<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 22, 2000
REGISTRATION NO. 333-80165
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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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VINA TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3661 77-0432782
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
VINA TECHNOLOGIES, INC.
42709 LAWRENCE PLACE
FREMONT, CA 94538
(510) 492-0800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEVEN M. BAUMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VINA TECHNOLOGIES, INC.
42709 LAWRENCE PLACE
FREMONT, CALIFORNIA 94538
(510) 492-0800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
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STANTON D. WONG KENNETH R. LAMB
BLAIR W. WHITE PETER T. HEILMANN
PATRICK J. DEVINE BRIAN R. GIN
JASON M. VENNER JONATHAN GORDON
PILLSBURY MADISON & SUTRO LLP GIBSON, DUNN & CRUTCHER LLP
P.O. BOX 7880 PACIFIC TELESIS TOWER
SAN FRANCISCO, CALIFORNIA 94120 ONE MONTGOMERY STREET
(415) 983-1000 SAN FRANCISCO, CALIFORNIA 94104
(415) 983-1200 (FAX) (415) 393-8200
(415) 986-5309 (FAX)
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
Common Stock, $.0001 par value.................. $80,500,000 $21,252
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933, as amended.
(2) This fee has been previously paid.
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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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<PAGE> 2
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 OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 22, 2000
PROSPECTUS
5,000,000 SHARES
VINA TECHNOLOGIES, INC.
[VINA LOGO]
Common Stock
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This is our initial public offering of shares of common stock. We are offering
5,000,000 shares. The initial public offering price is expected to be between
$12.00 and $14.00 per share. No public market currently exists for our shares.
We propose to list our common stock on the Nasdaq National Market under the
symbol "VINA."
INVESTING IN THE SHARES INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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Per Share Total
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<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discount....................................... $ $
Proceeds to VINA Technologies, Inc. ........................ $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 750,000
additional shares of common stock to cover any over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares on
or about , 2000.
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LEHMAN BROTHERS
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY
, 2000.
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Prospectus Summary........................................................................ 1
Risk Factors.............................................................................. 4
Special Note Regarding Forward-Looking Statements......................................... 19
Use Of Proceeds........................................................................... 20
Dividend Policy........................................................................... 20
Capitalization............................................................................ 21
Dilution.................................................................................. 22
Selected Consolidated Financial Data...................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of Operations..... 25
Business.................................................................................. 32
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PAGE
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Management................................................................................ 45
Related Party Transactions................................................................ 51
Principal Stockholders.................................................................... 52
Description Of Capital Stock.............................................................. 54
Rescission Offer.......................................................................... 57
Shares Eligible For Future Sale........................................................... 57
Underwriting.............................................................................. 60
Legal Matters............................................................................. 62
Experts................................................................................... 62
Where You Can Find Additional Information................................................. 62
Index To Consolidated Financial Statements................................................ F-1
</TABLE>
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ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
and the underwriters have not authorized anyone to provide you with information
different from that contained in this prospectus. We are offering to sell, and
seeking offers to buy, shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.
This prospectus includes the following registered trademarks of VINA
Technologies: T1 Integrator, VINA, VINA Technologies, and Business
OfficeXchange. We have filed applications to register the following trademarks:
VINA HDSL Integrator, DSL eLink, VINA Multiservice Xchange, Simplifying the
first mile, and Architects of the first mile. All other trademarks and trade
names appearing in this prospectus are the property of their respective holders;
for example, SLC, ConnectReach and AnyMedia are trademarks and trade names of
Lucent Technologies. The inclusion of other companies' brand names and products
in this prospectus is not an endorsement of VINA. These companies are not
involved with the offering of our securities.
Until , 2000, all dealers that buy, sell or trade the common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
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PROSPECTUS SUMMARY
You should read the entire prospectus carefully, including the section
entitled "Risk Factors" and our financial statements and related notes, before
deciding to invest in our common stock.
VINA TECHNOLOGIES, INC.
We develop and market telecommunications equipment that enables service
providers to deliver multiple voice and data services over a single high-speed
line. Our products, known as multiservice broadband access products, support
both existing communications transmission technologies and next-generation
technologies such as asynchronous transfer mode and internet protocol. These
products enable cost-effective migration from existing to next-generation
networks. In addition, they facilitate remote upgrades and service provisioning
by our service provider customers. We believe that by bundling voice and data
services, our products decrease network access equipment costs and operating
expenses for these customers. Our products also create additional revenue
opportunities for service providers by allowing them to deliver enhanced
services. These services include local and long distance voice, as well as
high-speed data services such as Internet access, business-to-business
electronic commerce, extended local area networks, outsourced applications
services and messaging.
We sell our products directly through our sales force and indirectly as an
original equipment manufacturer for Lucent Technologies and PairGain
Technologies, which sell our products to competitive local exchange carriers and
incumbent local exchange carriers. Our largest direct and indirect service
provider customers include 2nd Century Communications, Allegiance Telecom, ATG
Technologies, Gabriel Communications and ICG Communications.
The rapid growth in Internet and other data traffic has created a capacity
bottleneck in the telecommunications network connection between the end user and
the service provider, which we refer to as the first mile. Furthermore, the
deployment of data services has created parallel voice and data networks,
challenging service providers with the expense and complexity of building and
maintaining parallel networks. Many service providers are seeking to address
capacity constraints and network complexity by delivering a wide variety of
voice and data services over a single broadband line and to protect their
investment in existing equipment while migrating economically to next-generation
networks.
We offer a family of products that simplify the first mile of
telecommunications networks by allowing service providers to deliver
cost-effectively a suite of bundled voice and data services over a reduced
number of network connections. We believe that our products offer service
providers the following benefits:
- Defined Network Migration Path. Service providers are deploying
packet-based networks to efficiently accommodate increased data traffic.
Packet-based networks transmit voice and data in small bundles or packets
and are substantially more efficient than existing circuit-based networks
that transmit voice and data over dedicated circuits. By supporting both
circuit-based and packet-based networks, our products protect service
providers' existing network investments and offer them a simple migration
path to next-generation networks.
- Reduced Network Complexity and Operating Cost. We integrate routers,
firewalls, channel banks, modems and features of private branch exchanges
into a single product which reduces the operating costs and the
complexity of delivering bundled voice and data services.
- Increased Value Added Services. Our products allow service providers to
enhance revenue from their existing customer base by selling additional
software-enabled services.
- Ease of Deployment. Our products incorporate a software-based management
system which facilitates installation, use and remote management.
- Robust Service Platform. Our products provide telecommunications grade
quality and reliability and are adaptable to technologies and standards
for the first mile.
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We introduced our first product, the T1 Integrator, in March 1997 and
subsequently introduced the HDSL Integrator. We believe these were the first
multiservice broadband access products to integrate voice, data, video and
Internet services over a single broadband communications line. Our Multiservice
Xchange platform, introduced in May 1999, enables communications service
providers to deliver all of these broadband services and offers them a migration
path from circuit-based to packet-based networks. The Multiservice Xchange is
our first product that supports both domestic and international transmission
standards. Our newest product, the DSL eLink, addresses the emerging market for
voice over digital subscriber line service transmitted over copper wires.
We were incorporated in California in June 1996 as Vina Technologies, Inc.
In June 2000, we reincorporated in Delaware under the name VINA Technologies,
Inc. Our principal executive offices are located at 42709 Lawrence Place,
Fremont, California 94538 and our telephone number is (510) 492-0800. Our
website address is www.vina-tech.com. Information on our website does not
constitute part of this prospectus.
THE OFFERING
Common stock offered by VINA
Technologies........................ 5,000,000 shares
Common stock to be outstanding after
this offering....................... 32,861,752 shares
Use of proceeds..................... We expect to use the net proceeds of
the offering for general corporate
purposes, including working capital and
capital expenditures; the acquisition
of complementary businesses, products
or technologies; and expanding our
domestic and international sales and
marketing efforts. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol.............................. VINA
ABOUT THIS PROSPECTUS
Unless otherwise indicated, the information in this prospectus:
- assumes no exercise of the underwriters' over-allotment option; and
- reflects the conversion of all outstanding shares of our preferred stock
into 17,694,657 shares of common stock automatically upon the closing of
this offering.
The common stock outstanding immediately after this offering:
- is based upon 27,861,752 common shares outstanding as of March 31, 2000,
which assumes the conversion of all outstanding shares of preferred stock
into shares of common stock;
- excludes 8,481,471 shares of common stock issuable upon the exercise of
options outstanding as of March 31, 2000, at a weighted average exercise
price of $0.84 per share;
- excludes shares of common stock available for future issuance
under our 2000 stock plan; and
- excludes 1,000,000 shares of common stock available for issuance under
our 2000 employee stock purchase plan.
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<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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<CAPTION>
PERIOD FROM
JUNE 21, 1996
(INCEPTION)
THROUGH YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
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1996 1997 1998 1999 1999 2000
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CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Net revenue.......................... $ -- $ 579 $ 4,393 $ 12,700 $ 2,903 $ 5,187
Gross profit(2)...................... -- 37 2,339 4,987 1,417 1,948
Total costs and expenses............. 841 4,517 10,742 22,286 3,474 9,879
Loss from operations................. (841) (4,480) (8,403) (17,299) (2,057) (7,931)
Net loss............................. (832) (4,315) (7,990) (17,076) (1,966) (7,805)
Net loss per share, basic and
diluted(1)......................... N/A $ (4.83) $ (2.63) $ (3.30) $ (0.46) $ (1.12)
===== ======= ======= ======== ======= =======
Shares used in computation, basic and
diluted(1)......................... -- 894 3,038 5,169 4,270 6,958
===== ======= ======= ======== ======= =======
Pro forma net loss per share, basic
and diluted(1)..................... $ (0.88) $ (0.34)
======== =======
Shares used in pro forma computation,
basic and diluted(1)............... 19,457 23,278
======== =======
</TABLE>
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(1) See Notes 1 and 6 of notes to consolidated financial statements for further
details on the determination of the number of shares used in computing per
share data.
(2) Excludes the amortization of deferred stock compensation.
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MARCH 31, 2000
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PRO FORMA
ACTUAL AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $21,557 $80,507
Working capital............................................. 19,443 78,393
Total assets................................................ 26,966 85,916
Long-term debt, less current portion........................ 404 404
Total shareholders' equity.................................. 20,841 79,791
</TABLE>
The preceding table presents a summary of our consolidated balance sheet
data as of March 31, 2000:
- on an actual basis; and
- on a pro forma, as adjusted basis to give effect to the automatic
conversion of all of our outstanding shares of convertible preferred
stock into 17,694,657 shares of common stock and to the sale of 5,000,000
shares of common stock in this offering at an assumed initial offering
price of $13.00 per share, after deducting the estimated underwriting
discount and estimated offering expenses.
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RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. If any of these risks actually occur, our
business and financial results could be harmed. In that case, the trading price
of our common stock could decline and you might lose all or part of your
investment. You should also refer to the other information set forth in this
prospectus, including our financial statements and the related notes.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE A LIMITED OPERATING HISTORY AND OPERATE IN A NEW AND RAPIDLY
EVOLVING TELECOMMUNICATIONS MARKET, YOU MAY HAVE DIFFICULTY ASSESSING OUR
BUSINESS AND PREDICTING OUR FUTURE PROSPECTS.
We have a very limited operating history upon which to base an investment
decision. We were incorporated in June 1996 and did not begin shipping our
products until March 1997. Due to our limited operating history, it is difficult
or impossible for us to predict our future results of operations. Investors in
our common stock must consider our business, industry and prospects in light of
the risks and difficulties typically encountered by companies in their early
stages of development, particularly those in rapidly evolving and intensely
competitive markets such as the market for broadband access equipment.
WE HAVE A HISTORY OF LOSSES, WE EXPECT FUTURE LOSSES, AND WE MAY NOT BE ABLE TO
GENERATE SUFFICIENT NET REVENUE IN THE FUTURE TO ACHIEVE OR SUSTAIN
PROFITABILITY.
We have incurred significant losses since inception and expect that our net
losses and negative cash flow from operations will continue for the foreseeable
future. We incurred net losses of approximately $4.3 million in 1997, $8.0
million in 1998, $17.1 million in 1999 and $7.8 million for the three months
ended March 31, 2000. As of March 31, 2000, we had an accumulated deficit of
approximately $38.0 million.
To achieve profitability, we will need to generate and sustain
substantially higher revenue while maintaining reasonable cost and expense
levels. We have large fixed expenses and expect to continue to incur significant
and increasing expenses for research and development, sales and marketing,
customer support, developing direct sales and distribution channels, and general
and administrative expenses. Given our early stage of development, our
increasing operating expenses, and the rate at which competition in our industry
is intensifying, we may not be able to adequately control our costs and expenses
or achieve or maintain adequate operating margins. We do not know when or if we
will become profitable. If we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or an annual basis.
OUR QUARTERLY AND ANNUAL FINANCIAL RESULTS COULD FLUCTUATE OR BE WORSE THAN
EXPECTED, WHICH COULD CAUSE OUR STOCK PRICE TO FALL.
Our revenue and operating results are volatile and difficult to predict and
may be susceptible to declines in future periods. Our quarterly results of
operations may fluctuate significantly in the future due to shortfalls in
revenues or orders. We therefore believe that quarter to quarter comparisons of
our operating results may not be a good indication of our future performance. In
the event of a revenue or order shortfall or unanticipated expenses in some
future quarter or quarters, our operating results may be below the expectations
of public market analysts or investors. In such an event, the price of our
common stock may decline significantly.
Due to the factors discussed in this risk factors section and elsewhere in
this prospectus and because we are engaged in a relatively new and emerging
business, revenue and operating results for the foreseeable future are difficult
to forecast. Our current and future expense estimates are largely fixed and
based, to a significant degree, on our estimates of future revenue. We will
likely be unable to, or may elect not to, reduce spending quickly enough to
offset any unexpected revenue shortfall. Therefore, any
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<PAGE> 8
significant shortfall in revenue in relation to our expectations would cause our
quarterly results for a particular period to decline.
WE RELY ON A SMALL NUMBER OF TELECOMMUNICATIONS CUSTOMERS FOR SUBSTANTIAL
PORTIONS OF OUR NET REVENUES. IF WE LOSE ONE OF OUR CUSTOMERS OR EXPERIENCE A
DELAY OR CANCELLATION OF A SIGNIFICANT ORDER OR A DECREASE IN THE LEVEL OF
PURCHASES FROM ANY OF OUR CUSTOMERS, OUR NET REVENUE COULD DECLINE AND OUR
OPERATING RESULTS AND BUSINESS COULD BE HARMED.
We derive almost all of our net revenue from direct sales to a small number
of telecommunications customers and our indirect sales through our major
original equipment manufacturer, or OEM, customers that sell and market our
products. If we lose one of our customers or experience a delay or cancellation
of a significant order or a decrease in the level of purchases from any of our
customers, our net revenue could decline and our operating results and business
could be harmed. Sales through our most significant OEM customer, Lucent
Technologies, accounted for approximately 46% of our net revenue for the year
ended December 31, 1999 and approximately 28% of our net revenue for the quarter
ended March 31, 2000. Our five largest customers, including Lucent, accounted
for approximately 80% of our net revenue in 1999 and approximately 82% for the
three months ended March 31, 2000. We expect that the telecommunications
industry will continue to experience consolidation. If any of our customers is
acquired by a company that is one of our competitors' customers, we may lose its
business. Also, the ultimate business success of our direct service provider
customers, our OEM customers and value-added resellers, or VARs, and our
indirect customers who purchase our products through OEM customers and VARs,
could affect the demand for our products. In addition, any difficulty in
collecting amounts due from one or more of our key customers could harm our
operating results and financial condition.
OUR NET REVENUE COULD DECLINE SIGNIFICANTLY IF OUR RELATIONSHIPS WITH OUR MAJOR
OEM CUSTOMERS DETERIORATE.
A significant portion of our net revenue is derived from sales to our major
OEM customers. Our agreements with our OEM customers are not exclusive and do
not contain minimum volume commitments. Our OEM agreement with Lucent expires in
May 2002. Lucent may terminate the agreement earlier upon 60 days' notice. At
any time or after a short period of notice, our OEM customers could elect to
cease marketing and selling our products. They may so elect for a number of
reasons, including the acquisition by an OEM customer of one or more of our
competitors or their technologies, or because one or more of our competitors
introduces superior or more cost-effective products. In addition, we intend to
develop and market new products that may compete directly with the products of
our OEM customers, which may also harm our relationships with these customers.
Our existing relationships with our OEM customers could make it harder for us to
establish similar relationships with our OEM customers' competitors. Any loss,
reduction, delay or cancellation in expected sales to any of our OEM customers,
or our inability to establish similar relationships with new OEM customers in
the future, would hurt our business and our ability to increase revenues and
could cause our quarterly results to fluctuate significantly.
THE TELECOMMUNICATIONS INDUSTRY IS CHARACTERIZED BY RAPIDLY CHANGING
TECHNOLOGIES. IF WE ARE UNABLE TO DEVELOP AND MAINTAIN STRATEGIC RELATIONSHIPS
WITH VENDORS OF EMERGING TECHNOLOGIES, WE MAY NOT BE ABLE TO MEET THE CHANGING
NEEDS OF OUR CUSTOMERS.
Our success will depend on our ability to develop and maintain strategic
relationships with vendors of emerging technologies such as Copper Mountain,
Jetstream and Tachion. We depend on these relationships for access to
information on technical developments and specifications we need to develop our
products. We also may not be able to predict which existing or potential
partners will develop leading technologies or industry standards. We may not be
able to maintain or develop strategic relationships or replace strategic
partners that we lose. If we fail to develop or maintain strategic relationships
with companies that develop necessary technologies or create industry standards,
our products could become obsolete. We could also be at a competitive
disadvantage in attempting to negotiate relationships with
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<PAGE> 9
those potential partners in the future. In addition, if any strategic partner
breaches or terminates its relationship with us, we may not be able to sustain
or grow our business.
OUR FAILURE TO ENHANCE OUR EXISTING PRODUCTS OR DEVELOP AND INTRODUCE NEW
PRODUCTS THAT MEET CHANGING CUSTOMER REQUIREMENTS AND TECHNOLOGICAL ADVANCES,
INCLUDING THOSE IN THE TELECOMMUNICATIONS INDUSTRY, WOULD LIMIT OUR ABILITY TO
SELL OUR PRODUCTS.
The telecommunications industry is undergoing a period of rapid
technological innovation that could cause substantial changes in supplier and
customer relationships, changes in end user requirements, frequent new product
introductions, and changes in voice and data service offerings by service
providers. Our future success will depend significantly on our ability to
anticipate or adapt to those changes and to offer, on a timely and
cost-effective basis, products that meet changing customer demands and industry
standards. If the standards adopted are different from those which we have
chosen to support, market acceptance of our products may be significantly
reduced or delayed.
Developing new or enhanced products is a complex and uncertain process and
we may not have sufficient resources to successfully and accurately anticipate
technological and market trends, or to successfully manage long development
cycles. We must manage the transition from older products to new or enhanced
products to minimize disruption in customer ordering patterns and ensure that
adequate supplies of new products are available for delivery to meet anticipated
customer demand. Any significant delay or failure to release new products or
product enhancements on a timely and cost-effective basis could harm our
reputation and customer relationships, provide a competitor with a
first-to-market opportunity or allow a competitor to achieve greater market
share.
TELECOMMUNICATIONS NETWORKS ARE COMPRISED OF MULTIPLE HARDWARE AND SOFTWARE
PRODUCTS FROM MULTIPLE VENDORS. IF OUR PRODUCTS ARE NOT COMPATIBLE WITH OTHER
COMPANIES' PRODUCTS WITHIN OUR CUSTOMERS' NETWORKS, ORDERS WILL BE DELAYED OR
CANCELLED AND SUBSTANTIAL PRODUCT RETURNS COULD OCCUR.
Many of our customers require that our products be designed to work with
their existing networks, each of which may have different specifications and
utilize multiple protocols that govern the way devices on the network
communicate with each other. Our customers' networks may contain multiple
generations of products from different vendors that have been added over time as
their networks have grown and evolved. Our products may be required to work with
these products as well as with future products in order to meet our customers'
requirements. In some cases, we may be required to modify our product designs to
achieve a sale, which may result in a longer sales cycle, increased research and
development expense, and reduced operating margins. If our products are not
compatible with existing equipment in our customers' networks, whether open or
proprietary, installations could be delayed, orders for our products could be
cancelled or our products could be returned.
IF WE FAIL TO WIN CONTRACTS AT THE BEGINNING OF OUR TELECOMMUNICATIONS
CUSTOMERS' DEPLOYMENT CYCLES, WE MAY NOT BE ABLE TO SELL PRODUCTS TO THOSE
CUSTOMERS FOR AN EXTENDED PERIOD OF TIME, WHICH COULD INHIBIT OUR GROWTH.
Our existing and potential customers generally select a limited number of
suppliers at the beginning of a deployment cycle. As a result, if we are not
selected as one of these suppliers, we may not have an opportunity to sell
products to that customer until its next purchase cycle, which may be an
extended period of time. In addition, if we fail to win contracts from existing
and potential customers that are at an early stage in their design cycle, our
ability to sell products to these customers in the future may be adversely
affected because they may prefer to continue purchasing products from their
existing vendor. Since we rely on a small number of customers for the majority
of our sales, our failure to capitalize on limited opportunities to win
contracts with these customers would severely harm us.
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SINCE THE TELECOMMUNICATIONS INDUSTRY IS CHARACTERIZED BY LARGE PURCHASE ORDERS
PLACED ON AN IRREGULAR BASIS, IT IS DIFFICULT TO ACCURATELY FORECAST THE TIMING
AND SIZE OF ORDERS. ACCORDINGLY, OUR REVENUE AND OPERATING RESULTS MAY VARY
SIGNIFICANTLY AND UNEXPECTEDLY FROM QUARTER TO QUARTER, WHICH COULD CAUSE OUR
STOCK PRICE TO FLUCTUATE.
We may receive purchase orders for significant dollar amounts on an
irregular basis depending upon the timing of our customers' network deployment
and sales and marketing efforts. Because orders we receive may have short lead
times, we may not have sufficient inventory to fulfill these orders, and we may
incur significant costs in attempting to expedite and fulfill these orders. In
addition, orders expected in one quarter could shift to another because of the
timing of our customers' purchase decisions and order reductions or
cancellations. Under our OEM agreements, our OEM customers have the right to
delay previously-placed orders for any reason. The time required for our
customers to incorporate our products into their own can vary significantly and
generally exceeds several months, which further complicates our planning
processes and reduces the predictability of our operating results. Accordingly,
our revenue and operating results may vary significantly and unexpectedly from
quarter to quarter.
Our customers have in the past built, and may in the future build,
significant inventory in order to facilitate more rapid deployment of
anticipated major projects or for other reasons. After building a significant
inventory of our products, these parties may be faced with delays in these
anticipated major projects for various reasons. As a result, these customers may
be required to maintain a significant inventory of our products for longer
periods than they originally anticipated, which would reduce further purchases.
These reductions, in turn, could cause fluctuations in our future results of
operations and severely harm our business and financial condition.
SINCE THE SALES CYCLES FOR OUR PRODUCTS ARE TYPICALLY LONG AND UNPREDICTABLE, WE
HAVE DIFFICULTY PREDICTING FUTURE REVENUES AND OUR REVENUE AND OPERATING RESULTS
MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD CAUSE OUR STOCK PRICE TO FLUCTUATE.
A customer's decision to purchase our products often involves a significant
commitment of its resources and a lengthy evaluation and product qualification
process. Our sales cycles typically last from nine months to one year. As a
result, we may incur substantial sales and marketing expenses and expend
significant management effort without any assurance of a sale. Long sales cycles
also subject us to other risks, including customers' budgetary constraints,
internal acceptance reviews and order reductions or cancellations. Even after
deciding to purchase our products, our customers often deploy our products
slowly.
WE HAVE A LIMITED ORDER BACKLOG. IF WE DO NOT OBTAIN SUBSTANTIAL ORDERS IN A
QUARTER, WE MAY NOT MEET OUR REVENUE OBJECTIVES FOR THAT QUARTER, WHICH COULD
CAUSE OUR STOCK PRICE TO FLUCTUATE.
Since inception, our order backlog at the beginning of each quarter has not
been significant, and we expect this trend to continue for the foreseeable
future. Accordingly, we must obtain substantial additional orders in a quarter
for shipments in that quarter to achieve our revenue objectives. Our sales
agreements allow purchasers to delay scheduled delivery dates without penalty.
Our customer purchase orders also allow purchasers to cancel orders within
negotiated time frames without significant penalty. In addition, due in part to
factors such as the timing of product release dates, purchase orders and product
availability, significant volume shipments of our products could occur near the
end of our fiscal quarters. If we fail to ship products by the end of a quarter,
our operating results would be adversely affected for that quarter.
WE DEPEND UPON A SINGLE CONTRACTOR TO MANUFACTURE OUR PRODUCTS. TERMINATION OF
THIS RELATIONSHIP WOULD IMPOSE SIGNIFICANT COSTS ON US AND COULD HARM OR
INTERFERE WITH OUR ABILITY TO MEET SCHEDULED PRODUCT DELIVERIES.
We do not have internal manufacturing capabilities. We have relied on a
sole manufacturer, PCB Assembly, Inc., to build our products. PCB Assembly was
recently acquired by Flextronics International Limited. Although our contract
remains in effect, Flextronics may cancel it on 60 days' notice and is not
obligated to supply products to us for any specific period, in any specific
quantity or at
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any specific price, except as may be provided in a particular purchase order.
Our reliance on Flextronics involves a number of risks, including the lack of
operating history between us and Flextronics, the absence of control over our
manufacturing capacity, the unavailability of, or interruptions in, access to
process technologies and reduced control over component availability, delivery
schedules, manufacturing yields and costs. If Flextronics is unable or unwilling
to manufacture our products in required volumes and at high quality levels, we
will have to identify and qualify acceptable alternative manufacturers, which
would result in substantial manufacturing delays and cause us to incur
significant costs. It is possible that an alternate source may not be available
to us when needed or be in a position to satisfy our production requirements at
acceptable prices and quality. Any significant interruption in manufacturing
would harm our ability to meet our scheduled product deliveries to our
customers, harm our reputation and could cause the loss of existing or potential
customers.
WE DEPEND ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR KEY COMPONENTS. IF WE
ARE UNABLE TO BUY COMPONENTS ON A TIMELY BASIS, WE WILL NOT BE ABLE TO DELIVER
OUR PRODUCTS TO OUR CUSTOMERS ON TIME WHICH COULD CAUSE US TO LOSE CUSTOMERS. IF
WE PURCHASE EXCESS COMPONENTS TO REDUCE THIS RISK, WE MAY INCUR SIGNIFICANT
INVENTORY COSTS.
We obtain several of the key components used in our products, including
interface circuits, microprocessors, digital signal processors, digital
subscriber line modules and flash memory, from single or limited sources of
supply. We have encountered, and expect in the future to encounter, difficulty
in obtaining these components from our suppliers. As recently as the fourth
quarter of 1999, we experienced a severe shortage of components, particularly
subscriber line interface circuits, which jeopardized our ability to deliver our
products in a timely fashion. We purchase most components on a purchase order
basis and we do not have guaranteed supply arrangements with most of our key
suppliers. Financial or other difficulties faced by our suppliers or significant
changes in demand for these components could limit the availability of these
components to us at acceptable prices and on a timely basis, if at all. In
addition, any of our key suppliers could be acquired by, or enter into exclusive
arrangements with, our competitors, stop selling their products or components to
us at commercially reasonable prices, or refuse to sell their products or
components to us altogether. Any interruption or delay in the supply of any of
these components, or our inability to obtain these components from alternate
sources at acceptable prices and within a reasonable amount of time, would limit
our ability to meet scheduled product deliveries to our customers or force us to
reengineer our products, which may hurt our gross margins and our ability to
deliver products on a timely basis, if at all. A substantial period of time
could be required before we would begin receiving adequate supplies from
alternative suppliers, if available. In addition, qualifying additional
suppliers is time consuming and expensive and exposes us to potential supplier
production difficulties or quality variations.
IF WE DO NOT PREDICT OUR MANUFACTURING REQUIREMENTS ACCURATELY, WE COULD INCUR
ADDITIONAL COSTS AND SUFFER MANUFACTURING DELAYS.
We currently provide forecasts of our demand to our contract manufacturer
12 months prior to scheduled delivery of products to our customers. Lead times
for the materials and components that we order vary significantly and depend on
numerous factors, including the specific supplier, contract terms and demand for
a component at a given time. If we overestimate our component requirements, our
contract manufacturer may purchase excess inventory. For those parts that are
unique to our products, we could be required to pay for these excess parts and
recognize related inventory write-down costs. If we underestimate our
requirements, our contract manufacturer may have an inadequate inventory, which
could interrupt manufacturing of our products and result in delays in shipments
and revenue.
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THE COMPETITION FOR QUALIFIED PERSONNEL IS PARTICULARLY INTENSE IN OUR INDUSTRY
AND IN NORTHERN CALIFORNIA. IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY
PERSONNEL, WE MAY NOT BE ABLE TO SUSTAIN OR GROW OUR BUSINESS AND SUCCESSFULLY
ACHIEVE OUR OBJECTIVES.
Our success depends to a significant degree upon the continued
contributions of the principal members of our sales, marketing, engineering and
management personnel, many of whom would be difficult to replace. None of our
officers or key employees is bound by an employment agreement for any specific
term, and we do not have "key person" life insurance policies covering any of
our employees. If we lose the services of any key personnel, particularly senior
management, sales personnel and engineers, our business could be severely
harmed.
The competition for qualified personnel is particularly intense in our
industry and in Northern California, where there is a high concentration of
established and emerging growth technology companies. This competition makes it
more difficult to retain our key personnel and to recruit new highly qualified
personnel. To attract and retain qualified personnel, we may be required to
grant large option or other stock-based incentive awards, which may be highly
dilutive to existing stockholders. We may also be required to pay significant
base salaries and cash bonuses to attract and retain these individuals, which
payments could harm our operating results. In particular, we have experienced
difficulty in hiring software and system test engineers and engineers with voice
and data experience. We believe that we will continue to experience difficulty
in recruiting and retaining qualified personnel in the future. If we are not
able to attract and retain the necessary personnel, we could face delays in
developing our products and implementing our sales and marketing plans, and we
may not be able to grow our business.
WE PLAN TO INVEST A SIGNIFICANT AMOUNT OF OUR RESOURCES TO FUND THE DEVELOPMENT,
MARKETING AND SALE OF OUR PRODUCTS; HOWEVER, IF WE ARE UNABLE TO EXPAND OUR
SALES AND MARKETING OPERATIONS, WE WILL NOT BE ABLE TO ACHIEVE BRAND AWARENESS
FOR OUR PRODUCTS AND GENERATE ADDITIONAL SALES.
We plan to increase significantly our operating expenses to fund greater
levels of research and development, expand our sales and marketing operations,
broaden our customer support capabilities and develop new distribution channels.
We also plan to expand our general and administrative capabilities to address
the demands resulting from this offering and the expected continued growth of
our business. Our operating expenses are largely based on anticipated personnel
requirements and revenue trends, and a high percentage of our expenses are, and
will continue to be, fixed. In addition, we may be required to spend more for
research and development than originally budgeted in order to respond to
industry trends. As a result, any delay in generating or recognizing revenue
could cause significant variations in our operating results from quarter to
quarter and could result in substantial operating losses.
The products and services we offer are generally of a highly technical
nature and require a sophisticated sales and marketing effort targeted at
several key people within each of our prospective customers' organizations.
Accordingly, our success will depend on our ability to generate sufficient
revenue from sales of these products to offset the expenses associated with
developing, marketing and selling them. We have recently expanded our direct
sales force, including by adding a Vice President of Marketing, and plan to hire
additional sales and marketing personnel and system engineers. We might not be
able to hire the kind and number of marketing and sales personnel and system
engineers that we need. Further, many of our competitors have significantly
larger marketing budgets and sales forces than we have. As a result, we may not
be able to create sufficient brand awareness to generate additional sales of our
products. In addition, if our products exhibit poor performance or other
defects, our brand may be significantly diluted, which would inhibit our ability
to attract or retain customers.
WE HAVE RAPIDLY AND SIGNIFICANTLY EXPANDED OUR OPERATIONS IN RECENT PERIODS AND
EXPECT TO CONTINUE TO DO SO. OUR BUSINESS WILL BE HARMED IF WE FAIL TO MANAGE
EFFECTIVELY THE GROWTH OF OUR OPERATIONS.
We have rapidly and significantly expanded our operations in recent periods
and expect to continue to do so. This expansion significantly strains our
managerial, operational and financial resources. Some of our senior management
personnel joined us within the last 12 months. Our President, Vice President of
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Finance and Administration, Vice President of Marketing, Vice President of
Operations and Vice President of Sales have all joined us since June 1999. To
manage the expected growth of our operations and personnel, we will be required
to:
- improve existing and implement new operational, financial and management
controls, reporting systems and procedures;
- hire, train, motivate and manage additional qualified personnel;
- expand access to additional manufacturing capacity;
- effectively manage multiple relationships with our customers, suppliers,
distributors and other third parties; and
- coordinate our domestic and international operations and establish the
necessary infrastructure to implement our international strategy.
If we are not able to manage our growth in an efficient and timely manner,
our business will be severely harmed.
THE RAPID GROWTH OF OUR BUSINESS HAS REQUIRED US TO EXPAND OUR FACILITIES BY
OBTAINING NEW OFFICE SPACE. IF WE FAIL TO PROPERLY MANAGE OUR RELOCATION INTO
THESE NEW FACILITIES THERE COULD BE A DISRUPTION IN OUR OPERATIONS.
Our success depends, to a large degree, on the efficient and uninterrupted
operation of our facilities. Our current facilities will not be sufficient to
accommodate our anticipated growth. We have signed a seven-year lease for new
facilities located in Newark, California, and currently plan to move into this
facility by August 2000. Relocating our employees could cause temporary
disruptions in our operations and divert management's attention, due to factors
such as computer network reconfigurations, telephone and customer service
transitions, equipment loss or damage by moving companies and delays caused by
movers. If complications relating to the move arise or if we are not able to
relocate these functions by the end of July 2000, we may need to obtain
temporary additional office space. Because of acute shortages in Northern
California office space, we cannot assure you that we will be able to locate
suitable temporary office space on acceptable terms or at all.
THE TELECOMMUNICATIONS MARKET IS BECOMING INCREASINGLY GLOBAL. ALTHOUGH WE PLAN
TO EXPAND INTERNATIONALLY, WE HAVE NO SIGNIFICANT EXPERIENCE OPERATING IN
INTERNATIONAL MARKETS. IN OUR EFFORTS TO EXPAND INTERNATIONALLY, WE COULD BECOME
SUBJECT TO NEW RISKS WHICH COULD HAMPER OUR ABILITY TO ESTABLISH AND MANAGE OUR
INTERNATIONAL OPERATIONS.
We have sales and customer support personnel in the United Kingdom and have
initiated distribution relationships covering Germany, France, Australia and New
Zealand. We intend to further expand our international operations and enter new
markets. This expansion will require significant management attention and
financial resources. We have limited experience in marketing and distributing
our products internationally and in developing versions of our products that
comply with local standards. In addition, our international operations will be
subject to other inherent risks, including:
- the failure to adopt regulatory changes that facilitate the provisioning
of competitive communications services;
- difficulties adhering to international protocol standards;
- the complexities of managing operations in various geographic locations;
- expenses associated with customizing products for other countries;
- protectionist laws and business practices that favor local competition;
- reduced protection for intellectual property rights in some countries;
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- difficulties enforcing agreements through other legal systems and in
complying with foreign laws;
- fluctuations in currency exchange rates;
- political and economic instability; and
- import or export licensing requirements;
OUR PRODUCTS REQUIRE SUBSTANTIAL INVESTMENT OVER A LONG PRODUCT DEVELOPMENT
CYCLE, AND WE MAY NOT REALIZE ANY RETURN ON OUR INVESTMENT.
The development of new or enhanced products is a complex and uncertain
process. We may experience design, manufacturing, marketing and other
difficulties that could delay or prevent the development, introduction or
marketing of new products and enhancements. Development costs and expenses are
incurred before we generate any revenues from sales of products resulting from
these efforts. Our total research and development expenses were approximately
$1.9 million in 1997, $4.2 million in 1998, $6.7 million in 1999 and $2.5
million for the three months ended March 31, 2000. We intend to continue to
incur substantial research and development expenses, which could have a negative
impact on our earnings in future periods.
IF OUR PRODUCTS CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS, WE COULD INCUR
SIGNIFICANT UNEXPECTED EXPENSES, EXPERIENCE PRODUCT RETURNS AND LOST SALES AND
BE SUBJECT TO PRODUCT LIABILITY CLAIMS.
Our products are highly technical and are designed to be deployed in very
large and complex networks. While our products have been tested, because of
their nature, they can only be fully tested when deployed in networks that
generate high amounts of voice or data traffic. Because of our short operating
history, our products have not yet been broadly deployed. Consequently, our
customers may discover errors or defects in our products after they have been
broadly deployed. In addition, our customers may use our products in conjunction
with products from other vendors. As a result, when problems occur, it may be
difficult to identify the source of the problem. Any defects or errors in our
products discovered in the future, or failures of our customers' networks,
whether caused by our products or another vendor's products, could result in:
- loss of, or delay in, revenue and loss of market share;
- product returns;
- product liability claims and legal actions by our customers;
- negative publicity regarding us and our products;
- loss of customers;
- failure to attract new customers;
- unexpected expenses to remedy errors;
- diversion of our development resources;
- increased service warranty and repair costs; and
- increased insurance costs.
We may be subject to significant liability claims because our products are
used in connection with critical communications services. Our agreements with
customers typically contain provisions intended to limit our exposure to
liability claims. However, these limitations may not preclude all potential
claims resulting from a defect in one of our products. Liability claims could
require us to spend significant time and money in litigation or to pay
significant damages. Any of these claims, whether or not successful, could
seriously damage our reputation and business.
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THE COMPLEX NATURE OF OUR TELECOMMUNICATIONS PRODUCTS REQUIRES US TO PROVIDE OUR
CUSTOMERS WITH A HIGH LEVEL OF SERVICE AND SUPPORT BY HIGHLY TRAINED PERSONNEL.
IF WE DO NOT EXPAND OUR CUSTOMER SERVICE AND SUPPORT ORGANIZATION, WE WILL NOT
BE ABLE TO MEET OUR CUSTOMERS' DEMANDS.
We currently have a small customer service and support organization, and we
will need to increase these resources to support any increases in the needs of
our existing and new customers. Hiring customer service and support personnel in
our industry is very competitive due to the limited number of people available
with the necessary technical skills and understanding of our technologies. We
currently plan to use Timeplex, Inc. to install and maintain our products,
including in connection with our planned international expansion, when our
customers request these services. Our agreement with Timeplex expires in August
2001, and may be terminated earlier upon 60 days' notice. If our relationship
with Timeplex ends, we may be unable to find a replacement or to establish the
necessary capabilities internally. If we are unable to expand or maintain our
customer service and support organization, or if Timeplex fails to install or
maintain our products appropriately, our customers may become dissatisfied and
we could lose customers and our reputation could be harmed. A reputation for
poor service would prevent us from increasing sales to existing or new
customers.
WE DO NOT CURRENTLY PROVIDE INITIAL CUSTOMER SUPPORT TO MANY END USER CUSTOMERS;
IF END USER CUSTOMERS DO NOT RECEIVE ADEQUATE CUSTOMER SERVICE AND SUPPORT FROM
OUR OEM CUSTOMERS AND VARS, SALES OF OUR PRODUCTS MAY BE SIGNIFICANTLY REDUCED
AND OUR ABILITY TO SUSTAIN OR GROW OUR BUSINESS MAY BE HARMED.
Our ability to continue to grow and to retain current and future customers
is affected by the quality of the customer service and support provided by our
distribution channels. However, we have little control over the quality and
responsiveness of the customer service and support that end users receive until
they contact us directly. We provide initial support to our direct customers and
back-up support to our distribution channels. The failure by us or distribution
channels to offer adequate customer support to end users could harm our
reputation or cause demand for our products to decline.
WE RELY ON A COMBINATION OF PATENT, COPYRIGHT, TRADEMARK AND TRADE SECRET LAWS,
AS WELL AS CONFIDENTIALITY AGREEMENTS AND LICENSING ARRANGEMENTS, TO ESTABLISH
AND PROTECT OUR PROPRIETARY RIGHTS. FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY
WILL LIMIT OUR ABILITY TO COMPETE AND RESULT IN A LOSS OF A COMPETITIVE
ADVANTAGE AND DECREASED REVENUE.
Our success and ability to compete depend substantially on our proprietary
technology. Any infringement of our proprietary rights could result in
significant litigation costs, and any failure to adequately protect our
proprietary rights could result in our competitors offering similar products,
potentially resulting in loss of a competitive advantage and decreased revenue.
We presently have three U.S. patent applications pending, but no issued patents.
Despite our efforts to protect our proprietary rights, existing copyright,
trademark and trade secret laws afford only limited protection. In addition, the
laws of many foreign countries do not protect our proprietary rights to the same
extent as do the laws of the United States. Attempts may be made to copy or
reverse engineer aspects of our products or to obtain and use information that
we regard as proprietary. Accordingly, we may not be able to protect our
proprietary rights against unauthorized third-party copying or use. Furthermore,
policing the unauthorized use of our products is difficult. Litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of the proprietary
rights of others. This litigation could result in substantial costs and
diversion of resources and may not ultimately be successful.
WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT ARE COSTLY
TO DEFEND AND COULD LIMIT OUR ABILITY TO USE SOME TECHNOLOGIES IN THE FUTURE.
Our industry is characterized by frequent intellectual property litigation
based on allegations of infringement of intellectual property rights. From time
to time, third parties have asserted, and may assert in the future, patent,
copyright, trademark and other intellectual property rights to technologies or
rights that are important to our business. In addition, our agreements may
require that we indemnify our
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customers for any expenses or liabilities resulting from claimed infringements
of patents, trademarks or copyrights of third parties. Any claims asserting that
our products infringe or may infringe the proprietary rights of third parties,
with or without merit, could be time-consuming, resulting in costly litigation
and diverting the efforts of our technical and management personnel. These
claims could cause us to stop selling, incorporating or using our products that
use the challenged intellectual property and could also result in product
shipment delays or require us to redesign or modify our products or enter into
licensing agreements. These licensing agreements, if required, would increase
our product costs and may not be available on terms acceptable to us, if at all.
We may be a party to litigation involving intellectual property claims
against us in the future. We also cannot assure you that we would prevail in any
such actions, given their complex technical issues and inherent uncertainties.
Although we carry general liability insurance, our insurance may not cover
potential claims of this type or may not be adequate to indemnify us for all
liability that may be imposed. If there is a successful claim of infringement or
we fail to develop non-infringing technology or license the proprietary rights
on a timely basis, our business could be harmed.
IF NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY ARE NOT AVAILABLE TO US OR ARE
VERY EXPENSIVE, WE MAY BE UNABLE TO DEVELOP NEW PRODUCTS OR PRODUCT
ENHANCEMENTS.
From time to time we may be required to license technology from third
parties to develop new products or product enhancements. These third-party
licenses may not be available to us on commercially reasonable terms, if at all.
Our inability to obtain necessary third-party licenses may force us to obtain
substitute technology of lower quality or performance standards or at greater
cost, any of which could seriously harm the competitiveness of our products.
BECAUSE OUR HEADQUARTERS ARE LOCATED IN NORTHERN CALIFORNIA, WHICH IS A REGION
CONTAINING ACTIVE EARTHQUAKE FAULTS, IF A NATURAL DISASTER OCCURS, OUR BUSINESS
COULD BE SHUT DOWN OR SEVERELY IMPACTED.
Our business and operations depend on the extent to which our facility and
products are protected against damage from fire, earthquakes, power loss and
similar events. Despite precautions taken by us, a natural disaster or other
unanticipated problem could, among other things, hinder our research and
development efforts, delay the shipment of our products and affect our ability
to receive and fulfill orders. For example, since we conduct all of our final
assembly and tests in one location, any fire or other disaster at the assembly
facility would severely harm our business.
RISKS ASSOCIATED WITH THE MULTISERVICE BROADBAND ACCESS INDUSTRY
INTENSE COMPETITION IN THE MARKET FOR OUR TELECOMMUNICATIONS PRODUCTS COULD
PREVENT US FROM INCREASING OR SUSTAINING OUR REVENUE AND PREVENT US FROM
ACHIEVING OR SUSTAINING PROFITABILITY.
The market for multiservice broadband access products is highly
competitive. We compete directly with numerous companies, including Accelerated
Networks, Inc., ADTRAN, Inc., Carrier Access Corporation, Cisco Systems, Inc.,
Efficient Networks, Inc., Lucent Technologies, Inc., Nortel Networks, Inc. and
Sonoma Systems, Inc. Many of our current and potential competitors have longer
operating histories, greater name recognition, significantly greater selling and
marketing, technical, manufacturing, financial, customer support, professional
services and other resources, including vendor-sponsored financing programs. As
a result, these competitors are able to devote greater resources to the
development, promotion, sale and support of their products to leverage their
customer bases and broaden product offerings to gain market share. In addition,
our competitors may foresee the course of market developments more accurately
than we do and could develop new technologies that compete with our products or
even render our products obsolete. We may not have sufficient resources to
continue to make the investments or achieve the technological advances necessary
to compete successfully with existing or new competitors. In addition, due to
the rapidly evolving markets in which we compete, additional
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competitors with significant market presence and financial resources, including
other large telecommunications equipment manufacturers, may enter our markets,
thereby further intensifying competition.
We believe that our existing OEM customers continuously evaluate whether to
offer their own multiservice broadband access devices. If any of our OEM
customers decides to internally design and sell its own multiservice broadband
access devices, or acquire one or more of our competitors or their broadband
access technologies, it could eliminate or substantially reduce its purchases of
our products. In addition, our current growth may cause some OEM customers to
view us as greater competition. Our OEM relationships could also be harmed as we
develop and market new products that may compete directly with the products of
our OEM customers. We cannot assure you that any of our OEM customers will
continue to rely, or expand their reliance, on us as an external source of
supply for their multiservice broadband access devices. Because we rely on only
a few OEM customers for a substantial portion of our revenues, any loss of sales
to these OEM customers would seriously harm our business, financial condition
and results of operations.
BECAUSE OUR INDUSTRY IS CHARACTERIZED BY CONSOLIDATION, WE COULD POTENTIALLY
LOSE CUSTOMERS, WHICH WOULD HARM OUR BUSINESS.
The markets in which we compete are characterized by increasing
consolidation, as exemplified by the recent or pending acquisitions of Promatory
Communications, Inc. by Nortel Networks, FlowPoint Corporation by Efficient
Networks, Inc., PairGain Technologies, Inc. by ADC Telecommunications, Inc. and
Newbridge Networks Corporation by Alcatel. We cannot predict how industry
consolidation will affect our competitors and we may not be able to compete
successfully in an increasingly consolidated industry. Additionally, because we
are dependent on strategic relationships with third parties in our industry, any
consolidation involving these parties could reduce the demand for our products
and otherwise harm our business prospects. Our competitors that have large
market capitalizations or cash reserves are also better positioned than we are
to acquire other companies, including our competitors, thereby increasing market
share or obtaining new technologies or products that may displace our product
lines. Any of these acquisitions could give our competitors a strategic
advantage that could adversely affect demand for our products.
OUR PRODUCTS ARE SUBJECT TO PRICE REDUCTION AND MARGIN PRESSURES. IF OUR AVERAGE
SELLING PRICES DECLINE AND WE FAIL TO OFFSET THAT DECLINE THROUGH COST
REDUCTIONS, OUR GROSS MARGINS AND POTENTIAL PROFITABILITY WOULD BE SERIOUSLY
HARMED.
In the past, competitive pressures have forced us to reduce the prices of
our products. In the second quarter of 1999, we reduced the price of our T1
Integrator product line in response to competition, which reduced our gross
margins in subsequent periods. We expect similar price reductions to occur in
the future in response to competitive pressures. In addition, our average
selling prices decline when we negotiate volume price discounts with customers
and utilize indirect distribution channels. If our average selling prices
decline and we fail to offset that decline through cost reductions, our gross
margins and potential profitability would be seriously harmed.
SALES OF OUR PRODUCTS DEPEND ON THE WIDESPREAD ADOPTION OF MULTISERVICE
BROADBAND ACCESS SERVICES AND IF THE DEMAND FOR MULTISERVICE BROADBAND ACCESS
SERVICES DOES NOT DEVELOP, THEN OUR RESULTS OF OPERATIONS AND FINANCIAL
CONDITION WOULD BE HARMED.
Our business will be harmed if the demand for multiservice broadband access
services does not increase as rapidly as we anticipate, or if our customers'
multiservice broadband access service offerings are not well received in the
marketplace. Critical factors affecting the development of the multiservice
broadband access services market include:
- the development of a viable business model for multiservice broadband
access services, including the capability to market, sell, install and
maintain these services;
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- cost constraints, such as installation, space and power requirements at
the central offices of incumbent local exchange carriers, or ILECs;
- compatibility of equipment from multiple vendors in service provider
networks;
- evolving industry standards for transmission technologies and transport
protocols;
- varying and uncertain conditions of the communications network
infrastructure, including quality and complexity, electrical
interference, and crossover interference with voice and data
telecommunications services;
- domestic and foreign government regulation; and
- the ability of competitive local exchange carriers, or CLECs, to obtain
sufficient funding and to successfully grow their businesses.
The market for multiservice broadband access devices may fail to develop
for other reasons or may develop more slowly than anticipated, which would harm
our business.
IF WE FAIL TO COMPLY WITH REGULATIONS AND EVOLVING INDUSTRY STANDARDS, SALES OF
OUR EXISTING AND FUTURE PRODUCTS COULD BE HARMED.
The markets for our products are characterized by a significant number of
communications regulations and standards, some of which are evolving as new
technologies are deployed. Our customers may require our products to comply with
various standards, including those promulgated by the Federal Communications
Commission, or FCC, standards established by Underwriters Laboratories and
Telcordia Technologies or proprietary standards promoted by our competitors. In
addition, our key competitors may establish proprietary standards which they
might not make available to us. As a result, we may not be able to achieve
compatibility with their products. Internationally, we may also be required to
comply with standards established by telecommunications authorities in various
countries as well as with recommendations of the International
Telecommunications Union.
Our customers may also require, or we may otherwise deem it necessary or
advisable, that we modify our products to address actual or anticipated changes
in the regulatory environment. Failure of our products to comply, or delays in
compliance, with the various existing, anticipated and evolving industry
regulations and standards could decrease sales of our existing and future
products. Moreover, the enactment of new laws or regulations, changes in the
interpretation of existing laws or regulations or a reversal of the trend toward
deregulation in the telecommunications industry could affect our customers, and
thereby harm our business.
OUR CUSTOMERS ARE SUBJECT TO GOVERNMENT REGULATION, AND CHANGES IN CURRENT OR
FUTURE LAWS OR REGULATIONS THAT NEGATIVELY IMPACT OUR CUSTOMERS COULD HARM OUR
BUSINESS.
The jurisdiction of the FCC extends to the entire communications industry,
including our customers. Future FCC regulations affecting the broadband access
industry, our customers or their service offerings may harm our business. For
example, FCC regulatory policies that affect the availability of data and
Internet services may impede our customers' penetration into markets or affect
the prices that they are able to charge. In addition, international regulatory
bodies are beginning to adopt standards and regulations for the broadband access
industry. If our customers are hurt by laws or regulations regarding their
business, products or service offerings, demand for our products may decrease.
15
<PAGE> 19
ADDITIONAL RISKS THAT MAY AFFECT OUR STOCK PRICE
OUR STOCK PRICE MAY BE VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL OUR SHARES AT
OR ABOVE THE PRICE YOU PAID, OR AT ALL.
There has previously not been a public market for our common stock. We
cannot predict the extent to which investor interest in our stock will lead to
the development of a trading market or how liquid that market might become. The
initial public offering price for the shares will be determined by negotiations
between us and the representatives of the underwriters and may not be indicative
of prices that will prevail in the trading market. The trading price of our
common stock could be subject to wide fluctuations due to the factors discussed
in this risk factors section and elsewhere in this prospectus.
In addition, the stock market in general, and the Nasdaq National Market
and technology companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of companies. The trading prices and valuations of many
technology companies are substantially above historical levels. These trading
prices and valuations may not be sustainable. These broad market and industry
factors may decrease the market price of our common stock, regardless of our
actual operating performance.
In addition, in the past, following periods of volatility in the overall
market and the market price of a company's securities, securities class action
litigation has often been instituted against these companies. This litigation,
if instituted against us, could result in substantial costs and a diversion of
our management's attention and resources.
OUR MANAGEMENT HAS BROAD DISCRETION AS TO HOW TO USE THE PROCEEDS FROM THIS
OFFERING AND THE PROCEEDS MAY NOT BE USED IN A MANNER WITH WHICH YOU AGREE.
We intend to use the proceeds from this offering for general corporate
purposes, including working capital and capital expenditures, and we may use a
portion of the proceeds to acquire complementary businesses, products or
technologies and expand our sales and marketing efforts. We will have broad
discretion over how we use these proceeds. You will not have the opportunity to
evaluate the economic, financial or other information on which we base our
decisions regarding how to use the proceeds from this offering, and we may spend
these proceeds in ways with which you may disagree. Pending any of these uses,
we plan to invest the proceeds of this offering in short-term, investment-grade,
interest-bearing securities. We cannot predict whether these investments will
yield a favorable return. See "Use of Proceeds."
WE MAY ENGAGE IN FUTURE ACQUISITIONS OR STRATEGIC INVESTMENTS THAT WE MAY NOT BE
ABLE TO SUCCESSFULLY INTEGRATE OR MANAGE, WHICH COULD HURT OUR BUSINESS. THESE
ACQUISITIONS OR STRATEGIC INVESTMENTS MAY ALSO DILUTE OUR STOCKHOLDERS AND CAUSE
US TO INCUR DEBT AND ASSUME CONTINGENT LIABILITIES.
We may review acquisition prospects and strategic investments that could
complement our current product offerings, augment our market coverage, enhance
our technical capabilities or otherwise offer growth opportunities. The issuance
of equity securities in connection with these acquisitions or investments could
significantly dilute our investors. If we incur or assume debt in connection
with these acquisitions or investments, we may incur interest charges that could
harm our net income. We have little experience in evaluating, completing,
managing or integrating acquisitions and strategic investments. Acquisitions and
strategic investments may entail numerous integration risks and impose costs on
us, including:
- difficulties in assimilating acquired operations, technologies or
products including the loss of key employees;
- unanticipated costs;
- diversion of management's attention from our core business concerns;
16
<PAGE> 20
- adverse effects on business relationships with our suppliers and
customers or those of the acquired businesses;
- risks of entering markets in which we have no or limited prior
experience;
- assumption of contingent liabilities;
- incurrence of significant amortization expenses related to goodwill and
other intangible assets; and
- incurrence of significant write-offs.
WE MAY NEED TO RAISE MORE CAPITAL, BUT THE AVAILABILITY OF ADDITIONAL FINANCING
IS UNCERTAIN. IF ADEQUATE FUNDS ARE NOT AVAILABLE OR ARE NOT AVAILABLE ON
ACCEPTABLE TERMS, WE MAY BE UNABLE TO DEVELOP OR ENHANCE OUR PRODUCTS AND
SERVICES, TAKE ADVANTAGE OF FUTURE OPPORTUNITIES OR RESPOND TO COMPETITIVE
PRESSURES, WHICH COULD NEGATIVELY IMPACT OUR PRODUCT DEVELOPMENT AND SALES.
We intend to use the proceeds from this offering for general corporate
purposes, including working capital and capital expenditures, and we may use a
portion of the proceeds to acquire complementary businesses, products or
technologies and expand our sales and marketing efforts. We believe that these
proceeds, together with our existing capital resources, will be sufficient to
meet our capital requirements for at least the next 12 months. However, our
capital requirements depend on several factors, including:
- the rate of market acceptance of our products;
- our ability to expand our customer base;
- the growth of our research and development and sales and marketing
organizations; and
- our ability to achieve profitability and positive cash flow.
If our capital requirements vary significantly from those currently
planned, we may require additional financing sooner than anticipated. If
additional funds are raised through the issuance of equity securities, the
percentage equity ownership of our existing stockholders will be reduced. In
addition, holders of these equity securities may have rights, preferences or
privileges senior to those of the holders of our common stock. If additional
funds are raised through the issuance of debt securities, we may incur
significant interest charges, and these securities would have rights,
preferences and privileges senior to holders of common stock. The terms of these
securities could also impose restrictions on our operations. Additional
financing may not be available when needed on terms favorable to us or at all.
If adequate funds are not available or are not available on acceptable terms, we
may be unable to develop or enhance our products and services, take advantage of
future opportunities or respond to competitive pressures, which could negatively
impact our product development and sales.
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE
OUR STOCK PRICE TO FALL.
Additional sales of our common stock in the public market after this
offering, or the perception that such sales could occur, could cause the market
price of our common stock to decline. Upon completion of this offering, we will
have 32,861,752 shares of common stock outstanding. The 5,000,000 shares sold in
this offering will be freely transferable without restriction or additional
registration under the Securities Act of 1933. The remaining shares of common
stock outstanding after this offering will be available for sale, assuming the
effectiveness of lock-up agreements under which our stockholders have agreed not
to sell or otherwise dispose of their shares of common stock in the public
market, as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
---------------- -----------------------------
<S> <C>
</TABLE>
(DATE OF PROSPECTUS)
(180 DAYS AFTER PROSPECTUS)
In addition, Lehman Brothers may, in its sole discretion, at any time
without notice, release all or any portion of the shares subject to the lock-up
agreements, which would result in more shares being available
17
<PAGE> 21
for sale in the public market at an earlier date. Sales of common stock by
existing stockholders in the public market, or the availability of the shares
for sale, could significantly reduce the market price of our common stock.
In addition, as soon as practicable after the date of this prospectus, we
intend to file a registration statement on Form S-8 with the Securities and
Exchange Commission covering the shares of common stock reserved for
issuance under our stock incentive plans. On the date 180 days after the
effective date of this offering, at least shares will be subject to
immediately exercisable options, based on options outstanding on March 31, 2000.
Sales of a large number of these shares could decrease the market price of our
common stock.
After this offering, the holders of shares of common stock will
have rights with respect to registration of these shares for sale to the public.
If these holders, by exercising their registration rights, cause a large number
of securities to be registered and sold in the public market, the sales could
decrease the market price for our common stock. If we were to include in a
company-initiated registration shares held by these holders pursuant to the
exercise of their registration rights, these sales may hinder our ability to
raise needed capital.
MANY CORPORATE ACTIONS WILL BE SUBSTANTIALLY CONTROLLED BY OFFICERS, DIRECTORS
AND AFFILIATED ENTITIES REGARDLESS OF THE DESIRE OF OTHER INVESTORS TO PURSUE AN
ALTERNATIVE COURSE OF ACTION.
After this offering, our directors, executive officers and their affiliated
entities will beneficially own approximately 54.5% of our outstanding common
stock. These stockholders, if they acted together, could exert substantial
control over matters requiring approval by our stockholders, including electing
directors and approving mergers or other business combination transactions. This
concentration of ownership may also discourage, delay or prevent a change in
control of our company, which could deprive our stockholders of an opportunity
to receive a premium for their stock as part of a sale of our company and might
reduce our stock price. These actions may be taken even if they are opposed by
our other stockholders, including those who purchase shares in this offering.
PURCHASERS IN THIS OFFERING WILL IMMEDIATELY EXPERIENCE SUBSTANTIAL DILUTION IN
NET TANGIBLE BOOK VALUE.
Because our common stock has in the past been sold at prices substantially
less than the initial public offering price that you will pay, you will suffer
immediate dilution of $10.57 per share in pro forma net tangible book value,
based on an assumed initial offering price of $13.00 per share of common stock.
The exercise of outstanding options may result in further dilution.
DELAWARE LAW AND OUR CORPORATE CHARTER AND BYLAWS CONTAIN ANTI-TAKEOVER
PROVISIONS THAT WOULD DELAY OR DISCOURAGE TAKE OVER ATTEMPTS THAT STOCKHOLDERS
MAY CONSIDER FAVORABLE.
Provisions in our certificate of incorporation, as amended and restated
upon the closing of this offering, may have the effect of delaying or preventing
a change of control or changes in our management. These provisions include:
- the right of the board of directors to elect a director to fill a vacancy
created by the expansion of the board of directors;
- the ability of the board of directors to alter our bylaws without
obtaining stockholder approval;
- the establishment of a classified board of directors;
- the ability of the board of directors to issue, without stockholder
approval, up to five million shares of preferred stock with terms set by
the board of directors which rights could be senior to those of common
stock; and
- the elimination of the right of stockholders to call a special meeting of
stockholders and to take action by written consent.
Each of these provisions could discourage potential take over attempts and
could lower the market price of our common stock.
18
<PAGE> 22
In addition, because we are incorporated in Delaware, we are governed by
the provisions of Section 203 of the Delaware General Corporation Law. These
provisions may prohibit large stockholders, in particular those owning 15% or
more of our outstanding voting stock, from merging or combining with us. These
provisions in our charter, bylaws and under Delaware law could reduce the price
that investors might be willing to pay for shares of our common stock in the
future and result in the market price being lower than it would be without these
provisions.
WE MAY BE REQUIRED TO REPURCHASE OR BE LIABLE UNDER CALIFORNIA STATE SECURITIES
LAWS FOR SHARES ISSUED, AND OPTION GRANTS MADE, UNDER OUR 1996 STOCK OPTION
PLAN.
The issuance of the shares and options under our 1996 stock option plan may
have violated California securities laws because these stock issuances and
option grants may not have been exempt from qualification under those securities
laws. We could be required to make total payments to the holders of these shares
and options of approximately $350,000 plus statutory interest of 7% per year, if
our offer to repurchase options and common stock issued upon exercise of options
is accepted. If any or all of these holders reject the repurchase offer, we may
continue to be liable under California securities laws for up to a total amount
of approximately $350,000 plus statutory interest of 7% per year.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. The forward-looking
statements are contained principally in the sections entitled "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." These statements involve
known and unknown risks, uncertainties and other factors which may cause our
actual results, performance or achievements to be materially different from any
future results, performances or achievements expressed or implied by the
forward-looking statements. Forward-looking statements include, but are not
limited to, statements about:
- marketing and commercialization of our products under development;
- our estimates regarding our capital requirements and our needs for
additional financing;
- plans for future products and services and for enhancements of existing
products and services;
- our patent applications and licensed technology regarding our products
and technology;
- our ability to attract customers and establish collaboration and
licensing agreements; and
- sources of revenues and anticipated revenues, including contributions
from corporate collaborations, license agreements and other collaborative
efforts, and the continued viability and duration of those agreements and
efforts.
In some cases, you can identify forward-looking statements by terms such as
"may," "intend," "might," "will," "should," "could," "would," "expect,"
"believe," "estimate," "predict," "potential," or the negative of these terms,
and similar expressions intended to identify forward-looking statements. These
statements reflect our current views with respect to future events and are based
on assumptions and subject to risks and uncertainties. Given these
uncertainties, you should not place undue reliance on these forward-looking
statements. We discuss many of these risks in this prospectus in greater detail
under the heading "Risk Factors." Also, these forward-looking statements
represent our estimates and assumptions only as of the date of this prospectus.
This prospectus contains statistical data regarding the integrated access
device industry that we obtained from industry publications, including reports
generated by the Yankee Group and Ryan Hankin Kent. These industry publications
generally indicate that they have obtained their information from sources
believed to be reliable. We have not independently verified their data.
19
<PAGE> 23
USE OF PROCEEDS
We expect that the net proceeds we will receive from the sale of the shares
of common stock offered by us will be approximately $59.0 million, based on an
assumed initial public offering price of $13.00 per share, and after deducting
the estimated underwriting discount and estimated offering expenses. If the
underwriters exercise their over-allotment option in full, our net proceeds will
be approximately $68.0 million. We currently intend to use the net proceeds of
this offering for general corporate purposes, including working capital and
capital expenditures and expansion of our domestic and international sales and
marketing efforts.
In addition, we also may use a portion of the net proceeds of this offering
for the acquisition of complementary businesses, products or technologies. While
we evaluate these types of opportunities from time to time, there are currently
no agreements or negotiations with respect to any specific transaction.
We have not yet determined all of our expected expenditures and we cannot
estimate the amounts to be used for each purpose set forth above. Accordingly,
our management will have significant flexibility in applying the net proceeds of
this offering. Pending use of the net proceeds as described above, we intend to
invest the net proceeds of this offering in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock, and
we do not currently intend to pay any cash dividends on our common stock in the
foreseeable future. We expect to retain future earnings, if any, to fund the
development and growth of our business. Our board of directors will determine
future dividends, if any.
20
<PAGE> 24
CAPITALIZATION
The following table describes our capitalization as of March 31, 2000:
- on an actual basis;
- on a pro forma basis after giving effect to the automatic conversion of
all of our outstanding shares of convertible preferred stock into
17,694,657 shares of common stock upon completion of this offering; and
- on a pro forma as adjusted basis to give effect to the sale of 5,000,000
shares of common stock in this offering at an assumed initial public
offering price of $13.00 per share, after deducting the estimated
underwriting discount and estimated offering expenses.
Please read this table together with the sections of this prospectus
entitled "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long term debt --......................................... $ 404 $ 404 $ 404
-------- -------- --------
Shareholders' equity:
Convertible preferred stock, $.0001 par value,
18,500,000 shares authorized; 17,694,657 shares
issued and outstanding, actual; no shares issued and
outstanding, pro forma and pro forma as adjusted..... 48,120
Common stock, $.0001 par value, 35,000,000 shares
authorized; 10,167,095 shares issued and outstanding,
actual; 27,861,752 shares issued and outstanding, pro
forma; 32,861,752 shares issued and outstanding, pro
forma as adjusted.................................... 37,697 85,817 144,767
Deferred stock compensation............................... (26,959) (26,959) (26,959)
Accumulated deficit....................................... (38,017) (38,017) (38,017)
-------- -------- --------
Total shareholders' equity.............................. 20,841 20,841 79,791
-------- -------- --------
Total capitalization.................................... $ 21,245 $ 21,245 $ 80,195
======== ======== ========
</TABLE>
The table excludes:
- 750,000 shares of common stock issuable upon the exercise of the
underwriters' over-allotment option;
- 8,481,471 shares of common stock issuable upon the exercise of stock
options outstanding as of March 31, 2000, at a weighted average exercise
price of $0.84 per share;
- shares available for future issuance under our 2000 stock plan;
and
- 1,000,000 shares reserved for issuance under our 2000 employee stock
purchase plan.
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<PAGE> 25
DILUTION
Our pro forma net tangible book value as of March 31, 2000 was
approximately $20,841,000, or $0.75 per share of common stock. Pro forma net
tangible book value per share represents the amount of our pro forma total
tangible assets less total liabilities, divided by the pro forma number of
shares of common stock outstanding assuming the conversion of all shares of
convertible preferred stock outstanding as of March 31, 2000 into 17,694,657
shares of common stock. After giving effect to the sale of the shares of
common stock by us at an assumed initial public offering price of $13.00 per
share, and after deducting the estimated underwriting discount and estimated
offering expenses, our pro forma net tangible book value as of March 31, 2000
would have been $79.8 million, or $2.43 per share of common stock. This
represents an immediate increase in net tangible book value of $1.68 per share
of common stock to existing stockholders and an immediate dilution in pro forma
net tangible book value of $10.57 per share to new investors purchasing shares
of common stock in this offering.
Pro forma net tangible book value dilution 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 completion of this offering on an as adjusted
basis. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $13.00
------
Pro forma net tangible book value per share before
offering............................................... $ .75
Increase in pro forma net tangible book value per share
attributable to this offering.......................... 1.68
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.43
------
Dilution per share to new investors......................... $10.57
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 2000,
the number of shares of common stock purchased from us, the total consideration
paid and the average price per share paid by existing and new investors
purchasing shares of common stock in this offering, before deducting the
estimated underwriting discount and estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 27,861,752 85% $ 86,501,000 57% $ 3.10
New investors......................... 5,000,000 15 65,000,000 43 13.00
---------- --- ------------ ---
Total............................ 32,861,752 100% $151,501,000 100%
========== === ============ ===
</TABLE>
The table above assumes no exercise of any outstanding stock options. As of
March 31, 2000, there were 8,481,471 shares of common stock issuable upon
exercise of outstanding stock options at a weighted average exercise price of
$0.84 per share, shares available for future issuance under our 2000
stock plan, and 1,000,000 shares reserved for issuance under our 2000 employee
stock purchase plan. To the extent that any of these options are exercised,
there will be further dilution to new investors.
22
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1998
and 1999 and for each of the three years in the period ended December 31, 1999
are derived from the consolidated financial statements included elsewhere in
this prospectus, which have been audited by Deloitte & Touche LLP, independent
auditors. The consolidated financial data as of March 31, 2000 and for the three
months ended March 31, 1999 and 2000 are derived from unaudited consolidated
financial statements included elsewhere in this prospectus. The consolidated
financial data as of December 31, 1996 and 1997 and for the period from June 21,
1996 (inception) through December 31, 1996 are derived from audited consolidated
financial statements not included in this prospectus. We have prepared the
unaudited information on the same basis as the audited consolidated financial
statements and have included all adjustments, consisting of only normal
recurring adjustments, that we consider necessary for a fair presentation of our
financial position and operating results. When you read this selected
consolidated financial data, it is important that you also read the consolidated
financial statements and related notes included in this prospectus, as well as
the section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Our historical results are not
necessarily indicative of our future results.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 21, 1996
(INCEPTION) THREE MONTHS
THROUGH YEARS ENDED DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, ---------------------------- -----------------
1996 1997 1998 1999 1999 2000
------------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Net revenue.......................... $ -- $ 579 $ 4,393 $ 12,700 $ 2,903 $ 5,187
Cost of revenue...................... 542 2054 7,713 1,486 3,239
---- ------- ------- -------- ------- -------
Gross profit......................... -- 37 2,339 4,987 1,417 1,948
---- ------- ------- -------- ------- -------
Costs and expenses:
Research and development........ 499 1,906 4,174 6,690 1,280 2,505
Selling, general and
administrative................ 342 2,532 6,414 10,881 2,077 3,721
Amortization of deferred stock
compensation*................. 79 154 4,715 117 3,653
---- ------- ------- -------- ------- -------
Total costs and expenses...... 841 4,517 10,742 22,286 3,474 9,879
---- ------- ------- -------- ------- -------
Loss from operations................. (841) (4,480) (8,403) (17,299) (2,057) (7,931)
Interest income, net................. 9 165 413 223 91 126
---- ------- ------- -------- ------- -------
Net loss............................. $(832) $(4,315) $(7,990) $(17,076) $(1,966) $(7,805)
==== ======= ======= ======== ======= =======
Net loss per share, basic and
diluted(1)......................... N/A $ (4.83) $ (2.63) $ (3.30) $ (0.46) $ (1.12)
==== ======= ======= ======== ======= =======
Shares used in computation, basic and
diluted(1)......................... -- 894 3,038 5,169 4,270 6,958
==== ======= ======= ======== ======= =======
Pro forma net loss per share, basic
and diluted(2)..................... $ (0.88) $ (0.34)
======== =======
Shares used in pro forma computation,
basic and diluted(2)............... 19,457 23,278
======== =======
</TABLE>
------------------------
* Amortization of deferred stock compensation
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Cost of revenue...................... -- $ -- $ 2 $ 152 $ 8 $ 154
Research and development............. -- 36 78 1,098 58 1,160
Selling, general and
administrative..................... -- 43 74 3,465 51 2,339
---- ------- ------- -------- ------- -------
-- $ 79 $ 154 $ 4,715 $ 117 $ 3,653
==== ======= ======= ======== ======= =======
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------- MARCH 31,
1996 1997 1998 1999 2000
------ ------ ------- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................... $5,049 $3,543 $11,359 $2,568 $21,557
Working capital (deficit)................... 4,842 2,896 11,058 (492) 19,443
Total assets................................ 5,314 4,524 14,456 6,673 26,966
Long-term debt, less current portion........ 129 400 655 534 404
Total shareholders' equity.................. 4,917 3,233 11,549 348 20,841
</TABLE>
---------------
(1) The diluted net loss per share computation excludes potential shares of
common stock issuable pursuant to convertible preferred stock and options to
purchase common stock, as well as common stock subject to repurchase rights
held by us, as their effect would be antidilutive. See Notes 1 and 6 of
notes to consolidated financial statements for a detailed explanation of the
determination of the shares used in computing basic and diluted net loss per
share.
(2) Includes the weighted average number of shares resulting from the assumed
conversion of all outstanding shares of convertible preferred stock upon the
completion of this offering. See Note 1 of notes to consolidated financial
statements for a detailed explanation of the determination of the shares
used in computing pro forma net loss per share. The diluted pro forma net
loss per share computation excludes potential shares of common stock
issuable pursuant to options to purchase common stock, as well as common
stock subject to repurchase rights held by us, as their effect would be
antidilutive.
24
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the consolidated financial statements
and related notes that are included elsewhere in this prospectus.
OVERVIEW
VINA Technologies is a leading developer of multiservice broadband access
communications equipment that enable communications service providers to deliver
bundled voice and data services. Our products integrate various broadband access
technologies, including existing and next-generation networks, onto a single
platform to alleviate capacity constraints in communications networks.
From our inception in June 1996 through February 1997, our operating
activities related primarily to developing and testing prototype products,
commencing the staffing of our sales and customer service organizations and
establishing relationships with our customers. We began shipments of our
Multiservice T1 Integrator product family in March 1997. In May 1999, we began
shipping our Multiservice Xchange product. Since inception, we have incurred
significant losses, and as of March 31, 2000, we had an accumulated deficit of
$38.0 million.
We market and sell our products directly to communications service
providers and through OEM customers and value-added resellers, or VARs. Our
revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the price is fixed and
determinable, and collectibility is reasonably assured. This generally occurs
upon commercial shipment of our products at which time we have no further
performance obligations to our customers. We also record a provision at the time
we recognize revenue primarily for warranty costs. No revenue is recognized on
products shipped on a trial basis. We recognize extended warranty and other
service revenue ratably over the respective service periods. This service
revenue has not been significant to date.
Our customer base is highly concentrated. A relatively small number of
customers have accounted for a significant portion of our historical net
revenue. For the year ended December 31, 1999, sales to Lucent Technologies
accounted for 46% of our net revenue. Five customers, including Lucent
Technologies, accounted for approximately 80% of our net revenue for the year
ended December 31, 1999. For the three months ended March 31, 2000, sales to our
five largest customers accounted for approximately 82% of our net revenue, of
which sales to Lucent Technologies, PairGain Technologies, Phillips
Communications and Equipment Company, 2nd Century Communications, and Gabriel
Communications accounted for 28%, 15%, 15%, 12% and 12% of our net revenue.
While the level of sales to any specific customer is anticipated to vary from
period to period, we expect that we will continue to experience significant
customer concentration for the foreseeable future. To date, international sales
have not been significant. International sales have been denominated solely in
U.S. dollars and, accordingly, we have not been exposed to significant
fluctuations in foreign currency exchange rates.
Cost of revenue consists primarily of costs of products manufactured by a
third-party contract manufacturer, component costs, depreciation of property and
equipment, personnel related costs to manage the contract manufacturer and
warranty costs, and excludes amortization of deferred stock compensation. We
conduct program management, manufacturing engineering, quality assurance and
documentation control at our facility in Fremont, California. We outsource our
manufacturing and testing requirements to Flextronics International Ltd.
Accordingly, a significant portion of our cost of revenue consists of payments
to this contract manufacturer.
We expect our gross margin to be affected by many factors, including
competitive pricing pressures, fluctuations in manufacturing volumes, costs of
components and sub-assemblies, costs from our contract manufacturers and the mix
of products or system configurations sold. Additionally, our gross margin may
fluctuate due to changes in our mix of distribution channels. Currently, we
derive the majority of our revenue from sales made to our OEM customers. A
significant increase in revenue to these OEM customers would adversely impact or
reduce our gross margin.
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<PAGE> 29
Research and development expenses consist primarily of personnel and
related costs, consulting expenses and prototype costs related to the design,
development, testing and enhancement of our multiservice broadband access
products, and excludes amortization of deferred stock compensation. We expense
all of our research and development expenses as incurred.
Selling, general and administrative expenses consist primarily of personnel
and related costs, including salaries and commissions for personnel engaged in
direct and indirect selling and marketing and other administrative functions and
promotional costs, including advertising, trade shows and related costs, and
excludes amortization of deferred stock compensation.
For the years ended December 31, 1997, 1998 and 1999 and for the three
months ended March 31, 2000, we recorded an aggregate of $35.6 million in
deferred stock compensation. This amount represents the difference between the
deemed fair market value of our common stock at the time of option grants during
these periods and the exercise prices of these options. As there is no public
market for our common stock, the fair market value of our common stock on option
grant dates has been determined by our board of directors. The board of
directors in their determination of fair market value takes into consideration
many factors including, but not limited to, our financial performance, current
economic trends, actions by competitors, market maturity, emerging technologies,
near-term backlog and, in some circumstances, valuation analyses performed by
independent appraisers using generally accepted valuation methodologies such as
the income and market approaches. We are amortizing deferred stock compensation
using a multiple option award valuation approach over the vesting periods of the
applicable options, which is generally four years. See Note 6 of notes to
consolidated financial statements. The amortization of deferred stock
compensation for options granted through March 31, 2000 for the next four years
totals $13.4 million in the remaining nine months in 2000, $8.7 million in 2001,
$3.8 million in 2002 and $1.0 million in 2003.
Interest income, net, consists primarily of interest earned on our cash,
cash equivalent and short-term investment balances partially offset by interest
expense associated with our debt obligations.
RESULTS OF OPERATIONS
The following table sets forth selected consolidated statements of
operations data as a percentage of net revenue for the periods indicated. For
purposes of this table, cost of revenue, gross profit, research and development,
and selling, general and administrative amounts do not include amortization of
deferred stock compensation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- ------------------
1997 1998 1999 1999 2000
------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C>
Net revenue................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue............................. 93.6 46.8 60.7 51.2 62.4
------ ------ ------ ----- ------
Gross profit................................ 6.4 53.2 39.3 48.8 37.6
------ ------ ------ ----- ------
Cost and expenses:
Research and development.................. 329.2 95.0 52.7 44.1 48.3
Selling, general and administrative....... 437.3 146.0 85.7 71.5 71.7
Amortization of deferred stock
compensation........................... 13.6 3.5 37.1 4.0 70.5
------ ------ ------ ----- ------
Total costs and expenses............... 780.1 244.5 175.5 119.6 190.5
------ ------ ------ ----- ------
Loss from operations........................ (773.7) (191.3) (136.2) (70.8) (152.9)
Interest income, net........................ 28.4 9.4 1.8 3.1 2.4
------ ------ ------ ----- ------
Net loss.................................... (745.3)% (181.9)% (134.4)% (67.7)% (150.5)%
====== ====== ====== ===== ======
</TABLE>
Three Months Ended March 31, 2000 and 1999
Net revenue. Net revenue increased to $5.2 million for the three months
ended March 31, 2000 from $2.9 million for the three months ended March 31,
1999. The growth in net revenue primarily resulted from sales of our
Multiservice Xchange products introduced in the second quarter of 1999 and
increased
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<PAGE> 30
unit sales of our other products, offset by price reductions effected in the
second quarter of 1999. The average selling price of the Multiservice T1
Integrator products decreased 31% in the current period compared to the prior
year period.
Cost of revenue. Cost of revenue increased to $3.2 million for the three
months ended March 31, 2000 from $1.5 million for the three months ended March
31, 1999. Gross profit increased to $1.9 million for the three months ended
March 31, 2000 from $1.4 million for the three months ended March 31, 1999.
Gross margin decreased to 37.6% for the three months ended March 31, 2000 from
48.8% for the three months ended March 31, 1999. This decrease in gross margin
was due primarily to price reductions effected in the second quarter of 1999.
Research and development expenses. Research and development expenses
increased to $2.5 million for the three months ended March 31, 2000, from $1.3
million for the three months ended March 31, 1999. Research and development
expenses increased as a percentage of net revenue from 44.1% in the first
quarter of 1999 to 48.3% in the first quarter of 2000. These increases in
absolute dollar amounts and as a percentage of revenue were primarily a result
of additional personnel costs, prototype expenses and consulting costs. We
believe that continued investment in research and development is critical to
attaining our strategic product and cost reduction objectives, and as a result,
we expect these research and development expenses to increase in absolute
dollars in the future.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $3.7 million for the three months ended
March 31, 2000 from $2.1 million for the three months ended March 31, 1999. This
increase was primarily attributable to increased personnel costs, including
hiring of additional sales and key management personnel, as well as increased
recruiting costs. Selling, general and administrative expenses as a percentage
of revenue remained flat for the first quarter of 2000 compared to the first
quarter of 1999. We intend to actively participate in marketing, business
development activities and selling and promotional programs, and therefore we
expect expenses related to these programs to continue to increase substantially
in absolute dollars in the future. In addition, we expect to substantially
expand our field sales operations and customer support organizations, which
would also result in an increase in selling and marketing expenses. We expect
selling, general and administrative expenses to continue to increase in absolute
dollars as we build our infrastructure to support our anticipated business
growth and operation as a public company.
Amortization of deferred stock compensation. Amortization of deferred
stock compensation increased to $3.7 million for the three months ended March
31, 2000 from $117,000 for the three months ended March 31, 1999. Based on stock
options granted through March 31, 2000, we expect to record $5.0 million of
amortization of stock-based compensation in the quarter ending June 30, 2000.
Interest income, net. Interest income, net for the three months ended
March 31, 2000 increased to $126,000 from $91,000 for the three months ended
March 31, 1999. This increase was primarily attributable to interest earned on
higher average cash balances throughout the relevant period.
Fiscal Years Ended December 31, 1999, 1998 and 1997
Net revenue. Net revenue was $12.7 million for 1999, $4.4 million for 1998
and $579,000 for 1997. The increase in net revenue was primarily attributable to
increased unit sales of existing and new products, offset by price reductions
effected in the second quarter of 1999. The average selling price of the
Multiservice T1 Integrator products decreased 30% in the current period compared
to the prior year period.
Cost of revenue. Cost of revenue was $7.7 million for 1999, $2.1 million
for 1998 and $542,000 for 1997. Gross profit increased to $5.0 million for 1999
from $2.3 million for 1998 and $37,000 for 1997. Gross margin decreased to 39.3%
for 1999 from 53.2% in 1998. This decrease was due primarily to price reductions
effected in the second quarter of 1999. Gross margin increased between 1997 and
1998 as a result of an increase in net revenue, which leveraged our
manufacturing personnel expenses and lowered the per unit cost.
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<PAGE> 31
Research and development expenses. Research and development expenses
increased to $6.7 million in 1999 from $4.2 million in 1998 and $1.9 million in
1997. These increases were primarily a result of additional personnel costs,
higher prototype expenses and higher consulting costs associated with our
continuing research and development efforts. Research and development expenses
decreased as a percentage of net revenue from 329.2% in 1997, to 95.0% in 1998
and 52.7% in 1999. These decreases were a result of net revenue increasing at a
rate faster than research and development expenses.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $11.0 million in 1999 from $6.4 million in
1998 and $2.5 million in 1997. These increases were primarily attributable to
increased personnel costs, including hiring of additional sales and key
management personnel, as well as increased promotional expenses, including trade
shows and advertising. Selling, general and administrative expenses decreased as
a percentage of revenue from 437.3% in 1997, to 146.0% in 1998 and 85.7% in
1999. These decreases were a result of net revenue increasing at a rate faster
than selling, general and administrative expenses.
Amortization of deferred stock compensation. We recorded deferred stock
compensation of $17.9 million in 1999, $394,000 in 1998 and $200,000 in 1997.
Amortization of deferred stock compensation was $4.7 million in 1999, $154,000
in 1998 and $79,000 for 1997.
Interest income, net. Interest income, net decreased to $223,000 in 1999,
from $413,000 in 1998. This decrease was primarily attributable to lower cash
balances resulting in lower interest income earned. Interest income, net
increased to $413,000 in 1998 from $165,000 in 1997. This increase was primarily
attributable to increased interest income earned on higher cash balances
partially offset by interest expense on bank loans.
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<PAGE> 32
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited consolidated statements of
operations data for the past five quarters, including the quarter ended March
31, 2000. The unaudited consolidated information for each of these quarters has
been prepared on substantially the same basis as the audited consolidated
financial statements included elsewhere in this prospectus and, in our opinion,
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for these
periods. For purposes of these tables, cost of revenue, gross profit, research
and development and selling, general and administrative amounts do not include
amortization of deferred stock compensation. Historical results are not
necessarily indicative of the results to be expected in the future, and results
of the interim periods are not necessarily indicative of our results of
operations for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1999 1999 1999 1999 2000
--------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenue............................. $ 2,903 $ 2,771 $ 2,992 $ 4,034 $ 5,187
Cost of revenue......................... 1,486 1,292 2,177 2,758 3,239
------- ------- ------- ------- -------
Gross profit............................ 1,417 1,479 815 1,276 1,948
------- ------- ------- ------- -------
Cost and expenses:
Research and development.............. 1,280 1,478 1,531 2,401 2,505
Selling, general and administrative... 2,077 2,443 2,832 3,529 3,721
Amortization of deferred stock
compensation....................... 117 453 1,547 2,598 3,653
------- ------- ------- ------- -------
Total costs and expenses........... 3,474 4,374 5,910 8,528 9,879
------- ------- ------- ------- -------
Loss from operations.................... (2,057) (2,895) (5,095) (7,252) (7,931)
Interest income, net.................... 91 77 50 5 126
------- ------- ------- ------- -------
Net loss................................ $(1,966) $(2,818) $(5,045) $(7,247) $(7,805)
======= ======= ======= ======= =======
AS A PERCENTAGE OF NET REVENUE:
Net revenue............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......................... 51.2 46.6 72.8 68.4 62.4
------- ------- ------- ------- -------
Gross profit............................ 48.8 53.4 27.2 31.6 37.6
------- ------- ------- ------- -------
Costs and expenses:
Research and development.............. 44.1 53.3 51.2 59.5 48.3
Selling, general and administrative... 71.5 88.2 94.6 87.5 71.7
Amortization of deferred stock
compensation....................... 4.0 16.4 51.7 64.4 70.5
------- ------- ------- ------- -------
Total costs and expenses........... 119.6 157.9 197.5 211.4 190.5
------- ------- ------- ------- -------
Loss from operations.................... (70.8) (104.5) (170.3) (179.8) (152.9)
Interest income, net.................... 3.1 2.8 1.7 .2 2.4
------- ------- ------- ------- -------
Net loss................................ (67.7)% (101.7)% (168.6)% (179.6)% (150.5)%
======= ======= ======= ======= =======
</TABLE>
Net revenue has increased in each successive quarter since the quarter
ended June 30, 1999, as we have expanded our product line and increased OEM
sales of our products. Net revenue for the quarter ended June 30, 1999 decreased
$132,000 from the quarter ended March 31, 1999, primarily due to price
reductions on our TI Integrator product line in response to competitive
pressures during the quarter ended June 30, 1999, which was partially offset by
net revenue from the initial shipments of our Multiservice Xchange product line.
Gross profit has increased in absolute dollars in each of the two most
recent quarters, as a result of cost reductions and increased net revenue
resulting in lower per unit costs. Gross margin in the quarter ended September
30, 1999 was significantly lower than in the quarter ended June 30, 1999,
primarily
29
<PAGE> 33
because of price reductions on our T1 Integrator product line effected during
the quarter ended June 30, 1999.
Costs and expenses have increased in absolute dollars in each successive
quarter referred to in the table above. These increases were primarily the
result of increased research and development expenses to introduce new products
and enhance existing products, increased selling and marketing costs associated
with higher revenue levels and increased general and administrative expenses
primarily associated with the hiring of key management and other personnel.
Our quarterly and annual operating results will continue to fluctuate
significantly in the future due to a variety of factors, many of which are
outside our control. Additionally, as a result of our limited operating history
and the emerging nature of the multiservice broadband access market in which we
compete, it is difficult for us to forecast our revenues or earnings accurately.
Our current and future expense levels are based largely on our investment plans
and estimates of future revenues and are, to a large extent, fixed. We may be
unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall. Any significant shortfall in net revenue relative to our
planned expenditures would harm our operating results. Due to these factors, our
quarterly revenues and operating results are difficult to forecast. We believe
that period to period comparisons of our operating results may not be meaningful
and should not be relied upon as an indication of future performance. In
addition, it is possible that in one or more future quarters our operating
results will fall below the expectations of investors and securities analysts,
should analysts cover our stock in the future. In either event, the trading
price of our common stock would likely fall.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have satisfied our cash requirements primarily through
private sales of convertible preferred stock which generated gross proceeds of
approximately $48.8 million. At March 31, 2000, we had cash, cash equivalents
and short-term investments of $21.6 million, and $924,000 of outstanding
obligations under our equipment loan facility.
Net cash used in operating activities was $9.1 million in 1999, $8.1
million in 1998 and $3.8 million in 1997. Net cash used in operating activities
for the three months ended March 31, 2000 was $5.0 million. Cash used in
operating activities resulted primarily from net losses from operations in each
period.
Net cash provided by investing activities was $3.1 million in 1999. Net
cash used in investing activities was $4.7 million in 1998 and $645,000 in 1997.
The increase in cash provided by investing activities in 1999 was due to the
maturity of $8.0 million of short-term investments, partially offset by
purchases of $4.0 million of short-term investments and $938,000 of property and
equipment. The cash used in investing activities in 1998 and 1997 was primarily
due to the purchases of short-term securities and property and equipment. Net
cash used in investing activities was $13.2 million for the three months ended
March 31, 2000 and $2.2 million for the three months ended March 31, 1999, in
each case primarily reflecting purchases of short-term investments.
Cash provided by financing activities was $1.2 million in 1999, $16.6
million in 1998 and $2.9 million in 1997. Cash provided by financing activities
in 1999 primarily consisted of proceeds from exercises of stock options and
sales of common stock. Cash provided by financing activities in 1998 and 1997
was primarily due to sales of convertible preferred stock. Cash provided by
financing activities for the three months ended March 31, 2000 was $24.5
million, primarily due to sales of convertible preferred stock. Cash provided by
financing activities for the three months ended March 31, 1999 was $281,000 due
primarily to proceeds from issuance of long-term debt.
We currently have no significant commitments for capital expenditures. We
anticipate that we will increase our capital expenditures consistently with our
anticipated growth in personnel and infrastructure, including facilities and
systems.
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<PAGE> 34
We expect to experience significant growth in our operating expenses for
the foreseeable future. As a result, we anticipate that operating expenses will
constitute a material use of our cash resources. In addition, we may use cash
resources, including net proceeds from this offering, to fund acquisitions or
investments in complementary businesses, technologies or products. We believe
that our cash on hand, available borrowings under our credit facilities and the
net proceeds from the sale of the common stock in this offering will be
sufficient to meet our working capital and capital expenditure requirements for
at least the next 12 months.
YEAR 2000 ISSUES
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer programs
or hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruptions of operations for any
company using such computer programs or hardware, including, among other things,
a temporary inability to process research data, send invoices or engage in
normal business activities. We have not experienced any material Year 2000
related problems in connection with our internal systems or our products,
although we cannot assure you that such problems will not occur or become
apparent in the future. We plan to continue to monitor our internal systems and
products throughout the year to assess whether any problems develop. If any
errors or defects become evident, we may incur costs to resolve them.
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133, as amended, will be effective for
us beginning in 2001. Although we have not fully assessed the implications of
SFAS No. 133, we do not believe adoption of this statement will have a material
impact on our consolidated financial position, results of operations or cash
flows.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We are exposed to financial market risks related to interest rates and
foreign currency exchange rates. Our investments in commercial paper are subject
to interest rate risk, but due to the short-term nature of these investments,
interest rate changes would not have a material impact on their value at
December 31, 1998 and March 31, 2000. There were no such investments at December
31, 1999. We also had debt obligations of $1.0 million, $1.1 million and
$924,000 at December 31, 1998 and 1999 and March 31, 2000, respectively, which
bear interest based on prime plus a fixed percentage. We do not hedge any
interest rate exposures and a hypothetical change of 10% in the interest rates
would not have a material impact on the fair market value of these debt
obligations at December 31, 1998 and 1999 and March 31, 2000. To date, our
international sales have been denominated solely in U.S. dollars, and
accordingly, we have not been exposed to foreign currency exchange rate
fluctuations related to sales transactions. However, the functional currency of
our subsidiary in the United Kingdom is the U.S. dollar and as the local
accounts are maintained in British pounds, we are subject to foreign currency
exchange rate fluctuations associated with remeasurement to U.S. dollars. A
hypothetical change of 10% in the foreign currency exchange rates would not have
a material impact on our consolidated financial position or results of
operations.
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<PAGE> 35
BUSINESS
VINA Technologies develops and markets multiservice broadband access
products that enable telecommunications service providers to deliver bundled
voice and data services. Our products integrate various broadband access
technologies, including both circuit- and packet-based technologies, onto a
single platform to alleviate capacity constraints in the first mile of
communications networks. We believe that by integrating voice and data services,
our solutions decrease network access equipment costs and operating expenses for
our service provider customers. Our products also create additional revenue
opportunities for service providers by enabling them to deliver enhanced
services. These services include local and long distance telephone services, as
well as high-speed data services, such as Internet access, business-to-business
electronic commerce, extended local area networks, outsourced applications
services and messaging. By supporting both circuit- and packet-based
technologies, our products protect service providers' investments in existing
circuit-based networks and offer them a cost-effective migration path to
packet-based networks. They also facilitate seamless and remote upgrades and
service provisioning by our customers.
INDUSTRY BACKGROUND
Increasing Demand for Broadband Access
The volume of Internet and other data traffic has grown quickly over the
past several years, due primarily to increased numbers of users and the
proliferation of bandwidth intensive applications such as business-to-business
electronic commerce, web hosting and remote access for telecommuters. According
to the Yankee Group, in 2002, over 50% of public communications network traffic
in the United States will be data traffic, surpassing the amount of voice
traffic on the public network for the first time. Moreover, Ryan Hankin Kent, a
market research and consulting firm, projects North American Internet traffic to
grow at a rate of approximately 300% per year between 1999 and 2003. Electronic
business applications have become critical business tools and, as a result,
businesses of all sizes increasingly require their telecommunications service
provider to deliver constant broadband connections at affordable rates.
The First Mile Bottleneck
Although service providers have deployed next-generation technologies to
expand the speed and capacity of long distance networks, more limited investment
has been made in local networks, or the first mile, to address the substantial
increase in traffic. As a result, the first mile has become the
telecommunication infrastructure's principal bottleneck, limiting the ability of
service providers to deliver broadband services to the market.
Deregulation is Accelerating Competition and the Introduction of Broadband
Access
Historically, in the United States, dominant telephone companies,
principally Regional Bell Operating Companies, were the exclusive operators of
first mile communications networks. The U.S. Telecommunications Act of 1996
opened the local communications market to new entrants. The 1996 Act required
the dominant local carriers, known as incumbent local exchange carriers, or
ILECs, to lease portions of their networks to other carriers to compete in the
first mile. These new entrants are referred to as competitive local exchange
carriers, or CLECs. Expanded competition has accelerated the deployment of new
technologies, including digital subscriber line, or DSL, digital cable and
broadband fixed wireless, into the local market. To date, these broadband
solutions have been introduced as parallel data networks, co-existing alongside
the voice infrastructure controlled by ILECs, complicating the network.
While both CLECs and ILECs have introduced services in the market to
address competition and the need for broadband access, each of them faces
significant challenges in their respective markets.
CLECs. CLECs have targeted the large business market in particular and
have gained market share from ILECs in recent years. Most CLECs have provided
either voice or data services and are facing numerous challenges as they attempt
to achieve profitability. CLECs are seeking to decrease network expense by
improving bandwidth management and reducing customer turnover. They are also
seeking to
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<PAGE> 36
increase revenue per customer by introducing bundled suites of enhanced voice
and data services, such as long distance, local call routing, Internet access,
business-to-business electronic commerce and web hosting. CLECs have also taken
the lead in offering bundled voice and data services to small to medium size
businesses, a market which we believe has been dominated, but underserved, by
ILECs. These businesses often do not have the financial or technical resources
of large businesses to invest in and manage costly parallel voice and data
networks. We believe that small to medium size businesses present an opportunity
for CLECs to substantially grow their customer base. According to the Yankee
Group, in the U.S. there were approximately 9.8 million small to medium size
businesses with two to 499 employees in 1999.
ILECs. Historically, ILECs have faced strict regulations limiting their
investment returns in the voice market by tying those returns to their
infrastructure and other costs. ILECs now seek to introduce new enhanced data
services in deregulated markets where their returns are not so constrained.
Although ILECs have traditionally dominated the first mile market, they have
lost substantial market share to CLECs in the large business market and have
begun to lose market share in the small to medium size business market because
CLECs have been able to deliver more cost-effective services. In order to defend
their customer base in the small to medium size business market, ILECs are
seeking to provide bundled voice and data services to their customers. ILECs are
also experiencing a copper wire telecommunication lines shortage in major
metropolitan areas because there has been an increase in the number of phone
lines installed in customer premises for a variety of applications. Due to this
shortage, ILECs face pressure to more efficiently utilize their copper wires to
meet the increasing demand for voice and high-speed data access.
Convergence of Voice and Data Networks
Voice and data networks have evolved into parallel networks as broadband
access networks include both circuit-based networks utilizing time division
multiplexing, or TDM, and packet-based networks utilizing various protocols such
as asynchronous transfer mode, or ATM, internet protocol, or IP, and frame
relay. The deployment of equipment dedicated to circuit-based networks and
packet-based networks has resulted in the creation of a highly complex
telecommunications infrastructure comprised of multiple networks dedicated to
support various protocols. As a result, service providers are subject to high
network operating costs due to the redundancy of operating parallel networks and
limited equipment compatibility. In order for service providers to deliver
cost-effective, bundled voice and data services, we believe these parallel
networks as pictured in the diagram below need to be integrated and simplified.
[EDGAR DIAGRAM]
[Edgar description of diagram: Diagram of parallel core networks entitled
"Today's Parallel Voice & Data Networks." The diagram depicts the path of voice
and data from the public communications network to the end user over the local
loop.]
Limitations Constraining the Deployment of Converged Next-Generation Network
Solutions
While many service providers desire to provide bundled voice and data
services, they have been limited in their ability to deliver their services by
the following:
- Uncertain migration path. Service providers have invested billions of
dollars in circuit-based networks. They recognize that separate voice and
data networks must be converged because separate networks are not
cost-effective in the long term. Service providers require products that
support both networks and offer a cost-effective migration path from
existing networks to next-generation networks.
- Multiple Equipment and Protocol Types. Addressing multiple protocols has
historically required service providers to tap multiple vendors and
equipment types, and has resulted in confusion as well as unnecessary
network complexity and expense. Service providers require multiservice
access solutions that integrate readily into their existing networks,
maintain compatibility with other components of their network and provide
remote, dynamic bandwidth and service provisioning, eliminating the need
for expensive manual provisioning and installation.
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<PAGE> 37
- Inefficient use of network bandwidth. The rapid increase in demand for
bandwidth and the limited capacity available in the first mile of
telecommunications networks have strained the level of services provided
to end-users. Service providers require more efficient multiservice
access solutions that minimize network expense, maximize bandwidth and
are deliverable over a single copper line.
- Operational challenges to infrastructure deployment. The scope and
complexity of existing communication networks pose unique challenges to
service providers in recruiting and training the necessary personnel to
deploy, scale, provision and maintain the network. Simplified network
solutions are needed to help reduce the number of personnel and technical
expertise required.
In order to address these challenges, several communications equipment
companies have introduced broadband integrated access devices, or IADs. First
generation IADs are circuit-based. As service providers plan their converged,
next-generation networks, they have become increasingly reluctant to invest in
communication equipment that cannot support ATM or IP traffic. In response,
several vendors have introduced packet-based IADs. However, we believe these new
products have not been widely adopted because service providers have invested
billions of dollars in their circuit-based networks, which they are unwilling to
abandon. The transition to converged, next-generation networks is a costly and
complex process that will take many years to complete. Therefore, service
providers are seeking broadband access solutions that operate in both circuit-
and packet-based environments, enabling them to protect their investment in
existing equipment while ensuring a cost-effective migration path to converged,
next-generation networks. This solution must be affordable, scalable and easy to
install and operate.
THE VINA SOLUTION
We develop and market broadband access communications equipment that
offers, in one product, access to circuit- and packet-based networks. Our
products enable service providers to offer a complete suite of bundled voice and
data services to end users, including voice, video, data and Internet services,
such as business-to-business electronic commerce and web hosting. Using our
products, service providers may remotely and dynamically customize the services
they deliver to individual customers. Furthermore, our products allow service
providers to cost-effectively deliver bundled offerings from a single vendor
with a single bill. Our products require little or no information technology
expertise on the end users' part and allow service providers to deliver products
for the first mile which reduce the cost and complexity associated with
purchasing, operating and maintaining their networks.
We believe that our products offer service providers the following
benefits:
- Defined Network Migration Path. Our products offer a seamless path from
the circuit-based network environment to packet-based voice and data
network environment. We utilize software to migrate our products to
next-generation networks, minimizing or eliminating costly equipment
upgrades. Our equipment is currently being installed in both circuit- and
packet-based networks.
- Reduced Network Complexity and Operating Cost. Our platform-based
solution integrates multiple products, such as routers, firewalls,
channel banks, modems and features of private branch exchanges, or PBXs,
which reduce the operating costs and the complexity of delivering bundled
voice and data services. Service providers are able to operate more
responsively and to roll out services on a cost-effective basis through
our software-based remote bandwidth and service provisioning.
- Increased Value Added Services. Our solution allows service providers to
enhance revenue derived from their installed customer base by selling
additional software-enabled services, such as a firewall or local call
routing. Our platform-based solution is designed to work with a broad
range of first mile transport technologies.
- Ease of Deployment. Our hardware products incorporate a software-based
management system, including a graphical user interface to facilitate
installation and use and to allow our service provider customers to
remotely manage their product offerings and upgrades. Our product
solution, combined with our extensive service program, simplifies and
accelerates the deployment of bundled voice and data services.
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<PAGE> 38
- Robust Service Platform. Our products provide telecommunications grade
quality and reliability. We offer robust solutions that have been
designed to navigate the unpredictable course of technology and standards
development. We design our products to allow software-based upgrades for
anticipated future network transport technologies.
VINA'S MULTISERVICE BROADBAND ACCESS SOLUTION
The figure below illustrates how our solution accepts multiple transport
services into a single broadband access product. By incorporating various
functions, such as firewall, channel bank and features of a private branch
exchange, or PBX, onto a single platform, we enable our service provider
customers to reduce their equipment costs and network complexity, ease migration
from circuit- to packet-based networks, and enhance revenue opportunity from
their installed customer base.
[EDGAR DESCRIPTION]
[Edgar description of diagram 1. diagram of parallel core networks entitled
"VINA's Solution." The diagram depicts the path of voice and data from the
public communications network to the local loop.]
THE VINA STRATEGY
Our objective is to be the leading provider of complete, integrated
solutions for the first mile of communications networks. Key elements of our
strategy include:
- Enhancing Strategic Value to our Service Provider Customers. We plan to
continue to provide innovative multiservice broadband access solutions
that allow our service provider customers to differentiate their service
offerings from those of their competitors and to efficiently leverage
their capital resources. We have instituted our QuickStart service and
implementation program to help our service provider customers' marketing
efforts for their bundled voice and data service offerings. We use our
customer steering committee, comprised of engineering and marketing
executives from some of our service provider customers, to identify and
address customer needs and industry trends.
- Expanding Product and Service Set to Further Simplify the First Mile. We
have an established track record of leadership in developing
next-generation broadband access solutions based on our technological
developments in voice and data delivery systems. We intend to leverage
our extensive voice and data development expertise to expand our product
offerings and to introduce an end-to-end broadband solution for the first
mile.
- Leveraging Competitive Trends to Accelerate Deployment of Broadband
Access. The market for telecommunications services has been dominated by
ILECs' existing voice services. We plan to further facilitate competition
in this market by enabling CLECs to offer differentiated, bundled
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<PAGE> 39
voice and data services. We believe ILECs will respond to increased
competition by also deploying multiservice broadband access products. We
also believe that deregulation in global markets will foster competition
and promote the adoption of our products.
- Developing and Strengthening Strategic Relationships. We intend to
continue to strengthen our relationships with a small number of
established companies who offer our equipment on an OEM basis to further
expand our service provider customer base. We supply products to Lucent
Technologies and PairGain Technologies through OEM agreements. In
addition, we maintain co-marketing relationships with complementary
communications equipment vendors, including CopperCom, Copper Mountain
Networks, Jetstream Communications, Tachion Networks, and Tollbridge
Technologies. We intend to increase the number of these co-marketing
relationships to ensure that our products are compatible with newly
developed broadband access technologies.
- Maintaining and Extending Compatibility with Leading Vendors. We have
designed our products to be compatible with leading telecommunications
equipment vendors such as Lucent Technologies, PairGain Technologies,
Alcatel S.A., Cisco Systems, LM Ericsson and Nortel Networks. We plan to
extend our relationships with leading technology companies to jointly
develop solutions that further integrate and simplify communications
networks.
- Broadening Distribution Channels. We intend to continue to deepen and
expand our direct sales force, as well as our indirect distribution
network. We have developed an indirect network of distribution partners,
including OEM customers and VARs. We intend to extend our global presence
by expanding our existing sales force and establishing OEM and VAR
relationships in Europe and the Pacific Rim.
OUR PRODUCTS
We offer a family of products for the first mile designed to allow service
providers to deliver a complete suite of bundled voice and data services
cost-effectively over a reduced number of network connections.
Multiservice T1 Integrator and HDSL Integrator
Our Multiservice T1 Integrator and HDSL Integrator are hardware platform
solutions that allow service providers to integrate their customers' voice,
data, video and Internet requirements onto a single T1 line or high-bit rate
digital subscriber line, or HDSL. These multiservice broadband access products
provide toll-quality voice service in both existing and next-generation
networks. In addition, they support software-based value-added features
including intelligent local call routing, firewalls, service level agreement
statistics and Business OfficeXchange, which enables our products to operate as
stand-alone PBX systems. Consequently, our multiservice broadband access
products not only lower deployment costs and streamline provisioning, but also
enable our service providers to differentiate themselves in the market and
address end users' service requirements.
Our T1 Integrator's channel bank function converts a T1 digital line into
24 individual analog telephone circuits. In addition, its integrated
multiplexing and routing functionality allows the allocation of channels for
video and personal computers, or PCs, as well as high-speed, dedicated Internet
and frame relay access. The T1 Integrator also supports standard channel bank
functionality and local call routing, which enables 911, 411 and local toll-free
calls to be switched to the ILEC and provides redundancy in the event of an
interruption in T1 service.
Multiservice Xchange
Our Multiservice Xchange, or MX, is a compact, next-generation multiservice
broadband access platform that delivers circuit- and packet-based voice, data,
video and Internet access services over a maximum of two T1 or, its
international equivalent, E1 lines. The MX provides support for the circuit-
based TDM network to deliver voice and data access services. It also supports
next-generation, ATM voice
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<PAGE> 40
and data services. Accordingly, it meets the needs of both service providers who
have implemented next-generation ATM networks, as well as providers who intend
to migrate from existing circuit- to ATM packet-based networks. The MX provides
toll-quality voice service in both circuit- and packet-based networks. For
packet-based voice and data applications, the MX provides dynamic bandwidth
allocation as well as quality of service, or QoS, management, enabling service
providers to further maximize bandwidth in the first mile. Consequently, the MX
enables our service provider customers to realize savings in deployment,
facility and maintenance costs, streamline provisioning and expand the range of
services our customers are able to offer to end-users. The MX also supports
telecommunication protocols used in major international markets.
DSL eLink
To address the rapidly growing DSL access market, we recently introduced a
compact family of Voice over DSL, or VoDSL, multiservice broadband access
products designed and supplied to us by Polycom. Known as the DSL eLink family
of products, these compact, cost-effective products provide packet-based ATM and
frame-based voice, video, data and Internet services over a single unbundled
copper wire symmetric network connection serving the 8- and 16-voice line
market. Using the DSL eLink, service providers can take advantage of DSL
technology to provide high-speed services over the existing copper wire network
and reduce facility costs as compared to an equivalent T1 based service.
Additionally, VoDSL technology enables service providers to deliver voice and
data services over copper wires previously dedicated to data and Internet
services. The DSL eLink products are single product solutions serving all the
voice and data service needs of small to medium size businesses.
The DSL eLink products are compatible with several of the major DSL access
multiplexes, or DSLAMs, including those from AccessLan Communications, Copper
Mountain Networks, Lucent Technologies, Nokia Corp., Nortel Networks and
packet-based voice gateways offered by CopperCom, Jetstream Communications and
Tollbridge Technologies.
VINA PRODUCTS SUMMARY
<TABLE>
<CAPTION>
PRODUCT FEATURE/FUNCTIONALITY BENEFIT HIGHLIGHTS PRICE RANGE
<S> <C> <C> <C>
T1 - Voice, video, data and Internet - Offers a comprehensive suite of broadband $1,700 to $4,400
Integrator over a single T1 line access needs for a business in an
- Support for 4 to 24 analog integrated product over a single T1 line
telephone lines - Enables cost-effective voice, data and
- Ethernet local area network, or Internet access services
LAN, port - Extends customers' LAN to the wide area
- A digital telephone switch port network
- A router - Connects to external PBX
- Self-contained IP address - Secures IP address management
management - Connects to external router or data
- A firewall device
- A multipurpose high-speed serial
port, e.g., video port
- Software-based enhanced features,
including intelligent local call
routing, service level agreement
statistics and Business
OfficeXchange (Centrex
functionality)
HDSL All of the functions of the T1 All benefits of the T1 Integrator plus: $2,300 to $5,000
Integrator Integrator plus support for HDSL - Leverages unbundled copper wire network
network connection through HDSL for high-speed, lower cost
access
</TABLE>
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<PAGE> 41
<TABLE>
<CAPTION>
PRODUCT FEATURE/FUNCTIONALITY BENEFIT HIGHLIGHTS PRICE RANGE
<S> <C> <C> <C>
Multiservice All of the functions of the T1 All benefits of the T1 Integrator plus: $3,500 to $17,000
Xchange (MX) Integrator plus: - Offers a comprehensive suite of broadband
- Up to 3 ports (T1, E1 or DSL) access needs for a business in an
- Support for 4 to 48 analog integrated product over up to 3 ports
telephone lines (T1, E1 or DSL)
- TDM or ATM voice and data - Deploys and permits migration from
multiplexer circuit- to packet-based networks
- Supports ATM quality of service - Enables higher bandwidth efficiencies at
for voice and data lower network costs through packet-based
- ATM dynamic bandwidth allocation capabilities
DSL eLink - Support for 8 or 16 analog voice - Provides cost-effective voice, data and $1,600 to $4,000
ports Internet access services using SDSL
- Ethernet port with integral - Extends customers' LAN to the wide area
routing network
- Dynamic host control protocol, or - Enables higher bandwith efficiencies at
DHCP, server and firewall lower network costs through packet-based
- Symmetric DSL, or SDSL, network capabilities
connection
- Voice compression over ATM
</TABLE>
SALES AND MARKETING
Sales
We sell our products to service providers directly through our sales force,
and indirectly through our OEM customers and VARs. We have established a small
number of OEM customers and other marketing relationships in order to serve
particular markets and provide our service provider customers with opportunities
to purchase our products in conjunction with complementary products and
services.
- Direct. Direct sales have represented, and we believe will continue to
represent, the majority of our sales. We believe that direct interaction
with service providers offers us the best understanding of the business
models and technical requirements of our customers. Further, we believe
that the competitive nature of the telecommunications equipment industry
requires us to reduce costs by eliminating intermediate steps in the
distribution chain.
- OEM. OEM sales through Lucent and PairGain are important distribution
channels for us in the U.S. In particular, we believe Lucent's
relationships with CLECs, ILECs and small independent operating companies
will continue to enhance our ability to reach this large customer base.
OEM customers use our products to deliver complete, end-to-end solutions
that are installed and field-serviced by their technical support
organizations. We plan to initiate and develop relationships with
additional leaders in the communications equipment industries as
potential OEM customers.
- Value Added Resellers. In addition to direct sales and OEM customers, we
have existing relationships with VARs focused on the service provider
market. We intend to leverage our existing VAR relationships to seek new
opportunities for the deployment of our products. In addition to the VARs
we work with in the United States, we are developing relationships with
VARs in Europe and the Pacific Rim.
Whether we ship our products directly or through one of our OEM customers
or VARs, maintaining a direct relationship with each of our service provider
customers is an important part of our sales strategy. Since establishing a
strong working relationship with our customers is critical to sales success and
future product development, we strive to maintain strong visibility across our
service provider customer base, regardless of the distribution channel. As of
June 15, 2000, our sales organization consisted of 40 employees.
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Marketing
Our marketing objectives include building market awareness and acceptance
of our company and our products, as well as generating qualified customer leads.
To accomplish these objectives, our marketing activities include public
relations, communications, research, sales support, direct marketing, a web
presence, product marketing, as well as channel marketing. We work directly with
service providers to help them develop business models and introduce product
packages, promotional programs and pricing strategies, all designed to promote
the delivery of multiple voice and data services over a single broadband access
facility. In addition, we actively work with a number of industry and trade
publications and industry analysts to educate service providers on how to
deploy, and the benefits of, multiservice broadband access networks.
We have developed an extensive co-marketing initiative targeting our
customers. Our QuickStart implementation program educates our customers on our
products and services through sales support programs, joint marketing and lead
generation activities, joint sales initiatives, and technical support.
Currently, we maintain QuickStart marketing relationships with eight customers,
including 2nd Century Communications, Inc., Allegiance Telecom Inc., Birch
Telecom Inc., Broadwing Inc., Caprock Communications Corp., Intermedia
Communications Inc., Pacific Bell and Time Warner Telecom Inc. The tools and
resources available through our QuickStart program enable our customers to
quickly understand our product solutions, expand their customer base and create
new revenue opportunities for their installed base. As of June 15, 2000, our
marketing organization consisted of 19 employees.
CUSTOMER SERVICE AND SUPPORT
Our customer service organization maintains and supports products sold to
service providers and offers technical support to our OEM customers and VARs. We
also assist our OEM customers and VARs in offering installation, maintenance and
support services to their customers for our products. We handle questions and
problems over the Internet, telephone and e-mail. We continually update our
website to enable our direct and indirect customers to download the latest
technical information and tips, along with firmware, software and product
manuals.
CUSTOMERS
We primarily sell to CLECs, ILECs and smaller independent operating
companies through direct sales and indirectly through our OEM customers and
VARs. The following is a list of some of our direct and indirect service
provider customers:
- 2nd Century Communications
- Allegiance Telecom
- ATG Technologies
- Birch Telecom
- Broadwing
- CapRock Communications
- Gabriel Communications
- GST Telecommunications
- ICG Communications
- Intermedia Communications
- KMC Telecom
- MCI Worldcom
- MediaOne Group
- North American Telephone
- Pacific Bell
- TelePacific Communications
- Time Warner Telecom
For the year ended December 31, 1999, sales to Lucent accounted for 46% of
our net revenue. Five customers, including Lucent Technologies, accounted for
approximately 80% of our net revenue for the year ended December 31, 1999. For
the three months ended March 31, 2000, sales to our five largest customers
accounted for approximately 82% of our net revenue, of which sales to Lucent,
PairGain, Phillips Communications and Equipment, 2nd Century Communications and
Gabriel Communications accounted for 28%, 15%, 15%, 12% and 12% of our net
revenue, respectively.
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STRATEGIC RELATIONSHIPS
A key element of our plan is to expand our sales, marketing and
distribution channels through strategic relationships. We have established, and
will continue to pursue, these strategic relationships in order to grow
revenues, and to provide indirect sales and marketing of our solutions.
Lucent Technologies. In May 1998, we entered into an OEM agreement with
Lucent which we restated in May 1999. The Lucent agreement expires in May 2002
and can be renewed for a one year period. The agreement may be terminated by
Lucent at any time upon 60 days' notice. Our working relationship with Lucent
offers each of us a number of strategic advantages. Lucent uses our products to
offer a complete end-to-end solution for the first mile integrating voice and
data traffic. In turn, we have the opportunity to leverage Lucent's extensive
sales force and marketing relationships to reach new customers and markets.
Lucent incorporates our T1 Integrator and MX into its ConnectReach product
family. ConnectReach consists of our Multiservice T1 Integrator and a seamless
connection to Lucent's SLC-2000 Access System, a digital loop carrier, enabling
the two products to function as a single, integrated voice and data access
system. ConnectReach also interconnects with the AnyMedia Access System, a
next-generation digital loop carrier. Lucent's ConnectReach Plus consists of our
MX with a seamless connection with either Lucent's SLC-2000 Access System or
AnyMedia access system. Designed to offer cost-effective enhanced bundled
services to branch offices and small and medium sized businesses, the
ConnectReach Plus seamlessly integrates voice, data, video, and Internet access
over a common T1, E1 or DSL network connection. The ConnectReach Plus can be
deployed today in a TDM network to provide support for existing services such as
TDM voice, data, and Internet access. The same ConnectReach Plus chassis can be
configured for voice over ATM, providing a smooth migration path for service
providers.
PairGain. In February 1998, we entered into a technology and distribution
agreement with PairGain to offer an integrated, cost-effective HDSL-based voice,
data, and Internet access solution. In February 1999, the agreement was renewed
for an additional year. The agreement is renewable for four more consecutive
12-month periods. PairGain provides us with modules for our DSL technology which
we incorporate into the products we design and produce for PairGain and into
products we sell under our label. Similar to our relationship with Lucent, we
plan to leverage PairGain's sales force and marketing relationship to reach new
customers and markets. PairGain sells our T1 Integrator to their customer base
as the PairGain T1 Integrator product. We incorporate PairGain's HDSL technology
into our T1 product family under the HDSL Integrator product. Our relationship
with PairGain addresses the increasing demand for simple, cost-effective
solutions. Our integrated HDSL solution enables PairGain and other service
providers to combine voice and data communications while significantly reducing
the cost of T1 deployment.
Interoperability Relationships
Maintaining product compatibility with a broad range of equipment vendors
and central office gateway protocols is critical to our success as a supplier of
first mile solutions. These relationships allow us to work with other vendors to
develop solutions that continue to simplify the network and enhance our market
position with service providers. We have entered into interoperability
agreements with four vendors in the voice over DSL market -- CopperCom,
Jetstream and Tollbridge. We also have relationships with developers of
next-generation SS7 gateways to accelerate the deployment of next-generation
ATM-based local exchange carrier services, including relationships with
Convergent Networks, Tachion and TeraBridge. These relationships help minimize
the technology risk to our service provider customers.
TECHNOLOGY
Our products and technology enable multiservice access over a single
broadband network with an open architecture. The open nature of our products
allows our solution to be seamlessly integrated into the existing TDM
infrastructure to deliver enhanced bundled services while offering the ability
to migrate the
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network through hardware or software upgrades, to an ATM network, and
subsequently to an IP network. We have developed extensive core competencies.
Asynchronous Transfer Mode and Frame Relay Expertise
We have developed expertise in packetized voice and data technology. The
two widely deployed and proven packet-based technologies that can be utilized to
integrate voice and data over a single line are ATM and frame relay. Our
expertise with packet-based technology stems from developing advanced system
functions such as digital signal processing, echo cancellation, dynamic call
setup and virtual circuit switching, as well as class of service management
capabilities.
Digital Subscriber Line Expertise
DSL has emerged as the most attractive first mile access technology for
providing high bandwidth data access over existing copper telephone lines. In
addition to high-speed access, DSL technology lowers access costs, compared to
equivalent T1 lines. Several versions of DSL are being implemented for differing
applications, including SDSL, high-bit rate digital subscriber line, or HDSL,
and HDSL2 for business applications. We have designed our products to scale
quickly and easily add new transmission technologies. Unlike other DSL
technologies, HDSL2 has been standardized to ensure open compatibility. HDSL2
technology provides T1 equivalent performance for both circuit- and packet-based
networks. We have implemented HDSL in our T1 Integrator product line and SDSL in
our DSL eLink product line. We plan to introduce products incorporating HDSL2.
Internet and Internet Protocol Expertise
Demand for Internet services has grown exponentially. These services
require an all IP infrastructure, especially in the access network for Web
applications and use, e-commerce and email. Our products incorporate an IP
router which offers firewall options that include circuit level security
technology and packet filtering, as well as network address translation, or NAT,
and a software-based dynamic host control protocol, or DHCP, to provide dynamic
IP address management. These IP elements are necessary to ensure reliable and
secure Internet access. Our products offer our customers a fully integrated
Internet access solution.
Time Division Multiplexing Expertise
Most carrier networks use high bit rate digital systems employing
time-division multiplexing, or TDM. With extensive deployment of T1, digital
local offices and optical transmission, TDM became economically viable in the
1980s and 1990s. The existing telephone network is predominantly based on
digital time division switching, transmission and signaling over the out-of-band
control network. Our family of products has been designed to allow seamless
integration into existing TDM networks and to offer a migration path to
next-generation technologies such as ATM or IP.
Hardware Design
Our customers favor telecommunications grade hardware designs. Thus we have
avoided hardware design technology commonly used in the PC industry. Instead our
designs incorporate microprocessors specifically developed for communications
applications and for high reliability and high availability environments. We
utilize design techniques which result in over-design of our digital circuitry,
analog circuitry, cooling and power systems. We incorporate field programmable
gate array logic components where possible to simplify designs and improve
reliability. Our interface designs incorporate popular standard chipsets in
order to assure compatibility with other carrier equipment. Our hardware designs
include many maintenance features which reduce operating costs for our
customers. For example, our service provider customers can use our equipment to
test their analog lines while the line is not inoperable. We perform extensive
environmental testing on all of our products and most of our products are
designed for and meet network equipment building systems, or NEBs, requirements
adopted by most carriers. Our
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products are also designed to meet the European telecommunications and physical
standards. We believe that all our designs meet applicable underwriters labs and
Federal Communications Commission standards.
RESEARCH AND DEVELOPMENT
We believe that our success is, to a large extent, dependent upon our
responsiveness to the continued technological migration of our customers'
networks. Our research and development group works closely with our OEM
customers and our customer steering committee, and our marketing department for
product definition and to assure compatability with central office equipment.
Research and development expenses, including all product development,
system testing and documentation, were approximately $1.9 million in 1997, $4.2
million in 1998, $6.7 million in 1999 and $2.5 million for the three months
ended March 31, 2000. All of our product development costs have been expensed as
incurred. We have licensed certain commercially available software from third
parties. We conduct the majority of our research and development at our Fremont
California headquarters and are in the process of establishing additional
centers through the United States and internationally. As of June 15, 2000, we
had 64 employees dedicated to research and development.
While we develop some custom products for our OEM customers, most of our
research and development efforts are focused on standard products. We have
significant hardware and software expertise in both TDM and ATM network
technologies. We place heavy emphasis on our design verification processes which
include extensive testing at our Fremont facilities and significant
interoperability testing at partner sites.
MANUFACTURING
We have outsourced our manufacturing operations to Flextronics
International, a contract manufacturer located in San Jose, California. We
believe outsourcing our manufacturing enables us to benefit from the component
purchasing capabilities of a global contract manufacturer that can accommodate
significant increases in production volume and product mix, as necessary. We use
a rolling 12-month forecast based on anticipated product orders to determine our
product requirements. We, in turn, provide these forecasts to Flextronics, who
purchases the components for our products and assembles them to our
specifications. We intend to utilize Flextronics' resources and expertise to
assist us in manufacturing, engineering, repair and product testing.
Our manufacturer performs board assembly, systems configuration and testing
and product shipping. We have developed comprehensive inspection tests and use
statistical process controls to assure the reliability and quality of our
products. Our manufacturing engineers develop all test procedures and design and
build all equipment and stations required to test our products. We integrate
these manufacturing tests with our contract manufacturer's build processes. Our
manufacturing personnel work closely with our design engineers to design for
manufacturability, and to ensure that our test methods remain current as
broadband access technologies evolve.
We obtain several of the key components used in our products from single or
limited sources of supply. We have encountered, and expect in the future to
encounter, difficulty in obtaining these components from our suppliers. As
recently as the fourth quarter of 1999, we experienced a severe shortage of
components, particularly subscriber line interface circuits, which jeopardized
our ability to deliver our products in a timely fashion. The suppliers of our
components range from small vendors to large established companies. Components
for which we currently have only a single source include subscriber line
interface circuits that we purchase from Advanced Micro Devices, and
microprocessors that we purchase from Motorola Corporation. Components for which
we currently have limited sources include digital signal processors, DSL modules
and flash memory. We purchase most components on a purchase order basis and do
not have guaranteed supply arrangements with most of our key suppliers. We or
our contract manufacturer may not be able to obtain necessary supplies in a
timely manner.
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We select manufacturers and suppliers on the basis of technology,
manufacturing capacity, materials management, quality and cost. We may, in the
future, seek additional manufacturers and suppliers to meet our anticipated
requirements and lower the cost of our products. We are in the process of
obtaining International Standards Organization, or ISO, 9001 certification.
Flextronics is ISO 9002 certified.
COMPETITION
The market for multiservice broadband access products is extremely
competitive. We believe that competition will increase substantially as the
introduction of new technologies, deployment of broadband access networks, and
potential regulatory changes create new opportunities for established and
emerging companies. Furthermore, DSL- and T1-based solutions compete with
broadband wireless and cable offers. We face competition primarily in two areas:
equipment manufacturers, such as Accelerated Networks, ADTRAN, Carrier Access
Corporation, Efficient Networks, Sonoma Systems and diversified equipment
manufacturers such as Cisco Systems, Lucent and Nortel Networks. In addition, we
may in the future compete with SS7 gateway suppliers as well as VoDSL suppliers.
The principal competitive factors for products utilized in our markets
include:
- pricing;
- product features;
- reliability and scalability;
- performance;
- compatibility with other products;
- ease of installation and use;
- customer relationships, service and support; and
- brand recognition.
Some of our competitors have greater financial and other resources than do
we. With greater resources, our competitors may be able to take better advantage
of new competitive opportunities, including offering lease and other financing
programs. In addition, the rapid technological developments in our industry can
result in frequent changes to our group of competitors. Consolidation in our
industry may also affect our ability to compete. Acquisitions may strengthen our
competitors' financial, technical and marketing resources and provide greater
access to customers or new technologies. As a result, these competitors may be
able to devote greater resources than we can to the development, promotion, sale
and support of their products.
INTELLECTUAL PROPERTY
We rely on a combination of copyright, patent, trademark, trade secret and
other intellectual property laws, nondisclosure agreements and other protective
measures to protect our proprietary rights. We also utilize unpatented
proprietary know-how and trade secrets and employ various methods to protect our
trade secrets and know-how. We currently have three patent applications pending,
and another patent application in process, but no issued patents. Although we
employ a variety of intellectual property in the development and manufacturing
of our products, we believe that none of our intellectual property is
individually critical to our current operations. However, taken as a whole, we
believe our intellectual property rights are significant and that the loss of
all or a substantial portion of such rights could have a material adverse effect
on our results of operations. Our intellectual property protection measures may
be insufficient to prevent misappropriation of our technology. From time to
time, third parties may assert patent, copyright, trademark and other
intellectual property rights to technologies, processes or rights that are
important to our business. These assertions may result in costly and
time-consuming litigation requiring us to pay substantial damages or to redesign
or stop selling our products. In addition, the laws of many foreign countries do
not protect our intellectual properties to the same extent as the laws of the
United
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States. We may desire or be required to renew or to obtain licenses from others
in order to further develop and market commercially viable products effectively.
Any necessary licenses may not be available on reasonable terms.
EMPLOYEES
As of June 15, 2000, we employed 153 full-time employees including 59 in
sales and marketing, 15 in operations, 64 in research and development, and 15 in
finance and administration. Our employees are not covered by any
collective-bargaining agreements, and we consider our relations with our
employees to be good.
FACILITIES
Our principal executive offices are currently located in Fremont,
California, where we lease approximately 23,000 square feet. We have signed a
new lease for approximately 52,000 square feet of space in a building located in
California beginning in August 2000. We believe that these facilities will be
adequate to meet our requirements for the foreseeable future. We also have a
sales office in Basking Ridge, New Jersey, where we lease approximately 1,600
square feet.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of the ordinary course of business. As of the date of this
prospectus, there are no material legal proceedings pending or, to our
knowledge, threatened against us.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table shows information about our executive officers and
directors as of March 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- ------------------------------------------------------
<S> <C> <C>
Steven M. Bauman..................... 55 President, Chief Executive Officer and Director
Joshua W. Soske...................... 41 Executive Vice President, Chief Technical Officer and
Director
Gaymond W. Schultz................... 59 Executive Vice President
Stanley E. Kazmierczak............... 40 Vice President, Finance and Administration, Chief
Financial Officer and Secretary
Thomas J. Barsi...................... 32 Vice President, Business Development
Kay E. Kienast....................... 50 Vice President, Marketing
John W. Neese........................ 50 Vice President, Engineering
T. Diane Pewitt...................... 43 Vice President, Operations
C. Reid Thomas....................... 38 Vice President, Sales
W. Michael West...................... 49 Chairman of the Board
Jeffrey M. Drazan.................... 41 Director
John F. Malone....................... 52 Director
Philip J. Quigley.................... 57 Director
Frank J. Marshall.................... 53 Director
</TABLE>
STEVEN M. BAUMAN has served as our President, Chief Executive Officer and
as a director since August 1999. Mr. Bauman was a principal at GeoPartners
Research Inc., a Cambridge, Massachusetts-based consultancy from February 1998
to August 1999. He was Vice President/General Manager, Network Systems Division
and then Vice President of Virtual Private Networks of 3Com Corporation, a
supplier of network systems, from October 1995 to February 1998. Mr. Bauman was
Vice President and General Manager, Software Group, Farallon Communications (now
Netopia) from 1993 until September 1995.
JOSHUA W. SOSKE has served as our Executive Vice President and Chief
Technology Officer since August 1999, as a director since our inception and was
one of our founders. Mr. Soske served as our President and Chief Executive
Officer from inception until August 1999. He has been President and founder of
International Design and Research, a communications consulting firm which
provides management, architectural design and contract manufacturing services
dealing primarily with telephone, data network, and television technologies
since March 1979.
GAYMOND W. SCHULTZ has served as our Executive Vice President since July
1996 and was one of our founders. Mr. Schultz was our Chief Financial Officer
from March 1997 until July 1999. Mr. Schultz was a partner at International
Design and Research from 1994 to June 1996. Additionally, Mr. Schultz was a
founder and served as Vice President of Engineering of StrataCom, Inc., a
provider of wide area data networking equipment, from 1985 to 1999.
STANLEY E. KAZMIERCZAK has served as our Vice President, Finance and
Administration, Chief Financial Officer and Secretary since July 1999. Mr.
Kazmierczak served as Chief Financial Officer and Vice President, Finance and
Operations of Digital Link Corporation, a supplier of networking products, from
January 1999 to July 1999, and as Chief Financial Officer from December 1992 to
July 1999. He was Vice President, Finance and Administration of Digital Link
from March 1996 to January 1999.
THOMAS J. BARSI has served as our Vice President, Business Development
since January 2000. Mr. Barsi served as our Director of Marketing until December
1999 and our Director of Sales from January 1999 to December 1999. Prior to
joining us, he was Director of Marketing responsible for the
45
<PAGE> 49
product line of high-end business products for Pacific Bell Internet from June
1995 to July 1996 and a product manager at Pacific Bell Internet from September
1994 to June 1995.
KAY E. KIENAST has served as our Vice President, Marketing since March
2000. Ms. Kienast was Vice President, NSA Marketing at Newbridge Networks, a
manufacturer of telecommunications equipment from August 1998 to June 1999. She
was Vice President, Marketing at Cincinnati Bell Information Systems from
January 1998 to August 1998 and was Director of Marketing at Unisys, a
telecommunications equipment manufacturer, from November 1995 to January 1998.
She was Manager, Strategy, Planning and Research at Digital Equipment
Corporation from mid 1993 to November 1995.
JOHN W. NEESE has served as our Vice President, Engineering since March
2000. Mr. Neese was our Engineering Director from August 1996 to February 2000
and Chief Financial Officer and Secretary from August 1996 to March 1997. He was
Engineering Director at Corsair Communications, a manufacturer of cellular fraud
detection products, from August 1995 to August 1996.
T. DIANE PEWITT has served as our Vice President, Operations since March
2000. Ms. Pewitt served as Vice President of Messaging for the service provider
line of business for Lucent Technologies from June 1999 to March 2000. She also
served as the Vice President of Operations for Lucent Technologies' Octel
Messaging Division from January 1998 to June 1999. Ms. Pewitt was also Director
of Operations for Lucent from June 1994 to January 1998.
C. REID THOMAS has served as our Vice President, Sales since April 2000.
Mr. Thomas served as Managing Director, Sales for Lucent Technologies, where he
was responsible for AT&T Markets from August 1996 to April 2000. Prior to his
employment with Lucent, Mr. Thomas was Group Manager, Strategy and Alliances for
Octel Communications, from January 1995 to August 1996.
W. MICHAEL WEST has served as Chairman of our board of directors since June
1999. He served as Executive Vice President for Lucent Technologies from
September 1997 to January 1998. Mr. West was President, Chief Operating Officer
and a director of Octel Communications Corporation from January 1995 to August
1997, after having served as Executive Vice President from September 1986 to
January 1995. Mr. West held multiple positions with Rolm Corporation from 1979
to September 1986, most recently as General Manager of the National Sales
Division. Mr. West currently serves as a director of Media Arts Group Inc.
JEFFREY M. DRAZAN has served as a director since June 1996. Mr. Drazan has
been a General Partner of Sierra Ventures since 1984. He currently serves on the
boards of directors of FairMarket, Inc., and Vertel Corporation.
JOHN F. MALONE has served as a director since January 1997. Mr. Malone has
been President and Chief Executive Officer of The Eastern Management Group, a
management consulting firm supplying professional services to major
communications companies since April 1979. Mr. Malone worked at AT&T where he
developed corporate strategy and managed sales and marketing organizations from
Ohio to New York.
FRANK J. MARSHALL has served as a director since October 1997. Mr. Marshall
currently serves as a member of the InterWest Partners Advisory Committee and a
Venture Partner at Sequoia Capital. Mr. Marshall served as Vice President of
Engineering and Vice President and General Manager, Core Business Unit of Cisco
Systems from April 1992 to October 1997. Mr. Marshall currently serves as a
director of Covad Communications Group, Inc. and PMC-Sierra, Inc.
PHILIP J. QUIGLEY has served as a director since April 1998. Mr. Quigley
was Chairman, President, and Chief Executive Officer of Pacific Telesis Group, a
telecommunications holding company, from April 1994 until his retirement in
December 1997. Mr. Quigley previously served as President and Chief Executive
Officer of Pacific Bell, Executive Vice President and Chief Operating Officer of
PacTel Corporation, and Chief Executive Officer of PacTel Personal
Communications. Mr. Quigley serves as a director of Wells Fargo & Company and
Nuance Communications, Inc. and as an advisory director of Thomas Weisel
Partners LLC, one of the underwriters.
46
<PAGE> 50
BOARD OF DIRECTORS COMMITTEES AND OTHER INFORMATION
We currently have seven authorized directors. All directors are elected to
hold office until the next annual meeting of our stockholders and until their
successors have been elected. There are no family relationships among any of our
directors or executive officers.
Upon the closing of this offering, our restated certificate of
incorporation will provide for a board of directors consisting of seven members,
who will be divided into three classes serving staggered three-year terms:
- The term of our Class I directors will expire at our 2001 annual meeting;
- The term of our Class II directors will expire at our 2002 annual
meeting; and
- The term of our Class III directors will expire at our 2003 annual
meeting.
Our Class I directors will be Messrs. Frank J. Marshall and Joshua W.
Soske. Our Class II directors will be Messrs. John F. Malone and W. Michael
West. Our Class III directors will be Messrs. Steve M. Bauman, Jeffrey M. Drazen
and Phillip J. Quigley. Because we have a classified board, only two of our
seven board members will be elected at each annual stockholders' meeting, or
three in the case of elections for our Class III directors, with the other
directors continuing for the remainder of their class terms.
Our board of directors has a compensation and an audit committee. Our
compensation committee is responsible for, among other things, determining
salaries, incentives and other forms of compensation for directors, officers and
employees and administering various incentive compensation and benefit plans.
Our board of directors established executive compensation levels for 1999.
Jeffrey M. Drazan, Philip J. Quigley and Steven M. Bauman are the current
members of the compensation committee. Mr. Bauman is a non-voting member of the
compensation committee. In 1999 Mr. Soske was a non-voting member of the
compensation committee. Our audit committee reviews our annual audit and meets
with our independent auditors to review our internal accounting procedures and
financial management practices. John F. Malone, Frank J. Marshall and Philip J.
Quigley are the current members of the audit committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between our board of directors or
compensation committee and the board of directors or compensation committee of
any other entity, nor has any interlocking relationship existed in the past.
DIRECTOR COMPENSATION
Except as we otherwise described below, we have not paid any cash
compensation to members of our board of directors for their services as
directors. We reimburse the directors for reasonable expenses in connection with
attendance at board and committee meetings. Directors also are eligible to
receive stock options under our 2000 stock plan.
We pay W. Michael West an annual salary of $100,000 for his services as
chairman of the board. Additionally, in connection with his joining the board of
directors in June 1999, we sold 800,000 shares of common stock to Mr. West at a
price of $0.60 a share, subject to a repurchase right, that expires after a
four-year period, in the event that Mr. West's employment with us ceases.
EXECUTIVE COMPENSATION
The following table summarizes all compensation paid to our Chief Executive
Officer and to our other most highly compensated executive officers other than
the Chief Executive Officer whose total annual
47
<PAGE> 51
salary and bonus exceeded $100,000, for services rendered in all capacities to
us during the fiscal year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION(S) SALARY BONUS OPTIONS
------------------------------ -------- ------- ------------
<S> <C> <C> <C>
Steven M. Bauman.......................................... $ 71,279(1) $ -- 1,660,000
Chief Executive Officer and President
Joshua W. Soske........................................... 175,000 -- --
Executive Vice President and Chief Technical Officer
Gaymond W. Schultz........................................ 150,000 -- --
Executive Vice President
C. G. Waters(2)........................................... 145,000 82,295 --
</TABLE>
---------------
(1) Mr. Bauman commenced his employment in August 1999 at a base salary of
$200,000. Mr. Bauman is eligible to receive a bonus up to 50% of his base
salary. Mr. Bauman has been guaranteed his first full year's bonus.
(2) Mr. Waters, our former vice president, sales, resigned from our company in
January 2000.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following tables set forth selected information as of December 31, 1999
and for the fiscal year then ended with respect to stock options granted to and
exercised by the individuals named in the Summary Compensation Table above.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION TERM(4)
-------------------------------------- -------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED(1) FISCAL YEAR 99 PRICE(2) DATE(3) 5% 10%
---- ---------- -------------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Bauman(5)............. 1,160,000 28.2% $1.00 8/23/09 $729,518 $1,848,741
500,000 12.2% $1.00 8/23/09 $314,447 $ 796,871
Joshua W. Soske................. -- -- -- -- -- --
Gaymond W. Schultz.............. -- -- -- -- -- --
C. G. Waters.................... -- -- -- -- -- --
</TABLE>
---------------
(1) These incentive stock options are exercisable in full immediately, but the
shares received upon exercise are subject to repurchase by us. Our right of
repurchase lapses as to 25% of the shares covered by the respective options
on the first anniversary of the date of grant, and lapses ratably on a
monthly basis thereafter, with the repurchase right terminating in full on
the fourth anniversary of the date of grant.
(2) The exercise price for each grant is equal to 100% of the fair market value
of our common stock on the date of grant.
(3) The options have a term of 10 years, subject to earlier termination in
certain events related to termination of employment.
(4) The 5% and 10% assumed rates of appreciation are suggested by the rules of
the Securities and Exchange Commission and do not represent our estimate or
projection of the future common stock price. There can be no assurance that
any of the values reflected in the table will be achieved.
(5) If a change of control occurs, that number of shares of Mr. Bauman's that
would have vested over the next 24 months will immediately vest.
Additionally, if he is terminated without good cause or resigns with good
cause within 12 months of a change of control, his shares that would have
vested over the 12 months following the change of control will immediately
vest. A "change of control" will be deemed to occur if a substantial portion
of our ownership changes or we sell substantially all of our assets.
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<PAGE> 52
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table provides summary information concerning stock option
exercises during our last fiscal year and options outstanding at the end of the
last fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, DECEMBER 31,
1999 1999(1)
SHARES ---------------- --------------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- ---------------- --------------------
<S> <C> <C> <C> <C>
Steven M. Bauman......................... -- -- 1,660,000/0 $8,798,000/0
Joshua W. Soske.......................... -- -- 434,200/0 2,541,780/0
Gaymond W. Schultz....................... -- -- 245,500/0 1,428,450/0
C. G. Waters............................. -- -- --
</TABLE>
------------------------
(1) Based upon the deemed fair value of our common stock as of December 31,
1999, as subsequently determined for accounting purposes to be approximately
$6.30 per share, less the exercise price at the date of grant, multiplied by
the number of shares underlying the options.
STOCK PLANS
1996 and 1998 Stock Option Plans
Our 1996 Stock Option/Stock Issuance Plan was adopted by our board of
directors and approved by our stockholders in December 1996. Our 1998 Stock Plan
was adopted by our board of directors and stockholders in March 1998. A total of
14,116,800 shares of common stock were reserved for issuance under the 1996 and
1998 option plans. As of March 31, 2000, options to purchase an aggregate
8,481,471 shares of common stock under our stock option and incentive plans were
outstanding at a weighted average exercise price of $0.84 per share. Following
the adoption of our 2000 Stock Incentive Plan by our board of directors in
2000, no shares of our common stock remain available for future issuance
under the 1996 or 1998 option plans. As of March 31, 2000, a total of 1,687,808
shares of common stock had not been granted under the 1996 or 1998 option plans.
Shares that are subject to expired, terminated or unexercised options issued and
outstanding under the 1996 or 1998 option plans shall be available for option
grants or share issuances under our 2000 Stock Incentive Plan.
2000 Stock Incentive Plan
The 2000 Stock Incentive Plan was adopted by our board of directors in
2000 and will be submitted for approval by our stockholders prior to the
completion of this offering. The 2000 plan will be administered by our
compensation committee. The 2000 plan provides for a variety of stock-based
compensation awards to employees, non-employee directors and consultants,
including incentive stock options as defined in Section 422 of the Internal
Revenue Code, nonstatutory stock options, restricted shares, stock appreciation
rights, and stock units, units and other stock-related benefits. A total of
shares plus a number of shares equal to the number of shares
subject to expired, terminated or unexercised options issued and currently
outstanding under the 1996 and 1998 option plans will be reserved for issuance
under the 2000 plan. The number of shares reserved for issuance under the 2000
plan will be increased each year by the lowest of 4,000,000 shares, 5% of our
fully diluted outstanding common stock on the day of the increase, or a lesser
number of shares determined by our board of directors. However, in no event may
a participant receive stock appreciation rights or option grants for more than
1,000,000 shares in the aggregate per fiscal year.
The 2000 plan includes change in control provisions that may result in the
accelerated vesting of outstanding option grants and stock appreciation rights.
The compensation committee may grant options or stock appreciation rights in
which all or some of the shares shall become vested in the event of a change in
control of the company. The board of directors will be able to amend or modify
the 2000 plan at any
49
<PAGE> 53
time, subject to any required stockholder approval. The 2000 plan will terminate
no later than ten years from the date of adoption.
2000 Employee Stock Purchase Plan
Our board of directors adopted a 2000 Employee Stock Purchase Plan in June
2000 to be effective upon completion of this offering. We plan to submit it for
approval by our stockholders prior to the completion of this offering. A total
of one million shares of common stock has been reserved for issuance under our
employee stock purchase plan. The number of shares reserved for issuance under
the 2000 Employee Stock Purchase Plan will be increased on the first day of each
of our fiscal years, commencing 2001, by the lesser of:
- 80,000 shares;
- 1% of our fully diluted outstanding common stock on the day of the
increase; or
- a lesser number of shares determined by our board of directors.
Our 2000 Employee Stock Purchase Plan, which is intended to qualify under
Section 423 of the Code, will be administered by the board of directors or by a
committee appointed by the board. Employees, including our officers and employee
directors but excluding 5% or greater stockholders, will be eligible to
participate if they are customarily employed for more than 20 hours per week and
for at least five months in any calendar year. Our 2000 Employee Stock Purchase
Plan will permit eligible employees to purchase common stock through payroll
deductions, which may not exceed 10% of an employee's compensation.
The 2000 Employee Stock Purchase Plan will be implemented during a series
of , with new offering periods, other than the first
offering period, commencing on February 1 and August 1 of each year. Our 2000
Employee Stock Purchase Plan establishes two accumulation periods per year,
neither of which will exceed six months. During each accumulation period,
payroll deductions will accumulate, without interest. On the last business day
of each accumulation period, purchase dates set by the board of directors
accumulated payroll deductions will be used to purchase common stock. The
initial offering period is expected to commence on the date of this offering.
The initial accumulation period will begin on the date of this offering and end
on December 31, 2000.
The purchase price will be equal to 85% of the fair market value per share
of common stock on either the last day of the accumulation period or on the last
trading day before the commencement of the applicable offering period, whichever
is less. Employees may withdraw their accumulated payroll deductions at any
time. Participation in our 2000 Employee Stock Purchase Plan ends automatically
on termination of employment with us. Immediately prior to the effective time of
a corporate reorganization, the participation period then in progress will
terminate and stock will be purchased with the accumulated payroll deductions
unless the 2000 Employee Stock Purchase Plan is assumed by the surviving
corporation or its parent corporation pursuant to the plan of merger or
consolidation.
401(K) PLAN
Effective September 1999, we established a tax-qualified employee savings
and retirement plan for which our employees will generally be eligible. Under
our 401(k) Plan, employees may elect to reduce their current compensation and
have the amount of such reduction contributed to the 401(k) Plan. The 401(k)
Plan permits, but does not require, additional matching contributions to the
401(k) Plan by us on behalf of all participants in the 401(k) Plan. To date, we
have made no matching contributions. The 401(k) Plan is intended to qualify
under Section 401 of the Code, so that contributions to the 401(k) Plan, and
income earned on plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan, and so that contributions by us, if any, will be
deductible by us when made.
50
<PAGE> 54
RELATED PARTY TRANSACTIONS
In connection with our founding in July 1996, we sold 1,400,000 shares of
common stock to Gaymond W. Schultz, 1,400,000 shares of common stock to Joshua
W. Soske, 770,000 shares of common stock to John W. Neese and 770,000 shares of
common stock to Robert Luxenburg, all at a price of $0.0001 per share. These
shares are subject to a repurchase right held by us. Our repurchase right ends
in July 2000.
From January 1997 through March 2000, we sold shares of our preferred stock
in private financings as follows:
- an aggregate of 3,000,000 shares of Series C preferred stock at $4.00 per
share in March and May 1998;
- an aggregate of 790,517 shares of Series D preferred stock at $6.00 per
share in October 1998 and April 1999; and
- an aggregate of 3,404,140 shares of Series E preferred stock at $7.00 per
share in January, February and March 2000.
Each share of preferred stock will convert automatically into one share of
common stock upon the closing of this offering. The purchasers of the preferred
stock include the following directors, executive officers, holders of more than
5% of our securities and their affiliated entities:
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
-----------------------------------------------------------
INVESTOR SERIES A SERIES B SERIES C SERIES D SERIES E
-------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Entities affiliated with
Sierra Ventures V,
L.P.(1).................... 7,500,000 1,242,994 291,484 333,334 714,286
Entities affiliated with
London Pacific Assurance
Limited(2)................. -- 146,782 1,750,000 333,334 714,286
Frank J. Marshall(3)......... -- 1,194 20,000 1,000
Philip J. Quigley(4)......... -- 7,456 125,000 4,107
W. Michael West.............. -- 80,000
</TABLE>
---------------
(1) Includes shares held by Sierra Ventures V, L.P., Sierra Ventures VI, L.P.,
and SV Associates VI, as nominee for its General Partner, UA General
Partner, UA dated January 14, 1999. Jeffrey M. Drazan is a general partner
of the Sierra Ventures entities and is our director. Other than 12,500
shares of Series B preferred stock, 9,048 of Series D preferred stock and
19,389 shares of Series E preferred stock owned through SV Associates VI, he
disclaims beneficial ownership of the shares held by the Sierra Ventures
entities except to the extent of his pecuniary interest in these shares.
(2) Includes shares held by London Pacific Life & Annuity Company and London
Pacific Assurance Limited.
(3) Includes shares held by Frank Marshall Timark LP, of which Mr. Marshall is a
general partner.
(4) Includes shares held by family trusts, of which Mr. Quigley is a trustee.
The purchasers of the above shares of preferred stock are entitled to
registration rights. See "Description of Capital Stock -- Registration Rights."
In June 1999 we sold 800,000 shares of common stock to W. Michael West, our
chairman of the board, at a price of $0.60 per share, for an aggregate purchase
price of $480,000.
Frank J. Marshall, a director of ours, is a director of PMC-Sierra, Inc.,
which is one of our suppliers.
We believe that the foregoing transactions were in our best interests. Our
current policy is that we will enter into transactions with our officers,
directors, 5% stockholders and their affiliates only if these transactions are
approved by a majority of the disinterested independent directors, are on terms
no less favorable to us than could be obtained from unaffiliated parties and are
reasonably expected to benefit us.
For information concerning indemnification of directors and officers, see
"Description of Capital Stock -- Limitation of Liability and Indemnification
Matters."
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<PAGE> 55
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of March 31, 2000 about the
number of shares of common stock beneficially owned and the percentage of common
stock beneficially owned before and after the completion of this offering by:
- each named executive officer;
- each of our directors;
- each person known to us to be the beneficial owner of more than 5% of our
common stock; and
- all of our directors and executive officers as a group.
Unless otherwise noted below, the address of each beneficial owner listed
in the table is c/o VINA Technologies, Inc., 42709 Lawrence Place, Fremont,
California 94538.
We have determined beneficial ownership in accordance with the rules of the
Securities and Exchange Commission. Except as indicated by the footnotes below,
we believe, based on the information furnished to us, that the persons and
entities named in the tables below have sole voting and investment power with
respect to all shares of common stock that they beneficially own, subject to
applicable community property laws.
There were 27,861,752 shares of common stock outstanding on March 31, 2000
which assumes the conversion of all outstanding shares of preferred stock into
shares of common stock, and, for purposes of the table below, we have assumed
that 32,861,752 shares of common stock will be outstanding upon completion of
this offering. In computing the number of shares of common stock beneficially
owned by a person and the percentage ownership of that person, we deemed
outstanding shares of common stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of March 31, 2000. We
did not deem these shares outstanding, however, for the purpose of computing the
percentage ownership of any other person. Asterisks represent beneficial
ownership of less than one percent.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
BENEFICIALLY OWNED
NUMBER OF SHARES --------------------
OF COMMON STOCK PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Steven M. Bauman(1)..................................... 1,560,000 5.3% 4.5%
Joshua W. Soske(2)...................................... 2,284,200 7.9 6.8
Gaymond W. Schultz(3)................................... 1,895,500 6.7 5.7
Jeffrey M. Drazan(4).................................... 10,309,098 36.9 31.3
John F. Malone(5)....................................... 150,000 * *
Philip J. Quigley(6).................................... 286,563 1.0 *
Frank J. Marshall(7).................................... 102,194 * *
W. Michael West(8)...................................... 880,000 3.1 2.7
C. G. Waters(9)......................................... 243,833 * *
</TABLE>
52
<PAGE> 56
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
BENEFICIALLY OWNED
NUMBER OF SHARES --------------------
OF COMMON STOCK PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
5% STOCKHOLDERS:
Entities affiliated with London Pacific Assurance
Limited(10)........................................... 2,944,402 10.6% 9.0%
Minden House
6 Minden Place
St. Melier, Jersey
JE 24WQ, UK
Entities affiliated with Sierra Ventures V, L.P.(11).... 10,082,098 36.2 30.7
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
All Directors and Executive Officers as a group (15
persons)(12).......................................... 20,528,388 62.9 54.5
</TABLE>
---------------
* Less than 1%.
(1) Includes 1,560,000 shares subject to options exercisable within 60 days
after March 31, 2000.
(2) Includes 87,500 shares subject to our repurchase at cost as of March 31,
2000 and 884,200 shares subject to options exercisable within 60 days after
March 31, 2000.
(3) Includes 87,500 shares subject to our repurchase at cost as of March 31,
2000 and 495,500 shares subject to options exercisable within 60 days after
March 31, 2000.
(4) Includes 32,709 shares subject to our repurchase at cost as of March 31,
2000, 70,000 shares subject to options exercisable within 60 days after
March 31, 2000, 9,397,915 shares held by Sierra Ventures V, L.P., 654,080
shares held by Sierra Ventures VI, L.P. and 30,131 shares held by SV
Associates VI, as nominee for its General Partner, UA General Partner, UA
dated January 14, 1997. Jeffrey M. Drazan is a general partner of Sierra
Ventures entities and is a director of ours. Other than 40,927 shares
issued upon conversion of preferred stock owned through SV Associates VI,
he disclaims beneficial ownership of the shares held by Sierra Ventures
entities, except to the extent of his pecuniary interest in these shares.
(5) Includes 150,000 shares subject to options exercisable within 60 days of
March 31, 2000.
(6) Includes 70,000 shares subject to options exercisable within 60 days of
March 31, 2000, 41,667 shares subject to our repurchase at cost as of March
31, 2000, and 136,563 shares held by a family trust of which Mr. Quigley is
a trustee.
(7) Includes 28,334 shares subject to our repurchase at cost as of March 31,
2000.
(8) Includes 720,000 shares subject to our repurchase at cost as of March 31,
2000.
(9) Does not include options to purchase 26,041 shares, which expired in April
2000.
(10) Includes 714,286 shares held by London Pacific Life & Annuity Company and
2,230,116 shares held by London Pacific Assurance Limited.
(11) Includes 9,397,915 shares held by Sierra Ventures V, L.P., 654,080 shares
held by Sierra Ventures VI, L.P. and 30,103 shares held by SV Associates
VI, as nominee for its General Partner, UA General Partner, UA dated
January 14, 1997.
(12) Includes 4,784,700 shares subject to options exercisable within 60 days of
March 31, 2000 and 1,463,835 shares subject to our repurchase at cost as of
March 23, 2000.
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<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
The following description of our securities and provisions of our amended
and restated certificate of incorporation and bylaws is only a summary. You
should also refer to the copies of our restated certificate and bylaws which
have been filed with the Securities and Exchange Commission as exhibits to our
registration statement, of which this prospectus forms a part, and to the
provisions of Delaware law.
Upon the closing of this offering, our authorized capital stock, after
giving effect to the conversion of all outstanding preferred stock into common
stock, and the amendment of our certificate of incorporation, will consist of
125,000,000 shares of common stock, $0.0001 par value, and 5,000,000 shares of
preferred stock, $0.0001 par value.
COMMON STOCK
As of March 31, 2000 there were 27,861,752 shares of common stock
outstanding held by approximately 171 stockholders of record, assuming the
automatic conversion of each outstanding share of preferred stock upon the
closing of this offering.
The holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders, including
the election of directors, and do not have cumulative voting rights.
Accordingly, the holders of a majority of the shares of common stock entitled to
vote in any election of directors can elect all of the directors standing for
election, if they so choose. Subject to preferences that may be applicable to
any then outstanding preferred stock, holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." Upon
our liquidation, dissolution or winding up, the holders of common stock will be
entitled to share ratably in the net assets legally available for distribution
to stockholders after the payment of all of our debts and other liabilities,
subject to the prior rights of any preferred stock then outstanding. Holders of
common stock have no preemptive or conversion rights or other subscription
rights and there are no redemption or sinking funds provisions applicable to the
common stock. All outstanding shares of common stock are, and the common stock
to be outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred
stock will be converted into common stock. See Note 6 of notes to consolidated
financial statements for a description of the currently outstanding preferred
stock. Following the conversion, our certificate of incorporation will be
restated to delete all references to the prior series of preferred stock, and
5,000,000 shares of undesignated preferred stock will be authorized. The board
of directors has the authority, without further action by the stockholders, to
issue from time to time the preferred stock in one or more series and to fix the
number of shares, designations, preferences, powers, and relative,
participating, optional or other special rights and the qualifications or
restrictions thereof. The preferences, powers, rights and restrictions of
different series of preferred stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions, and purchase funds and other matters. The
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of common stock or affect adversely the
rights and powers, including voting rights, of the holders of common stock, and
may have the effect of delaying, deferring or preventing a change in control of
us.
REGISTRATION RIGHTS
After this offering, the holders of 17,694,657 shares of common stock
issued upon conversion of the preferred stock are entitled to rights with
respect to the registration of such shares under the Securities Act. If we
propose to register any of our securities under the Securities Act for our own
account, holders of common stock issuable upon conversion of the preferred stock
are entitled to notice of such registration and are entitled to include their
shares therein, provided, among other conditions, that the underwriters of
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<PAGE> 58
any such offering have the right to limit the number of shares included in such
registration. These holders have waived their rights to include their shares in
this offering. One hundred and eighty days after the effective date of the
Registration Statement of which this prospectus is a part, holders of at least
30% of the common stock issuable upon conversion of the preferred stock may
require us to prepare and file a registration statement under the Securities Act
at our expense covering the common stock issuable upon conversion of the
preferred stock provided that the shares to be included in such registration
have an anticipated aggregate public offering price of at least $10,000,000, and
we are required to use our best efforts to effect such registration, subject to
limitations. We are not obligated to effect more than two of these
stockholder-initiated registrations. Further, holders of common stock issuable
upon conversion of the preferred stock may require us to file additional
registration statements on Form S-3, subject to limitations.
DELAWARE ANTI-TAKEOVER LAW AND SELECTED CHARTER PROVISIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, or Delaware Law, an anti-takeover law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a business
combination with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes a merger, asset sale or other transaction
resulting in financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within three
years prior, did own) 15% or more of the corporation's voting stock.
Upon the closing of this offering, our directors will be divided into three
classes. The number of directors will be distributed among the three classes so
that each class will consist of one-third of the board of directors. The
classification of the board of directors will have the effect of requiring at
least two annual stockholder meetings, instead of one, to replace a majority of
the directors, which could have the effect of delaying or preventing a change in
control of our company. Our restated certificate will authorize only the board
of directors to fill vacancies, including newly created directorships. Our
restated certificate will also provide that directors may be removed by
stockholders only for cause and only by the affirmative vote of holders of
two-thirds of the outstanding shares of voting stock.
Upon the closing of this offering, our certificate of incorporation will
provide that our bylaws may be repealed or amended only by a two-thirds vote of
the board of directors or a two-thirds stockholder vote. Further, the
certificate of incorporation will require that all stockholder action be taken
at a stockholders' meeting. In addition, those provisions of the certificate of
incorporation may only be amended or repealed by the holders of at least
two-thirds of the voting power of all the then-outstanding shares of stock
entitled to vote generally for the election of directors voting together as a
single class. The provisions described above, together with the ability of the
board of directors to issue preferred stock as described above, may have the
effect of deterring a hostile takeover or delaying a change in our control or
management.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our certificate of incorporation that limit
the liability of our directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under the Delaware Law. The Delaware Law provides that directors of a company
will not be personally liable for monetary damages for breach of their fiduciary
duty as directors, except for liability
- for any breach of their duty of loyalty to us or our stockholders,
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- for unlawful payment of dividend or unlawful stock repurchase or
redemption, as provided Section 174 of the Delaware Law, or
- for any transaction from which the director derived an improper personal
benefit.
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<PAGE> 59
Any amendment or repeal of these provisions requires the approval of the
holders of shares representing at least 66 2/3% of our shares entitled to vote
in the election of directors, voting as one class.
Our certificate of incorporation and bylaws also provide that we will
indemnify our directors and officers to the fullest extent permitted by the
Delaware Law. We have entered into separate indemnification agreements with our
directors and executive officers that could require us, among other things, to
indemnify them against liabilities that may arise by reason of their status or
service as directors and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified. We believe that
the limitation of liability provision in our restated certificate of
incorporation and the indemnification agreements will facilitate our ability to
continue to attract and retain qualified individuals to serve as directors and
officers of us.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Co.
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<PAGE> 60
RESCISSION OFFER
REASONS FOR THE OFFER
The issuance of shares and options between January 1997 and January 1998
under our 1996 stock option plan may not have been exempt from qualification
under California state securities laws. If the issuances were not exempt, we may
have violated the qualification requirements of California state securities
laws. Although we were able to rely on the Rule 701 exemption under the federal
securities law, we may be unable to rely on the exemption provided by Section
25102(f) of the California Corporations Code because these options were granted,
and these shares were issued, to more than 35 persons during a 12-month period.
We may also be unable to rely on the exemption provided by Section 25102(o) of
the California Corporations Code because the required filing under that section
was not made.
TERMS OF THE OFFER
As a result, we intend to make a repurchase offer to the holders of these
shares and options before we commence this initial public offering. This offer
will be held open for 30 days after the date of the offer to repurchase. These
holders will be able to accept our repurchase offer before the expiration date
of the offer by returning to us shares and options to be repurchased and an
election notice that we will deliver to the holders of these shares and options.
If accepted, our repurchase offer could require us to make total payments to
those holders of up to approximately $350,000 plus statutory interest. Any funds
paid under the offer will come from our existing cash balances.
SHARES AND OPTIONS SUBJECT TO THE OFFER
The repurchase offer will cover 1,858,624 shares issued upon option
exercises and 772,940 shares subject to unexercised options. We will offer to
repurchase shares issued upon options exercised at the price per share paid for
them under the 1996 stock option plan, plus interest at a statutory rate from
the date of purchase by the purchaser to the expiration of the repurchase offer.
Also, we will offer to repurchase the prior option grants that have not been
exercised at a price of 20% of the exercise price per share. If these holders
reject the repurchase offer, we may continue to be liable under state securities
laws for up to a total amount of approximately $350,000 plus statutory interest
of 7% per year.
We are not aware of any repurchase claims against us.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common
stock, and no predictions can be made regarding the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. As described below, only a limited number of
shares will be available for sale shortly after this offering due to contractual
and legal restrictions on resale. Nevertheless, sales of our common stock in the
public market after the restrictions lapse, or the perception that such sales
may occur, could adversely affect the prevailing market price.
SALE OF RESTRICTED SHARES
Upon completion of this offering, we will have outstanding 32,861,752
shares of common stock. The 5,000,000 shares of common stock being sold hereby
will be freely tradable (other than by any of our "affiliates" as defined in
Rule 144(a) under the Securities Act) without restriction or registration under
the Securities Act. All remaining shares were issued and sold by us in private
transactions and are eligible for public sale if registered under the Securities
Act or sold in accordance with Rule 144 or Rule 701 thereunder.
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<PAGE> 61
LOCK-UP AGREEMENTS
Our directors, executive officers and certain stockholders, who
collectively hold an aggregate of shares of common stock, have agreed
that they will not sell any common stock owned by them without the prior written
consent of the representatives of the underwriters for a period of 180 days from
the date of this prospectus. Transfers or dispositions can be made sooner only
with the prior written consent of Lehman Brothers Inc. As a result of the
lock-up agreements described above and the provisions of Rules 144, 144(k) and
701, the restricted shares will be available for sale in the public market as
follows:
- no shares will be eligible for sale prior to 180 days after the date of
this prospectus;
- shares will be eligible for sale upon the expiration of the lock-up
agreements, described above, beginning 180 days after the date of this
prospectus; and
- shares will be eligible for sale upon the exercise of vested options 180
days after the date of this prospectus.
See "Underwriting."
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person deemed to be our affiliate, or a person
holding restricted shares who beneficially owns shares that were not acquired
from us or one of our affiliates within the previous one year, would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of:
- 1% of the then outstanding shares of common stock, approximately 328,617
shares immediately after this offering, assuming no exercise of the
underwriters' over-allotment option, or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the date on which notice of the sale is filed
with the SEC.
Sales under Rule 144 are subject to requirements relating to manner of
sale, notice and availability of current public information about us. However,
if a person (or persons whose shares are aggregated) is not deemed to have been
our affiliate at any time during the 90 days immediately preceding the sale, he
or she may sell his or her restricted shares under Rule 144(k) without regard to
the limitations described above, if at least two years have elapsed since the
later of the date the shares were acquired from us or from our affiliate.
shares will qualify as "Rule 144(k) shares" within 180 days after the
date of this prospectus. The foregoing is a summary of Rule 144 and is not
intended to be a complete description of it.
RULE 701
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees, directors, officers,
consultants or advisers prior to the closing of this offering, pursuant to
written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, the SEC has indicated that Rule 701
will apply to stock options granted by us before this offering, along with the
shares acquired upon exercise of such options. Securities issued in reliance on
Rule 701 are deemed to be restricted shares and, beginning 90 days after the
date of this prospectus unless subject to the contractual restrictions described
above, may be sold by persons other than affiliates subject only to the manner
of sale provisions of Rule 144 and by affiliates under Rule 144 without
compliance with the two-year minimum holding period requirements.
STOCK OPTIONS
We intend to file a registration statement under the Securities Act
covering approximately shares of common stock reserved for issuance
under our stock plans. Such registration statement is
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<PAGE> 62
expected to be filed soon after the date of this prospectus and will
automatically become effective upon filing. Accordingly, shares registered under
such registration statement will be available for sale in the open market,
unless such shares are subject to vesting restrictions with us or the
contractual restrictions described above.
REGISTRATION RIGHTS
In addition, after this offering, the holders of approximately 17,694,657
shares of common stock will be entitled to rights to cause us to register the
sale of such shares under the Securities Act. Registration of these shares under
the Securities Act would result in these shares, other than shares purchased by
our affiliates, becoming freely tradable without restriction under the
Securities Act immediately upon the effectiveness of such registration. See
"Description of Capital Stock -- Registration Rights."
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<PAGE> 63
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Thomas Weisel Partners LLC and U.S.
Bancorp Piper Jaffray Inc. are acting as representatives, have each agreed to
purchase from us the respective number of shares of common stock shown opposite
its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ----------
<S> <C>
Lehman Brothers Inc.........................................
Thomas Weisel Partners LLC..................................
U.S. Bancorp Piper Jaffray Inc..............................
----------
Total.................................................. 5,000,000
==========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement. It also provides that, if any of the
shares of common stock are purchased by the underwriters under the underwriting
agreement, then all of the shares of common stock that the underwriters have
agreed to purchase under the underwriting agreement must be purchased. The
conditions contained in the underwriting agreement include the requirement that:
- the representations and warranties made by us to the underwriters are
true;
- there is no material change in the financial markets; and
- we deliver customary closing documents to the underwriters.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus and to selected dealers, who may
include the underwriters, at this public offering price less a selling
concession not in excess of $ per share. The underwriters may allow, and the
selected dealers may reallow, a concession not in excess of $ per share to
brokers and dealers. After the offering, the underwriters may change the
offering price and other selling terms.
We have granted to the underwriters an option to purchase up to an
aggregate of 750,000 additional shares of common stock, exercisable to cover
over-allotments, if any, at the public offering price less the underwriting
discount shown on the cover page of this prospectus. The underwriters may
exercise this option at any time until 30 days after the date of the
underwriting agreement. If this option is exercised, each underwriter will be
committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment, as indicated in the table
above and we will be obligated, under the over-allotment option, to sell the
shares of common stock to the underwriters.
The following table shows the per share and total underwriting discounts to
be paid to the underwriters by us. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares.
<TABLE>
<CAPTION>
PAID BY VINA NO EXERCISE FULL EXERCISE
------------ ----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total.......................................................
</TABLE>
We have agreed that, without the prior consent of Lehman Brothers Inc., we
will not, directly or indirectly, offer, sell or otherwise dispose of any shares
of common stock or any securities that may be converted into or exchanged for
any shares of common stock for a period of 180 days from the date of this
prospectus, except that we may, without their consent, grant options and sell
shares under our incentive and purchase plans, although the shares may not be
resold in the public market during the lock-up period. All of our executive
officers, directors and substantially all of our stockholders holding all of the
shares of
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<PAGE> 64
our capital stock, including all of the holders of the preferred stock, have
agreed under lock-up agreements that, without prior written consent, they will
not, directly or indirectly, offer, sell or otherwise dispose of any shares of
common stock or any securities that may be converted into or exchanged for any
shares of common stock for the period ending 180 days after the date of this
prospectus. Lehman Brothers Inc. may, in its sole discretion, waive the
restrictions of the lock-up agreements at an earlier time without prior notice
or announcement and allow one or more stockholders to sell all or any portion of
their shares. See "Shares Eligible for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will primarily consider, among other things
and in addition to prevailing market conditions:
- our historical performance and capital structure;
- estimates of our business potential and earning prospects;
- an overall assessment of our management; and
- the consideration of the above factors in relation to market valuations
of companies in related businesses.
Application will be made to have our common stock approved for quotation on
the Nasdaq National Market under the symbol "VINA."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.
We estimate that the total expenses of the offering, excluding the
underwriting discount, will be approximately $1.5 million.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that, if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members that sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it was to discourage resales of the securities by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In
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addition, neither we nor any of the underwriters makes any representation that
the representatives will engage in these transactions or that these
transactions, once commenced, will not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
page of this prospectus.
The underwriters have informed us that they do not intend to confirm the
sales of shares of common stock offered by this prospectus to any accounts over
which they exercise discretionary authority in excess of 5% of the shares
offered by them.
At our request, the underwriters have reserved up to 400,000 shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees and their family members and to our business associates at the initial
public offering price set forth on the cover page of this prospectus. These
persons must commit to purchase no later than the close of business on the day
following the date of this prospectus. The number of shares available for sale
to the general public will be reduced to the extent these persons purchase the
reserved shares.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker/dealer in December 1998. Since December
1998, Thomas Weisel Partners has acted as a lead or co-manager on numerous
public offerings of equity securities.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter of this offering and will be
facilitating electronic distribution through the Internet.
LEGAL MATTERS
Selected legal matters with respect to the validity of the common stock
offered by this prospectus will be passed upon for us by Pillsbury Madison &
Sutro LLP, San Francisco, California. Gibson, Dunn & Crutcher LLP, San
Francisco, California has and will act as counsel to the underwriters.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1999 and
for each of the three years in the period ended December 31, 1999 included in
this prospectus and the related consolidated financial statement schedule
included elsewhere in the registration statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the registration statement, and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933 with respect to the common stock
offered by this prospectus. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules to the registration statement. Please refer to the registration
statement, exhibits and schedules for further information with respect to VINA
and the common stock offered by this prospectus. Statements contained in this
prospectus regarding the contents of any contract or other document are not
necessarily complete. With respect to any contract or document filed as an
exhibit to the registration statement, you should refer to the exhibit for a
copy of the contract or document, and each statement in this prospectus
regarding that contract or document is qualified by reference to the exhibit. A
copy of the registration statement and its exhibits and schedules may be
inspected without charge at the SEC's public reference room, located at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further
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<PAGE> 66
information on the public reference room. Our SEC filings are also available to
the public from the SEC's website at www.sec.gov.
Upon completion of this offering, we will be subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended, and
we will file reports, proxy statements and other information with the SEC.
We intend to furnish our stockholders with annual reports containing
financial statements audited by independent certified public accountants and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.
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VINA TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999
and March 31, 2000 (Unaudited)............................ F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999 and for the Three Months
Ended March 31, 1999 (Unaudited) and 2000 (Unaudited)..... F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1998 and 1999 and for the
Three Months Ended March 31, 2000 (Unaudited)............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999 and for the Three Months
Ended March 31, 1999 (Unaudited) and 2000 (Unaudited)..... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 68
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
VINA Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of VINA
Technologies, Inc. and its subsidiary as of December 31, 1998 and 1999, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of VINA Technologies, Inc. and its
subsidiary as of December 31, 1998 and 1999, and the results of their operations
and their cash flows for the each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
San Jose, California
March 17, 2000
F-2
<PAGE> 69
VINA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, (NOTE 1)
------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
-------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 7,355 $ 2,568 $ 8,915
Short-term investments.............................. 4,004 -- 12,642
Accounts receivable, net of allowances of $109, $221
and $236 in 1998, 1999 and 2000, respectively.... 1,617 2,469 3,212
Inventories......................................... 8 96 90
Prepaid expenses and other.......................... 326 166 305
-------- -------- --------
Total current assets........................... 13,310 5,299 25,164
Property and equipment, net........................... 1,058 1,356 1,684
Other assets.......................................... 88 18 118
-------- -------- --------
Total assets................................... $ 14,456 $ 6,673 $ 26,966
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 864 $ 3,521 $ 3,303
Accrued compensation and related benefits........... 450 891 923
Accrued warranty.................................... 152 449 483
Other current liabilities........................... 436 410 492
Current portion of long-term debt................... 350 520 520
-------- -------- --------
Total current liabilities...................... 2,252 5,791 5,721
-------- -------- --------
Long-term debt........................................ 655 534 404
-------- -------- --------
Commitments (Note 5)
Shareholders' equity:
Convertible preferred stock; shares authorized: 1998
and 1999, 15,000,000; 2000, 18,500,000; none
issued and outstanding on a pro forma basis;
aggregate liquidation preference of $24,993 in
1999:
Series A; $0.10 par value; 7,500,000 shares
designated and outstanding..................... 744 744 744 $ --
Series B; $2.50 par value; 3,000,000 shares
designated and outstanding..................... 7,488 7,488 7,488 --
Series C; $4.00 par value; 3,200,000 shares
designated; 3,000,000 shares outstanding....... 11,345 11,345 11,345 --
Series D; $6.00 par value; 1,200,000 shares
designated; shares outstanding: 1998, 779,771;
1999 and 2000, 790,517......................... 4,657 4,722 4,722 --
Series E; $7.00 par value; 3,600,000 shares
designated; 3,404,140 shares outstanding in
2000........................................... -- -- 23,821 --
Common stock; no par value; 35,000,000 shares
authorized; shares outstanding: 1998, 6,681,918;
1999, 8,746,081; 2000: actual, 10,167,095; pro
forma, 27,861,752................................ 837 19,784 37,697 85,817
Subscription receivable............................. (25) -- -- --
Deferred stock compensation......................... (361) (13,523) (26,959) (26,959)
Accumulated deficit................................. (13,136) (30,212) (38,017) (38,017)
-------- -------- -------- --------
Total shareholders' equity..................... 11,549 348 20,841 20,841
-------- -------- -------- --------
Total liabilities and shareholders' equity..... $ 14,456 $ 6,673 $ 26,966 $ 26,966
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 70
VINA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- -----------------
1997 1998 1999 1999 2000
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue................................. $ 579 $ 4,393 $ 12,700 $ 2,903 $ 5,187
Cost of revenue
(excluding amortization of deferred stock
compensation)............................. 542 2,054 7,713 1,486 3,239
------- ------- -------- ------- -------
Gross profit
(excluding amortization of deferred stock
compensation)............................. 37 2,339 4,987 1,417 1,948
------- ------- -------- ------- -------
Costs and expenses:
Research and development
(excluding amortization of deferred
stock compensation).................... 1,906 4,174 6,690 1,280 2,505
Selling, general and administrative
(excluding amortization of deferred
stock compensation).................... 2,532 6,414 10,881 2,077 3,721
Amortization of deferred stock
compensation*.......................... 79 154 4,715 117 3,653
------- ------- -------- ------- -------
Total costs and expenses.......... 4,517 10,742 22,286 3,474 9,879
------- ------- -------- ------- -------
Loss from operations........................ (4,480) (8,403) (17,299) (2,057) (7,931)
Interest income............................. 205 493 355 121 155
Interest expense............................ (40) (80) (132) (30) (29)
------- ------- -------- ------- -------
Net loss.................................... $(4,315) $(7,990) $(17,076) $(1,966) $(7,805)
======= ======= ======== ======= =======
Net loss per share, basic and diluted....... $ (4.83) $ (2.63) $ (3.30) $ (0.46) $ (1.12)
======= ======= ======== ======= =======
Shares used in computation, basic and
diluted................................... 894 3,038 5,169 4,270 6,958
======= ======= ======== ======= =======
Pro forma net loss per share, basic and
diluted (Unaudited) (Note 1).............. $ (0.88) $ (0.34)
======== =======
Shares used in pro forma computation, basic
and diluted (Unaudited) (Note 1).......... 19,457 23,278
======== =======
---------------
* Amortization of deferred stock
compensation:
Cost of revenue........................... $ -- $ 2 $ 152 $ 8 $ 154
Research and development.................. 36 78 1,098 58 1,160
Selling, general and administrative....... 43 74 3,465 51 2,339
------- ------- -------- ------- -------
$ 79 $ 154 $ 4,715 $ 117 $ 3,653
======= ======= ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 71
VINA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK DEFERRED
-------------------- -------------------- SUBSCRIPTION STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT RECEIVABLE COMPENSATION DEFICIT
---------- ------- ---------- ------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997..... 9,500,000 $ 5,732 5,883,200 $ 16 $ -- $ -- $ (831)
Exercise of stock options..... -- -- 417,000 52 -- -- --
Repurchase of common
stock........................ -- -- (126,750) -- -- -- --
Sale of Series B convertible
preferred stock.............. 1,000,000 2,500 -- -- -- -- --
Deferred stock compensation... -- -- -- 200 -- (200) --
Amortization of deferred stock
compensation................. -- -- -- -- -- 79 --
Net loss and comprehensive
loss......................... -- -- -- -- -- -- (4,315)
---------- ------- ---------- ------- ---- -------- --------
Balances, December 31, 1997... 10,500,000 8,232 6,173,450 268 -- (121) (5,146)
Exercise of stock options..... -- -- 608,468 187 -- -- --
Repurchase of common stock.... -- -- (100,000) (12) -- -- --
Sale of Series C convertible
preferred stock (net of
issuance costs of $655)...... 3,000,000 11,345 -- -- -- -- --
Sale of Series D convertible
preferred stock (net of
issuance costs of $21)....... 779,771 4,657 -- -- -- -- --
Subscription receivable....... -- -- -- -- (25) -- --
Deferred stock compensation... -- -- -- 394 -- (394) --
Amortization of deferred stock
compensation................. -- -- -- -- -- 154 --
Net loss and comprehensive
loss......................... -- -- -- -- -- -- (7,990)
---------- ------- ---------- ------- ---- -------- --------
Balances, December 31, 1998... 14,279,771 24,234 6,681,918 837 (25) (361) (13,136)
Exercise of stock options..... -- -- 1,608,497 608 -- -- --
Repurchase of common stock.... -- -- (344,334) (18) -- -- --
Sale of common stock.......... -- -- 800,000 480 -- -- --
Sale of Series D convertible
preferred stock.............. 10,746 65 -- -- -- -- --
Receipt of subscription
receivable................... -- -- -- -- 25 -- --
Deferred stock compensation... -- -- -- 17,877 -- (17,877) --
Amortization of deferred stock
compensation................. -- -- -- -- -- 4,715 --
Net loss and comprehensive
loss......................... -- -- -- -- -- -- (17,076)
---------- ------- ---------- ------- ---- -------- --------
Balances, December 31, 1999... 14,290,517 24,299 8,746,081 19,784 -- (13,523) (30,212)
Exercise of stock options*.... -- -- 1,584,766 894 -- -- --
Repurchase of common stock*... -- -- (163,752) (70) -- -- --
Sale of Series E convertible
preferred stock (net of
issuance costs of $8)*....... 3,404,140 23,821 -- -- -- -- --
Deferred stock
compensation*................ -- -- -- 17,089 -- (17,089) --
Amortization of deferred stock
compensation*................ -- -- -- -- -- 3,653 --
Net loss and comprehensive
loss*........................ -- -- -- -- -- -- (7,805)
---------- ------- ---------- ------- ---- -------- --------
Balances, March 31, 2000*..... 17,694,657 $48,120 10,167,095 $37,697 $ -- $(26,959) $(38,017)
========== ======= ========== ======= ==== ======== ========
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Balances, January 1, 1997..... $ 4,917
Exercise of stock options..... 52
Repurchase of common
stock........................ --
Sale of Series B convertible
preferred stock.............. 2,500
Deferred stock compensation... --
Amortization of deferred stock
compensation................. 79
Net loss and comprehensive
loss......................... (4,315)
--------
Balances, December 31, 1997... 3,233
Exercise of stock options..... 187
Repurchase of common stock.... (12)
Sale of Series C convertible
preferred stock (net of
issuance costs of $655)...... 11,345
Sale of Series D convertible
preferred stock (net of
issuance costs of $21)....... 4,657
Subscription receivable....... (25)
Deferred stock compensation... --
Amortization of deferred stock
compensation................. 154
Net loss and comprehensive
loss......................... (7,990)
--------
Balances, December 31, 1998... 11,549
Exercise of stock options..... 608
Repurchase of common stock.... (18)
Sale of common stock.......... 480
Sale of Series D convertible
preferred stock.............. 65
Receipt of subscription
receivable................... 25
Deferred stock compensation... --
Amortization of deferred stock
compensation................. 4,715
Net loss and comprehensive
loss......................... (17,076)
--------
Balances, December 31, 1999... 348
Exercise of stock options*.... 894
Repurchase of common stock*... (70)
Sale of Series E convertible
preferred stock (net of
issuance costs of $8)*....... 23,821
Deferred stock
compensation*................ --
Amortization of deferred stock
compensation*................ 3,653
Net loss and comprehensive
loss*........................ (7,805)
--------
Balances, March 31, 2000*..... $ 20,841
========
</TABLE>
---------------
* Unaudited
See notes to consolidated financial statements.
F-5
<PAGE> 72
VINA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------- -----------------
1997 1998 1999 1999 2000
------- ----------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(4,315) $(7,990) $(17,076) $(1,966) $(7,805)
Reconciliation of net loss to net cash used in operating
activities:
Depreciation and amortization........................... 151 299 640 125 204
Amortization of deferred stock compensation............. 79 154 4,715 117 3,653
Changes in operating assets and liabilities:
Accounts receivable................................... (25) (1,592) (852) 406 (743)
Inventories........................................... (83) 126 (88) (3) 6
Prepaid expenses and other............................ (75) (243) 160 176 (139)
Other assets.......................................... (40) (42) 70 -- (100)
Accounts payable...................................... 286 458 2,657 60 (218)
Accrued compensation and related benefits............. 133 303 441 82 32
Accrued warranty...................................... 18 135 297 165 34
Other current liabilities............................. 73 313 (26) (293) 82
------- ------- -------- ------- -------
Net cash used in operating activities............... (3,798) (8,079) (9,062) (1,131) (4,994)
------- ------- -------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (645) (666) (938) (178) (532)
Purchases of short-term investments....................... -- (6,004) (3,994) (4,997) (12,642)
Proceeds from sales and maturities of short-term
investments............................................. -- 2,000 7,998 3,000 --
------- ------- -------- ------- -------
Net cash provided by (used in) investing
activities........................................ (645) (4,670) 3,066 (2,175) (13,174)
------- ------- -------- ------- -------
Cash flows from financing activities:
Net proceeds from sale of convertible preferred stock..... 2,500 15,977 90 25 23,821
Proceeds from sale of common stock........................ -- -- 480 -- --
Proceeds from exercise of stock options................... 52 187 608 56 894
Repurchase of common stock................................ -- (12) (18) -- (70)
Proceeds from issuance of long-term debt.................. 467 666 464 298 --
Repayments of long-term debt.............................. (82) (257) (415) (98) (130)
------- ------- -------- ------- -------
Net cash provided by financing activities........... 2,937 16,561 1,209 281 24,515
------- ------- -------- ------- -------
Net change in cash and cash equivalents..................... (1,506) 3,812 (4,787) (3,025) 6,347
Cash and cash equivalents, beginning of period.............. 5,049 3,543 7,355 7,355 2,568
------- ------- -------- ------- -------
Cash and cash equivalents, end of period.................... $ 3,543 $ 7,355 $ 2,568 $ 4,330 $ 8,915
======= ======= ======== ======= =======
Supplemental cash flow information:
Cash paid for interest.................................... $ 35 $ 78 $ 103 $ 23 $ 24
======= ======= ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 73
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND 2000 (UNAUDITED)
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business -- VINA Technologies, Inc. (the Company), incorporated in June
1996, designs, develops, markets and sells multiservice broadband access
communications equipment that enables communications service providers to
deliver bundled voice and data services. The Company has incurred significant
losses since inception and expects that net losses and negative cash flows from
operations will continue for the forseeable future.
Basis of Presentation -- The consolidated financial statements include the
accounts of VINA Technologies, Inc. and its wholly-owned subsidiary in the
United Kingdom. All significant intercompany accounts and transactions have been
eliminated in consolidation.
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 revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications -- Certain prior year amounts in the accompanying
consolidated financial statements have been reclassified to conform to current
year presentation. These reclassifications had no effect on the consolidated
financial position, results of operations or cash flows for any of the periods
presented.
Certain Significant Risks and Uncertainties -- Financial instruments which
potentially subject the Company to concentrations of credit risk consist
primarily of cash equivalents, short-term investments and accounts receivable.
The Company only invests its cash in highly liquid and high investment grade
instruments. The Company sells its products to distributors and end users
primarily in the United States and generally does not require its customers to
provide collateral or other security to support accounts receivable. To reduce
credit risk, management performs ongoing credit evaluations of its customers'
financial condition and maintains allowances for estimated potential bad debt
losses.
The Company participates in a dynamic high technology industry and believes
that changes in any of the following areas could have a material adverse effect
on the Company's future financial position, results of operations or cash flows:
advances and trends in new technologies and industry standards; competitive
pressures in the form of new products or price reductions on current products;
changes in the overall demand for products offered by the Company; changes in
certain strategic relationships or customer relationships; litigation or claims
against the Company based on intellectual property, patent, product, regulatory
or other factors; risk associated with changes in domestic and international
economic and/or political conditions or regulations; availability of necessary
product components; and the Company's ability to attract and retain employees
necessary to support its growth.
Certain components and subassemblies used in the Company's products are
purchased from a sole supplier or a limited group of suppliers. In addition, the
Company outsources the production and manufacture of its access integration
devices to a sole turnkey manufacturer. Any manufacturing disruption, shortage
of supply of products or components, or the inability of the Company to procure
products or components from alternative sources on acceptable terms could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Cash Equivalents -- The Company classifies all highly liquid debt
instruments with maturities at the date of purchase of three months or less as
cash equivalents.
Short-Term Investments -- Short-term investments consist of various
instruments with investment grade credit ratings. All of the Company's
short-term investments are classified as "available-for-sale"
F-7
<PAGE> 74
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND 2000 (UNAUDITED)
based on the Company's intended use and are stated at amortized cost (specific
identification basis), which approximates fair value.
At December 31, 1998, short-term investments consist of certificates of
deposit of $1,001,000, corporate debt obligations of $2,002,000 and U.S.
government obligations of $1,001,000. Available-for-sale securities are
classified as current assets as all maturities are within one year. At March 31,
2000, short-term investments consist of investments in commercial paper with
maturities within one year.
Fair Value of Financial Instruments -- The Company's financial instruments
include cash equivalents, short-term investments and long-term debt. Cash
equivalents and short-term investments are stated at cost which approximates
fair market value based on quoted market prices. The recorded carrying amount of
the Company's long-term debt approximates fair value since such debt instruments
bear interest at approximately market rates.
Inventories -- Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Property and Equipment -- Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over estimated useful lives of three to five years.
Amortization of leasehold improvements is computed over the shorter of the lease
term or the estimated useful lives of the related assets.
Long-Lived Assets -- The Company evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. An impairment loss would be recognized when the
sum of the undiscounted future net cash flows expected to result from the use of
the asset and its eventual disposition is less than its carrying amount.
Income Taxes -- The Company accounts for income taxes under an asset and
liability approach. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
operating loss and tax credit carryforwards measured by applying currently
enacted tax laws. A valuation allowance is provided to reduce net deferred tax
assets to an amount that is more likely than not to be realized.
Stock-Based Compensation -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees," and to nonemployees using the fair value method in accordance with
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation."
Revenue Recognition -- Revenues are recognized when persuasive evidence of
an arrangement exists, delivery has occurred or services have been rendered, the
price is fixed and determinable and collectibility is reasonably assured. For
sales to both distributors and end users, this generally occurs at the time of
shipment. Revenues from software upgrades sold to existing customers are also
recognized upon shipment. For certain sales to distributors with collection
dependent on resale, revenue recognition occurs upon resale to end users. A
provision for estimated sales returns and warranty costs is recorded at the time
the product revenue is recognized.
The Company applies Statement of Position (SOP) 97-2, "Software Revenue
Recognition," as amended, which requires, among other things, revenue earned on
software arrangements involving multiple elements to be allocated to each
element based on the relative fair values of the elements.
F-8
<PAGE> 75
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND 2000 (UNAUDITED)
Research and Development -- Costs incurred in research and development are
charged to operations as incurred.
Foreign Currency -- The functional currency of the Company's foreign
subsidiary is the U.S. dollar. Transaction and remeasurement gains and losses
were not significant for any of the periods presented.
Net Loss per Share -- Basic earnings per share (EPS) excludes dilution and
is computed by dividing net income (loss) attributable to common shareholders by
the weighted average number of common shares outstanding for the period
excluding the weighted average common shares subject to repurchase. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock (convertible preferred stock and common stock
options using the treasury stock method) were exercised or converted into common
stock. Potential common shares in the diluted EPS computation are excluded in
net loss periods as their effect would be antidilutive.
Unaudited Pro Forma Net Loss per Share -- Pro forma net loss per share,
basic and diluted, is computed by dividing net loss attributable to common
shareholders by the weighted average number of common shares outstanding for the
period and the weighted average number of shares outstanding for the period
resulting from the assumed conversion of convertible preferred stock.
Comprehensive Loss -- In accordance with SFAS No. 130, "Reporting
Comprehensive Income," the Company reports by major components and as a single
total, the change in its net assets during the period from nonowner sources.
Comprehensive loss for the years ended December 31, 1997, 1998 and 1999 and for
the three months ended March 31, 1999 and 2000 was the same as net loss.
Unaudited Pro Forma Information -- The unaudited pro forma information in
the accompanying consolidated balance sheet assumes that the conversion of the
outstanding shares of convertible preferred stock into 17,694,657 shares of
common stock resulting from the completion of an initial public offering had
actually occurred on March 31, 2000. Common shares issued resulting from such an
initial public offering and its related estimated net proceeds are excluded from
such pro forma information.
Unaudited Interim Financial Information -- The interim financial
information as of March 31, 2000 and for the three months ended March 31, 1999
and 2000 is unaudited and has been prepared on the same basis as the audited
consolidated financial statements. In the opinion of management, such unaudited
information includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the interim information.
Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.
New Accounting Standard -- In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement requires companies to record derivatives on the
balance sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. SFAS No. 133, as amended, will be effective for the Company
beginning in 2001. Although the Company has not fully assessed the implications
of SFAS No. 133, management does not believe adoption of this statement will
have a material impact on the Company's financial position, results of
operations or cash flows.
F-9
<PAGE> 76
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND 2000 (UNAUDITED)
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------ MARCH 31,
1998 1999 2000
---- ---- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials and subassemblies............................. $-- $48 $48
Finished goods.............................................. 8 48 42
--- --- ---
Inventories................................................. $ 8 $96 $90
=== === ===
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1999
------ -------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment and software............................. $ 585 $ 915
Machinery and equipment..................................... 792 1,227
Furniture and fixtures...................................... 90 180
Leasehold improvements...................................... 58 115
------ -------
1,525 2,437
Accumulated depreciation and amortization................... (467) (1,081)
------ -------
Property and equipment, net................................. $1,058 $ 1,356
====== =======
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Capital expenditure term loan due April 1999................ $ 41 $ --
Capital expenditure term loan due June 2001................. 669 401
1998 capital expenditure facility........................... 295 653
------ ------
Total debt.................................................. 1,005 1,054
Current portion of long-term debt........................... (350) (520)
------ ------
Long-term debt.............................................. $ 655 $ 534
====== ======
</TABLE>
Borrowings under the capital expenditure term loans were utilized to
finance purchases of capital equipment. The outstanding balance on the term loan
due in April 1999 was paid in its entirety during 1999. The 36-month term loan
due in June 2001 is to be repaid in equal monthly principal installments of
$22,000 plus accrued interest at prime (8.5% at December 31, 1999) plus 1%. The
outstanding borrowings under this term loan are secured by substantially all
assets of the Company.
Under the 1998 capital expenditure facility, borrowings are to be repaid in
36 equal monthly principal installments of $21,000 plus accrued interest at
prime plus 0.75%. Outstanding borrowings under this term loan are secured by
substantially all assets of the Company. No additional borrowings are available
under this facility.
F-10
<PAGE> 77
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND 2000 (UNAUDITED)
In 1999, the Company entered into another capital expenditure facility.
Under the arrangement, the Company can borrow up to $1,000,000 on a
non-revolving line of credit to finance purchases of capital equipment. The
borrowing period extends through September 17, 2000. During the borrowing
period, no principal amounts are due and interest at prime plus 1% is payable
monthly. At the end of the borrowing period, any outstanding balances will
automatically be converted into a 36-month term loan payable in equal monthly
principal installments plus interest at prime plus 1%. Outstanding borrowings
under this facility would be secured by substantially all assets of the Company.
As of December 31, 1999, no borrowings have been made under this facility.
Outstanding borrowings under all of the Company's debt arrangements are
subject to certain financial covenant requirements which include a minimum
tangible net worth, maximum debt to tangible net worth ratio, minimum quick
ratio and minimum cash balance to debt service coverage ratio. The Company
received a waiver of all compliance requirements from its lender as of December
31, 1999 and through March 31, 2000. Accordingly, at December 31, 1999, the
outstanding borrowings were classified as current or long-term in the
accompanying consolidated balance sheet based on their scheduled maturity dates.
Future annual maturities of debt obligations outstanding at December 31,
1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 520
2001........................................................ 387
2002........................................................ 147
------
Total debt........................................ $1,054
======
</TABLE>
5. COMMITMENTS
The Company leases its primary facilities under a noncancelable operating
lease which expires in July 2000. Rent expense was $130,000, $298,000 and
$302,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
Future annual minimum lease payments are $133,000 for 2000.
6. SHAREHOLDERS' EQUITY
Convertible Preferred Stock
In 1997, the Company issued 1,000,000 shares of Series B convertible
preferred stock at $2.50 per share resulting in proceeds of $2,500,000.
In 1998, the Company issued 3,000,000 shares of Series C convertible
preferred stock at $4.00 per share resulting in net proceeds of $11,345,000 and
775,604 shares of Series D convertible preferred stock at $6.00 per share
resulting in net proceeds of $4,632,000. The Company issued an additional 4,167
shares of Series D convertible preferred stock at $6.00 per share, for which the
proceeds were not payable until 1999, and accordingly, the Company established a
$25,000 subscription receivable at December 31, 1998.
In 1999, the Company issued an additional 10,746 shares of Series D
convertible preferred stock at $6.00 per share resulting in proceeds of $65,000.
From January 2000 through March 6, 2000, the Company issued 3,404,140
shares of Series E convertible preferred stock at $7.00 per share resulting in
net proceeds of $23,821,000.
F-11
<PAGE> 78
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND 2000 (UNAUDITED)
Significant terms of the convertible preferred stock are as follows:
- Annual noncumulative cash dividends of $0.008, $0.20, $0.32, $0.48 and
$0.56 per share of Series A, Series B, Series C, Series D and Series E,
respectively, must be paid prior to any dividend on the common stock, if
and when declared by the Board of Directors.
- In the event of any liquidation, dissolution or winding up of the
Company, the holders of Series A, Series B, Series C, Series D and Series
E shall receive, prior to any distributions to holders of common stock,
$0.10, $2.50, $4.00, $6.00 and $7.00 per share for Series A, Series B,
Series C, Series D and Series E, respectively, plus any declared but
unpaid dividends.
- Each share of convertible preferred stock is convertible into one share
of common stock, subject to adjustments for events of dilution, at the
option of the holder any time after the date of issuance. In addition,
each share of convertible preferred stock will automatically be converted
into common stock either (i) upon the completion of a public offering of
common stock with aggregate proceeds greater than $7,500,000 and at a
price per share not less than $7.00 per share or (ii) at such time as the
holders of more than 50% of all of the convertible preferred stock,
voting as a single class, consent to the conversion of all shares.
- Each share has the right to vote equal to the number of shares of common
stock into which it is convertible.
Common Stock
Common stock issued under certain stock purchase agreements and stock
option plan exercises is subject to repurchase by the Company. The number of
shares subject to repurchase is generally reduced over a four-year vesting
period. At December 31, 1998 and 1999 and March 31, 2000, 2,724,157, 2,320,548
and 2,822,994 shares were subject to repurchase, respectively.
Net Loss Per Share
The following is a calculation of the denominators used for the basic and
diluted net loss per share computations:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ ---------------
1997 1998 1999 1999 2000
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Weighted average common shares outstanding.... 6,067 6,417 7,728 6,905 9,583
Weighted average common shares outstanding
subject to repurchase....................... (5,173) (3,379) (2,559) (2,635) (2,625)
------ ------ ------ ------ ------
Shares used in computation, basic and
diluted.................................. 894 3,038 5,169 4,270 6,958
====== ====== ====== ====== ======
</TABLE>
During all periods presented, the Company had securities outstanding which
could potentially dilute basic EPS in the future, but were excluded in the
computation of diluted EPS in such periods, as their effect would have been
antidilutive due to the net loss reported in such periods. Such outstanding
securities consist of the following at: December 31, 1997, 10,500,000 shares of
convertible preferred stock, 4,039,638 shares of common stock subject to
repurchase and options to purchase 2,101,400 shares of common stock; December
31, 1998, 14,279,771 shares of convertible preferred stock, 2,724,157 shares of
common stock subject to repurchase and options to purchase 5,191,511 shares of
common stock; December 31, 1999, 14,290,517 shares of convertible preferred
stock, 2,320,548 shares of common stock
F-12
<PAGE> 79
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND 2000 (UNAUDITED)
subject to repurchase and options to purchase 7,540,482 shares of common stock;
March 31, 1999, 14,279,771 shares of convertible preferred stock, 2,466,594
shares of common stock subject to repurchase and options to purchase 4,963,531
shares of common stock; March 31, 2000, 17,694,657 shares of convertible
preferred stock, 2,822,994 shares of common stock subject to repurchase and
options to purchase 8,481,471 shares of common stock.
Stock Plans
Under the Company's stock plans adopted in 1996 and 1998, the Company may
grant options to purchase or directly issue up to 14,116,800 shares of common
stock to employees, directors and consultants at prices not less than the fair
market value (as determined by the Board of Directors) at the date of grant for
incentive stock options and not less than 85% of fair market value at the date
of grant for nonstatutory stock options. These options generally expire ten
years from the date of grant and are immediately exercisable. The Company has a
right to repurchase (at the option exercise price) common stock issued under
option exercises for unvested shares. The right of repurchase generally expires
25% after the first 12 months from the date of grant and then ratably over a
36-month period.
The Board of Directors in their determination of fair market value on the
date of grant takes into consideration many factors including, but not limited
to, the Company's financial performance, current economic trends, actions by
competitors, market maturity, emerging technologies, near-term backlog and, in
certain circumstances, valuation analyses performed by independent appraisers.
These valuation analyses utilize generally accepted valuation methodologies such
as the income and market approaches to valuing the Company's business.
F-13
<PAGE> 80
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND 2000 (UNAUDITED)
Stock option activity under the stock plans is summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE FOR NUMBER OF EXERCISE
GRANT SHARES PRICE
------------- ---------- --------
<S> <C> <C> <C>
Balances, January 1, 1997.......................... -- -- $ --
Reserved........................................... 4,616,800 -- --
Granted (weighted average fair value of $0.11 per
share)........................................... (2,614,900) 2,614,900 0.18
Canceled........................................... 96,500 (96,500) 0.13
Exercised.......................................... -- (417,000) 0.13
---------- ----------
Balances at December 31, 1997 (1,584 shares vested
at a weighted average exercise price of $0.13 per
share)........................................... 2,098,400 2,101,400 0.19
Reserved........................................... 3,000,000 -- --
Granted (weighted average fair value of $0.17 per
share)........................................... (3,989,579) 3,989,579 0.41
Canceled........................................... 291,000 (291,000) 0.33
Repurchased........................................ 100,000 -- --
Exercised.......................................... -- (608,468) 0.31
---------- ----------
Balances at December 31, 1998 (666,807 shares
vested at a weighted average exercise price of
$0.19 per share)................................. 1,499,821 5,191,511 0.34
Reserved........................................... 3,000,000 -- --
Granted (weighted average fair value of $3.58 per
share)........................................... (4,411,500) 4,411,500 0.88
Canceled........................................... 454,032 (454,032) 0.42
Repurchased........................................ 71,625 -- --
Exercised.......................................... -- (1,608,497) 0.38
---------- ----------
Balances at December 31, 1999...................... 613,978 7,540,482 0.64
Reserved........................................... 3,500,000 -- --
Granted............................................ (2,830,760) 2,830,760 1.19
Canceled........................................... 305,005 (305,005) 0.38
Repurchased........................................ 99,585 -- --
Exercised.......................................... -- (1,584,766) 0.56
---------- ----------
Balances, March 31, 2000........................... 1,687,808 8,481,471 $0.84
========== ==========
</TABLE>
Additional information regarding options outstanding at December 31, 1999
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING VESTED OPTIONS
------------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE VESTED PRICE
--------------- ----------- ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.13 491,400 7.4 $0.13 268,417 $0.13
$0.25 1,276,250 8.1 0.25 379,042 0.25
$0.40 971,091 8.5 0.40 277,230 0.40
$0.60 1,854,791 9.2 0.60 229,719 0.60
$1.00 2,946,950 9.7 1.00 9,000 1.00
--------- ---------
$0.13 - $1.00 7,540,482 9.0 $0.64 1,163,408 $0.33
========= =========
</TABLE>
F-14
<PAGE> 81
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND 2000 (UNAUDITED)
Deferred Stock Compensation
As discussed in Note 1, the Company accounts for its stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25.
Accordingly, the Company records deferred stock compensation equal to the
difference between the grant price and deemed fair value of the Company's common
stock on the date of grant. Such deferred stock compensation expense aggregated
$200,000, $394,000, $15,114,000 and $17,089,000 in 1997, 1998, 1999 and the
three months ended March 31, 2000, respectively, and is being amortized to
expense over the vesting period of the options, generally four years, using a
multiple option award valuation approach, which results in accelerated
amortization of the expense.
In 1999, the Company issued 800,000 shares of common stock to a director at
$0.60 per share resulting in proceeds of $480,000. The Company has a right of
repurchase on such shares at the original issuance price upon termination of
employment. The right of repurchase expires over four years with certain
predefined events triggering accelerated vesting. The Company recorded
$2,664,000 of deferred stock compensation equal to the difference between the
purchase price and deemed fair value of the Company's common stock on the date
of issuance. Such deferred stock compensation is amortized to expense over the
vesting period using a multiple award option valuation approach.
During 1998, the Company issued nonstatutory options to nonemployees for
the purchase of 104,958 shares of common stock at a weighted average exercise
price of $0.40 per share. The fair value of such awards was not significant, and
such shares are fully vested as of December 31, 1999.
During 1999, the Company issued nonstatutory options to nonemployees for
the purchase of 23,000 shares of common stock at a weighted average exercise
price of $0.84 per share. Such options were issued for services provided by the
nonemployees and were immediately vested and exercisable. Accordingly, the
Company recorded the $99,000 fair value of such awards (using the Black-Scholes
option pricing model) as deferred stock compensation which was expensed on the
date of grant.
Additional Stock Plan Information
Since the Company continues to account for its stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25, SFAS
No. 123 requires the disclosure of pro forma net income (loss) had the Company
adopted the fair value method. Under SFAS No. 123, the fair value of stock-based
awards is calculated through the use of option pricing models, even though such
models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. The Company's calculations were made
using the minimum value pricing model which requires subjective assumptions,
including expected time to exercise, which greatly affects the calculated
values. The following weighted average assumptions were used in the model for
1997, 1998 and 1999: expected life, 3.2 years for 1997, 3.4 years for 1998, 3.1
years for 1999; risk free interest rate, 7% for 1997 and 6% for 1998 and 1999;
and no dividends during the expected term. The Company's calculations are based
on a multiple option award valuation and amortization approach, which results in
accelerated amortization of the expense. Forfeitures are recognized as they
occur. If the computed fair values of the employee awards had been amortized to
expense over the vesting period of the awards, the Company's pro forma net loss
would have been $4,328,000 ($4.84 per share, basic and diluted) in 1997,
$8,083,000 ($2.66 per share, basic and diluted) in 1998 and $17,365,000 ($3.36
per share, basic and diluted) in 1999.
F-15
<PAGE> 82
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND 2000 (UNAUDITED)
Rescission Offer
The issuance of common shares and common stock options granted under the
1996 stock plan may have violated California securities laws because these
issuances and grants may not have been exempt from qualification under those
securities laws. In order to eliminate any potential liability, the Company
intends to make a rescission offer to repurchase 2,632,000 outstanding common
shares and common stock options for an aggregate of approximately $350,000. The
rescission offer will be held open for 30 days and will include statutory
interest of 7% per year.
7. INCOME TAXES
No income taxes were provided for any of the periods presented due to the
Company's significant net loss position.
The components of net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accruals and reserves not currently deductible............ $ 243 $ 478
Net operating loss carryforwards.......................... 4,864 9,103
Tax credit carryforwards.................................. 488 1,138
------- --------
5,595 10,719
Valuation allowance......................................... (5,595) (10,719)
------- --------
Total net deferred tax assets............................... $ -- $ --
======= ========
</TABLE>
The net $5,124,000 increase in the valuation allowance in 1999 was
primarily the result of increased net operating losses and tax credit
carryforwards generated during the year which the Company provided a full
valuation against based on the Company's evaluation of the likelihood of
realization of future tax benefits resulting from deferred tax assets.
As of December 31, 1999, the Company had available for carryforward net
operating losses for federal and state income tax purposes of $23,992,000 and
$16,219,000, respectively. Federal net operating loss carryforwards will expire,
if not utilized, in 2011 through 2019. State net operating loss carryforwards
will expire, if not utilized, in 2003 through 2005.
As of December 31, 1999, the Company had available for carryforward
research and experimentation tax credits for federal and state income tax
purposes of $581,000 and $434,000, respectively. Federal research and
experimentation tax credit carryforwards expire in 2011 through 2019. The
Company also had $123,000 in California manufacturers investment credits.
Current federal and California tax laws include substantial restrictions on
the utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. Accordingly, the Company's ability to
utilize net operating loss and tax credit carryforwards may be limited as a
result of such ownership change. Such a limitation could result in the
expiration of carryforwards before they are utilized.
F-16
<PAGE> 83
VINA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 AND
THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED) AND 2000 (UNAUDITED)
8. CUSTOMER CONCENTRATIONS
The following table summarizes net revenues and accounts receivable for
customers which accounted for 10% or more of net revenues or accounts
receivable:
<TABLE>
<CAPTION>
NET REVENUES
ACCOUNTS RECEIVABLE ---------------------------------------------
------------------------- THREE MONTHS
DECEMBER 31, YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------ MARCH 31, ------------------------- ----------------
CUSTOMER 1998 1999 2000 1997 1998 1999 1999 2000
-------- ---- ---- --------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A.................... 39% -- -- 61% 57% -- 32% --
B.................... 34% 43% 26% -- 17% 46% 43% 28%
C.................... -- -- -- 33% -- -- -- --
D.................... -- 33% 14% -- -- -- -- 12%
E.................... -- 12% -- -- -- -- -- --
F.................... -- -- 14% -- -- -- -- 12%
G.................... -- -- 13% -- -- -- -- 15%
H.................... -- -- 20% -- -- -- -- 15%
I.................... -- -- -- -- -- -- 12% --
</TABLE>
9. EMPLOYEE BENEFIT PLAN
During 1997 and 1998, the Company sponsored a simple individual retirement
account plan (SEP IRA) and made discretionary contributions of $12,000 and
$39,000, respectively. The SEP IRA plan was replaced, effective January 1, 1999,
with a 401(k) tax deferred savings plan (401(k) plan) to provide for retirement
of employees meeting certain eligibility requirements. Employee contributions
are limited to 20% of their annual compensation subject to IRS annual
limitations. The Company may make contributions at the discretion of the Board
of Directors. There were no discretionary employer contributions to the 401(k)
plan in 1999.
10. SEGMENT INFORMATION
As defined by the requirements of SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information," the Company operates in one
reportable segment: the design, development, marketing and sale of multiservice
broadband access communications equipment. International sales were
insignificant for all periods presented.
F-17
<PAGE> 84
[Edgar description of inside front cover artwork: In the upper left part of the
page is the VINA logo and the words "Architects of Multiservice Broadband Access
Solutions." The background on the top part of the page shows a blueprint and a
telephone.]
[Edgar description of gatefold artwork: Across the top and left side of the
artwork is the phrase "Architects of Broadband Access Solutions," below which is
a diagram. On the left side of the diagram are the words "VINA DELVERS,"
"VOICE," "INTERNET," "DATA" and "VIDEO," each followed by a textual description.
To the right of these words is a column of pictures of a telephone, video
recorder, personal computer and PBX. To the right of these pictures is a single
line connected to a column of four pictures of VINA's products (Multiservice
Xchange, T1 Integrator, HDSL Integrator and DSL eLink). To the right of these
pictures is a single line connected to a building labeled "Local Telephone
Service Provider." To the right of the building is a line connected to a cloud
labeled "Public Network," and a second line connected to a cloud labeled
"Internet."
Across the top and right side of the artwork is the phrase "Multiservice
Broadband Access Communications Equipment," below which are pictures of the
Multiservice Xchange, T1 Integrator, HDSL Integrator and DSL eLink. Beside each
picture is the name and a textual description of the product.]
<PAGE> 85
LOGO
5,000,000 Shares
'VINA LOGO'
VINA TECHNOLOGIES, INC.
Common Stock
----------------------------
PROSPECTUS
, 2000
----------------------------
LEHMAN BROTHERS
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY
<PAGE> 86
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee, the National Association of Securities Dealers, Inc. filing fee and the
Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $21,252
National Association of Securities Dealers, Inc. filing
fee....................................................... 8,550
Nasdaq National Market listing fee.......................... 95,000
Blue Sky fees and expenses.................................. *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and engraving expenses............................. *
Registrar and Transfer Agent's fees......................... *
Miscellaneous fees and expenses............................. *
-------
Total.................................................. $ *
=======
</TABLE>
---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant's Restated
Certificate of Incorporation and Registrant's Bylaws provide for indemnification
of the Registrant's directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General Corporation
Law. The Registrant has also entered into agreements with our directors and
officers that will require the Registrant, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors or officers to the fullest extent not prohibited by law.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrant, our directors and officers, and by the Registrant of the
Underwriters, for certain liabilities, including liabilities arising under the
Act, and affords certain rights of contribution with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) On various dates between January 1997 and March 2000, the Registrant
issued 4,218,731 shares of its common stock to 92 employees and directors
pursuant to the exercise of options granted under its 1996 and 1998 Stock Plans.
The exercise prices per share ranged from $0.125 to $1.00, for an aggregate
consideration of $1,741,728.
(b) In March and May 1998, the Registrant issued and sold 3,000,000 shares
of Series C preferred stock to a total of 20 investors. The per share price was
$4.00, for an aggregate consideration of $12,000,000.
(c) In October 1998 and April 1999, the Registrant issued and sold 790,517
shares of Series D preferred stock to a total of 24 investors. The per share
price was $6.00, for an aggregate consideration of $4,743,102.
II-1
<PAGE> 87
(d) In January, February and March 2000, the Registrant issued and sold
3,404,140 shares of Series E preferred stock to a total of 34 investors. The per
share price was $7.00, for an aggregate consideration of $23,828,980.
(e) On June 1, 1999, the Registrant issued 800,000 shares of its common
stock to W. Michael West at a per share price of $.60, for an aggregate
consideration of $480,000.
The sales of the above securities were considered to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving a public offering or transactions under compensatory benefit plans and
contracts relating to compensation as provided under Rule 701. The recipients of
securities in each of these transactions represented their intention to acquire
the securities for investment only and not with a view to or for sale with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in these transactions. All recipients had
adequate access, through their relationship with the Registrant, to information
about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
-------- -------
<S> <C>
1.1* Form of Underwriting Agreement.
3(i).1 Fourth Amended and Restated Articles of Incorporation of
Vina Technologies, Inc., a California corporation
3(i).2 Form of Restated Certificate of Incorporation of the
Registrant filed prior to the effective date of this
Registration Statement.
3(i).3 Form of Restated Certificate of Incorporation of Registrant
to be filed upon the closing of the offering to which this
Registration Statement relates.
3(ii).1 Bylaws of Vina Technologies, Inc., a California corporation
3(ii).2 Bylaws of the Registrant
3(ii).3 Form of Amended and Restated By-laws of the Registrant to be
effective upon the closing of the offering to which this
Registration Statement relates.
4.1* Specimen Common Stock Certificate.
4.2 Fourth Amended and Restated Investors' Rights Agreement
dated as of January 31, 2000.
5.1* Opinion of Pillsbury Madison & Sutro LLP.
10.1 1996 Stock Plan and form of agreements thereunder.
10.1.2 Amended and Restated 1998 Stock Plan and form of agreements
thereunder.
10.1.3* 2000 Stock Plan and form of agreement thereunder.
10.1.4* 2000 Employee Stock Purchase Plan and form of agreements
thereunder.
10.2+ General Agreement for the Procurement of Products and
Service and the Licensing of Software dated April 28, 1999
between the Registrant and Lucent Technologies, Inc.
10.3*+ OEM Purchase Agreement dated February 27, 1998 between the
Registrant and PainGain Technologies, Inc.
10.4 Standard NNN Lease dated March 24, 1997 between the
Registrant and Limar Realty Corp.
10.5* Standard NNN Tenant Improvements Lease Agreement dated April
26, 2000 between the Registrant and GAL-LPC Stevenson
Boulevard, L.P.
10.6 Form of Indemnification Agreement between the Registrant and
its officers and directors.
23.1 Consent of Deloitte & Touche LLP.
</TABLE>
II-2
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
-------- -------
<S> <C>
23.2* Consent of Pillsbury Madison & Sutro LLP (included in
Exhibit 5.1).
24.1** Power of Attorney.
27.1** Financial Data Schedules.
</TABLE>
---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested as to certain portions of this exhibit from
the SEC. The omitted portions have been filed separately with the SEC.
(b) Financial Statement Schedules
The following consolidated financial statement schedule is filed as part of
this registration statement and should be read in conjunction with the
consolidated financial statements:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II -- Valuation & Qualifying Accounts S-2
</TABLE>
Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the consolidated financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "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 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 its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) It will provide to the underwriters at the closing(s) 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.
II-3
<PAGE> 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fremont,
State of California, on the 22nd day of June, 2000.
VINA TECHNOLOGIES, INC.
By /s/ STEVEN M. BAUMAN
------------------------------------
STEVEN M. BAUMAN
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ STEVEN M. BAUMAN President and Chief Executive June 22, 2000
--------------------------------------------------- Officer (Principal Executive
Steven M. Bauman Officer) and Director
* (Principal Financial and Accounting June 22, 2000
--------------------------------------------------- Officer)
Stanley E. Kazmierczak
* Director June 22, 2000
---------------------------------------------------
Jeffrey M. Drazan
* Director June 22, 2000
---------------------------------------------------
John F. Malone
* Director June 22, 2000
---------------------------------------------------
Frank J. Marshall
* Director June 22, 2000
---------------------------------------------------
Philip J. Quigley
* Director June 22, 2000
---------------------------------------------------
Joshua W. Soske
* Director June 22, 2000
---------------------------------------------------
W. Michael West
*By: /s/ STEVEN M. BAUMAN
---------------------------------------------------
Steven M. Bauman
Attorney in Fact
</TABLE>
II-4
<PAGE> 90
VINA TECHNOLOGIES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
DEDUCTIONS-
BALANCE AT CHARGED TO WRITE-OFFS
BEGINNING COSTS AND OF BALANCE AT
OF PERIOD EXPENSES ACCOUNTS END OF PERIOD
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and sales
returns:
Year ended
December 31, 1999.......................... $109 $131 $ 19 $221
December 31, 1998.......................... -- 109 -- 109
December 31, 1997.......................... -- -- -- 0
Accrued warranty:
Year ended
December 31, 1999.......................... $152 $410 $113 $449
December 31, 1998.......................... 18 185 51 152
December 31, 1997.......................... -- 42 24 18
</TABLE>
II-5
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
-------- -------
<S> <C>
1.1* Form of Underwriting Agreement.
3(i).1 Fourth Amended and Restated Articles of Incorporation of
Vina Technologies, Inc., a California corporation
3(i).2 Form of Restated Certificate of Incorporation of the
Registrant filed prior to the effective date of this
Registration Statement.
3(i).3 Form of Restated Certificate of Incorporation of Registrant
to be filed upon the closing of the offering to which this
Registration Statement relates.
3(ii).1 Bylaws of Vina Technologies, Inc., a California corporation
3(ii).2 Bylaws of the Registrant
3(ii).3 Form of Amended and Restated By-laws of the Registrant to be
effective upon the closing of the offering to which this
Registration Statement relates.
4.1* Specimen Common Stock Certificate.
4.2 Fourth Amended and Restated Investors' Rights Agreement
dated as of January 31, 2000.
5.1* Opinion of Pillsbury Madison & Sutro LLP.
10.1 1996 Stock Plan and form of agreements thereunder.
10.1.2 Amended and Restated 1998 Stock Plan and form of agreements
thereunder.
10.1.3* 2000 Stock Plan and form of agreement thereunder.
10.1.4* 2000 Employee Stock Purchase Plan and form of agreements
thereunder.
10.2+ General Agreement for the Procurement of Products and
Service and the Licensing of Software dated April 28, 1999
between the Registrant and Lucent Technologies, Inc.
10.3*+ OEM Purchase Agreement dated February 27, 1998 between the
Registrant and PainGain Technologies, Inc.
10.4 Standard NNN Lease dated March 24, 1997 between the
Registrant and Limar Realty Corp.
10.5* Standard NNN Tenant Improvements Lease Agreement dated April
26, 2000 between the Registrant and GAL-LPC Stevenson
Boulevard, L.P.
10.6 Form of Indemnification Agreement between the Registrant and
its officers and directors.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Pillsbury Madison & Sutro LLP (included in
Exhibit 5.1).
24.1** Power of Attorney.
27.1** Financial Data Schedules.
</TABLE>
---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested as to certain portions of this exhibit from
the SEC. The omitted portions have been filed separately with the SEC.
