended and Restated Certificate of Incorporation to
be effective on the closing of the offering made pursuant to
this Registration Statement
3.3+ Bylaws of the Registrant
3.4+ Bylaws of the Registrant to be effective upon the closing of
the offering made pursuant to this Registration Statement
4.1 Form of Registrant's Common Stock Certificate
4.2+ Amended and Restated Investors' Rights Agreement dated
February 17, 1998
4.3+ First Amendment to Amended and Restated Investors' Rights
Agreement dated February 17, 1998
4.4+ Warrant to purchase shares of Series C Preferred Stock of
the Registrant issued to Comdisco, Inc.
4.5+ Warrant to purchase shares of Series C Preferred Stock of
the Registrant issued to MMC/GATX Partnership No. 1
4.6+ Warrant to purchase shares of Series C Preferred Stock of
the Registrant issued to Silicon Valley Bank
</TABLE>
II-2
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
4.7+ Warrant to purchase shares of Series E Preferred Stock of
the Registrant issued to Montgomery Securities
4.8+ Warrant to purchase shares of Series E Preferred Stock of
the Registrant issued to Transamerica Business Credit
Corporation
4.9+ Warrant to purchase shares of Series E Preferred Stock of
the Registrant issued to Greyrock Capital
4.10+ Warrant to purchase shares of Series E Preferred Stock of
the Registrant issued to Comdisco, Inc.
4.12 Warrant to purchase Common Stock issued to Sun Microsystems
4.11+ Warrant to purchase shares of Series E Preferred Stock of
the Registrant issued to Western Digital Corporation
5.1 Opinion of Cooley Godward LLP
10.1+ Form of Indemnity Agreement to be entered into by the
Registrant and each of its directors and executive officers
10.2* Amended and Restated 1995 Stock Option Plan and forms of
agreements thereunder
10.3+ Secured Promissory Note between the Registrant and Western
Digital Corporation dated March 29, 1996, as amended March
30, 1999
10.4+ Master Lease Agreement between Registrant and Transamerica
Business Credit Corporation dated May 23, 1997
10.5+ Master Lease Agreement between Registrant and Comdisco, Inc.
dated January 18, 1996, together with addendum dated January
18, 1996
10.6+ Term Loan and Security Agreement with Greyrock Capital, a
division of Nations Credit Corporation, with Registrant
dated November 26, 1997, as amended October 2, 1998
10.7+ Turnkey Manufacturing Agreement with K*TEC Electronics, a
division of Kent Electronics Company, dated May 5, 1997
10.8+ Employment Agreement between Registrant and Jay R. O'Donald
dated February 17, 1998
10.9+ Employment Agreement between Registrant and Stuart B. Berman
dated February 17, 1998
10.10+ Employment Agreement between Registrant and Gregory R.
Olbright dated November 30, 1998
10.11+ Employment Agreement between Registrant and Stanley Reese
dated December 29, 1998
10.12+ Employment Agreement between Registrant and James McCluney
dated April 26, 1999
10.13+ Restricted Stock Purchase Agreement between Registrant and
James M. McCluney dated April 16, 1999
10.14+ Restricted Stock Purchase Agreement between Registrant and
Gregory R. Olbright dated April 30, 1999
10.15 Restricted Stock Purchase Agreement between Registrant and
Kurtis L. Adams dated May 20, 1999
10.16+ Full Recourse Promissory Note between Registrant and Stuart
B. Berman dated April 16, 1999
10.17+ Form of Full Recourse Promissory Note between Registrant and
its executive officers
10.18+ Form of Full Recourse Promissory Note between Registrant and
its directors
10.19+ Lease Agreement between Registrant and Sun Life Assurance
Company of Canada (U.S.) dated December 5, 1996, as amended
January 22, 1997
10.20+ Lease Agreement between Arcxel Technologies, Inc. and Aetna
Life Insurance Company, dated November 1, 1997, assigned to
Registrant August 24, 1998
10.21+ Amendment to Term Loan and Security Agreement with Greyrock
Capital, dated June 21, 1999
10.22+ Vixel Corporation 1999 Employee Stock Purchase Plan and
forms of agreements thereunder
10.23* Vixel Corporation 1999 Equity Incentive Plan and forms of
agreements thereunder
10.24 Form of Stock Pledge Agreement between the Registrant and
its directors
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2 Consent of KPMG LLP, Independent Accounts
23.3 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
</TABLE>
II-3
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
23.4 Consent of Counsel (see Exhibit 5.1)
24.1+ Power of Attorney (see Page II-5 of the Registration
Statement)
27.1+ Financial Data Schedule
</TABLE>
- -------------------------
* Previously filed and filed herewith.
+ Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of Vixel Corporation
Our audits of the financial statements referred to in our report dated May
19, 1999 appearing in the Registration Statement on Form S-1 also included an
audit of the financial statement schedules listed in Item 16 (b) of this Form
S-1. In our opinion, these financial statement schedules present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related financial statements.
PricewaterhouseCoopers LLP
Seattle, Washington
June 22, 1999
Schedule II -- Valuation and qualifying accounts
For the Years Ended December 29, 1996, December 28, 1997 and January 3,
1999 (in thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 29, 1996....................... -- -- -- --
Year ended December 28, 1997....................... -- $ 36 -- $ 36
Year ended January 3, 1999......................... $ 36 400 $ 205 231
ALLOWANCE FOR WARRANTIES
Year ended December 29, 1996....................... 100 -- -- 100
Year ended December 28, 1997....................... 100 298 104 294
Year ended January 3, 1999......................... 294 4,333 237 4,390
ALLOWANCE FOR INVENTORY OBSOLENCE
Year ended December 29, 1996....................... -- -- -- --
Year ended December 28, 1997....................... -- 414 -- 414
Year ended January 3, 1999......................... 414 994 145 1,263
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-4
<PAGE> 122
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the Delaware General Corporation Law, the Amended and Restated Certificate of
Incorporation or the Bylaws of the Company, Indemnification Agreements entered
into between the Company and its officers and directors, the Underwriting
Agreement, or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer, or controlling
person of the Company 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 hereunder, the Company 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 of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, 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.
II-5
<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Vixel
Corporation certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing this Amendment No. 2 to the registration
statement and has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bothell,
King County, State of Washington, on this 1st day of September, 1999.
VIXEL CORPORATION
By: *
------------------------------------
James M. McCluney
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President, Chief Executive September 1, 1999
- ----------------------------------------------------- Officer and Director
James M. McCluney
/s/ KURTIS L. ADAMS Chief Financial Officer September 1, 1999
- -----------------------------------------------------
Kurtis L. Adams
* Chairman of the Board of September 1, 1999
- ----------------------------------------------------- Directors
Gregory R. Olbright
* Director September 1, 1999
- -----------------------------------------------------
Kevin A. Fong
* Director September 1, 1999
- -----------------------------------------------------
Charles A. Haggerty
* Director September 1, 1999
- -----------------------------------------------------
Juan A. Rodriguez
* Director September 1, 1999
- -----------------------------------------------------
Timothy M. Spicer
* Director September 1, 1999
- -----------------------------------------------------
Werner F. Wolfen
*By /s/ KURTIS L. ADAMS
------------------------------------------------
Kurtis L. Adams
(Attorney-in-fact)
</TABLE>
II-6
<PAGE> 124
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1* Restated Certificate of Incorporation, as amended
3.2* Form of Amended and Restated Certificate of Incorporation to
be effective on the closing of the offering made pursuant to
this Registration Statement
3.3+ Bylaws of the Registrant
3.4+ Bylaws of the Registrant to be effective upon the closing of
the offering made pursuant to this Registration Statement
4.1 Form of Registrant's Common Stock Certificate
4.2+ Amended and Restated Investors' Rights Agreement dated
February 17, 1998
4.3+ First Amendment to Amended and Restated Investors' Rights
Agreement dated February 17, 1998
4.4+ Warrant to purchase shares of Series C Preferred Stock of
the Registrant issued to Comdisco, Inc.
4.5+ Warrant to purchase shares of Series C Preferred Stock of
the Registrant issued to MMC/GATX Partnership No. 1
4.6+ Warrant to purchase shares of Series C Preferred Stock of
the Registrant issued to Silicon Valley Bank
4.7+ Warrant to purchase shares of Series E Preferred Stock of
the Registrant issued to Montgomery Securities
4.8+ Warrant to purchase shares of Series E Preferred Stock of
the Registrant issued to Transamerica Business Credit
Corporation
4.9+ Warrant to purchase shares of Series E Preferred Stock of
the Registrant issued to Greyrock Capital
4.10+ Warrant to purchase shares of Series E Preferred Stock of
the Registrant issued to Comdisco, Inc.
4.11+ Warrant to purchase shares of Series E Preferred Stock of
the Registrant issued to Western Digital Corporation
4.12 Warrant to purchase Common Stock issued to Sun Microsystems
5.1 Opinion of Cooley Godward LLP
10.1+ Form of Indemnity Agreement to be entered into by the
Registrant and each of its directors and executive officers
10.2* Amended and Restated 1995 Stock Option Plan and forms of
agreements thereunder
10.3+ Secured Promissory Note between the Registrant and Western
Digital Corporation dated March 29, 1996, as amended March
30, 1999
10.4+ Master Lease Agreement between Registrant and Transamerica
Business Credit Corporation dated May 23, 1997
10.5+ Master Lease Agreement between Registrant and Comdisco, Inc.
dated January 18, 1996, together with addendum dated January
18, 1996
10.6+ Term Loan and Security Agreement with Greyrock Capital, a
division of Nations Credit Corporation, with Registrant
dated November 26, 1997, as amended October 2, 1998
10.7+ Turnkey Manufacturing Agreement with K*TEC Electronics, a
division of Kent Electronics Company, dated May 5, 1997
10.8+ Employment Agreement between Registrant and Jay R. O'Donald
dated February 17, 1998
10.9+ Employment Agreement between Registrant and Stuart B. Berman
dated February 17, 1998
</TABLE>
<PAGE> 125
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.10+ Employment Agreement between Registrant and Gregory R.
Olbright dated November 30, 1998
10.11+ Employment Agreement between Registrant and Stanley Reese
dated December 29, 1998
10.12+ Employment Agreement between Registrant and James McCluney
dated April 26, 1999
10.13+ Restricted Stock Purchase Agreement between Registrant and
James M. McCluney dated April 16, 1999
10.14+ Restricted Stock Purchase Agreement between Registrant and
Gregory R. Olbright dated April 30, 1999
10.15 Restricted Stock Purchase Agreement between Registrant and
Kurtis L. Adams dated May 20, 1999
10.16+ Full Recourse Promissory Note between Registrant and Stuart
B. Berman dated April 16, 1999
10.17+ Form of Full Recourse Promissory Note between Registrant and
its executive officers
10.18+ Form of Full Recourse Promissory Note between Registrant and
its directors
10.19+ Lease Agreement between Registrant and Sun Life Assurance
Company of Canada (U.S.) dated December 5, 1996, as amended
January 22, 1997
10.20+ Lease Agreement between Arcxel Technologies, Inc. and Aetna
Life Insurance Company, dated November 1, 1997, assigned to
Registrant August 24, 1998
10.21+ Amendment to Term Loan and Security Agreement with Greyrock
Capital, dated June 21, 1999
10.22+ Vixel Corporation 1999 Employee Stock Purchase Plan and
forms of agreements thereunder
10.23* Vixel Corporation 1999 Equity Incentive Plan and forms of
agreements thereunder
10.24 Form of Stock Pledge Agreement between the Registrant and
its directors
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2 Consent of KPMG LLP, Independent Accountants
23.3 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.4 Consent of Counsel (see Exhibit 5.1)
24.1+ Power of Attorney (see Page II-5 of the Registration
Statement)
27.1+ Financial Data Schedule
</TABLE>
- -------------------------
* Previously filed and filed herewith.
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
UNDERWRITING AGREEMENT
August __, 1999
BancBoston Robertson Stephens Inc.
Bear, Stearns & Co. Inc.
Needham & Company, Inc.
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
INTRODUCTORY. Vixel Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of [___] shares (the "Firm Shares")
of its Common Stock, par value $.001 per share (the "Common Shares"). In
addition, the Company has granted to the Underwriters an option to purchase up
to an additional [___] Common Shares (the "Option Shares") as provided in
Section 2. The Firm Shares and, if and to the extent such option is exercised,
the Option Shares are collectively called the "Shares". BancBoston Robertson
Stephens Inc., Bear, Stearns & Co. Inc. and Needham & Company, Inc. have agreed
to act as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Shares.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-[___]), which contains a form of prospectus to be used in
connection with the public offering and sale of the Shares. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 as amended and the rules and
regulations promulgated thereunder (collectively, the "Securities Act"),
including any information deemed to be a part thereof at the time of
effectiveness pursuant to Rule 430A or Rule 434 under the Securities Act, is
called the "Registration Statement". Any registration statement filed by the
Company pursuant to Rule 462(b) under the Securities Act is called the "Rule
462(b) Registration Statement", and from and after the date and time of filing
of the Rule 462(b) Registration Statement the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. Such prospectus, in the
form first used by the Underwriters to confirm sales of the Shares, is called
the "Prospectus"; provided, however, if the Company has, with the consent of
BancBoston Robertson Stephens Inc., elected to rely upon Rule 434 under the
Securities Act, the term "Prospectus" shall mean the Company's prospectus
subject to
1
<PAGE> 2
completion (each, a "preliminary prospectus") dated [___] (such preliminary
prospectus is called the "Rule 434 preliminary prospectus"), together with the
applicable term sheet (the "Term Sheet") prepared and filed by the Company with
the Commission under Rules 434 and 424(b) under the Securities Act and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus or the Term Sheet, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters
as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
A. Representations and Warranties of the Company. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale of
the Shares. Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it became
effective and at all subsequent times, complied and will comply in all material
respects with the Securities Act and did not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Prospectus, as amended or supplemented, as of its date and at all subsequent
times, did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
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(b) Offering Materials Furnished to Underwriters. The Company has
delivered to each of the Representatives one complete conformed copy of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(e) Authorization of the Shares To Be Sold by the Company. The Shares to
be purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) the Company and its subsidiaries, considered as one
entity, have not incurred any material liability or obligation, indirect, direct
or contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any class
of capital stock.
(h) Independent Accountants. PriceWaterhouseCoopers LLP and KPMG Peat
Marwick LLP, who have expressed their respective opinions with respect to the
financial statements (which term as used in this Agreement includes the related
notes
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<PAGE> 4
thereto) and supporting schedules filed with the Commission as a part of
the Registration Statement and included in the Prospectus, are independent
public or certified public accountants as required by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results of
operations and cash flows for the periods specified. The supporting schedules
included in the Registration Statement present fairly the information required
to be stated therein. Such financial statements and supporting schedules have
been prepared in conformity with generally accepted accounting principles as
applied in the United States applied on a consistent basis throughout the
periods involved, except as may be expressly stated in the related notes
thereto. No other financial statements or supporting schedules are required to
be included in the Registration Statement. The financial data set forth in the
Prospectus under the captions "Prospectus Summary--Summary Financial Data",
"Selected Financial Data" and "Capitalization" fairly present the information
set forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement.
(j) Company's Accounting System. The Company and each of its
subsidiaries maintain a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles as applied in the United States and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(k) [Subsidiaries of the Company. The Company's subsidiaries, when
considered in the aggregate as a single subsidiary, would not constitute a
"significant subsidiary," as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act.]
[The Company will need to provide a representation that Arcxel is
a significant subsidiary.]
(l) Incorporation and Good Standing of the Company. The Company has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction in which it is organized with full corporate
power and authority to own its properties and conduct its business as described
in the prospectus, and is duly qualified to do business as a foreign corporation
and is in good standing under the laws of each jurisdiction which requires such
qualification.
(m) [Capitalization of the Subsidiaries. All the outstanding shares of
capital stock of each subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set forth
in the Prospectus, all outstanding shares of capital stock of the subsidiaries
are owned by the Company either directly or through wholly owned subsidiaries
free and clear of any security interests, claims, liens or encumbrances.]
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(n) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Shares (including the Shares) conform in all material
respects to the description thereof contained in the Prospectus. All of the
issued and outstanding Common Shares have been duly authorized and validly
issued, are fully paid and nonassessable and have been issued in compliance with
federal and state securities laws. None of the outstanding Common Shares were
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. There are
no authorized or outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of the
Company or any of its other than those accurately described in the Prospectus.
The description of the Company's stock option, stock bonus and other stock plans
or arrangements, and the options or other rights granted thereunder, set forth
in the Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(o) Stock Exchange Listing. The Shares have been approved for listing on
the Nasdaq National Market, subject only to official notice of issuance.
(p) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.
(q) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
significant subsidiaries pursuant to, (i) the charter or by-laws of the Company
or any of its significant subsidiaries, (ii) the terms of any indenture,
contract, lease, mortgage, deed of trust, note agreement, loan agreement or
other agreement, obligation, condition, covenant or instrument to which the
Company or any of its significant subsidiaries is a party or bound or to which
its or their property is subject or (iii) any statute, law, rule, regulation,
judgment, order or decree applicable to the Company or any of its significant
subsidiaries of any court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over the Company or any
of its significant subsidiaries or any of its or their properties, except any
such conflict, breach, violation, liens, charge or encumbrance which would not
singly or in the aggregate result in a Material Adverse Change and except as may
be disclosed in the Prospectus.
(r) No Defaults or Violations. Neither the Company nor any subsidiary is
in violation or default of (i) any provision of its charter or by-laws, (ii) the
terms of any
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indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument to
which it is a party or bound or to which its property is subject or (iii) any
statute, law, rule, regulation, judgment, order or decree of any court,
regulatory body, administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company or such subsidiary or any of its
properties, as applicable, except any such violation or default which would not,
singly or in the aggregate, result in a Material Adverse Change and except as
otherwise disclosed in the Prospectus.
(s) No Actions, Suits or Proceedings. No action, suit or proceeding by
or before any court or governmental agency, authority or body or any arbitrator
involving the Company or any of its significant subsidiaries or its or their
property is pending or, to the best knowledge of the Company, threatened that
(i) could reasonably be expected to have a Material Adverse Effect on the
performance of this Agreement or the consummation of any of the transactions
contemplated hereby or (ii) could reasonably be expected to result in a Material
Adverse Effect.
(t) All Necessary Permits, Etc. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct their respective businesses, and neither the Company nor any subsidiary
has received any notice of proceedings relating to the revocation or
modification of, or non-compliance with, any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(u) Title to Properties. The Company and each of its significant
subsidiaries has good and marketable title to all the properties and assets
reflected as owned in the financial statements referred to in Section 1(A)(i)
above, in each case free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by the
Company or such subsidiary. The real property, improvements, equipment and
personal property held under lease by the Company or any subsidiary are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the Company or
such subsidiary.
(v) Tax Law Compliance. The Company and its significant subsidiaries
have filed all necessary federal, state and foreign income and franchise tax
returns or have properly requested extensions thereof and have paid all taxes
required to be paid by any of them and, if due and payable, any related or
similar assessment, fine or penalty levied against any of them except as may be
being contested in good faith and by appropriate proceedings, and as disclosed
in the Prospectus. The Company has made adequate charges, accruals and reserves
in the applicable financial statements referred to in Section 1(A)(i) above in
respect of all federal, state and foreign income and franchise taxes for all
periods as to which the tax liability of the Company or any of its significant
subsidiaries has not been finally determined. The Company is not aware of any
tax deficiency that has been or is likely to be asserted or threatened against
the Company that could result in a Material Adverse Change.
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(w) Intellectual Property Rights. Each of the Company and its
significant subsidiaries owns or possesses adequate rights to use all patents,
patent rights or licenses, inventions, collaborative research agreements, trade
secrets, know-how, trademarks, service marks, trade names and copyrights which
are necessary to conduct its businesses as described in the Registration
Statement and Prospectus; the expiration of any patents, patent rights, trade
secrets, trademarks, service marks, trade names or copyrights would not result
in a Material Adverse Change that is not otherwise disclosed in the Prospectus;
the Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a Material Adverse Change. There is no
claim being made against the Company regarding patents, patent rights or
licenses, inventions, collaborative research, trade secrets, know-how,
trademarks, service marks, trade names or copyrights. The Company and its
significant subsidiaries do not in the conduct of their business as now or
proposed to be conducted as described in the Prospectus infringe or conflict
with any right or patent of any third party, or any discovery, invention,
product or process which is the subject of a patent application filed by any
third party, known to the Company or any of its significant subsidiaries, which
such infringement or conflict is reasonably likely to result in a Material
Adverse Change.
(x) Year 2000 Preparedness. There are no issues related to the
Company's, or any of its significant subsidiaries, preparedness for the Year
2000 that (i) are of a character required to be described or referred to in the
Registration Statement or Prospectus by the Securities Act or the rules and
regulations of the Commission thereunder which have not been accurately
described in the Registration Statement or Prospectus or (ii) might reasonably
be expected to result in any Material Adverse Change or that might materially
affect their properties, assets or rights. All internal computer systems and
each Constituent Component (as defined below) of those systems and all
computer-related products and each Constituent Component (as defined below) of
those products of the Company and each of its significant subsidiaries fully
comply with Year 2000 Qualification Requirements. "Year 2000 Qualifications
Requirements" means that the internal computer systems and each Constituent
Component (as defined below) of those systems and all computer-related products
and each Constituent Component (as defined below) of those products of the
Company and each of its significant subsidiaries (i) have been reviewed to
confirm that they store, process (including sorting and performing mathematical
operations, calculations and computations), input and output data containing
date and information correctly regardless of whether the date contains dates and
times before, on or after January 1, 2000, (ii) have been designated to ensure
date and time entry recognition and calculations, and date data interface values
that reflect the century, (iii) accurately manage and manipulate data involving
dates and times, including single century formulas and multi-century formulas,
and will not cause an abnormal ending scenario within the application or
generate incorrect values or invalid results involving such dates, (iv)
accurately process any date rollover, and (v) accept and respond to two-digit
year date input in a manner that resolves any ambiguities as to the century.
"Constituent Component" means all software (including operating systems,
programs, packages and
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<PAGE> 8
utilities), firmware, hardware, networking components, and peripherals provided
as part of the configuration. Except as otherwise disclosed in the Prospectus,
the Company has inquired of material vendors as to their preparedness for the
Year 2000 and has disclosed in the Registration Statement or Prospectus any
issues that might reasonably be expected to result in any Material Adverse
Change.
(y) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.
(z) Company Not an "Investment Company". The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). The Company is not, and after receipt of payment
for the Shares will not be, an "investment company" or an entity "controlled" by
an "investment company" within the meaning of the Investment Company Act and
will conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(aa) Insurance. Each of the Company and its significant subsidiaries are
insured by recognized, financially sound and reputable institutions with
policies in such amounts and with such deductibles and covering such risks as
are generally deemed adequate and customary for their businesses. The Company
has no reason to believe that it or any subsidiary will not be able (i) to renew
its existing insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. Neither of the Company nor any
subsidiary has been denied any insurance coverage which it has sought or for
which it has applied.
(bb) Labor Matters. To the Company's knowledge, no labor disturbance by
the employees of the Company or any of its significant subsidiaries exists or is
imminent that could reasonably be expected to result in a Material Adverse
Change and the Company is not aware of any existing labor disturbance by the
employees of any of its principal suppliers, that reasonably could be expected
to result in a Material Adverse Change.
(cc) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(dd) Lock-Up Agreements. Each officer and director of the Company, each
beneficial owner of the Company's capital stock and each holder of an option,
warrant or other rights to purchase or acquire capital stock of the Company has
agreed to sign an agreement substantially in the form attached hereto as Exhibit
A (the "Lock-up Agreements"). The Company has provided to counsel for the
Underwriters a complete and accurate list of all securityholders of the Company
and the number and type of securities held by each securityholder. The Company
has provided to counsel for the Underwriters true, accurate and complete copies
of all of the Lock-up Agreements presently in effect or effected hereby. The
Company hereby represents and warrants
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<PAGE> 9
that it will not release any of its officers, directors or any security holders
from any Lock-up Agreements currently existing or hereafter effected without the
prior written consent of BancBoston Robertson Stephens Inc.
(ee) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been described
as required.
Any certificate signed by an officer of the Company and delivered
to the Representatives or to counsel for the Underwriters shall be deemed to be
a representation and warranty by the Company to each Underwriter as to the
matters set forth therein.
(ff) Environmental Laws. (i) The Company is in compliance with all
rules, laws and regulations relating to the use, treatment, storage and disposal
of toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change; (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus; (iii) to the best of its knowledge, the Company
will not be required to make future material capital expenditures to comply with
Environmental Laws and (iv) no property which is owned, leased or occupied by
the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. Section 9601, et seq.), or otherwise designated as a contaminated site
under applicable state or local law.
(gg) ERISA Compliance. The Company and its significant subsidiaries and
any "employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its significant subsidiaries or their "ERISA Affiliates" (as
defined below) are in compliance in all material respects with ERISA. "ERISA
Affiliate" means, with respect to the Company or a subsidiary, any member of any
group of organizations described in Sections 414(b),(c),(m) or (o) of the
Internal Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such subsidiary
is a member. No "reportable event" (as defined under ERISA) has occurred or is
reasonably expected to occur with respect to any "employee benefit plan"
established or maintained by the Company, its significant subsidiaries or any of
their ERISA Affiliates. No "employee benefit plan" established or maintained by
the Company, its significant subsidiaries or any of their ERISA Affiliates, if
such "employee benefit plan" were terminated, would have any "amount of
unfounded benefit liabilities" (as defined under ERISA). Neither the Company,
its significant subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its significant subsidiaries or any of
their ERISA Affiliates that is intended to be qualified under Section 401(a) of
the Code is so qualified and nothing has occurred, whether by action or failure
to act, which would cause the loss of such qualification.
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SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) The Firm Shares. The Company agrees to issue and sell to the several
Underwriters the Firm Shares upon the terms herein set forth. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective number of
Firm Shares set forth opposite their names on Schedule A. The purchase price per
Firm Share to be paid by the several Underwriters to the Company shall be $[___]
per share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased
by the Underwriters and payment therefor shall be made by the Company and the
Representatives at 6:00 a.m. San Francisco time, at the offices of Cooley
Godward LLP, 5200 Carillon Point, Kirkland, WA 98033-7356 (or at such other
place as may be agreed upon among the Representatives and the Company), (i) on
the third (3rd) full business day following the first day that Shares are
traded, (ii) if this Agreement is executed and delivered after 1:30 P.M., San
Francisco time, the fourth (4th) full business day following the day that this
Agreement is executed and delivered or (iii) at such other time and date not
later that seven (7) full business days following the first day that Shares are
traded as the Representatives and the Company may determine (or at such time and
date to which payment and delivery shall have been postponed pursuant to Section
8 hereof), such time and date of payment and delivery being herein called the
"Closing Date;" provided, however, that if the Company has not made available to
the Representatives copies of the Prospectus within the time provided in
Sections 2(g) and 3(e) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of [___] Option Shares from the Company at the
purchase price per share to be paid by the Underwriters for the Firm Shares. The
option granted hereunder is for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the Firm Shares.
The option granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Option Shares
(subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Option Shares to be purchased as the number of Firm Shares set forth
on Schedule A opposite the name of such Underwriter bears to the total number of
Firm Shares. The Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company.
(d) Public Offering of the Shares. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the
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Prospectus, their respective portions of the Shares as soon after this Agreement
has been executed and the Registration Statement has been declared effective as
the Representatives, in their sole judgment, have determined is advisable and
practicable.
(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.
It is understood that the Representatives have been authorized,
for their own accounts and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
BancBoston Robertson Stephens Inc., individually and not as a Representative of
the Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered a credit representing the Option Shares
the Underwriters have agreed to purchase at the First Closing Date (or the
Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representatives and the several Underwriters, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. Time shall be of the essence, and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
noon on the second business day following the date the Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY.
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees
with each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the
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Representatives containing information previously omitted at the time of
effectiveness of the Registration Statement in reliance on Rule 430A of the
Securities Act and (iii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which the Representatives shall not previously
have been advised and furnished with a copy or to which the Representatives
shall have reasonably objected in writing or which is not in compliance with the
Securities Act. If the Company elects to rely on Rule 462(b) under the
Securities Act, the Company shall file a Rule 462(b) Registration Statement with
the Commission in compliance with Rule 462(b) under the Securities Act prior to
the time confirmations are sent or given, as specified by Rule 462(b)(2) under
the Securities Act, and shall pay the applicable fees in accordance with Rule
111 under the Securities Act.
(b) Securities Act Compliance. The Company will advise the
Representatives promptly (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (ii) of receipt of
any comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. The Company will comply with the Securities Act and the Exchange
Act, and the rules and regulations of the Commission thereunder, so as to permit
the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Representatives or counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at any time
to amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission, and furnish at its own
expense to the Underwriters and to dealers, an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
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(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto (including any documents
incorporated or deemed incorporated by reference therein) as the Representatives
may request.
(f) Insurance. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause BancBoston Robertson
Stephens Inc. to be added as an additional insured to such policy in respect of
the offering contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety (90)
day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending [October ___, 2000] that satisfies the provisions of Section 11(a) of the
Securities Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company
will not, without the prior written consent of BancBoston Robertson Stephens
Inc., for a period of 180 days following the date of the Prospectus, offer, sell
or contract to sell, or otherwise dispose of or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or
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employee stock option plan, stock ownership plan or dividend reinvestment plan
of the Company in effect at the date of the Prospectus and described in the
Prospectus so long as none of those shares may be transferred on during the
period of 180 days from the date that the Registration Statement is declared
effective (the "Lock-Up Period") and the Company shall enter stop transfer
instructions with its transfer agent and registrar against the transfer of any
such Common Shares and (ii) the Company may issue Common Shares issuable upon
the conversion of securities or the exercise of warrants outstanding at the date
of the Prospectus and described in the Prospectus.
(m) Future Reports to the Representatives. During the period of four
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its capital
stock.
(n) Exchange Act Compliance. During the Prospectus Delivery Period, the
Company will file all documents required to be filed with the Commission
pursuant to Section 13, 14 or 15 of the Exchange Act in the manner and within
the time periods required by the Exchange Act.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section
1(A) hereof as of the date hereof and as of the First Closing Date as though
then made and, with respect to the Option Shares, as of the Second Closing Date
as though then made, to the timely performance by the Company of its covenants
and other obligations hereunder, and to each of the following additional
conditions:
(a) Compliance with Registration Requirements; No Stop Order; No
Objection from the National Association of Securities Dealers, LLC. The
Registration Statement shall have become effective prior to the execution of
this Agreement, or at such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel; and the National Association
of Securities Dealers, LLC shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares,
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shall have been reasonably satisfactory to Underwriters' Counsel, and such
counsel shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery
of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the case may be, there shall not have been any Material Adverse Change
from that set forth in the Registration Statement or Prospectus, which, in your
sole judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus.
(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Cooley Godward LLP, counsel for the Company, substantially in the form of
Exhibit B attached hereto, with such exceptions and qualifications as are
customary in opinions of the type contemplated by Exhibit B, dated the First
Closing Date or the Second Closing Date, as appropriate, addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as
to questions of law not involving the laws of the United States or the State of
Washington and Delaware upon opinions of local counsel, and as to questions of
fact upon representations or certificates of officers of the Company and of
government officials, in which case their opinion is to state that they are so
relying and that they have no knowledge of any material misstatement or
inaccuracy in any such opinion, representation or certificate. In addition, for
purposes of rendering any opinion regarding this Underwriting Agreement, such
counsel may assume that the laws of the State of Washington are substantially
the same as the laws of the State of New York. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(e) Opinion of Counsel for the Underwriters. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Gray Cary Ware & Freidenrich LLP, substantially in the form of
Exhibit C hereto with such exceptions and qualifications as are customary in
opinions of the type contemplated by Exhibit C. The Company shall have furnished
to such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(f) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
PricewaterhouseCoopers LLP addressed to the Underwriters, dated the First
Closing Date or the Second Closing Date, as the case may be, confirming that
they are independent certified public accountants with respect to the Company
within the meaning of the Act and the applicable published Rules and Regulations
and based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the "Original
Letter"), but carried out to a date not more than four (4) business days prior
to the First Closing Date or the Second Closing Date, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the First Closing Date or the Second
Closing Date, as the case may be, and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
which are
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necessary to reflect any changes in the facts described in the Original Letter
since the date of such letter, or to reflect the availability of more recent
financial statements, data or information. The letter shall not disclose any
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company and its significant subsidiaries considered
as one enterprise from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse and that makes
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. The Original
Letter from PricewaterhouseCoopers LLP shall be addressed to or for the use of
the Underwriters in form and substance satisfactory to the Underwriters and
shall (i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company within the meaning of the
Securities Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the balance sheet of
the Company as of December 28, 1997 and January 3, 1999 and related statements
of operations, stockholders' equity, and cash flows for the three-year period
ended January 3, 1999, (iii) set forth their opinion with respect to their
examination of the balance sheet of Arcxel Technologies, Inc. as of December 31,
1997 and related statements of operations, shareholders' equity and cash flows
for the year then ended, (iv) state that PricewaterhouseCoopers LLP has
performed the procedures set out in Statement on Auditing Standards No. 71 ("SAS
71") for a review of interim financial information and providing the report of
PricewaterhouseCoopers LLP as described in SAS 71 on the financial statements
for each of the quarters in the two-quarter period ended July ___, 1999 (the
"Quarterly Financial Statements"), (v) state that in the course of such review,
nothing came to their attention that leads them to believe that any material
modifications need to be made to any of the Quarterly Financial Statements in
order for them to be in compliance with generally accepted accounting principles
consistently applied across the periods presented, and address other matters
agreed upon by PricewaterhouseCoopers LLP and you. In addition, you shall have
received from PricewaterhouseCoopers LLP a letter addressed to the Company and
made available to you for the use of the Underwriters stating that their review
of the Company's system of internal accounting controls, to the extent they
deemed necessary in establishing the scope of their examination of the Company's
financial statements as of January 3, 1999, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(g) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions on its
part to be performed or satisfied at or prior to the First Closing Date
or the Second Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
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<PAGE> 17
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto contained all material information required to be
included therein by the Securities Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, and in all
material respects conformed to the requirements of the Securities Act
and the applicable rules and regulations of the Commission thereunder,
as the case may be; the Registration Statement and the Prospectus, and
any amendments or supplements thereto, did not and does not include any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and, since the effective date of the
Registration Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has not been so set
forth; and
(iv) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been (a) any
Material Adverse Change, (b) any transaction that is material to the
Company and its significant subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business and
which did not and are reasonably not expected to result in a Material
Adverse Change, (c) any obligation, direct or contingent, that is
material to the Company and its significant subsidiaries considered as
one enterprise, incurred by the Company or its significant subsidiaries,
except obligations incurred in the ordinary course of business and which
did not and are reasonably not expected to result in a Material Adverse
Change, (d) any change in the capital stock or outstanding indebtedness
of the Company or any of its significant subsidiaries that is material
to the Company and its significant subsidiaries considered as one
enterprise, (e) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company or any of its significant
subsidiaries, or (f) any loss or damage (whether or not insured) to the
property of the Company or any of its significant subsidiaries which has
been sustained or will have been sustained which has resulted or is
reasonably expected to result in a Material Adverse Change.
(h) Lock-up Agreement from Certain Security Holders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
Company, each beneficial owner of the outstanding issued share capital of the
Company and each holder of options, warrants or other rights to purchase or
acquire shares of capital stock of the Company.
(i) Stock Exchange Listing. The Shares shall have been approved for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
(j) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(k) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representatives and counsel
for the
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Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
legality of the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the National Association of Securities Dealers,
LLC review and approval of the Underwriters' participation in the offering and
distribution of the Common Shares, (viii) the fees and expenses associated with
listing the Common Shares on the Nasdaq National Market, (ix) all costs and
expenses incident to the preparation and undertaking of "road show" preparations
to be made to prospective investors, and (x) all other fees, costs and expenses
referred to in Item 13 of Part II of the Registration Statement. Except as
provided in this Section 5, Section 6, and Section 7 hereof, the Underwriters
shall pay their own expenses, including the fees and disbursements of their
counsel.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 8 or Section 9,
or if the sale to the Underwriters of the Shares on the First Closing Date is
not consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company agrees to reimburse the Representatives and the other Underwriters
(or such Underwriters as
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have terminated this Agreement with respect to themselves), severally, upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by the Representatives and the Underwriters in connection with the proposed
purchase and the offering and sale of the Shares, including but not limited to
fees and disbursements of counsel, printing expenses, travel expenses, postage,
facsimile and telephone charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification of the Underwriters. The Company agrees to indemnify
and hold harmless each Underwriter, its officers and employees, and each person,
if any, who controls any Underwriter within the meaning of the Securities Act or
the Exchange Act, against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the
Securities Act, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading; or (ii) upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; or (iii)
in whole or in part upon any inaccuracy in the representations and warranties of
the Company contained herein; or (iv) in whole or in part upon any failure of
the Company to perform its obligations hereunder or under law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any matter
covered by clause (i), (ii), (iii) or (iv) above, provided that the Company
shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its bad faith or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by BancBoston Robertson Stephens Inc.) as such
expenses are reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided, however,
that the foregoing indemnity agreement shall not apply to any loss, claim,
damage, liability or expense to the extent, but only to the extent, arising out
of or based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly for use in
the Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto); and provided, further, that with respect to
any preliminary prospectus, the foregoing indemnity agreement shall not inure to
the benefit of any
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Underwriter from whom the person asserting any loss, claim, damage, liability or
expense purchased Shares, or any person controlling such Underwriter, if copies
of the Prospectus were timely delivered to the Underwriter pursuant to Section 2
and a copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required by law so
to have been delivered, at or prior to the written confirmation of the sale of
the Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage, liability
or expense. The indemnity agreement set forth in this Section 7(a) shall be in
addition to any liabilities that the Company may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. The indemnity
agreement set forth in this Section 7(b) shall be in addition to any liabilities
that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph and the second
paragraph under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not
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relieve it from any liability which it may have to any indemnified party for
contribution or otherwise than under the indemnity agreement contained in this
Section 7 or to the extent it is not prejudiced as a proximate result of such
failure. In case any such action is brought against any indemnified party and
such indemnified party seeks or intends to seek indemnity from an indemnifying
party, the indemnifying party will be entitled to participate in, and, to the
extent that it shall elect, jointly with all other indemnifying parties
similarly notified, by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that a conflict may arise
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 7 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with local counsel), approved by the indemnifying
party (BancBoston Robertson Stephens Inc. in the case of Section 7(b) and
Section 8), representing the indemnified parties who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not
be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by
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<PAGE> 22
such indemnified party, unless such settlement, compromise or consent includes
(i) an unconditional release of such indemnified party from all liability on
claims that are the subject matter of such action, suit or proceeding and (ii)
does not include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 7(f) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (f), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section 7(f)
to contribute are several in proportion to their respective underwriting
obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying
22
<PAGE> 23
party to the indemnified party as such losses, claims, damages, liabilities or
expenses are incurred, but in all cases, no later than thirty (30) days of
invoice to the indemnifying party.
(h) Survival. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Shares that
it or they have agreed to purchase hereunder on such date, and the aggregate
number of Common Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase does not exceed 10% of the aggregate number of
the Shares to be purchased on such date, the other Underwriters shall be
obligated, severally, in the proportions that the number of Firm Common Shares
set forth opposite their respective names on Schedule A bears to the aggregate
number of Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Shares are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party to
any other party except that the provisions of Section 4, and Section 7 shall at
all times be effective and shall survive such termination. In any such case
either the Representatives or the Company shall have the right to postpone the
First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
23
<PAGE> 24
As used in this Agreement, the term "Underwriter" shall be deemed
to include any person substituted for a defaulting Underwriter under this
Section 8. Any action taken under this Section 8 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date, this Agreement may be terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective change in United States' or international
political, financial or economic conditions, as in the judgment of the
Representatives is material and adverse and makes it impracticable or
inadvisable to market the Common Shares in the manner and on the terms described
in the Prospectus or to enforce contracts for the sale of securities; (iv) in
the judgment of the Representatives there shall have occurred any Material
Adverse Change; or (v) the Company shall have sustained a loss by strike, fire,
flood, earthquake, accident or other calamity of such character as in the
judgment of the Representatives may interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
shall have been insured. Any termination pursuant to this Section 9 shall be
without liability on the part of (a) the Company to any Underwriter, except that
the Company shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to
the Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
24
<PAGE> 25
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company:
Vixel Corporation
11911 Northcreek Parkway South
Bothell, Washington 98011
Facsimile:
Attention: James M. McCluney
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 9 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 7, and to their
respective successors, [and personal representatives], and no other person will
have any right or obligation hereunder. The term "successors" shall not include
any purchaser of the Shares as such from any of the Underwriters merely by
reason of such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum. Each party not located in the
United States irrevocably appoints CT Corporation System, which
25
<PAGE> 26
currently maintains a San Francisco office at 49 Stevenson Street, San
Francisco, California 94105, United States of America, as its agent to receive
service of process or other legal summons for purposes of any such suit, action
or proceeding that may be instituted in any state or federal court in the City
and County of San Francisco.
(c) Waiver of Immunity. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.
SECTION 15. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
[The remainder of this page has been intentionally left blank.]
26
<PAGE> 27
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
VIXEL CORPORATION
By:__________________________
[Title]
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
BEAR, STEARNS & CO. INC.
NEEDHAM & COMPANY, INC.
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
BY BANCBOSTON ROBERTSON STEPHENS INC.
By:_________________________________
Authorized Signatory
27
<PAGE> 28
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Common Shares
Underwriters To be Purchased
<S> <C>
BANCBOSTON ROBERTSON STEPHENS INC. [AND [___]
BANCBOSTON ROBERTSON STEPHENS INTERNATIONAL
LIMITED] .......................................
BEAR, STEARNS & CO. INC. ....................... [___]
NEEDHAM & COMPANY, INC. ........................ [___]
[___] .......................................... [___]
[___] .......................................... [___]
Total................................... [___]
</TABLE>
S-A
<PAGE> 29
EXHIBIT A
LOCK-UP AGREEMENT
BancBoston Robertson Stephens Inc.
Bear, Stearns & Co. Inc.
Needham & Company
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: Vixel Corporation (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares
of Common Stock of the Company ("Common Stock") or securities convertible into
or exchangeable or exercisable for Common Stock. The Company proposes to carry
out a public offering of Common Stock (the "Offering") for which you will act as
the representatives (the "Representatives") of the underwriters. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other underwriters are
relying on the representations and agreements of the undersigned contained in
this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition, for a period commencing on
the date hereof and continuing to a date which is 180 days after the
registration statement relating to the Offering (the "Registration Statement")
is declared effective by the Securities and Exchange Commission (the "Lock-up
Period"). This restriction will not apply to (i) a bona fide gift or gifts,
provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) a distribution to partners or shareholders of the undersigned,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction, (iii) dispositions of Securities acquired on the open
market or (iv) dispositions made with the prior written consent of BancBoston
Robertson Stephens Inc. The undersigned agrees that the foregoing restriction
precludes the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lock-up period, even if such Securities
would be
A-1
<PAGE> 30
disposed of by someone other than the undersigned. Such prohibited hedging or
other transactions would include, without limitation, any short sale (whether or
not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Securities or
with respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of Securities held by the undersigned except in compliance with the
foregoing restrictions. Notwithstanding anything herein to the contrary, the
foregoing restrictions do not prohibit the sale of shares of Common Stock by the
undersigned to the underwriters in the Offering, if the Representatives, in
their sole discretion, agree to the inclusion of shares of Common Stock in the
Offering. BancBoston Robertson Stephens Inc., acting alone and in its sole
discretion, may waive any provisions of this Lock-Up Agreement without notice to
any third party.
This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives and assigns of the
undersigned. In the event that the Registration Statement shall not have been
declared effective on or before October 31, 1999, this Lock-Up Agreement shall
be of no further force or effect.
Dated:
------------------------------
------------------------------------
Printed Name of Holder
By:
---------------------------------
Signature
------------------------------------
Printed Name of Person Signing (and
indicate capacity of person signing
if signing as custodian, trustee, or
on behalf of an entity)
A-2
<PAGE> 31
EXHIBIT B
MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL
(i) The Company and each of its significant subsidiaries (as that term is
defined in Regulation S-X of the Securities Act) has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company and each of its significant subsidiaries has the corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus;
(iii) The Company and each of its significant subsidiaries is duly qualified to
do business as a foreign corporation and is in good standing in each state of
the United States, if any, in which the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where the
failure to be so qualified or be in good standing would not have a Material
Adverse Effect. To such counsel's knowledge, the Company does not own or
control, directly or indirectly, any corporation, association or other entity
other than [list significant subsidiaries] [which are significant subsidiaries
as that term is defined in Regulation S-X of the Security Act];
(iv) The authorized capital stock of the Company consists of 5,000,000 shares of
Preferred Stock, of which no shares are outstanding, and 65,000,000 shares of
Common Stock, of which there are outstanding ____ shares. The capital stock of
the Company has been duly and validly issued and is fully paid and
nonassessable, and, to such counsel's knowledge, will not have been issued in
violation of any preemptive right, co-sale right, registration right, right of
first refusal or other similar right;
(v) All issued and outstanding shares of capital stock of each of significant
subsidiaries of the Company have been duly authorized and validly issued and are
fully paid and nonassessable, and, to such counsel's knowledge, have not been
issued in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right and are owned
by the Company free and clear of any pledge, lien, security interest or
encumbrance, claim or equitable interest.
(vi) The Firm Shares or the Option Shares, as the case may be, to be issued by
the Company pursuant to the terms of this Agreement have been duly authorized
and, upon issuance and delivery against payment therefor in accordance with the
terms hereof, will be duly and validly issued and fully paid and nonassessable,
and will not have been issued in violation of any preemptive right, co-sale
right, registration right, right of first refusal or other similar right.
B-1
<PAGE> 32
(vii) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares to be
issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary corporate action
on the part of the Company and has been duly executed and delivered by the
Company and, assuming due authorization, execution and delivery by you, is a
valid and binding agreement of the Company, enforceable in accordance with its
terms, except as rights to indemnification hereunder may be limited by
applicable law and except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general equitable principles;
(ix) The Registration Statement has become effective under the Securities Act
and, to such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the Securities Act;
(x) The 8-A Registration Statement complied as to form in all material respects
with the requirements of the Exchange Act; the 8-A Registration Statement has
become effective under the Exchange Act; and the Firm Shares or the Option
Shares have been validly registered under the Securities Act and the Rules and
Regulations of the Exchange Act and the applicable rules and regulations of the
Commission thereunder;
(xi) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements, including supporting
schedules, and financial data derived therefrom as to which such counsel need
express no opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of the
Securities Act and the applicable Rules and Regulations;
(xii) The information in the Prospectus under the caption "Description of
Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; and the forms of certificates evidencing the Common
Stock and filed as exhibits to the Registration Statement comply with Delaware
law;
(xiii) The description in the Registration Statement and the Prospectus of the
charter and bylaws of the Company and of statutes are accurate and fairly
present the information required to be presented by the Securities Act;
(xiv) To such counsel's knowledge, there are no agreements, contracts, leases or
documents to which the Company is a party of a character required to be
described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which are not described or
referred to therein or filed as required;
B-2
<PAGE> 33
(xv) The issuance and sale by the Company of the Shares as contemplated by this
Agreement will not result (a) in any violation of the Company's charter or
bylaws, (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
any bond, debenture, note or other evidence of indebtedness, or any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument known to such counsel to which the Company is a
party or by which its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, (c) to such counsel's knowledge, any order,
writ or decree of any court, government or governmental agency or body having
jurisdiction over the Company or any of its significant subsidiaries, or over
any of their properties or operations;
(xvi) No consent, approval, authorization or order of or qualification with any
court, government or governmental agency or body having jurisdiction over the
Company or any of its significant subsidiaries, or over any of their properties
or operations is necessary in connection with the consummation by the Company of
the transactions herein contemplated, except (i) such as have been obtained
under the Securities Act, (ii) such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the distribution
of the Shares by the Underwriters, (iii) such as may be required by the National
Association of Securities Dealers, LLC and (iv) such as may be required under
the federal or provincial laws of Canada;
(xvii) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or any of its significant
subsidiaries of a character required to be disclosed in the Registration
Statement or the Prospectus by the Securities Act or the applicable rules and
regulations of the Commission thereunder, other than those described therein;
(xviii) To such counsel's knowledge, neither the Company nor any of its
significant subsidiaries is presently (a) in material violation of its
respective charter or bylaws, or (b) in material breach of any applicable
statute, rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court or governmental agency or body
having jurisdiction over the Company or any of its significant subsidiaries, or
over any of their properties or operations; and
(xix) To such counsel's knowledge, except as set forth in the Registration
Statement and Prospectus, no holders of Company Shares or other securities of
the Company have registration rights with respect to securities of the Company
and, except as set forth in the Registration Statement and Prospectus, all
holders of securities of the Company having rights known to such counsel to
registration of such shares of Company Shares or other securities, because of
the filing of the Registration Statement by the Company have, with respect to
the offering contemplated thereby, waived such rights or such rights have
expired by reason of lapse of time following notification of the Company's
intent to file the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full satisfaction of
such rights.
B-3
<PAGE> 34
(xx) The Company is not and, after giving effect to the offering and the
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(xxi) To such counsel's knowledge, the Company owns or possesses
sufficient trademarks, trade names, patent rights, copyrights, licenses,
approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their
business as now conducted; and the expected expiration of any such
Intellectual Property Rights would not result in a Material Adverse
Effect. The Company has not received any notice of infringement or
conflict with asserted Intellectual Property Rights of others, which
infringement or conflict, if the subject of an unfavorable decision, would
result in a Material Adverse Effect. To such counsel's knowledge, the
Company's discoveries, inventions, products, or processes referred to in
the Registration Statement or Prospectus do not infringe or conflict with
any right or patent which is the subject of a patent application known to
the Company.
In addition, such counsel shall state that such counsel has participated
in conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified and are not passing upon the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, nothing has come to the attention of such counsel
which leads them to believe that, at the time the Registration Statement became
effective and at all times subsequent thereto up to and on the First Closing
Date or Second Closing Date, as the case may be, the Registration Statement and
any amendment or supplement thereto, when such documents became effective or
were filed with the Commission (other than the financial statements including
supporting schedules and other financial and statistical information derived
therefrom, as to which such counsel need express no comment) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or at the First
Closing Date or the Second Closing Date, as the case may be, the Registration
Statement, the Prospectus and any amendment or supplement thereto (except as
aforesaid) contained any untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
B-4
<PAGE> 35
EXHIBIT C
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
(i) The Shares to be issued by the Company have been duly authorized and,
upon issuance and delivery and payment therefor in accordance with the
terms of the Underwriting Agreement, will be validly issued, fully paid
and non-assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Securities Act; the Registration
Statement has become effective under the Act and, to such counsel's
knowledge, no stop order proceedings with respect thereto have been
instituted or threatened or are pending under the Securities Act.
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares
or the Option Shares have been validly registered under the Securities Act
and the Rules and Regulations of the Exchange Act and the applicable rules
and regulations of the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives from Cooley Godward LLP, dated the date hereof,
and furnished to you in accordance with the provisions of the Underwriting
Agreement. Such opinions appear on their face to be appropriately responsive to
the requirements of the Underwriting Agreement.
In addition, such counsel shall state that such counsel has participated
in conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto, when such
documents became effective or were filed with the Commission (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement
C-1
<PAGE> 36
of a material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
C-2
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
VIXEL CORPORATION
VIXEL CORPORATION, a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
1. The name of the corporation is Vixel Corporation. The date of filing
of its original Certificate of Incorporation with the Secretary of State was
February 13, 1995.
2. This Restated Certificate of Incorporation has been duly adopted in
accordance with Sections 228, 242 and 245 of the Delaware General Corporation
Law, the Board of Directors of the corporation having adopted resolutions
setting forth the proposed Restated Certificate of Incorporation, declaring its
advisability, and directing that it be submitted to the stockholders of the
corporation for their approval; the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted having consented in writing to the adoption thereof; and
written notice of such adoption by the stockholders without a meeting by less
than unanimous written consent having been given to those stockholders from whom
such written consent was not received.
3. This Restated Certificate of Incorporation restates and integrates
and further amends the Certificate of Incorporation of this corporation by
restating the text of the original Certificate of Incorporation in full to read
as follows:
I.
The name of this corporation is Vixel Corporation (the "Corporation").
II.
The address of the registered office of the Corporation in the State of
Delaware is:
The Corporation Trust Company
1209 Orange Street
Wilmington, DE 19801
County of New Castle
The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
III.
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
1.
<PAGE> 2
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares the corporation is authorized to issue is fifty million one hundred
sixty thousand four (50,160,004) shares, (i) thirty million (30,000,000) shares
of which shall be Common Stock (the "Common Stock") and (ii) twenty million one
hundred sixty thousand four (20,160,004) shares of which shall be Preferred
Stock (the "Preferred Stock"). The Common Stock and the Preferred Stock shall
have a par value of one-tenth of one cent ($.001) per share.
B. The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares of such stock then outstanding) by
the affirmative vote of the holders of a majority of the voting stock of the
Corporation (voting together on an as-converted basis).
C. DESIGNATION OF SERIES AND NUMBER OF AUTHORIZED SHARES. Five series of
Preferred Stock are created hereby: (i) five million seven hundred eighty-five
thousand five hundred seventy-three (5,785,573) of the authorized shares of
Preferred Stock are designated as "Series A Preferred Stock" (the "Series A
Preferred"); (ii) five million two hundred forty-three thousand eight hundred
and six (5,243,806) of the authorized shares of Preferred Stock are designated
as "Series B Preferred Stock" (the "Series B Preferred"); (iii) seven hundred
forty-seven thousand one hundred and forty-three (747,143) of the authorized
shares of Preferred Stock are designated as "Series C Preferred Stock" (the
"Series C Preferred"); (iv) two million (2,000,000) of the authorized shares of
Preferred Stock are designated as "Series D Preferred Stock" (the "Series D
Preferred"); (v) four million six hundred twenty-three thousand four hundred
eighty-two (4,623,482) of the authorized shares of Preferred Stock are
designated as "Series E Preferred Stock" ("the Series E Preferred"); and (vi)
one million seven hundred sixty thousand (1,760,000) shares of the authorized
shares of Preferred Stock are designated as "Series F Preferred Stock" ("the
Series F Preferred"). The Series A Preferred, the Series B Preferred, the Series
C Preferred, the Series D Preferred, the Series E Preferred and the Series F
Preferred may be collectively referred to herein as the "Convertible Preferred
Stock."
D. RIGHTS, PREFERENCES AND RESTRICTIONS OF CONVERTIBLE PREFERRED STOCK.
The Convertible Preferred Stock shall have the rights, preferences, privileges,
and the qualifications, limitations and restrictions thereof, as follows:
1. DIVIDEND RIGHTS. Holders of Convertible Preferred Stock shall
be entitled to receive cash dividends when, as and if declared by the Board of
Directors, out of any assets that are legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock of the Corporation) on the Common Stock of the Corporation, at the rate
per share declared by the Board of Directors or, if greater (as determined on an
as-converted basis), an amount equal to
2.
<PAGE> 3
that paid on the Common Stock. Such dividends shall not be cumulative. After
payment of such dividends, any additional dividends declared shall be
distributed among all holders of Convertible Preferred Stock and all holders of
Common Stock in proportion to the number of shares of Common Stock that would be
held by each such holder if all shares of Convertible Preferred Stock were
converted into Common Stock at the then effective Conversion Rate for each
series of Convertible Preferred Stock.
2. VOTING RIGHTS.
a. Except as otherwise required by law or pursuant to
any other provision hereof, each holder of shares of Convertible Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
shares of Convertible Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being rounded to
the nearest whole share) at the record date for determination of stockholders
entitled to vote on such matters. With respect to such vote, such holder shall
have full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders' meeting in accordance with the by-laws of
this Corporation, and shall be entitled to vote, except as otherwise provided
herein, together with holders of Common Stock, and not separately as a class,
with respect to any question upon which holders of Common Stock have the right
to vote.
b. The holders of shares of Series A Preferred Stock,
voting separately as a class, shall be entitled to elect two members of the
Board of Directors of the Corporation (the "Series A Directors"), the holders of
shares of Series B Preferred Stock, voting separately as a class, shall be
entitled to elect two members of the Board of Directors of the Corporation (the
"Series B Directors"), the holders of shares of Series D Preferred Stock, voting
separately as a class, shall be entitled to elect one member of the Board of
Directors of the Corporation (the "Series D Director"), and the holders of
shares of Series F Preferred Stock, voting separately as a class, shall be
entitled to elect one member of the Board of Directors of the Corporation (the
"Series F Director"). Additional members of the Board of Directors, if any,
(collectively, the "Other Directors") shall be elected by the holders of shares
of Common Stock and Convertible Preferred Stock, voting together as a single
class. Any Series A, Series B, Series D or Series F Director, as the case may
be, may be removed from the Board of Directors only by the affirmative vote of
the holders of a majority of the Series A, Series B, Series D or Series F
Preferred Stock, as the case may be, voting separately as a class, and the Other
Directors may be removed from the Board of Directors only by the affirmative
vote of the holders of a majority of the Common Stock and Convertible Preferred
Stock, voting together with as a single class. If a vacancy on the Board of
Directors is to be filled by the Board of Directors, only a director or
directors elected by the same class of stockholders as those who would be
entitled to vote to fill such vacancy, if any, shall vote to fill such vacancy.
3. LIQUIDATION RIGHTS. In the event of any liquidation,
dissolution, or winding up of the Corporation, either voluntary or involuntary,
distributions to the shareholders of the Corporation shall be made in the
following manner:
3.
<PAGE> 4
a. The holders of Series E Preferred shall be entitled
to be paid out of the assets of the Corporation, prior and in preference to any
payment or distribution out of the assets of the Corporation to holders of the
Series A, Series B, Series C, Series D or Series F Preferred or the Common Stock
or any other class or series of capital stock of the Corporation, an amount per
share equal to the sum of four dollars fifty cents ($4.50) (the "Series E
Original Issue Price") (subject to adjustment for stock splits, stock dividends
and recapitalizations) for each outstanding share of Series E Preferred plus an
amount equal to all declared but unpaid dividends on such share to the date
fixed for distribution (the "Series E Liquidation Preference"). If the assets
and funds thus distributed to the holders of the Series E Preferred shall be
insufficient to permit payment to such holders of the full aforesaid
preferential amount, then the entire assets of the Corporation legally available
for distribution shall be distributed ratably to the holders of the Series E
Preferred in proportion to the aggregate Series E Liquidation Preference of the
shares of Series E Preferred then held by them.
b. Thereafter, the holders of Series A Preferred shall
be entitled to be paid out of the assets of the Corporation an amount per share
equal to the sum of one dollar twenty-five cents ($1.25) (the "Series A Original
Issue Price") (subject to adjustment for stock splits, stock dividends and
recapitalizations) for each outstanding share of Series A Preferred plus an
amount equal to all declared but unpaid dividends on each such share to the date
fixed for distribution (the "Series A Liquidation Preference"). The holders of
Series B Preferred shall be entitled to be paid out of the assets of the
Corporation an amount per share equal to one dollar and seventy-five cents
($1.75) (the "Series B Original Issue Price") (subject to adjustment for stock
splits, stock dividends and recapitalizations) for each outstanding share of
Series B Preferred plus an amount equal to all declared but unpaid dividends on
share to the date fixed for distribution (the "Series B Liquidation
Preference"). The holders of Series C Preferred shall be entitled to be paid out
of the assets of the Corporation an amount per share equal to one dollar and
seventy-five cents ($1.75) (subject to adjustment for stock splits, stock
dividends and recapitalizations) for each outstanding share of Series C
Preferred plus an amount equal to all declared but unpaid dividends on each
share to the date fixed for distribution (the "Series C Liquidation
Preference"). The holders of Series D Preferred shall be entitled to be paid out
of the assets of the Corporation an amount per share equal to the sum of four
dollars ($4.00) (the "Series D Original Issue Price") (subject to adjustment for
stock splits, stock dividends and recapitalizations) for each outstanding share
of Series D Preferred plus an amount equal to all declared but unpaid dividends
on such share to the date fixed for distribution (the "Series D Liquidation
Preference"). The holders of Series F Preferred shall be entitled to be paid out
of the assets of the Corporation an amount per share equal to the sum of four
dollars ($4.00) (the "Series F Original Issue Price") (subject to adjustment for
stock splits, stock dividends and recapitalizations) for each outstanding share
of Series F Preferred plus an amount equal to all declared but unpaid dividends
on such share to the date fixed for distribution (the "Series F Liquidation
Preference"). The Series A, Series B, Series C, Series D and Series F Preferred
shall rank on a parity as to the receipt of the respective preferential amounts
for each such series. If the assets and funds thus available for distribution to
the holders of the Series A, Series B, Series C, Series D and Series F Preferred
shall be insufficient to permit payment to such holders of the full aforesaid
preferential amounts, then the entire assets of the Corporation legally
available for distribution (after payment of the Series E Liquidation
Preference) shall be distributed ratably to
4.
<PAGE> 5
the holders of the Series A, Series B, Series C, Series D and Series F Preferred
holders in proportion to the aggregate Series A Liquidation Preference, Series B
Liquidation Preference, Series C Liquidation Preference, Series D Liquidation
Preference and Series F Liquidation Preference of the shares of the Series A,
Series B, Series C, Series D and Series F Preferred then held by them.
c. Thereafter, any remaining assets of the Corporation
legally available for distribution, if any, shall be distributed ratably among
the holders of Common Stock and the holders of the Convertible Preferred Stock
on an as-converted basis.
d. An Acquisition or an Asset Transfer, as defined in
subparagraph 4(i)(ii) below, shall be considered a liquidation for purposes of
this section. Notwithstanding the foregoing, additional purchases of the
Corporation's stock in connection with any transaction that might otherwise be
considered an Acquisition by persons who were, immediately prior to such
transaction, holders of the capital stock of the Corporation, shall not be
included in such definition.
4. CONVERSION TO COMMON STOCK. The holders of the Convertible
Preferred Stock shall have the following rights with respect to the conversion
of the Convertible Preferred Stock into shares of Common Stock:
a. OPTIONAL CONVERSION. Subject to and in compliance
with the provisions of this Section 4, any shares of Convertible Preferred Stock
may, at the option of the holder, be converted at any time into fully-paid and
nonassessable shares of Common Stock. The number of shares of Common Stock to
which a holder of a particular series of Convertible Preferred Stock shall be
entitled upon conversion shall be the product obtained by multiplying the
applicable "Conversion Rate" then in effect (determined as provided in paragraph
4(b)) by the number of shares of Convertible Preferred Stock of the applicable
series being converted.
b. CONVERTIBLE PREFERRED STOCK CONVERSION RATE. The
conversion rate in effect at any time for conversion of a particular series of
Convertible Preferred Stock (the applicable "Conversion Rate") shall be the
quotient obtained by dividing the "Original Issue Price" (as adjusted for any
stock combinations, splits or stock dividends with respect to such series of
Convertible Preferred Stock) with respect to such series (as provided in the
table below) by the applicable "Conversion Price" for such series (calculated as
provided in paragraph 4(c)).
5.
<PAGE> 6
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK ORIGINAL ISSUE PRICE
BY SERIES PER SHARE
--------------------------------------------------------------------
<S> <C>
Series A Preferred $1.25
Series B Preferred $1.75
Series C Preferred $3.50
Series D Preferred $4.00
Series E Preferred $4.50
Series F Preferred $4.00
</TABLE>
c. CONVERSION PRICE. The applicable conversion price
("Conversion Price") for a particular series of Convertible Preferred Stock
initially shall be the applicable Original Issue Price for such series as set
forth in paragraph 4(b). Such initial Conversion Price for each series of
Convertible Preferred Stock shall be adjusted from time to time in accordance
with this Section 4. All references to the Conversion Price for a particular
series of Convertible Preferred Stock shall mean the applicable Conversion Price
for such series as so adjusted.
d. MECHANICS OF CONVERSION. Each holder of Convertible
Preferred Stock who desires to convert the same into shares of Common Stock
pursuant to this Section 4 shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or any transfer agent
for the Convertible Preferred Stock, and shall give written notice to the
Corporation at such office that such holder elects to convert the same. Such
notice shall state the number of shares of Convertible Preferred Stock being
converted. Thereupon, the Corporation promptly shall issue and deliver at such
office to such holder a certificate or certificates for the number of shares of
Common Stock to which such holder is entitled and promptly shall pay in cash or,
to the extent sufficient funds are not then legally available therefor, in
Common Stock (at the fair market value of the Common Stock determined by the
Board of Directors as of the date of such conversion), any declared and unpaid
dividends on the shares of Convertible Preferred Stock being converted. Such
conversion shall be deemed to have been made at the close of business on the
date of such surrender of the certificates representing the shares of
Convertible Preferred Stock to be converted, and the person entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder of such shares of Common Stock on such date.
e. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the date the first
share of Series E Preferred is issued (the "Original Issue Date") effect a
subdivision of the outstanding Common Stock, the Conversion Price for each
series of Convertible Preferred Stock in effect immediately before such
subdivision shall be decreased proportionately. Conversely, if the Corporation
shall at any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price for each series of
6.
<PAGE> 7
Convertible Preferred Stock in effect immediately before such combination shall
be increased proportionately. Any adjustment under this paragraph 4(e) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
f. ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND
DISTRIBUTIONS. If the Corporation at any time or from time to time after the
Original Issue Date makes or fixes a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock, in each such event the Conversion
Price then in effect for each series of Convertible Preferred Stock shall be
decreased as of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect for each series of Convertible Preferred Stock
by a fraction (A) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date, and (B) the denominator of which is
the total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date
plus the number of shares of Common Stock issuable in payment of such dividend
or distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, such Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter such Conversion Price shall
be adjusted pursuant to this paragraph 4(f) to reflect the actual payment of
such dividend or distribution.
g. ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If
the Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, in each such event provision
shall be made so that the holders of each series of Convertible Preferred Stock
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of other securities of the
Corporation they would have received had their shares of such series of
Convertible Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, subject to all other adjustments called for
during such period under this Section 4 with respect to the rights of the
holders of such series of Convertible Preferred Stock or with respect to such
other securities by their terms.
h. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If at any time or from time to time after the Original Issue Date,
the Common Stock issuable upon the conversion of each series of Convertible
Preferred Stock is changed into the same or a different number of shares of any
class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than an Acquisition or Asset Transfer or a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 4), in
any such event each holder of such series of Convertible Preferred Stock shall
have the right thereafter to convert such stock into the kind and amount of
stock and other securities and property receivable upon such recapitalization,
reclassification or other change by holders of the maximum number of shares of
Common Stock
7.
<PAGE> 8
into which the shares of such series of Convertible Preferred Stock could have
been converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein or with respect to
such other securities or property by the terms thereof.
i. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS.
(i) If at any time or from time to time after
the Original Issue Date, there is a capital reorganization of the Common Stock
(other than an Acquisition or Asset Transfer or a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 4), as a part of such capital reorganization,
provision shall be made so that the holders of any series of Convertible
Preferred Stock thereafter shall be entitled to receive upon conversion of such
series of Convertible Preferred Stock the number of shares of stock or other
securities or property of the Corporation to which a holder of the number of
shares of Common Stock deliverable upon conversion would have been entitled on
such capital reorganization, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Section 4 with respect to
the rights of the holders of such series of Convertible Preferred Stock after
the capital reorganization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price with respect to such series of
Convertible Preferred Stock, as applicable, then in effect and the number of
shares issuable upon conversion of such series of Convertible Preferred Stock)
shall be applicable after that event and be as nearly equivalent as practicable.
(ii) For the purposes of this Certificate of
Incorporation: (A) "Acquisition" shall mean any consolidation or merger of the
Corporation with or into any other corporation or other entity or person, or any
other corporate reorganization, in which the stockholders of the Corporation
immediately prior to such consolidation, merger or reorganization, own less than
fifty percent (50%) of the voting power of the surviving corporation or other
entity or person immediately after such consolidation, merger or reorganization,
or any transaction or series of related transactions in which in excess of fifty
percent (50%) of the Corporation's voting power is transferred; and (B) "Asset
Transfer" shall mean a sale, lease or other disposition of all or substantially
all of the assets of the Corporation.
j. ADJUSTMENT OF CONVERSION PRICE OF SERIES A, SERIES B,
SERIES D, SERIES E AND SERIES F PREFERRED FOR DILUTIVE ISSUANCES. The Conversion
Price of the Series A, Series B, Series D, Series E and Series F Preferred shall
be subject to adjustment from time to time as follows:
(i) If at any time or from time to time after
the Original Issue Date, the Corporation issues or sells, or is deemed by the
express provisions of this paragraph 4(j) to have issued or sold, Additional
Shares of Common Stock (as hereinafter defined), other than as a dividend or
other distribution on any class of stock as provided in paragraph 4(f) above,
and other than a subdivision or combination of shares of Common Stock as
provided in paragraph 4(e) above, for an Effective Price (as hereinafter
defined) (A) in the case of each such series of Series A, Series B and Series E
Preferred Stock, less than the Conversion Price then in
8.
<PAGE> 9
effect for such series of Series A, Series B and Series E Preferred Stock, or
(B) in the case of the series of Series D and Series F Preferred Stock, less
than $1.75 per share (as adjusted in accordance with Article IV, Sections
D(4)(e) through D(4)(i) hereof), then and in each such case the Conversion Price
then in effect for such series of Series A, Series B, Series D, Series E and
Series F Preferred Stock shall be reduced, as of the opening of business on the
date of such issue or sale, to a price determined by multiplying the then
existing Conversion Price for such Series A, Series B, Series D, Series E or
Series F Preferred Stock by a fraction (A) the numerator of which shall be the
sum of (1) the number of shares of Common Stock deemed outstanding (as defined
below) immediately prior to such issue or sale, plus (2) the number of shares of
Common Stock which the aggregate consideration received (as defined in
subparagraph 4(j)(ii)) by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at the Conversion Price then in
effect for such Series A, Series B or Series E Preferred Stock or, in the case
of Series D or Series F Preferred Stock, $1.75 per share (as adjusted in
accordance with Article IV, Sections D4(e) through D4(i) hereof), and (B) the
denominator of which shall be the sum of (1) the number of shares of Common
Stock deemed outstanding (as defined below) immediately prior to such issue or
sale, plus (2) the total number of Additional Shares of Common Stock so issued.
For the purposes of the preceding sentence, the number of shares of
Common Stock deemed to be outstanding as of a given date shall be the sum of (A)
the number of shares of Common Stock actually outstanding, (B) the number of
shares of Common Stock into which the then outstanding shares of Convertible
Preferred Stock could be converted if fully converted on the day immediately
preceding the given date, and (C) the number of shares of Common Stock which
could be obtained through the exercise or conversion of all other rights,
options and convertible securities outstanding on the day immediately preceding
the given date.
(ii) For the purpose of making any adjustment
required under this paragraph 4(j), the consideration received by the
Corporation for any issue or sale of securities shall (A) to the extent it
consists of cash, be computed at the gross cash proceeds (before underwriters'
commission, expenses and fees) received by the Corporation, (B) to the extent it
consists of property other than cash, be computed at the fair value of that
property as determined in good faith by the Board of Directors, and (C) if
Additional Shares of Common Stock, Convertible Securities (as hereinafter
defined) or rights or options to purchase either Additional Shares of Common
Stock or Convertible Securities are issued or sold together with other stock or
securities or other assets of the Corporation for a consideration which covers
both, be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors to be allocable to
such Additional Shares of Common Stock, Convertible Securities or rights or
options.
(iii) For the purpose of the adjustment required
under this paragraph 4(j), if the Corporation issues or sells any rights or
options for the purchase of, or stock or other securities convertible into,
Additional Shares of Common Stock (such convertible stock or securities being
herein referred to as "Convertible Securities") and if the Effective Price of
such Additional Shares of Common Stock is (A) in the case of the series of
Series A, Series B and Series E Preferred Stock, less than the Conversion Price
then in effect for such Series A, Series B or Series E Preferred Stock, as the
case may be, or (B) in the case of the Series D or Series F
9.
<PAGE> 10
Preferred Stock, less than $1.75 per share (as adjusted in accordance with
Article IV, Sections D4(e) through D4(i) hereof), in each such case the
Corporation shall be deemed to have issued at the time of the issuance of such
rights or options or Convertible Securities the maximum number of Additional
Shares of Common Stock issuable upon exercise or conversion thereof and to have
received as consideration for the issuance of such shares an amount equal to the
total amount of the consideration, if any, received by the Corporation for the
issuance of such rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of consideration, if any, payable
to the Corporation upon the exercise of such rights or options, plus, in the
case of Convertible Securities, the minimum amounts of consideration, if any,
payable to the Corporation (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion
thereof; provided that if in the case of Convertible Securities the minimum
amounts of such consideration cannot be ascertained, but are a function of
antidilution or similar protective clauses, the Corporation shall be deemed to
have received the minimum amounts of consideration without reference to such
clauses; provided further that if the minimum amount of consideration payable to
the Corporation upon the exercise or conversion of rights, options or
Convertible Securities is reduced over time or on the occurrence or
non-occurrence of specified events other than by reason of antidilution
adjustments, the Effective Price shall be recalculated using the figure to which
such minimum amount of consideration is reduced; provided further that if the
minimum amount of consideration payable to the Corporation upon the exercise or
conversion of such rights, options or Convertible Securities is subsequently
increased, the Effective Price shall be again recalculated using the increased
minimum amount of consideration payable to the Corporation upon the exercise or
conversion of such rights, options or Convertible Securities. No further
adjustment of the Conversion Price for such series of Series A, Series B, Series
D, Series E or Series F Preferred Stock, as adjusted upon the issuance of such
rights, options or Convertible Securities, shall be made as a result of the
actual issuance of Additional Shares of Common Stock on the exercise of any such
rights or options or the conversion of any such Convertible Securities. If any
such rights or options or the conversion privilege represented by any such
Convertible Securities shall expire without having been exercised, the
Conversion Price for such series of Convertible Preferred Stock, as adjusted
upon the issuance of such rights, options or Convertible Securities, shall be
readjusted to the Conversion Price which would have been in effect had an
adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any, actually
issued or sold on the exercise of such rights or options or rights of conversion
of such Convertible Securities, and such Additional Shares of Common Stock, if
any, were issued or sold for the consideration actually received by the
Corporation upon such exercise, plus the consideration, if any, actually
received by the Corporation for the granting of all such rights or options,
whether or not exercised, plus the consideration received for issuing or selling
the Convertible Securities actually converted, plus the consideration, if any,
actually received by the Corporation (other than by cancellation of liabilities
or obligations evidenced by such Convertible Securities) on the conversion of
such Convertible Securities, provided that such readjustment shall not apply to
prior conversions of Series A, Series B, Series D, Series E or Series F
Preferred Stock.
(iv) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued by the Corporation or deemed to be issued
pursuant to this paragraph
10.
<PAGE> 11
4(j), whether or not subsequently reacquired or retired by the Corporation other
than (A) shares of Common Stock issued upon conversion of the Convertible
Preferred Stock; (B) shares of Common Stock and/or options, warrants or other
Common Stock purchase rights, and the Common Stock issued pursuant to such
options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) issued or to be issued to
employees, officers or directors of, or consultants or advisors to the
Corporation or any subsidiary pursuant to stock purchase or stock option plans
or other arrangements that are approved by the Board; and (C) shares of Common
Stock issued pursuant to the exercise of options, warrants or convertible
securities outstanding as of the Original Issue Date. The "Effective Price" of
Additional Shares of Common Stock shall mean the quotient determined by dividing
the total number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold by the Corporation under this paragraph 4(j), into
the aggregate consideration received, or deemed to have been received by the
Corporation for such issue under this paragraph 4(j), for such Additional Shares
of Common Stock.
(v) There shall be no adjustment to the Series C
Conversion Price pursuant to this Section 4(j).
k. NOTICES OF RECORD DATE. Upon (i) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or (ii) any Acquisition or other capital
reorganization of the Corporation, any reclassification or recapitalization of
the capital stock of the Corporation, any merger or consolidation of the
Corporation with or into any other corporation, or any Asset Transfer, or any
voluntary or involuntary dissolution, liquidation or winding up of the
Corporation, the Corporation shall mail to each holder of Convertible Preferred
Stock (A) at least twenty (20) days prior written notice of the record date for
the purpose of such dividend or distribution and a description of such dividend
or distribution, (and specifying the date on which holders of stock shall be
entitled thereto) or for determining rights to vote, if any, in respect to the
matters referred to in (ii) above; and (B) in the case of matters referred to in
(ii) above, at least twenty (20) days prior written notice of the date on which
any such Acquisition, reorganization, reclassification, transfer, consolidation,
merger, Asset Transfer, dissolution, liquidation or winding up is expected to
become effective, and the date, if any, that is to be fixed as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up.
l. AUTOMATIC CONVERSION.
(i) Each share of any series of Convertible
Preferred Stock automatically shall be converted into shares of Common Stock,
based on the Conversion Rate then in effect with respect to such series of
Convertible Preferred Stock, immediately upon: (A) the closing of a firmly
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Corporation where (1)(x) the per share price
(before underwriters' commissions, expenses and fees) is at least $8.50 per
share and (y) the gross cash proceeds to the
11.
<PAGE> 12
Corporation (before underwriting discounts, commissions and fees) are at least
twenty million dollars ($20,000,000) or (2)(x) with respect to the Series A,
Series B, Series C, Series D Preferred and Series F, the holders of at least
two-thirds of the outstanding shares of the Series A, Series B, Series C, Series
D and Series F Preferred (voting together as a single class on an as-converted
basis) vote in favor of conversion in connection with such underwritten public
offering and (y) in the case of the Series E Preferred, the holders of a
majority of the Series E Preferred vote in favor of conversion in connection
with such underwritten public offering. Upon any such conversion, any declared
and unpaid dividends shall be paid in accordance with the provisions of Section
1.
(ii) Upon the occurrence of an event specified
in subparagraph 4(1)(i) above, the outstanding shares of Convertible Preferred
Stock shall be converted without any further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent; provided, however, that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless the certificates
evidencing such shares of Convertible Preferred Stock, either are delivered to
the Corporation or its transfer agent as provided below, or the holder notifies
the Corporation or its transfer agent that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. Upon the occurrence of such conversion of the Convertible
Preferred Stock, the holders of Convertible Preferred Stock shall surrender the
certificates representing such shares at the office of the Corporation or any
transfer agent for the Convertible Preferred Stock. Thereupon, there shall be
issued and delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Convertible Preferred Stock surrendered were convertible on the date on which
such conversion occurred, and the Corporation promptly shall pay in cash or, at
the option of the Corporation, Common Stock (at the fair market value of the
Common Stock determined by the Board as of the date of such conversion), or
both, together with all declared and unpaid dividends on the shares of such
Convertible Preferred Stock being converted, to and including the date of such
conversion.
m. FRACTIONAL SHARES. No fractional shares of Common
Stock shall be issued upon conversion of any series of Convertible Preferred
Stock. All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of a series of Convertible Preferred Stock by
a holder thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of any
fractional share, the Corporation shall, in lieu of issuing any fractional
share, pay cash equal to the product of such fraction multiplied by the Common
Stock's fair market value (as determined by the Board) on the date of
conversion.
n. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Convertible Preferred Stock, such number of its
shares of Common Stock as shall from time to
12.
<PAGE> 13
time be sufficient to effect the conversion of all outstanding shares of the
Convertible Preferred Stock. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Convertible Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
o. NOTICES. Any notice required by the provisions of
this Article IV shall be in writing and shall be deemed effectively given: (i)
upon personal delivery to the party to be notified, (ii) when sent by confirmed
telex or facsimile if sent during normal business hours of the recipient; if
not, then on the next business day, (iii) five (5) days after having been sent
by registered or certified mail, return receipt requested, postage prepaid, or
(iv) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Corporation.
p. PAYMENT OF TAXES. The Corporation will pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of any series of Convertible Preferred Stock, excluding any
tax or other charge imposed in connection with any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that in which
the shares of such Convertible Preferred Stock so converted were registered.
q. NO DILUTION OR IMPAIRMENT. The Corporation shall not
amend its Certificate of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, for the purpose of avoiding or seeking
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but shall at all times in good faith
assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of the
Convertible Preferred Stock against dilution or other impairment.
5. PROTECTIVE PROVISIONS.
a. So long as there remain outstanding at least an
aggregate of 3,750,000 shares of Series A, Series B, Series D, Series E and
Series F Preferred Stock, the Corporation shall not, without first obtaining the
separate approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the Series A, Series B, Series D, Series E and
Series F Preferred Stock, voting together as a class, take any of the following
actions:
(i) amend or repeal any provision of the
Corporation's Certificate of Incorporation if such action would alter or change
the rights, preferences or privileges provided for the Series A, Series B,
Series D, Series E or Series F Preferred so as to adversely affect the holders
thereof;
(ii) redeem or repurchase or otherwise acquire
any shares of Common Stock other than (A) pursuant to the exercise of any
preexisting contractual or legal
13.
<PAGE> 14
rights of first refusal or repurchase or any repurchase of any outstanding
securities of the Corporation that is unanimously approved by the Corporation's
Board of Directors;
(iii) pay or declare any dividend on shares of
Common Stock if dividends on the Convertible Preferred Stock payable pursuant to
Section 1 remain unpaid, except dividends payable solely in Common Stock;
(iv) authorize or issue shares of any class of
stock having a preference over, or being on a parity with, the Series A, Series
B, Series D, Series E or Series F Preferred with respect to dividends or assets;
(v) voluntarily dissolve or liquidate the
Corporation;
(vi) enter into a consolidation, merger or
reorganization of the Corporation with or into any other corporation or other
entity or person, or any other corporate reorganization, in which (A) the
Corporation is not the surviving entity or (B) the stockholders of the
Corporation immediately prior to such consolidation, merger or reorganization,
own less than fifty percent (50%) of the voting power of the surviving entity
immediately after such consolidation, merger or reorganization; or
(vii) enter into any transaction or series of
related transactions in which in excess of fifty percent (50%) of the
Corporation's voting power is transferred.
b. So long as there remain outstanding at least 750,000
shares of Series E Preferred, the corporation shall not, without first obtaining
the approval (by vote or written consent, as provided by law) of the holders of
at least a majority of the Series E Preferred, voting or consenting as a
separate class, take any of the following actions:
(i) amend or repeal Sections D(3) or D(6) of
this Article IV or this Section 5(b), amend or repeal any other provision of the
Corporation's Certificate of Incorporation if such action would alter or change
the rights, preferences or privileges provided for the Series E Preferred so as
to adversely affect the holders of the Series E Preferred in a manner different
than the other shares of Convertible Preferred Stock ;
(ii) increase the Conversion Price of the Series
E Preferred Stock (except as otherwise currently contemplated by Section D(4) of
this Article IV), or amend the Corporation's Certificate of Incorporation to
require conversion of the Series E Preferred Stock (except as currently
contemplated by Section D(4)(1) of this Article IV); or
(iii) exchange or reclassify any outstanding
shares of Convertible Preferred Stock or Common Stock for any class or series of
capital stock of the Corporation with preference over the Series E Preferred
with respect to dividends or assets.
14.
<PAGE> 15
6. REDEMPTION
a. The Corporation shall be obligated to redeem the
Series E Preferred as follows:
(i) At any time after October 21, 2001, the
holders of at least a majority of the then outstanding shares of Series E
Preferred, voting as a separate class, may require the Corporation, to the
extent it may lawfully do so, to redeem the Series E Preferred in three (3)
equal annual installments beginning on the first calendar quarter commencing at
least thirty (30) days after the Corporation's receipt of such redemption notice
from such holders (each a "Redemption Date"). The Corporation shall effect such
redemptions on the applicable Redemption Date by paying in cash in exchange for
the shares of Series E Preferred to be redeemed a sum equal to the Original
Issue Price per share of Series E Preferred (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares) plus declared and unpaid dividends with respect to such shares. The
total amount to be paid for the Series E Preferred is hereinafter referred to as
the "Redemption Price." The number of shares of Series E Preferred that the
Corporation shall be required to redeem on any one Redemption Date shall be
equal to the amount determined by dividing (i) the aggregate number of shares of
Series E Preferred outstanding immediately prior to the Redemption Date by (ii)
the number of remaining Redemption Dates (including the Redemption Date to which
such calculation applies). Shares subject to redemption pursuant to this Section
6(a) shall be redeemed from each holder of Series E Preferred on a pro rata
basis.
(ii) At least thirty (30) days but no more than
sixty (60) days prior to the first Redemption Date, the Corporation shall send a
notice (a "Redemption Notice") to all holders of Series E Preferred to be
redeemed setting forth (a) the Redemption Price for the shares to be redeemed;
and (b) the place at which such holders may obtain payment of the redemption
Price upon surrender of their share certificates. If the Corporation does not
have sufficient funds legally available to redeem all shares to be redeemed at
the Redemption Date (including, if available, those to be redeemed at the option
of the corporation), then it shall redeem such shares pro rata (based on the
portion of the aggregate Redemption Price payable to them) to the extent
possible and shall redeem the remaining shares to be redeemed as soon as
sufficient funds are legally available.
b. On or prior to the Redemption Date, the Corporation
shall deposit the Redemption Price of all shares to be redeemed with a bank or
trust corporation having aggregate capital and surplus in excess of
$100,000,000, as trust fund, with irrevocable instructions and authority to the
bank or trust corporation to pay, on and after such Redemption Date, the
Redemption Price of the shares to their respective holders upon the surrender of
their share certificates. Any moneys deposited by the Corporation pursuant to
this paragraph 6(b) for the redemption of shares thereafter converted into
shares of Common Stock pursuant to Section 4 hereof no later than the fifth
(5th) day preceding the Redemption Date shall be returned to the Corporation
forthwith upon such conversion. The balance of any funds deposited by the
corporation pursuant to this Section 6(b) remaining unclaimed at the expiration
of one (1) year following such Redemption Date shall be returned to the
Corporation promptly upon its written request.
15.
<PAGE> 16
c. On or after such Redemption Date, each holder of
shares of Series E Preferred to be redeemed shall surrender such holder's
certificates representing such shares to the Corporation in the manner and at
the place designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be canceled. In the event less than all the shares
represented by such certificates are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after such Redemption Date, unless
there shall have been a default in payment of the Redemption Price or the
Corporation is unable to pay the Redemption Price due to not having sufficient
legally available funds, all rights of the holders of such shares as holders of
Series E Preferred (except the right to receive the Redemption Price without
interest upon surrender of their certificates), shall cease and terminate with
respect to such shares, provided that in the event that shares of Series E
Preferred are not redeemed due to a default in payment by the Corporation or
because the corporation does not have sufficient legally available funds, such
shares of Series E Preferred shall remain outstanding and shall be entitled to
all of the rights and preferences provided herein.
d. In the event of a call for redemption if any shares
of Series E Preferred, any conversion rights for such Series E Preferred shall
terminate as to the shares designated for redemption at the close of business on
the fifth (5th) day preceding the Redemption Date, unless default is made in
payment of the Redemption Price.
7. NO REISSUANCE OF CONVERTIBLE PREFERRED STOCK. No share or
shares of the Convertible Preferred Stock acquired by the Corporation by reason
of redemption, purchase, conversion or otherwise shall be reissued.
8. NO PREEMPTIVE RIGHTS. Stockholders shall have no preemptive
rights except as granted by the Corporation pursuant to written agreements.
V.
A director of the Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
Any repeal or modification of this Article V shall be prospective and
shall not affect the rights under this Article V in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
16.
<PAGE> 17
VI.
For the management of the business and for the conduct of the affairs of the
Corporation, and in further definition, limitation and regulation of the powers
of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
a. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by the Board
of Directors in the manner provided in the Bylaws.
b. The Board of Directors may from time to time make, amend, supplement
or repeal the Bylaws; provided, however, that the stockholders may change or
repeal any Bylaw adopted by the Board of Directors by the affirmative vote of
the holders of a majority of the voting power of all of the then outstanding
shares of the Common Stock and Convertible Preferred Stock voting together as a
single class; and, provided further, that no amendment or supplement to the
Bylaws adopted by the Board of Directors shall vary or conflict with any
amendment or supplement thus adopted by the stockholders.
c. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
VII.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
VIII.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right.
IN WITNESS WHEREOF, said Vixel Corporation has caused this Certificate to be
signed by Stephen Smith, its Vice President, Finance, this 17th day of February,
1998.
VIXEL CORPORATION,
a Delaware corporation
By: /s/ Stephen Smith
--------------------------------
Stephen Smith
Vice President, Finance
<PAGE> 18
CERTIFICATE OF AMENDMENT
OF THE RESTATED CERTIFICATE OF INCORPORATION OF
VIXEL CORPORATION
Vixel Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies as follows:
FIRST: The name of the Corporation is Vixel Corporation.
SECOND: Paragraphs A and C of Article IV of the Restated Certificate of
Incorporation of the Corporation are hereby amended in their entirety to read as
follows:
A. This Corporation is authorized to issue two classes of stock
to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares the corporation is authorized to issue is
fifty million three hundred sixty thousand four (50,360,004) shares, (i)
thirty million (30,000,000) shares of which shall be Common Stock (the
"Common Stock") and (ii) twenty million three hundred sixty thousand
four (20,360,004) shares of which shall be Preferred Stock (the
"Preferred Stock"). The Common Stock and the Preferred Stock shall have
a par value of One-Tenth of One Cent ($.001) per share.
C. DESIGNATION OF SERIES AND NUMBER OF AUTHORIZED SHARES. Six
series of Preferred Stock are created hereby: (i) five million seven
hundred eighty-five thousand five hundred seventy-three (5,785,573) of
the authorized shares of Preferred Stock are designated as "Series A
Preferred Stock" (the "Series A Preferred"); (ii) five million two
hundred forty-three thousand eight hundred and six (5,243,806) of the
authorized shares of Preferred Stock are designated as "Series B
Preferred Stock" (the "Series B Preferred"); (iii) seven hundred
forty-seven thousand one hundred and forty-three (747,143) of the
authorized shares of Preferred Stock are designated as "Series C
Preferred Stock" (the "Series C Preferred"); (iv) two million
(2,000,000) of the authorized shares of Preferred Stock are designated
as "Series D Preferred Stock" (the "Series D Preferred"); (v) four
million eight hundred twenty-three thousand four hundred eighty-two
(4,823,482) of the authorized shares of Preferred Stock are designated
as "Series E Preferred Stock" (the "Series E Preferred"); and (vi) one
million seven hundred sixty thousand (1,760,000) shares of the
authorized shares of Preferred Stock are designated as "Series F
Preferred Stock" (the "Series F Preferred"). The Series A Preferred, the
Series B Preferred, the Series C Preferred, the Series D Preferred, the
Series E Preferred and the Series F Preferred may be collectively
referred to herein as the "Convertible Preferred Stock."
THIRD: The foregoing amendment of the Restated Certificate of
Incorporation of the Corporation has been duly adopted by the directors and
stockholders of the Corporation in
19.
<PAGE> 19
accordance with the provisions of Sections 141, 228 and 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has executed this Certificate of
Amendment on the 20th day of November, 1998.
VIXEL CORPORATION
By: /s/ James C. T. Linfield
--------------------------------
James C. T. Linfield,
Assistant Secretary
20.
<PAGE> 20
CERTIFICATE OF AMENDMENT
OF THE RESTATED CERTIFICATE OF INCORPORATION OF
VIXEL CORPORATION
Vixel Corporation, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies as follows:
FIRST: The name of the Corporation is Vixel Corporation.
SECOND: Paragraph A of Article IV of the Restated Certificate of
Incorporation of the Corporation is hereby amended in its entirety to read as
follows:
"A. This Corporation is authorized to issue two classes of stock
to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares the corporation is authorized to issue is
fifty million three hundred sixty thousand four (50,360,004) shares,
(i) thirty million (30,000,000) shares of which shall be Common Stock
(the "Common Stock") and (ii) twenty million three hundred sixty
thousand four (20,360,004) shares of which shall be Preferred Stock
(the "Preferred Stock"). The Common Stock shall have a par value of
Fifteen One-Hundredths of One Cent ($.0015) per share and the Preferred
Stock shall have a par value of One-Tenth of One Cent ($.001) per
share. Upon the filing of this Amendment to the Restated Certificate of
Incorporation, every three (3) outstanding shares of Common Stock shall
be combined into two (2) shares of Common Stock."
THIRD: Paragraph D(4)(j)(iv) of Article IV of the Restated Certificate
of Incorporation of the Corporation is hereby amended in its entirety to read as
follows:
"(iv) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued by the Corporation or deemed to be issued
pursuant to this paragraph 4(j), whether or not subsequently reacquired
or retired by the Corporation other than (A) shares of Common Stock
issued upon conversion of the Convertible Preferred Stock; (B) shares of
Common Stock and/or options, warrants or other Common Stock purchase
rights, and the Common Stock issued pursuant to such options, warrants
or other rights (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like) issued or to be issued to
employees, officers or directors of, or consultants or advisors to the
Corporation or any subsidiary pursuant to stock purchase or stock option
plans or other arrangements that are approved by the Board; (C) shares
of Common Stock issued pursuant to the exercise of options, warrants or
convertible securities outstanding as of the Original Issue Date; and
(D) shares of Common Stock, Convertible Preferred Stock, Convertible
Securities or other securities of the Corporation issued in connection
with the Corporation's merger with Arxcel Technologies, Inc. pursuant to
the terms of that certain Agreement and Plan of Merger and
Reorganization, dated January 26, 1998, among the Corporation,
21.
<PAGE> 21
ARC Acquisition Corp., Arxcel Technologies, Inc. and certain
shareholders of Arxcel Technologies, Inc. The "Effective Price" of
Additional Shares of Common Stock shall mean the quotient determined by
dividing the total number of Additional Shares of Common Stock issued or
sold, or deemed to have been issued or sold by the Corporation under
this paragraph 4(j), into the aggregate consideration received, or
deemed to have been received by the Corporation for such issue under
this paragraph 4(j), for such Additional Shares of Common Stock."
FOURTH: Paragraph D(4)(l)(i) of Article IV of the Restated Certificate
of Incorporation of the Corporation is hereby amended in its entirety to read as
follows:
"(i) Each share of any series of Convertible Preferred Stock
automatically shall be converted into shares of Common Stock, based on
the Conversion Rate then in effect with respect to such series of
Convertible Preferred Stock, immediately upon: (A) the closing of a
firmly underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the
Corporation where (1)(x) the per share price (before underwriters'
commissions, expenses and fees) is at least $9.00 per share (after
giving effect to the amendment of Article IV, Section A upon the filing
of this Amendment to the Restated Certificate of Incorporation) and (y)
the gross cash proceeds to the Corporation (before underwriting
discounts, commissions and fees) are at least twenty million dollars
($20,000,000) or (2)(x) with respect to the Series A, Series B, Series
C, Series D Preferred and Series F, the holders of at least two-thirds
of the outstanding shares of the Series A, Series B, Series C, Series D
and Series F Preferred (voting together as a single class on an
as-converted basis) vote in favor of conversion in connection with such
underwritten public offering and (y) in the case of the Series E
Preferred, the holders of a majority of the Series E Preferred vote in
favor of conversion in connection with such underwritten public
offering. Upon any such conversion, any declared and unpaid dividends
shall be paid in accordance with the provisions of Section 1."
FIFTH: The foregoing amendments to the Restated Certificate of
Incorporation of the Corporation have been duly adopted by the directors and
stockholders of the Corporation in accordance with the provisions of Sections
141, 228 and 242 of the General Corporation Law of the State of Delaware.
22.
<PAGE> 22
IN WITNESS WHEREOF, the Corporation has executed this Certificate of
Amendment on the 27th day of August, 1999.
VIXEL CORPORATION
By: /s/ Kurtis L. Adams
----------------------------
Kurtis L. Adams, Secretary
23.
<PAGE> 1
RESTATED CERTIFICATE OF INCORPORATION
OF
VIXEL CORPORATION
VIXEL CORPORATION, a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
1. The name of the corporation is Vixel Corporation. The date of filing
of its original Certificate of Incorporation with the Secretary of State was
February 13, 1995.
2. This Restated Certificate of Incorporation has been duly adopted in
accordance with Sections 228, 242 and 245 of the Delaware General Corporation
Law, the Board of Directors of the corporation having adopted resolutions
setting forth the proposed Restated Certificate of Incorporation, declaring its
advisability and directing that it be submitted to the stockholders of the
corporation for their approval; the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted having consented in writing to the adoption thereof; and
written notice of such adoption by the stockholders without a meeting by less
than unanimous written consent having been given to those stockholders from whom
such written consent was not received.
3. This Restated Certificate of Incorporation restates and integrates
and further amends the Certificate of Incorporation of this corporation by
restating the text of the original Certificate of Incorporation in full to read
as follows:
I.
The name of this corporation is Vixel Corporation.
II.
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, and
the name of the registered agent of the corporation in the State of Delaware at
such address is the Corporation Trust Company.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
1.
<PAGE> 2
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is sixty-five million
(65,000,000) shares. Sixty million (60,000,000) shares shall be Common Stock,
each having a par value of fifteen one-hundredths of one cent ($.0015). Five
million (5,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions of any wholly unissued series of Preferred Stock, and to
establish from time to time the number of shares constituting any such series or
any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. BOARD OF DIRECTORS. The management of the business and the
conduct of the affairs of the corporation shall be vested in its Board of
Directors. The number of directors which shall constitute the whole Board of
Directors shall be fixed exclusively by one or more resolutions adopted by the
Board of Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full
2.
<PAGE> 3
term of three years. At the third annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting. Notwithstanding the foregoing
provisions of this section, each director shall serve until his successor is
duly elected and qualified or until his death, resignation or removal. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director. Notwithstanding the foregoing
provisions of this section, each director shall serve until his successor is
duly elected and qualified or until his death, resignation or removal. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
3. REMOVAL OF DIRECTORS.
a. Neither the Board of Directors nor any individual
director may be removed without cause.
b. Subject to any limitation imposed by law, any
individual director or directors may be removed with cause by the holders of a
majority of the voting power of the corporation entitled to vote at an election
of directors.
4. VACANCIES.
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten percent (10%) of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in offices as aforesaid, which election shall be governed by Section 211 of
the DGCL.
3.
<PAGE> 4
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the voting stock of the corporation
entitled to vote. The Board of Directors shall also have the power to adopt,
amend or repeal Bylaws.
2. The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the
corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws or by written consent of stockholders in accordance
with the Bylaws prior to the closing of the Initial Public Offering and
following the closing of the Initial Public Offering no action shall be taken by
the stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI
and VII.
4.
<PAGE> 5
IN WITNESS WHEREOF, this Certificate has been subscribed this ____ day
of __________, 1999 by the undersigned who affirms that the statements made
herein are true and correct.
By:
-------------------------------
Name:
------------------------------
Title:
----------------------------
5.
<PAGE> 1
EXHIBIT 4.1
LOGO TO COME
VIXEL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 928552 10 8
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.0015 PAR VALUE, OF
VIXEL CORPORATION
(the "Corporation") transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are subject to all of the terms and conditions contained in the Amended
and Restated Articles of Incorporation and the Amended and Restated Bylaws of
the Corporation and all amendments thereto to all of which the holder hereof
assents. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
Dated:
President and Chief Executive Officer
Chief Financial Officer, Vice President of Finance, Secretary and Treasurer
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NY)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
VIXEL CORPORATION
The Corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Any such request should be directed to the corporation, attention of its
Secretary at the Corporation's principal executive office.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -
TEN ENT -
JT TEN -
as tenants in common
as tenants by the entireties
as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT- Custodian
(Minor) (Cust)
under Uniform Gifts to Minors Act
(State)
For Value Received, hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated
NOTICE:
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
<PAGE> 3
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE> 1
EXHIBIT 4.12
NO. CW-1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE
COMMON STOCK OF
VIXEL CORPORATION
(VOID AFTER SEPTEMBER 30, 2002)
This certifies that SUN MICROSYSTEMS, INC. or its assigns (the
"Holder"), for value received, is entitled to purchase from VIXEL CORPORATION, a
Delaware corporation (the "Company"), having a place of business at 11911 North
Creek Parkway S., Bothell, Washington 98011, a maximum of 150,000 fully paid and
nonassessable shares of the Company's Common Stock ("Common Stock") for cash at
a price of Eleven Dollars ($11.00) per share (the "Stock Purchase Price") at any
time or from time to time up to and including 5:00 p.m. (Pacific time) on
September 30, 2002 (the "Expiration Date"), upon surrender to the Company at its
principal office (or at such other location as the Company may advise the Holder
in writing) of this Warrant properly endorsed with the Form of Subscription
attached hereto duly filled in and signed and, if applicable, upon payment in
cash or by check of the aggregate Stock Purchase Price for the number of shares
for which this Warrant is being exercised determined in accordance with the
provisions hereof. The Stock Purchase Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of
the holder of record hereof, at any time or from time to time, up to the
Expiration Date for all or any part of the shares of Common Stock (but not for a
fraction of a share) which may be purchased hereunder. The Company agrees that
the shares of Common Stock purchased under this Warrant shall be and are deemed
to be issued to the Holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed, executed Form of Subscription delivered and
payment made for such shares. Certificates for the shares of Common Stock so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense within three (3) business days after the
rights represented by this Warrant have been so exercised. In case of a purchase
of less than all the shares which may be purchased under this Warrant, the
Company shall cancel this Warrant and execute and deliver a new Warrant or
Warrants of like tenor for the balance of the shares purchasable under the
Warrant surrendered upon such purchase to the Holder hereof
<PAGE> 2
within a reasonable time. Each stock certificate so delivered shall be in such
denominations of Common Stock as may be requested by the Holder hereof and shall
be registered in the name of such Holder.
1.2 NET ISSUE EXERCISE. Notwithstanding any provisions
herein to the contrary, if the fair market value of one share of the Company's
Common Stock is greater than the Stock Purchase Price (at the date of
calculation as set forth below), in lieu of exercising this Warrant for cash,
the Holder may elect to receive shares equal to the value (as determined below)
of this Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Company together with the properly
endorsed Form of Subscription and notice of such election in which event the
Company shall issue to the Holder a number of shares of Common Stock computed
using the following formula:
X = Y (A-B)
------
A
Where X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock purchasable under the Warrant
or, if only a portion of the Warrant is being exercised, the portion of
the Warrant being canceled (at the date of such calculation)
A = the fair market value of one share of the Company's Common Stock (at
the date of such calculation)
B = Stock Purchase Price (as adjusted to the date of such calculation)
For purposes of the above calculation, the fair market value of one share of
Common Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that in the event the Company makes an initial public
offering of its Common Stock the fair market value per share shall be: (i) if
the Warrant is being converted in connection with and contingent upon a public
offering of the Company's securities, and if the Company's registration
statement relating to such public offering has been declared effective by the
U.S. Securities and Exchange Commission, then the fair market value of the
Common Stock shall be the initial "Price to Public" specified in the final
prospectus with respect to such offering; or (ii) if the Warrant is not being
converted in connection with and contingent upon a public offering of the
Company's securities, then as follows: (x) if traded on a securities exchange or
the Nasdaq National Market, the fair market value of the Common Stock shall be
deemed to be the average of the closing or last reported sale prices of the
Common Stock on such exchange or market over the 30-day period ending five
business days prior to the date of calculation, or (y) if otherwise traded in an
over-the-counter market, the fair market value of the Common Stock shall be
deemed to be the average of the reported closing bid and ask prices of the
Common Stock over the 30-day period ending five business days prior to the date
of calculation.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights
2.
<PAGE> 3
represented by this Warrant will, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable and free from all preemptive rights of any
shareholder and free of all taxes, liens and charges with respect to the issue
thereof. The Company further covenants and agrees that, during the period within
which the rights represented by this Warrant may be exercised, the Company will
at all times have authorized and reserved, for the purpose of issue or transfer
upon exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of authorized but unissued Common Stock, or other securities
and property, when and as required to provide for the exercise of the rights
represented by this Warrant. The Company will take all such action as may be
necessary to assure that such shares of Common Stock may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange upon which the Common Stock may
be listed; provided, however, that the Company shall not be required to effect a
registration under Federal or State securities laws with respect to such
exercise. The Company will not take any action which would result in any
adjustment of the Stock Purchase Price (as set forth in Section 3 hereof) if the
total number of shares of Common Stock issuable after such action upon exercise
of all outstanding warrants, together with all shares of Common Stock then
outstanding and all shares of Common Stock then issuable upon exercise of all
options and upon the conversion of all convertible securities then outstanding,
would exceed the total number of shares of Common Stock then authorized by the
Company's Restated Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The
Stock Purchase Price and the number of shares purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 3. Upon each adjustment
of the Stock Purchase Price, the Holder of this Warrant shall thereafter be
entitled to purchase, at the Stock Purchase Price resulting from such
adjustment, the number of shares obtained by multiplying the Stock Purchase
Price in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Stock Purchase Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Stock Purchase Price in effect immediately prior
to such subdivision shall be proportionately reduced, and conversely, in case
the outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Common Stock or any shares of stock or other
securities which are at any time directly or indirectly convertible into or
exchangeable for Common Stock, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or other
distribution,
3.
<PAGE> 4
(b) any cash paid or payable otherwise than as a
cash dividend, or
(c) Common Stock or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Common Stock issued as a stock split or adjustments in
respect of which shall be covered by the terms of Section 3.1 above), then and
in each such case, the Holder hereof shall, upon the exercise of this Warrant,
be entitled to receive, in addition to the number of shares of Common Stock
receivable thereupon, and without payment of any additional consideration
therefor, the amount of stock and other securities and property (including cash
in the cases referred to in clause (b) above and this clause (c)) which such
Holder would hold on the date of such exercise had he been the holder of record
of such Common Stock as of the date on which holders of Common Stock received or
became entitled to receive such shares or all other additional stock and other
securities and property.
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE. If any recapitalization, reclassification or reorganization of the
capital stock of the Company, or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets or
other transaction shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, or other assets or property (an
"Organic Change"), then, as a condition of such Organic Change, lawful and
adequate provisions shall be made by the Company whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of stock,
securities or other assets or property as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In the event of
any Organic Change, appropriate provision shall be made by the Company with
respect to the rights and interests of the Holder of this Warrant to the end
that the provisions hereof (including, without limitation, provisions for
adjustments of the Stock Purchase Price and of the number of shares purchasable
and receivable upon the exercise of this Warrant) shall thereafter be
applicable, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof.
3.4 CERTAIN EVENTS. If any change in the outstanding Common
Stock of the Company or any other event occurs as to which the other provisions
of this Section 3 are not strictly applicable or if strictly applicable would
not fairly protect the purchase rights of the Holder of the Warrant in
accordance with such provisions, then the Board of Directors of the Company
shall make an adjustment in the number and class of shares available under the
Warrant, the Stock Purchase Price or the application of such provisions, so as
to protect such purchase rights as aforesaid. The adjustment shall be such as
will give the Holder of the Warrant upon exercise for the same aggregate Stock
Purchase Price the total number, class and kind of shares as the Holder would
have owned had the Warrant been exercised prior to the event and had the Holder
continued to hold such shares until after the event requiring adjustment.
3.5 NOTICES OF CHANGE.
4.
<PAGE> 5
(a) Immediately upon any adjustment in the number or
class of shares subject to this Warrant and of the Stock Purchase Price, the
Company shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the
Holder at least 10 business days prior to the date on which the Company closes
its books or takes a record for determining rights to receive any dividends or
distributions.
(c) The Company shall also give written notice to
the Holder at least 10 days prior to the date on which an Organic Change or an
initial public offering shall take place.
(d) The Company shall give written notice to the
Holder at least 10 days prior to the date it closes its books or takes a record
with respect to stockholders entitled to vote at any annual or special meeting
of stockholders.
4. PRICE-BASED ANTI-DILUTION ADJUSTMENTS.
4.1 If at any time or from time to time after the date
hereof, the Company issues or sells, or is deemed by the express provisions of
this Section 4 to have issued or sold, Additional Shares of Common Stock (as
hereinafter defined), other than as a dividend or other distribution or
combination on any class of stock as provided in Section 3 of this Warrant, for
an Effective Price (as hereinafter defined) less than the then-effective Stock
Purchase Price, then and in each such case the then-existing Stock Purchase
Price shall be reduced, as of the opening of business on the date of such issue
or sale, to a price determined by multiplying such Stock Purchase Price by a
fraction (i) the numerator of which shall be (A) the number of shares of Common
Stock deemed outstanding (as defined below) immediately prior to such issue or
sale plus (B) the number of shares of Common Stock which the aggregate
consideration received (as defined below) by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at such Stock
Purchase Price and (ii) the denominator of which shall be the number of shares
of Common Stock deemed outstanding (as defined below) immediately prior to such
issue or sale plus the total number of Additional Shares of Common Stock so
issued. For the purposes of the preceding sentence, the number of shares of
Common Stock deemed to be outstanding as of a given date shall be the sum of (A)
the number of shares of Common Stock actually outstanding and (B) the number of
shares of Common Stock which could be obtained through the exercise or
conversion of all other rights, options, warrants and convertible securities on
the day immediately preceding the given date.
4.2 For the purpose of making any adjustment required under
this Section 4, the consideration received by the Company for any issue or sale
of securities shall (i) to the extent it consists of cash, be computed at the
net amount of cash received by the Company after deduction of any underwriting
or similar commissions, compensation or concessions paid or allowed by the
Company in connection with such issue or sale but without deduction of any
expenses payable by the Company, (ii) to the extent it consists of property
other than cash, be computed at the fair value of that property as determined in
good faith by the Board
5.
<PAGE> 6
of Directors and (iii) if Additional Shares of Common Stock, Convertible
Securities (as hereinafter defined) or rights or options to purchase either
Additional Shares of Common Stock or Convertible Securities are issued or sold
together with other stock or securities or other assets of the Company for a
consideration which covers both, be computed as the portion of the consideration
so received that may be reasonably determined in good faith by the Board of
Directors to be allocable to such Additional Shares of Common Stock, Convertible
Securities or rights or options.
4.3 For the purpose of the adjustment required under this
Section 4, if the Company issues or sells any rights or options for the purchase
of, or stock or other securities convertible into, Additional Shares of Common
Stock (such convertible stock or securities being herein referred to as
"Convertible Securities") and if the Effective Price of such Additional Shares
of Common Stock is less than the Stock Purchase Price, in each case the Company
shall be deemed to have issued at the time of the issuance of such rights or
options or Convertible Securities the maximum number of Additional Shares of
Common Stock issuable upon exercise or conversion thereof and to have received
as consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the issuance of
such rights or options or Convertible Securities, plus, in the case of such
rights or options, the minimum amounts of consideration, if any, payable to the
Company upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any, payable to
the Company (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) upon the conversion thereof; provided, however,
that if in the case of Convertible Securities the minimum amounts of such
consideration cannot be ascertained, but are a function of antidilution or
similar protective clauses, the Company shall be deemed to have received the
minimum amounts of consideration without reference to such clauses; provided,
further, that if the minimum amount of consideration payable to the Company upon
the exercise or conversion of rights, options or Convertible Securities is
reduced over time or on the occurrence or non-occurrence of specified events
other than by reason of antidilution adjustments, the Effective Price shall be
recalculated using the figure to which such minimum amount of consideration is
reduced; provided, further, that if the minimum amount of consideration payable
to the Company upon the exercise or conversion of such rights, options or
Convertible Securities is subsequently increased, the Effective Price shall be
again recalculated using the increased minimum amount of consideration payable
to the Company upon the exercise or conversion of such rights, options or
Convertible Securities. No further adjustment of any Conversion Price, as
adjusted upon the issuance of such rights, options or Convertible Securities,
shall be made as a result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such rights or options or the conversion of any
such Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, any Conversion Price as adjusted upon the issuance of
such rights, options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if any, were issued or
sold for the consideration
6.
<PAGE> 7
actually received by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of all such rights or
options, whether or not exercised, plus the consideration received for issuing
or selling the Convertible Securities actually converted, plus the
consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities.
4.4 "Additional Shares of Common Stock" shall mean all
shares of Common Stock or any obligation, any shares of stock or other security
of the Company convertible into or exchangeable for Common Stock issued by the
Company or deemed to be issued pursuant to this Section 4, whether or not
subsequently reacquired or retired by the Company other than (a) shares of
Common Stock and/or options, warrants or other Common Stock purchase rights, and
the Common Stock issued pursuant to such options, warrants or other rights (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like) after the date hereof to employees, officers or directors of, or
consultants or advisors to, the Company or any subsidiary pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board of Directors of the Company; and (b) shares of Common Stock issued
pursuant to the exercise of options, warrants or convertible securities
outstanding as of the date hereof, including shares of Common Stock issued upon
exercise of this Warrant. The "Effective Price" of Additional Shares of Common
Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold by the Company under this Section 4, into the aggregate consideration
received, or deemed to have been received by the Company
5. REPRESENTATIONS AND WARRANTIES OF THE HOLDER.
5.1 PURCHASE FOR OWN ACCOUNT. The Holder represents that it
is acquiring the Warrant and the equity securities issuable upon exercise of the
Warrant (collectively, the "Securities") solely for its own account and
beneficial interest for investment and not for sale or with a view to
distribution of the Securities or any part thereof, has no present intention of
selling (in connection with a distribution or otherwise), granting any
participation in, or otherwise distributing the same, and does not presently
have reason to anticipate a change in such intention.
5.2 INVESTOR STATUS. The Holder is a "qualified
institutional buyer" as defined in Rule 144A under the Securities Act and an
"accredited investor" as defined in Rule 501 under the Securities Act.
6. ISSUE TAX. The issuance of certificates for shares of Common
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax (other than any applicable income taxes)
in respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
7. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Common Stock
issued or issuable upon the
7.
<PAGE> 8
exercise of any warrant in any manner which interferes with the timely exercise
of this Warrant.
8. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such Holder for the Stock Purchase Price or as a shareholder of the Company,
whether such liability is asserted by the Company or by its creditors.
9. WARRANTS TRANSFERABLE. Subject to compliance with applicable
federal and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable,
and that the holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company, at the Company's option, and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes. Notwithstanding the
foregoing, prior to completion of the Company's initial public offering of
Common Stock registered under the Securities Act ("IPO"), the Company shall have
the right to refuse to transfer any portion of this Warrant to any person who
directly competes with the Company.
10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights
and obligations of the Company, of the holder of this Warrant and of the holder
of shares of Common Stock issued upon exercise of this Warrant, shall survive
the exercise of this Warrant.
11. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other.
13. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Common Stock issuable upon the exercise of this
Warrant shall survive the exercise and
8.
<PAGE> 9
termination of this Warrant. All of the covenants and agreements of the Company
shall inure to the benefit of the successors and assigns of the holder hereof.
14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of Washington.
15. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
16. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.
17. INVESTOR RIGHTS AGREEMENT. The Company hereby agrees to use its
best efforts to obtain the agreement of the holders of a majority of its
Registrable Securities (as defined below) under the Company's Amended and
Restated Investors' Rights Agreement, dated February 17, 1998, as amended, that
the shares of Common Stock issuable upon exercise of this Warrant shall be
deemed "Registrable Securities" thereunder, and the Holder shall be deemed to be
a "Holder" under such agreement, entitled to the rights and benefits and subject
to the duties and obligations of a "Holder" thereunder. Holder shall execute a
counterpart signature page to such agreement at the request of the Company.
18. FINANCIAL INFORMATION. Prior to completion of the Company's IPO,
the Company agrees to provide quarterly unaudited and annual audited financial
statements to the Holder, at the same time it provides such information to the
other investors that are entitled to receive such information.
19. LOCK-UP AGREEMENT. Holder agrees to sign a "lock-up" agreement
in the form attached as Exhibit B. The Company represents and warrants that each
of its officers, directors and 5% or greater stockholders have signed lock-up
agreements in the same form. The Company agrees that if the underwriters in its
IPO release any of the shares covered by such lock-up agreements, it will
release Holder's shares from the lock-up agreement proportionately.
20. COMPANY REPRESENTATION. The Company acknowledges that it has
provided the Holder with the Company's Registration Statement on Form S-1, dated
June 23, 1999, as amended on August 16, 1999, and represents that such
Registration Statement, as amended, does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading.
9.
<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 31st day of August,
1999.
VIXEL CORPORATION
a Delaware corporation
/s/ Kurtis L. Adams
--------------------------------
By: Kurtis L. Adams
Title: Chief Financial Officer
<PAGE> 11
EXHIBIT A
SUBSCRIPTION FORM
Date: _______________, ____
VIXEL CORPORATION
11911 NORTH CREEK PARKWAY S.
BOTHELL, WASHINGTON 98011
Attn: Chief Financial Officer
Ladies and Gentlemen:
[ ] The undersigned hereby elects to exercise the warrant issued to it
by Vixel Corporation (the "Company") and dated August 31, 1999 Warrant No.
CW-___ (the "Warrant") and to purchase thereunder _____________ shares of the
Common Stock of the Company (the "Shares") at a purchase price of Eleven Dollars
($11.00) per Share or an aggregate purchase price of ___________________ Dollars
($__________) (the "Purchase Price"). Pursuant to the terms of the Warrant the
undersigned has delivered the Purchase Price herewith in full in cash or by
certified check or wire transfer.
[ ] The undersigned hereby elects to convert _____________ percent (____%)
of the value of the Warrant pursuant to the provisions of Section 1.2
of the Warrant.
Very truly yours,
By:
Title:
<PAGE> 12
EXHIBIT B
LOCK-UP AGREEMENT
BancBoston Robertson Stephens Inc.
Bear, Stearns & Co. Inc.
Needham & Company
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: Vixel Corporation (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain
shares of Common Stock of the Company ("Common Stock") or securities convertible
into or exchangeable or exercisable for Common Stock. The Company proposes to
carry out a public offering of Common Stock (the "Offering") for which you will
act as the representatives (the "Representatives") of the underwriters. The
undersigned recognizes that the Offering will be of benefit to the undersigned
and will benefit the Company by, among other things, raising additional capital
for its operations. The undersigned acknowledges that you and the other
underwriters are relying on the representations and agreements of the
undersigned contained in this letter in carrying out the Offering and in
entering into underwriting arrangements with the Company with respect to the
Offering.
In consideration of the foregoing, the undersigned hereby agrees
that the undersigned will not offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities") now
owned or hereafter acquired directly by the undersigned or with respect to which
the undersigned has or hereafter acquires the power of disposition, for a period
commencing on the date hereof and continuing to a date which is 180 days after
the registration statement relating to the Offering (the "Registration
Statement") is declared effective by the Securities and Exchange Commission (the
"Lock-up Period"). This restriction will not apply to (i) a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) a distribution to partners or shareholders of the undersigned,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction, (iii) dispositions of Securities acquired on the open
market or (iv) dispositions made with the prior written consent of BancBoston
Robertson Stephens Inc. The undersigned agrees that the foregoing restriction
precludes the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead
<PAGE> 13
to or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than the undersigned. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that includes, relates to or derives any significant
part of its value from Securities. The undersigned also agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of Securities held by the undersigned except in
compliance with the foregoing restrictions. Notwithstanding anything herein to
the contrary, the foregoing restrictions do not prohibit the sale of shares of
Common Stock by the undersigned to the underwriters in the Offering, if the
Representatives, in their sole discretion, agree to the inclusion of shares of
Common Stock in the Offering. BancBoston Robertson Stephens Inc., acting alone
and in its sole discretion, may waive any provisions of this Lock-Up Agreement
without notice to any third party.
This agreement is subject to the following: (i) the Company has
represented to the undersigned that each of the Company's officers, directors
and 5% or greater stockholders have signed lock-up agreements in the same form
as this agreement, and (ii) if the Representatives release any of the shares
covered by such lock-up agreements, a proportionate amount of the Common Stock
beneficially owned by the undersigned will be released from this lock-up
agreement..
This agreement is irrevocable and will be binding on the
undersigned and the respective successors, heirs, personal representatives and
assigns of the undersigned. In the event that the Registration Statement shall
not have been declared effective on or before October 31, 1999, this Lock-Up
Agreement shall be of no further force or effect.
Dated:
Printed Name of Holder
By:
Signature
Printed Name of Person Signing (and indicate
capacity of person signing if signing as
custodian, trustee, or on behalf of an
entity)
13.
<PAGE> 1
EXHIBIT 5.1
[COOLEY GODWARD LLP LETTERHEAD]
August 30, 1999
Vixel Corporation
11911 Northcreek Parkway South
Bothell, Washington 98011
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Vixel Corporation (the "Company") of a Registration Statement
on Form S-1 (the "Registration Statement") with the Securities and Exchange
Commission (the "Commission") covering an underwritten public offering of up to
four million two hundred fifty five thousand (4,255,000) shares of Common Stock,
including five hundred fifty five thousand (555,000) shares of Common Stock
which the underwriters have the option to purchase to cover over-allotments
(collectively the "Common Stock").
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Restated
Certificate of Incorporation and Bylaws, as currently in effect, and the
originals or copies certified to our satisfaction of such records, documents,
certificates, memoranda and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below; and (ii)
assumed that the Restated Certificate of Incorporation, as set forth in Exhibit
3.2 of the Registration Statement, shall have been duly approved and filed with
the office of the Delaware Secretary of State.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
non-assessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included on the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
COOLEY GODWARD LLP
By: /s/ Gregory B. Abbott
---------------------------
Gregory B. Abbott
<PAGE> 1
EXHIBIT 10.2__
VIXEL CORPORATION
1995 STOCK OPTION PLAN
ADOPTED FEBRUARY 13, 1995
AS AMENDED THROUGH APRIL 21, 1999
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors and Consultants to the Company, and its Affiliates, may
be given an opportunity to benefit from increases in value of the stock of the
Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options and (iii) stock bonuses.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors or Consultants to the Company or its
Affiliates, to secure and retain the services of new Employees, Directors and
Consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses granted
pursuant to Section 7 hereof. All Options shall be separately designated
Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and
in such form as issued pursuant to Section 6, and a separate certificate or
certificates will be issued for shares purchased on exercise of each type of
Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means Vixel Corporation, a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided
1.
<PAGE> 2
that the term "Consultant" shall not include Directors who are paid only a
director's fee by the Company or who are not compensated by the Company for
their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(h) "COVERED EMPLOYEE" means the Chief Executive Officer and the four
(4) other highest compensated officers of the Company.
(i) "DIRECTOR" means a member of the Board.
(j) "DISINTERESTED PERSON" means a Director: who either (i) was not
during the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or any other plan of the Company
or any of its affiliates entitling the participants therein to acquire equity
securities of the Company or any of its affiliates except as permitted by Rule
16b-3(c)(2)(i); or (ii) is otherwise considered to be a "disinterested person"
in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules,
regulations or interpretations of the Securities and Exchange Commission.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means the value of the Common Stock of the
Company as determined in good faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
2.
<PAGE> 3
(s) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
(t) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (as defined in the
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an affiliated corporation receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an affiliated corporation at
any time, and is not currently receiving compensation for personal services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(u) "PLAN" means this 1995 Stock Option Plan.
(v) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(w) "STOCK AWARD" means any right granted under the Plan, including any
Option and any stock bonus.
(x) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a Stock Appreciation Right, or a
combination of the foregoing; the provisions of each Stock Award granted (which
need not be identical), including the time or times when a person shall be
permitted to receive stock pursuant to a Stock Award.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan as provided in Section 14.
3.
<PAGE> 4
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Disinterested Persons and may also be, in the
discretion of the Board, Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan. Additionally,
prior to the date of the first registration of an equity security of the Company
under Section 12 of the Exchange Act, and notwithstanding anything to the
contrary contained herein, the Board may delegate administration of the Plan to
any person or persons and the term "Committee" shall apply to any person or
persons to whom such authority has been delegated. Notwithstanding anything in
this Section 3 to the contrary, the Board or the Committee may delegate to a
committee of one or more members of the Board the authority to grant Stock
Awards to eligible persons who (1) are not then subject to Section 16 of the
Exchange Act and/or (2) are either (i) not then Covered Employees and are not
expected to be Covered Employees at the time of recognition of income resulting
from such Stock Award, or (ii) not persons with respect to whom the Company
wishes to avoid the application of Section 162(m) of the Code.
(d) Any requirement that an administrator of the Plan be a Disinterested
Person shall not apply (i) prior to the date of the first registration of an
equity security of the Company under Section 12 of the Exchange Act, or (ii) if
the Board or the Committee expressly declares that such requirement shall not
apply. Any Disinterested Person shall otherwise comply with the requirements of
Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate 9,200,000 shares of the Company's Common Stock. If
any Stock Award shall for any reason expire or otherwise terminate, in whole or
in part, without having been exercised in full, the stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan. Shares subject to Stock Appreciation Rights exercised in accordance
with Section 8 of the Plan shall not be available for subsequent issuance under
the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock
4.
<PAGE> 5
Appreciation Rights appurtenant thereto may be granted only to Employees,
Directors or Consultants.
(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the Director
as a person to whom Stock Awards may be granted, or in the determination of the
number of shares which may be covered by Stock Awards granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies with the requirements of Rule 16b-3. The Board shall
otherwise comply with the requirements of Rule 16b-3. This subsection 5(b) shall
not apply (i) prior to the date of the first registration of an equity security
of the Company under Section 12 of the Exchange Act, or (ii) if the Board or
Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Option if, at the
time of grant, such person owns (or is deemed to own pursuant to Section 424(d)
of the Code) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of any of its Affiliates
unless the exercise price of such Option is at least one hundred ten percent
(110%) of the Fair Market Value of such stock at the date of grant and the
Option is not exercisable after the expiration of five (5) years from the date
of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than on hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, either at the time of the grant or
exercise of the Option, (A) by delivery to the Company of other Common Stock of
the Company, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
Common Stock of the Company) with the person to whom the Option is granted or to
whom the Option is transferred pursuant to subsection 6(d), or (C) in any other
form of legal consideration that may be acceptable to the Board.
5.
<PAGE> 6
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall not be transferable except by will
or by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person. A
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution or pursuant to a qualified domestic relations
order satisfying the requirements of Rule 16b-3 and any administrative
interpretations or pronouncements thereunder (a "QDRO"), and shall be
exercisable during the lifetime of the person to whom the Option is granted only
by such person or any transferee pursuant to a QDRO. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary but in each case will provide for vesting of at
least twenty percent (20%) per year of the total number of shares subject to the
Option. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period specified in the Option Agreement),
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
6.
<PAGE> 7
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement), or (ii) the expiration of the term of such Option as
set forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
7. TERMS OF STOCK BONUSES.
Each stock bonus shall be in such form and shall contain such terms and
conditions as the Board or the Committee shall deem appropriate. The terms and
conditions of stock bonus may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus
shall include (through incorporation of provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions as
appropriate:
(a) PURCHASE PRICE. The purchase price shall be such amount as the Board
or Committee shall determine and designate. Notwithstanding the foregoing, the
Board or the Committee may determine that eligible participants in the Plan may
be awarded stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus shall be transferable
except by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order satisfying the requirements of Rule 16b-3 and
any administrative interpretations or
7.
<PAGE> 8
pronouncements thereunder, so long as stock awarded under such agreement remains
subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in their discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.
8. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options under
the Plan and/or (ii) with the consent of the affected holders of Options, the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock, but having an exercise price per share not
less than fifty percent (50%) of the Fair Market Value (one hundred percent
(100%) of the Fair Market Value in the case of an Incentive Stock Option or, in
the case of a 10% stockholder (as described in subsection 5(c)), not less than
one hundred ten percent (110%) of the Fair Market Value) per share of stock on
the new grant date.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act either the Plan, any Stock Award or any stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under
8.
<PAGE> 9
the Plan, the Company shall be relieved from any liability for failure to issue
and sell stock upon exercise of such Stock Awards unless and until such
authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
11. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest pursuant to subsection 6(e) or 7(d), notwithstanding the
provisions in the Stock Award stating the time at which it may first be
exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant nor any person to whom a
Stock Award is transferred under subsection 6(d), or 7(b) shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
other holder of Stock Awards any right to continue in the employ of the Company
or any Affiliate (or to continue acting as a Director or Consultant) or shall
affect the right of the Company or any Affiliate to terminate the employment or
relationship as a Director or Consultant of any Employee, Director, Consultant
or other holder of Stock Awards with or without cause.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by any Optionee during any
calendar year under all plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
(e) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d)
or 7(b), as a condition of exercising or acquiring stock under any Stock Award,
(1) to give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock
9.
<PAGE> 10
under the Stock Award has been registered under a then currently effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the Common Stock
of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan will be appropriately adjusted in
the class(es) and maximum number of shares subject to the Plan pursuant to
subsection 4(a) and the outstanding Stock Awards will be appropriately adjusted
in the class(es) and number of shares and price per share of stock subject to
such outstanding Stock Awards.
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then to the extent permitted by applicable law: (i) any
surviving corporation shall assume any Stock Awards outstanding under the Plan
or shall substitute similar Stock Awards for those outstanding under the Plan,
or (ii) such Stock Awards shall continue in full force and effect. In the event
any surviving corporation refuses to assume or continue such Stock Awards, or to
substitute similar options for those outstanding under the Plan, then, with
respect to Stock Awards held by persons then performing services as Employees,
Directors or Consultants, the time during which such Stock Awards may be
exercised shall be accelerated and the Stock Awards terminated if not exercised
prior to such event.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
10.
<PAGE> 11
(i) Increase the number of shares reserved for Stock Awards under
the Plan;
(ii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on February 13, 2005 which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be altered or impaired by suspension or termination of
the Plan, except with the consent of the person to whom the Stock Award was
granted.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
11.
<PAGE> 12
STOCK OPTION AGREEMENT
Pursuant to the Grant Notice and this Stock Option Agreement, the
Company has granted you an option to purchase the number of shares of Common
Stock indicated in the Grant Notice at the exercise price indicated in the Grant
Notice.
Your option is granted in connection with and in furtherance of the
Company's compensatory benefit plan for the Company's employees (including
officers), directors or consultants, and is intended to comply with the
provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"). Defined
terms not explicitly defined in this Stock Option Agreement but defined in the
Plan shall have the same definitions as in the Plan.
1. VESTING. Subject to the limitations contained herein, your option will vest
as provided in the Grant Notice, provided that vesting will cease upon the
termination of your Continuous Status as an Employee, Director or Consultant.
2. METHOD OF PAYMENT.
(a) PAYMENT OPTIONS. Payment of the exercise price is due in full upon exercise
of all or any part of your option. You may elect, to the extent permitted by
applicable law and the Grant Notice, to make payment of the exercise price under
one of the following alternatives:
(i) By cash or check;
(ii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or a check) by the Company
or the receipt of irrevocable instructions to pay the aggregate exercise price
to the Company from the sales proceeds; or
(iii) Payment by a combination of the above methods.
3. WHOLE SHARES. Your option may only be exercised for whole shares.
4. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares issuable
upon exercise of your option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act.
5. TERM. The term of your option commences on the date of grant and expires
upon the earliest of:
(i) the Expiration Date indicated in the Grant Notice;
(ii) ten (10) years after the Date of Grant; or
1.
<PAGE> 13
(iii) three (3) months after the termination of your Continuous
Status as an Employee, Director or Consultant for any reason other than death or
total and permanent disability (as determined by the Company in its sole
discretion), unless: (a) during any part of such three (3) month period, the
option is not exercisable solely because of the condition set forth in Section 5
above, in which event the option shall not expire until the earlier of the
Expiration Date or until it shall have been exercisable for an aggregate period
of three (3) months after the termination of Continuous Status as an Employee,
Director or Consultant; (b) exercise of the option within three (3) months after
termination of your Continuous Status as an Employee, Director or Consultant
would result in liability under Section 16(b) of the Securities Exchange Act of
1934, in which event the option will expire on the earliest of (i) the
Expiration Date, (ii) the tenth (10th) day after the last date upon which
exercise would result in such liability or (iii) six (6) months and ten (10)
days after the termination of your Continuous Status as an Employee, Director or
Consultant; or (c) such termination of employment is due to your disability or
death, in which event the option shall terminate on the earlier of the
termination date set forth above or twelve (12) months following such
termination of employment.
To obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the option and ending on the day three (3) months before the
date of the option's exercise, you must be an employee of the Company or an
affiliate of the Company, except in the event of your death or permanent and
total disability. The Company cannot guarantee that your option will be treated
as an "incentive stock option" if you exercise your option more than three (3)
months after the date your employment with the Company terminates.
6. EXERCISE.
(a) You may exercise the vested portion of your option during its term (and the
unvested portion of your option if the Grant Notice so permits) by delivering a
notice of exercise (in a form designated by the Company) together with the
exercise price to the Secretary of the Company, or to such other person as the
Company may designate, during regular business hours, together with such
additional documents as the Company may then require.
(b) By exercising your option you agree that:
(i) as a condition to any exercise of your option, the Company
may require you to enter an arrangement providing for the payment by you to the
Company of any tax withholding obligation of the Company arising by reason of
(1) the exercise of your option; (2) the lapse of any substantial risk of
forfeiture to which the shares are subject at the time of exercise; or (3) the
disposition of shares acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of Common Stock
issued upon exercise of your option that occurs within two (2) years after the
date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option;
(iii) the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of the offering of any
securities of the Company under the
2.
<PAGE> 14
Securities Act, require that you not sell or otherwise transfer or dispose of
any shares of Common Stock or other securities of the Company during such period
(not to exceed one hundred eighty (180) days) following the effective date of
the registration statement of the Company filed under the Securities Act as may
be requested by the Company or the representative(s) of the underwriters. You
further agree that the Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restrictions until the end of
such period; and
7. TRANSFERABILITY. Your option is not transferable, except by will or by the
laws of descent and distribution, and is exercisable during your life only by
you. Notwithstanding the foregoing, by delivering written notice to the Company,
in a form satisfactory to the Company, you may designate a third party who, in
the event of your death, shall thereafter be entitled to exercise your option.
8. RIGHT OF FIRST REFUSAL. Before any shares of Common Stock (the "Shares")
issued upon exercise of an option to you or any transferee (either being
sometimes referred to herein as the "Holder") may be sold or otherwise
transferred (including transfer by gift or operation of law), the Company shall
have an assignable right of first refusal to purchase the Shares on the terms
and conditions set forth in this Section 8 (the "Right of First Refusal").
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the
Company a written notice (the "Notice") stating: (i) the Holder's bona fide
intention to sell or otherwise transfer the Shares; (ii) the name of each
proposed purchaser or other transferee (the "Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposed to
transfer the Shares (the "Offered Price"); and the Holder shall offer to sell
the Shares at the Offered Price to the Company.
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty (30) days
after receipt of the Notice, the Company or its assignee may, by giving written
notice to the Holder, elect to purchase all (but not less than all) of the
Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the Offered Price.
(c) PAYMENT. Payment of the purchase price shall be made, at the option of the
Company or its assignee, either (i) in cash (by check) or (ii) in the manner and
at the time(s) set forth in the Notice.
(d) HOLDER'S RIGHT TO TRANSFER. If all the Shares proposed in the Notice to be
transferred to a given Proposed Transferee are not purchased by the Company
and/or its assignee as provided in this Section 10, then the Holder may sell or
otherwise transfer such Shares to that Proposed Transferee at the Offered Price
or at a higher price, provided that such sale or other transfer is consummated
within thirty (30) days after the date of the Notice and provided further that
any such sale or other transfer is effected in accordance with any applicable
securities laws. If the Shares described in the Notice are not transferred to
the Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company shall again be offered the Right of First Refusal,
before any Shares held by the Holder may be sold or otherwise transferred.
3.
<PAGE> 15
(e) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained
in this Section 8 notwithstanding, the transfer of any or all of the Shares
during the Optionee's lifetime or on the Optionee's death by will or intestacy
to Optionee's immediate family or to a trust for the benefit of Optionee or
Optionee's immediate family shall be exempt from the provisions of this Section
8; provided that, as a condition to receiving the Shares, the transferee or
other recipient shall agree in writing to receive and hold the Shares so
transferred subject to the provisions of the Plan, and to transfer such Shares
no further except in accordance with the terms of the Plan. As used herein,
"immediate family" shall mean spouse, lineal descendant or antecedent, father,
mother, brother or sister.
(f) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal shall
terminate as to any Shares upon the first sale of Common Stock of the Company to
the general public pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission (other than a registration
statement solely covering an employee benefit plan or corporate reorganization).
9. OPTION NOT A SERVICE CONTRACT. Your option is not an employment contract and
nothing in your option shall be deemed to create in any way whatsoever any
obligation on your part to continue in the employ of the Company, or of the
Company to continue your employment with the Company. In addition, nothing in
your option shall obligate the Company or its stockholders, board of directors,
officers or employees to continue any relationship which you might have as a
director or consultant for the Company.
10. NOTICES. Any notices provided for in your option or the Plan shall be given
in writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the last address you
provided to the Company.
11. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of the
Plan, the provisions of which are hereby made a part of your option, including
without limitation the provisions of the Plan relating to option provisions, and
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.
4.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Stock Option
Agreement as of the ____ day of _______________, 199___.
VIXEL CORPORATION PURCHASER
By: -------------------------------------
----------------------------
Name:
Title:
-------------------------------------
[Print Name]
Address:
--------------------------------------
--------------------------------------
5.
<PAGE> 17
VIXEL CORPORATION
STOCK OPTION GRANT NOTICE
(1995 STOCK OPTION PLAN)
Vixel Corporation (the "Company"), pursuant to its 1995 Stock Option Plan (the
"Plan"), hereby grants to Optionholder an option to purchase the number of
shares of the Company's Common Stock set forth below. This option is subject to
all of the terms and conditions as set forth herein and in the Stock Option
Agreement, the Plan and the Notice of Exercise, all of which are attached hereto
and incorporated herein in their entirety.
Optionholder: _________________________________________
Date of Grant: _________________________________________
Vesting Commencement Date: _________________________________________
Number of Shares Subject to Option: _________________________________________
Exercise Price (Per Share): _________________________________________
Total Exercise Price: _________________________________________
Expiration Date: _________________________________________
<TABLE>
<S> <C> <C>
TYPE OF GRANT: [ ] Incentive Stock Option [ ] Nonstatutory Stock Option
EXERCISE SCHEDULE: [ ] Same as Vesting Schedule [ ] Early Exercise Permitted
VESTING SCHEDULE: [1/4th of the shares vest one year after the Vesting Commencement Date.
1/48th of the shares vest monthly thereafter over the next three years.]
PAYMENT: By one or a combination of the following items (described in the
Stock Option Agreement):
By cash or check
Pursuant to a Regulation T Program if the Shares
are publicly traded
By delivery of already-owned shares if the
Shares are publicly traded
</TABLE>
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:
OTHER AGREEMENTS: _____________________________________________
_____________________________________________
VIXEL CORPORATION OPTIONHOLDER:
By:
-------------------------------- --------------------------------------
Signature Signature
Title: Date:
----------------------------- ---------------------------------
Date:
-----------------------------
ATTACHMENTS: Stock Option Agreement, 1995 Stock Option Plan and Notice of
Exercise
1.
<PAGE> 18
NOTICE OF EXERCISE
Vixel Corporation
11911 Northcreek Parkway
Bothell, Washington 98011 Date of Exercise:
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.
Type of option (check one): Incentive [ ] Nonstatutory [ ]
Stock option dated: _______________________
Number of shares as
to which option is
exercised: _______________________
Certificates to be
issued in name of: _______________________
Total exercise price: $_______________________
Cash payment delivered
herewith: $_______________________
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the 1995 Stock Option Plan, (ii) to
provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option, and
(iii) if this exercise relates to an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any shares
of Common Stock issued upon exercise of this option that occurs within two (2)
years after the date of grant of this option or within one (1) year after such
shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with
respect to the number of shares of Common Stock of the Company listed above (the
"Shares"), which are being acquired by me for my own account upon exercise of
the Option as set forth above:
I acknowledge that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), and are deemed to constitute
"restricted securities" under Rule 701 and "control securities" under Rule 144
promulgated under the Act. I warrant and represent to the
1.
<PAGE> 19
Company that I have no present intention of distributing or selling said Shares,
except as permitted under the Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for
at least ninety days after the stock of the Company becomes publicly traded
(i.e., subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934) under Rule 701 and that more restrictive
conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the
Shares subject to the provisions of the Option shall have endorsed thereon
appropriate legends reflecting the foregoing limitations, as well as any legends
reflecting restrictions pursuant to the Company's Certificate of Incorporation,
Bylaws and/or applicable securities laws.
I further agree that, if requested by the Company (or a representative
of the underwriters) in connection with the first underwritten registration of
the offering of any securities of the Company under the Act, I will not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date of the registration statement of the Company filed
under the Act (the "Effective Date") as may be requested by the Company or the
representative of the underwriters. For purposes of this restriction I will be
deemed to own securities that (i) are owned directly or indirectly by me,
including securities held for my benefit by nominees, custodians, brokers or
pledgees; (ii) may be acquired by me within sixty (60) days of the Effective
Date; (iii) are owned directly or indirectly, by or for my brothers or sisters
(whether by whole or half blood), spouse, ancestors and lineal descendants; or
(iv) are owned, directly or indirectly, by or for a corporation, partnership,
estate or trust of which I am a shareholder, partner or beneficiary, but only to
the extent of my proportionate interest therein as a shareholder, partner or
beneficiary thereof. I further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.
Very truly yours,
------------------------------------
2.
<PAGE> 20
<PAGE> 1
EXHIBIT 10.15
EARLY EXERCISE STOCK PURCHASE AGREEMENT
(INCLUDING RIGHT OF FIRST REFUSAL)
THIS AGREEMENT is made by and between Vixel Corporation, a Delaware
corporation (the "Corporation"), and Kurtis L. Adams ("Purchaser").
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Purchaser hereby agrees to purchase from the Corporation, and the
Corporation hereby agrees to sell to Purchaser, an aggregate of one hundred
eighty-one thousand six hundred two (181,602) shares of the common stock (the
"Stock") of the Corporation, for an exercise price of $2.05 per share. The
closing hereunder shall occur at the offices of the Corporation on the date of
this Agreement or at such other time and place as the parties may mutually agree
upon in writing. At the closing, Purchaser shall deliver three (3) stock
assignments in the form of Exhibit B, duly endorsed (with date and number of
shares left blank), joint escrow instructions (the "Joint Escrow Instructions")
in the form of Exhibit C, duly executed by Purchaser, and the total exercise
price (including endorsed certificates representing the appropriate number of
shares of the Corporation's common stock if a portion of the total exercise
price is to be paid by common stock). At the closing or as soon thereafter as
practicable, the Corporation shall deliver to the Escrow Agent (as defined in
paragraph 10 below) share certificates for all of the Stock that is to be
subject to the Purchase Option (as defined in paragraph 2 below), and shall
deliver share certificates to Purchaser for all of the Stock, if any, that is
not to be subject to the Purchase Option. Upon the request of Purchaser during
the term of the escrow, certificates for shares that are no longer subject to
the Purchase Option shall be delivered to Purchaser.
2. The Stock to be purchased by Purchaser pursuant to this Agreement
shall be subject to the following option ("Purchase Option"):
(a) In the event that Purchaser shall cease to be an employee of
the Corporation for any reason (including his death), or no reason, with or
without cause, the Purchase Option may be exercised. The Corporation shall have
the right at any time within ninety (90) days after such cessation of employment
to purchase from Purchaser or his personal representative, as the case may be,
at the price per share paid by Purchaser pursuant to this Agreement ("Option
Price"), up to but not exceeding the number of unvested shares of the Stock set
forth on Exhibit A hereto which is incorporated herein by this reference.
(b) In addition, and without limiting the foregoing Purchase
Option, if at any time during the term of the Purchase Option, there is a change
of control of the Company or a change in responsibilities (as set forth in the
offer letter dated August 20, 1998) (the "Employment Agreement"), then the
Purchase Option shall be terminated as to the number of shares subject to
accelerated vesting pursuant to such agreement.
(c) The Corporation shall be entitled to pay for any shares
purchased pursuant to its Purchase Option, at the Corporation's option, in cash,
by offset against any indebtedness owing to the Corporation by Purchaser,
including, without limitation, any note given in payment for the Stock, or a
combination of both.
3. The Purchase Option may be exercised by giving written notice of
exercise delivered or mailed as provided in paragraph 15 below. Upon providing
of such notice and
<PAGE> 2
payment or tender of the purchase price, the Corporation shall become the legal
and beneficial owner of the Stock being purchased and all rights and interests
therein or related thereto.
4. If from time to time during the term of the Purchase Option there is
any stock dividend or liquidating dividend or distribution of cash and/or
property, stock split or other change in the character or amount of any of the
outstanding securities of the Corporation, then, in such event, any and all new,
substituted or additional securities or other property to which Purchaser is
entitled by reason of his ownership of Stock will be immediately subject to the
Purchase Option and be included in the word "Stock" for all purposes of the
Purchase Option with the same force and effect as the shares of Stock then
subject to the Purchase Option. While the total Option Price shall remain the
same after each such event, the Option Price per share of Stock upon exercise of
the Purchase Option shall be appropriately adjusted.
5. [INTENTIONALLY DELETED.]
6. CORPORATION'S RIGHT OF FIRST REFUSAL.
(a) Subject to the limitations of subparagraph 6(b), in the event that,
prior to the date of the first registration of an equity security of the
Corporation under Section 12 of the Securities Exchange Act of 1934, Purchaser
desires to sell, encumber or otherwise transfer all or any portion of the Stock
received upon the exercise of Purchaser's Option, or any interest therein,
Purchaser will be required to first give written notice of the intent to
transfer to the Secretary of the Corporation. The notice will name the proposed
transferee and state the number of shares of Stock to be transferred, the
proposed consideration, and all other terms and conditions of the proposed
transfer. The Corporation and/or its assignee(s) will have the right (the "Right
of First Refusal") at any time within thirty (30) days after receipt of such
notice to purchase any portion of the Stock specified in the notice at the price
and upon the terms set forth in such notice (the "Notice Price"). In the case of
a gift, property settlement or other transfer in which the proposed transferee
is not paying the full price for the shares, the price will be deemed to be the
fair market value of the Stock at such time as determined in good faith by the
Board of Directors. In the event the Corporation and/or its assignee(s) elects
to purchase all or any portion of the Stock, it will provide Purchaser with
written notice of its election and cash payment at the Notice Price within
thirty (30) days after receipt of the transfer notice. If, however, the terms of
payment set forth in the transfer notice were other than cash against delivery,
the Corporation and/or its assignee(s) will pay for the Stock on the same terms
and conditions as set forth in the transfer notice. In the event the Corporation
and/or its assignee(s) do not elect to acquire all of the shares specified in
the transfer notice, Purchaser may, within the sixty (60)-day period following
the expiration of the Corporation's Right of First Refusal, transfer any portion
of the Stock specified in the notice which was not acquired by the Corporation
and/or its assignee(s) on the terms specified in the original notice. All shares
so sold by Purchaser will continue to be subject to the same restrictions as
before the transfer.
(b) The following transactions shall be exempt from the provisions of
subparagraph 6(a): (i) Purchaser's transfer of any or all shares held either
during such Purchaser's lifetime or on death by will or intestacy to such
Purchaser's immediate family or to any custodian or trustee for the account of
such Purchaser or such Purchaser's immediate family and (ii) Purchaser's bona
fide pledge or mortgage of any shares with a commercial lending institution,
provided that any subsequent transfer of said shares to said institution shall
be conducted in the manner set forth in
<PAGE> 3
this Agreement. "Immediate family" as used herein shall mean spouse, lineal
descendant, father, mother, brother, or sister of the Purchaser making such
transfer;
In any case, the transferee, assignee, or other recipient shall receive
and hold such Stock subject to the provisions of this Agreement, and there shall
be no further transfer of such Stock except in accord with this Agreement.
7. All certificates representing any shares of Stock of the Corporation
subject to the provisions of this Agreement shall have endorsed thereon legends
in substantially the following form:
(i) "The shares represented by this certificate are
subject to an option and a right of first refusal set forth in an agreement
between the corporation and the registered holder, or his predecessor in
interest, a copy of which is on file at the principal office of this
corporation. Any transfer or attempted transfer of any shares subject to such
option is void without the prior express written consent of the issuer of these
shares."
(ii) "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration statement as to the
securities under said Act or an opinion of counsel satisfactory to the
corporation that such registration is not required."
8. Purchaser acknowledges that he is aware that the Stock to be issued
to him by the Corporation pursuant to this Agreement has not been registered
under the Securities Act of 1933, as amended (the "Act"), on the basis that no
distribution or public offering of the Stock is to be effected, and in this
connection acknowledges that the Corporation is relying on the following
representations. In this connection, Purchaser warrants and represents to the
Corporation that he is acquiring the Stock for investment and not with a view to
or for sale in connection with any distribution of the Stock or with any present
intention of distributing or selling the Stock and he does not presently have
reason to anticipate any change in circumstances or any particular occasion or
event which would cause him to sell the Stock. Purchaser recognizes that the
Stock must be held indefinitely unless it is subsequently registered under the
Act or an exemption from such registration is available and, further, recognizes
that the Corporation is under no obligation to register the Stock or to comply
with any exemption from such registration.
9. Purchaser is aware that the Stock may not be sold pursuant to Rule
144 adopted under the Act unless certain conditions are met and until Purchaser
has held the Stock for at least one (1) year. Among the conditions for use of
Rule 144 is the availability of specified current public information about the
Corporation. Purchaser recognizes that the Corporation presently has no plans to
make such information available to the public. Whether or not the Purchase
Option is exercised or has lapsed, Purchaser further agrees not to make any
disposition of any of the Stock in any event unless and until: (a) There is then
in effect a registration statement under the Act covering such proposed
disposition and such disposition is made in accordance with such registration
statement; or (b) (i) Purchaser shall have notified the Corporation of the
proposed disposition and shall have furnished the Corporation with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
Purchaser shall have given the Corporation an opinion of counsel, which opinion
and counsel shall be satisfactory to the Corporation, to the effect that such
disposition will not require registration of the Stock under the Act.
<PAGE> 4
10. As security for his faithful performance of the terms of this
Agreement and to insure the availability for delivery of Purchaser's Stock upon
exercise of the Purchase Option herein provided for, Purchaser agrees, at the
closing hereunder (or as soon thereafter as practicable), to deliver (or have
the Corporation deliver on the Purchaser's behalf) to and deposit with the
Secretary of the Corporation ("Escrow Agent"), as Escrow Agent in this
transaction, three (3) stock assignments duly endorsed (with date and number of
shares left blank) in the form attached hereto as Exhibit B, together with a
certificate or certificates evidencing all of the Stock subject to the Purchase
Option; said documents are to be held by the Escrow Agent and delivered by said
Escrow Agent pursuant to the Joint Escrow Instructions of the Corporation and
Purchaser set forth in Exhibit C attached hereto and incorporated herein by this
reference, which instructions shall also be delivered to the Escrow Agent at the
closing hereunder (or as soon thereafter as practicable).
11. Except for transfers permitted pursuant to Section 9 of the Option
Agreement, purchaser shall not sell or transfer any of the Stock subject to the
Purchase Option or any interest therein so long as such Stock is subject to the
Purchase Option.
12. The Corporation shall not be required (i) to transfer on its books
any shares of Stock of the Corporation which shall have been sold or transferred
in violation of any of the provisions set forth in this Agreement or (ii) to
treat as owner of such shares or to accord the right to vote as such owner or to
pay dividends to any transferee to whom such shares shall have been so
transferred.
13. Subject to the provisions of paragraphs 11 and 12 above, Purchaser
(but not any unapproved transferee) shall, during the term of this Agreement,
exercise all rights and privileges of a stockholder of the Corporation with
respect to the Stock.
14. The parties agree to execute such further instruments and to take
such further action as reasonably may be necessary to carry out the intent of
this Agreement.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
any United States Post Office Box, by registered or certified mail with postage
and fees prepaid, addressed to the other party hereto at his address hereinafter
shown below his signature or at such other address as such party may designate
by ten (10) days' advance written notice to the other party hereto.
16. This Agreement shall bind and inure to the benefit of the successors
and assigns of the Corporation and, subject to the restrictions on transfer
herein set forth, inure to the benefit of and be binding upon Purchaser, his
heirs, executors, administrators, successors, and assigns. Without limiting the
generality of the foregoing, the Purchase Option of the Corporation hereunder
shall be assignable by the Corporation at any time or from time to time, in
whole or in part.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 20th day of May, 1999.
VIXEL CORPORATION
By: /s/ Kurtis L. Adams
-------------------------------------
Title: Chief Financial Officer
11911 Northcreek Parkway South
Suite 100
Bothell, WA 98011
PURCHASER
/s/ Kurtis L. Adams
-----------------------------------------
Name: Kurtis L. Adams
<PAGE> 6
EXHIBIT A
TO
NONSTATUTORY OPTION AGREEMENT
VESTING
<TABLE>
<CAPTION>
Number of Number of Number of Number of Total Number
Vested Shares Vested Shares Vested Shares Vested Shares of Vested
Date of Vesting Option #482 Option #483 Option #498 Option #499 Shares
<S> <C> <C> <C> <C> <C>
11/2/99 43,750 43,750
12/2/99 3,646 47,396
1/2/00 3,646 51,042
2/2/00 3,646 54,688
3/2/00 3,646 58,334
4/2/00 3,646 61,980
4/21/00 3352 9148 74,480
5/2/00 3,646 78,126
6/2/00 3,646 81,772
7/2/00 3,646 85,418
7/21/00 838 2287 88,543
8/2/00 3,646 92,189
9/2/00 3,646 95,835
10/2/00 3,646 99,481
10/21/00 838 2287 102,606
11/2/00 3,646 106,252
12/2/00 3,646 109,898
1/2/01 3,646 113,544
1/21/01 736 2388 116,668
2/2/01 3,646 120,314
3/2/01 3,646 123,960
4/2/01 3,646 127,606
4/21/01 736 2389 130,731
5/2/01 3,646 134,377
6/2/01 3,646 138,023
7/2/01 3,646 141,669
7/21/01 736 2389 144,794
8/2/01 3,646 148,440
9/2/01 3,646 152,086
10/2/01 3,646 155,732
10/21/01 737 2389 158,858
11/2/01 3,646 162,504
12/2/01 5,729 168,233
1/2/02 1294 169,527
1/21/02 3124 172,651
2/2/02 1294 173,945
3/2/02 1295 175,240
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Number of Number of Number of Number of Total Number
Vested Shares Vested Shares Vested Shares Vested Shares of Vested
Date of Vesting Option #482 Option #483 Option #498 Option #499 Shares
<S> <C> <C> <C> <C> <C>
4/2/02 1294 176,534
4/21/02 3125 179,659
5/2/02 1294 180,953
6/2/02 648 181,601
7/2/02 181,601
7/21/02 1 181,602
</TABLE>
<PAGE> 8
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Early Exercise Stock
Purchase Agreement (the "Agreement") dated as of May 20, 1999, Kurtis L. Adams
hereby sells, assigns and transfers unto Vixel Corporation, a Delaware
corporation (the "Corporation") _________________ (__________) shares of Common
Stock of the Corporation standing in the undersigned's name on the books of the
Corporation represented by Certificate No. _____ herewith, and does hereby
irrevocably constitute and appoint the Secretary of the Corporation attorney to
transfer the said stock on the books of the Corporation with full power of
substitution in the premises. This Assignment may be used only in accordance
with and subject to the terms and conditions of the Agreement, in connection
with the repurchase of shares of Common Stock issued to the undersigned pursuant
to the Agreement, and only to the extent that such shares remain subject to the
Company's Purchase Option under the Agreement.
Dated: May 20, 1999 /s/ Kurtis L. Adams
------------------------------------
[Signature]
Kurtis L. Adams
<PAGE> 9
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
Vixel Corporation
Attention: Secretary
Dear Sir:
As Escrow Agent for both Vixel Corporation, a Delaware corporation (the
"Company"), and the undersigned purchaser of stock of the Company ("Purchaser"),
you are hereby authorized and directed to hold the documents delivered to you
pursuant to the terms of that certain Early Exercise Stock Purchase Agreement
(the "Agreement"), dated May 20, 1999, to which a copy of these Joint Escrow
Instructions is attached as Exhibit B, in accordance with the following
instructions:
1. In the event the Company or an assignee shall elect to exercise the
Purchase Option set forth in the Agreement, the Company or its assignee will
give to Purchaser and you a written notice specifying the number of shares of
stock to be purchased, the purchase price, and the time for a closing hereunder
at the principal office of the Company. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company against the
simultaneous delivery to you of the purchase price (which may include suitable
acknowledgment of cancellation of indebtedness) of the number of shares of stock
being purchased pursuant to the exercise of the Purchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as specified in the Agreement.
Purchaser hereby irrevocably constitutes and appoints you as his
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities and other property all documents of assignment and/or
transfer and all stock certificates necessary or appropriate to make all
securities negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or closing of the
exercise of the Purchase Option, whichever occurs first.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder; provided, however, that if at the time of
termination of this escrow you are advised by the Company that the property
<PAGE> 10
subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Company.
6. Except as otherwise provided in these Joint Escrow Instructions, your
duties hereunder may be altered, amended, modified or revoked only by a writing
signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith, and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel (including,
without limitation, the firm of Cooley Godward LLP) and other experts as you may
deem necessary properly to advise you in connection with your obligations
hereunder, may rely upon the advice of such counsel, and may pay such counsel
reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Company or if you shall resign by written
notice to each party. In the event of any such termination, the Company may
appoint any officer or assistant officer of the Company as successor Escrow
Agent and Purchaser hereby confirms the appointment of such successor or
successors as his attorney-in-fact and agent to the full extent of your
appointment.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
<PAGE> 11
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you may (but are not obligated to) retain in your possession without
liability to anyone all or any part of said securities until such dispute shall
have been settled either by mutual written agreement of the parties concerned or
by a final order, decree or judgment of a court of competent jurisdiction after
the time for appeal has expired and no appeal has been perfected, but you shall
be under no duty whatsoever to institute or defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
any United States Post Office Box, by registered or certified mail with postage
and fees prepaid, addressed to each of the other parties hereunto entitled at
the following addresses specified below, or at such other addresses as a party
may designate by ten days' written notice to each of the other parties hereto:
16. By signing these Joint Escrow Instructions you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This agreement will be governed by, and construed in accordance
with, the internal laws (excluding the law of conflicts) of the State of
Delaware.
<PAGE> 12
18. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Company may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.
Very truly yours,
VIXEL CORPORATION
By: /s/ Kurtis L. Adams
-------------------------------------
Name: Kurtis L. Adams
Title: Chief Financial Officer
PURCHASER:
/s/ Kurtis L. Adams
----------------------------------------
KURTIS L. ADAMS
ESCROW AGENT:
Secretary
Address:
11911 Northcreek Parkway South
Bothell, Washington 98011
<PAGE> 1
EXHIBIT 10.23
VIXEL CORPORATION
1999 EQUITY INCENTIVE PLAN
ADOPTED AUGUST 12, 1999
APPROVED BY STOCKHOLDERS AUGUST 27, 1999
TERMINATION DATE: AUGUST 27, 2009
1. Purposes.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock. The
Plan also provides for non-discretionary grants of Nonstatutory Stock Options to
Non-Employee Directors of the Company.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. Definitions.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means Vixel Corporation, a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company
<PAGE> 2
for their services as Directors or Directors who are merely paid a
director's fee by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the day of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
<PAGE> 3
(p) "IPO DATE" means the effective date of the initial public offering
of the Company's Common Stock.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NON-EMPLOYEE DIRECTOR OPTION" means a Non-Statutory Stock Option
granted pursuant to Section 7 hereof.
(s) "NON-EMPLOYEE DIRECTOR OPTION AGREEMENT" means a written agreement
between the Company and a Non-Employee Director evidencing the terms and
conditions of a Non-Employee Director Option grant. Each Non-Employee Director
Option Agreement shall be subject to the terms and conditions of the Plan.
(t) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(u) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(v) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(w) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(x) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(y) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(z) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
<PAGE> 4
(aa) "PLAN" means this Vixel Corporation 1999 Equity Incentive Plan.
(bb) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(cc) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(dd) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(ee) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(ff) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. Administration.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c). Any interpretation of the Plan by the Board and any decision by
the Board under the Plan shall be final and binding on all persons.
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section
13.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
<PAGE> 5
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to
a Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED.
At such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors, the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate
to a committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.
4. Shares Subject to the Plan.
(a) SHARE RESERVE. Subject to the provisions of Section 12 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate one million seven
hundred thousand (1,700,000) shares of Common Stock, plus an annual increase to
be added each January 1, beginning with January 1, 2001, equal to the lesser of
(i) four percent (4%) of the total number of shares of Common Stock outstanding
on such January 1 or (ii) one million seven hundred thousand (1,700,000) shares
of Common Stock. Notwithstanding the foregoing, the Board may designate a
smaller number of shares of Common Stock to be added to the share reserve as of
a particular January 1.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan. In addition, if any stock award issued under the Company's 1995 Stock
Option plan shall for any reason expire or otherwise terminate, in whole or in
part, without having been exercised in full, the shares of Common Stock not
acquired under such stock award shall revert to and again become available for
issuance under this Plan.
<PAGE> 6
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. Eligibility.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 12
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than one million two
hundred thousand(1,200,000) shares of the Common Stock during any calendar year.
(d) CONSULTANTS. A Consultant shall not be eligible for the grant of a
Stock Award if, at the time of grant, a Form S-8 Registration Statement under
the Securities Act ("Form S-8") is not available to register either the offer or
the sale of the Company's securities to such Consultant because of the nature of
the services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (a) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (b) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the
<PAGE> 7
foregoing, an Incentive Stock Option may be granted with an exercise price lower
than that set forth in the preceding sentence if such Option is granted pursuant
to an assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on
<PAGE> 8
the time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary. The provisions of this subsection 6(g) are subject
to any Option provisions governing the minimum number of shares of Common Stock
as to which an Option may be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement) or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement) or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
<PAGE> 9
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate.
(m) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "Re-Load Option")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares of Common Stock
equal to the number of shares of Common Stock surrendered as part or all of the
exercise price of such Option; (ii) have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such
Re-Load Option; and (iii) have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option shall be subject to the same exercise price and
term provisions heretofore described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 11(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. Non-Employee Director Stock Options.
Without any further action of the Board, each Non-Employee Director
shall be granted Nonstatutory Stock Options as described in subsections 7(a) and
7(b) (collectively, "Non-Employee Director Options"). Each Non-Employee Director
Option shall include the substance of the terms set forth in subsections 7(c)
through 7(k).
(a) INITIAL GRANTS. After the IPO Date, each person who is elected or
appointed for the first time to be a Non-Employee Director automatically shall,
upon the date of his or her initial election or appointment to be a Non-Employee
Director by the Board or stockholders of the Company, be granted an Initial
Grant to purchase sixteen thousand five hundred (16,500) shares of Common Stock
on the terms and conditions set forth herein.
<PAGE> 10
(b) ANNUAL GRANTS. On the day following each Annual Meeting commencing
with the Annual Meeting in 2000, each person who is then a Non-Employee Director
automatically shall be granted an Annual Grant to purchase five thousand (5,000)
shares of Common Stock on the terms and conditions set forth herein; and further
provided, however, that if the person has not been serving as a Non-Employee
Director for the entire period since the preceding Annual Meeting, then the
number of shares subject to the Annual Grant shall be reduced pro rata for each
full quarter prior to the date of grant during which such person did not serve
as a Non-Employee Director.
(c) TERM. Each Non-Employee Director Option shall have a term of ten
(10) years from the date it is granted.
(d) EXERCISE PRICE. The exercise price of each Non-Employee Director
Option shall be one hundred percent (100%) of the Fair Market Value of the stock
subject to the Non-Employee Director Option on the date of grant.
Notwithstanding the foregoing, a Non-Employee Director Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Non-Employee Director Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(e) VESTING. Each Non-Employee Director Option shall vest one third per
year from the date on which it is granted.
(f) CONSIDERATION. The purchase price of stock acquired pursuant to a
Non-Employee Director Option may be paid, to the extent permitted by applicable
statutes and regulations, in any combination of (i) cash or check, (ii) delivery
to the Company of other Common Stock, (ii) deferred payment or (iv) any other
form of legal consideration that may be acceptable to the Board and provided in
the Non-Employee Director Option Agreement; provided, however, that at any time
that the Company is incorporated in Delaware, payment of the Common Stock's "par
value," as defined in the Delaware General Corporation Law, shall not be made by
deferred payment. In the case of any deferred payment arrangement, interest
shall be compounded at least annually and shall be charged at the minimum rate
of interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(g) TRANSFERABILITY. A Non-Employee Director Option shall not be
transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Non-Employee Director only by the
Non-Employee Director. Notwithstanding the foregoing, the Non-Employee Director
may, by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Non-Employee Director, shall thereafter be entitled to exercise the Non-Employee
Director Option.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event a Non-Employee
Director's Continuous Service terminates (other than upon the Non-Employee
Director's death or Disability), the Non-Employee Director may exercise his or
her Non-Employee Director Option (to the extent that the Non-Employee Director
was entitled to exercise it as of the date of
<PAGE> 11
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Non-Employee
Director's Continuous Service, or (ii) the expiration of the term of the
Non-Employee Director Option as set forth in the Non-Employee Director Option
Agreement. If, after termination, the Non-Employee Director does not exercise
his or her Non-Employee Director Option within the time specified in the
Non-Employee Director Option Agreement, the Non-Employee Director Option shall
terminate.
(i) EXTENSION OF TERMINATION DATE. If the exercise of the Non-Employee
Director Option following the termination of the Non-Employee Director's
Continuous Service (other than upon the Non-Employee Director's death or
Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Non-Employee Director Option shall terminate on the earlier of (i) the
expiration of the term of the Non-Employee Director Option set forth in
subsection 7(c) or (ii) the expiration of a period of three (3) months after the
termination of the Non-Employee Director's Continuous Service during which the
exercise of the Non-Employee Director Option would not violate such registration
requirements.
(j) DISABILITY OF NON-EMPLOYEE DIRECTOR. In the event a Non-Employee
Director's Continuous Service terminates as a result of the Non-Employee
Director's Disability, the Non-Employee Director may exercise his or her
Non-Employee Director Option (to the extent that the Non-Employee Director was
entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the
Non-Employee Director Option as set forth in the Non-Employee Director Option
Agreement. If, after termination, the Non-Employee Director does not exercise
his or her Non-Employee Director Option within the time specified herein, the
Non-Employee Director Option shall terminate.
(k) DEATH OF NON-EMPLOYEE DIRECTOR. In the event (i) a Non-Employee
Director's Continuous Service terminates as a result of the Non-Employee
Director's death or (ii) the Non-Employee Director dies within the three-month
period after the termination of the Non-Employee Director's Continuous Service
for a reason other than death, then the Non-Employee Director Option may be
exercised (to the extent the Non-Employee Director was entitled to exercise the
Non-Employee Director Option as of the date of death) by the Non-Employee
Director's estate, by a person who acquired the right to exercise the
Non-Employee Director Option by bequest or inheritance or by a person designated
to exercise the Non-Employee Director Option upon the Non-Employee Director's
death, but only within the period ending on the earlier of (1) the date eighteen
(18) months following the date of death or (2) the expiration of the term of
such Non-Employee Director Option as set forth in the Non-Employee Director
Option Agreement. If, after death, the Non-Employee Director Option is not
exercised within the time specified herein, the Non-Employee Director Option
shall terminate.
8. Provisions of Stock Awards other than Options.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus
<PAGE> 12
agreement shall include (through incorporation of provisions hereof by reference
in the agreement or otherwise) the substance of each of the following
provisions:
(i) CONSIDERATION. A stock bonus may be awarded in consideration
for past services actually rendered to the Company or an Affiliate for its
benefit.
(ii) VESTING. Shares of Common Stock awarded under the stock
bonus agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be determined by
the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the stock bonus
agreement.
(iv) TRANSFERABILITY. Rights to acquire shares under the stock
bonus agreement shall be transferable by the Participant only upon such terms
and conditions as are set forth in the stock bonus agreement, as the Board shall
determine in its discretion, so long as Common Stock awarded under the stock
bonus agreement remains subject to the terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) PURCHASE PRICE. The purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five percent (85%) of the Common Stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.
(iii) VESTING. Shares of Common Stock acquired under the
restricted stock purchase agreement may, but need not, be subject to a share
repurchase option in favor of the Company in accordance with a vesting schedule
to be determined by the Board.
<PAGE> 13
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may repurchase
or otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(v) TRANSFERABILITY. Rights to acquire shares under the
restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its discretion, so long as
Common Stock awarded under the restricted stock purchase agreement remains
subject to the terms of the restricted stock purchase agreement.
9. Covenants of the Company.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
10. Use of Proceeds from Stock.
Proceeds from the sale of Common Stock pursuant to Stock Awards
shall constitute general funds of the Company.
11. Miscellaneous.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to
<PAGE> 14
continue to serve the Company or an Affiliate in the capacity in effect at the
time the Stock Award was granted or shall affect the right of the Company or an
Affiliate to terminate (i) the employment of an Employee with or without notice
and with or without cause, (ii) the service of a Consultant pursuant to the
terms of such Consultant's agreement with the Company or an Affiliate or (iii)
the service of a Director pursuant to the Bylaws of the Company or an Affiliate,
and any applicable provisions of the corporate law of the state in which the
Company or the Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Non-Employee Director during any calendar year (under all plans of the
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the
Options or portions thereof which exceed such limit (according to the order in
which they were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (iii) the issuance of the shares
of Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award; or (iii) delivering to the
Company owned and unencumbered shares of the Common Stock. Notwithstanding the
foregoing, the Company shall not be authorized to withhold shares of Common
Stock at rates in excess of the minimum statutory withholding rates for federal
and state tax purposes, including payroll taxes.
<PAGE> 15
12. Adjustments upon Changes in Stock.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(b) CHANGE IN CONTROL. In the event of (i) a dissolution, liquidation or
sale of substantially all of the assets of the Company, (ii) a merger or
consolidation in which the Company is not the surviving corporation or (iii) a
reverse merger in which the Company is the surviving corporation but the shares
of Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then, to the extent permitted by applicable law: (i) any
surviving corporation shall assume any Stock Awards outstanding under the Plan
or shall substitute similar stock awards (including an award to acquire the same
consideration paid to the stockholders in the transaction described in this
subsection 12(c)) for those outstanding under the Plan, or (ii) such Stock
Awards shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such Stock Awards, or to substitute
similar stock awards for those outstanding under the Plan, then with respect to
Stock Awards held by Participants whose Continuous Service has not terminated,
the time during which such Stock Awards may be exercised shall be accelerated,
and the Stock Awards terminated if not exercised prior to such event.
13. Amendment of the Plan and Stock Awards.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 12 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
<PAGE> 16
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
14. Termination or Suspension of the Plan.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect, except with the written consent of the Participant.
15. Effective Date of Plan.
The Plan shall become effective on the date on which it is adopted by
the Board, but no Stock Award shall be exercised (or, in the case of a stock
bonus, shall be granted) unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
16. Choice of Law.
The law of the State of Delaware shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.
<PAGE> 17
VIXEL CORPORATION
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, Vixel Corporation (the "Company") has granted you an
option under its 1999 Equity Incentive Plan (the "Plan") to purchase the number
of shares of the Company's Common Stock indicated in your Grant Notice at the
exercise price indicated in your Grant Notice. Defined terms not explicitly
defined in this Stock Option Agreement but defined in the Plan shall have the
same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in your Grant Notice, provided that vesting will cease
upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover
first vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments
that have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and
(d) if your option is an incentive stock option, then, as
provided in the Plan, to the extent that the aggregate Fair Market Value
(determined at the time of grant) of the shares of Common Stock with respect to
which your option plus all other incentive stock options you hold are
exercisable for the first time by you during any calendar year (under all plans
of the
<PAGE> 18
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000),
your option(s) or portions thereof that exceed such limit (according to the
order in which they were granted) shall be treated as nonstatutory stock
options.
4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:
(a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.
(c) Pursuant to the following deferred payment alternative:
(i) Not less than one hundred percent (100%) of the
aggregate exercise price, plus accrued interest, shall be due four (4) years
from date of exercise or, at the Company's election, upon termination of your
Continuous Service.
(ii) Interest shall be compounded at least annually and
shall be charged at the minimum rate of interest necessary to avoid the
treatment as interest, under any applicable provisions of the Code, of any
portion of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(iii) At any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall be made in cash and not by deferred payment.
(iv) In order to elect the deferred payment alternative,
you must, as a part of your written notice of exercise, give notice of the
election of this payment alternative and, in order to secure the payment of the
deferred exercise price to the Company hereunder, if the Company so requests,
you must tender to the Company a promissory note and a security
<PAGE> 19
agreement covering the purchased shares of Common Stock, both in form and
substance satisfactory to the Company, or such other or additional documentation
as the Company may request.
5. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.
7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:
(a) three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death, provided that if
during any part of such three- (3-) month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your Continuous
Service due to your Disability;
(c) eighteen (18) months after your death if you die either
during your Continuous Service or within three (3) months after your Continuous
Service terminates;
(d) the Expiration Date indicated in your Grant Notice; or
(e) the tenth (10th) anniversary of the Date of Grant.
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you continue to provide services to the Company or an Affiliate
as a Consultant or Director after your employment terminates or if you otherwise
exercise your option more than three (3) months after the date your employment
terminates.
<PAGE> 20
8. EXERCISE.
(a) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.
(c) If your option is an incentive stock option, by exercising
your option you agree that you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of your option that occurs within two (2) years after
the date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.
9. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
10. RIGHT OF REPURCHASE. To the extent provided in the Company's bylaws
as amended from time to time, the Company shall have the right to repurchase all
or any part of the shares of Common Stock you acquire pursuant to the exercise
of your option.
11. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
12. WITHHOLDING OBLIGATIONS.
(a) At the time you exercise your option, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option. Notwithstanding
<PAGE> 21
the foregoing, the Company shall not be authorized to withhold shares of Common
Stock at rates in excess of the minimum statutory withholding rates for federal
and state tax purposes, including payroll taxes.
(b) Upon your request and subject to approval by the Company, in
its sole discretion, and compliance with any applicable conditions or
restrictions of law, the Company may withhold from fully vested shares of Common
Stock otherwise issuable to you upon the exercise of your option a number of
whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law. If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Common Stock acquired upon
such exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.
(c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.
13. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
14. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.
<PAGE> 22
VIXEL CORPORATION
1999 EQUITY INCENTIVE PLAN
NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
Pursuant to the 1999 Equity Incentive Plan (the "Plan") and this Non-Employee
Director Stock Option Agreement, Vixel Corporation (the "Company") has granted
you a Nonstatutory Stock Option under the Plan to purchase
__________________________ (________) shares of the Company's Common Stock at an
exercise price of $___________ per share. Capitalized terms not defined in this
Stock Option Agreement are defined in the Plan.
The details of your option are as follows:
15. NUMBER OF SHARES AND EXERCISE PRICE. Pursuant to your option, you
may purchase __________________________ (________) shares of the Company's
Common Stock at an exercise price of $___________ per share subject to the terms
and conditions set forth in this Stock Option Agreement and the Plan. The number
of shares and exercise price subject to your option may be adjusted from time to
time to reflect Capitalization Adjustments, as provided in the Plan.
16. VESTING. Your option is fully vested.
17. DATE OF GRANT. Your option has been granted effective
__________________ (the "Date of Grant").
18. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or by one or more of the following:
(a) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, then pursuant
to a program developed under Regulation T as promulgated by the Federal Reserve
Board which, prior to the issuance of Common Stock, results in either the
receipt of cash (or check) by the Company or the receipt of irrevocable
instructions to pay the aggregate exercise price to the Company from the sales
proceeds (a "cashless exercise").
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, then by
delivery of already-owned shares of Common Stock (valued at their Fair Market
Value on the date of exercise) if (i) either you have held the already-owned
shares for the period required to avoid a charge to the Company's reported
earnings (generally six months) or you did not acquire the already-owned shares,
directly or indirectly from the Company, and (ii) you own the already-owned
shares free and clear of any liens, claims, encumbrances or security interests.
"Delivery" for these purposes shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, your option may not be exercised by
tender to the Company of Common Stock to the extent such
<PAGE> 23
tender would constitute a violation of the provisions of any law, regulation or
agreement restricting the redemption of the Company's stock.
19. WHOLE SHARES. Your option may only be exercised for whole shares.
20. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, your option may not be exercised unless the shares issuable
upon exercise of your option are then registered under the Securities Act or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act. The exercise of your option must also comply with other
applicable laws and regulations governing the option, and the option may not be
exercised if the Company determines that the exercise would not be in material
compliance with such laws and regulations.
21. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:
(a) three (3) months after the termination of your Continuous
Service for any reason other than death or Disability, provided that if during
any part of such three- (3-) month period your option is not exercisable solely
because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your Continuous
Service due to Disability;
(c) eighteen (18) months after your death if you die either
during your Continuous Service or within three (3) months after your Continuous
Service terminates for any reason; or
(d) the tenth (10th) anniversary of the Date of Grant.
22. EXERCISE.
(a) You may exercise your option during its term by delivering a
Notice of Exercise (in a form designated by the Company) together with the
exercise price to the Secretary of the Company, or to such other person as the
Company may designate, during regular business hours, together with such
additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of your option
or (2) the disposition of shares acquired upon such exercise.
23. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company,
<PAGE> 24
you may designate a third party who, in the event of your death, shall
thereafter be entitled to exercise your option.
24. OPTION NOT A SERVICE CONTRACT. Your option is not a service
contract, and nothing in your option shall obligate the Company or an Affiliate,
their respective shareholders, Boards of Directors, officers or employees to
continue any relationship that you might have as a Director.
25. WITHHOLDING OBLIGATIONS.
(a) At the time your option is exercised, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option. Notwithstanding the foregoing, the Company shall not be
authorized to withhold shares of Common Stock at rates in excess of the minimum
statutory withholding rates for federal and state tax purposes, including
payroll taxes.
(b) Your option is not exercisable unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested.
26. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by the Company to you, five (5) days after deposit
in the United States mail, postage prepaid, addressed to you at the last address
you provided to the Company.
27. GOVERNING PLAN DOCUMENT. Your option is subject to all applicable
provisions of the Plan, which are hereby made a part of your option, and is
further subject to all interpretations, amendments, rules and regulations which
may from time to time be promulgated and adopted pursuant to the Plan. In the
event of any conflict between the provisions of your option and those of the
Plan, the provisions of the Plan shall control.
<PAGE> 25
NOTICE OF EXERCISE
Vixel Corporation
- ------------------------
- ------------------------
- ------------------------ Date of Exercise:
------------
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.
Type of option (check one): Incentive [ ] Nonstatutory [ ]
Stock option dated: _______________
Number of shares as
to which option is
exercised: _______________
Certificates to be
issued in name of: _______________
Total exercise price: $______________
Cash payment delivered
herewith: $______________
Value of ________ shares of
Vixel Corporation common
stock delivered herewith(1): $______________
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the 1999 Equity Incentive Plan, (ii) to
provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option, and
(iii) if this exercise relates to an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any of the
shares of
Common Stock issued upon exercise of this option that occurs within two (2)
years after the date of grant of this option or within one (1) year after such
shares of Common Stock are issued upon exercise of this option.
- --------
(1) Shares must meet the public trading requirements set forth in the option.
Shares must be valued in accordance with the terms of the option being
exercised, must have been owned for the minimum period required in the option,
and must be owned free and clear of any liens, claims, encumbrances or security
interests. Certificates must be endorsed or accompanied by an executed
assignment separate from certificate.
<PAGE> 26
Very truly yours,
-----------------------------
<PAGE> 27
VIXEL CORPORATION
STOCK OPTION GRANT NOTICE
(1999 EQUITY INCENTIVE PLAN)
Vixel Corporation (the "Company"), pursuant to its 1999 Equity Incentive Plan
(the "Plan"), hereby grants to Optionholder an option to purchase the number of
shares of the Company's Common Stock set forth below. This option is subject to
all of the terms and conditions as set forth herein and in the Stock Option
Agreement, the Plan and the Notice of Exercise, all of which are attached hereto
and incorporated herein in their entirety.
Optionholder: _____________________________________
Date of Grant: _____________________________________
Vesting Commencement Date: _____________________________________
Number of Shares Subject to Option: _____________________________________
Exercise Price (Per Share): _____________________________________
Total Exercise Price: _____________________________________
Expiration Date: _____________________________________
<TABLE>
<S> <C> <C>
TYPE OF GRANT: [ ] Incentive Stock Option [ ] Nonstatutory Stock Option
EXERCISE SCHEDULE: [ ] Same as Vesting Schedule [ ] Early Exercise Permitted
VESTING SCHEDULE: [1/4th of the shares vest one year after the Vesting Commencement Date.
1/16th of the shares vest monthly thereafter over the next three years.]
PAYMENT: By one or a combination of the following items (described in the
Stock Option Agreement):
By cash or check
Pursuant to a Regulation T Program if the Shares are
publicly traded
By delivery of already-owned shares if the Shares are
publicly traded
</TABLE>
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:
OTHER AGREEMENTS: _____________________________________
_____________________________________
VIXEL CORPORATION OPTIONHOLDER:
By:
-------------------------------- ------------------------------
Signature Signature
Title: Date:
------------------------------ -------------------------
Date:
------------------------------
ATTACHMENTS: Stock Option Agreement, 1999 Equity Incentive Plan and Notice of
Exercise
<PAGE> 1
EXHIBIT 10.24
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT ("Pledge Agreement") is made by the
undersigned ("Pledgor"), in favor of Vixel Corporation, a Delaware corporation
("Pledgee").
WHEREAS, Pledgor has concurrently herewith executed that certain
Promissory Note (the "Note") in favor of Pledgee in the amount of One Hundred
Thousand Dollars ($100,000) in payment of the purchase price of Twenty-Five
Thousand (25,000) shares of the Common Stock of Pledgee; and
WHEREAS, Pledgee is willing to accept the Note from Pledgor, but only
upon the condition, among others, that Pledgor shall have executed and delivered
to Pledgee this Pledge Agreement and the Collateral (as defined below):
NOW, THEREFORE, in consideration of the foregoing recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, Pledgor hereby agrees as
follows:
1. As security for the full, prompt and complete payment and performance
when due (whether by stated maturity, by acceleration or otherwise) of all
indebtedness of Pledgor to Pledgee created under the Note (all such indebtedness
being the "Liabilities"), together with, without limitation, the prompt payment
of all expenses, including, without limitation, reasonable attorneys' fees and
legal expenses, incidental to the collection of the Liabilities and the
enforcement or protection of Pledgee's lien in and to the collateral pledged
hereunder, Pledgor hereby pledges to Pledgee, and grants to Pledgee, a first
priority security interest in Twenty-Five Thousand (25,000) shares of Common
Stock of Pledgee (the "Pledged Shares"), and all dividends, cash, instruments,
and other property or proceeds from time to time received, receivable, or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Shares (collectively, the "Pledged Collateral").
2. At any time, without notice, and at the expense of Pledgor, Pledgee
in its name or in the name of its nominee or of Pledgor may, but shall not be
obligated to: (1) collect by legal proceedings or otherwise all dividends
(except cash dividends other than liquidating dividends), interest, principal
payments and other sums now or hereafter payable upon or on account of said
Pledged Collateral; (2) enter into any extension, reorganization, deposit,
merger or consolidation agreement, or any agreement in any way relating to or
affecting the Pledged Collateral, and in connection therewith may deposit or
surrender control of such Pledged Collateral thereunder, accept other property
in exchange for such Pledged Collateral and do and perform such acts and things
as it may deem proper, and any money or property received in exchange for such
Pledged Collateral shall be applied to the indebtedness or thereafter held by it
pursuant to the provisions hereof; (3) insure, process and preserve the Pledged
Collateral; (4) cause the Pledged Collateral to be transferred to its name or to
the name of its nominee; (5) exercise as to such Pledged Collateral all the
rights, powers and remedies of an owner, except that so long as no default
exists under the Note or hereunder Pledgor shall retain all voting rights as to
the Pledged Shares.
<PAGE> 2
3. Pledgor agrees to pay prior to delinquency all taxes, charges, liens
and assessments against the Pledged Collateral, and upon the failure of Pledgor
to do so, Pledgee at its option may pay any of them and shall be the sole judge
of the legality or validity thereof and the amount necessary to discharge the
same.
4. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of Pledgor shall immediately become due and
payable irrespective of any agreed maturity, upon the happening of any of the
following events: (1) failure to keep or perform any of the terms or provisions
of this Pledge Agreement; (2) failure to pay any installment of principal or
interest on the Note when due; (3) the levy of any attachment, execution or
other process against the Pledged Collateral; or (4) the insolvency, commission
of an act of bankruptcy, general assignment for the benefit of creditors, filing
of any petition in bankruptcy or for relief under the provisions of Title 11 of
the United States Code of, by, or against Pledgor.
5. In the event of the nonpayment of any indebtedness when due, whether
by acceleration or otherwise, or upon the happening of any of the events
specified in the last preceding paragraph, Pledgee may then, or at any time
thereafter, at its election, apply, set off, collect or sell in one or more
sales, or take such steps as may be necessary to liquidate and reduce to cash in
the hands of Pledgee in whole or in part, with or without any previous demands
or demand of performance or notice or advertisement, the whole or any part of
the Pledged Collateral in such order as Pledgee may elect, and any such sale may
be made either at public or private sale at its place of business or elsewhere,
or at any broker's board or securities exchange, either for cash or upon credit
or for future delivery; provided, however, that if such disposition is at
private sale, then the purchase price of the Pledged Collateral shall be equal
to the public market price then in effect, or, if at the time of sale no public
market for the Pledged Collateral exists, then, in recognition of the fact that
the sale of the Pledged Collateral would have to be registered under the
Securities Act of 1933 and that the expenses of such registration are
commercially unreasonable for the type and amount of collateral pledged
hereunder, Pledgee and Pledgor hereby agree that such private sale shall be at a
purchase price mutually agreed to by Pledgee and Pledgor or, if the parties
cannot agree upon a purchase price, then at a purchase price established by a
majority of three independent appraisers knowledgeable of the value of such
collateral, one named by Pledgor within 10 days after written request by the
Pledgee to do so, one named by Pledgee within such 10 day period, and the third
named by the two appraisers so selected, with the appraisal to be rendered by
such body within 30 days of the appointment of the third appraiser. The cost of
such appraisal, including all appraiser's fees, shall be charged against the
proceeds of sale as an expense of such sale. Pledgee may be the purchaser of any
or all Pledged Collateral so sold and hold the same thereafter in its own right
free from any claim of Pledgor or right of redemption. Demands of performance,
notices of sale, advertisements and presence of property at sale are hereby
waived, and Pledgee is hereby authorized to sell hereunder any evidence of debt
pledged to it. Any sale hereunder may be conducted by any officer or agent of
Pledgee.
6. The proceeds of the sale of any of the Pledged Collateral and all
sums received or collected by Pledgee from or on account of such Pledged
Collateral shall be applied by Pledgee to the payment of expenses incurred or
paid by Pledgee in connection with any sale, transfer or
2
<PAGE> 3
delivery of the Pledged Collateral, to the payment of any other costs, charges,
attorneys' fees or expenses mentioned herein, and to the payment of the
indebtedness or any part hereof, all in such order and manner as Pledgee in its
discretion may determine. Pledgee shall then pay any balance to Pledgor.
7. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the Pledged Collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such Pledged
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of Pledgee hereunder with respect to such Pledged Collateral
so transferred; but with respect to any Pledged Collateral not so transferred
Pledgee shall retain all rights and powers hereby given.
8. Until all indebtedness shall have been paid in full the power of sale
and all other rights, powers and remedies granted to Pledgee hereunder shall
continue to exist and may be exercised by Pledgee at any time and from time to
time irrespective of the fact that the indebtedness or any part thereof may have
become barred by any statute of limitations, or that the personal liability of
Pledgor may have ceased.
9. Pledgee agrees that so long as no default exists under the Note or
hereunder, the Pledged Shares shall, upon the request of Pledgor, be released
from pledge as the indebtedness is paid. Such releases shall be at the rate of
one share for each Four Dollars ($4.00) of principal amount of indebtedness
paid.
10. Pledgee may at any time deliver the Pledged Collateral or any part
thereof to Pledgor and the receipt of Pledgor shall be a complete and full
acquittance for the Pledged Collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
11. The rights, powers and remedies given to Pledgee by this Pledge
Agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Any forbearance or failure or
delay by Pledgee in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of such right, power or remedy, and any single or partial
exercise of any right, power or remedy hereunder shall not preclude the further
exercise thereof; and every right, power and remedy of Pledgee shall continue in
full force and effect until such right, power or remedy is specifically waived
by an instrument in writing executed by Pledgee.
12. If any provision of this Pledge Agreement is held to be
unenforceable for any reason, it shall be adjusted, if possible, rather than
voided in order to achieve the intent of the parties to the extent possible. In
any event, all other provisions of this Pledge Agreement shall be deemed valid
and enforceable to the full extent possible.
13. This Pledge Agreement shall be governed by, and construed in
accordance with, the laws of the State of Washington as applied to contracts
made and performed entirely within the State of Washington by residents of such
State.
3
<PAGE> 4
Dated: May 28, 1999
PLEDGOR
- ---------------------------------
Printed Name:
--------------------
4
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1/A of
our reports dated May 19, 1999, except for the last paragraph of Note 8 which
is as of June 22, 1999 and the first paragraph of Note 12 which is as of August
27, 1999, relating to the financial statements and financial statement schedule
of Vixel Corporation which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" and "Selected
Financial Data" in such Prospectus.
PricewaterhouseCoopers LLP
Seattle, Washington
August 27, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Vixel Corporation
We consent to the use in this Amendment No. 2 to the Registration Statement on
Form S-1 of our report included herein dated May 1, 1997 relating to the
balance sheet of Arcxel Technologies, Inc. as of December 31, 1996 and the
related statements of operations, stockholders' equity and cash flows for the
period from June 18, 1996 (inception) to December 31, 1996, and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG LLP
Orange County, California
August 27, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1/A of our
report dated April 24, 1998, except for the first paragraph of Note 9 which is
as of August 27, 1999, relating to the financial statements of Arcxel
Technologies, Inc., which appears in such Registration Statement. We also
consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Prospectus.
PricewaterhouseCoopers LLP
Seattle, Washington
August 27, 1999
