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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 2000
REGISTRATION NO. 333-31990
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CHAPARRAL NETWORK STORAGE, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 3577 84-1451038
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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GARY L. ALLISON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
1951 SOUTH FORDHAM STREET
LONGMONT, COLORADO 80503
(303) 684-3200
(Name, address and telephone number of
principal executive offices and agent for service)
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Copies to:
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RONALD R. LEVINE, II, ESQ. STEPHEN J. SCHRADER, ESQ.
LAURA B. GILL, ESQ. JUSTIN L. BASTIAN, ESQ.
DEBORAH J. FRIEDMAN, ESQ. MELISSA L. MONG, ESQ.
DAVIS, GRAHAM & STUBBS LLP MORRISON & FOERSTER LLP
370 SEVENTEENTH STREET 755 PAGE MILL ROAD
SUITE 4700 PALO ALTO, CALIFORNIA 94304
DENVER, COLORADO 80202 (650) 813-5600
(303) 892-9400
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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 for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Common Stock, par value $.001 per share..................... $60,000,000 $15,840
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS 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 IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 27, 2000
Shares
[CHAPARRAL NETWORK STORAGE LOGO]
CHAPARRAL NETWORK STORAGE, INC.
Common Stock
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Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $ and
$ per share. We have applied to list our common stock on The Nasdaq Stock
Market's National Market under the symbol "CHAP."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS CHAPARRAL
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
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Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON SALOMON SMITH BARNEY
BEAR, STEARNS & CO. INC.
NEEDHAM & COMPANY, INC.
The date of this prospectus is , 2000.
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[Picture of Storage Area Network]
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 5
RISK FACTORS.......................... 8
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 18
USE OF PROCEEDS....................... 18
DIVIDEND POLICY....................... 19
CAPITALIZATION........................ 20
DILUTION.............................. 21
SELECTED FINANCIAL DATA............... 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 23
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PAGE
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BUSINESS.............................. 30
MANAGEMENT............................ 49
RELATED PARTY TRANSACTIONS............ 62
PRINCIPAL STOCKHOLDERS................ 70
DESCRIPTION OF CAPITAL STOCK.......... 72
SHARES ELIGIBLE FOR FUTURE SALE....... 75
UNDERWRITING.......................... 77
NOTICE TO CANADIAN RESIDENTS.......... 79
LEGAL MATTERS......................... 80
EXPERTS............................... 80
WHERE YOU CAN FIND ADDITIONAL
INFORMATION ABOUT CHAPARRAL......... 80
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES.
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DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
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THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
4
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including the section entitled
"Risk Factors," our financial statements and the related notes included
elsewhere in this prospectus, before making an investment decision.
CHAPARRAL NETWORK STORAGE, INC.
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We develop and market high performance products that facilitate the
movement of data between networked storage devices. We are focused primarily on
developing products for use in the emerging market for Storage Area Networks, or
SANs. SANs are high-speed data networks that interconnect storage systems and
servers using a widely accepted protocol known as Fibre Channel.
Our products include storage routers and external Redundant Array of
Independent Disks, or RAID, controllers for open systems network storage
solutions. Storage routers connect servers and storage systems in a SAN to
enable communication among devices that use different protocols for the
input/output, or I/O, of data. RAID controllers distribute blocks of data across
multiple disks to improve performance and ensure availability of data.
In the last decade, there has been a dramatic increase in the volume of
data created, processed and accessed throughout the business enterprise. This
growth has placed a significant strain on storage systems used in the backup,
sharing and management of this data. In addition, organizations have recognized
the importance and value of enterprise data as mission-critical to their
employees, customers and suppliers and are demanding rapid and reliable access
to data 24 hours a day, seven days a week. The congestion caused by users trying
to access large amounts of data across local area networks, or LANs, has created
a bottleneck between the server and the storage devices. The limitations of
today's most commonly used server-attached storage architecture, where storage
devices are typically connected to only one server using an I/O protocol called
the Small Computer System Interface, or SCSI, have exacerbated this bottleneck.
As a result, enterprises are demanding a faster, more efficient and manageable
means to interconnect new and existing servers, storage devices and LANs.
Our Intelligent Storage Routers facilitate the interconnection of SANs with
existing SCSI-based servers and storage systems. Our external RAID controllers
dynamically distribute data across multiple hard disk drives to increase data
transfer speeds and deliver fault tolerance. Our products are designed to
provide a high level of performance, availability and functionality. They
incorporate a common high-performance hardware platform and foundation software
layer that enable a wide range of SAN applications.
Key benefits of our solutions include the following:
- Increased Performance. We believe our products provide industry-leading
performance based on throughput, as measured by both megabytes per second
and I/O transfers per second.
- High Availability and Reliability. Our products increase the
accessibility and protection of enterprise data by providing redundant
I/O paths to storage devices.
- Improved SAN Performance with New Applications. Our products are designed
using a highly flexible and modular embedded software architecture,
enabling us to quickly and cost-effectively implement new SAN
applications.
- Differentiation and Manageability. We have developed a robust,
well-defined user interface called a Common Application Programming
Interface, or CAPI, that enables our customers to incorporate their
proprietary functionalities into our products to differentiate their
solutions in the market. In addition, our customers can design their own
graphical user interface, or GUI, to manage our equipment in conjunction
with their solutions.
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We sell our products to original equipment manufacturers, or OEMs,
including Eurologic Systems, MicroNet Technology, Inc., Qualstar Corporation,
Quantum Corporation/ATL Products, Inc., Trimm Technologies, Inc. and Xyratex
International Ltd., as well as to distribution partners, including Arrow
Electronics, Inc., Bell Microproducts, Inc., CONSAN Inc. and Hammer, PLC.
Through March 31, 2000, we sold approximately 6,000 units of our Intelligent
Storage Routers and external RAID controllers.
We intend to capitalize on our Fibre Channel technological expertise to
address the growing SAN market. In addition, we will continue to focus on
expanding and developing distribution relationships with leading computer and
storage systems OEMs, as well as with value added resellers and systems
integrators, to increase our geographic coverage and address new markets. We
intend to continue to work closely with our strategic partners and participate
in industry alliances to facilitate the widespread adoption of SANs and SAN
applications.
We were incorporated in January 1998 as Chaparral Technologies, Inc., a
Delaware corporation. In July 1999, we changed our name to Chaparral Network
Storage, Inc. to reflect our emphasis on providing network storage products. Our
principal executive offices are located at 1951 S. Fordham Street, Longmont,
Colorado 80503, and our telephone number is (303) 684-3200. The address of our
Web site is www.chaparralnet.com. Information contained on our Web site should
not be considered part of this prospectus.
This prospectus contains trademarks and trade names of other companies.
THE OFFERING
Common stock offered................ shares
Common stock outstanding after this
offering............................ shares
Use of proceeds..................... We intend to use the net proceeds from
this offering for working capital and
other general corporate purposes,
including expenditures for research and
development, sales and marketing
efforts and potential acquisitions of
or investments in complementary
businesses, technologies or products.
Proposed Nasdaq National Market
symbol.............................. CHAP
The number of shares of common stock outstanding as of March 31, 2000
excludes:
- 4,322,707 shares subject to outstanding options as of March 31, 2000,
with a weighted average exercise price of $1.89 per share;
- 300,000 shares subject to an outstanding warrant as of March 31, 2000,
with an exercise price of $20.00 per share; and
- 11,683,920 shares available for grant under stock option, stock incentive
and stock purchase plans.
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Our fiscal year ends on March 31; thus, a reference to "fiscal 2000" or
"fiscal year 2000," for example, is to the fiscal year ended March 31, 2000. In
addition, except as otherwise indicated, information in this prospectus is based
on the following assumptions:
- our convertible preferred stock will convert to 15,128,853 shares of
common stock upon completion of this offering;
- the underwriters' over-allotment option will not be exercised; and
- we will file our amended and restated certificate of incorporation.
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SUMMARY FINANCIAL DATA
The following tables summarize our financial data. For a more detailed
explanation of our financial condition and operating results, you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our financial statements and the notes to those statements included
in this prospectus.
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FISCAL YEAR ENDED
MARCH 31,
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1999 2000
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(IN THOUSANDS, EXCEPT
PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 237 $ 8,842
Cost of sales............................................... 156 4,590
Gross profit................................................ 81 4,252
Loss from operations........................................ (3,623) (7,942)
Net loss.................................................... $(3,695) $(7,969)
Net loss per share -- basic and diluted..................... $ (1.40) $ (0.68)
Weighted average shares..................................... 2,640 11,701
Pro forma net loss per share -- basic and diluted........... $ (0.31)
Pro forma weighted average shares........................... 25,519
</TABLE>
Pro forma basic and diluted net loss per share is computed using the
weighted average shares of common stock outstanding, including the pro forma
effects of the automatic conversion of all outstanding series of preferred stock
into common stock upon completion of this offering as if the conversion occurred
on April 1, 1999, or at the date the preferred stock was actually issued, if
later.
Per share and weighted average share amounts exclude shares of common stock
that may be issued upon exercise of outstanding options and warrants or that may
be issued under our various stock compensation plans. For additional information
regarding these shares, see note 1 to the table in "Capitalization."
The following table is a summary of our balance sheet as of March 31, 2000.
The as adjusted column reflects our receipt of the estimated net proceeds from
the sale of the shares of common stock we are selling in this offering
at an assumed initial public offering price of $ per share, after deducting
underwriting discounts and commissions and estimated offering expenses.
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AS OF MARCH 31, 2000
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AS
ACTUAL ADJUSTED
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $16,707 $
Working capital............................................. 18,949
Total assets................................................ 23,521
Total stockholders' equity.................................. 20,159
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RISK FACTORS
An investment in our common stock is very risky. You should carefully
consider the risks described below, together with all of the other information
in this prospectus, before making a decision to invest in our common stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE INCURRED SIGNIFICANT LOSSES SINCE OUR INCEPTION, WE EXPECT FUTURE LOSSES
AND WE MAY NEVER BECOME PROFITABLE.
We have incurred significant losses since our inception and expect to
continue to incur losses on both a quarterly and annual basis for the
foreseeable future. As of March 31, 2000, our accumulated deficit was
approximately $11.7 million. For the fiscal year ended March 31, 1999, our net
loss was approximately $3.7 million, and for the fiscal year ended March 31,
2000, our net loss was approximately $8.0 million. We expect to incur
significant research and development, sales and marketing and administrative
expenses and, as a result, we will need to realize increased revenue to achieve
profitability. Further, even if we achieve profitability, given the competition
in and the evolving nature of the SAN market, we may not be able to sustain or
increase profitability on a quarterly or annual basis.
OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT AND PROVIDES LIMITED
INFORMATION UPON WHICH TO EVALUATE OUR BUSINESS.
We were incorporated in January 1998 and sold our first product in October
1998. To date, most of our revenue has been derived from the sale of our
external RAID controllers. We expect to sell fewer external RAID controllers due
to the loss of business from nStor, our second largest customer for the fiscal
year ended March 31, 2000. Our business is evolving, and we expect to derive an
increasing portion of our future revenue from the sale of our Intelligent
Storage Routers. The revenue and income potential of our products and businesses
are unproven and the market that we are addressing is rapidly evolving, making
the forecast of our future business difficult. In addition, our operating
expenses are largely based on anticipated revenue trends and a high percentage
of our expenses are, and will continue to be, fixed in the short-term. Our
limited operating history and our evolving business make it very difficult for
us and for investors to evaluate or predict our future revenue or business
prospects. For further financial information relating to our business, see
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
WE HAVE A HISTORY OF FLUCTUATIONS IN OUR REVENUE AND OPERATING RESULTS AND
EXPECT THESE FLUCTUATIONS TO CONTINUE, WHICH MAY RESULT IN VOLATILITY IN OUR
STOCK PRICE.
Our revenue and operating results have varied significantly in the past and
are likely to vary significantly in the future due to a number of factors, many
of which are outside of our control. The primary factors that may cause our
quarterly revenue and operating results to fluctuate include the following:
- fluctuations in demand for our Intelligent Storage Routers and external
RAID controllers;
- the size, timing, terms and fluctuations of customer orders and product
implementations;
- the rate of adoption of SANs as an alternative to existing
server-attached storage architectures;
- the mix of our Intelligent Storage Routers and external RAID controllers
sold;
- the mix of distribution channels through which our products are sold;
- new product introductions by us or our competitors;
- deferrals of customer orders in anticipation of new products, services or
product enhancements introduced by us, our OEMs, our competitors or from
other providers of SAN products;
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- changes in our pricing policies or the pricing policies of our
competitors;
- our ability to develop, introduce, ship and support new products and
product enhancements that meet customer requirements in a timely manner;
- prototype expenses;
- our ability to obtain sufficient supplies of components, including sole
or limited source components;
- increases in the prices of the components we purchase;
- our ability to attain and maintain production volumes and quality levels;
- the ability of our contract manufacturers to produce and distribute our
products in a timely fashion;
- the software enhancements embedded in our hardware platforms;
- the additional software options incorporated in our products;
- costs related to acquisitions of technology or businesses; and
- general economic conditions as well as those specific to the SAN and
related industries.
Accordingly, you should not rely on the results of any past periods as an
indication of our future performance. In future periods our operating results
may be below expectations of public market analysts or investors.
IF WE ARE UNABLE TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH OEM CUSTOMERS, WE
MAY NOT BE ABLE TO INCREASE OUR REVENUES AND GROW OUR BUSINESS.
Our success depends on our ability to initiate, manage and expand our
relationships with new OEM customers. OEMs typically conduct significant
evaluation, testing, implementation and acceptance procedures before they begin
to market and sell new products. Based on our experience, their evaluation
process can be lengthy and can take as long as one year. Additionally, some OEMs
may complete the evaluation of our products but choose to delay implementation.
The qualification process is also complex and may require significant sales,
marketing and management efforts on our part. The complexity of this process
increases if we must qualify our products with multiple customers concurrently.
As a result, we may expend significant resources in developing customer
relationships before recognizing revenue, if any.
THE LOSS OF OR SIGNIFICANT REDUCTION IN SALES TO ANY OF OUR OEM CUSTOMERS, WHICH
HAS HAPPENED IN THE PAST, COULD SIGNIFICANTLY REDUCE OUR REVENUE.
Our revenues are currently derived primarily from a small number of OEM
customers. For the fiscal year ended March 31, 2000, approximately 49% of our
revenue came from three OEM customers, Quantum/ATL, nStor and Eurologics. We
anticipate that our operating results will continue to depend on sales to a
relatively small number of OEM customers. None of our current customers have any
minimum purchase obligations, and they may stop placing orders with us at any
time, regardless of any forecast they may have previously provided. The loss of
any of our OEM customers, or a significant reduction in sales to these
customers, could significantly reduce our revenue.
For example, during the quarter ended December 31, 1999, nStor, our largest
customer in the nine months ended December 31, 1999, returned approximately
$400,000 of our external RAID controllers following an order cancellation by one
of its customers. Although we had shipped these products to nStor in the quarter
ended December 31, 1999, pursuant to a noncancellable purchase order, we chose
not to recognize this revenue. We have not waived any claims arising from
nStor's cancellation of this order. Also, due to this cancellation, we did not
ship additional product pursuant to other nStor noncancellable purchase orders
for approximately $547,000. Primarily as a result of the cancellation of this
order and our decision not to ship additional products to nStor, our revenue for
the quarter ended December 31, 1999
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decreased approximately 28% from the previous quarter. We are not currently
shipping to nStor, have received no new purchase orders from nStor and may not
ship to them in the future.
COMPETITION IN OUR MARKETS MAY ADVERSELY AFFECT OUR REVENUE, GROSS PROFIT AND
MARKET SHARE.
The market for our products is very competitive. In the external RAID
controller market, our current competitors include CMD Technology, Inc.,
Infotrend Corporation and Mylex Corporation (acquired by IBM Corporation). As we
start selling higher performance RAID products targeted at the enterprise
market, we will face competition from larger and more established companies that
offer more integrated solutions, such as Data General (acquired by EMC
Corporation) and Symbios Logic (acquired by LSI Logic Corporation). In addition
to these companies, we expect to see competition from existing internal RAID
suppliers, such as American Megatrends Inc. and Distributed Processing
Technology (recently acquired by Adaptec, Inc.). Our major competitors in the
storage router market are ATTO Technology, Inc., CrossRoads Systems, Inc. and
Pathlight Technology, Inc. In the future, we may also compete against large data
networking companies that may develop SAN products. Furthermore, we may face
competition from Fibre Channel switch and hub manufacturers that incorporate
storage routing capabilities into their products. We also compete with providers
of data storage solutions that employ traditional storage technologies,
including SCSI-based technology, such as Emulex Corporation and QLogic
Corporation.
Increased competition could result in pricing pressures or reduced sales,
margins, profits and market share. Some of our competitors and potential
competitors have longer operating histories, greater name recognition, access to
larger customer bases, more established distribution channels or substantially
greater resources than we have. In addition, some of our current and potential
competitors have already established supplier or joint development relationships
with divisions of our current or potential customers. These competitors may be
able to leverage their existing relationships to discourage these customers from
purchasing additional products from us or persuade them to replace our products
with their products. As a result, they may be able to respond more quickly than
we can to new or changing opportunities, technologies, standards or customer
requirements. Our inability to compete effectively against current or future
competitors may significantly harm our business.
IF WE ARE UNABLE TO DEVELOP RELATIONSHIPS WITH NEW DISTRIBUTORS, WE MAY NOT BE
ABLE TO INCREASE OUR REVENUES AND GROW OUR BUSINESS.
In addition to increasing sales to OEMs, we intend to develop and expand
indirect distribution channels. Our failure to execute this strategy could limit
our ability to grow or sustain revenue. Furthermore, as we expand our sales to
distributors, we will increase our selling costs as these parties generally
require a higher level of customer support than OEMs. Our distributors may not
market our products effectively or devote the resources necessary to provide us
with effective sales, marketing and technical support. Many of our distributors
also sell products that compete with our products. Our failure to successfully
manage our distributor relationships, or their failure to devote adequate
resources to marketing and selling our products, could limit our ability to grow
or sustain our revenue.
WE HAVE LIMITED PRODUCT OFFERINGS, AND OUR SUCCESS DEPENDS ON OUR ABILITY TO
DEVELOP NEW AND ENHANCED PRODUCTS THAT ACHIEVE MARKET ACCEPTANCE.
We derive a substantial portion of our revenue from a limited number of
products, some of which have been introduced and shipped in volume only
recently. Accordingly, market demand and acceptance of these products are
uncertain. Our future success depends upon our ability to address the rapidly
evolving SAN market by developing and introducing high-quality products, product
enhancements and services on a timely basis. In addition, we must successfully
manage the introduction of new or enhanced products to minimize disruption in
our customers' ordering patterns, avoid excessive levels of older product
inventories and ensure that adequate supplies of new products can be delivered
to meet our customers' demands. Our revenue may be reduced if our current
products do not obtain market acceptance or if we fail to develop new products
or product enhancements that are broadly accepted.
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Factors that may affect the market acceptance of our products, some of
which are beyond our control, include the following:
- growth and changing requirements of our markets;
- successful development of products that meet customer requirements;
- availability, price, quality and performance of competing products and
technologies;
- expansion of our relationships with existing and new OEM, distributor,
reseller and systems integrator customers;
- performance, quality, price and total cost of ownership of our products;
and
- our customer service and support capabilities and responsiveness.
PRODUCT DEVELOPMENT DELAYS COULD ADVERSELY AFFECT OUR REVENUES, RESULTS OF
OPERATIONS, FINANCIAL CONDITION OR OUR CUSTOMER RELATIONSHIPS.
We may not be able to develop, manufacture and market new products or
product enhancements in a timely manner. Product development delays may result
from numerous factors, including:
- unanticipated engineering complexities;
- changing market or competitive product requirements;
- changing OEM product specifications;
- difficulties with independent contractors;
- difficulties in hiring and retaining necessary personnel;
- difficulties in overcoming resource limitations; and
- inability to license third party technology.
Any delay or unanticipated difficulty associated with new product introductions
or product enhancements could adversely affect our revenues, results of
operations, financial condition and customer relationships.
WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY, AND CHALLENGES TO OUR INTELLECTUAL
PROPERTY RIGHTS MAY RESULT IN LITIGATION, INCREASED COSTS AND PRODUCT DELAYS. WE
ARE CURRENTLY INVOLVED IN LITIGATION REGARDING OUR PRODUCTS.
On March 31, 2000, Crossroads Systems, Inc., our major competitor, filed
suit against us in the United States District Court for the Western District of
Texas (Austin Division). The complaint alleges that our products infringe a
patent of Crossroads. We cannot assure you that we will prevail in this
proceeding. In addition, we may be a party to litigation in the future either to
protect our intellectual property or as a result of an alleged infringement of
others' intellectual property. Intellectual property litigation could subject us
to significant liability for damages and could cause our proprietary rights to
be invalidated. Regardless of the merits of the claim or outcome, litigation
would likely be time-consuming and expensive to resolve and would divert
management time and attention.
The Crossroads lawsuit as well as any future intellectual property
litigation could force us to do one or more of the following:
- stop using the challenged intellectual property or selling our products
or services that incorporate it;
- obtain a license to use the challenged intellectual property or to sell
products or services that incorporate it, which license may not be
available on reasonable terms, or at all; and
- redesign those products or services that are based on or incorporate the
challenged intellectual property; and
- customers could require us to replace products purchased with
non-infringing products.
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If we are forced to take any of the foregoing actions, we may be unable to
manufacture and sell our products, and our business, financial condition and
results of operations could be substantially harmed.
IF WE ARE UNABLE TO MANAGE OUR GROWTH SUCCESSFULLY, WE MAY EXPERIENCE
FLUCTUATIONS IN OUR OPERATING RESULTS OR DECLINES IN OUR STOCK PRICE OR BOTH.
We have grown to 79 employees as of March 31, 2000, from eight employees as
of March 31, 1998. We plan to continue to expand our operations significantly to
pursue existing and potential market opportunities. This growth will place a
significant demand on our management and operational resources. In order to
manage our growth effectively, we must implement and improve our operational
systems, procedures and controls on a timely basis. If we fail to manage our
growth effectively or make mistakes in operating our business, we may experience
fluctuations in our operating results or declines in our stock price or both.
THE SAN MARKET IN WHICH WE COMPETE IS NEW AND UNPREDICTABLE, AND IF THIS MARKET
DOES NOT DEVELOP AND EXPAND AS WE ANTICIPATE, OUR PRODUCTS MAY NOT ACHIEVE
MARKET ACCEPTANCE AND WE MAY BE UNABLE TO INCREASE REVENUES.
Widespread adoption of SANs is critical to our future success. The market
for SANs has only recently begun to develop and is rapidly evolving. Because the
market for SAN products is relatively new, it is difficult to predict its
potential size and evolution and, as a result, we may not be able to forecast
accurately demand for our products. Furthermore, potential end users may be
reluctant or slow to adopt new storage architectures. Our success in generating
revenue in this emerging market will depend on, among other things, our ability
to:
- educate potential OEM customers, distribution channel partners and end
users about the benefits of SANs, storage routers and external RAID
controllers;
- achieve interoperability between our products and those of other SAN
vendors;
- develop, maintain and build relationships with OEM customers,
distributors, resellers, systems integrators and end-user organizations;
and
- develop products that are compliant with existing and evolving standard
protocols.
In addition, end users often implement SANs in connection with their
deployment of new storage systems and servers. Accordingly, our future success
is also substantially dependent on demand for new storage systems and servers.
THE SAN MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES AND EVOLVING
STANDARDS, AND IF WE DO NOT RESPOND IN A TIMELY MANNER, OUR PRODUCTS MAY BECOME
OBSOLETE OR WE MAY BE REQUIRED TO REDESIGN OUR PRODUCTS, BOTH OF WHICH COULD
ADVERSELY AFFECT OUR REVENUE, GROSS PROFIT OR MARKET SHARE.
The SAN market is characterized by rapid technological change, frequent new
product introductions, changes in customer requirements and evolving industry
standards. In developing our products, we have made, and will continue to make,
assumptions regarding which standards will be widely adopted. If the standards
adopted are different from those we have chosen to support, market acceptance of
our products may be significantly reduced or delayed, our competitive position
may be compromised, our existing products may be rendered obsolete and our
business may be seriously harmed. In addition, our research and development
efforts associated with the technologies and standards that do not achieve
widespread adoption would likely have no realizable value. Even if we are
successful in predicting the adopted technologies and standards, any delay in
our development of products based on these technologies and standards would
likely result in lower revenue for our products than we anticipate.
12
<PAGE> 14
IF WE CANNOT INCREASE OUR INTERNATIONAL SALES ACTIVITIES AS PLANNED, WE MAY NOT
BE ABLE TO INCREASE REVENUES AND OUR OPERATING RESULTS COULD BE ADVERSELY
AFFECTED.
For the year ended March 31, 2000, approximately 22% of our revenue was
from international sales. We plan to increase our international sales
activities. Our international sales will be limited if we cannot establish
relationships with international distributors, establish additional foreign
operations, expand international sales channel management, hire additional
personnel and develop relationships with international service providers. Even
if we are able to successfully continue international operations, we may not be
able to maintain or increase international market demand for our products. Our
international operations are subject to a number of risks, including:
- increased complexity and costs of managing international operations;
- multiple protectionist, adverse and changing governmental laws and
regulations;
- reduced or limited protection of intellectual property rights;
- potentially adverse tax consequences resulting from changes in tax laws;
- longer sales cycles;
- greater difficulty in accounts receivable collection and longer
collection periods;
- supporting multiple languages;
- difficulty enforcing our legal 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 have been denominated
in foreign currencies. As a result, an increase in the value of the U.S. dollar
relative to foreign currencies could make our products more expensive and thus
less competitive in foreign markets. A portion of our international revenue may
be denominated in foreign currencies in the future, which would subject us to
risks associated with fluctuations in those foreign currencies.
IF WE CANNOT INCREASE OUR SALES VOLUMES, REDUCE OUR COSTS OR INTRODUCE HIGHER
MARGIN PRODUCTS TO OFFSET ANTICIPATED REDUCTIONS IN THE AVERAGE SELLING PRICES
OF OUR PRODUCTS, OUR OPERATING RESULTS MAY SUFFER.
We anticipate that as products in the SAN market become widely available,
the average selling prices of our products may decrease in response to changes
in product mix, competitive pricing pressures, new product introductions by us
or our competitors or other factors. If we are unable to offset the anticipated
decrease in our average selling prices by increasing our sales volumes, our
revenue will decline. In addition, to maintain our gross margin, we must
continue to reduce the manufacturing cost of our products and develop and
introduce new, higher margin products and product enhancements. If we cannot
maintain our gross margin, our business could be seriously harmed.
WE MAY ENGAGE IN ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS' EQUITY 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 our market opportunity or
enhance our technical capabilities. We have no current agreements or
negotiations underway. In the event of any future acquisitions, we could incur
debt, assume liabilities or issue stock. The issuance of stock would dilute our
current stockholders' percentage ownership.
13
<PAGE> 15
Acquisitions could also involve numerous risks, including:
- problems integrating the purchased operations, technologies or products
with our existing business and products;
- unanticipated costs;
- diversion of management's attention from our core business;
- adverse effects on existing business relationships with our 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 within our company or any business we
acquire.
We may not be able to integrate successfully any businesses, products,
technologies or personnel that we acquire.
IF WE DO NOT HIRE, RETAIN AND INTEGRATE HIGHLY SKILLED PERSONNEL, OUR ABILITY TO
DEVELOP AND SELL OUR PRODUCTS COULD BE HARMED.
Our success depends to a significant degree on our personnel, many of whom
would be difficult to replace. Currently, we only have employment contracts with
our three most senior executives and do not maintain key person life insurance
on any of our personnel. The loss of any of our key personnel could have a
negative impact on our business.
We believe our future success will also depend in large part upon our
ability to attract and retain highly skilled personnel. Competition for these
people is intense, and we may not be successful in attracting and retaining
these individuals. If we are unable to attract or retain qualified personnel in
the future, or if we experience delays in hiring required personnel,
particularly qualified engineers and sales personnel, our ability to develop,
introduce and sell our products could be harmed. In addition, we may be subject
to claims of unfair hiring practices as we pursue highly skilled personnel. Any
claim of this nature could result in material litigation. We could incur
substantial costs in defending ourselves against these claims, regardless of
their merits.
We also believe that our success depends significantly on the ability of
our personnel to operate effectively, both individually and as a group. Many of
our employees have only recently joined us. If we are unable to integrate new
employees in a timely and cost-effective manner, our operating results may
suffer.
IF WE ARE UNABLE TO FORECAST ACCURATELY OUR COMPONENT AND MATERIAL REQUIREMENTS,
WE MAY INCUR ADDED COSTS OR BE UNABLE TO MEET CUSTOMER DEMANDS.
We use rolling forecasts based on anticipated product orders from our
customers to determine our component requirements. Lead times for materials and
components that we order vary significantly and depend on factors, such as
specific supplier requirements, contract terms and current market demand for
such components. As a result, we may not accurately forecast our component
requirements. If we overestimate our component requirements, we could 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. Either
occurrence would negatively impact our business and operating results.
OUR PRODUCTS ARE COMPLEX AND MAY CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS,
WHICH COULD LEAD TO AN INCREASE IN OUR COSTS OR A REDUCTION IN OUR REVENUE.
Our products are complex, and we have, from time to time, found errors in
our existing products. We also may in the future find errors in our existing,
new or enhanced products. Because our products are also
14
<PAGE> 16
integrated with products from other vendors, it may be difficult to identify the
source of any problem. Hardware and software errors, whether caused by our
products or those of another vendor, could adversely affect sales of our
products, cause us to incur significant warranty and repair costs, divert
engineering resources from product development efforts and cause significant
customer relations problems.
BECAUSE WE DEPEND ON LIMITED SOURCE SUPPLIERS FOR KEY COMPONENTS, WE ARE
SUSCEPTIBLE TO SUPPLY SHORTAGES THAT COULD ADVERSELY AFFECT OUR OPERATING
RESULTS.
We depend on JNI and Adaptec for our Fibre Channel, SCSI and memory
controller Application Specific Integrated Circuits, or ASICs. In addition, we
have limited supply sources for several key components, including embedded
microprocessors, optical transceivers and power supplies. We may in the future
experience shortages of, or difficulties in acquiring, these components. If we
are unable to buy these components in sufficient quantities, we will not be able
to manufacture our products on a timely basis. We typically purchase three
months of these components in advance and consign these parts to our outsourced
manufacturers. If we are required to procure and qualify alternative sources of
supply, we may face both cost increases and time to market delays resulting from
the need to redesign our hardware platforms.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY, OUR OPERATING
RESULTS COULD SUFFER.
Because our products rely on proprietary technology and will likely
continue to rely on technological advancements for market acceptance, we believe
that the protection of our intellectual property rights will be critical to the
success of our business. To protect our intellectual property rights, we rely on
a combination of patent, copyright, trademark and trade secret laws and
restrictions on disclosure. We also enter into confidentiality or license
agreements with our employees, consultants and corporate partners and control
access to and distribution of our software, documentation and other proprietary
information.
Despite our efforts to protect our proprietary rights, unauthorized parties
may copy or otherwise obtain and use our products or technology. Monitoring
unauthorized use of our products is difficult. 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. We license the core technology that underlies our
products from Adaptec, and we depend on Adaptec to enforce its patents and
protect our proprietary rights. We cannot be certain that Adaptec will
adequately enforce these patents. 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. For a more complete discussion of the protection of our intellectual
property, see "Business -- Intellectual Property." Our failure to protect our
intellectual property rights could adversely affect our business, results of
operations and financial condition.
IF OUR CONTRACT MANUFACTURERS ARE UNABLE TO MEET OUR MANUFACTURING NEEDS, OUR
REVENUE MAY SUFFER BECAUSE WE MAY NOT BE ABLE TO MEET OUR CUSTOMER DEMAND.
We currently outsource manufacturing of our products to Surface Mount
Technology Centre Inc. (SMTC) and Saturn Electronics & Engineering, Inc.
(Saturn). We share our contract manufacturers' capacity with numerous companies
whose manufacturing needs may conflict with ours. Our contract manufacturers are
not obligated to supply products to us for any specific period, or in any
specific quantity, except as may be provided in a particular purchase order that
has been accepted by them. If either of our contract manufacturers experiences
delays, disruptions, capacity constraints or quality control problems in its
manufacturing operations, then product shipments to our customers could be
delayed, which could negatively impact our revenue, competitive position and
reputation.
Further, our business would be harmed if we fail to manage the
manufacturing of our products effectively. We generally place firm orders with
our contract manufacturers at least three months prior to scheduled delivery of
products to our customers. Accordingly, if we inaccurately forecast demand for
our products, we may be unable to obtain adequate manufacturing capacity or
adequate quantities of components to meet our customers' delivery requirements
or we may accumulate excess inventories.
15
<PAGE> 17
We may in the future need or choose to select new contract manufacturers
for volume, cost or quality considerations. We may not find a contract
manufacturer that meets our requirements. Additionally, qualifying a new
contract manufacturer and commencing volume production is expensive and time
consuming.
WE EXPECT TO FACE COMPETITION FROM MANUFACTURERS OF STORAGE SYSTEMS THAT
INCORPORATE FIBRE CHANNEL INTERFACES INTO THEIR PRODUCTS.
We currently derive a substantial portion of our revenue from our
Intelligent Storage Routers, which are used to connect SCSI-based storage
systems with SANs. The introduction of storage systems that incorporate Fibre
Channel interfaces would enable storage devices to communicate directly with
SANs, without having to use storage routers. We expect that a number of
manufacturers of storage systems will develop products with embedded Fibre
Channel interfaces in the near future. If this occurs, demand for our
Intelligent Storage Routers could be materially reduced and our revenue may
decline.
TO MANAGE OUR GROWTH AND EXPANSION, WE PLAN TO RELOCATE TO NEW FACILITIES, WHICH
MAY DISRUPT OUR BUSINESS.
We plan to relocate our principal executive offices to a larger facility in
the third calendar quarter of 2000. This relocation could be disruptive,
time-consuming and expensive. If we experience delays or difficulties in
relocating, our ability to effectively manage our operations may be compromised.
WE MAY BECOME INVOLVED IN COSTLY AND TIME-CONSUMING LITIGATION THAT MAY
SUBSTANTIALLY INCREASE OUR COSTS AND HARM OUR BUSINESS.
On March 31, 2000, Crossroads, our major competitor, filed suit against us
in the United States District Court for the Western District of Texas (Austin
Division). The complaint alleges that Chaparral products infringe a patent of
Crossroads. The complaint specifically identified three of our Intelligent
Storage Routers but stated it was not limited to those products. We are
currently investigating the claims alleged by Crossroads and intend to defend
the suit vigorously.
We may from time to time become involved in various lawsuits and legal
proceedings that arise from actions taken in the ordinary course of our
business. Litigation is subject to inherent uncertainties, and an adverse result
in litigation matters that may arise from time-to-time may harm our business.
OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT ARE NOT IN THE INTERESTS OF OUR OTHER STOCKHOLDERS.
We anticipate that our executive officers and directors and the entities
affiliated with them will, in the aggregate, beneficially own approximately
19.6% of our outstanding common stock following the completion of this offering.
These stockholders, or any of our principal stockholders, if acting together,
may be able to influence significantly all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers or
other business combinations, which may not be in the interests of all
stockholders. For a full presentation of the equity ownership of these
stockholders, see "Principal Stockholders."
RISKS RELATED TO THIS OFFERING
OUR MANAGEMENT CAN SPEND THE NET PROCEEDS FROM THIS OFFERING IN WAYS WITH WHICH
OUR STOCKHOLDERS MAY NOT AGREE.
Our management can spend the net proceeds from this offering in ways with
which our stockholders may not agree. We cannot assure you that our investments
and the use of the net proceeds of this offering will yield favorable returns or
results. See "Use of Proceeds."
16
<PAGE> 18
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
SHARES.
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
Accordingly, if you purchase common stock in the offering, you will incur
immediate dilution of approximately $ in the book value per share of our
common stock from the price you pay for our common stock. For additional
information on this calculation, see "Dilution."
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF OUR COMPANY AND MAY REDUCE THE MARKET PRICE OF OUR COMMON
STOCK.
Provisions of our amended and restated certificate of incorporation or
bylaws may discourage, delay or prevent a merger with, or acquisition of, us
that a stockholder may consider favorable. These provisions include:
- authorizing our board of directors to issue preferred stock without
stockholder approval;
- providing for a classified board of directors with staggered, three-year
terms;
- requiring super-majority voting to effect significant amendments to our
certificate of incorporation and bylaws;
- limiting the ability of stockholders to call special meetings; and
- prohibiting stockholder actions by written consent.
Certain provisions of Delaware law also may discourage, delay or prevent
someone from acquiring or merging with us, which may cause the market price of
our common stock to decline. For example, Delaware law prohibits cumulative
voting in the election of directors unless specifically provided for in the
certificate of incorporation.
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. This initial
public offering price may vary from the market price of our common stock after
the offering. If you purchase shares of 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 factors,
some of which are beyond our control, including the following:
- actual or anticipated fluctuations in our operating results;
- changes in market valuations of other technology companies, particularly
those that sell products used in SANs;
- changes in financial estimates by securities analysts or our failure to
perform in line with such estimates;
- announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
- losses of major OEM customers, value added resellers or distributors;
- introduction of technologies or product enhancements that reduce the need
for our Intelligent Storage Routers and external RAID controllers; and
- additions or departures of key personnel.
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<PAGE> 19
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 for a more complete discussion
of the factors that were considered in determining the initial public offering
price of our common stock.
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 that they will
be able to sell in the public market in the near future after the expiration of
applicable lock-up agreements. 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 should read "Shares Eligible for
Future Sale" for a full discussion of shares that may be sold in the public
market in the future.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "intend," "anticipate,"
"believe," "estimate," "continue" and other similar words. You should read
statements that contain these words carefully because they discuss our future
expectations, make projections of our future results of operations or of our
financial condition or state other "forward-looking" information. We believe
that it is important to communicate our future expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or control. The factors listed in the sections captioned "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," 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 the "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
sections and elsewhere in this prospectus could have a material adverse effect
on our business, operating results and financial condition.
USE OF PROCEEDS
We expect to receive net proceeds of approximately $ from the sale
of the shares of common stock (approximately $ if the
underwriters exercise their over-allotment option in full), at an assumed
initial public offering price of $ per share, after deducting the estimated
underwriting discount and estimated offering expenses.
Our principal purposes for engaging in this offering are to:
- increase our equity capital;
- create a public market for our common stock; and
- facilitate our future access to public equity markets.
We expect to use the net proceeds from this offering primarily for working
capital and other general corporate purposes, including expenditures for
research and development and sales and marketing efforts. In addition, we may
use a portion of the net proceeds to acquire businesses, products or
technologies that are complementary to our current or future business and
product lines. We are not currently negotiating any acquisitions, and we have no
agreements with any third party for any acquisition. Pending use of the net
proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.
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<PAGE> 20
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock, and we
do not intend to pay cash dividends on our common stock in the foreseeable
future. We currently expect to retain any future earnings to fund the operation
and expansion of our business. In addition, the terms of our credit agreement
prohibit the payment of any dividends.
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<PAGE> 21
CAPITALIZATION
The following table sets forth our total capitalization as of March 31,
2000:
- on an actual basis as of March 31, 2000;
- on a pro forma basis to reflect the automatic conversion of all
outstanding shares of preferred stock into 15,128,853 shares of common
stock upon completion of this offering; and
- on a pro forma as adjusted basis to reflect the sale of shares
of common stock offered hereby at an assumed initial public offering
price of $ per share in this offering, after deducting estimated
underwriting discounts and commissions and estimated offering expenses to
be paid by us.
You should read the following table in conjunction with our financial
statements and the notes to those statements, which are included in this
prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ------------ --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 16,707 $ 16,707 $
======== ======== ========
Long-term obligations....................................... -- --
-------- -------- --------
Stockholders' equity:
Series A preferred stock, par value $.001 per share;
18,600,000 shares authorized; 18,599,372 shares issued
and outstanding; no shares issued and outstanding pro
forma and pro forma as adjusted........................ 3,102 --
Series B preferred stock, par value $.001 per share;
5,540,200 shares authorized, issued and outstanding; no
shares issued and outstanding pro forma and pro forma
as adjusted............................................ 1,000 --
Series C preferred stock, par value $.001 per share;
5,000,000 shares authorized, issued and outstanding; no
shares issued and outstanding pro forma and pro forma
as adjusted............................................ 2,167 --
Common stock, $.001 par value, 52,000,000 shares
authorized; 18,768,087 shares issued and outstanding;
33,896,940 shares issued and outstanding pro forma;
38,896,940 shares issued and outstanding pro forma as
adjusted(1)............................................ 19 34
Additional paid-in capital................................ 26,847 33,101
Unearned stock option compensation........................ (634) (634)
Notes receivable for preferred and common stock........... (643) (643)
Accumulated deficit....................................... (11,699) (11,699)
-------- -------- --------
Total stockholders' equity........................ 20,159 20,159
-------- -------- --------
Total capitalization.............................. $ 20,159 $ 20,159 $
======== ======== ========
</TABLE>
- ---------------
(1) Shares outstanding excludes the following:
- 4,302,707 shares of common stock issuable upon exercise of options
outstanding as of March 31, 2000 with a weighted average exercise price
of $1.85 per share; and
- 300,000 shares of common stock issuable upon exercise of a warrant
outstanding as of March 31, 2000 with an exercise price of $20.00 per
share.
- 11,703,920 shares reserved for future issuance under stock option, stock
incentive and stock purchase plans.
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<PAGE> 22
DILUTION
Our pro forma net tangible book value at March 31, 2000 was $27.5 million,
or $0.79 per share of common stock. Pro forma net tangible book value per share
is determined by dividing our net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock
outstanding as of March 31, 2000, assuming conversion of all outstanding shares
of our preferred stock into 15,128,853 shares of common stock upon the
completion of this offering along with the exercise of all options and warrants
held by officers, directors, promoters and affiliates.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock immediately after the completion of this offering. After giving
effect to our sale of shares of common stock in this offering at an
assumed initial public offering price of $ per share and after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us, our adjusted pro forma net tangible book value at March 31, 2000
would have been $ million, or $ per share. This amount represents an
immediate increase in pro forma net tangible book value to our existing
stockholders of $ per share and an immediate dilution to new investors of
$ per share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $
Pro forma net tangible book value per share at March 31,
2000................................................... $
Increase in pro forma net tangible book value per share
attributable to new investors.......................... $
-----
Adjusted pro forma net tangible book value per share after
this offering............................................. $
-----
Dilution per share to new investors......................... $
=====
</TABLE>
If the underwriters exercise their over-allotment option in full, our
adjusted pro forma net tangible book value at March 31, 2000 would have been
$ million, or $ per share, representing an immediate increase in pro
forma net tangible book value to our existing stockholders of $ per share
and an immediate dilution to new investors of $ per share.
The following table summarizes, on a pro forma basis as of March 31, 2000,
the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders along with the exercise of all options and warrants held by
officers, directors, promoters and affiliates 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 $ per share, before deducting
estimated underwriting discounts and commissions and estimated offering expenses
and no exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------ PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders, assuming
exercise of all options and warrants
held by officers, directors,
promoters and affiliates............ 35,061,439 % $27,516,898 % $0.79
New investors......................... $
---------- --- ----------- ---
Total....................... % $ %
========== === =========== ===
</TABLE>
The discussion and tables above include the assumed conversion of all
outstanding shares of our preferred stock into common stock and exercise of
options and warrants to purchase 1,164,439 shares of common stock held by
officers, directors, promoters and affiliates at March 31, 2000 and exclude
options outstanding at March 31, 2000 excluding options held by officers,
directors, promoters and affiliates to purchase a total of 3,438,208 shares of
common stock with a weighted average exercise price of $1.92 per share; and to
the extent that any of these options are exercised, there will be further
dilution to new investors.
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<PAGE> 23
SELECTED FINANCIAL DATA
The following tables summarize our financial data. For a more detailed
explanation of our financial condition and operating results, you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our financial statements and the notes to those statements included
in this prospectus. The balance sheet data as of March 31, 1999 and 2000 and the
statement of operations data for the period from January 22, 1998 (inception) to
March 31, 1998 and for the fiscal years ended March 31, 1999 and 2000 have been
derived from audited financial statements included in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION FISCAL YEAR ENDED
(JANUARY 22, MARCH 31,
1998) TO MARCH 31, ---------------------
1998 1999 2000
---------------------- ----------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................... $ -- $ 237 $ 8,842
Cost of sales......................................... -- 156 4,590
Gross profit.......................................... -- 81 4,252
Loss from operations.................................. 35 (3,623) (7,942)
Net loss.............................................. $ 35 $(3,695) $(7,969)
Net loss per share -- basic and diluted............... $ -- $ (1.40) $ (0.68)
Weighted average shares............................... -- 2,640 11,701
Pro forma net loss per share -- basic and diluted..... $ (0.31)
Pro forma weighted average shares..................... 25,519
</TABLE>
Pro forma basic and diluted net loss per share is computed using the
weighted average shares of 25,518,741 common stock outstanding, including the
pro forma effects of the automatic conversion of all outstanding series of
preferred stock into common stock upon completion of this offering as if the
conversion occurred on April 1, 1999, or at the date the preferred stock was
actually issued, if later.
Per share and weighted average share amounts exclude shares of common stock
that may be issued upon exercise of outstanding options and warrants or that may
be issued under our various stock compensation plans. For additional information
regarding these shares, see note 1 to the table in "Capitalization."
The following table is a summary of our balance sheet data. The as adjusted
column reflects our receipt of the estimated net proceeds from the sale of the
shares of common stock we are selling in this offering at an assumed
initial public offering price of $ per share, after deducting underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
--------------------
MARCH 31, AS
1999 ACTUAL ADJUSTED
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 224 $16,707 $
Working capital (deficit)................................... (1,272) 18,949
Total assets................................................ 933 23,521
Total stockholders' equity (deficit)........................ (894) 20,159
</TABLE>
22
<PAGE> 24
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 related notes that appear elsewhere in this prospectus. The
following discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ significantly from those
anticipated in these forward-looking statements as a result of certain factors,
including those discussed below and elsewhere in this prospectus, particularly
under the heading "Risk Factors."
OVERVIEW
We develop and market Intelligent Storage Routers and external RAID
controllers for open systems network storage solutions. Our Intelligent Storage
Routers facilitate the interconnection of SANs with existing SCSI-based servers
and storage systems. Our external RAID controllers dynamically distribute data
across multiple hard disk drives to increase data transfer speeds and deliver
fault tolerance. Our products are designed to provide a high level of
performance, availability and functionality.
Our company was incorporated in January 1998 as Chaparral Technologies,
Inc., a Delaware corporation. We initially focused our operating activities on
the research and development of our Intelligent Storage Routers and on building
our organization by hiring engineering, sales and administrative staff. In July
1999, we changed our name to Chaparral Network Storage, Inc. to more accurately
reflect our emphasis on providing network storage products.
In November 1998, we entered into a technology license agreement with
Adaptec for its external Fibre Channel RAID controllers in exchange for a 19.9%
equity interest in our company. As part of this technology license, we use
Adaptec's hardware platform in our Intelligent Storage Routers and external RAID
controllers. We began shipping our first external RAID controller products, the
G Series, in November 1998. In March 1999, we completed the design of our next
generation external RAID controllers, which served as the basis for developing
our Intelligent Storage Routers. We began shipping our Intelligent Storage
Routers in April 1999. In November 1999, we announced the next generation of
both the external RAID controllers and Intelligent Storage Routers. Through
March 31, 2000, we have sold approximately 6,000 units of our Intelligent
Storage Routers and external RAID controllers.
Since our inception, we have incurred significant losses, and as of March
31, 2000, we had an accumulated deficit of approximately $11.7 million. For the
fiscal year ended March 31, 2000, our net loss was approximately $8.0 million.
We have not achieved profitability on a quarterly or annual basis and expect to
incur significant losses for the foreseeable future.
For the fiscal year ended March 31, 2000, approximately 71% of our revenue
was from the sale of our external RAID controllers and the remaining 29% of
revenue was from the sale of our Intelligent Storage Routers. We expect to sell
fewer external RAID controllers due to the loss of business from nStor, our
second largest customer for the fiscal year ended March 31, 2000. As we continue
to develop and ship Intelligent Storage Routers, we expect they will constitute
an increasing percentage of our revenue, which in turn may result in a higher
gross margin. Our Intelligent Storage Routers may not gain wide market
acceptance.
We sell our products to OEMs, distributors, resellers and systems
integrators. Our OEM customers include Eurologic, MicroNet, nStor, Qualstar,
Quantum/ATL, Trimm and Xyratex. During the year ended March 31, 2000, our three
largest OEM customers, Quantum/ATL, nStor and Eurologic, accounted for 21%, 17%
and 11% of our revenue, respectively. Although we anticipate the majority of our
revenue will come from new and existing OEM customers, a key element of our
growth strategy is to expand and diversify our distribution channels. To this
end, we have established relationships with industrial distributors, including
Arrow, Bell Microproducts, CONSAN and Hammer, which resell our products to value
added resellers (VARs) and systems integrators. During the year ended March 31,
2000, sales to CONSAN represented approximately 16% of our revenue and sales to
Bell Microproducts represented 13% of our revenue. No other distribution channel
customer accounted for more than 10% of our revenue in this period.
23
<PAGE> 25
We are seeking to diversify our customer base and expand our sales channel.
However, we expect a significant portion of our revenue in the short term will
be derived from a relatively small number of OEMs and distribution channel
partners. We may not be successful in diversifying our customer base, and the
loss of one of our significant customers could reduce our total revenue. We do
not have long term contracts with any of our customers.
We recognize product revenue at the time of shipment. Estimated product
returns are accrued in the period of sale. We recognize a warranty reserve based
on a combination of historical experience and specifically identified potential
warranty liabilities, if any. We warrant our products for up to three years, and
we have had no significant warranty issues to date.
We outsource our manufacturing, which allows us to focus on designing,
developing and marketing our products. We believe the use of a high quality
contract manufacturer, which has multiple manufacturing locations, allows us to
deploy our resources and capital more efficiently. A significant portion of our
cost of sales consists of payments for contract manufacturing. A less
significant amount is spent on components, which we consign to our
manufacturers, and for royalties on licensed technology. Our contract
manufacturers build our products using quality assurance programs and standards
that we establish and monitor. Engineering for manufacturability as well as
documentation control are conducted at our facility in Longmont, Colorado.
RESULTS OF OPERATIONS
Because of our limited operating history and the rapidly evolving nature of
our business, we believe that period-to-period comparisons are not meaningful
and should not be relied upon as an indication of future performance. The
following table presents our operating results for our fiscal years ended March
31, 1999 and 2000.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MARCH 31,
--------------------------
1999 2000
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 237 $ 8,842
Cost of sales............................................... 156 4,590
------- -------
Gross profit.............................................. 81 4,252
------- -------
Operating expenses:
Research and development, excluding $835,807 of stock
option compensation.................................... 1,724 4,598
Sales and marketing, excluding $72,967 of stock option
compensation........................................... 453 3,133
General and administrative, excluding $755,541 of stock
option compensation.................................... 1,527 2,799
Stock option compensation................................. -- 1,664
------- -------
Total operating expenses.................................. 3,704 12,194
------- -------
Loss from operations........................................ (3,623) (7,942)
Interest expense, net....................................... 72 27
------- -------
Net loss.................................................. $(3,695) $(7,969)
======= =======
</TABLE>
FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999
Revenue
Revenue was $8.8 million for the fiscal year ended March 31, 2000, compared
to $237,000 for the fiscal year ended March 31, 1999. We commenced product sales
in the quarter ended December 31, 1998. For the fiscal year ended March 31,
2000, sales of our Intelligent Storage Routers constituted $2.6 million, or 29%,
of our revenue, while for the comparable period in 1999, sales of our external
RAID controllers constituted all of our revenue. For the fiscal year ended March
31, 2000, 86 customers accounted for all of our revenue, compared to five
customers in the fiscal year ended 1999.
24
<PAGE> 26
Cost of Sales and Gross Profit
Cost of sales includes the cost of our contract manufacturing, materials
costs, warranty costs, manufacturing overhead, royalties and a reserve for
inventory obsolescence.
Gross profit increased to $4.3 million for the fiscal year ended March 31,
2000, from $81,000 for the fiscal year ended March 31, 1999. Gross profit as a
percentage of revenue was 48% for the fiscal year ended March 31, 2000. Included
in cost of sales in the fiscal year ended March 31, 2000 was $333,000 of expense
related to the issuance of a warrant as part of an integrated circuit agreement
with Adaptec.
Research and Development
Research and development expense consists primarily of salaries and related
personnel costs, fees paid to consultants and outside service providers,
non-recurring engineering charges and prototype costs related to the design,
development, testing and enhancement of our products and software and systems
development. We expense our research and development costs as they are incurred.
Research and development expense was $4.6 million for the fiscal year ended
March 31, 2000, an increase of $2.9 million over the fiscal year ended March 31,
1999. This increase was due primarily to costs associated with the addition of
research and development personnel and increased prototype expenses, which
included equipment, supplies and outside consultants. Research and development
personnel increased to 35 at March 31, 2000, from 21 at March 31, 1999. We
believe that strategic product development and other research and development
initiatives are required to remain competitive. As a result, we expect our
research and development expense to increase in absolute dollars in the future.
Sales and Marketing
Sales and marketing expense consists primarily of salaries, commissions and
related expenses for personnel engaged in marketing, sales and customer
engineering support functions, as well as costs associated with promotional and
other marketing expenses.
Sales and marketing expense was $3.1 million for the fiscal year ended
March 31, 2000, an increase of $2.7 million over the comparable period in 1999.
The increase was primarily due to the costs associated with the addition of
sales and marketing personnel as well as trade show and advertising expenses.
Sales and marketing personnel increased to 24 at March 31, 2000, from five at
March 31, 1999. We expect sales and marketing expense will increase
substantially in absolute dollars over the next year, as we hire additional
sales and marketing personnel, expand our customer service and support
organization, initiate additional marketing programs and establish sales offices
in new domestic and international locations.
General and Administrative
General and administrative expense consists primarily of salaries and
related expenses for executive, finance and accounting, facilities and human
resources personnel, recruiting expenses, professional fees, reserves for
doubtful accounts and other corporate expenses.
General and administrative expense increased by $1.3 million to $2.8
million for the fiscal year ended March 31, 2000, from $1.5 million for the
fiscal year ended March 31, 1999. This increase was due primarily to costs
associated with the addition of general and administrative personnel, increased
professional and consulting activities and a provision for doubtful accounts.
General and administrative personnel increased to 13 at March 31, 2000, from six
at March 31, 1999. We expect general and administrative expense to increase in
absolute dollars as we add personnel and incur additional costs related to the
growth of our business and our operation as a public company.
Stock Option Compensation
We recognized stock option compensation expense of $1.7 million in the
fiscal year ended March 31, 2000. Of this amount, $835,807, $72,967 and $755,541
related to research and development, sales and
25
<PAGE> 27
marketing and general and administrative expenses, respectively. Unearned stock
option compensation expense of $0.6 million will be recognized over the
remaining vesting periods of the associated stock options.
Interest Expense, Net
We had net interest expense of $27,000 for the fiscal year ended March 31,
2000, as a result of $397,000 of interest paid for financing fees and for debt
outstanding during the period, all of which was repaid as of March 31, 2000.
This amount was offset by interest income of $370,000. We had interest expense
of $72,000 for the fiscal year ended March 31, 1999.
Provision for Income Taxes
There is no provision for income taxes, as we have incurred losses for all
periods to date. As of March 31, 2000, we had approximately $8.5 million of U.S.
federal and state net operating loss carryforwards available to offset future
taxable income. Net operating loss carryforwards will expire through 2020 to the
extent that they are not utilized. We believe the carryforwards may also be
limited by Internal Revenue Code provisions.
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO THE PERIOD FROM INCEPTION TO
MARCH 31, 1998
We had no revenue during the first three months of operations and incurred
only $35,000 of general and administrative expense during this period. For this
reason, it is not meaningful to compare results between the fiscal year ended
March 31, 1999, and the period from inception to March 31, 1998.
26
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following table presents historical unaudited quarterly information for
our most recent six quarters. All quarters have been prepared on the same basis
as the audited financial statements appearing elsewhere in this prospectus. In
the opinion of management, all necessary adjustments consisting only of normal
recurring adjustments have been included to present fairly the unaudited
quarterly results when read in conjunction with our audited financial statements
and the related notes appearing elsewhere in this prospectus. These operating
results are not necessarily indicative of the results of any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1999 1999 1999 1999 2000
-------- --------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue......................... $ 143 $ 94 $ 960 $3,103 $ 2,233 $ 2,546
Cost of sales................... 52 98 555 1,429 1,015 1,258
Cost associated with warrant
issued to Adaptec for
integrated circuit
agreement..................... -- -- -- -- -- 333
------- --------- ------- ------ ------- -------
Gross profit (loss)............. 91 (4) 405 1,674 1,218 955
------- --------- ------- ------ ------- -------
Operating expenses:
Research and development...... 611 873 778 909 1,172 1,739
Sales and marketing........... 129 228 334 436 803 1,560
General and administrative.... 490 497 416 710 637 1,036
Stock option compensation
related to:
Research and development... -- -- -- -- 818 18
Sales and marketing........ -- -- -- -- 58 15
General and
administrative........... -- -- -- -- 744 11
------- --------- ------- ------ ------- -------
Total operating expenses........ 1,230 1,598 1,528 2,055 4,232 4,379
------- --------- ------- ------ ------- -------
Loss from operations............ (1,139) (1,602) (1,123) (381) (3,014) (3,424)
Interest (expense) income,
net........................... -- (72) (15) (63) (206) 257
------- --------- ------- ------ ------- -------
Net loss........................ $(1,139) $ (1,674) $(1,138) $ (444) $(3,220) $(3,167)
======= ========= ======= ====== ======= =======
AS A PERCENTAGE OF REVENUE:
Revenue......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................... 36.4 104.3 57.8 46.1 45.5 49.4
Cost associated with warrant
issued to Adaptec for
integrated circuit
agreement..................... -- -- -- -- -- 13.1
------- --------- ------- ------ ------- -------
Gross profit (loss)............. 63.6 (4.3) 42.2 53.9 54.5 37.5
------- --------- ------- ------ ------- -------
Operating expenses:
Research and development...... 427.3 928.7 81.0 29.3 52.5 68.3
Sales and marketing........... 90.2 242.6 34.8 14.1 36.0 61.3
General and administrative.... 342.7 528.7 43.3 22.9 28.5 40.7
Stock option compensation
related to:
Research and development... -- -- -- -- 36.6 .7
Sales and marketing........ -- -- -- -- 2.6 .6
General and
administrative........... -- -- -- -- 33.4 .4
------- --------- ------- ------ ------- -------
Total operating expenses........ 860.1 1,700.0 159.2 66.2 189.5 172.0
------- --------- ------- ------ ------- -------
Loss from operations............ (796.5) (1,704.3) (117.0) (12.3) (135.0) (134.5)
Interest (expense) income,
net........................... -- (76.7) (1.6) (2.0) (9.2) 10.1
------- --------- ------- ------ ------- -------
Net loss........................ (796.5)% (1,780.9)% (118.5)% (14.3)% (144.2)% (124.4)%
======= ========= ======= ====== ======= =======
</TABLE>
Revenue decreased between the second and third fiscal quarters of 2000 by
$870,000. Revenue decreased primarily because our customer nStor returned
approximately $400,000 of our external RAID controllers following an order
cancellation by one of its customers. Although we had shipped this product
27
<PAGE> 29
to nStor in the quarter ended December 31, 1999, pursuant to a noncancellable
purchase order, we chose not to recognize this revenue. We have not waived any
claims arising from nStor's cancellation of this order. Also, due to this
cancellation, we did not ship additional product pursuant to other nStor
noncancellable purchase orders of approximately $547,000. For the quarter ended
September 30, 1999, nStor accounted for $1.2 million of our revenue. Primarily
as a result of the cancellation of this order and our decision not to ship
additional products to nStor, our revenue for the quarter ended December 31,
1999 decreased approximately 28% from the previous quarter. Although we shipped
evaluation units of our new external RAID controllers and Intelligent Storage
Routers to nStor in the quarter ended March 31, 2000 (for which we did not
recognize revenue), we have received no new purchase orders from nStor and may
not ship to nStor in the future.
Gross margin decreased between the third and fourth fiscal quarters of 2000
by 17% due to the effect of a one-time charge for the cost of a warrant granted
to Adaptec as part of an integrated circuit agreement, as well as the write-off
of obsolete raw materials, an increase in the reserve for inventory obsolescence
and the effect of product mix.
Since the introduction of our Intelligent Storage Routers in April 1999,
our gross profit as a percentage of revenue has increased as a result of the
higher margins earned by these products.
Our revenue, gross profit and operating results may vary significantly from
quarter to quarter due to a number of factors, many of which are outside of our
control, including those specifically discussed in the section captioned "Risk
Factors." The primary factors that may cause our quarterly revenue and operating
results to fluctuate include the following:
- fluctuations in demand for our Intelligent Storage Routers and external
RAID controllers;
- the size, timing, terms and fluctuations of customer orders and product
implementations;
- the rate of adoption of SANs as an alternative to existing
server-attached storage architectures;
- the mix of our Intelligent Storage Routers and external RAID controllers
sold;
- the mix of distribution channels through which our products are sold;
- new product introductions by us or our competitors;
- deferrals of customer orders in anticipation of new products, services or
product enhancements introduced by us, our OEMs, our competitors or from
other providers of SAN products;
- changes in our pricing policies or the pricing policies of our
competitors;
- our ability to develop, introduce, ship and support new products and
product enhancements that meet customer requirements in a timely manner;
- prototype expenses;
- our ability to obtain sufficient supplies of components, including sole
or limited source components;
- increases in the prices of the components we purchase;
- our ability to attain and maintain production volumes and quality levels;
- the ability of our contract manufacturers to produce and distribute our
products in a timely fashion;
- the software enhancements embedded in our hardware platforms;
- the additional software options incorporated in our products; and
- general economic conditions as well as those specific to the SAN and
related industries.
Our operating expenses are largely based on anticipated revenue. A high
percentage of our expenses are and will continue to be fixed in the short term.
As a result, a delay in generating or recognizing revenue could cause
significant variations in our operating results from quarter to quarter.
We expect to experience seasonality in our operating results. Our results
of operations may be adversely affected in the third calendar quarter due to a
slowdown of sales in Europe and other foreign
28
<PAGE> 30
areas in the summer months. We also expect that, generally in the first calendar
quarter, our results may be adversely affected due to our customers' budgeting
cycles.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the sale
of common and preferred stock, generating aggregate proceeds of $27.9 million,
net of issuance costs. For the fiscal year ended March 31, 2000, cash flows
provided by financing activities were $25.4 million. In the past, we also have
financed a portion of our operations through loans from a bank and from
individuals. We currently have no debt outstanding.
We used $8.3 million in cash for operations during the fiscal year ended
March 31, 2000, an increase of $5.4 million over the fiscal year ended March 31,
1999. This increase was primarily due to increases in our net loss, increases in
trade receivables and inventory, partially offset by increases in accounts
payable and accrued liabilities.
For the year ended March 31, 2000, cash flows used by investing activities
consisted of $652,000 for capital expenditures. Cash flows used by investing
activities for the fiscal year ended March 31, 1999 totaled $444,000, including
the non-cash acquisition of equipment from Adaptec.
In July 1999, we obtained a $3.0 million line of credit from a bank,
secured by our accounts receivable and other collateral, at a variable rate
equal to the bank's prime rate plus 1.5% per annum. During the nine months ended
December 31, 1999, the maximum outstanding balance on this line was $750,000. As
of December 31, 1999, there was no outstanding balance. This line of credit was
terminated and replaced in January 2000.
In January 2000, we entered into a loan agreement with Norwest Bank
Colorado N.A.-Boulder. Under the loan agreement, we can borrow and reborrow up
to the lesser of $3.0 million or an amount equal to 90% of our U.S. government
debt instruments plus 80% of our investment grade commercial paper, with a
maturity of one year or less and held in a Norwest account and pledged to
Norwest. Borrowings bear interest at Norwest's prime rate. Interest is payable
monthly in arrears on the last day of the month, and borrowings must be repaid
on or before August 31, 2000. Under the loan agreement, we have agreed to
provide Norwest with certain financial information about our business, to
maintain at least $4.0 million in cash plus investment grade marketable
securities, to maintain a minimum net worth and minimum ratio of debt to net
worth as set forth in the agreement and to use Norwest as our principal
depository for demand and savings business accounts. We also have agreed not to
pay dividends on our stock, create liens on our properties or assets included in
the borrowing base (i.e. our commercial paper) or borrow under other credit
arrangements. We have not borrowed under this loan agreement.
At March 31, 2000, cash and cash equivalents totaled $16.7 million. Our
capital requirements depend on numerous factors, including:
- market acceptance of our products;
- the resources we devote to developing, marketing, selling and supporting
our products;
- the timing and extent of establishing international operations; and
- the timing and build-out of our new facility and related interoperability
testing lab.
We expect to devote substantial capital resources to continue our research
and development efforts, to hire and expand our sales, support, marketing and
product development organizations, to expand marketing programs, to establish
additional facilities and for other general corporate activities. We believe the
net proceeds of this offering, together with our cash and cash equivalents, will
be sufficient to fund our operations through at least the next 12 months.
However, there can be no assurance that we will not require additional financing
within this time period or that such additional funding, if needed, will be
available on terms acceptable to us or at all.
29
<PAGE> 31
BUSINESS
OVERVIEW
We develop and market high performance products that facilitate the
movement of data between networked storage devices. We are focused primarily on
developing products for use in the emerging market for SANs. Our Intelligent
Storage Routers facilitate the interconnection of SANs with existing SCSI-based
servers and storage systems. Our external RAID controllers dynamically
distribute data across multiple hard disk drives to increase data transfer
speeds and deliver fault tolerance. Our products are designed to provide a high
level of performance, availability and functionality. When used in conjunction
with a SAN, our products enable organizations to take advantage of a wide range
of SAN applications, such as LAN-free backup. Our Intelligent Storage Routers
and external RAID controllers incorporate a common, high-performance hardware
platform and foundation software layer, which enables us to quickly and
cost-effectively introduce new products into the market. We sell our products
through OEMs, including Eurologics, MicroNet, Qualstar and Quantum/ATL, as well
as through distribution partners, including Arrow, Bell Microproducts, CONSAN
and Hammer.
INDUSTRY BACKGROUND
GROWTH AND CHANGING NATURE OF ENTERPRISE DATA
In the last decade, there has been a dramatic increase in the volume of
data created, processed and accessed throughout the business enterprise.
According to International Data Corporation (IDC), an independent industry
research company, shipments of multi-user disk storage capacity grew from
approximately 10,000 terabytes in 1994 to approximately 184,641 terabytes in
1999 and is forecasted to reach approximately 1.9 million terabytes in 2003. The
near annual doubling of growth in the volume of enterprise data storage needs
has been fueled by a number of factors, including:
- the increase of Internet and e-commerce based businesses;
- the rapid growth of Web hosting, digital video and other multimedia
applications;
- the rise of network computing;
- the need for redundant repositories of data; and
- advances in storage technology and the resulting decline in the cost of
storage.
In addition, organizations have recognized the increasing importance and
value of enterprise data as mission-critical and as a strategic and competitive
asset to their employees, customers and suppliers. These organizations are
demanding rapid and reliable access to this data 24 hours a day, seven days a
week. The increased use of open-systems computing environments, which link
multiple applications, files and databases to networked computers, makes this
task increasingly difficult. The continued deployment of mission-critical,
client-server applications, coupled with the growth of enterprise data, has
placed significant strain on current storage architectures.
LIMITATIONS OF EXISTING STORAGE INFRASTRUCTURE
The growth of enterprise data has resulted in a corresponding challenge to
backup, share and manage this data. This growth has traditionally been addressed
by connecting individual high-performance computers, known as servers, to
dedicated storage devices. Typically, storage devices are connected through SCSI
technology to only one server and not to any of the other servers used by an
enterprise which results in a "captive" storage architecture.
30
<PAGE> 32
The captive storage architecture can be depicted as follows:
[Graphic depicting the captive storage architecture, including the SCSI
connections between storage devices and servers and the connections between
servers and network end-users through a Local Area Network.]
Traditional captive storage architectures have several significant
limitations, including:
PERFORMANCE CONSTRAINTS
Data storage, retrieval and backup using the traditional captive storage
architecture results in a significant strain on servers and local area networks,
or LANs. Storage-to-server data transmission speeds increased by approximately
ten times in the 1990s when local and wide-area network transmission speeds
increased by more than 100 times. In captive storage architectures, client data
is transferred across the LAN to servers and their dedicated storage devices,
causing an I/O bottleneck. Because LANs were not designed to efficiently
transfer data in large blocks, data backup has been a major contributor to
performance constraints.
LIMITED AVAILABILITY AND ACCESSIBILITY OF DATA
In traditional server-attached architectures, the loss of a server causes
data on its connected storage devices to become inaccessible. In addition, the
critical data backup function in the traditional server-attached storage
architecture is a lengthy process and often requires the network to be powered
down. Because many networks need to be accessible 24 hours a day, seven days a
week, the time available to accomplish data backup has been reduced considerably
or eliminated entirely, while the amount of data requiring backup has increased
dramatically.
LIMITED FAULT AND DISASTER TOLERANCE
Because SCSI-connected devices are limited to a maximum of 25 meters of
transmission distance, redundant storage devices in remote locations are
generally not practical or cost effective. As a result, sustained data
availability in a captive storage architecture following a system failure or
disaster is difficult to achieve.
SCALABILITY CONSTRAINTS
The SCSI protocol can only support a maximum of 15 individual storage
devices on a single bus or channel, which is the dedicated circuit that carries
information to and from data storage devices. Because servers have limited space
for additional SCSI adapter cards, businesses that wish to add storage capacity
31
<PAGE> 33
generally must add additional servers, increasing the total cost of storing
data. Additionally, the distance limitation of the SCSI protocol constrains the
amount of storage that can be attached to a single server.
LACK OF MANAGEABILITY
The traditional server-attached storage architecture has made it difficult
to network storage devices and realize the benefits of managing a centralized
data repository. As a result, isolated islands of information are stored
throughout the enterprise, each of which must be administered and managed
locally.
DEVELOPMENT OF STORAGE AREA NETWORKS BASED ON FIBRE CHANNEL TECHNOLOGY
In recent years, demand has increased for a faster, more efficient and
manageable interconnection of servers, storage devices and LANs. SANs are
rapidly gaining acceptance as a means of addressing this demand through the
support of a transmission protocol known as Fibre Channel. Fibre Channel is an
open standard technology designed specifically for high performance, I/O
intensive applications, with the ability to attach storage in shared network
environments. Fibre Channel is capable of supporting up to 15.5 million devices
and transferring data across distances of ten kilometers at speeds of up to 200
megabytes per second. Similar to LANs and wide area networks, or WANs, the SAN
applies the networked approach to computer storage and servers, enabling
businesses to create a pool of shared data storage devices that can be accessed
by multiple servers and network users.
The following graphic depicts a basic SAN architecture.
[Graphic depicting a basic SAN arcitecture, including the major SAN network
elements, such as Switches, Routers and Hubs, the Servers, and the various types
of storage devices, such as disk arrays and tape systems.]
SANs offer the following benefits:
- improved performance by decreasing storage traffic on the LAN and
increasing the speed of a dedicated network for storage;
- higher accessibility and availability of data through any-to-any
connectivity, which creates redundancies and improves fault-tolerance;
- greater scalability by significantly increasing the distance between and
number of devices that can be connected;
- ease of management facilitated by the networked architecture and
centralization of storage; and
- lower cost of ownership from improved efficiencies, reduced management
requirements and shared storage resources.
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While in its early stages of development, the open systems SAN market is
expected to grow rapidly. According to the Gartner Group, an independent
industry research company, more than 70% of shared storage in network
environments is projected to be reorganized into SANs by the year 2002. IDC has
estimated that worldwide SAN storage systems revenues will grow from less than
$3.8 billion in 1999 to over $11.5 billion in 2002, representing a compound
annual growth rate of 45%.
OPEN SYSTEMS SAN EVOLUTION
To date, SANs have been deployed in an evolutionary fashion. Initial SAN
implementations of Fibre Channel devices focused simply on connectivity and
interoperability of devices, including hubs, switches and host bus adapters.
Because most organizations had made significant investments in SCSI storage
devices and servers, companies were unwilling to move to SANs unless they were
able to connect to these devices. Products such as storage routers were
introduced to provide this connectivity between SCSI storage devices and Fibre
Channel SANs. Additionally, because Fibre Channel storage devices are
network-attached in SANs, vendors needed to ensure interoperability among these
devices. As a result, vendors originally focused on providing connectivity
between SCSI and Fibre Channel protocols and ensuring interoperability.
While SANs are being successfully implemented and connectivity and
interoperability issues are being addressed, many of the benefits offered by the
SAN, including enhanced data transfer rates, improved reliability and
accessibility and more robust features, have yet to be fully realized. Because
data will now be shared by and accessible to multiple servers and networked
users, enterprises will require not only high performance but also high
availability of mission-critical data. For widespread adoption of SANs to occur,
these requirements must be addressed.
THE CHAPARRAL SOLUTION
We have developed Fibre Channel-based SAN solutions that provide both high
performance and high availability. We are the only independent provider of both
storage routers and external RAID controllers. Our Intelligent Storage Routers
facilitate the interconnection of SANs with existing SCSI-based servers and
storage systems. Our external RAID controllers dynamically distribute data
across multiple hard disk drives to increase data transfer speeds and deliver
fault tolerance. Our Fibre Channel-to-SCSI routers and external RAID controllers
enable organizations to realize the full benefits of Fibre Channel SANs, such as
increased bandwidth performance, improved scalability and centralized storage
management efficiencies, while preserving their investments in new and existing
SCSI storage devices. This is a key requirement because organizations have
already made, and are expected to continue to make, significant investments in
SCSI-based servers and storage systems. IDC estimates that SCSI is currently the
most popular interconnect for high-performance disk drives, representing more
than 90% of units in 1999, and will still represent approximately two-thirds of
units in 2002.
Key benefits of our solutions include the following:
INCREASED PERFORMANCE
We believe our products provide industry-leading performance based on
throughput, as measured by both megabytes per second and I/O transfers per
second and functionality to facilitate the interconnection of SANs and
SCSI-based storage devices. Both our Intelligent Storage Routers and external
RAID controllers are designed using our architecture, which includes embedded
software and a high speed ASIC. This ASIC has a dual internal data path that is
completely independent of the computer processor. This ASIC also enables our
products to move data at high speeds and with minimal interruption between the
Fibre Channel connections to the servers and the SCSI connections to the storage
devices. As a result, we are able to deliver market-leading I/O performance.
HIGH AVAILABILITY AND RELIABILITY
We believe that our products provide the highest level of availability and
reliability. Our external RAID controllers dynamically distribute data across
multiple hard disk drives with a special error
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correction and detection algorithm designed to ensure the immediate availability
of data, even in the event of a partial or complete disk drive failure. Our
external RAID controllers also utilize sophisticated algorithms to recreate lost
data in any one disk drive. In addition, our newest G7324 and G6322 external
RAID controllers provide an active-active failover capability. This feature
enables two external RAID controllers to be actively working in tandem because
they are connected to the disk drives as well as to each other. In the event one
of these external RAID controllers fails, the other external RAID controller
takes over the entire workload, maintaining accessibility to the stored data.
Because two active external RAID controllers share the workload of distributing
and accessing data on the disk drives, throughput is effectively doubled. This
active-active failover capability permits higher availability of data and
protects the enterprise against both disk drive and controller failure and the
resulting inaccessibility and potential loss of mission-critical data.
We are leveraging our external RAID controller expertise to develop high
availability and fault tolerable functionality for storage routers. For example
our FS2420 Intelligent Storage Router has two fibre channel interfaces. This
provides both a higher level of fault tolerance and data availability because
the storage can be accessed simultaneously through either fibre channel
interface. In addition, we plan to add our proprietary active-active
functionality presently provided by our external RAID controllers to our
Intelligent Storage Routers in the second half of calendar 2000. We are
currently in Beta evaluation with OEM customers for storage routers with this
functionality. We believe our ability to provide this functionality will be a
competitive advantage in the market for storage routers, and a mandatory
requirement for the effective implementation and widespread deployment of SANs
for mission-critical applications. In addition, our Intelligent Storage Routers
incorporate our real-time operating system. This operating system has been
designed to provide both high performance and high availability, which we
believe will be required for the next wave of SAN implementations.
We have incorporated diagnostics and monitoring software into both our
Intelligent Storage Routers and our external RAID controllers to provide early
warning and failure notification, as well as the ability to remotely monitor and
manage these controllers.
IMPROVED SAN PERFORMANCE WITH NEW APPLICATIONS
Because we have designed our products using a highly flexible and modular
embedded software architecture, we can quickly and cost-effectively implement
new software agents that enable SAN applications such as server-free backup.
Server-free backup enables automated data movement between storage systems
directly across the SAN, allowing data backup to be performed while using a very
small percentage of the server's internal data processing capacity. As a result,
organizations no longer need to identify lengthy time periods, or "backup
windows," for disconnecting servers from the network in order to perform backup.
We were the first company to successfully publicly demonstrate server-free
backup. We accomplished this by adding the new SCSI-3 industry standard extended
copy functionality as optional embedded software in our storage routers. This
functionality works with software backup programs such as Legato Celestra
Version 2.0, which is expected to be commercially available in the third quarter
of calendar 2000. Because these backup programs are not commercially available,
our customers do not yet have server-free backup. All of our installed and new
Intelligent Storage Routers have the capability to be upgraded with our optional
Extended Copy embedded software agent. We expect that when other software backup
suppliers such as Veritas and others provide server-free programs, these
programs will also work seamlessly with our Intelligent Storage Router to
provide server-free backup. Although other competitors have developed this
capability, we believe the higher speeds with which our products operate will
provide us with a competitive advantage in the market for server-free backup.
For example, our FS2420 Intelligent Storage Router can operate at a speed of 180
megabytes per second versus competitive offerings that operate at only 90
megabytes per second. In addition, our major competitor is not currently
shipping products with this capability, and their customers must physically
replace installed routers to obtain the benefits of server-free backup.
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DIFFERENTIATION AND MANAGEABILITY
We have developed a robust, well-defined user interface, which we call
CAPI, to enable our customers to incorporate their proprietary functionality
into our products for differentiation in the market. In addition, our customers
can design their own GUI to manage our equipment in conjunction with their
solutions.
We also work closely with leading independent software vendors, such as
Legato Systems, Inc., Veritas Software Corporation and Computer Associates
International, Inc., to help ensure that our Intelligent Storage Routers can be
managed through their network management software applications. Our Intelligent
Storage Routers are also designed with features that enable organizations to
conduct systems diagnostics and management, as well as real-time application
monitoring, from remote locations.
STRATEGY
LEVERAGE COMMON HARDWARE AND SOFTWARE ARCHITECTURE
Our Intelligent Storage Routers and external RAID controllers share a
common hardware and embedded software architecture. We intend to continue to use
this common architecture to quickly and cost-effectively introduce
next-generation products into the market. We utilize a modular hardware
architecture that includes a separate snap-on card, called a daughter card, for
the Fibre Channel interface. We believe this daughter card will allow us to
introduce higher performance, next-generation products without changing the
basic architecture of our hardware platforms. For example, the FS2420
Intelligent Storage Router hardware platform has the performance capability to
support up to 360 megabytes per second when two gigabit Fibre Channel integrated
circuits become commercially available (anticipated to be the second half of
2000), without redesigning the entire hardware platform. We expect our daughter
card architecture will give us a competitive advantage, by reducing our time to
market, decreasing our development costs and allowing us to leverage our
interoperability with existing products.
We plan to leverage our common embedded software architecture to introduce
the server-free backup capability into our external RAID controllers for fast
disk-to-disk copy capability. We also intend to leverage our modular embedded
software architecture to facilitate the development of future SAN applications,
such as data replication, non-stop unattended backup and continuous remote
mirroring.
ACTIVELY PURSUE NEW STRATEGIC ALLIANCES TO ENABLE NEW APPLICATIONS
We plan to partner with leading independent software vendors to integrate
value-added functionality into our products to meet the evolving needs of our
customers. By incorporating embedded software agents into our products, we
expect to rapidly expand the capabilities we are able to offer and, in doing so,
increase the market for our solutions. For example, we were the first to have
the capability to incorporate an Extended Copy embedded software agent into our
Intelligent Storage Routers. By incorporating this software agent, we were able
to extend the functionality of our Intelligent Storage Routers to enable
server-free backup. We publicly demonstrated server-free backup with Legato and
Quantum/ATL at the Networld/Interop trade show in May 1999 and expect to ship
products with this function in connection with software anticipated to be
released by Legato and other companies in the near future. Although other
competitors have developed this capability, we offer the additional benefit of
reduced backup time because our Intelligent Storage Routers operate at over
twice the speed of our competitors' products.
As the SAN market evolves, we intend to work with leading independent
software vendors to jointly define embedded software agents that integrate
management functionality into our products. By establishing strategic
relationships with independent software vendors, we believe we will be able to
significantly increase the value of our product offerings and ensure a product
migration path in line with the needs of our customers.
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DRIVE EMERGING I/O MARKET OPPORTUNITIES
We plan to leverage our significant technological expertise in storage
routing to drive emerging I/O market opportunities. As part of these efforts, we
are currently working on the development of an Intelligent Storage Router that
would extend the capabilities of the SAN over the WAN. Fibre Channel SANs can
currently transfer data over distances of up to ten kilometers. WANs provide
communication access over virtually unlimited distances. New technology such as
Dense Wave Division Multiplexing, or DWDM, offers the future promise of
significantly higher bandwidth at a much lower cost, which will make
applications such as remote mirroring of data centers for disaster planning
economically feasible. We plan to offer new storage router products that bridge
Fibre Channel with WAN protocols, such as asynchronous transfer mode, or ATM. We
are currently staffing a development team to focus on these efforts.
We also are focusing our development efforts on a number of other emerging
I/O technologies including Peripheral Control Interface-X (PCI-X), Transmission
Control Protocol/Internet Protocol (TCP/IP) and gigabit Ethernet, as well as
future I/O technologies, such as the InfiniBand protocol. We will continue to
contribute to the development of these and other I/O interfaces as these
technologies gain market acceptance. We believe that this participation will
help us to define improved ways of building intelligent I/O interconnections,
influence relevant standards, quickly implement and deliver products to OEMs and
other customers.
EXPAND RELATIONSHIPS WITH OEMS
We intend to continue to focus on developing relationships with OEMs. We
believe that working with OEMs enables us to effectively distribute our
products, anticipate the needs of the market, introduce new products to meet
those needs and target new markets. We intend to continue to offer high-value,
easily integrated products that can be quickly brought to market. We believe
that these products will help us expand our OEM customer base. For example, the
small size of our controller board is attractive to OEMs because they can easily
integrate it internally into their tape libraries and subsystem products.
Additionally, we plan to enhance our CAPI functionality to incorporate new SAN
applications that will be attractive to OEMs.
As new disk and tape technologies with significantly higher transfer rates
emerge, we intend to leverage the high performance features of our Intelligent
Storage Routers and external RAID controllers to take advantage of each new OEM
qualification and sourcing cycle. We believe our technology will enable us to
continue to capture OEMs that require high performance and high availability in
their storage solutions.
EXPAND DISTRIBUTION CHANNELS
While sales to our OEM customers have accounted for the majority of our
revenue, we believe that our success depends in part on the successful creation
of an open systems market channel through both subsystem vendors and
distributors. We have established relationships with several distributors,
including Arrow, Bell Microproducts and CONSAN in the United States, and CPI,
Hammer, Infodip, SM Data, Transformation Software Limited and United Digital in
Europe, DCC in South Africa, and Nisho in Japan. We intend to enter into
additional agreements, both domestically and internationally, to increase our
geographic coverage and address new markets. We also intend to develop
relationships with key SAN systems integrators. We expect that sales through
these distribution channels will constitute an increasing portion of our total
sales in the future.
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WORK CLOSELY WITH STRATEGIC PARTNERS AND INDUSTRY ALLIANCES TO FACILITATE
WIDESPREAD ADOPTION OF SANS
We believe that establishing relationships with technology partners is
essential in facilitating the efficient and reliable integration of their
capabilities into our SAN solutions. We are currently working with leading
software and Fibre Channel hardware technology companies to jointly verify
compatibility and interoperability of our products with their products.
Specifically, there are three categories of companies that we are actively
working with:
Storage Management Software Companies:
Computer Associates
Highground
Legato
Tivoli Systems
VERITAS Software
Fibre Channel Chip and Host Bus Adapter
Companies:
Emulex
JNI
Q Logic
Fibre Channel Switch and Hub Companies:
Ancor
Brocade
Gadzoox Networks
McDATA
Vixel
In addition, we have developed relationships with leading technology
suppliers such as CI Designs, JMR, Kingston Technology and Trimm, who have
designed power and packaging capability specifically to incorporate our external
RAID controllers. VARs and system integrators therefore have the flexibility to
combine best-of-class disk and tape storage products with our external RAID
controllers into a wide range of physical subsystems and provide complete
solutions for end-users. We are also active in industry associations and
standards-setting organizations including the Storage Networking Industry
Association, the Fibre Channel Industry Association, the Fibre Alliance, the
Infiniband Trade Association and the RAID Advisory Board. By promoting the role
and capabilities of SANs through work with industry-standard organizations,
partners and OEMs, we believe we can facilitate adoption of SANs and create a
broader and more robust market for our products.
PRODUCTS
We currently offer two product lines: Intelligent Storage Routers and
external RAID controllers. Our products are designed to provide high-performance
data storage and Fibre Channel SAN solutions in an open systems computing
environment. These products share a common hardware and embedded software
architecture. Our embedded software agents are also offered separately as
optional features for each of our products.
INTELLIGENT STORAGE ROUTERS
Our Intelligent Storage Routers enable seamless bi-directional connectivity
between SCSI devices and Fibre Channel networks, allowing companies to take
advantage of the benefits of Fibre Channel technology while protecting their
investment in new and legacy SCSI storage devices. Our Intelligent Storage
Routers utilize our external RAID controller platform but are configured with
different embedded software for SCSI peripherals including tape drives,
automated robotic tape libraries and optical storage devices. Our Intelligent
Storage Routers meet the performance and availability requirements of both
departmental and enterprise server needs as well as advanced applications for
SANs. Our Intelligent Storage Routers also have the ability to offer high-speed
backup over Fibre Channel in connection with software anticipated to be released
by Legato and other companies in the near future. Server-free backup allows
users to perform backup operations directly from disk to tape without first
copying data to the host computer. Server-free
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backup accelerates the backup operation as well as off-loading the operations
from the LAN and host computer.
F Series. Our F Series of Intelligent Storage Routers is an integral
component of our SAN solutions and are critical to enabling organizations to
attain the benefits of these solutions within their existing computer network
infrastructures. We believe these products offer the highest performance
available in the market today. These products are available as an individual
board or in an enclosed 1.7-inch high rack. All of these products also offer the
optional Celestra Extended Copy embedded software agent to provide server-free
backup. In November 1999, we announced our third generation products (FS2420x).
These products incorporate a dual-loop Fibre Channel interface as well as the
industry's first Ultra 3 SCSI with 160 megabyte per second performance per
channel, providing both higher availability and higher performance.
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INTELLIGENT STORAGE ROUTERS
<TABLE>
<CAPTION>
PRODUCT FIRST
NAME SHIPMENT PRODUCT DESCRIPTION PRODUCT BENEFITS
- ------- --------- ------------------- ----------------
<S> <C> <C> <C>
FS1310x B: 3/99 - One Fibre Channel port and three - First router for new LVD tape
C: 7/99 80 MB/sec LVD SCSI device ports drives such as AIT2, DLT8000 and
R: 12/99+ Mammoth 2
- 90 MB/sec overall throughput - Offers over twice the throughput
of competitive routers
- Serial port and CAPI - Facilitate easy integration with
existing storage management
software
- Optional Extended Copy embedded - High-performance server-free
software agent backup
- B: 5inches X 7inches size board - Smaller size facilitates
mounting inside tape libraries and
storage subsystems
- C: 5.25inches CD-ROM size - SCSI cable-ready canister
canister product
- R: 1.7inches X 17inches X - 1U form factor and GBIC
9.5inches Rack mount enclosure (1U interface allow for easy mounting
form factor) with GBIC Fibre into existing communications
Channel connection racks and tape libraries
FS2420x B: 6/00* - Two Fibre Channel ports (dual - Dual loop Fibre Channel and
R: 6/00* loop) and four ULTRA 3 SCSI 160 first ULTRA 3 160 SCSI router
MB/sec
- 180 MB/sec overall throughput - Offers over twice the throughput
of competitive routers
- Serial port and CAPI - Facilitate easy integration with
existing storage management
software
- Optional Extended Copy embedded - High-performance server-free
software agent backup
- B: 4.24inches X 9inches size - Smaller size facilitates
board mounting inside tape libraries and
storage subsystems
- 1U form factor and GBIC
- R: 1.7inches X 7inches X interface allow for easy mounting
9.5inches Rackmount enclosure (1U into existing communications
form factor) with GBIC Fibre racks and tape libraries
Channel connection
</TABLE>
- ---------------
B = Board
C = Canister
R = Rack
+ We are currently in Beta evaluation with several key OEMs. We began commercial
shipments of this product in March 2000.
* We expect to ship Beta evaluation units to OEMs during the second quarter of
2000.
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EXTERNAL RAID CONTROLLERS
Our external RAID controllers offer many fault-tolerance features for
mission-critical computing, such as high performance, redundancy, security and
protection. These products target the external storage business in the open
systems server market as well as the SAN marketplace.
G Series. Our G Series of products consists of external RAID controller
boards that are typically sold to OEMs for integration into their external
storage subsystems. The first generation of these products targeted
department-level users and feature performance that is rated at either 55
megabytes per second for image-intensive applications or 5,000 I/Os per second
for transaction processing and database applications. In November 1999, we
announced our third generation of external RAID controllers, which feature two
Fibre Channel ports and four Ultra 3 SCSI 160 megabyte per second storage device
channels.
The third generation products feature performance that is rated at either
180 megabytes per second or 18,000 I/Os per second. These RAID controllers offer
the active-active failover feature for maximum availability.
K Series. Our K Series of products uses our second generation external RAID
controller board and features a higher level of integration, including battery,
control panel and SCSI cable-ready connectors. Our second generation external
RAID controllers feature performance that is rated at either 90 megabytes per
second or 8,500 I/Os per second. Unlike our G Series, which is designed at the
board level, our K Series is designed into a canister the size of a typical
CD-ROM and fits into a standard 5.25-inch device bay. We sell our K Series
primarily through our distributors to VARs, who desire an integrated product
that can be readily incorporated into a subsystem solution.
In addition, both series of our RAID controllers include an on-line
expansion capability that allows capacity to be added without taking the
external RAID controller off-line for reconfiguration. Our external RAID
controllers are operating system independent and can be deployed without having
to purchase additional software drivers.
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EXTERNAL RAID CONTROLLERS
<TABLE>
<CAPTION>
PRODUCT FIRST
NAME SHIPMENT PRODUCT DESCRIPTION PRODUCT BENEFITS
- ------- -------- ------------------- ----------------
<S> <C> <C> <C>
G7313 10/98 - Our first generation products
G5312 10/98 - G7313: One Fibre Channel host port and - G7313: Up to 45 SCSI devices can be
three ULTRA 2 SCSI 80 MB/sec attached to a Fibre Channel
device ports host
G5312: One Ultra 2 SCSI host port and G5312: Up to 30 SCSI devices can be
two ULTRA 2 SCSI 80 MB/sec device attached to a SCSI host
ports
- 55 MB/sec bandwidth throughput - High bandwidth performance for image-
intensive applications
- 5,000+ I/Os per second - High performance for database and
transaction processing
- Online capacity expansion - Can dynamically add disk capacity
without having to power down
- Serial port and CAPI - Facilitate easy integration with
existing storage management software
K7413 4/99 - Our second generation products
K5412 4/99 - K7413: One Fibre Channel port host and - K7413: Up to 45 SCSI devices can be
three ULTRA 2 SCSI 80 MB/sec attached to a Fibre Channel
device ports host
K5412: One Fibre Channel port host and K5412: Up to 30 SCSI devices can be
two ULTRA 2 SCSI 80 MB/sec device attached to a SCSI host
ports
- 90 MB/sec bandwidth throughput - Maximum performance with a single
Fibre Channel port
- 8,500+ I/Os per second - Higher performance for database and
transaction processing
- Online capacity expansion - Can dynamically add disk capacity
without having to power down
- Serial port and CAPI - Facilitate easy integration with
existing storage management software
G7324 5/00 - Our third generation products
G6322 5/00 - G7324: Two Fibre Channel host ports - G7324: Ability to support dual loop
and four ULTRA 3 SCSI 160 Fibre Channel networks as well as new
MB/sec device ports ULTRA 3 disk storage devices
G6322: Two ULTRA 3 SCSI host ports and G6322: Ability to support new ULTRA 3
two ULTRA 3 SCSI 160 MB/sec SCSI devices
device ports
- Active-active failover - Provides high availability for mission
critical applications
- 180 MB/sec bandwidth throughput - Maximum sustained performance for
image-intensive applications
- 18,000+ I/Os per second - Approximately three times the
performance of first generation and
double the performance of second
generation products
- Online capacity expansion - Can dynamically add disk capacity
without having to power down
- Serial port and CAPI - Facilitate easy integration with
existing storage management software
</TABLE>
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EMBEDDED SOFTWARE
In the second half of calendar 2000, we expect to ship our embedded
software products as separately-priced, value-added features for both our
Intelligent Storage Routers and external RAID controllers. These products can be
provided electronically so that installed Intelligent Storage Routers and
external RAID controllers can be remotely upgraded at the customer's site. Our
embedded software agent is anticipated to provide server-free backup capability
in connection with Legato's Celestra Networker backup software. We plan to
implement this as an optional feature for our external RAID controllers in the
second half of 2000.
In addition, we have developed embedded software that permits our customers
to prevent access to selected storage devices on a server-by-server basis. This
feature provides greater data security by restricting access to shared data on
the SAN only to authorized users. We expect to offer this as an optional feature
for our Intelligent Storage Routers in the first half of 2000.
CUSTOMERS
We sell our products to OEMs and distribution channel partners.
OEM CUSTOMERS
Our OEM customers accounted for 65% of our revenue for the fiscal year
ended March 31, 2000 and included Eurologics, MicroNet, nStor, Qualstar,
Quantum/ATL, Trimm, and Xyratex.
For the fiscal year ended March 31, 2000, our three largest OEM customers
were Quantum/ATL Products, nStor and Eurologics, which accounted for 21%, 17%
and 11% of revenue, respectively. We believe we can expand our current base of
OEM customers by offering high-performance, easily integrated products that can
be quickly brought to market.
DISTRIBUTION CHANNEL PARTNERS
Our distribution channel partners accounted for the remaining 35% of our
revenue during the fiscal year ended March 31, 2000. These partners are
comprised of distributors and resellers. Our current distribution channel
partners include Arrow, Bell Microproducts, CONSAN, CPI, Hammer, Infodip and
United Digital.
During the fiscal year ended March 31, 2000, CONSAN represented 16% of our
revenue and Bell Microproducts represented 13% of our revenue. No other
distribution channel partner represented more than 10% of our revenue. We are
currently directing significant marketing and development efforts towards
educating and expanding our network of distribution channel partners.
SALES AND MARKETING
Our sales and marketing strategy focuses on an indirect sales model
executed through OEMs, distributors, resellers and systems integrators. We have
focused primarily on developing OEM relationships with storage subsystem
suppliers, tape library manufacturers and computer system manufacturers. We
believe the strong market position of these customers will shorten our sales
cycle and further increase sales productivity. Our experienced OEM sales
professionals are supported by application engineers who work in conjunction
with the OEM's engineering team during the qualification process.
We have established relationships with three industrial distributors in the
United States: Arrow, Bell Microproducts and CONSAN. We have also established
relationships with industrial distributors in Europe, including CPI, Hammer
Distributing, Infodip and United Digital. Industrial distributors resell our
products with other complementary products, such as Fibre Channel switches or
hubs to VARs. This channel is serviced by our regional distribution sales
representatives and inside sales representatives, who provide training and sales
support to distributors. We have recently added Tech Data, a commercial
distributor with a focus on the SAN market. We plan to add additional
distributors, including commercial distributors, that will bundle our products
with their storage and server solutions.
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We are in the process of expanding our international sales channels. We
have established relationships with distributors in England, France, Germany,
Spain, Asia and South Africa. In the future, we intend to expand our sales
efforts to Australia and South America.
Our marketing efforts focus on product marketing, marketing communications,
business development and partnership marketing. We have dedicated significant
marketing efforts towards:
- establishing relationships with OEMs, distributors, resellers and systems
integrators;
- participating in trade shows to promote and launch our products; and
- identifying new business opportunities.
Our initial partnership marketing efforts have focused on cooperative
marketing with complementary vendors in the markets for tape backup software and
Fibre Channel switches and hubs. In order to support and develop opportunities
for our indirect distribution channels, we plan to expand our field sales and
support staff significantly. Since January 1, 2000, we have hired 16 additional
field sales and support staff.
We have developed the Chaparral Partners Program to ensure that our
solutions are interoperable with products from multiple vendors. We are working
to provide certified SAN solutions for key systems integrators to offer to their
customers. We believe this program is important both for reference purposes and
to accelerate the acceptance of SANs. We have established a relationship with
Legato to introduce the server-free backup Celestra application worldwide. To
further support our marketing efforts, we intend to establish relationships with
key partners to provide vertical market applications. For example, we have begun
discussions with independent software vendors to provide data replication.
CUSTOMER SERVICE AND SUPPORT
We believe that a broad range of support services is essential to the
successful installation and ongoing support of our Intelligent Storage Routers
and external RAID controllers. Our support engineers have a broad range of
storage and networking experience. Our support engineers have expertise with
both UNIX and Windows NT operating systems, as well as experience with Fibre
Channel interoperability with switches, hubs and peripheral equipment. Our
customer service and support organization provides comprehensive training
programs and telephone, e-mail and Web-based direct post sales support to our
OEM and distributor customers. We believe these programs allow us to minimize
the need for a large end-user support organization by enabling our OEM and
distributor customers to provide installation, service and primary technical
support to their customers, while we focus on high-level secondary support. In
the future, we intend to significantly expand our pre-sales and post-sales
service and support efforts as well as pursue opportunities to partner with
third party support organizations. For example, in March 2000 we launched our
STRATegic Integration of SANs, or STRATIS, Value Added Reseller program that
offers comprehensive sales and technical training and support to STRATIS
partners.
TECHNOLOGY
We develop and market Intelligent Storage Routers and external RAID
controllers. These products combine a number of hardware and software
technologies. Our primary areas of expertise include embedded software and
platform architecture.
Embedded software. Our Intelligent Storage Routers and external RAID
controllers contain a significant amount of common software. Our embedded
software is designed to enable the high speed capabilities of the ASICs we
license from Adaptec. We utilize the C++ programming language, a highly modular
software architecture, which allows us to use and reuse many of our software
elements in both our Intelligent Storage Routers and external RAID controllers.
Our embedded software provides the following:
- a real-time operating system, or RTOS, specifically designed for high
performance;
- data caching and buffering functionality, I/O drivers, configuration
utilities and system monitoring;
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- an embedded multiplex user interface, or MUI, which provides a
feature-rich management tool that is accessible either in-band over the
SCSI/Fibre Channel ports or out-of-band via a serial port or ethernet
port;
- a CAPI, which enables our customers to implement GUI applications for
management, configuration and monitoring purposes; and
- the ability to add new features such as active-active failover.
Platform Architecture. Our products are small form-factor, high performance
"single-board computers" that perform specialized functions such as data routing
or RAID operations. We have developed a proprietary architecture that addresses
important customer requirements, such as:
- high performance, both in terms of sustained throughput and I/Os per
second;
- multiple I/O channels;
- high reliability;
- small physical size;
- configuration flexibility;
- low power dissipation;
- manageability; and
- cost effectiveness.
Our designs incorporate custom ASICs and dual internal data buses, greatly
increasing data processing speed and throughput capability. Our platform
architecture includes a separate snap-on card, called a daughter card, for the
Fibre Channel interface. This daughter card architecture provides us with a cost
effective means to quickly implement next generation Fibre Channel integrated
circuits as well as configuration and manufacturing flexibility.
Our hardware platforms use x86-based microprocessors, such as the Pentium
and Pentium II, and associated integrated circuits and memory modules, all of
which are widely used in the PC industry. As a result, we are able to develop
multiple generations of products that leverage the scalability, performance and
cost advantages of the high volume PC industry with minimal change to our
architecture.
RESEARCH AND DEVELOPMENT
Our research and development expenses were approximately $1.7 million for
the fiscal year ended March 31, 1999, and $4.6 million for the fiscal year ended
March 31, 2000, excluding stock option compensation expense. We believe our
research and development efforts are essential to our ability to deliver
innovative products that address the needs of the market and influence the
evolving capabilities of the SAN. As of March 31, 2000, our staff included 35
people in our engineering, product development department and testing and
technical support departments. Our core hardware and software engineering teams
have worked together for approximately four years, including two years at
Adaptec prior to joining Chaparral.
We possess a high level of multi-disciplinary technological expertise,
which we use in designing our products. This expertise includes the following
core competencies:
- computer systems architecture and design;
- embedded software design using advanced methodologies;
- storage systems;
- high-speed, high-density circuit design;
- Fibre Channel and SCSI interface technologies; and
- ASIC architecture and design.
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We believe that our expertise in these technologies provides us with
competitive advantages in time-to-market, price/performance, interoperability
and product capabilities. We focus our research and development efforts on
developing products that meet the evolving network storage needs of our
customers. For example, we are leveraging our expertise and technology from our
external RAID controllers to incorporate high-availability features, such as
active-active failover, into our future Intelligent Storage Routers to meet the
need for fault tolerance.
In addition to the development of our core technologies, we plan to
continue to partner with other leading providers of network storage products and
services to jointly develop high-performance network storage solutions.
Both our Intelligent Storage Routers and external RAID controllers have
been designed using a common modular architecture. This common architecture
facilitates a relatively short product design and development cycle and reduces
the time to market for our new products and features. We intend to continue to
leverage our common architecture to develop and introduce additional products
and embedded software enhancements in the future.
INTELLECTUAL PROPERTY
Our success depends on our proprietary technology. We rely on a combination
of patents, trademarks and trade secrets, as well as confidentiality agreements
and other contractual restrictions with employees and third parties, to
establish and protect our proprietary rights. In November 1998, Adaptec granted
us a perpetual, worldwide license to the core technology that underlies our
products. The Adaptec license is exclusive to us except for the rights retained
by Adaptec to use this technology in non-competing products as described in the
license. Adaptec currently holds two United States patents with respect to this
core technology. Adaptec also has pending patent applications in the United
States with respect to certain aspects of the core technology and is seeking
patent protection for certain aspects of the technology in selected
international locations. However, it is possible that patents may not be issued
for these applications. Despite these precautions, third parties could copy or
otherwise obtain and use our products or technology without authorization, or
develop similar technology independently. The measures we undertake may not be
adequate to protect our proprietary technology, and these measures may not
preclude competitors from independently developing products with functionality
or features similar to our products. There can be no assurance that we can
prevent misappropriation or infringement of our technology.
We require each of our employees to enter into confidentiality agreements
prohibiting the employee from disclosing any of our confidential or proprietary
information, including trade secrets such as our planned active-active failover
implementation for our Intelligent Storage Routers.
On March 31, 2000, Crossroads Systems, Inc. filed suit against us in the
United States District Court for the Western District of Texas (Austin
Division). The complaint alleges that our products infringe a patent of
Crossroads. We cannot assure you that we will prevail in this proceeding. In
addition, we may be a party to litigation in the future either to protect our
intellectual property or as a result of an alleged infringement of others'
intellectual property. Intellectual property litigation could subject us to
significant liability for damages and could cause our proprietary rights to be
invalidated. Regardless of the merits of the claim or outcome, litigation would
likely be time-consuming and expensive to resolve and would divert management
time and attention. Any intellectual property litigation could also force us to
do one or more of the following:
- stop using the challenged intellectual property or selling our products
or services that incorporate it;
- obtain a license to use the challenged intellectual property or to sell
products or services that incorporate it, which license may not be
available on reasonable terms, or at all;
- redesign those products or services that are based on or incorporate the
challenged intellectual property; and
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<PAGE> 47
- customers could require us to replace products purchased with
non-infringing products.
If we are forced to take any of the foregoing actions, we may be unable to
manufacture and sell our products, and our business, financial condition or
results of operations could be substantially harmed.
COMPETITION
The markets for our products are becoming increasingly competitive and are
characterized by evolving standards and rapid technological change. We are
currently the only independent provider of both storage routers and external
RAID controllers. Our principal competitors in the storage router market are
ATTO, CrossRoads and Pathlight. We compete in the external RAID controller
market primarily with CMD, Infotrend and Mylex (acquired by IBM).
We believe the primary competitive factors in the storage router and
external RAID controller markets are the following:
- product performance, features and form factor;
- product reliability and interoperability;
- customer service and technical support;
- price;
- ability to meet delivery schedules;
- OEM endorsement; and
- strength of distribution channel.
As the market for our products continues to grow, we may face competition
from traditional networking companies and other manufacturers of networking
equipment. These networking companies may enter the market by introducing their
own products or by acquiring or entering into an alliance with an existing
storage router or RAID controller provider. Our OEM customers could also develop
and introduce products that are competitive with our product offerings.
Some of our current and potential competitors have longer operating
histories, significantly greater resources and name recognition and a larger
installed base of customers. As a result, these competitors may have greater
credibility with our existing and potential customers. They also may be able to
adopt more aggressive pricing policies and devote greater resources to the
development, promotion and sale of their products than we can to ours, which
would allow them to respond more quickly to new or emerging technologies and
changes in customer requirements. In addition, some of our current and potential
competitors have already established supplier or joint development relationships
with our current or potential customers. These competitors may be able to
leverage their existing relationships to discourage these customers from
purchasing additional products from us or persuade them to replace our products
with their products. Increased competition could result in pricing pressures,
reduced sales, reduced margins, reduced profits, reduced market share or the
failure of our products to achieve or maintain market acceptance.
We may not have the financial resources, technical expertise or marketing,
manufacturing, distribution and support capabilities to compete successfully in
the future. Additionally, we may not be able to compete successfully against
current or future competitors and competitive pressures may significantly harm
our business.
MANUFACTURING
We outsource our manufacturing, which reduces our need to make costly
investments in capital equipment and manufacturing facilities. SMTC and Saturn
currently manufacture our products and are responsible for nearly all material
procurement, assembly and testing, including in-circuit testing and
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functional testing. We develop the architecture and drawings for our products
and design functional tests. Once our product passes all initial testing, it is
shipped to our facility, where we load all necessary microcode, perform final
testing, package and ship the product. As our product volume grows, we plan to
outsource all aspects of the manufacturing and shipping process.
SMTC manufactures approximately 80% of our product volume in both its San
Jose, California, and Thornton, Colorado, facilities. Saturn manufactures our
products in Fremont, California. In addition, SMTC offers European distribution
capabilities. We place purchase orders with SMTC and Saturn based on periodic
forecasts. In the future, we may need to add new manufacturing partners to
achieve higher production volumes or lower costs or to secure second source
product availability.
While our contract manufacturers are responsible for most facets of the
manufacturing process, we are directly involved in qualifying vendors and the
key components used in our products. While most of the materials used in our
products are standard and can be obtained from multiple qualified manufacturers,
some of our key components are proprietary or sole sourced and require extended
lead times. For example, we depend upon single sources for our Fibre Channel,
SCSI and memory controller ASICs. If we were required to find new vendors for
these sole-sourced components, we would have to qualify replacement components
and possibly reconfigure our hardware. This qualification or reconfiguration
process could result in product shipment delays. 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 developing
production test equipment, designing for manufacturability, transferring
products effectively from development to production and monitoring supplier
performance and quality.
BACKLOG
As of March 31, 2000, the backlog for our products was approximately
$690,000, all of which is scheduled for shipment to customers during the quarter
ended June 30, 2000. We had no significant backlog at March 31, 1999. All orders
are subject to cancellation or delay by customers with limited or no penalty.
Therefore, our backlog is not necessarily indicative of actual sales for any
succeeding period.
Typically, our OEM customers forecast expected purchases on a three to
six-month rolling basis, as compared to distributor customers that order as
required with minimal order fulfillment time. OEM forecasts are not binding and
are subject to change.
EMPLOYEES
As of March 31, 2000, we had 79 employees, all but one of whom is full time
and all but 12 of whom were located at our principal offices in Longmont,
Colorado. Of the total number of employees, 35 employees were engaged in
research and development, 24 were in sales and marketing, seven were in
manufacturing and 13 were 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.
Our future performance depends in significant part upon the continued
service of our key technical, sales and senior management personnel. We only
have employment agreements requiring service for any defined period of time with
three of our executive officers. The loss of services of one or more of our key
employees could significantly harm our business, financial condition and results
of operations. Our future success also depends on our continuing ability to
attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense, and we may not be able to
retain our key personnel in the future.
LITIGATION
On March 31, 2000, Crossroads, our major competitor, filed suit against us
in the United States District Court for the Western District of Texas (Austin
Division). The complaint alleges that Chaparral products infringe a patent of
Crossroads. The complaint specifically identified three of our Intelligent
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Storage Routers but stated it was not limited to those products. We are
currently investigating the claims alleged by Crossroads and intend to defend
the suit vigorously. Based on our investigation of the patent to date, we do not
believe that Crossroad's allegations will be sustained.
We also may become involved from time to time in various lawsuits and legal
proceedings that arise from actions taken in the ordinary course of our
business.
FACILITIES
Our principal executive offices consist of approximately 20,000 square feet
located in Longmont, Colorado. We have a license, granted by Adaptec to occupy
our corporate headquarters facility on a month-to-month basis pursuant to a
license agreement that may be terminated by either Adaptec or us upon 30 days'
written notice. The monthly license fee is $25,439. We also have a license
granted by Adaptec to occupy approximately 1,325 square feet in Foothill Ranch,
California, pursuant to a license agreement that expires in May 2004. The
license is a 60 month license, with a monthly license fee of $2,700 for the
first 30 months and $2,850 for the second 30 months.
In response to our need for additional space to accommodate our growth
plans, we have signed an agreement to lease 60,000 square feet in Longmont,
Colorado from BTC Development, LLC. This lease will commence as soon as the
building is ready for occupancy and will carry a seven-year term commencing on
the date of occupancy, with options to renew. We have issued 42,000 shares of
our common stock to BTC Development, LLC in lieu of payment for approximately
five months rent, or $126,000. We plan to relocate our principal executive
offices to this facility in the second calendar quarter of 2000. We believe this
facility will be adequate to meet our needs for the foreseeable future.
We have the exclusive use of two furnished private offices located in
Irvine, California pursuant to an office services agreement dated October 22,
1999 with VANTAS, Inc. The monthly charge for the use of these two offices is
$1,800. After the initial term expires on April 30, 2000, the office services
agreement will renew automatically every six months with a 5% increase in the
monthly charge upon each renewal.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning our directors
and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gary L. Allison............................ 59 Chairman of the Board and Chief Executive
Officer
Michael J. Gluck........................... 53 President and Chief Operating Officer,
Director
Jerry L. Walker............................ 57 Executive Vice President for Engineering
and Operations, Director
Douglas J. Lehrmann........................ 54 Vice President, Finance and Chief Financial
Officer
F. Grant Saviers(1)........................ 55 Director
Harris Ravine(1)(2)........................ 57 Director
</TABLE>
- ---------------
(1) Member of the compensation committee
(2) Member of the audit committee.
Set forth below is certain additional information with respect to the
directors and executive officers.
Gary L. Allison is a co-founder of Chaparral and serves as our Chairman of
the board of directors and Chief Executive Officer. He has served in both of
these capacities for Chaparral since its inception in 1998. Mr. Allison was also
the founder and served as Chairman of the board of directors and Chief Executive
Officer of Breece Hill Technologies, Inc. from 1993 to 1997. From 1965 to 1989,
Mr. Allison was employed in various capacities by IBM Corporation, Xytex
Corporation, Wheelabrator Technologies, Jacobs Engineering, Seagate Technology
and other companies. Mr. Allison received his B.S. in mechanical engineering
from the University of California, Los Angeles, and an M.S. in mechanical
engineering from the University of Southern California. Mr. Allison has over 30
years of experience in the computer industry.
Michael J. Gluck is a co-founder of Chaparral and serves as a Director and
our President and Chief Operating Officer. He has served in both of these
capacities for Chaparral since its inception in 1998. Mr. Gluck was also the
Chairman of the Board, Chief Executive Officer and President of Vangard
Technology, Inc. from 1996 to 1997. Mr. Gluck served as an Executive Vice
President and Director of Fujitsu America, Inc. from 1984 to 1995. From 1968 to
1983, he was with Control Data Corporation. Mr. Gluck received his B.S. in
metallurgical engineering from the University of Wisconsin and his M.B.A. from
the University of Chicago. Mr. Gluck has over 30 years of experience in the
computer industry.
Jerry L. Walker is a co-founder of Chaparral and serves as a Director and
our Executive Vice President for Engineering and Operations. He has served in
this capacity since its inception in 1998. Mr. Walker was also Vice President,
Engineering for Colorado Micro Display from 1996 to 1997. Mr. Walker served as
Vice President, Engineering for Exabyte Corporation from 1990 to 1996. From 1985
to 1990, Mr. Walker served as Vice President, Engineering for Cipher Data
Products, Inc. Mr. Walker was employed in various capacities by Storage
Technology Corporation from 1978 to 1984 and IBM from 1971 to 1978. Mr. Walker
received his B.S. and M.S. in electrical engineering from the University of
Houston. Mr. Walker has 29 years of experience in the computer industry.
Douglas J. Lehrmann is our Vice President, Finance and Chief Financial
Officer. Mr. Lehrmann has served in this capacity since September 1998. Prior to
joining Chaparral, Mr. Lehrmann served as Vice President, Finance and
Administration for Sitera Inc. from 1997 to 1998. Mr. Lehrmann served as
President of Rainbow Display Devices from 1995 to 1997. Mr. Lehrmann served as
Vice President, Finance and Administration for Microelectronics and Computer
Technology Corporation (MCC) from 1993 to 1995. From 1972 to 1993, Mr. Lehrmann
served in similar capacities for other companies,
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including Microchip, Advantage Production Technology, Benzing Technologies and
Computer Devices International. Mr. Lehrmann received a B.A. in history from St.
Mary's College of California and an M.B.A. -- Finance from the University of
California, Berkeley, and he is a certified public accountant. Mr. Lehrmann has
25 years of experience in the computer industry.
F. Grant Saviers is a Director. He has served as a Director for Chaparral
since October 1998. From 1992 until he retired in August 1998, Mr. Saviers
served as a member of the board of directors of Adaptec and in various executive
officer positions at Adaptec, including Chairman of the Board and Chief
Executive Officer from August 1997 through August 1998, Chief Executive Officer
from July 1995 through August 1997 and President and Chief Operating Officer
from August 1992 through July 1995. Prior to joining Adaptec, Mr. Saviers was
employed in various positions by Digital Equipment Corporation from 1968 to
1992. Mr. Saviers presently serves on the board of directors of Analog Devices,
Inc. and NetSilicon. Mr. Saviers received a B.S. in engineering from Case
Institute of Technology and an M.S. in engineering from Case Western Reserve
University. Mr. Saviers has over 32 years of experience in the computer
industry.
Harris Ravine joined the Board of Directors in March 2000. Since January
2000, Mr. Ravine has performed consulting services for several companies in the
data storage industry. From April 1997 through December 1999, Mr. Ravine served
as Chairman and Chief Executive Officer of Andataco, Inc., a data storage
company. He served as Managing Director of B1 Capital, a private venture capital
fund, from April 1994 through March 1997. From June 1985 to January 1994, Mr.
Ravine was Executive Vice President of Storage Technology Corporation. Mr.
Ravine had various responsibilities during that period including service as
Chief Financial Officer, Group Officer for Mid-Range Markets, Executive Vice
President for International Operations and Chief Accounting Officer. Mr. Ravine
received B.A.s in history and economics and his J.D. from the University of
Minnesota. Mr. Ravine has more than 25 years of experience in the technology and
computer industries.
OTHER KEY EMPLOYEES
The following individuals are among the key employees of Chaparral who are
not executive officers, but hold important positions and have an important role
in Chaparral's success.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Brian J. Allison........................... 34 Vice President for Sales
Michael V. Hardy........................... 41 Vice President for Business Development
Robert N. Morris........................... 41 Vice President for Marketing
M. Katherine Sills......................... 53 Vice President for Administration
</TABLE>
Brian J. Allison is our Vice President for Sales. Brian Allison has served
in this capacity since April 1998. Prior to joining Chaparral, he served as Vice
President, Sales of Breece Hill from 1997 to 1998, and as Sales Manager and
Director of North American Sales for Breece Hill from 1995 to 1997. Brian
Allison served as an Electronic Commerce Analyst and Systems Engineer for
Electronic Data Systems from 1989 to 1993. Brian Allison received his B.A. in
economics from the University of San Diego and his M.B.A. from the Cox School of
Business, Southern Methodist University. Brian Allison has nine years of
experience in the computer industry. Gary Allison and Brian Allison are father
and son.
Michael V. Hardy is our Vice President for Business Development. He has
served in this capacity since October 1999. Prior to joining Chaparral, Mr.
Hardy served as Senior Product Marketing Manager for TeraStor Corporation from
1997 to 1999. Mr. Hardy served as Market Development Manager for Silicon
Graphics Corporation from 1996 to 1997. From 1995 to 1996, Mr. Hardy served as a
product manager for Vangard Technology. Prior to 1995, Mr. Hardy was employed as
Product Manager for ATL. Mr. Hardy received his B.A. in computer science from
the University of California, San Diego. Mr. Hardy has 13 years of experience in
the computer industry.
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Robert N. Morris is our Vice President for Marketing. He has served in this
capacity for Chaparral since October 1999. Prior to joining Chaparral, Mr.
Morris served as President and Chief Operating Officer of Gambit, Inc. from 1998
to 1999. Mr. Morris served as Vice President of Marketing for Vangard Technology
from 1996 to 1998. Mr. Morris has also served as Vice President of Marketing for
ATG Cygnet, Inc., from 1995 to 1996, and Conner Peripherals, from 1994 to 1995.
Mr. Morris served as a General Manager for Fujitsu Computer Products, Inc. from
1985 to 1994. Mr. Morris has attended Cal Poly Pomona, New Hampshire College,
Pasadena City College and Phoenix University. Mr. Morris has over 20 years of
experience in the computer industry.
M. Katherine Sills is our Vice President for Administration. She has served
in this capacity since its inception in 1998. Prior to joining Chaparral, Ms.
Sills served as Corporate Administration Manager for Breece Hill from 1991 to
1997. Ms. Sills also served as Office Manager for Ferrotec, Inc. from 1986 to
1991. From 1971 to 1986, Ms. Sills was employed in various capacities by Xytex
Corporation, Storage Tech and N.S. Machining and Engineering. Ms. Sills received
her B.S. from the University of Colorado. Ms. Sills has over 25 years of
experience in the computer industry.
STRATEGIC TECHNICAL ADVISORY COUNCIL
The Strategic Technical Advisory Council, or STAC, was formed to provide
independent insight into the strategic product opportunities available to us.
The STAC assists our management in determining appropriate corporate strategies
and current and future product and application initiatives. The STAC meets
quarterly. For the fiscal year ended March 31, 2000, each member of our STAC
received options to purchase 10,000 shares of our common stock, except that Mr.
Trimmer received options for an aggregate 9,167 shares because he served less
than a full year. For fiscal 2001, each member of our STAC will receive an
option to purchase 4,000 shares of our common stock at an exercise price per
share equal to the fair market value of a share of our common stock on the date
of grant (the date of the first STAC meeting in fiscal 2001), which option will
vest in equal quarterly installments commencing the date of grant. The STAC
currently consists of three members: Michael Peterson, F. Grant Saviers (see
above) and Don Trimmer.
Michael Peterson has served on our STAC since January 1999. He has served
as President and Senior Analyst for Strategic Research Corporation since 1988.
Mr. Peterson was employed by Applied Magnetics from 1980 to 1988, by Sloan
Technology from 1978 to 1980 and by Information Magnetics from 1972 to 1978. Mr.
Peterson received his B.S. in mechanical engineering from the University of
California at Santa Barbara. Mr. Peterson is the founder of the Storage
Networking Industry Association. Mr. Peterson has over 28 years of experience in
the computer industry.
Don Trimmer has served on our STAC since February 1999. He has served as
Senior Technical Strategist for Legato Systems since 1999. From 1987 to 1999 he
served in various executive capacities for Intelliguard Software and Delta
Microsystems including President and Co-Chairman. Prior to his experience with
Delta Microsystems, Mr. Trimmer was employed by Lawrence Livermore National
Laboratory from 1974 to 1987 in the areas of systems management, software
development for data acquisition and systems programming. Mr. Trimmer received
his B.S. in nuclear chemistry from San Jose State University. Mr. Trimmer has
over 16 years of experience in the computer industry.
CLASSIFIED BOARD OF DIRECTORS
Following this initial public offering, our board of directors will be
divided into three classes of directors, as nearly equal in size as is
practicable, to serve staggered three-year terms:
- Class I, whose term will expire at the annual meeting of stockholders to
be held in fiscal 2001;
- Class II, whose term will expire at the annual meeting of stockholders to
be held in fiscal 2002; and
- Class III, whose term will expire at the annual meeting of stockholders
to be held in fiscal 2003.
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Each director's term will end on the election and qualification of his or
her successor, or his or her earlier death, resignation or removal.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors has established an audit committee and a
compensation committee.
The Audit Committee makes recommendations to our board of directors
regarding the selection of our independent auditors, reviews the results and
scope of our annual audits, reviews the fees to be paid to the auditors and
their performance, evaluates the compliance with our accounting and financial
policies and monitors management's procedures and policies relating to the
adequacy of our internal accounting controls. The members of the audit committee
are Harris Ravine, and .
The Compensation Committee reviews and makes recommendations to our board
of directors regarding our compensation policies and all forms of compensation
to be provided to our directors, executive officers and certain other employees.
In addition, the compensation committee reviews bonus and stock compensation
arrangements for all of our other employees. The compensation committee also
administers our stock option and employee stock purchase plan. The members of
the compensation committee are Mr. Saviers and Mr. Ravine.
DIRECTORS COMPENSATION
Directors currently do not receive any fees from us for their services as
directors, although by resolution of the board, they may receive a fixed sum and
reimbursement for expenses in connection with their attendance at board and
committee meetings. In the past, we have granted our outside director, Mr.
Saviers, options in lieu of cash compensation for his services as a director.
During the fiscal year ended March 31, 1999, we granted Mr. Saviers 50,000
shares of common stock and an option to purchase 125,000 shares of our common
stock at an exercise price of $0.10 per share. During the fiscal year ended
March 31, 2000, we granted Mr. Saviers an option to purchase 50,000 shares of
our common stock at a price of $3.19 per share, which option vests 25% after 12
months and 1/48th per month thereafter.
Effective following this offering, each outside director will receive an
initial option to purchase 45,000 shares of our common stock upon being elected
to our board of directors under the 2000 stock incentive plan. In addition, each
outside director will receive an option to purchase 15,000 shares of our common
stock on the date of each annual meeting of stockholders, provided that he or
she has served as a director for at least six months. The shares subject to each
initial 45,000-share automatic option grant will vest in a series of three
successive annual installments upon the optionee's completion of each year of
board service over the three-year period measured from the grant date. The
shares subject to each annual 15,000-share automatic grant will vest upon the
optionee's completion of one year of service measured from the grant date. The
shares will immediately vest in full upon certain changes in control or
ownership or upon the optionee's death or disability while serving as a board
member.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee is comprised of Mr. Saviers and Mr. Ravine. No
member of our compensation committee currently serves, or has ever served, as an
officer or employee of Chaparral, and no executive officer or director of
Chaparral has ever served as a member of the compensation committee or board of
directors of an entity that had an executive officer who was also a member of
our compensation committee.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated certificate of incorporation limits the personal
liability of directors for breach of fiduciary duty to the maximum extent
permitted by Delaware law. Delaware law provides that
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directors of a corporation will not be personally liable to us or our
stockholders for monetary damages for breach of their fiduciary duties as
directors, except for:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; or
- any transaction from which the director derived an improper personal
benefit.
Our bylaws require that we indemnify our directors and officers to the
extent permitted by Delaware law. We may, in our discretion, indemnify other
employees and agents to the extent permitted by Delaware law. We believe that
indemnification under our amended and restated certificate of incorporation and
bylaws cover at least negligence and gross negligence on the part of indemnified
parties. Our amended and restated certificate of incorporation also permits us
to secure insurance on behalf of any of our officers, directors, employees or
other agents for any liability incurred in that capacity or arising out of that
status, regardless of whether indemnification is permitted under Delaware law.
We have also entered into agreements to indemnify our directors and
officers. These agreements indemnify our directors and officers for some
expenses, including attorneys' fees, judgments, fines and settlement amounts
incurred by them in any action or proceeding, including any action by or in the
right of our company, arising out of their services as one of our directors or
officers, any of our subsidiaries or any other company or enterprise to which
the person provides services at our request. In addition, we have obtained
directors' and officers' insurance providing indemnification for some of our
directors, officers and employees for certain liabilities. We believe that these
provisions, agreements and insurance are necessary to attract and retain
qualified directors and officers.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative action, if successful, might otherwise benefit us and our
stockholders. Moreover, a stockholder's investment in us may be adversely
affected to the extent we pay the costs of settlement or damage awards against
our directors and officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
53
<PAGE> 55
EXECUTIVE COMPENSATION
The following table provides the total compensation paid to our chief
executive officer and our other executive officers whose compensation (salary
and bonus) exceeded $100,000 in fiscal 2000. In addition to salary, Messrs.
Allison, Gluck, Walker and Lehrmann did not receive personal benefits in excess
of the lesser of $50,000 or 10% of their respective annual salaries. Messrs.
Gluck and Walker did not receive salaries until May 1998. Mr. Lehrmann joined
our company in September 1998. For fiscal year 2000, the board of directors has
established the salaries for Messrs. Allison, Gluck and Walker at $180,000. The
amounts listed under "All Other Compensation" represent employer contributions
to our 401(k) plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) OPTIONS(1) COMPENSATION ($)
- --------------------------- ------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Gary L. Allison............................. 2000 180,000 200,000 1,875
Chief Executive Officer 1999 158,248 -- 4,675
1998 42,500(2) 1,000,000 --
Michael J. Gluck............................ 2000 174,815 181,833 1,875
President and Chief Operating Officer 1999 140,148 1,000,000 3,535
1998 -- -- --
Jerry L. Walker............................. 2000 180,000 181,833 1,875
Executive Vice President for Engineering
and 1999 140,327 1,000,000 3,535
Operations 1998 -- -- --
Douglas J. Lehrmann......................... 2000 143,585 180,833 1,875
Vice President, Finance and Chief
Financial 1999 73,637 350,000 1,754
Officer
</TABLE>
- ---------------
(1) Refer to "Option Grants in Last Fiscal Year" table for more information.
(2) Amount includes $22,500 paid to Chaparral Systems, Inc., a corporation of
which Gary Allison is the sole stockholder, for consulting fees. These fees
were paid by the issuance to Chaparral Systems of 225,000 shares of Series A
preferred stock, which were subsequently assigned to Mr. Allison.
EMPLOYMENT AGREEMENTS
We entered into a two-year employment agreement with Gary Allison, which
expired on February 28, 2000. Under the employment agreement, Mr. Allison agreed
to serve as our Chairman and Chief Executive Officer. Mr. Allison received as
compensation an option to purchase 1,000,000 shares at an exercise price of
$0.10 per share. Although the employment agreement provided for an annual salary
of $120,000 and quarterly bonus payments of $4,500, Mr. Allison was paid a
reduced salary for a portion of the year and a higher salary for the last half
of the year.
We entered into two-year executive employment and noncompetition agreements
effective April 1, 2000 with Messrs. Allison, Gluck and Walker. Under these
agreements, Mr. Allison agrees to serve as Chairman of the Board and Chief
Executive Officer, Mr. Gluck agrees to serve as President and Chief Operating
Officer and Mr. Walker agrees to serve as Executive Vice President for
Engineering and Operations. The executive employment agreements are
automatically renewed for successive one-year periods unless terminated by
either party. The executive employment agreements provide for a minimum base
salary of $180,000 per year, a discretionary quarterly cash bonus of up to 25%
of base salary for the period and/or additional stock options and a
discretionary annual bonus of up to 100% of base salary for the period, payable
in cash or stock at the executive's election. Under the executive employment
agreements, the executive is entitled to participate in company benefit plans.
The agreements also state that Mr. Allison is entitled to six weeks of vacation
and to accrue up to 16 weeks of vacation, Mr. Gluck
54
<PAGE> 56
is entitled to four weeks of vacation and to accrue up to 10 weeks of vacation
and Mr. Walker is entitled to four weeks of vacation and to accrue up to 10
weeks of vacation. In addition, the executive employment agreements provide that
upon completion of our initial public offering, Messrs. Allison, Gluck and
Walker will be granted incentive stock options to purchase 200,000, 150,000 and
150,000 shares of common stock, respectively, that will (i) have an exercise
price equal to the offering price per share in the initial public offering and
(ii) vest in three equal annual installments on the first, second and third
anniversary date of the date of grant.
Our executive employment agreements provide for payments in the event of
termination of the executive's employment due to incapacity, death, cause and
other than for cause. In the event of termination due to incapacity or death,
the executive or his heirs will receive amounts equal to the executive's base
salary and bonus (at the rates in effect at the time of the termination) for one
year, which are reduced, in the case of incapacity, by amounts paid to him under
our long-term disability plans. Termination other than for cause also includes
termination by the executive for "good reason" in the event we:
- assign them to duties that are inconsistent with or substantially
diminished from their current responsibilities;
- materially reduce their compensation and benefits;
- relocate our offices to a location outside a 50-mile radius of Longmont,
Colorado; or
- breach the employment agreements in any material respect.
In the event of termination other than for cause, Messrs. Allison, Gluck and
Walker would be entitled to receive base salary and bonus and to continue to
participate in our employee benefit plans for one year. In addition, all stock
options held by them would immediately vest and remain exercisable for one year,
and restrictions imposed by us on any restricted stock would immediately lapse.
Our executive employment agreements also provide benefits to Messrs.
Allison, Gluck and Walker in the event their employment is terminated within 180
days after a change in control of Chaparral, or if they choose to terminate
their own employment for good reason within that period. A change in control of
Chaparral is defined in the agreement to occur if:
- any person or group were to become the beneficial owner of more than 50%
of the then outstanding stock of Chaparral;
- at any time during three consecutive years individuals who at the
beginning of that period constitute the board of directors and others
they elect ceased for any reason to constitute a majority of the board of
directors; or
- our stockholders approved a merger or consolidation of Chaparral with any
other company in which our stockholders would have less than 80% of the
combined voting power in the surviving entity or an agreement for the
sale of substantially all of our assets.
For 180 days following a change in control, our executives may terminate their
employment with us for good reason if we or our successor company take any of
the actions described in the preceding paragraph as termination other than for
cause, or if the surviving company fails to assume their executive employment
agreements. In the event Messrs. Allison, Gluck or Walker is terminated after a
change of control or terminates his employment for good reason, he will be
entitled to receive a lump sum payment from us equal to two years base salary
and bonus and to continue to participate in our benefit plans for two years.
Each stock option not vested at the time of a change in control will be
accelerated by 12 months. An executive's options will be 100% vested if he is
terminated following a change in control or if the successor company does not
adopt our stock option plan in its entirety or convert to a plan of equivalent
value.
55
<PAGE> 57
Under our executive employment agreements, Messrs. Allison, Gluck and
Walker have agreed that during their employment and for a period of two years
following termination of their employment, they will not disclose our
confidential information and materials. Each of them also has agreed that he
will not solicit our customers or suppliers, attempt to hire away any of our
employees or knowingly engage in any activity that would harm our company or our
business relationships for a period of one year following termination of his
employment.
We require each of our employees to enter into confidentiality agreements
prohibiting the employee from disclosing any of our confidential or proprietary
information. In addition, the agreements generally provide that upon
termination, the employee will not solicit our employees for a period of 12
months. At the time of commencement of employment, our employees also generally
sign offer letters specifying certain basic terms and conditions of employment.
Other than as described above, our employees are not subject to written
employment agreements.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning individual grants of
stock options made during fiscal 2000 to our chief executive officer and our
three other most highly compensated executive officers. We have never granted
any stock appreciation rights.
The exercise prices represent our board's estimate of the fair market value
of the common stock on the grant date. In establishing these prices, our board
considered many factors, including our financial condition and operating
results, recent transactions and the market for comparable stocks.
The amounts shown as potential realizable value represent hypothetical
gains that could be achieved for the respective options if exercised at the end
of the option term. These amounts represent certain assumed rates of
appreciation in the value of our common stock. The 5% and 10% assumed annual
rates of compounded stock price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent our estimate or
projection of the future price of our common stock. The potential realizable
value is calculated based on the ten-year term of the option at its time of
grant. It is calculated based on the fair market value of our common stock on
the date of grant and assumes that the value appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. Actual gains, if any, on stock option exercises depend on the future
performance of our common stock. Some of the options shown in the table have
been exercised, and the potential realizable values reflected in the table were
not achieved.
56
<PAGE> 58
We granted these options under our 1998 stock option plan. Some of these
options were exercised in November 1999. We have the right to repurchase, at the
exercise price as adjusted, any shares as to which the repurchase right has not
lapsed at the time the optionee terminates employment with us. At the date of
exercise, we had the right to repurchase two-thirds of the shares acquired on
exercise, and the repurchase right lapses with respect to 1/24th of the
remaining shares each month thereafter. Our repurchase right terminates upon
completion of our initial public offering. The percentage of total options
granted to our employees in the last fiscal year is based on options to purchase
an aggregate of 4,733,577 shares of common stock granted during fiscal 2000.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
--------------------------- OF ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM($)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------
NAME GRANTED(#) FISCAL 2000(%) SHARE($) DATE 5% 10%
- ---- ---------- -------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Allison........... 200,000 4.2 3.19 11/11/09 1,039,235 1,654,808
Michael J. Gluck.......... 166,666 3.5 0.12 11/13/99 21,525 23,100
166,833 3.5 1.12 11/13/09 304,364 484,648
Jerry L. Walker........... 166,666 3.5 0.12 11/13/09 21,525 23,100
166,833 3.5 1.12 11/13/09 304,364 484,648
Douglas J. Lehrmann....... 166,666 3.5 .12 11/13/99 21,525 23,100
155,833 3.2 1.12 11/13/09 284,296 452,694
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information about stock options exercised
during fiscal year 2000 and held as of March 31, 2000 by our Chief Executive
Officer and our three other most highly compensated executive officers. The
value realized is based on a value of $1.12 per share, the fair market value of
our common stock on the date of exercise, minus the per share exercise price,
multiplied by the number of shares underlying the option. The table also
provides information about the number of securities underlying unexercised
options and the value of unexercised in-the-money options at March 31, 2000.
There was no public trading market for our common stock as of March 31, 2000.
Accordingly, we have based the value of unexercised in-the-money options at
March 31, 2000 on our initial public offering price of $ per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying the options. Actual gains on exercise, if any, will depend on the
value of our common stock on the date on which the shares are sold.
OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT MARCH 31, 2000 OPTIONS AT MARCH 31, 2000
NAME ON EXERCISE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Gary L. Allison...... -- -- --/200,000
Michael J. Gluck..... 15,000 15,000 166,833/--
Jerry L. Walker...... 15,000 15,000 166,833/--
Douglas J. Lehrmann.. 25,000 25,000 155,833/--
</TABLE>
57
<PAGE> 59
1998 STOCK OPTION PLAN
On November 20, 1998, our board of directors and our stockholders approved
the 1998 stock option plan. Our board of directors and stockholders approved
amendments to our 1998 stock option plan, effective June 1999 and September
1999, to increase the number of shares of our common stock authorized for
issuance under the plan. The purpose of the 1998 stock option plan is to
strengthen our company by providing an incentive to our employees, officers,
consultants and directors through the granting or awarding of incentive and
nonqualified stock options, thereby encouraging them to devote their abilities
and energies to our success.
The 1998 stock option plan is administered by our board of directors. Under
the 1998 stock option plan, our board of directors has the authority to delegate
administration of the 1998 stock option plan to a committee acting under the
authority of our board of directors. Our board of directors, or a committee
delegated administration of the 1998 stock option plan, has authority to, among
other things, grant options, select persons to whom awards will be granted,
determine the type, size and the terms and conditions of awards.
Under the 1998 stock option plan, 14,000,000 shares of common stock are
authorized and reserved for the grant of awards to eligible individuals. Awards
granted under the 1998 stock option plan are exercisable over a ten-year period.
As of March 31, 2000, options to purchase 11,321,080 shares of common stock have
been granted (net of forfeited options), of which options to purchase 6,998,373
shares of common stock have been exercised. The 1998 stock option plan will
terminate on November 19, 2008. Our board of directors may at any time and from
time to time amend or terminate the 1998 stock option plan; provided, however,
that no amendment will be effective without the approval of a majority of the
stockholders if the amendment will increase the number of shares which may be
granted or expand the class of persons who can receive incentive stock options.
2000 STOCK INCENTIVE PLAN
The 2000 stock incentive plan will become effective upon completion of our
initial public offering. The 2000 stock incentive plan was approved by our board
of directors on February 21, 2000 and by our stockholders on , 2000.
Share reserve. We have authorized 3,000,000 shares of our common stock for
issuance under the 2000 stock incentive plan. The 1998 stock option plan will be
merged into our 2000 stock incentive plan effective on the initial public
offering. After our initial public offering, we will have approximately
10,000,000 shares of our common stock authorized for issuance under the
incentive plan, which amount includes approximately 7,000,000 shares of common
stock currently authorized but unissued under our 1998 stock option plan. The
share reserve under the incentive plan will automatically increase on the first
trading day in January of each calendar year, beginning with calendar year 2001,
by an amount equal to 4.5% of the total number of shares of our common stock
outstanding on the last trading day of December in the prior calendar year, but
in no event will this annual increase exceed 4,000,000 shares.
Programs. The incentive plan has five separate programs:
- the discretionary option grant program, under which eligible employees
may be granted options to purchase shares of our common stock at an
exercise price not less than the fair market value of those shares on the
grant date;
- the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones, the completion of a specified period of service
or as a bonus for past services;
- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of stock option grants with an exercise price equal to 100%
of the fair market value of a share of common stock;
58
<PAGE> 60
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and
- the director fee option grant program, under which our non-employee board
members may be given the opportunity to apply a portion of any director
fee otherwise payable to them in cash each year to the acquisition of
option grants.
Eligibility. The individuals eligible to participate in the incentive plan
include our officers and other employees, our non-employee board members and any
consultants we hire.
Administration. The discretionary option grant program, the salary
investment option grant program and the stock issuance program will be
administered by our board of directors with respect to participants other than
officers, directors and highly compensated employees and by a primary committee
with respect to participants who are officers, directors and highly compensated
employees. The board or the primary committee will determine:
- the eligible individuals who are to receive option grants or stock
issuances under those programs;
- the time or times when the grants or issuances are to be made;
- the number of shares subject to each grant or issuance;
- the status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws;
- the vesting schedule to be in effect for the option grant or stock
issuance; and
- the maximum term for which any granted option is to remain outstanding.
The board of directors or the primary committee will also have the authority to
select the executive officers and other highly compensated employees who may
participate in the salary investment option grant program in the event that
program is put into effect for one or more calendar years.
Change in control. The incentive plan includes the following change in
control provisions, which may result in the accelerated vesting of outstanding
option grants and stock issuances. A change in control of Chaparral is defined
in the incentive plan to occur if:
- any person or group were to become the beneficial owner of more than 50%
of the then outstanding voting stock of Chaparral;
- at any time during three consecutive years individuals who at the
beginning of that period constitute the board of directors and others
they elect ceased for any reason to constitute a majority of the board of
directors; or
- our stockholders approved a merger or consolidation of Chaparral with any
other company in which our stockholders would have less than 80% of the
combined voting power in the surviving entity or an agreement for the
sale of substantially all of our assets.
Discretionary option grant program. Under this program, eligible persons
(employees, non-employee members of our board of directors and consultants) may
receive options to purchase shares of common stock at the discretion of our
board of directors. The exercise price per share is fixed by the plan
administrator and may be less than, equal to or greater than fair market value.
No option granted under this program shall have an exercise term greater than
ten years. The vesting schedule of each option will be fixed by the plan
administrator and will be accelerated by 24 months upon the death of an optionee
and by 12 months upon the permanent disability of the optionee. Incentive stock
options may be granted to employees under the program at an exercise price not
less than the fair market value per share. Chaparral may repurchase, at the
exercise price paid per share, any shares purchased under the option which are
not vested at the time of the optionee's cessation of employment.
59
<PAGE> 61
Stock issuance program. In the event our board of directors decides to put
this program into effect, our employees, non-employee members of our board of
directors and consultants may receive shares of common stock or share right
awards at the discretion of our board. The purchase price per share is fixed by
the plan administrator and may be less than, equal to or greater than the fair
market value per share. The plan administrator may issue shares of common stock
that fully and immediately vest or that vest in one or more installments over
the participant's employment period or upon attainment of specific performance
objectives.
Salary investment option grant program. In the event our board of directors
decides to put this program into effect for one or more calendar years, each of
our executive officers and other highly compensated employees may elect to
reduce his or her base salary for the calendar year by an amount not less than
$5,000 nor more than $50,000. Each selected individual who makes such an
election will automatically be granted, on the first trading day in January of
the calendar year for which his or her salary reduction is to be in effect, an
option to purchase that number of shares of common stock determined pursuant to
a formula contained in the plan. Each option will have an exercise price per
share equal to 100% of the fair market value of the option shares on the grant
date. As a result, the option will be structured so that the fair market value
of the option shares on the grant date less the exercise price payable for those
shares will be equal to the amount of the salary reduction. The option will
become exercisable in a series of 12 equal monthly installments over the
calendar year for which the salary reduction is to be in effect.
Automatic option grant program. Each individual who first becomes a
non-employee board member at any time after the effective date of this offering
will receive a non-qualified option grant to purchase 45,000 shares of common
stock on the date such individual joins the board. In addition, on the date of
each annual stockholders meeting held after the effective date of this offering,
each non-employee board member who is to continue to serve as a non-employee
board member, including each of our current non-employee board members, will
automatically be granted an option to purchase 15,000 shares of common stock;
provided such individual has served on the board for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of ten years, subject to earlier termination upon the optionee's
cessation of board service. The shares subject to each initial 45,000-share
automatic option grant will vest in a series of three successive annual
installments upon the optionee's completion of each year of board service over
the three-year period measured from the grant date. The shares subject to each
annual 15,000-share automatic grant will vest upon the optionee's completion of
one year of service measured from the grant date. However, the shares will
immediately vest in full upon certain changes in control or ownership or upon
the optionee's death or disability while then serving as a board member.
Director fee option grant program. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January of the calendar year for which the non-employee
board member would otherwise be paid the cash retainer fee in the absence of his
or her election. The option will have an exercise price per share ranging from
85% to 100% of the fair market value of the option shares on the grant date, and
the number of shares subject to the option will be determined pursuant to a
certain formula contained in the incentive plan. As a result, the option will be
structured so that the fair market value of the option shares on the grant date
less the exercise price payable for those shares will be equal to the portion of
the retainer fee applied to that option. The option will become exercisable in a
series of 12 equal monthly installments over the calendar year for which the
election is in effect. However, the option will become immediately exercisable
for all the option shares upon the death or disability of the optionee while
then serving as a board member.
60
<PAGE> 62
2000 EMPLOYEE STOCK PURCHASE PLAN
Introduction. Our employee stock purchase plan was adopted by our board of
directors on February 21, 2000 and was approved by our stockholders on
, 2000. The purchase plan is designed to allow our eligible
employees and the eligible employees of our participating subsidiaries, if any,
to purchase shares of common stock at semi-annual intervals with their
accumulated payroll deductions. The purchase plan will become effective on
completion of our initial public offering.
Share reserve. We have initially reserved 6,000,000 shares of our common
stock for issuance under the purchase plan. The reserve will automatically
increase on the first trading day of January in each calendar year, beginning in
calendar year 2001, by an amount equal to 2% of the total number of outstanding
shares of our common stock on that date or a lesser amount determined by our
board of directors. In no event will any such annual increase exceed 1,000,000
shares.
Offering periods. The purchase plan has a series of successive offering
periods, each continuing until terminated by our board of directors. The initial
offering period will begin when the Securities and Exchange Commission declares
our registration statement effective and will end on the last trading day on or
before July 31, 2000. The next offering period will start on the first business
day in August 2001, and subsequent offering periods will be set by our board of
directors.
Eligible employees. Individuals scheduled to work more than 20 hours per
week for more than five calendar months per year may join an offering period
after they have been with us for six months. Individuals who become eligible
employees after the start date of an offering period may join the plan on any
subsequent semi-annual entry date within that offering period.
Payroll deductions. A participant may contribute up to 10% of his or her
base salary through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of May and November each
year.
Change in control. In the event of a change in control, which is defined in
the purchase plan in the same way it is defined in the incentive plan, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the change in control. The purchase price will be equal to
85% of the market value per share on the participant's entry date into the
offering period in which an acquisition occurs or, if lower, 85% of the fair
market value per share immediately prior to the acquisition.
Termination and amendment of purchase plan. The purchase plan will
terminate no later than February 21, 2010. The board may at any time amend,
suspend or discontinue the purchase plan. Some amendments, however, may require
stockholder approval.
401(k) PLAN
Our 401(k) plan allows employees to defer up to 15% of their compensation,
up to a maximum of $10,500 in the year 2000. We will match these funds with a
percentage to be determined by our board of directors on a quarterly basis. We
may contribute an additional amount at the end of the fiscal year at the
discretion of our board of directors. Mr. Lehrmann serves as trustee of the
profit sharing plan. Our 401(k) plan was adopted in November 1998.
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<PAGE> 63
RELATED PARTY TRANSACTIONS
Since our inception in January 1998, there has not been nor is there
currently proposed any transaction or series of similar transactions to which we
were or are to be a party in which the amount involved exceeds $60,000 and in
which any director, executive officer, holder of more than 5% of our common
stock, or any member of the immediate family of any of them, had or will have a
direct or indirect material interest other than (1) compensation agreements and
other arrangements, which are described above under the caption "Management,"
and (2) the transactions described below.
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS
Common Stock. On June 16, 1998, we issued the following shares of common
stock at a price of $0.002 per share to our founders, all of which were
purchased with cash.
<TABLE>
<CAPTION>
SHARES OF
PURCHASER COMMON STOCK
- --------- ------------
<S> <C>
Gary Allison.................................... 500,000
Michael Gluck................................... 500,000
Jerry Walker.................................... 500,000
Brian Allison................................... 100,000
</TABLE>
On November 25, 1998, each of the founders named above agreed to rescind
their shares in exchange for a promissory note from Chaparral in an amount equal
to the purchase price of the founder shares. The promissory note was then
contributed by each founder to Chaparral in exchange for the issuance of the
same number of shares to the founders pursuant to a Contribution Agreement,
dated November 25, 1998.
Woodcarvers Limited, LLC, a greater than 5% stockholder, purchased shares
of our common stock as follows:
<TABLE>
<CAPTION>
SHARES OF PRICE PER
PURCHASER COMMON STOCK DATE SHARE($)
- --------- ------------ ---------- ---------
<S> <C> <C> <C>
Woodcarvers....................................... 300,000 08/09/1999 1.00
Woodcarvers....................................... 153,846 08/12/1999 1.30
Woodcarvers....................................... 266,667 11/05/1999 3.00
Woodcarvers....................................... 64,286 11/22/1999 3.50
</TABLE>
We issued 27,857 shares of common stock valued at $3.50 per share to
Sentinel Consulting, LLC, a greater than 5% stockholder, in November 1999 in
payment for $97,500 in commissions for its assistance in raising approximately
$1.5 million from another investor.
Pursuant to the exercise of pre-emptive rights associated with shares of
preferred stock, the following shares of common stock were purchased:
<TABLE>
<CAPTION>
SHARES OF PRICE PER
PURCHASER COMMON STOCK DATE SHARE($)
- --------- ------------ ---------- ---------
<S> <C> <C> <C>
Gary Allison...................................... 20,252 12/16/1999 1.00
Gary Allison...................................... 10,385 12/16/1999 1.30
Gary Allison...................................... 840 01/10/2000 1.00
Gary Allison...................................... 448 01/10/2000 1.30
Grant Saviers..................................... 51,550 12/17/1999 1.00
Grant Saviers..................................... 26,436 12/17/1999 1.30
Grant Saviers..................................... 2,139 02/04/2000 1.00
Grant Saviers..................................... 1,140 02/04/2000 1.30
Adaptec .......................................... 101,998 12/21/1999 1.00
Adaptec .......................................... 52,307 12/21/1999 1.30
Adaptec .......................................... 4,233 01/05/2000 1.00
Adaptec .......................................... 2,256 01/05/2000 1.30
</TABLE>
62
<PAGE> 64
<TABLE>
<CAPTION>
SHARES OF PRICE PER
PURCHASER COMMON STOCK DATE SHARE($)
- --------- ------------ ---------- ---------
<S> <C> <C> <C>
William Childs.................................... 110,463 12/11/1999 1.00
William Childs.................................... 56,648 12/11/1999 1.30
William Childs.................................... 4,587 01/08/2000 1.00
William Childs.................................... 2,444 01/08/2000 1.30
Harvest Storage Technology........................ 17,740 12/06/1999 3.00
Harvest Storage Technology........................ 33,629 12/06/1999 3.50
Harvest Storage Technology........................ 13,975 12/06/1999 3.74
Harvest Storage Technology........................ 34,875 12/06/1999 4.00
Harvest Storage Technology........................ 34,648 12/12/1999 3.00
Harvest Storage Technology........................ 86,769 12/12/1999 3.50
Harvest Storage Technology........................ 12,274 12/17/1999 1.00
Harvest Storage Technology........................ 6,294 12/17/1999 1.30
Harvest Storage Technology........................ 510 02/11/2000 1.00
Harvest Storage Technology........................ 272 02/11/2000 1.30
Woodcarvers....................................... 194,494 12/06/1999 3.00
Woodcarvers....................................... 368,705 12/06/1999 3.50
Woodcarvers....................................... 153,217 12/06/1999 3.74
Woodcarvers....................................... 382,361 12/06/1999 4.00
Woodcarvers....................................... 379,871 12/12/1999 3.00
Woodcarvers....................................... 951,313 12/12/1999 3.50
Woodcarvers....................................... 134,176 12/17/1999 1.00
Woodcarvers....................................... 68,808 12/17/1999 1.30
Woodcarvers....................................... 5,570 02/11/2000 1.00
Woodcarvers....................................... 2,968 02/11/2000 1.30
</TABLE>
Series A Preferred Stock. We issued shares of our Series A preferred stock
at various times from November 1998 through June 1999. The purchasers of the
Series A preferred stock included, among others, the following officer, director
and greater than 5% stockholders:
<TABLE>
<CAPTION>
SHARES OF
SERIES A PRICE PER
PURCHASER PREFERRED STOCK DATE SHARE($)
- --------- --------------- -------- ---------
<S> <C> <C> <C>
Gary Allison....................................... 1,100,000 11/24/98 0.10
Grant Saviers...................................... 2,500,000 11/27/98 0.10
Grant Saviers...................................... 300,000 2/10/99 0.25
Haim Brill......................................... 2,000,000 11/25/98 0.10
William Childs..................................... 6,000,000 11/25/98 0.10
Harvest Storage Technology......................... 666,667 12/15/98 0.18
Woodcarvers........................................ 800,000 01/13/99 0.25
Woodcarvers........................................ 400,000 02/02/99 0.25
Woodcarvers........................................ 300,000 02/27/99 0.25
Woodcarvers........................................ 555,556 03/31/99 0.36
Woodcarvers........................................ 526,316 04/15/99 0.38
Woodcarvers........................................ 375,000 05/18/99 0.40
Woodcarvers........................................ 62,500 05/24/99 0.40
Woodcarvers........................................ 62,500 05/28/99 0.40
Woodcarvers........................................ 325,000 06/11/99 0.40
Woodcarvers........................................ 200,000 06/15/99 0.40
Woodcarvers........................................ 17,500 06/16/99 0.40
</TABLE>
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<PAGE> 65
By letter agreement dated November 1998, Mr. Saviers, a director, agreed to
purchase up to 2,500,000 shares of Series A preferred stock at a price of $0.10
per share. Mr. Saviers conditioned his purchase on the following:
- the sale by Adaptec of certain assets;
- the rights, preferences, privileges and restrictions of the Series A
preferred stock being as stated in the amended and restated certificate
of incorporation;
- the issuance of the Series A preferred stock being on terms and
conditions not inferior to the terms and conditions of the Series B
preferred stock issued to Adaptec; and
- his continued service as a member of the board of directors.
Mr. Saviers purchased 2,500,000 shares on Series A preferred stock on November
27, 1998.
Mr. Childs, a greater than 5% stockholder, purchased 400,000 shares at
$0.50 per share, on July 10, 1998. In addition, we issued 500,000 shares of
Series A preferred stock to Mr. Childs pursuant to a $250,000 convertible
debenture dated August 5, 1998. The convertible debenture was due February 5,
1999, accrued interest at 8% per year and was unsecured. All 900,000 shares were
subsequently repriced on October 19, 1998, at $0.10 per share for a total
purchase of 4,500,000 shares. We also issued 1,500,000 shares of Series A
preferred stock to Mr. Childs at $0.10 per share in October 1998.
Series B Preferred Stock. On November 25, 1998, we issued 5,540,200 shares
of our Series B preferred stock to Adaptec in connection with our purchase of
certain assets from Adaptec. See "-- Agreements with Adaptec."
Series C Preferred Stock. Effective October 15, 1999, we issued Woodcarvers
1,763,637 shares of our Series C preferred stock at $0.44 per share and
1,900,000 shares at $0.50 per share.
Warrants. Pursuant to a financial consulting agreement, we issued warrants
to purchase shares of our common stock to Sentinel Consulting Corporation, a
greater than 5% stockholder, as payment of financing fees in connection with the
private placement of shares of our common stock and preferred stock. We also
issued warrants to Harvest Storage Technology Group, LLC, an affiliate of
Sentinel, as payment for financing fees. The warrants granted to Sentinel and
Harvest were granted and exercised as follows:
<TABLE>
<CAPTION>
SHARES PRICE
DATE OF ISSUED ON DATE OF PER
WARRANT HOLDER ISSUE EXERCISE EXERCISE SHARE($)
-------------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
Sentinel Consulting......................... 02/08/99 75,000 01/13/00 0.50
Sentinel Consulting......................... 03/31/99 27,778 01/13/00 0.72
Sentinel Consulting......................... 04/28/99 26,316 01/13/00 0.76
Sentinel Consulting......................... 05/28/99 52,125 01/13/00 0.80
Sentinel Consulting......................... 07/07/99 88,182 01/13/00 0.88
Sentinel Consulting......................... 07/20/99 95,000 01/13/00 1.00
Sentinel Consulting......................... 08/09/99 30,000 01/13/00 1.00
Sentinel Consulting......................... 08/12/99 15,384 01/13/00 1.30
Sentinel Consulting......................... 11/04/99 26,667 01/13/00 3.00
Harvest Storage Technology.................. 12/15/98 55,555 12/15/99 0.002
</TABLE>
We also issued warrants to purchase an aggregate of 117,500 shares of our
common stock to Mr. Childs as payment of financing fees for loans Mr. Childs
made to us. These loans are discussed below under the caption "-- Loans." Mr.
Childs exercised his warrants in full on January 25, 2000.
On August 19, 1999, we granted each of Messrs. Allison and Gluck a warrant
to purchase up to 10,000 shares of common stock at an exercise price of $0.25
per share. These warrants were granted in lieu of cash payment for fees due on
loans from Messrs. Allison and Gluck to us. These warrants were exercised in
full in March 2000.
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<PAGE> 66
Pursuant to the warrant agreements by which we granted most of the warrants
discussed above, we also granted certain registration rights with respect to
524,507 shares of common stock issued upon exercise of the warrants. See
"Description of Capital Stock -- Summary of Registration Rights" for details of
these registration rights.
When we signed a three-year Integrated Circuit Agreement with Adaptec on
March 1, 2000, we issued a warrant to Adaptec to purchase 300,000 shares of our
common stock at an exercise price of $20 per share. This warrant is not
exercisable until December 1, 2000 and terminates to the extent unexercised on
June 1, 2001.
Loans.
During January and February 1998, Chaparral Systems, Inc., an entity whose
sole stockholder is Mr. Allison, loaned us the following amounts:
<TABLE>
<CAPTION>
INTEREST
DATE AMOUNT($) RATE(%)
- ---- --------- --------
<S> <C> <C>
01/20/98.............................................. 6,000 10.5
02/10/98.............................................. 7,000 10.5
02/17/98.............................................. 6,000 10.5
02/24/98.............................................. 10,000 10.5
</TABLE>
These loans were evidenced by promissory notes that were payable on demand. The
$29,000 in principal and $350 of interest due on these notes was paid in cash on
March 24, 1998.
In April and June 1998, Chaparral Systems loaned us additional amounts, as
follows:
<TABLE>
<CAPTION>
INTEREST SHARES OF SERIES A
DATE AMOUNT($) RATE(%) ISSUED AS PAYMENT
- ---- --------- -------- -------------------
<S> <C> <C> <C>
04/03/98............................... 30,000 10.5 300,000
04/15/98............................... 20,000 10.5 200,000
04/20/98............................... 15,000 10.5 150,000
06/23/98............................... 22,500 10.5 225,000
</TABLE>
These loans were evidenced by promissory notes that were payable on demand. The
principal amounts on these notes were repaid as of November 24, 1998 by our
issuing to Mr. Allison 875,000 shares of Series A preferred stock.
On February 3, 1999, Messrs. Allison and Gluck each loaned us $25,000. Each
note is unsecured and accrues interest at the rate of 8% per year. The note also
stated a fee of 10% payable in cash or in the form of a warrant to purchase
10,000 shares of common stock at $0.25 per share. These notes were repaid by us
on August 19, 1999, and each of Messrs. Allison and Gluck took his fee in the
form of warrants.
On February 3, 1999, Mr. Saviers loaned us $75,000, evidenced by a
promissory note. The note is unsecured and accrued interest at the rate of 8%
per year, compounded. The note also stated a fee of 10% ($7,500) payable in cash
or in the form of a warrant to purchase shares of common stock at a price per
share equal to 50% of the price per share paid by investors in our subsequent
private placement. This note was originally due on March 31, 1999, but was
subsequently extended to June 30, 1999. The note was repaid by our issuance to
him of 300,000 shares of Series A preferred stock at $0.25 per share, effective
as of February 3, 1999. No payment was made for interest or the 10% financing
fee.
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<PAGE> 67
During 1999, Mr. Childs loaned us the following amounts, evidenced by
promissory notes payable on demand:
<TABLE>
<CAPTION>
FEE IN WARRANTS
TO PURCHASE
COMMON STOCK
------------------
NUMBER
INTEREST DUE OF EXERCISE
DATE AMOUNT($) RATE(%) DATE SHARES PRICE($)
---- --------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
01/27/99.................... 50,000(1) 8.00 04/27/99 5,000 1.00
03/01/99.................... 400,000(1) 11.75(2) 06/01/99 40,000 1.00
03/18/99.................... 200,000(1) 11.75(2) 06/18/99 20,000 1.00
04/01/99.................... 200,000(1) 11.75(2) 07/01/99 20,000 1.00
04/14/99.................... 200,000(1) 11.75(2) 07/15/99 20,000 1.00
06/04/99.................... 250,000(3) 11.75 09/03/99 12,500 1.00
</TABLE>
- ---------------
(1) The aggregate principal amount of $1,050,000 and interest of $10,882 were
paid on December 13, 1999.
(2) Interest was paid directly to Silicon Valley Bank, from whom Mr. Childs had
borrowed the funds that he lent to us, in an amount equal to the prime rate
plus 1% and additional interest of 1% or $7,375 was paid to Mr. Childs.
(3) Principal of $250,000 and interest of $4,741 were paid on August 13, 1999.
On November 25, 1998, we made loans to each of our executive officers and
to Brian Allison, our Vice President of Sales and Mr. Allison's son, in
connection with the purchase by each of them of shares of our common stock upon
early exercise of options. Each loan is evidenced by a promissory note, which is
unsecured and accrues interest at the rate of 6% per year, compounded annually.
Each note is repayable upon the earliest of the resale of the shares of our
common stock, a change in control of Chaparral, within 90 days following the
individual's termination of employment or November 25, 2008. These loans are
summarized below:
<TABLE>
<CAPTION>
SHARES OF EXERCISE
DATE OF COMMON PRICE PER
NAME AMOUNT($) EXERCISE STOCK SHARE($)
- ---- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
Gary Allison........................... 98,000 11/25/98 1,000,000 0.10
Michael Gluck.......................... 98,000 11/25/98 1,000,000 0.10
Jerry Walker........................... 98,000 11/25/98 1,000,000 0.10
Douglas Lehrmann....................... 29,500 12/04/98 250,000 0.12
Douglas Lehrmann....................... 11,800 03/25/99 100,000 0.12
Brian Allison.......................... 24,500 11/25/98 250,000 0.12
</TABLE>
From January 1999 through August 1999, Woodcarvers issued 21 promissory
notes payable to us in the aggregate amount of $2,743,000 as payment of the
purchase for shares of our Series A preferred stock, Series C preferred stock
and common stock. The notes bore interest at the rate of 8%, were payable on
demand and had stated maturities of two months or less. The last promissory note
was paid on October 18, 1999.
On July 5, 1999, we entered into a Support Agreement with each of Messrs.
Allison and Lehrmann for the benefit of Wells Fargo Business Credit, Inc. as
part of the Credit and Security Agreement entered into on the same day between
us and Wells Fargo. Pursuant to each Support Agreement, we and the executive
officer agreed that if Wells Fargo came into possession of any of the collateral
securing the Credit and Security Agreement because of an event of default on the
Credit Agreement, then we and the executive officer would incur certain
obligations. If the executive officer were still employed by us, we would cause
him to exert his best efforts to obtain sales of the collateral at the best
commercially obtainable prices and collect the accounts. If the executive
officer ceased to be employed by us, he was required to assist Wells Fargo as
its independent contractor, for a period not to exceed 150 days, for the
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<PAGE> 68
purpose of disposing of the collateral and collecting the accounts. In the
latter circumstance, Wells Fargo was required to pay the executive officer a
weekly salary at 115% of the average salary paid to him by us in the 12 months
preceding the commencement of such services. If the executive officer failed to
fulfill his obligations, he was required to pay Wells Fargo $50,000 in
liquidated damages, as well as costs and expenses incurred in enforcing the
liquidated damages provision. If the executive officer died, became mentally or
physically incapacitated or ceased to be employed by us, we were required to
replace him and use our best efforts to cause his replacement to execute a
support agreement. Both Support Agreements terminated when we terminated the
Credit and Security Agreement in January 2000.
Also on July 5, 1999, Mr. Childs entered into a Subordination Agreement for
the benefit of Wells Fargo. Pursuant to the Subordination Agreement, Mr. Childs
agreed to subordinate promissory notes for an aggregate principal amount of
$1,050,000, payable by us to Mr. Childs, to each debt, liability and obligation
that we would owe to Wells Fargo under the credit agreement. This Subordination
Agreement was terminated when we terminated our Credit Agreement with Wells
Fargo in January 2000.
Options
We granted options to purchase shares of our common stock to each of our
executive officers, directors and Brian Allison as follows:
<TABLE>
<CAPTION>
NUMBER OF DATE OF EXERCISE EXPIRATION
NAME SHARES GRANT PRICE DATE
---- --------- -------- -------- ----------
<S> <C> <C> <C> <C>
Gary L. Allison............................ 1,000,000 03/01/98 $0.10 03/01/08
200,000 11/11/99 3.19 11/11/09
Michael J. Gluck........................... 1,000,000 05/01/98 $0.10 05/01/08
166,666 05/17/99 0.12 11/13/99
166,833 11/13/99 1.12 11/13/09
Jerry L. Walker............................ 1,000,000 05/01/98 $0.10 05/01/08
166,666 05/17/99 0.12 11/13/99
166,833 11/13/99 1.12 11/13/09
Douglas J. Lehrmann........................ 25,000 09/28/98 $0.12 09/28/08
100,000 03/25/99 0.12 03/25/09
166,666 05/17/99 0.12 11/13/99
155,833 11/13/99 1.12 11/13/09
F. Grant Saviers........................... 125,000 11/25/98 $0.12 11/25/08
50,000 11/11/99 3.19 11/11/09
Brian Allison.............................. 250,000 05/01/98 $0.10 05/01/03
41,666 05/17/99 0.12 11/13/99
40,000 08/10/99 0.12 08/10/09
29,333 11/13/99 1.12 11/13/09
</TABLE>
Agreements with Adaptec
Initial Agreements. We entered into a Memorandum of Understanding with
Adaptec in December 1997. The agreement was amended in March 1999, under which
Chaparral was granted a license to modify the Adaptec External Fibre Channel
RAID controller and adapt it to the storage router market. Adaptec agreed to
provide up to $200,000 of funding in exchange for a 19.9% equity interest in
Chaparral in the form of a one year convertible debenture at 5% interest. In
July 1998 Adaptec decided to divest its Fibre Channel technology, and in
September 1998 we entered into a Memorandum of Understanding to license and to
purchase certain Fibre Channel RAID controller technology and assets. In
conjunction with this Memorandum of Understanding, Adaptec provided an
additional $550,000 loan advance on similar terms to the original loans. The
$550,000 loan was repaid by Chaparral on
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<PAGE> 69
November 25, 1998 in connection with the Adaptec Asset Transfer Agreement and
Contribution Agreement discussed below.
Asset Transfer Agreement. On November 25, 1998, we entered into an Asset
Transfer Agreement with Adaptec. Pursuant to the Asset Transfer Agreement, we
received certain tangible assets and inventory, copies of Adaptec's marketing
and sales information and a license to use certain assets of Adaptec. In return,
we issued to Adaptec 5,540,200 shares of our Series B preferred stock. As a
result of this transaction, Adaptec owns 100% of the outstanding Series B
preferred stock. In connection with the Asset Transfer Agreement and on the same
date, we entered into an Investors' Rights Agreement, a Contribution Agreement,
a Technology Cross-License Agreement, a Board Manufacturing and Transition
Agreement and an Occupancy License Agreement, all of which are summarized below.
Fourth Amended Investors' Rights Agreement. Under the Fourth Amended
Investors' Rights Agreement entered into as of March 1, 2000, Adaptec and
holders of our Series A preferred stock, Series B preferred stock and Series C
preferred stock received information rights, the registration rights described
in "Description of Capital Stock -- Registration Rights" and a right of first
refusal to purchase, in some specified circumstances, a pro-rata share of
certain securities that we may issue from time to time (pre-emptive rights). In
addition, Adaptec was permitted to have one representative attend all meetings
of our board of directors in a non-voting, observer capacity.
Pre-emptive rights are not applicable to certain stock issuances,
including, among others:
- up to 8,000,000 shares of our common stock issued to employees, officers,
directors or consultants pursuant to incentive agreements or plans;
- securities offered to the public pursuant to a registration statement;
- securities issued in a merger or acquisition; and
- up to 3,000,000 shares of our common stock (and/or options or warrants
therefor) issued or issuable in connection with strategic alliances or
partnering arrangements approved by our board of directors.
Preemptive rights terminate immediately before the closing of our initial public
offering.
Contribution Agreement. Under the Contribution Agreement with Adaptec and
certain of our stockholders, we issued 5,540,200 shares of our Series B
preferred stock to Adaptec in exchange for the transfer by Adaptec of the assets
set forth in the Asset Transfer Agreement and in exchange for the cancellation
of debt owed by us to Adaptec. In addition, we issued an aggregate of 1,875,000
shares of our common stock and an aggregate of 1,150,000 shares of our Series A
preferred stock to certain of our stockholders, including 250,000 shares of
Series A preferred stock and 1,000,000 shares of common stock to Mr. Allison,
and 900,000 shares of Series A preferred stock to Mr. Childs, in exchange for
their agreement to cancel debt owed by us to each of them. The debt owed to
Adaptec and to each stockholder was evidenced by various promissory notes, all
of which were delivered to us and canceled. All parties to the Contribution
Agreement that received our stock agreed that upon our request or the request of
the underwriters managing any public offering of our securities under the
Securities Act, they will not sell or otherwise dispose of the shares acquired
for a period of 180 days without our consent or the managing underwriters'
consent.
Technology Cross-License Agreement. Under the Technology Cross-License
Agreement, Adaptec granted us an irrevocable and perpetual worldwide license to
use certain technology related to Adaptec's business. In addition, we granted
Adaptec an irrevocable, worldwide and nonexclusive license to use, copy and
modify certain software. Each party agreed to indemnify the other for any claims
arising from the infringement on any third party's intellectual property rights
licensed under the agreement.
Board Manufacturing and Transition Agreement. Under the Manufacturing
Agreement, Adaptec agreed to purchase, assemble and manufacture certain of the
products the technology for which was
68
<PAGE> 70
transferred to us under the Asset Purchase Agreement during a transition period
not to extend beyond April 30, 1999. Adaptec, however, continued manufacturing
our products until August 31, 1999.
Occupancy License Agreements. On March 15, 1998, we entered into an
Occupancy License Agreement with Adaptec, under which Adaptec granted us a
nonassignable, non-transferable right and revocable license for the use of
approximately 7,573 square feet of space in Longmont, Colorado, on a
month-to-month basis at a monthly license fee of $7,573. On October 1, 1998, we
entered into a new Occupancy License Agreement with Adaptec pursuant to which we
licensed additional space at the same location for a total of approximately
20,000 square feet. This license was for a period of nine months at a monthly
license fee of $25,440. The original term of the license was nine months, but
the parties amended the agreement on July 15, 1999 to extend the term on a
month-to-month basis. We also entered into a similar agreement with Adaptec on
May 10, 1999 to occupy 1,325 square feet of space located in Foothill Ranch,
California. The license for the California property is for a period of 60
months, with a monthly license fee of $2,700 for the first 30 months, and $2,850
for months 31-60. Upon commencement of our occupancy under this license, an
Occupancy License Agreement with Adaptec that we entered into on October 1, 1998
to occupy approximately 1,000 square feet of space in Irvine, California at a
monthly license fee of $3,000 was terminated.
Integrated Circuit Agreement. On March 1, 2000, we signed an Integrated
Circuit Agreement with Adaptec. Pursuant to this agreement, Adaptec agreed to
sell and we agreed to buy ASICs for a term of three years. The agreement also
provides that in certain circumstances, including the bankruptcy of Adaptec or
breach by Adaptec of the agreement, we have certain backup rights to the
technology for the ASIC. These backup rights enable us to purchase ASICs
directly from Adaptec's manufacturer or to select our own manufacturer to
produce the ASIC for us using the technology from Adaptec. As part of the
Integrated Circuit Agreement, we issued to Adaptec a warrant to purchase 300,000
shares of our common stock at a purchase price of $20 per share. This warrant is
not exercisable until December 1, 2000 and terminates to the extent unexercised
on June 1, 2001.
INDEMNIFICATION
We have entered into indemnification agreements with each of our directors
and officers. Such indemnification agreements require us to indemnify our
directors and officers to the fullest extent permitted by Delaware law. See
"-- Limitation of Liability and Indemnification."
CONFLICT OF INTEREST POLICY
We believe that all transactions with affiliates described above 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. Such transactions will continue to be on terms no less
favorable to us than we could obtain from unaffiliated third parties.
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<PAGE> 71
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2000 and after giving effect to
this offering, but without giving effect to the exercise of the underwriters'
over-allotment option, by:
- each person known by us to beneficially own more than 5% of our common
stock;
- each executive officer named in the Summary Compensation Table on page
51;
- each of our directors; and
- all of our executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to the securities. Except as indicated by footnote, the persons named in
the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. The number of shares of common
stock used to calculate the percentage ownership of each listed person includes
the shares of common stock underlying options or warrants held by such persons
that are exercisable within 60 days of this offering. The percentage of
ownership is based on 33,896,940 shares, consisting of 18,768,087 shares of
common stock outstanding as of March 31, 2000 and 15,128,853 shares issuable
upon the conversion of preferred stock, and assumes no exercise of underwriters'
over-allotment option.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
NUMBER OF OUTSTANDING(%)
SHARES -------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Directors and Executive Officers:
Gary L. Allison(1)........................................ 2,114,782 6.2
Michael J. Gluck(2)....................................... 1,691,833 5.0
Jerry L. Walker(3)........................................ 1,681,833 5.0
Douglas J. Lehrmann(4).................................... 530,833 1.6
F. Grant Saviers(5)....................................... 1,642,572 4.8
Harris Ravine(6).......................................... -- *
All directors and executive officers as a group (6
persons)............................................... 7,661,853 22.6
Other 5% Stockholders:
Adaptec, Inc.(7).......................................... 3,089,335 9.1
691 South Milpitas Blvd.
Milpitas, California 95035
William R. Childs(8)...................................... 3,416,319 10.1
390 Union Boulevard, Suite 260
Lakewood, Colorado 80228
Robert T. Harvey(9)....................................... 8,264,132 24.4
7700 Irvine Center Drive, Suite 245
Irvine, California 92618
Harvest Storage Technology Group, LLC(10)................. 7,799,823 23.0
7700 Irvine Center Drive, Suite 245
Irvine, California 92618
Sentinel Consulting Corporation, LLC...................... 464,309 1.4
7700 Irvine Center Drive, Suite 245
Irvine, California 92618
</TABLE>
70
<PAGE> 72
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
NUMBER OF OUTSTANDING(%)
SHARES -------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Woodcarvers Limited, LLC(11).............................. 7,156,096 21.1
7700 Irvine Center Drive, Suite 245
Irvine, California 92618
</TABLE>
- ---------------
* Indicates beneficial ownership of less than 1% of the total outstanding
common stock.
(1) Gary L. Allison. These shares include 572,857 shares issuable upon the
conversion of our Series A preferred stock and 1,541,925 shares of our
common stock.
(2) Michael J. Gluck. These shares include 166,833 shares subject to stock
options exercisable within 60 days and 1,525,000 shares of our common
stock.
(3) Jerry L. Walker. These shares include 166,833 shares subject to stock
options exercisable within 60 days, and 1,515,000 shares of our common
stock.
(4) Douglas J. Lehrmann. These shares include 155,833 shares subject to stock
options exercisable within 60 days and 375,000 shares of our common stock.
(5) F. Grant Saviers. These shares include 1,458,182 shares issuable upon the
conversion of our Series A preferred stock, 41,667 shares subject to stock
options exercisable within 60 days and 131,265 shares of our common stock.
(6) Harris Ravine. These shares are subject to options exercisable within 60
days.
(7) Adaptec, Inc. These shares include 2,928,361 shares issuable upon
conversion of our Series B preferred stock and 160,794 shares of our common
stock.
(8) William F. Childs. These shares include 3,124,677 shares issuable upon
conversion of our Series A preferred stock and 291,642 shares of our common
stock.
(9) Robert T. Harvey. These shares include:
- 1,887,499 shares issuable upon conversion of our Series A preferred
stock, 1,842,315 shares issuable upon conversion of our Series C
preferred stock and 3,426,282 shares of our common stock held by
Woodcarvers Limited, LLC, which is 99% owned by Harvest Storage
Technology Partners LLC and 1% owned by Robert Harvey;
- 347,186 shares issuable upon conversion of our Series A preferred stock
and 296,541 shares of our common stock held by Harvest Storage
Technology Partners, LLC, which is 10% owned by Mr. Harvey; and
- 464,309 shares of our common stock held by Sentinel Consulting
Corporation, LLC, which is 100% owned by Mr. Harvey.
Mr. Harvey is the Operating Manager of each of Woodcarvers Limited, LLC,
Harvest Storage Technology Group, LLC and Sentinel Consulting Corporation,
LLC.
(10) Harvest Storage Technology Partners LLC. These shares include:
- 1,887,499 shares issuable upon conversion of our Series A preferred
stock, 1,842,315 shares issuable upon conversion of our Series C
preferred stock and 3,426,282 shares of our common stock held by
Woodcarvers Limited, LLC, which is 99% owned by Harvest Storage
Technology Partners LLC; and
- 347,186 shares issuable upon conversion of our Series A preferred stock
and 296,541 shares of our common stock held by Harvest Storage
Technology Partners, LLC.
(11) Woodcarvers Limited, LLC. These shares include 1,887,499 shares issuable
upon conversion of our Series A preferred stock, 1,842,315 shares issuable
upon conversion of our Series C preferred stock and 3,426,282 shares of our
common stock.
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<PAGE> 73
DESCRIPTION OF CAPITAL STOCK
Currently, our authorized capital stock consists of 52,000,000 shares of
common stock, par value $0.001 per share, and 29,140,200 shares of preferred
stock, par value $0.001 per share. Upon completion of this offering, our
authorized capital stock will consist of 120,000,000 shares of common stock, par
value $0.001 per share, and 40,000,000 shares of preferred stock, par value
$0.001 per share. The following summary is qualified by reference to our
certificate of incorporation and our bylaws, forms of which have been filed as
exhibits to the registration statement of which this prospectus is a part.
COMMON STOCK
As of March 31, 2000, there were 18,768,087 shares of common stock
outstanding that were held of record by 61 stockholders. Holders of our common
stock are entitled to one vote for each share held on all matters to be voted
upon by stockholders, including the election of directors. Our certificate of
incorporation does not provide for cumulative voting for the election of
directors, and as a result, minority stockholders will not be able to elect
directors on the basis of their votes alone.
Subject to limitations under Delaware law and preferences that may apply to
any outstanding shares of preferred stock, holders of common stock are entitled
to receive ratably dividends or other distributions, if any, that may be
declared by our board of directors out of legally available funds. In the event
of our liquidation, dissolution or winding up, holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to the liquidation preference of any outstanding preferred stock. Our
common stock has no preemptive, conversion or other rights to subscribe for
additional securities of Chaparral. All outstanding shares of common stock are,
and all shares of common stock to be outstanding upon completion of the offering
will be, validly issued, fully paid and nonassessable. The rights, preferences
and privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future.
PREFERRED STOCK
As of March 31, 2000, there were 18,599,372 shares of Series A preferred
stock outstanding, 5,540,200 shares of Series B preferred stock outstanding and
5,000,000 shares of Series C preferred stock outstanding. Upon the closing of
this offering, all outstanding shares of Series A, Series B and Series C
preferred stock will automatically convert into 15,128,853 shares of common
stock.
Our board of directors will have the authority, without further approval of
the stockholders, to issue up to 10,859,800 shares of preferred stock in one or
more series, to fix the rights, preferences, privileges and restrictions of the
authorized preferred stock and to issue shares of each such series. The issuance
of preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of restricting
dividends on the common stock, diluting the voting power for the common stock,
impairing the liquidation rights of the common stock, delaying or preventing a
change in control of our company, discouraging bids for our common stock at a
premium or otherwise adversely affecting the market price of our common stock.
WARRANTS
Other than the warrants granted to directors, executive officers and
greater than 5% stockholders described in "Certain Transactions -- Warrants,"
there were outstanding as of March 31, 2000 warrants to purchase up to an
aggregate of 300,000 shares of our common stock held by Adaptec. This warrant
may be exercised at a price of $20.00 per share. This warrant is not exercisable
until December 1, 2000 and terminates to the extent unexercised on May 31, 2001.
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<PAGE> 74
REGISTRATION RIGHTS
Holders of all shares of our preferred stock and certain shares of our
common stock have registration rights.
Fourth Amended Investors' Rights Agreement
Pursuant to the Fourth Amended Investors' Rights Agreement, dated March 1,
2000, certain of our investors have registration rights. These rights include
demand registration rights, piggyback registration rights and Form S-3
registration rights.
Demand Registration Rights. If we receive a written request from the
holders of at least two-thirds of the registrable securities (as defined in the
agreement) after six months of our initial public offering that we file a
registration covering the registrable securities, then we will give notice to
all holders of registrable securities of the request within 20 days, and file a
registration statement as soon as practicable covering the shares of all holders
who request such registration. Our obligation is contingent on at least 25% of
all registrable securities then outstanding requesting to have their shares
included in the registration statement.
Piggyback Registration Rights. If we file a registration statement we must
notify all holders of registrable securities 30 days prior to the filing of such
registration statement. Each holder then has an opportunity to include his or
her shares in the registration provided that he or she notifies us within 20
business days of receiving notice from us.
Form S-3 Registration Rights. If we receive a written request from holders
of at least 25% of the then outstanding registrable securities to file a Form
S-3 with respect to the registrable securities, then we will promptly give
notice to each holder, effect such registration as soon as practicable and pay
all registration expenses. We are not obligated to effect such registration,
however, if:
- the aggregate offering price of all shares included in the proposed
registration is less than $1.0 million;
- we determine in good faith that such registration would be seriously
detrimental to us and our stockholders (in which case we can defer such
registration for 120 days); or
- we have already effected two registrations on Form S-3 in the last 12
months.
Warrant Agreements
Pursuant to the terms of various warrant agreements, Harvest Storage
Technology, Mr. Gluck, Mr. Allison, Mr. Childs and Sentinel Consulting each have
demand registration rights and piggyback registration rights with respect to
524,508 shares of our common stock.
Demand Registration Rights. If we receive a written request from Harvest
Storage Technology, Mr. Gluck, Mr. Allison, Mr. Childs or Sentinel Consulting
within six months of an initial public offering that we file a registration
statement covering registrable securities (defined as shares of common stock
issued upon exercise of the warrants) having a value of at least $1.0 million,
we are required to use our best efforts to file promptly a registration
statement covering all of the shares requested to be included. Each warrant
agreement grants each of Harvest Storage Technology, Mr. Gluck, Mr. Allison, Mr.
Childs and Sentinel Consulting one such demand registration, and such demand may
not be made during the period starting 60 days prior to the estimated date of
filing our initial registration statement and ending on the date six months
following our initial public offering.
Piggyback Registration Rights. If we file a registration statement, other
than on Form S-8 or other similar form or in connection with a Rule 145
transaction, we must promptly notify Harvest Storage Technology, Mr. Gluck, Mr.
Allison, Mr. Childs and Sentinel Consulting prior to the filing of such
registration statement. Harvest Storage Technology, Sentinel Consulting and
Messrs. Gluck, Allison and Childs then each have an opportunity to include their
shares in the registration statement; provided that
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<PAGE> 75
each notifies us within 20 business days of receiving our notice. Each warrant
agreement grants each of Harvest Storage Technology, Sentinel Consulting, Mr.
Gluck, Mr. Allison and Mr. Childs three such piggyback registration rights.
PROVISIONS IN OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
AND IN DELAWARE LAW THAT MAY HAVE ANTI-TAKEOVER EFFECTS
Our certificate of incorporation and bylaws will be amended and restated as
of the date of completion of this offering. Our amended and restated certificate
of incorporation and bylaws will contain certain provisions that may have the
effect of delaying, deferring or preventing a third party from acquiring us,
even if the acquisition would benefit our stockholders.
Our amended and restated certificate of incorporation and bylaws provide
that our board of directors shall consist of three classes of directors, each
serving for a three-year term ending in successive years. This provision may
make it more difficult to effect a takeover because it would generally take more
than one annual meeting of our stockholders for an acquiring party to elect a
majority of the board of directors. As a result, a classified board of directors
may discourage proxy contests for the election of directors or purchases of a
substantial block of our stock because it could operate to prevent a potential
acquiror from obtaining control of our board of directors in a relatively short
period of time.
In addition, our amended and restated certificate of incorporation and
bylaws will provide that stockholders may take action only at a duly called and
held meeting and may not take action by written consent. This provision may make
it more difficult to effect a takeover through various types of transactions,
such as a merger or sale of assets, by requiring a potential acquiror to hold a
stockholders' meeting before such a transaction could be consummated.
Our amended and restated certificate of incorporation and bylaws also will
provide that the "staggered board" provision and the provisions concerning
voting rights of stockholders may be amended only by a vote of two-thirds of the
outstanding shares of our capital stock entitled to vote generally in the
election of directors, voting as a single class.
Finally, we are subject to Section 203 of the Delaware General Corporation
Law, which imposes restrictions on certain business combinations with interested
persons. That section defines an "interested person" as any person who acquires
15% or more of our outstanding voting stock. In general, we are prohibited from
engaging in business combinations with an interested person for a period of
three years from the date that person becomes an interested person, subject to
certain exceptions. By restricting our ability to engage in business
combinations with an interested person, the application of Section 203 may
provide a barrier to takeovers not approved in advance by our board of
directors.
DIVIDENDS
We have not paid any cash dividends on our common stock or preferred stock
and intend to retain future earnings to finance our business. We are subject to
restrictions on paying dividends under state law and our revolving credit
agreement.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company, and its address is 12039 W. Alameda Parkway, Suite
Z-2, Lakewood, Colorado 80228.
NASDAQ NATIONAL MARKET LISTING
We have applied to have our common stock approved for quotation on the
Nasdaq Stock Market's National Market, subject to official notice of issuance,
under the trading symbol "CHAP."
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<PAGE> 76
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and there can be no assurance that a significant public market for the
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock, including shares issued upon exercise of
outstanding options and warrants, in the public market following this offering
could adversely affect market prices prevailing from time to time and could
impair our ability to raise capital through the sale of our equity securities.
Sales of substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering and based on shares outstanding at March
31, 2000, we will have outstanding shares of common stock assuming no
exercise of the underwriters' over-allotment option and no exercise of any
outstanding options or warrants. All the shares sold in this offering, plus any
shares issued upon exercise of the underwriters' over-allotment option, will be
freely tradable without restriction under the Securities Act, unless purchased
by our "affiliates" as that term is defined in Rule 144 under the Securities
Act.
The remaining shares of common stock outstanding are "restricted
securities" within the meaning of Rule 144 under the Securities Act. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which are summarized below.
Our directors, officers and stockholders have entered into lock-up
agreements with the underwriters of this offering generally providing that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of our shares of common stock or any securities exercisable
for or convertible into our common stock owned by them prior to this offering
for a period of 180 days after the effective date of the registration statement
filed pursuant to this offering without the prior written consent of Credit
Suisse First Boston Corporation. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements may not be sold
until such agreements expire or are waived by Credit Suisse First Boston
Corporation. Taking into account the lock-up agreements, and assuming Credit
Suisse First Boston Corporation does not release stockholders from these
agreements prior to the expiration of the 180 day lock-up period, the following
shares will be eligible for sale in the public market at the following times:
- beginning on the effective date of the registration statement, the
shares sold in this offering, and additional shares,
will be immediately available for sale in the public market;
- beginning 180 days following the date of this prospectus,
additional shares will become eligible for sale under Rule 144 subject to
volume restrictions as described below; and
- the remainder of the restricted securities will be eligible for sale from
time to time thereafter, subject in some cases to compliance with Rule
144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an affiliate, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about Chaparral. Under Rule 144(k), a person who is
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<PAGE> 77
not deemed to have been our "affiliate," as defined in the Securities Act, 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 except an affiliate, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any of our employees, officers,
directors or consultants who purchased shares under a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this prospectus before selling
such shares. However, Rule 701 shares are subject to lock-up
agreements and will only become eligible for sale at the earlier of the
expiration of the 180-day lock-up agreements or no sooner than 90 days after the
offering upon obtaining the prior written consent of Credit Suisse First Boston
Corporation.
Following the effectiveness of this offering, we intend to file a
registration statement on Form S-8 registering shares of common stock,
the shares of common stock reserved for issuance under our 1998 stock option
plan, the 2000 equity incentive plan and the 2000 employee stock purchase plan.
Upon the filing of the registration statement on Form S-8, common stock issued
upon exercise of outstanding vested options or issued under our purchase plan,
other than common stock issued to our affiliates, will be available for
immediate resale in the open market.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000 we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Salomon Smith
Barney Inc., Bear, Stearns & Co. Inc. and Needham & Company, Inc. are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Salomon Smith Barney Inc. ..................................
Bear, Stearns & Co. Inc. ...................................
Needham & Company, Inc. ....................................
--------
Total ............................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The underwriters
and selling group members may allow a discount of $ per share on sales to
other broker/dealers. After the initial public offering, the public offering
price and concession and discount to broker/dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------------- -------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and Commissions paid
by us.................................... $ $ $ $
Expenses payable by us..................... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, announce our
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to, any shares of common stock or securities
convertible into or exchangeable or exercisable for any common stock, or
publicly disclose the intention to make an offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
Our officers and directors and all of our security holders have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities convertible
into or exchangeable or exercisable for any shares of our common stock, enter
into a transaction which would have the same effect, or enter into any swap,
hedge or other arrangement that
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<PAGE> 79
transfers, in whole or in part, any of the economic consequences of ownership of
our common stock, whether any such aforementioned transaction is to be settled
by delivery of our common stock or such other securities, in cash or otherwise,
or publicly disclose the intention to make any such offer, sale, pledge or
disposition, or to enter into any such transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of Credit Suisse
First Boston Corporation for a period of 180 days after the date of this
prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and certain
other persons associated with us who have expressed an interest in purchasing
common stock in this offering. The number of shares available for sale to the
general public in this offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market subject to official notice of issuance, under the
symbol "CHAP."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include:
- the information in this prospectus and otherwise available to the
underwriters;
- the history and the prospects for the industry in which we compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934, as amended.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq Stock Market's National Market or otherwise and, if commenced, may be
discontinued at any time.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws, which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws; (ii) where required
by law, that such purchaser is purchasing as principal and not as agent; and
(iii) such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against the issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. Such report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one such report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
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<PAGE> 81
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Davis, Graham & Stubbs LLP, Denver, Colorado. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Morrison & Foerster LLP, Palo Alto, California.
EXPERTS
The financial statements of Chaparral Network Storage, Inc. (formerly
Chaparral Technologies, Inc.) as of March 31, 1999 and 2000 and for the period
from inception (January 22, 1998) to March 31, 1998 and the years ended March
31, 1999 and 2000 have been included in this prospectus and the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT CHAPARRAL
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the shares of common stock to be sold in this offering. This
prospectus does not contain all the information included in the registration
statement and the exhibits thereto. For further information about us and the
shares of our common stock to be sold in this offering, please refer to this
registration statement. Complete exhibits have been filed with our registration
statement on Form S-1.
You may read and copy any contract, agreement or other document referred to
in this prospectus and any portion of our registration statement or any other
information from our filings at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1800SEC0330 for further information about the public
reference rooms. Our filings with the Securities and Exchange Commission,
including our registration statement, are also available to you without charge
at the Securities and Exchange Commission's Web site, http://www.sec.gov.
Upon the completion of this offering, we will be subject to the information
and reporting requirements of the Exchange Act and will file and furnish to our
stockholders annual reports containing financial statements audited by our
independent auditors, make available to our stockholders quarterly reports
containing unaudited financial data for the first three quarters of each fiscal
year, proxy statements and other information with the Securities and Exchange
Commission.
You may read and copy any reports, statements or other information on file
at the public reference rooms or at the Securities and Exchange Commission's web
site referred to above. You can also request copies of these documents, for a
copying fee, by writing to the Commission.
Our web site is www.chaparralnet.com. The information contained on our web
site is not incorporated by reference into this prospectus.
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CHAPARRAL NETWORK STORAGE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of March 31, 1999 and 2000................ F-3
Statements of Operations for the period from inception
(January 22, 1998) to March 31, 1998 and the years ended
March 31, 1999 and 2000................................... F-4
Statements of Stockholders' Equity (Deficit) for the period
from inception (January 22, 1998) to March 31, 1998 and
the years ended March 31, 1999 and 2000................... F-5
Statements of Cash Flows for the period from inception
(January 22, 1998) to March 31, 1998 and the years ended
March 31, 1999 and 2000................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 83
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chaparral Network Storage, Inc.:
We have audited the accompanying balance sheets of Chaparral Network
Storage, Inc. (formerly Chaparral Technologies, Inc.) (Company) as of March 31,
1999 and 2000, and the related statements of operations, stockholders' equity
(deficit) and cash flows for the period from inception (January 22, 1998) to
March 31, 1998 and for the years ended March 31, 1999 and 2000. 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 in accordance with auditing standards generally
accepted in the United States of America. 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 audits provide 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 Chaparral Network Storage,
Inc. as of March 31, 1999 and 2000, and the results of its operations and its
cash flows for the period from inception (January 22, 1998) to March 31, 1998
and for the years ended March 31, 1999 and 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Boulder, Colorado
April 21, 2000
F-2
<PAGE> 84
CHAPARRAL NETWORK STORAGE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 2000
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 224,097 $ 16,707,368
Trade receivables, net of allowance of $75,000 at March
31, 2000............................................... 103,624 1,720,014
Inventory................................................. 183,022 3,749,399
Prepaid expenses.......................................... 45,000 134,550
----------- ------------
Total current assets.............................. 555,743 22,311,331
Deferred public offering costs.............................. -- 413,000
Furniture, fixtures and equipment, net...................... 377,618 797,087
----------- ------------
Total assets...................................... $ 933,361 $ 23,521,418
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable............................................. $ 900,000 $ --
Accounts payable.......................................... 367,436 1,715,876
Accrued liabilities....................................... 315,976 1,292,261
Accrued compensation...................................... 193,890 354,622
Deferred revenue.......................................... 50,000 --
----------- ------------
Total current liabilities......................... 1,827,302 3,362,759
----------- ------------
Stockholders' equity (deficit):
Series A preferred stock, par value $.001 per share;
18,600,000 shares authorized; 15,655,556 and 18,599,372
shares issued and outstanding, respectively;
liquidation preference of $1,565,556 and $1,859,937,
respectively........................................... 2,085,617 3,102,167
Series B preferred stock, par value $.001 per share;
5,540,200 shares authorized, issued and outstanding at
March 31, 2000; liquidation preference of $1,000,000... 1,000,000 1,000,000
Series C preferred stock, par value $.001 per share;
5,000,000 shares authorized, issued and outstanding;
liquidation preference of $2,200,000................... -- 2,166,770
Common stock, par value $.001 per share; 52,000,000 shares
authorized; 7,995,000 and 18,768,087 shares issued and
outstanding, respectively.............................. 7,995 18,768
Additional paid-in capital................................ 652,718 26,846,870
Unearned stock option compensation........................ -- (633,667)
Notes receivable for preferred and common stock........... (909,860) (642,860)
Accumulated deficit....................................... (3,730,411) (11,699,389)
----------- ------------
Total stockholders' equity (deficit).............. (893,941) 20,158,659
----------- ------------
Commitments and contingencies
Total liabilities and stockholders' equity
(deficit)....................................... $ 933,361 $ 23,521,418
=========== ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 85
CHAPARRAL NETWORK STORAGE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JANUARY 22,
1998) TO YEAR ENDED MARCH 31,
MARCH 31, -------------------------
1998 1999 2000
------------ ----------- -----------
<S> <C> <C> <C>
Revenue................................................ $ -- $ 236,855 $ 8,842,000
Cost of sales, excluding fair value of warrants........ -- 155,872 4,257,366
Cost associated with warrants issued for supply
agreement............................................ -- -- 333,000
-------- ----------- -----------
Gross profit................................. -- 80,983 4,251,634
Operating expenses:
Research and development, excluding $835,807 of stock
option compensation for the year ended March 31,
2000.............................................. -- 1,723,904 4,597,581
Sales and marketing, excluding $72,967 of stock
option compensation for the year ended March 31,
2000.............................................. -- 453,291 3,132,534
General and administrative, excluding $755,541 of
stock option compensation for the year ended March
31, 2000.......................................... 35,107 1,526,856 2,799,271
Stock option compensation............................ -- -- 1,664,315
-------- ----------- -----------
Loss from operations......................... (35,107) (3,623,068) (7,942,067)
Interest expense....................................... -- (72,236) (397,020)
Interest income........................................ -- -- 370,109
-------- ----------- -----------
Net loss..................................... $(35,107) $(3,695,304) $(7,968,978)
======== =========== ===========
Net loss per share -- basic and diluted................ $ -- $ (1.40) $ (0.68)
======== =========== ===========
Weighted average number of common shares outstanding --
basic and diluted.................................... -- 2,640,123 11,700,581
======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 86
CHAPARRAL NETWORK STORAGE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
----------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at inception (January 22,
1998)............................. -- $ -- -- $ -- -- $ --
Net loss............................ -- -- -- -- -- --
---------- ---------- --------- ---------- --------- ----------
Balances at March 31, 1998.......... -- -- -- -- -- --
Issuance of common stock for cash
and notes receivable.............. -- -- -- -- -- --
Issuance of common stock warrants
for services...................... -- -- -- -- -- --
Issuance of common stock for
services.......................... -- -- -- -- -- --
Issuance of Series A preferred stock
for cash, repayment of debt, and
notes receivable, net of issuance
costs of $34,500.................. 15,655,556 2,095,500 -- -- -- --
Issuance of common stock warrants
for issuance costs of preferred
stock............................. -- (9,883) -- -- -- --
Issuance of Series B preferred stock
for assets and repayment of note
payable........................... -- -- 5,540,200 1,000,000 -- --
Net loss............................ -- -- -- -- -- --
---------- ---------- --------- ---------- --------- ----------
Balances at March 31, 1999.......... 15,655,556 2,085,617 5,540,200 1,000,000 -- --
Issuance of common stock for cash,
and notes receivable less issuance
costs consisting of $507,240 cash,
warrants for 90,158 common shares
and 1,527,857 shares of common
stock............................. -- -- -- -- -- --
Issuance of common stock options and
warrants for services............. -- -- -- -- -- --
Issuance of Series A preferred stock
for cash, less issuance costs of
$42,020........................... 2,943,816 1,119,700 -- -- -- --
Issuance of common stock warrants
for issuance costs of preferred
stock............................. -- (99,584) -- -- -- (35,133)
Issuance of common stock for
services.......................... -- -- -- -- -- --
Issuance of common stock warrants
for interest expense.............. -- -- -- -- -- --
Issuance of common stock warrants
for supply agreement.............. -- -- -- -- -- --
Issuance of Series C preferred stock
for cash, less issuance costs of
$103,559.......................... -- -- -- -- 5,000,000 2,216,441
Collection of notes receivable...... -- -- -- -- -- --
Issuance of common stock for
issuance costs of preferred
stock............................. -- (3,566) -- -- -- (14,538)
Issuance of common stock options at
less than fair value.............. -- -- -- -- -- --
Amortization of unearned stock
option compensation............... -- -- -- -- -- --
Net loss............................ -- -- -- -- -- --
---------- ---------- --------- ---------- --------- ----------
Balances at March 31, 2000.......... 18,599,372 $3,102,167 5,540,200 $1,000,000 5,000,000 $2,166,770
========== ========== ========= ========== ========= ==========
<CAPTION>
NOTES
RECEIVABLE
COMMON STOCK ADDITIONAL UNEARNED FOR PREFERRED
-------------------- PAID-IN STOCK OPTION AND COMMON ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION STOCK DEFICIT TOTAL
---------- ------- ----------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at inception (January 22,
1998)............................. -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss............................ -- -- -- -- -- (35,107) (35,107)
---------- ------- ----------- ----------- --------- ------------ -----------
Balances at March 31, 1998.......... -- -- -- -- -- (35,107) (35,107)
Issuance of common stock for cash
and notes receivable.............. 7,945,000 7,945 622,805 -- (614,860) -- 15,890
Issuance of common stock warrants
for services...................... -- -- 14,080 -- -- -- 14,080
Issuance of common stock for
services.......................... 50,000 50 5,950 -- -- -- 6,000
Issuance of Series A preferred stock
for cash, repayment of debt, and
notes receivable, net of issuance
costs of $34,500.................. -- -- -- -- (295,000) -- 1,800,500
Issuance of common stock warrants
for issuance costs of preferred
stock............................. -- -- 9,883 -- -- -- --
Issuance of Series B preferred stock
for assets and repayment of note
payable........................... -- -- -- -- -- -- 1,000,000
Net loss............................ -- -- -- -- -- (3,695,304) (3,695,304
)
---------- ------- ----------- ----------- --------- ------------ -----------
Balances at March 31, 1999.......... 7,995,000 7,995 652,718 -- (909,860) (3,730,411) (893,941)
Issuance of common stock for cash,
and notes receivable less issuance
costs consisting of $507,240 cash,
warrants for 90,158 common shares
and 1,527,857 shares of common
stock............................. 10,435,011 10,435 22,721,993 -- (28,000) -- 22,704,428
Issuance of common stock options and
warrants for services............. -- -- 140,170 -- -- -- 140,170
Issuance of Series A preferred stock
for cash, less issuance costs of
$42,020........................... -- -- -- -- -- -- 1,119,700
Issuance of common stock warrants
for issuance costs of preferred
stock............................. -- -- 134,717 -- -- -- --
Issuance of common stock for
services.......................... 187,208 187 290,532 -- -- -- 290,719
Issuance of common stock warrants
for interest expense.............. -- -- 257,805 -- -- -- 257,805
Issuance of common stock warrants
for supply agreement.............. -- -- 333,000 -- -- -- 333,000
Issuance of Series C preferred stock
for cash, less issuance costs of
$103,559.......................... -- -- -- -- -- -- 2,216,441
Collection of notes receivable...... -- -- -- -- 295,000 -- 295,000
Issuance of common stock for
issuance costs of preferred
stock............................. 150,868 151 17,953 -- -- -- --
Issuance of common stock options at
less than fair value.............. -- -- 2,297,982 (2,297,982) -- -- --
Amortization of unearned stock
option compensation............... -- -- -- 1,664,315 -- -- 1,664,315
Net loss............................ -- -- -- -- -- (7,968,978) (7,968,978)
---------- ------- ----------- ----------- --------- ------------ -----------
Balances at March 31, 2000.......... 18,768,087 $18,768 $26,846,870 $ (633,667) $(642,860) $(11,699,389) $20,158,659
========== ======= =========== =========== ========= ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 87
CHAPARRAL NETWORK STORAGE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JANUARY 22, YEAR ENDED
1998) TO MARCH 31,
MARCH 31, -------------------------
1998 1999 2000
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(35,107) $(3,695,304) $(7,968,978)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization..................... 100 69,421 232,272
Common stock and common stock options and warrants
issued for services, interest expense and supply
agreement....................................... -- 20,080 1,021,694
Amortization of unearned stock option
compensation.................................... -- -- 1,664,315
Changes in operating assets and liabilities:
Trade receivables, net............................ -- (103,624) (1,616,390)
Inventory......................................... -- (87,199) (3,566,377)
Prepaid expenses and deferred public offering
costs........................................... -- (45,000) (502,550)
Accounts payable.................................. -- 367,436 1,348,440
Accrued liabilities and compensation.............. -- 509,866 1,137,017
Deferred revenue.................................. -- 50,000 (50,000)
-------- ----------- -----------
Net cash used by operating activities........ (35,007) (2,914,324) (8,300,557)
-------- ----------- -----------
Cash flows from investing activities -- expenditures
for furniture, fixtures and equipment................ (3,588) (89,374) (651,741)
-------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of preferred stock, net of
offering costs.................................... -- 1,565,500 3,336,141
Proceeds from sale of common stock, net of offering
costs............................................. -- 15,890 22,704,428
Collection of notes receivable for preferred stock... -- -- 295,000
Proceeds from notes payable.......................... 60,000 1,685,000 798,508
Repayments of notes payable.......................... -- (60,000) (1,698,508)
-------- ----------- -----------
Net cash provided by financing activities.... 60,000 3,206,390 25,435,569
-------- ----------- -----------
Net increase in cash and cash equivalents.... 21,405 202,692 16,483,271
Cash and cash equivalents at beginning of period....... -- 21,405 224,097
-------- ----------- -----------
Cash and cash equivalents at end of period............. $ 21,405 $ 224,097 $16,707,368
======== =========== ===========
Supplemental disclosures of cash flows
information -- cash paid for interest................ $ -- $ 8,445 $ 123,922
======== =========== ===========
Supplemental disclosures of non-cash investing and
financing activities:
Notes payable converted to preferred stock........... $ -- $ 785,000 $ --
======== =========== ===========
Assets acquired in exchange for preferred stock:
Inventory......................................... $ -- $ 95,823 $ --
Furniture, fixtures and equipment................. $ -- $ 354,177 $ --
======== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 88
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION
Chaparral Network Storage, Inc. (formerly Chaparral Technologies, Inc.)
(Chaparral or the Company) was incorporated on January 22, 1998. The Company
operates in one industry segment, developing and marketing storage networking
solutions for data intensive enterprise applications.
(b) 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 significantly from those estimates.
(c) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less at the date of purchase to be cash equivalents.
Included in cash and cash equivalents at March 31, 2000 are $8,900,000 and
$7,500,000 in commercial paper in two companies with contractual maturities on
or prior to April 25, 2000.
(d) INVENTORY
Inventory is recorded at the lower of standard cost (which approximates
average cost) or market.
(e) FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are recorded at cost. Depreciation and
amortization are calculated using the straight-line method over the estimated
useful lives of the assets, which are generally three years.
(f) IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for long-lived assets under the provisions of
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
(SFAS No. 121). SFAS No. 121 requires impairment losses to be recognized on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted future cash flows estimated to be generated by those assets
are less than the assets' carrying amounts. If such assets are considered
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the estimated fair value. Assets to be
disposed of are reported at the lower of the carrying value or fair value, less
costs to sell. No impairment has been recognized.
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of certain of the Company's financial instruments,
including accounts receivable, accrued liabilities and notes receivable for
stock approximate fair value because of their short maturities.
(h) REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment of the product to
customers. Revenue is not recognized for products shipped for customer
evaluation. Costs of products shipped for customer evaluation are expensed at
shipment. Revenue is reduced for estimated customer returns and allowances.
Provision for estimated warranty costs, including estimated costs of support for
embedded software, is recorded at the time of sale based upon expected failure
rates and costs of repair. This provision is periodically adjusted to reflect
actual experience.
F-7
<PAGE> 89
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(i) RESEARCH AND DEVELOPMENT
Expenditures related to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred. The Company capitalizes certain software development costs
subsequent to the establishment of technological feasibility. To date, costs
incurred following technological feasibility, but prior to general release, have
been insignificant.
(j) INCOME TAXES
Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No.
109). Under SFAS No. 109, deferred income taxes are recognized for the future
tax consequences of differences between the tax bases of assets and liabilities
and their financial statement carrying amounts based on enacted tax laws and
statutory rates applicable to the periods in which the differences are expected
to affect taxable income. A valuation allowance is recorded to the extent
deferred tax assets may not be realizable.
(k) STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation using the
intrinsic value based method prescribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations
(APB No. 25). The Company provides pro forma disclosure of net loss as if the
fair value based method of accounting for the plan, as prescribed by Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), had been applied. Pro forma disclosures include the
effects of employee stock options granted. Equity instruments granted to
non-employees are accounted for in accordance with SFAS No. 123.
(l) ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs totaled
approximately $80,000 and $692,000 for the years ended March 31, 1999 and 2000,
respectively.
In addition to its own advertising activities, the Company accrues a
percentage of sales over certain contractual minimums to reimburse distributors
for a portion of their advertising costs. Any unused allowance expires if not
used during the six months following the date of sale. Cooperative advertising
expense for the year ended March 31, 2000 totaled approximately $32,000 and is
included in sales and marketing expense.
(m) LOSS PER SHARE
Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128).
Under SFAS No. 128, basic earnings (loss) per share (EPS) excludes dilution for
potential common stock and is computed by dividing income or loss available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. Basic and diluted EPS are the same for all periods presented,
as all potential common stock instruments are antidilutive.
(n) RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the
current year presentation.
F-8
<PAGE> 90
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) INVENTORY
The Company generally contracts for the manufacture of inventory. Certain
components are purchased by the Company and supplied to the contract
manufacturers. Inventory consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1999 2000
-------- ----------
<S> <C> <C>
Finished goods.............................................. $136,263 $1,356,982
Raw materials............................................... 46,759 2,392,417
-------- ----------
Total............................................. $183,022 $3,749,399
======== ==========
</TABLE>
(3) FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1999 2000
-------- ----------
<S> <C> <C>
Equipment................................................... $443,755 $ 809,792
Purchased software.......................................... -- 285,704
Furniture and fixtures...................................... 3,384 3,384
-------- ----------
447,139 1,098,880
Less accumulated depreciation and amortization.............. (69,521) (301,793)
-------- ----------
$377,618 $ 797,087
======== ==========
</TABLE>
(4) NOTES PAYABLE
In January 2000, the Company entered into a loan agreement with a bank.
Under the loan agreement, the Company can borrow and reborrow up to the lesser
of $3.0 million or an amount equal to 90% of the Company's U.S. government debt
securities plus 80% of the Company's investment grade commercial paper, with a
maturity of one year or less and held on deposit at the bank. Borrowings bear
interest at the prime rate. Interest is payable monthly, and borrowings must be
repaid on or before August 31, 2000. Under the loan agreement, the Company
agreed to provide certain financial information, maintain at least $4.0 million
in cash plus investment grade marketable securities, maintain a minimum net
worth and minimum ratio of debt to net worth. The Company has also agreed not to
pay dividends on its stock, create liens on its property or assets included in
our borrowing base (i.e. commercial paper) or borrow under other credit
arrangements. The Company has not borrowed under this loan agreement.
(5) STOCKHOLDERS' EQUITY (DEFICIT)
(a) REVERSE STOCK SPLIT
In October 1999, the Company's board of directors authorized a one-for-two
reverse stock split. All share and per share amounts disclosed herein reflect
the effect of this reverse split.
(b) SERIES A PREFERRED STOCK
Series A preferred shares are convertible into 9,686,168 shares of common
stock as of March 31, 2000, subject to adjustment for dilution that may occur
from future equity transactions, and have voting rights on an as-converted
basis. The Series A preferred shares are entitled to receive dividends equal to
$.008 per share on an annual basis when and if declared by the Board of
Directors. In the event of liquidation of the Company, holders of the Series A
preferred shares are entitled to receive an amount equal to $.10 per share, plus
any declared and unpaid dividends. The Series A preferred shares are
F-9
<PAGE> 91
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
convertible at any time, at the option of the holder, and convert automatically
upon consummation of a public offering of common stock resulting in proceeds to
the Company of not less than $15.0 million and at an offering price per share
equal to at least $2.20.
(c) SERIES B PREFERRED STOCK
Series B preferred shares are convertible into 2,928,361 shares of common
stock as of March 31, 2000, subject to adjustment for dilution that may occur
from future equity transactions, and have voting rights on an as-converted
basis. The Series B preferred shares are entitled to receive dividends equal to
$.009 per share on an annual basis when and if declared by the Board of
Directors. In the event of liquidation of the Company, the holder of the Series
B preferred shares is entitled to receive an amount equal to $.18 per share,
plus any declared and unpaid dividends. The Series B preferred shares are
convertible at any time, at the option of the holder, and convert automatically
upon consummation of a public offering of common stock resulting in proceeds to
the Company of not less than $15.0 million and at an offering price per share
equal to at least $2.20.
(d) SERIES C PREFERRED STOCK
Series C preferred shares are convertible into 2,514,324 shares of common
stock as of March 31, 2000, subject to adjustment for dilution that may occur
from future equity transactions, and have voting rights on an as-converted
basis. The Series C preferred shares are entitled to receive dividends equal to
$.0352 per share on an annual basis when and if declared by the Board of
Directors. In the event of liquidation of the Company, holders of the Series C
preferred shares are entitled to receive an amount equal to $.44 per share, plus
any declared and unpaid dividends. The Series C preferred shares are convertible
at any time, at the option of the holder and are subject to mandatory conversion
upon consummation of a public offering of common stock resulting in proceeds to
the Company of not less than $15.0 million and at an offering price per share
equal to at least $2.20.
(e) NOTES RECEIVABLE FOR PREFERRED AND COMMON STOCK
Notes receivable due from stockholders from the sale of Series A preferred
and common stock bear interest at 8% and are due at various dates through 2003.
The notes are shown as a reduction of stockholders' equity.
(f) STOCK OPTIONS
The Company has a stock option plan pursuant to which the Company's Board
of Directors may grant stock options to officers, employees and consultants of
the Company. The stock option plan authorizes grants to purchase up to
14,000,000 shares of authorized but unissued common stock. At March 31, 2000,
2,703,920 shares were available for grant under the stock option plan. Options
vest over periods of up to four years and generally expire ten years from the
date of grant. The weighted average remaining contractual term of outstanding
options was approximately 8.7 years at March 31, 2000.
F-10
<PAGE> 92
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes activity for options issued to employees and
directors from inception (January 22, 1998) to March 31, 2000:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Options outstanding at inception (January 22, 1998)......... -- $ --
Granted................................................... 1,400,000 .10
----------
Options outstanding at March 31, 1998....................... 1,400,000 .10
Granted................................................... 5,851,000 .11
Exercised................................................. (5,970,000) .10
Forfeited................................................. (35,000) .12
----------
Options outstanding at March 31, 1999....................... 1,246,000 .11
Granted................................................... 4,783,577 1.76
Exercised................................................. (918,373) .19
Forfeited................................................. (842,664) .26
----------
Options outstanding at March 31, 2000....................... 4,268,540 $1.91
==========
</TABLE>
The Company generally grants stock options with exercise prices equal to
fair value at the date of grant, and accordingly, generally does not recognize
compensation expense relating to employee option grants. In November 1999, a
total of 1,222,331 stock options were granted with exercise prices less than
fair value, resulting in total compensation expense to be recognized over the
vesting period of $2,297,982, of which $1,664,315 was recognized during the year
ended March 31, 2000.
During the period from inception (January 22, 1998) to March 31, 1998, and
the years ended March 31, 1999 and 2000, the per share weighted-average fair
value of stock options granted with exercise prices equal to the fair value at
the grant date was $0.05, $0.06 and $0.94, respectively, on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: no dividends; 75% volatility; risk-free interest rate of 6.5%; and
expected life of four years. If the Company had recorded the options at the
grant date under SFAS No. 123, net loss would have been approximately $37,168,
$3,789,541 and $8,454,063 and the net loss per share would have been
approximately $0, $1.44 and $0.72 for the period from inception (January 22,
1998) to March 31, 1998, and the years ended March 31, 1999 and 2000,
respectively.
The following table summarizes information about stock options issued to
employees and directors that are outstanding at March 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------ ------------------------------
WEIGHTED AVERAGE
EXERCISE NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ .10 275,000 8.1 $ .10 141,667 $ .10
.12 1,267,209 8.9 .12 257,136 .12
1.12 1,943,581 9.6 1.12 846,081 1.12
3.19 272,500 9.6 3.19 -- 3.19
5.25 35,000 9.7 5.25 -- 5.25
10.00 475,250 9.9 10.00 -- 10.00
--------- ---------
4,268,540 8.7 1,244,884 0.80
========= =========
</TABLE>
F-11
<PAGE> 93
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Included in options exercisable at March 31, 2000 are 887,500 options which
were exercisable at the date of grant; however, the shares issued upon exercise
will be restricted and subject to repurchase at the exercise price if employees
terminate prior to the vesting of their shares, which is generally over four
years from the grant date of the options. At March 31, 2000, restricted shares
issued for options exercised which are subject to repurchase totaled 1,821,892
shares, with a weighted average repurchase price of $.10. All of the restricted
shares become fully vested upon an initial public offering.
In addition to options issued to employees and directors, the Company
issued 106,667 and 57,500 common stock options to consultants for services
during the years ended March 31, 1999 and 2000, respectively. These options have
exercise prices ranging from $.10 to $1.12 per share, are exercisable at the
date of grant and expire at various dates from November 2008 to November 2009.
The fair value of these options was determined to be $8,180 and $35,330 for the
years ended March 31, 1999 and 2000, respectively, and was recognized as general
and administrative expense. The fair value was calculated using the Black
Scholes option-pricing model with the following assumptions: risk-free interest
rate of 6.5%; contractual lives of ten years; no dividend yield; and 75%
volatility. As of March 31, 2000, 110,000 of these options have been exercised.
(g) WARRANTS
In return for services performed during the year ended March 31, 2000, the
Company granted warrants to purchase 20,000 common shares at $.01 per share.
These warrants are exercisable at any time and expire in December 2003. The fair
value of these warrants was determined to be $104,840 and was recognized as
general and administrative expense. The fair value was calculated using the
Black Scholes option-pricing model with the following assumptions: risk-free
interest rate of 6.5%; contractual life of four years; no dividend yield; and
75% volatility. As of March 31, 2000, all of these warrants have been exercised.
In connection with issuances of Series A preferred stock and Series C
preferred stock, during the years ended March 31, 1999 and 2000, the Company
granted warrants to purchase 158,333 and 433,257 shares of common stock,
respectively, at prices ranging from $.01 to $1.30 per share. These warrants are
exercisable at any time and expire at various dates from December 2002 to
September 2003. The fair value of these warrants was determined to be $9,883 and
$134,717 for the years ended March 31, 1999 and 2000, respectively, and was
separately recorded as warrants for the purchase of common stock and as a
reduction to the Series A and Series C preferred stock. The fair value was
calculated using the Black Scholes option-pricing model with the following
assumptions: risk-free interest rate of 6.5%; contractual lives of four years;
no dividend yield; and 75% volatility. As of March 31, 2000, all of these
warrants have been exercised.
In connection with issuances of notes payable, during the year ended March
31, 2000, the Company granted warrants to purchase 137,500 shares of common
stock at prices ranging from $.25 to $1.00 per share, 20,000 of which were
issued to officers of the Company with exercise prices of $0.25. The fair value
of these warrants was determined to be $257,805 and was recognized as interest
expense. These warrants are exercisable at any time and expire at various dates
through August 2003. The fair value was calculated using the Black Scholes
option-pricing model with the following assumptions: risk-free interest rate of
6.5%; contractual lives of four years; no dividend yield; and 75% volatility. As
of March 31, 2000, all of these warrants have been exercised.
In connection with issuances of common stock, during the year ended March
31, 2000, the Company granted warrants to purchase 90,158 shares of common stock
at prices ranging from $.01 to $3.00 per share. These warrants are exercisable
at any time and expire in November 2003. The fair value of these warrants was
determined to be $269,925 and was recorded as additional paid in capital. The
fair value was calculated using the Black Scholes option-pricing model with the
following assumptions: risk-free interest
F-12
<PAGE> 94
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
rate of 6.5%; contractual lives of four years; no dividend yield; and 75%
volatility. As of March 31, 2000, all of these warrants have been exercised.
In connection with the consummation of an integrated circuit supply
agreement in March 2000, the Company granted a warrant to a significant
stockholder to purchase 300,000 shares of common stock at $20.00 per share. This
warrant is exercisable from December 1, 2000 to May 31, 2001. The fair value of
this warrant was determined to be $333,000 and was included in cost of sales at
the date of grant. The fair value was calculated using the Black Scholes
option-pricing model with the following assumptions: risk-free interest rate of
6.5%; contractual life of 15 months; no dividend yield; and 75% volatility.
(6) INCOME TAXES
Income tax benefit relating to losses for the period from inception
(January 22, 1998) to March 31, 1998, and the years ended March 31, 1999 and
2000 differs from the amounts that would result from applying the federal
statutory rate of 15% in 1998 and 34% thereafter as follows:
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION
(JANUARY 22, 1998) YEARS ENDED MARCH 31,
TO MARCH 31, --------------------------
1998 1999 2000
------------------ ----------- ------------
<S> <C> <C> <C>
Expected tax benefit...................... $(5,266) $(1,256,403) $(2,709,453)
State income taxes, net of federal
benefit................................. (1,492) (115,278) (422,762)
Nondeductible interest expense............ -- -- 87,654
Change in valuation allowance for deferred
tax assets.............................. 6,758 1,350,380 3,037,632
Other, net................................ -- 21,301 6,929
------- ----------- -----------
Actual income tax benefit....... $ -- $ -- $ --
======= =========== ===========
</TABLE>
Temporary differences that give rise to deferred tax assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
Net operating loss carryforwards........................... $ 1,285,338 3,279,244
Stock option compensation.................................. -- 644,922
Accrued expenses........................................... 71,800 96,229
Other, net................................................. -- 374,375
----------- -----------
Gross deferred tax asset......................... 1,357,138 4,394,770
Valuation allowance........................................ (1,357,138) (4,394,770)
----------- -----------
Net deferred tax asset........................... $ -- --
=========== ===========
</TABLE>
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $3.0 million and $8.5 million at March 31, 1999 and
2000, respectively, which is available to offset future federal taxable income,
if any, through 2020. Management believes the utilization of the carryforwards
may be limited by Internal Revenue Code Section 382 relating to changes in
ownership, as defined.
Due to the uncertainty regarding the realization of the deferred tax assets
relating to net operating loss carryforwards and other temporary differences, a
valuation allowance has been recorded for the entire amount of the Company's
deferred tax assets.
F-13
<PAGE> 95
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES
(a) PURCHASE COMMITMENTS
The Company generally enters into firm purchase commitments with suppliers
and third party manufacturers for its estimated inventory requirements for the
succeeding three months. For certain components which require longer lead times,
the Company may enter into firm purchase commitments for estimated usage of up
to six months.
(b) LEASE COMMITMENTS
The Company leases office space under noncancelable operating leases
expiring through 2007. Future minimum lease payments under noncancelable
operating leases with remaining noncancelable lease terms in excess of one year
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
<S> <C>
2001...................................................... $ 698,000
2002...................................................... 844,000
2003...................................................... 844,000
2004...................................................... 844,000
2005...................................................... 844,000
Thereafter................................................ 1,968,000
----------
$6,042,000
==========
</TABLE>
Rent expense totaled $207,000 and $408,000 for the years ended March 31,
1999 and 2000, respectively.
(c) EMPLOYEE BENEFIT PLAN
In December 1998, the Company established a 401(k) plan that allows
eligible employees to contribute up to 15% of their compensation up to the
maximum amount set forth in the Internal Revenue Code. The Company matches 25%
of employee contributions. The Company's contributions were $6,914 and $55,317
for the years ended March 31, 1999 and 2000, respectively.
(d) LITIGATION
From time to time, the Company has been subject to litigation and claims in
the ordinary course of business. In March 2000, a suit was filed against the
Company alleging the Company's products infringe on another company's patent.
While it is not possible to determine the financial outcome of these matters,
management does not believe they will result in a materially adverse effect on
the Company's financial position, results of operations or liquidity.
F-14
<PAGE> 96
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) SIGNIFICANT CUSTOMERS AND SUPPLIER INFORMATION
Revenue attributable to significant customers (as a percentage of total
revenue) was as follows:
<TABLE>
<CAPTION>
YEARS ENDED
MARCH 31,
------------
1999 2000
---- -----
<S> <C> <C>
Customer A.................................................. 47% 17%
Customer B.................................................. -- 22%
Customer C.................................................. 2% 16%
Customer D.................................................. 20% 11%
Customer E.................................................. 24% 1%
Customer F.................................................. -- 13%
</TABLE>
Receivables from these customers amounted to 46% of total receivables at
March 31, 2000.
The Company had foreign export sales, primarily to European customers,
amounting to 44% and 22% of total sales for the years ended March 31, 1999 and
2000, respectively.
The Company obtains key components from two suppliers. A loss of either
source of supply would have a significant impact on the Company's ability to
provide products to customers.
(9) RELATED PARTY TRANSACTIONS
The Company has month to month operating leases and purchases inventory
components from a significant stockholder. Total rent expense recognized under
the operating leases for the years ended March 31, 1999 and 2000 was $197,000
and $378,000, respectively. Total purchases of inventory components for the
years ended March 31, 1999 and 2000 was $180,000 and $3,192,000, respectively.
During the period from inception (January 22, 1998) to March 31, 1998, the
Company made loans to each of the Company's officers, in connection with the
purchase by each of them of shares of the Company's common stock upon early
exercise of options. Each note is evidenced by a promissory note, with recourse
to the officer, and accrues interest at the rate of 6% per year, compounded
annually and is repayable upon the earliest of the resale of the shares of the
common stock, a change in control of the Company, 90 days following the
individual's termination of employment or November 25, 2008. Total loans
outstanding to officers at March 31, 1999 and 2000 was $359,800.
During the period from inception (January 22, 1998) to March 31, 1998, the
Company received loans from an officer of $29,350, including accrued interest.
These loans were unsecured, accrued interest at 10.5% and were paid in full by
March 31, 1998.
During the year ended March 31, 1999, the Company received loans from an
officer of $87,500. These loans were evidenced by promissory notes, were
unsecured, accrued interest at 10.5% and were converted into 875,000 shares of
Series A preferred stock on November 24, 1998. Also during the year ended March
31, 1999, the Company received loans from officers of $50,000. These loans were
unsecured, accrued interest at 8% and had stated fees of 10% payable in cash or
warrants due upon repayment. The loans were repaid during the year ended March
31, 2000 and warrants to purchase 20,000 shares of common stock at $0.25 per
share were granted for interest expense.
F-15
<PAGE> 97
CHAPARRAL NETWORK STORAGE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) VALUATION AND QUALIFYING ACCOUNTS
The following presents information related to the Company's valuation and
qualifying accounts:
<TABLE>
<CAPTION>
BALANCES AT ADDITIONS BAD DEBT, BALANCES AT
MARCH 31, CHARGED TO WRITE-OFFS AND MARCH 31,
1999 OPERATIONS(1) RETURNS(1) 2000
----------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts.............. $-- $ 75,000 $ -- $ 75,000
Inventory obsolescence reserve............... $-- $100,000 $ -- $100,000
Warranty reserve............................. $-- $107,590 $(32,590) $ 75,000
Sales returns and allowances................. $-- $ 62,530 $(12,530) $ 50,000
</TABLE>
- ---------------
(1) Includes provisions for stock rotation rights and other sales returns, and
actual returns which were charged against revenue.
F-16
<PAGE> 98
[INSIDE BACK COVER FOR GRAPHICS]
<PAGE> 99
[BACK COVER]
[CHAPARRAL NETWORK STORAGE LOGO]
<PAGE> 100
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 the
underwriting discount, payable by the Registrant in connection with the sale of
the common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee........................................ $ 15,840
NASD filing fee............................................. $ 15,000
Nasdaq National Market listing fee.......................... $ 94,000
Legal fees and expenses..................................... $ 400,000
Accounting fees and expenses................................ $ 200,000
Printing and engraving...................................... $ 200,000
Blue sky fees and expenses (including legal fees)........... $ 7,000
Transfer agent fees......................................... $ 3,500
Miscellaneous............................................... $ 164,660
----------
Total............................................. $1,100,000
==========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the Delaware General Corporation Law, as amended (the
"DGCL"), the Registrant's certificate of incorporation, as amended, eliminates
in certain circumstances the liability of our directors for monetary damages for
breach of their fiduciary duty as directors. This provision does not eliminate
the liability of a director for: (i) a breach of the director's duty of loyalty
to the Registrant or its shareholders, (ii) acts or omissions by the director
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) a willful or negligent declaration of an unlawful distribution or
(iv) transactions from which the director derived an improper personal benefit.
The Registrant's certificate of incorporation also provides that we shall
indemnify any person and his or her estate and personal representatives against
all liability and expenses incurred by reason of the person being or having been
a director or officer of the Registrant or, while serving as a director or
officer of the Registrant, serving at the request of it or any of its
subsidiaries as a director, an officer, an agent, an associate, an employee, a
fiduciary, a manager, a member, a partner, a promoter, or a trustee of, or to
hold any similar position with, another domestic or foreign corporation or other
entity or of an employee benefit plan, to the full extent permitted under the
DGCL. The DGCL requires a corporation to indemnify its officers and directors
against reasonable expenses incurred in any proceeding to which the officer or
director is a party and was wholly successful, on the merits or otherwise, in
defense of the proceeding. In addition to this mandatory indemnification, the
DGCL provides that a corporation may indemnify its officers and directors
against liability and reasonable expenses if the officer or director acted in
good faith and in a manner reasonably believed to be in the best interests of
the corporation in the case of conduct in an official capacity, in a manner he
or she reasonably believed was at least not opposed to the corporation's best
interests in all other cases, or in a manner he or she had no reasonable cause
to believe was unlawful in the case of criminal proceedings. In actions by or in
the name of the corporation, the DGCL provides the same standard but limits
indemnification to reasonable expenses incurred by the director and prohibits
any indemnification if the director is adjudged liable to the corporation. The
DGCL also prohibits indemnification of a director in connection with actions
charging improper personal benefit to the director if the director is adjudged
liable on that basis.
II-1
<PAGE> 101
DIRECTOR AND OFFICER LIABILITY INSURANCE
Our director and officer insurance policy indemnifies us and/or our
directors and officers for judgments and expenses arising in connection with any
claim made during the policy period for director and officer misconduct other
than dishonest or criminal acts, acts made for the director or officers's
personal profit or gain, fraudulent acts, or acts that are in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The policy reimburses us when we are obligated to indemnify our directors
and officers for judgments and expenses arising from covered misconduct. The
policy reimburses the directors and officers for judgments and expenses arising
out of claims for which indemnification from us is either not available or not
permitted by law. The policy excludes coverage for claims brought by one insured
(director, officer, or the company) against another insured.
The limit under our policy is $ and the premium is $ per
month. The deductible varies depending on whether the claim involves an
individual director or officer or the company, and on whether the claim is
related to a violation of the Exchange Act or the Securities Act of 1933, as
amended (the "Securities Act"). If the claim involves indemnifying an individual
director or officer and is not Securities related, then the deductible is $0. If
the claim involves indemnifying the company and is not Securities related, then
the deductible is $ . The deductible for any Securities related claim
is $ .
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant has issued the following securities since its inception in
January 1998:
Since its inception in January 1998, the Registrant has issued and sold
unregistered securities in the transactions described below. The sale and
issuance of stock, warrants and options were exempt from registration under Rule
506 and Rule 701 under the Securities Act. All such sales made in reliance on
the exemption from registration provided by Rule 506 under the Securities Act
were made to investors who represented that they were accredited investors, that
they intended to acquire the securities for investment only and not with a view
to distribution, and that they had received or had access to adequate
information about the Company. The following share and dollar amounts are
adjusted to reflect the Company's 1-for-2 reverse stock split effective as of
October 15, 1999.
Shares of Common Stock
(1) On June 16, 1998, the Registrant issued 1,875,000 to its founders
pursuant to Rule 506 under the Securities Act at an aggregate purchase price of
$3,750.
(2) On November 25, 1998, each of the founders named above agreed to
rescind their shares in exchange for a promissory note from the Registrant in an
amount equal to the purchase price of the founder shares. The promissory note
was then contributed by each founder to the Registrant in exchange for the
issuance of an aggregate of 1,875,000 shares of common stock to the founders
pursuant to a Contribution Agreement, dated November 25, 1998. The Registrant
issued these shares pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $3,750.
(3) On February 17, 1999, the Registrant issued 50,000 shares as payment
for services valued at $6,000 to a director who is an accredited investor
pursuant to Rule 506 under the Securities Act.
(4) From July through December 1999, the Registrant issued 44,952 shares to
certain consultants pursuant to Rule 701 under the Securities Act in lieu of
consulting fees in the amount of $36,334.
(5) In August 1999, the Registrant issued 453,846 shares to an accredited
investor pursuant to Rule 506 under the Securities Act. The aggregate purchase
price was $500,000.
(6) From October 31 through December 31, 1999, the Registrant issued
170,112 shares to accredited investors pursuant to Rule 506 under the Securities
Act for an aggregate purchase price of $302,185. These shares were issued in
lieu of payment of various consultants' fees, commissions in connection with
II-2
<PAGE> 102
the sale of the Registrant's securities and 5 months rent for the Registrant's
new principal executive offices.
(7) In September and December 1999, the Registrant issued 1,650,868 shares
to two accredited investors as commissions in connection with the private
placement of securities pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $1,452,764.
(8) In November 1999, the Registrant issued 1,820,669 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $6,242,002.
(9) From November 30, 1999 through February 14, 2000, the Registrant issued
3,663,519 shares to stockholders pursuant to Rule 506 under the Securities Act
in connection with their exercise of preemptive rights at an aggregate purchase
price of $10,743,887.
(10) In December 1999 and January 2000, the Registrant issued 1,201,500
shares to accredited investors pursuant to Rule 506 under the Securities Act at
an aggregate purchase price of $5,033,125.
(11) In March 2000, the Registrant issued 104,741 shares to accredited
investors pursuant to Rule 506 under the Securities Act in connection with their
exercise of warrants at an aggregate purchase price of $6,835.
(12) Through April 18, 2000, the Registrant has issued and sold 6,998,373
shares to directors, employees and consultants upon the exercise of options
granted under its 1998 stock option plan at exercise prices ranging from $0.10
to $1.12.
Shares of Series A Preferred Stock
(1) On November 24 through November 27, 1998, the Registrant issued
11,600,000 shares to certain accredited investors pursuant to Rule 506 under the
Securities Act at an aggregate purchase price of $1,160,000.
(2) On December 11, 1998, the Registrant issued 833,333 shares to an
accredited investor pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $150,000.
(3) On December 15, 1998, the Registrant issued 666,667 shares to an
accredited investor pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $120,000.
(4) On January 13, 1999, the Registrant issued 800,000 shares to an
accredited investor pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $200,000.
(5) In February 1999, the Registrant issued 1,200,000 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $300,000.
(6) On March 31, 1999, the Registrant issued 555,556 shares to an
accredited investor pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $200,000.
(7) In April 1999, the Registrant issued 790,316 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $300,320.
(8) In May 1999, the Registrant issued 736,000 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $294,400.
(9) In June 1999, the Registrant issued 1,417,500 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $567,000.
Shares of Series B Preferred Stock
On November 25, 1998, the Registrant issued 5,540,200 shares to an
accredited investor pursuant to Rule 506 under the Securities Act in exchange
for assets and forgiveness of debt valued at $1,000,000.
II-3
<PAGE> 103
Shares of Series C Preferred Stock
On October 15, 1999, the Registrant issued 5,000,000 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $2,320,000.
Warrants to Purchase Common Stock
(1) On December 15, 1998, the Registrant granted a warrant to purchase
55,555 shares at an exercise price of $0.02 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities. This warrant was exercised on December
15, 1999.
(2) On February 8, 1999, the Registrant granted a warrant to purchase
75,000 shares at an exercise price of $0.50 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities. This warrant was exercised on January
13, 2000.
(3) On March 31, 1999, the Registrant granted a warrant to purchase 27,778
shares at an exercise price of $0.72 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.
(4) On April 1, 1999, the Registrant granted a warrant to purchase 52,500
shares at an exercise price of $1.00 per share to an accredited investor as fees
in connection with loans made by him to the Registrant. This warrant was
exercised on January 25, 2000.
(5) On April 28, 1999, the Registrant granted a warrant to purchase 26,316
shares at an exercise price of $0.76 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.
(6) On May 28, 1999, the Registrant granted a warrant to purchase 52,125
shares at an exercise price of $0.80 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.
(7) On July 7, 1999, the Registrant granted a warrant to purchase 88,182
shares at an exercise price of $0.88 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.
(8) On July 20, 1999, the Registrant granted a warrant to purchase 95,000
shares at an exercise price of $1.00 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.
(9) On August 9, 1999, the Registrant granted a warrant to purchase 30,000
shares at an exercise price of $1.00 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.
(10) On August 12, 1999, the Registrant granted a warrant to purchase
15,384 shares at an exercise price of $1.30 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities. This warrant was exercised on January
13, 2000.
(11) On August 13, 1999, the Registrant granted a warrant to purchase
12,500 shares at an exercise price of $1.00 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as fees in connection with loans
made by him to the Registrant. This warrant was exercised on January 25, 2000.
II-4
<PAGE> 104
(12) On August 19, 1999, the Registrant granted a warrant to purchase
10,000 shares at an exercise price of $0.25 per share pursuant to Rule 506 under
the Securities Act to each of two executive officers who are accredited
investors as fees in connection with loans made by them to the Registrant.
(13) On September 8, 1999, the Registrant granted a warrant to purchase
1,250 shares at an exercise price of $0.80 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities.
(14) On September 13, 1999, the Registrant granted a warrant to purchase
125,000 shares at an exercise price of $0.02 per share pursuant to Rule 506
under the Securities Act to a consultant as payment of commissions in connection
with the sale of securities. This warrant was exercised on September 21, 1999.
(15) On November 4, 1999, the Registrant granted a warrant to purchase
26,667 shares at an exercise price of $3.00 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities. This warrant was exercised on January
13, 2000.
(16) On November 8, 1999, the Registrant granted a warrant to purchase
63,491 shares at an exercise price of $0.01 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities.
(17) On December 13, 1999, the Registrant granted a warrant to purchase
52,500 shares at an exercise price of $1.00 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as fees in connection with loans
made by him to the Registrant. This warrant was exercised on January 25, 2000.
(18) On December 13, 1999, the Registrant granted a warrant to purchase
20,000 shares at an exercise price of $0.01 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment for consulting services.
(19) On March 1, 2000, the Registrant granted a warrant to purchase 300,000
shares at an exercise price of $20.00 pursuant to Rule 506 under the Securities
Act to an accredited investor in connection with an agreement pursuant to which
the Registrant will purchase ASICs from the investor.
Options to Purchase Common Stock
The Registrant from time to time has granted stock options to employees,
consultants and directors. The following table sets forth certain information
regarding such grants:
<TABLE>
<CAPTION>
NUMBER RANGE OF
OF SHARES EXERCISE PRICES($)
--------- ------------------
<S> <C> <C>
1998.............................................. 1,400,000 0.10
1999.............................................. 5,957,667 0.10-0.12
2000.............................................. 4,841,077 0.12-10.00
</TABLE>
The above securities were offered and sold by the Registrant in reliance
upon exemptions from registration pursuant to either (i) Section 4(2) of the
Securities Act as transactions not involving any public offering; (ii)
Regulation D promulgated under the Securities Act as limited offers and sales of
securities, or (iii) Rule 701 promulgated under the Securities Act. All
purchasers of the above securities acquired said shares for investment purposes
only and all stock certificates reflect the appropriate legends. No underwriters
were involved in connection with the sales of securities referred to in this
Item 15.
II-5
<PAGE> 105
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 -- Form of Amended and Restated Certificate of Incorporation
to be Filed Immediately Prior to the Offering.
3.3 -- Bylaws of the Registrant.**
3.4 -- Form of Bylaws to be In Effect Immediately Prior to the
Offering.
4.1 -- Specimen Common Stock Certificate.
5.1 -- Opinion of Davis, Graham & Stubbs LLP.**
10.1 -- 1998 Stock Option Plan.
10.2 -- Form of 2000 Stock Incentive Plan to be Adopted
Immediately Prior to the Offering.
10.3 -- Form of 2000 Employee Stock Purchase Plan to be Adopted
Immediately Prior to the Offering.
10.4 -- Form of Executive Employment and Non-Compete Agreement,
between the Registrant and Gary L. Allison, Michael J.
Gluck and Jerry L. Walker.
10.5 -- Form of Indemnification Agreement, between the Registrant
and each of its executive officers and directors.
10.6 -- Investors' Rights Agreement, dated as of November 25,
1998, between the Registrant and holders of its Preferred
Stock.**
10.7 -- First Amended Investors' Rights Agreement, dated as of
March 31, 1999, between the Registrant and holders of its
preferred stock.**
10.8 -- Second Amended Investors' Rights Agreement, dated as of
August 13, 1999, between the Registrant and holders of
its preferred stock.**
10.9 -- Third Amended Investors' Rights Agreement, dated as of
October 16, 1999, between the Registrant and holders of
its preferred stock.**
10.10 -- Fourth Amended Investors' Rights Agreement, dated as of
March 1, 2000, between the Registrant and holders of its
preferred stock.**
10.11 -- Credit and Security Agreement, dated as of July 5, 1999,
between the Registrant and Wells Fargo Business Credit,
Inc.**
10.12 -- Collateral Account Agreement, dated as of July 5, 1999,
between the Registrant and Wells Fargo Business Credit,
Inc. and Norwest Bank Colorado, N.A.**
10.13 -- Support Agreement, dated as of July 5, 1999, between
Douglas J. Lehrmann and the Registrant for the benefit of
Wells Fargo Business Credit, Inc.**
10.14 -- Support Agreement, dated as of July 5, 1999, between Gary
L. Allison and the Registrant for the benefit of Wells
Fargo Business Credit, Inc.**
10.15 -- Subordination Agreement, dated as of July 5, 1999,
between William R. Childs and Wells Fargo Business
Credit, Inc.**
10.16 -- Loan Agreement, dated as of January 14, 2000, between the
Registrant and Norwest Bank Colorado N.A. -- Boulder.**
10.17 -- Occupancy License Agreement, effective as of October 1,
1998, between the Registrant and Adaptec, Inc., as
amended by First Amendment to Occupancy License
Agreement, effective as of July 15, 1999.**
</TABLE>
II-6
<PAGE> 106
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.18 -- Lease, dated as of September 1, 1999, between the
Registrant and BTC Development, LLC, as amended by
Addendum to Lease Agreement dated November 15, 1999, and
Second Addendum to Lease Agreement dated April 11, 2000.
10.19 -- Asset Transfer Agreement, dated as of November 25, 1998,
between the Registrant and Adaptec, Inc.**
10.20 -- Contribution Agreement, dated as of November 25, 1998,
between the Registrant, Adaptec, Inc. and certain listed
individuals.**
10.21 -- Technology Cross License Agreement, dated as of November
25, 1998, between the Registrant and Adaptec, Inc.+
10.22 -- Board Manufacturing and Transition Agreement, dated as of
November 25, 1998, between the Registrant and Adaptec,
Inc.**
10.23 -- Integrated Circuit Agreement, dated March 1, 2000,
between the Registrant and Adaptec, Inc.+
10.24 -- Hardware Agreement, dated June 18, 1999, between the
Registrant and nStor Corporation.+
10.25 -- Distribution Agreement, dated March 10, 1999, between the
Registrant and Gates/Arrow Distributing, Inc.**
10.26 -- Financial Consultant Agreement, dated January 12, 1999,
between the Registrant and Sentinel Consulting, LLC.**
10.27 -- Forms of Founder Stock Purchase Agreement, dated June 16,
1998 and November 25, 1998, between the Registrant and
its founders.**
10.28 -- Forms of Series A Preferred Stock Purchase Agreement,
dated various dates between November 24, 1998 and June
15, 1999, between the Registrant and purchasers of its
Series A preferred stock.**
10.29 -- Forms of Series C Preferred Stock Purchase Agreement,
dated October 15, 1999, between the Registrant and
purchasers of its Series C preferred stock.**
10.30 -- Form of Common Stock Purchase Agreement, dated various
dates from July 15, 1999 through February 14, 2000,
between the Registrant and purchasers of its common
stock.**
10.31 -- Promissory Notes, dated various dates between January
1998 and August 1999, between the Registrant and each of
Grant Saviers, Woodcarvers Limited, LLC, Douglas
Lehrmann, Harvest Storage Technology Group LLC, Gary
Allison, William Childs, Michael Gluck, Brian Allison,
Jerry Walker, and Chaparral Systems, Inc.**
10.32 -- Warrant Agreements, dated various dates between December
1998 and March 2000, between the Registrant and each of
Gary Allison, William Childs, Michael Gluck, Harvest
Storage Technology Group LLC, Adaptec, Inc., and Sentinel
Consulting, LLC.**
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Davis, Graham & Stubbs, LLP (contained in
Exhibit 5.1).
24.1 -- Powers of Attorney (included on signature page).
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed with the Registration Statement on Form S-1 filed with the
Commission on March 8, 2000 (Registration No. 333-31990).
+ Portions of the agreement have been omitted pursuant to a confidential
treatment request.
II-7
<PAGE> 107
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
The Registrant 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 Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
- For purposes of determining any liability under the Securities, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
- For the purpose of determining any liability under the Securities, 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-8
<PAGE> 108
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to registration statement to be signed
on its behalf by the undersigned, thereunto authorized, in the City of Longmont
and the State of Colorado on the 26th day of April, 2000.
CHAPARRAL NETWORK STORAGE, INC.,
a Delaware corporation
By: /s/ GARY L. ALLISON
----------------------------------
Gary L. Allison
Chairman of the Board and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary L. Allison, Michael J. Gluck, Jerry L.
Walker and Douglas J. Lehrmann, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits and
schedules thereto, including any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together
with all schedules and exhibits thereto and other certificates, instruments,
agreements and other documents as may be necessary or appropriate in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GARY L. ALLISON Chairman of the Board and Chief April 26,
- ----------------------------------------------------- Executive Officer (Principal 2000
Gary L. Allison Executive Officer)
/s/ MICHAEL J. GLUCK President, Chief Operating April 26,
- ----------------------------------------------------- Officer and Director 2000
Michael J. Gluck
/s/ JERRY L. WALKER Executive Vice President for April 26,
- ----------------------------------------------------- Engineering and Operations 2000
Jerry L. Walker and Director
/s/ DOUGLAS J. LEHRMANN Vice President, Finance and April 26,
- ----------------------------------------------------- Chief Financial Officer 2000
Douglas J. Lehrmann (Chief Financial and
Accounting Officer)
/s/ F. GRANT SAVIERS Director April 26,
- ----------------------------------------------------- 2000
F. Grant Saviers
/s/ HARRIS RAVINE Director April 26,
- ----------------------------------------------------- 2000
Harris Ravine
</TABLE>
II-9
<PAGE> 109
EXHIBIT INDEX
CHAPARRAL NETWORK STORAGE, INC.
FORM S-1 REGISTRATION STATEMENT
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 -- Form of Amended and Restated Certificate of Incorporation
to be Filed Immediately Prior to the Offering.
3.3 -- Bylaws of the Registrant.**
3.4 -- Form of Bylaws to be In Effect Immediately Prior to the
Offering.
4.1 -- Specimen Common Stock Certificate.
5.1 -- Opinion of Davis, Graham & Stubbs LLP.**
10.1 -- 1998 Stock Option Plan.
10.2 -- Form of 2000 Stock Incentive Plan to be Adopted
Immediately Prior to the Offering.
10.3 -- Form of 2000 Employee Stock Purchase Plan to be Adopted
Immediately Prior to the Offering.
10.4 -- Form of Executive Employment and Non-Compete Agreement,
between the Registrant and Gary L. Allison, Michael J.
Gluck and Jerry L. Walker.
10.5 -- Form of Indemnification Agreement, between the Registrant
and each of its executive officers and directors.
10.6 -- Investors' Rights Agreement, dated as of November 25,
1998, between the Registrant and holders of its Preferred
Stock.**
10.7 -- First Amended Investors' Rights Agreement, dated as of
March 31, 1999, between the Registrant and holders of its
preferred stock.**
10.8 -- Second Amended Investors' Rights Agreement, dated as of
August 13, 1999, between the Registrant and holders of
its preferred stock.**
10.9 -- Third Amended Investors' Rights Agreement, dated as of
October 16, 1999, between the Registrant and holders of
its preferred stock.**
10.10 -- Fourth Amended Investors' Rights Agreement, dated as of
March 1, 2000, between the Registrant and holders of its
preferred stock.**
10.11 -- Credit and Security Agreement, dated as of July 5, 1999,
between the Registrant and Wells Fargo Business Credit,
Inc.**
10.12 -- Collateral Account Agreement, dated as of July 5, 1999,
between the Registrant and Wells Fargo Business Credit,
Inc. and Norwest Bank Colorado, N.A.**
10.13 -- Support Agreement, dated as of July 5, 1999, between
Douglas J. Lehrmann and the Registrant for the benefit of
Wells Fargo Business Credit, Inc.**
10.14 -- Support Agreement, dated as of July 5, 1999, between Gary
L. Allison and the Registrant for the benefit of Wells
Fargo Business Credit, Inc.**
10.15 -- Subordination Agreement, dated as of July 5, 1999,
between William R. Childs and Wells Fargo Business
Credit, Inc.**
10.16 -- Loan Agreement, dated as of January 14, 2000, between the
Registrant and Norwest Bank Colorado N.A. -- Boulder.**
10.17 -- Occupancy License Agreement, effective as of October 1,
1998, between the Registrant and Adaptec, Inc., as
amended by First Amendment to Occupancy License
Agreement, effective as of July 15, 1999.**
</TABLE>
<PAGE> 110
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.18 -- Lease, dated as of September 1, 1999, between the
Registrant and BTC Development, LLC, as amended by
Addendum to Lease Agreement dated November 15, 1999, and
Second Addendum to Lease Agreement dated April 11, 2000.
10.19 -- Asset Transfer Agreement, dated as of November 25, 1998,
between the Registrant and Adaptec, Inc.**
10.20 -- Contribution Agreement, dated as of November 25, 1998,
between the Registrant, Adaptec, Inc. and certain listed
individuals.**
10.21 -- Technology Cross License Agreement, dated as of November
25, 1998, between the Registrant and Adaptec, Inc.+
10.22 -- Board Manufacturing and Transition Agreement, dated as of
November 25, 1998, between the Registrant and Adaptec,
Inc.**
10.23 -- Integrated Circuit Agreement, dated March 1, 2000,
between the Registrant and Adaptec, Inc.+
10.24 -- Hardware Agreement, dated June 18, 1999, between the
Registrant and nStor Corporation.+
10.25 -- Distribution Agreement, dated March 10, 1999, between the
Registrant and Gates/Arrow Distributing, Inc.**
10.26 -- Financial Consultant Agreement, dated January 12, 1999,
between the Registrant and Sentinel Consulting, LLC.**
10.27 -- Forms of Founder Stock Purchase Agreement, dated June 16,
1998 and November 25, 1998, between the Registrant and
its founders.**
10.28 -- Forms of Series A Preferred Stock Purchase Agreement,
dated various dates between November 24, 1998 and June
15, 1999, between the Registrant and purchasers of its
Series A preferred stock.**
10.29 -- Forms of Series C Preferred Stock Purchase Agreement,
dated October 15, 1999, between the Registrant and
purchasers of its Series C preferred stock.**
10.30 -- Form of Common Stock Purchase Agreement, dated various
dates from July 15, 1999 through February 14, 2000,
between the Registrant and purchasers of its common
stock.**
10.31 -- Promissory Notes, dated various dates between January
1998 and August 1999, between the Registrant and each of
Grant Saviers, Woodcarvers Limited, LLC, Douglas
Lehrmann, Harvest Storage Technology Group LLC, Gary
Allison, William Childs, Michael Gluck, Brian Allison,
Jerry Walker, and Chaparral Systems, Inc.**
10.32 -- Warrant Agreements, dated various dates between December
1998 and March 2000, between the Registrant and each of
Gary Allison, William Childs, Michael Gluck, Harvest
Storage Technology Group LLC, Adaptec, Inc., and Sentinel
Consulting, LLC.**
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Davis, Graham & Stubbs, LLP (contained in
Exhibit 5.1).
24.1 -- Powers of Attorney (included on signature page).
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed with the Registration Statement on Form S-1 filed with the
Commission on March 8, 2000 (Registration No. 333-31990).
+ Portions of the agreement have been omitted pursuant to a confidential
treatment request.
<PAGE> 1
EXHIBIT 3.1
---------------------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
-----------------------------
ARTICLE I
The name of the corporation is Chaparral Network Storage, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1313 N. Market Street, City of Wilmington, County of New Castle. The
name of its registered agent at that address is The Company Corporation.
ARTICLE 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
Delaware.
ARTICLE IV
The corporation is authorized to issue two classes of shares, designated
"Common Stock" and "Preferred Stock," both of which shall have $0.001 par value
per share. The number of shares of Common Stock authorized to be issued is
52,000,000 shares. The number of shares of Preferred Stock authorized to be
issued is 29,140,200 shares, 18,600,000 of which are designated as "Series A
Preferred Stock," 5,540,200 of which are designated as "Series B Preferred
Stock" and 5,000,000 shares of which are designated as "Series C Preferred
Stock."
ARTICLE V
The Board of Directors is authorized to make, adopt, amend, alter or repeal
the Bylaws of the corporation.
Election of directors need not be by written ballot unless the Bylaws of the
corporation shall so provide.
ARTICLE VI
The business and affairs of the corporation shall be managed by or under the
direction of the Board of Directors. In addition to the powers and authority
expressly conferred upon them by statute, by this Certificate of Incorporation
or by the Bylaws of the corporation, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the corporation.
1
<PAGE> 2
ARTICLE VII
To the fullest extent permitted by the Delaware General Corporation Law, no
director of the corporation shall be personally liable for monetary damages for
breach of fiduciary duty as a director. Without limiting the effect of the
preceding sentence, if the Delaware General Corporation Law is hereafter amended
to authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE VIII
The rights, preferences, privileges and restrictions granted to and imposed
on the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and the Common Stock are as follows:
1. DEFINITIONS. For purposes of this Article VIII, the following definitions
apply:
1.1 "BOARD" shall mean the Board of Directors of the Company.
1.2 "COMPANY" shall mean this corporation.
1.3 "COMMON STOCK" shall mean the Common Stock, $0.001 par value per
share, of the Company.
1.4 "COMMON STOCK DIVIDEND" shall mean a stock dividend declared and
paid on the Common Stock that is payable in shares of Common Stock.
1.5 "DISTRIBUTION" shall mean the transfer of cash or property by the
Company to one or more of its stockholders without consideration, whether by
dividend or otherwise (except a dividend in shares of Company's stock). A
Permitted Repurchase (defined below) is not a Distribution.
1.6 "DIVIDEND RATE" shall mean $0.008 per share per annum for the
Series A Preferred Stock, $0.009 per share per annum for the Series B Preferred
Stock and $0.0352 per share per annum for the Series C Preferred Stock.
1.7 "ORIGINAL ISSUE DATE" shall mean the date on which the first share
of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock, as the case may be, is issued by the Company.
2
<PAGE> 3
1.8 "ORIGINAL ISSUE PRICE" shall mean $0.10 per share for the Series A
Preferred Stock, $0.18 per share for the Series B Preferred Stock and $ 0.44 per
share for the Series C Preferred Stock.
1.9 "PERMITTED REPURCHASES" shall mean the repurchase by the Company of
shares of Common Stock held by employees, officers, directors, consultants,
independent contractors, advisors, or other persons performing services for the
Company or a subsidiary that are subject to restricted stock purchase agreements
or stock option exercise agreements under which the Company has the option to
repurchase such shares: (a) at cost, upon the occurrence of certain events, such
as the termination of employment or services; or (b) at any price pursuant to
the Company's exercise of a right of first refusal to repurchase such shares.
1.10 "PREFERRED STOCK" shall mean the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock.
1.11 "SERIES A PREFERRED STOCK" shall mean the Series A Preferred
Stock, $0.001 par value per share, of the Company.
1.12 "SERIES B PREFERRED STOCK" shall mean the Series B Preferred
Stock, $0.001 par value per share, of the Company.
1.13 "SERIES C PREFERRED STOCK" shall mean the Series C Preferred
Stock, $0.001 par value per share, of the Company.
1.14 "SUBSIDIARY" shall mean any corporation of which at least fifty
percent (50%) of the outstanding voting stock is at the time owned directly or
indirectly by the Company or by one or more of such subsidiary corporations.
2. DIVIDEND RIGHTS.
2.1 Dividend Preference. In each calendar year, the holders of the then
outstanding Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board, out of any funds and assets of the Company legally available therefor,
noncumulative dividends at the annual Dividend Rate for each such series of
Preferred Stock, prior and in preference to the payment of any dividends or
other Distribution on the Common Stock in such calendar year (other than a
Common Stock Dividend). No dividends (other than a Common Stock Dividend) shall
be paid, and no Distribution shall be made, with respect to the Common Stock
during any calendar year unless (i) dividends in the total amount of the annual
Dividend Rate for the Series A Preferred Stock shall have first been paid or
declared and set apart for payment to the holders of the Series A Preferred
Stock, (ii) dividends in the total amount of the annual Dividend Rate for the
Series B Preferred Stock, shall have first been paid or declared and set apart
for payment to the holders of the Series B Preferred Stock and (iii) dividends
in the total amount of the Dividend Rate for the Series C Preferred Stock shall
have first been paid or declared and set apart for payment to the holders of the
Series C Preferred Stock, respectively, during that calendar year; provided,
however, that this restriction shall not apply to Permitted Repurchases.
Payments of any
3
<PAGE> 4
dividends to the holders of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock shall be paid pro rata, on an equal priority, pari
passu basis according to their respective dividend preferences as set forth
herein. Dividends on the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock shall not be mandatory or cumulative, and no rights or
interest shall accrue to the holders of the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock by reason of the fact that the
Company shall fail to declare or pay dividends on the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock in the amount of the
respective annual Dividend Rate for each such series or in any other amount in
any calendar year or any fiscal year of the Company, whether or not the earnings
of the Company in any calendar year or fiscal year were sufficient to pay such
dividends in whole or in part.
2.2 Participation Rights. If, after dividends in the full preferential
amounts specified in this Section 2 for the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock have been paid or declared and set
apart in any calendar year of the Company, the Board shall declare additional
dividends out of funds legally available therefor in that calendar year, then
such additional dividends shall be declared pro rata on the Common Stock, the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
on a pari passu basis according to the number of shares of Common Stock held by
such holders, where each holder of shares of Series A Preferred Stock, Series B
Preferred Stock and/or Series C Preferred Stock is to be treated for this
purpose as holding the greatest whole number of shares of Common Stock then
issuable upon conversion of all shares of Series A Preferred Stock, Series B
Preferred Stock and/or Series C Preferred Stock held by such holder pursuant to
Section 6.
2.3 Non-Cash Dividends. Whenever a dividend or Distribution provided
for in this Section 2 shall be payable in property other than cash, the value of
such dividend or Distribution shall be deemed to be the fair market value of
such property as determined in good faith by the Board.
3. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the funds and
assets that may be legally distributed to the Company's stockholders (the
"AVAILABLE FUNDS AND ASSETS") shall be distributed to stockholders in the
following manner:
3.1 Liquidation Preferences. The holders of each share of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock then
outstanding shall be entitled to be paid, out of the Available Funds and Assets,
and prior and in preference to any payment or distribution (or any setting apart
of any payment or distribution) of any Available Funds and Assets on any shares
of Common Stock, an amount per share equal to the Original Issue Price for each
such series of Preferred Stock, respectively, plus all declared but unpaid
dividends thereon. If upon any liquidation, dissolution or winding up of the
Company the Available Funds and Assets shall be insufficient to permit the
payment to holders of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock of their full preferential amounts described in this
subsection, then all the remaining Available Funds and Assets shall be
distributed among the holders of the then outstanding Series A Preferred Stock,
Series B Preferred Stock and Series
4
<PAGE> 5
C Preferred Stock pro rata, on an equal priority, pari passu basis, according to
their respective liquidation preferences as set forth herein.
3.2 Participation Rights. If there are any Available Funds and Assets
remaining after the payment or distribution (or the setting aside for payment or
distribution) to the holders of the Preferred Stock of their full preferential
amounts described above in this Section 3, then all such remaining Available
Funds and Assets shall be distributed among the holders of the then outstanding
Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock pro rata according to the number of shares of Common Stock held
by such holders, where, for this purpose, holders of shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock will be
deemed to hold (in lieu of their Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock, as the case may be) the greatest whole number
of shares of Common Stock then issuable upon conversion in full of such shares
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock pursuant to Section 6.
3.3 Merger or Sale of Assets. Each of the following shall each be
deemed to be a liquidation, dissolution or winding up of the Company as those
terms are used in this Section 3: (a) consolidation or merger of the Company
with or into any other corporation or corporations in which the holders of the
Company's outstanding shares immediately before such consolidation or merger do
not, immediately after such consolidation or merger, retain stock representing a
majority of the voting power of the surviving corporation of such consolidation
or merger; or (b) a sale of all or substantially all of the assets of the
Company.
3.4 Non-Cash Consideration. If any assets of the Company distributed to
stockholders in connection with any liquidation, dissolution, or winding up of
the Company are other than cash, then the value of such assets shall be their
fair market value as determined by the Board, except that any securities to be
distributed to stockholders in a liquidation, dissolution, or winding up of the
Company shall be valued as follows:
(a) The method of valuation of securities not subject to investment
letter or other similar restrictions on free marketability shall be as follows:
(i) if the securities are then traded on a national securities
exchange or the Nasdaq National Market (or a similar national quotation system),
then the value shall be deemed to be the average of the closing prices of the
securities on such exchange or system over the 30-day period ending three (3)
days prior to the distribution;
(ii) if actively traded over-the-counter, then the value shall
be deemed to be the average of the closing bid prices over the 30-day period
ending three (3) days prior to the distribution; and
(iii) if there is no active public market, then the value shall
be the fair market value thereof, as determined in good faith by the Board of
Directors of the Company.
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(b) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in subparagraphs
(a)(i), (ii) or (iii) of this subsection to reflect the approximate fair market
value thereof, as determined in good faith by the Board.
4. REDEMPTION. The shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock are nonredeemable.
5. VOTING RIGHTS.
5.1 Common Stock. Each holder of shares of Common Stock shall be
entitled to one (1) vote for each share thereof held.
5.2 Preferred Stock. Each holder of shares of Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which such shares of Preferred Stock could be converted
pursuant to the provisions of Section 6 below at the record date for the
determination of the stockholders entitled to vote on such matters or, if no
such record date is established, the date such vote is taken or any written
consent of stockholders is solicited.
5.3 General. Subject to the foregoing provisions of this
Section 5, each holder of Preferred Stock shall have full voting rights and
powers equal to the voting rights and powers of the holders of Common Stock, and
shall be entitled to notice of any stockholders' meeting in accordance with the
Bylaws of the Company (as in effect at the time in question) and applicable law,
and shall be entitled to vote, together with the holders of Common Stock, with
respect to any question upon which holders of Common Stock have the right to
vote, except as may be otherwise provided by applicable law. Except as otherwise
expressly provided herein or as required by law, the holders of Preferred Stock
and the holders of Common Stock shall vote together and not as separate classes.
6. CONVERSION RIGHTS. The outstanding shares of Preferred Stock shall be
convertible into Common Stock as follows:
6.1 Optional Conversion.
(a) At the option of the holder thereof, each share of Preferred
Stock shall be convertible, at any time or from time to time prior to the close
of business on the business day before any date fixed for redemption of such
share, into fully paid and nonassessable shares of Common Stock as provided
herein.
(b) Each holder of Preferred Stock who elects to convert the same
into shares of Common Stock shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or any transfer agent for
the Preferred Stock or Common Stock, and shall give written notice to the
Company at such office that such holder elects to convert the same and shall
state therein the number of shares of Preferred Stock being converted. Thereupon
the Company shall promptly issue and deliver at such office to such holder a
certificate or
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certificates for the number of shares of Common Stock to which such holder is
entitled upon such conversion. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
certificate or certificates representing the shares of 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.
6.2 Automatic Conversion.
(a) Each share of Preferred Stock shall automatically be converted
into fully paid and nonassessable shares of Common Stock, as provided herein:
(i) immediately prior to the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company in which the aggregate public offering price
(before deduction of underwriters' discounts and commissions) equals or exceeds
$15,000,000 and the public offering price per share of which equals or exceeds
$2.20 per share before deduction of underwriters' discounts and commissions
(such price per share of Common Stock to be appropriately adjusted to reflect
Common Stock Events (as defined in subsection 6.4); or (ii) upon the Company's
receipt of the written consent of the holders of not less than two-thirds (2/3)
of the then outstanding shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock to the conversion of all then outstanding
Preferred Stock under this Section 6.
(b) Upon the occurrence of any event specified in subparagraph
6.2(a)(i) or (ii) above, the outstanding shares of Preferred Stock shall be
converted into Common Stock automatically without the need for any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Preferred Stock are either delivered to
the Company or its transfer agent as provided below, or the holder notifies the
Company or its transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such certificates. Upon
the occurrence of such automatic conversion of the Preferred Stock, the holders
of Preferred Stock shall surrender the certificates representing such shares at
the office of the Company or any transfer agent for the Preferred Stock or
Common 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 Preferred Stock surrendered were
convertible on the date on which such automatic conversion occurred.
6.3 Conversion Price. Each share of Preferred Stock shall be
convertible in accordance with subsection 6.1 or subsection 6.2 above into the
number of shares of Common Stock which results from dividing the Original Issue
Price for such series of Preferred Stock by the conversion price for such series
of Preferred Stock that is in effect at the time of conversion
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(the "CONVERSION PRICE"). The initial Conversion Price for the Series A
Preferred Stock shall be two (2) times the Original Issue Price for the Series A
Preferred Stock, the initial conversion price for the Series B Preferred Stock
shall be two (2) times the Original Issue Price of the Series B Preferred Stock
and the initial Conversion Price for the Series C Preferred Stock shall be two
(2) times the Original Issue Price of the Series C Preferred Stock, provided,
however, that the Conversion Price of the Series B Preferred Stock shall be
adjusted as if the Original Issue Price of the Series B Preferred Stock was
$0.18 as of the original date the Series B Preferred Stock was issued. The
Conversion Price of each series of Preferred Stock shall be subject to
adjustment from time to time as provided below.
6.4 Adjustment Upon Common Stock Event. Upon the happening of a Common
Stock Event (as hereinafter defined), the Conversion Price of the Series A
Preferred Stock, the Conversion Price of the Series B Preferred Stock and the
Conversion Price of the Series C Preferred Stock shall, simultaneously with the
happening of such Common Stock Event, be adjusted by multiplying the Conversion
Price of such series of Preferred Stock in effect immediately prior to such
Common Stock Event by a fraction, (a) the numerator of which shall be the number
of shares of Common Stock issued and outstanding immediately prior to such
Common Stock Event, and (b) the denominator of which shall be the number of
shares of Common Stock issued and outstanding immediately after such Common
Stock Event, and the product so obtained shall thereafter be the Conversion
Price for such series of Preferred Stock. The Conversion Price for a series of
Preferred Stock shall be readjusted in the same manner upon the happening of
each subsequent Common Stock Event. As used herein, the term "COMMON STOCK
EVENT" shall mean (a) the issue by the Company of additional shares of Common
Stock as a dividend or other distribution on outstanding Common Stock, (b) a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock, or (c) a combination of the outstanding shares of Common
Stock into a smaller number of shares of Common Stock.
6.5 Adjustments for Other Dividends and Distributions. If at any time
or from time to time after the Original Issue Date the Company pays a dividend
or makes another distribution to the holders of the Common Stock payable in
securities of the Company other than shares of Common Stock, then in each such
event provision shall be made so that the holders of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable upon conversion thereof, the amount of securities of the Company
which they would have received had their Preferred Stock been converted into
Common Stock on the date of such event (or such record date, as applicable) and
had they thereafter, during the period from the date of such event (or such
record date, as applicable) 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 6 with
respect to the rights of the holders of the Preferred Stock or with respect to
such other securities by their terms.
6.6 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 the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred
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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 by a Common Stock Event or a stock dividend, reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 6), then
in any such event each holder of Series A Preferred Stock, Series B Preferred
Stock or Series C 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 number of shares of Common Stock into which such shares of Series
A Preferred Stock, Series B Preferred Stock or Series C 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.
6.7 Sale of Shares Below Conversion Price.
(a) Adjustment Formula. If at any time or from time to time after an
Original Issue Date, the Company issues or sells, or is deemed by the provisions
of this subsection 6.7 to have issued or sold, Additional Shares of Common Stock
(as defined below), otherwise than in connection with a Common Stock Event as
provided in subsection 6.4, a dividend or distribution as provided in subsection
6.5 or a recapitalization, reclassification or other change as provided in
subsection 6.6, for an Effective Price (as defined below) that is less than the
Conversion Price for such a series of Preferred Stock in effect immediately
prior to such issue or sale, then, and in each such case, the Conversion Price
for such series of Preferred Stock shall be reduced, as of the close of business
on the date of such issue or sale, to the price obtained by multiplying such
Conversion Price by a fraction:
(i) The numerator of which shall be the sum of (A) the number of
Common Stock Equivalents Outstanding (as defined below) immediately prior to
such issue or sale of Additional Shares of Common Stock plus (B) the quotient
obtained by dividing the Aggregate Consideration Received (as defined below) by
the Company for the total number of Additional Shares of Common Stock so issued
or sold (or deemed so issued and sold) by the Conversion Price for such series
of Preferred Stock in effect immediately prior to such issue or sale; and
(ii) The denominator of which shall be the sum of (A) the number
of Common Stock Equivalents Outstanding immediately prior to such issue or sale
plus (B) the number of Additional Shares of Common Stock so issued or sold (or
deemed so issued and sold).
(b) Certain Definitions. For the purpose of making any adjustment
required under this subsection:
(i) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company, whether or not subsequently reacquired or
retired by the Company, other than:
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(A) shares of Common Stock issued or issuable upon
conversion of the Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock;
(B) the initial issuance of shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock or
(C) a cumulative total (since November 25, 1998) of
5,000,000 shares of Common Stock (and/or options, warrants or rights therefor)
issued to employees, officers, or directors of, or contractors, consultants or
advisers to, the Company or any Subsidiary pursuant to incentive agreements or
plans approved by the Board of Directors of the Company ("Incentive Shares")
calculated net of any repurchases of such shares by the Company and net of any
such expired or terminated Incentive Shares and proportionally adjusted to
reflect any subsequent Common Stock Event and, if the number of shares of Common
Stock (and/or options, warrants or rights thereto) issued exceeds this
cumulative total of Incentive Shares on a given day and if a portion of such
shares subsequently expires or terminates, the shares subsequently expiring or
terminating shall be allocated (i) on a pro rata basis to the amount considered
Incentive Shares based on a percentage equal to the quotient of (a) the number
of shares allocated as Incentive Shares on the date the expiring shares were
issued and (b) the total number of shares issued on that date AND (ii) on a pro
rata basis to the amount considered Additional Shares based on a percentage
equal to the quotient of (a) the number of shares allocated as Additional Shares
on the date the expiring shares were issued and (b) the total number of shares
issued on that date, such method of allocation to be effective as of the first
date any series of Preferred Stock was issued;
(D) shares of the Company's Common Stock or Preferred Stock
issued in connection with any stock split or stock dividend;
(E) securities offered by the Company to the public pursuant
to a registration Statement filed under the Securities Act of 1933, as amended;
(F) a cumulative total (since the Company's inception) of
125,000 shares of the Company's Common Stock or Preferred Stock (and/or options
or warrants thereof) issued or issuable to parties providing the Company with
equipment leases, real property leases, loans, credit lines, guaranties of
indebtedness, cash price reductions or similar financing (proportionally
adjusted to reflect any subsequent Common Stock Event); or
(G) securities issued pursuant to the acquisition of another
corporation or entity by the Company by consolidation, merger, purchase of all
or substantially all of the assets, or other reorganization in which the Company
acquires, in a single transaction or a series of related transactions, all or
substantially all of the assets of such other corporation or entity or fifty
(50%) or more of the voting power of such other corporation or entity or fifty
percent (50%) or more of the equity ownership of such other entity.
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(ii) The "Aggregate Consideration Received" by the Company for
any issue or sale (or deemed issue or sale) of securities shall (A) to the
extent it consists of cash, be computed at the gross amount of cash received by
the Company before deduction of any underwriting or similar commissions,
compensation or concessions paid or allowed by the Company in connection with
such issue or sale and without deduction of any expenses payable by the Company;
(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; and (C) if
Additional Shares of Common Stock, Convertible Securities 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 to be allocable to such Additional Shares of Common Stock, Convertible
Securities or Rights or Options.
(iii) "Convertible Securities" shall mean any indebtedness or
shares of stock convertible into or exchangeable for Common Stock, including the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock.
(iv) "Common Stock Equivalents" shall mean Convertible
Securities and rights entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock without the payment of any
consideration by such holder for such additional shares of Common Stock or
Common Stock Equivalents.
(v) "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 into the Aggregate Consideration Received for the
issue of such Additional Shares of Common Stock.
(vi) "Options" shall mean any warrants or options to subscribe
for or purchase Common Stock or Convertible Securities.
(vii) "Rights" shall mean any right to subscribe for or purchase
Common Stock or Convertible Securities.
(c) Deemed Issuances. For the purpose of making any adjustment to
the Conversion Price of the Preferred Stock required under this subsection 6.7,
if the Company issues or sells any Rights or Options or Convertible Securities
and if the Effective Price of the shares of Common Stock issuable upon exercise
of such Rights or Options and/or the conversion or exchange of Convertible
Securities (computed without reference to any additional or similar protective
or antidilution clauses) is less than the Conversion Price then in effect for a
series of Preferred Stock, then the Company shall be deemed to have issued, at
the time of the issuance
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of such Rights, Options or Convertible Securities, that number of Additional
Shares of Common Stock that is equal to the maximum number of shares of Common
Stock issuable upon exercise or conversion of such Rights, Options or
Convertible Securities upon their issuance and to have received, as the
Aggregate Consideration Received 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 in full 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 or exchange thereof; provided that:
(i) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
then the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses;
(ii) if the minimum amount of consideration payable to the
Company upon the exercise of Rights or Options or the conversion or exchange of
Convertible Securities is reduced over time or upon the occurrence or
non-occurrence of specified events other than by reason of antidilution or
similar protective adjustments, then the Effective Price shall be recalculated
using the figure to which such minimum amount of consideration is reduced; and
(iii) if the minimum amount of consideration payable to the
Company upon the exercise of such Rights or Options or the conversion or
exchange of Convertible Securities is subsequently increased, then the Effective
Price shall again be recalculated using the increased minimum amount of
consideration payable to the Company upon the exercise of such Rights or Options
or the conversion or exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the issuance of
such Rights or Options or Convertible Securities, shall be made as a result of
the actual issuance of shares of Common Stock on the exercise of any such Rights
or Options or the conversion or exchange of any such Convertible Securities. If
any such Rights or Options or the conversion rights represented by any such
Convertible Securities shall expire without having been fully exercised, then
the Conversion Price as adjusted upon the issuance of such Rights or 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
shares of Common Stock so issued were the shares of Common Stock, if any, that
were actually issued or sold on the exercise of such Rights or Options or rights
of conversion or exchange of such Convertible Securities, and such shares of
Common Stock, if any, were issued or sold for the consideration 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
all such Convertible Securities actually converted or exchanged, 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 or exchange of such Convertible Securities,
provided that such readjustment shall not apply to prior conversions of
Preferred Stock.
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6.8 Certificate of Adjustment. In each case of an adjustment or
readjustment of the Conversion Price for a series of Preferred Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Preferred Stock at the holder's address as shown in the Company's books.
6.9 Fractional Shares. No fractional shares of Common Stock shall be
issued upon any conversion of Preferred Stock. In lieu of any fractional share
to which the holder would otherwise be entitled, the Company shall pay the
holder cash equal to the product of such fraction multiplied by the Common
Stock's fair market value as determined in good faith by the Board as of the
date of conversion.
6.10 Reservation of Stock Issuable Upon Conversion. The Company 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 Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock; and 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 Preferred Stock, the
Company 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.
6.11 Notices. Any notice required by the provisions of this Section 6
to be given to the holders of shares of the Preferred Stock shall be deemed
given upon the earlier of actual receipt or deposit in the United States mail,
by certified or registered mail, return receipt requested, postage prepaid,
addressed to each holder of record at the address of such holder appearing on
the books of the Company.
6.12 No Impairment. The Company shall not avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, 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 Preferred Stock
against impairment.
7. RESTRICTIONS AND LIMITATIONS.
7.1 Class Protective Provisions. So long as any shares of
Preferred Stock remain outstanding, the Company shall not, without the approval,
by vote or written consent, of the holders of a majority of the Preferred Stock
then outstanding, voting as a single class:
(a) amend its Certificate of Incorporation in any manner that would
alter or change any of the rights, preferences, privileges or restrictions of
the Preferred Stock;
(b) amend its Certificate of Incorporation or Bylaws in any other
manner that would adversely affect the rights, preferences and privileges of the
Preferred Stock;
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(c) reclassify any outstanding shares of securities of the Company
into shares having rights, preferences or privileges senior to or on a parity
with the Preferred Stock; or
(d) authorize or issue any other stock having rights or preferences
senior to or on a parity with the Preferred Stock as to dividend rights or
liquidation preferences.
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EXHIBIT 3.2
FORM OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CHAPARRAL NETWORK STORAGE, INC.,
(FORMERLY CHAPARRAL TECHNOLOGIES, INC.)
(ORIGINALLY INCORPORATED ON JANUARY 22, 1998)
ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF
SECTIONS 242 AND 245 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
-----------------------------
ARTICLE 1
The name of the corporation is Chaparral Network Storage, Inc.
(hereinafter, the "Company").
ARTICLE 2
The address of the registered office of the Company in the State of
Delaware is 1313 N. Market Street, City of Wilmington, County of New Castle.
The name of its registered agent at that address is The Company Corporation.
ARTICLE 3
The purpose of the Company is to engage in any lawful act or activity for
which a Corporation may be organized under the General Corporation Law of
Delaware ("GCL").
ARTICLE 4
4.1. Authorized Shares. The total number of shares that the Company is
authorized to issue is 160,000,000, 120,000,000 shares of which shall be Common
Stock, par value $.001 per share, and 40,000,000 shares of which shall be
Preferred Stock, par value $.001 per share. Of the authorized Preferred Stock,
18,600,000 shares are designated as "Series A Preferred Stock," 5,540,200
shares are designated as "Series B Preferred Stock" and 5,000,000 shares are
designated as "Series C Preferred Stock."
4.2. Common Stock. Each holder of Common Stock shall be entitled to one
vote for each share of Common Stock held on all matters as to which holders of
Common Stock shall be entitled to vote. Except for and subject to those
preferences, rights, and privileges expressly granted to the holders of all
classes of stock at the time outstanding having prior rights, and series
<PAGE> 2
of preferred stock which may from time to time come into existence, and except
as may be provided by the laws of the State of Delaware, the holders of Common
Stock shall have exclusively all other rights of stockholders of the Company,
including, but not by way of limitation, (i) the right to receive dividends
when, as and if declared by the Board of Directors out of assets lawfully
available therefor, and (ii) in the event of any distribution of assets upon
the dissolution and liquidation of the Company, the right to receive ratably
and equally all of the assets of the Company remaining after the payment to the
holders of preferred stock of the specific amounts, if any, which they are
entitled to receive as may be provided herein or pursuant hereto.
4.3. Preferred Stock. Notwithstanding the other provisions of this Section
4.3, the rights, preferences, privileges and restrictions granted to and
imposed on the outstanding shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock are set forth in Exhibit A hereto.
The Board of Directors of the Company is authorized, subject to
limitations prescribed by law, to provide by resolution or resolutions for the
issuance of the shares of preferred stock as a class or in series, and, by
filing a certificate of designation, pursuant to the GCL, setting forth a copy
of such resolution or resolutions, to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of the class or of each such series, and
the qualifications, limitations, and restrictions thereof. The authority of the
Board of Directors with respect to the class or each series shall include, but
not be limited to, determination of the following:
(a) The number of shares constituting any series and the distinctive
designation of that series, which number may (except where otherwise provided
by the Board of Directors in creating such series) be increased or decreased,
but not below the number of shares outstanding from time to time by like action
of the Board of Directors;
(b) The dividend rate on the shares of the class or of any series, the
conditions and times upon which such dividends shall be payable, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of the
class or of that series;
(c) Whether the class or any series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) Whether the shares of the series shall be convertible into or
exchangeable for shares of any other class or classes, with or without par
value, or of any other series of this same class, and, if provision is made for
conversion or exchange, the times, prices, rates, adjustments and other terms
and conditions of such conversion or exchange;
(e) Whether or not the shares of the class or of any series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
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(f) Whether the class or any series shall have a retirement or sinking
fund for the redemption or purchase of shares of the class or of that series,
and, if so, the terms and amount of such retirement or sinking fund;
(g) The rights of the shares of the class or of any series in the
event of voluntary or involuntary dissolution or winding up of the Company, and
the relative rights of priority, if any, of payment of shares of the class or
of that series;
(h) Any other powers, preferences, rights, qualifications,
limitations, and restrictions of the class or of any series, as the Board of
Directors may deem advisable and as shall not be inconsistent with the
provisions of this Amended and Restated Certificate of Incorporation.
ARTICLE 5
5.1. Number and Election of Directors. The number of directors of the
Company shall be fixed from time to time in the manner provided in the bylaws
and may be increased or decreased from time to time in the manner provided in
the bylaws. Election of directors need not be by written ballot except and to
the extent provided in the bylaws of the Company. The directors shall be
divided into three classes as determined by the Board of Directors, designated
as Class I, Class II and Class III. Each class shall consist, as nearly as may
be possible, of one-third of the total number of directors constituting the
entire Board of Directors. Initial class assignments shall be determined by the
Board of Directors in accordance with the bylaws. At each annual meeting of
stockholders, successors to the class of directors whose terms expired at that
annual meeting shall be elected for a three-year term. If the number of
directors has changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, but in no case will a decrease in the number of directors shorten
the term of any incumbent director. A director shall hold office until the
annual meeting for the year in which his term expires and until his successor
shall be elected and qualified, subject, however, to such director's prior
death, resignation, retirement, disqualification or removal from office.
5.2. Quorum. A quorum of the Board of Directors for the transaction of
business shall not consist of less than a majority of the total number of
directors, except as otherwise may be provided in this Certificate of
Incorporation or in the bylaws with respect to filling vacancies.
5.3. Newly Created Directorships and Vacancies. Except as otherwise fixed
relative to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors under specified circumstances, newly created directorships resulting
from any increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled solely by the affirmative vote of a majority of the
remaining directors then in office, or by a sole remaining director, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the new directorship which was created or in which the vacancy
occurred and until
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such director's successor shall have been elected and qualified. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
ARTICLE 6
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to adopt, repeal, alter, amend and rescind
any or all of the bylaws of the Company.
ARTICLE 7
7.1. Stockholder Actions. Any action required or permitted to be taken by
the stockholders of the Company must be effected at a duly called annual or
special meeting of such stockholders and may not be effected by any consent in
writing by such stockholders.
7.2. Meetings. Meetings of stockholders may be held within or without the
State of Delaware, as the bylaws may provide. Except as otherwise required by
law and subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock, special meetings of the stockholders
may be called only by the chairman of the board, the chief executive officer,
the president, any officer of the Company upon the written request by a
majority of the Board of Directors, or as may be designated in the bylaws of
the Company.
7.3. Corporate Books. The books of the Company 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 Company.
ARTICLE 8
The Board of Directors of the Company, when evaluating any offer of
another party to (a) make a tender or exchange offer for any equity security of
the Company, (b) merge or consolidate the Company with another corporation, or
(c) purchase or otherwise acquire all or substantially all of the properties
and assets of the Company, shall in connection with the exercise of its
judgment in determining what is in the best interests of the Company and its
stockholders, give due consideration to (i) all relevant factors including,
without limitation, the social, legal, environmental and economic effects on
the employees, customers, suppliers and other affected persons, firms and
corporations and on the communities and geographical areas in which the Company
and its subsidiaries operate or are located and on any of the businesses and
properties of the Company or any of its subsidiaries, as well as such other
factors as the directors deem relevant, and (ii) not only the consideration
being offered, in relation to the then current market price for the Company's
outstanding shares of capital stock, but also in relation to the then current
value of the Company in a freely negotiated transaction and in relation to the
Board of Directors' estimate of the future value of the Company (including the
unrealized value of its properties and assets) as an independent going concern.
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ARTICLE 9
Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation of the Company or of the bylaws of the Company
(and notwithstanding the fact that a lesser percentage may be specified by law,
this Amended and Restated Certificate of Incorporation or the bylaws), the
affirmative vote of the holders of not less than sixty six and two-thirds
percent (66-2/3%) of the outstanding shares of the capital stock of the Company
entitled to vote generally in the election of directors (considered for this
purpose as one class), shall be required to amend or repeal or adopt any
provisions inconsistent with Articles 5, 6, 7, 8 and 9 of this Amended and
Restated Certificate of Incorporation.
ARTICLE 10
A director or officer of the Company shall not be liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director or officer, except to the extent such exemption from liability or
limitation thereof is not permitted under the GCL as currently in effect or as
the same may hereafter be amended.
No amendment, modification or repeal of this Article 10 shall adversely
affect any right or protection of a director that exists at the time of such
amendment, modification or repeal.
ARTICLE 11
The Company shall indemnify, to the fullest extent permitted by applicable
law as in effect from time to time, any person against all liability and
expense (including attorneys' fees) incurred by reason of the fact that he or
she is or was a director or officer of the Company or any of its subsidiaries,
or while serving as a director or officer of the Company or any of its
subsidiaries, he or she is or was serving at the request of the Company or any
of its subsidiaries as a director, officer, partner or trustee of, or in any
similar managerial or fiduciary position of, or as an employee or agent of,
another corporation, partnership, joint venture, trust, association, or other
entity (an "Agent").
Expenses (including attorneys' fees) incurred in defending an action,
suit, or proceeding may be paid by the Company in advance of the final
disposition of such action, suit, or proceeding, to the fullest extent
permitted by Delaware law, upon receipt of an undertaking by the Agent to repay
the amount of expenses so advanced if it shall be determined that the Agent is
not entitled to be indemnified. The Company may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, fiduciary,
or agent of the Company or any of its subsidiaries against any liability
asserted against and incurred by such person in any such capacity or arising
out of such person's position, whether or not the Company would have the power
to indemnify against such liability under the provisions of this Article 11.
The indemnification provided by this Article 11 shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under this
Amended and Restated Certificate of Incorporation, any bylaw, agreement, vote
of stockholders or disinterested directors, statute, or otherwise, and shall
inure to the benefit of the heirs, executors, and administrators of an
indemnified party. The provisions of this Article 11 shall not be deemed to
preclude the Company
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from indemnifying other persons from similar or other expenses and liabilities
as the Board of Directors or the stockholders may determine.
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EXHIBIT A
TERMS OF SERIES A PREFERRED STOCK,
SERIES B PREFERRED STOCK AND
SERIES C PREFERRED STOCK
Notwithstanding the other provisions of this Section 4.3 of Article 4
of this Certificate of Incorporation, the rights, preferences, privileges and
restrictions granted to and imposed on the outstanding shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are set
forth in Exhibit A hereto.
1. DEFINITIONS. For purposes of this Exhibit A, the following definitions
apply:
1.1 "BOARD" shall mean the Board of Directors of the Company.
1.2 "COMPANY" shall mean this Company.
1.3 "COMMON STOCK" shall mean the Common Stock, $0.001 par value per
share, of the Company.
1.4 "COMMON STOCK DIVIDEND" shall mean a stock dividend declared and paid
on the Common Stock that is payable in shares of Common Stock.
1.5 "DISTRIBUTION" shall mean the transfer of cash or property by the
Company to one or more of its stockholders without consideration, whether by
dividend or otherwise (except a dividend in shares of Company's stock).
1.6 "DIVIDEND RATE" shall mean $0.008 per share per annum for the Series A
Preferred Stock, $0.09 per share per annum for the Series B Preferred Stock and
$0.0352 per share per annum for the Series C Preferred Stock.
1.7 "ORIGINAL ISSUE DATE" shall mean the date on which the first share of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
as the case may be, is issued by the Company.
1.8 "ORIGINAL ISSUE PRICE" shall mean $0.10 per share for the Series A
Preferred Stock, $0.18 per share for the Series B Preferred Stock and $.044 per
share for the Series C Preferred Stock.
1.9 "PERMITTED REPURCHASES" shall mean the repurchase by the Company of
shares of Common Stock held by employees, officers, directors, consultants,
independent contractors, advisors, or other persons performing services for the
Company or a subsidiary that are subject to restricted stock purchase
agreements of stock option exercise agreements under which the Company has the
option to repurchase such shares: (a) at cost, upon the occurrence of certain
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events, such as the termination of employment or services; or (b) at any price
pursuant to the Company's exercise of as right of first refusal to repurchase
such shares.
1.10 "ORIGINAL PREFERRED STOCK" shall mean the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock.
1.11 "SERIES A PREFERRED STOCK" shall mean the Series A Preferred Stock,
$0.001 par value per share, of the Company.
1.12 "SERIES B PREFERRED STOCK" shall mean the Series B Preferred Stock,
$0.001 par value per share, of the Company.
1.13 "SERIES C PREFERRED STOCK" shall mean the Series C Preferred Stock,
$0.001 par value per share, of the Company.
1.14 "SUBSIDIARY" shall mean any Corporation of which at least fifty
percent (50%) of the outstanding voting stock is at the time owned directly or
indirectly by the Corporation or by one or more of such subsidiary
Corporations.
2. DIVIDEND RIGHTS.
2.1 Dividend Preference. In each calendar year, the holders of the then
outstanding Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board, out of any funds and assets of the Company legally available therefor,
noncumulative dividends at the annual Dividend Rate for each such series of
Preferred Stock, prior and in preference to the payment of any dividends or
other Distribution on the Common Stock in such calendar year (other than a
Common Stock Dividend). No dividends (other than a Common Stock Dividend) shall
be paid, and no Distribution shall be made, with respect to the Common Stock
during any calendar year unless (i) dividends in the total amount of the annual
Dividend Rate for the Series A Preferred Stock shall have first been paid or
declared and set apart for payment to the holders of the Series A Preferred
Stock, (ii) dividends in the total amount of the annual Dividend Rate for the
Series B Preferred Stock, shall have first been paid or declared and set apart
for payment to the holders of the Series B Preferred Stock and (iii) dividends
in the total amount of the Dividend Rate for the Series C Preferred Stock shall
have first been paid or declared and set apart for payment to the holders of
the Series C Preferred Stock, respectively, during that calendar year;
provided, however, that this restriction shall not apply to Permitted
Repurchases. Payments of any dividends to the holders of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall be paid pro
rata, on an equal priority, pari passu basis according to their respective
dividend preferences as set forth herein. Dividends on the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall not be
mandatory or cumulative, and no rights or interest shall accrue to the holders
of the Series A Preferred Stock, Series B Stock or Series C Preferred Stock by
reason of the fact that the Company shall fail to declare or pay dividends on
the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock in the amount of the respective annual Dividend Rate for each such series
or in any other amount in any calendar year or any fiscal year of the
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Company, whether or not the earnings of the Company in any calendar year or
fiscal year were sufficient to pay such dividends in whole or in part.
2.2 Participation Rights. If, after dividends in the full preferential
amounts specified in this Section 2 for the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock have been paid or declared and set
apart in any calendar year of the Company, the Board shall declare additional
dividends out of funds legally available therefor in that calendar year, then
such additional dividends shall be declared pro rata on the Common Stock,
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
on a pari passu basis according to the number of shares of Common Stock held by
such holders, where each holder of shares of Series A Preferred Stock, Series B
Preferred Stock and/or Series C Preferred Stock is to be treated for this
purpose as holding the greatest whole number of shares of Common Stock then
issuable upon conversion of all shares of Series A Preferred Stock, Series B
Preferred Stock and/or Series C Preferred Stock held by such holder pursuant to
Sections hereof.
2.3 Non-Cash Dividends. Whenever a dividend or Distribution provided for
in this Section 2 shall be payable in property other than cash, the value of
such dividend or Distribution shall be deemed to be the fair market value of
such property as determined in good faith by the Board.
3. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the funds and
assets that may be legally distributed to the Company's stockholders (the
"AVAILABLE FUNDS AND ASSETS") shall be distributed to stockholders in the
following manner:
3.1 Liquidation Preferences. The holders of each share of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock then
outstanding shall be entitled to be paid, out of the Available Funds and
Assets, and prior and in preference to any payment of distribution (or any
setting apart of any payment or distribution) of any Available Funds and Assets
on any shares of Common Stock, an amount per share equal to the Original Issue
Price of each such series of Preferred Stock, respectively, plus all declared
but unpaid dividends thereon. If upon any liquidation, dissolution or winding
up of the Company the Available Funds and Assets shall be insufficient to
permit the payment to holders of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock of their full preferential amounts
described in this subsection, than all the remaining Available Funds and Assets
shall be distributed among the holders of the then outstanding Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock pro
rata, on an equal priority, pari passu basis, according to their respective
liquidation preferences as set forth herein.
3.2 Participation Rights. If there are any Available Funds and Assets
remaining after the payment or distribution (or the setting aside for payment
or distribution) to the holders of the Preferred Stock of their full
preferential amounts described above in this Section 3, then all such remaining
Available Funds and Assets shall be distributed among the holders of the then
outstanding Common Stock, Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock pro rata according to the number of shares of
Common Stock held by such
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holders, where, for this purpose, holders of shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock will be deemed to
hold (in lieu of their Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, as the case may be) the greatest whole number of
shares of Common Stock then issuable upon conversion in full of such shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
pursuant to Section 6.
3.3 Merger or Sale of Assets. Each of the following shall be deemed to be
a liquidation, dissolution or winding up of the Company as those terms are used
in this Section 3: (a) consolidation or merger of the Company with or into any
other Company or Companies in which the holders of the Company's outstanding
shares immediately before such consolidation or merger do not, immediately
after such consolidation or merger, retain stock representing a majority of the
voting power of the surviving corporation of such consolidation or merger; or
(b) a sale of all or substantially all of the assets of the Company.
3.4 Non-Cash Consideration. If any assets of the Company distributed to
stockholders in connection with any liquidation, dissolution, or winding up of
the Company are other than cash, then the value of such assets shall be their
fair market value as determined by the Board, except that any securities to be
distributed to stockholders in a liquidation, dissolution, or winding up of the
Company shall be valued as follows:
(a) The method of valuation of securities not subject to investment
letter or other similar restrictions on free marketability shall be as follows:
(i) if the securities are then traded on a national securities
exchange or the Nasdaq National Market (or a similar national quotation
system), then the value shall be deemed to be the average of the closing prices
of the securities on such exchange or system over the 30-day period ending
three (3) days prior to the distribution;
(ii) if actively traded over-the-counter, then the value shall be
deemed to be the average of the closing bid prices over the 30-day period
ending three (3) days prior to the distribution; and
(iii) if there is no active public market, then the value shall
be the fair market value thereof, as determined in good faith by the Board of
Directors of the Company.
(b) The method of valuation of securities subject to investment letter
or other restrictions on free marketability shall be to make an appropriate
discount from the market value determined as above in subparagraphs (a)(i),
(ii) or (iii) of this subsection to reflect the approximate fair market value
thereof, as determined in good faith by the Board of Directors.
4. REDEMPTION. The shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock are nonredeemable.
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5. VOTING RIGHTS. Each holder of shares of Original Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of Common
Stock into which such shares of Original Preferred Stock could be converted
pursuant to the provisions of Section 6 at the record date for the
determination of the stockholders entitled to vote on such matters or, if no
such record date is established, the date such vote is taken or any written
consent of stockholders is solicited. Subject to the foregoing provisions of
this Section 5, each holder of Original Preferred Stock shall have full voting
rights and powers equal to the voting rights and powers of the holders of
Common Stock, and shall be entitled to notice of any stockholders' meeting in
accordance with the Bylaws of the Company (as in effect at the time in
question) and applicable law, and shall be entitled to vote, together with the
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote, except as may be otherwise provided by
applicable law. Except as otherwise expressly provided herein or as required by
law, the holders of Original Preferred Stock and the holders of Common Stock
shall vote together and not as separate classes.
6. CONVERSION RIGHTS. The outstanding shares of Original Preferred Stock
shall be convertible into Common Stock as follows:
6.1 Optional Conversion.
(a) At the option of the holder thereof, each share of Original
Preferred Stock shall be convertible, at any time or from time to time, into
fully paid and nonassessable shares of Common Stock as provided herein.
(b) Each holder of Original Preferred Stock who elects to convert the
same into shares of Common Stock shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Company or any
transfer agent for the Original Preferred Stock or Common Stock, and shall give
written notice to the Company at such office that such holder elects to convert
the same and shall state therein the number of shares of Original Preferred
Stock being converted. Thereupon the Company shall promptly 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 upon such conversion.
Such conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the certificate or
certificates representing the shares of Original 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.
6.2 Automatic Conversion.
(a) Each share of Original Preferred Stock shall automatically be
converted into fully paid and nonassessable shares of Common Stock, as provided
herein: (i) immediately prior to the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company in which the aggregate public offering price
(before deduction of underwriters' discounts and commissions) equals or exceeds
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$15,000,000 and the public offering price per share of which equals or exceeds
$2.20 per share before deduction of underwriters' discounts and commissions
(such price per share of Common Stock to be appropriately adjusted to reflect
Common Stock Events (as defined in Section 6.4); or (ii) upon the Company's
receipt of the written consent of the holders of not less than two-thirds (2/3)
of the then outstanding shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock to the conversion of all then outstanding
Original Preferred Stock under this Section 6.
(b) Upon the occurrence of any event specified in subparagraph
6.2(a)(i) or (ii) above, the outstanding shares of Original Preferred Stock
shall be converted into Common Stock automatically without the need for any
further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company or its
transfer agent; provided, however, that the Company shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of Original Preferred
Stock are either delivered to the Company or its transfer agent as provided
below, or the holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of such automatic
conversion of the Original Preferred Stock, the holders of Original Preferred
Stock shall surrender the certificates representing such shares at the office
of the Company or any transfer agent for the Original Preferred Stock or Common
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 Original Preferred Stock surrendered were
convertible on the date on which such automatic conversion occurred.
6.3 Conversion Price. Each share of Original Preferred Stock shall be
convertible in accordance with Section 6.1 or Section 6.2 above into the number
of shares of Common Stock which results from dividing the Original Issue Price
for such series of Original Preferred Stock by the conversion price for such
series of Original Preferred Stock that is in effect at the time of conversion
(the "Conversion Price"). The initial Conversion Price for the Series A
Preferred Stock shall be two (2) times the Original Issue Price for the Series A
Preferred Stock, the initial conversion price for the Series B Preferred Stock
shall be two (2) times the Original Issue Price of the Series B Preferred Stock
and the initial Conversion Price for the Series C Preferred Stock shall be two
(2) times the Original Issue Price of the Series C Preferred Stock, provided,
however, that the Conversion Price of the Series B Preferred Stock shall be
adjusted as if the Original Issue Price of the Series B Preferred Stock was
$0.18 as of the original date the Series B Preferred Stock was issued. The
Conversion Price of each series of Original Preferred Stock shall be subject to
adjustment from time to time as provided below.
6.4 Adjustment Upon Common Stock Event. Upon the happening of a Common
Stock Event (as hereinafter defined), the Conversion Price of the Series A
Preferred Stock, the Conversion Price of the Series B Preferred Stock and the
Conversion Price of the Series C Preferred Stock shall, simultaneously with the
happening of such Common Stock Event, be adjusted by multiplying the Conversion
Price of such series of Original Preferred Stock in effect
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immediately prior to such Common Stock Event by a fraction, (a) the numerator of
which shall be the number of shares of Common Stock issued and outstanding
immediately prior to such Common Stock Event, and (b) the denominator of which
shall be the number of shares of Common Stock issued and outstanding immediately
after such Common Stock Event, and the product so obtained shall thereafter be
the Conversion Price for such series of Original Preferred Stock. The Conversion
Price for a series of Original Preferred Stock shall be readjusted in the same
manner upon the happening of each subsequent Common Stock Event. As used herein,
the term "COMMON STOCK EVENT" shall mean (a) the issue by the Company of
additional shares of Common Stock as a dividend or other distribution on
outstanding Common Stock, (b) a subdivision of the outstanding shares of Common
Stock into a greater number of shares of Common Stock, or (c) a combination of
the outstanding shares of Common Stock into a smaller number of shares of Common
Stock.
6.5 Adjustments for Other Dividends and Distributions. If at any time or
from time to time after the Original Issue Date the Company pays a dividend or
makes another distribution to the holders of the Common Stock payable in
securities of the Company other than shares of Common Stock, then in each such
event provision shall be made so that the holders of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable upon conversion thereof, the amount of securities of the Company
which they would have received had their Original Preferred Stock been
converted into Common Stock on the date of such event (or such record date, as
applicable) and had they thereafter, during the period from the date of such
event (or such record date, as applicable) 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 6 with respect to the rights of the holders of the Original
Preferred Stock or with respect to such other securities by their terms.
6.6 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 the Series A Preferred Stock, Series B
Preferred Stock and Series C 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 by a Common Stock
Event or a stock dividend, reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 6), then in any such event each
holder of Series A Preferred Stock, Series B Preferred Stock or Series C
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 number of
shares of Common Stock into which such shares of Series A Preferred Stock,
Series B Preferred Stock or Series C 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.
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6.7 Sale of Shares Below Conversion Price.
(a) Adjustment Formula. If at any time or from time to time after an
Original Issue Date, the Company issues or sells, or is deemed by the provisions
of this Section 6.7 to have issued or sold, Additional Shares of Common Stock
(as defined below), otherwise than in connection with a Common Stock Event as
provided in Section 6.4, a dividend or distribution as provided in Section 6.5
or a recapitalization, reclassification or other change as provided in Section
6.6, for an Effective Price (as defined below) that is less than the Conversion
Price for such a series of Original Preferred Stock in effect immediately prior
to such issue or sale, then, and in each such case, the Conversion Price for
such series of Original Preferred Stock shall be reduced, as of the close of
business on the date of such issue or sale, to the price obtained by multiplying
such Conversion Price by a fraction:
(i) The numerator of which shall be the sum of (A) the number of
Common Stock Equivalents Outstanding (as defined below) immediately prior to
such issue or sale of Additional Shares of Common Stock plus (B) the quotient
obtained by dividing the Aggregate Consideration Received (as defined below) by
the Company for the total number of Additional Shares of Common Stock so issued
or sold (or deemed so issued and sold) by the Conversion Price for such series
of Original Preferred Stock in effect immediately prior to such issue or sale;
and
(ii) The denominator of which shall be the sum of (A) the number
of Common Stock Equivalents Outstanding immediately prior to such issue or sale
plus (B) the number of Additional Shares of Common Stock so issued or sold (or
deemed so issued and sold).
(b) Certain Definitions. For the purpose of making any adjustment
required under this subsection:
(i) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company, whether or not subsequently reacquired or
retired by the Company, other than:
(A) shares of Common Stock issued or issuable upon conversion
of the Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock;
(B) the initial issuance of shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock or
(C) a cumulative total (since November 25, 1998) of 5,000,000
shares of Common Stock (and/or options, warrants or rights therefor)
issued to employees, officers, or directors of, or contractors,
consultants or advisers to, the Company or any Subsidiary pursuant to
incentive agreements or plans approved by the Board of Directors of the
Company ("Incentive Shares"), calculated net of any repurchases of such
shares by the Company and net of any such expired or terminated
Incentive Shares and proportionally adjusted to reflect any subsequent
Common Stock Event AND, if the number of shares of Common Stock
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(and/or options, warrants or rights thereto) issued exceeds this
cumulative total of Incentive Shares on a given day and if a portion of
such shares subsequently expires or terminates, the shares subsequently
expiring or terminating shall be allocated (i) on a pro rata basis to
the amount considered Incentive Shares based on a percentage equal to
the quotient of (a) the number of shares allocated as Incentive Shares
on the date the expiring shares were issued and (b) the total number of
shares issued on that date AND (ii) on a pro rata basis to the amount
considered Additional Shares based on a percentage equal to the
quotient of (a) the number of shares allocated as Additional Shares on
the date the expiring shares were issued and (b) the total number of
shares issued on that date, such method of allocation to be effective
as of the first date any series of Preferred Stock was issued;
(D) shares of the Company's Common Stock or Original
Preferred Stock issued in connection with any stock split or stock
dividend;
(E) securities offered by the Company to the public pursuant
to a registration Statement filed under the Securities Act of 1933, as
amended;
(F) a cumulative total (since the Company's inception) of
125,000 shares of the Company's Common Stock or Original Preferred
Stock (and/or options or warrants thereof) issued or issuable to
parties providing the Company with equipment leases, real property
leases, loans, credit lines, guaranties of indebtedness, cash price
reductions or similar financing (proportionally adjusted to reflect any
subsequent Common Stock Event); or
(G) securities issued pursuant to the acquisition of another
corporation or entity by the Company by consolidation, merger, purchase
of all or substantially all of the assets, or other reorganization in
which the Company acquires, in a single transaction or a series of
related transactions, all or substantially all of the assets of such
other corporation or entity or fifty (50%) or more of the voting power
of such other corporation or entity or fifty percent (50%) or more of
the equity ownership of such other entity.
(ii) The "Aggregate Consideration Received" by the Company for
any issue or sale (or deemed issue or sale) of securities shall (A) to the
extent it consists of cash, be computed at the gross amount of cash received by
the Company before deduction of any underwriting or similar commissions,
compensation or concessions, paid or allowed by the Company in connection with
such issue or sale and without deduction of any expenses payable by the
Company; (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;
and (C) if Additional Shares of Common Stock, Convertible Securities 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 to be allocable to such Additional Shares of Common
Stock, Convertible Securities or Rights or Options.
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(iii) "Convertible Securities" shall mean any indebtedness or
shares of stock convertible into or exchangeable for Common Stock, including
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock.
(iv) "Common Stock Equivalents" shall mean Convertible Securities
and rights entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock without the payment of any consideration by
such holder for such additional shares of Common Stock or Common Stock
Equivalents.
(v) "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 into the Aggregate Consideration Received for
the issue of such Additional Shares of Common Stock.
(vi) "Option" shall mean any warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.
(vii) "Rights" shall mean any right Common Stock or Convertible
Securities.
(c) Deemed Issuances. For the purpose of making any adjustment to the
Conversion Price of the Original Preferred Stock required under this Section
6.7, if the Company issues or sells any Rights or Options or Convertible
Securities and if the Effective Price of the shares of Common Stock issuable
upon exercise of such Rights or Options and/or the conversion or exchange of
Convertible Securities (computed without reference to any additional or similar
protective or antidilution clauses) is less than the Conversion Price then in
effect for a series of Original Preferred Stock, then the Company shall be
deemed to have issued, at the time of the issuance of such Rights, Options or
Convertible Securities, that number of Additional Shares of Common Stock that is
equal to the maximum number of shares of Common Stock issuable upon exercise or
conversion of such Rights, Options or Convertible Securities upon their issuance
and to have received, as the Aggregate Consideration Received 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 in
full 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 or exchange thereof, provided that:
(i) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
then the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses;
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<PAGE> 17
(ii) if the minimum amount of consideration payable to the
Company upon the exercise of Rights or Options or the conversion or exchange of
Convertible Securities is reduced over time or upon the occurrence or
non-occurrence of specified events other than by reason of antidilution or
similar protective adjustments, then the Effective Price shall be recalculated
using the figure to which such minimum amount of consideration is reduced; and
(iii) if the minimum amount of consideration payable to the
Company upon the exercise of such Rights or Options or the conversion or
exchange of Convertible Securities is subsequently increased, then the
Effective Price shall again be recalculated using the increased minimum amount
of consideration payable to the Company upon the exercise of such Rights or
Options or the conversion or exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the issuance of
such Rights or Options or Convertible Securities, shall be made as a result of
the actual issuance of shares of Common Stock on the exercise of any such Rights
or Options or the conversion or exchange of any such Convertible Securities. If
any such Rights or Options or the conversion rights represented by any such
Convertible Securities shall expire without having been fully exercised, then
the Conversion Price as adjusted upon the issuance of such Rights or 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
shares of Common Stock so issued were the shares of Common Stock, if any, that
were actually issued or sold on the exercise of such Rights or Options or rights
of conversion or exchange of such Convertible Securities, and such shares of
Common Stock, if any, were issued or sold for the consideration 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
all such Convertible Securities actually converted or exchanged, 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 or exchange of such Convertible Securities,
provided that such readjustment shall not apply to prior conversions of Original
Preferred Stock.
6.8 Certificate of Adjustment. In each case of an adjustment or
readjustment of the Conversion Price for a series of Original Preferred Stock,
the Company, at its expense, shall cause its Chief Financial Officer to compute
such adjustment or readjustment in accordance with the provisions hereof and
prepare a certificate showing such adjustment or readjustment, and shall mail
such certificate, by first class mail, postage prepaid, to each registered
holder of the Original Preferred Stock at the holder's address as shown in the
Company's books.
6.9 Fractional Shares. No fractional shares of Common Stock shall be issued
upon any conversion of Original Preferred Stock. in lieu of any fractional share
to which the holder would otherwise be entitled, the Company shall pay the
holder cash equal to the product of such fraction multiplied by the Common
Stock's fair market value as determined in good faith by the Board as of the
date of conversion.
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6.10 Reservation of Stock Issuable Upon Conversion. The Company 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 Original Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Original Preferred Stock; and 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 Original
Preferred Stock, the Company 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.
6.11 Notices. Any notice required by the provisions of this Section 6 to be
given to the holders of shares of the Original Preferred Stock shall be deemed
given upon the earlier of actual receipt or deposit in the United States mail,
by certified or registered mail, return receipt requested, postage prepaid,
addressed to each holder of record at the address of such holder appearing on
the books of the Company.
6.12 No Impairment. The Company shall not avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, 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 Original Preferred
Stock against impairment.
7. RESTRICTIONS AND LIMITATIONS.
7.1 Class Protective Provisions. So long as any shares of Original
Preferred Stock remain outstanding, the Company shall not, without the approval,
by vote or written consent, of the holders of a majority of the Original
Preferred Stock then outstanding, voting as a single class:
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(a) amend its Certificate of Incorporation in any manner that would
alter or change any of the rights, preferences, privileges or restrictions of
the Original Preferred Stock;
(b) amend its Certificate of Incorporation or Bylaws in any other
manner that would adversely affect the rights, preferences and privileges of the
Original Preferred Stock;
(c) reclassify any outstanding shares of securities of the Company
into shares having rights, preferences or privileges senior to or on a parity
with the Original Preferred Stock; or
(d) authorize or issue any other stock having rights or preferences
senior to or on a parity with the Original Preferred Stock as to dividend rights
or liquidation preferences.
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<PAGE> 1
EXHIBIT 3.4
CHAPARRAL NETWORK STORAGE, INC.
AMENDED AND RESTATED BYLAWS
(AMENDED AND RESTATED AS OF _______, 2000*)
ARTICLE I
OFFICES
The registered office of Chaparral Network Storage, Inc. (the
"Company") in the State of Delaware shall be in the City of Wilmington, County
of New Castle, State of Delaware. The Company shall have offices at such other
places as the Board of Directors may from time to time determine or as the
business of the Company may require.
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meetings.
The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly come
before the meeting shall be held on the date and at the time fixed, from time to
time, by the Board of Directors. Each annual meeting shall be held at such
place, within or without the State of Delaware, as shall be determined by the
Board of Directors. The day, place and hour of each annual meeting shall be
specified in the notice of such annual meeting. Any annual meeting of
stockholders may be adjourned from time to time and place to place until its
business is completed.
Section 2. Special Meetings.
Except as otherwise required by law or by the Certificate of
Incorporation, special meetings of stockholders may be called only by the
chairman of the board, the chief executive officer, the president, or by any
officer of the Company upon the written request of a majority of the Board of
Directors, or as may be designed in the Certificate of Incorporation.
Section 3. Stockholder Action.
Any action required or permitted to be taken by the
stockholders of the Company must be effected at a duly called annual or special
meeting of such stockholders, and no action shall be taken by the stockholders
by written consent.
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*effective date of IPO
<PAGE> 2
Section 4. Notice of Meeting.
Written notice stating the place, date and hour of the meeting
and, in case of a special meeting, the purpose or purposes for which the meeting
is called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, except as otherwise required by statute or the
Certificate of Incorporation, in the manner prescribed by law.
Section 5. Waiver.
Attendance of a stockholder of the Company, either in person
or by proxy, at any meeting, whether annual or special, shall constitute a
waiver of notice of such meeting, except where a stockholder attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. A written waiver of notice of any such meeting signed by a stockholder
or stockholders entitled to such notice, whether before, at or after the time
for notice or the time of the meeting, shall be equivalent to notice. Neither
the business to be transacted at, nor the purposes of, any meeting need be
specified in any written waiver of notice.
Section 6. Voting List.
The secretary shall prepare and make available, at least ten
(10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order and
showing the address and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting or, if not so specified, at the place where the meeting is
to be held. The list shall be produced and kept at the place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present.
Section 7. Quorum.
Except as otherwise required by law, the Certificate of
Incorporation or these Bylaws, the holders of not less than one-half of the
shares entitled to vote at any meeting of the stockholders, present in person or
by proxy, shall constitute a quorum. If a quorum shall fail to attend any
meeting, the chairman of the meeting may postpone or adjourn the meeting from
time to time, without notice of time and place if the time and place are
announced at the meeting, until a quorum shall be present. At such postponed or
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the original meeting. If the postponement or
adjournment is for more than thirty (30) days or if after the postponement or
adjournment a new record date is fixed for the postponed or adjourned meeting, a
notice of the postponed or adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting.
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Section 8. Record Date.
In order that the Company may determine the stockholders
entitled to notice of or to vote at any meeting, or at any adjournment of a
meeting of stockholders; or entitled to receive payment of any dividend or other
distribution or allotment of any rights; or entitled to exercise any rights in
respect of any change, conversion or exchange of stock; or for the purpose of
any other lawful action; the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors. The record date for
determining the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournments thereof shall not be more than sixty (60) nor
less than ten (10) days before the date of such meeting. The record date for any
other action shall not be more than sixty (60) days prior to such action. If no
record date is fixed: (i) the record date for determining stockholders entitled
to notice of or to vote at any meeting shall be the close of business on the day
on which notice is given or, if notice is waived by all stockholders, at the
close of business on the day preceding the day on which the meeting is held; and
(ii) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating to such other purpose. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 9. Voting and Proxies.
At every meeting of the stockholders, each stockholder shall
be entitled to one vote, in person or by proxy, for each share of the capital
stock having voting power held by such stockholder, but no proxy shall be voted
after three (3) years from its date unless the proxy provides for a longer
period. When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the statutes or of the Certificate of
Incorporation, a different vote is required, in which case such express
provision shall govern.
Section 10. Procedure.
The order of business and all other matters of procedure at
every meeting of the stockholders may be determined by the presiding officer.
ARTICLE III
DIRECTORS
Section 1. Number.
Except as otherwise fixed pursuant to the provisions of the
Certificate of Incorporation, the number of directors shall be fixed from time
to time exclusively by resolutions adopted by the Board of Directors; provided,
however, that the number of directors shall at no time
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<PAGE> 4
be less than three (3) or greater than nine (9) and further provided that no
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
Section 2. Election and Terms.
A director shall hold office until the annual meeting for the
year in which his or her term expires and until his successor shall be elected
and qualified, subject, however, to such director's prior death, resignation,
retirement, disqualification or removal from office.
Section 3. Classes of Directors.
Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, the
directors shall be divided into three (3) 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, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term of
three (3) years. At the second annual meeting of stockholders, the term of
office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three (3) years. At the third annual meeting of
stockholders, the term of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three (3) years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three (3) years to succeed the directors of the class whose terms expire
at such annual meeting.
Notwithstanding the foregoing provisions of this Article,
each director shall serve until his or her successor is duly elected and
qualified or until his or her death, resignation or removal.
Section 4. Vacancies.
Unless otherwise provided in the Certificate of Incorporation,
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 stockholders, 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. 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 occurred and until such director's successor
shall have been elected and qualified.
Section 5. Resignation.
Any director may resign at any time by delivering his or her
written resignation to the secretary of the Company, such resignation to specify
whether it will be effective at a particular time, upon receipt by the secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors.
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<PAGE> 5
Section 6. Removal.
Subject to the rights of the holders of any series of
Preferred Stock, no director shall be removed without cause. Subject to any
limitations imposed by law, the Board of Directors or any individual director
may be removed from office at any time with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the Company entitled to vote upon the election of directors.
Section 7. Regular Meetings.
The first meeting of each newly elected Board of Directors
elected at the annual meeting of stockholders shall be held promptly after the
annual meeting of the stockholders, provided a quorum is present, and no notice
of such meeting shall be necessary in order to legally constitute the meeting.
Regular meetings of the Board of Directors shall be held at such times and
places as the Board of Directors may from time to time determine.
Section 8. Special Meetings.
Special meetings of the Board of Directors may be called at
any time, at any place and for any purpose by the chairman of the board, the
chief executive officer or the president, or by any officer of the Company upon
the request of two or more Directors.
Section 9. Notice of Meetings.
No notice shall be required for regular meetings of the Board
of Directors for which the time and place have been fixed. Written, oral or any
other mode of notice of the time and place of a special meeting shall be given
in sufficient time for the convenient assembly of the directors at the meeting.
Section 10. Waiver.
Attendance of a director at a meeting of the Board of
Directors shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A written waiver of notice signed by a
director or directors entitled to such notice, whether before, at, or after the
time for notice or the time of the meeting, shall be equivalent to the giving of
such notice.
Section 11. Quorum.
Except as may be otherwise provided by law, in the Certificate
of Incorporation, or in these Bylaws, the presence of a majority of the
directors, or of a majority of all the members of any committee thereof, shall
be necessary and sufficient to constitute a quorum for the transaction of
business at any meeting of the Board of Directors, or of such committee, and the
act of a majority of the directors present at a board or committee meeting at
which a quorum is present shall be deemed the act of the Board of Directors, or
of such committee. A majority of the directors present,
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<PAGE> 6
whether or not a quorum is present, may adjourn any meeting of the Board of
Directors to another time and place.
Section 12. Participation in Meetings by Conference Telephone.
Members of the Board of Directors, or of any committee
thereof, may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means of which each
person participating in the meeting can hear each other participant, and such
participation shall constitute presence in person at such meeting.
Section 13. Powers.
The business, property and affairs of the Company shall be
managed by or under the direction of its Board of Directors, which shall have
and may exercise all the powers of the Company to do all such lawful acts and
things as are not by law, by the Certificate of Incorporation or by these
Bylaws, directed or required to be exercised or done by the stockholders.
Section 14. Action without a Meeting.
Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if written consent thereto is signed by all members of the
Board of Directors or of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board of Directors or
committee. Any such consent may be in counterparts and shall be effective on the
date of the last signature thereon unless otherwise provided therein.
ARTICLE IV
COMMITTEES
Section 1. Designation of Committees.
The Board of Directors may establish committees for the
performance of delegated or designated functions to the extent permitted by law,
each committee to consist of one or more directors of the Company. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of such
absent or disqualified member.
Section 2. Committee Powers and Authority.
The Board of Directors may provide, by resolution or by
amendment to these Bylaws, that a committee may exercise all the power and
authority of the Board of Directors in the management of the business and
affairs of the Company, and may authorize the seal of the Company to be affixed
to all papers which may require it; provided, however, that a committee may not
exercise the power or authority of the Board of Directors in reference to
amending the Certificate of
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Incorporation, adopting an agreement of merger or consolidation, recommending
to the stockholders the sale, lease or exchange of all or substantially all of
the Company's property and assets, recommending to the stockholders a
dissolution of the Company or a revocation of a dissolution, or amending these
Bylaws; and, unless the resolution expressly so provides, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
ARTICLE V
OFFICERS
Section 1. Number.
The officers of the Company shall be appointed or elected by
the Board of Directors. The officers shall be a chief executive officer, a
president, chief financial officer, chief operating officer, such number of vice
presidents as the Board of Directors may from time to time determine, and a
secretary. Any person may hold two or more offices at the same time.
Section 2. Additional Officers.
The Board of Directors may appoint such other officers as it
shall deem appropriate.
Section 3. Term of Office, Resignation.
All officers, agents and employees of the Company shall hold
their respective offices or positions at the pleasure of the Board of Directors
and may be removed at any time by the Board of Directors with or without cause.
Any officer may resign at any time by giving written notice of his or her
resignation to the chief executive officer, the president or to the secretary,
and acceptance of such resignation shall not be necessary to make it effective
unless the notice so provides. Any vacancy occurring in any office shall be
filled by the Board of Directors.
Section 4. Duties.
The officers of the Company shall perform the duties and
exercise the powers as may be assigned to them from time to time by the Board of
Directors or the president or chief executive officer. In the absence of such
assignment, the officers shall have the duties and powers described in Sections
5 through 8 of this Article.
Section 5. Chief Executive Officer.
The chief executive officer, subject to the direction and
control of the Board of Directors, shall manage the business of the Company,
including defining the responsibilities of the other officers of the Company.
The chief executive officer may execute contracts, deeds and other instruments
on behalf of the Company. The chief executive officer shall have full authority
on behalf of the Company to attend any meeting, give any waiver, cast any vote,
grant any discretionary or directed proxy to any person, and exercise any other
rights of ownership with respect to any shares of capital stock or other
securities held by the Company and issued by any other corporation or with
respect to any partnership, trust or similar interest held by the Company. The
chief executive officer
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<PAGE> 8
shall perform such other duties as the Board of Directors may from time to time
prescribe or delegate to him or her.
Section 6. President, Chief Operating Officer and Chief Financial Officer
Each of the president, chief operating officer and chief
financial officer, subject to the direction of the Board of Directors and the
chief executive officer, shall manage the business of the Company. Each such
officer may execute contracts, deeds and other instruments on behalf of the
Company. Each of them shall have full authority on behalf of the Company to
attend any meeting, give any waiver, cast any vote, grant any discretionary or
directed proxy to any person, and exercise any other rights of ownership with
respect to any shares of capital stock or other securities held by the Company
and issued by any other corporation or with respect to any partnership, trust or
similar interest held by the Company. Each of them shall perform such other
duties as the Board of Directors may from time to time prescribe or delegate to
him or her.
Section 7. Vice President.
Each vice president, if any, shall perform such functions as
may be prescribed by the Board of Directors, the chief executive officer, the
president, chief operating officer, chief financial officer or any executive
vice president.
Section 8. Secretary.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and, upon the request of a person entitled to call
a special meeting of the Board of Directors, shall give notice of any such
special meeting. The secretary shall keep the minutes of all meetings of the
stockholders, the Board of Directors, and any committee established by the Board
of Directors. The secretary shall be responsible for the maintenance of all
corporate records of the Company and may attest documents on behalf of the
Company. The secretary shall perform such other duties as the Board of
Directors, the chief executive officer or the president may from time to time
prescribe or delegate to him or her.
Section 9. Compensation.
Officers shall receive such compensation, if any, for their
services as may be authorized or ratified by the Board of Directors. Election or
appointment as an officer shall not of itself create a right to compensation for
services performed as such officer.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Section 1. Directors and Officers.
Subject to the Certificate of Incorporation and the other
sections of this Article, the Company shall indemnify, to the fullest extent
permitted by, and in the manner permissible under, the laws of the State of
Delaware in effect on the date hereof and as amended from time to time, any
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person who was or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he or she is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, association or other enterprise, against expenses (including
attorneys' fees), judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement actually and reasonably incurred by him or her in connection
with such action, suit or proceeding, including any action, suit or proceeding
by or in the right of the Company (a "Proceeding"). The Company shall advance
all reasonable expenses incurred by or on behalf of any such person in
connection with any Proceeding within twenty (20) days after the receipt by the
Company of a statement or statements from such person requesting such advance or
advances from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the expenses
incurred by such person and, if such person is an officer or director of the
Company, shall include or be preceded or accompanied by an undertaking by or on
behalf of such person to repay any expenses advanced if it shall ultimately be
determined that such person is not entitled to be indemnified against such
expenses. Costs, charges or expenses of investigating or defending Proceedings
for which indemnity shall be sought hereunder may be incurred without the
Company's consent provided that no settlement of any such Proceeding may be made
without the Company's consent, which consent shall not be unreasonably withheld.
Section 2. Subrogation.
In the event of payment under these Bylaws, the indemnifying
party or parties shall be subrogated to the extent of such payment to all of the
rights of recovery of the indemnified person therefor and such indemnified
person shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the indemnifying party or parties to effectively bring suit
to enforce such rights.
Section 3. Presumptions and Effect of Certain Proceedings.
a. In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that such person is entitled to indemnification
under this Article, and the Company shall have the burden of proof to overcome
that presumption in connection with the making by any person, persons or entity
of any determination contrary to that presumption.
b. The termination of any Proceeding or of any claim, issue
or matter therein, by judgment, order, settlement or conviction, or upon a plea
of nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in these Bylaws) of itself adversely affect the right of any person to
indemnification or create a presumption that such person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Company or, with respect to any criminal
Proceeding, that such person had reasonable cause to believe that his or her
conduct was unlawful.
-9-
<PAGE> 10
Section 4. Exception to Right of Indemnification or Advancement of
Expenses.
Notwithstanding any other provision of these Bylaws, no person
shall be entitled to indemnification or advancement of expenses under these
Bylaws with respect to any Proceeding brought by such person, unless the
bringing of such Proceeding or making of such claim shall have been approved by
the Board of Directors.
Section 5. Contract.
a. The foregoing provisions of this Article shall be deemed
to be a contract between the Company and each director and officer who serves in
such capacity at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any
Proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
b. The foregoing rights of indemnification shall not be
deemed exclusive of any other rights to which any director or officer may be
entitled apart from the provisions of this Article.
Section 6. Surviving Corporation.
The Board of Directors may provide by resolution that
references to "the Company" in this Article shall include, in addition to this
Company, all constituent corporations absorbed in a merger with this Company so
that any person who was a director or officer of such a constituent corporation
or is or was serving at the request of such constituent corporation as a
director, employee or agent of another corporation, partnership, joint venture,
trust, association or other entity shall stand in the same position under the
provisions of this Article with respect to this Company as he or she would have
stood if he or she had served this Company in the same capacity or is or was so
serving such other entity at the request of this Company, as the case may be.
Section 7. Inurement.
The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such person.
Section 8. Employees and Agents.
To the same extent as it may do for a director or officer, the
Company may indemnify and advance expenses to a person who is not and was not a
director or officer of the Company but who is or was an employee or agent of the
Company.
-10-
<PAGE> 11
ARTICLE VII
CAPITAL STOCK
Section 1. Certificates.
Each stockholder of the Company shall be entitled to a
certificate or certificates signed by or in the name of the Company by the
appropriate officers of the Company, certifying the number of shares of stock of
the Company owned by such stockholder. Any or all the signatures on such
certificate may be a facsimile.
Section 2. Facsimile Signatures.
In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Company with the same effect as
if he, she or it was such officer, transfer agent or registrar at the date of
issue.
Section 3. Registered Stockholders.
The Company shall be entitled to treat the holder of record of
any share or shares of stock of the Company as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it has actual or other notice thereof, except as provided by law.
Section 4. Cancellation of Certificates.
All certificates surrendered to the Company shall be cancelled
and, except in the case of lost, stolen or destroyed certificates, no new
certificates shall be issued until the former certificate or certificates for
the same number of shares of the same class of stock have been surrendered and
cancelled.
Section 5. Lost, Stolen or Destroyed Certificates.
A new certificate or certificates shall be issued in place of
any certificate or certificates theretofore issued by the Company alleged to
have been lost, stolen or destroyed upon the making of an affidavit of that fact
by the person claiming the certificate or certificates to be lost, stolen or
destroyed. In his or her discretion, and as a condition precedent to the
issuance of any such new certificate or certificates, the appropriate officers
may require that the owner of such lost, stolen or destroyed certificate or
certificates, or such person's legal representative, give the Company and its
transfer agent or agents, registrar or registrars a bond in such form and amount
as the Board of Directors may direct as indemnity against any claim that may be
made against the Company and its transfer agent or agents, registrar or
registrars on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
-11-
<PAGE> 12
Section 6. Transfer of Shares.
Subject to restrictions imposed by applicable law or contract,
shares of stock shall be transferable on the books of the Company by the holder
thereof, in person or by a duly authorized attorney, upon the surrender of the
certificate or certificates representing the shares to be transferred, properly
endorsed, with such proof or guarantee of the authenticity of the signature as
the Company or its agents may reasonably require.
Section 7. Transfer Agents and Registrars.
The Company may have one or more transfer agents and one or
more registrars of its stock, whose respective duties the Board of Directors
may, from time to time, define. No certificate of stock shall be valid until
countersigned by a transfer agent, if the Company shall have a transfer agent,
or until registered by the registrar, if the Company shall have a registrar. The
duties of transfer agent and registrar may be combined.
ARTICLE VIII
SEAL
The corporate seal shall bear the name of the Company and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be affixed to a document, whether impressed, reproduced or otherwise.
ARTICLE IX
FISCAL YEAR
The fiscal year for the Company shall begin on April 1 and end on
March 31.
ARTICLE X
AMENDMENTS
Subject to the provisions of the Certificate of Incorporation, these
Bylaws may be altered, amended or repealed at any annual meeting of the
stockholders (or at any special meeting thereof duly called for that purpose) by
a vote of at least two-thirds of the outstanding shares of the Company, provided
that in the notice of such special meeting, notice of such purpose shall be
given. Subject to the laws of the State of Delaware, the Certificate of
Incorporation and these Bylaws, the Board of Directors may, by majority vote of
all Directors, amend these Bylaws or enact such other Bylaws as in their
judgment may be advisable for the regulation of the conduct of the affairs of
the Company.
---------------------------
, Secretary
---------------
-12-
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK [CHAPARRAL NETWORK STORAGE LOGO] COMMON STOCK
NUMBER SHARES
- ---------------- --------------
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 159418 10 2
SEE REVERSE FOR CERTAIN DEFINITIONS
AND RESTRICTIONS ON TRANSFER
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE OF .001 EACH, OF
CHAPARRAL NETWORK STORAGE, INC. (hereinafter and on the back hereof
called 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 issued and shall be subject to all the provisions of the Amended and
Restated Articles of Incorporation of the Corporation (copies of which are on
file with the Transfer Agent), as now or hereafter amended, to all of which the
holder hereof by acceptance hereof of assents. This Certificate in not valid
unless countersigned and registered by a Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
[SEAL] /s/ GARY L. ALLISON /s/ DOUGLAS J. LEHRMANN
Chief Executive Officer Secretary
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER, INC.
P.O. Box 1596, Denver, CO 80201
TRANSFER AGENT
AND REGISTRAR,
AUTHORIZED SIGNATURE
<PAGE> 2
CHAPARRAL NETWORK STORAGE, INC.
This Corporation is authorized to issue shares of more than one class of
stock. This 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. Such statement may be obtained by a request in writing to the office of
the Transfer Agent.
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:
<TABLE>
<S> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT Custodian
TEN ENT- as tenants by the entireties ----------- ------------
JT TEN- as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts to Minors
tenants in common Act
---------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
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 OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of 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 Corporation
with full power of substitution in the premises.
Dated
------------------------------------
X
-----------------------------------------
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, STOCK-
BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.1
[CHAPARRAL NETWORK STORAGE, INC. LOGO]
1998 STOCK OPTION PLAN
(Effective June 1, 1999)
1. Purpose.
(a) The purpose of the CHAPARRAL NETWORK STORAGE, INC. [formerly
Chaparral Technologies, Inc.] 1998 Stock Option Plan (the "Plan") is to
provide a means whereby selected eligible employees and officers and
directors of, and consultants to, CHAPARRAL NETWORK STORAGE, INC., a
Delaware Corporation (the "Company"), and its Affiliates, if any, as
defined below, may be given a favorable opportunity to acquire common
stock of the Company (the "Common Stock"), thereby encouraging such
persons to accept or continue a qualifying relationship with the
Company, increasing the interest of such persons in the Company's
welfare through participation in the growth and the value of the Common
Stock; and furnishing such persons with an incentive to improve
operations and increase profits of the Company. The terms "Affiliate"
or "Affiliates" as used in the Plan shall mean any parent corporation
or subsidiary corporation of the Company, as those terms are defined in
Sections 424(e) and (f) of the Internal Revenue Code of 1986, as
amended (the "Code).
(b) To accomplish the foregoing objectives, this Plan provides a
means whereby employees, directors, and consultants may receive options
to purchase Common Stock.
2. Stock Options. Stock options granted pursuant to the Plan may, at
the discretion of the Board of Directors of the Company, be granted either as an
Incentive Stock Option ("ISO") or a Non-statutory Stock Option ("NSO").
3. Administration. The Board of Directors (the "Board") whose authority
shall be plenary, shall administer the Plan, unless and until such time as the
Board delegates administration of the Plan pursuant to subsection 3(b) below.
(a) The Board, whose determinations shall be conclusive, shall have
the power, subject to and within the limits of the express provisions
of the Plan:
(i) To grant options pursuant to the Plan.
(ii) To determine from time to time which of the eligible
persons described in Section 5 below shall be granted options under
the Plan, the number of shares for which each option shall be
granted, the term of each granted option and the time or times
during the term of each option within which all or portions of each
option may be accelerated, if allowed under applicable law.
(iii) To construe and interpret the Plan and options granted
under it and to establish, amend, and revoke rules and regulations
for its administration. The Board, in the exercise of this power,
shall generally determine all questions of policy and expediency
that may arise and may correct any defect, omission of inconsistency
in the Plan or in any option agreement with respect to the Plan in a
manner to the extent it shall deem necessary or expedient to make
the Plan fully effective.
(iv) To grant options in exchange for cancellation of options
granted earlier at different exercise prices; provided, however,
nothing contained herein shall empower the Board to grant an ISO
under conditions or pursuant to terms that are inconsistent with the
requirements of subsection 4(b), below, or Section 422 of the Code.
(v) To prescribe the terms and provisions of each option granted
which need not be identical and the form of written instrument that
shall constitute the option agreement.
(vi) To amend the Plan as provided in Section 11, below.
(vii) Generally, to exercise such powers and to perform such
acts as are deemed necessary or expedient to promote the best
interests of the Company.
CONFIDENTIAL PAGE 1 OF 6
<PAGE> 2
(viii) To take appropriate action to cause any option granted
hereunder to cease to be an ISO, provided, however, no such action
may be taken by the Board without the written consent of the
affected optionee.
(b) The Board may, however, by resolution, delegate administration
of the Plan (including, without limitation, the Board's powers under
subsection 3(a) above) to a committee acting under the authority of the
Board. The Board shall have complete discretion to determine the
composition, structure, form, term and operation of any committee
established to administer the Plan. The Board at any time may revest in
the Board the administration of the Plan.
4. Shares Subject to Plan and to Option.
(a) Subject to the provisions of Section 10 below (relating to
adjustments upon changes in stock), the stock which may be sold
pursuant to options granted under the Plan shall not exceed in the
aggregate of twenty-eight million (28,000,000) shares of the Company's
authorized Common Stock and may be unissued shares, reacquired shares,
or shares bought on the market for the purpose of issuance under the
Plan. If any options granted under the Plan shall for any reason
terminate or expire without having been exercised in full, the stock
not purchased under such options shall be available again for the
purpose of the Plan.
(b) If the aggregate fair market value of stock with respect to
which ISOs are exercisable for the first time by an individual during
any calendar year exceeds the amount of the annual limitation provided
in Section 422(d) of the Code, the excess shall be deemed to be a grant
of an NSO to the extent of such excess.
5. Eligibility
(a) All employees of the Company and its Affiliates are eligible to
receive ISOs and only employees of the Company and its Affiliates may
be granted ISOs. Employees, directors and independent contractors shall
also be eligible for NSOs.
(b) No option issued under the Plan may be granted to a person who,
at the time such option would be granted, owns stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of outstanding capital stock of the Company or its Affiliate
unless the option price is at least one hundred percent (100%) in the
case of an NSO, one hundred ten percent (110%) in the case of an ISO,
of the fair market value of the stock subject to the option and the ISO
option by its terms is not exercisable after five (5) years from the
date such option is granted. Any employee may hold more than one (1)
option at any time. For purposes of this subsection 5(b), in
determining stock ownership, an optionee shall be considered as owning
the voting capital stock owned, directly or indirectly, by or for his
brothers and sisters, spouse, ancestors and lineal descendants. Voting
capital stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries,
as applicable. Common Stock with respect to which any such optionee
holds an option shall not be counted. Additionally, for purposes of
this subsection 5(b), outstanding capital stock shall include all
capital stock actually issued and outstanding immediately after the
grant of the option to the optionee. Outstanding capital stock shall
not include capital stock authorized for issue under outstanding
options held by the optionee or by any other person.
6. Terms of Options. Options granted pursuant to the Plan need not be
identical, but each option shall be granted within ten (10) years from the date
the Plan is adopted by the Board or approved by the shareholders, whichever is
earlier, shall specify the number of shares to which it pertains and shall be
subject to the following terms and conditions:
(a) The purchase price of each option shall be determined by the
administrator of the Plan at the time the option is granted, but shall
in no event, except as otherwise set forth in Section 5 above, be less
than eighty-five percent (85%) in the case of an NSO, or one hundred
percent (100%) in the case of an ISO, of the fair market value of the
stock subject to the option on the date the option is granted. For all
purposes of the Plan, the fair market value of the Common Stock shall
be, if the Stock is publicly traded, its closing bid price on NASDAQ or
the over-the-counter market, or if it is traded on another stock
exchange, the last price at which it is traded on the exchange. If the
stock is not publicly traded, the fair market value shall be such value
as is determined in good faith by the Board of Directors by taking into
CONFIDENTIAL PAGE 2 OF 6
<PAGE> 3
consideration the following factors: The Company's net worth,
prospective earning power and dividend-paying capacity, and other
relevant factors. The term "other relevant factors" includes the value
of any recent private placement; the goodwill of the business; the
economic outlook in the particular industry; the Company's position in
the industry and its management; the degree of control of the business
represented by the block of stock to be valued; and the values of
securities of corporations engaged in the same or similar lines of
business which are listed on a stock exchange. In addition to the
relevant factors described above, consideration shall also be given to
non-operating assets including proceeds of life insurance policies
payable to or for the benefit of the Company, to the extent such
non-operating assets have not been taken into account in the
determination of net worth, prospective earning power, and
dividend-earning capacity.
(b) Except as otherwise set forth in Section 5 above, the term of
any option shall not be greater than ten (10) years from the date it
was granted.
(c) An option by its terms shall not be transferable otherwise than
by will or the laws of descent and distribution and may be exercisable,
during the lifetime of the option holder, only by the individual to
whom the option is granted. Notwithstanding the above, if an employee
is determined to be incompetent by a court of proper jurisdiction, his
legal representative may exercise the option on his behalf.
(d) Options under the Plan may be exercised by a participant
regardless of whether he is employed by the Company or an Affiliate at
the time of the exercise.
(e) Upon termination of a participant's employment (defined as the
date the participant is no longer employed by either the Company or any
of its Affiliates), or upon termination of a directorship or of a
consulting agreement for a non-employee, his rights to exercise an
option then held by him shall be only as follows:
(i) If a participant's employment is terminated for any reason
other than death of the participant, he may, within not less than
three (3) months following such termination, or within such longer
period as the Board may fix, exercise the option to the extent such
option was exercisable by the participant on the date of termination
of his employment, or to the extent otherwise specified by the
Board, which may so specify at a time that is subsequent to the date
of the termination of his employment, provided, the date of exercise
is in no event after the expiration of the term of the option.
However, if the participant's employment is terminated due to
Disability (within the meaning of Section 22(e) of the Code) of the
participant, then paragraph 6(e) (ii) shall apply to such
participant by substituting twelve (12) months for three (3) months.
(ii) If a participant's employment is terminated by death, his
estate shall have the right for a period of not more than twelve
(12) months following the date of death, or for such longer period
as the Board may fix to exercise such option on the date of death,
or to the extent otherwise specified by the Board, which may so
specify, at a time that is subsequent to the date of death, provided
the actual date of exercise is in no event after the expiration of
the term of the option. A participant's estate shall mean his legal
representative or any person who acquires the right to exercise an
option by reason of the participant's death.
(f) Options may also contain such other provisions, which shall not
be inconsistent with any of the foregoing terms, as the Board shall
deem appropriate. No option, however, nor anything contained in the
Plan, shall confer upon any employee any right to continue in the
employ of the Company (or Affiliate) nor limit in any way the right of
the Company (or Affiliate) to terminate his employment at any time.
(g) In the event of a dissolution or liquidation of the Company, a
merger in which the Company is not the surviving corporation, a
transaction in which 100% of the then outstanding voting stock is sold
or otherwise transferred, or the sale of substantially all of the
assets of the Company, any or all outstanding options, shall,
notwithstanding any contrary terms of the grant, accelerate and become
exercisable in full at least ten days prior to (and shall expire on)
the consummation of such dissolution, liquidation, merger, sale of
stock or sale of assets on such conditions as the Board of Directors
shall determine unless the successor corporation assumes the
outstanding options or substitutes substantially equivalent options. In
the event the successor corporation assumes the outstanding options or
substitutes substantially equivalent options, the options of an
optionee who is terminated (other than for
CONFIDENTIAL PAGE 3 OF 6
<PAGE> 4
cause) or who resigns for good reason within twelve (12) months after a
change in control, shall, notwithstanding any contrary terms of the
grant, accelerate and become exercisable in full. The aggregate fair
market value (determined at the time an option is granted) of stock
with respect to ISOs which first become exercisable in the year of such
dissolution, liquidation, merger, sale of stock or sale of assets
cannot exceed $100,000. Any remaining accelerated ISOs shall be NSOs.
7. Payments and Loans Upon Exercise.
(a) The purchase price of stock sold pursuant to an option shall be
paid either in full in cash or by check at the time the option is
exercised or, to the extent permitted under the applicable provisions
of Delaware General Corporation Law, pursuant to any deferred payment
arrangement that the Board in its discretion may approve; provided,
however, that any interest to be paid by an optionee in connection with
any such deferred payment arrangement shall be charged interest at a
rate of six percent (6%).
(b) The Company may make loans or guarantee loans made by an
appropriate financial institution to individual optionees, including
officers, on such terms as may be approved by the Board for the purpose
of financing the exercise of options granted under the Plan and the
payment of any taxes that may be due by reason of such exercise.
(c) In addition, to the extent authorized by the Board, optionees
may make all or any portion of any payment due to the Company upon
exercise of an option by delivery of any property (including securities
of the Company) other than cash, so long as such property constitutes
valid consideration for the stock under applicable law.
(d) Where the Company has or will have a legal obligation to
withhold taxes relating to the exercise of any stock option, such
option may not be exercised, in whole or in part, unless such tax
obligation is first satisfied in a manner satisfactory to the Company.
8. Use of Proceeds from Stock. Proceeds from the sale of stock pursuant
to options granted under the Plan shall be used for general corporate purposes.
9. Stock Transfer Restrictions; Repurchase Provisions. Stock issued
pursuant to the exercise of options granted under the Plan shall be subject to
those stock transfer restrictions and/or repurchase provisions which shall be
set forth in a Restricted Stock Agreement in the form approved by the Board.
Each individual shall be required to execute such agreement prior to receiving
his shares.
10. Adjustments of the Changes in the Stock. Subject to the provisions
set forth in subsection 6(g) above, in the event the shares of Common Stock of
the Company, as presently constituted shall be changed into a different number
or kind of shares of stock or other securities of the Company or of another
corporation (whether by reason of merger, consolidation, recapitalization,
reclassification, split-up, combination of shares, or otherwise) or if the
number of shares of Common Stock of the Company shall be increased through the
payment of a stock dividend, then there shall be substituted for or added to
each share of Common Stock of the Company, theretofore appropriated or
thereafter subject or which may become subject to an option under the Plan, the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock of the Company shall be so changed, or to
which each such share shall be entitled, as the case may be. Outstanding options
shall also be amended as to the price and other terms if necessary to reflect
the foregoing events. In the event there shall be any other change in the number
or kind of the outstanding shares of Common Stock of the Company, or of any
stock or other securities into which such Common Stock shall have been changed,
then if the Board of Directors shall, in its sole discretion, determine that
such change equitably requires an adjustment in any option theretofore granted
or which may be granted under the Plan, such adjustment shall be made in
accordance with such determination. No right to purchase fractional shares shall
result from any adjustment in options pursuant to this Section 10. In case of
any such adjustment, the shares subject to the option shall be rounded down to
the nearest whole share. Notice of the any adjustment shall be given by the
Company to each holder of an option which shall have been so adjusted and such
adjustment (whether or not such notice is given) shall be effective and binding
for all purposes of the Plan.
11. Amendment of the Plan. The Board at any time and from time to time,
may amend the Plan, subject to the limitation, however that except as provided
in Section 10 (relating to adjustments upon changes in stock), no amendment
shall be effective, unless approved, within twelve (12) months before or after
the date of such amendment's adoption, by the vote or written consent of a
majority of the outstanding shares of the Company entitled to vote, where such
amendment will:
CONFIDENTIAL PAGE 4 OF 6
<PAGE> 5
(a) increase the share reserve;
(b) expand the class of persons who can receive ISOs; or
(c) comply with any applicable law, regulation, or rule.
It is expressly contemplated that the Board may amend the Plan in
any respect necessary to provide the Company's employees with the maximum
benefits provided or to be provided under Section 422 of the Code and the
regulations promulgated thereunder relating to employee incentive stock options,
and/or bring the plan or options granted under it into compliance therewith.
Rights and obligations under any option granted before any amendment
of the Plan shall not be altered or impaired by amendment of the Plan, except
with the consent, which may be obtained in any manner deemed by the Board to be
appropriate of the person to whom the option is granted.
12. Termination or Suspension of the Plan. The Board at any time may
suspend or terminate the Plan. The Plan, unless sooner terminated, shall
terminate at the end of ten (10) years from the date the Plan is adopted by the
Board or approved by the shareholders of the Company, whichever is earlier. An
option may not be granted under the Plan while the Plan is suspended or after it
is terminated.
Rights and obligations under any option 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 option was granted,
which may be obtained in any manner that the Board deems appropriate.
13. Time of Granting Options. The date of the grant of an option
hereunder shall, for all purposes, be the date on which the Board (or committee
under authority of the Board) makes the determination granting such option.
14. Listing, Qualification or Approval of Stock; Approval of Options.
All options granted under the Plan are subject to the requirement that if at any
time the Board shall determine in its discretion that the listing or
qualification of the shares of stock subject thereto on any securities exchange
or under any applicable law, or the consent or approval by any governmental
regulatory body or the shareholders of the Company, is necessary or desirable as
a condition of or in connection with the issuance of shares under the option,
the option may not be exercised in whole or in part, unless such listing,
qualification, consent or approval shall have been effected or obtained free of
any condition not acceptable to the Board.
15. Binding Effect of Conditions. The conditions and stipulations
hereinabove contained or in any option granted pursuant to the Plan shall be and
constitute a covenant running with all of the shares of the Company owned by the
participant at any time, directly or indirectly whether the same have been
issued or not, and those shares of the Company owned by the participant shall
not be sold, assigned, or transferred by any person save and except in
accordance with the terms and conditions herein provided, and the participant
shall agree to use his best efforts to cause the officers of the Company to
refuse to record on the books of the Company any assignment or transfer made or
attempted to be made, except as provided in the Plan and to cause said officers
to refuse to cancel old certificates or to issue or deliver new certificates
therefor where the purchaser or assignee has acquired certificates of the stock
represented thereby, except strictly in accordance with the provisions of this
plan.
16. Effective Date of Plan. The Plan shall become effective as
determined by the Board but no options granted under it shall become exercisable
until the Plan has been approved by the vote or written consent of the holders
of a majority of the outstanding shares of the Company entitled to vote. If such
shareholder approval is not obtained within twelve (12) months before or after
the date of the Board's adoption of the Plan, then all options previously
granted under the Plan shall terminate, and no further options shall be granted
and no shares shall be issued. Subject to such limitation, the Board may grant
options under the Plan at any time after the effective date and before the date
fixed herein for termination of the Plan.
17. Gender. The use of any gender specific pronoun or similar term is
intended to be without legal significance as to gender.
18. Financial Reports. The Company shall provide financial and other
information regarding the Company pursuant to the provisions set forth in
Section 220 of the General Corporation Law of the State of Delaware.
CONFIDENTIAL PAGE 5 OF 6
<PAGE> 6
EXHIBIT A
CHAIRMAN & CEO
CHAPARRAL NETWORK STORAGE, INC.
1951 SOUTH FORDHAM STREET
LONGMONT, CO 80503
This will confirm my understanding with respect to the shares to be issued to me
by reason of my exercise this date of certain stock option rights granted to me
by CHAPARRAL NETWORK STORAGE, INC. for the purchase of _______ shares of Common
Stock (the Shares) as follows:
(a) I am acquiring the Shares for my own account for investment
with no present intention of dividing my interest with others
or of reselling or otherwise disposing of any of the Shares.
(b) The Shares are being issued without registration under the
Securities Act of 1933 (the "Act") in reliance upon the
private offering exemption contained in Section 4(2) of the
Act, and such reliance is based in part on the above
representation.
(c) The certificate for the shares of stock to be issued to me
will bear the following legend:
"The securities represented by this certificate have been
acquired pursuant to an investment representation on the part
of the holder hereof. They have not been registered under the
Securities Act of 1933 or any state securities laws and may
not be sold, pledged, hypothecated, donated or otherwise
transferred, unless the Corporation has satisfied itself or
has received a favorable option from its counsel, or has
received such other evidence as may be satisfactory to its
counsel that any contemplated transfer will not be in
violation of such laws."
(d) Since the Shares have not been registered under the Act, they
must be held indefinitely until an exemption from the
registration requirements of the Act is available or they are
subsequently registered, in which event the representation in
Paragraph (a) hereof shall terminate.
(e) CHAPARRAL NETWORK STORAGE, INC. is not obligated to comply
with the registration requirements of the Act or with the
requirements for an exemption under Regulation A under the Act
for my benefit.
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Name Date
CONFIDENTIAL PAGE 6 OF 6
<PAGE> 1
EXHIBIT 10.2
CHAPARRAL NETWORK STORAGE, INC.
2000 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 2000 Stock Incentive Plan is intended to promote the interests of
Chaparral Network Storage, Inc., a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for them
to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix
II. STRUCTURE OF THE PLAN
A. This Plan shall be divided into five separate equity programs:
(i) the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock,
(ii) the Salary Investment Option Grant Program under which eligible
Employees may elect to have a portion of their base salary invested each
year in special options,
(iii) the Stock Issuance Program under which eligible persons may, at
the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a
bonus for services rendered the Corporation (or any Parent or Subsidiary),
(iv) the Automatic Option Grant Program under which eligible
non-Employee Board members shall automatically receive options at periodic
intervals to purchase shares of Common Stock; and
(v) the Director Fee Option Grant Program under which non-Employee
Board members may elect to have all or any portion of their annual retainer
fee otherwise payable in cash applied to a special option grant.
B. The provisions of Articles One and Seven shall apply to all equity
programs under this Plan and shall govern the interests of all persons under
this Plan.
III. ADMINISTRATION OF THIS PLAN
A. The following provisions shall govern the administration of this Plan:
<PAGE> 2
(i) The Board shall delegate authority to administer the Discretionary
Option Grant Program, the Salary Investment Option Grant Program and the
Stock Issuance Program with respect to Section 16 Insiders and highly
compensated Employees to the Primary Committee.
(ii) Administration of the Discretionary Option Grant Program, the
Salary Investment Option Grant Program and the Stock Issuance Program with
respect to all other persons eligible to participate in those programs may,
at the Board's discretion, be vested in the Primary Committee or a
Secondary Committee, or the Board may retain the power to administer those
programs with respect to all such persons.
(iii) The Board shall have the authority to administer the Director Fee
Option Grant Program with respect to Section 16 Insiders but may delegate
such authority in whole or in part to the Primary Committee.
(iv) Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program.
B. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under this Plan, have full power and authority subject to the
provisions of this Plan:
(i) to establish such rules as it may deem appropriate for proper
administration of this Plan, to make all factual determinations, to
construe and interpret the provisions of this Plan and the awards
thereunder and to resolve any and all ambiguities thereunder;
(ii) to determine, with respect to awards made under the Discretionary
Option Grant and Stock Issuance Programs, which eligible persons are to
receive such awards, the time or times when such awards are to be made, the
number of shares to be covered by each such award, the vesting schedule (if
any) applicable to the award, the status of a granted option as either an
Incentive Option or a Non-Statutory Option and the maximum term for which
the option is to remain outstanding;
(iii) to amend, modify or cancel any outstanding award with the consent
of the holder or accelerate the vesting of such award; and
(iv) to take such other discretionary actions as permitted pursuant to
the terms of the applicable program.
Decisions of each Plan Administrator within the scope of its administrative
functions under this Plan shall be final and binding on all parties.
C. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of any
Secondary Committee and reassume all powers and authority previously delegated
to such committee.
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<PAGE> 3
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to this Plan or any options or stock issuances under this
Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-Employee members of the Board or the board of directors of any
Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide services to
the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly compensated
individuals shall be eligible to participate in the Salary Investment Option
Grant Program.
C. Only non-Employee Board members shall be eligible to participate in the
Automatic Option Grant and Director Fee Option Grant Programs.
V. STOCK SUBJECT TO THIS PLAN
A. The stock issuable under this Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of this Plan shall not exceed
10,000,000 shares. Such authorized share reserve consists of (i) the number of
shares which remain available for issuance, as of the Registration Date, under
the Predecessor Plan, including the shares subject to the outstanding options to
be incorporated into this Plan and the additional shares which would otherwise
be available for future grant under the Predecessor Plan (estimated to be
7,000,000 shares), plus (ii) three million (3,000,000) shares.
B. The number of shares of Common Stock available for issuance under this
Plan shall automatically increase on the first trading day of each calendar year
during the term of this Plan, beginning with the 2001 calendar year, by an
amount equal to four and one-half percent (4.5%) of the shares of Common Stock
outstanding on the last trading day of the immediately preceding calendar year,
but in no event shall such annual increase exceed four million (4,000,000)
shares.
C. No one person participating in this Plan may receive options, separately
exercisable stock appreciation rights and direct stock issuances for more than
two and one-half million (2,500,000) shares of Common Stock in the aggregate per
calendar year, beginning with the 2000 calendar year.
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<PAGE> 4
D. Shares of Common Stock subject to outstanding options (including options
incorporated into this Plan from the Predecessor Plan) shall be available for
subsequent issuance under this Plan to the extent those options expire,
terminate or are canceled for any reason prior to exercise in full. Unvested
shares issued under this Plan and subsequently repurchased by the Corporation,
at the original exercise or issue price paid per share, pursuant to the
Corporation's repurchase rights under this Plan, shall be added back to the
number of shares of Common Stock reserved for issuance under this Plan and shall
accordingly be available for reissuance through one or more subsequent options
or direct stock issuances under this Plan. However, should the exercise price of
an option under this Plan be paid with shares of Common Stock or should shares
of Common Stock otherwise issuable under this Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with
the exercise of an option or the vesting of a stock issuance under this Plan,
then the number of shares of Common Stock available for issuance under this Plan
shall be reduced by the gross number of shares for which the option is exercised
or which vest under the stock issuance, and not by the net number of shares of
Common Stock issued to the holder of such option or stock issuance. Shares of
Common Stock underlying one or more stock appreciation rights exercised under
this Plan shall not be available for subsequent issuance.
E. If any change is made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration (provided, however, that conversion of
any convertible securities of the Corporation shall not be deemed to have been
effected without the Corporation's receipt of consideration), appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under this Plan, (ii) the number and/or class of securities by which
the share reserve is to increase each calendar year pursuant to the automatic
share increase provisions of this Plan, (iii) the number and/or class of
securities for which any one person may be granted options, separately
exercisable stock appreciation rights and direct stock issuances under this Plan
per calendar year, (iv) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-Employee Board members, (v) the number and/or class of securities
and the exercise price per share in effect under each outstanding option under
this Plan and (vi) the number and/or class of securities and price per share in
effect under each outstanding option incorporated into this Plan from the
Predecessor Plan. Such adjustments to the outstanding options are to be effected
in a manner which shall preclude the enlargement or dilution of rights and
benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of this Plan
applicable to such options.
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<PAGE> 5
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator at the time of the option grant and may be less than, equal to or
greater than the Fair Market Value per share of Common Stock on the option grant
date, provided that the exercise price for option grants made to Section 16
Insiders and other highly compensated Employees shall not be less than the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section II of Article Seven
and the documents evidencing the option, be payable in one or more of the
following forms:
(i) in cash or check made payable to the Corporation;
(ii) shares of Common Stock held for the requisite period necessary to
avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares, through a
special sale and remittance procedure pursuant to which the Optionee shall
concurrently provide irrevocable instructions to (a) a Corporation-approved
brokerage firm to effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise price
payable for the purchased shares plus all applicable Federal, state and
local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the Corporation to deliver
the certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall vest and become
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in excess
of ten (10) years measured from the option grant date.
C. CESSATION OF SERVICE.
1. The following provisions shall govern the exercise of any options
outstanding at the time of the Optionee's cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's cessation of
Service for any reason shall remain exercisable for such period of time
thereafter as shall be determined by the Plan Administrator and set forth
in the documents evidencing the option, but no such option shall be
exercisable after the expiration of the option term.
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<PAGE> 6
(ii) Each option outstanding at the time of the death of the Optionee
but not otherwise fully vested shall automatically accelerate so that each
such option shall, immediately prior to the death of the Optionee, vest and
become exercisable for all of the shares of Common Stock at the time
subject to that option which would otherwise have vested in the twenty-four
(24) months following the date of death of the Optionee and may be
exercised by the Beneficiary of the Optionee for any or all of those shares
as fully vested options for shares of Common Stock. Any option exercisable
in whole or in part by the Optionee at the time of his death, including the
options which have become exercisable pursuant to the preceding sentence,
may be subsequently exercised by his or her Beneficiary.
(iii) Each option outstanding at the time of the Permanent Disability of
the Optionee but not otherwise fully vested shall automatically accelerate
so that each such option shall, effective upon the date the Optionee
becomes Permanently Disabled, become exercisable for all of the shares of
Common Stock at the time subject to that option which would otherwise have
vested in the twelve (12) months following the date the Optionee becomes
Permanently Disabled and may be exercised by the Optionee for any or all of
those shares as fully vested options for shares of Common Stock.
(iv) During the applicable post-Service exercise period, the option may
not be exercised in the aggregate for more than the number of vested shares
for which the option is exercisable on the date of the Optionee's cessation
of Service. Upon the expiration of the applicable exercise period or (if
earlier) upon the expiration of the option term, the option shall terminate
and cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding to
the extent the option is not otherwise at that time exercisable for vested
shares.
(v) Upon the Termination for Cause of the Optionee while his or her
options are outstanding, then all such options shall terminate immediately
and cease to be outstanding.
(vi) An Optionee's leave of absence for a period agreed by the
Corporation or required by law shall not constitute a cessation of
Services. Any option outstanding at the time Optionee commences a leave of
absence shall remain during the period of such leave of absence outstanding
and exercisable to the extent exercisable on the commencement date of the
leave of absence, but the period of such leave of absence shall not be
credited towards vesting.
2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding:
(i) to extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service to such period of
time as the Plan Administrator shall deem appropriate, but in no event
beyond the expiration of the option term, and/or
(ii) to permit the option to be exercised, during the applicable
post-Service exercise period, for one or more additional installments in
which the Optionee would have vested had the Optionee continued in Service.
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<PAGE> 7
D. STOCKHOLDER RIGHTS. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any or
all of those unvested shares. The terms upon which such repurchase right shall
be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, to the
extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime (i) as a gift to one or more members of the
Optionee's immediate family, to a trust in which Optionee and/or one or more
such family members hold more than fifty percent (50%) of the beneficial
interest or to an entity in which more than fifty percent (50%) of the voting
interests are owned by one or more such family members or (ii) pursuant to a
domestic relations order. The terms applicable to the assigned portion shall be
the same as those in effect for the option immediately prior to such assignment
and shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Six shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under
this Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less than one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under this Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted. In the event the foregoing
results in a portion of an Option designated as an Incentive Option exceeding
the $100,000 limitation,
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<PAGE> 8
such excess shall be treated as a Non-Statutory Option and the portion not in
excess of such limitation shall continue to be treated as an Incentive Option.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is granted
is a 10% Stockholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.
E. EXERCISE FOLLOWING CESSATION OF SERVICE. In the event of an Optionee's
cessation of Service, if an Incentive Option held by such Optionee is exercised
(in accordance with the terms and provisions of the documents evidencing such
Option and this Plan) after the expiration of the exercise periods that apply
for purposes of Section 422 of the Code, such Option will thereafter be treated
as a Non-Statutory Option.
III. CHANGE IN CONTROL
A. Each option outstanding at the time of a Change in Control but not
otherwise fully vested shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, vest
and become exercisable for all of the shares of Common Stock at the time subject
to that option which would otherwise have vested in the twelve (12) months
following the date of the Change of Control and may be exercised for any or all
of those shares as fully vested shares of Common Stock if: (i) such option is,
in connection with the Change in Control, assumed or otherwise continued in full
force and effect by the successor corporation (or parent thereof) pursuant to
the terms of the Change in Control, or (ii) such option is replaced with a cash
incentive program of the successor corporation which preserves the spread
existing at the time of the Change in Control on the shares of Common Stock for
which the option is not otherwise at that time exercisable and provides for
subsequent payout in accordance with the same vesting schedule applicable to
those option shares. If such option is not so assumed or replaced, then all
options outstanding at the time of a Change in Control but not otherwise fully
vested shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Change in Control, become
exercisable for all of the shares of Common Stock at the time subject to that
option and may be exercised for any or all of those shares as fully vested
options for shares of Common Stock.
B. If such option is so assumed or replaced, and if there is an Involuntary
Termination of the employment of the Optionee by the successor corporation or
affiliate thereof within twelve (12) months from the date of the Change in
Control, then all options of such Optionee outstanding at the time of such
termination but not otherwise fully vested shall automatically accelerate so
that each such option shall, as of the effective date of the Change in Control,
become exercisable for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully vested
options for shares of Common Stock. Any options so accelerated shall remain
exercisable for fully vested shares until the earlier of (i) the expiration of
the option term or (ii) the expiration of the one (1) year period measured from
the effective date of the Involuntary Termination. In addition, the Plan
Administrator may at any time provide that one or more of the Corporation's
repurchase rights shall immediately terminate upon such Involuntary Termination.
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<PAGE> 9
C. All outstanding repurchase rights shall also terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Change in Control, except to the
extent: (i) those repurchase rights are assigned to the successor corporation
(or parent thereof) or otherwise continue in full force and effect pursuant to
the terms of the Change in Control or (ii) such accelerated vesting is precluded
by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
D. Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted, immediately after such Change in Control, to
apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Change in Control had the option been
exercised immediately prior to such Change in Control. Appropriate adjustments
to reflect such Change in Control shall also be made to (i) the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same, (ii) the maximum number
and/or class of securities available for issuance over the remaining term of
this Plan and (iii) the maximum number and/or class of securities for which any
one person may be granted options, separately exercisable stock appreciation
rights and direct stock issuances under this Plan per calendar year.
E. The Plan Administrator may at any time provide that one or more options
will automatically accelerate in connection with a Change in Control, whether or
not those options are assumed or otherwise continued in full force and effect
pursuant to the terms of the Change in Control. Any such option shall
accordingly become exercisable, immediately prior to the effective date of such
Change in Control, for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully vested
shares of Common Stock. In addition, the Plan Administrator may at any time
provide that one or more of the Corporation's repurchase rights shall not be
assignable in connection with such Change in Control and shall terminate upon
the consummation of such Change in Control.
F. The portion of any Incentive Option accelerated in connection with a
Change in Control shall remain exercisable as an Incentive Option only to the
extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option in excess of the dollar limitation shall be exercisable
as a Non-Statutory Option under the Federal tax laws.
IV. STOCK APPRECIATION RIGHTS
The Plan Administrator may, subject to such conditions as it may determine,
grant to selected Optionees stock appreciation rights which will allow the
holders of those rights to elect between the exercise of the underlying option
for shares of Common Stock and the surrender of that option in exchange for a
distribution from the Corporation in an amount equal to the excess of (a) the
Option Surrender Value of the number of shares for which the option is
surrendered over (b) the aggregate exercise price payable for such shares. The
distribution may be made in shares of Common Stock valued at Fair Market Value
on the option surrender date, in cash, or partly in shares and partly in cash,
as the Plan Administrator shall in its sole discretion deem appropriate.
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<PAGE> 10
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee may implement the Salary Investment Option Grant
Program for one or more calendar years beginning after the Underwriting Date and
select the Section 16 Insiders and other highly compensated Employees eligible
to participate in the Salary Investment Option Grant Program for each such
calendar year. Each selected individual who elects to participate in the Salary
Investment Option Grant Program must, prior to the start of each calendar year
of participation, file with the Plan Administrator (or its designate) an
irrevocable authorization directing the Corporation to reduce his or her base
salary for that calendar year by an amount not less than Five Thousand Dollars
($5,000.00) nor more than Fifty Thousand Dollars ($50,000.00). The Primary
Committee shall have complete discretion to determine whether to approve the
filed authorization in whole or in part. To the extent the Primary Committee
approves the authorization, the individual who filed that authorization shall be
granted an option under the Salary Investment Grant Program on the first trading
day in January for the calendar year for which the salary reduction is to be in
effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be one hundred percent (100%) of
the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms authorized
under the Discretionary Option Grant Program. Except to the extent the sale and
remittance procedure specified thereunder is utilized, payment of the exercise
price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock subject to
the option shall be determined pursuant to the following formula (rounded down
to the nearest whole number):
X = A / (B x C), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the Optionee's base
salary for the calendar year, and
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B is the Fair Market Value per share of Common Stock on the option grant
date.
C is equal to the exercise price per share established by the Board
(which amount shall be expressed as a percentage of Fair Market Value).
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable in a
series of twelve (12) successive equal monthly installments upon the Optionee's
completion of each calendar month of Service in the calendar year for which the
salary reduction is in effect. Each option shall have a maximum term of ten (10)
years measured from the option grant date.
D. CESSATION OF SERVICE. Each option outstanding at the time of the
Optionee's cessation of Service shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the option term or (ii) the
expiration of the three (3)-year period following the Optionee's cessation of
Service. To the extent the option is held by the Optionee at the time of his or
her death, the option may be exercised by his or her Beneficiary. However, the
option shall, immediately upon the Optionee's cessation of Service, terminate
and cease to remain outstanding with respect to any and all shares of Common
Stock for which the option is not otherwise at that time exercisable. An
Optionee's leave of absence for a period agreed by the Corporation shall not
constitute a cessation of Services. Any option outstanding at the time Optionee
commences a leave of absence shall remain during the period of such leave of
absence outstanding and exercisable to the extent exercisable on the
commencement date of the leave of absence, but the period of such leave of
absence shall not be credited towards vesting.
III. CHANGE IN CONTROL
A. In the event of any Change in Control while the Optionee remains in
Service, each outstanding option shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Change in
Control become fully exercisable with respect to the total number of shares of
Common Stock at the time subject to such option and may be exercised for any or
all of those shares as fully-vested shares of Common Stock. Each such option
accelerated in connection with a Change in Control shall terminate upon the
Change in Control, except to the extent assumed by the successor corporation (or
parent thereof) or otherwise continued in full force and effect pursuant to the
terms of the Change in Control.
B. Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such Change in
Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same.
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IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for options made
under the Discretionary Option Grant Program.
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening options. Shares
of Common Stock may also be issued under the Stock Issuance Program pursuant to
share right awards which entitle the recipients to receive those shares upon the
attainment of designated performance goals or Service requirements. Each such
award shall be evidenced by one or more documents which comply with the terms
specified below.
A. PURCHASE PRICE.
1. The purchase price per share of Common Stock subject to direct
issuance shall be fixed by the Plan Administrator and may be less than, equal to
or greater than the Fair Market Value per share of Common Stock on the issue
date.
2. Shares of Common Stock may be issued under the Stock Issuance Program
for any of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
B. VESTING/ISSUANCE PROVISIONS; PERFORMANCE SHARES.
1. The Plan Administrator may issue shares of Common Stock which are
fully and immediately vested upon issuance or which are to vest in one or more
installments over the Participant's period of Service or upon attainment of
specified performance targets. Alternatively, the Plan Administrator may issue
share right awards which shall entitle the recipient to receive a specified
number of vested shares of Common Stock upon the attainment of one or more
performance targets or Service requirements established by the Plan
Administrator.
2. The Plan Administrator may establish maximum and minimum performance
targets to be achieved during the applicable Performance Cycle in accordance
with the following: Any performance targets established by the Plan
Administrator shall relate to corporate, group, unit or individual performance
and may be established in terms of one or more of the following factors:
revenue, earnings, sales, market shares, costs, stock price, growth in earnings,
and/or ratios of earnings or revenue to equity or assets. If the Plan
Administrator establishes maximum and minimum
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performance target, the Plan Administrator shall establish the method for
computing the number of Performance Shares payable to a Participant upon
satisfaction of each of the performance targets, and shall designate the
Participants who are eligible for such Performance Shares within 90 days after
the commencement of the Performance Cycle to which the awards relate or, if
earlier, before 25 percent of such Performance Cycle has elapsed. Multiple
performance targets may be used and the components of multiple performance
targets may be given the same or different weight in determining the amount of
an award earned, and may relate to absolute performance or relative performance
measured against other groups, units, individuals or entities. Each performance
target, and the methods for computing the amount of an award to which an
employee shall be entitled as a result of the achievement of one or more
performance targets, shall be stated in terms of an objective formula or
standard. Achievement of the maximum performance target shall entitle the
Participant to payment at the full or maximum amount specified with respect to
the award; provided, however, that notwithstanding any other provisions of this
Plan, in the case of an award of Performance Shares, the Plan Administrator in
its discretion may establish an upper limit on the amount payable (whether in
cash or shares) as a result of the achievement of the maximum performance
target. The Plan Administrator may also establish that a portion of a full or
maximum amount of a Participant's a award of Performance Shares will be paid for
performance which exceeds the minimum performance target but falls below the
maximum performance target applicable to such award. Following the conclusion of
each Performance Cycle, the Plan Administrator shall determine the extent to
which performance targets have been attained, and the satisfaction of any other
terms and conditions with respect to an award relating to such Performance
Cycle. The Plan Administrator shall certify what, if any, payment is due with
respect to an award of Performance Shares and whether such payment shall be made
in cash, Common Stock or some combination. Payment shall be made in a lump sum
or installments, as determined by the Plan Administrator, commencing as promptly
as practicable following the end of the applicable Performance Cycle, subject to
such terms and conditions and in such form as may be prescribed by the Plan
Administrator.
3. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her unvested
shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
4. The Participant shall have full stockholder rights with respect to
the issued shares of Common Stock, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.
5. Should the Participant cease to remain in Service while holding one
or more unvested shares of Common Stock, or should the performance objectives
not be attained with respect to one or more such unvested shares of Common
Stock, then those shares shall be immediately surrendered to the Corporation for
cancellation, and the Participant shall have no further stockholder rights with
respect to those shares. To the extent the surrendered shares were previously
issued to the Participant for consideration paid in cash or cash equivalent
(including the Participant's
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<PAGE> 14
purchase-money indebtedness), the Corporation shall repay to the Participant the
cash consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to the surrendered shares.
6. The Plan Administrator may waive the surrender and cancellation of
one or more unvested shares of Common Stock (or other assets attributable
thereto) which would otherwise occur upon the cessation of the Participant's
Service or the non-attainment of the performance objectives applicable to those
shares. Such waiver shall result in the immediate vesting of the Participant's
interest in the shares of Common Stock as to which the waiver applies. Such
waiver may be effected at any time, whether before or after the Participant's
cessation of Service or the attainment or non-attainment of the applicable
performance objectives.
7. Outstanding share right awards shall automatically terminate, and no
shares of Common Stock shall actually be issued in satisfaction of those awards,
if the performance targets or Service requirements established for such awards
are not attained. The Plan Administrator, however, shall have the authority to
issue shares of Common Stock in satisfaction of one or more outstanding share
right awards as to which the designated performance targets or Service
requirements are not attained.
II. CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights shall terminate
automatically, and all the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Change in Control,
except to the extent (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Change in Control or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the time
the option grant is issued.
B. The Plan Administrator may at any time provide for the automatic
termination of one or more of those outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those terminated
rights upon (i) a Change in Control or (ii) an Involuntary Termination of the
Participant's Service within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control in which those
repurchase rights are assigned to the successor corporation (or parent thereof)
or otherwise continue in full force and effect.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
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ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Options shall be made on the dates specified below:
1. Each individual who is first elected or appointed as a non-Employee
Board member at any time after the Underwriting Date shall automatically be
granted, on the date of such initial election or appointment, a Non-Statutory
Option to purchase forty-five thousand (45,000) shares of Common Stock, provided
that individual has not previously been in the employ of the Corporation (or any
Parent or Subsidiary).
2. On the date of each Annual Stockholders Meeting beginning with the
2001 Annual Stockholder Meeting, each individual who has served as a
non-Employee Board member for six months or more and who is to continue to serve
as a non-Employee Board member following such Annual Stockholders Meeting shall
automatically be granted a Non-Statutory Option to purchase fifteen thousand
(15,000) shares of Common Stock.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.
2. The exercise price shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years measured
from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each initial 45,000-share option shall
vest and become exercisable in a series of three (3) successive equal annual
installments over the Optionee's period of continued service as a Board member,
with the first such installment to vest and become exercisable upon the
Optionee's completion of one (1) year of Board service measured from the option
grant date. Each annual 15,000-share option shall vest and become exercisable
upon the Optionee's completion of one (1) year of Board service measured from
the option grant date.
E. CESSATION OF BOARD SERVICE. The following provisions shall govern the
exercise of any options outstanding at the time of the Optionee's cessation of
Board service:
(i) Any option outstanding at the time of the Optionee's cessation of
Board service for any reason shall remain exercisable for a twelve
(12)-month period following the
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date of such cessation of Board service, but in no event shall such option
be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the Optionee at the
time of death may be subsequently exercised by his or her Beneficiary.
(iii) Following the Optionee's cessation of Board service, the option
may not be exercised in the aggregate for more than the number of shares
for which the option was exercisable on the date of such cessation of Board
service. Upon the expiration of the applicable exercise period or (if
earlier) upon the expiration of the option term, the option shall terminate
and cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service, terminate and cease to be
outstanding for any and all shares for which the option is not otherwise at
that time exercisable.
(iv) However, should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
II. CHANGE IN CONTROL
A. In the event of any Change in Control, the shares of Common Stock at the
time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option may, immediately prior to
the effective date of such Change in Control, became fully exercisable for all
of the shares of Common Stock at the time subject to such option and maybe
exercised for all or any of those shares as fully vested options for shares of
Common Stock. Each such option accelerated in connection with a Change in
Control shall terminate upon the Change in Control, except to the extent assumed
by the successor corporation (or parent thereof) or otherwise continued in full
force and effect pursuant to the terms of the Change in Control.
B. All outstanding repurchase rights shall automatically terminate and the
shares of Common Stock subject to those terminated rights shall immediately vest
in full, in the event of any Change in Control.
C. Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such Change in
Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option Grant
Program shall be the same as the terms in effect for options made under the
Discretionary Option Grant Program.
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ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Board may implement the Director Fee Option Grant Program as of the
first day of any calendar year beginning after the Underwriting Date. Upon such
implementation of the Program, each non-Employee Board member may elect to apply
all or any portion of the annual retainer fee otherwise payable in cash for his
or her service on the Board to the acquisition of a special option grant under
this Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the election is to be in effect. Each non-Employee Board member
who files such a timely election with respect to the annul retainer fee shall
automatically be granted an option under this Director Fee Option Grant Program
on the first trading day in January in the calendar year for which that fee
would otherwise be payable.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be established by the Board prior
to the start of each calendar year and may range from one hundred percent (100%)
to eighty-five percent (85%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms authorized
under the Discretionary Option Grant Program. Except to the extent the sale and
remittance procedure specified thereunder is utilized, payment of the exercise
price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock subject to
the option shall be determined pursuant to the following formula (rounded down
to the nearest whole number):
X = A / (B x C), where
X is the number of option shares,
A is the dollar amount of the approved reduction in the Optionee's base
salary for the calendar year, and
B is the Fair Market Value per share of Common Stock on the option grant
date.
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C is equal to the exercise price per share established by the Board
(which amount shall be expressed as a percentage of Fair Market Value).
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable in a
series of twelve (12) successive equal monthly installments upon the Optionee's
completion of each month of Board service during the calendar year in which the
option is granted. Each option shall have a maximum term of ten (10) years
measured from the option grant date.
D. CESSATION OF BOARD SERVICE. Should the Optionee cease Board service for
any reason (other than death or Permanent Disability) while holding one or more
options, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Board service, until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period measured from
the date of such cessation of Board service. However, each option held by the
Optionee at the time of such cessation of Board service shall immediately
terminate and cease to remain outstanding with respect to any and all shares of
Common Stock for which the option is not otherwise at that time exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as a Board
member cease by reason of death or Permanent Disability, then each option held
by such Optionee shall immediately become exercisable for all the shares of
Common Stock at the time subject to that option, and the option may be exercised
for any or all of those shares as fully-vested shares until the earlier of (i)
the expiration of the ten (10)-year option term or (ii) the expiration of the
three (3)-year period measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but while holding
one or more options, then each such option may be exercised, for any or all of
the shares for which the option is exercisable at the time of the Optionee's
cessation of Board service (less any shares subsequently purchased by Optionee
prior to death), by the Optionee's Beneficiary. Such right of exercise shall
lapse, and the option shall terminate, upon the earlier of (i) the expiration of
the ten (10)-year option term or (ii) the three (3)-year period measured from
the date of the Optionee's cessation of Board service.
III. CHANGE IN CONTROL
A. In the event of any Change in Control while the Optionee remains in
Board service, each outstanding option held by such Optionee shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Change in Control, become fully exercisable with respect to the
total number of shares of Common Stock at the time subject to such option and
may be exercised for any or all of those shares as fully-vested shares of Common
Stock. Each such option accelerated in connection with a Change in Control shall
terminate upon the Change in Control, except to the extent assumed by the
successor corporation (or parent thereof) or otherwise expressly continued in
full force and effect pursuant to the terms of the Change in Control.
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IV. Remaining Terms
The remaining terms of each option granted under this Director Fee Option
Grant Program shall be the same as the terms in effect for options made under
the Discretionary Option Grant Program.
ARTICLE SEVEN
MISCELLANEOUS
I. No Impairment Of Authority
Outstanding awards shall in no way affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
II. Tax Withholding
The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options or the issuance or vesting of such shares under this Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements. An Optionee may be required
to pay to the Corporation, and the Corporation shall have the right and is
hereby authorized to withhold from any option, from any payment due or transfer
made under any option or under this Plan or from any compensation or other
amount owing to an Optionee, the amount (in cash, shares of Common Stock, other
securities, other options or other property, as determined by the Plan
Administrator) of any applicable withholding taxes in respect of an option, its
exercise, or any payment or transfer under an option or under this Plan and to
take such other action as may be necessary in the opinion of the Corporation to
satisfy all obligations for the payment of such taxes. In the case of payments
of options in the form of shares of Common Stock, at the discretion of the Plan
Administrator, the Optionee may be required to pay to the Corporation the amount
of any taxes required to be withheld with respect to such shares or, in lieu
thereof, the Corporation shall have the right to retain (or the Optionee may be
offered the opportunity to elect to tender) the number of shares whose Fair
Market Value equals the amount required to be withheld. The Plan Administrator
may provide for additional cash payments to Optionees to defray or offset any
tax arising from the grant, vesting, exercise or payments of any option. In the
discretion of the Plan Administrator, the Corporation may offer loans to
Optionees to satisfy withholding requirements on such terms as the Plan
Administrator may determine, which terms may in the discretion of the
Corporation be non-interest bearing.
III. Effective Date And Term Of This Plan
A. This Plan shall become effective immediately on the Registration Date.
However, the Salary Investment Option Grant and Director Fee Option Grant
Programs shall not be implemented until such time as the Primary Committee or
the Board may deem appropriate. Options may be granted under the Discretionary
Option Grant Program at any time on or after the Registration Date. However, no
options granted under this Plan may be exercised, and no shares shall be issued
under this Plan, until this Plan is approved by the Corporation's stockholders.
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<PAGE> 20
B. This Plan shall serve as the successor to the Predecessor Plan, and no
further options or direct stock issuances shall be made under the Predecessor
Plan after the Registration Date. All options outstanding under the Predecessor
Plan on the Registration Date shall be incorporated into this Plan at that time
and shall be treated as outstanding options under this Plan. However, each
outstanding option so incorporated shall continue to be governed solely by the
terms of the documents evidencing such option, and no provision of this Plan
shall be deemed to affect or otherwise modify the rights or obligations of the
holders of such incorporated options with respect to their acquisition of shares
of Common Stock.
C. One or more provisions of this Plan, including (without limitation) the
option/vesting acceleration provisions of Article Two relating to Changes in
Control, may, in the Plan Administrator's discretion, be extended to one or more
options incorporated from the Predecessor Plan which do not otherwise contain
such provisions.
D. This Plan shall terminate upon the earliest of (i) December 31, 2009,
(ii) the date on which all shares available for issuance under this Plan shall
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Change in Control. Upon such plan
termination, all outstanding options and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
IV. Amendment Of This Plan
A. The Board shall have complete and exclusive power and authority to amend
or modify this Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under this
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under this Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under this Plan. If such stockholder approval is not obtained
within twelve (12) months after the date the first such excess issuances are
made, then (i) any unexercised options granted on the basis of such excess
shares shall terminate and cease to be outstanding and (ii) the Corporation
shall promptly refund to the Optionees and the Participants the exercise or
purchase price paid for any excess shares issued under this Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow, and such shares shall thereupon be
automatically canceled and cease to be outstanding.
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V. Use Of Proceeds
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under this Plan shall be used for general corporate purposes.
VI. Regulatory Approvals
A. The implementation of this Plan, the granting of any stock option under
this Plan and the issuance of any shares of Common Stock (i) upon the exercise
of any granted option or (ii) under the Stock Issuance Program shall be subject
to the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over this Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under this Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under this Plan, and all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
VII. No Employment/Service Rights
Nothing in this Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX
The following definitions shall be in effect under this Plan:
A. "Automatic Option Grant Program" shall mean the automatic option grant
program in effect under this Plan.
B. "Beneficiary" shall mean, in the event the Plan Administrator implements
a beneficiary designation procedure, the person designated by an Optionee or
Participant, pursuant to such procedure, to succeed to such person's rights
under any outstanding awards held by him or her at the time of death. In the
absence of such designation or procedure, the Beneficiary shall be the personal
representative of the estate of the Optionee or Participant or the person or
persons to whom the award is transferred by will or the laws of descent and
distribution.
C. "Board" shall mean the Corporation's Board of Directors.
D. "Change in Control" shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:
(i) any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act")), other
than a trustee or other fiduciary holding securities under an employee
benefit plan of the Corporation, being or becoming the "beneficial owner"
(as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of
greater than fifty percent (50%) of the outstanding voting stock of the
Corporation; or
(ii) at any time during any period of three consecutive years (not
including any period prior to the effective date of this Plan), individuals
who at the beginning of such period constitute the Board (and any new
director whose election by the Board or whose nomination for election by
the Corporation's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for
election was previously so approved) ceasing for any reason to constitute a
majority thereof; or
(iii) the stockholders of the Corporation approving a merger or
consolidation of the Corporation with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the combined voting
power of the voting securities of the Corporation or such surviving entity
outstanding immediately after such merger or consolidation, or an agreement
for the sale by the Corporation of all or substantially all of the
Corporation's assets.
E. "Code" shall mean the Internal Revenue Code of 1986, as amended.
F. "Common Stock" shall mean the Corporation's common stock.
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<PAGE> 23
G. "Corporation" shall mean Chaparral Network Storage, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Chaparral Network Storage, Inc., which shall by
appropriate action adopt this Plan.
H. "Director Fee Option Grant Program" shall mean the director fee option
grant program in effect under this Plan.
I. "Discretionary Option Grant Program" shall mean the discretionary option
grant program in effect under this Plan.
J. "Employee" shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. "Exercise Date" shall mean the date on which the Corporation shall have
received written notice of the option exercise.
L. "Fair Market Value" per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or
system on the date of such determination (or, if such date is not a trading
day, for the immediately preceding trading day), as reported in The Wall
Street Journal or such other source as the Board deems reliable.
(ii) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be
the mean of the closing bid and asked prices for the Common Stock on the
date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable.
(iii) For purposes of any option grants made on the Underwriting Date,
the Fair Market Value shall be deemed to be equal to the price per share at
which the Common Stock is to be sold in the initial public offering
pursuant to the Underwriting Agreement.
(iv) For purposes of any options made prior to the Underwriting Date,
the Fair Market Value shall be determined by the Plan Administrator, after
taking into account such factors as it deems appropriate.
M. "Incentive Option" shall mean an option which satisfies the requirements
of Code Section 422.
N. "Involuntary Termination" shall mean the termination of the Service of
any individual which occurs by reason of such individual's involuntary dismissal
or discharge by the Corporation other than a Termination for Cause.
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<PAGE> 24
O. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
P. "Non-Statutory Option" shall mean an option not intended to satisfy the
requirements of Code Section 422.
Q. "Option Surrender Value" shall mean the Fair Market Value per share of
Common Stock on the date the option is surrendered to the Corporation. However,
if the surrendered option is an Incentive Option, the Option Surrender Value
shall not exceed the Fair Market Value per share.
R. "Optionee" shall mean any person to whom an option is granted under the
Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
S. "Parent" shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
T. "Participant" shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
U. "Performance Cycle" means the period of time as specified by the Plan
Administrator over which Performance Shares are to be earned.
V. "Performance Shares" means an award made pursuant to Article 4 which
entitles a Participant to receive shares of Common Stock based on the
achievement of performance targets during a Performance Cycle.
W. "Permanent Disability" or "Permanently Disabled" shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-Employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. "Plan" shall mean the Corporation's 2000 Stock Incentive Plan, as set
forth in this document.
Y. "Plan Administrator" shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant, Salary Investment Option Grant and
Stock Issuance Programs with respect to one or more classes of eligible persons,
to the extent such entity is carrying out its administrative functions under
those programs with respect to the persons under its jurisdiction. However, the
Primary Committee shall have the plenary authority to make all factual
determinations and to construe and interpret any
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<PAGE> 25
and all ambiguities under this Plan to the extent such authority is not
otherwise expressly delegated to any other Plan Administrator.
Z. "Predecessor Plan" shall mean the Corporation's pre-existing 1998 Stock
Option Plan in effect immediately prior to this Plan Effective Date hereunder.
AA. "Primary Committee" shall mean a committee of two (2) or more
non-Employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and highly compensated Employees and to administer the Salary
Investment Option Grant Program with respect to all eligible individuals. At all
times following the Section 12 Registration Date, the Primary Committee shall be
comprised of individuals who (1) are not then current Employees of the
Corporation, (2) not then former Employees of the corporation who receive
compensation for prior services (other than benefits under a tax-qualified
retirement plan) during the taxable year of the Corporation; (3) have not been
officers of the Corporation; and (4) do not receive remuneration (including any
payment in exchange for goods or services) for the Corporation, either directly
or indirectly, in any capacity other than as a director. The preceding sentence
is intending to comply with the requirements of Treasury Regulation Section
1.162-27(e)(3), and shall be construed consistently with such intent.
BB. "Registration Date" shall mean the date of the closing of the
Corporation's initial public offering of Common Stock pursuant to an effective
registration statement on form S-1.
CC. "Salary Investment Option Grant Program" shall mean the salary
investment grant program in effect under this Plan.
DD. "Secondary Committee" shall mean a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
EE. "Section 16 Insider" shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. "Service" shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
GG. "Stock Exchange" shall mean either the American Stock Exchange or the
New York Stock Exchange.
HH. "Stock Issuance Program" shall mean the stock issuance program in
effect under this Plan.
II. "Subsidiary" shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty
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<PAGE> 26
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
JJ. "10% Stockholder" shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
KK. "Termination for Cause" shall mean the termination of the Service of
any individual which occurs by reason of the individual
1. committing any fraudulent or felonious act in respect to duties to
the Corporation or, with respect to his or her employment, committing an act of
moral turpitude of such degree that it bears upon his or her ability to carry
out his or her functions under this Agreement; or
2. committing any willful malfeasance or gross negligence (in the
discharge of duties to the Corporation) having a material adverse effect on the
Corporation.
LL. "Underwriting Agreement" shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
MM. "Underwriting Date" shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
NN. "Withholding Taxes" shall mean the Federal, state and local income and
employment withholding tax liabilities to which the holder of Non-Statutory
Options or unvested shares of Common Stock may become subject in connection with
the exercise of those options or the vesting of those shares
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<PAGE> 1
EXHIBIT 10.3
CHAPARRAL NETWORK STORAGE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the Company
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Chaparral Network Storage, Inc., a Delaware
corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings and
commissions, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
(j) "Fair Market Value" shall mean, as of any date, the value of Common
Stock determined as follows:
<PAGE> 2
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such exchange or
system on the date of such determination (or, if such date is not a Trading
Day, for the immediately preceding Trading Day), as reported in The Wall
Street Journal or such other source as the Board deems reliable, or;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean of the closing bid and asked prices for the Common
Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the
Board.
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to
the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock
(the "Registration Statement").
(k) "Offering Period" shall mean a period of approximately six (6)
months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after August 1 and terminating on the
last Trading Day in the period ending the following January 31, or commencing on
the first Trading Day on or after February 1 and terminating on the last Trading
Day in the period ending the following July 31; provided, however, that the
first Offering Period under the Plan shall commence with the first Trading Day
on or after the date on which the Securities and Exchange Commission declares
the Company's Registration Statement effective and ending on the last Trading
Day on or before July 31, 2000. The duration of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
(n) "Reserves" shall mean the number of shares of Common Stock covered
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
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<PAGE> 3
(p) "Trading Day" shall mean a day on which national stock exchanges and
the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall have been employed by the Company for at
least six months on a given Enrollment Date shall be eligible to participate in
the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its Subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive Offering
Periods with a new Offering Period commencing on the first Trading Day on or
after August 1 and February 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 20 hereof; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the last Trading Day on or before July 31, 2000. The
Board shall have the power to change the duration of Offering Periods (including
the commencement dates thereof) with respect to future offerings without
stockholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
provided by the Company to this Plan and filing it with the Company's payroll
office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
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<PAGE> 4
6. Payroll Deductions.
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding ten percent (10%) of the Compensation
which he or she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during an
Offering Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Company's Common Stock issued under the Plan is disposed
of, the participant must make adequate provision for the Company's federal,
state, or other tax withholding obligations, if any, which arise upon the
exercise of the option or the disposition of the Common Stock. At any time, the
Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee. The form of subscription agreement may provide
that shares of Common Stock issued under the Plan may be held in escrow or
legended to provide for satisfaction of withholding obligations.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price, provided that such purchase
shall be subject to the limitations set forth in
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<PAGE> 5
Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The Option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on which a
purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, the shares purchased upon exercise of his or her
option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
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<PAGE> 6
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the Company
as provided in Section 19 hereof, the maximum number of shares of the Company's
Common Stock which shall be made available for sale under the Plan shall be
6,000,000 shares, plus an annual increase to be added on the first day of each
of the Company's fiscal years beginning with fiscal year 2001 equal to the
lesser of (i) 1,000,000 shares, (ii) 2.0% of the outstanding shares on such
date, or (iii) a lesser amount determined by the Board. If, on a given Exercise
Date, the number of shares with respect to which options are to be exercised
exceeds the number of shares then available under the Plan, the Company shall
make a pro rata allocation of the shares remaining available for purchase in as
uniform a manner as shall be practicable and as it shall determine to be
equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more
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<PAGE> 7
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
16. Transferability. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and distribution
or as provided in Section 15 hereof) by the participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds from
an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase per Offering Period (pursuant to Section 7), as well as
the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
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<PAGE> 8
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, the Offering Period
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as provided
in Section 19 and Section 20 hereof, no amendment may make any change in any
option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any other applicable law, regulation or stock exchange rule), the Company shall
obtain stockholder approval in such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
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<PAGE> 9
(c) In the event the Board determines that the ongoing operation of the
Plan may result in unfavorable financial accounting consequences, the Board may,
in its discretion and, to the extent necessary or desirable, modify or amend the
Plan to reduce or eliminate such accounting consequence including, but not
limited to:
(i) altering the Purchase Price for any Offering Period including
an Offering Period underway at the time of the change in Purchase Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the date of the
closing of the Company's initial public offering of Common Stock pursuant to an
effective registration statement on form S-1. It shall continue in effect for a
term of ten (10) years unless sooner terminated under Section 20 hereof.
-9-
<PAGE> 1
EXHIBIT 10.4
Each of the following executive officers of Chaparral Network Storage,
Inc. (the "Corporation") has executed an Executive Employment and Non-Compete
Agreement with the Corporation in a form substantially identical to the form of
agreement between the Corporation and Executive attached hereto: Gary L.
Allison, Michael J. Gluck and Jerry L. Walker. The material details in which
their agreements differ from the form agreement are set forth below.
1. Gary Allison, Chief Executive Officer. Allison's
agreement differs from the form agreement attached hereto only as follows:
Recitals
--------
Position -- Chief Executive Officer
Reports to -- Board of Directors
Section 1
---------
Position -- Chief Executive Officer
Section 3
---------
Reports to -- Board of Directors
Section 4
---------
Options -- 200,000
Section 7
---------
Vacation -- Six (6) work weeks of paid vacation
-- may accrue up to fifteen (15) work weeks of paid
vacation
2. Michael J. Gluck, President and Chief Operating Officer. Gluck's
agreement differs from the form agreement attached hereto only as follows:
Recitals
--------
Position -- President and Chief Operating Officer
Reports to -- Chief Executive Officer and Chairman of the Board
of Directors
Section 1
---------
Position -- President and Chief Operating Officer
Section 3
---------
Reports to -- Chief Executive Officer and Chairman of the Board
of Directors
Section 4
---------
Options -- 150,000
Section 7
---------
Vacation -- Four (4) work weeks of paid vacation
-- may accrue up to ten (10) work weeks of paid vacation
3. Jerry L. Walker, Executive Vice President. Walker's agreement
differs from the form agreement attached hereto only as follows:
Recitals
--------
Position -- Executive Vice President for Engineering and
Operations
Reports to -- President
Section 1
---------
Position -- Executive Vice President for Engineering and
Operations
Section 3
---------
Reports to -- President
Section 4
---------
Options -- 150,000
Section 7
---------
Vacation -- Four (4) work weeks of paid vacation
-- may accrue up to ten (10) work weeks of paid vacation
<PAGE> 2
FORM OF
EXECUTIVE EMPLOYMENT AND NON-COMPETE AGREEMENT
THIS EXECUTIVE EMPLOYMENT AND NON-COMPETE AGREEMENT (the "Agreement"),
effective April 1, 2000, is by and between CHAPARRAL NETWORK STORAGE, INC.
("Chaparral"), a Delaware corporation, and Executive.
WHEREAS, Executive holds the position of President and Chief Operating
Officer with Chaparral, reports to the _______________________________________
______________________, and is an integral part of Chaparral's executive and
management operations;
WHEREAS, it is the desire of the Board of Directors of Chaparral to
assure itself of the executive and management services of Executive by employing
Executive in the position of ______________________________________; and
WHEREAS, Executive is desirous of committing himself to serve Chaparral
pursuant to the terms provided herein; and
WHEREAS, Chaparral is desirous of entering into a non-compete agreement
with Executive.
NOW THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements set forth below, the parties agree as follows:
1. Employment. Chaparral agrees to employ Executive and Executive
hereby agrees to be employed as Chaparral's _______________________________
__________, or in another position by mutual agreement of the parties and
consistent with Executive's responsibilities in those positions, to which he may
hereafter be elected or appointed during the Employment Term, as hereinafter
defined.
2. Employment Term. Executive's employment pursuant to this Agreement
shall be for a term of two (2) years commencing upon the execution of this
Agreement, unless terminated earlier pursuant to Sections 9, 10, 11, 12 or 13 of
this Agreement (the "Employment Term"). This Agreement is automatically renewed
for successive one (1) year periods, unless either party provides written notice
to the other party of an intent not to renew the Agreement, at least ninety (90)
days prior to the expiration of the Agreement.
3. Responsibilities. During the Employment Term, Executive shall render
such services to Chaparral as are reasonably required by the Board of Directors
and as may be required by virtue of the office(s) and positions held by
Executive. Executive shall report to the ______________________.
4. Compensation. As full compensation for all services rendered
pursuant to this Agreement, Chaparral agrees to pay Executive a base salary, as
the Board of Directors may designate from time to time, at a rate of not less
than one hundred and eighty thousand dollars ($180,000) per year ("Base
Salary"), less applicable taxes and withholdings. The Base Salary shall be
subject to review by the Board of Directors annually. In addition to his Base
Salary, Executive may receive a quarterly cash bonus of up to twenty-five
percent (25%) of his Base Salary ("Quarterly Bonus") and/or additional stock
options, as determined by the Board of Directors. In addition to his Base Salary
and Quarterly Bonus, Executive may receive an annual bonus of up to
<PAGE> 3
100% of his Base Salary ("Annual Bonus"), as determined by the Board of
Directors, which Annual Bonus will be payable in the form of cash or shares of
Common Stock, at the election of Executive. The Quarterly Bonus and the Annual
Bonus are together referred to as "Bonus." Executive shall also receive a car
allowance of $500 per month ($6,000 per year). Upon the effective date of a
registration statement on Form S-1 for an initial public offering of Chaparral,
Mr. Executive will be granted an option to purchase _______ shares of Common
Stock, which option will (i) be an incentive stock option to extent allowed
under the Internal Revenue Code of 1986, as amended, (ii) have an exercise price
equal to the offering price per share in the initial public offering and (iii)
vest in three equal annual installments on the first, second and third
anniversary date of the date of grant.
5. Expenses. During the Employment Term, Chaparral shall reimburse
Executive for his reasonable travel, business entertainment, and other business
expenses incurred in the performance of his duties, subject to the rules and
regulations adopted by Chaparral for the handling of such business expenses.
6. Other Benefits. During the Employment Term, Chaparral shall pay for
Executive to have the same insurance and other benefits that Chaparral makes
available to other similarly situated employees and/or executives, such benefits
shall include, but not be limited to, a stock option plan. Chaparral shall
provide such benefits pursuant to the provisions of the agreements, policies,
etc. maintained by Chaparral regarding those individual benefits.
7. Vacations. Executive shall be entitled to four (4) workweeks of paid
vacation each year, or such additional number of days or weeks as may be
determined by the Board of Directors. Executive shall accrue such vacation days
on the first day of the calendar year. Executive shall be permitted to accrue up
to __________________ of paid vacation. Upon reaching this maximum accrual,
Executive will receive compensation for any accrued, but unused vacation days so
that his accrued vacation days will not exceed _________________. Upon his
termination of employment from Chaparral, Executive will receive compensation at
his then regular rate of pay for his accrued, but unused paid vacation days.
8. Confidentiality Covenant. In addition to the provisions set forth in
Sections 14 and 15, Executive agrees while employed by Chaparral and thereafter
for a period of two (2) years not to, directly or indirectly, disclose or use to
the detriment of Chaparral, or for the benefit of any other person or firm, any
Confidential Information and Materials (defined below). Furthermore, Executive
shall deliver promptly to Chaparral upon termination of employment, or at any
time Chaparral may so request, all Confidential Information and Materials
relating to the business of Chaparral then possessed or under the control of
Executive.
Executive acknowledges and agrees that all Confidential Information and
Materials shall, to the extent possible, be considered works made for hire for
Chaparral under applicable copyright law. To the extent any Confidential
Information and Materials are not deemed to be a work made for hire, Executive
hereby assigns to Chaparral any rights he may have or may acquire in such
Confidential Information and Materials as they are created, throughout the
world, in perpetuity. Further, Executive hereby waives any and all moral rights
he may have in such Confidential Information and Materials. Notwithstanding the
foregoing, Chaparral acknowledges that it shall have no right to inventions or
other material for which no equipment, supplies, facilities or
2
<PAGE> 4
Confidential Information and Material of Chaparral are used and which are
developed entirely on Executive's own time and (a) do not relate directly to the
business of Chaparral or (b) do not result from any work performed by Executive
under this Agreement.
For purposes of this Agreement, "Confidential Information and
Materials" refers to all information belonging to or used by Chaparral or
Chaparral's clients relating to internal operations, procedures and policies,
finances, income, profits, business strategies, pricing, billing information,
compensation and other personnel information, client contacts, sales lists,
employee lists, technology, software source codes, programs, costs, marketing
plans, developmental plans, computer programs, computer systems, inventions,
developments, personnel manuals, computer program manuals, programs and system
designs, and trade secrets of every kind and character, whether or not they
constitute a trade secret under applicable law and whether developed by
Executive during or after business hours.
9. Termination by Reason of Incapacity. If during the Employment Term,
Executive is unable to perform the essential duties of his positions with
Chaparral by reason of any physical or mental condition for a continuous period
of six (6) months, then Chaparral, in its sole and absolute discretion, may
consider such condition to be permanent and may, upon thirty (30) days written
notice to Executive, terminate Executive's employment hereunder, but Executive
shall continue to be eligible to receive any benefits to which he may be
entitled under the terms of any long-term disability plan for Chaparral
employees and/or executives. In the event of such incapacity, Chaparral's
termination of Executive will be considered a "Termination by Reason of
Incapacity," and Executive shall immediately be paid all accrued Base Salary,
all accrued vacation time, any unpaid Bonus and any reasonable and necessary
business expenses incurred by Executive in connection with his duties hereunder,
all to the date of termination. In addition, Chaparral shall pay Executive the
difference between his Base Salary and Bonus, at the rate existing at the time
of such termination, and the amount he receives from any long term disability
insurance plan, for a period of one (1) year following such termination.
Executive shall receive such payments on Chaparral's designated payday
(currently on the 1st and 15th of each calendar month). Notwithstanding the
foregoing, Chaparral's obligation to Executive for severance compensation under
this section shall immediately cease if Executive is in violation of the
provisions of Sections 8, 14 and/or 15 hereof.
10. Termination by Reason of Death. The Employment Term, unless
terminated earlier pursuant to this Agreement, shall automatically terminate on
the last day of the month in which Executive's death occurs. If Executive's
employment with Chaparral terminates pursuant to this subsection, the
termination shall be considered a "Termination by Reason of Death," and
Executive's heirs shall immediately be paid all accrued Base Salary, all accrued
vacation time, any unpaid Bonus and any reasonable and necessary business
expenses incurred by Executive in connection with his duties hereunder, all to
the date of termination. In addition, Chaparral shall pay Executive's heirs
Executive's Base Salary and Bonus, at the rate existing at the time of such
termination, for a period of one (1) year following such termination.
Executive's heirs shall receive such payments on Chaparral's designated payday
(currently on the 1st and 15th of each calendar month)
3
<PAGE> 5
11. Termination for Cause. Termination for Cause shall occur in the
event that Executive:
a. commits any fraudulent or felonious act in respect to duties to
Chaparral or shall, with respect to his employment, commit an act of moral
turpitude of such degree that it bears upon his ability to carry out his
functions under this Agreement; or
b. commits any willful malfeasance or gross negligence (in the
discharge of duties to Chaparral) having a material adverse effect on Chaparral.
Upon the Termination for Cause of Executive's employment, Executive
shall immediately be paid all accrued Base Salary, all accrued vacation time,
any unpaid Bonus and any reasonable and necessary business expenses incurred by
Executive in connection with his duties hereunder, all to the date of
termination. In addition, the parties' obligations hereunder, except as set
forth in Sections 8, 14, 15 and 17, hereof, shall terminate; provided, however,
that rights and remedies accruing prior to such termination or arising out of
the breach of this Agreement shall survive.
12. Termination Other Than for Cause. A "Termination Other Than for
Cause" shall include Chaparral's termination of Executive's employment with
Chaparral for any reason or for no reason, excluding a Termination for Cause, a
Termination Upon a Change in Control, a Termination by Reason of Incapacity and
a Termination by Reason of Death. Chaparral is required to give Executive ninety
(90) days notice of its termination of his employment under this section. A
"Termination Other Than for Cause" shall also include termination by Executive
within thirty (30) days following the occurrence of any of the following
(without Executive's express written consent):
a. the assignment to Executive by Chaparral of duties inconsistent
with, or a substantial diminution in the nature or status of, Executive's
responsibilities;
b. material reduction by Chaparral in Executive's compensation and
benefits or perquisites (unless all Chaparral employees are subject to an across
the board reduction in compensation and/or benefits);
c. a relocation of Chaparral's principal offices to a location
outside a 50 mile radius of Longmont, Colorado, or Executive's relocation to any
place other than the principal office of Chaparral, except for reasonably
required travel by Executive on Chaparral's business; or
d. any material breach by Chaparral of any provision of this
Agreement, if such material breach has not been cured within thirty (30) days
following written notice by Executive to Chaparral of such breach setting forth
with specificity the nature of the breach.
Upon a Termination Other Than for Cause, Executive shall immediately be
paid all accrued Base Salary, all accrued vacation time, any unpaid Bonus and
any reasonable and necessary business expenses incurred by Executive in
connection with his duties hereunder, all to the date of termination. In
addition, Executive will receive his Base Salary and Bonus, at the rate existing
at the time of such termination, and Executive shall be entitled to receive
benefits, for a period of one (1) year following termination. Executive shall
receive such payments on Chaparral's designated payday (currently on the 1st and
15th of each calendar month). Upon termination pursuant to this
4
<PAGE> 6
Section 12, any options to purchase common stock of the Company held by
Executive will automatically be vested and exercisable for a period of one (1)
year following termination and restrictions on any shares of restricted stock
held by Executive shall immediately lapse. Notwithstanding the foregoing,
Chaparral's obligation to Executive for severance compensation under this
section shall cease immediately if Executive is in violation of the provisions
of Sections 8, 14 and/or 15 hereof.
13. Termination upon a Change in Control. In the event of a Termination
Upon a Change in Control (as defined below), Executive shall immediately be paid
all accrued Base Salary, all accrued vacation time, any unpaid Bonus and any
reasonable and necessary business expenses incurred by Executive in connection
with his duties hereunder, all to the date of termination. In addition,
Executive shall immediately be paid a lump sum payment of an amount equal to two
(2) years Base Salary and Bonus, at the rate existing at the time of such
termination, and Executive shall be entitled to receive fully paid benefits for
a period of two (2) years following termination. Executive shall receive such
payments on Chaparral's designated payday (currently on the 1st and 15th of each
calendar month). Each option outstanding at the time of a Change in Control, but
not otherwise fully-vested, shall be accelerated for twelve (12) months.
However, if the successor company terminates Executive for any reason within
twelve (12) months from the date of the Change of Control or the successor
company does not adopt the plan in its entirety or convert to a plan of
equivalent value, then all options will automatically be 100% vested, as of the
date of the Change of Control.
Notwithstanding the foregoing, (a) solely in the event of a Termination
Upon Change in Control, the aggregate amount of severance compensation paid to
Executive under this Agreement or otherwise shall not include any amount that
Chaparral is prohibited from deducting for federal income tax purposes by virtue
of Section 280G of the Internal Revenue Code or any successor provision; and (b)
Chaparral's obligation to Executive for severance compensation under this
section shall cease immediately if Executive is in violation of the provisions
of Sections 8, 14 and/or 15 hereof.
"Termination Upon a Change in Control" shall mean a termination by
Chaparral or any successor thereto of Executive's employment with Chaparral or
such successor for any reason or a termination by Executive for Good Reason (as
defined below) of Executive's employment with Chaparral or any successor thereto
within twelve (12) months from the date on which any of the following occurs:
a. any "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934 (the "1934 Act")), other
than a trustee or other fiduciary holding securities under an employee benefit
plan of Chaparral, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of greater than fifty percent
(50%) of the then outstanding voting stock of Chaparral; or
b. at any time during any period of three consecutive years (not
including any period prior to the effective date of this Agreement), individuals
who at the beginning of such period constitute the Board (and any new director
whose election by the Board or whose nomination for election by Chaparral's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who either were directors at the beginning of such
5
<PAGE> 7
period or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority thereof; or
c. the stockholders of Chaparral approve a merger or consolidation
of Chaparral with any other corporation, other than a merger or consolidation
which would result in the voting securities of Chaparral outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 80% of
the combined voting power of the voting securities of Chaparral or such
surviving entity outstanding immediately after such merger or consolidation or
an agreement for the sale or disposition by Chaparral of all or substantially
all of Chaparral's assets.
"Good Reason" shall include, but not be limited to, any of the
following (without Executive's express written consent):
a. the assignment to Executive by Chaparral of duties inconsistent
with, or a substantial diminution in the nature or status of, Executive's
responsibilities immediately prior to a Change in Control other than any changes
primarily attributable to the fact that Chaparral's securities are no longer
publicly traded;
b. a material reduction by Chaparral in Executive's compensation
and benefits or perquisites (unless all Chaparral employees are subject to an
across the board reduction in compensation and/or benefits), as in effect on the
date of a Change in Control;
c. a relocation of Chaparral's principal offices to a location
outside a 50 mile radius outside of Longmont, Colorado, or Executive's
relocation to any place other than the principal offices of Chaparral offices of
Chaparral, except for reasonably required travel by Executive on Chaparral's
business;
d. any material breach by Chaparral of any provision of this
Agreement, if such material breach has not been cured within thirty (30) days
following written notice by Executive to Chaparral of such breach setting forth
with specificity the nature of the breach; or
e. any failure by Chaparral to obtain the assumption and
performance of this Agreement by any successor (by merger, consolidation or
otherwise) or assign of Chaparral.
14. Covenant Not to Compete. In consideration of this Agreement,
Executive agrees that he will not, during the term of his employment and for one
(1) year after his date of termination, directly or indirectly, either as an
employee, employer, consultant, agent, principal, partner, corporate officer,
director, investor, or financier, or in any other individual or representative
capacity:
a. participate in or consult with any business in the world, that
(i) is in competition with Chaparral's business as it exists at the date of his
termination, or of the products or services offered by Chaparral in the world,
or (ii) Chaparral has requested and received confidential information relating
to the acquisition of such business by Chaparral within the four (4) month
period prior to the termination of Executive's employment with the Company; or
6
<PAGE> 8
b. engage in any acts or activities, which would interfere with or
harm any business relationship Chaparral may have with any then current
customer, supplier, employee, or investor.
An investment by Executive of up to 2% of the outstanding equity in a
publicly traded corporation shall not constitute a violation of this Section 14.
Executive agrees that this covenant not to compete is reasonable as to
geographic scope and duration. Executive agrees that this non-competition
agreement supersedes any non-competition agreement Executive may have executed
before this date. Notwithstanding the foregoing, Executive shall not be
prohibited, during the one-year period following termination of his employment
agreement and while this non-compete restriction is in effect, from working in
any capacity in a company which is not a competitor of Chaparral.
15. Further Restrictions. Executive covenants that during his
employment and for one (1) year after his date of termination, he will not
directly or indirectly:
a. call on or solicit, or attempt to call on or solicit, or assist
in the solicitation of, any of the past, present or prospective customers or
suppliers of Chaparral in any manner which is competitive with the business of
Chaparral as it is operated as of the termination of this Agreement;
b. induce, or attempt to induce, any employee of Chaparral to
terminate his or her employment, or hire away, or attempt to hire away, any
employee of Chaparral;
c. induce, or attempt to induce, any present or future supply or
service resource from Chaparral; or
d. knowingly engage in any act or activity, which would interfere
with or harm any business relationship Chaparral may have with any customer,
employee, principle, or supplier. The mere act of termination of his employment
status shall not in and of itself constitute harm to Chaparral.
16. Remedies for Breach. Executive acknowledges that the legal remedies
for breach of the covenants contained in Sections 8, 14 and 15 may be
inadequate, and therefor agrees that, in addition to any or all other remedies
available to Chaparral in the event of a proven breach of any covenant contained
in Sections 8, 14 and 15, Chaparral may seek to:
a. obtain preliminary and permanent injunctions against any and all
such actions; and
b. recover from Executive monetary damages to Chaparral arising
from such breach.
If Chaparral brings such an action and does not prevail, Executive
shall recover any monetary damages, his attorneys' fees and costs associated
with defending against the action. THE PARTIES HAVE CAREFULLY CONSIDERED ALL OF
SECTIONS 8, 14, 15 AND 16 AND AGREE THAT THEY REPRESENT A PROPER BALANCING OF
THEIR INTERESTS AND
7
<PAGE> 9
WILL NOT PREVENT Executive FROM EARNING A LIVING AFTER TERMINATION OF HIS
EMPLOYMENT.
Additionally, if Executive violates Section 8, 14, or 15 of this
Agreement during any time that he is receiving severance payments from Chaparral
under Section 9, 11, 12 or 13, Chaparral shall be entitled to discontinue paying
Executive any additional severance pay or benefits, and Executive shall be
required to pay back to Chaparral the lesser of (i) two months of severance
payments or (ii) severance payments received to date.
17. Indemnification. Chaparral agrees to defend, indemnify and save
Executive harmless from any claims, proceedings, actions, or causes of actions
brought against him in his capacity as an employee of Chaparral. This
indemnification provision does not apply where the proceeding, claim, action, or
cause of action brought against Executive is as a result of an event for which
Executive is terminated for cause, pursuant to Section 11 of this Agreement.
Chaparral agrees to indemnify Executive for the above claims no matter when such
claims are filed or alleged.
18. Release of Claims. Prior to Executive's receipt of any severance
payment referenced in Section 9, 11, 12, or 13, of this Agreement, Executive
shall be required to sign an agreement releasing Chaparral from any and all
claims related to his employment or his termination of employment from
Chaparral. Such release shall include, but not be limited to, claims for
wrongful discharge; claims for discrimination in employment, including claims
under federal or state statute, rule or regulation; claims under the Americans
with Disabilities Act; claims under the Age Discrimination in Employment Act;
claims under the Older Workers Benefit Protection Act; claims under Title VII of
the 1964 Civil Rights Act; claims for violation of any fair or unfair employment
practices act or law; claims for unpaid wages, either regular or overtime,
compensation, benefits or remuneration; claims for defamation, libel, slander,
and other negligent or intentional torts; claims for invasion of privacy; claims
for outrageous conduct; claims for intentional interference with express or
implied contract concerning employment; claims for breach of express or implied
employment contract; claims for breach of express or implied covenant of good
faith and fair dealing; claims for violation of Colorado Revised Statute Section
8-2-101, et seq.; and claims for discrimination on the basis of a prohibited
basis under Title VII of the Civil Rights Act of 1964 and Colorado's
Anti-Discrimination and Unfair Employment Practices Act. If Executive does not
sign and execute the release prepared by Chaparral, Executive shall not be
entitled to any severance pay or benefits as set forth in Section 9, 11, 12, and
13 of this Agreement. After Chaparral presents Executive with the release
agreement, Executive shall have twenty-one (21) days within which to consider
whether to sign the release agreement. During this time period, Chaparral
advises Executive to consult with an attorney regarding the release agreement.
After signing the release agreement, Executive shall have seven (7) days within
which to notify Chaparral that he wants to void the release agreement. Chaparral
is not required to make any severance payments, pursuant to Section 9, 11, 12 or
13, until the expiration of this seven (7) day period.
19. Amendments. This Agreement may be amended or modified from time to
time, but only by written instrument executed by all parties hereto. No
variations, modifications, or changes herein or hereof shall be binding upon any
party hereto except as set forth in such a written instrument.
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<PAGE> 10
20. Notices. All notices, demands, or requests provided for or
permitted to be given pursuant to this Agreement must be given in writing,
unless otherwise specified, and shall be deemed to have been properly given,
delivered, or served by depositing the same in the United States mail, postage
prepaid, certified or registered mail, with deliveries to be made to the
following addresses:
If to Executive:
If to Chaparral: Chaparral Network Storage, Inc.
1951 S. Fordham St.
Longmont, Colorado 80503.
Either party may change such party's address for notices by notice
given pursuant to this Section 20.
21. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Colorado.
22. Severability. If an arbitrator, or Court, determines that one or
more provisions of this Agreement is/are invalid, the invalidity of any one or
more of such provisions does not affect or limit the enforceability of the
remaining provisions or Sections of this Agreement. If, in any arbitration or
judicial proceeding, an arbitrator or court, as applicable, shall refuse to
enforce one or more of the covenants or agreements contained in this Agreement
because the duration thereof is too long, the scope thereof is too broad or some
other reason, for the purpose of such arbitration or proceeding, the arbitrator
or court, as applicable, may reduce the duration or scope to the extent
necessary to permit the enforcement of such obligations and restrictions.
23. Arbitration. Any and all disputes which may arise during the course
of this Agreement, or as a result of its termination or alleged breach by either
party (except for equitable or injunction actions or claims by Executive for
workers' compensation or unemployment compensation) shall be resolved by
arbitration. Such arbitration shall be held at Denver, Colorado before a single
arbitrator whose judgment shall be final and enforceable in either the District
Courts for the City and County of Denver or Boulder counties or the United
States District Court for Colorado. Either party may commence arbitration by the
filing of a demand and service of same under the notice provisions of Section
20. It is presumed that the forum for the arbitration will be the American
Arbitration Association at Denver unless the parties mutually agree to use
another arbitration service. The arbitrator shall be entitled, after
consideration of all facts and issues presented, to award the prevailing party
its costs, including attorneys fees, if the arbitrator feels such award is
appropriate under the circumstances.
24. Headings. The headings in this Agreement are solely for convenience
of reference and shall not affect its interpretation.
25. No Waiver. No failure on the part of any party hereto at any time
to require the performance by any other party of any term of this Agreement
shall be taken or held to be a
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<PAGE> 11
waiver of such term or in any way affect such party's right to enforce such
term, and no waiver on the part of either party of any term of this Agreement
shall be taken or held to be a waiver of any other term hereof or the breach
thereof.
26. Entire Agreement. This entire Agreement embodies the complete and
entire agreement and understanding of the parties with respect to the subject
matter hereof and supersedes all prior negotiations, whether written or oral,
relating to the subject matter hereof. To the extent that this Agreement
conflicts with any previous employment agreement entered into between Chaparral
and Gluck, the provisions of this Agreement shall control.
27. Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed shall be an original but all of
such counterparts shall together constitute but one and the same instrument.
EXECUTED AND EFFECTIVE as of the date first written above.
- -----------------------------------------------------------
Executive
CHAPARRAL NETWORK STORAGE, INC.
By:
--------------------------------------------------------
Gary L. Allison, Chief Executive Officer and
Chairman of the Board of Directors
By:
--------------------------------------------------------
Jerry L. Walker, Executive Vice President
Board of Directors Member
By:
--------------------------------------------------------
Michael J. Gluck President and Chief
Operating Officer and
Board of Directors Member
By:
--------------------------------------------------------
F. Grant Saviers, Board of Directors Member
By:
--------------------------------------------------------
Harris Ravine Board of Directors Member
10
<PAGE> 1
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
Each of the following directors and officers of Chaparral Network Storage,
Inc. (the "Corporation") has executed an indemnification agreement with the
Corporation in a form substantially similar to the form attached hereto:
1. Gary L. Allison, Chairman of the Board and Chief Executive Officer.
2. Michael J. Gluck, President and Chief Operating Officer, Director.
3. Jerry L. Walker, Executive Vice President for Engineering and
Operations, Director.
4. Douglas J. Lehrmann, Vice President, Finance and Chief Financial
Officer.
5. Grant Saviers, Director.
6. Harris Ravine, Director.
<PAGE> 2
CHAPARRAL NETWORK STORAGE, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of this
___ day of ______________, 2000, by and between Chaparral Network Storage, Inc.,
a Delaware corporation (the "Company"), and _________________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for its directors, officers, employees, agents
and fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and, in
part, in order to induce Indemnitee to continue to provide services to the
Company, and the Company wishes to provide for the indemnification and advancing
of expenses to Indemnitee to the maximum extent permitted by law; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
(a) Indemnification of Expenses. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company, or any subsidiary of the Company, or is or was serving at the request
of the Company as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or
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<PAGE> 3
by reason of any action or inaction on the part of Indemnitee while serving in
such capacity (hereinafter an "Indemnifiable Event") against any and all
expenses (including reasonable attorneys' fees and all other reasonable costs,
expenses and obligations incurred in connection with investigating, defending,
being a witness in or participant in, any such action, suit, proceeding,
alternative dispute resolution mechanism, hearing, inquiry or investigation),
judgments, fines, penalties and amounts paid in settlement (if such settlement
is approved in advance by the Company, which approval shall not be unreasonably
withheld) of such Claim and any federal, state, local or foreign taxes imposed
on the Indemnitee as a result of the actual or deemed receipt of any payments
under this Agreement (collectively, hereinafter "Expenses"), including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses. Such payment of Expenses shall be made from time to
time by the Company as soon as practicable but in any event no later than twenty
(20) days after any written demand by Indemnitee therefor is presented to the
Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control, the Reviewing Party shall be the Independent
Legal Counsel referred to in Section 1(c) hereof. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively would not be permitted to be indemnified in whole or in
part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change
in Control of the Company then with respect to all matters thereafter arising
concerning the rights of Indemnitee to payments of Expenses and Expense Advances
under this Agreement or any other
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<PAGE> 4
agreement or under the Company's Certificate of Incorporation or Bylaws as now
or hereafter in effect, Independent Legal Counsel (as defined in Section 10(d)
hereof) shall be selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Such counsel, among other things,
shall render its written opinion to the Company and Indemnitee as to whether and
to what extent Indemnitee would be permitted to be indemnified under applicable
law and the Company agrees to abide by such opinion. The Company agrees to pay
the reasonable fees of the Independent Legal Counsel referred to above and to
fully indemnify such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all Expenses
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee from time to time as soon as practicable but in any event
no later than twenty (20) days after any written demand by Indemnitee therefor
to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether the Indemnitee is entitled to be indemnified
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<PAGE> 5
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company, if
appropriate, shall be entitled to assume the defense of such Claim with counsel
approved by Indemnitee, which approval shall not be unreasonably withheld, upon
the delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same Claim; provided that, (i) Indemnitee shall
have the right to employ Indemnitee's counsel in any such Claim at Indemnitee's
expense and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the reasonable fees
and expenses of Indemnitee's counsel shall be at the expense of the Company. The
Company shall have the right to conduct such defense as it sees fit, including
the right to settle any claim against Indemnitee without the consent of the
Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided
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<PAGE> 6
under this Agreement shall continue as to Indemnitee for any action taken or not
taken while serving in an indemnified capacity even though Indemnitee may have
ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that
in certain instances, federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. The Company shall, from time to time, make the
good faith determination whether or not it is practicable for the Company to
obtain and maintain a policy or policies of insurance with reputable insurance
companies providing the officers and directors of the Company with coverage for
losses from wrongful acts, or to insure the Company's performance of its
indemnification obligations under this Agreement. Among other considerations,
the Company will weigh the costs of obtaining such insurance coverage against
the protection afforded by such coverage. In all policies of directors' and
officers' liability insurance, Indemnitee shall be named as an insured in such a
manner as to provide Indemnitee the same rights and benefits as are accorded to
the most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of the
Company but is an officer; or of the Company's key employees, if Indemnitee is
not an officer or director but is a key employee. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, that the premium costs for such insurance are disproportionate to the
amount of coverage provided, that the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit, or that
Indemnitee is covered by similar insurance maintained by a subsidiary or parent
of the Company.
8. Exceptions. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
Expenses resulting from acts, omissions or transactions from which Indemnitee
may not be relieved of
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<PAGE> 7
liability under applicable law.
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise as required under Section 145 of the Delaware General Corporation law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be.
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16 of the Securities Exchange
Act of 1934, as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause of
action shall be asserted by or in the right of the Company against Indemnitee,
Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall
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<PAGE> 8
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on Indemnitee with respect to an employee benefit plan; and
references to "serving at the request of the Company" shall include any service
as a director, officer, employee, agent or fiduciary of the Company which
imposes duties on, or involves services by, such director, officer, employee,
agent or fiduciary with respect to an employee benefit plan, its participants or
its beneficiaries; and if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have
acted in a manner "not opposed to the best interests of the Company" as referred
to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall mean
a change in ownership or control of the Company effected through any of the
following transactions:
(i) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934 (the
"1934 Act")), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, being or
becoming the "beneficial owner" (as defined in Rule 13d-3 under the
1934 Act), directly or indirectly, of greater than fifty percent (50%)
of the outstanding voting stock of the Company; or
(ii) at any time during any period of three
consecutive years (not including any period prior to the effective date
of this Plan), individuals who at the beginning of such period
constitute the Board of Directors (and any new director whose election
by the Board or whose nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) ceasing for any reason to constitute a
majority thereof; or
(iii) the stockholders of the Company approving a
merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 80%
of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or an agreement for the sale by the Company of all or
substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of
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<PAGE> 9
Directors or any other person or body appointed by the Board of Directors who is
not a party to the particular Claim for which Indemnitee is seeking
indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective successors, assigns, including any direct or indirect successor
by purchase, merger, consolidation or otherwise to all or substantially all of
the business and/or assets of the Company, spouses, heirs, and personal and
legal representatives. The Company shall require and cause any successor
(whether direct or indirect by purchase, merger, consolidation or otherwise) to
all, substantially all, or a substantial part, of the business and/or assets of
the Company, by written agreement in form and substance satisfactory to
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as a director of the Company
or of any other enterprise at the Company's request.
13. Attorney's Fees. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless as a part to such action a court
of competent jurisdiction over such action determined that each of the material
assertions made by Indemnitee as a basis for such action were not made in good
faith or were frivolous. In the event of an action instituted by or in the name
of the Company under this Agreement to enforce or interpret any of the terms of
this Agreement, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee's counterclaims and cross-claims made in such action), and
shall be entitled to the advancement of Expenses with respect to such action,
unless as a part of such action a court having jurisdiction over such action
determines that each of Indemnitee's material defenses to such action was made
in bad faith or was frivolous.
14. Notice. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first-class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (c) upon delivery by facsimile transmission, if
delivered by facsimile transmission, with copy by first-class mail, postage
prepaid, and shall be addressed if to Indemnitee, at the Indemnitee's
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address as set forth beneath Indemnitee's signature to this Agreement and if to
the Company at the address of its principal corporate offices (attention:
Secretary) or at such other address as such party may designate by ten days'
advance written notice to the other party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
20. Integration and Entire Agreement. This Agreement sets forth the entire
understanding between the parties hereto and supersedes and merges all previous
written and oral negotiations, commitments, understandings and agreements
relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CHAPARRAL NETWORK STORAGE, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Address: 1951 S. Fordham Street
Longmont, Colorado 80503
AGREED TO AND ACCEPTED
INDEMNITEE:
Name:
(address)
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<PAGE> 1
EXHIBIT 10.18
LEASE BETWEEN
BTC DEVELOPMENT, LLC
AND
CHAPARRAL NETWORK STORAGE, INC.
Current as of September 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1 PURPOSE....................................................1
SECTION 2 TERM.......................................................1
SECTION 3 COMPLETION OF THE PREMISES.................................2
SECTION 4 RENT.......................................................2
SECTION 5 TAXES AND OPERATING COST ADJUSTMENT FORMULA................4
SECTION 6 HOLDING OVER...............................................7
SECTION 7 BUILDING SERVICES..........................................7
SECTION 8 CONDITION OF PREMISES......................................8
SECTION 9 USE OF LEASED PREMISES.....................................9
SECTION 10 COMPLIANCE WITH LAW.......................................10
SECTION 11 ALTERATIONS AND REPAIRS...................................10
SECTION 12 ABANDONMENT...............................................11
SECTION 13 ASSIGNMENT AND SUBLETTING.................................11
SECTION 14 SIGNS AND ADVERTISING.....................................12
SECTION 15 DAMAGE TO PROPERTY, INJURY TO PERSONS.....................12
SECTION 16 TENANT'S INSURANCE........................................13
SECTION 17 DAMAGE OR DESTRUCTION.....................................14
SECTION 18 ENTRY BY LANDLORD.........................................15
SECTION 19 DEFAULT BY TENANT.........................................15
SECTION 20 TAXES.....................................................18
</TABLE>
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<TABLE>
Page
<S> <C> <C>
SECTION 21 EMINENT DOMAIN..............................................19
SECTION 22 SUBORDINATION TO MORTGAGES AND DEEDS OF TRUST...............19
SECTION 23 WAIVER......................................................20
SECTION 24 SUBROGATION.................................................20
SECTION 25 PLATS AND RIDERS............................................21
SECTION 26 SALE BY LANDLORD............................................21
SECTION 27 RIGHT OF LANDLORD TO PERFORM................................21
SECTION 28 ATTORNEY'S FEES.............................................21
SECTION 29 ESTOPPEL CERTIFICATE........................................22
SECTION 30 NOTICE......................................................22
SECTION 31 RIGHTS RESERVED.............................................22
SECTION 32 REAL ESTATE BROKER..........................................23
SECTION 33 MISCELLANEOUS PROVISIONS....................................23
SECTION 34 SUCCESSORS AND ASSIGNS......................................24
SECTION 35 QUIET ENJOYMENT.............................................24
SECTION 36 RECORDING...................................................24
SECTION 37 RELIANCE BY LANDLORD........................................25
SECTION 38 OPTION TO EXTEND............................................25
SECTION 39 SECURITY DEPOSIT............................................25
SECTION 40 WORK LETTERS................................................25
SECTION 41 FIRST RIGHT OF REFUSAL ON ADDITIONAL SPACE..................26
</TABLE>
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<PAGE> 4
LEASE
THIS LEASE made this 1st day of September, 1999, between Chaparral Network
Storage, Inc., a Delaware Corporation ("Tenant"), and BTC Development, LLC
"Landlord").
WITNESSETH:
DEMISE
Landlord does hereby lease to Tenant and Tenant hereby leases from
Landlord an approximate 20,000 rentable square feet (the "Premises," or,
alternatively, the "Leased Premises") Dry Creek Corporate Center (the
"Building"), which Building is situated on land described as 7040 East Dry Creek
Parkway, Longmont, Colorado 80503 (the "Property"), together with a
non-exclusive right, subject to the provisions of this Lease, to use all
appurtenances thereto, including, but not limited to, any plazas, common areas,
parking lots, walks, ways or other areas in the Building or on the Property
designated by Landlord for the exclusive or non-exclusive use of the tenants of
the Building.
The Lease is upon and subject to the terms, conditions, and covenants
set forth below and Tenant covenants as a material part of the consideration for
this Lease to keep and perform each and all of the terms, conditions, and
covenants by it to be kept and performed and that this Lease is made upon the
condition of such performance.
SECTION 1
PURPOSE
1.1 Use of Premises. The Premises are to be used for office,
engineering labs, product development, shipping, receiving, warehousing and
manufacturing and related office functions, provided that such uses comply with
all zoning and use restrictions, and for no other purpose without the prior
written consent of Landlord.
SECTION 2
TERM
2.1 Primary Term. The Term of this Lease shall be for a period of sixty
(60) months. Lease commencement, (Commencement Date) will then take place on
March 15, 2000, and on March 31, 2005 ("The Primary Lease Term"). The Primary
Lease Term will commence upon receipt of a Certificate of Occupancy for the
Premises.
(a) Should Tenant, through the actions of Tenant, it's
employees, agents, contractors, subcontractors, guests, licensees, or invitees,
impede, delay or in some manner alter the aforementioned schedule for buildout,
thus causing the estimated occupancy date to move to a future date, then the
Primary Lease Term will commence on the estimated date specified in Section 2 of
herein lease, even though a Certificate of Occupancy has not been received from
the Building Department of the Boulder County.
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SECTION 3
COMPLETION OF THE PREMISES
(See Space Plan. Addendum "A") Tenant shall have a Build Out Allowance
of $440,000.00 or $22.00 per useable square foot. The Build Out Allowance
includes all costs incurred in designing, permitting, construction, and
installation of Tenant Improvements. All costs in excess of allowance are to be
paid by Tenant. Golden Triangle Construction (GTC) will be the General
Contractor for any initial Tenant Improvement work done to the Premises. GTC
will generally request 3 competitive bids for all subcontract work to be
performed, and will provide to Tenant a breakdown of all costs prior to the
commencement of any work. All costs in excess of Build Out Allowance will be
added to Lease Rate and amortized at ten percent (10%) over the term of the
Lease.
SECTION 4
RENT
4.1 Base Rent. Tenant agrees to pay Landlord during the full Primary
Lease Term the sum of $1,144,458.33, payable in advance in equal monthly
installments of $18,916.66 for the Premises: The first full monthly installment
of Base Rent shall be payable on the Commencement Date and each succeeding
monthly installment shall be due and payable on or before the first day of each
and every successive calendar month thereafter during the Primary Lease Term.
The exact square footage of the Premises will be measured "as-built" and Rent
adjusted accordingly.
4.2 No Offsets. The Base Rent and all other sums or changes required by
this Lease to be paid by Tenant to Landlord, (all of which are sometimes
collectively referred to as "Rent") shall be paid to Landlord without deduction
or offset, in lawful money of the United States of America, at the office of
O'Connor Development, LLC, 287 Century Circle, Suite 101, Louisville, Colorado
80027 or to such other person or at such other place as Landlord may from time
to time designate in writing.
4.3 Interest on Late Payments. Any Rent or other amount due from Tenant
to Landlord under this Lease not paid within seven (7) days of when due shall
bear interest from the date due, computed on a daily basis, until the date paid,
at the rate of four percent (4%) over the "Prime Rate" per month, as announced
by Norwest Bank of Colorado, NA from time to time, but the payment of the
interest shall not excuse nor cure any default by Tenant under this Lease.
4.4 Late Payment Charge. Further, and notwithstanding the interest
charges provided for in the preceding Subsection 4.3, if any Rent or other
amounts owing hereunder are not paid within seven (7) days of when due, Landlord
and Tenant agree that Landlord will incur additional administrative and
financial expenses and inconveniences, the amount of which will be difficult if
not impossible to determine. Accordingly, Tenant shall pay to Landlord an
additional one-time late charge for any late monthly payment in the amount of
$500.00.
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<PAGE> 6
4.5 Inflation Index. The Base Rent shall be further increased annually
on each March 15 commencing on March 15, 2001, by an amount determined as
follows:
(a) As promptly as practical after January of every year
beginning January 2001, Landlord shall compute the increase, if any, in the cost
of living for the preceding calendar year, based upon the "All Items and Major
Group Figures for Urban Wage Earners and Clerical Workers, Denver, Colorado" all
items, as published by the Bureau of Labor Statistics United States Department
of Labor, based on all items for the period (1982-84 = 100). This Consumer Price
Index shall hereinafter be referred to as the "Index Figure."
(b) The Index Figure indicated in the column for All Cities
entitled "all items," for the month of January shall be the "Base Index Figure,"
and the corresponding Index Figure for the month of January for every year
thereafter shall be the "Current Index Figure."
(c) The Current Index Figure shall be divided by the Base
Index Figure and the resulting product, if greater than one, shall be multiplied
times the previous year's Base Rent to obtain the new increased Base Rent. If
the resulting product is equal to one or less than one, the new year's Base Rent
shall be the previous year's Base Rent.
(d) Landlord shall, within a reasonable time after obtaining
appropriate data necessary for computing the increase, give Tenant notice of the
increase so determined, which notification shall include computation of the
amount due to Landlord by Tenant.
(e) If publication of the Consumer Price Index for All Urban
Consumers shall be discontinued, the parties shall accept a comparable index
published by a reliable government agency which measures the purchasing power of
the consumer dollar.
4.6 Payment of Rent Increase. All determinations by Landlord pursuant
to Section 4.5 shall be conclusive, unless in error. Until Tenant is advised of
the adjustments in the Base Rent, if any, pursuant to the provisions of this
paragraph 4.6, Tenant's monthly Base Rent shall continue to be paid at the then
current rate (including all prior rental adjustments). Tenant shall commence
payment to Landlord of the monthly installment of Base Rent on the basis of the
adjustments so determined beginning on the first day of the month following the
month in which Landlord advises Tenant of the increased Base Rent. In addition,
Tenant shall pay to Landlord on the date required for the first payment of Base
Rent as adjusted, the difference, if any, between the monthly installment of
Base Rent so adjusted and the monthly installments of Base Rent actually paid
during the Base Rent period to make up for the increased Base Rent between the
first month that a rental Increase is due and the first payment after notice of
the increase, provided that Landlord notifies Tenant of Rental Rate Adjustment
within forty-five (45) days of effective date of said rental rate adjustment.
Notwithstanding any other provisions of the Lease, if this Lease is terminated
prior to the end of the calendar year, for any reason, Tenant's obligations to
pay rental adjustments for that portion of any calendar year which has elapsed
prior to termination shall survive the termination of the Lease, whether by
expiration or otherwise.
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<PAGE> 7
SECTION 5
TAXES AND OPERATING COST ADJUSTMENT FORMULA
5.1 Additional Rent. In addition to Base Rent, Tenant shall reimburse
Landlord for the Taxes and Operating Costs of the Building in the manner, at the
times, and in the amounts set forth in this Section 5.
5.2 (a) Taxes. The Rent payable by Tenant shall be increased by the
amount of "Tenant's Proportional Share" of the Taxes on the Property. Tenant's
Proportional Share shall be 34% based upon Tenant's initial occupancy of 20,000
square feet out of a total building rental space of 60,000 square feet. Tenant's
Proportional Share shall be subject to confirmation and/or adjustment based on
"as-built" measurements of the Premises and Building. In determining the amount
of Taxes for any calendar year, the amount of special assessments to be included
shall be limited to the amount of the installment (plus any interest payable
thereon) of such special assessment which would have been required to have been
paid during such calendar year if Landlord had elected to have the special
assessment paid over the maximum period of time permitted by law, if the
election is available to Landlord. All reference to Taxes "for" and "billed for"
a particular calendar year shall be deemed to refer to Taxes levied, assessed,
billed or otherwise imposed for such calendar year, without regard to the dates
when any such Taxes are due and payable.
(b) Definition. As used in this Lease, the term "Taxes" means any
and all general and special taxes and impositions of every kind and nature
whatsoever levied, assessed, or imposed upon, or with respect to, the Premises,
any leasehold improvements, fixtures, installations, additions and equipment,
whether owned by Landlord or Tenant, or either because of or in connection with
Landlord's ownership, leasing and operation of the Building and the Property,
including, without limitation, real estate taxes, personal property taxes,
general or special assessments, and duties or levies charged or levied upon or
assessed against the Building and the Property and personal property, or any
other tax (however described) on account of rental received for use and
occupancy of any or all of the Building and the Property, whether any such taxes
are imposed by the United States, the State of Colorado, the County of Boulder,
or any local governmental municipality, authority, or agency or any political
subdivision. Taxes shall not include any net income, capital stock, succession,
transfer, franchise, gift, estate or inheritance taxes.
(c) Payment. Commencing with the first calendar month of this
Lease, Tenant shall pay to Landlord on the first day of each calendar month
until the next upward adjustment date (which period between adjustment dates is
herein called a "Tax Deposit Year") one-twelfth of Tenant's Proportional Share
of the estimated amount of the Taxes. Amounts paid under this Subsection 5.2(c)
in any Tax Deposit Year shall be reconciled with amounts actually billed to
Landlord for the same Tax Deposit Year, and provided there is any surplus
remaining after the credit to Tenant and provided Tenant shall not then be in
default under any of the provisions of this Lease, Landlord shall, at Landlord's
option, either refund the amount of the surplus to Tenant within thirty (30)
days following the end of the Tax Deposit Year or apply the surplus amount
against any other amounts then due from Tenant to Landlord, including Rent. If
upon the
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<PAGE> 8
reconciliation there is any deficiency in the amount of Taxes paid by Tenant,
Landlord shall bill Tenant and Tenant shall pay the additional amount within
thirty (30) days following Tenant's receipt of Landlord's reconciliation report.
5.3 (a) Inclusion in Operating Costs. Tenant shall pay its Proportional
Share of the Operating Costs for the Property. As used in this Lease, the term
"Operating Costs" means any and all expenses, costs and disbursements (other
than Taxes and other than the exclusion described in Section (b) below) of every
kind and nature whatsoever, which are paid or accrued by Landlord in connection
with the management, maintenance, operation or repair of the Building,
including, without limitation, not to exceed $2.40 per square foot in the first
full year of operation:
(i) Costs of supplies;
(ii) Costs incurred in connection with obtaining and
providing energy for the Building, including, but not limited to, costs of
propane, butane, natural gas, steam, electricity, fuel oils, coal or any other
energy sources, except if separately metered to the Leased Premises, in which
case Tenant shall pay 100% of its metered amount and it's portion of any common
metered utility;
(iii) Costs of water and sanitary sewer and storm
drainage services;
(iv) Costs of general maintenance and repairs,
including costs of heating, ventilation and air conditioning systems and the
cost of exterior building and roof maintenance and repairs;
(v) Cost of insurance;
(vi) Costs of maintenance and replacement of
landscaping;
(vii) Labor costs associated with operation,
maintenance, and management of the Building; and management fees.
(b) Exclusion from Operating Costs. "Operating Costs" shall not
include:
(i) Insurance deductibles and the costs of repairs or
other work occasioned by fire, windstorm or other insured casualty to the extent
of insurance proceeds received;
(ii) Leasing commissions, advertising, advertising
expenses, Tenant finish allowances and other costs incurred in leasing space in
the Building;
(iii) Costs of repairs or building necessitated by
condemnation or necessitated by faulty or substandard initial construction;
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<PAGE> 9
(iv) Any interest on borrowed money or debt
amortization, except as specifically set forth above;
(v) Depreciation on the Building;
(vi) Any settlement, payment or judgment incurred by
Landlord or the Building manager due to their willful misconduct or gross
negligence;
(vii) Cost of any damage to the Building caused
directly by Landlord's willful misconduct or gross negligence, as established by
a court of law, whether or not covered by insurance;
(viii) Cost of capital improvements (as defined under
the Internal Revenue Code) and structural repairs or reconstruction of any
portion of the Building;
(ix) Costs of providing utility lines to the Building
or repairing such lines if they break (but not if they are plugged by Tenant's
usage).
(c) Warranties. Tenant shall be entitled to reimbursement for
any amounts collected by Landlord under any manufacturer's warranty on any
systems or machinery used in the Building; provided that Tenant has previously
paid to Landlord the repair expense relating to Landlord's warranty claim.
(d) Payment. Beginning on the Commencement Date, Landlord
shall supply Tenant with written notice of Landlord's estimate of the Operating
Expenses that will be incurred or accrued during the current calendar year (the
"Deposit Year"). On or before the first day of each month during such Deposit
Year, Tenant shall pay to Landlord one-twelfth of Tenant's Proportional Share of
the estimated amount. If the monthly deposit amount is not determined in time
for Tenant to make the first payment on January 1 of the Deposit Year, then the
first monthly payment shall be due on the first day of the month immediately
following the date Landlord supplies Tenant with notice of the amount and the
first monthly payment(s) shall also include a payment equal to one-twelfth of
such additional sum multiplied by the number of calendar months which have
elapsed during the Deposit Year prior to the date Tenant makes its first
payment. If the total of the estimated payments made by Tenant during the
Deposit Year are less than Tenant's obligation under this Lease for Operating
Costs for the Deposit Year, then Tenant, within thirty (30) days of the billing
therefor, shall pay the deficiency to Landlord. If the total of the Tenant's
estimated payments for the Deposit Year exceed Tenant's obligation for excess
Operating Costs for such year, then the surplus shall be handled in the manner
provided in the second to last sentence of Section 5.2(c).
5.4 Audit and Adjustment Procedures.
(a) The annual determination and statement of Taxes and
Operating Costs shall be prepared in accordance with generally accepted
accounting principles. In the event of any dispute as to any Rent due under this
Lease, Tenant shall have the right to inspect Landlord's
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<PAGE> 10
accounting records relative to Taxes and Operating Costs at the office in which
Landlord maintains its records during normal business hours at any time
following the furnishing by Landlord to Tenant of the statement. Any errors
shall be adjusted accordingly.
(b) If the Term of this Lease commences on any day other than
the first day of the month, or if the Term of this Lease ends on any day other
than the last day of the month, any payment due to Landlord by reason of an
increase in Taxes or Operating Costs shall be prorated on the basis by which the
number of days in such partial year bears to 365.
(c) All sums which Tenant is required to pay or discharge
pursuant to Section 5 of this Lease in addition to Base Rent, together with any
interest or other sums which may be added for late payment, shall constitute
"Rent".
SECTION 6
HOLDING OVER
6.1 Rent Increase. Should Tenant hold over after the termination of
this Lease, on account of a Tenant Event of Default which is not timely cured,
or if Tenant holds over at the expiration of this Lease for more than
one-hundred twenty (120) days after receipt of Landlord's written notice to
vacate, Tenant shall become a tenant from day-to-day upon each and all of the
terms herein provided as may be applicable to such a tenancy, and any such
tenancy shall not constitute an extension of this Lease; provided, however,
during the period as a tenant from day-to-day, Tenant shall pay Base Rent at
125% the rate payable for the month immediately preceding the date of
termination of this Lease and, in addition, Tenant shall reimburse Landlord for
all damages (consequential, as well as direct) sustained by it by reason of
Tenant's occupying the Premises past the termination date. Alternatively, unless
Landlord has provided Tenant with a notice to vacate not less than one-hundred
twenty (120) days prior to the expiration of this Lease, the retention of
possession past the termination date shall constitute a month-to-month tenancy
upon each and all of the terms of this lease as may be applicable to a
month-to-month tenancy except that Tenant shall be entitled to a one-hundred
twenty (120) day notice period prior to being required to vacate the Premises.
SECTION 7
BUILDING SERVICES
7.1 Interruption of Standard Services. Tenant agrees that Landlord
shall not be liable for failure to supply any heating, air conditioning,
janitorial services, electric current, or any other utility during any period
when Landlord uses reasonable diligence to restore or to supply such services or
utility. Landlord reserves the right to temporarily discontinue such services at
times as may be necessary by reason of accident, repairs, alterations, or
improvements, or whatever by reason of strikes, lockouts, riots, acts of God, or
any other happening or occurrence beyond the reasonable control of Landlord,
provided such discontinuance does not substantially interfere with Tenant's
business operations.
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<PAGE> 11
7.2 Telephone. Tenant shall separately arrange with the applicable
local public authorities or utilities, as the case may be, for the furnishing of
and payment for all telephone services as may be required by Tenant in the use
of the Premises. Tenant shall directly pay for such telephone services,
including the establishment and connection thereof, at the rates charged for the
services by the authority or utility, and the failure of Tenant to obtain or to
continue to receive the services for any reason whatsoever shall not relieve
Tenant of any of its obligations under this Lease. Landlord shall supply
sufficient telephone lines into the Building for Tenant's connection.
7.3 Above-Standard Service Requirements. Landlord's original design
shall include HVAC equipment adequately sized for Tenant's needs. If Tenant
thereafter adds heat-generating machines or any equipment which cause the
temperature in the Premises, or any part, to exceed the temperatures that the
Building's air conditioning and other cooling systems would be able to maintain
in the Premises were it not for the heat-generating equipment then Landlord
reserves the right to install supplementary air conditioning units in the
Premises, and the cost, including the cost of installation and the cost of
operation and maintenance thereof, shall be paid by Tenant to Landlord upon
demand by Landlord. If Tenant requires electric current, water, or any other
energy in excess of that which is reasonably obtainable from existing electrical
outlets or water pipes, and which is, in Landlord's opinion, above normal for
use of the Premises, Tenant shall first procure the consent of Landlord, which
Landlord may not unreasonably refuse. If Landlord consents to such excess
electric, water, or other energy requirements, Tenant shall, on demand, pay all
costs of meter service and installation of facilities necessary to measure
and/or furnish such excess capacity. Tenant shall also pay the entire cost of
such additional electricity, water, or other energy used.
SECTION 8
CONDITION OF PREMISES
8.1 Acceptance Upon Possession. Tenant, by taking possession of the
Premises, shall be deemed to have agreed that the Premises were, as of the date
of taking possession, in good order, repair, and condition and satisfactorily
completed in accordance with Landlord's obligations under this Lease. No promise
of Landlord to alter, remodel, decorate, clean or improve the Premises, the
Building, or the Property and no representation or warranty, express or implied,
respecting the condition of the Premises, the Building, or the Property has been
made by Landlord to Tenant, unless the same is contained in this Lease, the Work
Agreement, the Plans or some other written agreement. This Lease does not grant
any rights to light or air over the Premises or the Property. Landlord warrants
that the Premises will be delivered to Tenant in good and workmanlike condition,
free from defects for a period of one (1) year at Landlord's sole cost and
expense (and not as an operating cost past through).
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SECTION 9
USE OF LEASED PREMISES
9.1 Use. The Leased Premises shall not be used other than for the
purpose set forth in Section 1 of this Lease. Tenant's use shall at all times
comply with all applicable laws, ordinances, regulations, or other governmental
ordinances in existence.
9.2 Hazardous Use. Tenant agrees that it will not keep, use, sell or
offer for sale in or upon the Leased Premises any article which may be
prohibited by any insurance policy in force from time to time covering the
Building. In the event Tenant's occupancy or conduct of business in or on the
Leased Premises, whether or not Landlord has consented to the same, results in
any increase in premiums for the insurance carried from time to time by Landlord
with respect to the Building, Tenant shall pay any such increase in premiums as
Rent within ten (10) days after bills for such additional premiums shall be
rendered by Landlord. Tenant shall promptly comply with all reasonable
requirements of the insurance authority or of any insurer now or hereafter in
effect relating to the Leased Premises.
9.3 No Waste. Tenant shall not commit, suffer, nor permit any waste,
damage, disfiguration, or injury to the Leased Premises or the Building's common
areas or the fixtures and equipment located in or on the Building, or permit or
suffer any overloading of the floors and shall not place any safes, heavy
business machinery, or other heavy things in the Premises other than as
specifically provided for in the Work Agreement and Plans, without first
obtaining the written consent of Landlord and, if required by Landlord, of
Landlord's architect, and shall not use or permit to be used by any part of the
Leased Premises for any dangerous, noxious, or offensive trade or business, and
shall not cause or permit any nuisance, noise, or action in, at, or on the
Leased Premises. Landlord shall not withhold its consent to Tenant's
installation of additional machinery and equipment as long as Tenant agrees to
make any modifications to the Premises which are necessary for the safe
installation and operation of said equipment or machinery.
9.4 Protection Against Insurance Cancellation. If any insurance policy
on the Building or any part thereof shall be canceled or if cancellation shall
be threatened, or if the coverage shall be reduced or be threatened to be
reduced, in any way by reason of the use of occupation of the Leased Premises or
any part thereof by Tenant, any assignee or subtenant of Tenant, or by anyone
permitted by Tenant to be upon the Leased Premises, and if Tenant fails to take
reasonable efforts to remedy the condition giving rise to the cancellation,
threatened cancellation, reduction, or threatened reduction of coverage within
forty-eight (48) hours after written notice or to complete the remedy within ten
(10) days after notice, Landlord may, at its option, enter upon the Leased
Premises and attempt to remedy the condition, and Tenant shall forthwith pay the
cost to Landlord as additional Rent. Landlord shall not be liable for any damage
or injury caused to any property of Tenant or of others located on the Leased
Premises as a result of such entry unless such damage or injury is a result of
Landlord's gross negligence.
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SECTION 10
COMPLIANCE WITH LAW
10.1 Compliance. Tenant shall not use the Premises or permit anything
to be done in or about the Premises which will in any way conflict with any law,
statute, ordinance, or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense,
promptly comply with all laws, statutes, ordinances, and governmental rules,
regulations, or requirements now in force or which may hereafter be in force,
and with the requirements of any board of fire underwriters or other similar
body now or hereafter constituted relating to or affecting the condition, use,
or occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts.
SECTION 11
ALTERATIONS AND REPAIRS
11.1 Tenant to Maintain. Tenant shall, at its sole expense, keep the
Premises in good repair and tenantable condition during the Term of this Lease,
provided, however, that the Landlord warrants that the Premises shall be
delivered to Tenant in good and workmanlike condition, free from defects for the
first year of the Lease Term, at Landlord's sole cost and expense. Tenant shall
not, without the prior written consent of the Landlord, whose consent shall not
be unreasonably withheld so long as Tenant demonstrates financial assurance of
its ability to restore the Premises to original condition, make any alterations,
improvements, or additions to the Premises in excess of $25,000.00 per project,
including, but not limited to, partitions, wall coverings, floor coverings, and
special lighting or equipment installations. Prior to commencement of any
alterations, improvements, or additions, Tenant shall submit to Landlord a set
of fully detailed working drawings and specifications for the proposed
alteration, prepared by a licensed architect, or engineer, approved by the
Landlord. In particular, but not as a limitation, the working drawings must
fully detail changes to mechanical, wiring, electrical, lighting, plumbing, and
HVAC systems to landlord's satisfaction. Landlord may refuse to consent to the
alterations because of the inadequacy of the drawings and specifications. All
alterations, improvements, or additions, whether temporary or permanent in
character, made by Landlord or Tenant in or upon the Premises shall become
Landlord's property and shall remain upon the Premises at the termination of
this Lease by lapse of time or otherwise, without compensation to Tenant
(excepting only Tenant's movable office furniture, trade fixtures, manufacturing
equipment and machinery and office and professional equipment or other personal
property). Tenant shall promptly pay to Tenant's contractors, when due, the cost
of all work and of all decorating, and upon completion, deliver to Landlord, if
payment is made directly to Tenant's contractors, evidence of payment and
waivers of all liens for labor, services, or materials. Tenant shall defend and
hold Landlord, the Premises, the Building, and the Property harmless from all
costs, damages, liens for labor, services, or materials relating to the work,
and shall defend and hold Landlord harmless from all costs, damages, liens, and
expenses related to the work. If Landlord incurs any expenses in the removal of
trash or cleaning as a result of Tenant's contractor's work, then Tenant agrees
it shall reimburse Landlord within seven (7) days of billing.
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11.2 Protection Against Liens. At least five (5) days prior to the
commencement of any work on the Leased Premises in excess of $25,000.00, Tenant
shall notify Landlord of the names and addresses of the persons supplying labor
and materials for the proposed work so that Landlord may avail itself of the
provisions of statutes such as Section 38-22-105(2) of the Colorado Revised
Statutes (1973), or any successor statutory provision. During the progress of
any work on the Leased Premises, Landlord or its representatives shall have the
right to post and keep posted thereon notices such as those provided for by
Sections 38-22-105(2) (C.R.S. 1973) or to take any further action which Landlord
may deem to be proper for the protection of Landlord's interest in the Leased
Premises.
11.3 Condition on Surrender. Tenant shall, at the termination of this
Lease, surrender the Premises to Landlord in as good condition and repair as
reasonable and proper use will permit, loss by ordinary wear and tear, fire, and
other insured against casualty excepted.
11.4 Damage by Tenant. If any part of the Building or other
improvements become damaged or are destroyed through the negligence,
carelessness, or misuse of Tenant, its servants, agents, employees, or anyone
permitted by Tenant to be in the Building, or through Tenant or such parties,
which damage is not covered by applicable policies of insurance, then the cost
of necessary repairs, replacements, or alterations shall be borne by Tenant, who
shall, on demand, forthwith pay the same to Landlord as Rent.
SECTION 12
ABANDONMENT
12.1 Disposition of Personal Property. Tenant shall not vacate or
abandon the Premises at any time during the Lease Term, and if Tenant shall
abandon, vacate, or surrender (whether at the end of the stated Term or
otherwise) the Premises, or shall be dispossessed by process of law or otherwise
and Tenant shall thereafter cease paying its Rent, then any personal property
belonging to Tenant left on the Premises shall be deemed abandoned and may be
sold or otherwise disposed of by Landlord without any liability to Tenant
whatsoever. Tenant shall not at any time remove Landlord's property or any
fixtures constituting property of Landlord from the Premises. Any removal of
Landlord's property from the Premises by Tenant shall constitute a material
breach of this Lease and Landlord shall have the right to take all reasonable
steps to stop or prevent such breach without such actions constituting a
constructive eviction of Tenant.
SECTION 13
ASSIGNMENT AND SUBLETTING
13.1 Limitation on Assignment or Subletting. Tenant shall not assign
this Lease, or any interest therein, and shall not sublet the Premises, or any
part thereof, or any right or privilege appurtenant thereto, or shall not suffer
any other person to occupy or use the Premises, or any portion thereof, without
the written consent of Landlord, which consent may not be unreasonably withheld.
Neither this Lease nor any interest therein shall be assignable as to the
interest of Tenant by operation of law without the written consent of Landlord,
which consent may not be unreasonably withheld.
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13.2 Acceptance of Performance; No Waiver. If this Lease is assigned,
or if the Premises or any part are sublet or occupied by anybody other than
Tenant, Landlord may, upon default by Tenant, collect the rent from the
assignee, subtenant, or occupant and apply the net amount collected to the Rent.
Upon assignment pursuant to the terms of this section, Tenant shall be relieved
of further liability under this Lease as to the assigned premises. Consent by
Landlord to any one assignment or subletting shall not in any way be construed
as relieving Tenant from obtaining the Landlord's expressed written consent to
any further assignment or subletting.
13.3 Landlord to Approve Documents. All documents utilized by Tenant to
evidence any subletting or assignment to which Landlord has consented shall be
subject to prior approval by Landlord or its attorney. Tenant shall pay on
demand all Landlord's costs and expenses, including reasonable attorneys' fees,
incurred in determining whether or not to consent to any requested subletting or
assignment and in reviewing and approving such documentation which shall not
exceed $500.
SECTION 14
SIGNS AND ADVERTISING
Tenant shall not install, paint, display, inscribe, place, or affix any
sign, picture, advertisement, notice, lettering, or direction in the interior of
the Leased Premises which is visible from the outside of the Building, or on the
exterior of the Building without the prior written consent of Landlord unless
provided for in the Plans.
SECTION 15
DAMAGE TO PROPERTY, INJURY TO PERSONS
15.1 Damage by Tenant. Tenant agrees to pay for all damage to the
Building or the Premises, as well as all damage to tenants or occupants thereof
caused by Tenant's misuse or neglect of the Premises, its apparatus or
appurtenances, or caused by any licensee, contractor, agent, or employee of
Tenant. Notwithstanding the foregoing provisions, neither Landlord nor Tenant
shall be liable to one another for any loss, damage, or injury caused by its act
or neglect to the extent that the other party has recovered the amount of such
loss, damage, or injury from an insurer and the insurance company is bound by
this waiver of liability.
15.2 Tenant's Property. Particularly, but not in limitation of the
foregoing paragraph, all property belonging to Tenant, or any occupant of the
Premises, that is in the Building or the Premises, shall be there at the risk of
Tenant or other person only, and Landlord or its agents or employees (except in
the case of gross negligence of Landlord or its agents or employees) shall not
be liable for: (i) damage to or theft or misappropriation of such property; (ii)
any damage to property entrusted to Landlord, its agents, or employees, if any;
(iii) loss of or damage to any property by theft or otherwise, by any means
whatsoever; (iv) any injury or damage to persons or property resulting from
fire, explosion, falling plaster, steam, gas, electricity, snow, hail, water, or
rain which may leak from any part of the Building or from the pipes, appliances,
or plumbing works therein or from the roof, street, subsurface, or from any
other place, or resulting from
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dampness or any other cause whatsoever; or (v) interference with the light, air,
or other incorporeal hereditament. Tenant shall give prompt notice to Landlord
in case of fire or accidents in the Premises or in the Building or of observed
defects in the Building, its fixtures or equipment.
SECTION 16
TENANT'S INSURANCE
16.1 Insurance. Tenant shall, during the entire Term of this Lease, at
its sole cost and expense, obtain, maintain, and keep in full force and effect
the following types of insurance:
(a) All risk coverage insurance, including endorsements for
vandalism, malicious mischief, theft, sprinkler leakage, covering all of
Tenant's property, including, but not limited to, furniture, fittings,
equipment, installations, alterations, additions, partitions, fixtures, and
anything in the nature of a leasehold improvement in an amount equal to the full
replacement cost of such property without deduction for depreciation.
(b) Commercial general liability insurance, including bodily
injury and property damage, personal injury, contractual liability with respect
to all claims, demands, or actions by any person, firm, or corporation, in any
way arising from, related to, or connected with the conduct and operation of
Tenant's business in the Premises or Tenant's use of the Premises. Such policies
shall be written on a comprehensive basis, with limits not less than
$1,000,000.00, and such higher limits as Landlord or the mortgagees of Landlord
may require from time to time, but may not be unreasonably required.
(c) Any other form or forms of insurance as the mortgagees of
Landlord may reasonably require from time to time in form, in amounts and for
insurance risks against which a prudent tenant would protect itself.
16.2 Evidence. All policies shall be taken out with insurers acceptable
to Landlord and in form satisfactory from time to time to Landlord. Tenant
agrees that certificates of insurance or, if required by Landlord or the
mortgagees of Landlord, copies of each such insurance policy will be delivered
to Landlord as soon as practicable after the placing of the required insurance,
but in no event later than five (5) days after Tenant takes possession of all or
any part of the Leased Premises. All policies shall require that at least thirty
(30) days' prior written notice be delivered to Landlord by the insurer prior to
termination, cancellation, or material change in such insurance.
16.3 Proceeds. Tenant agrees that in the event of damage or destruction
to the leasehold improvements in the Leased Premises covered by insurance
required to be taken out by Tenant pursuant to this Section, Tenant shall use
the proceeds of the insurance for the purpose of building leasehold improvements
appropriate to the continuation of Tenant's business from the Premises. Landlord
shall have the right to review and approve the plans, which approval will not be
unreasonably withheld. In the event of damage or destruction of the Building
entitling the Landlord to terminate this Lease pursuant to Section 17, then, if
the Leased Premises have also been damaged, Tenant will pay to Landlord all of
its insurance proceeds relating to the leasehold
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improvements in the Leased Premises owned by Landlord pursuant to the terms of
the Lease, and if the Leased Premises have not been damaged, Tenant will deliver
to Landlord, in accordance with the provisions of this Lease, the leasehold
improvements and the Leased Premises.
SECTION 17
DAMAGE OR DESTRUCTION
17.1 Right to Terminate. If the Premises or the Building are damaged by
fire or other insured casualty, and the insurance proceeds have been made
available by the holder or holders of any mortgages or deeds of trust covering
the Building, the damage shall be repaired by and at the expense of Landlord to
the extent of such insurance proceeds available, provided such repairs can, in
Landlord's reasonable discretion, be completed within one hundred twenty (120)
days after the occurrence of such damage, without the payment of overtime or
other premiums. Until the repairs are completed, the Rent shall be abated in
proportion to the part of the Premises which is unusable by Tenant in the
conduct of its business. If repairs cannot, in Landlord's reasonable discretion,
be made within said one hundred twenty (120) day period, Landlord shall notify
Tenant within sixty (60) days of the date of occurrence of the damage as to
whether or not Landlord elects to make the repairs. If Landlord elects not to
make the repairs, then either party may, by written notice to the other, cancel
this Lease as of the date of the occurrence of the damage. Except as provided in
this Section 17, there shall be no abatement of Rent and no liability of
Landlord by reason of any injury, inconvenience, temporary limitation of access
or interference to or with Tenant's business or property arising from the making
of any necessary repairs, or any alterations or improvements in or to any
portion of the Building or the Premises, or in or to fixtures, appurtenances,
and equipment therein necessitated by the damage. Tenant understands that
Landlord will not carry insurance of any kind on Tenant's furniture and
furnishings or on any fixtures or equipment removable by Tenant under the
provision of this Lease, and that Landlord shall not be required to repair any
injury or damage caused by fire or other cause, or to make any repairs or
replacements to or of improvements installed in the Premises by or for Tenant at
Tenant's cost.
17.2 Landlord's Insurance. Landlord covenants and agrees that,
throughout the Lease Term, it will insure the Building (excluding foundations,
excavations and other non-insurable items) and the machinery, boilers, and
equipment contained therein owned by Landlord (excluding any property with
respect to which Tenant is obliged to insure pursuant to the provisions of
Section 16 thereof) against damage by fire and extended perils coverage in such
reasonable amounts as would be carried by a prudent owner of a similar property
in the same locale. Landlord will also, throughout the Term, carry commercial
general liability, property damage and loss of rent insurance with respect to
the operation of the Premises in reasonable amounts as would be carried by a
prudent owner of a similar property in the same locale. Landlord may, but shall
not be obligated to, take out and carry any other form or forms of insurance as
it or the mortgagees of Landlord may reasonably determine to be advisable.
Tenant shall pay its proportionate share for all such insurance carried by
Landlord as an Operating Cost, provided that such insurance is not duplicative
of the insurance obtained pursuant to Section 16.1. Notwithstanding any
contribution by Tenant to the cost of insurance premiums, Tenant acknowledges
that it has no right to receive any proceeds from the insurance policies carried
by
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Landlord, and that the insurance will be for the sole benefit of Landlord, with
no coverage for Tenant for any risk insured against.
SECTION 18
ENTRY BY LANDLORD
Landlord and its agents, upon giving 24 hours notice, shall have the
right to enter the Premises during normal business hours for the purpose of
examining or inspecting the same, to supply any services to be provided by
Landlord to Tenant hereunder, to show same to prospective purchasers or tenants
of the Premises, and to make such alterations, repairs, improvements, or
additions, whether structural or otherwise, to the Premises or to the Building
as Landlord may deem necessary or desirable. Landlord may enter by means of a
master key, without liability to Tenant except for any failure to exercise due
care for Tenant's property, and without affecting this Lease. Landlord shall use
reasonable efforts on any such entry not to unreasonably interrupt or interfere
with Tenant's use and occupancy of the Premises. Landlord may enter the Premises
at any time in the case of an emergency. Landlord will only show the Premises to
prospective Purchasers or Tenants upon twenty-four (24) hours notice and then
only with a representative of Tenant present in order to protect the
confidentiality and trade secret aspects of Tenant's operations.
SECTION 19
DEFAULT BY TENANT
19.1 Events of Default. Each one of the following events is referred to
as an "Event of Default":
(a) Tenant shall fail to make due and punctual payment of Rent
or any other amounts payable hereunder, and such failure shall continue for
fifteen (15) days after receipt of written notice from Landlord.
(b) Tenant shall vacate or abandon the Premises and cease
payment of Rent, or remove leasehold improvements or fixtures constituting
property of Landlord;
(c) This Lease shall be transferred to or shall pass to or
devolve upon any other person or party except in the manner set forth in Section
13;
(d) This Lease or the Premises or any part thereof shall be
taken upon execution or by other process of law directed against Tenant, or
shall be taken upon or subject to any attachment at the instance of any creditor
of, or claimant against Tenant, and said attachment shall not be discharged or
disposed of within sixty (60) days after the levy;
(e) Tenant shall file a petition in bankruptcy or insolvency
or for reorganization or arrangement under the bankruptcy laws of the United
States or under any insolvency act of any state, or shall voluntarily take
advantage of any such law or act by answer or otherwise, or shall be dissolved
or shall make an assignment for the benefit of creditors;
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(f) Involuntary proceedings under any such bankruptcy law or
insolvency act or for the dissolution of Tenant shall be instituted against
Tenant, or a receiver or trustee shall be appointed of all or substantially all
of the property of Tenant, and such proceedings shall not be dismissed or such
receivership or trusteeship vacated within sixty (60) days after such
institution or appointment;
(g) Tenant shall fail to pay Rent and shall fail to take
possession of the Premises thirty (30) days following the earlier of the date
the Premises are Ready for Occupancy or the Commencement Date;
(h) Tenant shall fail to perform any of the other agreements,
terms, covenants or conditions of this Lease on Tenant's part to be performed,
and such nonperformance shall continue for a period of thirty (30) days after
written notice by Landlord to Tenant, or if such performance cannot be
reasonably had within such thirty (30) day period, Tenant shall not in good
faith have commenced such performance within such thirty (30) day period and
shall not thereafter diligently proceed to completion.
19.2 Remedies of Landlord. If any one or more Events of Default shall
happen which are not timely cured, then Landlord shall have the right at
Landlord's election, or at any time thereafter, to reenter and take possession
of the Premises or any part thereof by proper legal process and repossess the
same as Landlord's former estate and expel Tenant and those claiming through or
under Tenant, and remove the effects of both or either, without being deemed
guilty of any manner of trespass, and without prejudice to any remedies for
arrears of Rent or breach of covenants or prior conditions and without
terminating this Lease. Should Landlord elect to reenter as provided in this
Subsection, or should Landlord take possession pursuant to legal proceedings or
pursuant to any notice provided for by law including a proceeding for possession
pursuant to Colorado's Forcible Entry and Unlawful Detainer Statutes, Landlord
may, from time to time, without terminating this Lease either:
(a) (i) Relet the Premises or any part thereof in Landlord's
or Tenant's name, but for the account of Tenant, for a term or terms (which may
be greater or less than the period which would otherwise have constituted the
balance of the term of this Lease) and on conditions and upon other terms (which
may include repair of the Premises) as Landlord, in its commercially reasonable
discretion, may determine, and Landlord may collect and receive the rents.
Landlord shall use reasonable efforts to relet the Premises and maximize the
income generated by the Premises. No reentry or taking possession of the
Premises by Landlord shall be construed as an election on Landlord's part to
terminate this Lease unless a written notice of such intention be given to
Tenant. No notice from Landlord hereunder or under a forcible entry and unlawful
detainer statute or similar law shall constitute an election by Landlord to
terminate this Lease unless such notice specifically so states. Landlord
reserves the right following any reentry and/or reletting to exercise its right
to terminate this Lease by giving Tenant written notice, in which event the
Lease will terminate as specific in the notice.
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(ii) If Landlord elects to take possession of the
Premises as provided in this Subsection (a) without terminating the Lease,
Tenant shall pay to Landlord (1) the Rent and other sums due under this Lease
which would be payable if repossession had not occurred, less (2) the net
proceeds, if any, of any reletting of the Premises after deducting Landlord's
expenses in connection with the reletting as follows: all repossession costs,
brokerage commissions, legal expenses and attorneys' fees, repair costs, and the
cost, prorated based on the number of years remaining under the Primary Term of
this Lease, of "freshening" the Premises for a new tenant, such as touch up
work, new paint and carpet, but not including the cost of the demolition and
replacement of the existing tenant finish work.
(b) To give Tenant written notice of intention to terminate
this Lease on the date of the notice, or on any later date specified in the
notice. Tenant's right to possession of the Premises shall cease and the Lease
shall thereupon be terminated, except as to Tenant's liability under this Lease,
as if the expiration of the term fixed in the notice were the end of the term
originally demised. If this Lease is terminated pursuant to the provisions of
this Subsection (b), or terminated pursuant to a proceeding for possession under
the Colorado Forcible Entry and Unlawful Detainer Statutes, Tenant shall remain
liable to Landlord for damages in an amount equal to the Rent and other sums
which would have been owing by Tenant under this Lease for the balance of the
Term had this Lease not been terminated, less the net proceeds, if any, of any
reletting of the Premises by Landlord subsequent to the termination, after
deducting Landlord's expenses in connection with such reletting, including the
expenses enumerated in Subsection (a) above. Landlord shall be entitled to
collect damages from Tenant monthly on the days on which the Rent and other
amounts would have been payable if this Lease had not been terminated.
19.3 Cumulative Remedies. Suit or suits for the recovery of the Rent
and other amounts and damages may be brought by Landlord, from time to time, at
Landlord's election, and nothing in this Lease shall be deemed to require
Landlord to await the date when this Lease or its Term would have expired by
limitation had there been no default by Tenant, or no termination, as the case
may be. Each right and remedy provided for in this Lease shall be cumulative and
shall be in addition to every other right or remedy provided for in this Lease
or now or hereafter existing at law or in equity or by statute or otherwise
including but not limited to suits for injunctive relief and specific
performance. The exercise or beginning of the exercise by Landlord of any one or
more of the rights or remedies provided for in this Lease or now or hereafter
existing at law or in equity by statute or otherwise shall not preclude the
simultaneous or later exercise by Landlord of any or all rights or remedies
provided for in this Lease or now or hereafter existing at law or in equity or
by statute or otherwise. All such rights and remedies shall be considered
cumulative and non-exclusive. All costs incurred by Landlord in connection with
collecting any Rent or other amounts and damages owing by Tenant pursuant to the
provisions of this Lease, or to enforce any provision of this Lease, including
reasonable attorney's fees from the date such matter is turned over to an
attorney, and an action is commenced by Landlord, shall also be paid by Tenant
to Landlord.
19.4 No Waiver. No failure by Landlord to insist upon the strict
performance of any agreement, term, covenant or condition of this Lease or to
exercise any right or remedy consequent upon a breach, and no acceptance of full
or partial payment of Rent during the
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continuance of any breach, shall constitute a waiver of any breach or of the
agreement to be performed or complied with by Tenant, and no breach shall be
waived, altered or modified except by written instrument executed by Landlord.
No waiver of any breach shall affect or alter this Lease, but each and every
agreement, term, covenant and condition shall continue in full force and effect
with respect to any other then existing or subsequent breach. Notwithstanding
any termination of this Lease, the same shall continue in force and effect as to
any provisions which require observance or performance by Landlord or Tenant
subsequent to such termination.
19.5 Bankruptcy. Nothing contained in this Section 19 shall limit or
prejudice the right of Landlord to prove and obtain as liquidated damages in any
bankruptcy, insolvency, receivership, reorganization or dissolution proceeding,
an amount equal to the maximum allowed by any statute or rule of law governing
such a proceeding, and in effect at the time when such damages are to be proved,
whether or not the amount is greater, equal to or less than the amounts
recoverable, either as damages or Rent, referred to in any of the preceding
provisions of this Section. Notwithstanding anything contained in this Section
to the contrary, any such proceeding or action involving bankruptcy, insolvency,
reorganization, arrangement, assignment for the benefit of creditors, or
appointment of a receiver or trustee, as set forth above, shall be considered to
be an event of default only when the proceeding, action or remedy shall be taken
or brought by or against the then holder of the leasehold estate under this
Lease.
SECTION 20
TAXES
During the Term hereof, Tenant shall pay, prior to delinquency, all
business and other taxes, charges, notes, duties and assessments levied, and
rates or fees imposed, charged, or assessed against or in respect of Tenant's
occupancy of the Leased Premises or in respect of the personal property, trade
fixtures, furnishings, equipment, and all other personal property of Tenant
contained in the Premises, and shall hold Landlord harmless from and against all
payment of such taxes, charges, notes, duties, assessments, rates, and fees, and
against all loss, costs, charges, and expenses occasioned by or arising from any
and all such taxes, charges, notes, duties, assessments, rates, and fees. Tenant
shall cause the fixtures, furnishings, equipment and other personal property to
be assessed and billed separately from the real and personal property of
Landlord. If any or all of Tenant's fixtures, furnishing, equipment, and other
personal property shall be assessed and taxed with Landlord's real property,
Tenant shall pay to Landlord Tenant's share of such taxes within ten (10) days
after delivery to Tenant by Landlord of a statement in writing setting forth the
amount of such taxes applicable to Tenant's property. Tenant agrees to provide
financial statements if so requested in writing by any lender holding a security
interest in the Property or the Building. All of the above documents shall be
considered confidential and only disclosed or used for Landlord's appropriate
business purposes.
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SECTION 21
EMINENT DOMAIN
21.1 If the Building, or a substantial part thereof, or a substantial
part of the Premises or Common Areas, shall be lawfully taken or condemned (or
conveyed under threat of such taking or condemnation) for any public or
quasi-public use or purpose, the Term of this Lease shall end upon, and not
before, the date of the taking of possession by the condemning authority.
Current Rent shall be apportioned as of the date of termination. If any part of
the Building, other than the Premises or not constituting a substantial part of
the Premises, shall be so taken or condemned (or conveyed under threat of such
taking or condemnation), or if the grade of any street adjacent to the Building
is changed by any competent authority and such taking or change of grade makes
it necessary or desirable to substantially remodel or restore the Building,
which could not be accomplished without the total relocation of Tenant, Landlord
shall have the right to cancel this Lease upon not less than sixty (60) days'
notice prior to the date of cancellation designated in the notice. No money or
other consideration shall be payable by Landlord to Tenant for the right of
cancellation, and Tenant shall have no right to share in any condemnation award,
or in any judgment for damages, or in any proceeds of any sale made under any
threat of condemnation or taking. Nothing in this Section shall prevent Tenant
from making and pursuing a claim against the condemning authority in its own
right for termination of its leasehold interest, moving costs and other amounts
to which Tenant may be entitled. If this Lease is not canceled, the Lease shall
continue in full force and effect, and Rent shall be equitably abated in
proportion to any reduction in the size and utility of the Premises.
SECTION 22
SUBORDINATION TO MORTGAGES AND DEEDS OF TRUST
22.1 Lease Subordinate to Mortgages.
(a) Landlord agrees to require each lienholder against the
Premises to execute a non-disturbance agreement in favor of Tenant. This Lease
and the rights of Tenant shall be and are hereby made subject and subordinate to
the lien of any mortgages or deeds of trust as to which Tenant has received a
non-disturbance agreement now or hereafter existing against the Building, the
Property or both, and to all renewals, modifications, consolidations,
replacements and extensions thereof and to all advances made now or in the
future. Although the subordination shall be selfoperating, Tenant, or its
successors in interest, shall upon Landlord's request, execute and deliver upon
the demand of Landlord any and all instruments desired by Landlord,
subordinating, in the manner reasonably requested by Landlord, this Lease to any
mortgage or deed of trust. Landlord is hereby irrevocably appointed and
authorized as agent and attorney-in- fact of Tenant to execute all subordination
instruments if Tenant fails to execute the instruments within ten (10) days
after notice from Landlord demanding their execution. The notice may be given in
the manner provided for giving notice below.
(b) Should any mortgage or deed of trust affecting the
Building, the Property or both be foreclosed by a Lender which has granted
Tenant a non-disturbance agreement, then: (i) the liability of the mortgagee,
beneficiary or purchaser at the foreclosure sale to Tenant shall
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<PAGE> 23
exist only so long as the mortgagee, beneficiary, or purchaser is the owner of
the Building and/or Property and the liability shall not continue or survive
after further transfer of ownership; and (ii) Tenant shall be deemed to have
attorned, as Tenant under this Lease, to the purchaser at any foreclosure sale
and this Lease shall continue in force and effect as a direct lease between and
binding upon Tenant and the purchaser at any foreclosure sale. As used in this
Section 22, "mortgagee" and "beneficiary" shall include successors and assigns
of any such party, whether immediate or remote, the purchaser of any mortgage or
deed of trust, whether at foreclosure or otherwise, and the successors,
assignees, mortgagees, and beneficiaries of such purchaser, whether immediate or
remote.
22.2 Tenant's Notices. In the event of any act or omission by Landlord
under this Lease which would give Tenant the right to terminate this Lease, or
to claim a partial or total eviction, Tenant will not exercise any such right
until:
(a) it has given thirty days written notice (by United States
certified or registered mail, postage prepaid) of such act or omission to the
holder of any mortgage or deed of trust on the Property (whose names and
addresses Landlord has previously furnished to Tenant) with a copy to Joel C.
Davis, Dietze & Davis, P.C., P.O. Box 1530, Boulder, Colorado 80306; and
O'Connor Development, 287 Century Circle, Suite 101, Louisville, Colorado 80027;
and
(b) any holder of any mortgage or deed of trust on the
Property shall, following the giving of such notice, have failed with reasonable
diligence to commence and to pursue reasonable action to remedy the act or
omission within not more than sixty (60) days.
SECTION 23
WAIVER
The waiver by Landlord of any breach of any term, covenant, or
condition in this Lease shall not be deemed to be a waiver of the term,
covenant, or condition, or any subsequent breach of the same or any other term,
covenant or conditions. The acceptance of Rent hereunder shall not be construed
to be a waiver of any breach by Tenant of any term, covenant, or condition of
this Lease, it being understood and agreed that the remedies given to Landlord
shall be cumulative, and the exercise of any one remedy by Landlord shall not be
to the exclusion of any other remedy.
SECTION 24
SUBROGATION
The parties to this Lease agree that any and all fire and extended
coverage insurance which is required to be carried by either shall be endorsed
with a subrogation clause, substantially as follows: "This insurance shall not
be invalidated should the insured waive, in writing, prior to a loss, any and
all right of recovery against any party for loss occurring to the property
described herein." Each party waives all claims for recovery from the other
party, its officers, agents or employees for any loss or damage (whether or not
such loss or damage is caused by negligence of the other party, and
notwithstanding any provisions contained in this Lease to the contrary) to any
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of its real or personal property insured under valid and collectible insurance
policies to the extent of the collectible recovery under the insurance.
SECTION 25
PLATS AND RIDERS
Appendices, clauses, plats, and riders, if any, referred to in this
Lease and signed or initialed by Landlord and Tenant and affixed to this Lease
are hereby incorporated in and made a part of this Lease.
SECTION 26
SALE BY LANDLORD
In the event of a sale or conveyance or transfer by Landlord of its
interest in the Property and/or in the Building containing the Premises, and/or
in this Lease to a financially capable and responsible party, the same shall
operate to release Landlord from any future liability upon any of the covenants
or conditions, expressed or implied, contained in favor of Tenant, and in that
event, Tenant agrees to look solely to the responsibility of the successor in
interest of Landlord in and to this Lease. This Lease shall not be affected by
any such conveyance or transfer, and Tenant agrees to attorn to such purchaser
or transferee.
SECTION 27
RIGHT OF LANDLORD TO PERFORM
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense, and without any abatement of Rent. If Tenant shall fail to pay any sum
of money, other than Rent, required to be paid by it, or shall fail to perform
any other act on its part to be performed, and the failure shall continue for
thirty (30) days after written notice by Landlord, Landlord may, but shall not
be obligated to do so, and without waiving or releasing Tenant from any
obligations of Tenant, make any payment or perform any other act on Tenant's
part to be made or performed as in this Lease provided. All sums so paid by
Landlord and all necessary incidental costs, together with interest at the rate
of 4% over the Prime Rate announced from time to time by Norwest Bank, Denver,
from the date of a payment by Landlord, shall be payable to Landlord on demand,
and Tenant covenants to pay any such sums, and Landlord shall have (in addition
to any other right or remedy of Landlord) the same rights and remedies in the
event of the non-payment thereof by Tenant, as in the case of default by Tenant
in the payment of Rent.
SECTION 28
ATTORNEY'S FEES
In the event of any litigation or arbitration between Tenant and
Landlord to enforce any provision of this Lease or any right of either party,
the unsuccessful party to such litigation or arbitration shall pay to the
successful party all costs and expenses, including reasonable attorney's fees,
incurred. Moreover, if Landlord, without fault, is made a party to any
litigation instituted by
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<PAGE> 25
or against Tenant, Tenant shall indemnify Landlord against, and protect, defend,
and save it harmless from, all costs and expenses, including attorney's fees,
incurred by Landlord.
SECTION 29
ESTOPPEL CERTIFICATE
Tenant shall, at any time and from time to time but not more often than
once per year, upon not less than ten (10) days' prior written notice from
Landlord, execute, acknowledge, and deliver to Landlord a statement in writing
certifying that this Lease is unmodified and in full force and effect (or if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the dates to which the
Rent and other charges are paid, and acknowledging that Tenant is paying Rent on
a current basis with no offsets or claims, and there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder (or specifying
the offsets, claims, or defaults, if any are claimed). It is expressly
understood and agreed that any such statement may be relied upon by any
prospective purchaser or encumbrance of all or any portion of the Building or by
any other person to whom it is delivered. Tenant's failure to deliver the
statement within the required time shall be conclusive upon Tenant that this
Lease is in full force and effect, without modification except as may be
represented by Landlord, that there are no uncured defaults in Landlord's
performance, and that not more than two (2) months' rental have been paid in
advance.
SECTION 30
NOTICE
Any notice from Landlord to Tenant or from Tenant to Landlord shall be
in writing and may be served personally or by mail. If served by mail, it shall
be mailed by registered or certified mail, return receipt requested, addressed
to Tenant at the Premises or to Landlord at the place from time to time
established for the payment of Rent. Notices shall be effective when delivered,
if served personally, or three (3) days after mailing, if mailed. If no one at
the premises is available to accept the notice, then it shall be deemed
effective upon the second refusal or returned mail delivery attempt.
SECTION 31
RIGHTS RESERVED
Landlord and Tenant reserve the following rights, exercisable without
notice and without liability to Tenant for damage or injury to property, person,
or business, and without effecting an eviction, constructive or actual, or
disturbance of Tenant's use or possession, or giving rise to any claim for
set-off or abatement of rent:
(a) Landlord agrees to name the building the "Chaparral
Building" and not to change the name or address during the term of this Lease or
any extensions hereof, once Chaparral has leased and occupied the entire
building;
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<PAGE> 26
(b) Tenant agrees to install, affix, and maintain any and all
signs on the exterior and interior of the Building;
(c) Tenant agrees to retain at all times, and to use in
appropriate instances, keys to all doors within and into the Premises. No locks
or bolts shall be altered, changed, or added without the prior written consent
of Landlord.
SECTION 32
REAL ESTATE BROKER
32.1 The commission to be paid will be 2 1/2% of Base Rent paid by
Tenant during the full Primary Lease Term. Tenant, Shirley Allison, and
Prudential Wise McIntire Realtors have agreed to the commission being paid as
follows:
(a) Shirley Allison and Prudential Wise McIntire Realtors will
be paid 1/4 of 1% of Base Rent paid by Tenant during the full Primary Lease
Term.
(b) Tenant will receive an additional Build Out Allowance
equal to 2 1/4% of Base Rent paid by Tenant during the full Primary Lease Term.
SECTION 33
MISCELLANEOUS PROVISIONS
(a) The words "re-enter", or "re-entry", as used in this
Lease, are not restricted to their technical legal meaning. The term "Landlord",
as used in this Lease, means only the Landlord from time to time, and upon
conveying or transferring its interest in compliance with Section 27. Landlord
shall be relieved from any further obligation or liability pursuant to Section
27.
(b) Time is of the essence of this Lease and of each and all
of its provisions.
(c) Submission of this instrument for examination or signature
by Tenant does not constitute a reservation of or an option for lease, and it is
not effective as a lease or otherwise until execution by both Landlord and
Tenant.
(d) The invalidity or unenforceability of any provision in
this Lease shall not affect or impair any other provisions.
(e) This Lease shall be governed by and construed pursuant to
the laws of the State of Colorado.
(f) Should any mortgagee or beneficiary under a deed of trust
require a modification of this Lease, which modification will not bring about
any increased cost or expense to Tenant or will not in any other way
substantially change the rights and obligations of Tenant hereunder, then and in
such event, Tenant agrees that this Lease may be so modified.
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<PAGE> 27
(g) All rights and remedies of Landlord under this Lease, or
those which may be provided by law, may be exercised by Landlord in its own name
individually, or in its name by its agent, and all legal proceedings for the
enforcement of any rights or remedies, including distress for rent, unlawful
detainer, and any other legal or equitable proceedings, may be commenced and
prosecuted to final judgment and be executed by Landlord in its own name
individually or in its name by its agent. Landlord and Tenant each represent to
the other that each has full power and authority to execute this Lease and to
make and perform the agreements herein contained, and Tenant expressly
stipulates that any rights or remedies available to Landlord, either by the
provisions of this Lease or otherwise, may be enforced by Landlord in its own
name individually or in its name by its agent or principal.
(h) The marginal headings and titles to the paragraphs of this
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
(i) Tenant acknowledges that there are no covenants,
representations, warranties, agreements, or conditions, expressed or implied,
collateral or otherwise, forming part of or in any way effecting or relating to
this Lease except as expressly set out in this Lease and the attachments and
exhibits to this Lease, and that the terms and provisions of this Lease may not
be modified or amended except by written instrument by both Landlord and Tenant.
SECTION 34
SUCCESSORS AND ASSIGNS
Subject to the terms and provisions of Section 13, the covenants and
conditions contained in this Lease shall apply to and bind the respective heirs,
successors, executors, administrators, and assignees of the parties hereto, and
the terms "Landlord" and "Tenant" shall include the successors and assignees of
either such party, whether immediate or remote.
SECTION 35
QUIET ENJOYMENT
Subject to the terms and provisions of this Lease, Landlord covenants
and agrees that Tenant, upon complying with all of the obligations of Tenant
under this Lease, shall peaceably and quietly enjoy the Premises and Tenant's
rights under this Lease during its Term, without hindrance by Landlord or any
persons claiming under Landlord.
SECTION 36
RECORDING
This Lease shall not be recorded by Landlord or Tenant.
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<PAGE> 28
SECTION 37
RELIANCE BY LANDLORD
As of the date of executing this Lease, the Premises consist of
unimproved real property. Landlord intends to proceed with construction of the
Premises in reliance upon Tenant's covenants, obligations and representations
contained in this Lease. Tenant hereby acknowledges and accepts Landlord's
reliance in this regard. As additional consideration from Tenant to Landlord,
Tenant hereby agrees to provide updated business financial statements annually.
Said statements to be supplied to Landlord within ninety days of end of Tenant's
fiscal year.
SECTION 38
OPTION TO EXTEND
38.1 Option to Extend Primary Term. Upon the full and complete
performance of all terms, covenants and conditions contained in this Lease by
Tenant and the payment of all Rent and other sums due under the terms of this
Lease, Tenant shall have the option to renew this Lease for one (1) additional
term of Five (5) years. If Tenant desires to exercise the option, Tenant must
deliver written notice of its election to Landlord not less than one-hundred
eighty (180) days prior to the expiration of the Primary Term of this Lease. If
Tenant exercises its option, this Lease shall be deemed to be extended for the
additional Period, subject to the right of Landlord to make any adjustments and
to assess any charges against Tenant which are provided in this Lease. Rent
shall continue to be calculated according to the terms in this Lease, including
any increases pursuant to the Consumer Price Index or Market Rates. Option
Period Base Rent shall be the Base Rent adjusted by one-half the difference
between the rate determined by the increase in Consumer Price Index and the
current rate being charged for similar space in the area.
SECTION 39
SECURITY DEPOSIT
Tenant shall deposit unto Landlord the sum of $18,500.00 due thirty
(30) days prior to occupancy which is anticipated to be March 15, 2000, to be
held as a Damage Deposit.
SECTION 40
WORK LETTERS
40.1 Landlord and Tenant shall agree upon plans, specifications and
finish work as quickly as possible and shall attach work letters to this Lease
detailing those portions of the project which shall be Landlord's responsibility
and those portions of the finish which shall be attributable to Tenant's
Build-out allowance described in Section 3. At a minimum, Landlord's work shall
consist of the Building, all exterior landscaping and other work, HVAC and
electrical sized and designed for Tenant's needs, plus a "Vanilla Shell"
interior.
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<PAGE> 29
SECTION 41
FIRST RIGHT OF REFUSAL ON ADDITIONAL SPACE
41.1 Landlord agrees to grant Tenant an exclusive option to Lease the
adjoining twenty-thousand square feet of the Building. This option will expire
on November 1, 1999. The Base Rate and Term for the additional space shall be
the Base Rate and Term in effect on the occupied space at the time Tenant
occupies option space.
41.2 Landlord also agrees to grant Tenant an exclusive option to Lease
another twenty-thousand square feet in the Building. This option will expire
thirty (30) months from Commencement of Lease. The Base Rate for the additional
space shall be the current prevailing Market Rate.
LANDLORD:
BY: /s/ Terry J. O'Connor
--------------------------------------------
Terrence J. O'Connor, Managing Member
TENANT: CHAPARRAL NETWORK STORAGE, INC.
A Delaware Corporation
By: /s/ Douglas J. Lehrman
-------------------------------------------
Its: Vice President, Finance
------------------------------------------
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<PAGE> 30
ADDENDUM TO LEASE AGREEMENT
This Addendum is made and entered into this the l5th day of November, 1999,
between BTC Development, LLC ("Landlord"), and Chaparral Network Storage, Inc.,
a Delaware Corporation ("Tenant"). This Addendum amends the lease entered into
between the aforementioned parties on September 1, 1999 for the rental of
approximately 20,000 rentable square feet in Dry Creek Corporate Center (the
"Building") which Building is situated on land described as 7040 East Dry Creek
Parkway, Longmont, Colorado 80503.
ADDENDUM CONTROLS. This Addendum is attached to and made a part of the Lease
between Landlord and Tenant (as those terms defined above). In the event of any
conflict between the terms of the Lease and those set forth in this Addendum,
the terms of this Addendum will control. The Lease and this Addendum are
referred to collectively as the "Agreement".
PAGE FOUR OF LEASE - DEMISE Paragraph one is amended as follows:
Landlord does hereby lease to Tenant and Tenant hereby leases from Landlord an
approximate 40,000 rentable square feet (the "Premises," or, alternatively, the
"Leased Premises") Dry Creek Corporate Center (the "Building"), which Building
is situated on land described as 7040 East Dry Creek Parkway, Longmont, Colorado
80503 (the "Property"), together with a non-exclusive right, subject to the
provisions of this Lease, to use all appurtenances thereto, including, but not
limited to, any plazas, common areas, parking lots, walks, ways or other areas
in the Building or on the Property designated by Landlord for the exclusive or
non-exclusive use of the tenants of the Building.
PAGE FIVE OF LEASE - SECTION 3 -- COMPLETION OF THE PREMISES is amended as
follows:
(See Space Plan. Addendum "A") Tenant shall have a Build Out Allowance of
$880,000.00 or $22.00 per useable square foot. The Build Out Allowance includes
all costs incurred in designing, permitting, construction, and installation of
Tenant Improvements. All costs in excess of allowance are to be paid by Tenant.
Golden Triangle Construction, Inc. ("GTC") will be the General Contractor for
any initial Tenant Improvement work done to the Premises. GTC will generally
request 3 competitive bids for all subcontract work to be performed, and will
provide to Tenant a breakdown of all costs prior to the commencement of any
work. All costs in excess of Build Out Allowance will be added to Lease Rate and
amortized at ten percent (10%) over the term of the Lease.
/s/ Douglas J. Lehrmann /s/ Terry O'Connor
----------------------- ------------------
Tenant Landlord
1
<PAGE> 31
PAGE FIVE OF LEASE - SECTION 4.01 -- RENT is amended as follows:
4.01 Base Rent. Tenant agrees to pay Landlord during the full Primary Lease Term
the sum of $2,288,915.86, payable in advance in equal monthly installments of
$37,833.32 for the Premises: The first full monthly installment of Base Rent
shall be payable on the Commencement Date and each succeeding monthly
installment shall be due and payable on or before the first day of each and
every successive calendar month thereafter during the Primary Lease Term. The
first one hundred and twenty-six thousand dollars of Base Rent shall be prepaid
with the signing of this addendum. The prepayment pays the Base Rent for the
first one hundred and one days Tenant occupies Premises. Prepayment shall be in
the form of 42,000 shares of Chaparral Network Storage, Inc. common stock
purchased at $3.00 per share. The exact square footage of the Premises will be
measured "as-built" and Rent adjusted accordingly.
PAGE SEVEN OF LEASE -- SECTION 5.02(a) is amended as follows:
5.02(a) Taxes. The Rent payable by Tenant shall be increased by the amount of
"Tenant's Proportional Share" of the Taxes on the Property. Tenant's
Proportional Share shall be 67% based upon Tenant's initial occupancy of
approximately 40,000 square feet out of a total building rental space of
approximately 60,000 square feet. Tenant's Proportional Share shall be subject
to confirmation and/or adjustment based on "as-built" measurements of the
Premises and Building. In determining the amount of Taxes for any calendar year,
the amount of special assessments to be included shall be limited to the amount
of the installment (plus any interest payable thereon) of such special
assessment which would have been required to have been paid during such calendar
year if Landlord had elected to have the special assessment paid over the
maximum period of time permitted by law, if the election is available to
Landlord. All reference to Taxes "for" and "billed for" a particular calendar
year shall be deemed to refer to Taxes levied, assessed, billed or otherwise
imposed for such calendar year, without..
In witness whereof parties have executed this agreement the day and month first
written above.
<TABLE>
<S> <C>
LANDLORD: TENANT:
BTC Development, LLC Chapparal Network Storage, Inc.
/s/ TERRENCE J. O'CONNOR /s/ DOUGLAS J. LEHRMANN
- ---------------------------- ----------------------------
By: Terrence J. O'Connor By: Douglas J. Lehrmann
Managing Member Vice President, Finance
</TABLE>
2
<PAGE> 32
SECOND ADDENDUM TO LEASE AGREEMENT
This Addendum is made and entered into this 11th day of April, 2000, between BTC
Development, LLC ("Landlord") and Chaparral Network Storage, Inc., a Delaware
Corporation ("Tenant"). This Addendum amends the Lease Agreement date as of
September 1, 1999, as amended as of November 15, 1999, for the rental of 40,000
square feet in Dry Creek Corporate Center (the "Building") which Building is
situated on land described as 7420 East Dry Creek Parkway, Longmont, Colorado
80503 (the "Property").
ADDENDUM CONTROLS. This Addendum is attached to and made a part of the Lease
Agreement between Landlord and Tenant dated as of September 1, 1999, as amended
by the First Addendum to the Lease Agreement dated as of November 15, 1999, in
respect to the lease of a portion of the Building and Property. In the event of
any conflict between the terms of the Lease, as amended by the First Addendum to
the Lease Agreement, and those set forth in this Second Addendum, the terms of
this Second Addendum shall control. Upon execution, the lease, as amended by the
First Addendum and this Addendum, shall be referred to collectively as the
"Agreement."
PAGE FOUR OF LEASE - DEMISE. Paragraph one shall be deleted in its entirety and
replaced with the following:
Landlord does hereby lease to Tenant and Tenant hereby leases from Landlord
approximately 60,000 square feet (the "Premises" or, alternatively, the "Leased
Premises") in the Building, together with the exclusive right, subject to the
provisions of the Agreement, to use all appurtenances thereto, including, but
not limited to, any plazas, common areas, parking lots, walks ways or other
areas in the Building or on the Property. Upon issuance of the Certificate of
Occupancy or Temporary Certificate of Occupancy, the Building shall be renamed
The Chaparral Network Storage Building.
PAGE FOUR OF THE LEASE - TERM. Paragraph 2.01 shall be deleted in its entirety
and replaced with the following:
The term of this Lease is intended to commence on July 7, 2000 (the
"Commencement Date") and continued until July 31, 2007 (the "Primary Lease
Term"). Landlord shall use best efforts to give Tenant at least 21 days advanced
access to the Building in order to effectively stage its move from its present
space. Additionally, Landlord will employ reasonable efforts to assure that the
Certificate of Occupancy or Temporary Certificate of Occupancy is received no
later than July 31, 2000. Any changes in scope of work requested by Tenant shall
extend occupancy date accordingly. Any costs of damages, not to exceed $5,000.00
per day, incurred by Tenant as a result of Landlord's unexcused failure to
deliver the Certificate of Occupancy or Temporary Certificate of Occupancy by
July 31, 2000 shall be recoverable from Landlord.
Subsection (a), which begins on Page 5, shall be deleted in its entirety.
<PAGE> 33
PAGE FIVE OF THE LEASE - COMPLETION OF THE PREMISES. This provision shall be
deleted in its entirety and replaced with the following:
In connection with the Space Plan for the Building set out in Attachment "A" to
the Lease Agreement, Tenant shall have a Build Out Allowance of $1,920,000.00 or
$32.00 per square foot. The Build Out Allowance includes all costs incurred in
designing, permitting, construction, and installation of those Tenant
Improvements defined and described in Attachment "B" to this Lease Agreement.
The Tenant shall pay all costs in excess of the allowance requested by Tenant
and agreed to in writing. Golden Triangle Construction ("GTC") will be the
General Contractor for any initial Tenant Improvement work done to the Premises.
GTC will generally request 3 competitive bids for most subcontract work to be
performed, and will provide to Tenant a breakdown of all costs prior to the
commencement of any work. All costs in excess of the Build Out Allowance agreed
to in writing by Tenant will be added to the Lease Rate and amortized at ten
(10) percent over the initial term of the Lease (with the exception of the
Chaparral Premium costs (currently agreed to be $186,000.00) more particularly
listed in Attachment "B" which will be paid by Tenant directly to Landlord upon
issuance of the Certificate of Occupancy or Temporary Certificate of Occupancy).
Any savings achieved in the Build Out Allowance will be passed on to Tenant in
the form of reduced rent using the same formula as above.
PAGE FIVE OF LEASE - RENT. Section 4.01 shall be deleted in its entirety and
replaced with the following:
Tenant agrees to pay landlord during the Primary Lease Term, the sum of
$5,904,696.00, payable in advance in equal monthly installments of $70,294.00
for the Premises. The Base Rent shall not commence until issuance of the
Certificate of Occupancy or Temporary Certificate of Occupancy. Landlord
acknowledges that it has received from Tenant an advanced payment of initial
rent equal to $126,000.00, which payment has been made by the issuance of 42,000
shares of Tenant's common stock (subject to restrictions) at an issuance price
of $3.00 per share, and further acknowledges that Tenant has been granted a rent
abatement equal to $67,000.00. Based upon the current estimate of rentable
square footage, Tenant shall be deemed to have prepaid and received rent
abatement for the first 83 days of the Lease. The exact square footage of the
Premises will be measured "as built" and Rent, prepaid days, and rate abatement
days shall be adjusted accordingly. Following expiration of the above
credit/abatement, monthly installments shall be due and payable on or before the
first day of each and every calendar month during the Primary Lease Term.
PAGE SIX OF LEASE - RENT. The introduction to Section 4.05 shall be deleted in
its entirety and replaced with the following:
The Base Rent shall be further increased annually on the anniversary date of the
receipt by Tenant of the Certificate of Occupancy, by an amount determined as
follows:
PAGE SEVEN OF LEASE - TAXES. Section 5.02(a) shall be deleted in its entirety
and replaced with the following:
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<PAGE> 34
Tenant will be responsible for 100% of the Taxes on the Property. In determining
the amount of Taxes for a calendar year, the amount of special assessments to be
included shall be limited to the amount of the installment (plus any interest
payable thereon) of such assessment which would have been required to have been
paid during such calendar year if Landlord had elected to have the special
assessment paid over the maximum period of time permitted by law, if the
election is available to the Landlord. All references to Taxes "for" and "billed
for" a particular calendar year shall be deemed to refer to Taxes levied,
assessed, billed or otherwise imposed for such calendar year without regard to
the date when any such Taxes are due and payable.
LANDLORD:
By: /s/ Terrence J. O'Connor
-------------------------------------------
Terrence J. O'Connor, Managing Member
TENANT: CHAPARRAL NETWORK STORAGE, INC.
A Delaware Corporation
By: /s/ Douglas J. Lehrmann
-------------------------------------------
Its: Vice President, Finance
-------------------------------------------
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<PAGE> 1
***CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED FOR PORTIONS OF THIS DOCUMENT
EXHIBIT 10.21
TECHNOLOGY CROSS-LICENSE AGREEMENT
(as amended)
This Technology Cross-License Agreement (the "Agreement") is made
effective as of November 25, 1998 (the "Effective Date"), by and between
Adaptec, Inc., having a place of business at 691 South Milpitas Boulevard,
Milpitas, California 95035 ("Adaptec"), and Chaparral Technologies, Inc., having
a place of business at 1951 South Fordham Street, Longmont, Colorado 80503
("Chaparral").
RECITALS
A. Adaptec and Chaparral are entering into that certain Asset Transfer
Agreement of even date herewith (the "Asset Transfer Agreement").
B. In accordance with the Asset Transfer Agreement, Adaptec and Chaparral
desire that Adaptec license to Chaparral certain technology related to Adaptec's
ESS Business (as defined in the Asset Transfer Agreement).
NOW, THEREFORE, Adaptec and Chaparral agree as follows:
1. DEFINITIONS.
1.1 "Adaptec Bridge Products" means the Adaptec controller board
products identified in Exhibit A hereto.
1.2 "Adaptec Bridge Product Designs" means, for each Adaptec
Bridge Product identified in Exhibit A, the highest-level design that defines
the product's overall configuration, layout and interconnection of specified
components.
1.3 "[***] Adaptec Bridge Products" means: (i) the Adaptec Bridge
Products identified in Exhibit A hereto; (ii) [***] Adaptec Bridge Products;
(iii) any Adaptec Bridge Product or [***] Adaptec Bridge Product that includes
the Adaptec [***] Chip; (iv) any Adaptec Bridge Product or [***] Adaptec Bridge
Product that includes an Interface Replacement; or (v) any Adaptec Bridge
Product or [***] Adaptec Bridge Product that includes both the Adaptec [***]
Chip and an Interface Replacement.
1.4 "[***] Adaptec Bridge Products" means modified versions of the
Adaptec Bridge Products developed by Chaparral; provided that such modified
versions will be limited to versions that have [***] as compared with the
feature sets for such products listed in Adaptec's technical specifications
contained in corresponding marketing requirement documents delivered by Adaptec
to Chaparral as of the Effective Date.
1.5 "Adaptec [***] Chip" means Adaptec's [***] chip product
identified by the Adaptec product code [***] (Adaptec part number [***]),
specifically excluding any future versions, upgrades or releases of or to such
product.
<PAGE> 2
1.6 "Interface Replacement" means a back-end board-to-target
interface (specifically excluding a SCSI-to-Ethenet-based board-to-target
interface, unless approved in advance in writing by Adaptec) or a board-to-host
interface developed by Chaparral to replace an existing interface of an Adaptec
Bridge Product or a [***] Adaptec Bridge Product.
1.7 "Adaptec Exclusive Bridge Products Software" means the Adaptec
products identified in Exhibit B hereto.
1.8 "Adaptec Co-Exclusive Bridge Products Software" means the
Adaptec products identified in Exhibit C hereto.
1.9 "Adaptec Non-Exclusive Bridge Products Software" means the
Adaptec products identified in Exhibit D hereto.
1.10 "Adaptec Bridge Products Software" means the Adaptec Exclusive
Bridge Products Software, Adaptec Co-Exclusive Bridge Products Software and
Adaptec Non-Exclusive Bridge Products Software.
1.11 "Adaptec Bridge Products Documentation" means the Adaptec
documentation identified in Exhibit E hereto.
1.12 "Adaptec Hardware-Related Technology" means the Adaptec
technology identified in Exhibit F hereto.
1.13 "Adaptec RAID Code" means the Adaptec software identified in
Exhibit G hereto.
1.14 "Adaptec Technology" means the Adaptec Bridge Products,
Adaptec Bridge Product Designs, Adaptec Bridge Products Software, Adaptec Bridge
Products Documentation, Adaptec Hardware-Related Technology, and Adaptec RAID
Code.
1.15 "Intellectual Property Rights" means patent rights (including
patent applications and disclosures), rights of priority, mask work rights,
industrial design rights, copyrights, trade secrets, know-how and any other
intellectual property rights recognized in any country or jurisdiction in the
world.
1.16 "Binary Code Distributable" means the right, as set forth in
Section 2.2(a)(iii)(B), to distribute and sublicense the applicable software in
binary code form, as indicated with respect to the Adaptec Exclusive Bridge
Products Software, Adaptec Co-Exclusive Bridge Products Software and/or Adaptec
Non-Exclusive Bridge Products Software.
1.17 "Limited Source Code Distributable" means the right, as set
forth in Section 2.2(a)(iii)(C), to distribute and sublicense the applicable
software in source code form, as
-2-
<PAGE> 3
indicated with respect to the Adaptec Exclusive Bridge Products Software,
Adaptec Co-Exclusive Bridge Products Software and/or Adaptec Non-Exclusive
Bridge Products Software.
1.18 "Source Code Distributable" means the right, as set forth in
Section 2.2(a)(iii)(A), to distribute and sublicense the applicable software in
source code form, as indicated with respect to the Adaptec Exclusive Bridge
Products Software, Adaptec Co-Exclusive Bridge Products Software and/or Adaptec
Non-Exclusive Bridge Products Software.
1.19 "Chaparral Licensed Software" means the Chaparral product
identified in Exhibit H hereto.
2. ADAPTEC BRIDGE PRODUCTS LICENSES.
2.1 Exclusive Design License. Subject to the terms and conditions
of this Agreement, Adaptec grants Chaparral an irrevocable and perpetual,
exclusive, worldwide, royalty-free license under all of Adaptec's Intellectual
Property Rights in the Adaptec Bridge Product Designs to use, modify and create
derivative works based upon, the Adaptec Bridge Product Designs, for the
purposes of manufacturing, distributing and selling Adaptec Bridge Products and
derivatives thereof. Chaparral expressly acknowledges and agrees that such
exclusivity does not extend to, and Adaptec expressly reserves and retains all
Intellectual Property Rights in and to, all components of the Adaptec Bridge
Product Designs, including without limitation in any and all software, firmware,
hardware, and integrated circuit components thereof. Notwithstanding the
preceding sentence, Adaptec agrees that it will not manufacture, license, sell
or distribute any product that is: (i) identical to an Adaptec Bridge Product;
or (ii) developed by Adaptec by making minor modifications, changes or
enhancements to an Adaptec Bridge Product Design used as a base design.
2.2 Adaptec Bridge Products Software Licenses.
(a) General. Subject to the terms and conditions of this
Agreement, Adaptec hereby grants to Chaparral an irrevocable and perpetual,
worldwide, royalty-free license under all of Adaptec's Intellectual Property
Rights in the Adaptec Bridge Products Software:
(i) to use, copy, modify, and create derivative works
based upon, the Adaptec Bridge Products Software, in source and binary code
forms;
(ii) to distribute the Adaptec Bridge Products Software in
binary code form in connection with the distribution and sale of products that
Chaparral manufactures (or has manufactured) that incorporate such software; and
(iii) (A) as to Adaptec Bridge Products Software that is
Source Code Distributable, to sublicense third parties the right to use, copy,
modify, and create derivative works based upon, such Adaptec Bridge Products
Software, in source code form; and
(B) as to Adaptec Bridge Products Software that is
Binary Code Distributable, to sublicense third parties the right to distribute
such Adaptec Bridge Products
-3-
<PAGE> 4
Software in binary code form in connection with the distribution and sale of
products that such third parties manufacture (or have manufactured) that
incorporate such software; and
(C) as to Adaptec Bridge Products Software that is Limited Source Code
Distributable, [***].
(b) Exclusive Rights. The rights granted to Chaparral under
subsection (a) above will be exclusive as to the Adaptec Exclusive Bridge
Products Software.
(c) Co-Exclusive Rights. The rights granted to Chaparral under
subsection (a) above will be exclusive as to the Adaptec Co-Exclusive Bridge
Products Software, except as to Adaptec, which retains the complete and
unrestricted rights:
(i) to use, copy, modify, and create derivative works
based upon, the Adaptec Co-Exclusive Bridge Products Software, in source code
and binary code forms;
(ii) to distribute (directly and indirectly) the Adaptec
Co-Exclusive Bridge Products Software (and modifications thereto and derivatives
works based upon), in binary code form, in connection with the distribution and
sale of products that Adaptec manufactures (or has manufactured); and
(iii) to sublicense the rights described in the foregoing
clauses (i) and (ii) to Adaptec customers in connection with such customers'
use, distribution and sale of products that Adaptec manufactures (or has
manufactured).
(d) Non-Exclusive Rights. The rights granted to Chaparral
under subsection (a) above will be non-exclusive as to the Adaptec Non-Exclusive
Bridge Products Software.
(e) No Support . Adaptec will have no obligation to provide
Chaparral with any error corrections, modifications, enhancements or support of
any kind for any of the Adaptec Bridge Products Software.
2.3 Adaptec Bridge Products Documentation License. Subject to the
terms and conditions of this Agreement, Adaptec hereby grants to Chaparral an
irrevocable and perpetual, exclusive, worldwide, royalty-free license under all
of Adaptec's Intellectual Property Rights in the Adaptec Bridge Products
Documentation to use, copy, modify (and have modified), create derivative works
based upon, and distribute such documentation solely in connection with the
design, development, manufacture, distribution and sale of Adaptec Bridge
Products and derivatives thereof. Adaptec will have no obligation to provide
Chaparral with any error corrections, modifications, enhancements or support of
any kind for any of the Adaptec Bridge Products Documentation.
-4-
<PAGE> 5
2.4 Adaptec Hardware-Related Technology License. Subject to the
terms and conditions of this Agreement, Adaptec hereby grants to Chaparral an
irrevocable and perpetual, non-exclusive, worldwide, royalty-free license under
all of Adaptec's Intellectual Property Rights in the Adaptec Hardware-Related
Technology to use such technology for Chaparral's internal use, solely in
connection with the design, development, manufacture, distribution and sale of
Adaptec Bridge Products and derivatives thereof. For purposes of clarification,
"internal use" will be deemed to include use by third parties on Chaparral's
behalf, provided that each such third party is bound by a written agreement that
expressly protects Adaptec's Confidential Information and Intellectual Property
Rights in the Adaptec Hardware-Related Technology to at least the same extent as
the terms and condition of this Agreement. Adaptec will have no obligation to
provide Chaparral with any error corrections, modifications, enhancements or
support of any kind for any of the Adaptec Hardware-Related Technology.
3. ADAPTEC RAID-CODE LICENSE.
3.1 Adaptec RAID Code License Grant. Subject to the terms and
conditions of this Agreement, Adaptec grants to Chaparral a nonexclusive,
nontransferable, perpetual, worldwide, royalty-bearing license: (i) to use, copy
and modify (subject to Section 3.2(a) below) the Adaptec RAID Code in source and
binary code forms solely for the purposes of designing, developing and
manufacturing [***] Adaptec Bridge Products; and (ii) to distribute (subject to
Section 3.2(c) below) the Adaptec RAID Code solely in binary code form in
connection with the distribution and sale of [***] Adaptec Bridge Products. At
such time as [***] currently known as "[***]" is more precisely defined by
Chaparral, Adaptec and Chaparral will negotiate in good faith an extension of
the license rights granted in this Section 3.1 to such product. Chaparral's
rights in the Adaptec RAID Code will be limited to those expressly granted in
this Section 3.1. Adaptec reserves all rights and licenses in and to the Adaptec
RAID Code not expressly granted to Chaparral under this Agreement.
3.2 Adaptec RAID Code License Limitations.
(a) [***] Modifications. Chaparral expressly acknowledges and agrees
that Chaparral's right to modify the Adaptec RAID Code, as set forth in Section
3.1, will be [***] the purposes of correcting coding errors and developing
"Performance Enhancements," which means enhancements that optimize the
performance or efficiency of the Adaptec RAID Code [***].
(b) [***]. Chaparral expressly acknowledges and agrees that the license
rights granted to Chaparral under Section 3.1 [***] any and all use of the
Adaptec RAID Code, in whole or in part, or any functionality or module contained
therein, [***].
-5-
<PAGE> 6
(c) [***]. RAID technology defines a number of distinct "RAID
Levels," each of which corresponds to a strategy for mapping data across a disk
array and which has its own set of performance and redundancy characteristics.
The Adaptec RAID Code embodies certain proprietary [***], which enables the
[***]. Such [***] may be used: (i) [***]; or (ii) [***] in order to [***] (the
functionality described in the foregoing clause (ii) is referred to as [***].)
Chaparral expressly acknowledges and agrees that the license rights granted to
Chaparral under section 3.1 [***].
3.3 No Support. Adaptec will have no obligation to provide
Chaparral with any error corrections, modifications or enhancements for the
Adaptec RAID Code. In addition, Adaptec will have no obligation to provide
Chaparral with support of any kind for the Adaptec RAID Code.
3.4 Grantback. Chaparral will promptly deliver to Adaptec any and
all error corrections and Performance Enhancements to the Adaptec RAID Code (as
identified in Exhibit G) developed by Chaparral (collectively "Chaparral RAID
Code Developments"). Chaparral will deliver all Chaparral RAID Code Developments
in source and binary code forms in a form and format mutually agreed by the
parties. Chaparral hereby grants to Adaptec an irrevocable, worldwide,
fully-paid and royalty-free, nonexclusive license, with rights to sublicense, to
use, copy, modify (and have modified), create (and have created) derivative
works based upon, distribute (directly and indirectly), and sublicense the
Chaparral RAID Code Developments and derivatives thereof. Chaparral will have no
obligation to provide Adaptec with support of any kind for the Chaparral RAID
Code Developments.
3.5 Adaptec Compliance Inspection. For a period of three (3) years
commencing on the Effective Date, Adaptec will have the right, upon reasonable
notice and during normal business hours, to appoint an independent third party
selected by Adaptec, reasonably acceptable to Chaparral, to inspect all source
code of the Adaptec RAID Code, as used by Chaparral in connection with the
distribution of Adaptec Bridge Products, solely for the purpose of verifying
that Chaparral is in strict compliance with the limitations specified in Section
3.2 (a "Compliance Inspection"). If, upon completing such a Compliance
Inspection, it is determined that Chaparral in not in strict compliance with
such limitations, then Chaparral will immediately take all actions necessary to
remedy such non-compliance and, upon completion of such actions, Chaparral will
famish Adaptec with a officer's written certification, certifying to Chaparral's
compliance. In such event, Chaparral will also reimburse Adaptec for all
reasonable expenses and costs incurred by Adaptec in connection with conducting
such Compliance Inspection.
3.6 Adaptec RAID Code Royalties.
-6-
<PAGE> 7
(a) Royalty Payment. For each unit of a RAID Code Limited
Adaptec Bridge Product distributed by Chaparral which incorporates or otherwise
uses the Adaptec RAID Code (a "Royalty-Bearing Adaptec Bridge Product"),
Chaparral will pay Adaptec the nonrefundable royalties specified below:
(i) For each unit of a Royalty-Bearing Adaptec Bridge
Product manufactured by Adaptec, the royalty payable by Chaparral will be
calculated as [***] of the Net Sales Price of such product to Chaparral, where
"Net Sales Price" means Adaptec's gross sales price, excluding any itemized
taxes, insurance, shipping and like charges included in such gross sales price.
(ii) For each unit of a Royalty-Bearing Adaptec Bridge
Product manufactured by a party other than Adaptec, the royalty payable by
Chaparral will be [***].
(b) Payment Terms. Within fifteen (15) days after the close of
each calendar quarter, Chaparral will deliver to Adaptec a written report
showing all information reasonably necessary for Adaptec to compute the amount
of royalties payable by Chaparral for the applicable calendar quarter. Chaparral
will pay any royalties due at the time such report is provided to Adaptec. All
payments made under this Agreement after their due date will incur interest at a
rate equal to one and one-half percent (1.5%) per month or the highest rate
permitted by applicable law, whichever is lower. Chaparral will pay to Adaptec
all amounts payable under this Agreement by check or, at Adaptec's option, by
bank-to-bank wire transfer to an account designated by Adaptec.
(c) Taxes. All amounts payable by Chaparral under this Section
are exclusive of all sales, use, and other taxes and duties. Chaparral will be
responsible for all such taxes and duties and will indemnify and hold Adaptec
harmless from and against any obligation liability or claim imposed on Adaptec
by any taxing authority to pay any such taxes and duties.
(d) Chaparral's Records and Audit. Chaparral will maintain
complete and accurate records regarding the distribution of Royalty-Bearing
Adaptec Bridge Products for a period of two (2) years after the distribution of
any such products. Adaptec will have the right, upon reasonable notice and
during normal business hours, to appoint an Adaptec representative, mutually
agreed to by both parties, to audit such records. If, upon performing such
audit, it is determined that Chaparral has underpaid Adaptec by an amount
greater than five percent (5%) of the payments due Adaptec under subsection (a)
in the period being audited, Chaparral will immediately reimburse Adaptec for
all reasonable expenses and costs incurred by Adaptec in connection with such
audit in addition to its obligation to make full payment under subsection (a).
4. CHAPARRAL LICENSED SOFTWARE LICENSE. Promptly following the
Effective Date, Chaparral will deliver to Adaptec the then-current version of
the Chaparral Licensed Software, in source and binary code forms. Chaparral
hereby grants to Adaptec an irrevocable, worldwide, fully-paid and royalty-free,
nonexclusive license, with rights to sublicense, to use, copy, modify (and have
modified), create (and have created) derivative works based upon, distribute
(directly and indirectly), and sublicense the Chaparral Licensed Software and
derivatives thereof.
-7-
<PAGE> 8
5. OWNERSHIP.
5.1 Adaptec Ownership Rights. Adaptec presently owns and will
continue to own all worldwide right, title and interest in and to the Adaptec
Technology and all worldwide Intellectual Property Rights therein, whether the
Adaptec Technology is separate or combined with any hardware, software,
firmware, integrated circuits or devices of any kind.
5.2 Protection of Adaptec Ownership. Chaparral will use its
reasonable efforts to protect Adaptec's Intellectual Property Rights in the
Adaptec Technology and will promptly report to Adaptec any infringement or
misappropriation of such rights of which Chaparral becomes aware. Adaptec
reserves the sole and exclusive right at its discretion to assert claims against
third parties for infringement or misappropriation of its Intellectual Property
Rights in the Adaptec Technology. Chaparral expressly acknowledges and affirms
Adaptec's ownership as set forth in Section 5.1 above. Accordingly, Chaparral
will not at any time, directly or indirectly, dispute the validity of, or
cooperate in any suit or proceeding which challenges, Adaptec's Intellectual
Property Rights in the Adaptec Technology.
5.3 Trademarks. Nothing in this Agreement will be deemed to grant
Chaparral any rights in, or permit Chaparral to use, Adaptec's name, logo or
trademarks.
5.4 Chaparral Ownership Rights. Chaparral presently owns and will
continue to own all worldwide right, title and interest in and to the Chaparral
Licensed Software and all worldwide Intellectual Property Rights therein,
whether the Chaparral Licensed Software is separate or combined with any
hardware, software, firmware, integrated circuits or devices of any kind.
5.5 Protection of Chaparral Ownership. Adaptec will use its
reasonable efforts to protect Chaparral's Intellectual Property Rights in the
Chaparral Licensed Software and will promptly report to Chaparral any
infringement or misappropriation of such rights of which Adaptec becomes aware.
Chaparral reserves the sole and exclusive right at its discretion to assert
claims against third parties for infringement or misappropriation of its
Intellectual Property Rights in the Chaparral Licensed Software. Adaptec
expressly acknowledges and affirms Chaparral's ownership as set forth in Section
5.4 above. Accordingly, Adaptec will not at any time, directly or indirectly,
dispute the validity of, or cooperate in any suit or proceeding which
challenges, Chaparral's Intellectual Property Rights in the Chaparral Licensed
Software.
6. WARRANTIES.
6.1 General Warranties. Each party warrants that: (i) it has the
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder; (ii) the execution, delivery and performance
of this Agreement has been duly and validly authorized by such party; and (iii)
upon execution and delivery, this Agreement will constitute a valid and binding
agreement of such party, enforceable against it in accordance with these terms.
-8-
<PAGE> 9
6.2 Adaptec Technology Warranties. Adaptec warrants that, except
as expressly set forth in Adaptec's Disclosure Letter (as defined in the Asset
Transfer Agreement), to Adaptec's knowledge, the Adaptec Technology has not
infringed or violated and currently does not infringe or violate upon, or
misappropriate any copyright, mask work or trade secret, or any patent or other
intellectual property rights (other than trademarks) of any third party, and no
third party has asserted or threatened to assert against Adaptec any claim of
infringement or misappropriation of any such rights.
6.3 Chaparral Licensed Software Warranties. Chaparral warrants
that it has no knowledge of any facts which might lead to a claim that the
Chaparral Licensed Software infringes the Intellectual Property Rights of any
third party. The Chaparral Licensed Software is provided "AS IS," without
warranty of any kind.
6.4 Warranty Disclaimers. EXCEPT AS EXPRESSLY SET FORTH IN
SECTIONS 6.2 AND 6.3, EACH PARTY HEREBY DISCLAIMS ALL WARRANTIES OF ANY KIND,
EXPRESS AND IMPLIED, WITH RESPECT TO THE ADAPTEC TECHNOLOGY AND CHAPARRAL
LICENSED SOFTWARE, AS APPLICABLE, INCLUDING WITHOUT LIMITATION THE IMPLIED
WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY AND
NONINFRINGEMENT.
7. INDEMNITIES. Each party (an "Indemnifying Party") agrees to indemnify,
defend and hold the other party (the "Indemnified Party") harmless from and
against all damages, liabilities, costs, charges and expenses, including
reasonable attorneys' fees, incurred by or paid in settlement by the Indemnified
Party, resulting from any third party claim based on a breach by the
Indemnifying Party of any of its warranties set forth in Section 6; provided
that: (i) the Indemnified Party furnishes the Indemnifying Party with prompt
written notice of any such claim; (ii) the Indemnified Party provides the
Indemnifying Party with sole control of the defense and settlement of any such
claim; and (iii) the Indemnified Party provides the Indemnifying Party, at the
Indemnifying Party's expense, with all information and assistance reasonably
necessary for the defense and settlement of any such claim. The Indemnifying
Party will not settle any such claim without first obtaining the Indemnified
Party's prior written consent, which consent will not be unreasonably withheld,
if the terms of such settlement would adversely affect the Indemnified Party's
rights under this Agreement.
8. CONFIDENTIALITY.
8.1 Definition of Confidential Information. "Confidential
Information" means: (i) the Adaptec Technology, including without limitation any
software, firmware, designs, inventions, processes, know-how or other
information related thereto; (ii) the Chaparral Licensed Software; (iii) any
other non-public technical or business information disclosed by a party to the
other party under this Agreement; and (iv) the terms and conditions of this
Agreement.
8.2 Exclusions. Confidential Information does not include any
information that: (i) is in or becomes part of the public domain through no
fault or breach of this Agreement by the receiving party; (ii) was rightfully in
the possession of the receiving party without an obligation of
-9-
<PAGE> 10
confidentiality prior to its disclosure hereunder; (iii) is independently
developed by the receiving party without use of or reference to any of the
disclosing party's Confidential Information; or (iv) the receiving party
rightfully obtains from a third party without restriction on use or disclosure.
8.3 Obligations. The receiving party will not use any of the
disclosing party's Confidential Information except as expressly permitted under
this Agreement. The receiving party will maintain all of the disclosing party's
Confidential Information in strict confidence and not disclose any such
Confidential Information to any third parties except to employees and
consultants with a bona fide need to know for the receiving party's performance
of this Agreement, provided that each such employee and consultant is subject to
written nondisclosure and limited use restrictions at least as protective as
those set forth herein. The receiving party will use its best efforts to prevent
inadvertent disclosure, publication or dissemination of any of the disclosing
party's Confidential Information and will promptly notify the disclosing party
in writing of any actual or suspected unauthorized use or disclosure of any such
Confidential Information. Nothing in this Section will prevent Chaparral from
disclosing the terms of this Agreement or the transactions contemplated hereby
to any potential investor in Chaparral, provided each such potential investor
executes a customary non-disclosure agreement.
9. LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE
OTHER PARTY OR TO ANY THIRD PARTY FOR ANY INDIRECT, INCIDENTAL, EXEMPLARY,
SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF USE,
LOSS OF PROFITS, OR LOSS OF DATA, ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR THE USE OR PERFORMANCE OF THE ADAPTEC TECHNOLOGY OR THE CHAPARRAL
LICENSED SOFTWARE, WHETHER SUCH LIABILITY ARISES FROM ANY CLAIM BASED UPON
CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE), PRODUCT LIABILITY OR OTHERWISE,
EVEN IF A PARTY HAS BEEN ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES.
IN NO EVENT WILL ADAPTEC'S TOTAL LIABILITY TO CHAPARRAL OR ANY THIRD PARTY, FROM
ALL CAUSES OF ACTION AND THEORIES OF LIABILITY, EXCEED THE ACTUAL AMOUNTS PAID
BY CHAPARRAL TO ADAPTEC UNDER THIS AGREEMENT.
10. TERM. This Agreement will commence as of the Effective Date and will
remain force and effect thereafter.
11. GENERAL PROVISIONS.
11.1 Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of California, excluding its
conflict of laws rules and principles.
11.2 Assignment. Chaparral may not assign this Agreement, in whole
or in part, and any attempt to assign this Agreement without such consent will
be null and void. The foregoing will not be deemed to prohibit Chaparral from
assigning this Agreement in the event of a merger or acquisition of
substantially all of Chaparral's related assets, [***]
-10-
<PAGE> 11
Subject to the foregoing, this Agreement will bind and inure to the benefit of
each party's permitted successors and assigns.
11.3 Waiver. The failure by either party to enforce any provision
of this Agreement will not constitute a waiver of future enforcement of that or
any other provision. Neither party will be deemed to have waived any rights or
remedies hereunder unless such waiver is in writing and signed by a duly
authorized representative of the party against which such waiver is asserted.
11.4 Force Majeure. Neither party will be responsible for any
failure or delay in its performance due to causes beyond its reasonable control,
including, but not limited to, acts of God, war, riot, embargoes, acts of civil
or military authorities, fire, floods, earthquakes, accidents, strikes, or fuel
crises, provided that such party gives prompt written notice thereof to the
other party and uses its diligent efforts to resume performance.
11.5 Severability. If a court of competent jurisdiction finds any
provision of this Agreement invalid or unenforceable, that provision of the
Agreement will be amended to achieve as nearly as possible the intent of the
parties, and the remainder of this Agreement will remain in full force and
effect.
11.6 Entire Agreement. This Agreement, including all Exhibits
hereto, constitute the entire agreement between the parties relating to its
subject matter and supersedes all prior or contemporaneous representations,
discussions, negotiations, and agreements, whether written or oral, relating to
its subject matter.
11.7 Amendment; Modification. This Agreement may be amended or
modified only by a writing that is signed by duly authorized representatives of
both parties.
11.8 Notices. All notices, approvals, consents and other
communications required or permitted under this Agreement will be in writing and
delivered by confirmed facsimile transmission, by courier or overnight delivery
service with written verification of receipt, or by registered or certified
mail, return receipt requested, postage prepaid, and in each instance will be
deemed given upon receipt. All such notices, approvals, consents and other
communications will be sent to the addresses set forth above or to such other
address as may be specified by either party to the other in accordance with this
Section.
11.9 Relationship of Parties. The parties to this Agreement are
independent contractors. There is no relationship of agency, partnership, joint
venture, employment or franchise between the parties. Neither party nor its
employees has the authority to bind or commit the other party in any way or to
incur any obligation on its behalf.
11.10 Compliance with Law. Each party will comply with all laws and
regulations applicable to the performance of its obligations under this
Agreement. Each party acknowledges that the other party's technology licensed
hereunder, including any technical data related thereto, is subject to export
controls imposed by the U.S. Export Administration Act of 1979, as amended (the
"Act"), and the regulations promulgated thereunder. Each party will not export
or re-export (directly
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<PAGE> 12
or indirectly) any of the other party's technology licensed hereunder, or other
technical data related thereto, without complying with the Act and the
regulations thereunder.
11.11 Counterparts. This Agreement may be executed in counterparts,
each of which will be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized officers or representatives and delivered as of the Effective Date.
AGREED:
ADAPTEC, INC.
By: /s/ Larry Boucher
---------------------------------------------
Printed Name: Lawrence Boucher
-----------------------------------
Title: Chairman of the Board
------------------------------------------
CHAPARRAL TECHNOLOGIES, INC.
By: /s/ Michael Gluck
---------------------------------------------
Printed Name: Michael J. Gluck
-----------------------------------
Title: President and Chief Operating Officer
------------------------------------------
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<PAGE> 13
EXHIBIT A
Adaptec Bridge Products
1. AEC-5312 (Skyway) SCSI-SCSI controller board
2. AEC-7313 (Golden Gate) FC-SCSI controller board
3. AEC-5412 (Rainrock) SCSI-SCSI controller canister
4. AEC-7413 (Cororock) FC-SCSI controller canister
5. AEC-5314 (Queens) SCSI-SCSI controller board
6. AEC-7315 (Bay) FC-SCSI controller board
7. AEC-7325 (Bay) FC-SCSI controller board
<PAGE> 14
EXHIBIT B
Adaptec Exclusive Bridge Products Software
<TABLE>
<CAPTION>
Software Directory Distribution Rights
-------- --------- -------------------
<S> <C> <C>
[***] [***] Source, Binary
[***] [***] Source, Binary
[***] [***] Source, Binary
[***] [***] Source, Binary
[***] [***] Source, Binary
[***] [***] Source, Binary
[***]
</TABLE>
<PAGE> 15
EXHIBIT C
Adaptec Co-Exclusive Bridge Products Software
<TABLE>
<CAPTION>
Software Directory Distribution Rights
- -------- --------- -------------------
<S> <C> <C>
[***] [***] Source, Binary
[***] [***] Source, Binary
[***] [***] Source, Binary
[***] [***] Source, Binary
[***] [***] Source, Binary
[***] [***] Source, Binary
[***] [***] Source, Binary
[***] [***] Source, Binary
[***] [***] Source, Binary
</TABLE>
<PAGE> 16
EXHIBIT D
Adaptec Non-Exclusive Bridge Products Software
<TABLE>
<CAPTION>
Software Directory Distribution Rights*
- -------- --------- --------------------
<S> <C> <C>
[***] [***] Lim. Source, Binary
[***] [***] Lim. Source, Binary
[***] [***] Lim. Source, Binary
[***] [***] Lim. Source, Binary
[***] [***] Lim. Source, Binary
[***] [***] Lim. Source, Binary
[***] [***] Lim. Source, Binary
[***] [***] Lim. Source, Binary
[***] [***] Lim. Source, Binary
</TABLE>
<PAGE> 17
EXHIBIT E
Adapted Bridge Products Documentation
1. Specifications
AEC SCSI RAID Controller SCSI Implementation Manual
Brooklyn Backplane Breakout Board Hardware Specification
Brooklyn Bring-Up Diagnostics Test H/W Specification
Brooklyn Hardware Programming Interface Specification
Brooklyn Hardware Specification Brooklyn HardwareSpecification
Brooklyn LCD Software Design Specification
Brooklyn Product Test Report
Brooklyn SW Design Specification
Brookwood Programming Interface Specification
Brookwood Product Test Report
Brookwood Schock/Vib Test Report
CAPI Serial Protocol
CAPI Flash File Format
CAPI over SCSI
Fault Localization Diagnostics S/W Specification
12C Driver
12C Driver System for Adaptec RAID controllers
Link Manager Exchange Design Specification
Queens Failover Hardware Specification
Queens Hardware Programming Interface
Queens Hardware Technical Notes
SAF-TE with Bridges
Skyway Software Design
Skyway Hardware Programming Interface Specification
Skyway Test Plan
Skyway PTL Test Report
2. User's and Programmer's Guides
AEC-4412B/7412B User's Guide
AEC-4412B/7412B Evaluation Kit Guide
AEC-4412B/7412B Design-in Handbook
Brooklyn/Coronado Hard Drive Compatibility List
Brooklyn/Coronado SIMM Compatibility List
Brookwood Breakout Board User's Guide Rainrock/Cororock Evaluation Kit
Guide
External RAID Configuration Application Programming Interface
Normandy OEM Manual
Queens OEM Manual
<PAGE> 18
AEC-5312/7313 User's Guide
AEC-5312/7313/5514/7515/7525 Design-In Handbook
3. Marketing and Engineering Requirements Documents
Brooklyn Marketing Requirement Documents
Brooklyn Product Concept Document
Brooklyn Hardware Engineering Requirements Document
Brooklyn Hardware Specification
Brooklyn Backplane Breakout Board Hardware Specification
Brooklyn ECAD Layout and Routing Design Notes
Brooklyn Backplane Breakout Board ECAD Layout and Routing Design Notes
Brooklyn Test Daughterboard ECAD Layout and Routing Design Notes
Brooklyn Host SCSI Daughterboard ECAD Layout and Routing Design Notes
Brooklyn/Coronado Product Functional Test Plans
Brooklyn/Coronado Product Functional Regression Test Plans
Brooklyn Software Design Specification
Brooklyn Hardware Development Plan
Brooklyn Software Development Plan
Brooklyn Bringup Plan
Brooklyn Bringup and Diagnostics Test Hardware Specification
Brooklyn Hardware Programming Interface Specification
Brooklyn Fault Injection Test Plan
Bridge I Hardware Active-Active Failover Engineering Requirements
Document
Brooklyn/Coronado/Broadway Thermal Testing Reports
Brooklyn/Coronado/Broadway IMPACT BOMs
Brooklyn/Coronado/Broadway Customer Presentations
Brooklyn/Coronado/Broadway Project Schedules
Brooklyn/Coronado/Broadway Test Plans/Cases/Reports from CTL, PTL, FTL
Brookwood/Corowood Canister Product Concept Document
Brookwood/Corowood Engineering Requirements Document
Brookwood/Corowood Marketing Requirements Document
Brookwood/Corowood Functional Test Plans
Brookwood/Corowood Regression Test Plans
Brookwood/Corowood Functional Test Report
Brookwood Main Board ECAD Layout and Routing Design Notes
Brookwood Backplane Breakout Board ECAD Layout and Routing Design Notes
Brookwood Fibre Channel Daughterboard ECAD Layout and Routing Design
Notes
Brookwood Backend LVDS Connector Proposal
Brookwood/Corowood Battery Pack Specification
Fault Localization Diagnostics Proof of Concept Proposal
Brookwood Fault Localization Diagnostics Software Specification
Brookwood/Corowood Test Plans/Cases/Reports from CTL, PTL, FTL
Brookwood/Corowood Thermal Test Reports
Brookwood/Corowood Project Schedules
Brookwood/Corowood IMPACT BOMS
<PAGE> 19
Normandy Engineering Requirements Document
Queens and Bay Marketing Requirements Document
Queens Engineering Requirements Document
Queens Product Concept Document
Queens/Bay Functional Test Plans
Queens/Bay Regression Test Plans
Queens/Bay Functional Test Report
Queens/Bay Main Board ECAD Layout and Routing Design Notes
Queens/Bay Thermal Test Reports
Queens/Bay Project Schedules
Queens/Bay IMPACT BOMS
Rainrock/Cororock Marketing Requirements Document
Rainrock/Cororock Functional Test Plans
Rainrock/Cororock Regression Test. Plans
Rainrock/Cororock Functional Test Report
Rainrock/Cororock Main Board ECAD Layout and Routing Design Notes
Rainrock/Cororock Thermal Test Reports
Rainrock/Cororock Project Schedules
Rainrock/Cororock IMPACT BOMS
Skyway/Golden Gate Product Concept Document
Skyway/Golden Gate Engineering Requirements Document
Skyway/Golden Gate Marketing Requirements Document
Skyway/Golden Gate Functional Test Plans
Skyway/Golden Gate Regression Test Plans
Skyway/Golden Gate Functional Test Report
Skyway/Golden Gate Main Board ECAD Layout and Routing Design Notes
Skyway/Golden Gate Test Plans/Cases/Reports from CTL, PTL, FTL
Skyway/Golden Gate Thermal Test Reports
Skyway/Golden Gate Project Schedules
Skyway/Golden Gate IMPACT BOMs
4. White Papers
Failure Tolerance in Adaptec's External RAID Controllers
[***] VLSI and PCI-PCI Bridges White Paper
Skyway Performance Whitepaper
<PAGE> 20
EXHIBIT F
Adaptec Hardware-Related Technology
1. Hardware and Product Specifications
2. Bill of Materials
3. Approved Vendor Lists
4. Programmable Logic Design Files
5. ECAD Database (Gerber files, PCB Design files, Library shapes,
ECAD automation tools)
6. Test data documents
7. Engineering Notebooks
8. Plastics Tooling and design database
9. Sheet Metal Tooling and design database
10. Source Control Drawings, including cables
11. Test Boards
a) Brooklyn Breakout Board
b) Brookwood Breakout Board
c) Skyway Breakout Board
d) Port 809 DB
e) 5x86 CPU Test DB
f) Pentium CPU Test DB
g) SCA Adapter Board
h) LVDS/Ultra SCA Test Board
12. All Design-in Documentation for the [**]
13. Testing - Related Software (see attached)
<PAGE> 21
Testing-Related Software
(Product Designations Provided for Software Identification Purposes Only)
<TABLE>
<CAPTION>
PRODUCT PN# FUNCTIONAL TESTER ICT TESTER
<S> <C> <C> <C>
AEC-5312 1740400 TE499289-00 1700611-00 AEC-5312 CKT File
1700612-00 AEC-5312 NAR File
1700613-00 AEC-5312 Fixture
1700615-00 AEC-5312 Program Disk
AEC-7312A 1709500 TE499141-00
- -AEC-7302 994906-01 Same 994911-00 AEC-0302A CKT File
994912-00 AEC-0302A NAR File
994913-00 AEC-0302A Fixture
994915-00 AEC-0302A Program Disk
- -AEC-7010 1656706-00 Same 1656711-00 AEC-7010 CKT File
1656712-00 AEC-7010 NAR File
1656713-00 AEC-7010 Fixture
1656715-00 AEC-7010 Program Disk
AEC-7212B 17171400-00 TE498713-00
TE498714-00
- -AEC-7010 1656706-00 Same 1656711-00 AEC-7010 CKT File
1656712-00 AEC-7010 NAR File
1656713-00 AEC-7010 Fixture
1656715-00 AEC-7010 Program Disk
- -AEC-7402B 1649706-01 Same 1649711-00 AEC4402B CKT File
1649712-00 AEC4402B NAR File
1649713-00 AEC4402B Fixture
1649715-00 AEC4402B Program Disk
- -AEC-44/74XX 1653406-00 Same 1653411-00 AEC-44/74AA CKT File
1653412-00 AEC-44/74AA NAR File
1653413-00 AEC-44/74AA Fixture
1653415-00 AEC-44/74AA Program Disk
AEC-7313 1767000 TE499579-00
- -AEC-7303 1700606-01 Same 1700611-01 AEC-7303 CRT File
1700612-01 AEC-7303 NAR File
1700613-01 AEC-7303 Fixture
1700615-01 AEC-7303 Program Disk
</TABLE>
<PAGE> 22
<TABLE>
<S> <C> <C> <C>
- -AEC-7010M 1656706-01 Same 1656711-00 AEC-7010 CKT File
1656712-00 AEC-7010 NAR File
1656713-00 AEC-7010 Fixture
1656715-00 AEC-7010 Program Disk
AEC-4412BS8 1710100-00 TE498129-00
TE498130-00
- -AEC-4402B 1649706-00 Same 1649711-00 AEC4402B CKT File
1649712-00 AEC4402B NAR File
1649713-00 AEC4402B Fixture
1649715-00 AEC4402B Program Disk
- -AEC-4010S 1625406-00 Same 1625411-00 AEC-4010S/D CKT File
1625411-00 AEC-4010S/D NAR File
1625411-00 AEC-4010S/D Fixture
1625411-00 AEC-4010S/D Program Disk
- -AEC-44/74XX 1653406-00 Same 1653411-00 AEC-44/74AA CKT File
1653412-00 AEC-44/74AA NAR File
1653413-00 AEC-44/74AA Fixture
1653415-00 AEC-44/74AA Program Disk
AEC-4412BD8 1710200-00 TE498129-00
TE498130-00
- -AEC-4402B 1649706-00 Same 1649711-00 AEC4402B CKT File
1649712-00 AEC4402B NAR File
1649713-00 AEC4402B Fixture
1649715-00 AEC4402B Program Disk
- -AEC-4010D 1625406-01 Same 1625411-00 AEC-4010S/D CKT File
1625412-00 AEC-4010S/D NAR File
1625413-00 AEC-4010S/D Fixture
1625415-00 AEC-4010S/D Program Disk
- -AEC-44/74XX 1653406-00 Same 1653411-00 AEC-44/74AA CKT File
1653412-00 AEC-44/74AA NAR File
1653413-00 AEC-44/74AA Fixture
1653415-00 AEC-44/74AA Program Disk
AEC-4412BS 1678000-00 TE498129-00
TE498130-00
</TABLE>
<PAGE> 23
<TABLE>
<S> <C> <C> <C>
- -AEC-4402B 1649706-00 Same 1649711-00 AEC4402B CKT File
1649712-00 AEC4402B NAR File
1649713-00 AEC4402B Fixture
1649715-00 AEC4402B Program Disk
- -AEC-4010S 1625406-00 Same 1625411-00 AEC-4010S/D CKT File
1625411-00 AEC-4010S/D NAR File
1625411-00 AEC-4010S/D Fixture
1625411-00 AEC-4010S/D Program Disk
- -AEC-44/74XX 1653406-00 Same 1653411-00 AEC-44/74AA CKT File
1653412-00 AEC-44/74AA NAR File
1653413-00 AEC-44/74AA Fixture
1653415-00 AEC-44/74AA Program Disk
</TABLE>
<PAGE> 24
EXHIBIT G
Adaptec RAID Code
<TABLE>
<S> <C>
Consisting of the following modules:
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
- --------------------------------------------------------- --------------------------------------------------------
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
- --------------------------------------------------------- --------------------------------------------------------
- --------------------------------------------------------- --------------------------------------------------------
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
[***] [***]
- --------------------------------------------------------- --------------------------------------------------------
</TABLE>
<PAGE> 25
EXHIBIT H
Chaparral Licensed Software
[***]
<PAGE> 1
*** Confidential Treatment has been requested for portions of this document.
EXHIBIT 10.23
ADAPTEC, INC.
INTEGRATED CIRCUIT AGREEMENT
This Integrated Circuit Agreement and the attached Schedules ("Agreement") is
between the following parties:
SELLER: BUYER:
Adaptec, Inc. Chaparral Network Storage, Inc.
691 South Milpitas Blvd. 1951 South Fordham Street
Milpitas, CA 95035 Longmont, CO 80503
THE PARTIES AGREE AS FOLLOWS:
1. Certification. Buyer hereby agrees and certifies that all Products
purchased from Seller pursuant to this Agreement shall be integrated into
Buyer's products which are assembled or manufactured in the regular course
of Buyer's business. Additionally, Buyer acknowledges the Products and the
pricing of Products by Seller are based on Seller's reliance on Buyer's
representations that the Products will be integrated. Buyer expressly
agrees not to resell or transfer any of the Products as standalone units.
Buyer further agrees to comply with the limitations imposed by the
Technology Cross-License Agreement, dated November 25, 1998, between Buyer
and Seller, with respect to the Products.
2. Products and Pricing. The Products which Buyer is authorized to purchase
form Seller are listed on Schedule 1. The Prices for Products shall be
determined upon commercial release of the Products, and shall be Seller's
best OEM prices for similar quantities purchased upon similar terms.
Additionally, Buyer's products which will incorporate or integrate Seller's
Products shall be listed on Schedule 1.
3. Forecasts, Purchase Orders and Pricing. Buyer may purchase Product by
providing Seller on a monthly basis with a twelve (12) month rolling
Product forecast, which shall be binding. Lead times shall be negotiable
for quantities of Products not forecasted by Buyer. Initial prices for the
Products shall be the same prices Seller offers to its original equipment
manufacturer customers for comparable quantities, based on the quantity set
forth in Buyer's Product forecast for the first one (1) year period. After
the first ninety (90) days from the effective date of this Agreement,
Seller reserves the right to change the Prices at any time upon written
notice to Buyer; provided that Prices for the Products will continue to be
the same prices Seller offers to its original equipment manufacturer
customers for comparable quantities.
4. Subcontractors. Seller agrees that Buyer's subcontractors listed in
Schedule 1 ("Subcontractors") shall be entitled to receive Products at the
address(es) listed in Schedule 1 for the purpose of manufacturing on behalf
of Buyer. Buyer is solely responsible and liable to Seller for
Subcontractors' actions, errors or omissions, and for Subcontractors'
noncompliance with Section 1 (Certification) and the other terms of this
Agreement.
5. Terms of Sale. The Terms of Sale which govern the purchase of Products
pursuant to this Agreement are attached hereto as Schedule 2, provided,
however, to the extent any terms of this Agreement are inconsistent with
the Terms of Sale attached as Schedule 2, this Agreement shall govern.
<PAGE> 2
6. Term. The initial term of this Agreement shall be for a period of three (3)
years, unless earlier terminated by either party. This Agreement may be
renewed on an annual basis upon the mutual written agreement of the
parties.
7. Termination. Either party may terminate this Agreement for cause if the
other party fails to perform any of its material obligations under the
terms and conditions of this Agreement, including Schedule 2 hereto, so as
to be in default hereunder and fails to cure such default within thirty
(30) days after receiving written notice of such default. Either party may
terminate this Agreement at anytime, without cause, by providing the other
party with nine (9) months written notice of termination. In the event
Seller terminates other than for cause, Seller must continue to supply
Products under this Agreement for a nine-month period beyond the notice of
termination based on a non-cancelable purchase order from Buyer (inclusive
of the notice period for termination without cause). Unless Seller fails to
comply with its obligations under Section 8 (Backup Rights) below, Seller
shall not be liable to Buyer for its failure to provide Products to Buyer
or its failure to provide Buyer nine (9) months notice of termination, to
the extent that such failure is due to Seller's inability to procure such
Products from Seller's third party manufacturer or source of supply.
8. Backup Rights. In order to insure that Buyer has continuous and
uninterrupted supply of Products to meet customer demands, Buyer shall have
certain backup rights as set forth in this Section 8.
Within thirty (30) days of the execution of this Agreement, Seller will
provide written manufacturing authorization to its current manufacturer of
the Products ("Manufacturer")in a form to be reasonably agreed upon by the
parties within 10 days of the date hereof ("Conditional Manufacturing
Authorization"), which shall provide certain circumstances under which
Manufacturer is authorized to use the tooling, masks, tapes and design
works for the Products and all other items provided to Manufacturer by
Seller and required to manufacture the Products ("Manufacturing Materials")
to manufacture Products for Buyer. If Buyer sends written notification to
Manufacturer that it is exercising its backup rights subject to the terms
and conditions set forth in this Section 8, Buyer shall contemporaneously
so notify Seller. Seller shall have ten (10) days from the date such
written notice is sent (via overnight courier to the attention of Seller's
Treasurer) to Seller to cure the events triggering backup rights to Buyer's
reasonable satisfaction. If Seller fails to cure the events triggering
backup rights to Buyer's reasonable satisfaction within such ten (10) day
period, Manufacturer may use the Manufacturing Materials to manufacture and
deliver Products directly to Buyer until such time as the breach is cured.
Notwithstanding the foregoing, Buyer will remit payment for the Products
directly to Seller.
The events triggering the backup rights set forth above are the following:
(i) Seller breaches this Agreement by failing on at least three (3)
different occasions to deliver Products to Buyer within ten (10) days of
the applicable delivery date, and such failure is the result of action, or
inaction, by Seller (and not due to delays of Manufacturer or its
suppliers),
(ii) Seller decides to discontinue manufacturing or procuring the Product
for which backup rights are sought, and refuses to accept Buyer's purchase
orders therefor,
(iii) Seller breaches its agreement with Manufacturer and, as a
consequence, Manufacturer suspends or delays deliveries to Seller;
(iv) Seller or any creditor of Seller files a bankruptcy petition with
respect to Seller's business, and such petition is not dismissed within 30
days;
<PAGE> 3
(v) Seller is acquired, merged into, or comes under the control of another
entity and such change in ownership or control prevents Seller from
performing its obligations under this Agreement; or
(vi) due to the occurrence of any contingency beyond the reasonable control
of Seller ("Event of Force Majeure"), Seller is unable to perform its
obligations under this Agreement; provided, however, that such Event of
Force Majeure does not impact either Manufacturer or Buyer.
If (a) Seller's agreement with Manufacturer is terminated or (b) due to the
occurrence of any contingency beyond the reasonable control of
Manufacturer, Manufacturer is unable to manufacture Products for Seller,
Seller shall notify Buyer within 10 business days of the occurrence of
either (a) or (b) above, that Seller does not wish to qualify a new
manufacturer, or that Seller intends to promptly seek to qualify a new
manufacturer, which shall be deemed a Manufacturer hereunder. If Seller
notifies Buyer that Seller does not wish to qualify a new manufacturer,
Buyer is authorized to qualify its own manufacturer. In such event, and
subject to reimbursement of its out-of-pocket costs, Seller shall promptly
provide Buyer's designated manufacturer, reasonably acceptable to Seller,
with the Manufacturing Materials and a license at no charge to use such
Manufacturing Materials solely for the purpose of manufacturing and selling
Products to Buyer. On the other hand, if Seller decides to qualify a new
manufacturer, then upon qualification, Seller shall promptly send written
notification to Buyer of the name and address of the new Manufacturer and
shall provide written Conditional Manufacturing Authorization to the new
manufacturer. As a condition of such re-qualification, Buyer may be
required to pay its pro-rata portion of any re-qualification costs. (Such
pro-rata portion shall be based upon the quantities of Products purchased
by Buyer during the immediately prior 12-month period as a proportion of
all Products sold or utilized by Seller.) The provisions of this Section 8
shall continue to apply .If Seller fails to qualify a new manufacturer
within sixty (60) days, or such other longer period as may be reasonably
necessary, then Buyer is authorized to qualify its own manufacturer. In
such event, and subject to reimbursement of its out-of-pocket costs, Seller
shall promptly provide Buyer's designated manufacturer, reasonably
acceptable to Seller, with the Manufacturing Materials and a license to use
such Manufacturing Materials solely for the purpose of manufacturing and
selling Products to Buyer.
9. Survival. Section 1 of this agreement shall survive termination of this
Agreement. Any other terms of this Agreement which by their nature extend
beyond its termination (including, but not limited to, Buyer's obligation
to make payment for Products ordered) shall remain in effect until
fulfilled.
10. Confidentiality. Any confidential information given or received by either
party pursuant to this Agreement shall be covered by the separate written
nondisclosure agreement which is attached hereto as Schedule 3.
11. Audit. Each party agrees to keep accurate books and records, at its
respective address listed above, to show compliance with this Agreement.
Seller may conduct audits of books and records of Buyer for the purpose of
verifying compliance with Section 1 of this Agreement during regular
business hours and at its own expense and upon reasonable notice Buyer may
conduct audits of books and records of Seller for the purpose of verifying
compliance with this Section 3 of this Agreement during regular business
hours and at its own expense and upon reasonable notice. All such audits
shall be conducted by an Independent Certified Public Accountant reasonably
acceptable to the other party and shall be subject to the appropriate
confidentiality restriction.
<PAGE> 4
12. General. In the event of any litigation between Buyer and Seller relating
to this Agreement, the prevailing party will be entitled to recover
reasonable attorneys' fees and all costs. This Agreement shall be governed
by California law, excluding its conflict of laws rules. The parties
stipulate that all litigation under this Agreement will be brought in
either the state courts located in Santa Clara County, California or the
United States District Court for the Northern District of California. All
notices shall be sent to each party in writing at the addresses listed
above. Notice is effective immediately upon receipt. This Agreement sets
forth the entire understanding and agreement of the parties with respect to
the subject matter hereof, and supersedes all prior representations and
understandings. The failure to enforce any right will not be deemed a
waiver of such or any other right, including the right to enforce a
subsequent breach of the same obligation. This Agreement may be assigned,
amended or modified only by a writing signed by the parties, and shall be
binding upon any permitted successors and assignees. This Agreement will
not be construed as a teaming agreement, joint venture or other agency
relationship. No action against Seller for breach hereof shall be commenced
more than one (1) year after the accrual of the cause of action.
14. Warrants. As a material consideration for this Agreement, the Buyer shall
grant to Seller a warrant to purchase three hundred thousand (300,000)
shares of common stock of Buyer at an exercise price of twenty dollars
($20) per share, in substantially the form attached hereto as Schedule 4.
The warrant shall not be exercisable until nine (9) months from the date of
grant and shall terminate to the extent unexercised fifteen (15) months
from the date of grant.
ADAPTEC, INC. CHAPARRAL NETWORK STORAGE, INC.
By: /s/ J. PETER CAMPAGNA By: /s/ MICHAEL J. GLUCK
------------------------------- --------------------------------------
Printed: J. Peter Campagna Printed: Michael J. Gluck
-------------------------- ---------------------------------
Title: Vice President & Treasurer Title: President & Chief Operating Officer
---------------------------- -----------------------------------
Effective Date: 3/3/00 Date: 3/3/00
------------------- ------------------------------------
<PAGE> 5
*** Confidential Treatment has been requested for portions of this document.
SCHEDULE 1
PRODUCTS, PRICE LISTS AND BUYER'S PRODUCTS
<TABLE>
<CAPTION>
PRODUCTS UNIT PRICE
- -------- ----------
<S> <C>
[***] [***]
[***] [***]
[***] [***]
[***] [***]
[***] [***]
</TABLE>
BUYER'S PRODUCTS INTO WHICH PRODUCTS ARE TO BE INTEGRATED
External RAID Controller boards
Router Controller boards
SAN Controller boards
Data Mover Controller boards
SUBCONTRACTORS*
Hi-Tech Manufacturing (Thorton, Colorado)
Smart Flex (San Jose, California)
* Chaparral reserves the right to change or add subcontractors at its sole
discretion.
<PAGE> 6
SCHEDULE 2
INTEGRATED CIRCUIT PRODUCT
STANDARD TERMS OF SALE
The following Standard Terms of Sale ("Terms of Sale") apply to the Products
which Buyer is authorized to purchased pursuant to the Integrated Circuit
Agreement ("Agreement") entered into between Seller and Buyer on the Effective
Date set forth in the Agreement.
1. TERMS OF SALE. THE TERMS OF SALE CONTAINED HEREIN APPLY TO ALL QUOTATIONS
MADE BY SELLER AND PURCHASE ORDERS PLACED BY BUYER WITH RESPECT TO PRODUCTS,
WHETHER IN DOCUMENTARY FORM OR TRANSMITTED BY ELECTRONIC MEANS. SELLER'S
ACCEPTANCE OF ANY PURCHASE ORDER IS CONDITIONAL ON BUYER'S ASSENT TO THE TERMS
IN LIEU OF THOSE IN BUYER'S PURCHASE ORDER. SELLER'S FAILURE TO OBJECT TO
PROVISIONS CONTAINED IN ANY COMMUNICATION FROM BUYER SHALL NOT BE DEEMED A
WAIVER OF THE PROVISIONS OF THIS AGREEMENT. ANY CHANGES IN THE TERMS CONTAINED
HEREIN MUST SPECIFICALLY BE AGREED TO IN WRITING BY AN OFFICER OR GENERAL
MANAGER OF SELLER BEFORE BECOMING BINDING ON SELLER.
All purchase orders or agreements must be approved and accepted by Seller at its
home office. These terms shall be applicable whether or not they are attached or
enclosed with the Products to be sold hereunder. No shipments will be made until
a signed purchase order is received by Seller. These terms do not apply to the
licensing of software products offered by Seller. The terms which govern the
software products licensed to Buyer are contained in a separate agreement
2. PRODUCTS. The integrated circuit Products which Buyer is authorized to
purchase pursuant to these Terms of Sale are listed in the Agreement.
3. TAXES. Unless otherwise specifically provided herein, the amount of any
present or future sales, revenue, excise, or other tax applicable to the
Products covered by a purchase order or the manufacture, or sale thereof, shall
be added to the purchase price and shall be paid by Buyer, or in lieu thereof
Buyer shall provide Seller with a tax exemption certificate thereafter. In the
event Seller is required to pay any such tax, fee or charge, at the time of
sale, or thereafter, Buyer shall reimburse Seller therefor.
4. SHIPMENT. Unless otherwise specified on the Sales Acknowledgment received
from Seller, shipment of goods within the U.S. shall be delivered FOB Adaptec's
dock in San Francisco, and title and liability for loss or damage thereto shall
pass to Buyer upon Seller's tender of delivery of the goods to a carrier for
shipment to Buyer. Seller may deliver the goods in installments. Unless
otherwise agreed, all items shall be packed in accordance with Seller's normal
practices.
5. PAYMENT. Unless otherwise agreed, all invoices are due and payable thirty
(30) days from the date of invoice. No discounts are authorized. Shipments,
deliveries, and performance of work shall at all times be subject to the
approval of Seller's credit department, and Seller may at any time decline to
make any shipments or deliveries or perform any work except upon receipt of
payment, or upon terms and conditions or security satisfactory to Seller's
credit department.
<PAGE> 7
If in the judgment of Seller, the financial condition of Buyer at any
time does not justify continuation of production, or shipment on the terms of
payment originally specified, Seller may require full or partial payment in
advance. In the event of the bankruptcy or insolvency of Buyer, or in the event
any proceeding is brought by or against Buyer under the bankruptcy or insolvency
laws, Seller shall be entitled to cancel any order then outstanding, unless full
payment is made, in advance, with respect to all the outstanding orders.
Each shipment shall be considered a separate and independent
transaction, and payment therefor shall be made accordingly. If shipments are
delayed by Buyer, payments shall become due on the date when Seller is prepared
to make shipment. If the work covered by the purchase order is delayed by Buyer,
Seller may request progress payments based on the purchase price and the
percentage of completion as a condition of such delay. Products held for Buyer
shall be at the risk and expense of Buyer.
Buyer hereby grants, and Seller retains, a purchase money security
interest in each Product furnished hereunder, and any proceeds thereof, until
the full purchase price thereof shall have been paid in full.
6. SHIPPING DATES. All shipping dates are estimates only and are dependent upon
prompt receipt of all necessary information from Buyer. Seller shall be excused
from performance and shall not be liable for any delay in delivery or
nondelivery, in whole or in part, caused by the occurrence of any contingency
beyond the reasonable control of Seller, including but not limited to, war
(whether an actual declaration thereof is made), sabotage, or other act of civil
disobedience, judicial action, labor dispute, accident, earthquakes, defaults of
suppliers, fire, act of God, shortage of labor, fuel, raw material or machinery
or technical or yield failures where Seller has exercised ordinary care in the
prevention thereof. Seller may at its sole discretion allocate production and
delivery among Seller's customers.
7. RESCHEDULING/CANCELLATION. No delivery delay requested by Buyer will be
effective unless covered by an amendment to the applicable purchase order that
(a) provides for the payment of any agreed upon costs the delay imposes on
Seller, and (b) is signed by a duly authorized representative of Seller.
Products returned for the convenience of Buyer, if accepted by Seller, shall be
subject to a restocking fee. Buyer may not cancel or reschedule any orders
scheduled for delivery within ninety (90) days without Seller's prior written
consent. A cancellation charge shall be assessed on purchase orders for any
Products canceled within ninety (90) days of the scheduled delivery date. The
amount of such charge shall be based on the quantity canceled and the time
remaining.
8. INSPECTION. Unless otherwise specified and agreed upon, the Products shall be
subject to Seller's standard inspection at the place of manufacture. Upon
receipt of Products by Buyer which appear not to conform to the description of
the Products in the Agreement, Buyer shall immediately notify Seller and afford
Seller a reasonable opportunity to inspect the Products. Seller's Return
Material Authorization form must accompany the return of all Products to Seller.
9. LIMITED WARRANTY. THE FOLLOWING WARRANTY IS IN LIEU OF ALL WARRANTIES,
EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT OF
THIRD PARTIES' INTELLECTUAL PROPERTY RIGHTS. THIS WARRANTY NEITHER ASSUMES, NOR
AUTHORIZES ANY OTHER PERSON TO ASSUME FOR SELLER, ANY OTHER LIABILITY IN
CONNECTION WITH THE SALE OF SELLER'S PRODUCTS. THIS WARRANTY DOES NOT APPLY TO
PROBLEMS ARISING FROM BATTERY LEAKAGE OR USE OF IMPROPER EXTERNAL POWER SOURCES.
<PAGE> 8
Seller warrants to Buyer that the Products will be free from defects in material
and workmanship under normal use and service for the period of one (1) year from
date of shipment , and will conform to their applicable specification at the
time of delivery. Seller's obligations under this provision are limited, at its
sole option to: (i) replacing or (ii) giving credit for any Product which shall,
within the warranty period, be returned to Seller's factory, transportation
charges prepaid, and which is, after examination, disclosed to Seller's
satisfaction to be defective. Prior to returning any Product to Seller, Customer
must request and obtain a Return Material Authorization form from Seller. This
warranty shall not apply to any Products which have been altered except by
Seller, or which shall have been subject to misuse, negligence, improper
environmental conditions, or accident or not maintained in accordance with
handling or operating instructions supplied by Seller. Any Products. [rest of
sentence dropped--what was intended?] This warranty applies exclusively to Buyer
and does not extend to Buyer's customers.
10. PATENT INFRINGEMENT. Buyer shall hold Seller harmless from and defend
against any costs, expenses, damages, or liabilities arising from Seller's
compliance with Buyer's designs, instructions, or specifications. Except as set
forth above, Seller agrees to defend, or at Seller's option settle, at Seller's
own expense and under Seller's sole control, any claim, suit, demand, or
proceeding ("Action") resulting from any alleged infringement of United States
patents owned by third parties by Products as sold and purchased by Buyer from
Seller; provided Buyer (i) gives to Seller prompt notice of any such action,
(ii) authorizes Seller to settle or defend any such Action, and (iii) assists
Seller in so doing upon Seller's request (at Seller's expense). Should Buyer be
enjoined from selling or using the Product, as a result of any such Action,
Seller shall either: (1) procure for Buyer the right to use or sell the Product;
(2) modify the Product so that it becomes noninfringing; (3) upon receipt of the
Product, provide to Buyer a noninfringing product meeting the same functional
specifications as the Product or (4) authorize the return of the Product to
Seller and, upon its receipt, substantially refund to Buyer the cost of the
Product. Buyer will use commercially reasonable efforts to assist Seller in
mitigating its damages hereunder. Seller shall not be liable for any costs or
expenses incurred without Seller's prior written authorization. Notwithstanding
the foregoing, in no event shall Seller's liability hereunder exceed the
aggregate amount paid by Buyer to Seller for those Products incorporating the
allegedly infringing technology licensed or purchased under, or in conjunction
with this Agreement during the twelve (12) months immediately preceding the
initiation of such Action. The foregoing states the entire liability to Seller
for infringement of the patents of third parties, and in particular, Seller has
no obligations to indemnify Buyer for infringement of patents resulting from
combinations of the Product with other products, whether or not supplied by
Seller. THIS PROVISION IS STATED IN LIEU OF ANY OTHER EXPRESSED, IMPLIED, OR
STATUTORY WARRANTY AGAINST INFRINGEMENT AND SHALL BE THE SOLE AND EXCLUSIVE
REMEDY FOR PATENT INFRINGEMENT OF ANY KIND.
11. DAMAGE LIMITATION. INDEPENDENTLY OF ANY OTHER REMEDY LIMITATION HEREOF AND
NOTWITHSTANDING ANY FAILURE OF THE ESSENTIAL PURPOSE OF ANY SUCH LIMITED REMEDY,
IT IS AGREED IN NO EVENT SHALL SELLER BE LIABLE FOR SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY KIND UNDER THIS AGREEMENT. IN NO EVENT SHALL
SELLER'S LIABILITY HEREUNDER EXCEED THE AGGREGATE AMOUNT PAID BY BUYER TO SELLER
FOR PRODUCTS PURCHASED HEREUNDER.
12. U.S. GOVERNMENT CONTRACTS. If Buyer's original purchase order indicates by
contract number it is placed under a government contract, only the following
provisions of the current Federal Acquisition Regulations are applicable in
accordance with the terms thereof, with an appropriate substitution of parties,
as the case may be - i.e.., "Contracting Officer" shall mean "Buyer",
"Contractor" shall mean "Seller", and the term "Contract" shall mean this order:
<PAGE> 9
52.202-1. Definitions; 52.232-11, Extras: 52.219-9; Variation in Quantity;
52.232-23, Assignment of Claims; 52.228-2, Additional Bond Security; 52.225-11,
Certain Communist Areas; 52.222-4, Contract Work Hours and Safety Standards Act
- - Overtime Compensation; 52.222-20, Walsh-Healy Public Contracts Act; 52.222-25,
Equal Opportunity: Officials Not to Benefit; 52.203-5, Covenant Against
Contingent Fees; 52.249-1, Termination for Convenience of the Government (Fixed
Price) (Short Form) (only to the extent that Buyer's contract is terminated for
the convenience of the government); 52.2-1, Contractor Inspection Requirements;
52.227-1, Authorization and Consent;#52.227-2, Notice and Assistance Regarding
Patent and Copyright Information; 52.247-1, Commercial Bill of Lading Notations;
52.233-35, Affirmative Action for Special Disabled and Vietnam Era Veterans;
52.222-1, Notice to the Government of Labor Disputes; 52.215-1, Examination of
Records by Controller General; 52.220-3, Utilization of Labor Surplus Area
Concerns.
13. PRODUCT CHANGES. Seller reserves the right, at its sole discretion, to
discontinue manufacturing or supplying any Product which has not been firmly
scheduled for delivery to Buyer. Seller also reserves the right to change or
improve any Product or specifications provided that such changes do not affect
form, fit or function of the Product. Changes that do not affect form, fit, or
function will be made upon giving thirty (30) day's advance notification to
Buyer, and shipments will be made upon the approval of Buyer.
14. EXPORT COMPLIANCE. Buyer shall be responsible for obtaining all import
licenses required by any country and all reexport licenses. Buyer shall comply
with all applicable provisions of the Export Administration Regulations of the
United States Department of Commerce, or any amendment thereto, in effect with
respect to all Products hereunder, and shall provide Seller with all
documentation and data necessary or desirable in monitoring such compliance.
Buyer agrees to hold Seller harmless against any liability arising from the
failure of Buyer or Buyer's customers to comply with such regulations. This
provision shall survive any termination, transfer, or expiration of the
Agreement.
15. SALE CONVEYS NO LICENSE. Seller's Products are offered for sale and are sold
by Seller subject to the condition that such sales does not convey any license
expressly, or by implication, estoppel otherwise, under any patent, mask work,
or copyright, or any assembly, circuit, combination, method or process which any
such Products are used. Seller expressly reserves all its rights under such
patents, mask works or copyrights.
16. SUPPORT. No formal support shall be provided under the Agreement, however,
upon Buyer's request for support services, Seller reserves the right to decide
whether or not said services shall be provided and at what cost to Buyer.
<PAGE> 10
SCHEDULE 3
MASTER MUTUAL NONDISCLOSURE AGREEMENT
<PAGE> 11
SCHEDULE 4
FORM OF WARRANT
<PAGE> 12
NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND THIS WARRANT
CANNOT BE EXERCISED, SOLD OR TRANSFERRED, AND THE SHARES OF THE COMMON STOCK
ISSUABLE UPON EXERCISE OF THIS WARRANT CANNOT BE SOLD OR TRANSFERRED, UNLESS
AND UNTIL THEY ARE SO REGISTERED OR UNLESS SUCH REGISTRATION IS NOT THEN
REQUIRED UNDER THE CIRCUMSTANCES OF SUCH EXERCISE, SALE OR TRANSFER.
CHAPARRAL NETWORK STORAGE, INC.
WARRANT TO PURCHASE 300,000 SHARES OF COMMON STOCK OF
CHAPARRAL NETWORK STORAGE, INC.
VOID AFTER MAY 31, 2001
This Warrant (the "Warrant") certifies that, subject to the terms and
conditions set forth herein, for value received, ADAPTEC, INC., a Delaware
corporation (the "Holder"), is entitled to purchase from CHAPARRAL NETWORK
STORAGE, INC., a Delaware corporation (the "Company"), up to three hundred
thousand (300,000) fully paid and nonassessable shares of Common Stock, $0.001
par value, of the Company at the purchase price per share specified in Section
2 below, with the Common Stock issuable upon exercise of this Warrant referred
to herein as the "Shares".
1. Definitions. As used in this Warrant, the following terms, unless
the context otherwise requires, have the following meanings:
(a) "1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
(b) "Common Stock", when used with reference to stock of the
Company, means all shares, now or hereafter authorized, of the class of common
stock, $0.001 par value, of the Company currently authorized and shares of any
other class into which those shares may hereafter be changed.
(c) "Company" means Chaparral Network Storage, Inc., a Delaware
corporation and any corporation which shall succeed to or assume the
obligations of the Company under this Warrant.
(d) "Fair Market Value" of a share of Common Stock as of a
particular date means (a) if traded on an exchange or the over-the-counter
market, quoted on the Nasdaq National Market or reported by the National
Quotation Bureau, then the average of the reported closing or bid price for the
fifteen (15) trading days immediately preceding the date on which "Fair Market
Value" is being determined, appropriately adjusted to reflect any stock split,
combination, dividend or distribution, if any, occurring after such date, (b)
if conversion or exercise is simultaneous with an
<PAGE> 13
underwritten public offering registered under the 1933 Act, the public offering
price (before deducting commissions, discounts or expenses) per share sold in
such offer, and (c) otherwise, the price, not less than book value, determined
in good faith and in such reasonable manner as prescribed by a majority of the
disinterested members of the Company"s Board of Directors who are not Company
officers or employees.
(e) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and the rules and regulations thereunder.
(f) "Holder" means Adaptec, Inc., a Delaware corporation, and its
permitted successors and assigns .
(g) "SEC" means the Securities and Exchange Commission.
(h) "Subscription Notice" means a Subscription Notice substantially
in the form of Appendix I attached hereto, for execution upon exercise of the
purchase right represented by this Warrant.
2. Warrant Price. The purchase price to be paid upon exercise of this
Warrant is U.S. $20.00 per Share, subject to adjustment pursuant to Section 7
hereof (such price, as adjusted from time to time, is herein referred ---------
to as the "Warrant Price").
3. Exercise Period. This Warrant shall be exercisable by the Holder
for a term (the "Exercise Period") beginning at 8:00 a.m. Mountain Standard
Time on December 1, 2000 (the "Commencement Date") and ending at 5:00 p.m.
Mountain Standard Time on May 31, 2001 (the "Expiration Date").
4. Method of Exercise.
(a) The Holder may exercise the purchase rights evidenced hereby, in
whole or in part, during the Exercise Period. Such exercise shall be effected
by:
(i) the surrender of the Warrant, together with a duly
executed copy of the Subscription Notice, to the Secretary of the
Company at its principal office; and
(ii) the payment to the Company, by wire transfer of
immediately available funds to an account designated by the Company
at least two (2) days prior to the Commencement Date of an
aggregate amount equal to the number of Shares designated for
purchase in the completed Subscription Notice multiplied by the
Warrant Price.
(b) If the Holder believes that the exercise of this Warrant will
necessitate a filing under the HSR Act, the Holder shall give the Company at
least thirty (30) but not more than ninety
-2-
<PAGE> 14
(90) days written notice of Holder"s intent to exercise this Warrant. As
promptly as practicable after the giving of such notice, the Company and the
Holder shall make all filings required by the HSR Act.
(c) Upon the request of the Company, the Holder shall also deliver to
the Company an instrument, in form and substance reasonably satisfactory to
counsel for the Company, executed by the Holder certifying that the Shares are
being acquired for investment purposes only and not with a view to their resale
or distribution.
(d) This Warrant and all rights of the Holder to purchase Shares
hereunder shall terminate and become void at the Expiration Date.
(e) Net Exercise Election. The Holder may elect to convert all or a
portion of this Warrant, without the payment by the Holder of any additional
consideration, by the surrender of this Warrant or such portion of this Warrant
to the Company, with the net exercise election selected in the Notice of
Exercise attached hereto as Appendix II duly executed by the Holder, into up to
the number of Shares that is obtained under the following formula:
X = Y (A-B)
--------
A
where X = the number of shares to be issued to the Holder.
Y = the number of Shares as to which this Warrant is being
exercised.
A = the fair market value of one Share, as determined in good
faith by the Company's Board of Directors, as at the time
the net exercise election is made.
B = the Warrant Price.
The Company will promptly respond in writing to an inquiry by the
Holder as to the then current fair market value of one Share.
For purposes of the above calculation, fair market value of one Share
shall be determined by the Company's Board of Directors in good faith;
provided, however, that where there exists a public market for the Company's
Common Stock at the time of such exercise, the fair market value per share
shall be the average of the closing bid and asked prices of the Common Stock
quoted in the Over-The-Counter Market Summary or the last reported sale price
of the Common Stock or the closing price quoted on the Nasdaq National Market
or on any exchange on which the Common Stock is listed, whichever is
applicable, as published in the Western Edition of The Wall Street Journal for
the three (3) trading days prior to the date of determination of fair market
value.
-3-
<PAGE> 15
5. Certificate for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued in the name of the Holder as soon as practicable, and
in any event within ten (10) days, after receipt by the Company of the
completed Subscription Notice and payment for the Shares being purchased. The
Company shall not be required to issue any fractional shares upon the exercise
of the Holder"s purchase rights under this Warrant. In lieu of any fractional
shares, the Company shall pay cash equal to such fraction multiplied by the per
share Fair Market Value of the Common Stock as of the date of exercise.
6. Reservation of Shares. The Company covenants that it will at all
times keep available such number of authorized shares of its Common Stock, free
from all preemptive rights with respect thereto, as will be sufficient to
permit the exercise of this Warrant for the purchase of the full number of
Shares specified herein. The Company further covenants that such Shares, when
issued pursuant to the exercise of this Warrant, will, upon issuance, be duly
and validly issued, fully paid and non-assessable and free from all taxes,
liens and charges with respect to the issuance thereof.
7. Adjustment of Warrant Price and Number of Shares. The number of and
kind of securities purchasable upon exercise of this Warrant and the Warrant
Price therefor shall be subject to adjustment from time to time as follows:
(a) Stock Splits, Stock Dividends and Combinations. If the Company
shall at any time subdivide or combine its outstanding shares of the Common
Stock, or shall make or issue a dividend or other distribution payable in
additional shares of Common Stock, this Warrant shall, after that subdivision,
combination or dividend, evidence the right to purchase the number of shares of
Common Stock that would have been issuable as a result of that change with
respect to the shares of the Common Stock which were purchasable under this
Warrant immediately before that subdivision or combination. If the Company
shall at any time subdivide the outstanding shares of Common Stock, or shall
make or issue a dividend or other distribution payable in additional shares of
Common Stock, the Warrant Price then in effect immediately before that
subdivision or dividend shall be proportionately decreased, and, if the Company
shall at any time combine the outstanding shares of Common Stock, the Warrant
Price then in effect immediately before that combination shall be
proportionately increased. Any adjustment under this Section 7(a) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(b) Reclassification, Exchange and Substitution. If the Common Stock
issuable upon exercise of this Warrant shall be changed into the same or a
different number of shares of any other series or class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares provided for above), the Holder of this
Warrant shall, on its exercise, be entitled to purchase, in lieu of Common
Stock which the Holder would have become entitled to purchase but for such
change, a number of shares of such other series or class or classes of stock
equivalent to the number of shares of Common Stock that would have been subject
to purchase by the Holder on exercise of this Warrant immediately before that
change.
-4-
<PAGE> 16
(c) Reorganization. If at any time there shall be a capital
reorganization of the Company (other than a combination, reclassification,
exchange, or subdivision of shares provided for elsewhere in this Warrant),
then, as a part of such capital reorganization, lawful provision shall be made
so that the Holder of this Warrant shall thereafter be entitled to receive upon
exercise of this Warrant, during the period specified in this Warrant and upon
payment of the Warrant Price then in effect, the number of shares of stock or
other securities or property of the Company or its successor to which a holder
of the Company"s Common Stock deliverable upon exercise of this Warrant would
have been entitled in such capital reorganization if this Warrant had been
exercised immediately before that capital reorganization.
(d) Adjustments for Dividends and Other Distributions. If the
Company at any time or from time to time makes or fixes a record date for the
determination of holders of Common Stock entitled to received any distribution
(excluding any repurchases of securities by the Company not made on a pro rata
basis from all holders of any class of the Company securities) payable in
property other than cash or in securities of the Company, then and in each such
event the Holder of this Warrant shall receive at the time of the exercise of
this Warrant, the amount of property or the number of securities of the Company
that the Holder would have received had it exercised this Warrant on such
record date, in addition to the Shares.
(e) Notice of Adjustments. The Company shall give notice of each
adjustment or readjustment of the number of shares of the Common Stock or other
securities issuable upon exercise of this Warrant and the Warrant Price to the
registered Holder of this Warrant at that Holder"s address as shown on the
Company"s books within twenty (20) days after the occurrence of the event
resulting in such adjustment.
(f) No Change Necessary. The form of this Warrant need not be changed
because of any adjustment in the number of shares of the Common Stock
purchasable upon its exercise. A Warrant issued after any adjustment upon any
partial exercise or in replacement may continue to express the same number of
shares of Common Stock (appropriately reduced in the case of partial exercise)
as are stated on the face of this Warrant as initially issued, and that number
of shares shall be considered to have been so changed at the close of business
on the date of adjustment, provided that an appropriate notation to this effect
is made on such Warrant.
8. Merger, Consolidation or Sale of Assets.
(a) If the Company consolidates with or merges into another entity
and is not the survivor, or sells or conveys substantially all of its property,
and in connection therewith, shares of stock, other securities, property, or
cash (collectively, "Merger Consideration") are issuable or deliverable in
exchange for shares of the Company"s capital stock, then the Company shall give
the Holder at least thirty (30) days prior written notice of the consummation
of such transaction and the Holder may thereafter, at its option, (i) exercise
the Warrant, regardless of whether this Warrant is exercisable at the time of
such action, or (ii) require the Company or its successor or purchaser to
-5-
<PAGE> 17
enter into an agreement with the Holder to the effect that the Holder shall
have the right thereafter, upon payment of the Warrant Price in effect
immediately prior to such action, to purchase upon exercise of this Warrant the
Merger Consideration (subject to adjustment as provided in this Warrant) that
the Holder would have received had the Holder exercised this Warrant in its
entirety immediately prior to such merger, sale or conveyance, regardless of
whether this Warrant is exercisable at the time of such action.
(b) If the Company receives notice that a purchase, tender or
exchange offer has been made to the holders of more than 50% of the outstanding
Common Stock (on an as converted basis), the Company shall give the Holder
reasonable notice thereof, and the Holder shall be entitled to exercise this
Warrant immediately, regardless of whether this Warrant is exercisable at the
time of such offer and without giving the Company the notice required by
Section 4(b).
9. Notice of Certain Events. If (a) the Company authorizes the
issuance to all holders of any class of its capital stock rights or warrants to
subscribe for or purchase shares of its capital stock, or any other
subscription rights or warrants; (b) the Company authorizes the distribution to
all holders of any class of its capital stock evidences of indebtedness or
assets; (c) there is any capital reorganization or reclassification of the
Shares or the Company"s Common Stock, other than a subdivision or combination
of the outstanding Common Stock and other than a change in par value of the
Common Stock; (d) the Board of Directors of the Company approves any
liquidation or merger to which the Company is a party and for which approval of
the Company"s stockholders is required, other than a consolidation or merger in
which the Company is the surviving corporation and that does not result in any
reclassification or change of the shares of Common Stock issuable upon the
exercise of this Warrant; (e) the Board of Directors of the Company approves
the conveyance or transfer of the all or substantially all of the Company"s
properties and assets; or (f) the Board of Directors of the Company approves
the Company"s voluntary or involuntary dissolution, liquidation or winding-up
(each of the foregoing being a "Notice Event"); then the Company shall cause to
be mailed by certified mail to the Holder, at least thirty (30) days prior to
the applicable record or effective date hereinafter specified, a notice stating
the dates as of which (x) the holders of capital stock of record to be entitled
to receive any such rights, warrants or distributions or to be entitled to vote
on such Notice Event are to be determined and (y) such Notice Event is expected
to become effective. The Holder of record of this Warrant shall be entitled to
exercise of this Warrant upon the consummation of such Notice Event, regardless
of whether this Warrant is exercisable at the time of such action.
10. Exercise, Transfer and Exchange Restrictions.
(a) This Warrant, and any rights hereunder, may not be sold,
assigned or transferred, except as provided herein and in accordance with and
subject to the provisions of (i) applicable state securities laws, and (ii) the
1933 Act. Any purported transfer or assignment made other than in accordance
with this Section 10 shall be null and void and of no force and effect.
-6-
<PAGE> 18
(b) This Warrant, and any rights hereunder, may be sold,
transferred or assigned only to a direct or indirect subsidiary or affiliate of
the Holder or an entity of which the Holder is a direct or indirect subsidiary
or affiliate, or any 501(c)(3) charitable organization with which Holder is
affiliated, which sale, transfer or assignment shall be effective upon receipt
by the Company of notice thereof. Prior to the transfer or assignment, the
assignor or transferor shall reimburse the Company for its reasonable expenses,
including transfer taxes and reasonable attorneys" fees, incurred in connection
with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by surrender
of this Warrant to the Company at its principal office with an assignment duly
executed and funds sufficient to pay any transfer tax. In such event, the
Company shall, without charge, execute and deliver a new Warrant in the form
hereof in the name of the assignee named in such instrument of assignment and
this Warrant shall be promptly canceled.
11. Miscellaneous Provisions.
(a) Replacement. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity
agreement or bond reasonably satisfactory in form and amount to the Company or,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense will execute and deliver, in lieu of this Warrant a new
Warrant of like tenor.
(b) No Rights as Stockholder. Prior to the exercise of this
Warrant, the Holder shall not be entitled to vote or receive dividends or be
considered a stockholder of the Company for any purpose, nor shall anything in
this Warrant be construed to confer on the Holder any rights of a shareholder
of the Company or any right to vote, give or withhold consent to any corporate
action, to receive notice of meetings of stockholders (except as set forth in
this Warrant), to receive dividends or subscription rights or otherwise.
(c) Governing Law. This Warrant shall be governed by and construed
and enforced in accordance with the laws of the State of California applicable
to contracts entered into and wholly to be performed in California by
California residents.
(d) Notices. All notices hereunder shall be in writing and shall be
(i) personally delivered, (ii) transmitted by mail, postage prepaid, registered
or certified, return receipt requested, (iii) transmitted by an overnight
courier of recognized reputation or (iv) transmitted by telecopier (with
confirmation by air mail or courier), to the respective addresses set forth in
writing by the Company and the Holder. Except as otherwise specified herein,
communications shall be deemed to have been duly given on (A) the date of
receipt or refusal of delivery if delivered personally, (B) the date five (5)
days after posting if transmitted by mail, (C) the date three (3) days after
delivery to the courier if sent by recognized courier service, or (D) the date
on which written
-7-
<PAGE> 19
confirmation would be deemed to have been given as provided above, whether by
mail or by courier, as applicable, if transmitted by telecopier, whichever
shall first occur.
(e) Amendments. No amendment or modification of any provision of
this Warrant shall be effective unless the same shall be in writing and signed
by the parties hereto.
(f) No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, intentionally avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but it will at all times in good faith assist in the carrying out of
all of the provisions of this Warrant and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
Dated: March 1, 2000.
CHAPARRAL NETWORK STORAGE, INC.
By: /s/ MICHAEL J. GLUCK
---------------------------------------
Name: Michael J. Gluck
-------------------------------------
Title: President and Chief Operating Officer
-------------------------------------
Acknowledged and Agreed:
ADAPTEC, INC.
By: /s/ PETER CAMPAGNE
------------------------------
Name: Peter Campagne
--------------------------
Title: Vice President, Treasurer
-------------------------
-8-
<PAGE> 1
*** Confidential Treatment has been requested for portions of this document.
EXHIBIT 10.24
CHAPARRAL TECHNOLOGIES, INC.
HARDWARE AGREEMENT
This Hardware Agreement and the attached Schedules ("Agreement") is between the
following parties:
SELLER: BUYER:
Chaparral Technologies, Inc. nStor
1951 South Fordham Street 450 Technology Park
Longmont, CO 80503 Lake Mary, FL 32746
THE PARTIES AGREE AS FOLLOWS:
1. Certification. Buyer hereby agrees, represents and certifies all
Hardware Products purchased from Seller pursuant to this Agreement
shall be integrated into Buyer's products, which are assembled or
manufactured, in the regular course of Buyer's business. Additionally,
Buyer acknowledges the Hardware Products and the pricing of Hardware
Products by Seller are based on Seller's reliance on Buyer's
representations the Hardware Products will be integrated. Buyer
expressly agrees not to resell or transfer any of the Hardware Products
as stand alone units and any attempt to do so without Seller's prior
written permission shall be a material breach of this Agreement.
2. Hardware Products and Pricing. The Hardware Products which Buyer is
authorized to purchase from Seller and the corresponding Prices are
listed on Schedule 1. Additionally, Buyer's products which will
incorporate or integrate Seller's Hardware Products shall be listed on
Schedule 1. Buyer shall supply to Seller, upon Seller's request and
expense, a sample of Buyer's product(s) which incorporate Seller's
Hardware Products.
3. Pricing and Forecasts. Buyer will provide monthly a six (6) month
rolling Hardware Product forecast. Lead times shall be negotiable for
quantities of Hardware Products not forecasted by Buyer. Hardware
Product prices shall be based on buyer's Hardware Product forecast for
a six (6) month period. After the first ninety (90) days for the
Effective Date, Seller reserves the right to change the price of
Hardware Products in accordance with Schedule 1.
4. Subcontractors. Seller agrees Buyer's subcontractors listed in Schedule
1 ("Subcontractors") shall be entitled to receive Products at the
address listed in Schedule 1 for the purpose of manufacturing on behalf
of Buyer. Buyer is solely responsible and liable to Seller for
Subcontractor's actions, errors or omissions for noncompliance with
Section 1 Certification and the other terms of this Agreement.
5. Terms of Sale. The Terms of Sale which govern the purchase of Hardware
Products pursuant to the Agreement are attached hereto as Schedule 2.
<PAGE> 2
6. Term. The term of this Agreement is for a period of one (1) year and
shall automatically be renewed for periods of one (1) year unless
terminated earlier by either party with ninety (90) days written
notice.
7. Termination. This Agreement may be terminated by either party with a
ninety (90) day written notice. In the event of such terminations,
neither party shall be liable to the other party other than in the
event Buyer terminates this Agreement, Buyer shall immediately pay to
Seller all amounts due to Seller, including the full purchase price for
all outstanding purchase orders and the full purchase price of any and
all "risk - buy" inventory. Any terms of this Agreement not specified
on Schedule 1, attached, which by their nature extend beyond its
termination remain in effect until fulfilled and apply to respective
successors and assigns.
8. Confidentiality. No confidential information shall be deemed to be
given or received in confidence by either party pursuant to this
Agreement unless and to the extent it is covered by a separate written
nondisclosure agreement which shall be attached hereto as Schedule 3.
9. Audit. Buyer agrees to keep accurate books and records to show
compliance with this Agreement at the address listed above. Seller may
conduct unannounced audits of buyer's books and records in order to
assure compliance during Buyer's regular business hours and at Seller's
expense. Noncompliance by Buyer is grounds for termination of this
Agreement.
10. Arbitration. Any disputes between Buyer and Seller with respect to this
Agreement shall be settled by binding, final arbitration in accordance
with the commercial arbitration rules of the American Arbitration
Association then in effect (the "AAA Rules") [unless a non-AAA
arbitration is mutually agreed upon by Buyer and Seller]. Any
arbitration proceeding shall be conducted in either Boulder County,
Colorado or in Denver, Colorado. Any judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction over
the subject matter thereof. The arbitrator shall have the authority to
grant any equitable and legal remedies available. In the event of any
litigation between Buyer and Seller relating to this Agreement, the
prevailing party will be entitled to recover reasonable attorney's fees
and all costs. The parties agree this Agreement shall be governed by
Colorado law, excluding its conflict of laws rules. No action against
the Seller for breach hereof shall be commenced more than one (1) year
after the accrual of the cause of action.
11. General. All notices shall be sent to each party in writing at the
addresses listed above. Notice is effective immediately upon receipt.
This Agreement sets forth the entire understanding and agreement of the
parties with respect to the subject matter hereof and supersedes all
other oral or written representations and understandings. The failure
to enforce any right will not be deemed a waiver of such or any other
right including the right to enforce a subsequent breach of the same
obligations. This Agreement may be assigned, amended or modified only
in writing and signed by the parties. This Agreement will not be
construed as a teaming agreement, joint venture or other business
relationship.
-2-
<PAGE> 3
SELLER: BUYER:
By: /s/ Douglas J. Lehrmann By: /s/ LARRY CALISCE
--------------------------- -----------------------------
Printed: Douglas J. Lehrmann Printed: Larry Calisce
---------------------- ------------------------
Title: Vice President, Finance Title: Chief Financial Officer
------------------------ --------------------------
Effective Date: June 18, 1999 Date: June 18, 1999
--------------- ---------------------------
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<PAGE> 4
SCHEDULE 1
HARDWARE PRODUCTS AND PRICE LISTS
HARDWARE PRODUCTS
Product Pricing:
Buyer's G, K and M-series board-level prices, with production shipments for G
and K Series product commencing no later than July of 1999, are as follows:
<TABLE>
<CAPTION>
PRODUCT MSRP 250-699 700-1249 1250-2499 2500
<S> <C> <C> <C> <C> <C>
G5312 [***] [***] [***] [***] [***]
G7313 [***] [***] [***] [***] [***]
K5312 [***] [***] [***] [***] [***]
K7313 [***] [***] [***] [***] [***]
M5314 [***] [***] [***] [***] [***]
M7325 [***] [***] [***] [***] [***]
</TABLE>
TERMS:
1. Volume pricing based on a minimum combined annual product shipments of
[***] units, which shall be reviewed quarterly for accuracy during the
quarterly business review.
2. Prices are for Seller standard products. Special Pricing Agreements are
negotiated separately.
3. If the purchase order quantity drops to less than [***] per quarter, the
pricing will reflect the [***] units per year volume.
4. Prices do not include memory or battery.
5. Standard lead-time for Seller products is 120 days.
6. Subject to the provisions below all Purchase Orders placed within 120 days
of Seller's delivery date shall be non-cancelable.
Buyer may reschedule Purchase Orders within 120 days of shipment from Seller in
accordance with the following schedule:
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<PAGE> 5
<TABLE>
<CAPTION>
DAYS BEFORE SCHEDULED SHIP DATE PO PUSH-OUT %* PO UPSIDE %
- ------------------------------- -------------- -----------
<S> <C> <C>
0-30 [***] [***]
31-60 [***] [***]
61-90 [***] [***]
91-120 [***] [***]
120+ [***] [***]
</TABLE>
* Maximum 1 push-out per Purchase Order
Seller commits its best efforts to satisfy unplanned upside requirements beyond
the flexibility committed above, but may be constrained by component level
lead-times and related supply.
Buyer may cancel Purchase Orders in accordance with the following schedule:
<TABLE>
<CAPTION>
DAYS BEFORE SCHEDULED SHIP DATE CANCELLATION CHARGES AS A PERCENT OF PRODUCT PRICE
- ------------------------------- --------------------------------------------------
<S> <C>
0-30 [***]
31-60 [***]
61-90 [***]
91-120 [***]
120+ [***]
</TABLE>
Cancellation charges will be calculated from the date Seller receives written
notice from Buyer. In the event Buyer cancels any Purchase Order as the direct
result of any delay caused by Seller, none of the above charges shall be
applicable. Buyer may cancel a Purchase Order, in writing, within three (3) days
of a missed shipment date. Seller will have previously notified Buyer, in
writing, of the originally acknowledged shipment date. Seller and Buyer will
agree to examine an alternative schedule before Seller acknowledges the
cancellation of a Purchase Order.
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<PAGE> 6
HARDWARE PRODUCT
STANDARD TERMS OF SALE
The following Standard Terms of Sale ("Terms of Sale") apply to the Hardware
Products which Buyer is authorized to purchase pursuant to the Hardware
Agreement ("Agreement") entered into between Seller and Buyer on the Agreement
Effective Date.
1. TERMS OF SALE. THE TERMS OF SALE CONTAINED HEREIN APPLY TO ALL
QUOTATIONS MADE AND PURCHASE ORDERS ENTERED INTO BY THE SELLER, WHETHER
IN DOCUMENTARY FORM, OR TRANSMITTED BY ELECTRONIC MEANS. SOME OF THE
TERMS SET OUT HERE MAY DIFFER FROM THOSE IN BUYER'S PURCHASE ORDERS,
AND SOME MAY BE NEW. THIS ACCEPTANCE IS CONDITIONAL ON BUYER'S ASSENT
TO THE TERMS SET OUT HERE IN LIEU OF THOSE IN BUYER'S PURCHASE ORDER.
SELLER'S FAILURE TO OBJECT TO PROVISIONS CONTAINED IN ANY COMMUNICATION
FROM BUYER SHALL NOT BE DEEMED A WAIVER OF THE PROVISIONS OF THIS
ACCEPTANCE. ANY CHANGES IN THE TERMS CONTAINED HEREIN MUST SPECIFICALLY
BE AGREED TO IN WRITING, SUCH AS A SPECIAL PRICING AGREEMENT, BY AN
OFFICER OR AUTHORIZED MANAGER OF THE SELLER BEFORE BECOMING BINDING ON
EITHER THE SELLER OR THE BUYER.
All purchase orders or agreements must be approved and accepted by the
Seller at its home office. These terms shall be applicable whether or
not they are attached or enclosed with the Hardware Products to be sold
hereunder. No shipments will be made until the Seller receives a signed
purchase order. These terms do not apply to the licensing of software
products offered by Seller. The terms that govern the software products
licensed to Buyer is a separate agreement.
2. HARDWARE PRODUCTS. The Hardware Products which Buyer is authorized to
purchase pursuant to these Terms of Sale are listed in the Agreement.
3. TAXES. Unless otherwise specifically provided herein, the amount of any
present or future sales, revenue, excise, or other tax applicable to
the Hardware Products covered by a purchase order or the manufacture,
or sale thereof, shall be added to the purchase price and shall be paid
by the Buyer, or in lieu thereof the Buyer shall provide the Seller
with a tax exemption certificate thereafter. In the event Seller is
required to pay any such tax, fee or charge, at the time of sale, or
thereafter, the Buyer shall reimburse Seller therefor.
4. SHIPMENT. Unless otherwise specified on a sales acknowledgment form
received from Seller, shipment of goods within and outside the U.S.
shall be delivered FOB Seller's dock and title and liability for loss,
or damage thereto, shall pass to Buyer upon Seller's tender of delivery
of the goods to a carrier for shipment to Buyer, and any loss or damage
thereafter shall not relieve Buyer of any obligation hereunder. Buyer
shall reimburse Seller for taxes and any other expenses incurred for
licenses or clearance required at port of entry and destination. Seller
may deliver the goods in installments. Unless otherwise agreed, all
items
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<PAGE> 7
shall be packaged and packed in accordance with Seller's normal
practices. Buyer shall pay the per unit carriage and insurance amount
attributable to each Hardware Product, as specified in the Agreement
and confirmed by way of a sales acknowledgment form sent by Seller to
Buyer.
5. PAYMENT. Unless otherwise agreed, all invoices are due and payable (30)
days from the date of invoice or with a 2 percent (2%) discount for
payment received within ten days of date of invoice. No other discounts
are authorized. Shipments, deliveries, and performance of work shall at
all times be subject to the approval of the Seller's credit department,
and the Seller may at any time decline to make any shipments or
deliveries or perform any work except upon receipt or payment, or upon
terms and conditions or security satisfactory to the credit department.
If in the judgment of the Seller, the financial condition of the Buyer
at any time does not justify continuation of production, or shipment on
the terms of payment originally specified, the Seller may require full
or partial payment in advance and, in the event of the bankruptcy or
insolvency of the Buyer, or in the event any proceeding is brought by
or against the Buyer under the bankruptcy or insolvency laws, the
Seller shall be entitled to cancel any order then outstanding, and
shall receive reimbursement for its cancellation charges. Each shipment
shall be considered a separate and independent transactions, and
payment therefor shall be made accordingly. If shipments are delayed by
the Buyer, payments shall become due on the date when the Seller is
prepared to make shipment. If the work covered by the purchase order is
delayed by the Buyer, payments shall be made based on the purchase
price, and the percentage of completion. Hardware Products held for the
Buyer shall be at the risk and expense of the Buyer.
Buyer grants and Seller retains a purchase money security interest in
each Hardware Product furnished hereunder, and any proceeds thereof,
until the full purchase thereof shall have been paid in full.
6. SHIPPING DATES. All shipping dates are estimates only and are dependent
upon prompt receipt of all necessary information from Buyer. Shipments
may be made in installments. Seller shall be excused from performance
and shall not be liable for any delay in delivery or in non-delivery,
in whole or in part, caused by the occurrence of any contingency beyond
the reasonable control of Seller, including but not limited to, war
(whether an actual declaration thereof is made), sabotage, or other act
of civil disobedience, judicial action, labor dispute, accident,
earthquakes, defaults of suppliers, fire, act of God, shortage of
labor, fuel, raw material or machinery or technical or yield failures
where Seller has exercised ordinary care in the prevention thereof.
Seller may at its sole discretion allocate production and delivery
among Seller's customers.
7. RESCHEDULING/CANCELLATION. No delivery delay requested by Buyer on a
purchase order placed will be effective unless covered by an amendment
to the purchase order that provides for the payment of any agreed upon
costs the delay imposes on Seller, and that is signed by and duly
authorized representative of Seller. Hardware Products returned for
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<PAGE> 8
convenience of Buyer, if accepted by Seller, shall be subject to a
restocking fee. Buyer may not cancel or reschedule any orders for
delivery within one hundred twenty (120) days for any Hardware Products
without Seller's prior written consent. A cancellation charge shall be
assessed to Buyer on purchase orders for any Hardware Products within
ninety (90) one hundred twenty (120) days of the scheduled delivery
date. The amount of such charge shall be based on the quantity canceled
and the time remaining.
8. INSPECTION. Unless otherwise specified and agreed upon, the Hardware
Products to be furnished by Seller under Buyer's purchase order shall
be subject to the Seller's standard inspection at the place of
manufacture. If it has been agreed upon and specified in Buyer's
purchase order Buyer is to inspect or provide for inspection at place
of manufacture, such inspection shall be so conducted as to not
interfere unreasonable with Seller's operations and consequent
approval, or rejection shall be made before shipment of the Hardware
Products. Notwithstanding the foregoing, upon receipt of Hardware
Products by Buyer which appear not to conform to the description of the
Hardware Products in the Agreement, the Buyer shall immediately notify
the Seller of such conditions and afford the Seller a reasonable
opportunity to inspect the Hardware Products. No Hardware products
shall be returned without Seller's consent. Seller's Return Material
Authorization Number must accompany the return of all Hardware Products
to Seller.
9. LIMITED WARRANTY. THE FOLLOWING WARRANTY IS IN LIEU OF ALL WARRANTIES,
EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT OF THIRD PARTIES INTELLECTUAL PROPERTY RIGHTS AND OF
ALL OTHER OBLIGATIONS OR LIABILITIES ON SELLER'S PART. THIS WARRANTY
NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO ASSUME FOR SELLER
ANY OTHER LIABILITY IN CONNECTION WITH THE SALE OF SELLER'S PRODUCTS.
THIS WARRANTY DOES NOT APPLY TO PROBLEMS ARISING FROM BATTERY LEAKAGE
OR USE OF IMPROPER EXTERNAL POWER SOURCES.
Seller warrants to Buyer that Hardware Product delivered under this
Agreement is 100% defect free. Seller also warrants to the Buyer the
following Hardware Products against defects in material workmanship
under normal use and service for the period of three (3) year from the
date of shipment. Seller's obligations under this provision are
limited, and its sole option to: (i) replacing, (ii) repairing or,
(iii) giving credit for any Hardware Product which shall, within the
warranty period, be returned to Seller's factory, transportation
charges prepaid, and which is, after examination, disclosed to Seller's
satisfaction to be thus defective. Prior to returning any Hardware
Product to Seller, Customer must request and obtain a Return Material
Authorization form from Seller. This warranty shall not apply to any
Hardware Products which have been repaired or altered except by Seller,
or which shall have been subject to misuse, negligence or accident or
not maintained in accordance with handling or operating instructions
supplied by Seller. Any Hardware Products replaced or returned for
repair are warranted for a period on ninety (90) days, but in no event
will the
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<PAGE> 9
warranty be extended beyond the original warranty period. This warranty
applies exclusively to Buyer and does not extend to Buyer's customers.
10. PATENT INFRINGEMENT. Buyer shall hold Seller harmless from and defend
against any costs, expenses, damages, or liabilities arising from
Seller's compliance with Buyer's designs, instructions, or
specifications. Except as set forth above, Seller agrees to defend, or
at Seller's option settle, at Seller's own expense and under Seller's
sole control, any claim, suit, demand, or proceeding, including
attorney's fees (an "Action") resulting from any alleged infringement
of United States patents owned by third parties by Hardware Products as
sold and purchased by Buyer and from Seller, provided Buyer (I) gives
to Seller prompt notice of any such action, (II) authorizes Seller to
settle or defend any such Action, and (III) assists Seller in so doing
upon Seller's request (at Seller's expense). Should, as a result of any
such Action, Buyer be enjoined from selling or using the Hardware
Product, Seller shall either: (1) procure for Buyer the right to use or
sell the Hardware Product; (2) modify the Hardware Product so that it
becomes non-infringing; (3) upon receipt of the Hardware Product,
provide to Buyer a non-infringing product meeting the same function
specifications as the Hardware Product or (4) authorize the return of
the Hardware Product to the Seller, and upon its receipt refund to
Buyer the cost of the Hardware Product. Buyer will use commercially
reasonable efforts to assist Seller in mitigating its damages
hereunder. Seller shall not be liable for any costs or expenses
incurred without Seller's prior written authorization. Notwithstanding
the foregoing, in no event shall Seller's liability hereunder exceed
the aggregate amount paid by Buyer to Seller for those Hardware
Products incorporating the allegedly infringing technology licensed or
purchased under, or in conjunction with this Agreement during the
twelve (12) months immediately preceding the initiation of such Action.
The foregoing states the entire liability to Seller for infringement of
the patents of third parties, and in particular, Seller has no
obligations to indemnify Buyer for infringement of patents resulting
from combinations of the Hardware Product with other products, whether
or not supplied by Seller. THIS PROVISION IS STATED IN LIEU OF ANY
OTHER EXPRESSED, IMPLIED, OR STATUTORY WARRANTY AGAINST INFRINGEMENT
AND SHALL BE THE SOLE AND EXCLUSIVE REMEDY FOR PATENT INFRINGEMENT OF
ANY KIND.
11. DAMAGE LIMITATION. INDEPENDENTLY OF ANY OTHER REMEDY LIMITATION HEREOF
AND NOTWITHSTANDING ANY FAILURE OF THE ESSENTIAL PURPOSE OF ANY SUCH
LIMITED REMEDY, IT IS AGREED IN NO EVENT SHALL SELLER BE LIABLE FOR
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND UNDER THIS
AGREEMENT.
12. U.S. GOVERNMENT CONTRACTS. If Buyer's original purchase order indicates
by contract number it is placed under a government contract, only the
following provisions of the current Federal Aquisition Regulations are
applicable in accorance with the terms thereof, with an appropriate
substitition of parties, as the case may be -- i.e., "Contracting
Officer" shall mean "Buyer," "Contractor" shall mean "Seller," and the
term "Contract" shall mean this order:
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<PAGE> 10
52.202-1. Definitions; 52.232-11, Extras; 52.219-9; Variation
in Quantity; 52.232-23, Assignment of Claims; 52.228-2,
Additional Bond Security; 52.225-11, Certain Communist Areas;
52.222-4, Contract Work Hours and Safety Standards Act --
Overtime Compensation; 52.222-20, Walsh-Healy Public Contracts
Act; 52.222-25, Equal Opportunity; Officials Not to Benefit;
52.203-5, Covenant Against Contingent Fees;
52.249-1, Termination for Convenience of the Government (Fixed
Price) (Short Form) (only to the extent that Buyer's contract
is terminated for the convenience of the government); 52.2-1,
Contractor Inspection Requirements; 52.227-1, Authorization
and Consent;
52.227-2, Notice and Assistance Regarding Patent and Copyright
Information; 52.247-1, Commercial Bill of Lading Notations;
52.233-35, Affirmative Action for Special Disabled and Vietnam
Era Veterans; 52.222-1, Notice to the Government of Labor
Disputes; 52.215-1, Examination of Records by Controller
General; 52.220-3, Utilization of Labor Surplus Area Concerns.
13. HARDWARE PRODUCT CHANGES. Seller reserves the right, at its sole
discretion, to discontinue manufacturing or supplying any Hardware
Product which has not been firmly scheduled for delivery to Buyer.
Seller also reserves the right to change or improve any Hardware
Product or specification provided that such changes do not affect form,
fit or function. Changes that do not affect form, fit or function will
be made upon giving thirty (30) day's advance notification to Buyer,
and shipments will be made upon the approval of the Buyer. Seller may
from time, to time, delete or obsolete a Hardware Product.
14. INTERNATIONAL ORDERS. Seller shall use its best efforts to obtain
export licenses for shipment from the United States to foreign
countries on behalf of Buyer, provided that Buyer has supplied Seller
with all the information necessary to obtain such licenses. Buyer shall
be responsible for obtaining all import licenses required by any
country and all re-export licenses. Buyer shall comply with all
applicable provisions of the Export Administration Regulations of the
United States Department of Commerce, or any amendment thereto, in
effect with respect to all Hardware Product hereunder, and shall
provide Seller with all documentation and data necessary or desirable
in monitoring such compliance. Buyer agrees to hold Seller harmless
against any liability arising from the failure of Buyer or Buyer's
customers to comply with such regulations. This provision shall survive
any termination, transfer, or expiration of the Agreement. Seller shall
have no duty to ship any Hardware Products under a purchase order if
appropriate licenses, permits and the like are not granted by the
countries of import and export.
15. SALE CONVEY NO LICENSE. Seller's Hardware Products are offered for sale
and are sold by Seller subject to the condition that such sales does
not convey any license, expressly, or by implication, estoppel
otherwise, under any patent, mask work, or copyright, or any assembly,
circuit, combination, method or process witch any such Hardware
Products are used. Seller expressly reserves all its rights under such
patents, mask works or copyrights.
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<PAGE> 11
16. TECHNICAL SUPPORT. Buyer shall maintain sufficient technical personnel
and resources to support, and shall use its best efforts to support,
the Hardware Products at Buyer's customers. Such support shall include,
but not be limited to, providing telephone assistance during normal
business hours and user documentation from Buyer to their customer.
Supplier will provide technical support to Buyer's personnel via
telephone assistance and website support for Hardware Product
documentation and firmware online at: www.chaparraltec.com.
In addition, Buyer shall make its technical personnel available for
technical training two (2) times per year, which training shall take
place at a location to be agreed upon between the parties. Seller shall
pay the costs of materials for the training hereunder; all travel costs
associated with attending the training for each party shall be borne by
such party.
17. RETURN MATERIAL AUTHORIZATION. In the event that Buyer needs to return
Hardware Products, purchased under the terms and conditions of this
Agreement, Buyer shall call or use electronic mail to request a RMA
Number from Seller's Corporate Sales Department. No product can be
received on Seller's dock unless properly authorized and will be
returned to Buyer. Seller will provide RMA Numbers within two (2)
business days. Buyer will use Seller's packing materials to return any
Hardware Product.
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<PAGE> 1
EXHIBIT 23.1
The Board of Directors
Chaparral Network Storage, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG LLP
Boulder, Colorado
April 26, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-2000
<PERIOD-START> APR-01-1998 APR-01-1999
<PERIOD-END> MAR-31-1999 MAR-31-2000
<CASH> 224 16,707
<SECURITIES> 0 0
<RECEIVABLES> 104 1,795
<ALLOWANCES> 0 75
<INVENTORY> 183 3,749
<CURRENT-ASSETS> 556 22,311
<PP&E> 447 1,099
<DEPRECIATION> 70 302
<TOTAL-ASSETS> 933 23,521
<CURRENT-LIABILITIES> 1,827 3,363
<BONDS> 0 0
0 0
3,086 6,269
<COMMON> 8 19
<OTHER-SE> (3,987) 13,871
<TOTAL-LIABILITY-AND-EQUITY> 933 23,521
<SALES> 237 8,842
<TOTAL-REVENUES> 237 8,842
<CGS> 156 4,590
<TOTAL-COSTS> 156 4,590
<OTHER-EXPENSES> 2,177 8,640
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 72 397
<INCOME-PRETAX> (3,695) (7,969)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,695) (7,969)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,695) (7,969)
<EPS-BASIC> (1.40) (0.68)
<EPS-DILUTED> (1.40) (0.68)
</TABLE>
